UNITED
      FUEL & ENERGY CORPORATION

     

    NEITHER
      THIS WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
      BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY
      APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED OR TRANSFERRED
      IN
      THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER
      THE
      ACT OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.

     

    


    
      	
              Warrant

            	 	
              Date:

            
	
              _________
                Shares

            	 	
              ________,
                200_

            
	 	 	 


    

     

    
      	
              UNITED
                FUEL & ENERGY CORPORATION

            
	 	 	 
	
              WARRANT

            


    

    


    UNITED
      FUEL & ENERGY CORPORATION, a Nevada corporation (“Company”), for value
      received hereby grants this warrant (“Warrant”) to [Purchaser], or registered
      assigns (the “Holder”). The Warrant entitles the Holder to purchase from Company
      at any time prior to the Expiration Date (as defined below) up to [ ] shares
      of
      common stock of Company (“Common Stock”). The exercise price for the Warrant
      shall be $____ per share of Common Stock (the “Exercise Price”). This Warrant
      shall be issued in connection with the Securities Purchase Agreement entered
      into by Holder and Company as of this date.

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    1.  Expiration
      Date; Exercise

     

    1.1  Exerciseability.
      The
      Warrant granted hereunder shall be fully exercisable as of the date
      hereof.

     

    1.2  Expiration
      Date.
      The
      Warrant shall expire on the fifth (5) anniversary of the date of this Warrant
      set forth on the first page. After the Expiration Date, the Warrant shall expire
      and be of no further force or effect.

     

    1.3  Callable
      Warrant.
      If
      during any consecutive 20 trading day period (after the effectiveness of the
      registration statement if applicable), the Common Stock of Company closes at
      the
      prices set forth in the following table (“Trading Price”), the Warrant shall be
      callable upon 10 days written notice at $0.01 per share, in the following
      amounts:

     

    
      	
              Number
                of Warrants callable

            	
              Trading
                Price

            
	
              1⁄2
                of Warrants

            	
              $____

            
	
              1⁄2
                of Warrants 

            	
              $____

            


    

    


     

    If
      Company has called the applicable Warrants, then Holder shall exercise such
      Warrants at $____ per share. If Holder does not exercise such Warrants when
      called within 10 days of receiving notice, then such Warrants shall immediately
      expire after such 10 day period.

     

    2.  Adjustments
      of Exercise Price and Number and Kind of Conversion Shares

     

    2.1  In
      the
      event that Company shall at any time hereafter (a) pay a dividend in Common
      Stock or securities convertible into Common Stock; (b) subdivide or split its
      outstanding Common Stock; (c) combine its outstanding Common Stock into a
      smaller number of shares; (d) spin-off to its shareholders a subsidiary or
      operating-business unit; then the number of shares to be issued immediately
      after the occurrence of any such event shall be adjusted so that the Holder
      thereafter may receive the number of shares of Common Stock or the equivalent
      value it would have owned immediately following such action if it had exercised
      the Warrant immediately prior to such action and the Exercise Price shall be
      adjusted to reflect such proportionate increases or decreases in the number
      of
      shares.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    2.2  In
      case
      of any reclassification of the outstanding shares of Common Stock (other than
      a
      change covered by Section 2.1 hereof or a change which solely affects the par
      value of such shares) or in the case of any merger or consolidation or merger
      in
      which Company is not the continuing corporation and which results in any
      reclassification or capital reorganization of the outstanding shares), the
      holder shall have the right thereafter (until the Expiration Date) to receive
      upon the exercise hereof, for the same aggregate Exercise Price payable
      hereunder immediately prior to such event, the kind and amount of shares of
      stock or other securities or property receivable upon such reclassification,
      capital reorganization, merger or consolidation, by a holder of the number
      of
      shares of Common Stock obtainable upon the exercise of the Warrant immediately
      prior to such event; and if any reclassification also results in a change in
      shares covered by Section 2.1, then such adjustment shall be made pursuant
      to
      both this Section 2.2 and Section 2.1. The provisions of this Section 2.2
      shall similarly apply to successive reclassifications, capital reorganizations
      and mergers or consolidations, sales or other transfers.

     

    3.  Transfer.
      Subject
      to
      compliance with applicable securities laws, the Warrant is transferable in
      person, or by duly authorized attorney, upon surrender of this Warrant properly
      endorsed and upon payment of any necessary transfer tax or other governmental
      charge imposed upon such transfer. If less than all of the Warrant is
      transferred, Company will, upon transfer, execute and deliver to the Holder
      a
      new certificate for the portion of the Warrant not so transferred.

     

    4.  Reservation
      of Shares. Company shall at all times reserve and keep available out of its
      authorized but unissued shares of Common Stock, such number of shares of Common
      Stock as shall from time to time be issuable upon exercise of the Warrant.
      If at
      any time the number of authorized but unissued shares of Common Stock shall
      not
      be sufficient to permit the exercise of the Warrant, Company shall promptly
      seek
      such corporate action as may necessary to increase its authorized but unissued
      shares of Common Stock to such number of shares as shall be sufficient for
      such
      purpose.

     

    5.  Certificate
      as to Adjustments. In each case of any adjustment in the Exercise Price, or
      number or type of shares issuable upon exercise of the Warrant, Company shall
      compute such adjustment in accordance with the terms of the Warrant and prepare
      a certificate setting forth such adjustment and showing in detail the facts
      upon
      which such adjustment is based, including a statement of the adjusted Exercise
      Price. Company shall promptly send (by facsimile and by either first class
      mail,
      postage prepaid or overnight delivery) a copy of each such certificate to the
      Holder.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    6.  Loss
      or
      Mutilation. Upon receipt of evidence reasonably satisfactory to Company of
      the
      ownership of and the loss, theft, destruction or mutilation of this Warrant,
      and
      of indemnity reasonably satisfactory to it, and (in the case of mutilation)
      upon
      surrender and cancellation of the Warrant, Company will execute and deliver
      in
      lieu thereof a new Warrant of like tenor as the lost, stolen, destroyed or
      mutilated Warrant.

     

    7.  Representations
      and Warranties of Company. Company hereby represents and warrants to Holder
      that:

     

    7.1  Due
      Authorization.
      All
      corporate action on the part of Company, its officers, directors and
      shareholders necessary for (a) the authorization, execution and delivery of,
      and
      the performance of all obligations of Company under this Warrant, and (b) the
      authorization, issuance, reservation for issuance and delivery of all of the
      Common Stock issuable upon exercise of this Warrant, has been duly taken. This
      Warrant constitute a valid and binding obligation of Company enforceable in
      accordance with their terms, subject, as to enforcement of remedies, to
      applicable bankruptcy, insolvency, moratorium, reorganization and similar laws
      affecting creditors’ rights generally and to general equitable
      principles.

     

    7.2  Organization.
      Company
      is a corporation duly organized, validly existing and in good standing under
      the
      laws of the Nevada and has all requisite corporate power to grant this
      Warrant.

     

    7.3  Valid
      Issuance of Stock.
      Any
      shares of Common Stock issued upon exercise of this Warrant will be duly and
      validly issued, fully paid and non-assessable.

     

    7.4  Governmental
      Consents.
      All
      consents, approvals, orders, authorizations or registrations, qualifications,
      declarations or filings with any federal or state governmental authority on
      the
      part of Company required in connection with the consummation of the transactions
      contemplated herein have been obtained.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    8.  Notices
      of Record Date. In
      case,
      Company shall take a record of the holders of its Common Stock (or other stock
      or securities at the time receivable upon the exercise of this Warrant), for
      the
      purpose:

     

    8.1  of
      entitling them to receive any dividend or other distribution, or any right
      to
      subscribe for or purchase any shares of stock of any class or any other
      securities or to receive any other right; or

     

    8.2  of
      any
      consolidation or merger of Company with or into another corporation, any capital
      reorganization of Company, any reclassification of the capital stock of Company,
      or any conveyance of all or substantially all of the assets of Company to
      another corporation in which holders of Company stock are to receive stock,
      securities or property of another corporation; or

     

    8.3  of
      any
      voluntary dissolution, liquidation or winding-up of Company; or

     

    8.4  of
      any
      redemption or conversion of all outstanding Common Stock; then, and in each
      such
      case, Company will mail or cause to be mailed to the Holder a copy of the notice
      with respect to the foregoing received by it from Company specifying, as the
      case may be, (a) the date on which a record is to be taken for the purpose
      of
      such dividend, distribution or right, or (b) the date on which such
      reorganization, reclassification, consolidation, merger, conveyance,
      dissolution, liquidation, winding-up, redemption or conversion is to take place,
      and the time, if any is to be fixed, as of which the holders of record of Common
      Stock or (such stock or securities as at the time are receivable upon the
      exercise of this Warrant), shall be entitled to exchange their shares of Common
      Stock (or such other stock or securities), for securities or other property
      deliverable upon such reorganization, reclassification, consolidation, merger,
      conveyance, dissolution, liquidation or winding-up. Company shall use all
      reasonable efforts to ensure such notice shall be delivered at least 15 days
      prior to the date therein specified.

     

    9.  Severability.
      If any
      term, provision, covenant or restriction of the Warrant is held by a court
      of
      competent jurisdiction to be invalid, void or unenforceable, the remainder
      of
      the terms, provisions, covenants and restrictions of the Warrant shall remain
      in
      full force and effect and shall in no way be affected, impaired or invalidated
      to the same extent as if Company is owner of the underlying Common
      Stock.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    10.  Notices.
      All notices, requests, consents and other communications required hereunder
      shall be in writing and by first class mail or by registered or certified mail,
      postage prepaid, return receipt requested, and (other than in connection with
      the exercise of the Warrant) shall be deemed to have been duly made when
      received or, if sent registered or certified mail, postage prepaid, return
      receipt requested, on the third day following deposit in the mails: if addressed
      to the Holder, to the address set forth on the Securities Purchase Agreement
      between the Holder and Company; and if addressed to Company, Attention,
      President, 405 North Marienfeld, Suite 300, Midland, Texas 79701 or such other
      address as it may designate in writing.

     

    11.  No
      Rights
      as Shareholder. The Holder shall have no rights as a shareholder of Company
      with
      respect to the shares issuable upon exercise of the Warrant until the actual
      exercise hereunder.

     

    UNITED
      FUEL & ENERGY CORPORATION

    


     

    By:
      __________________________________

    Charles
      K. McArthur, President and Chief Executive Officer

     

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     


    EXHIBIT
      “A”

     

    NOTICE
      OF
      EXERCISE

     

    (To
      be signed only upon exercise of the Warrant)

     

    To: UNITED
      FUEL & ENERGY CORPORATION.

     

    The
      undersigned hereby elects to purchase shares of Common Stock (the “Warrant
      Shares”) of UNITED FUEL & ENERGY CORPORATION. (“Company”), pursuant to the
      terms of the enclosed Warrant (the “Warrant”). The undersigned tenders herewith
      payment of the exercise price pursuant to the terms of the Warrant.


     

    The
      undersigned hereby represents and warrants to, and agrees with Company as
      follows: 

     

    1. Holder
      is
      acquiring the Warrant Shares for its own account, for investment purposes
      only.

     

    2. Holder
      understands that an investment in the Warrant Shares involves a high degree
      of
      risk, and Holder has the financial ability to bear the economic risk of this
      investment in the Warrant Shares, including a complete loss of such investment.
      Holder has adequate means for providing for its current financial needs and
      has
      no need for liquidity with respect to this investment.

     

    3. Holder
      has such knowledge and experience in financial and business matters that it
      is
      capable of evaluating the merits and risks of an investment in the Warrant
      Shares and in protecting its own interest in connection with this
      transaction.

     

    4. Holder
      understands that the Warrant Shares have not been registered under the
      Securities Act or under any state securities laws. Holder is familiar with
      the
      provisions of the Securities Act and Rule 144 thereunder and understands that
      the restrictions on transfer on the Warrant Shares may result in Holder being
      required to hold the Warrant Shares for an indefinite period of
      time.

     

    5. Holder
      agrees not to sell, transfer, assign, gift, create a security interest in,
      or
      otherwise dispose of, with or without consideration (collectively, “Transfer”)
      any of the Warrant Shares except pursuant to an effective registration statement
      under the Securities Act or an exemption from registration. As a further
      condition to any such Transfer, except in the event that such Transfer is made
      pursuant to an effective registration statement under the Securities Act, if
      in
      the reasonable opinion of counsel to Company any Transfer of the Warrant Shares
      by the contemplated transferee thereof would not be exempt from the registration
      and prospectus delivery requirements of the Securities Act, Company may require
      the contemplated transferee to furnish Company with an investment letter setting
      forth such information and agreements as may be reasonable requested by Company
      to ensure compliance by such transferee with the Securities Act.

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    Until
      the
      effectiveness of the registration statement each certificate evidencing the
      Warrant Shares will bear the following legend:

     

    “THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933 (THE “ACT”) OR ANY APPLICABLE STATE SECURITIES LAWS AND
      MAY NOT BE EXERCISED, SOLD, PLEDGED OR TRANSFERRED IN THE ABSENCE OF AN
      EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR UNLESS
      AN
      EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.

     

    


     

    
      	
              Number
                of Warrant Exercised: ________

            	 
	
              Dated:

            	 
	 	
              [Name]

            


    

    


    
      
         

      

      
        8