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EXHIBIT 10.1




The Incentive Stock Option Agreement

Pursuant to the

United Fuel & Energy Corporation

2005 Equity Incentive Plan




	 	 	 
	Optionee:

	 	Joseph Juliano
	 
	 	 
	Date of Grant:

	 	November 12, 2008
	 
	 	 
	Number of Option Shares:

	 	150,000 shares
	 
	 	 
	Exercise Price:

	 	$0.80 per Option Share
	 
	 	 
	Expiration Date:

	 	November 11, 2018






     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



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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 Option, if a
Non-Statutory Option may be transferred by will, by the laws



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of descent and distribution, and to the extent and in the manner authorized by the
Committee, to members of the Optionee’s Immediate Family. The terms of the Option shall be
binding upon the executors, administrators, heirs and successors of the Optionee. “Immediate
Family” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law and shall also include adoptive relationships.



     7. Adjustment in Option Shares. Should any change be made to the Company’s common stock by
reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding common stock as a class without the Company’s
receipt of consideration, appropriate adjustments shall be made to (i) the total number and/or
class of securities subject to this Option and (ii) the Exercise Price in order to reflect such
change and thereby preclude a dilution or enlargement of benefits hereunder.



     8. Shareholder Rights. The holder of this Option shall not have any shareholder rights with
respect to the Option Shares until such person shall have exercised the Option, paid the Exercise
Price and become a holder of record of the Option Shares.



     9. Manner of Exercising Option.



          (a) In order to exercise this Option with respect to all or any part of the Option Shares for
which this Option is at the time exercisable, the Optionee (or any other person or persons
exercising the Option) must take the following actions:




               (i) Execute and deliver to the Company a written notice setting forth the number of Option
Shares for which the Option is exercised.



               (ii) Pay the aggregate Exercise Price for the purchased shares in cash or in one or more of
the following forms:



                    (A) by cancellation of indebtedness of the Company to the Optionee;



                    (B) if approved by the Committee, by surrender of shares that either: (1) have been owned by
the Optionee for more than six (6) months and have been paid for within the meaning of SEC Rule 144
(and, if such shares were purchased from the Company by use of a promissory note, such note has
been fully paid with respect to such shares); or (2) were obtained by the Optionee in the public
market; or



                    (C) with respect only to purchases upon exercise of an Option, and provided that a public
market for the Company’s stock exists:



                         i. through a “same day sale” commitment from the Optionee and a broker-dealer that is a member
of the Financial Industry Regulatory Authority (FINRA Dealer) whereby the Optionee irrevocably
elects to exercise the Option and to sell a portion of the Option Shares so purchased to pay for
the Exercise Price, and whereby the FINRA Dealer irrevocably commits upon receipt of such Shares to
forward the Exercise Price directly to the Company; or



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                         ii. through a “margin” commitment from the Optionee and a FINRA Dealer whereby the Optionee
irrevocably elects to exercise the Option and to pledge the Option Shares so purchased to the FINRA
Dealer in a margin account as security for a loan from the FINRA Dealer in the amount of the
Exercise Price, and whereby the FINRA Dealer irrevocably commits upon receipt of such Shares to
forward the Exercise Price directly to the Company; or



                    (D) by any combination of the foregoing.



               (iii) Payment of the Exercise Price must accompany the written notice delivered to the Company
in connection with the Option exercise.



               (iv) Furnish to the Company appropriate documentation that the person or persons exercising
the Option (if other than Optionee) have the right to exercise this Option.



               (v) Execute and deliver to the Company such written representations as may be requested by the
Company in order for it to comply with the applicable requirements of federal and state securities
laws.



               (vi) Make appropriate arrangements with the Company for the satisfaction of all federal, state
and local income and employment tax withholding requirements applicable to the Option exercise.



          (b) As soon as practical after the Exercise Date, the Company shall issue to or on behalf of
the Optionee (or any other person or persons exercising this Option) a certificate for the
purchased Option Shares, with the appropriate legends affixed thereto.




          (c) In no event may this Option be exercised for any fractional shares.




     10. Corporate Transactions.




     (a) Termination of Option Agreement to Extent Not Assumed in Corporate Transaction.
Effective upon the consummation of a Corporate Transaction, this Option shall terminate
subject to the provisions of this Section 10. Notwithstanding the foregoing, this
Option shall not terminate to the extent that it is Assumed in connection with the Corporate
Transaction. “Assumed” means that pursuant to a Corporate Transaction either (i) this Option
Agreement is expressly affirmed by the Company or (ii) the contractual obligations
represented by this Option Agreement are expressly assumed (and not simply by operation of
law) by the successor entity or its Parent in connection with the Corporate Transaction with
appropriate adjustments to the number and type of securities of the successor entity or its
Parent subject to this Option Agreement and the exercise or purchase price thereof which at
least preserves the compensation element of this Option Agreement existing at the time of
the Corporate Transaction as determined in accordance with the instruments evidencing the
agreement to assume this Option Agreement. “Corporate Transaction” shall mean:




     (i) a dissolution or liquidation of the Company;




     (ii) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned



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subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the stockholders of the
Company or their relative stock holdings and the Option is assumed, converted or
replaced by the successor corporation, which assumption will be binding on the
Optionee);




     (iii) a merger in which the Company is the surviving corporation but after
which the stockholders of the Company immediately prior to such merger (other than
any stockholder that merges, or which owns or controls another corporation that
merges, with the Company in such merger) cease to own their shares or other equity
interest in the Company;




     (iv) the sale of substantially all of the assets of the Company; or




     (v) the acquisition, sale, or transfer of more than 50% of the outstanding
shares of the Company by tender offer or similar transaction (other than a tender
offer or similar transaction in which there is no substantial change in the
stockholders of the Company or their relative stock holdings and the Option is
assumed, converted or replaced by the successor corporation, which assumption will
be binding on the Optionee).




     (b) Acceleration of Option Upon Corporate Transaction. In the event of a Corporate
Transaction:




     (i) for the portion of the Option hereunder that is Assumed or replaced by the
successor entity with a comparable award, then this Option Agreement (if Assumed),
the replacement award (if replaced) automatically shall become fully vested and
exercisable for all of the Option Shares at the time represented by such Assumed or
replaced portion of this Option Agreement, immediately upon termination of the
Optionee’s service if such service is terminated by the successor company or the
Company without Cause (as the term “Cause” is defined in the Employment Agreement)
within twelve (12) months after the Corporate Transaction; and




     (ii) for the portion of this Option Agreement hereunder that is neither
Assumed nor replaced by the successor entity with a comparable award, such portion
of this Option Agreement shall automatically become fully vested and exercisable for
all of the Option Shares at the time represented by such portion of this Option
Agreement, immediately prior to the specified effective date of such Corporate
Transaction, provided that the Optionee’s service has not terminated prior to such
date.



     11. Compliance with Laws and Regulations.




     (a) The exercise of this Option and the issuance of the Option Shares upon such
exercise shall be subject to compliance by the Company and Optionee with all applicable
requirements of law relating thereto and with all applicable regulations of any stock
exchange (or the Nasdaq Stock Market or Over-the-Counter Bulletin Board, if applicable) on
which the Common Stock may be listed for trading at the time of such exercise and issuance.



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     (b) The inability of the Company to obtain approval from any regulatory body having
authority deemed by the Company to be necessary to the lawful issuance and sale of any
Common Stock pursuant to this Option shall relieve the Company of any liability with respect
to the non-issuance or sale of the Common Stock as to which such approval shall not have
been obtained. The Company, however, shall use its best efforts to obtain all such
approvals.



     12. Section 409A Limitation. In the event the Company determines at any time that this Option
has been granted with an Exercise Price less than fair market value of the Option Shares subject to
the Option on the Date of Grant (regardless of whether or not such exercise price is intentionally
or unintentionally priced at less than fair market value, or is materially modified at a time when
the fair market value exceeds the exercise price), or is otherwise determined to constitute
“nonqualified deferred compensation” within the meaning of Section 409A of the Code,
notwithstanding any provision of the Plan or this Option Agreement to the contrary, the Option
shall satisfy the additional conditions applicable to nonqualified deferred compensation under
Section 409A of the Code, in accordance with the Plan. The specified exercise date and term shall
be the default date and term specified in the Plan. Notwithstanding the foregoing, the Company
shall have no liability to any Optionee or any other person if an Option designated as an Incentive
Stock Option fails to qualify as such at any time or if an Option is determined to constitute
“nonqualified deferred compensation” within the meaning of Section 409A of the Code and the terms
of such Option do not satisfy the additional conditions applicable to nonqualified deferred
compensation under Section 409A of the Code and the Plan.



     13. Successors and Assigns. Except to the extent otherwise provided in Section 3 and 6, the
provisions of this Option Agreement shall inure to the benefit of, and be binding upon, the Company
and its successors and assigns and the Optionee, the Optionee’s assigns and the legal
representatives, heirs and legatees of the Optionee’s estate.



     14. Notices. Any notice required to be given under this Option Agreement shall be in writing
and shall be deemed effective upon personal delivery or three (3) days after deposit in the U.S.
mail, registered or certified, postage prepaid and properly addressed to the party entitled to such
notice Any notice required to be given to the Company under the terms of this Option Agreement
shall be in writing and addressed to the Company at its principal corporate offices. Any notice
required to be given or delivered to the Optionee shall be in writing and addressed to the Optionee
at the address indicated below the Optionee’s signature line on the Grant Notice or at such other
address as the Optionee may designate by ten (10) days advance written notice under this paragraph
to all other parties to this Option Agreement.



     15. Construction. This Option Agreement and the Option evidenced hereby are made and granted
pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan.



     16. Governing Law; Venue. The interpretation, performance and enforcement of this Option
Agreement shall be governed by the laws of the State of Nevada without resort to that State’s
conflict-of-laws rules. For the purpose of litigating any dispute that arises under this Option
Agreement, the parties hereby consent to exclusive jurisdiction in California and agree that such
litigation shall be conducted in the federal or state courts located in Orange County, California.



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     17. Discretionary Plan; Employment. The Plan is discretionary in nature and may be suspended
or terminated by the Company at any time. With respect to the Plan, (a) each grant of an option is
a one-time benefit which does not create any contractual or other right to receive future grants of
options, or benefits in lieu of options; (b) all determinations with respect to any such future
grants, including, but not limited to, the times when an option shall be granted, the number of
shares of Company stock subject to each option, the exercise price, and the times when each option
shall be exercisable, will be at the sole discretion of the Company; (c) if the Optionee is an
Employee, the Optionee’s participation in the Plan shall not create a right to further or continued
employment with the Optionee’s employer and shall not interfere with the ability of the Optionee’s
employer to terminate the Optionee’s employment relationship at any time with or without cause; (d)
the Optionee’s participation in the Plan is voluntary; (e) the Option is not part of normal and
expected compensation for purposes of calculating any severance, resignation, redundancy, end of
service payment, bonuses, long-service awards, pension or retirement benefits, or similar payments;
(f) the future value of the Option Shares underlying this Option is unknown and cannot be predicted
with certainty; (g) if the underlying shares do not increase in value, the option will have no
value; and (h) the ability of the Optionee to sell the Option Shares acquired pursuant to this
Option may be limited by applicable securities laws.



     18. Grant/Exercise Subject to Applicable Regulatory Approvals. Any grant of options under the
Plan is specifically conditioned on, and subject to, any required regulatory approvals. If
necessary approvals for the grant or exercise are not obtained, the options may be cancelled or
rescinded, or they may expire, as determined by the Company in its sole and absolute discretion.
The Company may restrict the exercise of this Option if the Option Shares issuable pursuant to the
Option have not yet been registered pursuant to the Securities Act of 1933, as amended; provided,
however, this limitation shall not apply during the six (6) months immediately prior to the
Expiration Date or if the Optionee agrees in writing that the Option Shares issuable upon the
exercise will be restricted securities and bear a restrictive legend.



     19. Electronic Signatures. Delivery of a copy of this Option Agreement bearing an original
signature by facsimile transmission (whether directly from one facsimile device to another by means
of a dial-up connection or whether mediated by the worldwide web), by electronic mail in “portable
document format” (“.pdf”) form, or by any other electronic means intended to preserve the original
graphic and pictorial appearance of a document, will have the same effect as physical delivery of
the paper document bearing the original signature. “Originally signed” or “original signature”
means or refers to a signature that has not been mechanically or electronically reproduced.



[Remainder of page intentionally left blank; signature page to follow]




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     IN WITNESS WHEREOF, the parties have executed this Option Agreement on the Date of Grant first
written above.



COMPANY:




United Fuel & Energy Corporation

a Nevada corporation




	 	 	 	 	 
	By:

	 	/s/ William C. Bousema
	 	 
	 

	 	 	 	 
	 

	 	William C. Bousema	 	 
	 

	 	Executive Vice President, Chief Financial	 	 
	 

	 	Officer and Secretary	 	 






OPTIONEE:




	 	 	 	 	 
	/s/ JOSEPH M. JULIANO	 	 
	 	 	 
	JOSEPH M. JULIANO	 	 
	 
	 	 	 	 
	Address:
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 






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