EXHIBIT
        10.2

       

    

    
      AMENDED
        AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT

      


      This
        Amended and Restated Executive Employment Agreement (this “Agreement”)
        dated
        as of the 5th day of October, 2007 is by and between United Fuel & Energy
        Corporation, a Nevada corporation (“Employer”),
        and
        Charles McArthur (“Employee”
and,
        together with Employer, the “Parties”
and
        each individually, a “Party”).
        This
        Agreement will become effective as of January 1, 2008 (the “Commencement
        Date”).

      


      RECITALS:

      


      A. Employer
        and Employee are each a party to that certain Executive Employment Agreement
        dated September 2, 2005 (the “Original
        Agreement”).
        

      


      B. This
        Agreement is intended to amend and restate the Original Agreement as of the
        Commencement Date. Prior to the Commencement Date, this Agreement shall have
        no
        force or effect and the terms of the Original Agreement shall continue to
        apply
        to the employment relationship between the Employer and the Employee.


      


      AGREEMENT:

      


      NOW,
        THEREFORE, in consideration of the premises and the mutual promises herein
        made,
        and in consideration of the representations, warranties, and covenants contained
        herein, each Party agrees as follows:

      


      1. Employment
        Term.
        This
        Agreement will remain in effect from the Commencement Date and shall end
        on the
        date that is the third 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 four (4) months’ 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. Responsibilities
        and Authority.
        Employer
        hereby employs Employee to serve as its President and Chief Executive Officer.
        In such capacity, Employee will have such duties and responsibilities as
        determined by Employer’s Board of Directors (the “Board”)
        consistent with the Employer’s Bylaws. If requested by Employer, Employee will
        serve as an officer or director of Employer or any subsidiary of Employer
        without additional compensation. 

       

      3. Acceptance
        of Employment and Other Activities.
        Employee
        accepts employment, and Employer acknowledges Employee’s other activities as
        follows:

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      3.1 Acceptance
        of Employment.
        Employee
        accepts employment by Employer on the terms and conditions herein provided
        and
        agrees, subject to the terms of this Agreement, to devote all of Employee’s full
        business time to Employer’s affairs. Employee shall not, during the term of this
        Agreement: engage, directly or indirectly, in any other business activity
        (whether or not pursued for pecuniary advantage) which might interfere with
        Employee’s duties and responsibilities hereunder. The foregoing limitations
        shall not be construed to prohibit Employee from (i) owning less than 5%
        of the
        equity interests of any person or company having a class of equity interests
        actively traded on a national securities exchange or over-the-counter market;
        (ii) making personal investments in such form or manner as will neither require
        Employee’s services in the operation or affairs of the companies or enterprises
        in which such investments are made nor violate the terms of Section 7 hereof;
        or
        (iii) owning non-operating oil and gas interests (including working interests)
        in properties where the operator of such property may call upon Employer
        or its
        affiliates to provide goods and services; provided, however, in such instances
        where the operator of such a property calls upon Employer or its affiliates
        to
        provide goods and services, Employee
        will notify the members of the Employer’s audit committee of the board of
        directors and will refrain from negotiating the price or terms of such goods
        or
        services to be provided by Employer and will delegate such responsibility,
        if
        any, to other senior management.
        Employer acknowledges that Employee will from time-to-time serve on the boards
        of philanthropic organizations or of public or private companies that do
        not
        compete against the Employer or its affiliates; provided that such service
        does
        not interfere with Employee’s duties and responsibilities hereunder.
        Accordingly, the foregoing limitations shall not be construed to prohibit
        Employee from serving on the boards of philanthropic organizations or of
        public
        or private companies that do not compete against the Employer or its affiliates,
        provided that such service does not violate Section 7 hereof or otherwise
        interfere with Employee’s duties and responsibilities hereunder, and provided
        further that in instances where such philanthropic organization or public
        or
        private companies call upon the Employer or its affiliates to provide goods
        or
        services, Employee will notify the members of the Employer’s audit committee of
        the board of directors and will refrain from negotiating the price or terms
        of
        such goods or services to be provided by Employer and will delegate such
        responsibility, if any, to other senior management. The determination of
        whether
        a particular activity of the Employee violates this provision rests solely
        with
        the discretion of the Board. 

      


      4. Compensation
        and Benefits.
        As
        compensation for Employee’s services hereunder, Employee will be entitled to the
        following:

      


      4.1 Base
        Salary.
        From and
        after the Commencement Date, Employee will receive a base salary at the rate
        of
        $325,000 per annum (“Base
        Salary”).
        On
        each of January 1, 2008, 2009 and 2010, Employee shall be eligible to receive
        up
        to a $25,000 raise at the discretion of the compensation committee of the
        Board
        (the “Compensation
        Committee”).
        The
        Base Salary will be paid in substantially equal installments in accordance
        with
        Employer’s regular payroll practices, as in effect from time to time, and
        subject to all appropriate withholdings.

      


      4.2 Bonus.
        Employee
        shall be eligible to receive a cash bonus on an annual basis equal to up
        to 100%
        of Employee’s Base Salary in the event that Employee meets certain performance
        criteria established in advance in writing by the Compensation Committee
        for
        such year (“Performance
        Criteria”).
        Additional bonuses may be paid to Employee at such times and in such amounts
        as
        may be determined in the sole discretion of the Compensation Committee. If
        awarded, payment of all bonuses will be subject to all appropriate withholdings.
        

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      4.4 Restricted
        Stock Grants. In
        addition to stock options previously granted to Employee under Employer’s stock
        option plan, Employee shall be eligible to receive annual restricted stock
        grants for up to 150,000 shares of common stock of Employer each (at the
        discretion of the Compensation Committee). The restrictions on each grant
        shall
        lapse in four equal installments on the 6, 12, 18 and 24-month anniversaries
        of
        each such grant. Any such restricted stock grants made will occur following
        the
        completion of the audit of Employer’s financial statements for the year which is
        the basis for the grant being issued.

      


      4.5 Benefits.
        Employee
        will be entitled to receive the benefits specified on Exhibit
        A
        (“Benefits”).

      


      4.6 Expense
        Reimbursement.
        Employer
        will reimburse Employee for all expenses reasonably incurred or paid by Employee
        in direct connection with the performance of Employee’s services under this
        Agreement upon presentation of expense statements or vouchers and such other
        supporting information as Employer may from time to time reasonably require
        or
        request (“Reimbursable
        Expenses”),
        subject to approval by the audit committee of the Board at the discretion
        of the
        audit committee of the Board.

      


      5. Termination;
        Payments upon Termination.
        This
        Agreement may be terminated upon the following terms:

      


      5.1 Termination
        Upon Death.
        If
        Employee should die during the Employment Term, this Agreement will terminate
        on
        the date of death. All Base Salary through such date and any amounts owed
        for
        Reimbursable Expenses that Employee incurs through such date, as well as
        any
        previously awarded but unpaid bonuses, will be paid to Employee’s designated
        beneficiary as promptly as practicable following the date of death. All
        restrictions on any restricted stock grants issued to Employee hereunder
        shall
        lapse. Employer shall provide, at its expense, health insurance coverage
        to
        Employee’s spouse and dependent children until the first anniversary of
        Employee’s death. All other Benefits will, unless otherwise expressly set forth
        on Exhibit
        A,
        otherwise provided by Employer policy applicable to its employees generally,
        or
        otherwise required by Law, terminate on the date of death.

      


      5.2 Termination
        Upon Disability.
        This
        Agreement shall automatically terminate upon the Employee’s Disability. The Base
        Salary will continue to be paid to Employee through the date of Disability,
        and
        any amounts owed for Reimbursable Expenses that Employee incurs through such
        date and any previously awarded but unpaid bonuses will be paid as promptly
        as
        practicable following such date. In such event of Employee’s Disability,
        Employer will also continue to pay Employee the Base Salary in effect at
        the
        time of such Disability for a period of 6 months following the date of
        Disability. All restrictions on any restricted stock grants issued to Employee
        hereunder shall lapse. Employer shall provide, at its expense, life and health
        insurance coverage to Employee for six months following the date of Disability.
        All other Benefits will, unless otherwise expressly set forth on Exhibit
        A,
        otherwise provided by Employer policy applicable to its employees generally,
        or
        otherwise required by Law, terminate on the date of termination. “Disability”
means
        (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 Employer; (iii) Employee is
        determined to be totally disabled by the Social Security Administration;
        or (iv)
        Employee is determined to be disabled in accordance with a disability insurance
        program, 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). If a disagreement arises between Employee
        and
        Employer as to whether Employee is suffering from Disability, such issue
        will be
        determined by a physician designated by Employer. If Employee disagrees with
        the
        conclusion of such physician, then such physician and Employee’s physician will
        choose a mutually acceptable physician to make such determination.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      5.3 Termination
        by Employer For Cause.
        Employer
        will be entitled to terminate Employee’s employment at any time for Cause. The
        Base Salary will continue to be paid to Employee through the date of
        termination, and any amounts owed for Reimbursable Expenses that Employee
        incurs
        through such date and any previously awarded but unpaid bonuses will be paid
        as
        promptly as practicable to Employee following termination. All restricted
        stock
        grants issued to Employee hereunder still subject to restrictions shall be
        forfeited. All Benefits will, unless otherwise required by Law, terminate
        on the
        date of termination. “Cause”
will
        constitute any one of the following:

      


      (a) Employee’s
        continued failure to substantially perform Employee’s duties and
        responsibilities (other than a failure resulting from a
        Disability);

      


      (b) Employee’s
        engaging in willful, reckless, or grossly negligent misconduct that is
        materially injurious to Employer, monetarily or otherwise;

      


      (c) Employee’s
        commission of a felony or a crime involving moral turpitude; 

      


      (d) Employee’s
        breach of this Agreement and failure to cure such breach within thirty (30)
        days
        from the date that Employer gives notice thereof to Employee identifying
        the
        provision of this Agreement that Employer determined has been breached;
        or

      


      (e) Employee’s
        commission of fraud, misappropriation, or personal dishonesty.

      


      5.4 Termination
        by Employer Without Cause.
        Employer
        may at any time terminate Employee’s employment without Cause. In such event,
        the Base Salary will continue to be paid through such the date of termination,
        and any amounts owed for Reimbursable Expenses that Employee incurs through
        such
        date and any previously awarded but unpaid bonus will be paid to Employee
        promptly following termination. In addition, Employer will also continue
        to pay
        Employee, as severance, the Base Salary in effect at the time of such
        termination for the remainder of the Employment Term in monthly installments;
        provided, however, that if Employee is determined on the date of termination
        to
        be a “specified employee” for purposes of Section 409A of the Internal Revenue
        Code, then such monthly payments of Base Salary for the remainder of the
        Employment Term will not commence until the earlier of: (i) the first day
        of the
        seventh month after the month the Employee was terminated; or (ii) the
        Employee’s death; and such monthly payments will then continue for an additional
        six months following the end of the Employment Term. All restrictions on
        any
        restricted stock grants issued to Employee hereunder shall lapse. Employer
        shall
        provide, at its expense, life and health insurance coverage to Employee for
        the
        remainder of the Employment Term; provided, however, that if Employee is
        determined on the date of termination to be a “specified employee” for purposes
        of Section 409A of the Internal Revenue Code, then such continuation of life
        and
        health insurance coverage will be limited to the period during which the
        Employee would be entitled, but for the terms of this Agreement, to continuation
        of coverage under the federal law knows as COBRA. All other Benefits will,
        unless otherwise expressly set forth on Exhibit
        A,
        otherwise provided by Employer policy applicable to its employees generally
        or
        otherwise required by Law, terminate on the date of termination. 

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      5.5 Termination
        by Employee For Good Reason.
        Employee
        will be entitled to terminate Employee’s employment at any time for Good Reason.
        In such event, the Base Salary will continue to be paid through the date
        of
        termination, and any amounts owed for Reimbursable Expenses that Employee
        incurs
        through such date and any previously awarded but unpaid bonus will be paid
        to
        Employee promptly following termination. In addition, Employer will also
        continue to pay Employee, as severance, the Base Salary in effect at the
        time of
        such termination for the remainder of the Employment Term in monthly
        installments; provided, however, that if Employee is determined on the date
        of
        termination to be a “specified employee” for purposes of Section 409A of the
        Internal Revenue Code, then such monthly payments of Base Salary for the
        remainder of the Employment Term will not commence until the earlier of:
        (i) the
        first day of the seventh month after the month the Employee was terminated;
        or
        (ii) the Employee’s death; and such monthly payments will then continue for an
        additional six months following the end of the Employment Term. All restrictions
        on any restricted stock grants issued to Employee hereunder shall lapse.
        Employer shall provide, at its expense, life and health insurance coverage
        to
        Employee for the remainder of the Employment Term; provided, however, that
        if
        Employee is determined on the date of termination to be a “specified employee”
for purposes of Section 409A of the Internal Revenue Code, then such
        continuation of life and health insurance coverage will be limited to the
        period
        during which the Employee would be entitled, but for the terms of this
        Agreement, to continuation of coverage under the federal law knows as COBRA.
        All
        other Benefits will, unless otherwise expressly set forth on Exhibit
        A,
        otherwise provided by Employer policy applicable to its employees generally
        or
        otherwise required by applicable law, terminate on the date of termination.
        For
        purposes of this Agreement, “Good
        Reason”
shall
        exist upon the occurrence of any of the following events or matters, in each
        case without Employer first being in receipt of Employee’s written consent
        thereto, and the period of time within which Employee shall be required to
        exercise a Good Reason termination of service shall be 90 days, measured
        from
        the date upon which he is notified by Employer of such occurrence, or, with
        respect to the matter identified in clause (b) below, from the date upon
        which
        Employee notifies Employer in writing of his belief that a material breach
        has
        occurred: 

      


      (a) a
        material adverse change in, or a substantial elimination of the duties and
        responsibilities of Employee; 

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      (b) a
        material breach by Employer of its obligations hereunder; 

      


      (c) the
        relocation of the Employer’s principal executive offices or Employee’s own
        office location to a location outside of Midland, Texas; or

      


      (d) a
        reduction in Employee’s Base Salary. 

      


      5.6 Termination
        by Employee Without Good Reason.
        Employee
        may at any time terminate Employee’s employment without Good Reason. In such
        event, the Base Salary will continue to be paid to Employee through the date
        of
        termination, and any amounts owed for Reimbursable Expenses that Employee
        incurs
        through such date and any previously awarded but unpaid bonuses will be paid
        to
        Employee following termination. All restricted stock grants issued to Employee
        hereunder still subject to restrictions shall be forfeited. All Benefits
        will,
        unless otherwise expressly set forth on Exhibit
        A,
        otherwise provided by Employer policy applicable to its employees generally
        or
        otherwise required by applicable law, terminate on the date of
        termination.

      


      5.7 Effect
        of Termination.
        Except
        as expressly provided in this Section
        5
        and
        except for the obligations set forth in Section
        6
        and
Section
        7,
        all
        further obligations of the Parties under this Agreement will terminate upon
        termination of Employee’s employment with Employer.

      


      6. Restrictive
        Covenants.
        Employee
        hereby acknowledges that, as a result of Employee’s employment by Employer
        hereunder, Employee will receive special insight into the operations of
        Employer’s and/or Employer’s Affiliates’ businesses and other related matters,
        and will obtain access to such Persons’ Confidential Information and business
        and professional contacts. In consideration of such special and unique
        opportunities afforded by Employer and its Affiliates to Employee as a result
        of
        Employee’s employment, the Employee hereby agrees that Employee will not:


      


      6.1 From
        the
        Commencement Date until two (2) years after Employer or any of its Affiliates
        no
        longer employs Employee (the date on which such Person no longer employs
        Employee is hereinafter referred to as the “Employment
        Termination Date”),
        directly or indirectly, alone or as a partner, joint venturer, officer,
        director, member, employee, consultant, agent, independent contractor, or
        Equity
        Interest holder of, or lender to, any Person or business, engage in any business
        that is in competition with any business in which Employer or any of its
        Affiliates is engaged as of the Employment Termination Date (a “Competitive
        Business”),
        and
        that is within a 150-mile radius of Midland, Texas or a 100-mile radius of
        any
        other location at which Employer or any of its Affiliates engages in such
        business at the time Employee commences to engage in such competitive
        activity.

      


      6.2 From
        the
        Commencement Date until two (2) years after the Employment Termination Date,
        directly or indirectly (a) induce any Person that is a customer of Employer,
        any
        Acquired Entity, or any of their Affiliates to enter into any Contract with
        or
        otherwise patronize any business directly or indirectly in competition with
        the
        Competitive Business conducted by Employer or any of its Affiliates; (b)
        canvass, solicit, or accept from any Person who is a customer of Employer
        or any
        of its Affiliates any such Competitive Business; or (c) request or advise
        any
        Person who is a customer, vendor, or lessor of Employer or any of its
        Affiliates, to withdraw, curtail, or cancel any such customer’s, vendor’s, or
        lessor’s business with Employer or any of its Affiliates; provided, however,
        that a general solicitation or advertisement originating outside of, and
        not
        specifically targeted to or reasonably expected to target, the territory
        as to
        which Employee is restricted from engaging in such competitive business as
        provided above under this Agreement at such time, will not be deemed in and
        of
        itself to violate the prohibitions of (a) or (b) of this Section
        6.2.

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

         

      

      6.3 From
        the
        Commencement Date until two (2) years after the Employment Termination Date,
        directly or indirectly (i) solicit for employment or other similar relationship
        with Employee, any of Employee’s Affiliates or any other Person, any employee of
        Employer or any of its Affiliates, or any person who was an employee of Employer
        or any of its Affiliates, within the six-month period immediately preceding
        such
        solicitation of employment, other than such person (a) whose employment was
        terminated by the applicable Person, or (b) who independently responded to
        a
        general solicitation for employment by Employee or Employee’s Affiliate; or (ii)
        induce, or attempt to induce, any employee of Employer or any of its Affiliates,
        to terminate such employee’s employment relationship with such
        Person.

      


      6.4 Employee
        will not use for Employee’s personal benefit, disclose, communicate, divulge to,
        or use for the direct or indirect benefit of any Person other than Employer
        or
        any of its Affiliates any of such Persons’ Confidential Information. This
Section
        6.4
        will
        apply during and after the period when Employee is an employee of Employer
        or
        any of its Affiliates and will be in addition to (and not a limitation of)
        any
        legally applicable protections of Employer’s interest in Confidential
        Information, trade secrets and the like.

      


      6.5 Notwithstanding
        the foregoing, the beneficial ownership of less than 5% of the equity interests
        of any person having a class of equity interests actively traded on a national
        securities exchange or over-the-counter market will not be deemed, in and
        of
        itself, to breach the prohibitions of this Section
        6.
        Employee agrees and acknowledges that the restrictions in this Section
        6
        are
        reasonable in scope and duration and are necessary to protect Employer and
        its
        Affiliates after the Commencement Date. If any provision of this Section
        6,
        as
        applied to either Party or to any circumstance, is adjudged by a court of
        competent jurisdiction or arbitrator not to be enforceable in accordance
        with
        its terms, the same will in no way affect any other circumstance or the
        enforceability of the remainder of this Agreement. If any such provision,
        or any
        part thereof, is held not to be enforceable in accordance with its terms
        because
        of the duration of such provision, the area covered thereby, or the scope
        of the
        activities covered, the Parties agree that the court of competent jurisdiction
        or arbitrator making such determination will have the power to reduce the
        duration, area, and/or scope of activities of such provision, and/or to delete
        specific words or phrases, and in its reduced form such provision will then
        be
        enforceable in accordance with its terms and will be enforced. The Parties
        agree
        and acknowledge that the Breach of any provision of this Section
        6
        will
        cause irreparable Damage to Employer and its Affiliates and upon Breach of
        any
        provision of this Section
        6,
        Employer and its Affiliates will be entitled to injunctive relief, specific
        performance, or other equitable relief without bond or other security; provided,
        however, that the foregoing remedies will in no way limit any other remedies
        that Employer or its Affiliates may have. Further, Employee agrees to the
        jurisdiction of any state or federal court sitting in Midland, Texas for
        the
        enforcement of this Section
        6.
        Employer may, without notifying Employee, notify any subsequent employer
        of
        Employee of Employee’s rights and obligations under this Section
        6.

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      7. Conflicts
        of Interest.

      


      7.1 Employee
        represents to Employer as follows: (a) there are no restrictions, agreements,
        or
        understandings, oral or written, to which Employee is a party or by which
        Employee is bound that prevent or make unlawful Employee’s execution or
        performance of this Agreement, and (b) Employee does not have any business
        or
        other relationship that create a conflict between the interests of Employee
        and
        Employer.

      


      7.2 Employee
        recognizes and agrees that Employee owes Employer and its Affiliates a fiduciary
        duty of loyalty, fidelity, and allegiance to act at all times in the best
        interests of Employer and its Affiliates and to do no act which might injure
        the
        business, interests, or reputation of Employer or any of its Affiliates.
        Employee’s duty of loyalty will extend throughout the Employment Term and will
        continue following termination of this Agreement to the extent recognized
        by
        Law. Employee will not knowingly become involved in a conflict between his
        personal interests and those of Employer or any of its Affiliates, and, upon
        discovery thereof, will not willfully allow such conflict of interest to
        continue. Employee agrees to disclose in writing to Employer any facts that
        could reasonably be expected to involve a material conflict of interest upon
        Employee’s conscious awareness that such a material conflict could exist.
        Employee recognizes that it is impossible to provide an exhaustive list of
        actions or activities that constitute or might constitute a conflict of
        interest, but recognizes that these actions or activities may include the
        following:

      


      (a) ownership
        of more than a 1%
        interest in any supplier, contractor, customer, or other person that does
        business with Employer or any of its affiliates;

      


      (b) acting
        in
        any capacity, including as a director, officer, employee, partner, consultant,
        or agent, for any supplier, contractor, customer, or other person that does
        business with Employer or any of its affiliates;

      


      (c) acceptance,
        directly or indirectly, of payments, services, or loans (other
        than entertainment, gifts, or other sales incentives that may be furnished
        in
        the ordinary course of business)
        from a
        supplier, contractor, customer, or other person that does business with Employer
        or any of its affiliates;

      


      (d) misuse
        or
        disclosure of information of any kind obtained through Employee’s relationship
        with Employer; and

      


      (e) appropriation
        by Employee or diversion to any other person, directly or indirectly, of
        any
        business opportunity in which it is known or could reasonably be anticipated
        that Employer or its affiliates would be interested.

      


      In
        further recognition of the fiduciary duties Employee owes to Employer and
        its
        Affiliates, Employee agrees that all documentation that Employee provides
        to
        Employer will be accurate in all material respects, when taken as a whole
        and in
        light of the circumstances in which it was made.

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      8. Indemnification;
        Insurance.

      


      8.1 Insurance
        Provided by Employer.
        Employer
        shall maintain a directors and officers liability insurance policy covering
        all
        directors and officers of Employer, including Employee, which insurance policy
        shall provide adequate insurance coverage (including defense costs) for each
        of
        such persons, as shall be approved by the Board; in no event, however, shall
        such coverage amount be less than $15,000,000 in the aggregate.

      


      8.2 Indemnification
        of Employee.
        To the
        extent not covered by directors and officers liability insurance coverage
        as
        required in Section
        8.1
        hereof,
        in the event Employee is made a party to any threatened, pending, or
        contemplated action, suit, or proceeding, whether civil, criminal,
        administrative, or investigative (other than an action by Employer against
        Employee), by reason of the fact that Employee is or was performing services
        under this Agreement, or is alleged to have been performing services under
        this
        Agreement, then Employer shall indemnify, defend and hold harmless Employee
        against all expenses (including attorneys' fees), judgments, fines, and amounts
        paid in settlement, as actually and reasonably incurred by Employee in
        connection therewith. In the event that both Employee and Employer are made
        a
        party to the same third party action, complaint, suit, or proceeding, the
        Employer will engage competent legal representation, and Employee will use
        the
        same representation, provided that if counsel selected by the Employer shall
        have a conflict of interest that prevents such counsel from representing
        Employee, then the Employer may engage separate counsel on Employee's behalf,
        and subject to the provisions of this Section
        8,
        the
        Employer will pay all attorneys' fees of such separate counsel. 

      


      9. Miscellaneous.

      


      9.1 Entire
        Agreement.
        This
        Agreement and the certificates, documents, instruments and writings that
        are
        delivered pursuant hereto constitutes the entire agreement and understanding
        of
        the Parties in respect of its subject matters and supersedes all prior
        understandings, agreements, or representations by or among the Parties, written
        or oral, to the extent they relate in any way to the subject matter hereof
        or
        the Transactions. Except as expressly contemplated hereby and except for
        Employer’s Affiliates, each of which will be deemed a third party beneficiary of
        all obligations of Employee under this Agreement, there are no third party
        beneficiaries having rights under or with respect to this
        Agreement.

      


      9.2 Successors.
        All of
        the terms, agreements, covenants, representations, warranties, and conditions
        of
        this Agreement are binding upon, and inure to the benefit of and are enforceable
        by, the Parties and their respective successors.

      


      9.3 Assignment.
        No
        Party
        may assign either this Agreement or any of its rights, interests, or obligations
        hereunder without the prior written approval of Employer and Employee; provided,
        however, that Employer may (a) assign any or all of its rights and interests
        hereunder to one or more of its Affiliates and (b) designate one or more
        of its
        Affiliates to perform its obligations hereunder (in any or all of which cases
        Employer nonetheless will remain responsible for the performance of all of
        its
        obligations hereunder).

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      9.4 Notices.
        All
        notices, requests, demands, claims and other communications hereunder will
        be in
        writing. Any notice, request, demand, claim or other communication hereunder
        will be deemed duly given if (and then three business days after) it is sent
        by
        registered or certified mail, return receipt requested, postage prepaid,
        and
        addressed to the intended recipient as set forth below:

      


      If
        to
        Employer:

      


      Attn:
        Bobby Page, Corporate Secretary

      405
        N.
        Marienfeld, Third Floor

      Midland,
        Texas 79701

      Tel:
        (432) 571-8000

      Fax:
        (432) 571-8099

      


      with
        a
        copy (which shall not constitute notice):

      


      Akin
        Gump
        Strauss Hauer & Feld LLP

      Attn:
        Will Liebmann

      300
        Convent Street, Suite 1500

      San
        Antonio, Texas 78205

      Tel:
        (210) 281-7000

      Fax:
        (210) 224-2035

      


      If
        to
        Employee:

      


      Charles
        McArthur

      __________________________

      Tel:
        ______________________

      Fax:
        ______________________

      


      Either
        Party may send any notice, request, demand, claim, or other communication
        hereunder to the intended recipient at the address set forth above using
        any
        other means (including personal delivery, expedited courier, messenger service,
        telecopy, telex, ordinary mail, or electronic mail), but no such notice,
        request, demand, claim, or other communication will be deemed to have been
        duly
        given unless and until it actually is received by the intended recipient.
        Either
        Party may change the address to which notices, requests, demands, claims,
        and
        other communications hereunder are to be delivered by giving the other Parties
        notice in the manner herein set forth.

      


      9.5 Specific
        Performance.
        Each
        Party acknowledges and agrees that the other Parties would be damaged
        irreparably if any provision of this Agreement is not performed in accordance
        with its specific terms or is otherwise Breached. Accordingly, each Party
        agrees
        that the other Party will be entitled to an injunction or injunctions to
        prevent
        Breaches of the provisions of this Agreement and to enforce specifically
        this
        Agreement and its terms and provisions in any Action instituted in any state
        or
        federal court sitting in Midland, Texas, in addition to any other remedy
        to
        which they may be entitled at Law or in equity.

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      9.6 Submission
        to Jurisdiction; No Jury Trial. 

      


      (a) Submission
        to Jurisdiction.
        Each
        Party submits to the jurisdiction of any state or federal court sitting in
        Midland, Texas in any Action arising out of or relating to this Agreement
        and
        agrees that all claims in respect of the Action may be heard and determined
        in
        any such court. Each Party also agrees not to bring any Action arising out
        of or
        relating to this Agreement in any other court. Each Party agrees that a final
        judgment in any Action so brought will be conclusive and may be enforced
        by
        Action on the judgment or in any other manner provided at Law or in equity.
        Each
        Party waives any defense of inconvenient forum to the maintenance of any
        Action
        so brought and waives any bond, surety, or other security that might be required
        of any other Party with respect thereto.

      


      (b) Waiver
        of Jury Trial.
        THE
        PARTIES EACH HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO JURY TRIAL
        OF ANY
        DISPUTE BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OTHER AGREEMENTS
        RELATING HERETO OR ANY DEALINGS BETWEEN THEM RELATING TO THE TRANSACTIONS
        CONTEMPLATED HEREBY. The scope of this waiver is intended to be all encompassing
        of any and all Actions that may be filed in any court and that relate to
        the
        subject matter of the transactions contemplated hereby, including Contract
        claims, tort claims, breach of duty claims, and all other common Law and
        statutory claims. The Parties each acknowledge that this waiver is a material
        inducement to enter into a business relationship and that they will continue
        to
        rely on the waiver in their related future dealings. Each Party further
        represents and warrants that it has reviewed this waiver with its legal counsel,
        and that each knowingly and voluntarily waives its jury trial rights following
        consultation with legal counsel. NOTWITHSTANDING ANYTHING TO THE CONTRARY
        HEREIN, THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED ORALLY
        OR IN WRITING, AND THE WAIVER WILL APPLY TO ANY AMENDMENTS, RENEWALS,
        SUPPLEMENTS, OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS
        OR
        AGREEMENTS RELATING HERETO. In the event of an Action, this Agreement may
        be
        filed as a written consent to trial by a court.

      


      9.7 Time.
        Time is
        of the essence in the performance of this Agreement.

      


      9.8 Counterparts.
        This
        Agreement may be executed in two or more counterparts, each of which will
        be
        deemed an original but all of which together will constitute one and the
        same
        instrument.

      


      9.9 Headings.
        The
        article and section headings contained in this Agreement are inserted for
        convenience only and will not affect in any way the meaning or interpretation
        of
        this Agreement.

      


      9.10 Governing
        Law.
        This
        Agreement and the performance of the Parties’ obligations hereunder will be
        governed by and construed in accordance with the laws of the State of Texas,
        without giving effect to any choice of Law principles.

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      9.11 Amendments
        and Waivers.
        No
        amendment, modification, replacement, termination, or cancellation of any
        provision of this Agreement will be valid, unless the same will be in writing
        and signed by the Parties. No waiver by any Party of any default,
        misrepresentation, or Breach of warranty or covenant hereunder, whether
        intentional or not, may be deemed to extend to any prior or subsequent default,
        misrepresentation, or Breach of warranty or covenant hereunder or affect
        in any
        way any rights arising because of any prior or subsequent such
        occurrence.

      


      9.12 Severability.
        The
        provisions of this Agreement will be deemed severable and the invalidity
        or
        unenforceability of any provision will not affect the validity or enforceability
        of the other provisions hereof; provided that if any provision of this
        Agreement, as applied to any Party or to any circumstance, is adjudged by
        a
        court of competent jurisdiction or arbitrator not to be enforceable in
        accordance with its terms, the Parties agree that the court of competent
        jurisdiction or arbitrator making such determination will have the power
        to
        modify the provision in a manner consistent with its objectives such that
        it is
        enforceable, and/or to delete specific words or phrases, and in its reduced
        form, such provision will then be enforceable and will be enforced.

      


      9.13 Expenses.
        Except
        as otherwise expressly provided in this Agreement, each Party will bear its
        own
        costs and expenses incurred in connection with the preparation, execution
        and
        performance of this Agreement and the Transactions including all fees and
        expenses of agents, representatives, financial advisors, legal counsel and
        accountants.

      


      9.14 Construction.
        The
        Parties have participated jointly in the negotiation and drafting of this
        Agreement. If an ambiguity or question of intent or interpretation arises,
        this
        Agreement will be construed as if drafted jointly by the Parties and no
        presumption or burden of proof will arise favoring or disfavoring any Party
        because of the authorship of any provision of this Agreement. Any reference
        to
        any federal, state, local, or foreign Law will be deemed also to refer to
        Law as
        amended and all rules and regulations promulgated thereunder, unless the
        context
        requires otherwise. The words “include,” “includes,” and “including” will be
        deemed to be followed by “without limitation.” Pronouns in masculine, feminine,
        and neuter genders will be construed to include any other gender, and words
        in
        the singular form will be construed to include the plural and vice versa,
        unless
        the context otherwise requires. The words “this Agreement,” “herein,” “hereof,”
“hereby,” “hereunder,” and words of similar import refer to this Agreement as a
        whole and not to any particular subdivision unless expressly so limited.
        The
        Parties intend that each representation, warranty, and covenant contained
        herein
        will have independent significance. If any Party has breached any
        representation, warranty, or covenant contained herein in any respect, the
        fact
        that there exists another representation, warranty or covenant relating to
        the
        same subject matter (regardless of the relative levels of specificity) which
        the
        Party has not breached will not detract from or mitigate the fact that the
        Party
        is in breach of the first representation, warranty, or covenant.

      


      9.15 Incorporation
        of Exhibits.
        The
        Exhibits identified in this Agreement are incorporated herein by reference
        and
        made a part hereof.

      


      9.16 Remedies.
        Except
        as expressly provided herein, the rights, obligations and remedies created
        by
        this Agreement are cumulative and in addition to any other rights, obligations,
        or remedies otherwise available at Law or in equity. Except as expressly
        provided herein, nothing herein will be considered an election of
        remedies.

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      9.17 Electronic
        Signatures.

      


      (a) Notwithstanding
        the Electronic Signatures in Global and National Commerce Act (15 U.S.C.
        Sec.
        7001 et.
        seq.),
        the
        Uniform Electronic Transactions Act, or any other Law relating to or enabling
        the creation, execution, delivery, or recordation of any Contract or signature
        by electronic means, and notwithstanding any course of conduct engaged in
        by the
        Parties, no Party will be deemed to have executed this Agreement or other
        document contemplated thereby (including any amendment or other change thereto)
        unless and until such Party shall have executed this Agreement or other document
        on paper by a handwritten original signature or any other symbol executed
        or
        adopted by a Party with current intention to authenticate this Agreement
        or such
        other document contemplated.

      


      (b) Delivery
        of a copy of this Agreement or such other document 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.

      


      IN
        WITNESS WHEREOF, the parties have executed and delivered this Agreement
as
        of
        the date
        first above written.

      

        
          	
                   

                	
                  EMPLOYER:

                	 
	 	 	 	 
	
                   

                	
                  UNITED
                    FUEL & ENERGY CORPORATION

                	 
	 	 	 	 
	 	 	 	 
	
                   

                	
                  By:

                	
                  /s/
                    Thomas E. Kelly

                	 
	
                   

                	
                  Name: 
                    

                	
                  Thomas
                    E. Kelly

                	 
	
                   

                	
                  Title:

                	
                  Chairman

                	 
	 	 	 	 
	 	 	 	 
	
                   

                	
                  EMPLOYEE:

                	 
	 	 	 	 
	 	 	 	 
	
                   

                	
                  /s/
                    Charles McArthur

                	 
	
                   

                	
                  CHARLES
                    McARTHUR

                	 


        

      

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      


      EXHIBIT
        A

      


      Description
        of Benefits

       

      Four
        weeks’ paid vacation per annum.

      


      Car
        allowance of $1,000 per month.

      


      
        
          
          

        

        
          14