FORBEARANCE
        AGREEMENT

      AND
        SIXTH AMENDMENT TO

      SECOND
        AMENDED AND

      RESTATED
        FINANCING AGREEMENT

       

      THIS
        FORBEARANCE AGREEMENT AND SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED
        FINANCING AGREEMENT
        (the
“Agreement”)
        is
        made and entered into on this 10th day of July, 2008, to be effective, unless
        another effective date is otherwise herein specified, as of June 17, 2008,
        by and among The CIT Group/Business Credit, Inc. (“CIT”),
        SunTrust Bank (“SunTrust”),
        Wachovia Bank, N.A. (“Wachovia”),
        and
        PNC Bank, National Association (“PNC”)
        (CIT,
        SunTrust, Wachovia and PNC being herein collectively referred to as the
“Existing
        Lenders”),
        The
        Greinke Personal Living Trust, Frank P. Greinke, an individual residing in
        Tacoma, Washington, Trustee (“Greinke
        Trust”)
        (the
        Greinke Trust being herein referred to as the “Additional
        Lender”,
        and
        together with the Existing Lenders, being herein collectively referred to
        as the
“Lenders”),
        CIT
        as administrative and collateral agent (“Agent”),
        and
        United Fuel & Energy Corporation, a Texas corporation (“United”),
        and
        Three D Oil Co. of Kilgore, Inc., a Texas corporation (“Three D”),
        and
        Cardlock Fuels System, Inc., a California corporation (“Cardlock”)
        (United, Three D and Cardlock being herein individually referred to as a
“Company”
and
        collectively referred to as the “Companies”),
        and
        United Fuel & Energy Corporation, a Nevada corporation (“Parent”).

       

      RECITALS

       

      A.  Companies,
        Lenders and Agent are the present parties to that certain Second Amended
        and
        Restated Financing Agreement, dated as of March 27, 2007, originally
        executed by United, Three D, Existing Lenders and Agent (as amended from
        time to time, the “Financing
        Agreement”).
        Capitalized terms not otherwise defined herein shall have the meanings given
        such terms in the Financing Agreement.

       

      B.  To
        induce
        Agent and Lenders to make the loans under the Financing Agreement to Companies,
        Parent has delivered to Agent that certain Guaranty dated October 5, 2007
        (“Guaranty”)
        guaranteeing payment and performance by Companies of their
        Obligations.

       

      C.  Companies
        have requested that Agent and Lenders agree and, subject to the terms and
        conditions of this Agreement, Agent and Lenders have agreed, to amend the
        Financing Agreement to provide, effective as of the date the conditions
        hereinafter specified in Section 2
        of this
        Agreement have been satisfied in Agent’s credit judgment or waived by Agent, to
        provide for Additional Lender becoming a party to and a “Lender” under the
        Financing Agreement with a Commitment of $5,000,000, which Commitment shall
        consist entirely of Revolving Loans pursuant to the Revolving Line of Credit
        Commitment, with the aggregate Revolving Line of Credit Commitments being
        increased from $80,000,000 to $85,000,000.

       

      D.  Companies
        have failed to comply with the EBITDA financial covenant specified in
Section 7.10(c)
        of the
        Financing Agreement for the measurement period ending on April 30, 2008,
        and have informed Agent and Lenders that Companies will fail to comply with
        the
        EBITDA financial covenant specified in Section
        7.10(c)
        for the
        measurement period ending on May 31, 2008, and accordingly Events of
        Default have occurred and are continuing under Section 10.1(e)
        of the
        Financing Agreement (the “Existing
        Events of Default”).

       


      
        
           

        

        
          12

          
            

          

        

        
           

        

      


      


       

      E.  By
        reason
        of the existence of the Existing Events of Defaults, Agent and Lenders have
        full
        legal right to exercise their rights and remedies under the Financing Agreement
        and the other Loan Documents. Companies have no defenses, offsets or
        counterclaims to the exercise of such rights and remedies.

       

      F.  Companies
        have requested that Agent and Lenders, for the period from June 17, 2008,
        until July 18, 2008, forbear from exercising their rights and remedies
        under the Loan Documents.

       

      G.  Agent
        and
        Lenders are willing for the period from June 17, 2008 until July 18,
        2008, to forbear from exercising their rights and remedies under the Loan
        Documents, on the terms and conditions set forth herein.

       

      AGREEMENT

       

      In
        consideration of the Recitals and of the mutual promises and covenants contained
        herein, Agent, Lenders, Companies and Parent agree as follows:

       

      1.  Agreement
        to Forbear.
        During
        the period commencing on June 17, 2008 and ending on the earlier to occur
        of (i) 5:00 p.m. (Dallas, Texas time) on July 18, 2008 and (ii) the
        date the Agent receives written notice from the Required Lenders to terminate
        this Agreement after the occurrence of any Forbearance Default (as defined
        in
Section
        7
        hereof)
        (the “Forbearance
        Period”),
        and
        subject to the other terms and conditions of this Agreement, each of Agent
        and
        each Lender agrees that it will forbear from exercising its rights and remedies
        under the Loan Documents due to the Existing Events of Default; provided,
        however,
        nothing
        herein shall limit the rights of Agent pursuant to the Financing Agreement
        to
        establish reserves or the amount of any reserves. Upon the expiration or
        termination of the Forbearance Period, Agent’s and Lenders’ forbearance shall
        automatically terminate and Agent and Lenders shall be entitled to exercise
        any
        and all of their rights and remedies under this Agreement and the Loan Documents
        without further notice. Companies and Parent agree that Agent and Lenders
        shall
        have no obligation to extend the Forbearance Period. 

       

      2.  Conditions
        Precedent to Effectiveness of Agreement Against Agent and
        Lenders.
        This
        Agreement shall not be effective against Agent and Lenders unless and until
        each
        of the following conditions shall have been satisfied in Agent’s credit judgment
        or waived by Agent:

       

      (a)  Agent
        shall have received this Agreement, duly executed by Companies, Parent and
        Lenders;

       

      (b)  Agent
        shall have received an agreement among the Lenders as to certain inter-lender
        issues, in form and substance satisfactory to Agent and Existing Lenders,
        duly
        executed by Lenders and duly accepted and agreed to by Companies and Parent
        (the
“Agreement
        Among Lenders”),
        the
        Agreement Among Lenders to be considered to be a Loan Document for purposes
        of
        the Financing Agreement;

       


      
        
           

        

        
          13

          
            

          

        

        
           

        

      


      


       

      (c)  Agent
        shall have received a Promissory Note in the original principal amount of
        $5,000,000, duly executed by Companies and payable to the order of the Greinke
        Trust, to evidence Revolving Loans made by the Greinke Trust;

       

      (d)  Agent
        shall have received such additional documents, instruments and information
        as
        Agent may request; and

       

      (e)  Agent
        shall have received evidence satisfactory to Agent that all organizational
        proceedings taken in connection with the transactions contemplated by this
        Agreement and all documents, instruments and other legal matters incident
        thereto shall be satisfactory to Agent.

       

      3.  Representations
        and Warranties.
        Each of
        each Company and Parent hereby represents and warrants to Agent and Lenders
        as
        follows:

       

      (a)  Recitals.
        The
        Recitals in this Agreement are true and correct in all material
        respects.

       

      (b)  Incorporation
        of Representations.
        All
        representations and warranties of Companies and Parent in the Loan Documents
        are
        incorporated herein in full by this reference and are true and correct in
        all
        material respects as of the date hereof.

       

      (c)  Organizational
        Power; Authorization.
        Each of
        each Company and Parent has the organizational power, and has been duly
        authorized by all requisite organizational action, to execute and deliver
        this
        Agreement and to perform its obligations hereunder. This Agreement has been
        duly
        executed and delivered by each Company and by Parent.

       

      (d)  Enforceability.
        This
        Agreement is the legal, valid and binding obligation of each Company and
        Parent,
        enforceable against each Company and Parent in accordance with its
        terms.

       

      (e)  No
        Violation.
        Each of
        each Company’s and Parent’s execution, delivery and performance of this
        Agreement does not and will not (i) violate any law, rule, regulation or
        court order to which any Company or Parent is subject; (ii) conflict with
        or result in a breach of any Company’s or Parent’s Articles or Certificate of
        Incorporation or Bylaws or any agreement or instrument to which any Company
        or
        Parent is party or by which it or its properties are bound, or (iii) result
        in the creation or imposition of any lien, security interest or encumbrance
        on
        any property of any Company or Parent, whether now owned or hereafter
        acquired.

       

      (f)  Obligations
        Absolute.
        The
        obligation of Companies to repay the loans and the other Obligations, together
        with all interest accrued thereon, is absolute and unconditional, and there
        exists no right of set off or recoupment, counterclaim or defense of any
        nature
        whatsoever to payment of the Obligations.

       


      
        
           

        

        
          14

          
            

          

        

        
           

        

      


      


       

      (g)  Full
        Opportunity for Review; No Undue Influence.
        This
        Agreement was reviewed by each of each Company and Parent which acknowledges
        and
        agrees that it (i) understands fully the terms of this Agreement and the
        consequences of the issuance hereof; (ii) has been afforded an opportunity
        to have this Agreement reviewed by, and to discuss this Agreement with, such
        attorneys and other persons as it may wish; and (iii) has entered into this
        Agreement of its own free will and accord and without threat or duress. This
        Agreement and all information furnished to Agent and Lenders is made and
        furnished in good faith, for value and valuable consideration. This Agreement
        has not been made or induced by any fraud, duress or undue influence exercised
        by Agent or Lenders or any other person.

       

      (h)  No
        Other Defaults.
        Other
        than the Existing Events of Default, no Event of Default exists under the
        Financing Agreement or any of the other Loan Documents and each of each Company
        and Parent is in full compliance with all covenants and agreements contained
        therein.

       

      4.  Ratification
        of Guaranty.
        Parent
        hereby acknowledges and consents to all of the terms and conditions of this
        Agreement and the Loan Documents and hereby ratifies and confirms the Guaranty
        for the benefit of Agent and Lenders. Guarantor hereby represents and
        acknowledges that it has no claims, counterclaims, offsets, credits or defenses
        to the Loan Documents or the performance of its obligations thereunder.
        Guarantor agrees that nothing contained in this Agreement or the Loan Documents
        shall adversely affect any right or remedy of either Agent or Lenders under
        the
        Guaranty. Guarantor hereby agrees that with respect to the Guaranty, all
        references in such Guaranty to the “Obligations” shall include, without
        limitation, the obligations of Companies to Agent and Lenders under the
        Financing Agreement, as amended hereby. Guarantor hereby represents and
        acknowledges that the execution and delivery of this Agreement and the other
        Loan Documents executed in connection herewith shall in no way change or
        modify
        its obligations as a guarantor, debtor, pledgor, assignor, obligor and/or
        grantor under its Guaranty and each other Loan Document to which it is a
        party
        and shall not constitute a waiver by either Agent or any Lender of any of
        either
        Agent’s or any Lender’s rights against Guarantor.

       

      5.  Additional
        Agreements.

       

      (a)  Interest
        During Forbearance
        Period.
        In
        consideration for the forbearance provided for in this Agreement, Companies
        hereby agree with Agent and Lenders that notwithstanding any provision in
        the
        Financing Agreement or any other Loan Document to the contrary, during the
        Forbearance Period all Obligations shall bear interest at the Default Rate
        of
        Interest.

       

      (b)  Additional
        Reporting and Information Requirements.
        In
        addition to any presently existing reporting and informational requirements
        set
        forth in the Financing Agreement, Companies and Parent agree to deliver by
        July 3, 2008, to Agent, in form and substance satisfactory to Agent,
        updated monthly projections for calendar year 2008 for Parent and Companies
        including, without limitation, income statement, balance sheet, Availability
        projection and Fixed Charge Coverage Ratio financial covenant
        projections.

       


      
        
           

        

        
          15

          
            

          

        

        
           

        

      


      


       

      (c)  Additional
        Lender $5,000,000 Revolving Line of Credit Commitment; Increase in Aggregate
        Revolving Line of Credit Commitments from $80,000,000 to
        $85,000,000.
        Effective as of the date the conditions specified in Section
        2
        of this
        Agreement have been satisfied in Agent’s credit judgment or waived by Agent,
        Additional Lender shall become a party to and a “Lender” under the Financing
        Agreement with a Commitment of $5,000,000, which Commitment shall consist
        entirely of Revolving Loans pursuant to the Revolving Line of Credit Commitment
        and the aggregate Revolving Line of Credit Commitments shall accordingly
        be
        increased from $80,000,000 to $85,000,000, and the Lenders shall, through
        Agent,
        make such adjustments among themselves as shall be necessary so that after
        giving effect to such adjustments, the Lenders shall hold Revolving Loans
        in an
        amount not greater than their respective Pro Rata Percentages. Additional
        Lender
        has no Commitment regarding the Term Loans. The parties hereto agree that
        Additional Lender becoming a Lender pursuant to the terms and conditions
        of this
        Agreement and the Financing Agreement shall in no event be deemed to be a
        violation of Section 7.13
        of the
        Financing Agreement.

       

      (d)  Additional
        Lender Obligations.
        Notwithstanding anything to the contrary in the Financing Agreement, the
        parties
        hereto agree that as to Additional Lender, the term “Obligations”, including,
        without limitation, in connection with Obligations which are secured by the
        Collateral, shall only apply to indebtedness and obligations of the Companies
        to
        Additional Lender specifically arising pursuant to the Financing
        Agreement.

       

      (e)  Termination
        of Additional Lender Commitment.
        Notwithstanding anything to the contrary in the Financing Agreement, the
        parties
        hereto agree that Additional Lender’s $5,000,000 Commitment (consisting entirely
        of a Revolving Line of Credit Commitment) shall terminate on July 18, 2008,
        provided that on such date (i) the Existing Events of Default have been
        waived and (ii) no other Default or Event of Default shall be in existence.
        If
        Additional Lender’s Commitment and Revolving Line of Credit Commitment so
        terminates on July 18, 2008, Additional Lender shall thereafter have no
        further commitment to make new loans or advances pursuant to Section 3
        of the
        Financing Agreement or to incur new obligations in connection with Letters
        of
        Credit Guaranties, but the relevant Commitments of the Existing Lenders,
        including, without limitation, the respective Revolving Line of Credit
        Commitment of each Existing Lender, shall remain the same, such that the
        aggregate Revolving Line of Credit Commitments shall thereafter be permanently
        reduced from $85,000,000 to $80,000,000.

       

      6.  Amendments
        to Financing Agreement.

       

      (a)  Amendment
        to Section 1 of Financing Agreement; Additional New Definition.
        Section
        1
        of the
        Financing Agreement is hereby amended by adding thereto the following new
        definition to be inserted in its proper alphabetical order and to read in
        its
        entirety as follows:

       

      “Sixth
        Amendment”
shall
        mean that certain Forbearance Agreement and Sixth Amendment to Second Amended
        and Restated Financing Agreement executed by Agent, Lenders, Companies and
        Parent.”

       


      
        
           

        

        
          16

          
            

          

        

        
           

        

      


      


       

      (b)  Amendment
        to Section 1 of Financing Agreement; Amendment and Restatement of Definition
        of
“Borrowing Base”.
        Effective as of July 9, 2008, the parties hereto agree that Section
        1
        of the
        Financing Agreement is hereby amended by amending and restating the definition
        of “Borrowing Base” to read in its entirety as follows:

       

      “Borrowing
        Base
        shall
        mean, as to Companies, the amount calculated as follows: (a) the
        lesser of
        (i)
        Revolving Line of Credit or (ii) the
        sum of
        (A)
        eighty-five percent (85%) of Companies’ aggregate outstanding Eligible Accounts
        Receivable and Companies’ aggregate outstanding Eligible Unbilled Card-Lock
        Customer Accounts; provided,
        however,
        that if
        the then Dilution Percentage is greater than five percent (5.0%), then the
        rate
        of advance herein shall be reduced by the percentage points by which the
        Dilution Percentage exceeds five percent (5.0%), plus
        (B)
the
        sum of
        (x)
        sixty-five percent (65%) of the aggregate value of Companies’ Eligible
        Inventory, valued at the lower of cost or market, on an average cost basis,
        plus
        (y)
        sixty-five percent (65%) of the aggregate value of Companies’ Eligible Card-Lock
        Inventory, valued at the lower of cost or market, on an average cost basis,
        plus
        (C) the
        Eligible Equipment Based Amount, plus
        (D) the
        lesser of
        (x) one
        hundred percent (100%) of the Dollar balance of the Eligible Cash Collateral
        or
        (y) $10,000,000, minus
        (E) the Availability Block, minus
        (b) any
        applicable Availability Reserves.”

       

      (c)  Amendment
        to Section 1 of Financing Agreement; Deletion of Definition of “Eligible Life
        Insurance Policy”.
        Effective as of July 9, 2008, Section
        1
        of the
        Financing Agreement is amended by deleting therefrom the definition of “Eligible
        Life Insurance Policy”.

       

      (d)  Amendment
        to Section 1 of Financing Agreement; Amendment and Restatement of Definitions
        of
“Commitment” and “Revolving Line of Credit”.
        Effective as of the date the conditions specified in Section
        2
        of this
        Agreement have been satisfied in Agent’s credit judgment or waived by Agent,
Section
        1
        of the
        Financing Agreement is amended by amending and restating the definitions
        of
“Commitment” and “Revolving Line of Credit” to read in their entirety as
        follows:

       

      “Commitment
        shall
        mean, as to any Lender, the amount of the commitment for such Lender set
        forth
        on the signature page to the Sixth Amendment or in the Assignment and Transfer
        Agreement to which such Lender is a party, as such amount may be reduced
        or
        increased in accordance with the provisions of Paragraph
        13.4(b)
        of
Section 13
        or any
        other applicable provisions of this Financing Agreement.

       


      
        
           

        

        
          17

          
            

          

        

        
           

        

      


      


       

      Revolving
        Line of Credit
        shall
        mean the aggregate commitment of the Lenders to make loans and advances pursuant
        to Section 3
        and
        issue Letters of Credit Guaranties to the Companies in the aggregate amount
        equal to the aggregate Revolving Line of Credit Commitment for each Lender
        as
        set forth on the signature page of the Sixth Amendment or in the Assignment
        and
        Transfer Agreement to which such Lender is a party, as such amount may be
        reduced or increased in accordance with the provisions of Paragraph 13.4(b)
        of
Section 13
        or any
        other applicable provision of this Financing Agreement.”

       

      (e)  Amendment
        to Section 3.10 of Financing Agreement.
        Effective as of July 9, 2008, Section
        3.10
        of the
        Financing Agreement is amended by deleting therefrom the present provisions
        of
Section 3.10
        and
        replacing such provisions with “[Reserved]”.

       

      7.  Default.
        Each of
        the following shall constitute a “Forbearance
        Default”
        hereunder:

       

      (a)  any
        representation or warranty of any Company or Parent contained in this Agreement
        proves to have been false or misleading in any material respect when made
        or
        furnished; or

       

      (b)  any
        Company or Parent shall fail to keep or perform any of the covenants or
        agreements contained herein; or

       

      (c)  any
        Company or Parent shall begin to pay SC Fuels or any Affiliate of SC Fuels
        for
        fuel or other goods purchased from SC Fuels or such Affiliate on a quicker
        basis
        than such Company or Parent has historically paid SC Fuels or such Affiliate
        for
        fuel or such other goods, even if paying on such quicker basis is otherwise
        consistent with written documentation between such Company or Parent and
        SC
        Fuels or such Affiliate of SC Fuels; or

       

      (d)  any
        Company or Parent shall fail to keep or perform any of the covenants or
        agreements contained in the Financing Agreement or the other Loan Documents
        (other than an Existing Event of Default); or

       

      (e)  the
        existence of any Event of Default (other than an Existing Event of Default)
        under the Financing Agreement.

       

      8.  Effect
        and Construction of Agreement.
        Except
        as expressly provided herein, the Financing Agreement and the other Loan
        Documents are hereby ratified and confirmed and shall be and shall remain
        in
        full force and effect in accordance with their respective terms, and this
        Agreement shall not be construed to: (i) impair the validity, perfection or
        priority of any lien or security interest securing the Obligations;
        (ii) waive or impair any rights, powers or remedies of Agent and Lenders
        under the Financing Agreement or the other Loan Documents upon termination
        of
        the Forbearance Period; (iii) constitute an agreement by Agent or Lenders
        or require Agent and Lenders to extend the Forbearance Period, or grant
        additional forbearance periods, or extend the term of the Financing Agreement
        or
        the time for payment of any of the Obligations; or (iv) make any loans or
        other extensions of credit to Companies after termination of the Forbearance
        Period. In the event of any inconsistency between the terms of this Agreement
        and the Loan Documents, this Agreement shall govern. Each of each Company
        and
        Parent acknowledges that it has consulted with counsel and with such other
        experts and advisors as it has deemed necessary in connection with the
        negotiation, execution and delivery of this Agreement. This Agreement shall
        be
        construed without regard to any presumption or rule requiring that it be
        construed against the party causing this Agreement or any part hereof to
        be
        drafted.

       


      
        
           

        

        
          18

          
            

          

        

        
           

        

      


      


       

      9.  Expenses.
        Companies agree to pay all costs, fees and expenses of Agent and Agent’s
        attorneys incurred in connection with the negotiation, preparation,
        administration and enforcement of, and the preservation of any rights under,
        this Agreement, the Financing Agreement and/or the other Loan Documents,
        and the
        transactions and other matters contemplated hereby and thereby, including,
        but
        not limited to, the fees, costs and expenses incurred by Agent in the employment
        of auditors and/or consultants to perform work on Agent’s behalf to audit,
        appraise, monitor and otherwise review any and all portions of the
        Collateral.

       

      10.  Miscellaneous.

       

      (a)  Further
        Assurances.
        Each of
        Company and Parent agrees to execute such other and further documents and
        instruments as Agent may request to implement the provisions of this Agreement
        and to perfect and protect the liens and security interests created by the
        Financing Agreement and the other Loan Documents.

       

      (b)  Benefit
        of Agreement.
        This
        Agreement shall be binding upon and inure to the benefit of and be enforceable
        by the parties hereto, their respective successors and assigns. No other
        person
        or entity shall be entitled to claim any right or benefit hereunder, including,
        without limitation, the status of a third-party beneficiary of this
        Agreement.

       

      (c)  Integration.
        This
        Agreement, together with the Financing Agreement and the other Loan Documents,
        constitutes the entire agreement and understanding among the parties relating
        to
        the subject matter hereof, and supersedes all prior proposals, negotiations,
        agreements and understandings relating to such subject matter. In entering
        into
        this Agreement, each of each Company and Parent acknowledges that it is relying
        on no statement, representation, warranty, covenant or agreement of any kind
        made by the Agent or any Lender or any employee or agent of the Agent or
        any
        Lender, except for the agreements of Agent and Lenders set forth
        herein.

       

      (d)  Severability.
        The
        provisions of this Agreement are intended to be severable. If any provisions
        of
        this Agreement shall be held invalid or unenforceable in whole or in part
        in any
        jurisdiction, such provision shall, as to such jurisdiction, be ineffective
        to
        the extent of such invalidity or enforceability without in any manner affecting
        the validity or enforceability of such provision in any other jurisdiction
        or
        the remaining provisions of this Agreement in any jurisdiction.

       


      
        
           

        

        
          19

          
            

          

        

        
           

        

      


      


       

      (e)  Governing
        Law.
        This
        Agreement shall be governed by and construed in accordance with the internal
        substantive laws of the State of Texas, without regard to the choice of law
        principles of such state.

       

      (f)  Counterparts;
        Telecopied Signatures.
        This
        Agreement may be executed in any number of counterparts and by different
        parties
        to this Agreement on separate counterparts, each of which, when so executed,
        shall be deemed an original, but all such counterparts shall constitute one
        and
        the same agreement. Any signature delivered by a party by facsimile transmission
        shall be deemed to be an original signature hereto.

       

      (g)  Notices.
        Any
        notices with respect to this Agreement shall be given in the manner provided
        for
        in Section 12.6
        of the
        Financing Agreement.

       

      (h)  Survival.
        All
        representations, warranties, covenants, agreements, undertakings, waivers
        and
        releases of each Company and Parent contained herein shall survive the
        termination of the Forbearance Period and payment in full of the
        Obligations.

       

      (i)  Amendment.
        No
        amendment, modification, rescission, waiver or release of any provision of
        this
        Agreement shall be effective unless the same shall be in writing and signed
        by
        the parties hereto.

       

      (j)  No
        Limitation on Lender.
        Nothing
        in this Agreement shall be deemed in any way to limit or restrict any of
        Agent’s
        or any Lender’s rights to seek in a bankruptcy court or any other court of
        competent jurisdiction, any relief Agent may deem appropriate in the event
        that
        a voluntary or involuntary petition under any title of the Bankruptcy Code
        is
        filed by or against any Company or Parent.

       

      (k)  Material
        Inducement.
        Each of
        each Company and Parent further acknowledges and agrees that the
        representations, acknowledgments, agreements and warranties in this Agreement
        have been made by such Company or Parent as a material inducement to Agent
        and
        Lenders to enter into this Agreement, that each of Agent and each Lender
        is
        relying on such representations and warranties, has changed and will continue
        to
        change its position in reliance thereon and that each of Agent and each Lender
        would not have entered into this Agreement without such representations,
        acknowledgments, agreements, and warranties.

       

      11.  Misrepresentation.
        Each of
        each Company and Parent shall indemnify and hold Agent and Lenders harmless
        from
        and against any and all losses, damages, costs and expenses (including
        attorneys’ fees) incurred by Agent or Lenders as a direct or indirect result of
        (i) any breach of any representation or warranty contained in this Agreement,
        or
        (ii) any breach or default under any of the covenants or agreements contained
        in
        this Agreement.

       

      12.  Ratification
        of Liens and Security Interest.
        Each of
        each Company and Parent hereby acknowledges and agrees that the liens and
        security interests of the Financing Agreement and the other Loan Documents
        are
        valid, subsisting, perfected and enforceable liens and security interests
        and
        are superior to all liens and security interests other than those exceptions
        approved by Lender in writing.

       


      
        
           

        

        
          20

          
            

          

        

        
           

        

      


      


       

      13.  No
        Commitment.
        Each of
        each Company and Parent agrees that neither Agent nor any Lender has made
        any
        commitment or other agreement regarding the Financing Agreement or the other
        Loan Documents, except as expressly set forth in this Agreement. Each of
        each
        Company and Parent warrants and represents that it will not rely on any
        commitment, further agreement to forbear or other agreement on the part of
        Agent
        or Lenders unless such commitment or agreement is in writing and signed by
        Agent
        and Lenders.

       

      14.  NO
        COUNTERCLAIMS; RELEASE OF CLAIMS; WAIVER; HOLD HARMLESS.
        EACH OF EACH COMPANY AND PARENT REPRESENTS AND WARRANTS THAT IT HAS NO SET-OFF,
        RECOUPMENT, COUNTERCLAIM, DEFENSE, CROSS-COMPLAINT, CLAIM, DEMAND OR OTHER
        CAUSE
        OF ACTION OF ANY NATURE WHATSOEVER (TOGETHER, THE “COUNTERCLAIMS”)
        AGAINST AGENT OR ANY LENDER WHICH ARISE OUT OF THE TRANSACTIONS EVIDENCED
        BY THE
        FINANCING AGREEMENT OR THE OTHER LOAN DOCUMENTS, ANY TRANSACTIONS THAT WERE
        RENEWED OR EXTENDED BY THE FINANCING AGREEMENT OR THE OTHER LOAN DOCUMENTS,
        ANY
        OTHER TRANSACTION WITH AGENT OR ANY LENDER, OR WHICH COULD BE ASSERTED TO
        REDUCE
        OR ELIMINATE ALL OR ANY PART OF ANY COMPANY’S OR PARENT’S LIABILITY TO REPAY THE
        OBLIGATIONS OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE
        FROM
        AGENT OR ANY LENDER, IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF
        CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, INCLUDING,
        WITHOUT LIMITATION, ANY CONTRACTING FOR, CHANGING, TAKING, RESERVING, COLLECTING
        OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE
        EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE FINANCING AGREEMENT OR THE
        OTHER
        LOAN DOCUMENTS, THE NEGOTIATION FOR AND EXECUTION OF THIS AGREEMENT AND ANY
        SETTLEMENT NEGOTIATIONS. TO THE EXTENT THAT ANY COUNTERCLAIMS MAY EXIST,
        WHETHER
        KNOWN OR UNKNOWN, SUCH ARE WAIVED AND HEREBY RELEASED BY EACH COMPANY AND
        PARENT. FURTHERMORE, EACH OF EACH COMPANY AND PARENT, ON BEHALF OF ITSELF,
        ITS
        SUCCESSORS, AGENTS, ATTORNEYS, OFFICERS, DIRECTORS, ASSIGNS AND PERSONNEL
        AND
        LEGAL REPRESENTATIVES, DOES HEREBY RELEASE, REMISE, ACQUIT AND FOREVER DISCHARGE
        AGENT AND EACH LENDER AND AGENT’S AND EACH LENDER’S EMPLOYEES, AGENTS,
        REPRESENTATIVES, CONSULTANTS, ATTORNEYS, FIDUCIARIES, SERVANTS, OFFICERS,
        DIRECTORS, PARTNERS, PREDECESSORS, SUCCESSORS AND ASSIGNS, SUBSIDIARY
        CORPORATIONS, PARENT CORPORATIONS, AND RELATED CORPORATE DIVISIONS (ALL OF
        THE
        FOREGOING HEREINAFTER CALLED THE “RELEASED
        PARTIES”),
        FROM ANY AND ALL ACTIONS AND CAUSES OF ACTION, JUDGMENTS, EXECUTIONS, SUITS,
        DEBTS, CLAIMS, DEMANDS, LIABILITIES, OBLIGATIONS, DAMAGES AND EXPENSES OF
        ANY
        AND EVERY CHARACTER, KNOWN OR UNKNOWN, DIRECT AND/OR INDIRECT, AT


       


      
        
           

        

        
          21

          
            

          

        

        
           

        

      


      LAW
        OR IN EQUITY, OF WHATSOEVER KIND OR NATURE, WHETHER HERETOFORE OR HEREAFTER
        ARISING, FOR OR BECAUSE OF ANY MATTER OR THINGS DONE, OMITTED OR SUFFERED
        TO BE
        DONE BY ANY OF THE RELEASED PARTIES PRIOR TO AND INCLUDING THE DATE OF EXECUTION
        HEREOF, AND IN ANY WAY DIRECTLY OR INDIRECTLY ARISING OUT OF OR IN ANY WAY
        CONNECTED TO THIS AGREEMENT, THE FINANCING AGREEMENT OR THE OTHER LOAN
        DOCUMENTS, IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT,
        TORT,
        VIOLATION OF LAW OR REGULATIONS OR OTHERWISE, INCLUDING BUT NOT LIMITED TO,
        ANY
        CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST
        IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS
        AND
        REMEDIES UNDER THE FINANCING AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS,
        THE
        NEGOTIATION FOR AND EXECUTION OF THIS AGREEMENT, OR ANY SETTLEMENT NEGOTIATIONS
        (ALL OF THE FOREGOING HEREINAFTER CALLED THE “RELEASED
        MATTERS”);
        AND EACH OF EACH COMPANY AND PARENT HEREBY COVENANTS AND AGREES NEVER TO
        INSTITUTE ANY ACTION OR SUIT AT LAW OR IN EQUITY, NOR INSTITUTE, PROSECUTE,
        OR
        IN ANY WAY AID IN THE INSTITUTION OR PROSECUTION OF, ANY CLAIM, ACTION OR
        CAUSE
        OF ACTION, RIGHTS TO RECOVER DEBTS OR DEMANDS OF ANY NATURE AGAINST ANY OF
        THE
        RELEASED PARTIES ARISING OUT OF OR RELATED TO AGENT’S OR ANY LENDER’S ACTIONS,
        OMISSIONS, STATEMENTS, REQUESTS OR DEMANDS IN ADMINISTERING, ENFORCING,
        MONITORING, COLLECTING OR ATTEMPTING TO COLLECT, THE OBLIGATIONS, INDEBTEDNESS
        AND OTHER OBLIGATIONS OF COMPANIES AND PARENT TO AGENT AND LENDERS. EACH
        OF EACH
        COMPANY AND PARENT AGREES TO INDEMNIFY AND HOLD AGENT AND EACH LENDER HARMLESS
        FROM ANY AND ALL COUNTERCLAIMS THAT ANY COMPANY OR PARENT OR ANY OTHER PERSON
        OR
        ENTITY CLAIMING BY, THROUGH, OR UNDER ANY COMPANY OR PARENT MAY AT ANY TIME
        ASSERT AGAINST AGENT OR ANY LENDER. EACH OF EACH COMPANY AND PARENT ACKNOWLEDGES
        THAT THE AGREEMENTS IN THIS PARAGRAPH ARE INTENDED TO BE IN FULL SATISFACTION
        OF
        ALL OR ANY ALLEGED INJURIES OR DAMAGES TO EACH OF EACH COMPANY AND PARENT,
        ITS
        SUCCESSORS, AGENTS, ATTORNEYS, OFFICERS, DIRECTORS, ASSIGNS AND PERSONAL
        AND
        LEGAL REPRESENTATIVES ARISING IN CONNECTION WITH THE RELEASED MATTERS. EACH
        OF
        EACH COMPANY AND PARENT REPRESENTS AND WARRANTS TO AGENT AND LENDERS THAT
        IT HAS
        NOT PURPORTED TO TRANSFER, ASSIGN OR OTHERWISE CONVEY ANY RIGHT, TITLE OR
        INTEREST OF SUCH COMPANY OR PARENT IN ANY RELEASED MATTER TO ANY OTHER PERSON
        AND THAT THE FOREGOING CONSTITUTES A FULL AND COMPLETE RELEASE OF EACH OF
        EACH
        COMPANY’S AND PARENT’S CLAIMS WITH RESPECT TO ALL RELEASED MATTERS. THE
        PROVISIONS OF THIS SECTION
        14
        AND THE REPRESENTATIONS, WARRANTIES, RELEASES, WAIVERS,
        REMISES, ACQUITTANCES, DISCHARGES, COVENANTS, AGREEMENTS
        AND 

       


      
        
           

        

        
          22

          
            

          

        

        
           

        

      


      INDEMNIFICATIONS
        CONTAINED HEREIN (A) CONSTITUTE A MATERIAL CONSIDERATION FOR AND INDUCEMENT
        TO
        AGENT AND EACH LENDER ENTERING INTO THIS AGREEMENT, (B) DO NOT CONSTITUTE
        AN
        ADMISSION OF OR BASIS FOR ESTABLISHING ANY DUTY, OBLIGATION OR LIABILITY
        OF
        AGENT OR ANY LENDER TO ANY COMPANY OR PARENT OR ANY OTHER PERSON, (C) DO
        NOT
        CONSTITUTE AN ADMISSION OF OR BASIS FOR ESTABLISHING ANY LIABILITY, WRONGDOING,
        OR VIOLATION OF ANY OBLIGATION, DUTY OR AGREEMENT OF AGENT OR ANY LENDER
        TO ANY
        COMPANY OR PARENT OR ANY OTHER PERSON, AND (D) SHALL NOT BE USED AS EVIDENCE
        AGAINST AGENT OR ANY LENDER BY ANY COMPANY OR PARENT OR ANY OTHER PERSON
        FOR ANY
        PURPOSE.

       

      
        
           

        

        
          23

          
            

          

        

        
           

        

      

    

     

    

      


       


      IN
        WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
        and
        year first above written to be effective as of the respective date set forth
        above.

       

      
        	 	
                COMPANIES:

              
	 	
                UNITED
                  FUEL & ENERGY CORPORATION,

              
	 	
                a
                  Texas corporation

                 

                 

                 

              
	 	
                By:

              	
                /s/
                  D. Lyndon James

              
	 	
                Name:

              	
                D.
                  Lyndon James

              
	 	
                Title:

              	
                Vice
                  President and Chief Financial Officer

              
	 	
                 

                 

                THREE
                  D OIL CO. OF KILGORE, INC.,

              
	 	
                a
                  Texas corporation

                 

                 

              
	 	
                By: 

              	
                /s/
                  D. Lyndon James

              
	 	
                Name:

              	
                D.
                  Lyndon James

              
	 	
                Title:

              	
                Vice
                  President and Chief Financial Officer

              
	 	
                 

                 

                CARDLOCK
                  FUELS SYSTEM, INC.,

              
	 	
                a
                  California corporation

                 

                 

                 

              
	 	
                By:

              	
                /s/
                  D. Lyndon James

              
	 	
                Name:

              	
                D.
                  Lyndon James

              
	 	
                Title:

              	
                Vice
                  President and Chief Financial Officer

              
	 	
                 

                 

                 

                PARENT:

                 

              
	 	
                UNITED
                  FUEL & ENERGY CORPORATION,

              
	 	
                a
                  Nevada corporation

                 

                 

                 

              
	 	
                By:

              	
                /s/
                  D. Lyndon James

              
	 	
                Name:

              	
                D.
                  Lyndon James

              
	 	
                Title:

              	
                Vice
                  President and Chief Financial
                  Officer

              


      

      


       


      
        
           

        

        
           

          
            

          

        

        
           

        

      


      


       

      
        	 	
                AGENT:

                 

              
	 	
                THE
                  CIT GROUP/BUSINESS CREDIT, INC.,

              
	 	
                as
                  Agent

                 

                 

                 

              
	 	
                By:

              	
                /s/
                  Robyn Pingree

              
	 	
                Name:

              	
                Robyn
                  Pingree

              
	 	
                Title:

              	
                Vice
                  President

              
	 	
                 

                 

                 

                LENDERS:

                 

              
	 	
                THE
                  CIT GROUP/BUSINESS CREDIT, INC.,

              
	 	
                as
                  a Lender

                 

                 

                 

              
	 	
                By:

              	
                /s/
                  Robyn Pingree

              
	 	
                Name:

              	
                Robyn
                  Pingree

              
	 	
                Title:

              	
                Vice
                  President

              


      

      
        	 	
                Amount
                  of Commitment:        $29,099,147.82

                 

              
	 	
                Amount
                  of Revolving Line

              
	 	
                of
                  Credit Commitment:          $26,666,666.67

              


      

      


       

      


       

      


       

      
        	
                 

              	
                SUNTRUST
                  BANK, as a Lender

                 

                 

                 

              
	 	
                By:

              	
                /s/
                  Brian O’Fallon

              
	
                 

              	
                Name:

              	
                Brian
                  O’Fallon

              
	 	
                Title:

              	
                Director

              


      

      
        	 	
                Amount
                  of Commitment:        $19,399,431.88

                 

              
	 	
                Amount
                  of Revolving Line

              
	 	
                of
                  Credit Commitment:          $17,777,777.78

              


      

      



      
        
           

        

        
           

          
            

          

        

        
           

        

      


      


       

      
        	 	
                PNC
                  BANK, NATIONAL ASSOCIATION,

              
	 	
                as
                  a Lender

                 

                 

                 

              
	 	
                By:

              	
                /s/
                  Paul R. Frank

              
	 	
                Name:

              	
                Paul
                  R. Frank

              
	 	
                Title:

              	
                Vice
                  President

              
	 	
                 

                Amount
                  of Commitment:        $19,399,431.88

              
	 	
                 

                Amount
                  of Revolving Line

              
	 	
                of
                  Credit Commitment:          $17,777,777.78

                 

                 

                 

              
	 	
                WACHOVIA
                  BANK, N.A., as a Lender

                 

                 

                 

              
	 	
                By:

              	
                /s/
                  Thomas P. Floyd

              
	 	
                Name:

              	
                Thomas
                  P. Floyd

              
	 	
                Title:

              	
                Vice
                  President

              
	 	
                 

                Amount
                  of Commitment:        $19,399,431.88

              
	 	
                 

                Amount
                  of Revolving Line

              
	 	
                of
                  Credit Commitment:          $17,777,777.78

                 

                 

              
	 	 	 
	 	
                THE
                  GREINKE PERSONAL LIVING TRUST

                 

                 

              
	 	 	 
	 	
                By:
                  

              	
                 /s/
                  Frank P. Greinke

              
	 	
                 

              	
                Frank
                  P. Greinke, Trustee

                 

              
	 	
                Amount
                  of Commitment:        $5,000,000.00

              
	 	
                 

                Amount
                  of Revolving Line

              
	 	
                of
                  Credit Commitment:          $5,000,000.00