Document:

JULY
        31, 2005 AMENDMENT TO AMENDED AND RESTATED 

      FINANCING
        AGREEMENT

      

      THIS
        JULY 31, 2005 AMENDMENT TO AMENDED AND RESTATED FINANCING
        AGREEMENT
        (“this
        Agreement”)
        entered into on this _____ day of November, 2005, to be effective, unless
        another effective date is otherwise herein specified, as of July 31, 2005
        (“Effective
        Date”),
        is by
        and among The CIT Group Business Credit, Inc. (“CIT”)
        and
        SunTrust Bank (“SunTrust”)
        as
        Lenders (“Lenders”),
        CIT
        as administrative and collateral agent (“Agent”)
        and
        Eddins-Walcher Company (“Eddins”)
        and
        Three D Oil Co. of Kilgore, Inc. (“Three D”)
        (Eddins and Three D being herein individually referred to as a
“Company”
        and
        collectively referred to as the “Companies”).

       

      RECITALS

      A.  Companies,
        Agent and Lenders entered into that certain Amended and Restated Financing
        Agreement, dated as of April 8, 2005, together with all riders, addenda,
        exhibits and other documents relating thereto (collectively, as amended from
        time to time, the “Financing
        Agreement”).

       

      B.  Pursuant
        to the terms and conditions this Agreement, each Company, each Lender and
        Agent
        are willing to amend the Financing Agreement and to agree to certain other
        agreements, all as hereinafter set forth.

       

      NOW,
        THEREFORE,
        in
        consideration of the premises herein contained and other good and valuable
        consideration, the receipt and sufficiency of which are hereby acknowledged,
        the
        parties, intending to be legally bound, agree as follows:

       

      ARTICLE
        I

      Definitions

       

      1.01  Capitalized
        terms used in this Agreement are defined in the Financing Agreement, as amended
        hereby, unless otherwise stated.

       

      ARTICLE
        II

      Agreements

       

      2.01  Amendments
        to Financing Agreement.
        Agent,
        Lenders and Companies hereby amend the Financing Agreement as
        follows:

       

      (a)  Amendment
        to Section 1 of Financing Agreement; Addition of New
        Definition.
        Effective as of the Effective Date, the following new definition is hereby
        added
        to Section 1 of the Financing Agreement, such new definition to be
        inserted
        in its proper alphabetical order and to read in its entirety as
        follows:

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      “July31,
        2005 Amendment
        shall
        mean that certain July 31, 2005 Amendment to Amended and Restated Financing
        Agreement executed by Companies, Lenders and Agent.”

       

      (b)  Amendment
        and Restatement of Definition of “Borrowing Base” contained in Section 1 of
        the Financing Agreement.
        Effective as of the Effective Date, the definition of “Borrowing Base” contained
        in Section 1 of the Financing Agreement is amended and restated 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 the Companies’ aggregate outstanding
        Eligible Accounts Receivable; 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 5% (5.0%), plus
        (B) the
        lesser of
        (x) the Inventory Loan Cap or (y) the sum of: (1) 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
        (2) the
        lesser of
        (aa) fifty percent (50%) of the aggregate value of Companies’ Eligible
        Card-Lock Inventory, valued at the lower of cost or market, on an average
        cost
        basis, or (bb) the Card-Lock Inventory Loan Cap, plus
        (C) the Eligible Equipment Based Amount, plus
        (D) one hundred percent (100%) of the aggregate Eligible Cash Surrender
        Value of Eligible Life Insurance Policies, minus
        (b) any applicable Availability Reserves.”

       

      (c)  Amendment
        and Restatement of Definition of “Card-Lock Inventory Cap” contained in
        Section 1 of the Financing Agreement.
        Effective as of the Effective Date, the definition of “Card-Lock Inventory Loan
        Cap” contained in Section 1 of the Financing Agreement is amended and
        restated to read in its entirety as follows:

       

      “Card-Lock
        Inventory Loan Cap
        shall
        mean $1,500,000.”

       

      (d)  Amendment
        and Restatement of Definition of “Commitment” contained in Section 1 of the
        Financing Agreement.
        Effective as of the Effective Date, the definition of “Commitment” contained in
        Section 1 of the Financing Agreement is amended and restated to read
        in its
        entirety as follows:

       

      “Commitment
        shall mean, as to any Lender, the amount of commitment of such Lender, such
        amount to be (i) as to CIT, $35,000.000, (ii) as to SunTrust, $20,000,000,
        and
        (iii) as to any other Lender, the amount set forth in Schedule I to 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
        and Restatement of Definition of “Eligible Unbilled Card-Lock Customer Accounts
        Sub-Limit” contained in Section 1 of the Financing
        Agreement.
        Effective as of the Effective Date, the definition of “Eligible Unbilled
        Card-Lock Customer Accounts Sub-Limit” contained in Section 1 of the
        Financing Agreement is amended and restated to read in its entirety as
        follows:

       

      “Eligible
        Unbilled Card-Lock Customer Accounts Sub-Limit
        shall
        mean $9,500,000.”

       

      (f)  Amendment
        and Restatement of Definition of “Inventory Loan Cap” contained in Section 1 of
        the Financing Agreement.
        Effective as of the Effective Date, the definition of “Inventory Loan Cap”
        contained in Section 1 of the Financing Agreement is amended and restated
        to
        read in its entirety as follows:

       

      “Inventory
        Loan Cap
        shall
        mean $6,500,000.”

       

      (g)  Amendment
        and Restatement of Definition of “Revolving Line of Credit” contained in
        Section 1 of the Financing Agreement.
        Effective as of the Effective Date, the definition of “Revolving Line of Credit”
        contained in Section 1 of the Financing Agreement is amended and restated
        to read in its entirety as follows:

       

      “Revolving
        Line of Credit
        shall
        mean the aggregate commitment of the Lenders to make loans and advances pursuant
        to Section 3 hereof and issue Letters of Credit Guaranties to the
        Companies, in the aggregate amount of $55,000,000.”

       

      (h)  Amendment
        and Restatement of Definition of “Unfinanced Capital Expenditures” contained in
        Section 1 of the Financing Agreement.
        Effective as of the Effective Date, the definition of “Unfinanced Capital
        Expenditures” contained in Section 1 of the Financing Agreement is amended
        and restated to read in its entirety as follows:

       

      “Unfinanced
        Capital Expenditures
        shall
        mean Capital Expenditures incurred by the Companies to the extent not funded
        with either (i) proceeds of Indebtedness secured by Purchase Money Liens
        (other
        than the Revolving Loans) or (ii) proceeds of cash infusions of
        equity.”

       

      (i)  Amendment
        and Restatement of Paragraph 7.10(a) of Section 7 of the Financing
        Agreement.
        Effective as of the Effective Date, Paragraph 7.10(a) of Section 7 of the
        Financing Agreement is amended and restated to read in its entirety as
        follows:

       

      “(a) Maintain
        as of the last day of each calendar month indicated below, for the period
        of
        time ending on such day indicated below, a Fixed Charge Coverage Ratio for
        such
        period of not less than the ratio indicated below:

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      
        	 	
                 

                Period
                  of Time

              	 	 	
                
                

                Ratio

              	 
	 	 	 	 	 	 
	(i)  	
                Three
                  Calendar Month Period Ending on October 31, 2005

              	 	 	
                (i)1.00
                  to 1.00

              	 
	(ii)	
                Four
                  Calendar Month Period Ending on November 30, 2005

              	 	 	
                (ii)1.00
                  to 1.00

              	 
	(iii)	
                Five
                  Calendar Month Period Ending on December 31, 2005 

              	 	 	
                (iii)1.00
                  to 1.00

              	 
	(iv) 	
                Six
                  Calendar Month Period Ending on January 31, 2006 

              	 	 	
                (iv)1.00
                  to 1.00

              	 
	(v)	
                Seven
                  Calendar Month Period Ending on February 28, 2006 

              	 	 	
                (v)1.00
                  to 1.00

              	 
	(vi) 	
                Eight
                  Calendar Month Period Ending on March 31, 2006 

              	 	 	
                (vi)1.00
                  to 1.00

              	 
	(vii)	
                Nine
                  Calendar Month Period Ending on April 30, 2006

              	 	 	
                (vii)1.02
                  to 1.00

              	 
	(viii)	
                Ten
                  Calendar Month Period Ending on May 31, 2006

              	 	 	
                (viii)1.02.
                  to 1.00

              	 
	(ix)	
                Eleven
                  Calendar Month Period Ending on June 30, 2006

              	 	 	
                (ix)1.02
                  to 1.00

              	 
	(x)	
                Twelve
                  Calendar Month Period Ending July 31, 2006

              	 	 	
                (x)1.02
                  to 1.00

              	 
	(xi) 	
                Twelve
                  Calendar Month Period Ending on August 31, 2006

              	 	 	
                (xi)1.02
                  to 1.00

              	 
	(xii) 	
                Twelve
                  Calendar Month Period Ending on September 30, 2006, and
                  on the Last
                  Day of each thereafter occurring Calendar Month”

              	 	 	
                (xii)1.05
                  to 1.00

              	 

      

       

      (j)  Amendment
        and Restatement of Paragraph 7.10(b) of Section 7 of the Financing
        Agreement.
        Effective as of the Effective Date, Paragraph 7.10(b) of Section 7
        of
        the Financing Agreement is amended and restated to read in its entirety as
        follows:

       

      “(b) (i)
        Maintain as of the last day of November, 2005, for the one calendar month
        period
        ending on such day, Daily Average Availability of at least $1,500,000 and
        thereafter, (ii) maintain as of the last day of each calendar month, beginning
        with December, 2005, for the two calendar month period ending on such day,
        Daily
        Average Availability of at least the following respective amount: (x) for
        each
        of December, 2005, January, 2006, and February, 2006, the minimum required
        amount of Daily Average Availability shall be $1,650,000, and (y) thereafter,
        the minimum required amount of Daily Average Availability shall increase
        on each
        Minimum Daily Average Availability Increase Date by $150,000, with such new
        minimum required amount of Daily Average Availability to remain in effect
        until
        the next ‘Minimum Daily Availability Increase Date’. For the purposes of this
        Paragraph 7.10(b) of Section 7 of this Financing Agreement, the term
        Minimum Daily Average Availability Increase Date shall mean the last day
        of each
        March, June, September and December, beginning with March, 2006. Notwithstanding
        the foregoing, in no event shall the Daily Average Availability required
        as of
        the last day of any month hereunder exceed five percent (5%) of the Revolving
        Line of Credit in effect on such day. Companies acknowledge that as to any
        proposed acquisition that will result in an increase in Availability, any
        approval by the Agent and Required Lenders of such proposed acquisition may
        include a requirement that the above Daily Average Availability requirement
        be
        increased by an amount satisfactory to Agent, in its sole discretion (but
        such
        increase shall not exceed 50% of that portion of the Borrowing Base to be
        contributed by the entity or assets acquired, as determined by the Agent,
        in its
        sole discretion.)”

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      2.02  Fee.
        In
        consideration for the agreements set forth herein, Companies shall pay to
        Agent,
        for the sole account of Agent, a fee in the amount of $25,000 (“Agreement
        Fee”),
        which
        Agreement Fee (a) shall be deemed fully earned on the date of execution of
        this
        Agreement, (b) shall be nonrefundable and (c) shall be due and payable
        in
        full on the date of execution of this Agreement.

       

      2.03  Delivery
        of Sterling Bank Amended and Restated Intercreditor
        Agreement.
        Companies hereby agree to deliver within thirty days of the date of execution
        of
        this Agreement the Amended and Restated Intercreditor Agreement [Sterling
        Bank],
        duly executed by Companies, Thomas E. Kelly, United Fuel & Energy
        Corporation, a Texas corporation, United Fuel & Energy Corporation, a Nevada
        corporation, and Sterling Bank. Failure by Companies to deliver such executed
        document within such time period shall constitute an Event of Default pursuant
        to the Financing Agreement. 

       

      ARTICLE
        III

      No
        Waivers

       

      3.01  No
        Waivers.
        Nothing
        contained herein shall be construed as a waiver by Agent or Lenders of any
        covenant or provision of the Financing Agreement or any other Loan Document
        or
        any other contract or instrument between any Company, Agent or Lenders, and
        Agent’s or Lenders’ failure at any time or times hereafter to require strict
        performance by any Company of any provision thereof shall not waive, affect
        or
        diminish any right of Agent or Lenders thereafter to demand strict compliance
        therewith. Each of each Lender and Agent hereby reserves all rights granted
        under the Financing Agreement, and each other Loan Document and any other
        contract or instrument between any Company and Agent or Lenders.

       

      ARTICLE
        IV

      Conditions
        Precedent

       

      4.01  Conditions
        to Effectiveness.
        The
        effectiveness of this Agreement is subject to the satisfaction of the following
        conditions precedent, unless specifically waived in writing by
        Agent:

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      (a)  Agent
        shall have received all of the following, each in form and substance
        satisfactory to Agent (each of which shall be deemed to be a “Loan
        Document”
        for
        purposes of the Financing Agreement):

       

      (i)  This
        Agreement, duly executed by Companies;

       

      (ii)  Consent,
        Ratification and Release executed by Thomas E. Kelly, United Fuel & Energy
        Corporation, a Texas corporation, and United Fuel & Energy Corporation, a
        Nevada corporation; 

       

      (iii)  Second
        Amended Restated Limited Guaranty in the form of Annex I attached
        hereto
        duly executed by Companies and Thomas E. Kelly; and

       

      (iv)  Such
        additional documents, instruments and information as Agent may
        request.

       

      (b)  Agent
        shall have received payment, in immediately available funds, of the Agreement
        Fee;

       

      (c)  The
        representations and warranties contained herein and in the Financing Agreement,
        and the other Loan Documents, as each is amended hereby, shall be true and
        correct as of the date hereof, as if made on the date hereof;

       

      (d)  No
        Default or Event of Default shall have occurred and be continuing, unless
        such
        Event of Default has been otherwise specifically waived in writing by Lenders;
        and

       

      (e)  All
        corporate 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 and its legal counsel.

       

      ARTICLE
        V

      Ratifications,
        Representations and Warranties

       

      5.01  Ratifications.
        The
        terms and provisions set forth in this Agreement shall modify and supersede
        all
        inconsistent terms and provisions set forth in the Financing Agreement and
        the
        other Loan Documents, and, except as expressly modified and superseded by
        this
        Agreement, the terms and provisions of the Financing Agreement and the other
        Loan Documents are ratified and confirmed and shall continue in full force
        and
        effect. Each of the parties hereto agrees that the Financing Agreement and
        the
        other Loan Documents, as amended hereby, shall continue to be legal, valid,
        binding and enforceable in accordance with their respective terms.

       

      5.02  Representations
        and Warranties.
        Each
        Company hereby represents and warrants to Agent and Lenders that (a) the
        execution, delivery and performance of this Agreement and any and all other
        Loan
        Documents executed and/or delivered in connection herewith have been authorized
        by all requisite corporate action on the part of each of each Company and
        will
        not violate the Articles of Incorporation or Bylaws of any Company; (b) the
        representations and warranties contained in the Financing Agreement, as amended
        hereby, and any other Loan Document are true and correct on and as of the
        date
        hereof and on and as of the date of execution hereof as though made on and
        as of
        each such date; and (c) no Default or Event of Default under the Financing
        Agreement, as amended hereby, has occurred and is continuing, unless such
        Default or Event of Default has been specifically waived in writing by Agent
        and
        Lenders. Each Company hereby represents and warrants to Agent and Lenders
        that
        it is in full compliance with all covenants and agreements contained in the
        Financing Agreement, and the other Loan Documents, as amended
        hereby.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      ARTICLE
        VI

      Miscellaneous
        Provisions

       

      6.01  Survival
        of Representations and Warranties.
        All
        representations and warranties made in the Financing Agreement or any other
        Loan
        Document, including, without limitation, any document furnished in connection
        with this Agreement, shall survive the execution and delivery of this Agreement
        and the other Loan Documents, and no investigation by Agent or any Lender
        or any
        closing shall affect the representations and warranties or the right of Agent
        and Lenders to rely upon them.

       

      6.02  Reference
        to Financing Agreement.
        Each of
        the Financing Agreement and the other Loan Documents and any and all other
        agreements, documents or instruments now or hereafter executed and delivered
        pursuant to the terms hereof or pursuant to the terms of the Financing
        Agreement, as amended hereby, is hereby amended so that any reference in
        the
        Financing Agreement and such other Loan Documents to the Financing Agreement
        shall mean a reference to the Financing Agreement as amended
        hereby.

       

      6.03  Expenses
        of Lender.
        Each
        Company agrees to pay on demand all costs and expenses incurred by Agent
        and
        Lenders in connection with the preparation, negotiation and execution of
        this
        Agreement and the other Loan Documents executed pursuant hereto, and any
        and all
        amendments, modifications, and supplements thereto, including, without
        limitation, the costs and fees of Agent’s and Lenders’ legal counsel, and all
        costs and expenses incurred by Agent and Lenders in connection with the
        enforcement or preservation of any rights under the Financing Agreement,
        as
        amended hereby, or any other Loan Document, including, without limitation,
        the
        costs and fees of Agent’s and each Lender’s legal counsel.

       

      6.04  Severability.
        Any
        provision of this Agreement held by a court of competent jurisdiction to
        be
        invalid or unenforceable shall not impair or invalidate the remainder of
        this
        Amendment and the effect thereof shall be confined to the provision so held
        to
        be invalid or unenforceable.

       

      6.05  Successors
        and Assigns.
        This
        Agreement is binding upon and shall inure to the benefit of the parties hereto
        and their respective successors and assigns, except no Company may assign
        or
        transfer any of its rights or obligations hereunder without the prior written
        consent of Agent and Lenders.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      6.06  Counterparts.
        This
        Agreement may be executed in one or more counterparts, each of which when
        so
        executed shall be deemed to be an original, but all of which when taken together
        shall constitute one and the same instrument.

       

      6.07  Effect
        of Waiver.
        No
        consent or waiver, express or implied, by Agent or any Lender to or for any
        breach of or deviation from any covenant or condition by any Company shall
        be
        deemed a consent to or waiver of any other breach of the same or any other
        covenant, condition or duty.

       

      6.08  Headings.
        The
        headings, captions, and arrangements used in this Agreement are for convenience
        only and shall not affect the interpretation of this Agreement

       

      6.09  Applicable
        Law.
        THIS AGREEMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED PURSUANT HERETO SHALL
        BE
        DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND SHALL BE GOVERNED BY
        AND
        CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
        TEXAS.

       

      6.10  Final
        Agreement.
        THIS AGREEMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
        BETWEEN THE PARTIES, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
        CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE
        ARE NO
        UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      6.11  Release.
        EACH COMPANY HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE, COUNTERCLAIM, OFFSET,
        CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE WHATSOEVER THAT CAN
        BE
        ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS LIABILITY TO REPAY
        THE
“OBLIGATIONS” OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE
        FROM AGENT OR ANY LENDER. EACH COMPANY HEREBY VOLUNTARILY AND KNOWINGLY RELEASES
        AND FOREVER DISCHARGES AGENT AND EACH LENDER, ITS PREDECESSORS, AGENTS,
        EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS,
        CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN
        OR
        UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED,
        CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR
        IN PART
        ON OR BEFORE THE DATE THIS AGREEMENT IS EXECUTED, WHICH ANY COMPANY MAY NOW
        OR
        HEREAFTER HAVE AGAINST AGENT OR ANY LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES,
        SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS
        ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE,
        AND
        ARISING FROM ANY “REVOLVING CREDIT LOANS”, INCLUDING, WITHOUT LIMITATION, 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 OTHER LOAN DOCUMENTS, AND NEGOTIATION
        FOR AND EXECUTION OF THIS AGREEMENT.

       

       

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      Executed
        on this 11th day of November, 2005, to be effective as of the respective
        date
        indicated above.

       

      
        	 	 	EDDINS-WALCHER
                COMPANY 
	 	 	 
	 	 	By:
                /s/
                Charles McArthur
	 	 	Name:
                Charles McArthur
	 	 	Title: 
                CEO
	 	 	 
	 	 	 
	 	 	THREE
                D OIL CO. OF KILGORE, INC.
	 	 	 
	 	 	By: /s/
                Charles McArthur
	 	 	Name:
                Charles McArthur
	 	 	Title:
                CEO
	 	 	 

      

       

       

       

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      ACCEPTED
        at Dallas, Texas, this 11th day of November, 2005, to be effective as of
        the
        respective date indicated above.

      
         

        
          	 	 	THE
                  CIT GROUP/BUSINESS CREDIT, INC., 
as Agent and a
                  Lender 
	 	 	 
	 	 	By: /s/
                  Alan
                  Schnacke                                            
                  
	 	 	Alan
                  Schnacke, Vice President
	 	 	 
	 	 	 
	 	 	 
	 	 	SUNTRUST
                  BANK, as a Lender
	 	 	 
	 	 	By: /s/
                  Mark Pickering
	 	 	Name:
                  Mark
                  Pickering
	 	 	Title:
                  Vice President 
	 	 	 

        

         

      

      
         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

      

       

      CONSENT,
        RATIFICATION AND RELEASE

       

      Each
        of
        the undersigned hereby consents to the terms of the within and foregoing
        Agreement, confirms and ratifies the terms of each document it has executed
        in
        connection with the Obligations (collectively, the “Documents”),
        and
        acknowledges that the Documents to which it is a party are in full force
        and
        effect and ratifies the same, that it has no defense, counterclaim, set-off
        or
        any other claim to diminish its liability under such Documents, that its
        consent
        is not required to the effectiveness of the within and foregoing Agreement,
        and
        that no consent by it is required for the effectiveness of any future amendment,
        modification, forbearance or other action with respect to the Revolving Line
        of
        Credit, the Collateral, or any of the other Loan Documents.
        EACH OF THE UNDERSIGNED HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER
        DISCHARGES EACH OF AGENT AND EACH LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES,
        SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES
        OF
        ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN,
        ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT,
        OR
        CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE
        THE DATE THE AGREEMENT IS EXECUTED, WHICH THE UNDERSIGNED MAY NOW OR HEREAFTER
        HAVE AGAINST AGENT OR ANY LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES,
        SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS
        ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE,
        AND
        ARISING FROM ANY “REVOLVING CREDIT LOANS”, INCLUDING, WITHOUT LIMITATION, 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 OTHER LOAN DOCUMENTS, AND NEGOTIATION
        FOR AND EXECUTION OF THIS AGREEMENT.

       

      
        
          	 	 	UNITED
                  FUEL & ENERGY CORPORATION, 
a Texas
                  corporation
	 	 	 
	 	 	By: /s/Charles
                  McArthur
	 	 	Name:
                  Charles McArthur
	 	 	Title:
                  CEO

        

      

       

      
        
          	 	 	UNITED
                  FUEL & ENERGY CORPORATION, 
a Nevada
                  corporation 
	 	 	 
	 	 	By: /s/Charles
                  McArthur
	 	 	Name:
                  Charles McArthur
	 	 	Title:
                  CEO
	 	 	 
	 	 	 
	 	 	
                  /s/Thomas
                    E. Kelly

                
	 	 	
                  Thomas
                    E. KellySECOND
      AMENDED AND RESTATED LIMITED GUARANTY

     

    THIS
      SECOND AMENDED AND RESTATED LIMITED GUARANTY is
      made
      as of the ___ day of November, 2005, by and among EDDINS-WALCHER COMPANY, a
      Texas corporation (“Eddins”)
      and
      THREE D OIL CO. OF KILGORE, INC., a Texas corporation (“Three D;”
      together with Eddins, individually a “Company”
      and
      collectively, the “Companies”),
      THE
      CIT GROUP/BUSINESS CREDIT, INC. (“CIT”)
      as
      administrative and collateral agent (“Agent”)
      for
      the Lenders (as hereinafter defined) party to the Financing Agreement (as
      hereinafter defined), and THOMAS E. KELLY, an individual residing at 4401
      Cardina Lane, Midland, Texas 79707 (“Guarantor”).

     

    RECITALS

     

    A.  Reference
      is made (a) to that certain Amended and Restated and Financing Agreement,
      dated April 8, 2005, by and among the Companies, Agent and CIT as a Lender
      and
      SunTrust Bank as a Lender (collectively, “Lenders”)
      (as
      amended, restated, modified or supplemented and in effect from time to time,
      the
“Financing
      Agreement”),
      and
      to the other Loan Documents, and (b) to that certain Amended and Restated
      Limited Guaranty, executed in November of 2004 by Guarantor, in favor of CIT,
      in
      connection with the payment of the Obligations (as defined in the Financing
      Agreement) (the “Existing
      Limited Guaranty”)
      (the
      Existing Limited Guaranty itself being in renewal, extension, amendment and
      restatement, but not in novation, of the provisions of that certain Limited
      Guaranty, dated October 10, 2003, executed by Guarantor, in favor of
      CIT).

     

    B.  Guarantor
      and Agent, on behalf of itself and the Lenders, now desire to amend and restate
      the Existing Limited Guaranty and the provisions of this Second Amended and
      Restated Limited Guaranty are in renewal, extension, amendment, and restatement,
      but not in novation, of the provisions of the Existing Limited Guaranty (the
      Existing Limited Guaranty, as amended and restated by this Second Amended and
      Restated Limited Guaranty, being hereinafter referred to as the “Agreement”).

     

    C.  Guarantor
      confirms and affirms he requested that Agent and Lenders extend the Revolving
      Loans to the Companies pursuant to the terms of the Financing Agreement and
      the
      other Loan Documents, and that the obligations of Agent and Lenders to execute
      and deliver the Loan Documents and to make the Revolving Loans to the Companies
      were conditioned on, and continue to be conditioned on, among other things,
      the
      execution of this Agreement.

     

    D.  Guarantor
      acknowledges and confirms that (a) Guarantor has benefitted and will
      continue to benefit from the execution, delivery and performance by Agent and
      Lenders of the Financing Agreement and the other Loan Documents and the making
      of advances and/or funding of the Revolving Loans to the Companies, (b) the
      Revolving Loans by Agent and Lenders have constituted and will continue to
      constitute valuable consideration to Guarantor, (c) this Agreement was
      intended and continues to be intended to be an inducement to Agent and Lenders
      to execute, deliver and perform the Financing Agreement and the other Loan
      Documents and to fund the Revolving Loans; and (d) Agent and Lenders
      have
      relied and will continue to rely upon this Agreement in making advances and/or
      funding the Revolving Loans to the Companies.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Accordingly,
      for good and valuable consideration, the receipt and sufficiency of which are
      hereby acknowledged, and as an inducement for Agent and Lenders to enter into
      the Loan Documents, the parties hereto, intending to be legally bound, do hereby
      agree as follows:

     

    SECTION
      1 

    DEFINITIONS

     

    1.1.  Definitions.
      Capitalized terms used herein and not otherwise defined shall have the meanings
      assigned to such terms in the Financing Agreement or, to the extent the same
      are
      used or defined therein, the meanings provided in Article 9 of the UCC
      in
      effect on the date hereof. Whenever the context so requires, each reference
      to
      gender includes the masculine and feminine, the singular number includes the
      plural and vice versa. This Agreement shall mean such agreement as the same
      now
      exists or may hereafter be amended, modified, supplemented, extended, renewed,
      restated or replaced, from time to
      time.
      Unless otherwise specified, all accounting terms not defined in the Loan
      Documents shall have the meanings given to such terms in and shall be
      interpreted in accordance with GAAP. References in this
      Agreement to any Person shall include such Person and its successors and
      permitted assigns.

     

    1.2.  Defined
      Terms.
      In this
      Agreement, the following terms shall mean as follows:

     

    “Default”
      shall
      mean any event, fact, circumstance or condition that, with the giving of
      applicable notice or passage of time or both, would constitute, be or result
      in
      an Event of Default hereunder or under any Loan Document.

     

    “Event of Default”
      shall
      mean the occurrence of any event set forth in Section 5.

     

    “Loan
      Collateral”
      shall
      mean the Collateral as defined in the Loan Documents.

     

    SECTION
      2

    LIMITED
      GUARANTY

     

    2.1.  Guaranty
      of Obligations.
      Subject
      to the last sentence of this Section
      2.1,
      Guarantor hereby unconditionally and absolutely guarantees the prompt and
      punctual payment and performance of the Revolving Loans, all amounts from time
      to time payable by the Companies in connection with the Revolving Loans
      (including without limitation, all principal, interest, and all other monetary
      obligations, including reasonable attorneys fees, costs, expenses and
      indemnities, whether primary, secondary, contingent, fixed or otherwise in
      connection with the Revolving Loans) and all other Obligations and terms,
      covenants and agreements of the Loan Documents and obligations to Agent and
      Lenders hereunder and under the Loan Documents, in any case whether according
      to
      the present terms hereof and thereof, at any earlier or accelerated date or
      pursuant to any extension of time or to any change therein now or at any time
      hereafter made or granted (the obligations so guaranteed shall be collectively
      referred to herein as the “Guaranteed
      Obligations”).
      The
      Guaranteed Obligations includes in all cases, all such obligations that arise
      after the filing of a bankruptcy petition with respect to the Companies and/or
      Guarantor and all such obligations that will become payable but for the
      operation of (i) the automatic stay under Section 362(a) of the Bankruptcy
      Code,
      (ii) Section 502(b) of the Bankruptcy Code, or (iii) Section 506(b) of the
      Bankruptcy Code, including, but not limited to, interest, fees and expenses
      accruing with respect to the Obligations after the filing of a bankruptcy
      petition, whether or not allowed or allowable as a claim in the bankruptcy
      proceeding. Notwithstanding any other provision of any Loan Document or this
      Agreement, Agent’s right to seek any payment from Guarantor on account of the
      Guaranteed Obligations shall be limited to, and shall not under any
      circumstances exceed $2,000,000, and Guarantor shall not be liable for any
      deficiency in excess of $2,000,000.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    2.2.  Binding
      Effect.

     

    (a)  Subject
      to the last sentence of Section
      2.1,
      this
      guaranty is a continuing guarantee of prompt and punctual payment of the
      Guaranteed Obligations, whether at stated maturity, by acceleration or
      otherwise, and not merely a guaranty of collection. Guarantor agrees that
      Guarantor’s obligations hereunder are absolute and unconditional, independent of
      the obligations of the Companies or any other Person, and shall be binding
      upon
      Guarantor and Guarantor’s successors and assigns, and are irrevocable without
      regard to the genuineness, validity, legality or enforceability of the Revolving
      Loans or Obligations or the lack of power or authority of the Companies to
      enter
      into any Loan Document or any substitution, release or exchange of any other
      guaranty of or any security for any of the Guaranteed Obligations or any other
      circumstances (other than payment or performance) which might otherwise
      constitute a legal or equitable discharge of a surety or guarantor and shall
      not
      be subject to any right of set-off or counterclaim and are in no way conditioned
      upon any attempt to enforce performance or compliance by the Companies or any
      other event or contingency.

     

    (b)  Guarantor
      agrees that, if at any time all or any part of any payment previously applied
      by
      Agent or Lenders to any Guaranteed Obligation must be returned by Agent or
      Lenders for any reason, whether by court order, administrative order, or
      settlement, Guarantor, subject to the limitations of Section
      2.1,
      remains
      liable for the full amount returned as if such amount had never been received
      by
      Agent or Lenders, notwithstanding any termination of this Agreement or any
      Loan
      Document or the cancellation of this Agreement or any Loan Document or any
      other
      agreement evidencing the Guaranteed Obligations.

     

    (c)  Guarantor
      expressly waives any defenses or benefits available to Guarantor as a result
      of
      the exercise by Agent or Lenders of nonjudicial or judicial remedies against
      the
      Companies, Guarantor or any Loan Collateral, and further expressly waives any
      defenses or benefits arising out of or against any Loan Collateral. Without
      limiting the generality of the foregoing, neither Agent nor Lenders shall be
      required to make any demand on any other guarantor of the Guaranteed Obligations
      or otherwise pursue or exhaust their remedies against the Companies, Loan
      Collateral, any other guarantor of the Guaranteed Obligations or any other
      Person before enforcing their rights and remedies against Guarantor hereunder,
      and any one or more successive and/or concurrent actions may be brought against
      Guarantor in the same action brought against the Companies or any other Person
      or in separate actions, as often as Agent or Lenders may deem advisable, in
      their sole discretion. The obligations of Guarantor hereunder and under the
      Loan
      Documents shall not in any way be affected by any action or inaction of Agent
      or
      Lenders, which action or inaction is hereby consented and agreed to by
      Guarantor, or by the partial or complete unenforceability or invalidity of
      any
      other guaranty, pledge, assignment or Lien for any of the Guaranteed Obligations
      or of the value, genuineness, validity or enforceability of the Loan Collateral
      or any of the Guaranteed Obligations or Loan Documents.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    2.3.  Defenses
      of the Companies Waived.
      The
      Loan Documents remain fully enforceable irrespective of any defenses which
      any
      Company or Guarantor may assert under any Loan Document, including, but not
      limited to, failure of consideration, breach of warranty, payment, statute
      of
      frauds, statute of limitations, accord and satisfaction and usury (other than
      prior indefeasible payment in full in cash of the Guaranteed Obligations by
      the
      Companies).

     

    2.4.  Liability
      of Guarantor.
      Guarantor agrees that each of Agent and each Lender shall have the full right
      and power, in its sole discretion and without any notice to or consent from
      Guarantor and without affecting or discharging, in whole or in part, the
      liability of Guarantor under this Agreement or any Loan Document, to deal in
      any
      manner with the Guaranteed Obligations, Loan Collateral and any security or
      guaranties therefor. Without limiting the generality of the foregoing, the
      occurrence of any one or more of the following shall not affect Guarantor’s
      obligations hereunder or under the Loan Documents: (a) new agreements or
      obligations of the Companies with or to Agent or Lenders or increases,
      amendments, extensions, modification, renewals or waivers of default as to
      any
      existing or future agreements or obligations of the Companies or third parties
      with or to Agent or Lenders or extensions of credit by Agent or Lenders to
      the
      Companies; (b) adjustments, compromises or releases of any obligations to or
      of
      the Companies, Guarantor or other Persons, or exchanges, releases of sales
      of
      any security or collateral of the Companies, Guarantor or other Persons; (c)
      errors, omissions, invalidity or unenforceability of any Loan Document or this
      Agreement; (d) reorganization, extensions, moratoria or other relief granted
      to
      the Companies pursuant to any law presently in force or hereafter enacted;
      (e)
      interruptions in the business relations between Agent or Lenders and the
      Companies; (f) the release or exchange, in whole or in part, of any other
      guaranty of the Guaranteed Obligations or any security or collateral therefor
      or
      any action or inaction by Agent or Lenders with respect thereto; (g) the failure
      of any Person to sign any similar guaranty; (h) subsequent reorganization,
      merger or consolidation of the Companies or any other change in its structure,
      nature, personnel or location; or (i) any impairment, modification, change,
      release or limitation of the liability of the Companies, any other guarantor
      of
      the Guaranteed Obligations or any other Person or their respective estates
      in
      bankruptcy resulting from the operation of any present or future provision
      of
      the bankruptcy laws or other similar statute, or from the decision of any
      court.

     

    2.5.  Event
      of Default.
      If an
      Event of Default shall occur and be continuing, Agent or any assignee thereof
      shall be entitled to receive hereunder from Guarantor, upon demand therefor,
      all
      of the Guaranteed Obligations, subject to the last sentence of Section
      2.1.

     

    2.6.  Subordination
      of Certain Rights.
      Upon
      payment by Guarantor of any sums to Agent and Lenders, all rights of Guarantor
      against the Companies arising as a result thereof by way of subrogation,
      contribution, reimbursement, indemnity or otherwise shall in all respects be
      subordinate and junior in right of payment to the prior indefeasible payment
      in
      full in cash and performance of all the remaining Guaranteed Obligations. If
      any
      amount shall erroneously be paid to Guarantor for any reason, such amount shall
      be held in trust for the benefit of Agent and Lenders and shall forthwith be
      paid to Agent to be credited against the Obligations, whether matured or
      unmatured, in accordance with the terms of the Loan Documents. Guarantor shall
      have no right of subrogation whatsoever with respect to the Guaranteed
      Obligations or to any collateral therefor until the Guaranteed Obligations
      have
      been irrevocably and indefeasibly paid in full in cash and performed in full
      and
      the Financing Agreement and this Agreement have been terminated.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    2.7.  Savings
      Clause.

     

    (a)  It
      is the
      intent of Guarantor and Agent and Lenders that, subject
      to the last sentence of Section
      2.1,
      Guarantor’s maximum obligations hereunder shall be up to, but not in excess of,
      the maximum amount which would not otherwise cause the Guaranteed Obligations
      to
      be avoidable or unenforceable against Guarantor under (i) Section 548 of the
      Bankruptcy Code (in any case commenced by or against Guarantor within one (1)
      year from the date on which any of the Guaranteed Obligations are incurred),
      (ii) any state fraudulent transfer or fraudulent conveyance act or statute
      applied in any case or proceeding by virtue of Section 544 of the Bankruptcy
      Code, or (iii) any law, statute or regulation other than the Bankruptcy Code
      (including, without limitation, any receivership, readjustment of debt,
      dissolution, liquidation or similar debtor relief laws), without limitation,
      any
      state fraudulent transfer or fraudulent conveyance act or statute applied in
      any
      case or proceeding commenced by or against Guarantor in any case or proceeding
      of any nature. (The substantive laws under which the possible avoidance or
      unenforceability of the Guaranteed Obligations shall be determined in any such
      case or proceeding shall be referred to herein as the “Avoidance
      Provisions”).

     

    (b)  To
      the
      extent set forth in subsections
      (i),
      (ii),
      and
(iii)
      of
Section
      2.7(a)
      above,
      but only to the extent that the Guaranteed Obligations would otherwise be
      subject to avoidance under the Avoidance Provisions, if Guarantor is not deemed
      to have received valuable consideration or reasonably equivalent value for
      the
      Guaranteed Obligations, or if the Guaranteed Obligations would render Guarantor
      insolvent, or cause Guarantor to have incurred debts beyond Guarantor’s ability
      to pay such debts as they mature, in each case as of the time any of the
      Guaranteed Obligations are deemed to have been incurred under the Avoidance
      Provisions and after giving effect to the contribution by Guarantor, the maximum
      Guaranteed Obligations for which Guarantor shall be liable hereunder shall
      be
      reduced to that amount which, after giving effect thereto, would not cause
      the
      Guaranteed Obligations, as so reduced, to be subject to avoidance under the
      Avoidance Provisions. This section is intended solely to preserve the rights
      of
      Agent and Lenders, and neither Guarantor nor any other Person shall have any
      right or claim under this section against Agent or Lenders that would not
      otherwise be available to such person under the Avoidance
      Provisions.

     

    SECTION
      3

    REPRESENTATIONS,
      WARRANTIES AND COVENANTS

     

    Guarantor
      hereby represents and warrants to Agent and Lenders as of the date hereof (which
      representations and warranties shall survive the execution and delivery of
      this
      Agreement and the making of the Revolving Loans under the Financing Agreement)
      as follows: 

     

    3.1.  [Intentionally
      Omitted]

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    3.2.  Authorization.
      Guarantor is an individual citizen of the United States residing at the address
      set forth in the first paragraph of this Agreement and has full legal
      capacity and requisite power, right and authority to
      consummate the transactions contemplated under this Agreement and the other
      Loan
      Documents to which Guarantor is a party and is not under any legal restriction,
      limitation or disability that would prevent Guarantor from entering into and
      performing under this Agreement. The execution, delivery and performance by
      Guarantor of this Agreement and the consummation of the transactions
      contemplated hereby have been duly and validly authorized by all necessary
      actions on the part of Guarantor and pursuant to all necessary consents required
      therefor. This Agreement has been duly executed and delivered by Guarantor
      and
      constitutes the legal, valid and binding obligation of Guarantor, enforceable
      against Guarantor in accordance with its terms, subject to the effect of any
      applicable bankruptcy, moratorium, insolvency, reorganization or other similar
      law affecting the enforceability of creditors’ rights generally and to the
      effect of general principles of equity which may limit the availability of
      equitable remedies (whether in a proceeding at law or in equity). No approval,
      consent, authorization of, filing registration or qualification with, or other
      action by, Guarantor or any other Person or governmental authority is or will
      be
      necessary to permit the valid execution, delivery and performance of this
      Agreement by Guarantor.

     

    3.3.  No
      Conflicts.
      The
      execution, delivery and performance by Guarantor of this Agreement do not and
      will not (1) conflict with or violate any provision of any applicable
      law,
      statute, rule, regulation, ordinance, license or tariff or any judgment, decree
      or order of any court or other governmental authority binding on or applicable
      to Guarantor or any of Guarantor’s properties or assets; (2) conflict with,
      result in a breach of, constitute a default of or an event of default under,
      or
      an event, fact, condition or circumstance which, with notice or passage of
      time,
      or both, would constitute or result in a conflict, breach, default or event
      of
      default under, require any consent not obtained under, or result in or require
      the acceleration of any indebtedness pursuant to, any indenture, agreement
      or
      other instrument to which Guarantor is a party or by which Guarantor, or any
      of
      Guarantor’s properties or assets are bound or subject; (3) if applicable,
      conflict with or violate any provision of the certificate of incorporation
      or
      formation, by-laws, limited liability company agreement or similar documents
      of
      Guarantor; or (4) result in the creation or imposition of any Lien of
      any
      nature whatsoever upon any of the properties or assets of
      Guarantor.

     

    3.4.  Non-Subordination.
      The
      obligations of Guarantor under this Agreement are not subordinated in any way
      to
      any other obligation of Guarantor or to the rights of any other Person, and
      Guarantor is not a party to or bound by any other agreement, document or
      instrument that otherwise relates to the Guaranteed Obligations.

     

    3.5.  Litigation
      and Compliance; Other Agreements.

     

    (a)  Guarantor
      is not in default or breach of the performance, observance or fulfillment of
      any
      obligation, covenant or condition contained in any agreement, document or
      instrument to which Guarantor is a party or by which Guarantor or any of
      Guarantor’s properties or assets is or are bound or subject, which default or
      breach, if not remedied within any applicable grace period or cure period,
      could
      reasonably be expected to have or result in a material adverse effect. There
      is
      no action, suit, proceeding or investigation pending or, to Guarantor’s
      knowledge, threatened before or by any court, arbitrator or governmental
      authority (1) against or affecting the Loan Collateral, Guarantor, any entity
      whose securities constitute the Loan Collateral, this Agreement or the
      transactions contemplated hereby, or (2) that questions or could reasonably
      be
      expected to prevent the validity of this Agreement or any Loan Document or
      the
      right or ability of Guarantor or the Companies to execute or deliver this
      Agreement or any Loan Document or to consummate the transactions contemplated
      hereby or thereby.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b)  Guarantor
      is not (i) a party to any judgment, order or decree or any agreement, document
      or instrument, or subject to any restriction, which would materially adversely
      affect its ability to execute and deliver, or perform under, this Agreement,
      or
      (ii) in default in the performance, observance or fulfillment of any obligation,
      covenant or condition contained in any agreement, document or instrument to
      which Guarantor is a party or to which any of Guarantor’s properties or assets
      are subject, which default, if not remedied within any applicable grace or
      cure
      period, could reasonably be expected to have or be a material adverse effect,
      nor is there any event, fact, condition or circumstance which, with notice
      or
      passage of time or both, would constitute or result in a conflict, breach,
      default or event of default under, any of the foregoing which, if not remedied
      within any applicable grace or cure period could reasonably be expected to
      have
      or be a material adverse effect.

     

    3.6.  Truthful
      Disclosure.
      The
      representations and warranties made by Guarantor in this Agreement do not and
      will not contain any untrue statement of material fact or omit to state any
      fact
      necessary to make the statements herein and therein not materially misleading,
      and there is no fact known to Guarantor which Guarantor has not disclosed to
      Agent and Lenders in writing which could reasonably be expected to have or
      result in a material adverse effect.

     

    3.7.  Covenants.

     

    (a)  Guarantor
      shall not (i) cause or permit to be done, or enter into or make or become
      a
      party to any agreement, arrangement or commitment to do or cause to be done,
      any
      of the things prohibited by this Agreement or that would breach this Agreement,
      or (ii) enter into or make or become a party to any agreement, document
      or
      instrument or arrangement that conflicts with this Agreement or that would
      prevent Guarantor from complying herewith and/or performing
      hereunder.

     

    (b)  Guarantor
      hereby agrees to take or cause to be taken promptly such further actions, obtain
      such consents and approvals and duly execute and deliver or cause to be executed
      and delivered such further agreements, assignments, instructions or documents
      Agent may request with respect to or in order to fully effectuate the purposes,
      terms and conditions of this Agreement and the consummation of the transactions
      contemplated hereby, whether before, at or after the performance and/or
      consummation of such transactions or the occurrence of a Default or Event of
      Default. Without limiting the foregoing, upon the exercise by Agent or any
      of
      its Affiliates or agents of any right or remedy which requires any consent,
      approval or registration with, consent, qualification or authorization by,
      any
      Person, Guarantor shall execute and deliver, or cause the execution and delivery
      of, all applications, certificates, instruments and other documents that Agent
      or its Affiliate or agents may be required to obtain for such consent, approval,
      registration, qualification or authorization. Guarantor hereby appoints Agent,
      its attorney-in-fact (without requiring Agent to act as such), with full power
      of substitution, which appointment as attorney-in-fact is irrevocable and
      coupled with an interest, to take all such actions, whether in the name of
      Agent, or Guarantor, as Agent may consider necessary or desirable with respect
      to the foregoing (to the extent Guarantor fails to so execute and/or file any
      of
      the foregoing within two (2) Business Days of Agent’s request or the time when
      Guarantor is otherwise obligated to do so).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (c)  If
      Guarantor is an individual, Guarantor shall deliver to Agent upon execution
      of
      this Agreement or, if Guarantor is not currently married, within thirty (30)
      days after Guarantor marries, a Spousal Acknowledgment and Stipulation in the
      form attached as Exhibit
      A
      hereto
      executed by Guarantor’s spouse.

     

    (d)  Guarantor
      shall promptly, and in any event within twenty (20) Business Days thereafter,
      notify Agent of any change of his residence address.

     

    3.8.  Provisions
      of Financing Agreement.
      Guarantor acknowledges and confirms receipt of the Loan Documents and hereby
      acknowledges all terms and provisions of the Loan Documents, the creation of
      the
      Obligations and the granting of security interests by the Companies, including,
      without limitation, the rights of Lenders to assign and participate any part
      of
      the Revolving Loans pursuant to the Financing Agreement.

     

    3.9.  No
      Third Party Beneficiary.
      No
      rights are intended to be created under this Agreement for the benefit of any
      third party donee, creditor or incidental beneficiary of Guarantor.

     

    SECTION
      4

    EVENTS
      OF DEFAULT

     

    The
      occurrence of any one or more of the following shall constitute an “Event of
      Default:” under this Agreement (a) Guarantor shall be in violation, breach
      or default of, or shall fail to perform, observe or comply with any covenant,
      obligation or agreement set forth in, this Agreement or any other Loan Document
      to which Guarantor is a party and such failure shall not be cured within the
      applicable period, if any; (b) any representation, statement or warranty made
      or
      deemed made by Guarantor in this Agreement shall not be true and correct in
      all
      material respects or shall have been false or misleading in any material respect
      on the date when made or deemed to have been made (except to the extent already
      qualified by materiality, in which case it shall be true and correct in all
      respects and shall not be false or misleading in any respect) except those
      made
      as of a specific date; (c) any Event of Default (as defined in the Financing
      Agreement) shall occur and be continuing past any cure period and shall not
      have
      been waived in writing; or (d) if prior to termination of this Agreement
      pursuant to Section
      7.11
      hereof,
      this Agreement shall cease to be in full force and effect.

     

    SECTION
      5

    MISCELLANEOUS

     

    5.1.  No
      Waiver of Defaults; Waiver.

     

    (a)  No
      course
      of action or dealing, renewal, waiver, release or extension of any provision
      of
      any Loan Document or this Agreement, or single or partial exercise of any such
      provision, or delay, failure or omission on Agent’s or any Lender’s part in
      enforcing any such provision shall affect the liability of Guarantor or operate
      as a waiver of such provision or preclude any other or further exercise of
      such
      provision. No waiver by Agent or Lenders of any one or more defaults by any
      other party in the performance of any of the provisions of any Loan Document
      or
      this Agreement shall operate or be construed as a waiver of any future default,
      whether of a like or different nature, and each such waiver shall be limited
      solely to the express terms and provisions of such waiver.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b)  Notwithstanding
      any other provision of any Loan Document or this Agreement, by completing the
      closing of the Financing Agreement and/or making of advances and/or funding
      the
      Revolving Loans, neither Agent nor any Lender waives any breach of any
      representation or warranty under any Loan Document or this Agreement, and all
      of
      Agent’s and Lenders’ claims and rights resulting therefrom are specifically
      reserved. Except as expressly provided for herein, Guarantor hereby waives
      setoff, counterclaim, demand, presentment, protest, all defenses with respect
      to
      any and all instruments and all notices and demands of any description
(including,
      without limitation, notice of acceptance hereof, notice of any Loan made, credit
      extended, collateral received or delivered)
      and the
      pleading of any statute of limitations as a defense to any demand under any
      Loan
      Document, it being the intention that Guarantor shall remain liable under this
      Agreement and the Loan Documents until the full amount of all Guaranteed
      Obligations shall have been indefeasibly paid in cash and performed and
      satisfied in full and the Financing Agreement terminated, notwithstanding any
      act, omission or anything else which might otherwise operate as a legal or
      equitable discharge of Guarantor. Guarantor hereby waives any and all defenses
      and counterclaims Guarantor may have or could interpose in any action or
      procedure brought by Agent or Lenders to obtain an order of court recognizing
      the assignment of, or Lien of Agent, in and to, any Loan
      Collateral.

     

    5.2.  Entire
      Agreement.
      This
      Agreement and the other Loan Documents to which Guarantor is a party constitute
      the entire agreement between Guarantor and Agent and Lenders with respect to
      the
      subject matter hereof and thereof, and supersede all prior agreements and
      understandings, if any, relating to the subject matter hereof or thereof. Any
      promises, representations, warranties or guarantees not herein contained and
      hereinafter made shall have no force and effect unless in writing signed by
      the
      parties hereto. Each party hereto acknowledges that it has been advised by
      counsel in connection with the negotiation and execution of this Agreement
      and
      is not relying upon oral representations or statements inconsistent with the
      terms and provisions hereof.

     

    5.3.  Amendment.
      No
      provision of this Agreement may be changed, modified, amended, restated, waived,
      supplemented, discharged, canceled or terminated orally or by any course of
      dealing or in any other manner other than by a written agreement signed by
      Agent
      and Guarantor. Guarantor acknowledges that Guarantor has been advised by counsel
      in connection with the negotiation and execution of this Agreement and is not
      relying upon oral representations or statements inconsistent with the terms
      and
      provisions hereof.

     

    5.4.  Notices.
      Any
      notice or request under this Agreement shall be given to any party hereto at
      such party’s address set forth beneath its signature on the signature page
      hereto, or at such other address as such party may hereafter specify in a notice
      given in the manner required under this Section
      5.4.
      Any
      such notice or request shall be given only by, and shall be deemed to have
      been
      received upon (each, a “Receipt”):
      (a) registered or certified mail, return receipt requested, on the date
      on
      which such received as indicated in such return receipt, (b) delivery
      by a
      nationally recognized overnight courier, one (1) Business Day after deposit
      with
      such courier, or (c) facsimile or electronic transmission, in each case upon
      telephone or further electronic communication from the recipient acknowledging
      receipt (whether automatic or manual from recipient), as
      applicable.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    5.5.  Governing
      Law; Jurisdiction; Construction.
      This
      Agreement shall be governed by and construed in accordance with the internal
      laws of the State of Texas without giving effect to its choice of law
      provisions. Any judicial proceeding against Guarantor with respect to any of
      the
      Guaranteed Obligations or this Agreement may be brought in any federal or state
      court of competent jurisdiction located in the State of Texas. By execution
      and
      delivery of this Agreement, Guarantor (a) accepts the non-exclusive
      jurisdiction of the aforesaid courts and irrevocably agrees to be bound by
      any
      judgment rendered thereby, (b) waives personal service of process, (c) agrees
      that service of process upon Guarantor may be made by certified or registered
      mail, return receipt requested, pursuant to Section
      5.4
      hereof,
      and (d) waives any objection to jurisdiction and venue of any action
      instituted hereunder and agrees not to assert any defense based on lack of
      jurisdiction, venue, convenience or forum
      non conveniens.
      Nothing
      shall affect the right of Agent to serve process in any manner permitted by
      law
      or shall limit the right of Agent to bring proceedings against Guarantor in
      the
      courts of any other jurisdiction having jurisdiction. Any judicial proceedings
      against Agent or Lenders involving, directly or indirectly, the Guaranteed
      Obligations, Loan Collateral or this Agreement shall be brought only in a
      federal or state court located in the State of Texas. Guarantor acknowledges
      that Guarantor participated in the negotiation and drafting of this Agreement
      and that, accordingly, Guarantor shall not move or petition a court construing
      this Agreement to construe it more stringently against one party than against
      any other.

     

    5.6.  Severability;
      Captions; Counterparts; Facsimile Signature.
      If any
      provision of this Agreement is adjudicated to be invalid under applicable laws
      or regulations, such provision shall be inapplicable to the extent of such
      invalidity without affecting the validity or enforceability of the remainder
      of
      this Agreement which shall be given effect so far as possible. The captions
      in
      this Agreement are intended for convenience and reference only and shall not
      affect the meaning or interpretation of this Agreement. This Agreement may
      be
      executed in one or more counterparts (which taken together, as applicable,
      shall
      constitute one and the same instrument) and by
      facsimile transmission, which facsimile signatures shall be considered original
      executed
      counterparts. Each party to this Agreement
      agrees
      that it will be bound by its own facsimile signature and that it accepts the
      facsimile signature of each other party.

     

    5.7.  Successors
      and Assigns.
      This
      Agreement (a) shall inure to the benefit of, and may be enforced by, Agent
      and
      all future holders of the Obligations, any of the Guaranteed Obligations or
      any
      of the Loan Collateral and each of their respective successors and permitted
      assigns, and (b) shall be binding upon and enforceable against Guarantor
      and Guarantor’s permitted heirs, administrators, executors, successors and
      assigns. Guarantor shall not assign, delegate or transfer this Agreement or
      any
      of its rights or obligations thereunder without the prior written consent of
      Agent. Nothing contained in this Agreement or any other Loan Document shall
      be
      construed as a delegation to Agent of Guarantor’s duty of performance. GUARANTOR
      ACKNOWLEDGES AND AGREES THAT AGENT OR LENDERS
      AT ANY
      TIME AND FROM TIME TO TIME MAY SELL, ASSIGN OR GRANT PARTICIPATING INTERESTS
      IN
      OR TRANSFER ALL OR ANY PART OF ITS RIGHTS OR OBLIGATIONS UNDER THIS AGREEMENT,
      THE OBLIGATIONS, THE LOAN COLLATERAL AND/OR THE LOAN DOCUMENTS TO ONE OR MORE
      TRANSFEREES IN EACH CASE ON THE TERMS AND CONDITIONS PROVIDED IN THE FINANCING
      AGREEMENT. The
      term
“Agent” or “Lender” in this Agreement includes successors and assigns, each of
      which shall thereunder have all rights and benefits of Agent or Lender, as
      the
      case may be. Each successor and assign shall have all of the rights and benefits
      with respect to the Guaranteed Obligations, Loan Collateral, this Agreement
      and/or Loan Documents held by it as fully as if the original holder thereof.
      Notwithstanding any other provision of this Agreement or any Loan Document,
      each
      Agent and each Lender may disclose to any successor or assign all information,
      reports, financial statements, certificates and documents obtained under any
      provision of this Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    5.8.  Waiver
      of Jury Trial.
      EACH
      PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY
      OF
      ANY CLAIM OR CAUSE OF ACTION ARISING HEREUNDER OR IN ANY WAY CONNECTED WITH
      OR
      INCIDENTAL TO THE DEALINGS OF THE PARTIES WITH RESPECT HERETO OR THE
      TRANSACTIONS CONTEMPLATED HEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING,
      AND
      WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. EACH PARTY HEREBY AGREES AND
      CONSENTS THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
      WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL
      COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF
      THE
      CONSENTS OF THE PARTIES TO THE WAIVER OF THEIR RESPECTIVE RIGHTS TO TRIAL BY
      JURY.

     

    5.9.  Survival.
      It is
      the express intention and agreement of the parties hereto that all covenants,
      representations, warranties and waivers and indemnities made by Guarantor herein
      shall survive the execution, delivery and termination of this Agreement until
      all Obligations are performed in full and indefeasibly paid in full in cash
      and
      the Loan Documents are terminated.

     

    5.10.  Expenses.
      Guarantor
      shall pay to Agent and its Affiliates all costs and expenses incurred by Agent
      and/or its Affiliates, including, without limitation, documentation and
      diligence fees and expenses, all search, audit, appraisal, recording,
      professional and filing fees and expenses and all other out-of-pocket charges
      and expenses (including, without limitation, UCC and judgment and tax lien
      searches and UCC filings and fees for post-closing UCC and judgment and tax
      lien
      searches and wire transfer fees and audit expenses), and reasonable attorneys’
      fees and expenses (a) in any effort to enforce this Agreement against
      Guarantor, (b) in defending or prosecuting any actions, claims or proceedings
      by
      or against Guarantor arising out of or relating to this Agreement, (c) arising
      in any way out of the taking or refraining from taking by Agent of any action
      requested by Guarantor, and/or (d) in connection with any modification,
      restatement, supplement, amendment, waiver or extension of this Agreement and/or
      any related agreement, document or instrument requested by Guarantor. If Agent
      or any of its Affiliates uses in-house counsel for any of the foregoing,
      Guarantor expressly agrees that its obligations hereunder include reasonable
      charges for such work commensurate with the fees that would otherwise be charged
      by outside legal counsel selected by Agent or such Affiliate in its sole
      discretion for the work performed.

     

    5.11.  Termination.
      This
      Agreement shall continue in full force and effect until full performance and
      indefeasible payment in full in cash of all Guaranteed Obligations and
      termination of the Loan Documents. Notwithstanding any other provision of this
      Agreement or any Loan Document, no termination of this Agreement shall affect
      Agent’s or Lenders’ rights or any of the Guaranteed Obligations existing as of
      the effective date of such termination until the Guaranteed Obligations have
      been fully performed and indefeasibly paid in cash in full;
      provided,
      however,
      Agent,
      on behalf of itself and the Lenders, hereby agrees to release Guarantor from
      its
      obligations under this Agreement on the first day after December
      31, 2006,
      that
      each of the following is true:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (a)  The
      Average Daily Availability (as defined in the Financing Agreement) for the
      Companies shall have been at least $3,500,000 for the three immediately
      preceding consecutive calendar months; and

     

    (b)  No
      Default or Event of Default exists under the Financing Agreement.

     

    5.12.  Confidentiality
      and Publicity.

     

    (a)  Guarantor
      agrees, and agrees to cause each of his Affiliates, (i) except to
      the
      extent required by applicable laws or regulations (in which case Guarantor
      shall, and shall cause his Affiliates to, request
      and use his best efforts to obtain confidential treatment of such information
      to
      the extent permitted by applicable law),
      not
      to
      transmit or disclose any provision of this Agreement or any other Loan Document
      to any Person (except as permitted in the Financing Agreement) without Agent’s
      prior written consent, and (ii) to inform all Persons of the confidential nature
      of this Agreement and the Loan Documents and to direct them not to disclose
      the
      same to any other Person and to require each of them to be bound by these
      provisions. Agent reserve the right to review and approve all materials that
      Guarantor or any of his Affiliates prepares that contain Agent’s or any Lender’s
      name or describe or refer to any Loan Document, any of the terms thereof or
      any
      of the transactions contemplated thereby. Guarantor shall not, and shall not
      permit any of his Affiliates to, use Agent’s or any Lender’s name (or the name
      of any of its Affiliates) in connection with any of his business operations,
      except as permitted in the Financing Agreement. Nothing contained in any Loan
      Document is intended to permit or authorize Guarantor or any of his Affiliates
      to contract on behalf of Agent or any Lender.

     

    (b)  Each
      party covenants for itself and its directors and officers that it will use
      due
      care to prevent its officers, directors, employees, members, managers,
      stockholders, controlling persons, affiliates, agents, lenders, advisors
      (including, without limitation, attorneys, accountants, consultants, bankers
      and
      financial advisors) from (x) disclosing any non-public information of
      any
      other party to Persons other than to its officers, directors, employees,
      members, managers, stockholders, controlling persons, affiliates, agents,
      advisors (including, without limitation, attorneys, accountants, consultants,
      bankers and financial advisors), or (y) using non-public information
      in any
      manner that would constitute a violation of federal or state securities laws;
      provided,
      however,
      that a
      party may disclose or deliver any non-public information of another party should
      such first party be advised by its counsel that such disclosure or delivery
      is
      required by law, regulation or judicial or administrative order. For purposes
      of
      this subparagraph, “due care” means at least the same level of care that such
      party would use to protect the confidentiality of its own sensitive or
      proprietary information, and this obligation shall survive termination of this
      Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    5.13.  Approvals
      and Duties.
      Unless
      expressly provided herein to the contrary,
      any approval, consent, waiver or satisfaction of Agent or Lenders with respect
      to any matter that is subject of any Loan Document may be granted or withheld
      by
      Lenders or Agent, in its sole and absolute discretion. 

     

    5.14.  Amendment
      and Restatement of Existing Limited Guaranty.
      The
      provisions of this Second Amended and Restated Limited Guaranty are in renewal,
      extension, amendment, and restatement, but not in novation, of the provisions
      of
      the Existing Limited Guaranty.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      IN
        WITNESS WHEREOF, each of the parties hereto has duly executed this Second
        Amended and Restated Limited Guaranty as of the date first written
        above.

       

      /s/
        Thomas E. Kelly

      Thomas
        E. Kelly

       

      4401
        Cardina Lane

      Midland,
        Texas 79707

      Telephone:
        (432) 686-0139

      Fax:
        (432) 571-8099

      Social
        Security Number

      if
        an
        individual: ###-##-####

      

      THE
        CIT GROUP/BUSINESS CREDIT, INC., Agent

      

      By:  /s/
        Alan Schnacke  

      Alan
        Schnacke, Vice President

       

      Two
        Lincoln Centre

      5420
        LBJ
        Freeway, Suite 200

      Dallas,
        Texas 75240

      Fax
        No.:
        (972) 455-1690

      

      Sworn
        to
        and subscribed before me this 11th day of November, 2005, by Thomas E.
        Kelly, who personally appeared before me, is personally known to me or produced
        his/her driver’s license as identification and did take an oath.

       

      Notary: /s/
        Susanne M. Mundy

      Print
        Name: Suzanne
        M. Mundy 

      Notary
        Public, State of Texas 

      My
        Commission Expires: 7/18/2006 

       

      [NOTARIAL
        SEAL]

       

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      Acknowledged
        and Agreed to as of November 11, 2005:

      
        	
                EDDINS-WALCHER
                  COMPANY

              
	 
	
                By:
                  /s/
                  Charles McArthur

              
	
                Name:  Charles
                  McArthur

              
	
                Title:  CEO

              
	
                 

                 

                THREE
                  D OIL CO. OF KILGORE, INC.

              
	 
	
                By: /s/
                  Charles McArthur

              
	
                Name: Charles
                  McArthur

              
	
                Title: 
                  CEO

              

      

      

 

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A

     

    Spousal
      Acknowledgement and Stipulation

     

    The
      undersigned hereby acknowledges and stipulates that (i) he/she is the spouse
      of
      Thomas E. Kelly, who is the Guarantor party to that certain Second Amended
      and
      Restated Limited Guaranty dated as of November ___, 2005, by and between
      such Guarantor listed therein as a party thereto and THE CIT GROUP/BUSINESS
      CREDIT INC., a New York corporation, as Agent for itself and the other Lenders,
      (ii) all property, jointly owned by Guarantor and the undersigned, whether
      as
      tenants in common, tenants in the entirety or joint tenants or as community
      property, and whether now owned or hereafter acquired (whether subject to the
      sole management of Guarantor or the undersigned or their joint management),
      is
      subject to, and may be used for, the payment and performance of Guarantor’s
      obligations under the above-referenced Second Amended and Restated Limited
      Guaranty.

     

    This
      Acknowledgement and Stipulation constitutes an instrument executed under seal,
      entered into as of November ___, 2005.

     

    
      
        	 	SPOUSE 
	 	 
	 	                                                                     
                 
	 	Name:
                                                                                                  
                 
	 	 
	 	 

      

       

      Sworn
        to
        and subscribed before me this _____ day of November, 2005 by
        ____________________, who personally appeared before me, is personally known
        to
        me or produced his or her driver’s license as identification and did take an
        oath.

       

      
        	 	Notary:                                                                                   
	 	Print
                Name:                                                                             
	 	Notary
                Public, State
                of                                                     
                 
	 	My
                Commission
                Expires:                                                
                  
	 	 
	 	[NOTARIAL
                SEAL]

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