Document:

EXHIBIT
        10.2

       

    

    
      AMENDED
        AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT

      

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

      

      RECITALS:

      

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

      

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

      

      AGREEMENT:

      

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

      

      1. Employment
        Term.
        This
        Agreement will remain in effect from the Commencement Date and shall end
        on the
        date that is the third anniversary of the Commencement Date unless this
        Agreement is earlier terminated in accordance with its express terms (the
        “Initial
        Term”);
        provided, however, that upon the expiration of the Initial Term, and on each
        anniversary of the Commencement Date thereafter, the term of this Agreement
        shall automatically extend for an additional one-year term (each a “Renewal
        Term,”
and
        together with the Initial Term, the “Employment
        Term”)
        unless
        (a) either Party gives the other Party four (4) months’ notice of its desire not
        to extend this Agreement prior to the expiration of the Initial Term or Renewal
        Term, as applicable, or (b) this Agreement is earlier terminated in accordance
        with its express terms. 

      

      2. Responsibilities
        and Authority.
        Employer
        hereby employs Employee to serve as its President and Chief Executive Officer.
        In such capacity, Employee will have such duties and responsibilities as
        determined by Employer’s Board of Directors (the “Board”)
        consistent with the Employer’s Bylaws. If requested by Employer, Employee will
        serve as an officer or director of Employer or any subsidiary of Employer
        without additional compensation. 

       

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

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

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

      

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

      

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

      

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

       

      
        
          
          

        

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

      

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

      

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

      

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

      

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

      

      5.2 Termination
        Upon Disability.
        This
        Agreement shall automatically terminate upon the Employee’s Disability. The Base
        Salary will continue to be paid to Employee through the date of Disability,
        and
        any amounts owed for Reimbursable Expenses that Employee incurs through such
        date and any previously awarded but unpaid bonuses will be paid as promptly
        as
        practicable following such date. In such event of Employee’s Disability,
        Employer will also continue to pay Employee the Base Salary in effect at
        the
        time of such Disability for a period of 6 months following the date of
        Disability. All restrictions on any restricted stock grants issued to Employee
        hereunder shall lapse. Employer shall provide, at its expense, life and health
        insurance coverage to Employee for six months following the date of Disability.
        All other Benefits will, unless otherwise expressly set forth on Exhibit
        A,
        otherwise provided by Employer policy applicable to its employees generally,
        or
        otherwise required by Law, terminate on the date of termination. “Disability”
means
        (i) Employee is unable to engage in any substantial gainful activity by reason
        of any medically determinable physical or mental impairment that can be expected
        to result in death or can be expected to last for a continuous period of
        not
        less than 12 months; (ii) Employee is, by reason of any medically determinable
        physical or mental impairment that can be expected to result in death or
        can be
        expected to last for a continuous period of not less than 12 months, receiving
        income replacement benefits for a period of not less than three months under
        an
        accident and health plan covering employee’s of Employer; (iii) Employee is
        determined to be totally disabled by the Social Security Administration;
        or (iv)
        Employee is determined to be disabled in accordance with a disability insurance
        program, provided that the definition of disability applied under such
        disability insurance program complies with the requirements of Treasury
        Regulation Section 1.409A-3(i)(4). If a disagreement arises between Employee
        and
        Employer as to whether Employee is suffering from Disability, such issue
        will be
        determined by a physician designated by Employer. If Employee disagrees with
        the
        conclusion of such physician, then such physician and Employee’s physician will
        choose a mutually acceptable physician to make such determination.

       

      
        
          
          

        

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

      

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

      

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

      

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

      

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

      

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

      

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

       

      
        
          
          

        

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

      

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

       

      
        
          
          

        

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

      

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

      

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

      

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

      

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

      

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

      

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

      

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

       

      
        
          
          

        

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

      

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

      

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

       

      
        
          
          

        

        
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      7. Conflicts
        of Interest.

      

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

      

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

      

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

      

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

      

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

      

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

      

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

      

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

       

      
        
          
          

        

        
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      8. Indemnification;
        Insurance.

      

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

      

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

      

      9. Miscellaneous.

      

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

      

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

      

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

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

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

      

      If
        to
        Employer:

      

      Attn:
        Bobby Page, Corporate Secretary

      405
        N.
        Marienfeld, Third Floor

      Midland,
        Texas 79701

      Tel:
        (432) 571-8000

      Fax:
        (432) 571-8099

      

      with
        a
        copy (which shall not constitute notice):

      

      Akin
        Gump
        Strauss Hauer & Feld LLP

      Attn:
        Will Liebmann

      300
        Convent Street, Suite 1500

      San
        Antonio, Texas 78205

      Tel:
        (210) 281-7000

      Fax:
        (210) 224-2035

      

      If
        to
        Employee:

      

      Charles
        McArthur

      __________________________

      Tel:
        ______________________

      Fax:
        ______________________

      

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

      

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

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      9.6 Submission
        to Jurisdiction; No Jury Trial. 

      

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

      

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

      

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

      

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

      

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

      

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

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

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

      

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

      

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

      

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

      

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

      

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

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      9.17 Electronic
        Signatures.

      

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

      

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

      

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

      

        
          	
                   

                	
                  EMPLOYER:

                	 
	 	 	 	 
	
                   

                	
                  UNITED
                    FUEL & ENERGY CORPORATION

                	 
	 	 	 	 
	 	 	 	 
	
                   

                	
                  By:

                	
                  /s/
                    Thomas E. Kelly

                	 
	
                   

                	
                  Name: 
                    

                	
                  Thomas
                    E. Kelly

                	 
	
                   

                	
                  Title:

                	
                  Chairman

                	 
	 	 	 	 
	 	 	 	 
	
                   

                	
                  EMPLOYEE:

                	 
	 	 	 	 
	 	 	 	 
	
                   

                	
                  /s/
                    Charles McArthur

                	 
	
                   

                	
                  CHARLES
                    McARTHUR

                	 

        

      

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

      EXHIBIT
        A

      

      Description
        of Benefits

       

      Four
        weeks’ paid vacation per annum.

      

      Car
        allowance of $1,000 per month.

      

      
        
          
          

        

        
          14EXHIBIT
          10.3

         

      

      SECOND
        AMENDMENT
        TO SECOND AMENDED AND RESTATED

      FINANCING
        AGREEMENT AND OTHER LOAN DOCUMENTS

      

      

      THIS
        SECOND AMENDMENT TO SECOND AMENDED AND RESTATED FINANCING AGREEMENT AND OTHER
        LOAN DOCUMENTS
        (“this
        Agreement”)
        entered into on this 5th day of October, 2007, to be effective, unless another
        effective date is otherwise herein specified, as of the date hereof, is by
        and
        among The CIT Group/Business Credit, Inc. (“CIT”),
        SunTrust Bank (“SunTrust”),
        and
        Wachovia Bank, N.A. (“Wachovia”),
        as
        Required 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. United,
        Three D, Agent, Required Lenders and PNC Bank National Association
        (“PNC”,
        with
        PNC and Required Lenders being hereinafter referred to as “Lenders”)
        entered into that certain Second Amended and Restated Financing Agreement,
        dated
        as of March 27, 2007, together with all riders, addenda, exhibits and other
        documents relating thereto (collectively, as amended from time to time, the
        “Financing
        Agreement”).

      

      B. Companies
        and Parent have requested that Agent and Required Lenders consent to the
        acquisition by Parent from Frank P. Greinke, as Trustee under the Greinke
        Business Living Trust, dated April 20, 1999 (the “Greinke
        Trust”)
        of all
        the issued and outstanding capital stock of Cardlock for a purchase price
        of
        $36,961,915, such purchase price to be payable in the 24,641,276 shares of
        Parent’s common stock, par value $0.001 per share, the acquisition to be
        consummated on the terms specified in that certain Mutual Stock Purchase
        Agreement, dated September 14, 2007, executed by Parent, Cardlock,
        Frank P. Greinke and Greinke Trust which has been supplied to Agent without
        exhibits or schedules (the “Cardlock
        Stock Purchase Agreement”)
        (the
“Cardlock
        Transaction”).

      

      C. Pursuant
        to the terms and conditions of this Agreement, (i) Agent and Required
        Lenders are willing to consent to the consummation of the Cardlock Transaction,
        and (ii) each of Companies, Agent and Required Lenders are willing to amend
        the Financing Agreement as hereinafter set forth, including, without limitation,
        to amend the Financing Agreement to make Cardlock a party to and a co-borrower
        under the Financing Agreement and to make Cardlock a joint and several
        co-obligor for payment of the Obligations, and (iii) each of the parties
        hereto are willing 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, as hereinafter
        set
        forth:

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      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 Consent
        to Cardlock Transaction.
        Subject
        to the satisfaction of the conditions precedent specified in Article IV
        of this
        Agreement, each of Agent and Required Lenders hereby agrees to the consummation
        of the Cardlock Transaction. The foregoing consent is strictly limited to
        the
        consummation of the Cardlock Transaction as described in the Recitals to
        this
        Agreement and such consent shall not apply to or constitute a consent to
        any
        future transaction involving Companies or Parent and shall in no way constitute
        any course of dealing or other basis for altering any obligation of any Company
        or Parent or any right, privilege or remedy of Agent or any Lender.

      

      2.02 References
        to “Company” and “Companies” in Financing Agreement.
        Effective as of the date of execution of this Agreement, all references in
        the
        Financing Agreement to “Company” and “Companies” in the Financing Agreement
        shall be deemed to include references to Cardlock, as well as to United and
        Three D.

      

      2.03 Grant
        by Cardlock of Security Interest in Collateral.
        Cardlock
        hereby agrees that by becoming a party to the Financing Agreement, it is
        subject
        to all the provisions of the Financing Agreement, including, without limitation,
        the grant of a continuing security interest in, and lien upon, all of its
        right,
        title and interest in all of its property, whether now owned or existing
        or
        hereafter created, acquired or arising and wheresoever located, as specified
        in
Section 6.1
        of the
        Financing Agreement. In accordance therewith, in order to secure the prompt
        payment and performance of the Obligations, Cardlock hereby grants to Agent,
        for
        the benefit of Lenders, a continuing security interest in, and general lien
        upon, all of its right, title and interest in all of its property, whether
        now
        owned or existing or hereafter created, acquired or arising and wheresoever
        located, including, without limitation, all of its:

      

      
        	
              	(a)	
                Accounts;

              

      

      

      
        	
              	(b)	
                Inventory;

              

      

      

      
        	
              	(c)	
                General
                  Intangibles;

              

      

      

      
        	
              	(d)	
                Documents
                  of Title;

              

      

      

      
        	
              	(e)	
                Real
                  Estate;

              

      

      

      
        	
              	(f)	
                Other
                  Collateral; and

              

      

      

      
        	
              	(g)	
                Equipment.

              

      

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

       

      The
        Companies hereby agree and acknowledge that no asset of Cardlock shall be
        considered for inclusion in the Borrowing Base until: (i) Agent determines,
        in
        its sole discretion, that Agent has a first priority and fully perfected
        security interest in such asset and such asset is otherwise “eligible” for
        inclusion in the Borrowing Base pursuant to the terms, conditions and provisions
        of the Financing Agreement; (ii) Agent receives evidence satisfactory to
        Agent, in its sole discretion, that Agent has been named as mortgagee, loss
        payee and additional insured on all property of Cardlock and liability insurance
        policies of Cardlock pursuant to issued endorsements in form and substance
        satisfactory to Agent; and (iii) Agent determines, in its sole discretion,
        that
        payments from account debtors of Cardlock are being paid into the Blocked
        Accounts in a manner and pursuant to documentation satisfactory to
        Agent.

      

      2.04 Amendments
        to Existing Promissory Notes.
        Cardlock
        hereby agrees that by becoming a party to the Financing Agreement, Cardlock
        is
        now jointly and severally liable, along with United and Three D, for
        payment and performance of all Obligations pursuant to the terms and provisions
        of the Financing Agreement and the other Loan Documents, including, without
        limitation, the provisions of Section
        15
        of the
        Financing Agreement. Cardlock hereby agrees that it is accordingly jointly
        and
        severally liable with the other Companies for payment of the indebtedness
        evidenced by the Promissory Notes. Therefore, each of the parties hereto
        agrees
        that Cardlock shall hereafter be considered to be a maker of each existing
        Promissory Note and that each reference in each existing Promissory Note
        to
“Company” or “Companies” shall hereafter be deemed to also refer to
        Cardlock.

      

      2.05 Amendment
        to Schedule 7(1) to Financing Agreement.
        Effective as of the date hereof, Schedule 7(1)
        to
        Financing Agreement (Company Information) is hereby deleted in its entirety
        and
        replaced with Schedule 7(1)
        attached
        hereto.

      

      2.06 Amendment
        to Schedule 7(15)(g) to Financing Agreement.
        Effective as of the date hereof, Schedule 7(15)(g)
        to
        Financing Agreement (Real Property Owned and Leased/Collateral Locations)
        is
        hereby deleted in its entirety and replaced with Schedule 7(15)(g)
        attached
        hereto.

      

      2.07 Amendment
        to Schedule 7(15)(q) to Financing Agreement.
        Effective as of the date hereof, Schedule 7(15)(q)
        to
        Financing Agreement (Subsidiaries) is hereby deleted in its entirety and
        replaced with Schedule 7(15)(q)
        attached
        hereto.

      

      2.08 Additional
        Agreements.
        Companies hereby agree (i) to deliver to Agent within thirty (30) days of
        the
        date hereof amended and restated Promissory Notes, duly executed by each
        Company, whereby the existing Promissory Notes are amended and restated to
        reflect each Company as maker and to reflect the respective unpaid principal
        amount of such Promissory Note, (ii) to deliver to Agent within thirty (30)
        days
        of the date hereof, such documentation executed by Cardlock regarding the
        Blocked Accounts as shall be required by Agent, in form and substance
        satisfactory to Agent, and (iii) to use their best efforts to get the existing
        lessors of Cardlock to disclaim any interest in fuel or other inventory of
        Cardlock that may from time to time be in any tanks leased to Cardlock or
        otherwise located upon or related to any improvements leased to
        Cardlock.

       

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

       

      ARTICLE
        III

      Limited
        Waiver to Cardlock Transaction

      

      3.01 No
        Waivers.
        Subject
        to the satisfaction of the conditions precedent specified in Article IV of
        this
        Agreement and in addition to the provisions of Section 2.01
        of this
        Agreement, each of Agent and each Required Lender hereby waives the covenants
        in
        the Financing Agreement to the extent such covenants would be deemed violated
        solely due to the consummation of the Cardlock Transaction. Nothing contained
        herein shall be construed as a waiver by Agent or any Lender of any covenant
        or
        provision of the Loan Agreement, or any other Loan Document or any other
        contract or instrument between any Company and/or Parent and Agent and/or
        any
        Lender, and neither Agent’s nor any Lender’s failure at any time or times
        hereafter to require strict performance by any Company and/or Parent of any
        provision thereof shall waive, affect or diminish any right of Agent or any
        Lender thereafter to demand strict compliance therewith. Each of Agent and
        each
        Lender hereby reserves all rights granted under the Loan Agreement, and each
        other Loan Document and any other contract or instrument between any Company
        and/or Parent and Agent and/or any Lender.

      

      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, Parent, and Required
        Lenders;

      

      (ii) Stock
        Pledge Agreement covering all shares of capital stock in Cardlock now or
        hereafter owned by Parent, duly executed by Parent, substantially in the
        form of
Annex I
        attached
        hereto; together with the original stock certificates evidencing such capital
        stock; together with an undated stock power for each such certificate, executed
        in blank by Parent;

      

      (iii) Guaranty
        as to all indebtedness of Companies to Agent and Lenders, duly executed by
        Parent, substantially in the form of Annex II
        attached
        hereto;

      

      (iv) Subordination
        Agreement subordinating payment of all indebtedness of Companies to Parent
        to
        prior payment in full of the Obligations, duly executed by Parent, substantially
        in the form of Annex III
        attached
        hereto; and

      

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

       

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

       

      (b) Agent
        shall also have received all of the following additional information and
        documentation, each in form and substance satisfactory to Agent:

      

      (i) Evidence
        that the Cardlock Transaction has been consummated consistent with the
        description of the Cardlock Transaction contained in the Recitals to this
        Agreement, together with copies of all documents, agreements, materials and
        certificates executed or issued in connection with the Cardlock Transaction,
        including, without limitation, the Cardlock Stock Purchase Agreement, including
        all exhibits and schedules thereto; and

      

      (ii) If
        needed, evidence that Parent and Companies have obtained the consent of Sterling
        Bank to the Cardlock Transaction;

      

      (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 Agent
        and
        Required 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 of
        each Company and Parent hereby represents and warrants to Agent and each
        Lender
        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 Parent and will not violate the Articles of Incorporation
        or
        Bylaws of any Company or Parent; (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 each Required
        Lender. Each Company hereby represents and warrants to Agent and each Lender
        that it is in full compliance with all covenants and agreements contained
        in the
        Financing Agreement, and the other Loan Documents, as amended
        hereby.

       

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

       

      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
        or
        any Lender 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 Agent.
        Each of
        each Company and Parent agrees to pay on demand all costs and expenses incurred
        by Agent 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 legal counsel, and all costs and
        expenses incurred by Agent 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 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 neither any Company nor
        Parent may assign or transfer any of its rights or obligations hereunder
        without
        the prior written consent of Agent and each Lender.

      

      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 or Parent
        shall be deemed a consent to or waiver of any other breach of the same or
        any
        other covenant, condition or duty.

       

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

       

      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 OF EACH COMPANY AND PARENT 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 OF EACH COMPANY AND PARENT
        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 THIS
        AGREEMENT IS EXECUTED, WHICH ANY COMPANY OR PARENT 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 “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.

       

      

      [REMAINDER
        OF THIS PAGE INTENTIONALLY LEFT BLANK]

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

       

      Executed
        on this 5th day of October, 2007, to be effective as of the respective date
        indicated above.

      

        
          	 	
                  UNITED
                    FUEL & ENERGY CORPORATION,

                
	 	
                  a
                    Texas corporation

                
	 	 	 
	 	 	 
	 	
                  By:

                	
                  /s/
                    Bobby W. Page

                
	 	
                  Name: 

                	
                  Bobby
                    W. Page

                
	 	
                  Title: 

                	
                  Vice
                    President and Chief Financial Officer

                
	 	 	 
	 	 	 
	 	
                  THREE
                    D OIL CO. OF KILGORE, INC.,

                
	 	
                  a
                    Texas corporation

                
	 	 	 
	 	 	 
	 	
                  By: 

                	
                  /s/
                    Bobby W. Page

                
	 	
                  Name: 

                	
                  Bobby
                    W. Page

                
	 	
                  Title:

                	Vice
                  President and Chief Financial
                  Officer
	 	 	 
	 	 	 
	 	
                  CARDLOCK
                    FUELS SYSTEM, INC.,

                
	 	
                  a
                    California corporation

                
	 	 	 
	 	 	 
	 	
                  By: 

                	
                  /s/
                    Bobby W. Page

                
	 	
                  Name:

                	
                  Bobby
                    W. Page

                
	 	
                  Title: 

                	
                  Vice
                    President and Chief Financial Officer

                
	 	 	 
	 	 	 
	 	
                  UNITED
                    FUEL & ENERGY CORPORATION,

                
	 	
                  a
                    Nevada corporation

                
	 	 
	 	 
	 	
                  By: 

                	
                  /s/
                    Bobby W. Page

                
	 	
                  Name:  

                	
                  Bobby
                    W. Page

                
	 	
                  Title: 

                	
                  Vice
                    President and Chief Financial
                    Officer

                

        

         

        
          
             

          

          
             

            
              

            

          

          
             

          

        

         

        
          	 	
                  ACCEPTED
                    at Dallas, Texas, this 5th day of October, 2007, to be effective
                    as of the
                    respective date indicated above.

                
	 	 	 
	 	 	 
	 	
                  THE
                    CIT GROUP/BUSINESS CREDIT, INC.,

                
	 	
                  as
                    Agent and Lender

                
	 	 
	 	 
	 	
                  By: 

                	
                  /s/
                    Alan R. Schancke

                
	 	
                  Name: 

                	
                  Alan
                    R. Schnacke

                
	 	
                  Title:

                	
                  Vice
                    President

                
	 	 	 
	 	 	 
	 	
                  SUNTRUST
                    BANK,

                
	 	
                  as
                    Lender

                
	 	 
	 	 
	 	
                  By:

                	
                  /s/
                    Brian R. O’Fallon

                
	 	
                  Name:

                	
                  Brian
                    R. O’Fallon

                
	 	
                  Title

                	
                  :
                    Director

                
	 	 	 
	 	 	 
	 	
                  WACHOVIA
                    BANK, N.A.,

                
	 	
                  as
                    Lender

                
	 	 
	 	 
	 	
                  By: 

                	
                  /s/
                    Thomas P. Floyd

                
	 	
                  Name:  
                    

                	
                  Thomas
                    P. Floyd

                
	 	
                  Title: 

                	
                  Vice
                    President

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