Document:

UNITED FUEL & ENERGY CORPORATION

NEITHER THIS WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR ANY  APPLICABLE  STATE  SECURITIES  LAWS  AND MAY  NOT BE  SOLD,  PLEDGED  OR
TRANSFERRED  IN THE  ABSENCE OF AN  EFFECTIVE  REGISTRATION  STATEMENT  FOR SUCH
SECURITIES  UNDER THE ACT OR  UNLESS AN  EXEMPTION  FROM  SUCH  REGISTRATION  IS
AVAILABLE.

Warrant                                                         Date:
_________ Shares                                                May __, 2005

                        UNITED FUEL & ENERGY CORPORATION

                                     WARRANT

      UNITED FUEL & ENERGY CORPORATION,  a Nevada corporation  ("Company"),  for
value  received  hereby  grants this  warrant  ("Warrant")  to  [Purchaser],  or
registered  assigns (the "Holder").  The Warrant entitles the Holder to purchase
from Company at any time prior to the Expiration Date (as defined below) up to [
] shares of common stock of Company ("Common Stock"). The exercise price for the
Warrant shall be $1.50 per share of Common Stock (the  "Exercise  Price").  This
Warrant shall be issued in connection  with the  Securities  Purchase  Agreement
entered into by Holder and Company as of this date.

<PAGE>

1. Expiration Date; Exercise

      1.1  Exerciseability.   The  Warrant  granted  hereunder  shall  be  fully
exercisable as of the date hereof.

      1.2 Expiration Date. The Warrant shall expire on the fifth (5) anniversary
of the date of this  Warrant set forth on the first page.  After the  Expiration
Date, the Warrant shall expire and be of no further force or effect.

      1.3  Callable  Warrant.  If during any  consecutive  20 trading day period
(after the  effectiveness  of the  registration  statement if  applicable),  the
Common Stock of Company  closes at the prices set forth in the  following  table
("Trading Price"),  the Warrant shall be callable upon 10 days written notice at
$0.01 per share, in the following amounts:

        Number of Warrants callable                Trading Price
        ---------------------------                -------------
               1/2 of Warrants                           $4.00
               1/2 of Warrants                           $4.50

      If Company has called the applicable Warrants,  then Holder shall exercise
such Warrants at $1.50 per share. If Holder does not exercise such Warrants when
called within 10 days of receiving notice,  then such Warrants shall immediately
expire after such 10 day period.

2. Adjustments of Exercise Price and Number and Kind of Conversion Shares

      2.1 In the  event  that  Company  shall  at any time  hereafter  (a) pay a
dividend  in Common  Stock or  securities  convertible  into Common  Stock;  (b)
subdivide or split its  outstanding  Common Stock;  (c) combine its  outstanding
Common Stock into a smaller number of shares; (d) spin-off to its shareholders a
subsidiary or  operating-business  unit;  then the number of shares to be issued
immediately after the occurrence of any such event shall be adjusted so that the
Holder  thereafter  may  receive  the  number of  shares of Common  Stock or the
equivalent value it would have owned immediately following such action if it had
exercised the Warrant  immediately  prior to such action and the Exercise  Price
shall be adjusted to reflect  such  proportionate  increases or decreases in the
number of shares.

                                       2
<PAGE>

      2.2 In case of any  reclassification  of the outstanding  shares of Common
Stock  (other  than a change  covered  by Section  2.1 hereof or a change  which
solely  affects  the par value of such  shares)  or in the case of any merger or
consolidation  or merger in which Company is not the continuing  corporation and
which  results  in  any  reclassification  or  capital   reorganization  of  the
outstanding  shares),  the  holder  shall have the right  thereafter  (until the
Expiration  Date) to receive upon the exercise  hereof,  for the same  aggregate
Exercise Price payable  hereunder  immediately prior to such event, the kind and
amount of shares of stock or other  securities or property  receivable upon such
reclassification,  capital reorganization,  merger or consolidation, by a holder
of the number of shares of Common  Stock  obtainable  upon the  exercise  of the
Warrant  immediately  prior  to such  event;  and if any  reclassification  also
results in a change in shares covered by Section 2.1, then such adjustment shall
be made  pursuant to both this Section 2.2 and Section 2.1.  The  provisions  of
this Section 2.2 shall similarly apply to successive reclassifications,  capital
reorganizations and mergers or consolidations, sales or other transfers.

3. Transfer.  Subject to compliance with applicable securities laws, the Warrant
is transferable in person,  or by duly  authorized  attorney,  upon surrender of
this Warrant properly endorsed and upon payment of any necessary transfer tax or
other  governmental  charge imposed upon such transfer.  If less than all of the
Warrant is transferred,  Company will, upon transfer, execute and deliver to the
Holder a new certificate for the portion of the Warrant not so transferred.

4. Reservation of Shares.  Company shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock, such number of shares
of Common  Stock as shall from time to time be  issuable  upon  exercise  of the
Warrant.  If at any time the number of authorized but unissued  shares of Common
Stock shall not be  sufficient  to permit the exercise of the  Warrant,  Company
shall  promptly  seek such  corporate  action as may  necessary  to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.

5. Certificate as to Adjustments. In each case of any adjustment in the Exercise
Price,  or number or type of  shares  issuable  upon  exercise  of the  Warrant,
Company  shall  compute  such  adjustment  in  accordance  with the terms of the
Warrant and prepare a certificate  setting forth such  adjustment and showing in
detail the facts upon which such  adjustment is based,  including a statement of
the adjusted  Exercise  Price.  Company shall promptly send (by facsimile and by
either first class mail,  postage prepaid or overnight  delivery) a copy of each
such certificate to the Holder.

                                       3
<PAGE>

6. Loss or  Mutilation.  Upon  receipt of evidence  reasonably  satisfactory  to
Company of the ownership of and the loss,  theft,  destruction  or mutilation of
this Warrant, and of indemnity  reasonably  satisfactory to it, and (in the case
of mutilation)  upon  surrender and  cancellation  of the Warrant,  Company will
execute  and  deliver in lieu  thereof a new  Warrant of like tenor as the lost,
stolen, destroyed or mutilated Warrant.

7.  Representations  and Warranties of Company.  Company  hereby  represents and
warrants to Holder that:

      7.1 Due  Authorization.  All corporate action on the part of Company,  its
officers,  directors  and  shareholders  necessary  for (a)  the  authorization,
execution and delivery of, and the  performance  of all  obligations  of Company
under  this  Warrant,  and  (b) the  authorization,  issuance,  reservation  for
issuance and delivery of all of the Common Stock  issuable upon exercise of this
Warrant,  has been duly  taken.  This  Warrant  constitute  a valid and  binding
obligation of Company enforceable in accordance with their terms, subject, as to
enforcement  of remedies,  to  applicable  bankruptcy,  insolvency,  moratorium,
reorganization  and similar laws affecting  creditors'  rights  generally and to
general equitable principles.

      7.2  Organization.  Company  is  a  corporation  duly  organized,  validly
existing and in good standing under the laws of the Nevada and has all requisite
corporate power to grant this Warrant.

      7.3 Valid  Issuance  of Stock.  Any  shares of Common  Stock  issued  upon
exercise  of this  Warrant  will be duly  and  validly  issued,  fully  paid and
non-assessable.

      7.4 Governmental Consents. All consents, approvals, orders, authorizations
or  registrations,  qualifications,  declarations or filings with any federal or
state governmental  authority on the part of Company required in connection with
the consummation of the transactions contemplated herein have been obtained.

                                       4
<PAGE>

8. Notices of Record Date.  In case,  Company shall take a record of the holders
of its Common Stock (or other stock or  securities at the time  receivable  upon
the exercise of this Warrant), for the purpose:

      8.1 of entitling  them to receive any dividend or other  distribution,  or
any right to  subscribe  for or purchase any shares of stock of any class or any
other securities or to receive any other right; or

      8.2 of any  consolidation  or  merger  of  Company  with or  into  another
corporation,  any capital reorganization of Company, any reclassification of the
capital stock of Company,  or any conveyance of all or substantially  all of the
assets of Company to another  corporation  in which holders of Company stock are
to receive stock, securities or property of another corporation; or

      8.3 of any voluntary dissolution, liquidation or winding-up of Company; or

      8.4 of any redemption or conversion of all outstanding Common Stock; then,
and in each such case,  Company  will mail or cause to be mailed to the Holder a
copy of the notice with  respect to the  foregoing  received by it from  Company
specifying,  as the case may be,  (a) the date on which a record  is to be taken
for the  purpose of such  dividend,  distribution  or right,  or (b) the date on
which such reorganization, reclassification,  consolidation, merger, conveyance,
dissolution, liquidation, winding-up, redemption or conversion is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock  or (such  stock or  securities  as at the  time are  receivable  upon the
exercise of this Warrant),  shall be entitled to exchange their shares of Common
Stock (or such other stock or  securities),  for  securities  or other  property
deliverable upon such reorganization,  reclassification,  consolidation, merger,
conveyance,  dissolution,  liquidation  or  winding-up.  Company  shall  use all
reasonable  efforts to ensure such notice  shall be  delivered  at least 15 days
prior to the date therein specified.

9. Severability.  If any term, provision, covenant or restriction of the Warrant
is  held  by  a  court  of  competent   jurisdiction  to  be  invalid,  void  or
unenforceable,   the   remainder  of  the  terms,   provisions,   covenants  and
restrictions  of the Warrant  shall remain in full force and effect and shall in
no way be affected,  impaired or invalidated to the same extent as if Company is
owner of the underlying Common Stock.

                                       5
<PAGE>

10. Notices. All notices,  requests,  consents and other communications required
hereunder  shall be in  writing  and by first  class  mail or by  registered  or
certified mail, postage prepaid,  return receipt  requested,  and (other than in
connection  with the exercise of the Warrant)  shall be deemed to have been duly
made when received or, if sent  registered or certified mail,  postage  prepaid,
return receipt  requested,  on the third day following  deposit in the mails: if
addressed  to the Holder,  to the address set forth on the  Securities  Purchase
Agreement  between  the  Holder  and  Company;  and  if  addressed  to  Company,
Attention,  Scott Heller, 405 North Marienfeld,  Suite 300, Midland, Texas 79701
or such other address as it may designate in writing.

11. No Rights as  Shareholder.  The Holder shall have no rights as a shareholder
of Company  with  respect to the shares  issuable  upon  exercise of the Warrant
until the actual exercise hereunder.

UNITED FUEL &ENERGY, INC.

By: __________________________________
    Scott Heller, Chief Executive Officer

                                       6
<PAGE>

                                   EXHIBIT "A"
                               NOTICE OF EXERCISE
                (To be signed only upon exercise of the Warrant)

To: UNITED FUEL & ENERGY CORPORATION.

      The  undersigned  hereby  elects to purchase  shares of Common  Stock (the
"Warrant Shares") of UNITED FUEL & ENERGY CORPORATION.  ("Company"), pursuant to
the terms of the  enclosed  Warrant (the  "Warrant").  The  undersigned  tenders
herewith payment of the exercise price pursuant to the terms of the Warrant.

The  undersigned  hereby  represents and warrants to, and agrees with Company as
follows:

      1.  Holder is  acquiring  the  Warrant  Shares  for its own  account,  for
investment purposes only.

      2. Holder  understands that an investment in the Warrant Shares involves a
high degree of risk,  and Holder has the financial  ability to bear the economic
risk of this investment in the Warrant Shares, including a complete loss of such
investment.  Holder has adequate  means for providing for its current  financial
needs and has no need for liquidity with respect to this investment.

      3. Holder has such  knowledge  and  experience  in financial  and business
matters that it is capable of  evaluating  the merits and risks of an investment
in the Warrant Shares and in protecting its own interest in connection with this
transaction.

      4. Holder  understands  that the Warrant  Shares have not been  registered
under the Securities Act or under any state securities laws.  Holder is familiar
with  the  provisions  of  the  Securities  Act  and  Rule  144  thereunder  and
understands  that the  restrictions on transfer on the Warrant Shares may result
in Holder being required to hold the Warrant Shares for an indefinite  period of
time.

      5. Holder agrees not to sell,  transfer,  assign,  gift, create a security
interest   in,  or   otherwise   dispose  of,  with  or  without   consideration
(collectively,  "Transfer")  any of the  Warrant  Shares  except  pursuant to an
effective  registration  statement under the Securities Act or an exemption from
registration.  As a further condition to any such Transfer,  except in the event
that such Transfer is made pursuant to an effective registration statement under
the  Securities  Act,  if in the  reasonable  opinion of counsel to Company  any
Transfer of the Warrant Shares by the contemplated  transferee thereof would not
be exempt from the  registration  and prospectus  delivery  requirements  of the
Securities  Act,  Company  may require the  contemplated  transferee  to furnish
Company with an investment  letter setting forth such information and agreements
as may  be  reasonable  requested  by  Company  to  ensure  compliance  by  such
transferee with the Securities Act.

                                       7
<PAGE>

      Until the  effectiveness  of the  registration  statement each certificate
evidencing the Warrant Shares will bear the following legend:

"THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY APPLICABLE  STATE  SECURITIES LAWS
AND MAY NOT BE  EXERCISED,  SOLD,  PLEDGED OR  TRANSFERRED  IN THE ABSENCE OF AN
EFFECTIVE  REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR UNLESS AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.

Number of Warrant Exercised:  ________
Dated:
                                                             [Name]

                                       8EXHIBIT A - FORM OF

                          REGISTRATION RIGHTS AGREEMENT

      Registration   Rights  Agreement,   dated  as  of  May  ____,  2005  (this
"Agreement"),   by  and  among  United  Fuel  &  Energy  Corporation,  a  Nevada
corporation  (the  "Company")  on the one hand,  and the persons  executing  the
signature  page to this  Agreement  (each a "Purchaser"  and  collectively,  the
"Purchasers").

                              W I T N E S S E T H :

      WHEREAS,  the Company is offering (the  "Offering")  an aggregate of up to
2,000,000 Units;

      WHEREAS,  each "Unit"  consists of one share of Company Common Stock,  par
value $.001 per share (the  "Common  Stock") and a Warrant to purchase one share
of  Common  Stock  (the  securities  offered  in the  Offering  being  sometimes
hereinafter referred to as the "Securities");

      WHEREAS,  the  Company  desires to issue and sell to the  Purchasers,  the
Securities as set forth in one or more Securities Purchase  Agreement(s) entered
into or to be entered  into by and between the Company and each  Purchaser  (the
"Securities Purchase Agreement");

      WHEREAS,   it  is  a  condition  precedent  to  the  consummation  of  the
transactions  contemplated by the Securities Purchase Agreement that the Company
provide for the rights set forth in this Agreement; and

      WHEREAS,  certain  terms used in this  Agreement  that are not  defined in
context are defined in Section 3 hereof.

      NOW, THEREFORE,  in consideration of the foregoing premises and the mutual
covenants and agreements hereinafter contained,  and for other good and valuable
consideration,  the receipt and  sufficiency  of which are hereby  acknowledged,
intending to be legally bound,  the parties  hereto hereby agree as follows:

      1. Registration Rights.

            1.1 Required Registration. The Company shall use its reasonable best
efforts to prepare  and file with the SEC within  sixty (60) days after the last
date on which  Securities  are issued in  connection  with the Offering  (but no
later than September 30, 2005) a registration  statement on Form S-1, S-2 or S-3
(subject to the Company's  eligibility to use Form S-2 or S-3) or successor form
or another  form  selected  by the  Company  that is  available  to it under the
Securities  Act which conforms with all applicable  rules and  regulations  (the
"Required   Registration   Statement")  with  respect  to  all  the  Registrable
Securities  beneficially owned by the Purchasers to permit the offer and re-sale
from time to time of such Registrable  Securities in accordance with the methods
of distribution provided by the Purchasers. The Company shall use its reasonable
best efforts to cause the Required Registration Statement to become effective as
promptly  as  reasonably  practicable  thereafter.  The  Company  shall  use its
reasonable   best  efforts  to  keep  such   Required   Registration   Statement
continuously  effective (the "Effective  Period") until the first anniversary of
the last date on which  Securities  are issued in  connection  with the Offering
plus  whatever  period of time as shall  equal any  period  prior to such  first
anniversary in which the Company was not current with its reporting requirements
under  the  Exchange  Act.  The   Registration   Statement  shall  be  the  same
registration  statement  contemplated in Section 1.1 of the Registration  Rights
Agreement dated June 22, 2004 by and among United Fuel & Energy  Corporation,  a
Texas  corporation and the signatory  investors  listed therein and the Required
Registration  Statement  shall  register  the  Company  securities  held by such
investors.  To the extent that the Registrable Securities are not sold under the
Required  Registration  Statement,  the Purchasers  shall have the  registration
rights as enumerated in Section 1.2.

<PAGE>

            1.2 Piggyback Registrations.

            (a) Right to  Piggyback.  Whenever the Company  proposes to register
any of its securities under the Securities Act and the  registration  form to be
used may be used for the registration of Registrable Securities,  whether or not
for sale for its own account,  the Company will give prompt  written notice (but
in no event less than fifteen (15) days before the  anticipated  filing date) to
all holders of  Registrable  Securities,  and such  notice  shall  describe  the
proposed  registration  and distribution and offer to all holders of Registrable
Securities the  opportunity to register the number of Registrable  Securities as
each such holder may request;  provided,  however, this right shall not apply to
any  registration  of securities on a registration  statement filed prior to the
date on which the  Required  Registration  Statement  is required to be filed (a
"Piggyback  Registration").  Subject to  paragraph  (d) of this Section 1.2, the
Company will include in each Piggyback  Registration all Registrable  Securities
with respect to which the Company has received  written  requests for  inclusion
therein within five (5) days after the holders' receipt of the Company's notice.

            (b) Reasonable Efforts. The Company shall use all reasonable efforts
to cause the managing  underwriter or  underwriters  of a proposed  underwritten
offering  to permit the  Registrable  Securities  requested  to be included in a
Piggyback  Registration  to be included on the same terms and  conditions as any
similar  securities of the Company or any other security holder included therein
and to permit the sale or other  disposition of such  Registrable  Securities in
accordance with the intended method of distribution thereof.

            (c)  Withdrawal.  Any holder of Registrable  Securities  electing to
participate in a Piggyback  Registration (a "Designated  Holder") shall have the
right to withdraw its request for inclusion of its Registrable Securities in any
Registration  Statement pursuant to this Section 1.2 by giving written notice to
the Company of its  request to  withdraw.  The Company may  withdraw a Piggyback
Registration at any time.

                                        2
<PAGE>

            (d) Priority in  Registrations.  If a Piggyback  Registration  is an
underwritten  primary  registration  on behalf  of the  Company  or a  secondary
registration  on behalf of a  security  holder  exercising  demand  registration
rights (the  "Initiating  Holder"),  and the  managing  underwriters  advise the
Company in writing (with a copy to each party hereto requesting  registration of
Registrable  Securities)  that  in  their  opinion  the  number  of  Registrable
Securities  requested  to be  included in such  registration  exceeds the number
which can be sold in such offering  without  materially and adversely  affecting
the  marketability  of  such  primary  or  secondary   offering  (the  "Offering
Quantity"), then the Company will include in such registration securities in the
following priority:

            (i) First,  the  Company  will  include the  securities  the Company
      proposes to sell and, if applicable,  the securities the Initiating Holder
      proposes to sell.

            (ii) Second,  the Company will  include all  Registrable  Securities
      requested  to be  included  by any  Designated  Holder  and other  holders
      entitled   to   include   securities   in  such   Piggyback   Registration
      (collectively,   "Subordinate  Holders"),   and  if  the  number  of  such
      Subordinate  Holders'  securities  requested  to be  included  exceeds the
      Offering  Quantity,   then  the  Company  shall  include  only  each  such
      requesting Subordinate Holders' pro rata share of the shares available for
      registration  by the Purchaser,  based on the amount of securities held by
      each such Subordinate Holder.

            1.3 Holdback Agreements.

            (a) To the extent not  inconsistent  with  applicable  law, upon the
request of the Company or, in the case of an underwritten  public offering,  the
underwriters  managing such underwritten  offering of the Company's  securities,
each holder of Registrable  Securities  who owns at least 1% of the  outstanding
capital  stock of the  Company  on an  "as-converted"  basis or is an officer or
director of the Company will not effect any public sale or  distribution  (other
than those included in the  registration)  of any securities of the Company,  or
any  securities,   options  or  rights   convertible  into  or  exchangeable  or
exercisable  for such  securities  during the seven days prior to and the ninety
(90) day period  beginning on the effective date of the  Registration  Statement
relating  to such  offering,  unless  (in the  case  of an  underwritten  public
offering) the managing underwriters otherwise agree to a shorter period of time.
Notwithstanding  the foregoing,  no Designated Holder shall be required to enter
into  any such  "lock  up"  agreement  unless  and  until  all of the  Company's
executive  officers and directors execute identical "lock up" agreements and the
Company uses commercially  reasonable  efforts to cause each holder of more than
1% of its outstanding  capital stock to execute  identical "lock up" agreements.
Neither the Company nor the underwriter shall amend,  terminate or waive a "lock
up" agreement  unless each "lock up" agreement with a Designated  Holder is also
amended or waived in a similar manner or terminated, as the case may be.

            (b) The Company shall have the right at any time to require that the
Designated Holders of Registrable  Securities suspend further open market offers
and sales of Registrable  Securities pursuant to a Registration  Statement filed
hereunder whenever in the reasonable  judgment of the Company after consultation
with  counsel  there is or may be in  existence  a  Changing  Event (as  defined
herein).  The  Company  will  give the  Designated  Holders  notice  of any such
suspension  and will use all  reasonable  best efforts to minimize the length of
such suspension.

                                       3
<PAGE>

            1.4 Registration Procedures. Whenever any Registrable Securities are
required to be  registered  pursuant  to this  Agreement,  the Company  will use
reasonable  best  efforts  to  effect  the  registration  and  the  sale of such
Registrable  Securities in accordance  with the intended  methods of disposition
thereof, and pursuant thereto the Company will as expeditiously as possible:

            (a) prepare and file with the SEC on any form,  if not so  otherwise
provided for, for which the Company qualifies,  as soon as practicable after the
end of the period  within which  requests for  registration  may be given to the
Company,  a  Registration  Statement  with respect to the offer and sale of such
Registrable  Securities and thereafter use reasonable best efforts to cause such
Registration  Statement  to become  effective  and  remain  effective  until the
completion of the distribution  contemplated thereby or the required time period
under this Agreement,  whichever is shorter (and before filing such Registration
Statement,  the Company will furnish to the counsel selected by the holders of a
majority of the Registrable  Securities  initiating such Registration  Statement
copies of all such documents proposed to be filed); provided,  however, that the
Company may  postpone for not more than sixty (60)  calendar  days the filing or
effectiveness of the Required Registration  Statement if the Board of Directors,
in its good faith judgment,  determines that such registration  could reasonably
be  expected  to  have  a  material  adverse  effect  on  the  Company  and  its
stockholders including,  but not limited to, any proposal or plan by the Company
to engage in any  acquisition  of assets  (other than in the ordinary  course of
business) or any merger,  consolidation,  tender  offer,  stock  acquisition  or
similar transaction then under consideration by delivering written notice to the
holders  of  Registrable  Securities  of  its  determination  to  postpone  such
Registration  Statement;  provided,  further,  that (i) the  Company  shall  not
disclose any information that could be deemed material non-public information to
any holder of Registrable  Securities included in a Registration  Statement that
is subject to such  postponement,  (ii) in no event may the  Company  postpone a
filing requested  hereunder more than twice;  provided,  that such postponements
must be at least three (3) months apart; provided, further, that the Company may
delay the effectiveness of the Required Registration  Statement if the SEC rules
and regulations prohibit the Required Registration Statement from being declared
effective  because its financial  statements are stale at a time when its fiscal
year has ended or it has made an acquisition reportable under Item 2 of Form 8-K
or any other  similar  situation  until the earliest time in which the SEC would
allow the Required  Registration  Statement to be declared  effective  (provided
that  the  Company  shall  use its  reasonable  best  efforts  to cure  any such
situation as soon as possible so that the Registration Statement can be declared
effective at the earliest possible time);

            (b) prepare and file with the SEC such amendments and supplements to
such Registration  Statement and the prospectus used in connection  therewith as
may be  necessary to keep such  Registration  Statement  effective  for a period
provided for in the applicable Section above or, if such Registration  Statement
relates to an  underwritten  offering,  such period as in the opinion of counsel
for  the  underwriters  a  prospectus  is  required  by law to be  delivered  in
connection  with sales of Registrable  Securities by an underwriter or dealer or
(ii) such shorter period as will terminate when all of the securities covered by
such  Registration  Statement  have  been  disposed  of in  accordance  with the
intended  methods of disposition  by the seller or sellers  thereof set forth in
such  Registration  Statement (but in any event not before the expiration of any
longer  period  required  under the  Securities  Act),  and to  comply  with the
provisions  of  the  Securities  Act  with  respect  to the  disposition  of all
securities covered by such Registration Statement until such time as all of such
securities  have been  disposed of in  accordance  with the intended  methods of
disposition  by the seller or  sellers  thereof  set forth in such  Registration
Statement;

                                       4
<PAGE>

            (c)  furnish  to each  seller of  Registrable  Securities,  prior to
filing a  Registration  Statement,  such  number of copies of such  Registration
Statement,  each amendment and supplement  thereto,  the prospectus  included in
such  Registration  Statement  (including each preliminary  prospectus) and such
other documents as such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller;

            (d) register or qualify such Registrable Securities under such state
securities  or blue  sky laws of such  jurisdictions  as any  seller  reasonably
requests  and do any and all  other  acts and  things  which  may be  reasonably
necessary or advisable to enable such seller to consummate  the  disposition  in
such  jurisdictions  of the Registrable  Securities  owned by such seller and to
keep each such registration or qualification (or exemption  therefrom) effective
during  the period  which the  Registration  Statement  is  required  to be kept
effective  (provided,  that the  Company  will not be  required  to (i)  qualify
generally  to do business in any  jurisdiction  where it would not  otherwise be
required to qualify but for this  subparagraph,  (ii) subject itself to taxation
in any such  jurisdiction  or (iii) consent to general service of process in any
such jurisdiction);

            (e) notify each seller of such Registrable  Securities,  at any time
when a  prospectus  relating  thereto  is  required  to be  delivered  under the
Securities  Act, of the happening of any event (a "Changing  Event") as a result
of which, the prospectus  included in such  Registration  Statement  contains an
untrue  statement  of a material  fact or omits any fact  necessary  to make the
statements therein not misleading in the light of the circumstances  under which
they were made, and, at the request of any such seller, the Company will as soon
as  possible  prepare  and  furnish  to such  seller  (a  "Correction  Event") a
reasonable  number of copies of a supplement or amendment to such  prospectus so
that, as thereafter delivered to the purchasers of such Registrable  Securities,
such prospectus will not contain an untrue  statement of a material fact or omit
to state any fact necessary to make the statements therein not misleading in the
light of the circumstances under which they were made;

            (f)  cause  all such  Registrable  Securities  to be  listed on each
securities  exchange on which similar  securities issued by the Company are then
listed and,  if not so listed,  to be listed on The Nasdaq  Stock  Market or the
Nasdaq  SmallCap  trading  system or  qualified  for  trading  on the Nasdaq OTC
Bulletin Board;

                                       5
<PAGE>

            (g) provide a transfer agent and registrar for all such  Registrable
Securities not later than the effective date of such Registration Statement;

            (h) before  filing a  Registration  Statement or  prospectus  or any
amendments or supplements thereto, the Company shall provide counsel selected by
the Designated  Holders holding a majority of the Registrable  Securities  being
registered in such registration ("Holders' Counsel") and any other Inspector (as
defined  below)  with an  adequate  and  appropriate  opportunity  to review and
comment on such Registration Statement and each prospectus included therein (and
each amendment or supplement  thereto) to be filed with the SEC, subject to such
documents  being under the Company's  control,  and the Company shall notify the
Holders'  Counsel and each seller of  Registrable  Securities  of any stop order
issued or threatened by the SEC;

            (i) otherwise  comply with all applicable  rules and  regulations of
the SEC,  and make  available  to its security  holders,  as soon as  reasonably
practicable, an earnings statement covering the period of at least twelve months
beginning with the first day of the Company's first full calendar  quarter after
the effective date of the Registration Statement, which earnings statement shall
satisfy  the  provisions  of Section  11(a) of the  Securities  Act and Rule 158
thereunder;

            (j) in the event of the  issuance of any stop order  suspending  the
effectiveness  of a  Registration  Statement,  or of  any  order  suspending  or
preventing the use of any related  prospectus or suspending the qualification of
any  securities  included  in  such  Registration  Statement  for  sale  in  any
jurisdiction,  the Company  will use its  reasonable  best  efforts  promptly to
obtain the withdrawal of such order;

            (k) subject to  execution  and  delivery  of  mutually  satisfactory
confidentiality agreements, make available at reasonable times for inspection by
any seller of Registrable Securities,  any managing underwriter participating in
any  disposition  of such  Registrable  Securities  pursuant  to a  Registration
Statement, Holders' Counsel and any attorney, accountant or other agent retained
by  any  managing  underwriter  (each,  an  "Inspector"  and  collectively,  the
"Inspectors"),  all financial and other records,  pertinent  corporate documents
and properties of the Company and its subsidiaries (collectively, the "Records")
as shall be reasonably  necessary to enable them to exercise their due diligence
responsibility,   and  cause  the  Company's  and  its  subsidiaries'  officers,
directors and employees,  and the independent public accountants of the Company,
to  supply  all  information  reasonably  requested  by any  such  Inspector  in
connection with such Registration Statement;

            (l) subject to  execution  and  delivery  of  mutually  satisfactory
confidentiality  agreements,  keep Holders' Counsel advised as to the initiation
and  progress  of any  registration  hereunder  including,  but not  limited to,
providing Holders' Counsel with all correspondence with the SEC;

                                       6
<PAGE>

            (m) cooperate  with each seller of  Registrable  Securities and each
underwriter  participating in the disposition of such Registrable Securities and
their respective counsel in connection with any filings required to be made with
the NASD; and

            (n)  take  all  other  steps  reasonably  necessary  to  effect  the
registration of the Registrable Securities contemplated hereby.

            (o) Registration  Expenses.  All expenses  incident to the Company's
performance of or compliance with this Agreement including,  without limitation,
all  registration  and  filing  fees,  fees  and  expenses  of  compliance  with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
and fees and  disbursements  of  counsel  for the  Company  and all  independent
certified public accountants, underwriters (excluding discounts and commissions,
which will be paid by the sellers of Registrable  Securities)  and other Persons
retained by the Company will be borne by the  Company,  and the Company will pay
its internal expenses (including,  without limitation, all salaries and expenses
of its  Employees  performing  legal or accounting  duties),  the expense of any
annual audit or quarterly review, the expense of any liability insurance and the
expenses and fees for listing the securities to be registered on each securities
exchange or trading system on which similar securities issued by the Company are
then listed or qualified  for trading.  The Company  shall have no obligation to
pay any  underwriting  discounts  or  commissions  attributable  to the  sale of
Registrable  Securities  and  any of the  expenses  incurred  by the  Designated
Holders, such costs to be borne by such Designated Holder or Holders.

            1.5 Indemnification.

            (a) The  Company  agrees  to  indemnify  and hold  harmless,  to the
fullest extent  permitted by law, each holder of Registrable  Securities and its
general or limited partners, officers,  directors, members, managers, employees,
advisors,   representatives,    agents   and   Affiliates   (collectively,   the
"Representatives")   from  and  against  any  reasonable  loss,  claim,  damage,
liability,  a single  reasonable  attorney's fees, cost or expense and costs and
expenses  of  investigating  and  defending  any such claim  (collectively,  the
"Losses") and any action in respect  thereof to which such holder of Registrable
Securities or its Representatives may become subject under the Securities Act or
otherwise, insofar as such Losses (or actions or proceedings,  whether commenced
or threatened, in respect thereto) arise out of or are based upon (i) any untrue
or alleged  untrue  statement of a material fact  contained in any  Registration
Statement  at the  time it is  declared  effective,  prospectus  or  preliminary
prospectus (but only preliminary  prospectuses  approved for distribution by the
Company) or any amendment or supplement  thereto or (ii) any omission or alleged
omission  to state  therein a material  fact  required  to be stated  therein or
necessary to make the statements therein not misleading; provided, however, that
the Company  shall not be liable to any such holder or other  indemnitee  in any
such case to the  extent  that any such Loss (or action or  proceeding,  whether
commenced or threatened,  in respect  thereof) arises out of or is based upon an
untrue  statement or alleged untrue  statement or omission or alleged  omission,
made  in  such  Registration  Statement,  any  such  prospectus  or  preliminary
prospectus or any  amendment or supplement  thereto,  in reliance  upon,  and in
conformity with,  written  information  prepared and furnished to the Company by
such holder of Registrable  Securities or its Representatives  expressly for use
therein or by failure of such holder of Registrable Securities to deliver a copy
of the  Registration  Statement or prospectus or any  amendments or  supplements
thereto after the Company has furnished  such holder of  Registrable  Securities
with a  sufficient  number  of  copies  of  the  same.  In  connection  with  an
underwritten  offering,  the Company will  indemnify  such  underwriters,  their
officers and directors and each Person who controls  such  underwriters  (within
the meaning of the  Securities  Act) to the same  extent as provided  above with
respect to the indemnification of the holders of Registrable Securities.

                                       7
<PAGE>

            (b) In  connection  with any  Registration  Statement  in which  the
holders of Registrable  Securities are participating pursuant to this Agreement,
the holders of  Registrable  Securities  will  furnish to the Company in writing
such information as the Company  reasonably  requests for use in connection with
any such  Registration  Statement  or  prospectus  and,  to the  fullest  extent
permitted by law, each such holder of Registrable Securities will, severally but
not jointly,  indemnify  and hold  harmless the Company and its  Representatives
from and  against  any Losses  and any  action in  respect  thereof to which the
Company and its  Representatives  may become subject under the Securities Act or
otherwise, insofar as such Losses (or actions or proceedings,  whether commenced
or  threatened,  in  respect  thereof)  arise out of or are  based  upon (i) the
purchase or sale of Registrable  Securities  during a suspension as set forth in
herein after written  receipt of notice of such  suspension,  (ii) by failure of
such  holder of  Registrable  Securities  to deliver a copy of the  Registration
Statement or  prospectus  or any  amendments  or  supplements  thereto after the
Company has furnished  such holder of Registrable  Securities  with a sufficient
number of copies of the same,  (iii) any untrue or alleged untrue statement of a
material fact contained in the Registration Statement, prospectus or preliminary
prospectus  or any  amendment  or  supplement  thereto,  or (iv) any omission or
alleged  omission of a material fact required to be stated  therein or necessary
to make the  statements  therein not  misleading,  but,  with respect to clauses
(iii) and (iv) above,  only to the extent that such untrue statement or omission
is made in such  Registration  Statement,  any such  prospectus  or  preliminary
prospectus  or any  amendment or  supplement  thereto,  in reliance  upon and in
conformity  with written  information  prepared and  furnished to the Company by
such holder of  Registrable  Securities  expressly  for use  therein;  provided,
however,  that such holder of Registrable  Securities shall not be liable in any
such  case to the  extent  that  prior to the  filing  of any such  Registration
Statement  or  prospectus  or amendment or  supplement  thereto,  such holder of
Registrable  Securities  has  furnished  in writing to the  Company  information
expressly for use in such Registration  Statement or prospectus or any amendment
or  supplement  thereto  which  corrected  or made  not  misleading  information
previously  furnished  to the  Company;  provided,  further,  however,  that the
obligation to indemnify  will be  individual to each such holder of  Registrable
Securities  and will be limited to the net amount of  proceeds  received by such
holder  of  Registrable  Securities  from  the  sale of  Registrable  Securities
pursuant to such  Registration  Statement.  In connection  with an  underwritten
offering,  each holder of Registrable Securities  participating in such offering
will indemnify such  underwriters,  their officers and directors and each Person
who controls such underwriters (within the meaning of the Securities Act) to the
same  extent as  provided  above  with  respect  to the  indemnification  of the
Company.

                                       8
<PAGE>

            (c) Promptly after receipt by any Person entitled to indemnification
pursuant to Section 1.5(a) or 1.5(b) (an  "Indemnified  Party") of notice of any
claim or the commencement of any action, the Indemnified Party shall, if a claim
in respect  thereof is to be made against the Person against whom such indemnity
may be sought (an "Indemnifying Party"),  promptly notify the Indemnifying Party
in writing of the claim or the commencement of such action;  provided,  that the
failure to notify the  Indemnifying  Party shall not  relieve  the  Indemnifying
Party from any liability  which it may have to an  Indemnified  Party  otherwise
than under Section 1.5(a) or 1.5(b) except to the extent of any actual prejudice
resulting  therefrom.  If any such claim or action  shall be brought  against an
Indemnified  Party,  and it shall notify the  Indemnifying  Party  thereof,  the
Indemnifying Party shall be entitled to participate therein,  and, to the extent
that it wishes, jointly with any other similarly notified Indemnifying Party, to
assume  the  defense  thereof  with  counsel  reasonably   satisfactory  to  the
Indemnified  Party.  After notice from the Indemnifying Party to the Indemnified
Party of its  election  to assume  the  defense  of such  claim or  action,  the
Indemnifying Party shall not be liable to the Indemnified Party for any legal or
other expenses subsequently incurred by the Indemnified Party in connection with
the defense thereof other than reasonable costs of investigation; provided, that
the  Indemnified  Party  shall  have the right to  employ  separate  counsel  to
represent the Indemnified  Party and its  Representatives  who may be subject to
liability  arising out of any claim in respect of which  indemnity may be sought
by the  Indemnified  Party  against  the  Indemnifying  Party,  but the fees and
expenses  of such  counsel  shall be for the account of such  Indemnified  Party
unless (i) the Indemnifying  Party and the Indemnified Party shall have mutually
agreed to the  retention  of such  counsel  or (ii) in the  written  opinion  of
counsel to such Indemnified  Party,  representation  of both parties by the same
counsel would be inappropriate due to actual or potential  conflicts of interest
between them, it being understood,  however,  that the Indemnifying  Party shall
not,  in  connection  with  any  one  such  claim  or  action  or  separate  but
substantially  similar  or related  claims or  actions in the same  jurisdiction
arising out of the same general allegations or circumstances,  be liable for the
fees and expenses of more than one separate  firm of  attorneys  (together  with
appropriate  local  counsel)  at  any  time  for  all  Indemnified  Parties.  No
Indemnifying  Party shall,  without the prior written consent of the Indemnified
Party, effect any settlement of any claim or pending or threatened proceeding in
respect  of  which  the  Indemnified  Party is or could  have  been a party  and
indemnity could have been sought  hereunder by such  Indemnified  Party,  unless
such settlement includes an unconditional release of such Indemnified Party from
all liability  arising out of such claim or proceeding other than the payment of
monetary damages by the Indemnifying  Party on behalf of the Indemnified  Party.
Whether or not the defense of any claim or action is assumed by the Indemnifying
Party,  such  Indemnifying  Party will not be subject to any  liability  for any
settlement  made without its  consent,  which  consent will not be  unreasonably
withheld.

            (d) If the  indemnification  provided  for in  this  Section  1.5 is
unavailable  to the  Indemnified  Parties in respect of any Losses  referred  to
herein,  then each Indemnifying  Party, in lieu of indemnifying such Indemnified
Party,  shall contribute to the amount paid or payable by such Indemnified Party
as a result of such Losses in such  proportion as is  appropriate to reflect the
relative benefits received by the Company on the one hand and the holders of the
Registrable  Securities  on the  other  from  the  offering  of the  Registrable
Securities,  or if such  allocation is not permitted by applicable  law, in such
proportion as is appropriate to reflect not only the relative  benefits but also
the  relative  fault  of the  Company  on the one hand  and the  holders  of the
Registrable  Securities  on the  other  in  connection  with the  statements  or
omissions which resulted in such Losses, as well as any other relevant equitable
considerations.  The  relative  fault of the Company on the one hand and of each
holder  of the  Registrable  Securities  on the  other  shall be  determined  by
reference to, among other things, whether any action taken, including any untrue
or alleged  untrue  statement  of a material  fact,  or the  omission or alleged
omission to state a material fact relates to information supplied by such party,
and  the  parties'  relative  intent,  knowledge,   access  to  information  and
opportunity to correct or prevent such statement or omission.

                                       9
<PAGE>

            The Company and the holders of the Registrable Securities agree that
it would not be just and  equitable  if  contribution  pursuant to this  Section
1.5(d)  were  determined  by pro  rata  allocation  or by any  other  method  of
allocation which does not take account of the equitable  considerations referred
to in the  immediately  preceding  paragraph.  The amount  paid or payable by an
Indemnified  Party as a result  of the  Losses  referred  to in the  immediately
preceding  paragraph shall be deemed to include,  subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such Indemnified
Party in connection  with  investigating  or defending any such action or claim.
Notwithstanding  the  provisions  of this Section 1.5, no holder of  Registrable
Securities shall be required to contribute any amount in excess of the amount by
which the total price at which the  Registrable  Securities  of such holder were
offered to the public  exceeds  the amount of any Losses  which such  holder has
otherwise paid by reason of such untrue or alleged untrue  statement or omission
or alleged omission.  No Person guilty of fraudulent  misrepresentation  (within
the  meaning of  Section  11(f) of the  Securities  Act)  shall be  entitled  to
contribution   from  any  Person   who  was  not   guilty  of  such   fraudulent
misrepresentation.  Each holder's  obligations  to  contribute  pursuant to this
Section  1.5 is several in the  proportion  that the  proceeds  of the  offering
received by such holder of Registrable Securities bears to the total proceeds of
the  offering  received by all the  holders of  Registrable  Securities  and not
joint.

            1.6 Participation in Underwritten Registrations.

            (a) No Person may participate in any registration hereunder which is
underwritten  unless such Person (i) agrees to sell such Person's  securities on
the basis provided in any  underwriting  arrangements  approved by the Person or
Persons  entitled  hereunder to approve such  arrangements  (including,  without
limitation,  pursuant to the terms of any  over-allotment or "green shoe" option
requested  by  the  managing  underwriter(s),  provided,  that  each  holder  of
Registrable  Securities  shall not be  required  to sell more than the number of
Registrable  Securities that such holder has requested the Company to include in
any registration) and (ii) completes and executes all questionnaires,  powers of
attorney,  custody agreements,  indemnities,  underwriting  agreements and other
documents reasonably required under the terms of such underwriting  arrangements
and this Agreement.

            (b) Each Person that is participating in any registration  hereunder
agrees that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 1.4(e) above,  such Person will forthwith
discontinue  the  disposition  of its  Registrable  Securities  pursuant  to the
Registration   Statement  until  such  Person's  receipt  of  the  copies  of  a
supplemented or amended prospectus as contemplated by such Section 1.4(e).

                                       10
<PAGE>

            1.7 Current Public  Information.  The Company covenants that it will
file all  reports  required to be filed by it under the  Securities  Act and the
Exchange Act and the rules and regulations  adopted by the SEC  thereunder,  and
will use  reasonable  best efforts to take such further  action as the Purchaser
may  reasonably  request,  all to the extent  required  to enable the holders of
Registrable  Securities to sell Registrable  Securities  pursuant to Rule 144 or
Rule 144A  adopted by the SEC under the  Securities  Act or any similar  rule or
regulation  hereafter adopted by the SEC. The Company shall, upon the request of
a Designated Holder, deliver to such Designated Holder a written statement as to
whether it has complied with such requirements.

      2. Transfers of Certain Rights.

            2.1  Transfer.  The  rights  granted  to the  Purchaser  under  this
Agreement may not be assigned or transferred  without the prior written  consent
of the Company.

            2.2 Transferees.  Any transferee to whom rights under this Agreement
are  permitted by the Company to be  transferred  shall,  as a condition to such
transfer,  deliver to the Company a written  instrument by which such transferee
agrees to be bound by the  obligations  imposed  upon the  Purchaser  under this
Agreement to the same extent as if such transferee were the Purchaser hereunder.

            2.3  Subsequent  Transferees.   A  transferee  to  whom  rights  are
transferred pursuant to this Section 2 may not again transfer such rights to any
other person or entity, other than as provided in Sections 2.1 and 2.2 above.

      3. Certain  Definitions.  The following  capitalized  terms shall have the
meanings ascribed to them below: -------------------

            "Affiliate"  means any Person that directly or indirectly  controls,
or is under common  control with,  or is  controlled by such Person.  As used in
this definition, "control" (including with its correlative meanings, "controlled
by" and "under  common  control  with") shall mean the  possession,  directly or
indirectly,  of the power to direct or cause the direction of the  management or
policies of a Person (whether through  ownership of securities or partnership or
other ownership interests, by contract or otherwise).

            "Common Stock" means the common stock, par value $.001 per share, of
the Company.

            "Employees" means any current,  former, or retired employee,  office
consultant,  advisor, independent contractor,  agent, officer or director of the
Company.

            "Exchange  Act"  means  the  Securities  Exchange  Act of  1934,  as
amended, and the rules and regulations of the SEC promulgated thereunder.

                                       11
<PAGE>

            "Person" means any individual,  company,  partnership,  firm,  joint
venture,  association,  joint-stock company, trust, unincorporated organization,
governmental body or other entity.

            "Registrable Securities" means, subject to the immediately following
sentence,  (i) shares of Common  Stock issued to any  Purchaser  pursuant to the
Securities  Purchase Agreement,  including without limitation,  shares of Common
Stock underlying Warrants pursuant to the Securities Purchase Agreement, and any
other shares of Common Stock issued in the Offering,  (ii) any securities issued
or issuable directly or indirectly with respect to the securities referred to in
clause  (i) by way of stock  dividend  or stock  split or in  connection  with a
combination  of  shares,   recapitalization,   merger,  consolidation  or  other
reorganization,  and  (iii) any other  shares of Common  Stock  held by a Person
holding  Registrable  Securities  other than  shares of Common  Stock which have
ceased to be Registrable Securities. As to any particular shares of Common Stock
constituting  Registrable Securities,  such shares of Common Stock will cease to
be Registrable  Securities when they (x) have been effectively  registered under
the Securities Act and disposed of in accordance  with a Registration  Statement
covering  them,  (y) have been sold to the  public  pursuant  to Rule 144 (or by
similar  provision  under the  Securities  Act),  or (z) are eligible for resale
under Rule 144(k) (or by similar provision under the Securities Act) without any
limitation  on the amount of  securities  that may be sold under  paragraph  (e)
thereof.

            "Registration  Statement"  means any  registration  statement of the
Company  filed  under the  Securities  Act which  covers any of the  Registrable
Securities  pursuant  to  the  provisions  of  this  Agreement,   including  the
prospectus, amendments and supplements to such registration statement, including
post-effective  amendments,  all  exhibits  and  all  material  incorporated  by
reference in such registration statement.

            "SEC" means the United States Securities and Exchange  Commission or
any other federal agency at the time administering the Securities Act.

            "Securities  Act" means the Securities Act of 1933, as amended,  and
the rules and regulations of the SEC promulgated thereunder.

      4. Miscellaneous.

            4.1  Recapitalizations,  Exchanges,  etc.  The  provisions  of  this
Agreement  shall apply to the full extent set forth  herein with  respect to (i)
the  Securities,  (ii) any and all  securities  into  which the  Securities  are
converted,  exchanged or  substituted in any  recapitalization  or other capital
reorganization  by the  Company and (iii) any and all equity  securities  of the
Company  or  any  successor  or  assign  of  the  Company  (whether  by  merger,
consolidation,  sale of assets or otherwise)  which may be issued in respect of,
in conversion  of, in exchange for or in  substitution  of, the  Securities  and
shall be appropriately adjusted for any stock dividends, splits, reverse splits,
combinations,  recapitalizations  and the like occurring  after the date hereof.
The Company shall cause any successor,  assign or issuer of securities  that are
Registrable  Securities  (whether  by merger,  consolidation,  sale of assets or
otherwise) to enter into a new registration rights agreement with the Designated
Holders on terms  substantially the same as this Agreement as a condition of any
such transaction.

                                       12
<PAGE>

            4.2 No  Inconsistent  Agreements.  The Company has not and shall not
enter into any agreement  with respect to its  securities  that is  inconsistent
with the  rights  granted  to the  Purchasers  in this  Agreement  or grant  any
additional  registration  rights to any Person or with respect to any securities
which are not Registrable Securities which are prior in right to or inconsistent
with the rights granted in this Agreement.  The granting of demand  registration
rights or pari passu  piggyback  registration  rights  shall be deemed not to be
inconsistent with the rights granted to Purchasers in this Agreement.

            4.3 Amendments and Waivers.  The provisions of this Agreement may be
amended and the Company may take action  herein  prohibited,  or omit to perform
any act herein  required to be performed by it, if, but only if, the Company has
obtained  the  written  consent  of  holders  of at  least  a  majority  of  the
Registrable  Securities  then in  existence.  Any  Person  that has  executed  a
Securities  Purchase Agreement after the date of this Agreement pursuant to this
Offering shall become a party to this Agreement as a "Purchaser"  upon execution
of this Agreement.

            4.4  Severability.   Whenever  possible,   each  provision  of  this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable  law,  but if any  provision  of this  Agreement  shall be held to be
prohibited  by  or  invalid  under  applicable  law,  such  provision  shall  be
ineffective  only to the  extent  of such  prohibition  or  invalidity,  without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.

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

            4.6 Notices.  All notices,  requests and other communications to any
party  hereunder  shall be in  writing  (including  telecopy,  telex or  similar
writing)  and  shall  be  deemed  given  or made as of the  date  delivered,  if
delivered personally or by telecopy (provided that delivery by telecopy shall be
followed by delivery of an  additional  copy  personally,  by mail or  overnight
courier), one day after being delivered by overnight courier or three days after
being mailed by registered or certified  mail (postage  prepaid,  return receipt
requested),  to the parties at the following addresses (or to such other address
or telex or telecopy number as a party may have specified by notice given to the
other party pursuant to this provision):

                           If to the Company, to:

                           United Fuel & Energy Corporation
                           405 North Marienfeld
                           Suite 300
                           Midland, Texas 79701
                           Attention:  President

                                       13
<PAGE>

                           With a copy to:

                           Richardson & Patel LLP
                           10900 Wilshire Blvd., Suite 500
                           Los Angeles, California 90024
                           Attention: Ryan S. Hong, Esq.

                           If to each Purchaser, to:

                           The address or facsimile  number of each Purchaser as
                           recorded in the  stockholders  records of the Company
                           or set forth in the  applicable  Securities  Purchase
                           Agreement.

            4.7 Governing Law. This Agreement shall be governed by and construed
in  accordance  with  the laws of the  State of  Texas,  without  regard  to the
conflicts of laws rules or provisions.

            4.8 Forum;  Service of Process. Any legal suit, action or proceeding
brought by any party or any of its affiliates  arising out of or based upon this
Agreement  shall be instituted in any federal or state court in Midland  County,
Texas, and each party waives any objection which it may now or hereafter have to
the  laying of venue or any such  proceeding,  and  irrevocably  submits  to the
jurisdiction of such courts in any such suit, action or proceeding.

            4.9 Captions.  The captions,  headings and arrangements used in this
Agreement  are for  convenience  only and do not in any way limit or amplify the
terms and provisions hereof.

            4.10  No  Prejudice.  The  terms  of  this  Agreement  shall  not be
construed  in favor of or against any party on account of its  participation  in
the preparation hereof.

            4.11 Words in Singular and Plural  Form.  Words used in the singular
form in this Agreement shall be deemed to import the plural,  and vice versa, as
the sense may require.

            4.12  Successors  and  Assigns;  Third  Party  Beneficiaries.   This
Agreement  and all of the  provisions  hereof shall be binding upon and inure to
the benefit of the parties  hereto and their  respective  successors,  permitted
assigns, executors, administrators and heirs.

            4.13  Entire  Agreement.   This  Agreement  sets  forth  the  entire
agreement and understanding  between the parties as to the subject matter hereof
and merges and supersedes all prior  discussions,  agreements and understandings
of any and every nature among them.

                  [Remainder of page intentionally left blank.]

                                       14
<PAGE>

      IN WITNESS  WHEREOF,  the parties  hereto  have  caused this  Registration
Rights  Agreement  to be duly  executed  as of the date and year  first  written
above.

                                       UNITED FUEL & ENERGY CORPORATION

                                       By:_________________________________
                                            Name:
                                            Title:

                                       ____________________________________
                                                 Name of Purchaser

                                       By:_________________________________
                                            Name:
                                            Title:

                                       15

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