LOAN AGREEMENT AMONG Sovereign Bank As Lender ______________________________________________ Lazarus Marketing & Refining, LLC As Borrower and ______________________________________________ Jonathan Pitts Carroll, Sr., Blue Dolphin Energy Company, Lazarus Energy LLC and Lazarus Energy Holdings LLC As Guarantors LOAN AGREEMENT

policy, the “Carroll Life Insurance Policy”; and such assignment and the amendments related thereto, the “Insurance Assignment”), provided that in accordance with Section 8.19, (i) the assignment of such life insurance policy to secure the Obligations is subordinate to a prior assignment of such life insurance policy in favor of One World Bank and (ii) proceeds of the assignment of such life insurance policy to Lender will be applied to repay the “Obligations” under the LE Loan Agreement up to $5,000,000 prior to repaying the Obligations (except that any remaining amounts, if any, after repayment of the first $5,000,000 of the “Obligations” under the LE Loan Agreement and after repayment of the Obligations may thereafter continue to be applied to repay the “Obligations” under the LE Loan Agreement); together with any and all pledge, security or other collateral agreements, documents or instruments hereafter executed in favor of Lender in connection with, or as security for, the Obligations, as any of them may be amended, modified, restated or supplemented from time to time.

1.2 Miscellaneous.  Except as otherwise expressly provided or the context otherwise requires, the following rules of interpretation shall apply to this Agreement and the other Financing Documents: (a) the words hereof, herein, and hereunder and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; (b) whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms; (c) the words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”; (d) the word “will” shall be construed to have the same meaning and effect as the word “shall”; (e) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or therein) and shall include any appendices, schedules, exhibits, clarification letters, side letters and disclosure letters executed in connection therewith; (f) any reference herein to any Person shall be construed to include such Person’s successors and assigns to the extent permitted under the Loan Documents and, in the case of any Governmental Authority, any Person succeeding to its functions and capacities; (g) any reference to any Legal Requirements in any of the Loan Documents shall include all references to such Legal Requirements as amended from time to time; (h) all terms of an accounting or financial nature shall be construed in accordance with GAAP; and (i) to the extent that there is more than one Guarantor with respect to the Loan, all representations, warranties, covenants and other obligations of “Guarantor” in this Agreement and in any other Loan Document are and shall be the representations, warranties, covenants and obligations of all Guarantors on a joint and several basis.

2.3 Note.  The Loan made by Lender to Borrower shall be evidenced by the Note to be executed and delivered by Borrower to Lender on the Closing Date. The Loan shall bear interest from time to time at the rate and be due and payable (and may be prepaid) on the terms and conditions set forth in the Note and in this Agreement.

 

2.4 Security.  The Obligations will be secured by the Security Documents which cover, without limitation, the following Collateral: (a) a second priority lien on the rights of Lazarus Energy in the Land and Nixon Refinery and the other Collateral of Lazarus Energy pursuant to the Security Agreement; (b) a first priority lien on the real property interests of Borrower; (c) a first priority lien on all of Borrower’s fixtures, furniture, machinery and equipment; (d) a first priority lien on all of Borrower’s Contract Rights, General Intangibles and Instruments, except with respect to Borrower’s rights in its leases of tanks 62, 63 and 80, with respect to which Lender will have a second priority lien in such leases subordinate to a prior lien granted by Borrower to Lender to secure obligations of Borrower under a loan made on May 2, 2014 in the original principal amount of $2,000,000; and (e) all other Collateral as described in the Security Documents.

 

2.5 Increased Loan Costs, etc.  Borrower agrees to reimburse Lender for any increase in the cost to Lender of, or any reduction in the amount of any sum receivable by Lender in respect of making, continuing or maintaining (or of its obligation or Commitment to make or continue) any Loans that arise in connection with any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase in after the Closing Date of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any Governmental Authority, including without limitation any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase in that (a) is in respect of any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, Lender; or (b) subjects Lender to any tax of any kind whatsoever with respect to this Agreement or the Loan (including Advances made thereunder) made by it, or change the basis of taxation of payments to such Lender in respect thereof.  Such additional amounts shall be payable by Borrower directly to Lender within ten (10) days of its receipt of such notice, and such notice shall, in the absence of manifest error, be conclusive and binding on Borrower.

 

2.6 Increased Capital Costs.  If any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase in of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any Governmental Authority affects or would affect the amount of capital required or expected to be maintained by Lender or any Person controlling Lender, and Lender determines (in good faith but in its sole discretion) that the rate of return on its or such controlling Person’s capital as a consequence of the Loan (or its commitment to make the Loan) made by Lender is reduced to a level below that which Lender or such controlling Person could have achieved but for the occurrence of any such circumstance, then upon notice from time to time by Lender to Borrower, Borrower shall within ten (10) days following receipt of such notice pay directly to Lender additional amounts sufficient to compensate Lender or such controlling Person for such reduction in rate of return.  A statement of Lender as to any such additional amount or amounts shall, in the absence of manifest error, be conclusive and binding on Borrower.  In determining such amount, Lender may use any method of averaging and attribution that it (in its sole discretion) shall deem applicable.

 

 

 

2.7 Taxes.  Any and all payments by or on account of any obligation of Borrower hereunder or under any other Loan Document shall be made free and clear of and without deduction for any taxes (other than taxes imposed on or measured by net income or profits (or franchise Taxes in lieu of net income Taxes) or any branch profits taxes imposed on Lender); provided that if Borrower shall be required to deduct any taxes from such payments, then (a) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) Lender receives an amount equal to the sum it would have received had no such deductions been made; (b) Borrower shall make such deductions; and (c)  Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with Legal Requirements.  Borrower shall indemnify Lender, within ten (10) days after written demand therefor, for the full amount of any taxes (other than taxes imposed on or measured by net income or profits (or franchise Taxes in lieu of net income Taxes) or any branch profits taxes imposed on Lender) paid by Lender and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such taxes were correctly or legally imposed or asserted by the relevant Governmental Authority.  A certificate as to the amount of such payment or liability delivered to Borrower by Lender shall be conclusive absent manifest error.  Upon Lender’s request, Borrower shall deliver to Lender the original or a certified copy of a receipt issued by the relevant Governmental Authority evidencing any payment of taxes by Borrower, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to Lender.

3.1 Conditions Precedent to Funding of Loan.  The obligation of Lender to fund the Loan (which Lender shall endeavor to make not later than three (3) business days after the conditions precedent in Article 3 have been satisfied or waived by Lender) is conditioned upon and subject to all legal matters incident to the transactions hereby contemplated being satisfactory to Lender and Lender’s legal counsel, and is further conditioned upon Lender’s receipt of the following in Proper Form or the following conditions precedent having been otherwise fulfilled or waived:

3.4 Borrowing Procedures.  Within three (3) Business Days after satisfaction of all of the conditions set forth in Section 3.1 and 3.2 above, Lender shall endeavor to fund the Loan for the purposes set forth in Section 2.2, with the proceeds of the Loan being applied as follows:  (x) proceeds of the Loan for the purposes of Sections 2.2(a) and 2.2(c) shall be paid directly to the Persons entitled to such proceeds as approved by Lender and (y) the remainder of the proceeds of the Loan, which shall consist of the amounts described in Sections 2.2(b) and 2.2(d) plus any additional amounts otherwise required by Section 2.2, shall be deposited into the Disbursement Account and the Construction Contingency Account to be further disbursed (by way of Advances as opposed to the Loan) by Lender in accordance with the conditions and procedures specified in Section 3.3 and for the purposes set forth in Section 2.2 hereof (and any advance of funds from the proceeds of the Loan deposited or reserved pursuant to clause (y) above shall constitute an “Advance”).  Interest shall begin to accrue on the Loan from the date funded, whether that funding of the Loan is to Borrower, an escrow agent, a third party or to the Disbursement Account or Construction Contingency Account. For sake of clarity, the Loan shall be deemed funded (including for purposes of interest accrual) when it is initially funded to Borrower or any other Person or into the Disbursement Account, the Construction Contingency Account or any other account (and in the case of the Disbursement Account or Construction Contingency Account or any other account, regardless of whether the funds in such accounts have yet been further disbursed to Borrower).  While a Default or Event of Default exists, Lender shall not be obligated to fund the Loan or any Advance from the Disbursement Account, Construction Contingency Account or other account and Lender shall be entitled (and is hereby authorized) without notice to Borrower or any other Person to apply the Loan proceeds in all such accounts to the Obligations. From time to time, Borrower may request Advances under the Loan from the Disbursement Account (or, if the amounts in the Disbursement Account have been fully applied in accordance with this Agreement, from the Construction Contingency Account) by submitting to Lender a Request for Advance no later than two (2) Business Days preceding the date of the requested Advance. Subject to the terms and conditions of this Agreement, Lender shall advance to Borrower or, at Lender’s option, by joint payee checks or directly to the applicable third party, the amount requested; provided in no event, will the aggregate amounts advanced under the Loan exceed the original principal amount of the Note.  Following the occurrence of Completion (as defined in the Construction Rider) of the Storage Improvements, any remaining funds on deposit in the Disbursement Account or Construction Contingency Account shall be deposited in a Lender monitored account maintained at Lender for working capital purposes to be used solely for business expenses of Borrower with respect to the Storage Improvements (and such funds may not be used directly or indirectly as a revolving line of credit or otherwise to make payments, distributions, reimbursement, salary payments or dividends to any owner, partner, stockholder, subsidiary, Affiliate or beneficiary of Borrower, any Guarantor, Carrol & Company Financial Holdings, LP or AP Energy Partners, LLC).

4.3 Taxes, Existence, Property, Etc.  At all times (a) pay when due all taxes and governmental charges of every kind upon Borrower or Guarantor or against its income, profits or Property, unless and only to the extent that the same shall be contested diligently in good faith and by proper proceedings and against which Borrower, or Guarantor, as the case may be has set up adequate reserves in accordance with GAAP and have in operation a depository plan for payment of future withholding taxes when required; (b) obtain and maintain in full force and effect (or where appropriate, promptly renew in a timely manner), or cause to be obtained and maintained in full force and effect all material permits, approvals, licenses and franchises (including all Environmental Permits and all construction permits) required by any Governmental Authority under any Legal Requirement for the construction, maintenance or operation of the Storage Improvements and Borrower’s business and operations generally, in each case, at or before the time the same becomes necessary for such purposes and; (c) do all things necessary to preserve its existence, qualifications, rights, permits, approvals, licenses and franchises in all jurisdictions where its Property or the nature of its business makes such licensing or qualification necessary: and (d) cause the Collateral and its Property necessary or appropriate to the conduct of its business to be protected, maintained and kept in good repair, ordinary wear and tear excepted, and make all replacements and additions to its Property as may be necessary to conduct its business properly and efficiently.

4.5 Inspection.  Permit Lender or RBS at any time to inspect its Property, to examine its files, books and records except privileged communication with legal counsel and classified governmental material, and make and take away copies thereof, and to discuss its affairs with its officers and accountants, all during normal business hours and at such intervals and to such extent as Lender or RBS may desire. RBS personnel and any person(s) accompanying RBS personnel shall be authorized to enter upon the premises and into any building thereon, whether permanent or temporary, jointly or separately, with personnel of the Lender to carry out the functions involving their interests. It is anticipated that scheduled and unscheduled inspections shall be conducted during normal business hours by these personnel as well as final acceptance inspections, and Borrower hereby authorizes all such scheduled and unscheduled inspections.

 

 

 

4.6 Further Assurances.  Promptly execute and deliver, at Borrower’s expense, any and all other and further instruments which may be requested by Lender to cure any defect in the execution and delivery of any Loan Document in order to effectuate the transactions contemplated by the Loan Documents, and in order to grant, preserve, protect and perfect the validity, perfection and priority of the Liens created by the Security Documents and effectuate the intent of the Loan Documents.

 

4.7 Books and Records.  Maintain books of record and account in such detail, form and scope as Lender or RBS shall require and in accordance with GAAP.

 

4.8 Insurance.  Maintain at Borrower’s sole expense insurance with such insurers, on such of its Property, with responsible companies in such amounts, with such deductibles and against such risks as required pursuant to the Loan Documents and otherwise as may be required by and satisfactory to Lender, and furnish Lender satisfactory evidence thereof promptly upon request.  Without limiting the foregoing, Borrower shall cause Lender to be named as additional insured with respect to any liability insurance and will cause Lender to be named as loss payee and mortgagee as specified in the Loan Documents and will cause mortgagee title insurance to be issued in favor of Lender with respect to the Nixon Refinery.  All insurance proceeds and condemnation proceeds shall be applied at Lender’s election to the restoration of the affected Property or the payment or prepayment of the Obligations.

 

4.9 Cultural Materials.  If cultural materials are encountered during any construction, work must cease in the immediate area. Work can continue in the project area where no cultural materials are present. The Secretary of Interior must be contacted in accordance with 36 CFR 8007. Also, the State Historic Preservation Officer must be notified.

 

4.10 Protection of Collateral.  Lender may at any time after notice to Borrower take such steps as Lender deems necessary to protect Lender’s interest in and to preserve the Collateral. Borrower agrees to cooperate fully with all of Lender’s efforts to preserve the Collateral and will take such actions to preserve the Collateral as Lender may direct. All of Lender’s expenses of preserving the Collateral shall be charged to Borrower’s account and added to the Note. Upon the occurrence and continuation of an Event of Default, Lender may use any of Borrower’s owned or leased lifts, hoists, trucks or other facilities or equipment for handling or removing the Collateral and Lender shall have, and is hereby granted, a right of ingress or egress to and through any of Borrower’s owned or leased Property.

 

4.11 Rural Areas.  Borrower will utilize all Loan proceeds in improving, developing or financing business, industry and employment and improving the economic or environmental climate in a Rural Area.

 

 

 

4.12 Completion; Installation of Bridge Loan Equipment.  Borrower shall use commercially reasonable efforts to cause the Storage Improvements to be constructed by the Completion Date in accordance with Legal Requirements and prudent industry practice and, at Lender’s discretion the Construction Rider and/or any Funds Control Agreement.  In accordance with the last paragraph of Section 11 of the USDA Conditional Commitment, Borrower shall install the Bridge Loan Equipment in accordance with plans and specifications (and timing) acceptable to Lender and in accordance with Legal Requirements.  Such installation shall be inspected by an independent engineer licensed in Texas and otherwise acceptable to Lender, which engineer shall verify and certify that the installation meets technical requirements, that the Bridge Loan Equipment is operational and that the Nixon Refinery is producing at the quality and quantity of production projected after installation of the Bridge Loan Equipment.  Commencing after June 30, 2015, Borrower shall provide Lender with quarterly progress reports (to be delivered within thirty (30) days after the end of such quarter or such later time as approved by Lender) regarding such installation of the Bridge Loan Equipment.

4.13 Escrow Fund.  At the option of Lender, Lender may require Borrower to establish an Escrow Fund (defined below) sufficient to discharge its obligations for the payment of taxes, insurance premiums, and maintenance as required by the Deed of Trust. The initial deposits together with the amounts set forth in this subsection shall be called the (“Escrow Fund”). Initial deposits for taxes, premiums, and maintenance shall be made by Borrower to Lender in amounts determined by Lender in its sole and exclusive discretion on the date hereof to be held in Lender’s Escrow Fund. Additionally, Borrower shall pay to Lender or its designee on the first day of each calendar month: (a) one twelfth of an amount which would be sufficient to pay the taxes payable, or estimated by Lender to be payable (if greater), upon the due dates established by the appropriate taxing authority during the ensuing twelve (12) months; (b) one-twelfth of an amount which would be sufficient to pay, or estimated by Lender to be sufficient to pay (if greater), the insurance premiums due for the renewal of the coverage afforded by the policies upon the expiration thereof; and (c) one-twelfth of an amount which would be sufficient to pay or estimated by Lender to be sufficient to pay (if greater), all costs associated with maintenance and upkeep of building, grounds, equipment, and all other property which needs to be maintained in the ordinary course of business (“CAM”). Borrower shall notify Lender immediately of any changes to the amounts, schedules and instructions for payment of taxes, insurance premiums, and CAM of which it has obtained knowledge and expressly authorizes Lender or its designee to obtain the bills for taxes and other charges directly from the appropriate authority. The Escrow Fund and the payments of interest or principal, or both, payable pursuant to the Note, shall be added together and shall be paid as the aggregate sum by Borrower to Lender. Provided there are sufficient amounts in the Escrow Fund and no Default or an Event of Default exists, Lender shall be obligated to pay on behalf of Borrower the taxes, insurance premiums and CAM as they become due on their respective due dates by applying the Escrow Fund to the payment of such taxes, insurance premiums, and CAM required to be made by Borrower hereunder. If the amount of the Escrow Fund shall not be sufficient to pay the amounts due for taxes, insurance premiums, and CAM herein, Borrower shall promptly (but in no event later than three (3) Business Days after demand by Lender) pay to Lender, upon demand, an amount which Lender shall estimate to make up the deficiency. The Escrow Fund shall constitute a separate fund and shall not be commingled with other monies held by Lender. No interest or earnings shall be payable to Borrower on the Escrow Fund.

 

 

4.14 Change in Guarantor’s Status.  Should any Guarantor die, become legally incapacitated, become insolvent, or fail to pay such Guarantor’s debts generally as they become due, or voluntarily seek, consent to, or acquiesce in the benefit or benefits of any Debtor Relief Law or become a party to (or be made the subject of) any proceeding provided for by any Debtor Relief Law (other than as a creditor or claimant) that could suspend or otherwise adversely affect the rights and remedies of Lender granted hereunder, then, in any such event, the obligations guaranteed under such Guarantor’s Guaranty shall be, as between such Guarantor and Lender, a fully matured, due, payable and performable obligation of such Guarantor to Lender (without regard to whether Borrower is then in default under this Agreement or the other Loan Documents or whether such guaranteed obligations, or any part thereof is then due and owing or unperformed by Borrower to Lender), payable and/or performable in full by such Guarantor to Lender automatically without notice or demand, which shall be the estimated amount owing in respect of the contingent claim created hereunder; provided, however, the death or legal incapacity of Guarantor shall not cause the maturity of such guaranteed obligations if, within thirty (30) days of the date of such death or incapacity, the representative or legal guardian of such Guarantor or Guarantor’s estate affirms in writing (which instrument shall be in form and substance satisfactory to Lender) (a) the obligations of such Guarantor’s estate with respect to such Guarantor’s Guaranty and (b) that no distributions shall be made from such estate without the prior written consent of Lender.

 

4.15 Asbestos. Borrower shall use commercially reasonable efforts to cause Lazarus Energy, as owner of the Nixon Refinery, to comply with its operations and maintenance plan and, in the event that building renovation or demolition activities are planned, cause Lazarus Energy to obtain a thorough asbestos survey in accordance with Requirements of Environmental Law.

 

4.16 Prepayment of Debt to LE.  Unless Lender otherwise agrees, on or within five Business Days of the Closing Date, Borrower shall prepay at least $1,500,000 in debt incurred by Borrower from LE on or around June 22, 2015 in order to purchase the Bridge Loan Equipment.

 

4.17 Tenant or Lessee List.  Promptly following the request of Lender or following execution of any new lease or rental agreement entered into by Borrower as a lessor or rentor relating to the Storage Improvements, an updated tenant or lessee list, with copies of the executed lease or rental agreements of such tenants or lessees, and matching income projections as the ability of such payments to cover scheduled payments of principal and interest on the Loan.  Upon the substantially full lease or rent of the Storage Improvements, promptly deliver a tenant or lessee list, with copies of the executed lease or rental agreements of such tenants or lessees, and matching income projections showing the ability of such payments to cover scheduled payments of principal and interest on the Loan.  Borrower shall update such tenant list and provide copies of current agreements on at least an annual basis thereafter (or as requested by Lender).

 

 

Until payment in full of and satisfaction of all Obligations, Borrower shall not, without prior express written consent of Lender (and RBS if deemed necessary by Lender):

 

5.1 Indebtedness.  Create, incur or assume, directly or indirectly, or become or remain liable with respect to any Debt (including by way of guaranty) whether direct, indirect, contingent or otherwise, other than (a) the Loan, (b) trade payables or similar current liabilities (other than Debt for borrowed money, or under a credit facility or other line of credit) arising out of transactions in the ordinary course of Borrower’s business, and (c) loans or advances to Borrower from any director, shareholder, owner, member, partner or Affiliate of Borrower if (i) Lender provides its prior written consent and (ii) such loans or advances are subordinated in right of payment and/or priority of lien or converted into equity interests as required by Lender in its sole discretion.

 

5.2 Contingent Liabilities.  Directly or indirectly assume, guarantee, endorse or otherwise become liable upon, or agree to purchase or otherwise furnish funds for the payment of, the liability or obligation, including contingent liabilities or obligations, of any Person.

 

5.3 Liens.  Create, incur, assume or suffer to exist any Lien upon any of its Property now owned or hereafter acquired, or sell any accounts, except (i) Liens securing payment of the Note under this Agreement; and (ii) mechanics, carriers, workmen, repairmen or other like Liens incurred in the ordinary course of business in respect of obligations which are not overdue or are being contested in good faith by appropriate proceedings, if adequate reserves with respect thereto are maintained in accordance with GAAP, provided that all Liens described in Section 5.3(ii) shall be subordinate in priority to the Liens granted under the Loan Documents and provided further that Borrower shall not incur any such Liens or commence construction on any portion of the Storage Improvements until after the recordation of the Deed of Trust.

 

5.4 Nature of Business.  Engage in any business other than Borrower’s principal business activity as in effect on the Closing Date or a business activity which is directly related thereto, or change the nature or method of operation or its manner of conducting business in any material respect.

 

5.5 Loans or Investments to Affiliates.  Make any loans or advances to, or investments in or purchase of equity interests of, any officer, director, shareholder, owner, member, partner or Affiliate of Borrower or any Guarantor unless (a) Lender provides its prior written consent and (b) in the case of loans or advances, such loans or advances are subordinated in right of payment and/or priority of lien as required by Lender in its sole discretion.

 

5.6 Mergers, Consolidations, Dispositions, Acquisitions, Investments.  Liquidate or dissolve; form any new subsidiary or merge or consolidate with any corporation or other entity, or sell, lease, assign, transfer or otherwise dispose of (whether in one transaction or a series of transactions) all or substantially all of its assets, whether now owned or hereafter acquired; or acquire by purchase in any acquisitive corporate transaction or otherwise, all or substantially all of the assets of any corporation or other entity or make any investment in the assets of any corporation or other entity or business venture or allow any changes in the current equity ownership of- Borrower or any entity Guarantor.

 

 

 

5.7 Capital Expenditures.  During any fiscal year, make or incur any expenditures for acquiring or improving any real property, machinery, equipment, furniture or fixtures by purchase, lease purchase agreement or option the aggregate cost or annual rental of which is in excess of five hundred thousand and No/100 Dollars ($500,000) except as may be acquired by the proceeds of the Loan.

 

5.8 Disposition of Assets.  During any fiscal year, sell, lease or dispose of (whether in one or more transactions) in any manner any real property, machinery, equipment, furniture or fixtures not constituting Collateral, and shall not sell or dispose of any Collateral except in accordance with Section 5.13 hereof.

5.9 Redemptions, Dividends, Distributions.  Redeem, retire or otherwise acquire, directly or indirectly, any shares of Borrower’s capital stock or other equity interest, declare or pay any dividend on or in respect any shares of Borrower’s capital stock or bonuses to officers or shareholders unless (a) after-tax profit was made in the preceding fiscal year; (b) Borrower is and will remain in compliance with covenants of the Loan Agreement and Conditional Commitment; (c) all of Borrower’s debts are paid to a current status; and (d) Borrower has received the prior written concurrence of the Lender, or make any other distribution of any Property or cash to owners of any equity interest in Borrower (in their capacity as such) except as provided above; provided, that if no Event of Default has occurred and is continuing, Borrower may make dividends and distributions to cover personal tax liability of the members of Borrower resulting from the profitability of Borrower’s business.  No such redemptions, dividends or distributions may be made if Lender determines that such redemptions, dividends or distribution will adversely affect the ability of Borrower to repay the Obligations.  Without limiting the foregoing, no proceeds of the Loan (including any Advances) shall be used to make dividends or distributions to the shareholder(s) of Borrower on account of the equity interests in Borrower.

 

5.10 New Management Practices.  Implement any new management practices without the prior written consent of Lender.

 

5.11 Change of Name or Location.  Change its name or the location of its chief executive office or principal place of business or the place where it keeps its books and records or state of incorporation or organizational structure.

 

5.12 Organizational Documents.  Amend, modify, restate or supplement any of its Organizational Documents if such action could be expected to adversely affect the Loan or any Obligation or the abilities of any of the Parties to perform their respective Obligations under any Loan Document.

 

 

 

5.13 Collateral.  Dispose of any of the Collateral or use the Collateral, permit the same to be used, for any unlawful purpose or in any manner inconsistent with the provisions or requirements of any insurance policy required in the Loan Documents, or allow any tangible Collateral to be moved from its current location, in each case without the consent of Lender (or, in the case of disposition of fixed assets or equipment constituting Collateral shall also require the consent of RBS). Borrower further agrees that all payments of any kind from any sale, including but not limited to public or private, of any of the Collateral will be made jointly payable to the Lender and Borrower and shall be kept separate and distinct from other Property of Borrower. These payments include but are not limited to the sale of any equipment, real estate, rolling stock, bonds or stocks. All proceeds must be applied to the Obligations upon receipt of such proceeds. If the Collateral is evidenced by promissory notes or other instruments for the payment of money, Borrower, will, at the request of Lender, immediately deliver them to Lender, appropriately endorsed to Lender’s order and regardless of the form of endorsement, Borrower waives presentment, demand, notice of dishonor, protest and notice of protest.

5.14 Compensation.  Notwithstanding anything herein to the contrary, no salaries, compensation and/or other like payments to officers and/or owners will be increased unless (a) an after tax profit (excluding extraordinary and non-recurring gains) (as shown on the Annual Financial Statements) was made in the preceding fiscal year; (b) all of Borrower’s Debt is paid to current status; (c) Borrower remains in compliance with the covenants of this Loan Agreement; and (d) prior written concurrence of the Lender is obtained.  No such compensation shall be permitted if Lender determines that the same will adversely affect the ability of Borrower to repay the Obligations.

 

5.15 Key Agreements.  (a) Amend, modify or grant a waiver of any provision of any of the Key Agreements if such amendment, modification or waiver could have a Material Adverse Effect; or (b) fail to enforce any right under any Key Agreement if such failure could have a Material Adverse Effect; (c) waive, reduce or forgive any amounts due to it under any Key Agreement (including any storage fees due under any Key Agreement) without the consent of Lender; (d) amend, modify or grant a waiver of any provision of any Key Agreement without the consent of Lender if, in Lender’s determination,  such amendment, modification or waiver would be adverse to Lender; (e) not exercise its rights under the Ground Lease in a manner so as to cause the Storage Improvements to be located in real property on which the Nixon Refinery is physically located or would, in Lender’s determination, impair the operation of or otherwise materially and adversely impact the Nixon Refinery, without the consent of Lender.

 

5.16 Additional Life Insurance.  Without the prior written consent of Lender and RBS, purchase additional life insurance from Borrower’s business assets or income.

 

5.17 Related Parties.  Engage in any transactions with any Guarantor or any Affiliate or any Related Person of any of them or of Borrower, except with notice to Lender and upon fair and reasonable terms where such terms are no less favorable, taken as a whole, than would be obtained in a comparable arm’s-length transaction with other parties that are not Related Persons.

6.1 Organization.  Each of Borrower and Guarantor (other than Carroll) is a corporation or limited liability company, as applicable, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has all requisite power and authority, corporate or otherwise, necessary in order for it to conduct its business and own its Properties.  Each of Borrower and Guarantor (other than Carroll) is a corporation or limited liability company in good standing under the laws of all jurisdictions (other than its jurisdiction of organization) in which qualification is necessary in order for it to conduct its business and own its Property as conducted and owned in such jurisdictions.

 

6.2 Financial Statements.  The financial statements of Borrower and Guarantor as of and for the period ended December 31, 2014 and September 30, 2015, respectively, delivered to Lender concurrently herewith fairly present the financial condition of Borrower and Guarantor as at such date and the results of the operations of Borrower for the period ended on such date all in accordance with GAAP, and since the date of such financial statements, no event has occurred which has had or is likely to have a Material Adverse Effect.

 

6.3 Enforceable Obligations; Authorization.  The execution, delivery and performance of the Loan Documents to which Borrower or Guarantor is a party are within its corporate powers and have been duly authorized by all necessary corporate action of Borrower or Guarantor, as applicable. Neither execution or delivery of any Loan Documents nor the fulfillment of or compliance with its terms will contravene or violate (i) Borrower’s or Guarantor’s Organizational Documents, (ii) any Legal Requirement binding on or affecting Borrower or Guarantor or (iii) any mortgage, indenture, contract, agreement or other instrument, or any judgment, order or decree binding upon Borrower or Guarantor. No authorization or approval or other action by, and no notice to or filing with, any franchisor, licensor, distributor, Governmental Authority, regulatory body, or other Person is required for the due execution, delivery and performance by Borrower or Guarantor of the Loan Documents to which each is a party. The Loan Documents to which Borrower or Guarantor is a party have been duly executed and delivered and are legal, valid and binding obligations of Borrower and Guarantor, enforceable against each in accordance with their respective terms. The Improvements and the use of the Land and Improvements comply in all respects with applicable Legal Requirements.

 

6.4 Contractual Obligations.  Neither Borrower nor Guarantor has received notice nor has any actual knowledge that (i) it is in default in the performance, observance or fulfillment of any the obligations, covenants or conditions contained in any contractual obligation, including, without limitation, franchise and distribution contracts, applicable to it, or (ii) any condition exists which, with the giving of notice or the lapse of time or both, would constitute such a default under such contractual obligations, in each case, except where such default or defaults, if any, will not have or is not likely to have a Material Adverse Effect.

 

6.5 Litigation.  There is no pending or, to the knowledge of Borrower or Guarantor, threatened action or proceeding affecting Borrower or Guarantor before any court, governmental agency or arbitrator, which has had or is likely to have an adverse effect on the financial position of Borrower or Guarantor or the results of operations of Borrower or any of their businesses or the ability of Borrower or Guarantor to perform its obligations under the Loan Documents or would subject Borrower or Guarantor to any liability not fully covered by insurance, or would be required to be disclosed in the notes to any financial statements of Borrower or Guarantor prepared in accordance with GAAP.

 

 

6.6 Title; Permits.  Borrower possesses adequate assets, licenses, patents, patent applications, copyrights, trademarks, trademark applications, trade names, technology, processes, and franchise and distribution rights to continue to conduct its business as heretofore conducted by it. Borrower has and will continue to have good and indefeasible title to its Property free and clear of all Liens other than as permitted by Section 5.3.  No Liens exist as of the Closing Date upon or with respect to any Property of Borrower other than Liens permitted under Section 5.3.

 

6.7 Indebtedness.  Except for trade payables arising and endorsements of negotiable instruments for collection, in each case, in the ordinary course of its business, and except as permitted under Section 5.1 of this Agreement, Borrower will not have, as of the Closing Date, (i) any obligation or liability (including, without limitation, contingent liabilities) which could reasonably be expected to have a Material Adverse Effect, (ii) any Indebtedness for borrowed money other than the Obligations or (iii) any obligation to guarantee the obligations of any other Person.

 

6.8 Regulations G, U and X.  Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations G, U or X issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Loan will be used to purchase or carry any margin stock or to extend to others for the purpose of purchasing or carrying any margin stock or for any purpose which would be inconsistent with the provisions of Regulations G, U or X.

 

6.9 Corporate Structure.  The outstanding capital stock of Borrower is duly authorized, validly issued, fully paid and non-assessable is not margin stock. At least fifty-one percent (51%) of the outstanding equity interests of Borrower are owned by citizens of the United States or individuals who reside in the United States after being legally admitted for permanent residence.

 

6.10 No Untrue or Misleading Statements.  The representations and warranties of Borrower, Guarantor and of each other Party to a Loan Document contained in the Loan Documents, and all certificates and other documents delivered pursuant to the terms thereof do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading.  Neither Borrower nor Guarantor has intentionally withheld any material fact from Lender in regard to any matter, which will have or is likely to have a Material Adverse Effect.

 

6.11 Investment Company Act; Public Utility Holding Company Act, Etc.  Borrower is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, the Investment Company Act of 1940, or any other Legal Requirements which limit the ability of Borrower to incur indebtedness or its ability to consummate the transactions contemplated hereby or by the other Loan Documents.

 

6.12 Solvency.  Both immediately before and immediately after giving effect to the consummation of the transactions evidenced by the Loan Documents, each of Borrower and Guarantor has capital sufficient to carry on its respective business and transactions and all businesses and transactions in which it is about to engage and is solvent and able to pay its respective debts as they mature; and each of Borrower and Guarantor owns Property having a value, both at fair valuation and at present fair salable value, greater than the amount required to pay its respective debts.

 

 

6.13 Legal Requirements.  Borrower and Guarantor are in compliance with all Legal Requirements applicable to them or their respective business, the violation of which would have a Material Adverse Effect.

 

6.14 Environmental Matters.  The operations of Borrower and Guarantor are in compliance with all applicable Requirements of Environmental Law; and (a) none of the Properties of Borrower or Guarantor require any Remedial Action; (b) to the knowledge of Borrower and Guarantor, there is not now on or in the Properties of Borrower or Guarantor (i) any asbestos containing materials, (ii) except as previously disclosed to Lender in the Phase I environmental site assessment dated June, 2000, any underground or aboveground storage tanks, or (iii) any polychlorinated biphenyls (PCB’s) used in hydraulic oils, electrical transformers or other equipment; (c) neither Borrower nor Guarantor has received or is otherwise aware of any notice or claim to the effect that Borrower or Guarantor is or may be liable in any respect to any Person as a result of the release or threatened release of Hazardous Substances into the environmental; (d) neither Borrower nor Guarantor, nor any of their past or present Properties or operations, are subject to any investigation, judicial or administrative proceeding, order, judgment, decree, settlement or other agreement respecting (i) any Requirements of Environmental Law, (ii) any Remedial Action or (iii) any Environmental Claim or Environmental Liabilities arising from the release or threatened release of Hazardous Substances into the environment; and (e) none of the Properties of Borrower or Guarantor require any Remedial Action, other than such actions as specified in the Phase I and Phase II assessments delivered pursuant to Section 3.1 and completed by the applicable environmental remediator (or with respect to which arrangements for completion satisfactory to Lender have been made).

 

6.15 Taxes.  Each of Borrower and Guarantor has filed (or has obtained a currently effective extension of time for the filing of) all federal and all state, local and other tax returns and other reports which each is required by any Legal Requirement to file, and all taxes, assessments, fees and other governmental charges thereupon and upon their respective Property, assets, income and franchises which are shown in such returns or reports to be due and payable have been paid other than those taxes, fees, assessments, and charges which are being contested pursuant to Section 4.3 hereof and such returns properly reflect the United States income, foreign taxes and/or state taxes of Borrower and Guarantor for the periods covered thereby. Borrower and Guarantor do not have any knowledge of any proposed tax assessment against Borrower or Guarantor that will have or is likely to have a Material Adverse Effect.

 

6.16 Use of Proceeds.  Borrower’s uses of the proceeds of the Loan are and will continue to be, legal and proper corporate uses (duly authorized by Borrower’s Board of Directors, partner or members or managers, as applicable) in connection with Borrower’s business and are consistent with this Agreement and all applicable Legal Requirements in effect from time to time. None of the proceeds of the Loan will be disbursed to the owner(s), partners, stockholders or beneficiaries of Borrower or any members of their families.

 

 

6.17 Security Interests.  The Liens of Lender attaching to the Collateral will at all times constitute valid and enforceable first priority Liens in favor of Lender, subject to no prior Lien (except in the case of the Liens granted by Lazarus Energy, which Liens will be second priority Liens subject only to the Liens granted by Lazarus Energy to Lender under the “Loan Documents” as defined in the LE Loan Agreement). Before any funding under the Note, Borrower and Guarantor will have taken or will have participated with Lender in taking, all necessary action and make all necessary filings to provide Lender with perfected, first priority Liens in the Collateral under the laws of all applicable jurisdictions. The Collateral is free from damage caused by fire or other casualty. Borrower and/or Guarantor, as applicable, have good and marketable title to and enjoy peaceful and undisturbed possession of all of the Collateral.

 

6.18 Business Loan.  All loans evidenced by the Note are and shall be for business, commercial, investment or other similar purposes and not primarily for personal, family, household or agricultural use, as such terms are used in the commercial law provision of the Code.

 

6.19 Principal Place of Business & Collateral.  Borrower’s principal place of business and chief executive office is at 801 Travis Street, Suite 2100, Houston, TX 77002, all Collateral is located at such address or at 11372 US Highway 87, Nixon, TX 78140. Borrower has never changed its name, whether by amendment of its organizational documents or otherwise.

 

6.20 Certificate of Title.  No part of the Collateral is covered by a certificate of title or subject to any certificate of title law, unless Borrower has taken all steps required by Lender to cause such Collateral to be subject to a first priority Lien in favor of Lender in accordance with the applicable certificate of title laws.

 

6.21 Land.  The Land described on Exhibit A is all the real estate owned or leased by Borrower and any entity Guarantor (including Lazarus Energy which is the owner of the Land).

 

6.22 ADA Compliance.  Borrower’s office facilities and all places accessible to the public are accessible to physically handicapped person who may be employed or come to visit. The office layout is in compliance with the Uniform Federal Accessibility Standards (UFAS) or the American With Disabilities Act (ADA), which became effective January 26, 1992, as appropriate.

7.1 Events of Default.  If any of the following events (each an “Event of Default”) shall occur, then the Lender may do any or all of the following without any notice to Borrower (except as hereinafter expressly provided): (i) declare the Note to be, and thereupon such Note shall forthwith become, immediately due and payable, together with all accrued interest thereon and all fees and other amounts payable hereunder and under the other Loan Documents, without notice of any kind, notice of acceleration or of intention to accelerate, presentment and demand or protest, all of which are hereby expressly waived; (ii) exercise its rights of offset against each account and all other Property of Borrower in the possession of the Lender, which right is hereby granted by Borrower to Lender; (iii) terminate Lender’s obligation to make the Loan or any further Advances under the Loan and (iv) exercise any and all other rights available to Lender under the Loan Documents, at law or in equity:

 

 

provided, that if an Event of Default of the type described in Section 7.1(g) or (h) occurs, then the Note shall automatically without any action by any Person be immediately due and payable, together with all accrued interest thereon and all fees and other amounts payable hereunder and under the other Loan Documents, without notice of any kind, notice of acceleration or of intention to accelerate, presentment and demand or protest, all of which are hereby expressly waived.

 

7.2 Other Remedies.  In addition to and cumulative of any rights or remedies provided for in Section 7.1 hereof, if any one or more Events of Default shall have occurred, the Lender may proceed to protect and enforce its rights hereunder, by any appropriate proceedings, and the Liens evidenced by the Security Documents shall be subject to foreclosure in any manner provided for therein or provided for by law as the Lender may elect. The Lender may also proceed either by the specific performance of any covenant or agreement contained in this Agreement or the other Loan Documents or to enforce the payment of the Note or to enforce any other legal or equitable right provided under this Agreement or the other Loan Documents, or otherwise existing under any law in favor of the holders of Indebtedness of Borrower.

8.1 Not an Agent.  Nothing contained herein shall be construed to constitute Borrower or Guarantor as Lender’s agent for any purpose whatsoever and lender shall not be responsible or liable for any shortage, discrepancy, damage, loss or destruction of any part of the Collateral wherever same may be located and regardless of the cause thereof. Lender does not, by anything herein or in any assignment or otherwise, assume any of Borrower’s or Guarantor’s obligations under any contract or agreement assigned to Lender and Lender shall not be responsible in any way for the performance by Borrower or Guarantor or any of the terms and conditions hereof.

 

8.2 Notices.  Any notice or other document required or permitted to be delivered to any party hereto shall be in writing and shall be given or delivered by hand delivery, by depositing it with an overnight delivery service, by registered or certified mail, return receipt requested, or sent by telecopy (provided an identical notice is also sent simultaneously by mail, overnight delivery, or personal delivery as otherwise provided in this Section 8.2 to the party entitled to receive such notice or other document at the address specified adjacent to their signature on the signature pages of this Agreement or any such other address as such party shall request in a written notice made in compliance herewith. Any such notice or document will be deemed given or delivered on the earliest of the date actually received if sent by hand delivery, on the first Business day after deposit with an overnight delivery service, on the date deposited in the mail, if mailed, or on the date the telecopy is transmitted to the party’s telecopy number and confirmation of complete receipt is received by the transmitting party during normal business hours or the next Business Day if not confirmed during normal business hours. Actual notice, however and from whoever given or received, shall always be effective when received.

 

 

8.3 Waiver; Remedies Cumulative.  No failure to exercise and no delay in exercising on the part of Lender of any right, power or privilege under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under any Loan Document preclude any other right, power or privilege. The rights and remedies provided in the Loan Documents are cumulative of, and not exclusive of, any rights or remedies provided by law, in equity, or in any other agreement or Loan Document, all of which Lender may pursue at any time and from time to time.

 

8.4 Assignment.  This Agreement shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and permitted assigns; provided, however, Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of Lender, and any such assignment or transfer without such consent shall be null and void. Borrower acknowledges and agrees that Lender may sell one or more participations or assign its interest in all or any part of the Loan to others.

 

8.5 Severability.  If a court of competent jurisdiction finds any provision of this Loan Agreement, the Note, or any other Loan Document to be invalid or unenforceable as to any Person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other Person or circumstance. If feasible, any such unenforceable or invalid provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if such provision cannot be so modified, it shall be stricken and all of the remaining provisions of the Loan Documents in all other respects shall remain valid and enforceable and in no way affected thereby.

 

8.6 Expenses, Etc.  Borrower shall pay or reimburse Lender on demand: (a) the fees and expenses of legal counsel to Lender, in connection with the preparation, negotiation, execution and delivery of this Agreement (including the Exhibits and schedules hereto), and the other Loan Documents and the making of the Loan, and any modification, supplement or waiver of any of the terms of this Agreement, or any other Loan Document; (b) out-of-pocket expenses incurred by Lender in connection with the preparation, documentation and administration of the Loan or any of the Loan Documents; and (c) all amounts expended, advanced or incurred by Lender to satisfy any obligation of Borrower, Guarantor or any Party under this Agreement or any other Loan Document to collect the Obligations or to enforce, protect, preserve or defend the rights of Lender under this Agreement or any other Loan Document, including without limitation, fees and expenses incurred in connection with Lender’s participation as a member of a creditors’ committee in a case commenced under the Bankruptcy Code or other similar law, fees and expenses incurred in connection with lifting the automatic stay prescribed in §362 of the Bankruptcy Code, fees and expenses incurred in connection with any action pursuant to §1129 of the Bankruptcy Code and all other customary out-of-pocket expenses incurred by Lender in connection with such matters, together with interest thereon at the Past Due Rate on each such amount until the date of reimbursement to Lender.

 

8.7 Indemnification.  Borrower shall indemnify the Lender and its Affiliates and their respective directors, officers, employees, representatives, advisors, attorneys, members, management, and agents from, and hold each of them harmless against, any and all losses (except loss of profits), liabilities, claims or damages to which any of them may become subject, except with respect to any indemnified party for such indemnified party’s gross negligence or willful misconduct (AND REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY INDEMNIFIED PARTIES), insofar as such losses (except loss of profits), liabilities, claims or damages arise out of or result from or relates to any (i) actual or proposed use by Borrower of the proceeds of any extension of credit by Lender hereunder; (ii) breach by Borrower of this Agreement or any other Loan Document or the breach by any Party of any Loan Document; (iii) violation by

 

 

 

Borrower or any other Party of any Legal Requirement; (iv) investigation, litigation or other proceeding relating to any of the foregoing, and Borrower shall reimburse Lender and its Directors, officers, employees and agents, upon demand for any expenses (including legal fees) incurred in connection with any such investigation or proceeding; (v) any transaction contemplated by the Loan Documents or the execution, delivery and performance of the Loan Documents or any other document in any way relating to the Loan Documents and the transactions contemplated by the Loan Documents (including any RBS Document and any Key Agreement); or (vi) taxes (excluding income taxes and franchise taxes) payable or ruled payable by any Governmental Authority in respect of the Obligations or any Loan Document, together with interest and penalties, if any.

8.8 Amendments, Etc.  No amendment or modification of this Agreement, the Note or any other Loan Document shall in any event be effective against Borrower unless the same shall be agreed or consented to in writing by Borrower. No amendment, modification or waiver of any provision of this Agreement, the Note or any other Loan Document, nor any consent to any departure by Borrower therefrom, shall in any event be effective against the Lender unless the same shall be agreed or consented to in writing by Lender (and RBS if deemed necessary by Lender), and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

 

8.9 Limitation of Interest.  Borrower, Guarantor and Lender intend to strictly comply with all applicable federal and state laws, including applicable usury laws (or the usury laws of any jurisdiction whose usury laws are deemed to apply the usury laws of the State of Texas. Accordingly, the provisions of this Section 8.9 shall govern and control over every other provision of this Agreement or any other Loan Document which conflicts or is inconsistent with this Section, even if such provision declares that it controls. As used in this Section, the term interest includes the aggregate of all charges, fees, benefits or other compensation which constitute interest under applicable law, provided that, to the maximum extent permitted by applicable law, (a) any non-principal payment shall be characterized as an expense or as compensation for something other than the use, forbearance or detention of money and not as interest, and (b) all interest at any time contracted for, reserved charged or received shall be amortized, prorated, allocated and spread, in equal parts during the full term of the Obligations. In no event shall Borrower or any other Person be obligated to pay, or Lender have any right or privilege to reserve, receive or retain, (a) any interest in excess of the maximum amount of nonusurious interest permitted under the laws of the State of Texas or the applicable laws (if any) of the United States or of any other state, or (b) total interest in excess of the amount which Lender could lawfully have contracted for, reserved, received, retained or charged had the interest been calculated for the full term of the Obligations at the Ceiling Rate. On each day, if the Ceiling Rate, the rate at which interest shall accrue

 

 

 

shall automatically be fixed by operation of this sentence at the Ceiling Rate for that day, and shall remain fixed at the Ceiling Rate for each day thereafter until the total amount of interest accrued equals the total amount of interest which would have accrued if there were no such Ceiling Rate imposed by this sentence. Thereafter, interest shall accrue at the Stated Rate unless and until the Stated Rate again exceeds the Ceiling Rate; in which case, the provisions of the immediately preceding sentence shall again automatically operate to limit the interest accrual rate to the Ceiling Rate. The daily interest rates to be used in calculating interest at the Ceiling Rate shall be determined by dividing the applicable Ceiling Rate by the number of days in the calendar year for which such calculation is being made. None of the terms and provisions contained in this Agreement or in any other Loan Document which directly or indirectly relate to interest shall ever be construed without reference to this Section 8.9, or be construed to create a contract to pay for the use, forbearance or detention of money at an interest rate in excess of the Ceiling Rate. If the term of any Obligation is shortened by reason of acceleration of maturity as a result of any Default or by any other cause, or by reason of any required or permitted prepayment, and if for that (or any other) reason lender at any time, including but not limited to, the stated maturity, is owed or receives (and/or has received) interest in excess of interest calculated at the Ceiling Rate, then and in any such event all of any such excess interest shall be canceled automatically as of the date of such acceleration, prepayment or other event which produces the excess, and, if such excess interest has been paid to Lender, it shall be credited pro tanto against the then outstanding principal balance of Borrower’s obligations to lender, effective as of the date or dates when the event occurs which causes it to be excess interest, until such excess is exhausted or all of such principal has been fully paid and satisfied, whichever occurs first, and any remaining balance of such excess shall be promptly refunded to its payor.

8.10 Survival.  The obligations of Borrower and Guarantor under each Loan Document to which each is a Party shall survive the repayment of the Loan.

 

8.11 Captions.  Captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement.

 

8.12 Counterparts.  This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same agreement and any of the parties hereto may execute this Agreement by signing any such counterpart.  Delivery of a signature page hereto via facsimile or electronic transmission shall be deemed to constitute delivery of an original signature page.

 

8.13 Governing Law; Waiver of Trial By Jury.  LENDER SHALL HAVE THE OPTION BY WHICH STATE LAWS THIS LOAN AGREEMENT SHALL BE GOVERNED AND CONSTRUED: (A) THE LAWS OF THE STATE OF TEXAS; OR (B) IF COLLATERAL HAS BEEN PLEDGED TO SECURE THE DEBT EVIDENCED BY THIS LOAN AGREEMENT, THEN BY THE LAWS OF THE STATE OR STATES WHERE THE COLLATERAL IS LOCATED, AT LENDER’S OPTION. THIS CHOICE OF STATE LAWS IS EXCLUSIVE TO THE LENDER. BORROWER SHALL NOT HAVE ANY OPTION TO CHOOSE THE LAWS BY WHICH THIS AGREEMENT SHALL BE GOVERNED. BORROWER AND GUARANTORS HEREBY CONSENT TO THE EXERCISE OF EXCLUSIVE JURISDICTION OVER IT BY ANY FEDERAL COURT SITTING IN DALLAS COUNTY, TEXAS OR ANY STATE COURT LOCATED IN DALLAS COUNTY SELECTED BY HOLDER, FOR THE PURPOSES OF ANY

 

 

 

AND ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THE NOTE, THIS LOAN AGREEMENT AND ALL OTHER LOAN DOCUMENTS. BORROWER AND GUARANTORS IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH PROCEEDING BROUGHT IN ANY SUCH COURT, ANY CLAIM BASED ON THE CONSOLIDATION OR PROCEEDINGS IN SUCH COURTS IN WHICH PROPER VENUE MAY LIE IN DIVERGENT JURISDICTIONS, AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. BORROWER AND GUARANTORS HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS LOAN AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.

8.14 Venue.  Borrower hereby irrevocably (a) agrees that any legal proceeding against Lender arising out of or in connection with the Loan Documents shall be brought in the district courts of Dallas County, Texas, or in the United States District Court for the Northern District of Texas, or elsewhere (collectively, the “Courts”); (b) submits to the nonexclusive jurisdiction of the Courts; (c) agrees and consents that service of process may be made upon it in any proceeding arising out of the Loan Documents or any transaction contemplated thereby by service of process as provided Texas law; (d) WAIVES, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of any Loan Document or the transactions contemplated thereby in the Courts; and (e) WAIVES any claim that any such suit, action or proceeding in any Court has been brought in an inconvenient forum. Nothing herein shall affect the right of Lender to commence legal proceedings or otherwise proceed against Borrower in any jurisdiction or to serve process in any manner permitted by applicable law. Borrower agrees that a final and nonappealable judgment in any such action or proceeding may be enforced in other jurisdictions in any manner provided by law.

 

8.15 Conflicts Between This Agreement and the Other Loan Documents.  In the event of any conflict between the terms of this Agreement and the terms of any of the other Loan Documents, the terms of this Agreement shall control.

 

8.16 Cross-Collateralization and Cross-Default. This Agreement, the Collateral and the Obligations are cross-collateralized and cross-defaulted with (a) the LE Loan Agreement, (b) the “Obligations” thereunder, (c) the collateral securing such obligations, (d) the obligations thereunder, and (e) the collateral securing such obligations.  Without limiting the foregoing, Borrower (and Lazarus Energy, by its signature below) and Lender contemplate and agree that Borrower and/or Lazarus Energy and Lender have engaged or may from time to time engage in various loan and financing transactions and that from time to time other circumstances may arise in which Borrower and/or Lazarus Energy becomes obligated to Lender, including under the LE Loan Agreement and under transactions of a type that are very different from the transactions evidenced by the Loan Documents, including by notes, advances, overdrafts, bookkeeping entries, guaranty agreements, deeds of trust, or

 

 

 

any other method or means (each a “Loan Obligation”).  Borrower (and Lazarus Energy, by its signature below) and Lender agree that all such transactions will be secured by the Collateral, and that the Obligations arising under this Agreement and the other Loan Documents will be secured by any collateral granted in connection with such Loan Obligation.  Repayment of all Obligations and performance of all other obligations under this Agreement by Borrower and/or Lazarus Energy shall not terminate Lender’s security interest in the Collateral, unless Lender executes a written release.  If any default occurs under any Loan Obligation, then Lender may declare an Event of Default.  An Event of Default shall be a default under any such Loan Obligation.  Lender’s failure to exercise cross-defaults shall not constitute a waiver by Lender of such right.

8.17 Patriot Act Notice.  Lender hereby notifies Borrower and each Guarantor that pursuant to the requirements of Section 326 of the USA Patriot Act of 2001, 31 U.S.C. § 5318 (the “Act”), that Lender is required to obtain, verify and record information that identifies such Persons, which information includes the name and address of such Persons and other information that will allow Lender to identify such Person in accordance with the Act.

 

8.18 Priority of Insurance Assignment.  Borrower, Guarantors and Lender  confirm and agree that (a) Lender has been assigned the Carroll Life Insurance Policy pursuant to the Insurance Assignment; (b) the Insurance Assignment secures, among other things, all liabilities of Borrower and Lazarus Energy to Lender (including under the LE Loan Agreement and related loan documents and including under this Agreement and the Loan Documents); (c) the Insurance Assignment is subordinate to a prior assignment of the Carroll Life Insurance Policy in favor of One World Bank; and (d) the proceeds of the Carroll Life Insurance Policy shall be applied to repay all of the “Obligations” under the LE Loan Agreement up to $5,000,000 prior to repaying the Obligations (except that any remaining amounts, if any, after repayment of the first $5,000,000 of the “Obligations” under the LE Loan Agreement and after repayment of the Obligations may thereafter continue to be applied to repay the “Obligations” under the LE Loan Agreement).  Borrower and Guarantors agree not to increase or permit any of its Affiliates to increase, after the date hereof, the principal amount of its indebtedness to One World Bank without the consent of Lender.