BLUE DOLPHIN ENERGY CO (Form: 8-K, Received: 06/26/2015 17:20:00)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT TO

SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported):

June 26, 2015

Blue Dolphin Energy Company

(Exact name of registrant as specified in its charter)

Delaware

(State or Other Jurisdiction

of Incorporation)

0-15905

(Commission File Number)

73-1268729

(IRS Employer Identification No.)

801 Travis Street, Suite 2100

Houston, TX 77002

(Address of principal executive office and zip code)

(713) 568-4725

(Registrant’s telephone number, including area code)

(Not Applicable)

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

The information in this Current Report on Form 8-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, or otherwise subject to the liabilities of such section, and is not deemed incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.

Item 1.01 Entry into a Material Definitive Agreement.

LE Credit Facility

On June 22, 2015, Lazarus Energy, LLC, a Delaware corporation (“LE”) and wholly owned subsidiary of Blue Dolphin Energy Company (“Blue Dolphin”), entered into a Loan and Security Agreement with Sovereign Bank (“Sovereign”) as administrative agent and lender pursuant to which Sovereign agreed to make a term loan to LE in the principal amount of $25.0 million (the “LE Credit Facility”). The LE Credit Facility is guaranteed under the Business & Industry Guaranteed Loan Program administered by the United States Department of Agriculture Rural Development. The LE Credit Facility, which requires a monthly principal and interest payment, has a 19 year term with an interest rate based on the Wall Street Journal Prime Rate plus 2.75%. Proceeds of the LE Credit Facility will primarily be used to construct new petroleum product storage tanks and expand the crude oil and condensate processing facility located in Nixon, Texas (the “Nixon Facility”), as well as refinance approximately $8.5 million of debt owed to American First National Bank. Pursuant to a construction rider in the LE Credit Facility, proceeds will be placed in an escrow account whereby Sovereign will make advances for construction related expenses.

The LE Credit Facility is secured by: (i) a first lien on all Nixon Facility business assets (excluding accounts receivable and inventory), (ii) assignment of all Nixon Facility contracts, permits, and licenses, (iii) absolute assignment of Nixon Facility rents and leases, including tank rental income, (iv) a $1.0 million payment reserve account held by LE at Sovereign, and (v) a pledge of $5.0 million of a life insurance policy on Jonathan P. Carroll, President and Chief Executive Officer of Blue Dolphin (“Carroll”). The LE Credit Facility contains representations and warranties, affirmative, restrictive, and financial covenants, as well as events of default which are customary for credit facilities of this type. Repayment of funds borrowed and interest accrued under the LE Credit Facility is guaranteed by Blue Dolphin, LRM, Carroll, and Lazarus Energy Holdings, LLC (“LEH”), which owns approximately 81% of Blue Dolphin’s common stock. Carroll is also the majority owner of LEH.

LRM Credit Facility

On June 22, 2015, Lazarus Refining & Marketing, LLC, a Delaware corporation (“LRM”) and wholly owned subsidiary of Blue Dolphin, entered into a Loan and Security Agreement with Sovereign as lender pursuant to which Sovereign agreed to make a term loan to LRM in the principal amount of $3.0 million (the “LRM Credit Facility”). The LRM Credit Facility has a 6 month term with an interest rate based on the Wall Street Journal Prime Rate plus 2.75% or 6.00%, whichever is greater. The LRM Credit Facility requires a monthly payment of interest with full payment of the outstanding principal due at maturity. Proceeds of the LRM Credit Facility will be used to purchase certain process and ancillary equipment for the Nixon Facility.

The LRM Credit Facility is secured by: (i) a first lien on the equipment being purchased, (ii) a $1.5 million certificate of deposit at Sovereign, (iii) assignment of an easement agreement on land in Freeport, Texas, which is owned by Blue Dolphin Pipe Line Company, a wholly owned subsidiary of Blue Dolphin (iv) a second lien on all assets of LRM (excluding accounts receivable and inventory), and (v) a second lien and deed of trust on the Nixon Facility. The LRM Credit Facility contains representations and warranties, affirmative, restrictive, and financial covenants, as well as events of default which are customary for credit facilities of this type. Repayment of funds borrowed and interest accrued under the LRM Credit Facility is guaranteed by Blue Dolphin, LE, and Carroll.

The above summaries of the LE Credit Facility and LRM Credit Facility do not purport to be complete and are qualified in their entirety by reference to the full text of the respective loan documents, which are provided as exhibits to this Current Report Form 8-K and which are incorporated by reference into this Item 1.01.

Guaranty Fee Agreements

On June 22, 2015, Carroll entered into a Guaranty Fee Agreement with LE (the “LE Guaranty Fee Agreement”) dated June 22, 2015, in consideration for Carroll’s execution and delivery of a guaranty as security for and as a condition of the obligations of LE under the LE Credit Facility. Pursuant to the LE Guaranty Fee Agreement, LE shall pay Carroll, as a guarantor, a guaranty fee equal to 2.00% per annum, paid monthly, of the outstanding principal balance owed under the LE Credit Facility. Amounts payable to Mr. Carroll as the guaranty fee shall be paid at the end of each calendar month.

On June 22, 2015, Carroll also entered into a Guaranty Fee Agreement with LRM (the “LRM Guaranty Fee Agreement”) dated June 22, 2015, in consideration for Carroll’s execution and delivery of a guaranty as security for and as a condition of the obligations of LRM under the LRM Credit Facility and a Loan and Security Agreement (the “2014 Loan and Security Agreement”) dated May 2, 2014 between Sovereign and LRM. Pursuant to the LRM Guaranty Fee Agreement, LRM shall pay Carroll, as a guarantor, a guaranty fee equal to 2.00% per annum, paid monthly, of the outstanding principal balance owed under the LRM Credit Facility and 2014 Loan and Security Agreement. Amounts payable to Carroll as the guaranty fee shall be paid at the end of each calendar month.

Item 9.01 Financial Statements and Exhibits.

(d)

Exhibits.

10.1	Loan Agreement among Sovereign Bank, Lazarus Energy, LLC and Jonathan Pitts Carroll, Sr., Blue Dolphin Energy Company, Lazarus Refining & Marketing, LLC, and Lazarus Energy Holdings dated June 22, 2015.
10.2	Promissory Note between Lazarus Energy, LLC and Sovereign Bank for the principal sum of $25,000,000 dated June 22, 2015.
10.3	Security Agreement of Lazarus Energy, LLC in favor of Sovereign Bank dated June 22, 2015.
10.4	Deed of Trust, Mortgage, Security Agreement, Assignment of Leases and Rents, Financing Statement and Fixture Filing for Lazarus Energy, LLC dated June 22, 2015.
10.5	Security Agreement of Lazarus Energy, LLC for the benefit of Lazarus Refining & Marketing, LLC dated June 22, 2015.
10.6	Loan and Security Agreement between Sovereign Bank and Lazarus Refining & Marketing, LLC dated June 22, 2015.
10.7	Promissory Note between Lazarus Refining & Marketing, LLC and Sovereign Bank for the principal sum of $3,000,000 dated June 22, 2015.
10.8	Pledge Agreement by Lazarus Refining & Marketing, LLC in favor of Sovereign Bank dated June 22, 2015.
10.9	Collateral Assignment executed by Blue Dolphin Pipe Line Company for the benefit of Sovereign Bank dated June 22, 2015.
10.10	Guaranty Agreement by Jonathan Pitts Carroll, Sr., Blue Dolphin Energy Company, Lazarus Energy, LLC and Sovereign Bank dated June 22, 2015.
10.11	Guaranty Fee Agreement between Jonathan P. Carroll and Lazarus Energy, LLC dated June 22, 2015.
10.12	Guaranty Fee Agreement between Jonathan P. Carroll and Lazarus Refining & Marketing, LLC dated June 22, 2015.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: June 26, 2015

	Blue Dolphin Energy Company

	/s/ JONATHAN P. CARROLL
	Jonathan P. Carroll Chief Executive Officer, President, Assistant Treasurer and Secretary (Principal Executive Officer)

LOAN AGREEMENT

AMONG

Sovereign Bank

As Lender

______________________________________________

Lazarus Energy LLC

As Borrower

and

______________________________________________

Jonathan Pitts Carroll, Sr., Blue Dolphin Energy Company,

Lazarus Refining & Marketing, LLC and

Lazarus Energy Holdings LLC

As Guarantors

LOAN AGREEMENT

This Loan Agreement is made and entered this ____ day of June, 2015, by and among Sovereign Bank (“Lender”), Lazarus Energy LLC , a Delaware limited liability company (“Borrower”), and Jonathan Pitts Carroll, Sr. , a Texas resident (“Carroll”), Blue Dolphin Energy Company , a Delaware corporation (“Blue Dolphin”), Lazarus Refining & Marketing, LLC , a Delaware limited liability company (“LRM”), and Lazarus Energy Holdings LLC , a Delaware limited liability company (“LEH”, and jointly and severally together with Carroll, Blue Dolphin and LRM, collectively “Guarantor” or “Guarantors”).

RECITALS

WHEREAS, Borrower is the owner of an oil refinery plant located at 11372 US Hwy 87, Nixon, Wilson County, Texas (together with all improvements or alterations made thereto including the Expansion Improvements, the “Nixon Refinery”);

WHEREAS, Borrower desires to expand the Nixon Refinery by constructing the Expansion Improvements (as defined below); and

WHEREAS, Borrower has requested that Lender provide long-term financing (a) to fund the construction costs of the Expansion Improvements; (b) to repay its existing indebtedness to American First National Bank; (c) to fund the Construction Contingency Account for contingency costs relating to the Expansion Improvements; and (d) to pay for closing fees and costs;

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

AGREEMENT

Article 1

Definitions.

1.1 Certain Defined Terms .

Unless a particular term, word or phrase is otherwise defined or the context otherwise requires, capitalized terms, words and phrases used herein or in the Loan Documents (as hereinafter defined) have the following meanings (all definitions that are defined in this Agreement in the singular to have the same meanings when used in the plural and vice versa ):

Advance shall have the meaning given such term in Section 3.4 .

Affiliate shall mean any Person controlling, controlled by or under common control with any other Person. For purposes of this definition, “control” (including “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or otherwise.

AFNB shall mean American First National Bank.

AFNB Debt shall mean the outstanding principal, interest, fees and other amounts outstanding by any Party under any existing debt or financing documents between AFNB and Borrower.

Agreement shall mean this Loan Agreement, as it may from time to time be amended, modified, restated or supplemented.

Annual Financial Statements shall mean, with respect to any Person, the annual financial statements of such Person, which statements shall include a balance sheet and an income statement as of the end of such fiscal year, all prepared in conformity with GAAP.

Attorney R epresentation Notice shall mean that certain Attorney Representation Notice Dated as of the Closing Date in Proper Form executed by Borrower.

Bankruptcy Code shall mean the United States Bankruptcy Code, as amended, and any successor statute.

Borrower’s Affidavit shall mean an affidavit in the form of Exhibit D attached hereto and made a part hereof signed by the President of Borrower.

Business Day shall mean any day other than a Saturday or Sunday or a legal holiday on which commercial banks are authorized or required to close in Dallas, Texas.

Ceiling Rate shall mean, on any day, the maximum nonusurious rate of interest permitted for that day by whichever of applicable federal or state laws permits the higher interest rate, stated as a rate per annum. On each day, if any, that the state law establishes the Ceiling Rate, the Ceiling Rate shall be the weekly ceiling rate for that day. Lender may from time to time, as to current and future balances, implement any other ceiling under applicable federal or state laws by notice to Borrower, if and to the extent permitted by applicable laws and regulations. Without notice to Borrower or any other person or entity, the Ceiling Rate shall automatically fluctuate upward or downward as and in the amount by which such maximum nonusurious rate of interest permitted by applicable law fluctuates.

Certification Regarding Anti-Terrorism Laws shall mean that certain Certification Regarding Anti-Terrorism Laws dated the Closing Date, from Borrower and Guarantors to Lender.

Closing Date shall mean June __, 2015.

Code shall mean the Internal Revenue Code of 1986, as amended, as now or hereafter in effect, together with all regulations, rulings and interpretations thereof or thereunder by the Internal Revenue Service.

Collateral shall mean all Property, tangible or intangible, real, personal or mixed, now or hereafter subject to the Security Documents or any liens, security interests or encumbrances granted pursuant to the Security Documents, including without limitation, all “Property” as defined in the Deed of Trust and all “Collateral” as defined in the Security Agreement.

Commercial Land shall mean the Land.

Conditional Commitment shall mean Form 4279-3, Conditional Commitment for Guarantee issued by RBS in connection with this Loan.

Construction Contingency Account shall mean a non-interest bearing account in Lender’s or its designee’s name maintained by Lender, into proceeds of the Loan will be funded for construction contingency purposes in accordance with Sections 2.2 and 3.4 .

Construction Rider shall mean the Construction Rider in the form of Exhibit C or otherwise acceptable to Lender, which Construction Rider is incorporated into this Agreement pursuant to Section 3.3 .

Corporation shall mean corporations, limited liability companies, partnerships, joint ventures, joint stock associations, business trusts and other business entities, whether organized under the laws of the United States of America or of a foreign jurisdiction.

Current Assets shall mean all assets, which in accordance with GAAP would be included in current assets.

Current Liabilities shall mean all Indebtedness which in accordance with GAAP would be included as current liabilities.

Current Ratio shall mean the ratio of Current Assets to Current Liabilities.

Debt shall mean, with respect to any Person, the sum of (a) all borrowings under the Note of such Person; (b) any obligation of such Person for borrowed money which under GAAP is shown on the balance sheet as a liability (including the principal component of capitalized lease obligations, but excluding reserves for deferred income taxes, deferred pension liability and other deferred expenses and reserves); (c) Indebtedness for borrowed money secured by any Lien existing on Property owned by such Person subject to such Lien, whether or not the Indebtedness secured thereby shall have been assumed; (d) guarantees of borrowed money Indebtedness and endorsements (other than endorsements of negotiable instruments for collection in the ordinary course of business) or such Person; (e) obligations of such Person arising under letters of credit; (f) the redemption amount owed by such Person with respect to any equity interest required to be redeemed; and (g) to the extent not covered in clauses (a) through (f) above, all liabilities (including short-term and long-term liabilities) of such Person which under GAAP would be shown on the balance sheet as a liability.

Debt Service Coverage Ratio shall mean, as of the close of the date of determination, the ratio computed for the period consisting of the trailing twelve month period (ending on such date of determination) of: (a) the combined EBITDA (for such trailing twelve month period) of Borrower and LRM minus all property taxes and insurance to be paid for such trailing twelve month period if not yet paid during such period minus all distributions or dividends made by Borrower and LRM (subject to Lender’s consent rights to the same as provided in this Agreement) during such trailing twelve month period; to (b) the sum (for such trailing twelve month period) of all scheduled principal and interest of Borrower and LRM in each case scheduled or required to be made for the period of measurement, in each case in accordance with GAAP.

Debtor Relief Law shall mean any Legal Requirements relating to bankruptcy, reorganization, compromise arrangement, insolvency, readjustment of debt, general assignment for the benefit of creditors, dissolution or liquidation or similar proceeding of any jurisdiction.

Deed of Trust shall mean collectively that certain Deed of Trust, Mortgage, Security Agreement, Assignment of Leases and Rents, Financing Statement and Fixture Filing dated as of the Closing Date, in Proper Form, executed by Borrower in favor of Robert Blount, as trustee, for the benefit of Lender, covering and affecting the Land and the real and personal property described or otherwise encumbered therein, as the same may be amended, modified, restated or supplemented from time to time.

Default shall mean an event, which with notice or lapse of time or both would, unless cured or waived, become an Event of Default.

Default Rate shall mean, on any day, a rate per annum equal to the Ceiling Rate for that day.

Disbursement Account shall mean a non-interest bearing account in Lender’s or its designee’s name in a financial institution selected by Lender.

Disclosure Schedule shall mean the Disclosure Schedule attached hereto as Schedule 1 .

Document Correction Agreement shall mean that certain Agreement of Assurance dated as of the Closing Date in Proper Form executed by Borrower, as the same may from time to time be amended, modified, supplemented or restated.

EBITDA shall mean, with respect to any Person, for any applicable period and with the respect to such Person, the sum of the following for such Person (and its consolidated subsidiaries, if any): (a) net income (determined in accordance with GAAP), plus (b) to the extent deducted in determining net income, the sum of (i) amounts attributable to amortization, depletion and depreciation of assets, (ii) income tax expense, and (iii) Interest Expense for such period, and minus, to the extent included in the statement of such net income for such period, the sum of (A) interest income (except to the extent deducted in determining Interest Expense), and (B) any extraordinary, unusual or non-recurring income or gains (including, whether or not otherwise includable as a separate item in the statement of such net income for such period, gains on the sales of assets).

Environmental Claim shall mean any third party (including Governmental Authorities and employees) action, lawsuit, claim or proceeding (including claims or proceedings at common law or under the Occupational Safety and Health Act or similar laws relating to safety of employees) which seeks to impose liability for (a) noise; (b) pollution or contamination of the air, surface water, ground water or land or the cleanup of such pollution or contamination; (c) solid, gaseous or liquid waste generation, handling, treatment, storage, disposal or transportation; (d) exposure to Hazardous Substances; (e) the safety or health of employees; or (f) the manufacture, processing, distribution in commerce or use of Hazardous Substances. An Environmental Claim includes, but is not limited to, a common law action, as well as a proceeding to issue, modify or terminate an Environmental Permit, or to adopt or amend a regulation to the extent that such a proceeding attempts to redress violations of an applicable permit, license, or regulation as alleged by any Governmental Authority.

Environmental Liabilities includes all liabilities arising from any Environmental Claim, Environmental Permit or Requirement of Environmental Law under any theory of recovery, at law or in equity, and whether based on negligence, strict liability or otherwise, including but not limited to: remedial, removal, response, abatement, investigative, monitoring, personal injury and damage to property or injuries to persons, and any other related costs, expenses, losses, damages, penalties, fines, liabilities and obligations, and all costs and expenses necessary to cause the issuance, reissuance or renewal of any Environmental Permit including attorneys’ fees and court costs.

Environmental Permit shall mean any permit, license, approval or other authorization under any applicable Legal Requirement relating to pollution or protection of health or the environment, including laws, regulations or other requirements relating to emissions, discharges, releases or threatened releases of pollutants, contaminants or hazardous substances or toxic materials or wastes into ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants or Hazardous Substances.

Equipment and General Intangibles shall have the respective meanings assigned to them in the UCC in force on the Closing Date.

Event of Abandonment shall mean (a) the written announcement by Borrower of a decision to abandon or indefinitely defer, or the abandonment of, the construction or completion or operation of all or any material part of the Expansion Improvements or the Nixon Refinery for any reason, or (b) the total suspension for more than 30 consecutive days or abandonment of the construction of the Expansion Improvements.

Event of Default shall have the meaning assigned to it in Section 7.0 .

Event of Taking shall mean the occurrence of any of the following events carried out by any Governmental Authority: (a) any condemnation, nationalization, seizure, compulsory acquisition, or expropriation of all or any portion of (i) the Nixon Refinery or (ii) the business operations of Borrower; or (b) any intervention in, or assumption of custody or control of, all or any portion of (i) the Nixon Refinery or (ii) the business operations of Borrower.

Expansion Improvements shall mean (a) one (1) 100,000 barrel (bbl) capacity tank for storage of crude oil; (b) four (4) 100,000 bbl capacity tanks for storage of refined products (jet fuel, diesel, residuals and naphtha; (c) four (4) bullet tanks with a total 90,000 gallon capacity for storage of refined liquid petroleum gas; and (d) such other Improvements or modifications to the Nixon Refinery as approved by Lender.

Financing Statements shall mean all such Uniform Commercial Code financing statements as Lender shall require, in Proper Form, duly executed (or authorized, as appropriate) by Borrower or others to give notice of and to perfect or continue perfection of Lender’s Liens in all Collateral.

Funds Control Agreement shall mean any funds control agreement or similar agreement from time to time entered into between Lender and any third party (including a monitoring consultant described in Section 3.3 ), in form acceptable to Lender, for the purpose of such third party’s monitoring or controlling of the disbursement of the Loan or Advances relating to the construction of the Expansion Improvements and/or relating to any other use of proceeds of the Loan or Advances thereunder.

GAAP shall mean, as to a particular Person, such accounting practice as, in the opinion of independent certified public accountants of recognized national standing, conforms at the time to generally accepted accounting principles, consistently applied. In addition, GAAP means those principles and practices (a) which are recognized as such by the Financial Accounting Standards Board; and (b) which are consistently applied for all periods after the Closing Date so as to reflect properly the financial condition, and results of operations and changes in financial position, of such Person. If any change in any accounting principle or practice is required by the Financial Accounting Standards Board in order for such principle or practice to continue as GAAP, all reports and financial statements required hereunder may be prepared in accordance with such change. Notwithstanding the foregoing, as to individuals only, GAAP means such accounting principles and practices as, in the opinion of such accountants, conform at the time to such individual’s federal income tax basis of accounting, consistently applied.

Governmental Authority shall mean any foreign governmental authority, the United States of America, any State of the United States and any political subdivision of any of the foregoing, and any central Bank, agency, department, commission, board, bureau, court or other tribunal having jurisdiction over Lender, Borrower, Guarantor any Party or their respective Property.

Guaranty shall mean collectively all guaranties dated as of the Closing Date in Proper Form executed by all Guarantors in favor of Lender, as any of the same may from time to time be amended, modified, restated or supplemented.

Guarantor shall mean, to the extent the term is preceded or qualified with the word “any”, “each” or “such” or like word, each of Carroll, Blue Dolphin, LRM and LEH individually; otherwise, the term Guarantor shall mean all of them collectively on a joint and several basis, and Guarantors shall mean all of them collectively on a joint and several basis.

Hazardous Substance shall mean petroleum products, and any hazardous or toxic waste or substance defined or regulated as such from time to time by any law, rule, regulation or order described in the definition of Requirements of Environmental Law.

Improvements shall mean all buildings and other improvements now or hereafter placed on the Land, as well as all appurtenances, betterments and additions thereto; all and singular the rights, privileges, hereditaments, and appurtenances in any wise incident or appertaining to said Land and improvements, including, without limitation, any and all rights to the present or future use of waste water, waste water capacity, drainage, water or other utility facilities to the extent same pertain to or benefit said Land or the improvements located thereon, including, without limitation, all reservations of or commitments or letters covering any such use in the future whether now owned or hereafter acquired.

Indebtedness shall mean and include, without duplication, (a) all items which in accordance with GAAP would be included on the liability side of a balance sheet on the date as of which Indebtedness is to be determined (excluding capital stock, surplus, surplus reserves and deferred credits); (b) all guaranties, letter of credit contingent reimbursement obligations and other contingent obligations in respect of, or any obligations to purchase or otherwise acquire, Indebtedness of others; (c) the redemption amount with respect to any equity interest to be redeemed; and (d) all indebtedness secured by any Lien existing on any interest of the Person with respect to which Indebtedness is being determined in Property owned subject to such Lien whether or not the Indebtedness secured thereby shall have been assumed; provided, that the term Indebtedness shall not mean or include any Indebtedness in respect of which monies sufficient to pay and discharge the same in full (either on the expressed date of maturity thereof or on such earlier date as such Indebtedness may be duly called for redemption and payment) shall be deposited with a depository, agency or trustee acceptable to Lender in trust for the payment thereof.

Indemnification Agreement shall mean that certain Indemnification Agreement dated the Closing Date, by and between Borrower and Lender.

Interest Expense shall mean, with respect to any Person and for any applicable period, the aggregate interest expense (both accrued and paid and net of interest income paid during such period to such Person) of such Person for such applicable period, including the portion of any payments made in respect of capitalized lease liabilities allocable to interest expense, but excluding one-time write-offs of unamortized upfront fees associated with this Agreement.

Key Agreements shall mean all contracts, permits, licenses and other rights acquired by a person or to which such Person are a party or by which such Person is bound and from time to time material to the ownership of assets or the operations of such Person, including, without limitation and for sake of clarity, (a) any construction contracts relating to the Expansion Improvements described in the Construction Rider or any construction contract with the general contractor relating to the construction of the Expansion Improvements, (b) the GEL Transaction Documents (as defined in that certain Letter Regarding Subordination of GEL Transaction Documents dated as of the date hereof between Borrower, Lender and GEL Tex Marketing, LLC, and (c) the Management Agreement dated as of February 15, 2012, by and among Borrower, Blue Dolphin and LEH, as amended by that certain Amendment No. 1 to Management Agreement dated May 12, 2014.

Land shall mean that certain approximate 56.309 acre tract of land (comprised of an approximate 51.309 acre tract and a 5.000 acre tract) situated in Wilson County, Texas, more particularly described on Exhibit A attached hereto and made a part hereof.

Legal Requirement shall mean any law, statute, ordinance, decree, requirement, order, judgment, rule, or regulation (or interpretation of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority, whether presently existing or arising in the future, including, without limitation, any Requirements of Environmental Law.

Lien shall mean any mortgage, pledge, charge, encumbrance, security interest, collateral assignment or other lien whether based on common law, constitutional provision, statute or contract.

Loan shall mean the loan provided for in Section 2.1 hereof.

Loan Documents shall mean, collectively, the Note, this Agreement, the Guaranties, the Security Documents, the Authorization Agreement for automatic drafts, the Disclaimer of Oral Agreements, the Document Correction Agreement, the Borrower’s Affidavit, the Attorney Representation Notice, the Indemnification Agreement, the Certification Regarding Anti-Terrorism Laws, the Secretary’s Certificate(s), and the Financing Statements, each dated as of the Closing Date, and all instruments, certificates and agreements now or hereafter executed or delivered to Lender pursuant to any of the foregoing or in connection with the Obligations or any commitment regarding the obligations, and all amendments, modifications, renewals, extensions, increases and rearrangements of, and substitutions for, any of the foregoing.

Material Adverse Effect shall mean a material adverse effect (as determined by Lender acting in good faith) upon (a) the condition (financial or otherwise), business, operations, assets or prospects of (i) Borrower or any Guarantor or (ii) a material portion of the Nixon Refinery; (b) the ability of Borrower, any Guarantor or any other Party to fully and timely perform its respective obligations under the Loan Documents, the RBS Documents or the Key Agreements; (c) the rights and remedies of Lender under any of the Loan Documents; (d) the legality, validity, binding nature or enforceability of any Loan Document or any Key Agreements.

Maturity Date shall have the meaning given such term in the Note.

Mortgagee’s Policy of Title Insurance shall mean a mortgagee’s policy or policies of title insurance issued in favor of Lender by an underwriter satisfactory to Lender insuring the Lien of the Deed of Trust as a first and prior lien in an amount equal to Twenty-Five Million and NO/100 Dollars ($25,000,000), subject only to such encumbrances as are acceptable to Lender.

Net Worth shall mean as to any Person, (a) all assets of such Person, less (b) all liabilities of such Person, all determined in accordance with GAAP.

Note shall mean collectively, that certain adjustable rate promissory note dated as of the Closing Date, the form of which is attached hereto as Exhibit B and made a part hereof, made and executed by Borrower payable to the order of Lender in the aggregate original principal amount of $25,000,000 , and all modifications, renewals, extensions, increases and rearrangements of, and substitutions for such promissory note.

Obligations shall mean, as at any date of determination thereof, all obligations and liabilities of Borrower or any Guarantor arising under or in connection with a Loan Document, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter arising, in respect of: (a) any and all sums, including principal, interest (including interest that would accrue on any of the foregoing during the pendency of any bankruptcy or related proceeding with respect to Borrower or any Guarantor), expenses, premiums, Prepayment Consideration (as defined in the Note), costs (including court costs), charges, fees (including attorneys’ fees) indemnities or other liabilities called for in the Note or in any Loan Document; (b) all other agreements, covenants, conditions, warranties, representations, liabilities, obligations and indebtedness of any Party now or hereafter created or incurred, in whole or in part, under this Agreement or any other Loan Document; (c) all other debts of any kind and character now or hereafter owing by Borrower or any Guarantor to the Lender whether such debts be evidenced by written instrument or not and whether they be direct obligations arising out of a guaranty, endorsement, suretyship or otherwise, or whether they be joint, several or indirect, and whether they were heretofore or are hereafter purchased or acquired and any and all amendments, modifications, renewals, extensions, increases, or rearrangements in whole or in part of any of the above.

Organizational Documents shall mean, with respect to a corporation, the certificate of incorporation, articles of incorporation and bylaws of such corporation; with respect to a limited liability company, the articles of organization, the limited liability company operating agreement and the regulations of such limited liability company; with respect to a partnership, the partnership agreement establishing such partnership and the certificate of limited partnership as to any limited partnership, with respect to a joint venture, the joint venture agreement establishing such joint venture; and, with respect to a trust, the instrument establishing such trust; in each case including any and all modifications thereof as of the date of the Loan Document referring to such Organizational Document and any and all future modifications thereof.

Part ies shall mean Borrower, Guarantor, and any other party (other than Lender) executing any Loan Document.

Payment Reserve Account shall mean the reserve account (or any replacement account) established by virtue of the Payment Reserve Agreement.

Payment Reserve Agreement shall mean that certain Payment Reserve Agreement dated the Closing Date, by and between Borrower and Lender.

Person shall mean any individual, corporation, limited liability company, partnership, joint venture, joint stock association, business trust, other business entity, trust, unincorporated organization, Governmental Authority or any other form of entity.

Prime Rate as used herein shall mean the “Prime Rate” as defined in the Note.

Prepayment Consideration shall have the meaning set forth in the Note.

Proper Form shall mean in form and substance satisfactory to Lender.

Property shall mean any interest in any kind of property or asset, whether real, personal or mixed, tangible or intangible.

Quarterly Financial Statements shall mean the quarterly financial statements of a Person, including all notes thereto, which statements shall include a balance sheet as of the end of such calendar quarter and an income statement for such calendar quarter and for the fiscal year to date, all setting forth in comparative form the corresponding figures for the corresponding calendar quarter of the preceding year, prepared in accordance with GAAP (with the exclusion of notes and an auditor’s opinion) and certified as fairly reflecting the financial condition of such Person as of the date thereof and for the period covered thereby, subject to normal yearend adjustments, by the Chief Financial Officer or President of such Person.

RBS shall mean The Unites States of America acting through and by its agency, the Rural Business Cooperative Service, United States Department of Agriculture, or its successor agency.

RBS Agreement of Compliance shall mean that certain Agreement of Compliance of Borrower dated as of the Closing Date.

RBS Documents shall mean all of the following duly executed by or on behalf of the parties thereto and in Proper Form: (a) Loan Note Guarantee (Form 4279-5); (b) Certificate of Incumbency (Form 4279-7), if applicable; (c) Lender’s Agreement (Form 4279-4); (d) the RBS Agreement of Compliance; and (e) any other document executed by any Party for the benefit of RBS or the United Stated Department of Agriculture or any of its agencies or subdivisions in connection with the Loan Documents, and all amendments, modifications, renewals, extensions, increases and rearrangements of, and substitutions for, any of the foregoing.

RBS Guarantee shall mean that certain guaranty of the United States of America acting through RBS in the amount of sixty percent (60%) of the principal amount of the Note, said guaranty being Fifteen Million and 00/100 Dollars ($15,000,000).

RBS Guarantee Fee shall mean that certain fee imposed by RBS in the amount of three percent (3%) of the amount of the RBS Guarantee in connection with this Loan, said fee being Four Hundred Fifty Thousand and 00/100 Dollars ($450,000).

Related Person shall mean, with respect to any Person, any individual, corporation, organization or other entity that is an officer, director, stockholder, partner or employee of such Person.

Remedial Action shall mean any action necessary to ensure compliance with the Requirements of Environmental Law including (a) the removal and disposal or containment (if containment is practical under the circumstances and is permissible within Requirements of Environmental Law) or monitoring of any and all Hazardous Substances at the Property; (b) the taking of necessary precautions to protect against the release or threatened release of Hazardous Substances at, on, in, about, under, within or near the air, soil, surface water, groundwater or soil vapor at the Property or any public domain affected by the Property or any surrounding areas thereof; (c) any action necessary to mitigate the usurpation of wetlands, pinelands or other protected land or reclaim the same or to protect and preserve wildlife species; (d) any action necessary to meet the requirement permit; or (e) any other action required to satisfy Requirements of Environmental Law imposed upon Borrower the property and/or any operation thereon.

Requirements of Environmental Law shall mean all requirements imposed by any law (including for example and without limitation The Resource Conservation and Recovery Act and The Comprehensive Environmental Response, Compensation, and Liability Act), rule, regulation, or order of any Governmental Authority in effect at the applicable time which relate to (i) noise; (ii) pollution, protection or cleanup of the air, surface water, ground water or land; (iii) solid, gaseous or liquid waste generation, treatment, storage, disposal or transportation; (iv) exposure to Hazardous Substances; (v) the safety or health of employees or (vi) regulation of the manufacture, processing, distribution in commerce, use discharge or storage of Hazardous Substances.

Rural Area shall mean all territory of a State that is not within the outer boundary of any city having a population of fifty thousand or more and its immediately adjacent urbanized and urbanizing area with a population density of more than one hundred persons per square mile, as determined by the Secretary of Agriculture according to the latest decennial census of the United States.

Secretary’s/Member’s Certificate shall mean a certificate, in Proper Form, of the Secretary or an Assistant Secretary or a Member of a Person as to (a) the resolutions of the Board of Directors or other governing body of such Person authorizing the execution, delivery and performance of the documents to be executed by such Person; (b) the incumbency and signature of the officer of such Person executing such documents on behalf of such Person; and (c) the Organizational Documents of such Person.

Security Documents shall mean (a) that certain Security Agreement dated as of the Closing Date executed by Borrower in favor of Lender covering, among other Property, the Contract Rights, General Intangibles, Instruments, Chattel Paper, Furniture, Fixtures and Equipment of Borrower; (b) the Deed of Trust; (c) the Payment Reserve Agreement; (d) (i) the Subordination Agreement dated as of the Closing Date from Genesis Energy, LP in favor of Lender and (ii) the Subordination Agreement dated as of the Closing Date from John Kissick in favor of Lender; (e) the Collateral Assignment of Management Agreement dated as of the Closing Date by Blue Dolphin and LEH and the related Acknowledgment from Borrower; and (f) that certain Assignment of Life Insurance Policy as Collateral dated as of June 5, 2015, executed by Borrower in favor of Lender covering, among other property, a $5,000,000 life insurance policy on Carroll, 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.

Stated Rate shall mean the per annum interest rate specified in the Note applicable to the Loan (which as of the Closing date is equal to the Prime Rate as of the Closing Date + 2.75%, as subsequently adjusted in accordance with the terms of the Note and this Agreement.

Survey shall mean an ALTA boundary survey of the Land in Proper Form dated December 2000 and re-inspected February 13, 2006, performed by a registered public land surveyor duly licensed as such in the State in which the Land is located, acceptable to the Lender (and, in each instance that the Lender shall so require, to the title company), or such other survey as acceptable to Lender. Except as otherwise acceptable to Lender, each Survey shall be evidenced by a survey plat with north arrow showing the length and direction of the perimeter boundaries of the Land, the location and dimensions of all improvements in place as of the date of such survey, names of adjacent and nearby streets and roads, setback lines, encroachments, easements, rights-of-way and railroads, if any, affecting the Land, a legal description of the Land, and the date of the survey. The print of each Survey shall contain the duly executed and sealed certification of the surveyor certifying to the Lender (and, in each instance that the Lender shall so require, to the title company), substantially as follows:

I hereby certify to the Lender and the Title Company that on [date], this survey was made on the ground by me or under my supervision as per the field notes set forth on or attached to this survey and correctly and accurately shows: the boundaries and area to the nearest ten-thousandth (1/10,000) of an acre (or the nearest square foot) of the subject property; the sizes, locations and types of all buildings and other improvements thereon (if any) and the locations of all easements, rights-of-way, setback lines and other matters affecting the subject property and which are of record or, whether or not they are of record, which are visible or of which I have been advised.

Except as shown on this survey, there are no encroachments upon the subject property by improvements on adjacent property, there are no party walls with or encroachments upon adjacent property, streets or alleys or onto any improvements setback line by any improvements on the subject property and there are no conflicts or protrusions. Adequate ingress and to and egress from the subject property is provided by US Highway 87 which is a paved, dedicated public right-of-way maintained by the City of Nixon or the County of Wilson, Texas.

None of the improvements, if any, on the subject property is situated so as to violate any setback line requirement.

No part of the subject property liens within the 100 year Flood Plain or in an identified Flood Prone Area or Special Flood Hazard Area, as such capitalized terms are defined by the U. S. Department of Housing and Urban Development in administering the Flood Disaster Protection Act of 1973, as amended.

Tangible Net Worth shall mean as to any Person, the total assets (valued at the lesser of (a) cost less normal depreciation or (b) fair market value) of such Person, less (1) all intangibles and (2) all liabilities, all determined in accordance with GAAP of such Person. The intangibles shall include (i) deferred charges, (ii) the amount of any write up in the book value of any assets contained in any balance sheet resulting from revaluation thereof or any write-up in excess of the cost of such assets acquired (excluding marketable securities) and (iii) the aggregate of all amounts appearing on the assets side of any such balance sheet for franchises, licenses, permits, patents, patent applications, copyrights, trademarks, trade names, goodwill, experimental or organizational expenses and other like intangibles.

Total Assets shall mean all assets of Borrower which in accordance with GAAP would be included in assets.

UCC shall mean the Uniform Commercial Code of the State of Texas, or if the creation, perfection, and enforcement of any security interest granted in the Security Documents is governed by the laws of a state other than the State of Texas, then, as to the matter in question, the Uniform Commercial Code in effect in that state.

Working Capital shall mean Current Assets minus Current Liabilities.

Working Capital Proceeds shall have the meaning assigned in Section 2.2 of this Agreement.

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.

Article 2

The Loan

2.1 The Loan . Subject to the terms and conditions of this Agreement, Lender agrees to make a loan to Borrower (in the time frame specified in Section 3.4 ) in an aggregate principal amount not to exceed $25,000,000, the proceeds of which will be disbursed in accordance with Section 3.4 . Amounts prepaid or repaid in respect of the Loan (or any Advances made under the Loan) may not be reborrowed.

2.2 Use of Proceeds . The proceeds of the Loan (including any Advances) shall be used by Borrower as follows:

(a)	To repay the AFNB Debt in full, which is estimated to be approximately Eight Million Seven Hundred and Fifty Thousand and No/100 Dollars ($8,750,000).

(b)	To pay for the construction of the Expansion Improvements; provided that not more than Thirteen Million Five Hundred Thousand and No/100 Dollars ($13,500,000) of the Loan may be applied to such construction except at the discretion of Lender.

(c)

To fund the following fees and expenses in each case related to the Nixon Refinery or the transactions contemplated by the Loan Documents: (i) the fees described in Section 3.1(h) (inclusive of a $500,000 loan origination fee, the $450,000 RBS Guaranty Fee, and a $125,000 loan packager fee), (ii) title insurance fees of up to $85,000, and (iii) legal fees of $25,000 and other closing fees of up to $65,000.

(d)

To fund the Construction Contingency Account in an amount of $1,500,000 (subject to adjustments as set forth in Section 2.2 ) for disbursements in accordance with this Agreement for the purpose of funding contingencies (and, once Lender is satisfied that all contingencies have been satisfied after Completion (as defined in the Construction Rider) has occurred, to be thereafter applied in accordance with Section 3.4 ).

Should the actual AFNB Debt be higher than the amount specified in clause (a) above, the difference between the estimated amount and the actual amount will be taken from the Construction Contingency Account until expended then by Borrower in the form of a cash contribution for the shortfall.

Should the actual AFNB Debt be lower than the amount specified in clause (a) above, the difference between the estimated amount and the actual amount will be deposited into the Construction Contingency Account.

Should the actual amounts of the legal fee, loan packager fee and title insurance fee be lower than the estimated amounts then the difference may be applied to other reasonable and valid closing costs. Should fees and costs associated with the Loan have a remaining balance after loan closing, this balance will be deposited into the Construction Contingency Account by Borrower.

Following the occurrence of Completion (as defined in the Construction Rider) of the Expansion Improvements, any remaining funds on deposit in the Disbursement Account or Construction Contingency Account shall be deposited in a Lender monitored working capital expenditures account maintained at Lender to be used solely and exclusively for business expenses of Borrower with respect to the Nixon Refinery (and such funds may not be used directly or indirectly as a revolving line of credit).

Funds drawn from any lender monitored working capital expenditures account are solely/exclusively for future business expenses of the Nixon Refinery and no funds shall directly or indirectly be used for payments, distributions, reimbursements, salaries and/or dividends to any owner, partner, stockholder, subsidiary, affiliate or beneficiary of Lazarus Energy LLC; Blue Dolphin Energy Company; Lazarus Energy Holdings, LLC; Carrol & Company Financial Holdings, LP; and AP Energy Partners, LLC.

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 first priority lien on the Land and Improvements; (b) a first priority lien on all of Borrower’s fixtures, furniture, machinery and equipment; (c) a first priority lien on all of Borrower’s Contract Rights, General Intangibles and Instruments; a pledge of $ 5,000,000 of key man life insurance policies on Carroll ; and (d) 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.

Article 3

Conditions for Making the Loan; Borrowing Procedures

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:

(a)	the Loan Documents (including the Note and Security Documents) and all other agreements, documents and instruments required by Lender to be executed and/or delivered at or prior to Closing, each duly executed where appropriate, and in Proper Form;

(b)	a duly executed Secretary’s/Member’s Certificate with respect to Borrower and any Party which is not a natural person;

(c)	a duly executed Borrower’s Affidavit dated as of the later of the Closing Date or the date of the funding of the Loan;

(d)	an opinion of counsel to Borrower and Guarantors in Proper Form covering such matters as acceptable to Lender;

(e)	a list and summary of all pending or threatened litigation against Borrower certified to by the President of Borrower;

(f)	if requested, evidence satisfactory to Lender that there has been no material deterioration in Borrower’s financial condition since the issuance of the Form FmHA 4279-3 Conditional Commitment for Guarantee;

(g)	evidence satisfactory to Lender that Borrower has tangible balance sheet equity (defined as Tangible Net Worth divided by Total Assets) of at least ten percent (10%) in accordance with Rural Development Instruction 4279-B, Section 4279.131(d);

(h)	Borrower shall have paid (i) the RBS Guarantee Fee, (ii) a loan origination fee to Lender in an amount equal to 2% of the Loan ($500,000), and (iii) a loan packaging fee of $125,000 (and the parties hereto agree that all such fees will be fully earned once paid and non-refundable);

(i)	the Mortgagee’s Policy of Title Insurance;

(j)	an “as completed” real estate market value appraisal confirming to FIRREA requirements for Lender prepared by an appraiser acceptable to Lender at the expense of Borrower, which appraisal shows the “as complete” appraised value of the Nixon Refinery to be at least $50,000,000;

(k)	the RBS Documents;

(l)	insurance policies reflecting the insurance required by the Loan Documents;

(m)	at Lender’s request, invoices and/or statements of bills owed or incurred or other evidence that Loan or proceeds thereof are for purposes authorized under this Agreement;

(n)	current financial statements of Borrower and Guarantor dated no earlier than ninety (90) days prior to the Closing Date;

(o)	Phase I and Phase II environmental assessments satisfactory to Lender;

(p)	a current certificate from the appropriate official of the state(s) of organization of Borrower and Guarantor as to the existence and good standing of Borrower and Guarantor;

(q)	a current certificate from the appropriate public official of each jurisdiction other than Borrower’s state of organization as to the due qualification to do business and good standing of Borrower where such qualification is necessary to conduct Borrower’s business in such jurisdiction;

(r)	the Survey;

(s)	evidence of the payment in full of the AFNB Debt, termination of the loan agreement evidencing the AFNB Debt and release of any lien or security interest granted to secure the AFNB Debt and applicable UCC and other termination statements relating thereto;

(t)	a timetable and budget for the Expansion Improvement in form and substance acceptable to Lender;

(u)	evidence of the establishment of the Payment Reserve Account and the funding of the Payment Reserve Account in the amount of at least $1,000,000;

(v)	a copy of a settlement statement in Proper Form; and

(w)	payment of all costs and expenses (including, without limitation, any appraisal, survey, insurance, environmental assessment, engineering, inspection, searches, recording and attorney’s fees) in connection with the Loan Documents and the transactions contemplated thereby, if then invoiced.

3.2 Conditions Precedent to Loan and All Advances . The obligation of Lender to make any the Loan and any Advance under the Loan hereunder shall be subject to the further conditions precedent that on the date of the Loan and each Advance:

(a)

the following statements shall be true (and each of the giving of the applicable Request for Advance and the acceptance by Borrower of the proceeds of the Loan or any such Advance shall constitute a representation and warranty by Borrower that on the date of the Loan or such Advance such statements are true):

(i)

The representations and warranties contained in Article 6 of this Agreement and in each other Loan Document are true and correct in all material respects on and as of the date of the Loan or such Advance, before and after giving effect to the Loan or such Advance, as applicable, and to the application of the proceeds therefrom, as though made on and as of such date;

(ii)	No event has occurred and is continuing, or would result from the Loan or such Advance or the application of the proceeds therefrom, which constitutes a Default or an Event of Default;

(iii)

No Material Adverse Effect, Event of Taking or Event of Abandonment has occurred in Lender’s determination;

(iv)	The budget delivered pursuant to Section 3.1 is adequate for the planned construction of the Expansion Improvements; and

(v)	No law, regulation, order, judgment or decree of any Governmental Authority shall enjoin, prohibit or restrain, or impose or result in the imposition of any material adverse condition upon Lender’s making the Loan or the requested Advance; and

(b)	Lender shall have received such other approvals, opinions or documents as Lender may request.

3.3 Conditions Precedent to Advances from Disbursement Account or Construction Contingency Account or for Construction Purposes . The obligation of Lender to make any Advance from the Disbursement Account or the Construction Contingency Account or otherwise for the purpose of funding construction of the Expansion Improvements shall be subject to the further conditions precedent specified below that on the date of each such Advance:

(a)	Borrower shall have complied, at Lender’s discretion, with all conditions precedent, procedures and obligations specified in the Construction Rider (which Construction Rider is hereby incorporated herein as if set forth in its entirety, mutatis mutandis) and/or in any Funds Control Agreement; and

(b)	Borrower has obtained or caused to be obtained all performance and/or payment bonds on or by the general contractor providing the construction work for the Expansion Improvements as requested or required by Lender.

Borrower agrees that Lender may (but is not obligated to) hire pursuant to one or more Funds Control Agreements a monitoring consultant for the purpose of monitoring the disbursement of any Advances under the Loan Documents (including from the Disbursement Account and the Construction Contingency Account) and that the fees and expenses of each such consultant will be paid by Borrower.

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 Expansion 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 Nixon Refinery (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).

Article 4

Affirmative Covenants

Until payment in full of and satisfaction of all Obligations (unless full compliance with any of the following provisions has been waived in writing, signed by both Lender and Borrower or each Guarantor, as the case may be), Borrower and each Guarantor will do and, if necessary, cause to be done, each and all of the following:

4.1 Financial Statements and Information . Without request by Lender (unless otherwise indicated), furnish Lender with true, correct and complete copies of the following documents and instruments:

(a)	Within ninety (90) days after the end of each fiscal year of Borrower, Borrower’s Annual Financial Statements with supporting schedules;

(b)

Within ninety (90) days after the end of each fiscal year of the applicable Guarantor, annual financial statements of such Guarantor, which financial statements (i) shall contain the financial information of the same type as described in the definition of Annual Financial Statement) and (ii) shall be reviewed and shall be certified and signed by such Guarantor as being true, correct and complete (except that (A) in the case of Blue Dolphin, such annual financial statements shall be audited and certified by a nationally recognized independent certified public accounting firm reasonably acceptable to Lender and (B) in the case of Carroll, such annual financial shall be due within thirty (30) days of the end of the applicable year);

(c)

Within sixty (60) days after the end of each calendar quarter, Quarterly Financial Statements of Borrower and each Guarantor (except that (i) in the case of Blue Dolphin, such quarterly financial statements shall be satisfied upon Blue Dolphin’s timely filing of its quarterly 10-K reports and (ii) in the case of Carroll, such quarterly financials shall not be required pursuant to this clause (c));

(d)	Within thirty (30) days after the filing of same, a true, correct and complete copy of the signed and dated annual U. S. federal income tax return or extension requests of Borrower and Guarantor;

(e)

Such other financial and other information concerning Borrower or Guarantors requested by RBS or as Lender may request from time to time, including without limitation updated appraisals on the Nixon Refinery or any other Collateral or other real estate, equipment or chattel property within sixty (60) days from the date Lender or RBS requests such information or appraisals;

(f)

Upon request of Lender, evidence of payment and discharge of all taxes, assessments and governmental charges or levies imposed on Borrower, Guarantor, their income or profits or any of their Property prior to the date on which penalties or liens attach thereto, provided, however, neither Borrower nor Guarantor shall be required to pay any such tax, assessment, charge, levy or claim the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves have been set up in accordance with GAAP;

(g)	Prompt written notice of all claims, actions or litigation, including, without limitation, all proceedings before any Governmental Authority affecting Borrower, Guarantor or the Property of either of them, except litigation or proceedings that is not in excess of $100,000;

(h)	Prompt written notice of the occurrence of (i) any Default hereunder, (ii) any event or occurrence which has had or can be expected to have a Material Adverse Effect, (iii) any Event of Abandonment or Event of Taking, or (iv) any casualty or damage to the Nixon Refinery in excess of $100,000;

(i)	Within (i) thirty (30) days of the required submission date to any Governmental Authority, a copy of all required environmental and other regulatory reporting documents and (ii) thirty (30) days of the receipt of reports from any Governmental Authority, a copy of such reports; and

(j)	Within sixty (60) days after the end of any fiscal quarter of Borrower, reports of quarterly accounts receivables and accounts payable agings.

4.2 Financial Tests . Borrower shall have and maintain:

(a)

As at the end of each fiscal quarter of Borrower, a ratio of (i) the total combined Debt of Borrower and LRM (excluding Debt owed to any Guarantor or any Affiliate or Related Person of any of them or of Borrower that is expressly subordinated in Proper Form to the Obligations in right of payment and liens) to (ii) total combined Tangible Net Worth of Borrower and LRM, not exceeding 2.50 to 1.0;

(b)	As at the end of each fiscal year of Borrower, a ratio of (i) the Debt of Borrower to Net Worth of Borrower, not exceeding 2.50 to 1.0;

(c)	As at the end of each fiscal quarter of Borrower, a ratio of (i) the total combined Current Assets (excluding any intercompany accounts receivables) of Borrower and LRM to (ii) the total combined Current Liabilities (for sake of clarity including any intercompany payables) of Borrower and LRM; and

(d)	As at the end of each fiscal year of Borrower, a Current Ratio of Borrower of not less than 1.0 to 1.0;

(e)	as at the end of each fiscal quarter, a Debt Service Coverage Ratio of not less than 1.50 to 1.0.

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 Expansion Improvements, the Nixon Refinery 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.

4.4 Legal Requirements . Comply with all applicable Legal Requirements in respect of the conduct of its business and the ownership of its Property, including, without limitation, the following:

(a)	Requirements of Environmental Law.

(b)	All equal opportunity and nondiscrimination requirements as more fully set out in RBS Instruction 4279A, 4279B and 4287B.

(c)	All requirements under Clean Air Act and Water Pollution Control Act as more fully set out in RBS Instruction 4279A, 4279B and 4287B.

(d)	All special laws and regulations as required by RBS Instruction 4279A, 4279B and 4287B.

(e)	The Americans with Disabilities Act.

(f)	Legal Requirements in connection with the construction of the Expansion Improvements.

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.

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 . Borrower will 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 . Borrower shall use commercially reasonable efforts to cause the Expansion 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.

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 .

Article 5

Negative Covenants

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 whether direct, indirect, contingent or otherwise, other than (a) the Loan and (b) 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.

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 other than Borrower.

5.3 Liens . Create, incur, assume or suffer to exist any Lien upon any of its Property now owned or hereafter acquired, 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.

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 (ii) 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 two million and No/100 Dollars ($2,000,000) 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 . 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.

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 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.

5.18 No Subsidiaries . Borrower shall not create or acquire any subsidiary (or a majority of the equity interests in any Person) without the consent of Lender.

5.19 Control Agreement . Borrower shall maintain all of its operating accounts with Lender.

5.20 Gambling Activity . Borrower shall not derive more than ten percent (10%) of its annual gross revenue from gambling activity.

5.21 Certain Guarantor Covenants .

(a)

EACH GUARANTOR THAT IS NOT AN INDIVIDUAL (OTHER THAN BLUE DOLPHIN) HEREBY ACKNOWLEDGES AND AGREES THAT UNTIL THE OBLIGATIONS ARE PAID IN FULL IN CASH AND ALL COMMITMENTS OF LENDER UNDER THE LOAN DOCUMENTS HAVE TERMINATED OR EXPIRED, SUCH GUARANTOR WILL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF LENDER (WHICH MAY BE WITHHELD IN LENDER’S SOLE AND ABSOLUTE DISCRETION), SELL, LEASE, ASSIGN, ENCUMBER, HYPOTHECATE, TRANSFER OR OTHERWISE DISPOSE OF A MATERIAL PORTION OF SUCH GUARANTOR’S ASSETS OR ANY INTEREST THEREIN FOR LESS THAN REASONABLY EQUIVALENT VALUE OR IF THE RESULT OF SUCH ACTION WOULD (i) MATERIALLY AND ADVERSELY AFFECT THE FINANCIAL CONDITION OF SUCH GUARANTOR OR (ii) MATERIALLY AND ADVERSELY AFFECT SUCH GUARANTOR’S ABILITY TO PERFORM ITS OBLIGATIONS UNDER ITS GUARANTY OR THE OTHER LOAN DOCUMENTS.

(b)

EACH GUARANTOR THAT IS AN INDIVIDUAL HEREBY ACKNOWLEDGES AND AGREES THAT UNTIL THE OBLIGATIONS ARE PAID IN FULL IN CASH AND ALL COMMITMENTS OF LENDER UNDER THE LOAN DOCUMENTS HAVE TERMINATED OR EXPIRED, SUCH GUARANTOR WILL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF LENDER (WHICH MAY BE WITHHELD IN LENDER'S SOLE AND ABSOLUTE DISCRETION), SELL, LEASE, ASSIGN, ENCUMBER, HYPOTHECATE, TRANSFER OR OTHERWISE DISPOSE OF ANY ASSETS OF GUARANTOR EXCEPT FOR TRANSFERS OF ASSETS VALUED AT LESS THAN TEN PERCENT (10%) OF SUCH GUARANTOR’S TOTAL ASSETS AND TRANSFERS FOR WHICH SUCH GUARANTOR RECEIVES CONSIDERATION (IN THE FORM OF CASH OR OTHER PHYSICAL ASSET OF COMPARABLE LIQUIDITY) SUBSTANTIALLY EQUIVALENT TO THE FAIR MARKET VALUE OF THE TRANSFERRED ASSET (AS DETERMINED BY LENDER).

Article 6

Representations and Warranties

To induce Lender to extend the credit and financial accommodations evidenced by the Loan Documents, Borrower and Guarantor each represents and warrants to Lender that:

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 March 31, 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. 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.

6.21 Land . The Land described on Exhibit A is all the real estate owned or leased by borrower and any entity Guarantor.

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.

Article 7

Events of Default and Remedies

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:

(a)

Borrower or Guarantor fails to make any payment of principal of or interest on the Note or in respect of any other Obligation under any Loan Document as and when due and such failure shall continue for a period of fifteen (15) days after written notice by Lender to Borrower (unless such fifteen (15) day period would unreasonably subject Lender to a material loss of its rights as set out in the Loan Documents, in which event such failure must be cured within such shorter period as Lender may require); or

(b)

Borrower or Guarantor shall fail to pay when due, or within any applicable period of grace, any principal of, or interest on, any other Indebtedness in excess of $100,000; or if the holder of such other Indebtedness declares, or may declare, such Indebtedness due prior to its stated maturity because of Borrower’s or Guarantor’s default thereunder; or

(c)

Any representation or warranty made by Borrower or Guarantor herein or by Borrower, Guarantor or any other Party in any other Loan Document or in any certificate, financial statement or other written statement furnished to Lender proves to have been incorrect, false or misleading in any material respect when made; or

(d)

Borrower, Guarantor or any other Party violates any covenant, agreement or condition or otherwise fails to perform any obligation (other than the obligation to pay principal of, or interest on, the Note) contained in this Agreement or any of the other Loan Documents or in connection with any other Indebtedness owed by Borrower, Guarantor or any other Party to Lender and such violation or failure continues uncured for a period of fifteen (15) days after written notice from lender to Borrower (unless such fifteen (15) day period would unreasonably subject Lender to a material loss of its rights as set out in the Loan Documents, in which event such failure must be cured within such shorter period as Lender may require); or

(e)	Final judgment for the payment of money is rendered against Borrower or Guarantor and the same is not immediately paid or sufficiently bonded or escrowed; or

(f)

Borrower, Guarantor or any other Person claims, or any court finds or rules, that the Lender does not have a valid first priority perfected Lien under any Security Document (subject only to Liens permitted by the Loan Documents); or the Liens granted pursuant to the Security Documents fail to be valid first priority perfected Liens (subject only to Liens permitted by the Loan Documents); or any Security Document is terminated or otherwise ceases to be in full force and effect (except in accordance with its terms and not related to any Default hereunder); or any Loan Document or any material provision of any Loan Document without Lender’s consent is declared by a court of competent jurisdiction (or asserted by any Party) to be illegal, invalid or unenforceable or ceases to be legal, valid or enforceable; or

(g)

Borrower, Guarantor or any other Party sells, encumbers, or abandons (except as otherwise expressly permitted by the Loan Documents) any of the Property now or hereafter subject to any of the Security Documents; or any levy, seizure or attachment is made on any material portion thereof or thereon and same is not dismissed within 30 days; or any material portion of such Property is lost, stolen, substantially damaged or destroyed unless such loss, damage or destruction is in Lender’s judgment adequately covered by insurance; or

(h)

Borrower, Guarantor or any other Party makes a general assignment for the benefit of creditors or becomes insolvent or fails generally to pay its debts as they become due, or petitions or applies to any tribunal for the appointment of a trustee, custodian, receiver, (or other similar official) of Borrower, Guarantor or any other Party of all or any substantial part of the assets of Borrower, Guarantor or any other Party or commences a voluntary case or any other proceeding relating to Borrower, Guarantor or any other Party under any Debtor Relief Law; or

(i)

Any such petition or application is filed, or any such proceeding is commenced, against Borrower, Guarantor or any other Party and Borrower, Guarantor or such other Party by any act or omission indicates its approval, consent, or acquiescence thereto, or an order for relief is entered in an involuntary case under the federal bankruptcy laws as now or hereafter constituted, or an order, judgment or decree is entered appointing any such trustee, custodian, receiver, liquidator, or similar official or adjudicating Borrower or such other Party bankrupt or insolvent, or approving the petition in any such proceedings, and such order, judgment, or decree remains in effect for 30 days; or

(j)

Borrower, Guarantor or any other Party conceals, removes, or permits to be concealed or removed, any part of its Property, with intent to hinder, delay or defraud its creditors or any of them, or makes or suffers a transfer of any of its Property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or shall have made any transfer of its Property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid; or

(k)

Any event shall occur condition exist which results in a Material Adverse Effect; or any casualty has occurred to the Nixon Refinery that (i) in Lender’s or any insurance company’s determination would cause the Nixon Refinery to be a total loss or destroyed or (ii) would affect more than 50% production or capacity of the Nixon Refinery; or any Event of Abandonment occurs; or any Event of Taking shall occur and Lender is not satisfied with the steps being taken by Borrower to remedy the Event of Taking; or

(l)	Any litigation commences which hinders or delays the collection of any part of the Obligations or the exercise of any right or option of Lender; or

(m)	Death, incapacity, dissolution, business failure, merger, or similar event, adversely affects Borrower, Guarantor or any other Party; or

(n)	Borrower uses the Loan proceeds or Collateral in any manner different from the manner contemplated in the Loan Documents; or

(o)	Lender or any holder of the Note believes in good faith that the prospect of full payment of the Obligations or performance of any covenants or obligations by Borrower is impaired; or

(p)	Failure of Borrower to comply with the terms of the Conditional Commitment or the terms of any RBS Document; or

(q)	Any event occurs which, with or without the passage of time or the giving of notice, would permit the holder of any prior lien on the Land to accelerate the prior lien debt; or

(r)

Failure (i) by Blue Dolphin to own 100% of the equity interests in Borrower or LRM; (ii) by LEH to own at 80% of the voting equity interests in Blue Dolphin; (iii) by Carroll to own at least 50.1% of the voting equity interests in LEH; or (iv) by Carroll to be the President of Blue Dolphin or a member and board director of LEH;

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.

Article 8

Miscellaneous

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 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.

8.13 Governing Law . 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.

The Remainder of This Page Left Blank Intentional

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

LENDER:

Sovereign Bank

By: _______________________

Name: _____________________

Title: ______________________

Address for Notice:

17950 Preston Road, Suite 500

Dallas, Texas 75252

Attn: Kathryn Walker, Senior Vice President

Telecopy No.:

BORROWER:

Lazarus Energy LLC

By: Blue Dolphin Energy Company, a Delaware corporation, its sole member

By: _______________________

Name: Jonathan Pitts Carroll, Sr.

Title: President

Address for Notice:

801 Travis Street, Suite 2100

Houston, Texas 77002

Attn: Jonathan Pitts Carroll, Sr.

Telecopy No.: 866-804-9066

GUARANTORS:

Jonathan Pitts Carroll, Sr., as Guarantor

Address for Notice:

c/o Lazarus Energy Holdings LLC

801 Travis Street, Suite 2100

Houston, Texas 77002

Attn: Jonathan Pitts Carroll, Sr.

Telecopy No.: 866-804-9066

Blue Dolphin Energy Company, as Guarantor

By: _______________________

Name: Jonathan Pitts Carroll, Sr.

Title: President

Address for Notice:

801 Travis Street, Suite 2100

Houston, Texas 77002

Attn: Jonathan Pitts Carroll, Sr.

Telecopy No.: 866-804-9066

Lazarus Refining & Marketing, LLC, as Guarantor

By: Blue Dolphin Energy Company, a Delaware corporation, its sole member

By: _______________________

Name: Jonathan Pitts Carroll, Sr.

Title: President

Address for Notice:

801 Travis Street, Suite 2100

Houston, Texas 77002

Attn: Jonathan Pitts Carroll, Sr.

Telecopy No.: 866-804-9066

Lazarus Energy Holdings LLC, as Guarantor

By: ______________________

Name: Jonathan Pitts Carroll, Sr.

Title: Member

Address for Notice:

801 Travis Street, Suite 2100

Houston, Texas 77002

Attn: Jonathan Pitts Carroll, Sr.

Telecopy No.: 866-804-9066

EXHIBIT A

LEGAL DESCRIPTION OF LAND

Being a 56.309 ACRE TRACT situated George McPeters Survey, A-419, Wilson County, Texas. Said 56.309 ACRE TRACT is that tract conveyed by Bill Klingemann, Substitute Trustee, to Notre Dame Investors, Inc, by Substitute Trustee’s Deed, in Volume 1159 at Page 609, dated May 06, 2003 and is comprised of all the tract called 51.30 acres in conveyance from Leal Petroleum Corporation to American Petro Chemical Corporation recorded in Volume 842 at Page 705 and all of a tract called 5.000 acres in conveyance from Notre Dame Refining Corporation to American Petro Chemical Corporation recorded in Volume 1049 at Page 651 of the Official Records of said county. Said 56.309 acre tract subsequently called 56.309 Acres in conveyance from Notre Dame Investors, Inc. to Lazarus Energy, L.L.C. recorded in Volume 1342 at Page 687 of the Official Public Records and being described by metes and bounds as follows:

BEGINNING at a one-half inch diameter rebar set with cap (B&A) marking the northwest corner of the tract herein described, same being the northwest corner of said 51.30 acre tract, northeast corner of a tract called Tract 2-B (41.245 acres) in Volume 685 at Page 101, lying in the south line of a tract called 7.654 acres in Volume 271 at Page 30, further described as lying in the south line of U.S. Highway No. 87; said point bears N 76° 16’ 00” E, 1495.62 feet from a concrete right of way marker found;

THENCE with a segment of the north line of the tract herein described, same being a segment of the common line of said 51.30 acre tract and said 7.654 acre tract, along a segment of the south line of U.S. Highway 87, N 76° 16’ 00” E, 140.71 feet (called N 76° 16’ E, 140.0 feet – basis of bearing) to a one-half inch diameter rebar set with cap (B&A) marking a north corner of the tract herein described, same being the north corner of said 51.30 acre tract, northwest corner residue called 640 acres in Volume X at Page 136;

THENCE continuing with the north line of the tract herein described, same being the common line of said 51.30 acre tract with that of said residue 640 acre tract and a tract called 1.666 acres in Volume 1030 at Page 772 as follows:

S 13° 27’ 49” E, 208.63 feet (called S 13° 37’ E, 207.4 feet) to a five-eighths inch diameter rebar found near a two way fence corner,

N 76° 26’ 34” E, 368.79 feet (called N 76° 29’ E, 368.4 feet) to a one-half inch diameter rebar set with cap (B&A),

N 76° 28’ 28” E, 31.40 feet (called N 76° 49’ E, 31.4 feet) to a five-eighths inch diameter rebar found near a two way fence corner,

S 13° 55’ 25” E, 238.17 feet (called S 14° 00’ E, 238.0 feet) to a five-eighths inch diameter rebar found marking a re-entrant corner of the tract herein described, same being the southwest corner of said residue 640 acre tract,

N 76° 06’ 05” E, at 386.77 feet a one inch diameter iron pipe found and at, 388.52, (N 76° 16’ E, 388.1 feet) to a one-half inch diameter rebar set with cap (B&A) marking a re-entrant corner of the tract herein described,

same being the southeast corner of said residue 640 acre tract and

N 13° 36’ 45” W, at 1.84 feet a one inch diameter iron pipe found and at 446.92 feet (called N 13° 37’ W, 447.1 feet) to a one-half inch diameter rebar found marking a north corner of the tract herein described, same being the northeast corner of said 1.666 acre tract, lying in the south line of said 7.654 acre tract, further described as lying in the south line of U.S. Highway 87;

THENCE continuing with the north line of the tract herein described, same being a segment of the common line of said 51.30 acre tract and said 5.000 acre tract with that of said 7.654 acre tract, along a segment of the south line of U.S. Highway 87 as follows:

N 76° 16’ 00” E, 275.15 feet (called N 76° 16’ E, 275.3 feet) to a railroad spike found in asphalt driveway,

N 81° 58’ 38” E, 100.50 feet (called N 82° 12’ E, 99.2 feet) to a one-half inch diameter rebar set with cap (B&A),

N 76° 16’ 00” E, 800.00 feet (called N 76° 14’ E, 800.5 feet) to a one-half inch diameter rebar set with cap (B&A),

N 70° 33’ 22” E, 100.50 feet (called N 70° 43’ E, 101.2 feet) to a concrete right of way marker found broken, and

N 76° 16’ 00” E, 464.56 feet (in total called No record call, and N 75° 02’ 04” E, 278 feet) to a one-half inch diameter rebar set with cap (B&A) marking the northeast corner of the tract herein described, same being the northeast corner of said 5.000 acre tract, lying in the south line of said 7.654 acre tract, being the northwest corner of a tract called 200.008 acres in Volume 691 at Page 41; said point bears S 76° 16’ 00” W, 278.37 feet from an iron pipe found;

THENCE with the east line of the tract herein described, same being a segment of the common line of said 5.000 acre tract and said 51.30 acre tract with that of said 200.008 acre tract as follows: S 13° 43’ 44” E, 783.78 feet (called S 15° 01’ E, 783.5 feet) to a five-eighths inch diameter rebar found near a two way fence corner marking the east most southeast corner of the tract herein described, same being the southeast corner of said 5.000 acre tract, re-entrant corner of said 200.008 acre tract,

S 76° 16’ 39” W, 277.87 feet (called S 75° 02’ 04” W, 278 feet) to a five-eighths inch diameter rebar found marking a re-entrant corner of the tract herein described, same being the southwest corner of said 5.000 acre tract, lying in the east line of said 51.30 acre tract and being a north corner of said 200.008 acre tract, and

S 13° 24’ 23” E, 261.29 feet (called S 13° 24’ E, 261.7 feet) to a four inch diameter iron pipe post fence corner marking the south most southeast corner of the tract herein described, same being the southeast corner of said 51.30 acre tract and re-entrant corner of said 200.008 acre tract;

THENCE with the south line of the tract herein described, same being a segment of the common line of said 51.30 acre tract and said 200.008 acre tract as follows:

S 76° 08’ 20” W, 768.00 feet (called S 76° 10’ W, 768.0 feet) to a one-half inch diameter rebar set with cap (B&A), and

S 76° 15’ 20” W, 1619.78 feet (called S 76° 17’ W, 1619.8 feet) to a five-eighths inch diameter rebar found near a three way fence corner marking the southwest corner of the tract herein described, same being the southwest corner of said 51.30 acre tract, lying in the north line of said 200.008 acre tract and being the southeast corner of said 41.245 acre tract;

THENCE with the west line of the tract herein described, same being the common line of said 51.30 acre tract and said 41.245 acre tract as follows:

N 13° 57’ 38” W, 223.50 feet (called N 13° 55’ W, 223.5 feet) to a one-half inch diameter rebar set with cap (B&A),

N 13° 53’ 37” W, 373.70 feet (called N 13° 51’ W, 373.7 feet) to a fence post, and

N 13° 49’ 38” W, 449.84 feet (called N 13° 47’ W, 448.8 feet) to the PLACE OF BEGINNING and containing 56.309 ACRES OF LAND.

EXHIBIT B

FORM OF PROMISSORY NOTE

[To be attached]

EXHIBIT C

CONSTRUCTION RIDER TO LOAN AGREEMENT

This Construction Rider To Loan Agreement (this “Construction Rider”) is made and entered as of the Closing Date, by and among Sovereign Bank, as Lender, Lazarus Energy LLC, as Borrower, and Guarantor (as defined in the Loan Agreement defined below). In the event the terms and provisions of this Construction Rider are in conflict with the terms and provisions of the Loan Documents, the terms and provisions of this Construction Rider will control. However, the terms, conditions, requirements, and agreements contained herein are intended to be in addition to, and not a replacement of, the terms, conditions, requirements, and agreements contained in, and consistent with, the Loan Agreement.

Unless a particular term, word or phrase is otherwise defined or the context otherwise requires, capitalized terms, words and phrases used herein have the following meanings (all definitions that are defined in this Construction Rider in the singular to have the same meanings when used in the plural and vice versa). Capitalized terms not otherwise defined in this Construction Rider shall have the same meaning as defined in the Loan Agreement:

“ Advance ” means a disbursement by Lender of any of the Escrow or proceeds of the Loan from the Disbursement Account for the construction of the Expansion Improvements.

“ Approved Budget ” means a budget and cost itemization prepared by Borrower, and approved in writing by Lender, specifying the cost by item of (a) all labor, materials, and services necessary for the construction of the Expansion Improvements in accordance with the Plans and all Legal Requirements; and (b) all other expenses anticipated by Borrower incident to the Loan, the Land, and the construction of the Expansion Improvements.

“ Architect ” means the architect, if any, named on Exhibit “1” attached hereto and incorporated herein by reference.

“ Architectural Contract ” means a written agreement between Borrower and Architect, if any, for architectural services pertaining to construction of the Expansion Improvements.

“ Borrower’s Affidavit ” means a sworn affidavit of Borrower (and such other parties as Lender may require) to the effect that all statements, invoices, bills, and other expenses incident to the construction of the Expansion Improvements incurred to a specified date, whether or not specified in the Approved Budget, have been paid in full, except for (a) amounts retained pursuant to a Construction Contract, and (b) items to be paid from the proceeds of an Advance then being requested or in another manner satisfactory to Lender.

“ Completion ” is defined in Section C of this Construction Rider.

“ Completion Date ” means the Completion Date specified in Exhibit “1”.

“ Construction Contract ” means each agreement made by Borrower for construction of the Expansion Improvements.

“ Contractor ” means each Person with whom Borrower makes a Construction Contract.

“ Deed of Trust ” means the Deed of Trust, Mortgage, Security Agreement, Assignment of Leases and Rents, Financing Statement and Fixture Filing covering and encumbering, among other things, the Land and Expansion Improvements to secure payment and performance of the Obligations.

“ Escrow ” means any funds placed on deposit with Lender or Lender's Representative and to be disbursed per the Loan Agreement or any other agreement.

“ Inspecting Architects/Engineers ” means the inspecting architects and/or engineers, if any, specified by Lender from time to time.

“ Lender's Representative ” means the party who would make the actual advances from the Escrow or the Disbursement Account to Borrower.

“ Loan Agreement ” shall mean the Loan Agreement dated as of the date hereof, among Sovereign Bank, as Lender, Lazarus Energy LLC, as Borrower, and Jonathan Pitts Carroll, Sr., Lazarus Energy Holdings LL, Lazarus Refining & Marketing, LLC and Blue Dolphin Energy Company, collectively as Guarantor, to which this Construction Rider is attached, as it may from time to time be amended, modified, restated or supplemented.

“ Plans ” means the final working drawings and specifications and timeline for the construction of the Expansion Improvements (including soil reports and engineering calculations) prepared by Architect (or Borrower, if there is no Architect) and as modified or supplemented from time to time and approved by Lender, Borrower, any lessee of the Land, if applicable, and, to the extent necessary, by each Governmental Authority.

“ Principal Debt ” means the aggregate unpaid balance of all Advances of the Loan, and all other principal indebtedness, if any, under the Note, at the time in question.

“ Request for Advance ” means a written request by Borrower (and such other parties as Lender may require) to Lender, on a form approved by Lender, specifying by name, current address, and amount all parties to whom Borrower is obligated for labor, materials, or services supplied for the construction of the Expansion Improvements and all other expenses incident to the Loan, the Land, and the construction of the Expansion Improvements, whether or not specified in the Approved Budget, requesting an Advance for the payment of such items, containing, if requested by Lender, an Borrower’s Affidavit, accompanied by such schedules, affidavits, releases waivers, statements, invoices, bills, and other documents as Lender may request.

“ Title Company ” means the title company or title companies named in Exhibit “1”.

“ Title Insurance ” means one or more title insurance commitments, binders, or policies, as Lender may require, issued by the Title Company, on a coinsurance or reinsurance basis (with direct access in Texas) if and as required by Lender, in the maximum amount of the Loan insuring or committing to insure that the Deed of Trust constitutes a valid lien covering the Land and all Expansion Improvements thereon subject only to those exceptions which Lender may approve.

A. General. Subject to the conditions hereof and the other terms, conditions, and requirements contained in the Loan Agreement, and provided that an Event of Default has not occurred, Lender will make Advances for construction-related expenses to Borrower in accordance with this Construction Rider. However, prior to any construction-related Advance, the following additional terms and conditions must be satisfied:

1.	Borrower must pay to Lender all required fees, costs, and expenses.

2.	Lender must obtain an inspection of and acceptable report on the Expansion Improvements by the Inspecting Architects/Engineers, if required by Lender.

3.	The sum of the Principal Debt plus the amount of the requested Advance shall not be in excess of the amount then available under Section 2.1 of the Loan Agreement.

4.	The Title Insurance shall be endorsed and extended, if required by Lender, to cover each Advance with no additional title exceptions objectionable to Lender.

Borrower shall procure and deliver to Lender, if required by Lender, releases or waivers of mechanic's liens and receipted bills showing payment of all amounts due to all Persons who have furnished materials or services or performed labor of any kind in connection with the construction of any of the Expansion Improvements or otherwise with respect to the Land.

At the option of Lender, Advances shall be made only on the certificate of the Inspecting Architects/Engineers or other designated agent of Lender approved by the Lender, to which certificate shall be attached an estimate by the Contractor setting forth items to be paid out of the proceeds of each such Advance. However, the Lender may, at its discretion, make advances without requiring such certificate and Contractor's estimate, in which event Borrower shall furnish Lender a list of and the amounts of each items to be paid out of the Advances, or such other evidence that Lender may require.

B. Procedure for Borrowing . Lender shall not be required to make Advances more frequently than specified in Exhibit “1”, hereto. Each Application for Advance shall be submitted by Borrower to Lender a reasonable time (but not less than five Business Days) prior to the requested date (which must be a Business Day) of the Advance. Except as Lender may otherwise determine from time to time, each Advance will be made at Lender's principal office or at such other place as Lender may designate.

C. Advances . Advances shall be made only for costs and expenses specified in the Approved Budget, and then only for work performed, services rendered, or materials furnished; invoices for same must be provided to Lender; no Advance shall be made for advance or unearned payments (or for making a dividend or distribution to any shareholder of Borrower). Advances for payment of costs of construction of the Expansion Improvements shall be made only after actual commencement of construction of the Expansion Improvements and shall not exceed the aggregate of (a) the costs of labor, materials, and services incorporated into the Expansion Improvements in a manner acceptable to Lender, plus (b) if approved by Lender, the purchase price of all uninstalled materials to be utilized in the construction of the Expansion Improvements stored on the Land, or elsewhere with the written consent of, and in a manner acceptable to, Lender, less (c) retainage, if any, specified in Exhibit “1”, and less (d) all prior Advances for payment of costs of labor, materials, and services for the construction of the Expansion Improvements. Without limitation of other conditions applicable thereto, the final Advance, including all retainage, will not be made until Completion of the Expansion Improvements has occurred. “Completion” shall have occurred with respect to the Expansion Improvements when (i) “completion” (as that term is used in §53.106 of the Texas Property Code) of the Expansion Improvements has occurred and (ii) Lender has received the following to its satisfaction (or waived them in writing): (1) a completion certificate from the Architect and from the Inspecting Architects/Engineers, if any, (2) evidence that all Legal Requirements have been satisfied, including, but not limited to, delivery to Lender of certificates of occupancy permitting the Expansion Improvements to be legally occupied, if applicable, (3) evidence that no mechanic's or materialmen's liens or other encumbrances have been filed and remain in effect against the Land, (4) final lien releases or waivers by Architect, Contractor, and all subcontractors, materialmen and other Persons who have supplied labor, materials or services for the construction of the Expansion Improvements, or who otherwise might be entitled to claim a contractual, statutory or constitutional lien against the Land, (5) an “as-built” Survey showing that the Expansion Improvements as completed do not encroach on any boundary line, easement, building set back line, or other restricted area. Ten percent (10%) retainage shall be withheld from all Advances until thirty (30) days after Completion of the Expansion Improvements. In addition, the final Advance hereunder shall, at Lender's option, be withheld until thirty (30) days after (i) the Completion of the Expansion Improvements and (ii) an affidavit of completion has been filed with the county clerk of the county in which the Land is located in compliance with §53.106 of the Texas Property Code. To the extent that the Expansion Improvements are divided into phases or identifiable segments, references in the preceding sentence to a final Advance shall include each final Advance with respect to such a phase or segment. As a condition precedent to the first Advance for labor, materials, or construction services (whether or not it is the first Advance), Borrower and each original Contractor shall have jointly executed and recorded with the county clerk of the county in which the Land is situated, an affidavit of commencement of work, in form and substance approved by Lender, which contains the information required by §53.124(c) of the Texas Property Code, provided further that the date of commencement of work specified in such affidavit shall be subsequent to the date of recordation of the Deed of Trust.

D. Approved Budget Allocations . Lender shall not be obligated to make an Advance of an item allocated in the Approved Budget to the extent that the amount of the Advance of such item, when added to the amount of prior Advance of such item, would exceed the amount allocated to such item in the Approved Budget. Lender reserves the right to make Advances which are allocated to any of the items in the Approved Budget for such other items therein or in such different proportions as Lender may, in its sole discretion, deem necessary or advisable. Borrower may not reallocate items of cost in or change the Approved Budget without the prior written consent of Lender.

E. Disbursement of Loan Proceeds . Borrower and Lender agree, anything herein or in the other Loan Documents to the contrary notwithstanding, that the Lender shall have the right, in its sole discretion, to advance the proceeds of the Loan in installments, from time to time, as, in the opinion of the Lender, funds are needed by Borrower for the purposes herein expressed; and the Lender reserves the right in its discretion to advance only such part of said Loan proceeds as it deems best, and to discontinue making such Advances to Borrower if, in its discretion, further or additional Advances shall seem to it unjustified, unwise or undesirable or if it deems itself insecure; and said Loan Documents shall be and remain valid and binding as security for the aggregate amount advanced at any time, whether or not the full amount of said Loan is Advanced. Lender will endeavor to make a requested disbursement within ___ days after Borrower has made a written request for payment and Lender has received all supporting information and documentation as may be required by Lender and/or any construction manager retained by Lender.

F. Timely Payment of Construction Costs . Borrower agrees to pay, as the work progresses, all bills for labor and materials going into construction of the Expansion Improvements, and agrees to submit to the Lender all such receipts, affidavits, canceled checks or other evidences of payment as may be requested from time to time, and when and if requested by the Lender at any time to furnish adequate proof of payment of all indebtedness of every kind and character incurred in the development of the Land and/or the construction of Expansion Improvements.

G. No Work Done - Condition of Premises . Borrower warrants that no construction materials, supplies or equipment have been placed on the Land, that no labor has been performed therein incidental to the contemplated construction, and that Borrower has not received any notice of a claim of a mechanic's or materialman's lien against the Land except those liens shown on Exhibit “G” to the Loan Agreement and which will be paid in full with proceeds of the Loan and released. Borrower also warrants that the Expansion Improvements are not now damaged or injured as a result of any fire, explosion, accident, flood or other casualty.

H. Work in Accordance with Plans . Borrower agrees to proceed with diligence to construct the Expansion Improvements called for by the Plans and the Construction Contract, a copy of which Plans and Construction Contract have been delivered to the Lender, and Borrower further agrees that said construction work shall be done strictly in accordance with Plans and Construction Contract as approved by the Lender, and with all applicable Legal Requirements. The Plans and the Construction Contract heretofore delivered to, and approved by, the Lender may not be materially changed, altered or added to without the prior written consent of Lender. Borrower shall use achieve Completion by no later than the Completion Date (or such later date as is consent to by Lender in writing).

I. Disbursements. Inspections shall be made by a representative of Lender for all disbursements. At no time and in no event shall Lender be obligated to disburse funds in excess of the amount recommended by Lender's agent or the Inspecting Architects/Engineers; or if any Event of Default shall have occurred; or if Lender is unsatisfied with the progress of construction; or, if in the sole opinion of Lender, the estimated remaining cost of construction in accordance with the Plans exceeds the remaining undisbursed portion of the Loan proceeds; or if any Expansion Improvements shall have been damaged by fire or other casualty and Lender shall not have received insurance proceeds sufficient in the sole judgment of Lender to effect the restoration of the Expansion Improvements to the condition immediately preceding such damage and in accordance with the Plans, if applicable, and permit the completion of the Expansion Improvements on or before the scheduled completion date. It is understood that any sum or sums required for the construction of the Expansion Improvements over and above the proceeds of the Loan herein agreed to be made shall be advanced by, and be the sole responsibility of, Borrower.

J. Remedies of Lender . Upon the occurrence of any Event of Default, and after the expiration of any applicable cure period, Lender shall at its option be entitled, in addition to and not in lieu of the remedies provided in the Loan Agreement and other Loan Documents, to proceed to exercise any or all of the following remedies:

1. Require Borrower to vacate the Land and Expansion Improvements. Borrower agrees that, upon Lender's request in the event of an Event of Default, to immediately vacate the Land and Expansion Improvements;

2. Enter into possession of the Land and Expansion Improvements;

3. Perform or cause to be performed any and all work and labor necessary to complete the Expansion Improvements in accordance with the Plans and Construction Contract;

4. Employ security watchmen to protect the Land and Expansion Improvements;

5. Disburse that portion of the Loan proceeds not previously disbursed (including any retainage) to the extent necessary to complete construction of the Expansion Improvements in accordance with Plans and Construction Contract, and if the completion requires a larger sum than the remaining undisbursed portion of the Loan, to disburse such additional funds, all of which funds so disbursed by Lender shall be deemed to have been disbursed to Borrower and shall be secured by the Security Documents. For this purpose, Borrower hereby constitutes and appoints Lender its true and lawful attorney-in-fact with full power of substitution to complete the construction of the Expansion Improvements in the name of Borrower, and hereby empowers Lender as said attorney to take all actions necessary in connection therewith including any Escrow and any funds which may remain unadvanced under the Loan for the purpose of completing the Expansion Improvements in the manner called for by the Plans; to make such additions and changes and corrections in the Plans which shall be necessary or desirable to complete the Expansion Improvements in substantially the manner contemplated by the Plans; to employ such contractors, subcontractors, agents, architects, and inspectors as shall be required for said purposes; to pay, settle or compromise all existing or future bills and claims which are or may be liens against said Land, or may be necessary or desirable for the completion of the Expansion Improvements or the clearance of the title to the Land; to execute all applications and certificates in the name of Borrower which may be required by any construction contract and to do any and every act with respect to the construction of the Expansion Improvements and to take such action and require such performance as it deems necessary. In accordance therewith Borrower hereby assigns and quitclaims to Lender all sums to be advanced hereunder including retainage and any sums in escrow conditioned upon the use of said sums, if any, for the completion of the Expansion Improvements; and/or

6. Take any other action that Lender, in its sole discretion, deems necessary or advisable under the circumstances to protect and preserve the Collateral. Borrower agrees to immediately reimburse Lender for all costs incurred to protect and preserve the Collateral.

K. Right of Inspection . Borrower agrees to permit Lender and its representatives and agents to enter upon the Land during normal business hours with 24 hours’ notice and to inspect the Expansion Improvements and all materials to be used in the construction thereof and to cooperate and cause Contractor to cooperate with Lender and its representatives and agents during such inspections; provided, however, that this provision shall not be deemed to impose upon Lender any duty or obligation whatsoever to undertake such inspection, to correct any defects in the Expansion Improvements or to notify any person with respect thereto.

L. Correction of Defects . Borrower agrees to promptly correct any structural defect in the Expansion Improvements and to promptly correct any departure from the Plans not previously approved by Lender. An Advance shall not constitute a waiver of Lender's right to require compliance with this, or any other, covenant.

M. General Conditions . The following conditions shall be applicable throughout the term of the Loan Agreement:

1. Rights of Third Parties. All conditions of the obligations of Lender hereunder, including the obligation to make Advances, are imposed solely and exclusively for the benefit of Borrower and Borrower's successors and assigns and no other person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Lender will refuse to make advances in the absence of strict compliance with any or all thereof and no other person shall, under any circumstances, be deemed to be a beneficiary of such conditions, any and all of which may be freely waived in whole or in part by the Lender at any time if in its sole discretion it deems it desirable to do so. In particular, Lender makes no representations and assumes no duties or obligations as to third parties concerning the quality of the construction by Borrower or the Expansion Improvements or the absence therefrom of defects. In this connection, Borrower agrees to and shall indemnify Lender from any liability, claims or losses resulting from the disbursement of the Loan proceeds or from the condition of the Expansion Improvements whether related to the quality of construction or otherwise and whether arising during or after the term of the Loan. This provision shall survive the repayment of said Loan and shall continue in full force and effect so long as the possibility of such liability, claims, or losses exists.

2. Evidence of Satisfaction of Conditions. Any condition of this Construction Rider which requires the submission of evidence of the existence or nonexistence of a specified fact or facts implies as a condition the existence or nonexistence, as the case may be, of such fact or facts, and Lender shall, at all times, be free to independently establish to its satisfaction and in its absolute discretion such existence or nonexistence.

N. Advances Do Not Constitute a Waiver . No Advance shall constitute a waiver of the conditions of Lender's obligation to make further Advances nor, in the event Borrower is unable to satisfy any such condition, shall any such waiver have the effect of precluding Lender from thereafter declaring such inability to be a Default. In addition, any waiver of any provision of the Loan Agreement shall not constitute a waiver of any other provision, and shall not act as a future waiver of any provision of the Loan Agreement.

O. Compliance With Federal Law . Borrower will ensure that each Contractor complies with Executive Order 11246, entitled “Equal Employment Opportunity”, as amended by Executive Order 11375, and as supplemented by applicable Department of Labor Regulations (41 CFR, Part 60). Failure of the Contractor to comply with these laws will be an Event of Default.

P. Cost Overruns . Borrower will not allow any change and/or cost overrun on any contract or other commitment which will result in an additional cash flow expenditure and/or debt to the business and/or request for a subsequent loan, either guaranteed or not, without the express written approval of RBS. In no event will a subsequent Business & Industry Guaranteed Loan be approved to cover such costs. Furthermore, Borrower will not divert Loan funds from purposes identified in Section 2.2 of the Loan Agreement for any of the aforementioned items without the express written approval of RBS. Failure to comply with the terms of this paragraph will be considered a material adverse change in Borrower's financial condition and a default under the Loan. In the event any of the aforementioned increases in costs and/or expenses are incurred by Borrower, Borrower must provide for such increases in a manner that there is no diminution of Borrower's operating capital.

Q. Contingency Allocations . Any amount allocated in the Approved Budget for “contingencies” or other non-specific purposes may, in Lender’s discretion, be disbursed by Lender to pay contingent costs and expenses of maintaining, leasing and promoting the “Property” or the “Collateral” (in each case as defined in the Deed of Trust or any other Security Document) and such other costs or expenses as Lender shall approve. Under no circumstances shall Borrower have the right to require Lender to disburse any amounts so allocated and Lender may impose such requirements and conditions as it deems prudent and necessary should it elect to disburse all or any portion of the amounts so allocated.

R. Funds Control Agreement . At Lender’s sole discretion, Lender’s obligations to make advances under the Loan (including any advances under Section 3.3 of the Credit Agreement) will be subject to Borrower’s entering into and complying with all of conditions precedent, procedures and obligations specified in one or more Funds Control Agreements as Lender deems necessary or advisable, which Funds Flow Agreements may, at Lender’s discretion or specification, supersede some or all of funding conditions and other terms of this Construction Rider. At Lender’s direction, Borrower shall promptly enter into such Funds Control Agreements. In the absence of any Funds Control Agreement, the terms and conditions of this Construction Rider shall apply, subject to any waivers hereto as permitted by Lender at its sole discretion.

S. Purpose of Loan and Escrow . The proceeds of the Loan and Escrow will be used for the purposes specified in the Loan Documents. Such Loan and Escrow will not be used directly or indirectly for personal, family, household or agricultural purposes or for the purposes of purchasing or carrying any Margin Stock or for the purpose of extending credit to others for the purpose of purchasing or carrying any Margin Stock.

EXHIBIT “1”

CONSTRUCTION RIDER

Loan:	$25,000,000.00

The Architect:	N/A

The Closing Date:	The date of the Loan Agreement.

The Completion Date:	On or before twelve (12) months from Closing Date.

The Contractors:	[Name of Contractor] [Address of Contractor]

The Expansion: Improvements:	Construction of Expansion Improvements (as defined in the Loan Agreement) to the existing Nixon, Texas oil refinery plant pursuant to [Name of Contract] dated [ ] by and between Lazarus Energy LLC and [Name of Contractor], as Contractor; and in each case in accordance with plans and specifications as more particularly described in said contract.

Retainage to be deducted from Advance:	Ten Percent (10%), if and to the extent required by Lender at its discretion.

Frequency of Advances:	At sole discretion of Lender.

The Title Company:	Providence Title 5001 HWY 287 South, Ste 105 Arlington, TX 76017

EXHIBIT D

AFFIDAVIT

STATE OF TEXAS §

COUNTY OF DALLAS §

BEFORE ME , the undersigned authority personally appeared Jonathan Pitts Carroll, Sr., who, being duly sworn by me, stated, under oath, as follows:

“This Affidavit is made by Jonathan Pitts Carroll, Sr. I am the President of Blue Dolphin Energy Company, a Delaware corporation, sole member of Lazarus Energy LLC, a Delaware limited liability company (the “Company”).

On behalf of the Company, I have previously made application to Sovereign Bank (the “Lender”) for a USDA Business & Industry Guaranteed loan in the amount of $25,000.000.00, same having been approved as Case No. 51-047-*****1870, which said loan, upon fulfillment of all prerequisites and requirements, shall be funded by Lender.

In connection with the application for said loan, I submitted certain financial and other requested information concerning myself individually and the Company. By this Affidavit, I represent that the information and data previously submitted to the Lender was accurate in all material respects at the time of its submission and is accurate at time of closing of the described loan, including but not limited to the representations as to management and ownership.

Further, I represent that since the date of the initial Loan application, there has been no unremedied material adverse change in any material matter concerning myself or the Company. Also, I represent that the Company has not contracted for any additional debt since the date of the financial information used in the loan application, without the knowledge and written approval of the Lender, and that the collateral offered to secure the Lender was not encumbered and is not encumbered except as identified in the loan application.

Further, I represent that neither I nor the Company are in default in payment of any federal, state or local taxes, except as previously disclosed to and approved by Lender, and that all future taxes will be paid when due, unless Lender approves otherwise.

Further, I represent that there are no actions, suits, or proceedings pending or threatened against the Company or me or affecting any of the Company’s or my properties, before any federal, state, or municipal court or any other governmental agency known to me, nor am I aware of any facts which to my knowledge might result in such action, suit or proceeding. Neither the Company nor I are in default with respect to any order or decree of any court or any such other governmental agency.

I understand that the representations made herein are material to Lender’s decision to fund the loan.”

DATED: June 22 nd , 2015.

/s/ JONATHAN PITTS CARROLL, SR.

Jonathan Pitts Carroll, Sr.

ACKNOWLEDGMENT

STATE OF TEXAS §

COUNTY OF TARRANT §

This instru ment was acknowledged before me on the ___ day of June , 2015, on behalf of Lazarus Energy LLC by Jonathan P. Carroll, Sr., President of Blue Dolphin Energy Company, the sole member of Lazarus Energy LLC.

/s/ LORI A. CORDELL

Notary Public in and for the State of Texas

My Commission Expires:

12/9/2018

PROMISSORY NOTE

NOTE NO. 17036732

$25,000,000.00

June 22 nd , 2015

FOR VALUE RECEIVED , Lazarus Energy LLC , a Delaware limited liability company (hereinafter referred to as “Maker”), hereby unconditionally promises to pay to the order of Sovereign Bank (“Payee”) at 17950 Preston Road, Suite 500, Dallas, TX 75252, or at such other address given to Maker by Payee, the principal sum of TWENTY-FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00) , in lawful money of the United States of America, together with interest per annum (calculated on the basis of a 360-day year) on the unpaid principal balance from day-to-day remaining, computed from the date of advance until maturity at the per annum rate (the “Stated Rate”) equal to the lesser of (a) the Maximum Rate (as hereinafter defined) or (b) Prime Rate (as hereafter defined) plus two and three quarters percent (P + 2.75%)*. The interest rate as of the date hereof is [six percent (6.00%)] . Principal and interest under this promissory note (the “Note”) are due and payable as follows:

Monthly payments of principal and interest shall be due and payable in the amount of ONE HUNDRED EIGHTY-FIVE THOUSAND TWO HUNDRED EIGHTY-EIGHT AND 50/100 DOLLARS ($185,288.50), with the first such installment due on the [22 nd ] day of July, 2015 . Monthly payments shall continue to be due and payable on the same day of each calendar month thereafter until [ June 22 nd , 2034] (the “Maturity Date”), when all unpaid principal and unpaid interest shall be due and payable in full. Monthly payments shall be increased or decreased based on the changes in interest rate to ensure that the entire loan balance is paid in full on the final Maturity Date.

*The interest rate will adjust on the first day of each calendar quarter (the “Adjustment Date”) to a rate equal to two and three quarters percent (2.75%) per annum (on the basis of actual days elapsed over a 360-day year) above the minimum prime lending rate charged by large U.S. money center commercial banks as published from time to time in the Money Rates Section of the Wall Street Journal (“Prime Rate”), each change in the rate charged hereunder to become effective without notice to the undersigned as of the Adjustment Date, but in no event shall the rate charged hereunder exceed the Maximum Rate (as hereafter defined). The undersigned understands and acknowledges that Payee may from time to time make various loans at rates of interest having no relationship to the Prime Rate, and that the Prime Rate may not be the lowest interest rate charged for loans by Payee. In the event the Wall Street Journal is no longer published or in the event the Wall Street Journal discontinues publishing a “Prime Rate”, the Prime Rate shall be the nearest comparable published rate, as determined by the holder of this Note.

The term “Maximum Rate,” as used herein, shall mean, with respect to each holder hereof, the maximum nonusurious interest rate, if any, that at any time, or from time to time, may under applicable law be contracted for, taken, reserved, charged or received on the indebtedness evidenced by this Note under the laws which are presently in effect of the United States and the State of Texas applicable to such holder and such indebtedness or, to the extent allowed by law under such applicable laws of the United States of America and the State of Texas which may hereafter be in effect, which allow a higher maximum non-usurious interest rate than applicable laws now allow; provided, that in determining the Maximum Rate, due regard shall be given, to the extent required by applicable law, to any and all relevant payments, fees, charges, deposits, balances, agreements and calculations which may constitute or be deemed to constitute interest, or be deducted from principal to calculate the interest rate or otherwise affect interest rate determinations, so that in no event shall the Payee contract for, charge, receive, take, collect, reserve or apply, on the Note, any amount in excess of the maximum non-usurious rate of interest permitted by applicable law. To the extent that Texas law determines the Maximum Rate, the Maximum Rate shall be determined by utilizing the “indicated rate ceiling” from time to time in effect pursuant to the Texas Finance Code (V.T.C.A. Finance Code Section 303.001 et seq.) (the “Texas Finance Code”) or such successor statute, as then in effect, governing usury. The Maximum Rate shall not be limited to the applicable rate ceiling in the Texas Finance Code or such successor statute if Federal laws or other state laws now or hereafter in effect and applicable to this Note (and the interest contracted for, charged and collected hereunder) shall permit a higher rate of interest.

Page 1

Maker and Payee intend to comply with the applicable law governing the Maximum Rate. Interest contracted for, charged, or received shall not exceed the Maximum Rate, and, if in any contingency whatsoever, Payee shall receive anything of value deemed interest under applicable law which would cause the interest contracted for, charged, or received by the holder thereof to exceed the maximum amount of interest permissible under applicable law, the excessive interest shall be applied to the reduction of the unpaid principal balance hereof and not to the payment of interest, or if such excessive interest exceeds the unpaid principal balance hereof such excess shall be refunded to Maker, and the provisions of this Note and any demand on Maker shall immediately be deemed reformed and the amounts thereafter collectible hereunder shall be reduced, without the necessity of the execution of any new documents, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder. All interest paid or agreed to be paid to the holder hereof shall, to the extent permitted by applicable law, shall be amortized, prorated, allocated, and spread throughout the full term of such indebtedness until payment in full (including the period of any renewal or extension hereof) so that the rate or amount of interest on account of such indebtedness does not exceed the Maximum Rate.

Maker agrees to pay a late charge of five percent (5%) of the payment amount if such payment is not received within ten (10) days of the due date. Payments, when made, shall be applied in a manner and order according to the sole discretion of the holder of this Note.

In addition to the late charge in the preceding paragraph, all past-due principal and, to the extent permitted by applicable law, past-due interest upon this Note shall bear interest at the Maximum Rate.

Unless otherwise specified, Maker shall make each payment required to be made by it hereunder (whether of principal, interest, or otherwise) or under any other Loan Document (except to the extent otherwise provided therein) prior to 1:00 p.m., Dallas, Texas time, on the date when due, in immediately available funds, without set-off or counterclaim. All such payments shall be made to the Lender at its offices the address specified in the first paragraph of this Note or pursuant to most recent wire instructions provided by Payee to Maker from time to time, except as otherwise expressly provided in the relevant Loan Document. All amounts owing under this Agreement or under any other Loan Document are payable in United States Dollars.

Remittances in payment of any part of this Note other than in the required amount in immediately available funds at the place where this Note is payable shall not, regardless of any receipt or credit issued therefor, constitute payment until the required amount is actually received by Payee in full accordance herewith and shall be made and accepted subject to the condition that any check or draft may be handled for collection in accordance with the practice of the collecting bank or banks. Acceptance by Payee of any payment in an amount less than the full amount then due shall be deemed an acceptance on account only, and the failure to pay the entire amount then due shall be and continue to be an Event of Default (hereinafter defined).

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This is the Promissory Note issued pursuant to, and referenced in, that certain Loan Agreement dated as of the date hereof, among Maker, as Borrower, the Guarantors identified therein, and Payee, as Lender (as amended, restated, or otherwise modified from time to time, the “Loan Agreement”). This Note is secured in part by a Deed of Trust, Mortgage, Security Agreement, Assignment of Leases and Rents, Financing Statement and Fixture Filing, dated as of the date hereof, executed by Maker in favor of Robert Blount for the benefit of Payee, to be recorded in the real property records of Wilson County, Texas. Maker and each surety, endorser, guarantor and other party ever liable for payment of any stuns of money payable on this Note, jointly and severally waive presentment, protest, notice of protest and nonpayment, notice of default and notice of acceleration and intention to accelerate, and agree that their liability under this Note shall not be affected by any renewal or extension in the time of payment hereof, or in any indulgences, or by any release or change in any security for the payment of this Note, and hereby consent to any and all renewals, extensions, indulgences, releases or changes, regardless of the number of such renewals, extensions, indulgences, releases or changes.

If this Note or any Loan Documents (as defined in the Loan Agreement) is given by Payee to an attorney for collection or enforcement, or if suit is brought for collection or enforcement, or if it is collected or enforced through probate, bankruptcy, or other judicial proceeding, then Maker shall pay Payee all costs of collection and enforcement, including reasonable attorney’s fees and court costs, in addition to other amounts due.

No waiver by Payee of any of its rights or remedies under this Note or any Loan Documents, shall be considered a waiver of any other right or remedy of Payee; no delay or omission in the exercise or enforcement by Payee of any rights or remedies shall ever be construed as a waiver of any right or remedy of Payee; and no exercise or enforcement of any such rights or remedies shall ever be held to exhaust any right or remedy of Payee.

Maker agrees that in the event any portion of this Note is prepaid in whole or in part prior to the fifth anniversary of the date of this Note, so as to constitute a Prepayment (as defined below), consideration will be tendered with the prepayment to the Payee (“Prepayment Consideration”) in the amount of five percent (5.0%) of the outstanding loan principal balance prepaid. It is understood and agreed that a “Prepayment” shall be any principal payment on this Note other than scheduled monthly payments of principal and interest as provided under this Note. Maker acknowledges that the Prepayment Consideration is consideration to Payee for the privilege of prepaying the indebtedness evidenced by this Note prior to maturity, and Maker recognizes that Payee would incur substantial additional costs and expenses in the event of a prepayment of the indebtedness evidenced by this Note and that the Prepayment Consideration compensates Payee for such costs and expenses (including without limitation, the loss of Payee’s investment opportunity during the period from the date of prepayment until the Maturity Date). Maker agrees that Payee shall not, as a condition to receiving the Prepayment Consideration, be obligated to actually reinvest the amount prepaid in any manner whatsoever.

As used herein, an “Event of Default” shall mean any one or more of the following: (i) the failure by Maker to pay any installment of principal or interest under this Note when due, (ii) the failure by Maker to pay all sums owed to Payee under this Note on or before the Maturity Date, or (iii) any Event of Default (as defined in the Loan Agreement).

Upon the occurrence of an Event of Default: (i) under Section 7.1(h) or (i) of the Loan Agreement, this Note shall be immediately become due and payable upon the occurrence of an Event of Default, or (ii) other than as specified by clause (i) immediately preceding, Payee may, at its option, without notice or demand, declare the unpaid principal balance of, and the accrued but unpaid interest on this Note immediately due and payable and exercise and pursue any and all other rights and remedies as provided herein or in any of the Loan Documents or otherwise available under applicable law.

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Upon the occurrence of an Event of Default, Payee is hereby authorized at any time and from time to time, without notice to Maker (any such notice being expressly waived by each such Maker), to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held, and other indebtedness at any time owing, by the Payee to or for the credit or the account of Maker, against any and all obligations of such Maker now or hereafter existing under this Note, irrespective of whether or not Payee shall have made demand under this Note and although such obligations may be contingent and unmatured. The rights of the Payee under this section are in addition to all other rights and remedies (including, without limitation, other rights of offset) which Payee may have hereunder or under any applicable law.

All obligations, covenants, and terms of payment are expressly performable solely in Dallas County, Texas. The substantive laws of the State of Texas shall govern the validity, construction, enforcement and interpretation of this Note. In the event of a dispute involving this Note or any of the Loan Documents, the undersigned irrevocably agrees that venue for such dispute shall lie in any court of competent jurisdiction in Dallas County, Texas.

Maker:

Lazarus Energy LLC,

a Delaware limited liability company

By: Blue Dolphin Energy Company, a Delaware corporation, its sole member

By: /s/ JONATHAN PITTS CARROLL, SR.

Name: Jonathan Pitts Carroll, Sr.

Title: President

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SECURITY AGREEMENT

Security Agreement dated June 22 nd , 2015 of Lazarus Energy LLC, a Delaware limited liability company (hereinafter referred to as the “Debtor”) in favor of Sovereign Bank (“Lender”).

In consideration of advances, loans, extensions of credit or other financial accommodations, now existing or hereafter made, to or for the account or benefit of the Debtor by Lender, and as an inducement therefor, the Debtor hereby represents, warrants, and agrees as follows:

Section 1

General Information

DEBTOR’S EXACT LEGAL NAME:	Lazarus Energy LLC

STATE OF DEBTOR’S ORGANIZATION:	Delaware

TYPE OF DEBTOR’S ORGANIZATIONAL ENTITY:	Limited Liability Company

DEBTOR’S ORGANIZATIONAL ID NUMBER:	4115011

DEBTOR’S TAXPAYER ID NUMBER:	13-4321870

ADDRESS OF DEBTOR’S PLACE OF BUSINESS:	801 Travis Street, Suite 2100 Houston, Texas 77002

LENDER’S ADDRESS:	17950 Preston Road, Suite 500 Dallas, TX 75252

Section 2

Definitions

Any capitalized term relating to a Collateral definition shall have the meaning accorded thereto in the Uniform Commercial Code (the “Code”), as now enacted and hereinafter amended in the State of Texas. Any capitalized term used herein but not defined herein shall have the meaning given such term in the Loan Agreement (defined below).

“Agreement” shall mean this Security Agreement as the same may be amended, modified, and supplemented from time to time.

“Collateral” shall mean the following personal property of Debtor, wherever located, and now owned, or hereafter acquired or arising, but in all cases excluding Excluded Collateral:

1.	Chattel Paper, including but not limited to Tangible Chattel Paper and Electronic Chattel Paper;

2.	Deposit Accounts, and all other bank accounts including but not limited to securities accounts if any ;

3.	Documents;

General Intangibles, including but not limited to contracts and contract rights (including but not limited to the GEL Transaction Documents and the other Key Agreements) and Payment Intangibles (including but not limited to Payment Intangibles and rights to payment under the GEL Transaction Documents (including but not limited to rights to fees for tank storage services) and the other Key Agreements);

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5.	Goods, including but not limited to Equipment, Fixtures, and Accessions;

6.	Instruments, including but not limited to Promissory Notes;

Records;

8.	Investment Property;

9.	Letter-of-Credit Rights and Letters of Credit;

10.	As-Extracted Collateral;

11.	Supporting Obligations;

12.	Commercial Tort Claims;

13.	Governmental approvals , permits, licenses, authorizations, consents, rulings, tariffs, rates, certifications, waivers, exemptions, filings, claims, orders, judgments and decrees (each a “Governmental Approval”);

14.

Records;

15.	Intellectual Property Collateral;

16.

Proceeds of any of the foregoing and, to the extent not otherwise included, all accessions, substitutions, replacements, products, offerings, rents, issues, profits, returns and income of or from any of the foregoing as well as all payments under insurance (whether or not Lender is the loss payee thereof and including without limitation, casualty or hazard insurance and policies of owner’s or mortgagee’s title insurance), or rights of loss payee or endorsee thereof, and escrow agreements, all tax, insurance, security or other deposits, and rights acquired by reason of condemnation or exercise of the power of eminent domain; and

17.	all other property and rights of every kind and description and interests therein.

“Event of Default” shall mean any event referred to in Section 6 of this Agreement.

“Excluded Collateral” means: (a) accounts receivable (but for sake of clarity excluding payment intangibles and rights to receive payments under any GEL Transaction Documents or other Key Agreements); (b) inventory; and (c) any Governmental approval that by its terms or by operation of law would be void, voidable, terminable or revocable if mortgaged, pledged or assigned hereunder is expressly excepted and excluded from the Liens and terms of this Agreement.

“Intellectual Property Collateral” means all copyrights, all patents and patent applications (including the inventions and improvements described and claimed therein together with the reissues, divisions, continuations, renewals, extensions and continuations in-part thereof), all trade names, trademarks and service marks, logos, trademark and service mark registrations (including all renewals of trademark and service mark registrations, and all rights corresponding thereto throughout the world together, in each case, with the goodwill of the business connected with the use of, and symbolized by, each such trade name, trademark and service mark, but excluding any such registration that would be rendered invalid, abandoned, void or unenforceable by reason of its being included as part of the Collateral), all inventions, processes, production methods, proprietary information, know-how and trade secrets, all licenses or user or other agreements granted to the Debtor with respect to any of the foregoing, in each case whether now or hereafter owned or used (including the licenses or other agreements with respect to any of the foregoing), all information, customer lists, identification of suppliers, data, plans, blueprints, specifications, designs, drawings, recorded knowledge, surveys, engineering reports, test reports, manuals, materials standards, processing standards, performance standards, catalogs, computer and automatic machinery software and programs, all field repair data, sales data and other information relating to sales or service of products now or hereafter manufactured, all accounting information and all media in which or on which any information or knowledge or data or records may be recorded or stored and all computer programs used for the compilation or printout of such information, knowledge, records or data, and all causes of action, claims and warranties now or hereafter owned or acquired by the Debtor in respect of any of the items listed above.

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“Loan” shall mean the loan (including all advances made under such loan) evidenced by the Note.

“Loan Agreement” shall mean that certain Loan Agreement dated as of even date herewith among Debtor, Lender and the “Guarantors” identified therein, as the same may be amended, restated, or otherwise modified from time to time.

“Loan Documents” shall mean the Loan Agreement, the Note and all other Loan Documents (as defined in the Loan Agreement).

“Obligations” shall mean the Obligations (as defined in the Loan Agreement), including without limitation, indebtedness evidenced by that certain promissory note of even date herewith executed by Debtor payable to the order of Lender in the principal amount of TWENTY-FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00) (as the same may be amended, restated, or otherwise modified from time to time, the “Note”), together with any and all present or future indebtedness, liabilities, and obligations of the Debtor to Lender of any kind and however evidenced, originally contracted with Lender or with another or others, or in which Lender may have or hereafter acquire a participating interest, direct or indirect, matured or not matured, absolute or contingent, and in any and all amendments, extensions, modifications, and renewals of any of the same. The term “Obligations” shall also include, and Debtor hereby agrees to pay, any and all attorneys’ fees, costs, and expenses incurred by Lender in the collection or enforcement of any of the Obligations and the perfection, preservation, and enforcement of its rights and remedies hereunder and its security interest in the Collateral.

Section 3

Security Interest

As collateral security for the prompt and unconditional payment and performance of the Obligations, the Debtor hereby pledges, hypothecates, assigns, collaterally assigns, charges, mortgages, delivers, and transfers to Lender, and hereby grants to Lender a lien and security interest in, all of the Debtor’s right, title, and interest in and to the Collateral. The Debtor does further grant to Lender a continuing lien and security interest upon all of the Debtor’s money and any other property and the proceeds thereof, now or hereafter actually or constructively held or received by Lender for any purpose, including but not limited to, collection, custody, pledge, and transmission. For sake of clarity and without limiting the generality of the foregoing grants, the foregoing grants include a collateral assignment of all of the GEL Transaction Documents and the other Key Agreements, including without limitation, all present or future crude oil marketing agreements or similar arrangements providing for the marketing, storage, processing, purchase and sale of crude oil or other products at or with respect to the Nixon Refinery or the site on which it is located.

Anything herein to the contrary notwithstanding: (a) the Debtor will remain liable under the contracts and agreements included in the Collateral to the extent set forth therein, and will perform all of their duties and obligations under such contracts and agreements to the same extent as if this Agreement had not been executed; (b) the exercise by Lender of any of its rights hereunder will not release Debtor from any of its duties or obligations under any such contracts or agreements included in the Collateral; and (c) Lender will not have any obligation or liability under any contracts or agreements included in the Collateral by reason of this Agreement, nor will Lender be obligated to perform any of the obligations or duties of Debtor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

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Notwithstanding anything to the contrary contained herein or any of the other Loan Documents, if at any time all or any part of any payment theretofore applied by Lender to any of the Obligations is or must be rescinded or returned by Lender for any reason whatsoever (including, without limitation, the insolvency, bankruptcy, reorganization or other similar proceeding of Debtor or any other Person), such Obligations shall, for purposes of this Agreement, to the extent that such payment is or must be rescinded or returned, be deemed to have continued to be in existence, notwithstanding any application by Lender or any termination agreement or release provided to Debtor, and this Agreement (including the grants in Section 3) shall continue to be effective or reinstated, as the case may be, as to such Obligations, all as though such application by Lender had not been made.

Section 4

Representations and Warranties

In order to induce Lender to enter into the Loan Agreement and make the Loan thereunder, Debtor represents and warrants to Lender as set forth below as of the date hereof and on each date that the Loan or any advance is disbursed pursuant to the Loan Agreement:

A. The information relating to the Debtor set forth in Section 1 of this Agreement is accurate and complete. The Debtor is duly organized, validly existing, and in good standing under the laws of each jurisdiction in which it transacts business and has the power, authority, and legal right to enter into this Agreement and to grant to Lender the security interest in the Collateral. The execution, delivery, and performance of this Agreement and any instruments or documents executed and delivered by the Debtor herewith, and the grant of the security interest in the Collateral to Lender pursuant to the terms hereof, are not in contravention of law or the terms of the Debtor’s organizational and governing documents, including but without limitation, Articles of Incorporation, Articles of Association, Partnership Agreement, Articles of Organization, By-Laws, Operating Agreement, Regulations or any indenture, contract, or agreement to which the Debtor is a party or by which it is bound. This Agreement, when executed and delivered, will constitute a legal, authorized, valid, and binding obligation of the Debtor enforceable in accordance with its terms.

B. The Debtor is the sole owner of the Collateral, free of any liens, security interests, claims, or other encumbrances of any kind except as granted herein.

C. All Equipment is in good working order.

D. There are no actions, proceedings, or investigations pending or threatened against the Debtor, and there are no judgments, federal or state tax liens or other liens, security interests (except as disclosed herein and in the Loan Documents) or encumbrances against the Debtor, or any of its assets.

E. All financial statements and other documents provided to Lender by the Debtor, or its representatives are true and correct and fairly and accurately represent the financial condition of the Debtor and if applicable, its shareholders, members, partners, managers, directors, and/or officers.

F. All Collateral is to be used, acquired, and/or held for business purposes. Additionally, the proceeds of the Loan shall be used strictly for business purposes. The lending transaction evidenced by the Note is not a “consumer-goods transaction”, as that term is used or defined in the Code.

G. All of the representations and warranties made by Debtor in the Loan Agreement or in any other Loan Document are true and correct in all respects as if such representations and warranties were incorporated herein in their entirety and made by Debtor. The representations and warranties made by Debtor in this Agreement shall survive the execution and delivery of this Agreement.

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Section 5

Debtor’s Covenants

Debtor covenants and agrees that, until the date that all Obligations are indefeasibly paid in full all commitments of Lender to advance or disburse funds under the Loan Documents have terminated or expired (the “Termination Date”), Debtor shall perform, comply with and be bound by the obligations set forth below:

A. Pay and perform or cause to be paid and performed all the Obligations according to their terms;

B. Maintain business records relating to the Collateral satisfactory to Lender and, where appropriate, shall note thereon the security interest of Lender;

C. The Debtor shall keep such business records at its chief executive office and will permit Lender (and RBS at its request) access thereto at all reasonable times for the purposes of inspection, audit, examination, verification, extracting, copying, and such other purposes as Lender may require. Any such inspection, audit, examination, verification, extracting, and copying shall be at the Debtor’s expense;

D. Promptly deliver to Lender at its request such lists, schedules, invoices, receipts, original documents, and other information relating to the Collateral;

E. Promptly notify Lender of (i) any material loss or damage to the Collateral, and (ii) the occurrence of any event which could adversely affect the security interest of Lender in the Collateral;

F. Not change its name, trade style, the location of its chief executive office, its state of organization, its organizational ID number, corporate or organizational structure or where any of the Collateral is kept without the prior written consent of Lender;

G. At its own expense keep the Collateral free of all liens (except as disclosed herein and in the Loan Documents) and encumbrances except (i) the security interest of Lender, and (ii) liens arising in connection with taxes or other governmental charges or assessments which are contested in good faith by appropriate proceedings;

H. Maintain the Collateral in compliance with any applicable law, statute, ordinance, regulation or administrative order;

I. Not sell, transfer, or otherwise dispose of the Collateral or any interest therein (except sales of Inventory to buyers in the ordinary course of its business);

J. Insure the Collateral at all times against all hazards, including but not limited to, fire, windstorm, lightning, vandalism, malicious mischief, and such other hazards as identified in the Conditional Commitment, and such policies shall be payable to Lender as its interest may appear. The policies of insurance shall be satisfactory to Lender as to form and insurer. The policies of insurance shall be in an amount equal to greater of the full replacement cost of the Collateral or the outstanding principal amount of the Loan. Debtor shall furnish certificates, policies, or endorsements to Lender as proof of such insurance, and if Debtor fails to do so Lender is authorized but not required to obtain such insurance at Debtor’s expense. All policies shall provide for at least thirty (30) days prior written notice of cancellation to Lender and shall provide that coverage as to Lender will not be affected by any act or omission of Debtor. Lender may act and is hereby appointed to act as attorney-in-fact for Debtor in making, adjusting, and settling any claims under any such insurance policies (and such appointment is coupled with an interest). Debtor assigns to Lender all of its right, title, and interest in and to any insurance policies insuring the Collateral, including all rights to receive the proceeds of insurance, and directs all insurers to pay all such proceeds directly to Lender and authorizes Lender to endorse Debtor’s name on any instrument for such payment. Lender shall be named as “loss payee” on all policies of insurance regarding the Collateral. Any liability insurance policy of Debtor shall name Lender as an additional insured.

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K. At Debtor’s expense, as Lender may request, place notices upon the Collateral or such portion thereof or in or about designated areas where the Collateral may be kept or used indicating the security interest of Lender herein;

L. Be liable to Lender for any expenditures by Lender for the maintenance and preservation of the Collateral, including without limitation, taxes, levies, insurance, and repairs, attorney’s fees and expenses, accountant’s fees and expenses, and for the collection, repossession, holding, preparation, and sale or other disposition of or realization upon the Collateral. Debtor will also be liable to Lender for all damages for breach of warranty, misrepresentation, or breach of covenant by Debtor. All such liabilities shall be secured by the security interest granted herein, and shall be payable upon demand;

M. Not, without Lender’s prior written consent, (i) sell, lease, pledge, encumber (except by purchase money lien on property acquired after the date of the Note), or otherwise dispose of any of Debtor’s assets, except in the ordinary course of business (ii) purchase, lease, or otherwise acquire any assets (or commit to do so) other than current assets or assets acquired in the ordinary course of business; or (iii) declare or pay any dividends (except stock dividends), or return any capital to any of its stockholders, or redeem, repurchase, or otherwise acquire any of its outstanding capital stock; or (iv) become a party to any consolidation, merger, liquidation, or dissolution; and

N. Cooperate with Lender in obtaining a control agreement and such other documents required by Lender, in form and substance satisfactory to Lender, to establish, protect, preserve and perfect on a first priority basis an security interest in deposit accounts, investment property, letter-of-credit rights, electronic chattel paper, commercial tort claims or all other Collateral (other than Excluded Collateral).

O. Debtor shall warrant and defend the right and title herein granted unto Lender in and to the Collateral (and all right, title and interest represented by the Collateral) against the claims and demands of all Persons whomsoever. Debtor agrees that, from time to time at its own expense, it will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or that Lender may request, in order to perfect, preserve, control and protect any security interest, Lien or other interest granted or purported to be granted hereby or to enable Lender to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Debtor agrees that, upon the acquisition after the date hereof by Debtor of any Collateral, with respect to which the security interest granted hereunder is not perfected automatically upon such acquisition, to promptly notify Lender of such acquisition and to take such actions with respect to such Collateral or any part thereof as required by the Loan Documents or requested by Lender. Without limiting the generality of the foregoing, Debtor will

1. file (and hereby authorize Lender to file) such Filing Statements or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or that Lender may request in order to perfect and preserve the security interests and other rights granted or purported to be granted to Lender hereby;

2. deliver to Lender and at all times keep pledged to the Lender pursuant hereto, on a first-priority, perfected basis, at the request of Lender, all Investment Property constituting Collateral, all distributions with respect thereto, and all interest and principal with respect to any promissory notes, and all Proceeds and rights from time to time received by or distributable to Debtor in respect of any of the foregoing Collateral;

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3. not take or omit to take any action the taking or the omission of which would result in any material impairment or alteration of any obligation of the maker of any Payment Intangible or other Instrument constituting Collateral, except as acceptable to Lender;

4. furnish to Lender, from time to time at Lender’s request, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Lender may reasonably request, all in reasonable detail; and

5. do all things reasonably requested by Lender in accordance with this Agreement in order to enable Lender to have and maintain control over the Collateral consisting of Investment Property, Deposit Accounts, Letter-of-Credit-Rights and Electronic Chattel Paper.

With respect to the foregoing and the grant of the security interest and Lien hereunder, Debtor hereby authorizes Lender to file one or more financing or continuation statements, and amendments thereto, and other similar documents necessary or desirable in the opinion of Lender with respect to or describing all or any part of the Collateral or otherwise to perfect, establish, protect or maintain the perfection of Lender’s security interest in the Collateral or any portion thereof; and to make all relevant filings with the United States Patent and Trademark Office or the United States Copyright Office in respect of the Intellectual Property Collateral. Debtor agrees that a carbon, photographic or other reproduction of this Agreement or any UCC financing statement covering the Collateral or any part thereof shall be sufficient as a UCC financing statement where permitted by Legal Requirements. Debtor hereby authorizes the Lender to file financing statements describing as the collateral covered thereby “all of the debtor’s personal property or assets” or words to that effect, notwithstanding that such wording may be broader in scope than the Collateral described in this Agreement. The authorizations contained in this clause O shall be irrevocable and continuing until the Termination Date.

Section 6

Event of Default

Any Event of Default (as defined in the Loan Agreement) shall constitute an Event of Default hereunder.

Section 7

Rights and Remedies of Lender

A. In addition to the rights and remedies granted to Lender herein, Lender shall at all times have the rights and remedies of a secured party under the Code.

B. On and after the occurrence of an Event of Default, Lender may do all or any of the following:

1. Declare all or any part of the Obligations due and payable.

2. Enter the premises of the Debtor and take custody of or remove the Collateral, without judicial process or the responsibility to post a bond or other financial undertaking.

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3. Require the Debtor to assemble the Collateral, and make it available to Lender at the Debtor’s premises or at any other location selected by Lender, where it will remain at the Debtor’s expense pending sale or other disposition. Lender may take possession of, remove, or otherwise deal with the Collateral for any purpose including putting the Collateral in saleable form.

4. Dispose of all or any part of the Collateral in such manner and upon such terms as Lender, in its sole discretion, shall determine. If notice of sale or disposition of Collateral is required, ten (10) days’ notice to the Debtor of any intended sale or other disposition of the Collateral shall be deemed to be reasonable. Lender shall have the right to purchase the Collateral.

5. Endorse any note, draft, check, or other instrument for the payment of money and any other invoice, assignment, verification, notice, or other document with respect to the Collateral, as the attorney-in-fact for the Debtor with full power of substitution.

6. Accept and receive payment of, receipt for, or settle, compromise, or adjust any claim, suit, action, or proceeding with respect to the Collateral and give discharge, release, or full or partial acquittance therefor.

7. Defend any suit, action, or proceeding against the Debtor concerning the Collateral.

C. The Debtor shall reimburse Lender for any and all costs and expenses, including but not limited to reasonable attorneys’ fees, incurred by Lender in preserving the Collateral or the security interest; enforcing, collecting, or realizing upon the Obligations or the Collateral; and performing the Debtor’s obligations hereunder, which Lender is hereby authorized to do.

D. Lender shall be under no obligation or liability to any party for the performance or observance of any of the representations, warranties, conditions, or terms of any document relating to the Collateral.

E. Lender shall be under no duty to protect the Collateral from deterioration, waste or loss by fire, theft or otherwise unless such deterioration, waste or loss be caused by the willful act of the Lender. Debtor expressly waives any duty on the part of the Lender to protect the Collateral from deterioration, waste or loss except for the willful acts of the Lender.

F. Lender may, without notice, demand, or presentment, which are hereby waived by Debtor and all other parties obligated in any manner whatsoever on the Obligations, declare the entire unpaid balance of the Obligations immediately due and payable, and upon such declaration, the entire unpaid balance of the Obligations shall be immediately due and payable. Debtor hereby waives all notices allowed by law, including without limitation, demand, presentment, notice of dishonor, protest, notice of intent to accelerate maturity and notice of acceleration in connection with this Agreement, any note or other document.

G. Lender may seize all books and records of Debtor pertaining to the Collateral. Lender shall have the authority to enter upon any real property or improvements thereon in order to seize any such books or records, or any Collateral located thereon, and remove the same therefrom without liability.

H. Lender may apply proceeds of the disposition of Collateral to the Obligations in any manner elected by Lender and permitted by the Code. Such application may include, without limitation, the reasonable expenses of retaking, holding, preparing for sale or other disposition, and the reasonable attorneys’ fees and legal expenses incurred by Lender.

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I. Lender may, under Legal Requirements, proceed to realize its benefits under any of this Agreement or the other Loan Documents giving any secured party a Lien upon any Collateral, either by judicial foreclosure or by non-judicial sale or enforcement, Lender may, at its sole option, determine which of its remedies or rights it may pursue without affecting any of its rights and remedies under this Agreement. If, in the exercise of any of its rights and remedies, Lender shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against Debtor or any other obligor or any other Person, whether because of any Legal Requirements pertaining to “election of remedies” or the like, Debtor hereby consents to such action by Lender and waives any claim based upon such action, even if such action by Lender shall result in a full or partial loss of any rights of subrogation that Debtor might otherwise have had but for such action by Lender.

J. The powers conferred on Lender hereunder are solely to protect its interest in the Collateral and shall not impose any duty on it to exercise any such powers. Except for reasonable care of any Collateral in its possession and the accounting for moneys actually received by it hereunder, Lender shall have no duty as to any Collateral or responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Investment Property, whether or not the Lender has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. Lender shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral, (i) if such Collateral is accorded treatment substantially equal to that which the Lender accords its own personal property; or (ii) if it takes such action for that purpose as Debtor reasonably requests in writing at times other than upon the occurrence and during the continuance of any Event of Default, but failure of Lender to comply with any such request at any time shall not in itself be deemed a failure to exercise reasonable care.

Section 8

Miscellaneous

A. All representations and warranties made herein or in any of the Loan Documents shall be continuous.

B. Debtor agrees that from time to time, without presentment, notice or demand, and without affecting or impairing in any way the rights of Lender with respect to the Collateral, Debtor’s obligations hereunder, or the Obligations, Lender may, but shall not be obligated to, take any action which Debtor is obligated to do and to exercise such rights and powers as Debtor might exercise with respect to the Collateral.

C. For so long as any Event of Default exists, Debtor hereby irrevocably appoints Lender as its attorney-in-fact to exercise the following rights and powers: (i) collect by legal proceedings or otherwise and indorse, receive and receipt for all dividends, interest, payments, proceeds, and other sums and property now or hereafter payable on or on account of the Collateral; (ii) enter into any extension, reorganization, deposit, merger, consolidation, or other agreement pertaining to, or deposit, surrender, accept, hold, or apply other property in exchange for the Collateral; (iii) insure, process and preserve the Collateral; make, adjust and settle any claims under any insurance on the Collateral; (iv) transfer the Collateral to its own or its nominees’ name; (v) make any compromise or settlement, and take any action it deems advisable, with respect to the Collateral; (vi) notify any account debtor on any Collateral to make payment directly to Lender; and (vii) sign and file a financing statement describing any liens held by Lender in any applicable jurisdiction, on behalf of Debtor if required. Lender shall incur no liability to Debtor or any third party for acting hereunder or for failure to act hereunder.

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D. No provision hereof may be amended, modified, waived, or supplemented, except by a writing signed by the party to be charged thereby. No waiver by Lender of any Default shall be a waiver of any other Event of Default.

E. All rights and remedies of Lender shall be cumulative and may be exercised at such times and in such order as Lender determines, and no delay or omission in exercising or enforcing any such right or remedy shall be a waiver thereof or preclude the exercise or enforcement thereof at a later time.

F. This Agreement and the interests granted to Lender hereunder shall in all respects include a continuing, absolute, unconditional and irrevocable grant of security interest, and this Agreement and such interests shall remain in full force and effect until terminated in writing by Lender.

G. This Agreement shall be binding upon and shall be for the benefit of the parties hereto and their executors, heirs, successors, and assigns, as the case may be; provided that Debtor may not assign any of its obligations hereunder or under any other Loan Document without the prior written consent of Lender.

H. Except as expressly provided to the contrary herein, each section, part, term, or provision of this Agreement shall be considered severable, and if for any reason any section, part, term, or provision herein is determined to be invalid and contrary to or in conflict with any existing or future law or regulation by a court or governmental agency having valid jurisdiction, such determination shall not impair the operation of or have any other effect on other sections, parts, terms, or provisions of this Agreement as may remain otherwise intelligible, and the latter shall continue to be given full force and effect and bind the parties hereto, and said invalid sections, parts, terms, or provisions shall not be deemed to be a part of this Agreement.

I. Any notice required hereunder or under applicable law shall be in writing and shall be deemed effective if either (1) hand delivered, (2) sent by certified mail, return receipt requested, postage prepaid, or (3) sent by overnight courier. All notices sent by U.S. mail and addressed as shown in Section 1 of this Agreement shall be deemed received on the earlier of (i) the third day (excluding Sundays and legal holidays when the U.S. mail is not delivered) immediately following date of deposit in the U.S. mail or (ii) the date of actual receipt. All notices which are hand delivered or sent by overnight courier shall be deemed received on the day of delivery to the address shown in Section 1 of this Agreement.

J. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or via other electronic means shall be effective as delivery of a manually executed counterpart of this Agreement.

K. This Agreement shalt be governed by and construed in accordance with the laws of the State of Texas, without regard to principles of conflicts of law, and venue for any action hereunder shall be in Dallas County, Texas.

L. DEBTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, OR COUNTERCLAIM THAT RELATES TO OR ARISES OUT OF ANY OF THE LOAN DOCUMENTS OR THE ACTS OR FAILURE TO ACT OF OR BY LENDER IN THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.

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IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the date set forth above.

DEBTOR:

Lazarus Energy LLC,

a Delaware limited liability company

By: Blue Dolphin Energy Company, a Delaware corporation, its sole member

By: /s/ JONATHAN PITTS CARROLL, SR.

Name: Jonathan Pitts Carroll, Sr.

Title: President

LENDER:

Sovereign Bank

By: /s/ KATHRYN WALKER

Name: Kathryn Walker

Title: Senior Vice President

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Sovereign Bank

17950 Preston Road, Suite 500

Dallas, TX 75252

NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OR ALL OF THE FOLLOWING INFORMATION FROM ANY INSTRUMENT THAT TRANSFERS AN INTEREST IN REAL PROPERTY BEFORE IT IS FILED FOR RECORD TN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER.

DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT,

ASSIGNMENT OF LEASES AND RENTS,

FINANCING STATEMENT AND FIXTURE FILING

[SECOND LIEN]

STATE OF TEXAS §

§ KNOW ALL MEN BY THESE PRESENTS:

COUNTY OF WILSON §

THAT , as of the 22 nd day June, 2015, Lazarus Energy LLC , a Delaware limited liability company (hereinafter called “Grantor”), whose mailing address is 801 Travis Street, Suite 2100, Houston, Texas 77002 in consideration of the debt and trust hereinafter mentioned, does hereby GRANT, BARGAIN, SELL, TRANSFER, ASSIGN, MORTGAGE, PLEDGE, HYPOTHECATE and CONVEY unto Robert Blount , Trustee (hereinafter called “Trustee”), in trust, with a POWER OF SALE, for the use and benefit of Holder (as defined below) all the following described property:

1. Real Property . The real estate situated in Wilson County, Texas, which is more particularly described in Exhibit “A” attached hereto and made a part hereof by reference for all purposes, together with all buildings, structures, and other improvements (such buildings, structures, and other improvements (including the Expansion Improvements) being hereinafter sometimes called the “Improvements”) now or hereafter situated thereon (such real estate, and Improvements being hereinafter sometimes called the “Land”); as well as all easements, appurtenances, tenements, hereditaments, privileges, franchises, appendages, rights-of-way, and all other rights now or hereafter appurtenant or otherwise related to the Land any portion thereof or used in connection therewith or as a means of access thereto and/or egress therefrom or which are otherwise of benefit thereto or to the users thereof; as well as all options to purchase or lease all or any portion of the Land; as well as all other real property rights and interests in the Land.

2. Fixtures and Personal Property . The following personal property of Grantor, wherever located, and now owned, or hereafter acquired or arising, including Proceeds and Supporting Obligations, which are now, or at any time hereafter are, a part of the Land; or situated in, on, or about the Land and utilized in connection therewith; or delivered to the Land or acquired for use in connection with the Land; or delivered to the Land or acquired for use or incorporation in the construction of any improvements on the Land; or for the purchase of any Goods to be used in connection with the construction, maintenance, operation or use of any improvements on the Land: Chattel Paper, including Tangible Chattel Paper and Electronic Chattel Paper; Deposit Accounts; Documents; General Intangibles, including Payment Intangibles, trademarks, trade names and symbols; Goods, including Equipment, Fixtures, and Accessions, but excluding Inventory; Instruments, including Promissory Notes; Proceeds; Records; Software; plans and specifications for improvements to be placed on the Land; all permits, licenses, franchises, certificates, and other rights and privileges obtained in connection with the Land; all contract rights and contracts to which Grantor is a party or with respect to any Property (including rights to enforce the same and receive payments thereunder whether for goods or services rendered); all As-Extracted Collateral and other substances which may be extracted from the Land, including without limitation, oil and gas, all Hydrocarbon Property (as defined in this Deed of Trust) including all General Intangibles, and all rights to payment arising from Hydrocarbon Property extraction or oil and gas leases, including all minerals, oil, and gas upon or after extraction and all rights to payment arising therefrom, including but not limited to, royalties, rentals, and other rights to payment from sale of extracted and nonextracted minerals, oil and gas: and all renewals, replacements, and substitutions thereof and additions thereto (all property described or referred to in this paragraph is sometimes called “Accessories”). Any capitalized term not otherwise defined herein shall have the meaning accorded thereto in the Uniform Commercial Code, as now enacted and hereinafter amended in the State of Texas.

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3. Other Property . (a) All rights, titles, interests and estates now owned or hereafter acquired by Grantor in and to the oil and gas leases and/or oil, gas and other mineral leases, all wellbore interests and other interests and estates and the lands and premises covered or affected thereby (collectively called the “Hydrocarbon Property”); (b) all other interest of every kind and character which Grantor now has or at any time hereafter acquires in and to the property described or referred to in paragraphs 1 and 2 preceding, including but not limited to proceeds from the condemnation or threatened condemnation of the Land and the proceeds of any and all insurance covering the Land, and all property which is used in connection with the operation of the Land and Accessories; (c) all deposits or other security or advance payments, including, without limitation, rental and premium payments made by or on behalf of Grantor to others with respect to (i) insurance policies relating to all or any part of the properties encumbered by this Deed of Trust, (ii) utility service for all or any part thereof, (iii) cleaning, maintenance, repair, or similar services for all or any part of the properties encumbered by this Deed of Trust, (iv) refuse removal or sewer service for all or any part of the properties encumbered by this Deed of Trust, (v) rental of equipment, if any, used in the operation by or on behalf of Grantor of all or any part of the properties encumbered by this Deed of Trust, and (vi) parking or similar services or rights afforded to all or any part of the properties encumbered by this Deed of Trust; and (d) all permits, certificates, licenses, approvals and authorizations related to the Property (as defined below) or any portion thereof or used in connection therewith (except to the extent that the granting hereunder of Grantor’s right, title and interest in any such permit, approval or authorization would violate the terms thereof or of any Legal Requirement or would cause such permit, approval or authorization to become void or voidable); and

4. Leasehold Estates . In the event the estate of the Grantor in and to any of the Property is a leasehold estate, this conveyance shall include, and the lien, security interest, and assignment created hereby shall encumber and extend to all other further or additional title, estates, interest, or rights which may exist now or at any time be acquired by Grantor in or to the Property demised under the lease creating such leasehold estate and including Grantor’s rights, if any, to the Property demised under such lease and, if fee simple title to any of such Property shall ever become vested in the Grantor such fee simple interest shall be encumbered by this Deed of Trust in the same manner as if Grantor had fee simple title to said Property as of the date of execution hereof;

All properties, rights, and interests described or referred to in the preceding paragraphs 1, 2, 3 and 4 are sometimes referred to collectively as the “Property”.

TO HAVE AND TO HOLD the above-described Property, together with all improvements thereon and all the rights, hereditaments, and appurtenances in anywise appertaining or belonging thereto, unto Trustee, and his successors or substitutes in this trust, and his and their assigns, against the claim or claims of all persons claiming or to claim the same or any part thereof, forever to secure the payment of the Obligations (as defined below) and to secure the performance of the obligations of Grantor herein contained. The Property is to remain so specially mortgaged, affected and hypothecated unto and in favor of Trustee for the benefit of Holder to secure payment of the Obligation (and the performance of the obligations of Grantor herein contained) until full and final payment or discharge of the Obligation and the termination of all commitments of Holder under the Loan Documents.

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Grantor, for Grantor and Grantor’s successors, hereby agrees to warrant and forever defend, all and singular, the Property unto Trustee, and his successors or substitutes in this trust, and Holder, and his and their assigns and successors, in trust and for the uses and purposes hereinafter set forth, forever.

Grantor hereby grants to Holder and its successors and assigns, a security interest in the Property, and each and every part thereof, and in all proceeds from the sale, lease, or other disposition thereof and in all sums, proceeds, funds, and reserves described or referred to in Section 5.7, 5.8, and 5.9 hereof. The security interest created hereby is specifically intended to cover and include all Leases (as such term is defined in Section 4.1 hereof), together with all the right, title, and interest of Grantor, as lessor thereunder, including, without limiting the generality of the foregoing, the present, and continuing right to make claim for, collect, receive, and receipt for any and all of the rents, income, revenues, issues, and profits and monies payable as damages or in lieu of rent and monies payable as the purchase price of the Property or any part thereof or of awards or claims for money and other sums of money payable or receivable thereunder howsoever payable, and to bring actions and proceedings thereunder or for the enforcement thereof, and to do any and all things which Grantor or any lessor is or may become entitled to do under the Leases, provided, that this provision shall neither impair nor diminish any obligation of Grantor under the Leases, nor shall any obligation be imposed upon Holder.

ARTICLE I.

The Obligation

Section 1.1 Holder and Obligation . This Deed of Trust (for sake of clarity, as used herein, the expression “this Deed of Trust” shall mean this Deed of Trust, Mortgage, Security Agreement, Assignment of Leases and Rents, Financing Statement and Fixture Filing) and all rights, title, interest, liens, security interest, powers, and privileges created hereto or arising by virtue hereof, are given to secure payment and performance of the following indebtedness, obligations, and liabilities: (a) the Indebtedness evidenced by that certain promissory note of even date herewith (the “Note”) executed by Lazarus Refining & Marketing, LLC , a Delaware limited liability company (“Debtor”), payable to the order of Sovereign Bank (“Holder”) whose mailing address for payments is 17950 Preston Road, Suite 500, Dallas, TX 75252, in the principal amount of THREE MILLION AND NO/100 DOLLARS ($3,000,000.00) bearing interest as therein specified, containing an attorney’s fee clause, interest and principal being payable as therein specified, and finally maturing six (6) months from the date of the Note; (b) all indebtedness, obligations, and liabilities arising pursuant to the provisions of this Deed of Trust, the Note, any Guaranty or such other documents evidencing, securing or pertaining to the indebtedness referred to in subsection (a) of this Section 1.1, as shall from time to time be executed and delivered to Holder by Debtor or Grantor, any guarantor or any other party, and any other Loan Document (as defined in the Loan Agreement and used herein with the same meaning); (c) all other and any additional debts, obligations, and liabilities of every kind and character of Debtor and Grantor whether now or hereafter existing in favor of Holder, regardless of whether such debts, obligations, and liabilities be direct or indirect, primary, secondary, joint, several, joint and several, fixed, or contingent; (d) any sums advanced or expenses or costs incurred by the Trustee or Holder (or any receiver appointed hereunder) that are made or incurred pursuant to, or permitted by, the terms hereof, plus interest thereon at the rate herein specified or otherwise agreed upon, from the date of the advances or the incurring of such expenses or costs until reimbursed; and (e) any and all renewals, modifications, rearrangements, continuations, restructuring, amendments, or extensions of all or any part of the indebtedness, obligations, and liabilities described or referred to in Subsections 1.1(a), 1.1(b), 1.1(c) and 1.1(d) preceding. The word “Obligation” or “Obligations”, as used herein, shall mean all of the indebtedness, obligations, and liabilities described or referred to in Subsections 1.1(a), 1.1(b), 1.1(c) and 1.1(d) preceding and as described and referred to in this subsection 1.1(e). The word “Holder”, as used herein, shall mean the Holder named in Subsection 1.1(a) above and all subsequent Holders of the Obligation at the time in question.

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Section 1.2 Obligation; Future Advances . This Deed of Trust is given by Grantor to secure the Obligations, including indebtedness in the principal amount outstanding from time to time under the Loan Agreement, the Note and the Loan Documents. Grantor, Trustee, and Holder expressly intend that this Deed of Trust secure, and this Deed of Trust shall secure, a line of credit and other additional amounts advanced, from time to time, or other sums that may be advanced or otherwise become due to Trustee and/or Holder under the Loan Agreement, this Deed of Trust or any other Loan Document, or any extension, renewal or modification thereof, including, without limitation, loans made on demand, term or revolving credit basis.

ARTICLE II.

Certain Representations; Warranties, and Covenants of Grantor

Section 2.1 Warranties and Representations . Grantor represents, warrants, and undertakes that (a) Grantor has full right and authority to execute and deliver this Deed of Trust; (b) unless specifically provided herein to the contrary, Grantor has in its own right good and indefeasible title in fee simple to the Property free from any encumbrance superior to the indebtedness hereby secured; and (c) the representations and warranties set forth in Section 6 of the Loan Agreement are true and correct as if set forth herein in their entirety, mutatis mutandis.

Section 2.2 Covenants . Grantor and Grantor’s successors and permitted assigns hereunder, covenants, agrees, and undertakes to: (a) pay, or cause to be paid, before delinquent, all taxes and assessments of every kind or character in respect to the Property, or any part thereof, and from time to time, upon request of Holder, to furnish to Holder evidence satisfactory to Holder of the timely payment of such taxes and assessments and governmental charges; (b) purchase policies of insurance with respect to the Property with such insurers, in such amounts and covering such risks as shall be satisfactory to Holder, including, but not limited to, (1) owner’s and contractors’ policies of comprehensive general public liability insurance; (2) hazard insurance against all risks of loss, including collapse, in an amount not less than the full replacement cost of all Improvements, including the cost of debris removal, with annual agreed amount endorsement and sufficient at all times to prevent Grantor from becoming a co-insurer, such insurance prior to completion of the Improvements to be in builder’s risk form on a non-reporting basis and including coverage for all materials and equipment, wherever located, intended to be installed in or utilized in the construction of the Improvements; (3) if the Property is in a “Flood Hazard Area”, a flood insurance policy, or binder therefor, in an amount equal to the principal amount of the Note or the maximum amount available under the Flood Disaster Protection Act of 1973, and regulations issued pursuant thereto, as amended from time to time, whichever is less, in form complying with the “insurance purchase requirements” of that act; (4) such policies of mortgagee’s title insurance insuring the validity and priority of this Deed of Trust and any future renewals or extensions of this Deed of Trust, including any such mortgagee’s title insurance which the Holder may require during the term of the Obligation to supplement or replace any mortgagee’s title policy earlier provided to Holder insuring the validity and priority of this Deed of Trust; and (5) such other insurance, if any, as Holder may reasonably require from time to time, or which is required by the Loan Documents (including the insurance described in Exhibit E to the LE Loan Agreement); (c) cause all insurance carried in accordance with Section 2.2(b) to be payable to Holder as a mortgagee, to deliver the original policies of insurance carried by each Lessee (as that term is hereinafter defined) for the benefit of Grantor, and to cause all such policies to be payable to Holder as its interest may appear; (d) pay, or cause to be paid, all premiums for such insurance when due, furnish to Holder satisfactory proof of the timeliness of such payments and deliver all renewal policies to Holder at least ten (10) days before the expiration date of each expiring policy; (e) comply with all federal, state, or municipal laws, rules, ordinances, and

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regulations applicable to the Property and its ownership, use and operation, including but not limited to maintenance of the Property in compliance with the Americans with Disabilities Act of 1990, and comply with all, and not violate any, easements, restrictions, agreements, covenants, and conditions with respect to or affecting the Property or any part thereof; (f) at all times maintain, preserve, and keep the Property in good repair, condition, and appearance, and from time to time make all necessary and proper repairs, replacements, and renewals, and not commit or permit any waste on or of the Property, and not do anything to the Property that may impair its value; (g) with the exception of those unpaid liens and bills that will be paid at the closing of the loan evidenced by the Note, promptly pay all bills for labor and materials incurred in connection with the Property and never permit to be created or to exist in respect to the Property or any part thereof any lien or security interest even though inferior to the liens and security interest hereof for any such bill, and in any event never permit to be created or exist in respect to the Property or any part thereof any other or additional lien or security interest on a parity with or superior to any of the liens or security interest hereof; (h) at any time, and from time to time, upon request of Holder, forthwith, execute and deliver to Holder any and all additional instruments and further assurances, and do all other acts and things, as may be reasonably necessary or proper, in Holder’s reasonable opinion, to effect the intent of these presents, more fully evidence, grant, preserve, protect and perfect the rights, titles, liens, and security interests herein created or intended to be created and to protect the rights, remedies, powers, and privileges of Holder hereunder; (i) from time to time, upon request of Holder, promptly furnish to Holder financial statements and reports and appraisals relating to the Grantor and the Property as required in the Loan Documents; (j) continuously maintain Grantor’s existence and its right to do business in Texas; (k) pay and perform all of the Obligation in accordance with the terms thereof or of this Deed of Trust; (l) at any time any law shall be enacted imposing or authorizing the imposition of any tax upon this Deed of Trust, or upon any rights, titles, liens, or security interests created hereby, or upon the Obligation, or any part thereof, timely pay all such taxes; provided that, in the alternative, Grantor may, in the event of the enactment of such a law, and must, if it is unlawful for Grantor to pay such taxes, prepay the Obligation in full within sixty (60) days after demand therefor by Holder; (m) at any time and from time to time, furnish promptly upon request of Holder a written statement or affidavit, in such form as shall be reasonably satisfactory to Holder, stating the unpaid balance of the Obligation and that there are no offsets or defenses against full payment of the Obligation and the terms hereof, or, if there are any such offsets or defenses, specifying them; (n) punctually and properly perform all of Grantor’s covenants, duties, and liabilities under any other security agreement, mortgage, deed of trust, collateral pledge agreement, contract, or assignment of any kind now or hereafter existing as security for or in connection with payment of the Obligation, or any part thereof (each such security agreement being herein called “other security instrument”); (o) allow Holder from time to time to inspect the Property and all records relating thereto or to the Obligation, and to make and take away copies of such records; (p) not cause or permit the Accessories, or any part thereof, to be removed from the county and state where the Land is located, except items of the Accessories which have become obsolete or worn beyond practical use and which have been replaced by adequate substitutes having a value equal to or greater than the replaced items when new; (q) not, without the prior written consent of Holder, sell, trade, transfer, assign, or exchange or otherwise dispose of (or suffer or permit any of the same to occur with respect to) (1) any equity interests of Grantor or any person in direct or indirect control of Grantor and (r) pay, or cause to be paid, any and all reasonable attorneys’ fees, filing fees and expenses incurred by Holder for the preparation and recordation of any and all legal instruments which the Holder may require at the time of the creation of this Obligation (including this Deed of Trust and/or any and all other instruments which Lender may require in connection herewith) or which Holder may require during the term of the Obligation.

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Section 2.3 Sale or Mortgage of the Property . Except as expressly permitted by Section 5.8 or 5.13 of the LE Loan Agreement, and except for the lien and security interest created by this Mortgage and the other Liens permitted under the Loan Documents, Grantor will not sell, convey, mortgage, pledge, or otherwise dispose of or encumber the Property nor any portion thereof, nor any of Grantor’s right, title or interest therein, without first securing the written consent of Holder.

Section 2.4 Hazardous Waste Warranty and Representation of Grantor . Grantor represents and warrants that, with the exception of the matters revealed by the Phase I and Phase II environmental assessments delivered pursuant to Loan and Security Agreement, the following statements are true:

(1) No industrial activities that could have resulted in environmental contamination of the Property have occurred on the Property to Grantor’s knowledge, including without limitation, storage, treatment or disposal of hazardous substances;

(2) no report, analysis, study or other document identifies any harmful or friable asbestos or hazardous contaminants on the Property to Grantor’s knowledge; and

(3) the Property contains no harmful or friable asbestos, hazardous wastes or other hazardous substances to Grantor’s knowledge.

At its sole cost and expense Grantor shall comply with all federal, state and local laws, regulations and orders with respect to the discharge and removal of hazardous or toxic substances, pay immediately when due the cost of removal of any such substances, and keep the Property free of any lien imposed pursuant to such laws, regulation and orders. In addition, Grantor shall not install or permit to be installed in the Property any friable asbestos or any substance containing asbestos and deemed hazardous by applicable federal, state and local laws, regulations and orders. In addition to the remedies set forth elsewhere in the Deed of Trust or other collateral documents concerning the Obligation herein secured as to default by Grantor, Holder may cause the Property to be freed from the hazardous wastes, contaminants or asbestos, and in such event, the cost of the removal shall be secured by this Deed of Trust, shall be payable by Grantor on demand and shall bear interest at the default interest rate provided in the Note from the date advanced until paid. Grantor shall give to Holder and its agents and employees access to the Property for such purpose, and hereby grants to Holder a license to remove the hazardous wastes, contaminants or asbestos from the Property. Grantor shall indemnify, defend and hold Holder harmless from and against any and all liability, loss or damage (including, without limitation, reasonable attorneys’ fees and costs incurred in the investigation, defense and settlement of claims) that Holder may incur as a result of or in connection with the assertion against Grantor of any claim relating to the presence or removal of any hazardous wastes, contaminants or asbestos from the Property, or relating to compliance with any applicable federal, state or local laws, regulations or orders relating thereto.

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Grantor warrants and represents that to Grantor’s actual knowledge there are no toxic wastes or hazardous substances in the building materials used to construct the improvements located on the Property, and that Grantor shall indemnify and hold Holder and Trustee harmless from any and all claims, costs or expenses (including defense costs and reasonable attorneys’ fees) arising out of, relating to or in any manner connected with the breach of any such warranty or representation. Further, Grantor shall indemnify and hold Holder and Trustee harmless from any and all claims, costs or expenses (including defense costs and reasonable attorneys’ fees) arising out of, relating to, or in any manner connected with any toxic wastes, brought onto or made on the Property by Grantor, its agents, employees, invitees, partners, or tenants, their agents, employees or invitees. Grantor agrees that any violation of Grantor’s warranties in this paragraph will entitle Holder to specific performance or any other remedy available at law and parties agree that any applicable statute of limitations is hereby tolled from date of execution hereof until Holder has actual knowledge of any such violation of warranty.

ARTICLE III.

Respecting Defaults and Remedies of Holder

Section 3.1 Default . The term “default”, as used herein, shall mean the occurrence of any Event of Default (as defined in the Loan Agreement).

Section 3.2 Holder’s Remedies Upon Default . Upon a default, Holder may, at its option, do any one or more of the following:

(a) If Grantor has failed to keep or perform any covenant whatsoever contained in this Deed of Trust, Holder may, but shall not be obligated to any person to do so, perform or attempt to perform said covenant, and any payment made or expense incurred in the performance or attempted performance of any such covenant shall be a part of the Obligation, and Grantor promises, upon demand, to pay to Holder, at the place where the Note is payable, or at such other place as Holder may direct by written notice, all sums so advanced or paid by Holder, with interest from the date when paid or incurred by Holder at the rate provided in the Note. No such payment by Holder shall constitute a waiver of any default. In addition to the liens and security interest hereof, Holder shall be subrogated to all rights, titles, liens, and security interest securing the payment of any debt, claim, tax, or assessment for the payment of which Holder may make an advance, or which Holder may pay.

(b) Unless otherwise modified herein, Holder may, without notice, demand, or presentment, which are hereby waived by Grantor and all other parties obligated in any manner whatsoever on the Obligation, declare the entire unpaid balance of the Obligation immediately due and payable, and upon such declaration, the entire unpaid balance of the Obligation shall be immediately due and payable. Grantor hereby waives all notices allowed by law, including without limitation, demand, presentment, notice of dishonor, protest, notice of intent to accelerate maturity and notice of acceleration.

(c) Holder may request Trustee to, and Trustee at Holder’s direction may, proceed with foreclosure, and in such event Trustee is hereby authorized and empowered, and it shall be his special duty, upon such request of Holder, to sell the Property, or any part thereof, to the highest bidder or bidders for cash, at the courthouse door of the county in the State of Texas wherein such Land or any part thereof then subject to the lien hereof is situated; provided that if such Land is situated in more than one county such sale of the Property, or part thereof, may be made in any county in the State of Texas wherein any part of the Land then subject to the lien hereof is situated. Any such sale shall be made at a public auction, between the hours of ten o’clock a.m. and four o’clock p.m. on the first Tuesday in any month, after a written or printed notice has been posted at the courthouse door in the county, or if more than one, then in each of the counties, wherein the Land subject to the lien hereof is situated, which notice shall designate the county where the Property, or any part thereof, will be sold, and which notice shall be posted at least twenty-one (21) days prior to the date of the sale. If then required by applicable law of the State of Texas, notice of the proposed sale shall be given also by filing, at least twenty-one (21) days before the date of the sale, a copy of such notice in the office of the county clerk of the county, or if more than one, then of each of the counties, wherein the Land to be sold is situated, which notice shall designate the county in which the sale is to be made.

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At least twenty-one (21) days preceding the date of sale, Holder shall serve written notice of the proposed sale by certified mail on each debtor obligated to pay the Obligation according to the records of the Holder. Service of such notice shall be completed upon deposit of the notice, enclosed in a postpaid wrapper, properly addressed to such debtor at the most recent address as shown by the records of the Holder, in a post office or official depository under the care and custody of the United States Postal Service. The affidavit of any person having knowledge of the facts to the effect that such service was completed shall be prima facie evidence of the fact of service. After such sale, Trustee shall make good and sufficient deeds and assignments to the purchaser or purchasers thereunder in the name of Grantor, conveying the Property, or any part thereof, so sold to the purchaser or purchasers with general warranty of title by Grantor. Sale of a part of the Property shall not exhaust the power of sale, but sales may be made from time to time until the Obligation is paid and performed in full. It shall not be necessary to have present or to exhibit at any such sale any of the Accessories, In addition to the rights and powers of sale granted under the preceding provisions of this Subsection 3.2(c), if default is made in the payment of any installment of the Obligation. Holder may, at its option, at once or at any time thereafter while any matured installment remains unpaid, without declaring the entire Obligation to be due and payable, orally or in writing direct Trustee to enforce this trust and to sell the Property subject to such matured indebtedness and the liens and security interest securing its payment, in the same manner, all as provided in the preceding provisions of this Subsection 3.2(c). After such sale, Trustee shall make due conveyance to the purchaser or purchasers. Sales made without maturing the Obligation may be made hereunder whenever there is a default in the payment of any installment of the Obligation, without exhausting the power of sale granted hereby, and without affecting in any way the power of sale granted under this Subsection 3.2(c), the unmatured balance of the Obligation (except as to any proceeds of any sale which Holder may apply as prepayment of the Obligation) or the liens and security interests securing payment of the Obligation. It is intended by each of the foregoing provisions of this Subsection 3.2(c) that Trustee may, after any request or direction by Holder, sell, not only the Land but also the Accessories and other interests constituting a part of the Property, or any part thereof, along with the Land, or any part thereof, as a unit and as a part of a single sale, or may sell any part of the Property separately from the remainder of the Property. It is agreed that, in any deed or deeds given by Trustee, any and all statements of fact or other recitals therein made as to the identity of Holder, or as to the occurrence or existence of any default, or as to the acceleration of the maturity of the Obligation, or as to the request to sell, notice of sale, time, place, terms, and manner of sale, and receipt, distribution, and application of the money realized therefrom, or as to the due and proper appointment of a substitute trustee, and without being limited by the foregoing, as to any other act or thing having been duly done by Holder or by Trustee, shall be taken by all courts of law and equity as prima facie evidence that the said statements or recitals state facts and are without further question to be so accepted, and Grantor does hereby ratify and confirm any and all acts that Trustee may lawfully do in the premises by virtue hereof. In the event of the resignation or death of Trustee, or his removal from his county of residence stated on the first page hereof, or his failure, refusal, or inability, for any reason, to make any such sale or to perform any of the trusts herein declared, or, at the option of Holder, with or without cause, then Holder may appoint, in writing, but without the necessity of recordation, notice or any other formality, a substitute trustee, who shall thereupon succeed to all the estates, titles, rights, powers, and trusts herein granted to and vested in Trustee. In the event of the resignation or death of any such substitute trustee, or his failure, refusal, or inability to make any such sale or perform such trusts, or, at the option of Holder, without cause, successive substitute trustees may thereafter, from time to time, be appointed in the same manner. Wherever herein the word “Trustee” is used, the same shall mean the person who is the duly appointed trustee or substitute trustee hereunder at the time in question.

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(d) Holder may, or Trustee may upon written request of Holder, proceed by suit or suits, at law or in equity, to enforce the payment and performance of the Obligation in accordance with the terms hereof and of the Note or other instruments evidencing it, to foreclose the liens, security interest and this Deed of Trust as against all or any part of the Property, and to have all or any part of the Property sold under the judgment or decree of a court of competent jurisdiction.

(e) Holder, as a matter of right and without regard to the sufficiency of the security, and without any showing of insolvency, fraud, or mismanagement on the part of Grantor, and without the necessity of filing any judicial or other proceeding other than the proceeding for appointment of a receiver, shall be entitled to the appointment of a receiver or receivers of the Property, or any part thereof, and of the income, rents, issues, and profits thereof.

(f) Holder may enter upon the Land, take possession of the property and remove the Accessories, or any part thereof, with or without judicial process, and, in connection therewith, without any responsibility or liability on the part of Holder (excluding gross negligence and willful misconduct of Holder), take possession of any property located on or in the Property which is not a part of the Property and hold or store such property at Grantor’s expense.

(g) Holder may require Grantor to assemble the Accessories, or any part thereof, and make them available to Holder at a place to be designated by Holder which is reasonably convenient to Grantor and Holder.

(h) After notification, if any, hereafter provided in this Subsection 3.2(h), Holder may sell, lease, or otherwise dispose of, at the office of Holder, or on the Land, or elsewhere, as chosen by Holder, all or any part of the Accessories, in their then condition, or following any commercially reasonable preparation or processing, and each Sale (as used in this Subsection, the term “Sale” means any such sale, lease, or other disposition made pursuant to this Subsection 3.2(h)) may be as a unit or in parcels, by public or private proceedings, and by way of one or more contracts, and at any Sale, it shall not be necessary to exhibit the Accessories, or part thereof, being sold. The Sale of any part of the Accessories shall not exhaust Holder’s power of Sale, but Sales may be made from time to time until the Obligation is paid and performed in full. Reasonable notification of the time and place of any public Sale pursuant to this Subsection 3.2(h), or reasonable notification of the time after which any private Sale is to made pursuant to this Subsection 3.2(h), shall be sent to Grantor and to any other person entitled under the Texas Business and Commerce Code (“Code”) to notice; provided that if the Accessories or part thereof being sold are perishable, or threaten to decline rapidly in value, or are of a type customarily sold on a recognized market, Holder may sell, lease, or otherwise dispose of the Accessories, or part thereof, without notification, advertisement, or other notice of any kind. It is agreed that notice sent or given not less than ten (10) calendar days prior to the taking of the action to which the notice relates is reasonable notification and notice for the purposes of this Subsection 3.2(h).

(i) Holder may surrender the insurance policies maintained pursuant to Subsection 2.2(b) hereof, or any part thereof, and receive and apply the unearned premiums as a credit on the Obligation, and in connection therewith, Grantor hereby appoints Holder as the agent and attorney-in-fact for Grantor to collect such premiums.

(j) Holder may retain the Accessories in satisfaction of the Obligation whenever the circumstances are such that Holder is entitled to do so under the Code.

(k) Holder may buy the Property, or any part thereof, at any public or judicial sale.

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(l) Holder may buy the Accessories, or any part thereof, at any private sale if the Accessories, or part thereof, being sold are a type customarily sold in a recognized market or are a type which is the subject of widely distributed standard price quotations.

(m) Holder shall have and may exercise any and all other rights and remedies which Holder may have at law or in equity, or by virtue of any other security instrument, or under the Code, or otherwise.

(n) Holder may apply the reserves, if any, required by Section 5.9 hereof, toward payment of the Obligation.

Section 3.3 Holder as Purchaser . If Holder is the purchaser of the Property, or any part thereof, at any sale thereof, whether such sale be under the power of sale hereinabove vested in Trustee, or upon any other foreclosure of the liens and security interest hereof, or otherwise, Holder shall, upon any such purchase, acquire good title to the Property so purchased, free of the liens and security interest of these presents.

Section 3.4 Other Rights of Holder . Should any part of the Property come into the possession of Holder, whether before or after default, Holder may use or operate the Property for the purpose of preserving it or its value, pursuant to the order of a court of appropriate jurisdiction, or in accordance with any other rights held by Holder in respect to the Property. Grantor covenants to promptly reimburse and pay to Holder, at the place where the Note is payable, the amount of all reasonable expenses (including the cost of any insurance, taxes, or other charges), incurred by Holder in connection with its custody, preservation, use, or operation of the Property, together with interest thereon from the date incurred by Holder at the rate provided in the Note, and all such expenses, costs, taxes, interest, and other charges shall be a part of the Obligation. It is agreed, however, that the risk of loss or damage to the Property is on Grantor, and Holder shall have no liability whatsoever for decline in value of the Property, or for failure to obtain or maintain insurance, or for failure to determine whether insurance in force is adequate as to amount or as to the risks insured.

Section 3.5 Possession After Foreclosure . In case the liens or security interest hereof shall be foreclosed by Trustee’s sale or by judicial action, the purchaser at any such sale shall receive, as an incident to his ownership, immediate possession of the property purchased, and if Grantor or Grantor’s successors shall hold possession of said Property, or any part thereof, subsequent to foreclosure, Grantor and Grantor’s successors shall be considered as tenants at sufferance of the purchaser at foreclosure sale, and anyone occupying the Property after demand is made for possession thereof shall be guilty of forcible detainer and shall be subject to eviction and removal, forcible or otherwise, with or without process of law, and all damages by reason thereof are hereby expressly waived.

Section 3.6 Application of Sales Proceeds Upon Foreclosure . The proceeds from any sale, lease, or other disposition made pursuant to this Article III, or the proceeds from surrendering any insurance policies pursuant to Subsection 3.2(i) hereof, or any rental collected by Holder pursuant to Article IV hereof, or the reserves required by Section 5.9 hereof, or sums received pursuant to Section 5.7 hereof, or proceeds from insurance which Holder elects to apply to the Obligation pursuant to Section 5.8 hereof, shall be applied by Trustee, or by Holder, as the case may be, as follows: First, to the payment of all reasonable expenses of advertising, preserving, selling, and conveying the Property, or part thereof, including reasonable attorney’s fees, and including a reasonable commission to Trustee not to exceed five percent (5%) of the proceeds of the sale; second, to interest on the Obligation; third, to principal on the matured portion of the Obligation; fourth, to prepayment of the unmatured portion, if any, of the Obligation applied to installments of principal in inverse order of maturity; and fifth, the balance, if any, remaining after the full and final payment and performance of the Obligation, to the person or persons legally entitled thereto.

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Section 3.7 Abandonment of Sale . In the event a foreclosure hereunder should be commenced by Trustee in accordance with Subsection 3.2(c) hereof, Holder may at any time before the sale, direct Trustee to abandon the sale, and may then institute suit for the collection of the Note, and for the foreclosure of the liens and security interest hereof. If Holder should institute a suit for the collection of the Note, and for a foreclosure of the liens and security interest hereof, it may at any time before the entry of a final judgment in said suit dismiss the same, and require Trustee to sell the Property, or any part thereof, in accordance with the provisions of this Deed of Trust.

ARTICLE IV.

Assignment of Leases and Rentals

Section 4.1 Definitions . As used in this Deed of Trust: (a) “Lease” means any lease, sublease, or other agreement under the terms of which any Person has or acquires any right to occupy or use or receive products or property or services from any part of the Property or is otherwise obligated to pay to Grantor in exchange for goods or services from or with respect to the Property, or any part thereof, or any interest therein, including all extended or renewal terms thereof and all modifications or amendments thereto and replacements therefor (including, without limitation, the GEL Transaction Documents); (b) “Lessee” means the lessee, sublessee, tenant, counterparty, customer, purchaser, or other person having the right to occupy or use or receive a part of the Property or other benefits relating to the Property under a Lease; and (c) “Rental” means the rents, royalties, and other consideration payable to Grantor by the Lessee under the terms of a Lease (including, without limitation, the right to receive payments under the GEL Transaction Documents). Capitalized terms used but not defined herein shall have the same meanings as in the LE Loan Agreement (as defined in the Loan Agreement).

Section 4.2 Assignment of Leases and Rentals . Grantor hereby absolutely and not only as collateral assigns to Holder all of Grantor’s right, title and interest in and to the Leases and Rentals together with (i) all rights, remedies, benefits and advantages to be derived therefrom; (ii) all of the right, power and authority of Grantor to alter, modify or change the terms of the Leases, or to surrender, cancel or terminate the same; and (iii) all Rental payable under each Lease now or at any time hereafter existing, such assignment being upon the following terms: (a) until receipt from Holder of notice of the occurrence of a default, each Lessee may pay Rental directly to Grantor as licensee of Holder, but Grantor covenants that any Rental received by Grantor after receipt of such notice shall be held by Grantor in trust for the use and benefit of Holder and paid to Holder immediately upon request therefor; (b) upon receipt from Holder of notice that a default exists, or at any other time in the sole discretion of Holder that notice is given to a Lessee, each Lessee is hereby authorized and directed to pay directly to Holder all Rental thereafter accruing, and a receipt for such payment from Holder shall be a release of such Lessee to the extent of all amounts so paid; (c) Rental so received by Holder shall be applied by Holder, first, to the expenses, if any, of collection and then in accordance with Section 3.6; (d) without impairing its rights hereunder. Holder may, at its option, at any time and from time to time, release to Grantor Rental so received by Holder, or any part thereof; (e) Holder shall not be liable for its failure to collect, or its failure to exercise diligence in the collection of Rental, but shall be accountable only for Rental that it shall actually receive; (f) this assignment shall terminate upon the release of this Deed of Trust but no Lessee shall he required to take notice of termination until a copy of such release shall have been delivered to such Lessee. As between Holder and Grantor, and any person claiming through or under Grantor, other than a Lessee who has not received notice of default pursuant to Section 4.2(b), the assignment contained in this Section 4.2 is intended to be absolute, unconditional, and presently effective and the provisions of Subsection 4.2(a) and 4.2(b) are intended solely for the benefit of each Lessee and shall never inure to the benefit of Grantor or any person claiming through or under Grantor, other than a Lessee who has not received such notice. It shall never be necessary for Holder to institute legal proceedings of any kind whatsoever to enforce the provisions of this Section 4.2. Notwithstanding anything to the contrary contained herein, Holder is entitled to all the rights and remedies of an assignee set forth in Chapter 64 of the Texas Property Code, the Texas Assignment of Rents Act (“TARA”). The assignment of Leases and Rentals provided in this Deed of Trust shall constitute and serve as a security instrument under TARA. Holder shall have the ability to exercise its rights related to the Leases and Rentals, in Holder’s sole discretion and without prejudice to any other remedy available, as provided in this Deed of Trust or any other Security Document or as otherwise allowed by Legal Requirements, including, without limitation, TARA. Notwithstanding anything to the contrary contained in this Deed of Trust or the other Security Documents, to the extent this Deed of Trust or any of the other Security Documents contain any notice or cure period, the date enforcement of Beneficiary's rights under TARA begins shall not be affected, extended or otherwise modified by reason of such periods.

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Section 4.3 No Subordination . Nothing in this Article IV shall ever be construed as subordinating this Deed of Trust to any Lease; provided, however, that any proceedings by Holder to foreclose this Deed of Trust, or any action by way of its entry into possession after default, shall not operate to terminate any Lease which has been approved by Holder, and Holder will not cause any Lessee under any such approved Lease to be disturbed in his possession and enjoyment of the leased premises so long as such Lessee shall continue to fully and promptly perform all of the terms, covenants, and provisions of its Lease.

Section 4.4 Grantor’s Obligations . Grantor shall: (a) upon demand by Holder, assign to Holder, by separate instrument in form and substance satisfactory to Holder, any or all Leases, or the Rental payable thereunder, including but not limited to, any Lease which is now in existence or which may be executed after the date hereof; (b) neither accept from any Lessee, nor permit any Lessee to pay, Rental for more than one month in advance not including a customary security deposit; (c) comply, as lessor, with the terms and provisions of each Lease; (d) not waive, excuse, release, or condone any nonperformance of any covenants of any Lessee; (e) give to Holder duplicate notice of each default by each Lessee given by Grantor; and (f) cause each lessee to agree (and each Lessee under each Lease executed after the date hereof does so agree) to give to Holder written notice of each and every default by Grantor under his Lease and not to exercise any remedies under such Lease unless Holder fails to cure such default within ten days, or within such longer period as may be reasonably necessary if such default cannot be cured within ten (10) days, after Holder has received such notice, provided that Holder shall never have any obligation or duty to cure any such default.

Section 4.5 Holder’s Collection of Rental . In the event Holder ever collects Rental through an agent, Holder shall be entitled to pay its agent as compensation for collecting such Rental, from sums so collected, a sum not to exceed five percent (5%) of the Rental so collected. All payments received by Holder pursuant to Article IV hereof shall be applied to repay the Obligation in the manner selected by Holder.

Section 4.6 No Liability of Holder in Collecting, etc . Holder shall not be obligated to enforce, collect, perform or discharge, nor does it hereby undertake to enforce, collect, perform or discharge, any obligation, duty or liability under the Leases or under or by reason of this assignment; and Grantor shall and does hereby agree to perform and discharge any and all obligations, duties and liabilities of Grantor under the terms of any of the Leases and to indemnify Holder for and to hold Holder harmless of and from any and all liability, loss or damage which it may or might incur under the Leases or under or by reason of this assignment, and of and from any and all claims and demands whatsoever which may be asserted against it by reason of any alleged obligations or undertakings on its part to perform or discharge any of the terms, covenants or agreements contained in the Leases, INCLUDING WITHOUT LIMITATION AS A RESULT OF HOLDER’S NEGLIGENCE (except for matters caused by the Holder’s gross negligence or willful misconduct) . Should Holder incur any liability, loss or damage under the Leases or under or by reason of this assignment, or in the defense of any such claims or demands, the amounts thereof, including costs, expenses and reasonable attorney’s fees, shall be secured by this Deed of Trust; and Grantor shall reimburse Holder therefor immediately, upon demand, and the failure of Grantor to do shall constitute an Event of Default under the Loan Agreement.

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Section 4.7 Assignment Not a Restriction on Holder’s Rights . Nothing herein contained shall detract from or limit the absolute obligation of Grantor to make payment of the Obligation regardless of whether the Rentals and Leases assigned by this Article are sufficient to pay the same, and the rights under this Article shall be in addition to all other security now or hereafter existing to secure the payment of the Obligation.

Section 4.8 Indemnity . Grantor agrees to indemnify the Trustee, and Holder (each such Person being called an “ Indemnitee ”) against all issues, claims, damages, actions, liabilities, judgments, costs, reasonable attorneys’ fees or other charges of whatsoever kind or nature (all hereinafter in this Section 4.8(a) called “ claims ”) made against or incurred by them or any of them and arising out of, in connection with, or as a result of, (i) the assertion, either before or after the payment in full of the Obligation, that any Indemnitee received Rentals claimed by third persons, or (ii) any actual or prospective claims, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such claims are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee (IT BEING UNDERSTOOD THAT IT IS THE INTENTION OF THE PARTIES HERETO THAT EACH OF THE INDEMNITEES BE INDEMNIFIED IN THE CASE OF ITS OWN NEGLIGENCE (OTHER THAN GROSS NEGLIGENCE), REGARDLESS OF WHETHER SUCH NEGLIGENCE IS SOLE OR CONTRIBUTORY, ACTIVE OR PASSIVE, IMPUTED, JOINT OR TECHNICAL). All amounts due under this Section shall be payable not later than thirty (30) days after written demand therefor. The obligations of Grantor as hereinabove set forth in this Section 4.8(a) shall survive the release, termination, foreclosure or assignment of this Deed of Trust or any sale hereunder.

Section 4.9 Release of Other Security . Holder may take or release other security, may release any party primarily or secondarily liable for any Obligation secured hereby, may grant extensions, renewals or indulgences with respect to such Obligation, and may apply any other security therefor held by it to the satisfaction of such indebtedness, without prejudice to any of its rights hereunder.

ARTICLE V.

Miscellaneous

Section 5.1 Release . If the Obligation is paid in full in accordance with the terms of this Deed of Trust and the Note and other Loan Documents and all commitments of Holder to advance funds under the Loan Agreement have terminated or expired, and if Grantor shall well and truly perform all of Grantor’s covenants contained herein, then this conveyance shall become null and void and be released at Grantor’s request and expense.

Section 5.2 Rights Cumulative . All rights, remedies, powers, and privileges and all liens, titles, and security interests herein expressly conferred are cumulative, and shall not be deemed to deprive Holder or Trustee of any other legal or equitable rights, remedies, powers, privileges, liens, titles, or security interests by or through judicial proceedings or otherwise appropriate to enforce the conditions, covenants, and terms of this Deed of Trust, the Note, and other security instruments.

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Section 5.3 Waiver . Any and all covenants in this Deed of Trust may from time to time, by instrument in writing signed by Holder and delivered to Grantor, be waived to such extent and in such manlier as Holder may desire, but no such waiver shall ever affect or impair Holder’s rights, remedies, powers, privileges, liens, titles, and security interest hereunder, except to the extent so specifically stated in such written agreement. Neither the exercise of, nor the failure to exercise any option or remedy under the terms of this Deed of Trust shall be considered as a waiver of the right to exercise same, or any other option or remedy given herein.

Section 5.4 Maximum Rate of Interest . Grantor and Holder intend to comply with the applicable law governing the Maximum Rate (hereafter defined). All agreements between Grantor and Holder, whether now existing or hereafter arising and whether written or oral, are expressly limited so that in no event whatsoever, whether by reason of acceleration of the maturity of the Obligation or otherwise, shall the interest contracted for, charged, or received by Holder hereunder or otherwise exceed the Maximum Rate. lf, in any contingency whatsoever, Holder shall receive anything of value deemed interest under applicable law which would cause the interest contracted for, charged, or received by the Holder to exceed the Maximum Rate, the excessive interest shall be applied to the reduction of the unpaid principal balance of the Obligation and not to the payment of interest, or if such excessive interest exceeds the unpaid principal balance of the Obligation, such excess shall be refunded to Grantor, and the provisions herein and any demand on Grantor shall immediately be deemed reformed, and the amounts thereafter collectible hereunder shall be reduced, without the necessity of the execution of any new documents, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder. All interest paid or agreed to be paid to the Holder, to the extent permitted by applicable law, shall be amortized, prorated, allocated, and spread throughout the full term of such indebtedness until payment in full (including the period of any renewal or extension hereof) so that the rate or amount of interest on account of such indebtedness does not exceed the Maximum Rate.

The term “Maximum Rate,” as used herein, shall mean the maximum nonusurious interest rate, if any, that at any time, or from time to time, may under applicable law be contracted for, taken, reserved, charged or received on the Obligation, or any portion thereof, under the laws which are presently in effect of the United States and the State of Texas applicable to such holder and such indebtedness or, to the extent allowed by law under such applicable laws of the United States of America and the State of Texas which may hereafter be in effect, which allow a higher maximum non-usurious interest rate than applicable laws now allow; provided, that in determining the Maximum Rate, due regard shall be given, to the extent required by applicable law, to any and all relevant payments, fees, charges, deposits, balances, agreements and calculations which may constitute or be deemed to constitute interest, or be deducted from principal to calculate the interest rate or otherwise affect interest rate determinations, so that in no event shall the Holder contract for, charge, receive, take, collect, reserve or apply, on the Obligation, or any portion thereof, any amount in excess of the maximum non-usurious rate of interest permitted by applicable law , To the extent that Texas law determines the Maximum Rate, the Maximum Rate shall be determined by utilizing the “indicated rate ceiling” from time to time in effect pursuant to the Texas Finance Code (V.T.C.A. Finance Code Section 303.001 et seq.) (the “Texas Finance Code”) or such successor statute, as then in effect, governing usury. The Maximum Rate shall not be limited to the applicable rate ceiling in the Texas Finance Code or such successor statute if Federal laws or other state laws now or hereafter in effect and applicable to Obligation, or any portion thereof (and the interest contracted for, charged and collected hereunder) shall permit a higher rate of interest.

Section 5.5 Effect of Transfer on Grantor’s Liability . If the ownership of the Property or any part thereof becomes vested in a person other than Grantor or in the event of a change in ownership of any Grantor other than an individual, Holder may, without notice to Grantor or Grantor’s successors, deal with such successor or successors in interest with reference to this Deed of Trust and the Obligation, either by way of forbearance on the part of Holder, or extension of time of payment of the Obligation, or release of all or any part of the Property or any other property securing payment of the Obligation, or otherwise, without in any way modifying or affecting Holder’s rights and liens hereunder or the liability of Grantor or any other party liable for payment of the Obligation, in whole or in part.

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Section 5.6 Waiver of Right to Marshal . Grantor hereby waives all rights of marshaling in event of any foreclosure of the liens and security interests hereby created.

Section 5.7 Condemnation Proceeds . Holder shall he entitled to receive any and all sums which may be awarded or become payable to Grantor for the condemnation of the Property, or any part thereof, for public or quasipublic use, or by virtue of private sale in lieu thereof, and any sums which may be awarded or become payable to Grantor for damages caused by public works or construction on or near the Property. All such sums are hereby assigned to Holder, and Grantor shall, upon request of Holder, make, execute, acknowledge, and deliver any and all additional assignments and documents as may be necessary from time to time to enable Holder to collect and receipt for any such sums. Holder shall not be, under any circumstances, liable or responsible for failure to collect or exercise diligence in the collection of any of such sums. Any sums received by Holder in the event of condemnation shall be applied to installments on the Obligation in inverse order of maturity.

Section 5.8 Insurance Proceeds . The proceeds of any and all insurance upon the Property shall be collected by Holder, and Holder shall have the option, in Holder’s sole discretion, to apply any proceeds so collected either to the restoration of the Property or to the liquidation of the Obligation.

Section 5.9 Reserve for Taxes and Insurance Premiums . Upon a default which remains uncured after the expiration of any applicable cure period, and at the request of Holder, Grantor shall create a fund or reserve for the payment of all insurance premiums, taxes, and assessments against or affecting the Property by paying to Holder, on the first day of each calendar month prior to the maturity of the Note, a sum equal to the premiums that will next become due and payable on the hazard insurance policies covering the Property, or any part thereof, plus taxes and assessments next due on the Property, or any part thereof, as estimated by Holder, less all sums paid previously to Holder therefor, divided by the number of months to elapse before one month prior to the date when such premiums, taxes, and assessments will become due, such sums to be held by Holder, without interest, unless interest is required by applicable law, for the purposes of paying such premiums, taxes, and assessments. Any excess reserve shall, at the discretion of Holder, be credited by Holder on subsequent reserve payments or subsequent payments to be made on the Note by the maker thereof, and all deficiency shall be paid by Grantor to Holder on or before the date when such premiums, taxes, and assessments shall become delinquent. In the event there exists a deficiency in such fund or reserve at any time when taxes, assessments, or insurance premiums are due and payable, Holder may, but shall not be obligated to, advance the amount of such deficiency on behalf of the Grantor, and such amounts so advanced shall become a part of the Obligation, shall be immediately due and payable and shall bear interest at the rate provided in the Note from the date of such advance through and including the date of repayment. Transfer of legal title to the Property shall automatically transfer the interest of Grantor in all sums deposited with Holder under the provisions hereof or otherwise. In the event that Holder does not request that such a fund be established, Grantor hereby agrees that it will promptly pay all premiums, taxes, and assessments when due, and will furnish to Holder proof of payment within 45 days of the due date by submitting canceled checks along with the statement concerning such taxes, premiums, or assessments.

Section 5.10 Right to Accelerate Upon Transfer . If Grantor shall sell, convey, assign, or transfer all or any part of the Property or any interest therein or any beneficial interest in the Grantor, Holder may at Holder’s option, declare the Obligation to be immediately due and payable, which option may be exercised at any time following such sale, conveyance, assignment, or transfer. Holder may in its sole discretion and at Grantor’s request decide not to exercise said option in which event Holder’s forbearance may be predicated on such terms and conditions as Holder may in its sole discretion require, including but not limited to Holder’s approval of the transferee’s credit worthiness and management ability, and the execution and delivery to Holder by transferee, prior to the sale, transfer, assignment, or conveyance of a written assumption agreement containing such terms as Holder may require, including but not limited to, a payment of a part of the principal amount of the Obligation, the payment of an assumption fee, a modification of the term of the Obligation, and such other terms as Holder may require. Should the Property be sold, traded, transferred, assigned, exchanged, or otherwise disposed of without the prior written consent of Holder and payment of any portion of the Obligation is thereafter accepted by the Holder such acceptance shall not be deemed a waiver of the requirement of Holder’s consent in writing thereto or with respect to any other sale, trade, transfer, assignment, exchange, or other disposition.

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Section 5.11 Prohibition Against Subordinate Financing . If Grantor without the prior written consent of Holder, executes or delivers any pledge, security agreement, mortgage, or deed of trust covering all or any portion of the Property (hereafter called “Subordinate Mortgage”) Holder may, at Holder’s option, which option may be exercised at any time following such pledge, security agreement, mortgage, or deed of trust, declare the Obligation to be immediately due and payable. in the event of consent by Holder to the foregoing or in the event the foregoing prohibition is determined by a court of competent jurisdiction to be unenforceable under the provisions of any applicable law, Grantor will not execute or deliver any Subordinate Mortgage unless there shall have been delivered to Holder not less than ten (10) days prior to the date thereof a copy thereof which shall contain express covenants to the effect: (a) that the Subordinate Mortgage is in all respects unconditionally subject and subordinate to the lien, security interest, and assignment evidenced by this Deed of Trust and each term and provision hereof; (b) that if any action or proceeding shall be instituted to foreclose the Subordinate Mortgage (regardless of whether the same is a judicial proceeding or pursuant to a power of sale contained therein), no tenant of any portion of the Property will be named as a party defendant, or will any action be taken with respect to the Property which would terminate any occupancy or tenancy of the Property without the prior written consent of Holder; (c) that the rents and profits, if collected through a receiver or by the Holder of the Subordinate Mortgage, shall be applied first to the Obligations, including principal and interest due and owing on or to become due and owing on the Note and the other indebtedness secured hereby and then to the payment of maintenance, operating charges, taxes, assessments, and disbursements incurred in connection with the ownership, operation, and maintenance of the Property; and (d) that if any action or proceeding shall be brought to foreclose the Subordinate Mortgage, (regardless of whether the same is a judicial proceeding or pursuant to a power of sale contained therein), written notice of the commencement thereof will be given to Holder contemporaneously with the commencement of such action or proceeding.

Section 5.12 Subrogation . It is understood and agreed that the proceeds of the Note, to the extent the same are utilized to renew or extend any indebtedness or take up any outstanding liens against the Property, or any portion thereof, have been advanced by Holder at Grantor’s request and upon Grantor’s representation that such amounts are due and payable. Holder shall be surrogated to any and all rights, remedies, powers, privileges, liens, titles, and security interests owned or claimed by any owner or holder of said outstanding indebtedness or lien, however remote, regardless of whether said indebtedness or lien is acquired by assignment or is released by the holder thereof upon payment.

Section 5.13 Covenant to Perform . Grantor and each and every subsequent owner of the Property, or any part thereof, covenants and agrees that Grantor will perform or cause to be performed, each and every condition, term, provision, and covenant of this Deed of Trust, except that Grantor shall have no duty to pay the indebtedness evidenced by the Note except in accordance with the terms of the Note and all renewals and extensions thereof, and this Deed of Trust or in accordance with the terms of the transfer to Grantor.

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Section 5.14 Notice . Except as otherwise provided herein, wherever this Deed of Trust requires notice to Grantor, notice shall be in writing and shall be deemed effective if either (1) hand delivered, (2) sent by certified mail, return receipt requested, postage prepaid, or (3) sent by overnight courier. All notices sent by U.S. mail and addressed as shown on the first page of this Deed of Trust shall be deemed received on the earlier of (i) the third day (excluding Sundays and legal holidays when the U.S. mail is not delivered) immediately following date of deposit in the U.S. mail or (ii) the date of actual receipt. All notices which are hand delivered or sent by overnight courier shall be deemed received on the day of delivery to the address shown on the first page of this Deed of Trust or such other address as specified by Grantor, Trustee or Holder to each other from time to time.

Section 5.15 Recording, etc . Grantor will promptly (and Holder may, if it chooses to do so in its sole discretion, and Grantor hereby authorizes Holder to), and at Grantor’s expense, record, register, deposit and file this and every other instrument in addition or supplemental hereto in such offices and places and at such times and as often as may be necessary to preserve, protect and renew the lien and security interest hereof as a valid first lien on and prior perfected security interest in real or personal property, as the case may be, and the rights and remedies of Trustee and of Holder, and otherwise will do and observe all things or matters necessary or expedient to be done or observed by reason of any law or regulation of any State or of the United States of America or of any other competent authority, for the purpose of effectively creating, maintaining and preserving the lien and security interest hereof on and in the Property.

Section 5.16 Successors and Assigns . This Deed of Trust is binding upon Grantor and Grantor’s successors, and shall inure to the benefit of Holder, and its successors and assigns, and the provisions hereof shall be covenants running with the Land. The duties, covenants, conditions, obligations, and warranties of Grantor in this Deed of Trust shall be joint and several obligations of Grantor and Grantor’s successors. Grantor may not assign its rights or obligations under this Deed of Trust without the consent of Lender in its sole discretion.

Section 5.17 Counterparts . This Deed of Trust may be executed in a number of identical counterparts, each of which, for all purposes, shall be deemed an original.

Section 5.18 Financing Statement . This Deed of Trust is intended to be a financing statement filed as a fixture filing with respect to As-Extracted Collateral, Accessories and the Goods described at the beginning of this Deed of Trust which are or are to become fixtures relating to the Land. The address of Grantor (Debtor) is set forth on the first page hereof and the address of Holder (Secured Party) is set forth in Section 1.1 hereof. This Deed of Trust is to be filed for record in the real property records of the county clerk of the county or counties where the Land is located. Grantor is the record owner of the Land. A carbon, photographic, or other reproduction of this Deed of Trust or of a financing statement pursuant hereto is sufficient as a financing statement.

Section 5.19 Partial Invalidity . If the lien of this Deed of Trust is invalid or unenforceable as to any part of the Obligation, or if the lien is invalid or unenforceable as to any part of the Property, the unsecured or partially secured portion of the Obligation shall be completely paid prior to the payment of the remaining and secured or partially secured portion of the Obligation, and all payments made on the Obligation, whether voluntary or under foreclosure or other enforcement action or procedure, shall be considered to have been first paid on and applied to the full payment of that portion of the Obligation which is not secured or fully secured by the lien of this Deed of Trust.

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Section 5.20 Appraisal . Holder may from time to time obtain, or require Grantor to obtain for Holder, an appraisal performed by a licensed or certified appraiser acceptable to Holder of any real property securing any extension of credit by Holder to Grantor. Grantor shall insure that such appraiser has free and full access to the subject real property for the purpose of making an appraisal. Grantor consents to such access by appraiser. If Grantor is not in possession of the real property at the time of the appraisal, Grantor shall obtain any consent and cooperation of any person in possession of the real property at the time of the appraisal. Unless prohibited by applicable law, Grantor shall pay to Holder, on demand, any fees incurred by Holder in obtaining any appraisal required under a regulation or policy of any applicable governmental authority or required under Holder’s loan policy. Grantor’s obligation under this paragraph shall be secured by Holder’s lien upon the subject real property unless the real property is the homestead of the Grantor.

Section 5.21 Attorneys’ Fees . If this Deed of Trust or any document related to it is given by Holder to an attorney for enforcement, or if suit is brought for collection or enforcement, or if this Deed of Trust or any document related to it is collected or enforced through probate, bankruptcy or other judicial proceeding (or Holder takes action to protect its interests through probate, bankruptcy or other judicial proceedings), Grantor shall pay Holder reasonable attorneys’ fees, court costs and expenses in addition to other amounts due hereunder.

Section 5.22 Renewals, Amendments and Other Security . Renewals and extensions of the Obligation may be given at any time and amendments may be made to agreements relating to any part of such Obligation (in accordance with such agreements) or the Property and the Trustee and Holder may take or may now hold other security in accordance with the Loan Documents for the Obligation, all without notice to or consent of Grantor. The Trustee and Holder may resort first to such other security or any part thereof or first to the security herein given or any part thereof, or from time to time to either or both, even to the partial or complete abandonment of either security, and such action shall not be a waiver of any rights conferred by this Deed of Trust, which shall continue as a valid lien upon and perfected security interest in the Property not expressly released until the Note and all other Obligations secured hereby are fully paid and all commitments of Holder to advance funds under the Loan Documents have terminated.

Section 5.23 Severability . Except as expressly provided to the contrary herein, each section, part, term, or provision of this Deed of Trust shall be considered severable, and if for any reason any article, section, part, term, or provision herein is determined to be invalid and contrary to or in conflict with any existing or future law or regulation by a court or governmental agency having valid jurisdiction, such determination shall not impair the operation of or have any other effect on other sections, parts, terms, or provisions of this Deed of Trust as may remain otherwise intelligible, and the latter shall continue to be given full force and effect and bind the parties hereto, and said invalid sections, parts, terms, or provisions shall not be deemed to be a part of this Deed of Trust.

Section 5.24 No Liability for Trustee . THE TRUSTEE SHALL NOT BE LIABLE FOR ANY ERROR OF JUDGMENT OR ACT DONE BY THE TRUSTEE IN GOOD FAITH, OR BE OTHERWISE RESPONSIBLE OR ACCOUNTABLE UNDER ANY CIRCUMSTANCES WHATSOEVER (INCLUDING, WITHOUT LIMITATION, THE TRUSTEE’S NEGLIGENCE), EXCEPT FOR THE TRUSTEE’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. The Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by them hereunder, believed by them in good faith to be genuine. All moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by Legal Requirements), and the Trustee shall be under no liability for interest on any moneys received by them hereunder.

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Section 5.25 No Agency, Partnership or Joint Venture . Nothing contained herein nor any acts of the parties hereto shall be deemed or construed by the Holder or by any other party as creating the relationship between them of (i) principal and agent, (ii) a partnership, or (iii) a joint venture.

Section 5.26 Cross-Default Provision . It is expressly understood and agreed that, should Grantor default or commit an event of default under or pursuant to any agreement which is secured by a lien or liens on any portion of the Property, the Obligation hereby secured, at the option of the Holder, shall become due and payable.

Section 5.27 Miscellaneous . THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS. THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES. THIS INSTRUMENT ALSO SECURES OTHER AMOUNTS PROVIDED HEREIN AND AT LAW. THIS INSTRUMENT SECURES AN OBLIGATION THAT MAY INCREASE OR DECREASE FROM TIME TO TIME.

Section 5.28 Construction Mortgage . This Deed of Trust is a construction mortgage, as that term is used in the Code.

Section 5.29 GOVERNING LAW . THIS DEED OF TRUST SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE UNITED STATES OF AMERICA AND OF THE STATE OF TEXAS (WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW).

Section 5.30 Waiver of Right to Trial by Jury . GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, OR COUNTERCLAIM THAT RELATES TO OR ARISES OUT OF ANY OF THE LOAN DOCUMENTS OR THE ACTS OR FAILURE TO ACT OF OR BY HOLDER IN THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS DEED OF TRUST OR THE OTHER LOAN DOCUMENTS.

EXECUTED as of the date first above written.

Lazarus Energy LLC, a Delaware limited liability company

By: Blue Dolphin Energy Company, a Delaware corporation

Its: Sole Member

By : /s/ JONATHAN PITTS CARROLL, SR.

Name: Jonathan Pitts Carroll, Sr.

Title: President

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STATE OF TEXAS §

COUNTY OF DALLAS §

BEFORE ME , the undersigned, a Notary Public in and for the said County and State, on this day personally appeared Jonathan Pitts Carroll, Sr., President of Blue Dolphin Energy Company, a Delaware corporation, the sole member of Lazarus Energy LLC, a Delaware limited liability company, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that he executed the same in the capacity therein stated, as the act of the entity for the purposes and consideration therein expressed.

GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 22 nd day of ____June______, 2015.

/s/ R. HEARNE

NOTARY PUBLIC, State of Texas

My Commission Expires:

12/27/2015

AFTER RECORDING RETURN TO:

Ronda K. Garrett

Sovereign Bank

17950 Preston Road, Suite 500

Dallas, TX 75252

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EXHIBIT A to Deed of Trust, Mortgage, Security Agreement,

Assignment of Rents and Leases, Financing Statement and Fixture Filing

Property Description

S 13° 27’ 49” E, 208.63 feet (called S 13° 37’ E, 207.4 feet) to a five-eighths inch diameter rebar found near a two way fence corner,

N 76° 26’ 34” E, 368.79 feet (called N 76° 29’ E, 368.4 feet) to a one-half inch diameter rebar set with cap (B&A),

N 76° 28’ 28” E, 31.40 feet (called N 76° 49’ E, 31.4 feet) to a five-eighths inch diameter rebar found near a two way fence corner,

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same being the southeast corner of said residue 640 acre tract and

N 76° 16’ 00” E, 275.15 feet (called N 76° 16’ E, 275.3 feet) to a railroad spike found in asphalt driveway,

N 81° 58’ 38” E, 100.50 feet (called N 82° 12’ E, 99.2 feet) to a one-half inch diameter rebar set with cap (B&A),

N 76° 16’ 00” E, 800.00 feet (called N 76° 14’ E, 800.5 feet) to a one-half inch diameter rebar set with cap (B&A),

N 70° 33’ 22” E, 100.50 feet (called N 70° 43’ E, 101.2 feet) to a concrete right of way marker found broken, and

THENCE with the south line of the tract herein described, same being a segment of the common line of said 51.30 acre tract and said 200.008 acre tract as follows:

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S 76° 08’ 20” W, 768.00 feet (called S 76° 10’ W, 768.0 feet) to a one-half inch diameter rebar set with cap (B&A), and

THENCE with the west line of the tract herein described, same being the common line of said 51.30 acre tract and said 41.245 acre tract as follows:

N 13° 57’ 38” W, 223.50 feet (called N 13° 55’ W, 223.5 feet) to a one-half inch diameter rebar set with cap (B&A),

N 13° 53’ 37” W, 373.70 feet (called N 13° 51’ W, 373.7 feet) to a fence post, and

N 13° 49’ 38” W, 449.84 feet (called N 13° 47’ W, 448.8 feet) to the PLACE OF BEGINNING and containing 56.309 ACRES OF LAND.

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SECURITY AGREEMENT

Security Agreement dated June 22 nd , 2015 of Lazarus Energy LLC, a Delaware limited liability company (hereinafter referred to as the “Debtor”) in favor of Sovereign Bank (“Lender”).

In consideration of advances, loans, extensions of credit or other financial accommodations, now existing or hereafter made, to or for the account or benefit of Lazarus Refining & Marketing, LLC, a Delaware limited liability company (“LRM”) by Lender, and the guaranty by the Debtor of such obligations of LRM to Lender, and as an inducement therefor, the Debtor hereby represents, warrants, and agrees as follows:

Section 1

General Information

DEBTOR’S EXACT LEGAL NAME:	Lazarus Energy LLC

STATE OF DEBTOR’S ORGANIZATION:	Delaware

TYPE OF DEBTOR’S ORGANIZATIONAL ENTITY:	Limited Liability Company

DEBTOR’S ORGANIZATIONAL ID NUMBER:	4115011

DEBTOR’S TAXPAYER ID NUMBER:	13-4321870

ADDRESS OF DEBTOR’S PLACE OF BUSINESS:	801 Travis Street, Suite 2100 Houston, Texas 77002

LENDER’S ADDRESS:	17950 Preston Road, Suite 500 Dallas, TX 75252

Section 2

Definitions

“Agreement” shall mean this Security Agreement as the same may be amended, modified, and supplemented from time to time.

“Collateral” shall mean the following personal property of Debtor, wherever located, and now owned, or hereafter acquired or arising, but in all cases excluding Excluded Collateral:

1.	Chattel Paper, including Tangible Chattel Paper and Electronic Chattel Paper;

2.	Deposit Accounts, and all other bank accounts including securities accounts if any ;

3.	Documents;

4.	General Intangibles, including contracts and contract rights (including the GEL Transaction Documents and the other Key Agreements) and Payment Intangibles (including Payment Intangibles and rights to payment under the GEL Transaction Documents and the other Key Agreements);

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5.	Goods, including Equipment, Fixtures, and Accessions;

6.	Instruments, including Promissory Notes;

Records;

8.	Investment Property;

9.	Letter-of-Credit Rights and Letters of Credit;

10.	As-Extracted Collateral;

11.	Supporting Obligations;

12.	Commercial Tort Claims;

13.	Governmental approvals , permits, licenses, authorizations, consents, rulings, tariffs, rates, certifications, waivers, exemptions, filings, claims, orders, judgments and decrees (each a “Governmental Approval”);

14.

Records;

15.	Intellectual Property Collateral;

16.

17.	all other property and rights of every kind and description and interests therein.

“Event of Default” shall mean any event referred to in Section 6 of this Agreement.

“Excluded Collateral” means: (a) accounts receivable (but for sake of clarity excluding payment intangibles and rights to receive payments under any GEL Transaction Documents or other Key Agreements); (b) inventory; and (c) Governmental Approval that by its terms or by operation of law would be void, voidable, terminable or revocable if mortgaged, pledged or assigned hereunder is expressly excepted and excluded from the Liens and terms of this Agreement.

“Guaranty” means that certain Guaranty Agreement dated as of even date herewith by the Debtor and certain other guarantors party thereto in favor of Lender, as the same may be amended, restated, or otherwise modified from time to time

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“Loan” shall mean the loan (including all advances made under such loan) evidenced by the Note.

“Loan Agreement” shall mean that certain Loan and Security Agreement dated as of even date herewith between LRM and Lender, as the same may be amended, restated, or otherwise modified from time to time.

“Loan Documents” shall mean the Loan Agreement, the Note and all other Loan Documents (as defined in the Loan Agreement).

“Obligations” shall mean the Obligations (as defined in the Loan Agreement), including without limitation, indebtedness evidenced by (i) that certain promissory note of even date herewith executed by LRM payable to the order of Lender in the principal amount of THREE MILLION AND NO/100 DOLLARS ($3,000,000.00) (as the same may be amended, restated, or otherwise modified from time to time, the “Note”), and (ii) the Guaranty, together with any and all present or future indebtedness, liabilities, and obligations of LRM and/or the Debtor to Lender of any kind and however evidenced, originally contracted with Lender or with another or others, or in which Lender may have or hereafter acquire a participating interest, direct or indirect, matured or not matured, absolute or contingent, and in any and all amendments, extensions, modifications, and renewals of any of the same. The term “Obligations” shall also include, and Debtor hereby agrees to pay, any and all attorneys’ fees, costs, and expenses incurred by Lender in the collection or enforcement of any of the Obligations and the perfection, preservation, and enforcement of its rights and remedies hereunder and its security interest in the Collateral.

Section 3

Security Interest

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Section 4

Representations and Warranties

B. The Debtor is the sole owner of the Collateral, free of any liens, security interests, claims, or other encumbrances of any kind except as granted herein.

C. All Equipment is in good working order.

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Section 5

Debtor’s Covenants

A. Pay and perform or cause to be paid and performed all the Obligations according to their terms;

B. Maintain business records relating to the Collateral satisfactory to Lender and, where appropriate, shall note thereon the security interest of Lender;

C. The Debtor shall keep such business records at its chief executive office and will permit Lender access thereto at all reasonable times for the purposes of inspection, audit, examination, verification, extracting, copying, and such other purposes as Lender may require. Any such inspection, audit, examination, verification, extracting, and copying shall be at the Debtor’s expense;

D. Promptly deliver to Lender at its request such lists, schedules, invoices, receipts, original documents, and other information relating to the Collateral;

E. Promptly notify Lender of (i) any material loss or damage to the Collateral, and (ii) the occurrence of any event which could adversely affect the security interest of Lender in the Collateral;

H. Maintain the Collateral in compliance with any applicable law, statute, ordinance, regulation or administrative order;

I. Not sell, transfer, or otherwise dispose of the Collateral or any interest therein (except sales of Inventory to buyers in the ordinary course of its business);

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Section 6

Event of Default

Any Event of Default (as defined in the Loan Agreement) shall constitute an Event of Default hereunder.

Section 7

Rights and Remedies of Lender

A. In addition to the rights and remedies granted to Lender herein, Lender shall at all times have the rights and remedies of a secured party under the Code.

B. On and after the occurrence of an Event of Default, Lender may do all or any of the following:

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1. Declare all or any part of the Obligations due and payable.

2. Enter the premises of the Debtor and take custody of or remove the Collateral, without judicial process or the responsibility to post a bond or other financial undertaking.

7. Defend any suit, action, or proceeding against the Debtor concerning the Collateral.

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Section 8

Miscellaneous

A. All representations and warranties made herein or in any of the Loan Documents shall be continuous.

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D. No provision hereof may be amended, modified, waived, or supplemented, except by a writing signed by the party to be charged thereby. No waiver by Lender of any Event of Default shall be a waiver of any other Event of Default.

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IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the date set forth above.

DEBTOR:

Lazarus Energy LLC, a Delaware limited liability company

By: Blue Dolphin Energy Company, a Delaware corporation

Its: Sole Member

By:___/s/ JONATHAN PITTS CARROLL, SR.

Name: Jonathan Pitts Carroll, Sr.

Title: President

LENDER:

Sovereign Bank

By: /s/ KATHRYN WHITE

Name: Kathryn White

Title: Senior Vice President

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SOVEREIGN BANK – LOAN NO. 17036757

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT (as amended, modified or restated from time to time, this “ Agreement ”) dated as of JUNE 22 nd , 2015 (the “ Effective Date ”), is between SOVEREIGN BANK , a Texas state bank (together with its successors and assigns, “ Lender ”), and LAZARUS REFINING & MARKETING, LLC , a Delaware limited liability company (“ Debtor ”).

RECITALS

WHEREAS , Debtor has requested that Lender extend the Credit Facility to Debtor on the terms described in this Agreement.

WHEREAS , Lender is willing to make the Credit Facility available to Debtor upon and subject to the provisions, terms and conditions set forth in the Loan Documents.

NOW THEREFORE , the parties hereto, intending to be legally bound, agree as follows:

1. Definitions . As used in this Agreement, all exhibits, appendices and schedules hereto, and in any other Loan Documents made or delivered pursuant to this Agreement, the following terms will have the meanings given such terms in this Section 1 or in the provisions, sections or recitals herein:

“ Affiliate ” means, with respect to a specified Person, another Person that directly or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

“ Blue Dolphin Energy ” means BLUE DOLPHIN ENERGY COMPANY , a Delaware corporation.

“ Blue Dolphin Pipe ” means BLUE DOLPHIN PIPE LINE COMPANY , a Delaware corporation.

“ Business Day ” means any day other than a Saturday, Sunday or any other day on which the Federal Reserve Bank of Dallas, Texas, is closed.

“ Carroll ” means JONATHAN PITTS CARROLL, SR. , a natural person.

“ Code ” means the Uniform Commercial Code as the same may, from time to time, be enacted and in effect in the State of Texas; provided, that to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different articles or divisions of the Code, the definition of such term contained in Article 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Lender’s lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of Texas, the term “ Code ” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions.

“ Collateral ” means:

(a) The “Collateral” as defined in the Security Agreement.

(b) The “Subject Agreement” and all “Payment Rights,” each as defined in the Collateral Assignment.

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(d) The Property.

(e) All present and future accounts, chattel paper (including electronic chattel paper), commercial tort claims, commodity accounts, commodity contracts, deposit accounts, documents, financial assets, general intangibles, health care insurance receivables, instruments, Intellectual Property, investment property, letters of credit, letter of credit rights, payment intangibles, securities, security accounts and security entitlements now or hereafter owned, held or acquired.

(f) All present and hereafter acquired inventory and goods (including without limitation, all raw materials, work in process and finished goods) held, possessed, owned, held on consignment or held for sale, lease, return or to be furnished under contracts of services, in whole or in part, wherever located.

(g) All equipment and fixtures of whatsoever kind and character now or hereafter possessed, held, acquired, leased or owned, together with all replacements, accessories, additions, substitutions and accessions to all of the foregoing, and all records relating in any way to the foregoing.

(h) All books, records, data, plans, manuals, computer software, computer tapes, computer systems, computer disks, computer programs, source codes and object codes containing any information pertaining directly or indirectly to the Collateral and all rights to retrieve data and other information pertaining directly or indirectly to the Collateral from third parties.

The term “ Collateral ,” as used herein, shall also include (a) any other property or assets, real or personal, tangible or intangible, now existing or hereafter acquired, of any Obligor that may at any time be or become subject to a security interest or lien in favor of Lender as security for the Indebtedness, and (b) all SUPPORTING OBLIGATIONS, PRODUCTS and PROCEEDS of all of the foregoing (including without limitation, insurance payable by reason of loss or damage to the foregoing property) and any property, assets securities, guaranties or monies of Debtor which may at any time come into the possession of Lender. The designation of proceeds does not authorize Debtor to sell, transfer or otherwise convey any of the foregoing property except in the ordinary course of Debtor’s business or as otherwise provided herein. When reference is herein made to Collateral of Debtor, for purposes of such references the “Collateral” shall be deemed limited to only the Collateral in which Debtor has “rights” as defined in the Code.

“ Collateral Assignment ” means that certain COLLATERAL ASSIGNMENT dated as of the Effective Date, executed by Blue Dolphin Pipe in favor of Lender (as such collateral assignment may be amended, restated or modified from time to time).

“ Constituent Documents ” means (a) in the case of a corporation, its articles or certificate of incorporation and bylaws; (b) in the case of a general partnership, its partnership agreement; (c) in the case of a limited partnership, its certificate of limited partnership and partnership agreement; (d) in the case of a trust, its trust agreement; (e) in the case of a joint venture, its joint venture agreement; (f) in the case of a limited liability company, its articles of organization or certificate of formation and operating agreement or regulations; and (g) in the case of any other entity, its organizational and governance documents and agreements.

“ Control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “ Controlling ” and “ Controlled ” have meanings correlative thereto.

“ Debt ” means as to any Person at any time (without duplication) all items of indebtedness, obligation or liability of a Person, whether mature or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, joint or several, that should be classified as liabilities in accordance with GAAP.

“ Deed of Trust ” means the DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS, FINANCING STATEMENT AND FIXTURE FILING dated as of the Effective Date, executed by LE for the benefit of Lender (as the same may be amended, modified or restated from time to time), covering the Property.

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“ Default ” means any Event of Default or event which with notice and/or the passage of time would be an Event of Default.

“ Dollars ” and “ $ ” mean lawful money of the United States of America.

“ Environmental Laws ” means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters.

“ Environmental Liabilities ” means, as to any Person, all liabilities, obligations, responsibilities, remedial actions, losses, damages, punitive damages, consequential damages, treble damages, costs, expenses (including, without limitation, all reasonable fees, disbursements and expenses of counsel, expert and consulting fees and costs of investigation and feasibility studies), fines, penalties, sanctions, and interest incurred as a result of any claim or demand, by any Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, including any Environmental Law, permit, order or agreement with any Governmental Authority or other Person, arising from environmental, health or safety conditions or the release or threatened release of a Hazardous Material into the environment, resulting from the past, present or future operations of such Person or its Affiliates.

“ Existing Loan Agreement ” means that certain LOAN AND SECURITY AGREEMENT dated as of MAY 2, 2014 , between Debtor and Lender (as such loan agreement may be amended, modified or restated from time to time).

“ GAAP ” means generally accepted accounting principles, applied on a consistent basis, as set forth in Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and/or in statements of the Financial Accounting Standards Board and/or their respective successors and which are applicable in the circumstances as of the date in question. Accounting principles are applied on a “consistent basis” when the accounting principles applied in a current period are comparable in all material respects to those accounting principles applied in a preceding period.

“ Governmental Authority ” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“ Guarantor ” means Carroll, Blue Dolphin Energy, LE, and any Person, whether one or more, who from time to time guarantees all or any part of the Indebtedness.

“ Guaranty ” means a GUARANTY AGREEMENT , whether one or more, executed by Guarantor (as the same may be amended, restated or modified from time to time).

“ Hazardous Materials ” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

“ Indebtedness ” means (a) all indebtedness, obligations and liabilities of Debtor to Lender of any kind or character, now existing or hereafter arising, whether direct, indirect, related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several or joint and several, and regardless of whether such indebtedness, obligations and liabilities may, prior to their acquisition by Lender, be or have been payable to or in favor of a third party and subsequently acquired by Lender (it being contemplated that Lender may make such acquisitions from third parties), including without limitation all indebtedness, obligations and liabilities of Debtor to Lender now existing or hereafter arising under (i) the Note, this Agreement, the other Loan Documents or any draft, acceptance, guaranty, endorsement, letter of credit, assignment, purchase, overdraft, discount or indemnity agreement, (ii) any agreement (including related confirmations and schedules) between Debtor and Lender or any Affiliate of Lender now existing or hereafter entered into which is, or relates to, a rate swap, basis swap, forward rate transaction, cap transaction, floor transaction, collar transaction or any other similar transactions (including any option with respect to any of these transactions) or any combination thereof, or (iii) otherwise, (b) all accrued but unpaid interest on any of the indebtedness described in (a) above, (c) all obligations of Obligors to Lender, (d) all costs and expenses incurred by Lender in connection with the collection and administration of all or any part of the indebtedness and obligations described in (a), (b) and (c) above or the protection or preservation of, or realization upon, the collateral securing all or any part of such indebtedness and obligations, including without limitation all reasonable attorneys’ fees and (e) all renewals, extensions, modifications and rearrangements of the indebtedness and obligations described in (a), (b), (c) and (d) above. For the avoidance of doubt, the Indebtedness includes all obligations of any Obligor to Lender under the Existing Loan Agreement and the other Loan Documents (as defined in the Existing Loan Agreement) and under the LE Loan Agreement and the other Loan Documents (as defined in the LE Loan Agreement) .

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“ Intellectual Property ” means the copyrights, copyright licenses, patents, patent licenses, trademarks and trademark licenses now owned or hereafter acquired by Debtor.

“ LE ” means LAZARUS ENERGY LLC , a Delaware limited liability company.

“ LE Loan Agreement ” means that certain LOAN AGREEMENT dated as of the Effective Date among Lender, LE, and the guarantors party thereto (as such loan agreement may be amended, modified or restated from time to time).

“ Loan ” means the advance under the Credit Facility.

“ Loan Documents ” means this Agreement, the Note, the Security Agreement, the Collateral Assignment, the Pledge Agreement, the Deed of Trust, the Guaranty and the other agreements, instruments and documents evidencing, securing, governing, guaranteeing or pertaining to the Loan.

“ Material Adverse Effect ” means a material adverse effect on (a) the business, assets, property, operations, condition (financial or otherwise) or prospects of an Obligor (individually or taken as a whole), (b) the ability of an Obligor to pay or perform the Indebtedness, (c) any of the rights of or benefits available to Lender under the Loan Documents or (d) the validity or enforceability of the Loan Documents.

“ Note ” means, collectively, any promissory note evidencing all or part of the Indebtedness from time to time (as any such Note may be amended, modified or restated from time to time).

“ Obligors ” means Debtor, Guarantor, Blue Dolphin Pipe, or any other Person who guaranteed or is otherwise obligated to pay or perform all or any portion of Indebtedness.

“ Person ” means any individual, corporation, limited liability company, business trust, association, company, partnership, joint venture, Governmental Authority, or other entity, and shall include such Person’s heirs, administrators, personal representatives, executors, successors and assigns.

“ Permitted Encumbrances ” means the following encumbrances: (a) liens for taxes, assessments or governmental charges or levies not yet due and payable or liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (b) liens in respect of property of a Person imposed by law which were incurred in the ordinary course of business and which have not arisen to secure Debt for borrowed money, such as carriers’, materialmen’s, warehousemen’s and mechanics’ liens, statutory and common law landlord’s liens, and other similar liens arising in the ordinary course of business, and which either (i) do not in the aggregate materially detract from the value of such property or materially impair the use thereof in the operation of the business of a Person, or (ii) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property subject to such lien; (c) liens created by or pursuant to the Loan Documents; and (d) liens arising from judgments, decrees, awards or attachments in circumstances not constituting an Event of Default.

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“ Pledge Agreement ” means that certain PLEDGE AGREEMENT dated as of the Effective Date, executed by Debtor in favor of Lender (as such pledge agreement may be amended, modified or restated from time to time), covering a certificate of deposit.

“ Security Agreement ” means that certain SECURITY AGREEMENT dated as of the Effective Date, executed by LE in favor of Lender (as such security agreement may be amended, restated or modified from time to time), to secure the repayment of the Indebtedness.

All words and phrases used herein shall have the meaning specified in the Code except to the extent such meaning is inconsistent with this Agreement. All definitions contained in this Agreement are equally applicable to the singular and plural forms of the terms defined. The words “hereof,” “herein” and “hereunder” and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Any accounting term used in the Loan Documents shall have, unless otherwise specifically provided therein, the meaning customarily given such term in accordance with GAAP, and all financial computations thereunder shall be computed, unless otherwise specifically provided therein, in accordance with GAAP consistently applied; provided, that all financial covenants and calculations in the Loan Documents shall be made in accordance with GAAP as in effect on the Effective Date unless Debtor and Lender shall otherwise specifically agree in writing. That certain items or computations are explicitly modified by the phrase “in accordance with GAAP” shall in no way be construed to limit the foregoing.

2. Credit Facility .

(a) Term Loan . Subject to the terms and conditions set forth in this Agreement and the other Loan Documents, Lender hereby agrees to lend to Debtor in a single advance an aggregate sum of THREE MILLION AND NO/100 DOLLARS ($3,000,000.00) (the “ Credit Facility ”), on the Effective Date, which shall be due and payable on the earlier of: (i) the acceleration of the Indebtedness pursuant to the terms of the Loan Documents; or (ii) DECEMBER ___, 2015 .

(b) Use of Proceeds . The Loan under the Credit Facility shall be used by Debtor to finance the purchase of equipment.

3. Note, Rate and Computation of Interest . The Credit Facility shall be evidenced by a Note duly executed by Debtor and payable to the order of Lender, in form and substance acceptable to Lender. Interest on the Note shall accrue at the rates set forth therein. The principal of and interest on the Note shall be due and payable in accordance with the terms and conditions set forth in the Note and in this Agreement. All payments made by Debtor under this Agreement and the other Loan Documents shall be made to Lender at Lender’s offices as set forth herein in Dollars and immediately available funds, without setoff, deduction or counterclaim, and free and clear of all taxes, at the time and in the manner provided in the Note.

4. Collateral .

(a) Grant of Security Interest . As collateral security for the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the Indebtedness, Debtor hereby pledges to and grants Lender, a security interest in, all of Debtor’s right, title and interest in the Collateral, whether now owned by Debtor or hereafter acquired and whether now existing or hereafter coming into existence. If Debtor at any time holds or acquires a commercial tort claim, Debtor shall notify Lender in writing within FIVE (5) Business Days of such occurrence with the details thereof and grant to Lender a security interest therein or lien thereon and in the proceeds thereof, in form and substance satisfactory to Lender. If the security interest granted hereby in any rights of Debtor under any contract or other agreement included in the Collateral is expressly prohibited by such contract, then the security interest hereby granted therein nonetheless remains effective to the extent allowed by Article 9 of the Code or other applicable law, but is otherwise limited by that prohibition.

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(b) Debtor Remains Liable . Notwithstanding anything to the contrary contained herein, (i) Debtor shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein to perform all of Debtor’s respective duties and obligations thereunder to the same extent as if this Agreement had not been executed; (ii) the exercise by Lender of any of its rights hereunder shall not release Debtor from any of its duties or obligations under the contracts and agreements included in the Collateral and (iii) Lender shall not have any obligation or liability under any of the contracts and agreements included in the Collateral by reason of this Agreement, nor shall Lender be obligated to perform any of the obligations or duties of Debtor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

(c) Intellectual Property . All material Intellectual Property owned or used by Debtor (if any) is listed, together with application or registration numbers, where applicable, in Schedule II . Debtor owns, or is licensed to use, all Intellectual Property necessary to conduct its business as currently conducted except for such Intellectual Property the failure of which to own or license could not reasonably be expected to have a Material Adverse Effect. Debtor will maintain the patenting and registration of all Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office, or other appropriate Governmental Authority, and Debtor will promptly patent or register, as the case may be, all new Intellectual Property and notify Lender in writing FIVE (5) Business Days prior to filing any such new patent or registration.

(d) Additional Documents . To secure full and complete payment and performance of the Indebtedness, each Obligor shall execute and deliver or cause to be executed and delivered all of the Loan Documents reasonably required by Lender covering the Collateral. Each Obligor shall execute and cause to be executed such further documents and instruments, as Lender, in its reasonable discretion, deems necessary or desirable to create, evidence, preserve and perfect its liens and security interests in the Collateral. In the event any of the Loan Documents evidencing or securing the Indebtedness misrepresents or inaccurately reflects the correct terms and/or provisions of the Indebtedness, each Obligor shall upon request by Lender and in order to correct such mistake, execute such new documents or initial corrected, original documents as Lender may deem reasonably necessary to remedy said errors or mistakes. Each Obligor shall execute such other documents as Lender shall deem reasonably necessary to correct any defects or deficiencies in the Loan Documents. Any Obligor’s failure to execute such documents as requested shall constitute an Event of Default under this Agreement.

(e) Setoff . As further security for the Indebtedness, Debtor grants to Lender a first lien and contractual right of set-off in and to all money and property of Debtor now or at any time hereafter coming within the custody or control of Lender, including (without limitation) all certificates of deposit and other accounts, whether such certificates of deposit and/or accounts have matured or not, and whether the exercise of such right of set-off results in loss of interest or other penalty under the terms of the certificate of deposit or account agreement. It is further agreed that Lender shall have a first lien on all deposits and other sums at any time credited by or due from Lender to Debtor as security for the payment of the Indebtedness, and Lender, at its option after the occurrence of a Default may without notice and without any liability, hold all or any part of any such deposits or other sums until all amounts owing under the Loan Documents have been paid in full, and/or Lender may apply or set-off all or any part of any such deposits or other sums credited by or due from Lender to or against any sums due under the Loan Documents in any manner and in any order of preference which Lender, in its sole discretion, chooses. The rights and remedies of Lender hereunder are in addition to any other rights and remedies (including, without limitation, other rights of setoff) which Lender may have.

(f) Satisfaction of Indebtedness . Until the Indebtedness has been indefeasibly paid and fully satisfied (other than contingent indemnification obligations to the extent no unsatisfied claim has been asserted) and the commitments of Lender under the Credit Facility have been terminated, Lender shall be entitled to retain the security interests in the Collateral granted under the Loan Documents and the ability to exercise all rights and remedies available to Lender under the Loan Documents and applicable laws.

5. Conditions Precedent . The obligation of Lender to make the Loan under the Credit Facility is subject to the condition precedent that Lender shall have received, or such condition shall be otherwise satisfied, as of the Effective Date, to Lender’s satisfaction:

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(a) Closing Certificate . A CLOSING CERTIFICATE of an officer of each Obligor that is not a natural Person, or an officer of the governing body of such Obligor, which certifies: (i) the resolutions of such Person authorizing the execution, delivery, and performance of the Loan Documents that such Obligor is a party to; (ii) certificates of the appropriate government officials of the state of organization of each such Obligor and any governing body of such Obligor, and any state any such Person is currently doing business as to the existence, qualification and good standing of such Person, dated no more than TEN (10) days prior to the Effective Date; (iii) the true and correct Constituent Documents of each such Obligor and any governing body of such Obligor and (iv) the names of the individuals or other Persons authorized to sign the Loan Documents that such Obligor is a party to, together with specimen signatures of such Persons.

(b) Loan Documents . The Loan Documents executed by each Obligor party thereto.

(c) Lien Search . The results of a Code or other lien search showing all financing statements and other documents or instruments on file against each Obligor in such locations as Lender may reasonably request, dated no more than TEN (10) days prior to the Effective Date.

(d) Financing Statements . Code financing statements covering the Collateral shall have been filed with such filing offices as Lender may request.

(e) Insurance Matters . Copies of insurance certificates describing all insurance policies as may be required by Lender, together with loss payee and lender endorsements in favor of Lender with respect to all insurance policies covering the Collateral.

(f) Fees and Expenses . Evidence that the costs and expenses of Lender (including reasonable attorneys’ fees) and all fees owing to Lender, shall have been paid in full by Debtor.

(g) LE Loan Agreement . The LE Loan Agreement shall be closed.

(h) Other Matters . Such other documents and agreements as may be required by Lender in its reasonable discretion.

6. Representations and Warranties . Each Obligor hereby represents and warrants to Lender as follows:

(a) Existence . Each Obligor that is not a natural person (i) is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its organization; (ii) has all requisite power and authority to own its assets and carry on its business as now being or as proposed to be conducted; and (iii) is qualified to do business in all jurisdictions in which the nature of its business makes such qualification necessary and where failure to so qualify would have a Material Adverse Effect. Each Obligor has the power and authority to execute, deliver, and perform its obligations under the Loan Documents to which it is or may become a party.

(b) Binding Obligations . The execution, delivery, and performance of the Loan Documents by each Obligor have been duly authorized by all necessary action by such Obligor, and constitute legal, valid and binding obligations of such Obligor, enforceable in accordance with their respective terms, except as limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors’ rights and except to the extent specific remedies may generally be limited by equitable principles.

(c) No Consent . The execution, delivery and performance of the Loan Documents, and the consummation of the transactions contemplated thereby, do not (i) conflict with, result in a violation of, or constitute a default under (1) any provision of the Constituent Documents (if any) or other instrument binding upon any Obligor, (2) any law, governmental regulation, court decree or order applicable to any Obligor, or (3) any contractual obligation, agreement, judgment, license, order or permit applicable to or binding upon any Obligor, (ii) require the consent, approval or authorization of any third party, or (iii) result in or require the creation of any lien, charge or encumbrance upon any property or asset of any Obligor except as may be expressly contemplated in the Loan Documents.

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(d) Financial Condition . Each financial statement of each Obligor supplied to Lender truly discloses and fairly presents such Person’s financial condition as of the date of each such statement. There has been no material adverse change in such financial condition or results of operations of any Obligor subsequent to the date of the most recent financial statement supplied to Lender.

(e) Operation of Business . Debtor possesses all contracts, licenses, permits, franchises, patents, copyrights, trademarks, and tradenames, or rights thereto, necessary to conduct its businesses substantially as now conducted and as presently proposed to be conducted, and Debtor is not in violation of any valid rights of others with respect to any of the foregoing, except any violations that could not reasonably be expected to have a Material Adverse Effect.

(f) Litigation and Judgments . There is no action, suit, investigation, or proceeding before or by any Governmental Authority or arbitrator pending, or to the knowledge of any Obligor, threatened against or affecting such Obligor that would, if adversely determined, have a Material Adverse Effect. There are no outstanding judgments against any Obligor.

(g) Rights in Properties; Liens . Debtor has good and indefeasible title to or valid leasehold interests in its properties, including the properties and assets reflected in the financial statements provided to Lender, and none of the properties of Debtor is subject to any lien, except Permitted Encumbrances.

(h) Debt . Neither Debtor nor LE has Debt other than the Permitted Debt.

(i) Disclosure . No statement, information, report, representation, or warranty made by any Obligor in the Loan Documents or furnished to Lender in connection with the Loan Documents or any of the transactions contemplated hereby contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements herein or therein not misleading. There is no fact known to any Obligor which could reasonably be expected to have a Material Adverse Effect that has not been disclosed in writing to Lender.

(j) Agreements . Debtor is not a party to any indenture, loan, or credit agreement, or to any lease or other agreement or instrument, or subject to any charter or corporate or other organizational restriction which could reasonably be expected to have a Material Adverse Effect. Debtor is not in default in any material respect in the performance, observance, or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument material to its business.

(k) Compliance with Laws . No Obligor is in violation of any law, rule, regulation, order, or decree of any Governmental Authority or arbitrator, the violation of which could reasonably be expected to have a Material Adverse Effect.

(l) Taxes; Governmental Charges . Each Obligor has filed all federal, state and local tax reports and returns required by any law or regulation to be filed by it and has either duly paid all taxes, duties and charges indicated due on the basis of such returns and reports, or made adequate provision for the payment thereof, and the assessment of any material amount of additional taxes in excess of those paid and reported is not reasonably expected. No Obligor has knowledge of any pending investigation of such Obligor by any taxing authority or any pending but unassessed tax liability.

(m) Use of Proceeds; Margin Securities . Debtor is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of regulations of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Loan will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying margin stock.

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(n) ERISA . Debtor is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations and published interpretations thereunder (“ ERISA ”). Neither a reportable event nor a prohibited transaction has occurred and is continuing with respect to any plan. No notice of intent to terminate a plan has been filed, nor has any plan been terminated. No circumstances exist which constitute grounds entitling the Pension Benefit Guaranty Corporation or any entity succeeding to all or any of its functions under ERISA (the “ PBGC ”) to institute proceedings to terminate, or appoint a trustee to administer, a plan, nor has the PBGC instituted any such proceedings. Neither Debtor nor any ERISA Affiliate (as defined below) has completely or partially withdrawn from a multiemployer plan. Debtor and each ERISA Affiliate have met their minimum funding requirements under ERISA with respect to all of their plans, and the present value of all vested benefits under each plan do not exceed the fair market value of all plan assets allocable to such benefits, as determined on the most recent valuation date of the plan and in accordance with ERISA. Neither Debtor nor any ERISA Affiliate has incurred any liability to the PBGC under ERISA. “ ERISA Affiliate ” means each trade or business (whether or not incorporated) which together with Debtor would be deemed to be a “single employer” within the meaning of section 4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of section 414 of the Internal Revenue Code of 1986.

(o) Location . Debtor’s chief executive office is at its address set forth on the signature page hereof.

(p) Environmental Matters . Except for matters disclosed in writing to Lender:

(i) Notice of Non-Compliance . Debtor and all of its property and operations are in full compliance with all Environmental Laws, except where non-compliance could not reasonably be expected to have a Material Adverse Effect. Debtor is not aware of, nor has Debtor received notice of, any past, present, or future conditions, events, activities, practices, or incidents which may interfere with or prevent the compliance or continued compliance of Debtor with all Environmental Laws except where non-compliance would be reasonably be expected to have a Material Adverse Effect;

(ii) Permits . Debtor has obtained all permits, licenses, and authorizations that are required under applicable Environmental Laws, and all such permits are in good standing and Debtor is in compliance with all of the terms and conditions of such permits, except where non-compliance could not reasonably be expected to have a Material Adverse Effect;

(iii) Hazardous Materials . No Hazardous Materials exist on, about, or within or have been used, generated, stored, transported, disposed of on, or released by Debtor from any of the property of Debtor, except to the extent in compliance with Environmental Laws or where such action could not reasonably be expected to have a Material Adverse Effect. The use which Debtor makes and intends to make of their respective properties and assets will not result in the use, generation, storage, transportation, accumulation, disposal, or release of any Hazardous Material on, in, or from any of their properties or assets, except to the extent in compliance with Environmental Laws or where such action could not reasonably be expected to have a Material Adverse Effect;

(iv) No Pending or Threatened Actions . To the knowledge of Debtor, neither Debtor or any of its currently or previously owned or leased property or operations is subject to any outstanding or threatened order from or agreement with any Governmental Authority or other Person or subject to any judicial or docketed administrative proceeding with respect to failure to comply with Environmental Laws; and

(v) No Conditions . There are no conditions or circumstances associated with the currently or previously owned or leased property or operations of Debtor that could reasonably be expected to give rise to any Environmental Liabilities of Debtor.

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(q) Security Interest . Debtor has and will have at all times full right, power and authority to grant a security interest in the Collateral to Lender in the manner provided herein, free and clear of any lien, security interest or other charge or encumbrance other than for the Permitted Encumbrances. This Agreement creates a legal, valid and binding first priority security interest (subject to Permitted Encumbrances) in favor of Lender in the Collateral securing the Indebtedness. Possession by Lender of certain types of Collateral from time to time or the filing of the financing statements delivered prior hereto or concurrently herewith by Debtor to Lender will perfect and establish the first priority of Lender’s security interest hereunder in the Collateral (to the extent that perfection can be accomplished through the filing of a financing statement or the possession of such Collateral) other than for the Permitted Encumbrances.

(r) Location . Debtor’s chief executive office and the office where the records concerning the Collateral are kept are at its address set forth on the signature page hereof.

7. Affirmative Covenants . Until all Indebtedness is indefeasibly paid or performed, Debtor agrees and covenants as follows:

(a) Payment of Obligations . Debtor will pay its obligations, including tax liabilities, that, if not paid, could become a lien on any of its property, before the same shall become delinquent or in default, except where (i) the validity or amount thereof is being contested in good faith by appropriate proceedings, and (ii) Debtor has set aside on its books adequate reserves with respect thereto in accordance with GAAP.

(b) Maintenance and Conduct of Business . Debtor will (i) keep, maintain and preserve all property (tangible and intangible) material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, (ii) do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges, agreements and franchises material to the conduct of its business, and (iii) engage in an efficient and economical manner in a business of the same general type and within Debtor’s powers under Constituent Documents.

(c) Books and Records; Inspection Rights . Debtor will keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. Debtor will permit any representatives designated by Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested.

(d) Insurance . Debtor will maintain insurance, including but not limited to, fire insurance, comprehensive property damage, public liability, worker’s compensation, business interruption and other insurance deemed reasonably necessary by Lender. Debtor will, at its own expense, maintain insurance with respect to all Collateral in such amounts, against such risks, in such form and with such insurers, as shall be satisfactory to Lender from time to time. Each policy of insurance maintained by Debtor shall (i) name Debtor and Lender as insured parties thereunder (without any representation or warranty by or obligation upon Lender) as their interests may appear, (ii) contain the agreement by the insurer that any loss thereunder shall be payable to Lender notwithstanding any action, inaction or breach of representation or warranty by Debtor, and (iii) provide prior written notice of cancellation or of lapse shall be given to Lender by the insurer in accordance with the insurer’s commercial practices as adopted from time to time. Debtor will deliver to Lender original or duplicate policies of such insurance. Debtor will also, at the request of Lender, duly execute and deliver instruments of assignment of such insurance policies and cause the respective insurers to acknowledge notice of such assignment. All insurance payments in respect of loss of or damage to any Collateral shall be paid to Lender and applied by Lender in accordance with the Loan Documents, provided, however, that so long as no Default exists, Debtor may use such insurance payments for the repair or replacement of such lost or damaged property.

(e) Compliance with Laws . Debtor will comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

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(f) Compliance with Agreements . Debtor will comply, in all material respects with all material agreements, contracts, and instruments binding on it or affecting its properties, assets or business.

(g) ERISA . Debtor will comply, and will cause each Subsidiary to comply, with all minimum funding requirements, and all other material requirements, of ERISA, if applicable, so as not to give rise to any liability thereunder.

(h) Notices of Material Events . Debtor will furnish to Lender prompt written notice of the following:

(i) the occurrence of any Default;

(ii) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against any Obligor that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; and

(iii) any and all material adverse changes in any Obligor’s financial condition and all claims made against any Obligor that could materially affect the financial condition of such Obligor.

Each notice delivered under this Section shall be accompanied by a statement of an officer of Debtor setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.

(i) Ownership and Liens . Debtor will maintain good and indefeasible title to the Collateral free and clear of all liens, security interests, encumbrances or adverse claims, except for Permitted Encumbrances. Debtor will cause any financing statement or other security instrument with respect to the Collateral to be terminated, except for Permitted Encumbrances. Debtor will defend at its expense Lender’s right, title and security interest in and to the Collateral against the claims of any third party.

(j) Accounts and General Intangibles . Debtor will, except as otherwise provided herein, collect, at Debtor’s own expense, all amounts due or to become due under each of the accounts and general intangibles. In connection with such collections, Debtor may and, at Lender’s direction, will take such action not otherwise forbidden herein as Debtor or Lender may deem reasonably necessary or advisable to enforce collection or performance of each of the accounts and general intangibles. Debtor will also duly perform and cause to be performed all of its material obligations with respect to the goods or services, the sale or lease or rendition of which gave rise or will give rise to each account and all of its obligations to be performed under or with respect to the general intangibles. Debtor also covenants and agrees to take any action and/or execute any documents that Lender may reasonably request in order to comply with law relating to the assignment of the accounts.

(k) Chattel Paper, Documents and Instruments . Debtor will take such action as may be reasonably requested by Lender in order to cause any chattel paper, documents or instruments to be valid and enforceable and will cause all chattel paper, and instruments to have only one original counterpart. Upon request by Lender, Debtor will deliver to Lender all originals of chattel paper, documents or instruments and unless such request is made, Debtor will not deliver possession of such chattel paper, documents or instruments to any Person and will mark all chattel paper, documents or instruments with a legend indicating that such chattel paper, document or instrument is subject to the security interest granted hereunder.

(l) Waivers and Consents Relating to Real Property Interests . Upon the request of Lender, Debtor shall cause each mortgagee of real property owned by Debtor and each landlord of real property leased by Debtor to execute and deliver agreements satisfactory in form and substance to Lender by which such mortgagee or landlord (i) waives or subordinates any rights it may have in the Collateral, or (ii) consents to the mortgage or other encumbrance of Debtor’s interest in such real property.

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8. Negative Covenants . Until all Indebtedness is indefeasibly paid or performed, each Obligor agrees and covenants as follows:

(a) Fundamental Change . Obligors will not (i) make any material change in the nature of its business as carried on as of the Effective Date, (ii) amend or permit the amendment of any of its Constituent Documents, (iii) liquidate, merge or consolidate with or into any other Person, (iv) make a change in organizational structure or the jurisdiction in which it is organized, or (v) permit any change in any Obligor’s legal name, or the state of Obligor’s organization, to another jurisdiction.

(b) Debt . Neither Debtor nor LE will create, incur, assume or permit to exist any Debt except for the following (“ Permitted Debt ”):

(i) The Indebtedness and any other obligation or liability owing to Lender;

(ii) Trade payables or similar obligations from time to time incurred in the ordinary course of business other than for borrowed money; and

(iii) With Lender’s prior written consent, Debt payable to holders of equity interests in Debtor that is fully subordinated to the payment of the Indebtedness under a written subordination agreement acceptable to Lender in its sole discretion (“ Subordinate Debt ”).

(c) OTHER CHANGES . DEBTOR WILL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF LENDER, (i) CREATE, INCUR OR ASSUME INDEBTEDNESS FOR BORROWED MONEY, INCLUDING CAPITAL LEASES, OTHER THAN INDEBTEDNESS EXPRESSLY PERMITTED BY THE LOAN DOCUMENTS, (ii) SELL, TRANSFER, MORTGAGE, ASSIGN, PLEDGE, LEASE (OTHER THAN IN THE ORDINARY COURSE OF BUSINESS), GRANT A SECURITY INTEREST IN OR ENCUMBER ANY OF DEBTOR’S ASSETS (EXCEPT AS EXPRESSLY PERMITTED BY THE LOAN DOCUMENTS), OR (iii) SELL ANY OF DEBTOR’S ACCOUNTS, EXCEPT TO LENDER .

(d) Loans . Debtor will not make loans or guarantee any obligation of any other Person or entity other than (i) loans or advances to employees of Debtor not to exceed FIVE THOUSAND AND NO/100 DOLLARS ($5,000.00) in the aggregate outstanding at any time, including such loans and advances outstanding on the Effective Date, and (ii) accounts receivable for sales of inventory and other products and services provided by Debtor to its respective customers in the ordinary course of business of Debtor.

(e) Transactions With Affiliates . Debtor will not enter into any transaction, including, without limitation, the purchase, sale or exchange of property or the rendering of any service, with any Affiliate of Debtor, except in the ordinary course of and pursuant to the reasonable requirements of Debtor’s business (upon prior written notice to Lender) and upon fair and reasonable terms no less favorable to Debtor than would be obtained in a comparable arm’s-length transaction with a Person or entity not an Affiliate of Debtor.

(f) Dividends or Distributions . Debtor will not declare or pay any dividends or distributions on any equity interest of Debtor to any Person.

(g) Change In Control . Obligors shall not permit any change in Control of any Obligor.

(h) Impairment of Security Interest . Debtor will not take any action that would in any manner impair the enforceability of Lender’s security interest in any Collateral.

(i) Compromise of Collateral . Debtor will not adjust, settle, compromise, amend or modify any Collateral, except an adjustment, settlement, compromise, amendment or modification in good faith and in the ordinary course of business; provided, however, this exception shall terminate following written notice from Lender upon the occurrence and during the continuation of an Event of Default. Debtor shall provide to Lender such information concerning (i) any adjustment, settlement, compromise, amendment or modification of any Collateral, and (ii) any claim asserted by any account debtor for credit, allowance, adjustment, dispute, setoff or counterclaim, as Lender may reasonably request from time to time.

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9. Financial Covenants . Until all Indebtedness is indefeasibly paid or satisfied and Lender has no further commitment to lend under the Credit Facility:

(a) Debt Service Coverage Ratio . Debtor and LE (on a combined basis) will maintain a Debt Service Coverage Ratio of at least 1.50 to 1.00, to be tested at the end of each quarter, on a trailing TWELVE (12) month basis. “ Debt Service Coverage Ratio ” means, for any period, the ratio of (a) EBITDA of Debtor and LE during such period less permitted distributions during such period, to (b) scheduled payments of principal and interest by Debtor and LE on Debt during such period. “ EBITDA ” means, for any Person for any period of determination, an amount equal to (1) net income plus (2) the sum of the following to the extent deducted from net income: (A) interest expense; plus (B) income taxes; plus (C) depreciation; plus (D) amortization for such period determined and consolidated in accordance with GAAP.

(b) Debt to Tangible Net Worth . Debtor and LE (on a combined basis) will maintain, as of the last day of each calendar quarter, a ratio of (i) total Debt, excluding Subordinate Debt, to (ii) Tangible Net Worth, of not greater than 2.50 to 1.00. “ Tangible Net Worth ” means, at any particular time, all amounts which, in conformity with GAAP, would be included as equity on a balance sheet of a Person; provided, however, there shall be excluded therefrom: (1) any amount at which the equity of such Person appears as an asset on such Person’s balance sheet, (2) goodwill, including any amounts, however designated, that represent the excess of the purchase price paid for assets or stock over the value assigned thereto, (3) patents, trademarks, trade names, and copyrights, (4) deferred expenses, (5) loans and advances to any equity holder, director, officer, or employee of the Person or any affiliate of such Person, and (6) all other assets which are properly classified as intangible assets.

(d) Current Ratio . Debtor and LE (on a combined basis) will maintain, as of the last day of each calendar quarter, a ratio of (i) total current assets, excluding intercompany (Affiliate) accounts receivable, to (ii) total current liabilities, including intercompany (Affiliate) payables, all calculated in accordance with GAAP, of not less than 1.00 to 1.00.

(e) Other Debt . Debtor and LE shall not incur Debt except as permitted by Section 8(b) .

A breach of the financial covenant contained in this Section shall be deemed to have occurred as of any date of determination thereof by Lender or as of the last day of any specified measuring period, regardless of when the financial statements or any certificate reflecting such breach are delivered to Lender.

10. Reporting Requirements . Until all Indebtedness is indefeasibly paid and satisfied, and Lender has no further commitment to lend under the Credit Facility, Debtor agrees and covenants that it will furnish or cause to be furnished the following:

(a) Interim Financial Statements--Debtor . As soon as available, and in any event within SIXTY (60) days after the end of each calendar quarter, financial statements to include a balance sheet and income statement of Debtor, as of the end of such calendar month, all in form and in reasonable detail satisfactory to Lender and duly certified (subject to year-end review adjustments) by an appropriate officer of Debtor, as applicable (i) as being true and correct in all material aspects to the best of such officer’s knowledge (subject to year-end adjustments), and (ii) as having been prepared in accordance with GAAP.

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(b) Annual Financial Statements--Debtor . As soon as available and in any event within NINETY (90) days after the end of each calendar year, financial statements to include a balance sheet, income statement and cash flow statement of Debtor, as of the end of such fiscal year, all in form and in reasonable detail satisfactory to Lender and duly certified by an appropriate officer of Debtor (i) as being true and correct in all material aspects to the best of such officer’s knowledge, and (ii) as having been prepared in accordance with GAAP.

(c) Reporting--LE . All of the reporting required to be furnished by LE to Lender under the LE Loan Agreement, in the time periods required by the LE Loan Agreement.

(d) Reporting—Blue Dolphin Energy . As soon as available and in any event (i) within NINETY (90) days after the end of each calendar year, 10-K reports for Blue Dolphin Energy, in form and in reasonable detail satisfactory to Lender and duly certified by an appropriate officer of Debtor as being true and correct in all material aspects to the best of such officer’s knowledge, (ii) within SIXTY (60) days after the end of each calendar year, 10-Q reports for Blue Dolphin Energy, in form and in reasonable detail satisfactory to Lender and duly certified by an appropriate officer of Debtor as being true and correct in all material aspects to the best of such officer’s knowledge, and (iii) within THIRTY (30) days of filing, annual income tax returns for Blue Dolphin Energy.

(e) Compliance Certificate . Concurrently with the delivery of each of the financial statements of Debtor referred to in Section 10(a) , a certificate of an officer of Debtor (i) stating that to such officer’s knowledge, no Event of Default has occurred and is continuing, or if an Event of Default has occurred and is continuing, a statement as to the nature thereof and the action which is proposed to be taken with respect thereto, and (ii) showing in reasonable detail the calculations demonstrating compliance with the financial covenants set forth in Section 9 of this Agreement.

(f) Carroll’s Financial Statements and Tax Returns . As soon as available and in any event within (i) THIRTY (30) days after the annual anniversary of the date of the annual financial statement most recently delivered to Lender, an annual financial statement for Carroll, including statements of cash flow and contingent liabilities, in such form and detail as Lender shall reasonably require, and (ii) within THIRTY (30) days of the day it is filed with the Internal Revenue Service or other applicable taxing entity, a copy of Carroll’s filed tax return.

(g) ERISA Reports . Promptly after the filing or receipt thereof, copies of all reports, including annual reports, and notices which Debtor files with or receives from the PBGC or the U.S. Department of Labor under ERISA; and as soon as possible and in any event within FIVE (5) Business Days after Debtor knows or has reason to know that any reportable event or prohibited transaction has occurred with respect to any plan or that the PBGC or Debtor has instituted or will institute proceedings under Title IV of ERISA to terminate any plan, a certificate of an officer of Debtor setting forth the details as to such reportable event or prohibited transaction or plan termination and the action that Debtor proposes to take with respect thereto.

(h) Notice of Default and Events of Default . As soon as possible and in any event within FIVE (5) Business Days after the occurrence of each Default, a written notice setting forth the details of such Default and the action which is proposed to be taken by Debtor with respect thereto.

(i) General Information . Debtor shall promptly deliver such other information concerning any Obligor as Lender may request.

11. Rights of Lender . Lender shall have the rights contained in this Section at all times that this Agreement is effective.

(a) Financing Statements . Debtor hereby authorizes Lender to file one or more financing or continuation statements, and amendments thereto, relating to the Collateral. Debtor hereby irrevocably authorizes Lender at any time and from time to time to file in any Code jurisdiction any initial financing statements and amendments thereto that (i) indicate the Collateral (1) as all assets of Debtor or words of similar effect; regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the Code, or (2) as being of an equal or lesser scope or with greater detail, and (ii) contain any other information required by Article 9 of the Code for the sufficiency or filing office acceptance of any financing statement or amendment.

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(b) Power of Attorney . Each Obligor hereby irrevocably appoints Lender as such Obligor’s attorney-in-fact, such power of attorney being coupled with an interest, with full authority in the place and stead of such Obligor and in the name of such Obligor or otherwise, from time to time following the occurrence and during the continuation of an Event of Default in Lender’s reasonable discretion, to take any action and to execute any instrument which Lender may deem necessary or appropriate to accomplish the purposes of this Agreement, including without limitation: (i) to obtain and adjust insurance required by Lender hereunder; (ii) to demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of the Collateral; (iii) to receive, endorse and collect any drafts or other instruments, documents and chattel paper in connection with clause (i) or (ii) above; (iv) to file any claims or take any action or institute any proceedings which Lender may deem necessary or appropriate for the collection and/or preservation of the Collateral or otherwise to enforce the rights of Lender with respect to the Collateral; and (v) to act on such Obligor’s behalf as permitted by any other Loan Document.

(c) Performance by Lender . If any Obligor fails to perform any agreement or obligation provided for in any Loan Document, Lender may itself perform, or cause performance of, such agreement or obligation, and the expenses of Lender incurred in connection therewith shall be a part of the Indebtedness, secured by the Collateral and payable by Debtor on demand.

(d) Debtor’s Receipt of Proceeds . Upon the occurrence and during the continuation of an Event of Default, all amounts and proceeds (including instruments and writings) received by Debtor in respect of the Collateral shall be received in trust for the benefit of Lender hereunder and, upon the written request of Lender, shall be segregated from other property of Debtor and shall be forthwith delivered to Lender in the same form as so received (with any necessary endorsement) and applied to the Indebtedness in accordance with the Loan Documents.

(e) Notification of Account Debtors . Lender may at its reasonable discretion from time to time during the continuation of an Event of Default notify any or all obligors under any accounts (i) of Lender’s security interest in such accounts or general intangibles and direct such obligors to make payment of all amounts due or to become due to Debtor thereunder directly to Lender, and (ii) to verify the accounts with such obligors. Lender shall have the right, at the expense of Debtor, to enforce collection of any such accounts and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as Debtor.

12. Events of Default . Each of the following shall constitute an “ Event of Default ” under this Agreement:

(a) Payment Default . The failure, refusal or neglect of Debtor to pay when due any part of the principal of, or interest on the Indebtedness owing to Lender by Debtor or any other indebtedness or obligations due and owing from Debtor to Lender under the Loan Documents from time to time and such failure, refusal or neglect shall continue unremedied for a period of TEN (10) days from the date such payment is due.

(b) Performance or Warranty Default . Except as otherwise provided in this Agreement, the failure of any Obligor to timely and properly observe, keep or perform any covenant, agreement, warranty or condition required herein or in any of the other Loan Documents or any other agreement with Lender, provided that, if such Default is curable but is not cured within FIVE (5) Business Days following written notice from Lender to such Obligor, then it shall be an Event of Default, except that, if (i) such curable Default cannot be cured within FIVE (5) Business Days, (ii) such Obligor has, within such period, taken such actions as deemed reasonably necessary and appropriate by Lender to cure such curable Default, and (iii) such Obligor shall continue to diligently pursue such actions, then such cure period shall be extended for a period of THIRTY (30) days.

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(c) Representations . Any representation contained herein or in any of the other Loan Documents made by an Obligor is false, misleading or erroneous in any material respect when made or when deemed to have been made.

(d) Default under other Debt . The occurrence of any event which permits the acceleration of the maturity of any Debt for borrowed money in an aggregate principal amount in excess of ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) owing by any Obligor to any third party under any agreement or understanding.

(e) Insolvency . If any Obligor (i) becomes insolvent, or makes a transfer in fraud of creditors, or makes an assignment for the benefit of creditors, or admits in writing its inability to pay its debts as they become due; (ii) generally is not paying its debts as such debts become due; (iii) has a receiver, trustee or custodian appointed for, or take possession of, all or substantially all of its assets, either in a proceeding brought by it or in a proceeding brought against it and such appointment is not discharged or such possession is not terminated within SIXTY (60) days after the effective date thereof or it consents to or acquiesces in such appointment or possession; (iv) files a petition for relief under the United States Bankruptcy Code or any other present or future federal or state insolvency, Bankruptcy or similar laws (all of the foregoing hereinafter collectively called “ Applicable Bankruptcy Law ”) or an involuntary petition for relief is filed against it under any Applicable Bankruptcy Law and such involuntary petition is not dismissed within SIXTY (60) days after the filing thereof, or an order for relief naming it is entered under any Applicable Bankruptcy Law, or any composition, rearrangement, extension, reorganization or other relief of debtors now or hereafter existing is requested or consented to by it; or (v) fails to have discharged within a period of SIXTY (60) days any attachment, sequestration or similar writ levied upon any property of it.

(f) Judgment . The entry of any judgment against any Obligor or the issuance or entry of any attachments or other liens against any of the property of such Obligor for an amount in excess of ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) (individually or in the aggregate) if uninsured, undischarged, unbonded or undismissed on the date on which such judgment could be executed upon.

(g) Action Against Collateral . The Collateral or any portion thereof is taken on execution or other process of law in any action.

(h) Change in Control . A change in Control of any Obligor shall occur.

(i) ERISA Default . Any of the following events shall occur or exist with respect to Debtor or any ERISA Affiliate: (i) any prohibited transaction involving any plan; (ii) any reportable event with respect to any plan; (iii) the filing under Section 4041 of ERISA of a notice of intent to terminate any plan or the termination of any plan; (iv) any event or circumstance that might constitute grounds entitling the PBGC to institute proceedings under Section 4042 of ERISA for the termination of, or for the appointment of a trustee to administer, any plan, or the institution by the PBGC of any such proceedings; or (v) complete or partial withdrawal under Section 4201 or 4204 of ERISA from a multiemployer plan or the reorganization, insolvency, or termination of any multiemployer plan; and in each case above, such event or condition, together with all other events or conditions, if any, have subjected or could in the reasonable opinion of Lender subject Debtor to any tax, penalty, or other liability to a plan, a multiemployer plan, the PBGC, or otherwise (or any combination thereof) which in the aggregate exceed or could reasonably be expected to exceed ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) .

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(j) Death or Incompetence of an Obligor; Dissolution of Certain Person . Any Obligor that is (i) a natural Person shall have died or have been declared incompetent by a court of proper jurisdiction, or (ii) not a natural Person shall have been dissolved, liquidated, or merged or consolidated with or into any other Person without the prior written consent of Lender, provided, however, the death or legal incapacity of any Obligor that is a natural person shall not be an Event of Default if, within THIRTY (30) days of the date of such death or incapacity, the representative or legal guardian of such Obligor or Obligor’s estate affirms in writing (which instrument shall be in form and substance satisfactory to Lender) (1) the obligations of such Obligor’s estate pursuant to the Loan Documents, and (2) that no distributions shall be made from such estate without the prior written consent of Lender.

(k) Action of Lien Holder . The holder of any lien or security interest on the Collateral (without hereby implying the consent of Lender to the existence or creation of any such lien or security interest on the Collateral), declares a default thereunder or institutes foreclosure or other proceedings for the enforcement of its remedies thereunder.

(l) Material Adverse Effect . Any event shall have occurred or is continuing which shall have had a Material Adverse Effect.

(m) Transfer of the Property . Title to all or any part of the Property (other than obsolete or worn personal property replaced by adequate substitutes of equal or greater value than the replaced items when new) shall become vested in any party other than Debtor or a permitted assignee, whether by operation of law or otherwise.

(n) Abandonment . Debtor abandons or vacates any of the Property.

(o) Deterioration . Lender reasonably determines that the condition of the Property has materially deteriorated.

(p) Loan Documents . (i) The Loan Documents shall at any time after their execution and delivery and for any reason cease (1) to create a valid and perfected first priority security interest in and to the Collateral; or (2) to be in full force and effect or shall be declared null and void, or (ii) the validity of enforceability the Loan Documents shall be contested by any Obligor or any other Person party thereto or any Obligor shall deny it has any further liability or obligation under the Loan Documents.

(q) Cross-Defaults . Reference is made to Section 14 below for certain cross-defaults hereunder.

Nothing contained in this Agreement shall be construed to limit the events of default enumerated in any of the other Loan Documents and all such events of default shall be cumulative.

13. Remedies and Related Rights . If an Event of Default shall have occurred and be continuing, and without limiting any other rights and remedies provided herein, under any of the Loan Documents or otherwise available to Lender, Lender may exercise one or more of the rights and remedies provided in this Section.

(a) Remedies . Upon the occurrence of any one or more of the foregoing Events of Default, the entire unpaid balance of principal of the Note, together with all accrued but unpaid interest thereon, and all other Indebtedness owing to Lender by Debtor at such time shall, at the option of Lender, become immediately due and payable without further notice, demand, presentation, notice of dishonor, notice of intent to accelerate, notice of acceleration, protest or notice of protest of any kind, all of which are expressly waived by Debtor, provided , however , concurrently and automatically with the occurrence of an Event of Default under Section 12(e) further advances under the Loan Documents shall automatically cease, the Indebtedness at such time shall, without any action by Lender, become due and payable, without further notice, demand, presentation, notice of dishonor, notice of acceleration, notice of intent to accelerate, protest or notice of protest of any kind, all of which are expressly waived by Debtor. All rights and remedies of Lender set forth in this Agreement and in any of the other Loan Documents may also be exercised by Lender, at its option to be exercised in its sole discretion, upon the occurrence of an Event of Default, and not in substitution or diminution of any rights now or hereafter held by Lender under the terms of any other agreement.

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(b) Other Remedies . Upon the occurrence of any one or more of the foregoing Events of Default, Lender may from time to time at its discretion, without limitation and without notice except as expressly provided in any of the Loan Documents:

(i) Exercise in respect of the Collateral all the rights and remedies of a secured party under the Code (whether or not the Code applies to the affected Collateral);

(ii) Require Debtor to, and Debtor hereby agrees that it will at its expense and upon request of Lender, assemble the Collateral as directed by Lender and make it available to Lender at a place to be designated by Lender which is reasonably convenient to both parties;

(iii) Reduce its claim to judgment or foreclose or otherwise enforce, in whole or in part, the security interest granted hereunder by any available judicial procedure;

(iv) Sell or otherwise dispose of, at its office, on the premises of Debtor or elsewhere, the Collateral, as a unit or in parcels, by public or private proceedings, and by way of one or more contracts (it being agreed that the sale or other disposition of any part of the Collateral shall not exhaust Lender’s power of sale, but sales or other dispositions may be made from time to time until all of the Collateral has been sold or disposed of or until the Indebtedness has been paid and performed in full), and at any such sale or other disposition it shall not be necessary to exhibit any of the Collateral;

(v) Buy the Collateral, or any portion thereof, at any public sale;

(vi) Buy the Collateral, or any portion thereof, at any private sale if the Collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations;

(vii) Apply for the appointment of a receiver for the Collateral, and Debtor hereby consents to any such appointment; and

(viii) At its option, retain the Collateral in satisfaction of the Indebtedness whenever the circumstances are such that Lender is entitled to do so under the Code or otherwise.

Debtor agrees that in the event Debtor is entitled to receive any notice under the Code, as it exists in the state governing any such notice, of the sale or other disposition of any Collateral, reasonable notice shall be deemed given when such notice is deposited in a depository receptacle under the care and custody of the United States Postal Service, postage prepaid, at Debtor’s address set forth on the signature page hereof, TEN (10) days prior to the date of any public sale, or after which a private sale, of any of such Collateral is to be held. Lender shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

(c) Application of Proceeds . If any Event of Default shall have occurred and is continuing, Lender may at its discretion apply or use any cash held by Lender as Collateral, and any cash proceeds received by Lender in respect of any sale or other disposition of, collection from, or other realization upon, all or any part of the Collateral as follows in such order and manner as Lender may elect:

(i) to the repayment or reimbursement of the reasonable costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses) incurred by Lender in connection with (1) the administration of the Loan Documents, (2) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, the Collateral, and (3) the exercise or enforcement of any of the rights and remedies of Lender hereunder;

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(ii) to the payment or other satisfaction of any liens and other encumbrances upon the Collateral;

(iii) to the satisfaction of the Indebtedness;

(iv) by holding such cash and proceeds as Collateral;

(v) to the payment of any other amounts required by applicable law; and

(vi) by delivery to Debtor or any other party lawfully entitled to receive such cash or proceeds whether by direction of a court of competent jurisdiction or otherwise.

(d) License . Lender is hereby granted a license or other right to use, following the occurrence and during the continuance of an Event of Default, without charge, Debtor’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, customer lists and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral, and, following the occurrence and during the continuance of an Event of Default, Debtor’s rights under all licenses and all franchise agreements shall inure to Lender’s benefit. In addition, Debtor hereby irrevocably agrees that Lender may, following the occurrence and during the continuance of an Event of Default, sell any of Debtor’s inventory directly to any Person, including without limitation Persons who have previously purchased Debtor’s inventory from Debtor and in connection with any such sale or other enforcement of Lender’s rights under this Agreement, may sell inventory which bears any trademark owned by or licensed to Debtor and any inventory that is covered by any copyright owned by or licensed to Debtor and Lender may finish any work in process and affix any trademark owned by or licensed to Debtor and sell such inventory as provided herein.

(e) Deficiency . In the event that the proceeds of any sale of, collection from, or other realization upon, all or any part of the Collateral by Lender are insufficient to pay all amounts to which Lender is legally entitled, each Obligor (unless otherwise provided) shall be liable for the deficiency, together with interest thereon as provided in the Loan Documents.

(f) Non-Judicial Remedies . In granting to Lender the power to enforce its rights hereunder without prior judicial process or judicial hearing, Debtor expressly waives, renounces and knowingly relinquishes any legal right which might otherwise require Lender to enforce its rights by judicial process. Debtor recognizes and concedes that non-judicial remedies are consistent with the usage of trade, are responsive to commercial necessity and are the result of a bargain at arm’s length.

(g) Use and Possession of Certain Premises . Upon the occurrence of an Event of Default, Lender shall be entitled to occupy and use any premises owned or leased by any Obligor where any of the Collateral or any records relating to the Collateral are located until the Indebtedness is paid or the Collateral is removed therefrom, whichever first occurs, without any obligation to pay such Obligor for such use and occupancy.

(h) Other Recourse . Each Obligor waives any right to require Lender to proceed against any third party, exhaust any Collateral or other security for the Indebtedness, or to have any third party joined with Debtor in any suit arising out of the Indebtedness or any of the Loan Documents, or pursue any other remedy available to Lender. Each Obligor further waives any and all notice of acceptance of this Agreement and of the creation, modification, rearrangement, renewal or extension of the Indebtedness. Each Obligor further waives any defense arising by reason of any disability or other defense of any third party or by reason of the cessation from any cause whatsoever of the liability of any third party. Until all of the Indebtedness shall have been paid in full, Obligor shall have no right of subrogation and each Obligor waives the right to enforce any remedy which Lender has or may hereafter have against any third party, and waives any benefit of and any right to participate in any other security whatsoever now or hereafter held by Lender. Each Obligor authorizes Lender, and without notice or demand and without any reservation of rights against such Obligor and without affecting such Obligor’s liability hereunder or on the Indebtedness to (i) take or hold any other property of any type from any third party as security for the Indebtedness, and exchange, enforce, waive and release any or all of such other property, (ii) apply such other property and direct the order or manner of sale thereof as Lender may in its discretion determine, (iii) renew, extend, accelerate, modify, compromise, settle or release any of the Indebtedness or other security for the Indebtedness, (iv) waive, enforce or modify any of the provisions of any of the Loan Documents executed by any third party, and (v) release or substitute any third party.

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(i) No Waiver; Cumulative Remedies . No failure on the part of Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power, or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. The rights and remedies provided for in this Agreement and the other Loan Documents are cumulative and not exclusive of any rights and remedies provided by law.

(j) Equitable Relief . Debtor recognizes that in the event Debtor fails to pay, perform, observe, or discharge any or all of the Indebtedness, any remedy at law may prove to be inadequate relief to Lender. Debtor therefore agrees that Lender, if Lender so requests, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages.

14. Cross-Collateralization and Cross-Default . This Agreement, the Collateral, and the Indebtedness are cross-collateralized and cross-defaulted with (i) the LE Loan Agreement, the obligations thereunder, and the collateral securing such obligations, and (ii) the Existing Loan Agreement, the obligations thereunder, and the collateral securing such obligations. Without limiting the foregoing, Debtor (and LE, by its signature below) and Lender contemplate that Debtor and/or LE and Lender have engaged or may, from time to time engage, in various loan transactions and that from time to time other circumstances may arise, in which Debtor and/or LE becomes obligated to Lender, including 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 ”). Debtor (and LE, by its signature below) and Lender agree that all such transactions will be secured by the Collateral, and that the Indebtedness 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 Indebtedness and performance of all other obligations under this Agreement by Debtor and/or LE shall not terminate Lender’s security interests 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 such Loan Obligation. Lender’s failure to exercise cross-defaults shall not constitute a waiver by Lender of such right.

15. Indemnity . Debtor hereby indemnifies and agrees to hold harmless Lender, and its officers, directors, employees, agents and representatives (each an “ Indemnified Person ”) from and against any and all liabilities, obligations, claims, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature (collectively, the “ Claims ”) which may be imposed on, incurred by, or asserted against, any Indemnified Person arising in connection with the Loan Documents, the Indebtedness or the Collateral (including without limitation, the enforcement of the Loan Documents and the defense of any Indemnified Person’s actions and/or inactions in connection with the Loan Documents). WITHOUT LIMITATION, THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO ANY CLAIMS WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH INDEMNIFIED PERSON, EXCEPT TO THE LIMITED EXTENT THE CLAIMS AGAINST AN INDEMNIFIED PERSON ARE PROXIMATELY CAUSED BY SUCH INDEMNIFIED PERSON’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT . If Debtor or any third party ever alleges such gross negligence or willful misconduct by any Indemnified Person, the indemnification provided for in this Section shall nonetheless be paid upon demand, subject to later adjustment or reimbursement, until such time as (a) a court of competent jurisdiction enters a final judgment as to the extent and effect of the alleged gross negligence or willful misconduct, or (b) Lender has expressly agreed in writing with Debtor that such Claim is proximately caused by such Indemnified Person’s gross negligence or willful misconduct. The indemnification provided for in this Section shall survive the termination of this Agreement and shall extend and continue to benefit each individual or entity that is or has at any time been an Indemnified Person hereunder.

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16. Limitation of Liability . Neither Lender nor any officer, director, employee, attorney, or agent of Lender shall have any liability with respect to, and Debtor hereby waives, releases, and agrees not to sue any of them upon, any claim for any special, indirect, incidental, or consequential damages suffered or incurred by Debtor in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or any of the other Loan Documents. Debtor hereby waives, releases, and agrees not to sue Lender or any of Lender’s Affiliates, officers, directors, employees, attorneys, or agents for punitive damages in respect of any claim in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or any of the other Loan Documents.

17. No Duty . All attorneys, accountants, appraisers, and other professional Persons and consultants retained by Lender shall have the right to act exclusively in the interest of Lender and shall have no duty of disclosure, duty of loyalty, duty of care, or other duty or obligation of any type or nature whatsoever to any Obligor or any of any Obligor’s equity holders or any other Person. Documents in connection with the transactions contemplated hereunder have been prepared by GARDERE WYNNE SEWELL LLP (“ Lender’s Counsel ”). Debtor acknowledges and understands that Lender’s Counsel is acting solely as counsel to Lender in connection with the transaction contemplated herein, is not representing Debtor in connection therewith, and has not, in any manner, undertaken to assist or render legal advice to Debtor with respect to this transaction. Each Obligor has been advised to seek other legal counsel to represent each Obligor’s interests in connection with the transactions contemplated herein.

18. Lender not Fiduciary . The relationship between Obligors and Lender is solely that of debtor and creditor, and Lender has no fiduciary or other special relationship with any Obligor, and no term or condition of any of the Loan Documents shall be construed so as to deem the relationship between any Obligor and Lender to be other than that of debtor and creditor.

19. Waiver and Agreement . Neither the failure nor any delay on the part of Lender to exercise any right, power or privilege herein or under any of the other Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. No waiver of any provision in this Agreement or in any of the other Loan Documents and no departure by any Obligor therefrom shall be effective unless the same shall be in writing and signed by Lender, and then shall be effective only in the specific instance and for the purpose for which given and to the extent specified in such writing. No modification or amendment to this Agreement or to any of the other Loan Documents shall be valid or effective unless the same is signed by the party against whom it is sought to be enforced.

20. Benefits . This Agreement shall be binding upon and inure to the benefit of Lender and Obligors, and their respective heirs, personal representatives, successors and assigns, provided, however, that no Obligor may, without the prior written consent of Lender, assign any rights, powers, duties or obligations under this Agreement or any of the other Loan Documents.

21. Notices . All notices or other communications required or permitted to be given pursuant to this Agreement or the other Loan Documents (unless otherwise expressly stated therein) shall be in writing and shall be considered as properly given if (a) mailed by first class United States mail, postage prepaid, registered or certified with return receipt requested, (b) by delivering same in person to the intended addressee, or (c) by delivery to an independent third party commercial delivery service for same day or next day delivery and providing for evidence of receipt at the office of the intended addressee. Notice so mailed shall be effective upon its deposit with the United States Postal Service or any successor thereto; notice sent by such a commercial delivery service shall be effective upon delivery to such commercial delivery service; notice given by personal delivery shall be effective only if and when received by the addressee; and notice given by other means shall be effective only if and when received at the office or designated place or machine of the intended addressee. For purposes of notice, the addresses of the parties shall be as set forth herein; provided, however, that either party shall have the right to change its address for notice hereunder to any other location within the continental United States by the giving notice to the other party in the manner set forth herein.

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22. Construction; Venue; Service of Process . The Loan Documents have been executed and delivered in the State of Texas, shall be governed by and construed in accordance with the laws of the State of Texas, and shall be performable by the parties hereto in the county in Texas where Lender’s address set forth on Lender’s signature page hereof is located (the “ Venue Site ”). Any action or proceeding against any Obligor under or in connection with any of the Loan Documents may be brought in any state or federal court within the Venue Site. Each Obligor hereby irrevocably (a) submits to the nonexclusive jurisdiction of such courts, and (b) waives any objection it may now or hereafter have as to the venue of any such action or proceeding brought in any such court or that any such court is an inconvenient forum. Each Obligor agrees that service of process upon it may be made by certified or registered mail, return receipt requested, at its address specified or determined in accordance with the provisions of this Agreement. Nothing in any of the other Loan Documents shall affect the right of Lender to serve process in any other manner permitted by law or shall limit the right of Lender to bring any action or proceeding against any Obligor or with respect to any of its property in courts in other jurisdictions. Any action or proceeding by any Obligor against Lender shall be brought only in a court located in the Venue Site.

23. Invalid Provisions . If any provision of the Loan Documents is held to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable and the remaining provisions of the Loan Documents shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance.

24. Expenses . Debtor shall pay all reasonable costs and expenses (including, without limitation, reasonable attorneys’ fees) in connection with (a) the drafting and execution of the Loan Documents and the transactions contemplated therein, (b) any action required in the course of administration of the Indebtedness and obligations evidenced by the Loan Documents, and (c) any action in the enforcement of Lender’s rights upon the occurrence of an Event of Default.

25. Participation of the . Debtor agrees that Lender may, at its option, sell interests in the and its rights under this Agreement to a financial institution or institutions and, in connection with each such sale, Lender may disclose any financial and other information available to Lender concerning Debtor to each prospective purchaser subject to obtaining a confidentiality agreement with each prospective purchaser prior to disclosing Debtor’s confidential information.

26. Conflicts . Except as otherwise expressly provided in the Note, in the event any term or provision of this Agreement is inconsistent with or conflicts with any provision of the other Loan Documents, the terms and provisions contained in this Agreement shall be controlling.

27. Counterparts . The Loan Documents may be separately executed in any number of counterparts, each of which shall be an original, but all of which, taken together, shall be deemed to constitute one and the same instrument.

28. Survival . All representations and warranties made in the Loan Documents or in any document, statement, or certificate furnished in connection with this Agreement shall survive the execution and delivery of the Loan Documents, and no investigation by Lender or any closing shall affect the representations and warranties or the right of Lender to rely upon them.

29. Waiver of Right to Trial by Jury . THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, OR COUNTERCLAIM THAT RELATES TO OR ARISES OUT OF THE LOAN DOCUMENTS OR THE ACTS OR FAILURE TO ACT OF OR BY LENDER IN THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.

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30. Notice of Right to Receive a Copy of Appraisal . If the Indebtedness is secured by a lien in real property, Debtor has a right to receive a copy of the appraisal report used in connection with the Loan. If Debtor would like to receive a copy, Debtor must contact Lender at the address set forth herein and request a copy of the appraisal report. Lender must receive such a request from Debtor no later than NINETY (90) days the Effective Date.

31. Patriot Act Notice . Lender hereby notifies each Obligor 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 Obligor, which information includes the name and address of such Obligor and other information that will allow such Lender to identify such Obligor in accordance with the Act.

32. Federal Small Business Certification . Debtor represents, warrants and certifies that none of the principals of Debtor or Debtor’s Affiliates have been convicted of, or pleaded nolo contendre to, any offense covered by 42 U.S.C. §16911(7). For purposes of this Section, the term “principal” means: (a) with respect to a sole proprietorship, the proprietor; (b) with respect to a partnership, each managing partner and each partner who is a natural person and holds a TWENTY PERCENT (20.00%) or more ownership interest in the partnership; and (c) with respect to a corporation, limited liability company, association or development company, each director, each of the FIVE (5) most highly compensated executives or officers of the entity, and each natural person who is a direct or indirect holder of TWENTY PERCENT (20.00%) or more of the ownership stock or stock equivalent of the entity.

33. Regulation B—Notice of Joint Intent . If Debtor is more than one Person, Federal Regulation B (Equal Credit Opportunity Act) requires Lender to obtain evidence of Debtor’s intention to apply for joint credit. Debtor’s signature below shall evidence such intent. Debtor’s intent shall apply to future related extensions of joint credit and joint guaranty.

34. Disclosure Relating to Collateral Protection Insurance . As of the date of this disclosure, Debtor and Lender have or shall have consummated a transaction pursuant to which Lender has agreed to make the Loan to Debtor. Certain Obligors have pledged Collateral to secure the Indebtedness in accordance with the Loan Documents. This notice relates to Debtor’s obligations with respect to insuring the Collateral against damage. To this end, the applicable Obligors must do the following:

(a) Keep the Collateral insured against damage as required by the Loan Documents;

(b) Purchase the insurance from an insurer that is authorized to do business in Texas or an eligible surplus lines insurer;

(d) Deliver to Lender a copy of the policy and proof of the payment of premiums.

Lender may obtain collateral protection insurance on behalf of Debtor at Debtor’s expense if Debtor fails to meet any of the foregoing requirements.

35. Notice of Final Agreement . It is the intention of each Obligor and Lender that the following NOTICE OF FINAL AGREEMENT be incorporated by reference into each of the Loan Documents (as the same may be amended, modified or restated from time to time). Each Obligor and Lender warrant and represent that the entire agreement made and existing by or among each Obligor and Lender with respect to the is and shall be contained within the Loan Documents, and that no agreements or promises exist or shall exist by or among, any Obligor and Lender that are not reflected in the Loan Documents.

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NOTICE OF FINAL AGREEMENT

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

REMAINDER OF PAGE LEFT INTENTIONALLY BLANK

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AGREED as of the Effective Date.

LENDER:	ADDRESS:
SOVEREIGN BANK	17950 Preston Road, Suite 500
	Dallas, TX 75252
By: /s/ KATHRYN WALKER
Name: Kathryn Walker
Title: Senior Vice President

With copies of notices to:	Gardere Wynne Sewell LLP
	1601 Elm Street, Suite 3000
Dallas, TX 75201
Attention: Steven S. Camp
DEBTOR:	ADDRESS:
LAZARUS REFINING & MARKETING, LLC	801 Travis Street, Suite 2100
	Houston, TX 77002
By: BLUE DOLPHIN ENERGY COMPANY
Its: Sole Member

By: /s/ JONATHAN PITTS CARROLL, SR.
Name: Jonathan Pitts Carroll, Sr.
Title: President

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JOINDER OF OBLIGORS

EACH UNDERSIGNED OBLIGOR hereby agrees and consents to the provisions of this Agreement and agrees to be bound by the terms and conditions set forth therein. All representations and warranties applicable to such Obligor contained in the Agreement are true and correct on and as of the Effective Date.

OBLIGOR:	ADDRESS:
	2201 Sunset Blvd.
	Houston, TX 77005
/s/ JONATHAN PITTS CARROLL, SR.
JONATHAN PITTS CARROLL, SR.

BLUE DOLPHIN ENERGY COMPANY	801 Travis Street, Suite 2100
	Houston, TX 77002
By: /s/ JONATHAN PITTS CARROLL, SR.
Name: Jonathan Pitts Carroll, Sr.
Title: President

BLUE DOLPHIN PIPE LINE COMPANY	801 Travis Street, Suite 2100
	Houston, TX 77002
By: /s/ JONATHAN PITTS CARROLL, SR.
Name: Jonathan Pitts Carroll, Sr.
Title: President

LAZARUS ENERGY LLC	801 Travis Street, Suite 2100
	Houston, TX 77002
By: BLUE DOLPHIN ENERGY COMPANY
Its: Sole Member

By: /s/ JONATHAN PITTS CARROLL, SR.
Name: Jonathan Pitts Carroll, Sr.
Title: President

Documents Prepared By:

Steven S. Camp

Gardere Wynne Sewell LLP

1601 Elm Street, Suite 3000

Dallas, TX 75201

214-999-4354

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SOVEREIGN BANK – LOAN NO. 17036757

PROMISSORY NOTE

$3,000,000.00

JUNE 22nd, 2015

FOR VALUE RECEIVED , LAZARUS REFINING & MARKETING, LLC , a Delaware limited liability company (“ Debtor ”), unconditionally promises to pay to the order of SOVEREIGN BANK , a Texas state bank (together with its successors and assigns, “ Lender ”), without setoff, at its offices at 17950 Preston Road, Suite 500, Dallas, TX 75252, or at such other place as may be designated by Lender, the principal amount of THREE MILLION AND NO/100 DOLLARS ($3,000,000.00) , together with interest computed daily on the outstanding principal balance hereunder, at an annual interest rate (the “ Rate ”), and in accordance with the payment schedule indicated below. This PROMISSORY NOTE (this “ Note ”) is executed pursuant to and evidences a loan funded by Lender under that certain LOAN AND SECURITY AGREEMENT dated as of even date herewith (the “ Effective Date ”), between Debtor and Lender (as amended, restated or otherwise modified from time to time, the “ Loan Agreement ”), to which reference is made for a statement of the collateral, rights and obligations of Debtor and Lender in relation thereto, but neither this reference to the Loan Agreement nor any provision thereof shall affect or impair the absolute and unconditional obligation of Debtor to pay unpaid principal of and interest on this Note when due. Capitalized terms not otherwise defined herein shall have the same meanings as in the Loan Agreement.

1. Rate . Prior to the Maturity Date or an Event of Default, the Rate shall be the LESSER of (a) the MAXIMUM RATE , or (b) the GREATER of (i) the PRIME RATE plus TWO AND THREE-QUARTERS PERCENT (2.75%) , or (ii) SIX PERCENT (6.00%) (the interest rate floor). From and after the Maturity Date, the Rate shall be the Maturity Rate. The term “ Prime Rate ” means a variable rate of interest per annum equal to the prime rate as published from time to time in the “ Bonds, Rates & Yields ” table of The Wall Street Journal. If such prime rate, as so quoted, is split between two or more different interest rates, then the Prime Rate shall be the highest of such interest rates. If the prime rate is no longer published in the “ Bonds, Rates & Yields ” table of The Wall Street Journal, then the Prime Rate shall be (a) the rate of interest per annum established from time to time by Lender and designated as its base or prime rate, which may not necessarily be the lowest rate charged by Lender and is set by Lender in its sole discretion, or (b) if Lender does not publish or announce a base or prime rate, or does so infrequently or sporadically, then the Prime Rate shall be determined by reference to another base rate, prime rate, or similar lending rate index, generally accepted on a national basis, as selected by Lender in its sole and absolute discretion. Notwithstanding any provision of this Note or any other agreement or commitment between Debtor and Lender, whether written or oral, express or implied, Lender shall never be entitled to charge, receive or collect, nor shall amounts received hereunder be credited so that Lender shall be paid, as interest a sum greater than interest at the Maximum Rate. It is the intention of the parties that this Note, and all instruments securing the payment of this Note or executed or delivered in connection therewith, shall comply with applicable law. If Lender ever contracts for, charges, receives or collects anything of value which is deemed to be interest under applicable law, and if the occurrence of any circumstance or contingency, whether acceleration of maturity of this Note, prepayment of this Note, delay in advancing proceeds of this Note or any other event, should cause such interest to exceed the Maximum Rate, any amount which exceeds interest at the Maximum Rate shall be applied to the reduction of the unpaid principal balance of this Note or any other Indebtedness, and if this Note and such other Indebtedness are paid in full, any remaining excess shall be paid to Debtor. In determining whether the interest exceeds interest at the Maximum Rate, the total amount of interest shall be spread, prorated and amortized throughout the entire term of this Note until its payment in full. The term “ Maximum Rate ” as used in this Note means the maximum nonusurious rate of interest per annum permitted by whichever of applicable United States federal law or Texas law permits the higher interest rate, including to the extent permitted by applicable law, any amendments thereof hereafter or any new law hereafter coming into effect to the extent a higher Maximum Rate is permitted thereby. If at any time the Rate shall exceed the Maximum Rate, the Rate shall be automatically limited to the Maximum Rate until the total amount of interest accrued hereunder equals the amount of interest which would have accrued if there had been no limitation to the Maximum Rate. To the extent, if any, that Chapter 303 of the Texas Finance Code, as amended, (the “ Act ”) is relevant to Lender for purposes of determining the Maximum Rate, the parties elect to determine the Maximum Rate under the Act pursuant to the “weekly ceiling” from time to time in effect, as referred to and defined in §303.001-303.016 of the Act; subject, however, to any right Lender subsequently may have under applicable law to change the method of determining the Maximum Rate.

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2. Accrual Method . Interest on the Indebtedness evidenced by this Note shall be computed on the basis of a THREE HUNDRED SIXTY (360) day year and shall accrue on the actual number of days elapsed for any whole or partial month in which interest is being calculated. In computing the number of days during which interest accrues, the day on which funds are initially advanced shall be included regardless of the time of day such advance is made, and the day on which funds are repaid shall be included unless repayment is credited prior to the close of business on the Business Day received as provided herein.

3. Rate Change Date . The Rate will change unless otherwise provided each time and as of the date that the Prime Rate changes.

4. Payment Schedule . Except as expressly provided herein to the contrary, all payments on this Note shall be applied in the following order of priority: (a) the payment or reimbursement of any expenses, costs or obligations (other than the outstanding principal balance hereof and interest hereon) for which either Debtor shall be obligated or Lender shall be entitled pursuant to the provisions of this Note or the other Loan Documents, (b) the payment of accrued but unpaid interest hereon, and (c) the payment of all or any portion of the principal balance hereof then outstanding hereunder, in the direct order of maturity. If an Event of Default exists under any of the other Loan Documents, then Lender may, at the sole option of Lender, apply any such payments, at any time and from time to time, to any of the items specified in clauses (a), (b) or (c) above without regard to the order of priority otherwise specified herein and any application to the outstanding principal balance hereof may be made in either direct or inverse order of maturity. If any payment of principal or interest on this Note shall become due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in computing interest in connection with such payment. This Note shall be due and payable as follows:

(a) FIVE (5) consecutive monthly payments of accrued and unpaid interest on the outstanding principal balance of this Note, commencing on JULY 22 nd , 2015 , and continuing on the SAME day of each successive month thereafter (or if no such date, then the LAST day of such month); and

(b) ONE (1) final payment of the outstanding principal balance of this Note, including all accrued and unpaid interest thereon, on the earlier of (i) the acceleration of the Indebtedness pursuant to the terms of the Loan Documents; or (ii) DECEMBER 22 nd , 2015 (the earlier of such dates being the “ Maturity Date ”).

5. Delinquency Charge . In the event any installment owing under this Note, or any part thereof, remains unpaid for TEN (10) or more days past the due date thereof as provided above, Debtor shall pay to Lender, in addition to any other amounts to which Lender may be entitled hereunder, a reasonable late payment fee equal to FIVE PERCENT (5.00%) of the amount of said installment, which amount is stipulated by Debtor to be reasonable in order to compensate Lender for its additional costs incurred as a result of having to attend to such delinquency. This late charge should be paid only once as to such amount as is due and owing, but promptly, as to each respective late payment. It is further agreed that the imposition of any such late payment fee shall in no way prejudice or limit Lender’s rights or remedies against Debtor under this Note or any of the other Loan Documents. In the event any check or other payment item used to make a payment to Lender is dishonored for any reason, Debtor shall pay to Lender, in addition to any other amounts to which Lender may be entitled hereunder, a reasonable processing fee of THIRTY AND NO/100 DOLLARS ($30.00) (or the maximum amount provided from time to time in Section 3.506(b) of the Texas Business and Commerce Code). This processing fee should be paid once with respect to each dishonor of a check or other payment item. It is further agreed that the imposition of any such processing fee shall in no way prejudice or limit Lender’s rights or remedies against Debtor under this Note or any of the other Loan Documents.

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6. Waivers, Consents and Covenants . Debtor, any indorser or guarantor hereof, or any other party hereto (individually an “ Obligor ” and collectively “ Obligors ”) and each of them jointly and severally: (a) waives presentment, demand, protest, notice of demand, notice of intent to accelerate, notice of acceleration of maturity, notice of protest, notice of nonpayment, notice of dishonor, and any other notice required to be given under the law to any Obligor in connection with the delivery, acceptance, performance, default or enforcement of this Note, any indorsement or guaranty of this Note, or any other documents executed in connection with this Note or any other Loan Documents now or hereafter executed in connection with any obligation of Debtor to Lender; (b) consents to all delays, extensions, renewals or other modifications of this Note or the Loan Documents, or waivers of any term hereof or of the Loan Documents, or release or discharge by Lender of any Obligors, or release, substitution or exchange of any security for the payment hereof, or the failure to act on the part of Lender, or any indulgence shown by Lender (without notice to or further assent from any Obligors); (c) agrees that no such action, failure to act or failure to exercise any right or remedy by Lender shall in any way affect or impair the obligations of any Obligors or be construed as a waiver by Lender of, or otherwise affect, any of Lender’s rights under this Note, under any indorsement or guaranty of this Note or under any of the Loan Documents; and (d) agrees to pay, on demand, all costs and expenses of collection or defense of this Note or of any indorsement or guaranty hereof and/or the enforcement or defense of Lender’s rights with respect to, or the administration, supervision, preservation, or protection of, or realization upon, any property securing payment hereof, including, without limitation, reasonable attorney’s fees, including fees related to any suit, mediation or arbitration proceeding, out of court payment agreement, trial, appeal, bankruptcy proceedings or other proceeding, in such amount as may be determined reasonable by any arbitrator or court, whichever is applicable.

7. Prepayments . Prepayments may be made in whole or in part at any time without premium or penalty.

8. Remedies Upon Default . Whenever there is an Event of Default under the Loan Documents the entire balance outstanding hereunder and all other obligations of any Obligor to Lender (however acquired or evidenced) shall, at the option of Lender, become immediately due and payable and any obligation of Lender to permit further borrowing under this Note shall immediately cease and terminate. From and after (a) an Event of Default, or (b) the Maturity Date (whether by acceleration or otherwise), the Rate on the unpaid principal balance of this Note shall be increased at Lender’s discretion up to the lesser of (i) EIGHTEEN PERCENT (18.00%) , or (ii) the MAXIMUM RATE (the “ Maturity Rate ”). The provisions herein for a Maturity Rate (a) shall not be deemed to extend the time for any payment hereunder or to constitute a “grace period” giving Obligors a right to cure any default, and (b) shall be deemed the contract rate of interest applicable to the outstanding principal balance of the Note from and after the occurrence of one of the events set forth in this Section. At Lender’s option, any accrued and unpaid interest, fees or charges may, for purposes of computing and accruing interest on a daily basis after the due date of this Note or any installment thereof, be deemed to be a part of the principal balance, and interest shall accrue on a daily compounded basis after such date at the Maturity Rate provided in this Note until the entire outstanding balance of principal and interest is paid in full. Upon an Event of Default, Lender is hereby authorized at any time, at its option and without notice or demand, to set off and charge against any deposit accounts of any Obligor (as well as any money, instruments, securities, documents, chattel paper, credits, claims, demands, income and any other property, rights and interests of any Obligor), which at any time shall come into the possession or custody or under the control of Lender or any of its agents, affiliates or correspondents, any and all obligations due hereunder. Additionally, Lender shall have all rights and remedies available under each of the Loan Documents, as well as all rights and remedies available at law or in equity.

9. Waiver . The failure at any time of Lender to exercise any of its options or any other rights hereunder shall not constitute a waiver thereof, nor shall it be a bar to the exercise of any of its options or rights at a later date. All rights and remedies of Lender shall be cumulative and may be pursued singly, successively or together, at the option of Lender. The acceptance by Lender of any partial payment shall not constitute a waiver of any default or of any of Lender’s rights under this Note. No waiver of any of its rights hereunder, and no modification or amendment of this Note, shall be deemed to be made by Lender unless the same shall be in writing, duly signed on behalf of Lender; each such waiver shall apply only with respect to the specific instance involved, and shall in no way impair the rights of Lender or the obligations of Obligors to Lender in any other respect at any other time.

10. Applicable Law, Venue and Jurisdiction . Debtor agrees that this Note shall be deemed to have been made in the State of Texas at Lender’s address indicated at the beginning of this Note and shall be governed by, and construed in accordance with, the laws of the State of Texas and is performable in the City and County of Texas indicated at the beginning of this Note. In any litigation in connection with or to enforce this Note or any indorsement or guaranty of this Note or any Loan Documents, Obligors, and each of them, irrevocably consent to and confer personal jurisdiction on the courts of the State of Texas or the United States courts located within the State of Texas. Nothing contained herein shall, however, prevent Lender from bringing any action or exercising any rights within any other state or jurisdiction or from obtaining personal jurisdiction by any other means available under applicable law.

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11. Partial Invalidity . The unenforceability or invalidity of any provision of this Note shall not affect the enforceability or validity of any other provision herein and the invalidity or unenforceability of any provision of this Note or of the Loan Documents to any person or circumstance shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances.

12. Binding Effect . This Note shall be binding upon and inure to the benefit of Obligors and Lender and their respective successors, assigns, heirs and personal representatives, provided, however, that no obligations of Obligors hereunder can be assigned without prior written consent of Lender.

13. Controlling Document . To the extent that this Note conflicts with or is in any way incompatible with any other document related specifically to the loan evidenced by this Note, this Note shall control over any other such document, and if this Note does not address an issue, then each other such document shall control to the extent that it deals most specifically with an issue.

14. Commercial Purpose . DEBTOR REPRESENTS TO LENDER THAT THE PROCEEDS OF THIS LOAN ARE TO BE USED PRIMARILY FOR BUSINESS, COMMERCIAL OR AGRICULTURAL PURPOSES AND NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES. DEBTOR ACKNOWLEDGES HAVING READ AND UNDERSTOOD, AND AGREES TO BE BOUND BY, ALL TERMS AND CONDITIONS OF THIS NOTE.

15. Collection . If this Note is placed in the hands of an attorney for collection, or if it is collected through any legal proceeding at law or in equity or in bankruptcy, receivership or other court proceedings, Debtor agrees to pay all costs of collection, including, but not limited to, court costs and reasonable attorneys’ fees.

16. Notice of Balloon Payment . At maturity (whether by acceleration or otherwise), Debtor must repay the entire principal balance of this Note and unpaid interest then due. Lender is under no obligation to refinance the outstanding principal balance of this Note (if any) at that time. Debtor will, therefore, be required to make payment out of other assets Debtor may own; or Debtor will have to find a lender willing to lend Debtor the money at prevailing market rates, which may be higher than the interest rate on the outstanding principal balance of this Note. If Obligors have guaranteed payment of this Note, Obligors may be required to perform under such guaranty.

17. Waiver of Jury Trial . DEBTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, OR COUNTERCLAIM THAT RELATES TO OR ARISES OUT OF THIS NOTE OR ANY OF THE LOAN DOCUMENTS OR THE ACTS OR FAILURE TO ACT OF OR BY LENDER IN THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS NOTE OR THE OTHER LOAN DOCUMENTS.

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EXECUTED as of the Effective Date.

DEBTOR:	ADDRESS:
LAZARUS REFINING & MARKETING, LLC	801 Travis Street, Suite 2100
	Houston, TX 77002
By: BLUE DOLPHIN ENERGY COMPANY
Its: Sole Member

By: /s/ JONATHAN PITTS CARROLL, SR.
Name: Jonathan Pitts Carroll, Sr.
Title: President

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SOVEREIGN BANK – LOAN NO. 17063757

PLEDGE AGREEMENT

THIS PLEDGE AGREEMENT (as amended, modified or restated from time to time, this “ Agreement ”) dated as of JUNE 22 nd , 2015 (the “ Effective Date ”) is by LAZARUS REFINING & MARKETING, LLC , a Delaware limited liability company (“ Debtor ”), in favor of SOVEREIGN BANK , a Texas state bank (“ Lender ”).

RECITALS

WHEREAS , Debtor and Lender have entered into a LOAN AND SECURITY AGREEMENT dated as of the Effective Date (as amended, modified or restated from time to time, “ Loan Agreement ”), and in connection therewith, Debtor is required to deliver this Agreement to Lender.

NOW THEREFORE , Debtor and Lender hereby agree as follows:

1. Terms Defined in Loan Agreement . All capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Loan Agreement. Terms defined in the Code which are not otherwise defined in this Agreement are used herein as defined in the Code as in effect on the date hereof.

2. Security Interest . Debtor hereby pledges, assigns and grants to Lender a security interest in all of Debtor’s right, title and interest in and to the CERTIFICATE OF DEPOSIT held by Debtor in ACCOUNT NUMBER ___________ with Lender (the “ Collateral Account ”) in the amount of ONE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($1,500,000.00) , and all instruments, documents, agreements and other writings evidencing such certificate of deposit, all sums now or at any time hereafter on deposit therein, all sums now due or to become due with respect to such certificate of deposit and any and all renewals, replacements and proceeds thereof (the “ Collateral ”) to secure the prompt and complete payment and performance of the Indebtedness. Debtor shall have no right to withdraw from the Collateral Account or otherwise access the Collateral until the Indebtedness is paid in full.

3. Representations and Warranties . Debtor represents and warrants to Lender that:

(a) Title, Authorization, Validity and Enforceability . Debtor has good and valid rights in and title to the Collateral with respect to which it has granted a security interest hereunder, free and clear of all liens except for the lien of Lender, and has full power and authority to grant to Lender the security interest in such Collateral. The execution and delivery by Debtor of this Agreement constitutes a legal, valid and binding obligation of Debtor and creates a security interest which is enforceable against Debtor in all now owned and hereafter acquired Collateral.

(b) Conflicting Laws and Contracts . Neither the execution and delivery by Debtor of this Agreement, the creation and perfection of the security interest in the Collateral granted hereunder, nor compliance with the terms and provisions hereof will violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on Debtor, the provisions of any indenture, instrument or agreement to which Debtor is a party or is subject, or by which Debtor, or Debtor’s property, is bound, or conflict with or constitute a default thereunder, or result in the creation or imposition of any lien pursuant to the terms of any such indenture, instrument or agreement (other than any lien of Lender).

4. Covenants . Debtor hereby covenants as follows:

(a) Taxes . Debtor will pay when due all taxes, assessments and governmental charges and levies upon the Collateral, except those which are being contested in good faith by appropriate proceedings and with respect to which no lien exists.

(b) Liens . Debtor will not create, incur, or suffer to exist any lien on the Collateral except the security interest created by this Agreement.

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(c) Further Assurances . At any time and from time to time, upon the request of Lender, Debtor shall promptly execute and deliver all such further instruments and documents and take such further action as Lender may deem necessary or desirable to preserve and perfect its security interest in the Collateral and carry out the provisions and purposes of this Agreement.

5. Acceleration and Remedies . Upon the occurrence of an Event of Default under the Loan Agreement or any other Loan Document, Lender may exercise any or all of the following rights and remedies:

(a) Those rights and remedies provided in this Agreement, the Loan Agreement or any other Loan Document, provided that this Section shall not be understood to limit any rights or remedies available to Lender prior to an Event of Default.

(b) Those rights and remedies available to a secured party under the Code (whether or not the Code applies to the affected Collateral) or under any other applicable law (including, without limitation, any law governing the exercise of a right of setoff or lien).

(c) Without notice except as specifically provided in this Section or elsewhere herein, sell, lease, assign, grant an option or options to purchase or otherwise dispose of the Collateral or any part thereof in one or more parcels at public or private sale, for cash, on credit or for future delivery, and upon such other terms as Lender may deem commercially reasonable.

6. Waivers, Amendments and Remedies . No delay or omission of Lender to exercise any right or remedy granted under this Agreement shall impair such right or remedy or be construed to be a waiver of any Event of Default, or an acquiescence therein, and any single or partial exercise of any such right or remedy shall not preclude any other or further exercise thereof or the exercise of any other right or remedy. No waiver, amendment or other variation of the terms, conditions or provisions of this Agreement whatsoever shall be valid unless in writing signed by Lender and then only to the extent in such writing specifically set forth. All rights and remedies contained in this Agreement or by law afforded shall be cumulative and all shall be available to Lender until the Indebtedness has been paid in full or this Agreement has terminated.

7. Application of Proceeds . After the occurrence and during the continuation of an Event of Default, the proceeds of the Collateral shall be applied by Lender to payment of the Indebtedness in such manner and order as Lender may elect in its sole discretion.

8. Notice of Disposition of Collateral . Debtor hereby waives notice of the time and place of any public sale or the time after which any private sale or other disposition of all or any part of the Collateral may be made. To the extent such notice may not be waived under applicable law, any notice made shall be deemed reasonable if sent to Debtor, addressed as set forth in Debtor, at least TEN (10) days prior to (a) the date of any such public sale or (ii) the time after which any such private sale or other disposition may be made.

9. Authorization for Lender to Take Certain Action . Debtor irrevocably authorizes Lender at any time and from time to time in the sole discretion of Lender and appoints Lender as Debtor’s attorney in fact, coupled with an interest, (a) to file financing statements necessary or desirable in Lender’s sole discretion to perfect and to maintain the perfection and priority of Lender’s security interest in the Collateral, (b) to indorse and collect any cash proceeds of the Collateral, (c) to apply the proceeds of any Collateral received by Lender to the Indebtedness as provided herein, and (d) to discharge past due taxes, assessments, charges, fees or liens on the Collateral, and Debtor agrees to reimburse Lender on demand for any payment made or any expense incurred by Lender in connection therewith, provided that this authorization shall not relieve Debtor of any of Debtor’s obligations under this Agreement, the Loan Agreement or the other Loan Documents.

10. Benefit of Agreement . The terms and provisions of this Agreement shall be binding upon and inure to the benefit of Debtor, Lender and their respective successors and permitted assigns, except that Debtor shall not have the right to assign Debtor’s rights or delegate Debtor’s obligations under this Agreement or any interest herein, without the prior written consent of Lender.

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11. Survival of Representations . All representations and warranties of Debtor contained in this Agreement shall survive the execution and delivery of this Agreement.

12. Headings . The section headings in this Agreement are for convenience of reference only, and shall not govern the interpretation of any of the terms and provisions of this Agreement.

13. Notices . Any notice required or permitted to be given under this Agreement shall be sent (and deemed received) in the manner set forth in the Loan Agreement. The addresses of the parties are set forth in the signature page hereto. Debtor and Lender may change the address for service of notice upon it by a notice in writing to the other party.

THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.

NOTICE OF FINAL AGREEMENT

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

DEBTOR:	ADDRESS:

LAZARUS REFINING & MARKETING, LLC	801 Travis Street, Suite 2100
	Houston, TX 77002
By: BLUE DOLPHIN ENERGY COMPANY
Its: Sole Member

By: /s/ JONATHAN PITTS CARROLL, SR.
Name: Jonathan Pitts Carroll, Sr.
Title: President

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SOVEREIGN BANK – LOAN NO. 17036757

After Recording Return To:

SOVEREIGN BANK

17950 Preston Road, Suite 500

Dallas, TX 75252

Attn: Ronda K. Garrett

NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OR ALL OF THE FOLLOWING INFORMATION FROM ANY INSTRUMENT THAT TRANSFERS AN INTEREST IN REAL PROPERTY BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER.

COLLATERAL ASSIGNMENT

THIS COLLATERAL ASSIGNMENT (as amended, modified or restated from time to time, this “ Assignment ”) dated as of JUNE 22 nd , 2015 (the “ Effective Date ”), is executed by BLUE DOLPHIN PIPE LINE COMPANY , a Delaware corporation (“ Grantor ”), with offices at 801 Travis Street, Suite 2100, Houston, TX 77002, for the benefit of SOVEREIGN BANK , a Texas state bank (together with its successors and assigns, “ Lender ”) with offices at 17950 Preston Road, Suite 500, Dallas, TX 75252.

RECITALS

WHEREAS , Lender and LAZARUS REFINING & MARKETING, LLC , a Delaware limited liability company (“ Debtor ”), have entered into a LOAN AND SECURITY AGREEMENT dated as of the Effective Date (as amended, modified or restated from time to time, the “ Loan Agreement ”; capitalized terms not defined herein shall have the same meanings as in the Loan Agreement).

WHEREAS , Grantor and FLNG LAND II, INC. , a Delaware corporation (the “ Counterparty ”), are parties to that certain MASTER EASEMENT AGREEMENT dated as of DECEMBER 11, 2013 , a memorandum of which is recorded as instrument number 2014047796 in the real property records of Brazoria County, Texas (a true, correct and complete copy of which is attached hereto as Exhibit A , as amended, the “ Subject Agreement ”).

WHEREAS , to further secure Lender in the payment of the Indebtedness (as defined in the Loan Agreement), Grantor desires to transfer, pledge, and assign all of Grantor’s rights, title and interest in and to the Subject Agreement to Lender.

WHEREAS , Grantor’s execution of this Agreement is a condition precedent to Lender’s agreement to execute the Loan Agreement.

NOW, THEREFORE , in consideration of the premises herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantor hereby agrees in favor of Lender as follows:

1. Assignment . As security for the repayment of the Indebtedness, Grantor hereby transfers, pledges, and assigns to Lender, its successors and assigns, and grants Lender a security interest in all right, title and interest of Grantor in and to the Subject Agreement, including, without limitation, all disbursement rights, reimbursement payments, payment rights, and all other rights to payment under the Subject Agreement (collectively, the “ Payment Rights ”). This Assignment shall constitute a security agreement within the meaning of the Code. Grantor hereby irrevocably instructs the Counterparty to make any and all payments owing to Grantor with respect to the Payment Rights directly to Lender.

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2. Representations and Warranties . Grantor hereby represents and warrants to Lender that:

(a) A true, correct and complete copy of the Subject Agreement has been attached to this Assignment as Exhibit A (together with all assignments, amendments, modifications or understandings relating thereto). The Subject Agreement is in full force and effect.

(b) Grantor has not executed any prior assignment, pledge or hypothecation of its rights under the Subject Agreement or the Payment Rights. Lender has a first priority lien in the Subject Agreement and the Payment Rights. Grantor will defend at its expense Lender’s right, title and security interest in and to the Subject Agreement and the Payment Rights against the claims of any third party.

(c) The execution, delivery, and performance of this Assignment by Grantor has been duly authorized by all necessary action by Grantor, and this Assignment constitutes a legal, valid and binding obligation of Grantor, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors’ rights and except to the extent specific remedies may generally be limited by equitable principles.

(d) Grantor’s execution, delivery and performance of this Assignment and the consummation of the transactions contemplated thereby by Grantor, do not (i) conflict with, result in a violation of, or constitute a default under (1) any provision of its organizational documents or other instrument binding upon Grantor, (2) any law, governmental regulation, court decree or order applicable to Grantor, or (3) any contractual obligation, agreement, judgment, license, order or permit applicable to or binding upon Grantor, (ii) require the consent, approval or authorization of any third party which consent or approval has not been obtained, or (iii) result in or require the creation of any lien, charge or encumbrance upon any property or assets of Grantor except as may be expressly contemplated by this Assignment.

(e) Grantor has no actual knowledge that the Counterparty has asserted any default or non-performance by Grantor of Grantor’s duties and obligations under the Subject Agreement, Grantor has performed all of Grantor’s duties and obligations which are now due and performable under the Subject Agreement, and no defense or counter-claim exists with respect to the duties and obligations of the Counterparty under the Subject Agreement.

3. Covenants and Agreements . Grantor hereby covenants in favor of Lender as follows:

(a) Grantor will perform all of its duties and obligations under the Subject Agreement in accordance with the terms thereof. Grantor shall not amend, alter or modify the Subject Agreement without the express prior written consent of Lender.

(b) Grantor shall promptly notify Lender of any default by Grantor or the Counterparty in the performance of their respective duties and obligations under the Subject Agreement and shall immediately remedy any default by Grantor thereunder.

(c) Grantor shall execute such further and additional instruments and assignments as may be requested by Lender to vest in Lender a valid security interest in and to all rights, title and interest of Grantor in and to the Subject Agreement and the Payment Rights.

(d) Grantor will not take any action that would in any manner impair the enforceability of Lender’s security interest in the Subject Agreement or the Payment Rights. Grantor (i) will, if requested by Lender, strictly enforce the terms and conditions of the Subject Agreement, and (ii) shall not grant any waiver or indulgence with respect the Subject Agreement.

4. Lender as Agent . Grantor hereby agrees as follows:

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(a) Upon the occurrence and during the continuation of a Event of Default (which includes a default under the Subject Agreement), Lender shall be irrevocably appointed agent and attorney-in-fact as to performance by Grantor of its obligations under the Subject Agreement, and as to the enforcement of Grantor’s rights and remedies under the Subject Agreement;

(b) All reasonable costs, expenses and liabilities incurred and payments made by Lender as agent and attorney-in-fact shall be considered a loan by Lender to Grantor which shall be repayable on demand and which shall bear interest at the Maturity Rate (as defined in the Note referred to in the Loan Agreement);

(c) Regarding the existence of any Event of Default for purposes of this Assignment, Grantor agrees that the Counterparty may rely upon written certifications from Lender that such an Event of Default exists; and

(d) Notwithstanding the foregoing, Lender shall have no obligation whatsoever to perform any of Grantor’s obligations under the Subject Agreement.

5. Foreclosure . This Assignment is executed as additional security for the payment of the Indebtedness and all other indebtedness owing or to become owing by Grantor to Lender, and it is expressly stipulated, covenanted and agreed that an Event of Default by Grantor under the terms of the Loan Agreement shall constitute a default under the terms of this Assignment and that foreclosure under this Assignment shall operate to foreclose fully the rights of Grantor arising from the Subject Agreement, and in such event, all rights of Grantor under the Subject Agreement shall be vested in the successful bidder at such foreclosure. In addition, Lender shall have all other rights and remedies of a secured party under the Code.

6. Grantor Remains Liable . Notwithstanding anything to the contrary contained herein, (a) Grantor shall remain liable under Subject Agreement to the extent set forth therein to perform all of Grantor’s duties and obligations thereunder to the same extent as if this Assignment had not been executed; (b) the exercise by Lender of any of its rights hereunder shall not release Grantor from any of its duties or obligations under the Subject Agreement; and (c) Lender shall not have any obligation or liability under any Subject Agreement by reason of this Assignment, nor shall Lender be obligated to perform any of the obligations or duties of Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

7. Receipt of Payments . All payments with respect to the Payment Rights and other amounts and proceeds received by Grantor in respect of the Subject Agreement shall be received in trust for the benefit of Lender and shall be paid to Lender as provided under the Loan Documents.

8. General . Grantor hereby further agrees as follows:

(a) No remedy or right conferred upon Lender by operation of law, by this Assignment, Loan Agreement or by any other instrument executed by Grantor in connection therewith is intended to be, nor shall it be, exclusive of any other right or remedy, but each and every remedy or right shall be cumulative and shall be in addition to every other remedy or right conferred upon Grantor and each and every such remedy or right may be pursued by Lender in such manner or order, together or separately, and at such times as Lender may elect.

(b) If any term or provision of this Assignment, or the application thereof to any person or circumstance shall, to any extent be invalid or unenforceable, the remainder of this Assignment, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Assignment shall be valid and be enforced to the fullest extent permitted by law.

(c) Notice provided for in this Assignment must be in writing, and shall be given or served in the same manner as specified in the Loan Agreement.

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9. Invalid Provisions . If any provision of the this Assignment are held to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable and the remaining provisions of this Assignment shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance.

10. Counterparts . This Assignment may be separately executed in any number of counterparts, each of which shall be an original, but all of which, taken together, shall be deemed to constitute one and the same instrument.

11. Survival . All representations and warranties made in this Assignment or in any document, statement, or certificate furnished in connection with this Assignment shall survive the execution and delivery this Assignment and no investigation by Lender or any closing shall affect the representations and warranties or the right of Lender to rely upon them.

NOTICE OF FINAL AGREEMENT :

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

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EXECUTED as of the date of the acknowledgment below, but to be effective as of the Effective Date.

GRANTOR:

BLUE DOLPHIN PIPE LINE COMPANY

By: /s/ JONATHAN PITTS CARROLL, SR.

Name: Jonathan Pitts Carroll, Sr.

Title: President

STATE OF TEXAS §

COUNTY OF DALLAS §

This instrument was acknowledged before me on ___June 22 nd , 2015, by Jonathan Pitts Carroll, Sr. , President of BLUE DOLPHIN PIPE LINE COMPANY, a Delaware corporation, on behalf of said entity.

[SEAL] /s/ R. HEARNE (Commission Expires 12/27/2015)

Notary Public, State of Texas

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EXHIBIT A

SUBJECT AGREEMENT

See Attached.

SOVEREIGN BANK – LOAN NO. 17036757

GUARANTY AGREEMENT

THIS GUARANTY AGREEMENT (as amended, modified or restated from time to time, this “ Guaranty ”) dated as of JUNE 22 nd , 2015 (the “ Effective Date ”), is executed by JONATHAN PITTS CARROLL, SR. (“ Jonathan ”), BLUE DOLPHIN ENERGY COMPANY , a Delaware corporation (“ BD ”), and by LAZARUS ENERGY LLC , a Delaware limited liability company (“ LE ”, and together with Jonathan and BD, individually and collectively, and jointly and severally, “ Guarantor ”), whose address for notice purposes are set forth on the signature page hereto, for the benefit of SOVEREIGN BANK , a Texas state bank (together with its successors and assigns, “ Lender ”) with offices at 17950 Preston Road, Suite 500, Dallas, TX 75252.

RECITALS

WHEREAS , Debtor (as defined below) and Lender have entered into that certain LOAN AND SECURITY AGREEMENT of even date herewith (as amended, modified or otherwise restated, the “ Loan Agreement ”) setting forth the terms of a Credit Facility (as defined in the Loan Agreement) to be provided by Lender to Debtor; and

WHEREAS , it is expressly understood among Debtor, Guarantor, and Lender that the execution and delivery of this Guaranty is a condition precedent to Lender’s obligation to extend credit under the Loan Agreement and is an integral part of the transactions contemplated thereby; and

WHEREAS , the extension of credit to Debtor is a substantial and direct benefit to Guarantor;

NOW, THEREFORE , for valuable consideration, the receipt and adequacy of which are hereby acknowledged, Guarantor hereby guarantees to Lender the prompt payment and performance of the Guaranteed Obligations, this Guaranty being upon the following terms and conditions:

1. Definitions . As used in this Guaranty, the following terms have the following meanings:

“ Debtor ” means LAZARUS REFINING & MARKETING, LLC , a Delaware limited liability company, and without limitation, Debtor’s successors and assigns (regardless of whether such successor or assign is formed by or results from any merger, consolidation, conversion, sale or transfer of assets, reorganization, or otherwise) including Debtor as a debtor-in-possession, and any receiver, trustee, liquidator, conservator, custodian, or similar party hereafter appointed for Debtor or all or substantially all of its assets pursuant to any liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, or similar Debtor Relief Laws (hereinafter defined) from time to time in effect.

“ Debtor Relief Laws ” means Title 11 of the United States Code, as now or hereafter in effect, or any other applicable law, domestic or foreign, as now or hereafter in effect, relating to bankruptcy, insolvency, liquidation, receivership, reorganization, arrangement or composition, extension or adjustment of debts, or similar laws affecting the rights of creditors.

“ Guaranteed Obligations ” means all (a) Indebtedness, including without limitation all indebtedness and obligations of Debtor to Lender and any and all pre- and post-maturity interest thereon, including without limitation post-petition interest and expenses (including reasonable attorneys’ fees) allowed under Debtor Relief Laws, whether or not allowed under any Debtor Relief Law, (b) obligations of Debtor to Lender under any documents evidencing, securing, governing and/or pertaining to all or any part of the indebtedness described in (a) above, (c) costs and expenses incurred by Lender in connection with the collection and administration of all or any part of the Indebtedness and obligations described in (a) and (b) above or the protection or preservation of, or realization upon, the collateral securing all or any part of such Indebtedness and obligations, including without limitation all reasonable attorneys’ fees, and (d) renewals, extensions, modifications and rearrangements of the indebtedness and obligations described in (a), (b), and (c) above.

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Terms not otherwise defined herein shall have the same meanings as in the Loan Agreement.

2. Payment . Guarantor hereby unconditionally and irrevocably guarantees to Lender the punctual payment when due, whether by lapse of time, by acceleration of maturity, or otherwise, and at all times thereafter, of the Guaranteed Obligations. This Guaranty covers the Guaranteed Obligations, whether presently outstanding or arising subsequent to the date hereof, including all amounts advanced by Lender. The guaranty of Guarantor as set forth in this Section 2 is a continuing guaranty of payment and not a guaranty of collection. Guarantor acknowledges and agrees that Guarantor may be required to pay and perform the Guaranteed Obligations in full without assistance or support from Debtor or any other party. Guarantor agrees that if all or any part of the Guaranteed Obligations shall not be punctually paid when due, whether on the scheduled payment date, by lapse of time, by acceleration of maturity or otherwise (following the expiration of all applicable grace and cure periods), Guarantor shall, immediately upon demand by Lender, pay the amount due on the Guaranteed Obligations to Lender at Lender’s address as set forth herein. Such demand(s) may be made at any time coincident with or after the time for payment of all or part of the Guaranteed Obligations, and may be made from time to time with respect to the same or different items of Guaranteed Obligations. Such demand shall be made, given and received in accordance with the notice provisions hereof.

3. Primary Liability of Guarantor . This Guaranty is an absolute, irrevocable and unconditional guaranty of payment and performance. Guarantor is jointly and severally liable for the payment and performance of the Guaranteed Obligations, as set forth in and as limited by this Guaranty, as a primary obligor. In the event of default in payment or performance of the Guaranteed Obligations, or any part thereof, when such Guaranteed Obligations become due, whether by its terms, by acceleration, or otherwise, Guarantor shall promptly pay the amount due thereon to Lender without notice or demand, of any kind or nature, in lawful money of the United States of America or perform the obligations to be performed hereunder, and it shall not be necessary for Lender in order to enforce such payment and performance by Guarantor first, or contemporaneously, to institute suit or exhaust remedies against Debtor or others liable on the Guaranteed Obligations, or to enforce any rights, remedies, powers, privileges or benefits of Lender against any collateral, or any other security or collateral which shall ever have been given to secure the Guaranteed Obligations. Suit may be brought or demand may be made against all parties who have signed this Guaranty or any other guaranty in favor of Lender covering all or any part of the Guaranteed Obligations, or against any one or more of them, separately or together, without impairing the rights of Lender against any party hereto. Any time that Lender is entitled to exercise its rights or remedies hereunder, Lender may in its discretion elect to demand payment and/or performance. If Lender elects to demand performance, it shall at all times thereafter have the right to demand payment until all of the Guaranteed Obligations have been paid and performed in full. If Lender elects to demand payment, it shall at all times thereafter have the right to demand performance until all of the Guaranteed Obligations have been paid and performed in full.

4. Other Guaranteed Debt . If Guarantor becomes liable for any indebtedness owing by Debtor to Lender, by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby, and the rights and remedies hereunder shall be cumulative of any and all other rights and remedies that Lender may ever have against Guarantor. The exercise by Lender of any right or remedy hereunder or under any other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy by Lender.

5. Subrogation . Until the Guaranteed Obligations have been paid, in full, Guarantor hereby covenants and agrees that: (a) it shall not assert, enforce, or otherwise exercise any right of subrogation to any of the rights, remedies or liens of Lender or any other beneficiary against Debtor or any other guarantor of the Guaranteed Obligations or any collateral or other security; and (b) any right of recourse, reimbursement, contribution, indemnification, or similar right against Debtor or any other guarantor of all or any part of the Guaranteed Obligations are expressly made subordinate to the Guaranteed Obligations and the rights or remedies of Lender under this Guaranty and the Loan Documents.

6. Subordinated Debt . All principal of and interest on all indebtedness, liabilities, and obligations of Debtor to Guarantor (the “ Subordinated Debt ”) now or hereafter existing, due or to become due to Guarantor, or held or to be held by Guarantor, whether created directly or acquired by assignment or otherwise, and whether evidenced by written instrument or not, shall be expressly subordinated to the Guaranteed Obligations. Until such time as the Guaranteed Obligations are paid and performed in full and all commitments to lend under the Loan Documents have terminated, Guarantor agrees not to receive or accept any payment from Debtor with respect to the Subordinated Debt at any time an Event of Default has occurred and is continuing; and, in the event Guarantor receives any payment on the Subordinated Debt in violation of the foregoing, Guarantor will hold any such payment in trust for Lender and forthwith turn it over to Lender in the form received, to be applied to the Guaranteed Obligations.

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7. Obligations Not To Be Diminished . Guarantor hereby agrees that its obligations under this Guaranty shall not be released, discharged, diminished, impaired, reduced, or affected for any reason or by the occurrence of any event, including, without limitation, one or more of the following events, whether or not with notice to or the consent of Guarantor: (a) the taking or accepting of collateral as security for any or all of the Guaranteed Obligations or the release, surrender, exchange, or subordination of any collateral now or hereafter securing any or all of the Guaranteed Obligations; (b) any partial release of the liability of Debtor, Guarantor hereunder, or the full or partial release of any other guarantor or obligor from liability for any or all of the Guaranteed Obligations; (c) any disability of Debtor, or the dissolution, insolvency, or bankruptcy of Debtor, or any other guarantor, or any other party at any time liable for the payment of any or all of the Guaranteed Obligations; (d) any renewal, extension, modification, waiver, amendment, or rearrangement of any or all of the Guaranteed Obligations or any instrument, document, or agreement evidencing, securing, or otherwise relating to any or all of the Guaranteed Obligations; (e) any adjustment, indulgence, forbearance, waiver, or compromise that may be granted or given by Lender to Debtor, Guarantor, or any other party ever liable for any or all of the Guaranteed Obligations; (f) any neglect, delay, omission, failure, or refusal of Lender to take or prosecute any action for the collection of any of the Guaranteed Obligations or to foreclose or take or prosecute any action in connection with any instrument, document, or agreement evidencing, securing, or otherwise relating to any or all of the Guaranteed Obligations; (g) the unenforceability or invalidity of any or all of the Guaranteed Obligations or of any instrument, document, or agreement evidencing, securing, or otherwise relating to any or all of the Guaranteed Obligations; (h) any payment by Debtor or any other party to Lender is held to constitute a preference under applicable bankruptcy or insolvency law or if for any other reason Lender is required to refund any payment or pay the amount thereof to someone else; (i) the settlement or compromise of any of the Guaranteed Obligations; (j) the non-perfection of any security interest or lien securing any or all of the Guaranteed Obligations; (k) any impairment of any collateral securing any or all of the Guaranteed Obligations; (l) the failure of Lender to sell any collateral securing any or all of the Guaranteed Obligations in a commercially reasonable manner or as otherwise required by law; (m) any change in the corporate existence, structure, or ownership of Debtor; or (n) any other circumstance which might otherwise constitute a defense available to, or discharge of, Debtor or Guarantor other than payment.

8. Waivers . Guarantor waives (a) any right to revoke this Guaranty with respect to future Guaranteed Obligations; (b) any right to require Lender to do any of the following before Guarantor is obligated to pay the Guaranteed Obligations or before Lender may proceed against Guarantor: (i) sue or exhaust remedies against Debtor and other guarantors or obligors, (ii) sue on an accrued right of action in respect of any of the Guaranteed Obligations or bring any other action, exercise any other right, or exhaust all other remedies, or (iii) enforce rights against Debtor’s assets or the collateral pledged by Debtor to secure the Guaranteed Obligations; (c) any right relating to the timing, manner, or conduct of Lender’s enforcement of rights against Debtor’s assets or the collateral pledged by Debtor to secure the Guaranteed Obligations; (d) if Guarantor and Debtor (or a third-party) have each pledged assets to secure the Guaranteed Obligations, any right to require Lender to proceed first against the other collateral before proceeding against collateral pledged by Guarantor; (e) except as expressly required hereby, promptness, diligence, notice of any default under the Guaranteed Obligations, notice of acceleration or intent to accelerate, demand for payment, notice of acceptance of this Guaranty, presentment, notice of protest, notice of dishonor, notice of the incurring by Debtor of additional indebtedness, notice of any suit or other action by Lender against Debtor or any other Person, any notice to any party liable for the obligation which is the subject of the suit or action, and all other notices and demands with respect to the Guaranteed Obligations and this Guaranty; (f) each of the foregoing rights or defenses regardless whether they arise under (i) Chapter 43 or Section 17.001 of the Texas Civil Practice and Remedies Code, as amended, (ii) Rule 31 of the Texas Rules of Civil Procedure, as amended, or (iii) common law, in equity, under contract, by statute, or otherwise; and (g) any and all rights under Sections 51.003, 51.004 and 51.005 of the Texas Property Code, as amended.

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9. Change in Guarantor’s Status . Should 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 of Lender granted hereunder, then, in any such event, the Guaranteed Obligations shall be, as between Guarantor and Lender, a fully matured, due, payable and performable obligation of Guarantor to Lender (without regard to whether Debtor is then in default under the Loan Documents or whether the Guaranteed Obligations, or any part thereof is then due and owing or unperformed by Debtor to Lender), payable and/or performable in full by Guarantor to Lender upon 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 the Guaranteed Obligations if, within THIRTY (30) days of the date of such death or incapacity, the representative or legal guardian of Guarantor or Guarantor’s estate affirms in writing (which instrument shall be in form and substance satisfactory to Lender) (a) the obligations of Guarantor’s estate with respect to this Guaranty and (b) that no distributions shall be made from such estate without the prior written consent of Lender.

10. Termination . Guarantor’s obligations hereunder shall remain in full force and effect until all commitments to lend under the Loan Documents have terminated, and the Guaranteed Obligations have been paid in full. If at any time any payment of the principal of or interest or any other amount payable by Debtor under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy, or reorganization of Debtor or otherwise, Guarantor’s obligations hereunder with respect to such payment shall be reinstated as though such payment had been due but not made at such time.

11. Representations and Warranties . Guarantor represents and warrants as follows:

(a) Guarantor has the power and authority and legal right to execute, deliver, and perform its obligations under this Guaranty and this Guaranty constitutes the legal, valid, and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms, except as limited by bankruptcy, insolvency, or other laws of general application relating to the enforcement of creditor’s rights.

(b) The execution, delivery, and performance by Guarantor of this Guaranty do not and will not violate or conflict with any law, rule, or regulation or any order, writ, injunction, or decree of any court, governmental authority or agency, or arbitrator and do not and will not conflict with, result in a breach of, or constitute a default under, or result in the imposition of any lien upon any assets of Guarantor pursuant to the provisions of any indenture, mortgage, security agreement, franchise, permit, license, or other instrument or agreement to which Guarantor or its properties are bound.

(c) No authorization, approval, or consent of, and no filing or registration with, any court, governmental authority, or third party is necessary for the execution, delivery, or performance by Guarantor of this Guaranty or the validity or enforceability thereof.

(d) Guarantor has, independently and without reliance upon Lender and based upon such documents and information as Guarantor has deemed appropriate, made its own analysis and decision to enter into this Guaranty, and Guarantor has adequate means to obtain from Debtor on a continuing basis information concerning the financial condition and assets of Debtor, and Guarantor is not relying upon Lender to provide (and Lender shall have no duty to provide) any such information to Guarantor either now or in the future.

(e) The value of the consideration received and to be received by Guarantor is reasonably worth at least as much as the liability and obligation of Guarantor hereunder, and such liability and obligation may reasonably be expected to benefit Guarantor directly or indirectly.

12. No Fraudulent Transfer . It is the intention of Guarantor and Lender that the amount of the Guaranteed Obligations guaranteed by Guarantor by this Guaranty shall be in, but not in excess of, the maximum amount permitted by fraudulent conveyance, fraudulent transfer, or similar laws applicable to Guarantor. Accordingly, notwithstanding anything to the contrary contained in this Guaranty or any other agreement or instrument executed in connection with the payment of any of the Guaranteed Obligations, the amount of the Guaranteed Obligations guaranteed by Guarantor by this Guaranty shall be limited to that amount which after giving effect thereto would not (a) render Guarantor insolvent, or (b) result in the fair saleable value of the assets of Guarantor being less than the amount required to pay its debts and other liabilities (including contingent liabilities) as they mature, are determined under applicable law, if the obligations of Guarantor hereunder would otherwise be set aside, terminated, annulled or avoided for such reason by a court of competent jurisdiction in a proceeding actually pending before such court. For purposes of this Guaranty, the term “ applicable law ” means as to Guarantor each statute, law, ordinance, regulation, order, judgment, injunction or decree of the United States or any state or commonwealth, any municipality, any foreign country, or any territory, possession or tribunal applicable to Guarantor.

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13. Covenants . So long as this Guaranty remains in full force and effect, Guarantor shall, unless Lender shall otherwise consent in writing, comply with all of the covenants relating to Guarantor set forth in the Loan Documents.

As to Jonathan:

SUCH GUARANTOR HEREBY ACKNOWLEDGES AND AGREES THAT WHILE THE LOAN TRANSACTION REMAINS OUTSTANDING, SUCH GUARANTOR WILL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF LENDER (WHICH MAY BE WITHHELD IN LENDER’S SOLE AND ABSOLUTE DISCRETION), SELL, LEASE, ASSIGN, ENCUMBER, HYPOTHECATE, TRANSFER OR OTHERWISE DISPOSE OF ANY ASSETS OF SUCH GUARANTOR EXCEPT FOR TRANSFERS OF ASSETS VALUED AT LESS THAN TEN PERCENT (10.00%) OF SUCH GUARANTOR’S TOTAL ASSETS AND TRANSFERS FOR WHICH SUCH GUARANTOR RECEIVES CONSIDERATION (IN THE FORM OF CASH OR OTHER PHYSICAL ASSET OF COMPARABLE LIQUIDITY) SUBSTANTIALLY EQUIVALENT TO THE FAIR MARKET VALUE OF THE TRANSFERRED ASSET (AS DETERMINED BY LENDER) .

As to LE:

SUCH GUARANTOR HEREBY ACKNOWLEDGES AND AGREES THAT WHILE THE LOAN TRANSACTION REMAINS OUTSTANDING, SUCH GUARANTOR WILL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF LENDER (WHICH MAY BE WITHHELD IN LENDER’S SOLE AND ABSOLUTE DISCRETION), SELL, LEASE, ASSIGN, ENCUMBER, HYPOTHECATE, TRANSFER OR OTHERWISE DISPOSE OF A MATERIAL PORTION OF SUCH GUARANTOR’S ASSETS OR ANY INTEREST THEREIN FOR LESS THAN REASONABLY EQUIVALENT VALUE OR IF THE RESULT OF SUCH ACTION WOULD (I) MATERIALLY AND ADVERSELY AFFECT THE FINANCIAL CONDITION OF GUARANTOR OR (II) MATERIALLY AND ADVERSELY AFFECT SUCH GUARANTOR’S ABILITY TO PERFORM ITS OBLIGATIONS UNDER THIS GUARANTY OR THE OTHER LOAN DOCUMENTS .

14. Setoff . As further security for the Indebtedness, Guarantor grants to Lender a first lien and contractual right of set-off in and to all money and property of Guarantor now or at any time hereafter coming within the custody or control of Lender, including (without limitation) all certificates of deposit and other accounts, whether such certificates of deposit and/or accounts have matured or not, and whether the exercise of such right of set-off results in loss of interest or other penalty under the terms of the certificate of deposit or account agreement. It is further agreed that Lender shall have a first lien on all deposits and other sums at any time credited by or due from Lender to Guarantor as security for the payment of the Indebtedness, and Lender, at its option after the occurrence of a Default may without notice and without any liability, hold all or any part of any such deposits or other sums until all amounts owing under the Loan Documents have been paid in full, and/or Lender may apply or set-off all or any part of any such deposits or other sums credited by or due from Lender to or against any sums due under the Loan Documents in any manner and in any order of preference which Lender, in its sole discretion, chooses. The rights and remedies of Lender hereunder are in addition to any other rights and remedies (including, without limitation, other rights of setoff) which Lender may have.

15. Successors and Assigns . This Guaranty is for the benefit of Lender and its successors and assigns, and, the rights and remedies hereunder, to the extent applicable to any indebtedness assigned, may, subject to the limitations set forth in the Loan Documents, be transferred with such indebtedness. This Guaranty is binding on Guarantor, and its successors and permitted assigns; provided that, Guarantor may not assign its obligations under this Guaranty without obtaining the prior written consent of Lender, and any assignment purported to be made without the prior written consent of Lender shall be null and void.

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16. Loan Documents . The terms of the Loan Documents relating to Guarantor are incorporated herein by reference, the same as if stated verbatim herein, and Guarantor agrees that Lender may exercise any and all rights granted to it under the Loan Documents without affecting the validity or enforceability of this Guaranty.

17. Amendments . No amendment or waiver of any provision herein nor consent to any departure therefrom by Guarantor shall be effective unless the same shall be in writing and signed by Lender, and then, such amendment, waiver, or consent shall be effective only in the specific instance and for the specific purpose for which given.

18. Time of Essence . Time shall be of the essence in this Guaranty with respect to all of Guarantor’s obligations hereunder.

19. Governing Law . Guarantor agrees that this Guaranty shall be deemed to have been made in the State of Texas at Lender’s address indicated at the beginning of this Guaranty and shall be governed by, and construed in accordance with, the laws of the State of Texas and is performable in the City and County of Dallas, Texas. In any litigation in connection with or to enforce this Guaranty or any or any Loan Documents, each Guarantor irrevocably consents to and confer personal jurisdiction on the courts of the State of Texas or the United States courts located within the State of Texas. Nothing contained herein shall, however, prevent Lender from bringing any action or exercising any rights within any other state or jurisdiction or from obtaining personal jurisdiction by any other means available under applicable law.

20. Counterparts . This Guaranty may be executed in multiple counterparts, each of which, for all purposes, shall be deemed an original, and all of which taken together shall constitute but one and the same instrument.

21. Waiver of Right to Trial By Jury . GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, OR COUNTERCLAIM THAT RELATES TO OR ARISES OUT OF THIS GUARANTY OR ANY OF THE LOAN DOCUMENTS OR THE ACTS OR FAILURE TO ACT OF OR BY LENDER IN THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS GUARANTY OR THE OTHER LOAN DOCUMENTS.

22. Invalid Provisions . If any provision of this Guaranty is held to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable and the remaining provisions of this Guaranty shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance.

23. Regulation B—Notice of Joint Intent . If Guarantor is more than one Person, Federal Regulation B (Equal Credit Opportunity Act) requires Lender to obtain evidence of Guarantor’s intention to apply for a joint guaranty. Guarantor’s signature below shall evidence such intent. Guarantor’s intent shall apply to future related extensions of joint credit and joint guaranty.

24. PATRIOT ACT NOTICE . LENDER HEREBY NOTIFIES GUARANTOR THAT PURSUANT TO THE REQUIREMENTS OF THE USA PATRIOT ACT, 31 U.S.C. § 5318 (THE “ ACT ”), IT IS REQUIRED TO OBTAIN, VERIFY AND RECORD INFORMATION THAT IDENTIFIES GUARANTOR, WHICH INFORMATION INCLUDES THE NAME AND ADDRESS OF GUARANTOR AND OTHER INFORMATION THAT WILL ALLOW SUCH LENDER TO IDENTIFY GUARANTOR IN ACCORDANCE WITH THE ACT.

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25. Fact Act Certification . Guarantor hereby acknowledges that Lender may report information about the obligations of Guarantor hereunder to credit bureaus. Late payments, missed payments or other defaults on the accounts of Guarantor may be reflected in the credit reports of Guarantor.

NOTICE OF FINAL AGREEMENT

THIS GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES, AND THE SAME MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

REMAINDER OF PAGE LEFT INTENTIONALLY BLANK

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EXECUTED as of the Effective Date.

GUARANTOR:	ADDRESS:

	2201 Sunset Blvd.
	Houston, TX 77005
/s/ JONATHAN PITTS CARROLL, SR.
JONATHAN PITTS CARROLL, SR.

BLUE DOLPHIN ENERGY COMPANY	801 Travis Street, Suite 2100
	Houston, TX 77002
By: /s/ JONATHAN PITTS CARROLL, SR.
Name: Jonathan Pitts Carroll, Sr.
Title: President

LAZARUS ENERGY LLC	801 Travis Street, Suite 2100
	Houston, TX 77002
By: BLUE DOLPHIN ENERGY COMPANY
Its: Sole Member
By: /s/ JONATHAN PITTS CARROLL, SR.
Name: Jonathan Pitts Carroll, Sr.
Title: President

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GUARANTY FEE AGREEMENT

THIS GUARANTY FEE AGREEMENT (the “ Agreement ”) is made as of June 22, 2015 (the “ Effective Date ”), by and between Jonathan P. Carroll (“Guarantor”) and Lazarus Energy, LLC, a Delaware limited liability company (“ LE ”). Guarantor and LE are sometimes referred to herein as the " Parties ".

WHEREAS, LE entered into a Loan Agreement (as amended, restated, supplemented or otherwise modified from time to time, the “ Loan Agreement ”) dated June 22, 2015, with Sovereign Bank (“ Lender ”) as evidenced by that certain Promissory Note (the “ Note ”) of even date with the Loan Agreement, in the original principal sum of TWENTY-FIVE MILLION AND 00/100 DOLLARS ($25,000,000.00); and

WHEREAS, as a condition precedent to Lender’s obligations to extend credit to LE under the Loan Agreement, Lender required the execution and delivery of an unconditional guaranty as security for the obligations of LE under the Loan Agreement and Note; and

WHEREAS, Guarantor entered into a United States Department of Agriculture Rural Development Unconditional Guarantee, Business and Industry Guaranteed Loan Program (as amended, restated, supplemented or otherwise modified from time to time, the “ Guaranty ”) of even date with the Loan Agreement and Note in favor of Lender to secure LE’s obligations under the Loan Agreement and Note.

NOW, THEREFORE, in consideration of the Guaranty and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by LE, the Parties agree as follows:

1. Payment of Fee . LE shall pay Guarantor or assignee a fee in an amount equal to two percent (2.00%) per annum, paid monthly, of the outstanding principal balance owed under the Loan Agreement (the “ Guaranty Fee ”). Amounts payable to Guarantor as the Guaranty Fee shall be paid at the end of each calendar month.

2. Governing Law . This Agreement shall be governed and construed in accordance with the laws of the State of Texas without reference to any conflict of law provision.

3. Counterparts . This Agreement may be executed in multiple counterparts, including counterparts transmitted by facsimile, each of which will be deemed an original, but both of which together will constitute one and the same instrument.

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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date.

	LAZARUS ENERGY, LLC		JONATHAN P. CARROLL

By:	/s/ TOMMY L. BYRD	By:	/s/ JONATHAN P. CARROLL
	Tommy L. Byrd		Jonathan P. Carroll

GUARANTY FEE AGREEMENT

THIS GUARANTY FEE AGREEMENT (the “ Agreement ”) is made as of June 22, 2015 (the “ Effective Date ”), by and between Jonathan P. Carroll (“Guarantor”) and Lazarus Refining & Marketing, LLC, a Delaware limited liability company (“ LRM ”). Guarantor and LRM are sometimes referred to herein as the " Parties ".

WHEREAS, LRM entered into a Loan and Security Agreement (as amended, restated, supplemented or otherwise modified from time to time, the “ Loan and Security Agreement ”) dated May 2, 2014, with Sovereign Bank (“ Lender ”) as evidenced by that certain Promissory Note (the “ 2014 Note ”) of even date with the Loan and Security Agreement, in the original principal sum of TWO MILLION AND 00/100 DOLLARS ($2,000,000.00); and

WHEREAS, LRM entered into a Loan Agreement (as amended, restated, supplemented or otherwise modified from time to time, the “ Loan Agreement ”) dated June 22, 2015, with Sovereign Bank (“ Lender ”) as evidenced by that certain Promissory Note (the “ 2015 Note ”) of even date with the Loan Agreement, in the original principal sum of THREE MILLION AND 00/100 DOLLARS ($3,000,000.00); and

WHEREAS, as a condition precedent to Lender’s obligations to extend credit to LRM under both the Loan and Security Agreement and the Loan Agreement, Lender required the execution and delivery of a guaranty as security for the obligations of LRM under: (i) the Loan and Security Agreement and 2014 Note and (ii) the Loan Agreement and 2015 Note; and

WHEREAS, Guarantor entered into:

(i) a Guaranty Agreement (as amended, restated, supplemented or otherwise modified from time to time, the “ 2014 Guaranty ”) of even date with the Loan and Security Agreement and 2014 Note in favor of Lender to secure LRM’s obligations under the Loan and Security Agreement and 2014 Note; and

(ii) a Guaranty Agreement (as amended, restated, supplemented or otherwise modified from time to time, the “ 2015 Guaranty ”) of even date with the Loan Agreement and 2015 Note in favor of Lender to secure LRM’s obligations under the Loan Agreement and 2015 Note.

NOW, THEREFORE, in consideration of the 2014 Guaranty, the 2015 Guaranty, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by LRM, the Parties agree as follows:

1. Payment of Fee . LRM shall pay Guarantor or assignee a fee in an amount equal to two percent (2.00%) per annum, paid monthly, of the outstanding principal balance owed under both the Loan and Security Agreement and the Loan Agreement (the “ Guaranty Fee ”). Amounts payable to Guarantor as the Guaranty Fee shall be paid at the end of each calendar month.

2. Governing Law . This Agreement shall be governed and construed in accordance with the laws of the State of Texas without reference to any conflict of law provision.

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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date.

	LAZARUS REFINING & MARKETING, LLC		JONATHAN P. CARROLL

By:	/s/ TOMMY L. BYRD	By:	/s/ JONATHAN P. CARROLL
	Tommy L. Byrd		Jonathan P. Carroll