LUCAS ENERGY, INC. (Form: 8-K, Received: 08/31/2016 08:34:13)

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): August 25, 2016

Lucas Energy, Inc.

(Exact name of registrant as specified in its charter)

Nevada		001-32508		20-2660243
(State or other jurisdiction of incorporation)		(Commission File Number)		(I.R.S. Employer Identification No.)

450 Gears Road, Suite 860, Houston, Texas		77067
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (713) 528-1881

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:

☐	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))

Item 1.01 Entry into a Material Definitive Agreement.

On August 25, 2016, immediately prior to the Closing (described and defined below under Item 2.01) Lucas Energy, Inc. (“ we ”, “ us ” and the “ Company ”), entered into a Second Amendment to Asset Purchase Agreement (the “ Second Amendment ”) amending that certain Asset Purchase Agreement, entered into between the Company and twenty-three sellers (collectively, the “ Sellers ”) and Segundo Resources, LLC, as a Seller and as a representative of the Sellers named therein (the “ Representative ”), dated December 31, 2015, as previously amended by the First Amendment to Asset Purchase Agreement dated April 20, 2016 and effective April 1, 2016 (the “ First Amendment ” and the Asset Purchase Agreement as amended to date, the “ Purchase Agreement ”). The Purchase Agreement is described in greater detail in our Current Report on Form 8-K filed with the Securities and Exchange Commission (“ SEC ”) on December 30, 2015 and the First Amendment is described in greater detail in our Current Report on Form 8-K filed with the SEC on April 25, 2016.

Pursuant to the Second Amendment, the Sellers agreed (a) to remove the requirement from the Purchase Agreement that we change our name to ‘Camber Energy, Inc.’, instead we agreed to use commercially reasonable efforts following the closing to affect such name change; and (b) to remove the requirement that we issue the Sellers the shares of common stock and preferred stock due to such Sellers at the Closing, agreeing instead that we could issue such shares promptly following the Closing.

The foregoing description of the Second Amendment is not complete and is qualified in its entirety by reference to the Second Amendment which is filed herewith as Exhibit 2.1 and incorporated by reference herein.

Additionally on August 25, 2016, we entered into the Letter Agreement, Promissory Note, Loan Agreement, Note, Security Agreements, Guaranty Agreements and Consulting Agreement, each as described in greater detail in Items 2.03 and 5.02, below, as applicable, which descriptions are each incorporated by reference in this Item 1.01.

Item 2.01 Completion of Acquisition or Disposition of Assets.

Effective August 25, 2016 (the “ Closing ”), we closed the transactions contemplated by the Purchase Agreement and acquired working interests in producing properties and undeveloped acreage in Texas and Oklahoma, including varied interests in two largely contiguous acreage blocks in the liquids-rich Mid-Continent region of the United States, and related wells, leases, records, equipment and agreements associated therewith (collectively, the “ Assets ”), from the Sellers (the “ Acquisition ”). In consideration for the purchase of the Assets, we assumed approximately $30.6 million of commercial bank debt (which was assumed in connection with the Loan Agreement, defined and described below in Item 2.03) and agreed to (i) issue to the Sellers (a) 552,000 shares of Series B Redeemable Preferred Stock (“ Series B Preferred Stock ”)(convertible into 3,941,280 shares of common stock, the “ Convertible Preferred Stock ”) and (b) 13,009,664 shares of restricted common stock; and (ii) pay the Sellers $4,975,000 in cash, which funds we obtained in connection with the Loan Agreement. The Assets are currently producing over one thousand net barrels of oil equivalent per day (BOE/d), of which 53% are liquids and which are being produced primarily from the Hunton formation.

Entities owned and controlled by Richard N. Azar II, who was appointed as Chairman of the Company on August 26, 2016, as discussed below under Item 5.02, received an aggregate of 3,409,385 shares of our common stock (subject to the terms of the Letter Agreement, described below), all 552,000 shares of our Series B Preferred Stock and $3,688,898 in cash from us in connection with the Closing. An entity owned and controlled by Robert Tips, who was appointed as a member of the Board of Directors of the Company on August 26, 2016, as discussed below under Item 5.02, was issued 1,184,725 shares of our common stock in connection with the Closing. Alan Dreeben, who was appointed as a member of the Board of Directors of the Company on August 26, 2016, as discussed below under Item 5.02, was issued 1,780,634 shares of our common stock in connection with the Closing.

Pursuant to the Purchase Agreement, we are required to register the resale of the common stock shares issued to the Sellers (we are required to file the registration statement registering such shares no later than 30 days after Closing and obtain effectiveness thereof no later than 90 days after closing (135 days in the event the SEC reviews such registration statement)).

Pursuant to a Letter Agreement entered into at Closing between the Company and RAD2 Minerals, Ltd. (“ RAD2 ”), one of the Sellers, which is owned and controlled by Richard N. Azar II, who was appointed as our Chairman on August 26, 2016, as described below under Item 5.02, RAD2 agreed to accept full liability for any and all deficiencies between the “ Agreed Assets Value ” set forth in the Purchase Agreement of $80,697,710, and the mutually agreed upon value of the assets delivered at Closing by the Sellers, up to an aggregate of $1,030,941 (as applicable, the “ Deficiency ”). In connection therewith, RAD2 agreed to establish an escrow account within three business days of the Closing and place into escrow 288,779 shares of common stock, within 15 business days from the date of the Closing. The escrowed shares are to be held in escrow pending (a) RAD2’s transfer of assets to the Company following the Closing, equal to at least the value of the Deficiency (as valued in the reasonable determination of the Company); or (b) another mutually agreeable solution to the Deficiency ((a) or (b) as applicable, the “ Make-Whole ”). In the event the Make-Whole occurs on or prior to 45 business days from the date of Closing (the “ Make-Whole Deadline ”), the escrowed shares are to be released to RAD2, and in the event the Make-Whole does not occur prior to the Make-Whole Deadline, the escrowed shares (or such portion thereof that equals the Deficiency, in the reasonable determination of the Company) are to be released to Lucas for cancellation as consideration for the Deficiency.

The foregoing description of the Letter Agreement is not complete and is qualified in its entirety by reference to the Letter Agreement, which is filed herewith as Exhibit 10.1 , and incorporated by reference herein.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

Loan Agreement with RAD2

Effective on August 25, 2016, RAD2, which was one of the Sellers and which is owned and controlled by Richard N. Azar II, who was appointed as our Chairman on August 26, 2016, as described below under Item 5.02, loaned us $1.5 million pursuant to a Promissory Note. The Promissory Note does not accrue interest for the first month it is outstanding and accrues interest at the rate of 5% per annum thereafter (15% upon the occurrence of an event of default) until paid in full. The Promissory Note is payable on the earlier of (a) October 31, 2016, and (b) three business days following the date that Lucas receives at least $1.5 million in proceeds from the transactions contemplated by that certain Stock Purchase Agreement dated April 6, 2016, entered into by and between Lucas and Discover Growth Fund. The Promissory Note can be prepaid at any time without penalty, is not secured and contains customary events of default. Funds borrowed pursuant to the Promissory Note were used to pay transaction fees and provide working capital.

The foregoing description of the Promissory Note is not complete and is qualified in its entirety by reference to the Promissory Note, filed herewith as Exhibit 10.2 , and incorporated by reference herein.

Loan Agreement with International Bank of Commerce

Effective August 25, 2016, we, as borrower, and Richard N. Azar II, who was appointed as our Chairman on August 26, 2016, as described below under Item 5.02, and who also received the largest number of securities and cash in connection with the Closing, described above under Item 2.01 (“ Azar ”), Donnie B. Seay, Richard E. Menchaca, RAD2, DBS Investments, Ltd. (“ DBS ”, controlled by Mr. Seay) and Saxum Energy, LLC (“ Saxum ”, which is controlled by Mr. Menchaca), as guarantors (collectively, the “ Guarantors ”, all of which are directly or indirectly Sellers), and International Bank of Commerce, as Lender (“ Lender ”), entered into a Loan Agreement (the “ Loan Agreement ”).

Pursuant to the Loan Agreement, the Lender loaned us $40 million (“ Loan ”), evidenced by a Real Estate Lien Note in the amount of $40 million (the “ Note ”). We are required to make monthly payments under the Note equal to the greater of (i) $425,000; and (ii) fifty percent (50%) of our monthly net income. The Note accrues annual interest at 2% above the prime rate then in effect, subject to a minimum interest rate of 5.5% per annum. The Note is due and payable on August 25, 2019. Payments under the Note are subject to change as the interest rate changes in order to sufficiently amortize the Note in 120 monthly installments. We have the right, from time to time and without penalty to prepay the Note in whole or in part, subject to the terms thereof.

The proceeds of the Loan were used to repay and refinance approximately $30.6 million of indebtedness owed by certain of the Sellers, to the Lender (including an aggregate of $18.3 million owed by RAD2 and another entity controlled by Mr. Azar, $9.8 million owed by DBS, and $2.1 million owed by Mr. Menchaca), as well as to pay the $4.975 million due to the Sellers at Closing. Another $3.36 million was used to fund a sinking fund required by the Lender, as discussed below, to pay principal on the Note.

The amount owed under the Note is secured by a Security Interest in substantially all of our assets and properties, pursuant to three Security Agreements. Also, each of the Guarantors guaranteed the repayment of a portion of the Loan Agreement pursuant to a Limited Guaranty Agreement (each a “ Guaranty Agreement ”). Additionally, in connection with the parties’ entry into the Loan Agreement and to further secure amounts due thereunder, certain of the Guarantors pledged shares of common stock which they received at the Closing to the Lender, with RAD2 pledging 3,120,606 shares of common stock; DBS pledging 935,934 shares of common stock; and Saxum pledging 673,392 shares of common stock.

The Loan Agreement includes usual and customary positive and negative covenants, including requiring that (a) we maintain an account balance with Lender of at least $3,360,000 at all times; (b) we comply in all respects with all material agreements, indentures, mortgages, deeds of trust and documents binding on us or affecting our assets, properties or business; (c) that on or before the 15th day following the end of each calendar quarter, and the 120 ^th day following the end of each calendar year, we deliver certain financial statements to the Lender; (d) we provide Lender a reserve report on June 30 ^th and December 30 ^th of each year in connection with our oil and gas properties, and that we further pay the Lender $10,000 per year as an engineering fee; (e) our projected net cash flow, less taxes, operating costs and general and administrative expenses, and other expenses, be sufficient to fully amortize the principal balance due under the Note on a monthly basis, within the economic half-life of the mortgaged properties securing the repayment of the Note (the “ Cash Flow Test ”); (f) the balance of the Loan not exceed the lesser of (i) 65% of the present worth of our future net income (“ PWFNI ”) discounted at 20%, or (ii) fifty percent (50%) of the PWFNI discounted at 9% (the “ Loan to Value Determination Base ”); (g) any additional assets we acquire in the future are promptly pledged to Lender to secure the Loan; (h) Lender consent to any future debt we incur in excess of $100,000 per year; (i) that we not reorganize, merge, or affiliate with any other entity without the prior consent of Lender, and that we not change the present positions of Anthony C. Schnur and Richard N. Azar II, without the prior written consent of Lender; (i) we not sell, contract to sell, convey, assign, transfer, mortgage, pledge, hypothecate, encumber, or in any way alienate any interest in the collateral which secures the repayment of the Note, without the prior written consent and approval of Lender; (j) our maximum general and administrative expenses, including without limitation, employee compensation, but excluding non-cash expenses, including but not limited to stock and warrants issued as compensation, cannot exceed $233,333 per month or $2,800,000 per annual fiscal year (with such amounts to be updated by the Lender on August 25 ^th of each year that the Loan is outstanding), without the prior written consent of Lender, provided that cash bonuses paid to our directors, officers, and employees are allowed, so long as not more than $500,000 in aggregate bonus payments and not more than $100,000 in bonus payments to any one recipient, are paid during any fiscal year; (k) we are not permitted to change the employment, position, or scope of duties of any member of our senior management staff, which are deemed to be Anthony C. Schnur and Richard N. Azar II, except changes resulting from death or disability (i.e., Anthony C. Schnur shall remain our President and Chief Executive Officer and Richard N. Azar II shall remain our Chairman, unless otherwise approved by Lender in its sole discretion); and (l) we maintain a tangible net worth as shown in the financial statements delivered to Lender of at least $30 million.

The Loan to Value Determination Base is tested on June 30th and December 30th of each year; with the first Loan to Value Determination Base to be tested on December 30, 2016; however, it may also be tested from time to time in Lender’s sole discretion. Testing of the Cash Flow Test is to be completed semi-annually on June 30th and December 30th of each year; with the first Cash Flow Test to be administered on June 30, 2017, however, it may also be tested from time to time in Lender’s sole discretion. If at any time we do not meet the requirements of the Cash Flow Test or the Loan to Value Determination Base, we are required to either (i) pledge additional collateral to the Lender, or (ii) pay down the outstanding principal balance of the Note, to bring the Loan into compliance with the Cash Flow Test and/or Loan to Value Determination Base, as applicable, within 15 days after notice thereof from Lender.

As further consideration for agreeing to the terms of the Loan, we agreed to issue the Lender 390,290 shares of common stock (the “ Lender Shares ”).

The Loan Agreement and Note include standard and customary events of default for similarly sized facilities, including, but not limited to, in the event we fail to pay any amounts owed to Lender when due; we (or any Guarantor) breach any covenant, obligation, agreement, or other provision in any agreement entered into with Lender; the sale, lease, transfer or other disposition of all or any substantial part (i.e., 10% or more in any fiscal year) of our or any Guarantor’s assets, subject to certain exceptions; or in the event any person, entity, or group (other than any Guarantor) acquires beneficial ownership of 50% or more of our securities or more than 50% of the members of our Board of Directors change without the consent of Lender. Our failure to comply with any covenant or requirement under the Loan Agreement and related documents constitutes an event of default under the Note, provided that we have (a) 10 days to cure any payment due under the Loan Agreement, after written notice of the deficiency thereof is provided by the Lender to us, provided further that the Lender is not required to provide us notice more than two times in any calendar year, and if two notices have been provided, no further notice is required under the terms of the Loan Agreement; and (b) 30 days to cure any other default under the Loan Agreement or Note, after written notice of such default has been provided to us by the Lender. Upon the occurrence of an Event of Default, Lender may, at its option, declare the Loan immediately due and payable without notice of any kind.

The Loan Agreement also provides that with respect to the properties located in Glasscock County, Texas, which we obtained ownership of at the Closing (collectively, the “ West Texas Properties ”), we have the right to sell the West Texas Properties after (i) the Lender approves the purchase and sale agreement in its sole discretion, (ii) the Lender receives as a prepayment of the Loan, 50% of the sales proceeds of the West Texas Properties, but in no event less than $2,000,000, and (iii) the balance of the sales proceeds of the West Texas Properties are deposited in the bank account that we are required to maintain with the Lender, to be used to pay certain principal payments of the Note as approved by Lender in its sole discretion.

We agreed to pay the Lender a loan finance charge of $400,000 in connection with our entry into the Loan Agreement, with half due on the date we entered into the Loan Agreement and half due on or before the 180 ^th day following the date of the Loan Agreement.

The foregoing descriptions of the Loan Agreement, Note, Security Agreements and Guaranty, are not complete and are qualified in their entirety by reference to the Loan Agreement, Real Estate Lien Note, Security Agreements and Form of Limited Guaranty Agreement, which are filed herewith as Exhibits 10.3 through 10.6 , respectively, and incorporated by reference herein.

Item 3.02 Unregistered Sales of Equity Securities.

In connection with the Closing, we issued 552,000 shares of Series B Preferred Stock and 13,009,664 shares of restricted common stock to certain of the Sellers. If fully converted, without taking into account the accrual and conversion of any dividends thereon, which are also convertible into shares of common stock, the 552,000 shares of Series B Preferred Stock are convertible into 3,941,280 shares of common stock.

As additional consideration for the Lender agreeing to the terms of the Loan, we issued the Lender Shares.

We claim an exemption from registration for the issuances described above pursuant to Section 4(a)(2) and/or Rule 506 of Regulation D of the Securities Act of 1933, as amended, since the foregoing issuances did not involve a public offering and the recipients were “ accredited investors ”, the recipients acquired the securities for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. The securities were offered without any general solicitation by us or our representatives. No underwriters or agents were involved in the foregoing issuances and grant and we paid no underwriting discounts or commissions. The securities sold are subject to transfer restrictions, and the certificates evidencing the securities contain an appropriate legend stating that such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom. The securities were not registered under the Securities Act and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.

Item 3.03 Material Modification to Rights of Security Holders.

In connection with the Closing, we filed the Designations (defined below under Item 5.06) with the Secretary of State of Nevada. The information regarding the Designations set forth in Item 5.06 below is incorporated by reference in this Item 3.03.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

Appointment of Directors

Pursuant to the Purchase Agreement, the Sellers had the right to appoint three members to the Board of Directors at Closing (the “ Appointment Rights ”), and exercised such right by requesting the appointment of Richard N. Azar II, Alan W. Dreeben and Robert D. Tips, as members of the Board of Directors, which persons were appointed as members of the Board of Directors by our Board of Directors, pursuant to the power provided to the Board of Directors by the Bylaws of the Company, on August 26, 2016, with Mr. Azar being appointed as Chairman of the Board of Directors. By the sixth month anniversary of the Closing of the Purchase Agreement, one of the three current members of our Board of Directors will be required to resign in order that we will have five members of our Board of Directors, including three appointed by the Sellers, on such date.

Biographical information of Richard N. Azar II, Alan W. Dreeben and Robert D. Tips, is provided below:

Richard N. Azar II , age 69, is an executive within the oil and gas industry with more than 30 years’ experience in the oil and gas exploration and production arena. Mr. Azar serves as President/Co-Founder of San Antonio-based Brittany Energy, LLC and Sezar Energy, LP, independent oil and gas exploration and production companies. In addition, he was a director with Petroflow Energy, Ltd./TexOakPetro Holdings, LLC., a private oil and gas company with operations in the Hunton dewatering resource play in Oklahoma. Since 1982 Mr. Azar’s companies have explored for, produced and operated over 1,000 wells in Central, South and West Texas and Central Oklahoma, including the development of the Hunton Dewatering Resource play in central Oklahoma. Mr. Azar co-founded San Antonio Gas & Oil (SAGO), which in 1985 acquired Altex Resources, Inc., a leading oil and gas exploration company. Over the last 20 years, Mr. Azar has been instrumental in developing a Hunton Dewatering Resource play in central Oklahoma through his ownership/partnership in Altex Resources, Inc. Altex Resources was sold to a Canadian Energy Trust in March 2006. Mr. Azar remains active in the exploration of the Hunton Resource play. He currently serves as a Trustee for the San Antonio-based Texas Biomed Research Institute, has been on the Board of the Southwest Blood and Tissue Center and has actively participated in many philanthropic endeavors. Mr. Azar attended the University of Texas at Austin and graduated with a Bachelor of Business Administration degree and distinguished military graduate honors in 1969.

Alan W. Dreeben , age 73, is an owner and director of Republic National Distributing Company, LLC, the second largest beverage alcohol distributor of premium wine and spirits in the United States. He also has been a director of The Alisam Group LLC, a private freight logistics management and sales organization, since 2014. Mr. Dreeben holds a Bachelor of Business Administration degree from University of Texas at Austin, an Executive Master’s in Business Administration from Harvard University, an honorary Doctor of Philosophy degree from University of the Incarnate Word, and an honorary Doctor of Laws degree from Texas State University.

Robert D. Tips , age 62, is one of San Antonio’s most recognized business leaders. For the past four decades he has devoted himself to building one of the leading family owned funeral companies in the State of Texas, Mission Park Funeral Chapels and Cemeteries. He is the President, Chairman and Chief Executive Officer of MPII, Inc. d/b/a Mission Park Funeral Chapels and Cemeteries, whose operations include 21 funeral homes and cemeteries throughout the state, a casket and monument manufacturing group, an architectural and construction division, insurance companies and a trust company to protect the investments of Mission Park’s pre-need customers. Mr. Tips served as President and Chief Executive Officer of the two insurance companies, MTM Life Insurance Company and Transwestern Life Insurance Company, which were merged into North America Life Insurance Company in 2008, where Mr. Tips served as Vice President from 2008 to 2011. Mr. Tips has been instrumental in starting a faith based school for children of all ages, raising money for Bexar County’s volunteer fire departments, and providing support to the families of San Antonio police officers who died in the line of duty. He is a member of numerous civic clubs and advisory committees throughout Texas. He became a 32nd degree Mason at the age of 21 and is a member of the Albert Pike Masonic Lodge 1169 AF & AM, as well as the Scottish Rite Children’s Hospital. He is a member and past president of Texas Cemeteries Association, a past board member of BBVA Compass Bank and an active board member of BB&T Bank. Mr. Tips also served on Rey Feo during 2005, an organization that raises money for scholarships for San Antonio college students of tomorrow. Mr. Tips attended the University of Texas in Austin.

Related Party Transactions Relating to New Directors

Mr. Azar is the principal Seller and manager of the properties acquired in the Acquisition, and was appointed as our Chairman on August 26, 2016. Mr. Azar also received, either personally or through entities which he controls, an aggregate of 3,380,489 shares of our common stock (subject to the terms of the Letter Agreement), all 552,000 shares of our Series B Preferred Stock and $3,688,898 in cash from us in connection with the Closing.

As a result of the Closing, Mr. Azar’s beneficially owns 3,409,385 shares of common stock and 3,941,280 shares of common stock issuable upon conversion of the 552,000 outstanding shares of Series B Preferred Stock or 38.5%, of our outstanding common stock post-Closing (when including the shares of common stock issuable upon conversion of the Series B Preferred Stock which he holds) and holds 25.2% voting power over the Company. Mr. Azar has voting and investment power over the securities beneficially owned by RAD2. Mr. Azar also is affiliated with another one of the Sellers, Coyle Manna Management LLC.

In July and August 2016, RAD2, which was one of the Sellers, and is controlled by Mr. Azar, advanced the Company an aggregate of $350,000, of which $100,000 has been repaid and $250,000 remains outstanding. This advance does not accrue interest and has no stated maturity date.

On August 25, 2016, we entered into the Promissory Note in favor of RAD2, as described in greater detail above under Item 2.03, and on August 26, 2016, we entered into the Consulting Agreement with Mr. Azar as described in greater detail below.

Mr. Dreeben is one of the Sellers. Mr. Dreeben beneficially owns 1,780,634 shares of common stock, or approximately 11.8%, of our common stock as a result of the Closing. On March 28, 2016 and on June 13, 2016, we borrowed $250,000 and $100,000, respectively, from Mr. Dreeben pursuant to an Amended and Restated Short Term Promissory Note (the “ Short Term Note ”). The Short Term Note has a principal balance of $385,000 (the $350,000 borrowed plus a 10% original issue discount), does not accrue interest unless an event of default occurs thereunder, at which time the note accrues interest at 15% per annum, has a maturity date of August 31, 2016 and contains standard and customary events of default. The Short Term Note may be prepaid at any time without penalty. As additional consideration for Mr. Dreeben agreeing to make the loan we agreed to issue Mr. Dreeben 15,000 restricted shares of common stock.

Mr. Tips is affiliated with one of the Sellers, Azar, MPII & Range A&D Fund, LP. Upon completion of the Acquisition, Mr. Tips, through MPII, Inc., which he controls, received 1,184,725 shares of our common stock, or approximately 7.8%, of our outstanding common stock.

Consulting Agreement with Richard N. Azar II

On August 29, 2016, to be effective as of August 26, 2016, we entered into a Consulting Agreement with Mr. Azar to serve as the Chairman of the Company. Pursuant to the Consulting Agreement, Mr. Azar agreed to provide services to us in his role as Chairman of the Company as customarily performed by Chairman’s of public companies and as requested by the Board of Directors from time to time. The term of the agreement is for one year (the “ Initial Term ”); provided that the agreement automatically extends for additional one year periods after the Initial Term (each an “ Automatic Renewal Term ” and the Initial Term together with all Automatic Renewal Terms, if any, the “ Term ”), subject to the Renewal Requirements (described below), in the event that neither party provides the other written notice of their intent not to automatically extend the term of the agreement at least 30 days prior to the end of the Initial Term or any Automatic Renewal Term. The Term shall only be extended for an Automatic Renewal Term, provided that (i) Mr. Azar is re-elected to the Board of Directors at the Annual Meeting of Stockholders of the Company immediately preceding the date that such Automatic Renewal Term begins; and (ii) the Board of Directors affirms his appointment as Chairman for the applicable Automatic Renewal Term (or fails to appoint someone else as Chairman prior to such applicable Automatic Renewal Term)(the “ Renewal Requirements ”). The agreement expires immediately upon the earlier of: (i) the date upon which Mr. Azar no longer serves as Chairman; and (ii) any earlier date requested by either (1) the Company (as evidenced by a vote of a majority of the Board of Directors (excluding Mr. Azar) at a meeting of the Board of Directors), or (2) Mr. Azar (as evidenced by written notice to the Board of Directors). Additionally, we may terminate the agreement immediately and without prior notice if Mr. Azar is unable or refuses to perform the services required of him under the agreement, and either party may terminate the agreement immediately and without prior notice if the other party is in breach of any material provision of the agreement. We agreed to pay Mr. Azar $100,000 per year during the term of the agreement, subject to annual reviews by the Compensation Committee, after the first year. Mr. Azar agreed to not compete against us, unless approved in writing by the Board of Directors, during the term of the agreement.

The foregoing description of the Consulting Agreement is not complete and is qualified in its entirety by reference to the Consulting Agreement, which is filed herewith as Exhibits 10.7 , and incorporated by reference herein.

Changes in Board of Directors Committee Membership

In connection with the appointments, above, the Board of Directors determined that each of Messrs. Dreeben and Tips, were independent pursuant to applicable NYSE MKT rules and requirements, and appointed Mr. Tips as a member of the Compensation Committee and both Messrs. Dreeben and Tips as members of the Nominating and Corporate Governance Committee of the Board of Directors. At the same time, Fred Zeidman was re-appointed as Chairman of the Compensation Committee and Fred Hofheinz was re-appointed as Chairman of the Nomination Committee of the Board of Directors. Additionally, Mr. Tips was appointed as a member of the Audit Committee and Fred Zeidman was re-appointed as the Chairman of the Audit Committee. As a result, the Company’s current Board Committee Membership is as follows:

	Independent	Audit Committee	Compensation Committee	Nominating and Corporate Governance Committee
Richard N. Azar II (Board Chairman)
Anthony C. Schnur
J. Fred Hofheinz	X	M	M	C
Fred S. Zeidman	X	C	C	M
Alan W. Dreeben	X			M
Robert Tips	X	M	M	M

C - Chairman of Committee.

M – Member.

Appointment of Officers

Also on August 26, 2016, Paul Pinkston was appointed as the Chief Accounting Officer of the Company and Ken Sanders was appointed as the Chief Operating Officer of the Company.

Biographical information of Mr. Pinkston and Mr. Sanders, is provided below:

Ken Sanders , age 66, has served as our Vice President of Asset Development since September 2013, and previously served as an engineering consultant with us from February 2013 to August 2013. Mr. Sanders has been the President and Chief Executive Officer of Research Exploration, LLC, a private exploration and production company focused on development of exploration prospects, development drilling opportunities and producing property acquisitions, mainly in the Gulf Coast onshore in Texas and Louisiana since 2007. Mr. Sanders served as the principal of KRS Resources, LLC, which undertook similar operations as Research Exploration, LLC, only in the states of Louisiana, Mississippi, Oklahoma and Texas from 2003 to 2007, when the company was consolidated into Research Exploration, LLC. Mr. Sanders served in various roles with Contour Energy, Inc. from 1999 to 2003, joining the company as Senior Vice President in 1999, with responsibility for all exploration and production activities in the company’s core onshore Gulf Coast, Louisiana and Texas and Gulf of Mexico shelf, properties. He was elected to the Board of Directors of Contour in 2001 and named President and Chief Executive Officer of Contour in May 2001. Prior to working at Contour, Mr. Sanders served in various roles with Seagull Energy E&P Inc., including Vice President, Exploration, Acquisitions & Engineering, from 1991 to 1999, served as an engineering consultant to Torch Energy Advisors Incorporated, served as President and Chief Executive Officer of Belwood USA, Inc. and provided services in various roles to The Keplinger Companies (as Executive Vice President) and Shell Oil Company (as Production Operations Engineer).

Mr. Sanders is a member of the Society of Petroleum Engineers (SPE), the Independent Petroleum Association of America (IPAA) and the Society of Petroleum Evaluation Engineers (SPEE) and is an inactive Registered Professional Engineer in Texas. Mr. Sanders received a Bachelor’s degree in Petroleum Engineering from Mississippi State University in 1972 and a Master of Business Administration (Finance) degree from the University of Houston in 1981.

Paul Pinkston , age 49, has served as the Director of Financial Reporting for the Company since May 2013. From January 2006 to May 2013, Mr. Pinkston served as a Senior Consultant with Sirius Solutions LLLP, where he performed accounting, audit and finance consulting services. From January 2002 to November 2005, Mr. Pinkston served as a Corporate Auditor performing internal audits for Baker Hughes, Inc. From September 1998 to November 2001, Mr. Pinkston served as a Senior Auditor, conducting public and private audits, at Arthur Anderson LLP.

Mr. Pinkston received a Batcher’s of Business Administration (Finance and Marketing) degree in 1990 from the University of Texas and a Masters of Business Administration (Accounting) degree from the University of Houston in 1998. Mr. Pinkston is a Certified Public Accountant registered in Texas.

Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

Preferred Stock Designations

In connection with the Closing, we filed (a) an Amended and Restated Certificate of Designation of Lucas Energy, Inc. Establishing the Designation, Preferences, Limitations and Relative Rights of Its Series B Redeemable Convertible Preferred Stock; and (b) a Certificate of Designations of Preferences, Powers, Rights and Limitations of Series C Redeemable Convertible Preferred Stock (collectively, the “ Designations ”), with the Secretary of State of Nevada on August 25, 2016.

Series B Redeemable Convertible Preferred Stock

The Series B Preferred Stock has dividend rights that accrue at an annual rate of 6%, payable quarterly in arrears, beginning at the end of the first full quarter following the Closing, until such Series B Preferred Stock is no longer outstanding either due to conversion, redemption or otherwise. The Series B Preferred Stock also has liquidation rights equal to the original issue price of such shares ($25 per share) payable upon our liquidation, dissolution or winding up, either voluntary or involuntary. Each outstanding share of Series B Preferred Stock is entitled to one vote on all stockholder matters to come before our stockholders and are not entitled to series voting except as required by law.

The Series B Preferred Stock has a face value of $25 per share. The Series B Preferred Stock is convertible into common stock at a rate of 7.14:1 (convertible into an aggregate of 3,941,280 shares of common stock if fully converted), at the option of the holder thereof, or automatically as to 25% of the Series B Preferred Stock shares if our common stock trades above $6.125 per share for at least 20 consecutive trading days, and trades with at least 75,000 shares of average volume per day during such period; an additional 50% of the Series B Preferred Stock shares if our common stock trades above $7.00 per share for at least 20 consecutive trading days, and trades with at least 75,000 shares of average volume per day during such period; and as to the remaining Series B Preferred Stock shares, if our common stock trades above $7.875 per share for at least 20 consecutive trading days, and trades with at least 75,000 shares of average volume per day during such period. Each outstanding share of Series B Preferred Stock is entitled to one vote per share on all stockholder matters.

The Series B Preferred Stock is redeemable at any time by the Company upon the payment by the Company of the face amount of the Series B Preferred Stock ($25 per share) plus any and all accrued and unpaid dividends thereon. Among other things, we agreed to not take any action to adversely affect the rights of the holders of the Series B Preferred Stock so long as the Series B Preferred Stock is outstanding and to not designate any capital stock with powers greater than the Series B Preferred Stock, without the approval of the holders of a majority of the outstanding Series B Preferred Stock shares.

Series C Redeemable Convertible Preferred Stock

Holders of the Series C Preferred Stock are entitled to cumulative dividends in the amount of 6.0% per annum, payable upon redemption, conversion, or maturity, and when, as and if declared by our Board of Directors in its discretion. The Series C Preferred Stock ranks senior to the Common Stock and pari passu with respect to our Series B Preferred Stock.

The Series C Preferred Stock may be converted into shares of Common Stock at any time at the option of the holder, or at our option if certain equity conditions (as defined in the Certificate of Designation), are met. Upon conversion, we will pay the holders of the Series C Preferred Stock being converted a conversion premium equal to the amount of dividends that such shares would have otherwise earned if they had been held through the maturity date, and issue to the holders such number of shares of Common stock equal to $10,000 per share of Series C Preferred Stock (the “ Face Value ”) multiplied by the number of such shares of Series C Preferred Stock divided by the conversion rate.

The conversion premium under the Series C Preferred Stock is payable and the dividend rate under the Series C Preferred Stock is adjustable on the same terms and conditions as accrued interest is payable and adjustable under the Debenture described below. The Series C Preferred Stock has a maturity date that is seven years after the date of issuance and, if the Series C Preferred Stock has not been wholly converted into shares of Common Stock prior to such date, we may redeem the Series C Preferred Stock on such date by repaying to the investor in cash 100% of the Face Value plus an amount equal to any accrued but unpaid dividends thereon. Prior to the maturity date, provided that no trigger event has occurred (as defined in the Certificate of Designation), we have the right at any time upon 30 trading days’ prior written notice to redeem all or any portion of the Series C Preferred Stock by paying investor in cash 100% of the Face Value, plus the conversion premium, minus any dividends already paid on the Series C Preferred Stock being redeemed. 100% of the Face Value, plus an amount equal to any accrued but unpaid dividends thereon, automatically becomes payable in the event of a liquidation, dissolution or winding up by us.

We may not issue any other Preferred Stock (other than the Series B Preferred Stock) that is pari passu or senior to the Series C Preferred Stock with respect to any rights for a period of one year after the earlier of such date (i) a registration statement is effective and available for the resale of all shares of Common Stock issuable upon conversion of the Series C Preferred Stock, or (ii) Securities Act Rule 144 is available for the immediate unrestricted resale of all shares of Common Stock issuable upon conversion of the Series C Preferred Stock.

Change in Fiscal Year

Effective on August 26, 2016, the Board of Directors of the Company approved a change in the Company’s fiscal year from March 31 ^st to December 31 ^st . The Company will file an Annual Report on Form 10-K for the year ended December 31, 2016 covering the transition period.

Item 7.01.

Regulation FD Disclosure

On August 31, 2016, the Company issued a press release discussing the closing of the Purchase Agreement, fundings described above and other matters. A copy of which is furnished as Exhibit 99.5 hereto.

The information responsive to Item 7.01 of this Form 8-K and Exhibit 99.5 attached hereto, shall not be deemed “ filed ” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing. The furnishing of this Report is not intended to constitute a determination by the Company that the information is material or that the dissemination of the information is required by Regulation FD.

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired.

Statements of Revenues and Direct Operating Expenses of Oil and Gas Properties Acquired From Segundo Resources, LLC for the years ended March 31, 2016 and 2015 and the notes thereto, to the extent required by this Item 9.01, will be filed by amendment to this Current Report on Form 8-K within seventy-one (71) calendar days from the date that this Current Report on Form 8-K is required to be filed.

Statements of Revenues and Direct Operating Expenses of Oil and Gas Properties Acquired From Segundo Resources, LLC for the three months ended June 30, 2016 and 2015 and the notes thereto, to the extent required by this Item 9.01, will be filed by amendment to this Current Report on Form 8-K within seventy-one (71) calendar days from the date that this Current Report on Form 8-K is required to be filed.

(b) Pro Forma Financial Information.

Unaudited Pro Forma Financial Information of Lucas Energy, Inc. as of March 31, 2016 and for the year ended March 31, 2016, to the extent required by this Item 9.01, will be filed by amendment to this Current Report on Form 8-K within seventy-one (71) calendar days from the date that this Current Report on Form 8-K is required to be filed.

Unaudited Pro Forma Financial Information of Lucas Energy, Inc. as of June 30, 2016 and for the three months ended June 30, 2016, to the extent required by this Item 9.01, will be filed by amendment to this Current Report on Form 8-K within seventy-one (71) calendar days from the date that this Current Report on Form 8-K is required to be filed.

(d) Exhibits.

Exhibit No.		Description

2.1*		Second Amendment to Asset Purchase Agreement by and between Lucas Energy, Inc., as purchaser, Segundo Resources, LLC, as seller representative to the various sellers named therein, and the sellers named therein dated August 25, 2016

3.1*		Amended and Restated Certificate of Designation of Lucas Energy, Inc. Establishing the Designation, Preferences, Limitations and Relative Rights of Its Series B Redeemable Convertible Preferred Stock as filed with the Secretary of State of Nevada on August 25, 2016

3.2*		Certificate of Designations of Preferences, Powers, Rights and Limitations of Series C Redeemable Convertible Preferred Stock as filed with the Secretary of State of Nevada on August 25, 2016

10.1*		Letter Agreement dated August 25, 2016, by and between Lucas Energy, Inc. and RAD2 Minerals, Ltd.

10.2*		$1.5 million Promissory Note by Lucas Energy, Inc. in favor of RAD2 Minerals, Ltd., dated August 25, 2016

10.3*		Loan Agreement dated August 25, 2016, between Lucas Energy, Inc., as borrower, Richard N. Azar, II, Donnie B. Seay, Richard E. Menchaca, RAD2 Minerals, Ltd., DBS Investments, Ltd., and Saxum Energy, LLC, as guarantors, and International Bank of Commerce, as lender

10.4*		Real Estate Lien Note dated August 25, 2016, by Lucas Energy, Inc., as borrower in favor of International Bank of Commerce, as lender

10.5*		Security Agreements dated August 25, 2016 by Lucas Energy, Inc. in favor of International Bank of Commerce

10.6*		Form of Limited Guaranty Agreement in favor of International Bank of Commerce dated August 25, 2016

10.7*		Consulting Agreement between Richard N. Azar II and Lucas Energy, Inc. dated August 29, 2016

23.1**		Consent of GBH CPAs, PC

99.1**		Statements of Revenues and Direct Operating Expenses of Oil and Gas Properties Acquired From Segundo Resources, LLC for the years ended March 31, 2016 and 2015 and the notes thereto, including the related report of the independent registered public accounting firm

99.2**		Statements of Revenues and Direct Operating Expenses of Oil and Gas Properties Acquired From Segundo Resources, LLC for the three months ended June 30, 2016 and 2015 and the notes thereto

99.3**		Unaudited Pro Forma Financial Information of Lucas Energy, Inc. as of March 31, 2016 and for the year ended March 31, 2016

99.4**		Unaudited Pro Forma Financial Information of Lucas Energy, Inc. as of June 30, 2016 and for the three months ended June 30, 2016

99.5***		Press Release dated August 31, 2016

* Filed herewith.

** To be filed by amendment, to the extent required by Item 9.01.

*** Furnished herewith.

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.

	LUCAS ENERGY, INC.


	By:	/s/ Anthony C. Schnur
		Name: Anthony C. Schnur
		Title: Chief Executive Officer

Date: August 31, 2016

EXHIBIT INDEX

Exhibit No.		Description

2.1*		Second Amendment to Asset Purchase Agreement by and between Lucas Energy, Inc., as purchaser, Segundo Resources, LLC, as seller representative to the various sellers named therein, and the sellers named therein dated August 25, 2016

3.1*		Amended and Restated Certificate of Designation of Lucas Energy, Inc. Establishing the Designation, Preferences, Limitations and Relative Rights of Its Series B Redeemable Convertible Preferred Stock as filed with the Secretary of State of Nevada on August 25, 2016

3.2*		Certificate of Designations of Preferences, Powers, Rights and Limitations of Series C Redeemable Convertible Preferred Stock as filed with the Secretary of State of Nevada on August 25, 2016

10.1*		Letter Agreement dated August 25, 2016, by and between Lucas Energy, Inc. and RAD2 Minerals, Ltd.

10.2*		$1.5 million Promissory Note by Lucas Energy, Inc. in favor of RAD2 Minerals, Ltd., dated August 25, 2016

10.3*		Loan Agreement dated August 25, 2016, between Lucas Energy, Inc., as borrower, Richard N. Azar, II, Donnie B. Seay, Richard E. Menchaca, RAD2 Minerals, Ltd., DBS Investments, Ltd., and Saxum Energy, LLC, as guarantors, and International Bank of Commerce, as lender

10.4*		Real Estate Lien Note dated August 25, 2016, by Lucas Energy, Inc., as borrower in favor of International Bank of Commerce, as lender

10.5*		Security Agreements dated August 25, 2016 by Lucas Energy, Inc. in favor of International Bank of Commerce

10.6*		Form of Limited Guaranty Agreement in favor of International Bank of Commerce dated August 25, 2016

10.7*		Consulting Agreement between Richard N. Azar II and Lucas Energy, Inc. dated August 29, 2016

23.1**		Consent of GBH CPAs, PC

99.1**		Statements of Revenues and Direct Operating Expenses of Oil and Gas Properties Acquired From Segundo Resources, LLC for the years ended March 31, 2016 and 2015 and the notes thereto, including the related report of the independent registered public accounting firm

99.2**		Statements of Revenues and Direct Operating Expenses of Oil and Gas Properties Acquired From Segundo Resources, LLC for the three months ended June 30, 2016 and 2015 and the notes thereto

99.3**		Unaudited Pro Forma Financial Information of Lucas Energy, Inc. as of March 31, 2016 and for the year ended March 31, 2016

99.4**		Unaudited Pro Forma Financial Information of Lucas Energy, Inc. as of June 30, 2016 and for the three months ended June 30, 2016

99.5***		Press Release dated August 31, 2016

* Filed herewith.

** To be filed by amendment, to the extent required by Item 9.01.

*** Furnished herewith.

Lucas Energy, Inc. 8-K

Exhibit 2.1

SECOND AMENDMENT TO ASSET PURCHASE AGREEMENT

This Second Amendment to Asset Purchase Agreement (this “ Agreement ”) is entered into by and between Lucas Energy, Inc., a Nevada corporation (“ Purchaser ” or “ Company ”), Segundo Resources, LLC, a Texas limited liability company (the “ Seller Representative ”), and each of the other individuals and entities set forth under the heading “ Sellers ” on the signature page(s) hereto (each, including the Seller Representative, collectively, the “ Sellers ”), each a “ Party ” and collectively the “ Parties. ”

W I T N E S S E T H :

WHEREAS , on December 30, 2015, the Parties entered into an Asset Purchase Agreement, pursuant to which the Purchaser agreed to purchase from the Sellers, working interests in producing properties and undeveloped acreage in Texas and Oklahoma, including varied interests in two largely contiguous acreage blocks in the liquids-rich Mid-Continent region of the United States, and related wells, leases, records, equipment and agreements associated therewith (collectively, the “ Assets ”);

WHEREAS , on April 13, 2016 and effective April 1, 2016, the Parties entered into a First Amendment to Asset Purchase Agreement (the “ First Amendment ” and the Asset Purchase Agreement as amended by the First Amendment, the “ Purchase Agreement ”), amending the terms of the Asset Purchase Agreement to amend certain provisions thereof and closing conditions required thereby;

WHEREAS , the Purchaser’s special meeting of stockholders to approve the transactions contemplated by the Purchase Agreement is scheduled for August 23, 2016 (the “ Stockholders’ Meeting ”), and the Parties desire to close the transactions contemplated by the Purchase Agreement as soon as possible thereafter (the “ Closing ”);

WHEREAS , in order to allow for the Closing to occur as soon as possible after the Stockholders’ Meeting, the Parties desire to allow for certain closing conditions set forth in the Purchase Agreement to occur post-closing;

WHEREAS , certain capitalized terms used herein, but not otherwise defined herein have the meanings given to such terms in the Purchase Agreement; and

WHEREAS , the Parties now desire to enter into this Agreement to amend the Purchase Agreement pursuant to the terms and conditions of this Agreement.

NOW, THEREFORE , in consideration of the premises and the mutual covenants, agreements, and considerations herein contained, and other good and valuable consideration, which consideration the Parties hereby acknowledge and confirm the receipt and sufficiency thereof, the Parties hereto agree as follows:

Amendments to Purchase Agreement . Effective for all purposes as of the Effective Date (defined below):

	Page 1 of 11
	Second Amendment to Asset Purchase Agreement

(a)

Section 1.1 of the Purchase Agreement is amended by replacing the definition of “ Amendments to the Articles of Incorporation ”, with the following:

“(g)

“ Amendments to the Articles of Incorporation ” mean a Certificate of Amendment to the Purchaser’s Articles of Incorporation to (a) effect any reverse stock split of the Common Stock necessary or required in order for the Purchaser to meet the initial listing requirements of the NYSE MKT, assuming such initial listing requirements are required to be met in connection with the Acquisition; and (b) to effect such other amendments as the Purchaser and the Seller Representative, with the consent of the Required Sellers, shall deem desirable or necessary.”

(b)

Section 2.6(b) of the Purchase Agreement shall be amended, restated and superseded in its entirety by the following Section 2.6(b) :

“(b)

The Parties agree that if the aggregate amount of any Asset Defects, as determined pursuant to Section 8.9 is more than 5% of the Agreed Assets Value, but less than 20% of the Agreed Assets Value, the Sellers shall endeavor in good faith to correct and address such deficiency pursuant to Section 8.9 , and in the event the deficiency cannot be reasonably cured by the end of the Asset Defect Cure Period, the number of Common Shares issuable to the Sellers (or in the discretion of the Purchaser, the applicable Sellers and the Seller Representative, only those Sellers whose Seller’s Assets relate to the Asset Defects will have their Common Shares adjusted), as discussed in Section 2.5(b) , shall be adjusted downwards by dividing (x) the aggregate cash value of all Asset Defects, by (y) the Agreed Share Value (the product of which shall be rounded up to the nearest whole number), provided that in addition, or alternatively, the Purchaser and the Sellers (or in the discretion of the Purchaser, only those Sellers who will have their Cash Consideration adjusted) may also agree to adjust the Cash Consideration.”

(c)

Section 2.9 of the Purchase Agreement shall be amended, restated and superseded in its entirety by the following Section 2.9 :

	Page 2 of 11
	Second Amendment to Asset Purchase Agreement

“ 2.9

Required Consents. Notwithstanding anything to the contrary in this Agreement, this Agreement shall not constitute an agreement to assign or transfer any Assets or interests therein as to which (i) an assignment or transfer thereof or an attempt to make such an assignment or transfer without a Consent (a “ Required Consent ”) would constitute a breach or violation thereof or of Applicable Law, or would adversely affect the rights or obligations thereunder to be assigned or transferred to or for the account of Purchaser and (ii) such Required Consent shall not have been obtained with respect to such Assets or interests therein prior to the Closing. Any transfer or assignment to Purchaser by Sellers of any such Asset or interest therein (a “ Delayed Asset ”), shall be made subject to all such Required Consents in respect of such Delayed Asset being obtained. If there are any Delayed Assets, each Seller whose Seller’s Assets include a Delayed Asset shall use its best efforts to obtain all Required Consents in respect thereof as promptly as practicable following the Closing, all without any cost or detriment to Purchaser or any of its Affiliates. Until all Required Consents with respect to each Delayed Asset have been obtained, each Seller whose Seller’s Assets include a Delayed Asset (a) shall hold the Delayed Asset on behalf of Purchaser, (b) shall cooperate with Purchaser for no additional consideration in any lawful arrangement (including subleasing or subcontracting, or performance thereunder by Seller as Purchaser’s agent) requested by Purchaser to provide Purchaser with all of the benefits of or under any such Delayed Asset and (c) shall otherwise enforce and perform for the account of Purchaser and as directed by Purchaser any other rights and obligations of such Seller arising from such Delayed Asset (and not waive, alter or amend any of same without the consent of Purchaser). Each Seller whose Seller’s Assets include a Delayed Asset shall comply with its obligations under this Agreement and to maintain its corporate or other existence until all obligations pursuant to this Section and otherwise herein are performed in full and all Delayed Assets are transferred and assigned hereunder. At such time and on each occasion after the Closing Date as all Required Consents with respect to a Delayed Asset have been obtained, such Delayed Asset shall automatically be transferred and assigned by the applicable Seller to Purchaser (or, at Purchaser’s direction) for no additional consideration without any further act on the part of any Party. In the event all Required Consents are not obtained, and/or good title to all Delayed Assets are not received, by the Purchaser, within thirty (30) days of the Closing Date, the applicable Sellers with Delayed Assets and Purchaser shall in good faith determine a reduction in the number of Common Shares and/or Cash Consideration issuable at to the applicable Sellers to take into account the decrease in the value of the Assets created by such failure to obtain all Required Consents and to deliver all Delayed Assets (a “ Reduction ”), and the applicable Sellers shall return the certificates and other documents evidencing the Common Shares and/or Cash Consideration subject to such Reduction (based on the Agreed Share Value) for cancellation and re-issuance and shall further take whatever actions necessary or requested to affect such Reduction.”

(d)

Section 4.1(a) of the Purchase Agreement shall be amended, restated and superseded in its entirety by the following Section 4.1(a) :

“(a)

Approval of Issuance of Common Shares and Preferred Shares . The issuance of shares of Common Shares and the Conversion Shares shall have been adopted and approved by the requisite vote of the stockholders of the Purchaser in accordance with the Nevada Revised Statutes and the Purchaser’s organizational documents, to the extent required pursuant to Applicable Law.”

(e)

Section 4.1(c) of the Purchase Agreement shall be removed from the Purchase Agreement in its entirety and replaced by “ [Intentionally Removed] ”.

(f)

Section 4.3(d) of the Purchase Agreement shall be amended and modified by removing sections (iii), (iv) and (v) thereof and replacing such removed sections with “ [Intentionally Removed] ”.

(g)

Section 7.3(d) of the Purchase Agreement shall be amended, restated and superseded in its entirety by the following Section 7.3(d) :

“(d)

Following the Closing, the Purchaser shall use its commercially reasonable best efforts to change its name to “ Camber Energy, Inc. ” and obtain a new trading symbol in connection therewith from the NYSE MKT.”

	Page 3 of 11
	Second Amendment to Asset Purchase Agreement

(h)

Section 7.3 of the Purchase Agreement is amended and modified by adding a new Section 7.3(f) immediately after Section 7.3(r) of the Purchase Agreement:

“(f)

As soon as practicable following the Closing, the Purchaser shall take all actions necessary and required to (i) have the Common Shares and Conversion Shares approved for listing on the NYSE MKT; (ii) issue, after NYSE MKT approval, certificates evidencing the Common Shares issuable to each applicable Seller in the amount set forth on Exhibit C , provided that in the option of the Purchaser, the Common Shares may be issued in book-entry form with evidence of such issuances delivered to the Sellers; (iii) file with the Secretary of State of Nevada, the Series B Designation; and (iv) issue certificates evidencing the Preferred Shares issuable to RAD2 Minerals and Tex Oak.”

Waiver and Approval of Certain Actions Undertaken Outside the Ordinary Course of Business . The Sellers consent to and approve all actions taken by the Purchaser from December 31, 2015, to the execution of this Agreement as described in the Purchaser’s filings with the Securities and Exchange Commission, whether undertaken in the Ordinary Course of Business (as defined in the Purchase Agreement) or not, and confirm that such transactions shall not be deemed to have resulted in a breach by the Purchaser of Section 8.1 or Section 8.2 of the Purchase Agreement or any other term or condition of the Purchase Agreement, provided that to the extent such transactions would have resulted in a breach of such Purchase Agreement in the event the Purchaser did not receive prior written approval for such transactions, all such breaches or potential breaches are waived and released by the Sellers as of the date hereof.

Effective Date . The “ Effective Date ” of this Agreement shall be, for all purposes, the date of Purchaser’s execution of this Agreement, as set forth beside the Purchaser’s signature on the signature page hereof.

Consideration . Each of the Parties agrees and confirms by signing below that they have received valid consideration in connection with this Agreement and the transactions contemplated herein.

Mutual Representations, Covenants and Warranties . Each of the Parties, for themselves and for the benefit of each of the other Parties hereto, represents, covenants and warranties that:

(a)

Such Party has all requisite power and authority, corporate or otherwise, to execute and deliver this Agreement and to consummate the transactions contemplated hereby and thereby. This Agreement constitutes the legal, valid and binding obligation of such Party enforceable against such Party in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally and general equitable principles;

(b)

The execution and delivery by such Party and the consummation of the transactions contemplated hereby and thereby do not and shall not, by the lapse of time, the giving of notice or otherwise: (i) constitute a violation of any law; or (ii) constitute a breach of any provision contained in, or a default under, any governmental approval, any writ, injunction, order, judgment or decree of any governmental authority or any contract to which such Party is bound or affected; and

	Page 4 of 11
	Second Amendment to Asset Purchase Agreement

(c)

Any individual executing this Agreement on behalf of an entity has authority to act on behalf of such entity and has been duly and properly authorized to sign this Agreement on behalf of such entity.

Further Assurances . The Parties agree that, from time to time, each of them will take such other action and to execute, acknowledge and deliver such contracts, deeds, or other documents as may be reasonably requested and necessary or appropriate to carry out the purposes and intent of this Agreement and the transactions contemplated herein.

Effect of Agreement . Upon the effectiveness of this Agreement, each reference in the Purchase Agreement to “ Agreement, ” “ hereunder, ” “ hereof, ” “ herein ” or words of like import shall mean and be a reference to such Purchase Agreement as modified or amended hereby.

Purchase Agreement to Continue in Full Force and Effect . Except as specifically modified or amended herein, the Purchase Agreement and the terms and conditions thereof shall remain in full force and effect.

Benefit and Burden . This Agreement shall inure to the benefit of, and shall be binding upon, the Parties hereto and their successors and permitted assigns.

10.

Entire Agreement . This Agreement sets forth all of the promises, agreements, conditions, understandings, warranties and representations among the Parties with respect to the transactions contemplated hereby and thereby, and supersedes all prior agreements, arrangements and understandings between the Parties, whether written, oral or otherwise.

11.

Construction . In this Agreement words importing the singular number include the plural and vice versa; words importing the masculine gender include the feminine and neuter genders.

12.

Severability . If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to affect the original intent of the Parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible.

	Page 5 of 11
	Second Amendment to Asset Purchase Agreement

13.

Governing Law; Venue . This Agreement shall be governed by and construed in accordance with the laws of the State of Texas without giving effect to any choice of law or conflict provision or rule (whether of Texas or any other jurisdiction) that would cause the laws of any other jurisdiction to be applied and Applicable Laws of the United States of America. The obligations of the Parties hereto are to be performed in Texas. All disputes, claims, demands, actions, causes of action, suits or proceedings by and among the parties to this Agreement shall be adjudicated, litigated, heard or tried, if at all, exclusively in the state or federal courts of Texas. Texas shall be the mandatory, exclusive place for the adjudication, litigation, hearing or trial of any matter by and among the parties to this Agreement. Each Party to this Agreement hereby irrevocably waives any right to have any such dispute, claim, demand, action, cause of action, suit or proceeding adjudicated, litigated, heard or tried in any place other than Texas.

14.

Review and Construction of Documents . Each Party represents to the others, that (a) before executing this Agreement, said Party has fully informed itself of the terms, contents, conditions and effects of this Agreement; (b) said Party has relied solely and completely upon its own judgment in executing this Agreement; (c) said Party has had the opportunity to seek and has obtained the advice of its own legal, Tax and business advisors before executing this Agreement; (d) said Party has acted voluntarily and of its own free will in executing this Agreement; and (e) this Agreement is the result of arm’s length negotiations conducted by and among the Parties and their respective counsel.

15.

Heirs, Successors and Assigns . Each and all of the covenants, terms, provisions and agreements herein contained shall be binding upon and inure to the benefit of the Parties hereto and their respective heirs, legal representatives, successors and assigns.

16.

No Presumption from Drafting . This Agreement has been negotiated at arm’s-length between Persons knowledgeable in the matters set forth within this Agreement. Accordingly, given that all Parties have had the opportunity to draft, review and/or edit the language of this Agreement, no presumption for or against any Party arising out of drafting all or any part of this Agreement will be applied in any action relating to, connected with or involving this Agreement. In particular, any rule of law, legal decisions, or common law principles of similar effect that would require interpretation of any ambiguities in this Agreement against the Party that has drafted it, is of no application and is hereby expressly waived. The provisions of this Agreement shall be interpreted in a reasonable manner to affect the intentions of the Parties.

17.

Counterparts and Signatures . This Agreement and any signed agreement or instrument entered into in connection with this Agreement, and any amendments hereto or thereto, may be executed in one or more counterparts, all of which shall constitute one and the same instrument. Any such counterpart, to the extent delivered by means of a facsimile machine or by .pdf, .tif, .gif, .peg or similar attachment to electronic mail (any such delivery, an “ Electronic Delivery ”) shall be treated in all manner and respects as an original executed counterpart and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. No Party shall raise the use of Electronic Delivery to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of Electronic Delivery as a defense to the formation of a contract, and each such Party forever waives any such defense, except to the extent such defense relates to lack of authenticity.

[Remainder of page left intentionally blank. Signature pages follow.]

	Page 6 of 11
	Second Amendment to Asset Purchase Agreement

IN WITNESS WHEREOF , the Parties hereto have caused this Amendment to be executed and delivered to be effective as of the Effective Date.

	“ PURCHASER ”

	Lucas Energy, Inc.


	By:	/s/ Anthony C. Schnur
		Anthony C. Schnur
		Chief Executive Officer

Date signed/Effective Date:

08-25-2016

[Purchaser Signature Page. Signature pages of Sellers follow.]

	Page 7 of 11
	Second Amendment to Asset Purchase Agreement

“ SELLERS ”

/s/ Al Thaggard

Al Thaggard

/s/ Alan Dreeben

Alan Dreeben

RAD2 Minerals, Ltd.

By: RAD2 Management, LLC, General Partner

/s/ Richard N. Azar, II

Richard N. Azar, II

Manager

Azar-Dreeben A&D Fund, LP

By: Dreeben Oil & Gas Holdings, LLC, General Partner

Members:

/s/ Alan Dreeben

Alan Dreeben

Saxum Energy

/s/ Richard R. Menchaca

Richard R. Menchaca

Manager

RAD2 Minerals, Ltd.

By: RAD2 Management, LLC, General Partner

/s/ Richard N. Azar, II

Richard N. Azar, II

Manager

/s/ Ben Azar

Ben Azar

	Page 8 of 11
	Second Amendment to Asset Purchase Agreement

Branch Energy Services, LLC

/s/ Daniel M. Altena

Daniel M. Altena

Manager

Buschman Energy, Ltd.

By: August Management, LLC, its General Partner

/s/ Guy R. Buschman

Guy R. Buschman

Manager

Coyle Manna Management LLC

/s/ Richard N. Azar, II

Richard N. Azar, II

Manager

DBS Investments, Ltd.

By: DBS Management, LLC, its General Partner

/s/ Donnie B. Seay

Donnie B. Seay

Manager

Dudley Energy, Ltd.

By: Dudley Energy Management, LLC, its General Partner

/s/ Paul Dudley

Paul Dudley

Managing Member

/s/ Beverley Dudley

Beverly Dudley

Managing Member

	Page 9 of 11
	Second Amendment to Asset Purchase Agreement

GBC Minerals, Ltd.

By: OBOY Oil, LLC, its General Partner

/s/ Guy Robert Buschman

Guy Robert Buschman

Manager

Guy R. Buschman, Trustee

/s/ Guy R. Buschman

Guy R. Buschman

/s/ John W. Taylor

John W. Taylor

/s/ Julian Stewart

Julian Stewart

Kristen B. Hicks, Trustee of the Kristen B. Hicks Portions B Trust

/s/ Kristen B. Hicks

Kristen B. Hicks, Trustee

/s/ Larry Votaw

Larry Votaw

/s/ Judy Votaw

Judy Votaw

Azar, MPII & Range A&D Fund, LP

By: RAD2 Management, LLC, formerly known as Azar Management, LLC General Partner

/s/ Richard N. Azar, II

Richard N. Azar, II

Manager

Rockin’ S FLP, Ltd.

By: Rockin’ S Investment, LLC, its General Partner

/s/ Gretchen Spalten

Gretchen Spalten

Manager

	Page 10 of 11
	Second Amendment to Asset Purchase Agreement

Saxum Energy, LLC

/s/ Richard R. Menchaca

Richard R. Menchaca

Manager

Scott Lake Energy, L.P.

By: Scott Lake Energy, LLC, its General Partner

/s/ Donald Rowden

Donald Rowden

Manager

/s/ Richard Mencaca

Richard Menchaca

/s/ Kimberly Mencaca

Kimberly Menchaca

“ Seller Representative ” and “ Seller ”

Segundo Resources, LLC

/s/ Richard N. Azar, II

Richard N. Azar, II

Manager

	Page 11 of 11
	Second Amendment to Asset Purchase Agreement

Lucas Energy, Inc. 8-K

Exhibit 3.1

AMENDED AND RESTATED

CERTIFICATE OF DESIGNATION

LUCAS ENERGY, INC.

ESTABLISHING THE DESIGNATIONS, PREFERENCES,

LIMITATIONS AND RELATIVE RIGHTS OF ITS

SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK

Pursuant to Section 78.1955 of the Nevada Revised Statutes (the “ NRS ”), Lucas Energy, Inc., a company organized and existing under the State of Nevada (the “ Corporation ”):

DOES HEREBY CERTIFY that pursuant to the authority conferred upon the Board of Directors by the Articles of Incorporation of the Corporation, as amended, and pursuant to Section 78.1955 of the NRS, the Board of Directors, by unanimous written consent of all members of the Board of Directors on August 18, 2016, duly adopted a resolution providing for the designation of an amended and restated series of six hundred thousand (600,000) shares of Series B Redeemable Convertible Preferred Stock, which shall amend, replace and supersede the Series B Convertible Preferred Stock Designation previously filed by the Corporation with the Secretary of State of Nevada on December 29, 2011 (the “ Prior Preferred Stock ”), which resolution is and reads as follows:

RESOLVED , that no shares of Prior Preferred Stock are currently outstanding; and it is further

RESOLVED , that pursuant to the authority expressly granted to and invested in the Board of Directors by the provisions of the Articles of Incorporation of the Corporation, as amended, and Section 78.1955 of the NRS, a series of the preferred stock, par value $0.001 per share, of the Corporation be, and it hereby is, established; and

FURTHER RESOLVED , that the series of preferred stock of the Corporation be, and it hereby is, given the distinctive designation of “ Series B Redeemable Convertible Preferred Stock ”; and

FURTHER RESOLVED , that the Series B Redeemable Convertible Preferred Stock shall consist of six hundred thousand (600,000) shares; and

FURTHER RESOLVED , that the Series B Redeemable Convertible Preferred Stock (defined below as the “ Series B Preferred ”) shall have the powers and preferences, and the relative, participating, optional and other rights, and the qualifications, limitations, and restrictions thereon set forth below (the “ Designation ” or the “ Certificate of Designation ”), which shall amend, replace and supersede the Prior Preferred Stock:

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Lucas Energy, Inc.
Series B Redeemable Convertible Preferred Stock

1. Definitions . In addition to other terms defined throughout this Designation, the following terms have the following meanings when used herein:

1.1 “ Affiliate ” of a specified Person means any other Person that (at the time when the determination is made) directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such specified Person. As used in the foregoing sentence, the term “ control ” (including, with correlative meaning, the terms “ controlling, ” “ controlled by ” and “ under common control with ”) means the power to direct the management and/or the policies of a Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

1.2 “ Automatic Conversion Condition #1 ” means that the Corporation’s Common Stock has traded above Automatic Conversion Price #1 for a period of at least 20 consecutive Trading Days, with at least the Minimum Trading Volume.

1.3 “ Automatic Conversion Condition #2 ” means that the Corporation’s Common Stock has traded above Automatic Conversion Price #2 for a period of at least 20 consecutive Trading Days, with at least the Minimum Trading Volume.

1.4 “ Automatic Conversion Condition #3 ” means that the Corporation’s Common Stock has traded above Automatic Conversion Price #3 for a period of at least 20 consecutive Trading Days, with at least the Minimum Trading Volume.

1.5 “ Automatic Conversion Price #1 ” means $6.125 per share, subject to equitable adjustment in connection with any Recapitalization.

1.6 “ Automatic Conversion Price #2 ” means $7.00 per share, subject to equitable adjustment in connection with any Recapitalization.

1.7 “ Automatic Conversion Price #3 ” means $7.875 per share, subject to equitable adjustment in connection with any Recapitalization.

1.8 “ Automatic Conversion Prices ” means Automatic Conversion Price #1, Automatic Conversion Price #2 and Automatic Conversion Price #3.

1.9 “ Business Day ” means any day except Saturday, Sunday or any day on which banks are authorized by law to be closed in the City of Houston, Texas.

1.10 “ Closing Date ” means the date that the business combination as contemplated by the Purchase and Sale Agreement is consummated.

1.11 “ Common Stock ” shall mean the common stock, $0.001 par value per share of the Corporation.

1.12 “ Conversion Price ” shall equal $3.50 per share, subject to equitable adjustment in connection with any Recapitalization.

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Lucas Energy, Inc.
Series B Redeemable Convertible Preferred Stock

1.13 “ Distribution ” shall mean the transfer of cash or other property without consideration whether by way of dividend or otherwise (other than dividends on Common Stock payable in Common Stock and/or dividends payable under this Designation or any other designation of the Corporation’s preferred stock), or the purchase or redemption of shares of the Corporation for cash or property other than: (i) repurchases of Common Stock issued to or held by employees, officers, directors or consultants of the Corporation or its subsidiaries upon termination of their employment or services pursuant to agreements providing for the right of said repurchase, (ii) repurchases of Common Stock issued to or held by employees, officers, directors or consultants of the Corporation or its subsidiaries pursuant to rights of first refusal contained in agreements providing for such right, (iii) repurchase of capital stock of the Corporation in connection with the settlement of disputes with any stockholder, or (iv) any other repurchase or redemption of capital stock of the Corporation approved by the holders of (a) a majority of the outstanding shares of Common Stock and (b) a majority of the outstanding shares of Series B Preferred voting as separate classes.

1.14 “ Dividend Default ” shall mean the failure of the Corporation to pay any Dividends when due, subject to any cure provisions described herein, if any.

1.15 “ Dividend Rate ” shall mean an annual rate of six percent (6%) of the Original Issue Price.

1.16 “ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

1.17 “ Holder ” shall mean the person or entity in which the Series B Preferred is registered on the books of the Corporation, which shall initially be the Person such Series B Preferred is issued to on the Original Issue Date, and shall thereafter be permitted and legal assigns which the Corporation is notified of by the Holder and which the Holder has provided a valid legal opinion in connection therewith to the Corporation and to whom such Preferred Stock Shares are legally transferred on the books and records of the Corporation.

1.18 “ Junior Securities ” shall mean each other class of capital stock or series of preferred stock of the Corporation other than the Common Stock and Series B Preferred established after the Original Issue Date, the terms of which do not expressly provide that such class or series ranks senior to or on parity with the Series B Preferred upon the liquidation, winding-up or dissolution of the Corporation.

1.19 “ Liquidation Preference ” shall equal the Original Issue Price.

1.20 “ Majority In Interest ” means Holders holding in aggregate at least 51% of the then aggregate Preferred Stock Shares issued and outstanding.

1.21 “ Minimum Trading Volume ” means average trading during the past 20 Trading Days of at least 75,000 shares, subject to equitable adjustment in connection with any Recapitalization.

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Lucas Energy, Inc.
Series B Redeemable Convertible Preferred Stock

1.22 “ Original Holders ” shall mean those Holders who were issued Preferred Stock Shares on the Original Issue Date.

1.23 “ Original Issue Date ” shall mean the Closing Date, provided that the issuance of the Series B Preferred shall be subject to the Shareholder and NYSE MKT Approval.

1.24 “ Original Issue Price ” shall mean Twenty-Five Dollars ($25) per share (as appropriately adjusted for any Recapitalizations).

1.25 “ Person ” means any natural person, corporation, general partnership, limited partnership, limited liability company, limited liability partnership, proprietorship, business or statutory trust, trust, union, association, instrumentality, governmental authority or other entity, enterprise, authority, unincorporated organization or business organization.

1.26 “ Preferred Stock Certificates ” means the original certificate(s) representing the applicable Series B Preferred shares.

1.27 “ Preferred Stock Shares ” means shares of Series B Preferred.

1.28 “ Principal Market ” means initially the NYSE MKT, and shall also include the NASDAQ Capital Market, New York Stock Exchange, the NASDAQ National Market, the OTCQB Market, the OTCQX Market, or the OTC Pink Market, whichever is at the time the principal trading exchange or market for the Common Stock, based upon share volume.

1.29 “ Pro Rata Amount ” means, with respect to any Holder, a fraction, the numerator of which is equal to the number of shares of Series B Preferred held of record by such Holder, and the denominator of which is equal to the aggregate number of outstanding shares of Series B Preferred.

1.30 “ Purchase and Sale Agreement ” means that certain Asset Purchase Agreement, by and between, the Corporation, as purchaser, Segundo Resources, LLC, as seller representative to the various sellers named therein, and the sellers named therein, dated December 30, 2015, as amended, modified and updated from time to time.

1.31 “ Recapitalization ” shall mean any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event described in Sections 6.2 through 6.5 .

1.32 “ Restricted Shares ” means shares of the Corporation’s Common Stock which are restricted from being transferred by the Holder thereof unless the transfer is effected in compliance with the Securities Act and applicable state securities laws (including investment suitability standards, which shares shall bear the following restrictive legend (or one substantially similar)):

“ The securities represented by this certificate have not been registered under the Securities Act of 1933 or any state securities act. The securities have been acquired for investment and may not be sold, transferred, pledged or hypothecated unless (i) they shall have been registered under the Securities Act of 1933 and any applicable state securities act, or (ii) the corporation shall have been furnished with an opinion of counsel, satisfactory to counsel for the corporation, that registration is not required under any such acts . ”

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Lucas Energy, Inc.
Series B Redeemable Convertible Preferred Stock

1.33 “ Securities Act ” means the Securities Act of 1933, as amended (and any successor thereto) and the rules and regulations promulgated thereunder.

1.34 “ Series C Preferred Stock ” means up to 5,000 shares of Series C Redeemable Convertible Preferred Stock of the Company agreed to be sold pursuant to that certain Stock Purchase Agreement dated April 6, 2016 and any amendments, modifications or addendums thereto, by and between the Company and Discover Growth Fund, and which may sold from time to time on substantially similar terms as set forth in the Stock Purchase Agreement.

1.35 “ Series C Preferred Stock Designation ” means the Certificate of Designations of Preferences, Powers, Rights and Limitations of the Series C Redeemable Convertible Preferred Stock of the Company which is filed with the Secretary of State of Nevada.

1.36 “ Shareholder and NYSE MKT Approval ” means the Shareholder Approval and the approval by the NYSE MKT, of the initial listing of the Corporation’s Common Stock on the NYSE MKT following the consummation of the transactions contemplated by the Purchase and Sale Agreement, if and as required by applicable rules and regulations of the NYSE MKT, as well as such other terms and conditions hereof or the Purchase and Sale Agreement as may be required by the NYSE MKT or the Securities and Exchange Commission.

1.37 “ Shareholder Approval ” means the approval of the shareholders of the Corporation as required pursuant to applicable rules and regulations of the NYSE MKT, of the issuance of shares of Common Stock upon the Conversion of the Preferred Stock Shares as provided herein.

1.38 “ Trading Day ” means any day on which the Common Stock is traded on the Trading Market, provided that “ Trading Day ” shall not include any day on which the Common Stock is scheduled to trade on the Trading Market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on the Trading Market (or if the Trading Market does not designate in advance the closing time of trading on the Trading Market, then during the hour ending at 4:00:00 p.m., New York City time) unless such day is otherwise designated as a Trading Day in writing by the Investor.

1.39 “ Trading Market ” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: The NASDAQ Global Market, The NASDAQ Global Select Market, The NASDAQ Capital Market, the New York Stock Exchange, NYSE Arca, the NYSE MKT, or the OTCQX Marketplace or the OTCQB Marketplace operated by OTC Markets Group Inc. (or any successor to any of the foregoing).

Page 5 of 26
Lucas Energy, Inc.
Series B Redeemable Convertible Preferred Stock

1.40 “ Transfer Agent ” means initially, the Corporation, but at the option of the Corporation from time to time and with prior written notice to the Holders, may also mean Cleartrust, LLC, or any successor transfer agent which the Corporation may use for its Series B Preferred.

2. Dividends .

2.1 Dividends in General . Dividends shall accrue on the Series B Preferred beginning on the Original Issue Date, based on the Original Issue Price, at the Dividend Rate, until such Series B Preferred is no longer outstanding either due to conversion, redemption or otherwise as provided herein (“ Dividends ” and such Dividends which have accrued as of any applicable date and remain unpaid as of such date, the “ Accrued Dividends ”).

2.2 Payment of Dividends . The Corporation shall, in accordance with the terms set forth herein, pay the Holder of the Series B Preferred the Accrued Dividends in cash (as discussed in Section 2.3 ), in shares of Common Stock (as discussed in Section 2.7 ) or in shares of Series B Preferred (as discussed in Section 2.7 ), within five (5) Business Days of the end of each fiscal quarter of the Corporation (currently March 31, June 30, September 30 and December 31, each, as applicable a “ Dividend Payable Date ”), beginning at the end of the first full fiscal quarter following the Original Issue Date, for so long as the Series B Preferred remains outstanding.

2.3 Cash Dividend Payments . All Dividends payable in cash hereunder shall be made in lawful money of the United States of America to each Holder in whose name the Series B Preferred is registered as set forth on the books and records of the Corporation. Such payments shall be made by wire transfer of immediately available funds to the account such Holder may from time to time designate by written notice to the Corporation or by Corporation cashier’s check, without any deduction, withholding or offset for any reason whatsoever except to the extent required by law.

2.4 Participation . Subject to the rights of the Series C Preferred Stock and the rights of other holders, if any, of any securities senior to or pari passu with, the Series B Preferred, the Holders shall, as holders of Series B Preferred, be entitled to such dividends paid and Distributions made to the holders of Common Stock to the same extent as if such Holders had converted the Series B Preferred into Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and Distributions. Payments under the preceding sentence shall be made concurrently with the dividend or Distribution to the holders of Common Stock. Following the occurrence of a Liquidation Event (as hereinafter defined) and the payment in full to a Holder of its applicable Liquidation Preference, such Holder shall cease to have any rights hereunder to participate in any future dividends or distributions made to the holders of Common Stock. No Distributions shall be made with respect to the Common Stock until all past due, if any, and/or declared Dividends on the Series B Preferred have been paid or set aside for payment to the Holders. Notwithstanding the foregoing, the Holders shall have no right of participation in connection with dividends or Distributions made to the Common Stock shareholders consisting solely of shares of Common Stock.

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Lucas Energy, Inc.
Series B Redeemable Convertible Preferred Stock

2.5 Non-Cash Distributions . Whenever a Distribution provided for in this Section 2 shall be payable in property other than cash, the value of such Distribution shall be deemed to be the fair market value of such property as determined in good faith by the Board of Directors.

2.6 Other Distributions . Subject to the terms of this Certificate of Designation, and to the fullest extent permitted by the NRS, the Corporation shall be expressly permitted to redeem, repurchase or make distributions on the shares of its capital stock in all circumstances other than where doing so would cause the Corporation to be unable to pay its debts as they become due in the usual course of business (unless consent to such redemption, repurchase or distribution is provided by the lenders thereunder).

2.7 Stock Dividend Payments . In lieu of paying the Accrued Dividends in cash, at the option of the Corporation, the Corporation may pay Accrued Dividends in shares of Common Stock of the Corporation (“ Dividend Shares ”). The total Dividend Shares issuable in connection with the payment by the Corporation of the Accrued Dividends in shares of Common Stock shall be equal to the total amount of Accrued Dividends which the Corporation has decided to pay in shares of Common Stock divided by the Conversion Price, rounded up to the nearest whole Common Stock share. Notwithstanding any other provision of this Section 2.7 . In lieu of paying the Accrued Dividends in cash or shares of Common Stock, the Accrued Dividends can be paid by the Corporation in shares of Series B Preferred (“ PIK Shares ”) equal to the total amount of Accrued Dividends which the Corporation is paying in shares of Series B Preferred divided by the Original Issue Price, rounded up to the nearest whole Series B Preferred share. At the time any payment of Accrued Dividends is desired to be made by the Corporation in the form of additional shares of Series B Preferred, if the number of authorized but unissued shares of Series B Preferred shall not be sufficient to effect such payment in additional shares of Series B Preferred, in addition to such other remedies as shall be available to the Holders of Series B Preferred, the Corporation shall be authorized to take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Series B Preferred to such number of shares as shall be sufficient for such purpose including, without limitation, engaging in commercially reasonable best efforts to obtain the requisite stockholder approval of any necessary amendment to the Articles of Incorporation or this Certificate of Designation.

2.8 Dividend Default . In the event a Dividend Default should occur in respect to the Dividends due to Holder, any unpaid Dividends shall accrue interest at the rate of twelve percent (12%) per annum until such Dividend Default is cured by the Corporation.

3. Liquidation Rights .

3.1 Liquidation Preference . In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary (each a “ Liquidation Event ”), the Holders of Series B Preferred shall be entitled to receive prior and in preference to any Distribution of any of the assets of the Corporation to the holders of the Common Stock or the Junior Securities by reason of their ownership of such stock, but para passu with the Series C Preferred Stock, an amount per share for each share of Series B Preferred held by them equal to the sum of (i) the applicable Liquidation Preference, and (ii) all Accrued Dividends and all declared but unpaid dividends on such shares of Series B Preferred. If upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation legally available for distribution to the holders of the Series B Preferred and Series C Preferred Stock are insufficient to permit the payment to such holders of the full amounts specified in this Section 3.1 (and specified in the Series C Preferred Stock Designation), then the entire assets of the Corporation legally available for distribution shall be distributed with equal priority and pro rata among the holders of the Series B Preferred and Series C Preferred Stock in proportion to the full amounts they would otherwise be entitled to receive pursuant to this Section 3.1 and specified in the Series C Preferred Stock Designation, as applicable.

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Lucas Energy, Inc.
Series B Redeemable Convertible Preferred Stock

3.2 Remaining Assets . After the payment to the Holders of Series B Preferred of the full preferential amounts specified above and the Series C Preferred Stock, of the amounts required by the Series C Preferred Stock Designation, the entire remaining assets of the Corporation legally available for distribution by the Corporation shall be distributed with equal priority and pro rata among the holders of the Junior Securities in proportion to the number of shares of Junior Securities held by them and the holders of Common Stock in proportion to the number of shares of Common Stock held by them.

3.3 Valuation of Non-Cash Consideration . If any assets of the Corporation distributed to stockholders in connection with any liquidation, dissolution, or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value as determined in good faith by the Board of Directors. In the event of a merger or other acquisition of the Corporation by another entity, the Distribution date shall be deemed to be the date such transaction closes.

4. Conversion . The Series B Preferred shall convert into Common Stock of the Corporation as follows:

4.1 Holder Conversion .

(a) Each share of Series B Preferred shall be convertible, at the option of the Holder thereof (a “ Holder Conversion ” and the “ Holder Conversion Rights ”), at any time following the Original Issuance Date, at the office of the Corporation or any Transfer Agent for the Series B Preferred, into that number of fully-paid, nonassessable shares of Common Stock determined by dividing the Original Issue Price for the Series B Preferred by the Conversion Price (such shares of Common Stock issuable upon a Holder Conversion, the “ Holder Conversion Shares ”). In order to effectuate the Holder Conversion under this Section 4.1 , the Holder must provide the Corporation a written notice of conversion in the form of Exhibit A hereto (the “ Notice of Conversion ”). The Notice of Conversion must be dated no earlier than two (2) Business Days from the date the Notice of Conversion is actually received by the Corporation.

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Lucas Energy, Inc.
Series B Redeemable Convertible Preferred Stock

(b) Mechanics of Holder Conversion . In order to effect a Holder Conversion, a Holder shall fax or email a copy of the fully executed Notice of Conversion to the Corporation (or in the discretion of the Corporation, the Transfer Agent): Attention: Anthony C. Schnur, 450 Gears Road, Suite 780, Houston, Texas, 77067, Fax: (713) 337-1510, Email: tschnur@lucasenergy.com, with a copy to (which shall not constitute notice) The Loev Law Firm, PC, Attn: David M. Loev, 6300 West Loop South, Suite 280, Bellaire, Texas 77401, Fax: (713) 524-4122, Email: dloev@loevlaw.com. Upon receipt by the Corporation of a facsimile or emailed copy of a Notice of Conversion from a Holder, the Corporation (or the Transfer Agent) shall promptly send, via facsimile or email, a confirmation to such Holder stating that the Notice of Conversion has been received, the date upon which the Corporation (or the Transfer Agent) expects to deliver the Common Stock issuable upon such conversion and the name and telephone number of a contact person at the Corporation (or the Transfer Agent) regarding the Holder Conversion. The Holder shall surrender, or cause to be surrendered, the Preferred Stock Certificates being converted, duly endorsed, to the Corporation (or the Transfer Agent) at the address listed above (or the address of the Transfer Agent for the Series B Preferred, if the Corporation is not serving as its own Transfer Agent for such Series B Preferred) within five Business Days of delivering the fully executed Notice of Conversion. The Corporation shall not be obligated to issue shares of Common Stock upon a Holder Conversion unless either (x) the Preferred Stock Certificates; or (y) the Lost Certificate Materials described in Section 12 , below have been previously received by the Corporation or its Transfer Agent. In the event the Holder has lost or misplaced the certificates evidencing the Preferred Stock, the Holder shall be required to provide the Corporation or the Corporation’s Transfer Agent (as applicable) with whatever documentation and fees each may require to re-issue the Preferred Stock Certificates and shall be required to provide such re-issued Preferred Stock Certificates to the Corporation within five Business Days of delivering the Notice of Conversion. Unless the Holder Conversion Shares are covered by a valid and effective registration under the Securities Act or the Notice of Conversion provided by the Holder includes a valid opinion from an attorney stating that such shares of Common Stock issuable in connection with the Notice of Conversion can be issued free of restrictive legend, which shall be determined by the Corporation in its sole discretion, such shares shall be issued as Restricted Shares.

(c) Delivery of Common Stock upon Holder Conversion . Upon the receipt of a Notice of Conversion, the Corporation (itself, or through its Transfer Agent) shall, no later than the fifth Business Day following the date of such receipt (subject to the surrender of the Preferred Stock Certificates by the holder within the period described in Section 4.1(b) or, in the case of lost, stolen or destroyed certificates, after provision of the Lost Certificate Materials) (the “ Delivery Period ”), issue and deliver (i.e., deposit with a nationally recognized overnight courier service postage prepaid) to the Holder or its nominee (x) a certificate representing the Holder Conversion Shares and (y) a certificate representing the number of shares of Series B Preferred not being converted, if any. Notwithstanding the foregoing, if the Corporation’s Transfer Agent is participating in the Depository Trust Corporation (“ DTC ”) Fast Automated Securities Transfer program, and so long as the certificates therefor do not bear a legend and the holder thereof is not then required to return such certificate for the placement of a legend thereon, the Corporation shall cause its Transfer Agent to promptly electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of the Holder or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“ DTC Transfer ”). If the aforementioned conditions to a DTC Transfer are not satisfied, the Corporation shall deliver as provided above to the Holder physical certificates representing the Common Stock issuable upon Holder Conversion. Further, a Holder may instruct the Corporation to deliver to the Holder physical certificates representing the Common Stock issuable upon conversion in lieu of delivering such shares by way of DTC Transfer.

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Lucas Energy, Inc.
Series B Redeemable Convertible Preferred Stock

(d) Failure to Provide Preferred Stock Certificates . In the event the Holder provides the Corporation with a Notice of Conversion, but fails to provide the Corporation with the Preferred Stock Certificates or the Lost Certificate Materials (as defined in Section 12 below), by the end of the Delivery Period, the Notice of Conversion shall be considered void and the Corporation shall not be required to comply with such Notice of Conversion. Provided that if the Notice of Conversion only relates to the conversion of Accrued Dividends, the Holder shall not be required to provide the Corporation any Preferred Stock Certificates.

4.2 Automatic Conversion Terms and Conditions .

(a) The Series B Preferred shall automatically convert into Common Stock of the Corporation as provided below (an “ Automatic Conversion ”):

(i) a total of the lesser of (A) the sum of 25% of the total number of Series B Preferred shares (1) originally issued to the Holder (if the Holder is an Original Holder); and (2) received by a Holder who was transferred Series B Preferred from an Original Holder (each as adjusted for any Recapitalization); and (B) the total number of Series B Preferred shares then held by the Holder; shall automatically and without any required action by any Holder, be converted into that number of fully-paid, non-assessable shares of Common Stock as determined by dividing the aggregate Original Issue Price of such applicable shares of Series B Preferred by the Conversion Price in the event Automatic Conversion Condition #1 is met;

(ii) a total of the lesser of (A) the sum of 75% of the total number of Series B Preferred shares (1) originally issued to the Holder (if the Holder is an Original Holder); and (2) received by a Holder who was transferred Series B Preferred from an Original Holder, in each case (1) or (2), less any shares of Series B Preferred held by Holder which were subject to automatic conversion pursuant to Section 4.2(a)(i) above (each as adjusted for any Recapitalization); and (B) the total number of Series B Preferred shares then held by the Holder; shall automatically and without any required action by any Holder, be converted into that number of fully-paid, non-assessable shares of Common Stock as determined by dividing the aggregate Original Issue Price of such applicable shares of Series B Preferred by the Conversion Price in the event Automatic Conversion Condition #2 is met;

(iii) all shares of Series B Preferred shall automatically and without any required action by any Holder, be converted into that number of fully-paid, non-assessable shares of Common Stock as determined by dividing the aggregate Original Issue Price of such Series B Preferred shares held by each Holder by the Conversion Price in the event Automatic Conversion Condition #3 is met; provided that

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Lucas Energy, Inc.
Series B Redeemable Convertible Preferred Stock

(iv) if Automatic Conversion Condition #3 is met on the Original Issuance Date, then all shares of Series B Preferred shall automatically and without any required action by any Holder, be converted into fully-paid, non-assessable shares of Common Stock pursuant to Section 4.2(a)(i) above, on such Original Issuance Date.

(b) Following an Automatic Conversion, the Corporation shall within two (2) Business Days, deliver notice to each Holder that an Automatic Conversion has occurred, at the address of each Holder which the Corporation then has on record (an “ Automatic Conversion Notice ”); provided, that the Corporation is not required to receive any confirmation that such Automatic Conversion Notice was received by a Holder, but instead assuming such Automatic Conversion Notice was sent to the address which the Corporation then has on record for such Holder, the Automatic Conversion Notice shall be treated as received by the Holder for all purposes on the third (3 ^rd ) Business Day following the date such notice was sent by the Corporation (the “ Automatic Conversion Notice Receipt Date ”). Within three (3) Business Days following the Automatic Conversion Notice Receipt Date, the Corporation shall pay each Holder the total amount of Accrued Dividends owed on such Series B Preferred, if any (the “ Automatic Conversion Dividends ”) in cash or at the option of the Corporation, in shares of Common Stock equal to the total Accrued Dividends divided by the Conversion Price (rounded up to the nearest whole share of Common Stock), and issue to each Holder all shares of Common Stock which such Holder is due in connection with the Automatic Conversion (the “ Automatic Conversion Shares ”, and together with the Holder Conversion Shares, the “ Shares ”) and promptly deliver such Automatic Conversion Shares (and if applicable, cash in an amount equal to the Accrued Dividends) to the address of Holder which the Corporation then has on record (a “ Delivery ”). The Automatic Conversion Shares issuable in connection with an Automatic Conversion shall be fully-paid, non-assessable shares of Common Stock. Unless the Automatic Conversion Shares are covered by a valid and effective registration under the Securities Act or the Holder provides a valid opinion from an attorney stating that such Automatic Conversion Shares can be issued free of restrictive legend, which shall be determined by the Corporation in its sole discretion, prior to the issuance date of such Automatic Conversion Shares, such Automatic Conversion Shares shall be issued as Restricted Shares.

(c) The issuance and Delivery by the Corporation of the Automatic Conversion Shares (and if applicable, the cash Accrued Dividends) shall fully discharge the Corporation from any and all further obligations under or in connection with the Series B Preferred and shall automatically, and without any required action by the Corporation or the Holder, result in the cancellation, termination and invalidation of any outstanding Series B Preferred and Preferred Stock Certificates held by Holder or his, her or its assigns and shall upon the payment of the Automatic Conversion Dividends, fully discharge any and all requirement for the Corporation to pay Dividends on such Series B Preferred shares converted, which Series B Preferred converted shall cease accruing Dividends upon an Automatic Conversion.

(d) Without limiting the obligation of each Holder set forth herein (including in the subsequent clause (e)), the Corporation and/or the Corporation’s Transfer Agent shall be authorized to take whatever action necessary, if any, following the issuance and Delivery of the Automatic Conversion Shares to reflect the cancellation of the Series B Preferred subject to the Automatic Conversion, which shall not require the approval and/or consent of any Holder (a “ Cancellation ”).

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(e) Notwithstanding the above, each Holder, by accepting such Preferred Stock Certificates hereby covenants that it will, whenever and as reasonably requested by the Corporation and the Transfer Agent, at the Corporation’s sole cost and expense, do, execute, acknowledge and deliver any and all such other and further acts, deeds, assignments, transfers, conveyances, confirmations, powers of attorney and any instruments of further assurance, approvals and consents as the Corporation or the Transfer Agent may reasonably require in order to complete, insure and perfect the Cancellation, if such may be reasonably required by the Corporation and/or the Corporation’s Transfer Agent.

(f) In the event that the Delivery of any Automatic Conversion Shares (or any cash Accrued Dividends) is unsuccessful and/or any Holder fails to accept such Automatic Conversion Shares (or applicable cash Accrued Dividends), such Automatic Conversion Shares (and if applicable, cash Accrued Dividends) shall be held by the Corporation and/or the Transfer Agent in trust (without accruing interest) and shall be released to such Holder upon reasonable evidence to the Corporation or the Transfer Agent that such Holder is the legal owner of such Automatic Conversion Shares, provided that the Holder’s failure to accept such Automatic Conversion Shares, cash Accrued Dividends and/or the Corporation’s inability to Deliver such shares or dividends shall in no event effect the validity of the Cancellation.

(g) The Automatic Conversion Right shall supersede and take priority over the Holder Conversion right described in Section 4.1 in the event that there are any conflicts between such rights.

4.3 Fractional Shares . If any Conversion of Series B Preferred would result in the issuance of a fractional share of Common Stock (aggregating all shares of Series B Preferred being converted pursuant to a given Notice of Conversion), such fractional share shall be payable in cash based upon the market value of the Common Stock on the trading day immediately prior to the date of conversion (as determined in good faith by the Board of Directors) and the number of shares of Common Stock issuable upon conversion of the Series B Preferred shall be the next lower whole number of shares. If the Corporation elects not to, or is unable to, make such a cash payment, the Holder shall be entitled to receive, in lieu of the final fraction of a share, one whole share of Common Stock.

4.4 Taxes . The Corporation shall not be required to pay any tax which may be payable in respect to any transfer involved in the issue and delivery of shares of Common Stock upon a Holder Conversion in a name other than that in which the shares of the Series B Preferred so converted were registered, and no such issue or delivery shall be made unless and until the Person requesting such issue or delivery has paid to the Corporation the amount of any such tax, or has established, to the satisfaction of the Corporation, that such tax has been paid. The Corporation shall withhold from any payment due whatsoever in connection with the Series B Preferred any and all required withholdings and/or taxes the Corporation, in its sole discretion deems reasonable or necessary, absent an opinion from Holder’s accountant or legal counsel, acceptable to the Corporation in its sole determination, that such withholdings and/or taxes are not required to be withheld by the Corporation.

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4.5 Reservation of Stock Issuable Upon Conversion . The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of the Series B Preferred, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding shares of the Series B Preferred; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series B Preferred, the Corporation will use its commercially reasonable efforts to take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.

5. Voting .

5.1 Class Voting . Except as otherwise expressly provided herein or as required by law, the Holders of Series B Preferred and the holders of Common Stock shall vote together and not as separate classes.

5.2 No Series Voting . Other than as provided herein or required by law, there shall be no series voting.

5.3 Series B Preferred . Each outstanding share of Series B Preferred shall be entitled to one (1) vote on all shareholder matters to come before the shareholders of the Corporation (the “ Voting Rights ”).

6. Adjustments For Recapitalizations .

6.1 Equitable Adjustments For Recapitalizations . The (a) Liquidation Preference, the Original Issue Price and the Voting Rights (the “ Preferred Stock Adjustable Provisions ”); (b) the Conversion Price, Minimum Trading Volume, Automatic Conversion Prices and the Conversion Rate (the “ Common Stock Adjustable Provisions ”), and (c) any and all other terms, conditions, amounts and provisions of this Designation which (i) pursuant to the terms of this Designation provide for equitable adjustment in the event of a Recapitalization; or (ii) the Board of Directors of the Corporation determine in their reasonable good faith judgment is required to be equitably adjusted in connection with any Recapitalizations (collectively Sections (c)(i) and (ii) , the “ Other Equitable Adjustable Provisions ”), shall each be subject to equitable adjustment as provided in Sections 6.2 through 6.4 , below, as determined by the Board of Directors in their sole and reasonable discretion.

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6.2 Adjustments for Subdivisions or Combinations of Common Stock . In the event the outstanding shares of Common Stock shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Common Stock, without a corresponding subdivision of the Series B Preferred, the applicable Common Stock Adjustable Provisions and the Other Equitable Adjustable Provisions (if any) in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately and equitably adjusted. In the event the outstanding shares of Common Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Common Stock, without a corresponding combination of the Series B Preferred, the Common Stock Adjustable Provisions and the Other Equitable Adjustable Provisions (if any) in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately and equitably adjusted.

6.3 Adjustments for Subdivisions or Combinations of Series B Preferred . In the event the outstanding shares of Series B Preferred shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Series B Preferred, the applicable Preferred Stock Adjustable Provisions and the Other Equitable Adjustable Provisions (if any) in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately and equitably adjusted. In the event the outstanding shares of Series B Preferred shall be combined (by reclassification or otherwise) into a lesser number of shares of Series B Preferred, the applicable Preferred Stock Adjustable Provisions and the Other Equitable Adjustable Provisions (if any) in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately and equitably adjusted, provided however that the result of any concurrent adjustment in the Common Stock (as provided under Section 6.2 ) and Preferred Stock (as provided under Section 6.3 ) shall only be to affect the equitable adjustable provisions hereof once.

6.4 Adjustments for Reclassification, Exchange and Substitution . Subject to Section 3 above (“ Liquidation Rights ”), if the Common Stock issuable upon conversion of the Series B Preferred shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), then, in any such event, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, each holder of such Series B Preferred shall have the right thereafter to convert such shares of Series B Preferred into a number of shares of such other class or classes of stock which a holder of the number of shares of Common Stock deliverable upon conversion of such Series B Preferred immediately before that change would have been entitled to receive in such reorganization or reclassification, all subject to further adjustment as provided herein with respect to such other shares.

6.5 Other Adjustments . The Board of Directors of the Corporation shall also adjust equitably, and shall have the right to adjust equitably, any or all of the Preferred Stock Adjustable Provisions, Common Stock Adjustable Provisions or Other Equitable Adjustable Provisions from time to time, if the Board of Directors of the Corporation determines in their reasonable good faith judgment that such values and/or provisions are required to be equitably adjusted in connection with any Corporation action.

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6.6 Certificate as to Adjustments . Upon the occurrence of each adjustment or readjustment pursuant to this Section 6 , the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series B Preferred a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series B Preferred, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Series B Preferred.

7. Redemption Rights .

7.1 Subject to the terms of any credit or debt agreements in place which prevent the Corporation redeeming the Series B Preferred shares for cash, the Corporation shall have the option, exercisable from time to time after the Original Issue Date, to redeem all or any portion of the outstanding shares of Series B Preferred (a “ Corporation Redemption ”) which have not been previously Converted into Common Stock (as provided above in Section 4 ) (the “ Corporation Redemption Rights ”), by paying each applicable Holder, an amount equal to (a) the Original Issue Price multiplied by the number of Series B Preferred shares held by each applicable Holder, subject to the Corporation Redemption; plus (b) the Accrued Dividends (the “ Corporation Redemption Amount ”).

(a) In the event the Corporation exercises its Corporation Redemption Rights, it shall redeem and repurchase Series B Preferred pro rata between all Holders based on the Pro Rata Amount.

(b) To exercise the Corporation Redemption Right, the Corporation shall deliver to each Holder an irrevocable written notice (a “ Corporation Redemption Notice ”), indicating the date the Corporation intends to pay the Corporation Redemption Amount (as applicable, the “ Corporation Redemption Date ”), which date may not be less than ten days nor more than 20 days from the date the Corporation Redemption Notice is delivered to a Holder. In the event the applicable aggregate Corporation Redemption Amount is not paid to the Holders on the applicable Corporation Redemption Date, the Corporation Redemption Notice shall be considered void and of no force or effect.

7.2 Effect of Redemption . The payment by the Corporation to each Holder (at each such Holder’s address of record) (or if the Holder fails to deliver the Preferred Stock Certificates and/or Lost Certificate Materials required to be delivered as discussed below in connection with such Redemption, upon the Corporation setting aside such Redemption Amount in trust for the benefit of the Holder) of the Corporation Redemption Amount (as applicable, a “ Redemption Delivery ”) in connection with a Corporation Redemption, and effective as of the Corporation Redemption Date, shall fully discharge the Corporation from any and all further obligations under the Series B Preferred shares redeemed and shall automatically, and without any required action by the Corporation or the Holder or his, her or its assigns (including the requirement that the Holder provide the Corporation or the Corporation’s Transfer Agent the Preferred Stock Certificates relating to such Corporation Redemption), result in the cancellation, termination and invalidation of any outstanding Series B Preferred and related Preferred Stock Certificates held by a Holder which are subject to a Corporation Redemption and shall upon the payment of the Corporation Redemption Amount, fully discharge any and all requirement for the Corporation to pay further Dividends, and which Series B Preferred shall cease accruing Dividends upon a Redemption.

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7.3 Further Actions Following Redemption . Without limiting the obligation of each Holder set forth herein (including in Section 7.4 ), the Corporation and/or the Corporation’s Transfer Agent shall be authorized to take whatever action necessary, if any, following the payment of the Corporation Redemption Amount, to reflect the cancellation of the Series B Preferred subject to the applicable Corporation Redemption, which shall not require the approval and/or consent of any Holder, and provided that by agreeing to the terms and conditions of this Designation and the acceptance of the Series B Preferred, each Holder hereby agrees to release the Corporation and the Corporation’s Transfer Agent from any and all liability whatsoever in connection with the cancellation of the Series B Preferred subject to and following a Corporation Redemption, regardless of the return to the Corporation or the Transfer Agent of any Preferred Stock Certificates evidencing such Series B Preferred subject to the Corporation Redemption, which as stated above, shall be automatically cancelled upon the payment of the Corporation Redemption Amount, as applicable to the Holder, or if the provisions of Section 7.5 apply and the Holder fails to deliver the Preferred Stock Certificates and/or Lost Certificate Materials, upon the Corporation setting aside such Redemption Amount in trust for the benefit of the Holder (a “ Redemption Cancellation ”).

7.4 Further Redemption Assurances . Notwithstanding the above, each Holder, by accepting such Preferred Stock Certificates hereby covenants that it will (a) deliver to the Corporation or the Corporation’s Transfer Agent, promptly upon the receipt of any Corporation Redemption Notice, but in any case prior to the applicable Corporation Redemption Date, the applicable Preferred Stock Certificates relating to the Corporation Redemption (or Lost Certificate Materials associated therewith); and (b) whenever and as reasonably requested by the Corporation and the Corporation’s Transfer Agent, at the Corporation’s sole cost and expense, do, execute, acknowledge and deliver any and all such other and further acts, deeds, assignments, transfers, conveyances, confirmations, powers of attorney and any instruments of further assurance, approvals and consents as the Corporation or the Transfer Agent may reasonably require in order to complete, insure and perfect a Redemption Cancellation, if such may be reasonably required by the Corporation and/or the Corporation’s Transfer Agent.

7.5 Additional Redemption Procedures . In the event that (a) Redemption Delivery is unsuccessful notwithstanding the fact that the Corporation has mailed such applicable Corporation Redemption Amount to the correct address of the Holder as set forth in the records of the Corporation; or (b) any Holder fails to timely deliver to the Corporation for cancellation the Preferred Stock Certificates evidencing the Series B Preferred subject to such Corporation Redemption, or Lost Certificate Materials associated therewith, and the Corporation therefore refrains from completing a Redemption Delivery, such Corporation Redemption Amount shall be held by the Corporation in trust and such Corporation Redemption Amount shall be released to such Holder upon reasonable evidence to the Corporation or the Transfer Agent that such Holder is (y) the legal owner of such Corporation Redemption Amount and/or (z) the delivery to the Corporation or its Transfer Agent of the applicable Preferred Stock Certificates, as applicable, or Lost Certificate Materials, provided that the Holder’s failure to accept such Corporation Redemption Amount, the Corporation’s inability to pay any Holder its applicable Redemption Amount, and/or the Holder’s failure to deliver the Preferred Stock Certificates or Lost Certificate Materials, under either of such circumstances shall in no event effect the validity of the Corporation Redemption Cancellation, Redemption Cancellation, or the consequences of a Corporation Redemption Delivery as described in Section 7.1 hereof. Furthermore, the Holder shall be due no interest on the Corporation Redemption Amount while being held by the Corporation in trust and any and all interest, if any, which shall accrue on such amount shall be the sole property of the Corporation.

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7.6 Further Holder Redemption Assurances . Notwithstanding the above, each Holder, by accepting such Preferred Stock Certificates will whenever and as reasonably requested by the Corporation and the Corporation’s Transfer Agent, at its sole cost and expense, do, execute, acknowledge and deliver any and all such other and further acts, deeds, assignments, transfers, conveyances, confirmations, powers of attorney and any instruments of further assurance, approvals and consents as the Corporation or the Transfer Agent may reasonably require in order to complete, insure and perfect the cancellation of such Holder’s shares in the event of a Corporation Redemption, if such may be reasonably required by the Corporation and/or the Corporation’s Transfer Agent.

7.7 Effect of All Redemptions . The Series B Preferred subject to a Corporation Redemption shall cease accruing any Dividends and shall have all Conversion rights immediately terminate effective as of the Corporation Redemption Date, unless otherwise agreed in the sole discretion of the Corporation.

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8. Notices .

8.1 Notices In General . Any notices required or permitted to be given under the terms hereof shall be sent by certified or registered mail (return receipt requested) or delivered personally, by nationally recognized overnight carrier or by confirmed facsimile or email transmission, and shall be effective five (5) days after being placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered personally or by nationally recognized overnight carrier or confirmed facsimile transmission, in each case addressed to a party. The addresses for such communications are (i) if to the Corporation to, Attention: Anthony C. Schnur, 450 Gears Road, Suite 780, Houston, Texas, 77067, Fax: (713) 337-1510, Email: tschnur@lucasenergy.com, with a copy to (which shall not constitute notice) The Loev Law Firm, PC, Attn: David M. Loev, 6300 West Loop South, Suite 280, Bellaire, Texas 77401, Fax: (713) 524-4122, Email: dloev@loevlaw.com, and (ii) if to any Holder to the address set forth in the records of the Corporation or its Transfer Agent, as applicable, or such other address as may be designated in writing hereafter, in the same manner, by such person.

8.2 Notices of Record Date . In the event that the Corporation shall propose at any time:

(a) to declare any Distribution upon its Common Stock, whether in cash, property, stock or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus;

(b) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or

then, in connection with each such event, the Corporation shall send to the Holders of the Series B Preferred at least ten (10) Business Days’ prior written notice of the date on which a record shall be taken for such Distribution (and specifying the date on which the holders of Common Stock shall be entitled thereto and, if applicable, the amount and character of such Distribution) or for determining rights to vote in respect of the matters referred to in (b) and (c) above.

Such written notice shall be given by first class mail (or express courier), postage prepaid, addressed to the holders of Series B Preferred at the address for each such holder as shown on the books of the Corporation and shall be deemed given on the date such notice is mailed.

The notice provisions set forth in this section may be shortened or waived prospectively or retrospectively by the vote or written consent of the holders of a Majority In Interest of the Series B Preferred, voting together as a single class.

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9. Protective Provisions .

9.1 Subject to the rights of series of preferred stock which may from time to time come into existence, so long as any shares of Series B Preferred are outstanding, the Corporation shall not, without first obtaining the approval (by written consent or at a meeting duly called, each as provided by law) of the holders of a Majority In Interest of Series B Preferred, voting together as a single class:

(a) Increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series B Preferred (except to the extent required to issue PIK Shares if required by the terms set forth herein, which for the sake of clarity, and without otherwise limiting this provision, shall not require approval of the Holders);

(b) Re-issue any shares of Series B Preferred converted pursuant to the terms of this Designation;

(c) Create, or authorize the creation of, or issue or obligate itself to issue shares of, any class or series of capital stock unless the same ranks junior to (and not pari passu with) the Series B Preferred with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends and rights of redemption, or increase the authorized number of shares of any additional class or series of capital stock unless the same ranks junior to (and not pari passu with) the Series B Preferred with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends and rights of redemption, in each such case, other than issuances of (or in connection with issuances of) shares of Series B Preferred pursuant to the Purchase and Sale Agreement, PIK Shares and the Series C Preferred Stock;

(d) Effect an exchange, reclassification, or cancellation of all or a part of the Series B Preferred (except pursuant to the terms hereof);

(e) Effect an exchange, or create a right of exchange, of all or part of the shares of another class of shares into shares of Series B Preferred;

(f) Alter or change the rights, preferences or privileges of the shares of Series B Preferred so as to affect adversely the shares of such series;

(g) Authorize or issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security having a preference over (or on parity with) the Series B Preferred with respect to liquidation; or

(h) Amend or waive any provision of the Corporation’s Articles of Incorporation or Bylaws, each as amended, relative to the Series B Preferred so as to affect adversely the shares of Series B Preferred.

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For clarification, the creation or issuance of shares of other series of preferred stock, provided the rights and preferences of such series of preferred stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends are not senior to the Series B Preferred Liquidation Preference, shall not require the authorization or approval of the holders of the Series B Preferred.

9.2 The Corporation will not through any reorganization, transfer of assets, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this Designation and in the taking of all such action as may be necessary or appropriate in order to protect (a) the Holder Conversion Rights of the Holders of Series B Preferred; and (b) the other rights of the Holders as set forth herein, against impairment. Notwithstanding the foregoing, nothing shall prohibit the Corporation from amending its Articles of Incorporation with the requisite consent of its stockholders and the Board of Directors.

10. Preemptive Rights . No stockholder of the Corporation (including, but not limited to any Holder) shall have the right to repurchase shares of capital stock of the Corporation sold or issued by the Corporation except to the extent that such right may from time to time be set forth in a written agreement between the Corporation and such stockholder.

11. Reports . The Corporation shall mail to all holders of Series B Preferred those reports, proxy statements and other materials that it mails to all of its holders of Common Stock.

12. Replacement Preferred Stock Certificates . In the event that any Holder notifies the Corporation that a Preferred Stock Certificate evidencing shares of Series B Preferred has been lost, stolen, destroyed or mutilated, the Corporation shall issue a replacement stock certificate evidencing the Series B Preferred identical in tenor and date (or if such certificate is being issued for shares not covered in a redemption or conversion, in the applicable tenor and date) to the original Preferred Stock Certificate evidencing the Series B Preferred, provided that the Holder executes and delivers to the Corporation and/or its Transfer Agent, as applicable, an affidavit of lost stock certificate and an agreement reasonably satisfactory to the Corporation and its Transfer Agent to indemnify the Corporation from any loss incurred by it in connection with such Series B Preferred certificate, and provides the Corporation and/or its Transfer Agent such other information, documents and if applicable, bonds and indemnities as the Corporation or its Transfer Agent customarily requires for reissuances of stock certificates (collectively the “ Lost Certificate Materials ”); provided, however, the Corporation shall not be obligated to re-issue replacement stock certificates if the Holder contemporaneously requests the Corporation to convert or redeem the full number of shares evidenced by such lost, stolen, destroyed or mutilated certificate.

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13. Construction . When used in this Designation, unless a contrary intention appears: (i) a term has the meaning assigned to it; (ii) “ or ” is not exclusive; (iii) “ including ” means including without limitation; (iv) words in the singular include the plural and words in the plural include the singular, and words importing the masculine gender include the feminine and neuter genders; (v) any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein; (vi) the words “ hereof ”, “ herein ” and “ hereunder ” and words of similar import when used in this Designation shall refer to this Designation as a whole and not to any particular provision hereof; (vii) references contained herein to Article, Section, Schedule and Exhibit, as applicable, are references to Articles, Sections, Schedules and Exhibits in this Designation unless otherwise specified; (viii) references to “ dollars ”, “ Dollars ” or “ $ ” in this Designation shall mean United States dollars; (ix) reference to a particular statute, regulation or law means such statute, regulation or law as amended or otherwise modified from time to time; (x) 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); (xi) unless otherwise stated in this Designation, in the computation of a period of time from a specified date to a later specified date, the word “ from ” means “ from and including ” and the words “ to ” and “ until ” each mean “ to but excluding ”; (xii) references to “ days ” shall mean calendar days; and (xiii) the paragraph and section headings contained in this Designation are for convenience only, and shall in no manner affect the interpretation of any of the provisions of this Designation.

14. Miscellaneous .

14.1 Cancellation of Series B Preferred . If any shares of Series B Preferred are converted pursuant to Section 4 , or redeemed pursuant to Section 7 , the shares so converted shall be canceled and shall return to the status of designated, but unissued Series B Preferred.

14.2 Further Assurances . Each Holder hereby covenants that, in consideration for receiving shares of Series B Preferred, that he, she or it will, whenever and as reasonably requested by the Corporation, do, execute, acknowledge and deliver any and all such other and further acts, deeds, confirmations, agreements and documents as the Corporation or its Transfer Agent may reasonably require in order to complete, insure and perfect any of the terms, conditions or provisions of this Designation, including, but not limited to a Cancellation or Redemption Cancellation.

14.3 Technical, Corrective, Administrative or Similar Changes . The Corporation may, by any means authorized by law and without any vote of the Holders of shares of the Series B Preferred, make technical, corrective, administrative or similar changes in this Designation that do not, individually or in the aggregate, adversely affect the rights or preferences of the Holders of shares of the Series B Preferred.

14.4 Waiver . Notwithstanding any provision in this Designation to the contrary, any provision contained herein and any right of the holders of Series B Preferred granted hereunder, may be waived as to all shares of Series B Preferred (and the Holders thereof) upon the written consent of a Majority In Interest, unless a higher percentage is required by applicable law, in which case the written consent of the Holders of not less than such higher percentage of shares of Series B Preferred shall be required.

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14.5 Interpretation . Whenever possible, each provision of this Designation shall be interpreted in a manner as to be effective and valid under applicable law and public policy. If any provision set forth herein is held to be invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or otherwise adversely affecting the remaining provisions of this Designation. No provision herein set forth shall be deemed dependent upon any other provision unless so expressed herein. If a court of competent jurisdiction should determine that a provision of this Designation would be valid or enforceable if a period of time were extended or shortened, then such court may make such change as shall be necessary to render the provision in question effective and valid under applicable law.

14.6 No Other Rights . Except as may otherwise be required by law, the shares of the Series B Preferred shall not have any powers, designations, preferences or other special rights, other than those specifically set forth in this Designation.

14.7 Specific Performance . The Corporation and each Holder by accepting Preferred Stock Shares, agree that the covenants and obligations contained in this Designation relate to special, unique and extraordinary matters and that a violation of any of the terms hereof or thereof would cause irreparable injury in an amount which would be impossible to estimate or determine and for which any remedy at law would be inadequate. As such, the Corporation and each Holder agree that if either the Corporation or any Holder fails or refuses to fulfill any of its obligations under this Designation or to make any payment or deliver any instrument required hereunder or thereunder, then (a) the Corporation in the event the non-performing party is any Holder; or (b) a Majority In Interest of the Holders, in the event the non-performing party is the Corporation, shall have the remedy of specific performance, which remedy shall be cumulative and nonexclusive and shall be in addition to any other rights and remedies otherwise available under any other contract or at law or in equity and to which such party might be entitled.

NOW THEREFORE BE IT RESOLVED , that the Designation is hereby approved, affirmed, confirmed, and ratified; and it is further

RESOLVED , that each officer of the Corporation be and hereby is authorized, empowered and directed to execute and deliver, in the name of and on behalf of the Corporation, any and all documents, and to perform any and all acts necessary to reflect the Board of Directors approval and ratification of the resolutions set forth above; and it is further

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Lucas Energy, Inc.
Series B Redeemable Convertible Preferred Stock

RESOLVED , that in addition to and without limiting the foregoing, each officer of the Corporation and the Corporation’s attorney be and hereby is authorized to take, or cause to be taken, such further action, and to execute and deliver, or cause to be delivered, for and in the name and on behalf of the Corporation, all such instruments and documents as he may deem appropriate in order to effect the purpose or intent of the foregoing resolutions (as conclusively evidenced by the taking of such action or the execution and delivery of such instruments, as the case may be) and all action heretofore taken by such officer in connection with the subject of the foregoing recitals and resolutions be, and it hereby is approved, ratified and confirmed in all respects as the act and deed of the Corporation; and it is further

RESOLVED , that this Designation may be executed in several counterparts, each of which is an original; that it shall not be necessary in making proof of this Designation or any counterpart hereof to produce or account for any of the other.

[Remainder of page left intentionally blank. Signature page follows.]

Page 23 of 26
Lucas Energy, Inc.
Series B Redeemable Convertible Preferred Stock

IN WITNESS WHEREOF, the Corporation has approved and caused this “ Certificate Of Designation of Lucas Energy, Inc. Establishing The Designations, Preferences, Limitations and Relative Rights of its Series B Redeemable Convertible Preferred Stock ” to be duly executed and approved this 25th day of August 2016.

	LUCAS ENERGY, INC.:

	/s/ Anthony C. Schnur
	Anthony C. Schnur
	Chief Executive Officer

Page 24 of 26
Lucas Energy, Inc.
Series B Redeemable Convertible Preferred Stock

Exhibit A

NOTICE OF CONVERSION

This Notice of Conversion is executed by the undersigned holder (the “ Holder ”) in connection with the conversion of shares of the Series B Redeemable Convertible Preferred Stock of Lucas Energy, Inc., a Nevada corporation (the “ Corporation ”), pursuant to the terms and conditions of that certain Amended and Restated Certificate of Designation of Lucas Energy, Inc., Establishing the Designation, Preferences, Limitations and Relative Rights of its Series B Redeemable Convertible Preferred Stock (the “ Designation ”), approved by the Board of Directors of the Corporation on August 18, 2016. Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Designation.

Conversion : In accordance with and pursuant to such Designation, the Holder hereby elects to convert the number of shares of Series B Redeemable Convertible Preferred Stock indicated below into shares of Common Stock of the Corporation as of the date specified below.

Date of Conversion:
Number of Series B Redeemable Convertible Preferred Stock Held by Holder:
Prior to Conversion:
Amount Being Converted Hereby:
Common Stock Shares Due:
Series B Redeemable Convertible Preferred Stock Held After Conversion:
Accrued Dividends Converted ($):
Total Shares Due In Connection With Conversion of Dividends:
Number of Shares of Common Stock To Be Issued In Total:

Delivery of Shares : Pursuant to this Notice of Conversion, the Corporation shall deliver the applicable number of shares of Common Stock (the “ Shares ”) issuable in accordance with the terms of the Designation as set forth below. If Shares are to be issued in the name of a person other than the Holder, the Holder will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Corporation in accordance therewith. No fee will be charged to the Holder for any conversion, except for such transfer taxes, if any. The Holder acknowledges and confirms that the Shares issued pursuant to this Notice of Conversion will, to the extent not previously registered by the Corporation under the Securities Act, be Restricted Shares, unless the Shares are covered by a valid and effective registration under the Securities Act or this Notice of Conversion includes a valid opinion from an attorney stating that such Shares can be issued free of restrictive legend, which shall be determined by the Corporation in its sole discretion.

Page 25 of 26
Lucas Energy, Inc.
Series B Redeemable Convertible Preferred Stock

If stock certificates are to be issued, in the following name and to the following address:		If DWAC is permissible, to the following brokerage account:
		Broker:

		DTC No.:

		Acct. Name:

		For Further Credit (if applicable):

Authority : Any individual executing this Notice of Conversion on behalf of an entity has authority to act on behalf of such entity and has been duly and properly authorized to sign this Notice of Conversion on behalf of such entity.


		(Print Name of Holder)

	By/Sign:

	Print Name:

	Print Title:

Page 26 of 26
Lucas Energy, Inc.
Series B Redeemable Convertible Preferred Stock

Lucas Energy, Inc. 8-K

Exhibit 3.2

LUCAS ENERGY, INC.

CERTIFICATE OF DESIGNATIONS OF PREFERENCES, POWERS,
RIGHTS AND LIMITATIONS
OF
SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK

The undersigned, Anthony C. Schnur, h ere by certifies that:

1. The undersigned is the Chief Executive Officer and Acting Chief Financial Officer, respectively, of Lucas Energy, Inc., a Nevada corporation (the “ Corporation ”);

2. The Corporation is authorized to issue 10,000,000 shares of preferred stock, $0.001 par value, of which (i) 2,000 shares are designated as Series A convertible preferred stock, of which 500 shares are issued and outstanding, and (ii) 3,000 shares are designated as Series B redeemable convertible preferred stock (the “ Series B Preferred Stock ”), of which no shares are issued and outstanding; and

3. The following resolutions were duly adopted by the Board of Directors:

WHEREAS, the Certificate of Incorporation of the Corporation provides for a class of its authorized stock known as preferred stock, comprised of 10,000,000 shares, $0.001 par value per share (the “ Preferred Stock ”), issuable from time to time in one or more series;

WHEREAS, the Board of Directors of the Corporation is authorized to fix the dividend rights, dividend rate, powers, voting rights, conversion rights, rights and terms of redemption and liquidation preferences of any wholly unissued series of Preferred Stock and the number of shares constituting any Series and the designation thereof, of any of them;

WHEREAS, it is the desire of the Board of Directors of the Corporation, pursuant to its authority as aforesaid and as set forth in this Certificate of Designations of Preferences, Powers, Rights and Limitations of Series C Redeemable Convertible Preferred Stock, to designate the rights, preferences, restrictions and other matters relating to the Series C Redeemable Convertible Preferred Stock , which will consist of up to 5,000 shares of the Preferred Stock which the Corporation has the authority to issue, as follows:

NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for the issuance of a series of Preferred Stock for cash, notes or exchange of other securities, rights or property and does hereby fix and determine the powers, rights, preferences, restrictions and other matters relating to such series of Preferred Stock as follows:

I. Terms of Preferred Stock .

A. Designation and Amount . A series of Preferred Stock is hereby designated as the Corporation’s Series C Redeemable Convertible Preferred Stock, par value of $0.001 per share (the “ Series C Preferred Stock ”), the number of shares of which so designated are 5,000 shares of Series C Preferred Stock; which Series C Preferred Stock will not be subject to increase without any consent of the holders of the Series C Preferred Stock (each a “ Holder ” and collectively, the “ Holders ”) that may be required by applicable law.

B. Ranking and Voting .

1. Ranking . The Series C Preferred Stock will, with respect to dividend rights and rights upon liquidation, winding-up or dissolution, rank: (a) senior to the Corporation’s Common Stock, $0.001 par value per share (“ Common Stock ”); (b) pari passu with respect to the Series B Preferred Stock; (c) senior, pari passu or junior with respect to any other series of Preferred Stock, as set forth in the Certificate of Designations of Preferences, Powers, Rights and Limitations with respect to such Preferred Stock; and (d) junior to all existing and future indebtedness of the Corporation. Without the prior written consent of the Holders of a majority of the outstanding shares of Series C Preferred Stock (voting separately as a single class), the Corporation may not issue any additional shares of Series C Preferred Stock or, other than shares of Series B Preferred Stock issued in the Acquisition, any other Preferred Stock (other than the Series B Preferred Stock) that is pari passu or senior to the Series C Preferred Stock with respect to any rights for a period of 1 year after the earlier of such date (i) a registration statement is effective and available for the resale of all Conversion Shares, or (ii) Securities Act Rule 144 is available for the immediate unrestricted resale of all Conversion Shares.

2. Voting . Except as required by applicable law or as set forth herein, the holders of shares of Series C Preferred Stock will have no right to vote on any matters, questions or proceedings of this Corporation including, without limitation, the election of directors except: (a) during a period where a dividend (or part of a dividend) is in arrears; (b) on a proposal to reduce the Company’s share capital; (c) on a resolution to approve the terms of a buy-back agreement; (d) on a proposal to wind up the Company; (e) on a proposal for the disposal of all or substantially all the Company’s property, business and undertaking; and (f) during the winding-up of the entity.

C. Dividends .

1. Commencing on the date of the issuance of any such shares of Series C Preferred Stock (each respectively an “ Issuance Date ”), each outstanding share of Series C Preferred Stock will accrue cumulative dividends (“ Dividends ”), at a rate equal to 6.0% per annum, subject to adjustment as provided in this Certificate of Designations (“ Dividend Rate ”), of the Face Value. Dividends will be payable with respect to any shares of Series C Preferred Stock upon any of the following: (a) upon redemption of such shares in accordance with Section I.F ; (b) upon conversion of such shares in accordance with Section I.G ; and (c) when, as and if otherwise declared by the board of directors of the Corporation.

2. Dividends, as well as any applicable Conversion Premium payable hereunder, will be paid: (a) in the Corporation’s sole and absolute discretion, immediately in cash; or (b) if Corporation notifies Holder it will not pay all or any portion in cash, or to the extent cash is not paid and received as soon as practicable, and in any event within 1 Trading Day after the Notice Time, for any reason whatsoever, in shares of Common Stock valued at (i) if there has never been a Trigger Event, (A) 95.0% of the average of the 5 lowest individual daily volume weighted average prices of the Common Stock on the Trading Market during the applicable Measurement Period, which may be non-consecutive, less $0.05 per share of Common Stock, not to exceed (B) 100% of the lowest sales price on the last day of such Measurement Period less $0.05 per share of Common Stock (ii) following any Trigger Event, (A) 85.0% of the lowest daily volume weighted average price during any Measurement Period for any conversion by Holder, less $0.10 per share of Common Stock, not to exceed (B) 85.0% of the lowest sales price on the last day of any Measurement Period, less $0.10 per share of Common Stock. In no event will the value of Common Stock pursuant to the foregoing be below the par value per share. All amounts that are required or permitted to be paid in cash pursuant to this Certificate of Designations will be paid by wire transfer of immediately available funds to an account designated by Holder.

3. So long as any shares of Series C Preferred Stock are outstanding, the Company will not repurchase shares of Common Stock other than as payment of the exercise or conversion price of a convertible security or payment of withholding tax, and no dividends or other distributions will be paid, declared or set apart with respect to any Common Stock, except for Purchase Rights.

D. Protective Provision .

1. So long as any shares of Series C Preferred Stock are outstanding, the Corporation will not, without the affirmative approval of the Holders of a majority of the shares of the Series C Preferred Stock then outstanding (voting separately as one class), (i) alter or change adversely the powers, preferences or rights given to the Series C Preferred Stock or alter or amend this Certificate of Designations, (ii) authorize or create any class of stock ranking as to distribution of dividends senior to the Series C Preferred Stock, (iii) amend its certificate of incorporation or other charter documents in breach of any of the provisions hereof, (iv) increase the authorized number of shares of Series C Preferred Stock or (v) enter into any agreement with respect to the foregoing.

2. A “ Deemed Liquidation Event ” will mean: (a) a merger or consolidation in which the Corporation is a constituent party or a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger or consolidation, except (i) any such merger or consolidation involving the Corporation or a subsidiary in which the Corporation is the surviving or resulting corporation, (ii) any merger effected exclusively to change the domicile of the Corporation, (iii) any transaction or series of transactions in which the holders of the voting securities of the Company outstanding immediately prior to such transaction continue to retain more than 50% of the total voting power of such surviving entity, or (iv) the Acquisition; (b) Corporation issues convertible or equity securities that are senior to the Series C Preferred Stock in any respect, (c) Holder does not receive the number of Conversion Shares stated in a Delivery Notice with 5 Trading Days of the Notice Time; (d) trading of the Common Stock is halted or suspended by the Trading Market or any U.S. governmental agency for 10 or more consecutive trading days; (e) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, or the sale or disposition (whether by merger or otherwise) of one or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation.

3. The Corporation will not have the power to close or effect a voluntary Deemed Liquidation Event unless the agreement or plan of merger or consolidation for such transaction provides that the consideration payable to the stockholders of the Corporation will be allocated among the holders of capital stock of the Corporation in accordance with Section I.E , and the required amount is paid to Holder prior to or upon closing, effectuation or occurrence of the Deemed Liquidation Event.

E. Liquidation .

1. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment or provision for payment of debts and other liabilities of the Corporation, prior to any distribution or payment made to the holders of Preferred Stock or Common Stock by reason of their ownership thereof, the Holders of Series C Preferred Stock will be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders an amount with respect to each share of Series C Preferred Stock equal to $10,000.00 (“ Face Value ”), plus an amount equal to any accrued but unpaid Dividends thereon (collectively with the Face Value, the “ Liquidation Value ”).

2. If, upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the amounts payable with respect to the shares of Series C Preferred Stock are not paid in full, the holders of shares of Series C Preferred Stock will share equally and ratably with the holders of shares of Preferred Stock and Common Stock in any distribution of assets of the Corporation in proportion to the liquidation preference and an amount equal to all accumulated and unpaid Dividends, if any, to which each such holder is entitled.

3. If, upon any liquidation, dissolution or winding up of the Corporation, the assets of the Corporation will be insufficient to make payment in full to all Holders, then the assets distributable to the Holders will be distributed among the Holders at the time outstanding, ratably in proportion to the full amounts to which they would otherwise be respectively entitled.

F. Redemption .

1. Corporation ’ s Redemption Option . On the Dividend Maturity Date, the Corporation may redeem any or all shares of Series C Preferred Stock by paying Holder in cash an amount per share equal to 100% of the Liquidation Value for the shares redeemed.

2. Early Redemption . Prior to the Dividend Maturity Date, provided that no Trigger Event has occurred, the Corporation will have the right at any time upon 30 Trading Days’ prior written notice, in its sole and absolute discretion, to redeem all or any portion of the shares of Series C Preferred Stock then outstanding by paying Holder in cash an amount per share of Series C Preferred Stock (the “ Early Redemption Price ”) equal to the sum of the following: (a) 100% of the Face Value, plus (b) the Conversion Premium, minus (c) any Dividends that have been paid, for each share of Series C Preferred Stock redeemed.

3. Credit Risk Adjustment .

a. The Dividend Rate will adjust downward by an amount equal to the Spread Adjustment for each amount, if any, equal to the Adjustment Factor that the Measuring Metric rises above the Maximum Triggering Level, down to a minimum of 0.0%.

b. The Dividend Rate will adjust upward by an amount equal to the Spread Adjustment for each amount, if any, equal to the Adjustment Factor that the Measuring Metric falls below the Minimum Triggering Level, up to a maximum of 24.95%. In addition, the Dividend Rate will adjust upward by 10.0% following the occurrence of any Trigger Event.

c. The adjusted Dividend Rate used for calculation of the Liquidation Value, Conversion Premium, Early Redemption Price and Dividend, as applicable, and the amount of Dividends owed will be calculated and determined based upon the Measuring Metric at close of the Trading Market immediately prior to the Notice Time.

4. Mandatory Redemption. If the Corporation determines to liquidate, dissolve or wind-up its business and affairs, or upon closing or occurrence of any Deemed Liquidation Event, the Corporation will prior to or concurrently with the closing, effectuation or occurrence any such action, redeem the Series C Preferred Stock for cash, by wire transfer of immediately available funds to an account designated by Holder, at the Early Redemption Price set forth in Section I.F.2 if the event is prior to the Dividend Maturity Date, or at the Liquidation Value if the event is on or after the Dividend Maturity Date.

5. Mechanics of Redemption . In order to redeem any of the Holders ’ Series C Preferred Stock then outstanding, the Corporation must deliver written notice (each, a “ Redemption Notice ”) to each Holder setting forth (a) the number of shares of Series C Preferred Stock that the Corporation is redeeming, (b) the applicable Dividend Rate, Liquidation Value and Early Redemption Price, and (c) the calculation of the amount paid. Upon receipt of full payment in cash for a complete redemption, each Holder will promptly submit to the Corporation such Holder’s Series C Preferred Stock certificates. In connection with a mandatory redemption, the notice will be delivered as soon as the number of shares can be determined, and in all other instances at least 30 Trading Days prior to payment. For the avoidance of doubt, the delivery of a Redemption Notice will not affect Holder’s rights under Section I.G until after receipt of cash payment by Holder at the required time.

G. Conversion .

1. Mechanics of Conversion .

a. One or more shares of the Series C Preferred Stock may be converted, in part or in whole, into shares of Common Stock, at any time or times after the Issuance Date, in the sole and absolute discretion of Holder or, subject to the terms and conditions hereof, the Corporation; (i) if at the option of Holder, by delivery of one or more written notices to the Corporation or its transfer agent (each, a “ Holder Conversion Notice ”), of the Holder’s election to convert any or all of its Series C Preferred Stock; or (ii) if at the option of the Corporation, if the Equity Conditions are met, delivery of written notice to Holder (each, a “ Corporation Conversion Notice, ” with the Holder Conversion Notice, each a “ Conversion Notice, ” and with the Redemption Notice, each an “ Initial Notice ”), of the Corporation’s election to convert the Series C Preferred Stock.

b. Each Delivery Notice will set forth the number of shares of Series C Preferred Stock being converted, the minimum number of Conversion Shares and the amount of Dividends and any applicable Conversion Premium due as of the time the Delivery Notice is given (the “ Notice Time ”), and the calculation thereof.

b. If the Corporation notifies Holder by 10:00 a.m. Eastern time on the Trading Day after the Notice Time that it is paying all or any portion of Dividends or Conversion Premium, and actually pays in cash by the next Trading Day, time being of the essence, the full amount of Dividends and Conversion Premium stated in the Delivery Notice, no further amount will be due with respect thereto.

c. As soon as practicable, and in any event within 1 Trading Day of the Notice Time, time being of the essence, the Corporation will do all of the following: (i) transmit the Delivery Notice by facsimile or electronic mail to the Holder, and to the Corporation’s transfer agent (the “ Transfer Agent ”) with instructions to comply with the Delivery Notice; (ii) either (A) if the Corporation is approved through The Depository Trust Corporation (“ DTC ”), authorize and instruct the credit by the Transfer Agent the aggregate number of Conversion Shares set forth in the Delivery Notice, to Holder’s or its designee’s balance account with the DTC Fast Automated Securities Transfer (FAST) Program, through its Deposit/Withdrawal at Custodian (DWAC) system, or (B) only if the Corporation is not approved through DTC, issue and surrender to a common carrier for overnight delivery to the address as specified in the Delivery Notice a certificate registered in the name of Holder or its designee, for the number of Conversion Shares set forth in the Delivery Notice, bearing no restrictive legend unless a registration statement covering the Conversion Shares is not effective and neither Company nor Investor provides an opinion of counsel to the effect that Conversion Shares may be issued without restrictive legend; and (iii) if it contends that the Delivery Notice is in any way incorrect, a through explanation of why and its own calculation, or the Delivery Notice will conclusively be deemed correct for all purposes. The Corporation will at all times diligently take or cause to be taken all actions reasonably necessary to cause the Conversion Shares to be issued as soon as practicable.

d. If during the Measurement Period the Holder is entitled to receive additional Conversion Shares with regard to an Initial Notice, Holder may at any time deliver one or more additional written notices to the Corporation or its transfer agent (each, an “ Additional Notice ” and with the Initial Notice, each a “ Delivery Notice ”) setting forth the additional number of Conversion Shares to be delivered, and the calculation thereof.

e. If the Corporation for any reason does not issue or cause to be issued to the Holder within 3 Trading Days after the date of a Delivery Notice, the number of Conversion Shares stated in the Delivery Notice, then, in addition to all other remedies available to the Holder, as liquidated damages and not as a penalty, the Corporation will pay in cash to the Holder on each day after such 3rd Trading Day that the issuance of such Conversion Shares is not timely effected an amount equal to 2% of the product of (i) the aggregate number of Conversion Shares not issued to the Holder on a timely basis and to which the Holder is entitled and (ii) the highest Closing Price of the Common Stock between the date on which the Corporation should have issued such shares to the Holder and the actual date of receipt of Conversion Shares by Holder. It is intended that the foregoing will serve to reasonably compensate Holder for any delay in delivery of Conversion Shares, and not as punishment for any breach by the Corporation. The Corporation acknowledges that the actual damages likely to result from delay in delivery are difficult to estimate and would be difficult for Holder to prove.

f. Notwithstanding any other provision: all of the requirements of Section I.F and this Section I.G are each independent covenants; the Corporation’s obligations to issue and deliver Conversion Shares upon any Delivery Notice are absolute, unconditional and irrevocable; any breach or alleged breach of any representation or agreement, or any violation or alleged violation of any law or regulation, by any party or any other person will not excuse full and timely performance of any of the Corporation’s obligations under these sections; and under no circumstances may the Corporation seek or obtain any temporary, interim or preliminary injunctive or equitable relief to prevent or interfere with any issuance of Conversion Shares to Holder.

g. If for any reason whatsoever Holder does not timely receive the number of Conversion Shares stated in any Delivery Notice, Holder will be entitled to a compulsory remedy of immediate specific performance, temporary, interim and, preliminary and final injunctive relief requiring Corporation and its transfer agent, attorneys, officers and directors to immediately issue and deliver the number of Conversion Shares stated by Holder, which requirement will not be stayed for any reason, without the necessity of posting any bond, and which Corporation may not seek to stay or appeal.

h. No fractional shares of Common Stock are to be issued upon conversion of Series C Preferred Stock, but rather the Corporation will issue to Holder scrip or warrants registered on the books of the Corporation (certificated or uncertificated) which will entitle Holder to receive a full share upon the surrender of such scrip or warrants aggregating a full share. The Holder will not be required to deliver the original certificates for the Series C Preferred Stock in order to effect a conversion hereunder. The Corporation will pay any and all taxes which may be payable with respect to the issuance and delivery of any Conversion Shares.

2. Holder Conversion . In the event of a conversion of any Series C Preferred Stock pursuant to a Holder Conversion Notice, the Corporation will (a) satisfy the payment of Dividends and Conversion Premium with respect to the shares of Series C Preferred Stock converted as provided in Section I.C.2, and (b) issue to the Holder of such Series C Preferred Stock a number of Conversion Shares equal to (i) the Face Value multiplied by (ii) the number of such Series C Preferred Stock subject to the Holder Conversion Notice divided by (iii) the applicable Conversion Price with respect to such Series C Preferred Stock; all in accordance with the procedures set forth in Section I.G.1 .

3. Corporation Conversion . The Corporation will have the right to send the Holder a Corporation Conversion Notice at any time in its sole and absolute discretion, if the Equity Conditions are met as of the time such Corporation Conversion Notice is given. Upon any conversion of any Series C Preferred Stock pursuant to a Corporation Conversion Notice, the Corporation will on the date of such notice (a) satisfy the payment of Dividends and Conversion Premium with respect to the shares of Series C Preferred Stock converted as provided in Section I.C.2 , and (b) issue to the Holder of such Series C Preferred Stock a number of Conversion Shares equal to (i) the Face Value multiplied by (ii) the number of such Series C Preferred Stock subject to the Holder Conversion Notice divided by (iii) the applicable Conversion Price with respect to such Series C Preferred Stock; all in accordance with the procedures set forth in Section I.G.1 .

4. Stock Splits . If the Corporation at any time on or after the filing of this Certificate of Designations subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the applicable Conversion Price, Adjustment Factor, Maximum Triggering Level, Minimum Triggering Level, and other share based metrics in effect immediately prior to such subdivision will be proportionately reduced and the number of shares of Common Stock issuable will be proportionately increased. If the Corporation at any time on or after such Issuance Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the applicable Conversion Price, Adjustment Factor, Maximum Triggering Level, Minimum Triggering Level, and other share based metrics in effect immediately prior to such combination will be proportionately increased and the number of Conversion Shares will be proportionately decreased. Any adjustment under this Section will become effective at the close of business on the date the subdivision or combination becomes effective.

5. Rights . In addition to any adjustments pursuant to Section I.G.4 , if at any time the Corporation grants, issues or sells any options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “ Purchase Rights ”), then Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which Holder could have acquired if Holder had held the number of shares of Common Stock acquirable upon conversion of all Preferred Stock held by Holder immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

6. Notices. The holders of shares of Series C Preferred Stock are entitled to the same rights as the holders of Common Stock with respect to rights to receive notices, reports and audited accounts from the Company and with respect to attending stockholder meetings.

7. Definitions . The following terms will have the following meanings:

a. “Adjustment Factor ” means $0.10 per share of Common Stock.

b. “Acquisition” means the closing of the acquisition of assets contemplated by that certain Asset Purchase Agreement dated December 30, 2015 between Company and the sellers named therein, as disclosed in the current report on Form 8-K filed with the Securities & Exchange Commission on December 31, 2015.

c. “ Closing Price ” means, for any security as of any date, the last closing bid price for such security on the Trading Market, or, if the Trading Market begins to operate on an extended hours basis and does not designate the closing bid price, then the last bid price of such security prior to 4:00 p.m., Eastern time, or, if the Trading Market is not the principal securities exchange or trading market for such security, the last closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded, or if the foregoing do not apply, the last closing bid price of such security in the over-the-counter market on the electronic bulletin board for such security, or, if no closing bid price is reported for such security, the average of the bid prices of any market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.).

d. “ Conversion Premium ” for each share of Series C Preferred Stock means the Face Value, multiplied by the product of (i) the applicable Dividend Rate, and (ii) the number of whole years between the Issuance Date and the Dividend Maturity Date.

e. “ Conversion Price ” means a price per share of Common Stock equal to $3.25 per share of Common Stock, subject to adjustment as otherwise provided herein.

f. “ Conversion Shares ” means all shares of Common Stock that are required to be or may be issued upon conversion of Series C Preferred Stock.

g. “Dividend Maturity Date ” means the date that is 7 years after the Issuance Date.

h. “ Equity Conditions ” means on each day during the Measurement Period, (i) the Common Stock is not under chill or freeze from DTC, the Common Stock is designated for trading on OTCQB or higher market and will not have been suspended from trading on such market, and delisting or suspension by the Trading Market has not been threatened or pending, either in writing by such market or because Company has fallen below the then effective minimum listing maintenance requirements of such market; (ii) the Corporation has delivered Conversion Shares upon all conversions or redemptions of the Series C Preferred Stock in accordance with their terms to the Holder on a timely basis; (iii) the Corporation will have no knowledge of any fact that would cause both of the following (A) a registration statement not to be effective and available for the resale of all Conversion Shares, and (B) Section 3(a)(9) under the Securities Act of 1933, as amended, not to be available for the issuance of all Conversion Shares, or Regulation S or Securities Act Rule 144 not to be available for the resale of all the Conversion Shares underlying the Series C Preferred Stock without restriction; (iv) there has been a minimum of $5 million in aggregate trading volume over the last 20 consecutive Trading Days; (v) all shares of Common Stock to which Holder is entitled have been timely received into Holder’s designated account in electronic form fully cleared for trading; (vi) the Corporation otherwise will have been in compliance with and will not have breached any provision, covenant, representation or warranty of any Transaction Document; (vii) the Measuring Metric is at least $1.50; (viii) no Trigger Event will have occurred; (ix) the Corporation will have been assigned all right and title to the properties being acquired in the Acquisition, or cumulative assignments representing not less than 90% of the value of the assets described; and (x) the properties being assigned to the Corporation in the Acquisition will have daily production of not less than 700 barrels of oil equivalent per day as of the most recent production data available, not more than 75 days old.

i. “ Measurement Period ” means the period beginning, if no Trigger Event has occurred 30 Trading Days, and if a Trigger Event has occurred 60 Trading Days, before the Notice Date, and ending, if no Trigger Event has occurred 30 Trading Days, and if a Trigger Event has occurred 60 Trading Days, after the number of Conversion Shares stated in the initial Notice have actually been received into Holder’s designated brokerage account in electronic form and fully cleared for trading; provided that for each day during the Measurement Period on which less than all of the conditions set forth in Section I.G.6.h exist, 1 Trading Day will be added to what otherwise would have been the end of the Measurement Period.

j. “ Measuring Metric ” means the volume weighted average price of the Common Stock on any Trading Day following the Issuance Date of the Series C Preferred Stock.

k. “Maximum Triggering Level” means $3.75 per share of Common Stock.

l. “ Minimum Triggering Level ” means $2.75 per share of Common Stock.

m. “ Spread Adjustment ” means 100 basis points.

n. “ Stock Purchase Agreement ” means the Stock Purchase Agreement or other agreement pursuant to which any share of Series C Preferred Stock is issued, including all exhibits thereto and all related Transaction Documents as defined therein.

o. “ Trading Day ” means any day on which the Common Stock is traded on the Trading Market.

p. “ Trading Market ” means the NYSE MKT or whatever is at the applicable time, the principal U.S. trading exchange or market for the Common Stock. All Trading Market data will be measured as provided by the appropriate function of the Bloomberg Professional service of Bloomberg Financial Markets or its successor performing similar functions.

7. Issuance Limitation .

a. Beneficial Ownership . Notwithstanding any other provision, at no time may the Corporation issue shares of Common Stock to Holder which, when aggregated with all other shares of Common Stock then deemed beneficially owned by Holder, would result in Holder owning more than 4.99% of all Common Stock outstanding immediately after giving effect to such issuance, as determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder; provided, however, that Holder may increase such amount to 9.99% upon not less than 61 days’ prior notice to the Corporation.. To the extent that any conversion would otherwise result in exceeding the beneficial ownership limitation set forth in the preceding sentence, the Delivery Notice will specify the number of shares that may be delivered without exceeding the limitation, and any issuance beyond such extent will be held in abeyance until such time as it would not result in Holder exceeding the beneficial ownership limitation. No provision of this paragraph may be waived by Holder or the Corporation.

b. Principal Market Regulation . Company will not issue any Conversion Shares under this Certificate of Designations, the Warrant issued to Holder on the Issuance Date, the Securities Purchase Agreement with Investor dated the Issuance Date, the Debenture or the Common Stock Purchase Warrant issued to Investor pursuant thereto, if the issuance would exceed the aggregate number of shares of Common Stock the Company may issue without breaching Company’s obligations under NYSE MKT rules, except that such limitation will not apply following stockholder approval in accordance with the requirements of NYSE MKT rules or a waiver from NYSE MKT (“ Approval ”).

8. Conversion at Maturity . On the Dividend Maturity Date, all remaining outstanding Series C Preferred Stock will automatically be converted into shares of Common Stock.

H. Trigger Event .

1. Any occurrence of any one or more of the following will constitute a “ Trigger Event ”:

(a) Holder does not timely receive the number of Conversion Shares stated in any Conversion Notice pursuant to this Certificate of Designations or any other agreement with Holder for any reason whatsoever, time being of the essence, including without limitation the issuance of restricted shares if counsel for Corporation or Holder provides a legal opinion that shares may be issued without restrictive legend;

(b) Any violation of or failure to timely perform any covenant or provision of this Certificate of Designations, the Stock Purchase Agreement, any Transaction Document or any other agreement with Holder, related to payment of cash, registration or delivery of Conversion Shares, time being of the essence;

(c) Any violation of or failure to perform any covenant or provision of this Certificate of Designations, the Stock Purchase Agreement, any Transaction Document or any other agreement with Holder, which in the case of a default that is curable, is not related to payment of cash, registration or delivery of Conversion Shares, and has not occurred before, is not cured within 5 Trading Days of written notice thereof;

(d) Any representation or warranty made in the Securities Purchase Agreement, any Transaction Document or any other agreement with Holder will be untrue, incorrect, or misleading in any material respect as of the date when made or deemed made;

(e) The occurrence of any default or event of default under any material agreement, lease, document or instrument to which the Corporation or any subsidiary other than CATI Operating LLC, a Texas limited liability company (“ CATI ”) is obligated, including without limitation of an aggregate of at least $500,000 of indebtedness;

(f) While any Registration Statement is required to be maintained effective, the effectiveness of the Registration Statement lapses for any reason, including, without limitation, the issuance of a stop order, or the Registration Statement, or the prospectus contained therein, is unavailable to Holder sale of all Conversion Shares for any 5 or more Trading Days, which may be non-consecutive;

(g) The suspension from trading or the failure of the Common Stock to be trading or listed on the Trading Market;

(h) The Corporation notifies Holder, including without limitation, by way of public announcement or through any of its attorneys, agents or representatives, of its intention not to comply, as required, with a Conversion Notice pursuant to this Certificate of Designations or any other agreement with Holder, at any time, including without limitation any objection or instruction to its transfer agent not to comply with any notice from Holder;

(i) Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for the relief of debtors will be instituted by or against the Corporation or any subsidiary other than CATI and, if instituted against the Corporation or any subsidiary other than CATI by a third party, an order for relief is entered or the proceedings are not dismissed within 30 days of their initiation;

(j) The appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, or other similar official of the Corporation or any subsidiary other than CATI or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the execution of a composition of debts, or the occurrence of any other similar federal, state or foreign proceeding, or the admission by it in writing of its inability to pay its debts generally as they become due, the taking of corporate action by the Corporation or any subsidiary other than CATI in furtherance of any such action or the taking of any action by any person to commence a foreclosure sale or any other similar action under any applicable law;

(k) A final judgment or judgments for the payment of money aggregating in excess of $500,000 are rendered against the Corporation or any of its subsidiaries other than CATI and are not stayed or satisfied within 30 days of entry;

(l) The Corporation does not for any reason timely comply with the reporting requirements of the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder, including without limitation timely filing when first due all periodic reports;

(m) Any regulatory, administrative or enforcement proceeding is initiated against Corporation or any subsidiary (except to the extent an adverse determination would not have a material adverse effect on the Company’s business, properties, assets, financial condition or results of operations or prevent the performance by the Company of any material obligation under the Transaction Documents); or

(n) Any material provision of this Certificate of Designations shall at any time for any reason, other than pursuant to the express terms thereof, cease to be valid and binding on or enforceable against the parties thereto, or the validity or enforceability thereof will be contested by any party thereto, or a proceeding will be commenced by the Corporation or any subsidiary or any governmental authority having jurisdiction over any of them, seeking to establish the invalidity or unenforceability thereof, or the Corporation or any subsidiary denies that it has any liability or obligation purported to be created under this Certificate of Designations.

2. It is intended that all adjustments made following a Trigger Event will serve to reasonably compensate Holder for the consequences and increased risk following a Trigger Event, and not as a penalty or punishment for any breach by the Corporation. The Corporation acknowledges that the actual damages likely to result from a Trigger Event are difficult to estimate and would be difficult for Holder to prove.

II. General .

A. Notices . Any and all notices to the Corporation will be addressed to the Corporation ’ s Chief Executive Officer at the Corporation ’ s principal place of business on file with the Secretary of State of the State of Nevada . Any and all notices or other communications or deliveries to be provided by the Corporation to any Holder hereunder will be in writing and delivered personally, by electronic mail or facsimile, sent by a nationally recognized overnight courier service addressed to each Holder at the electronic mail, facsimile telephone number or address of such Holder appearing on the books of the Corporation, or if no such electronic mail, facsimile telephone number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder will be deemed given and effective on the earliest of (1) the date of transmission, if such notice or communication is delivered via facsimile or electronic mail prior to 5:30 p.m. Eastern time, (2) the date after the date of transmission, if such notice or communication is delivered via facsimile or electronic mail later than 5:30 p.m. but prior to 11:59 p.m. Eastern time on such date, (3) the second business day following the date of mailing, if sent by nationally recognized overnight courier service, or (4) upon actual receipt by the party to whom such notice is required to be given, regardless of how sent.

B. Lost or Mutilated Preferred Stock Certificate . Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered Holder will be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing shares of Series C Preferred Stock, and in the case of any such loss, theft or destruction upon receipt of indemnity reasonably satisfactory to the Corporation (provided that if the Holder is a financial institution or other institutional investor its own agreement will be satisfactory) or in the case of any such mutilation upon surrender of such certificate, the Corporation will, at its expense, execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of such class represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate.

C. Headings . The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designations and will not be deemed to limit or affect any of the provisions hereof.

RESOLVED, FURTHER, that the c hairman, chief executive officer, chief financial officer, president or any vice-president, and the secretary or any assistant secretary, of the Corporation be and they hereby are authorized and directed to prepare and file a Designation of Preferences, Rights and Limitations of Series C Preferred Stock in accordance with the foregoing resolution and the provisions of Nevada law.

IN WITNESS WHEREOF, the undersigned have executed this Certificate this 25th day of August 2016.


Signed:		/s/ Anthony C. Schnur
Name:		Anthony C. Schnur
Title:	Chief Executive Officer

Signed:		/s/ Anthony C. Schnur
Name:		Anthony C. Schnur
Title:	Acting Chief Financial Officer

Lucas Energy, Inc. 8-K

Exhibit 10.1

450 Gears Road
Suite 860
Houston, TX 77067
Phone: (713) 528-1881
Fax: (713) 337-1510

August 25, 2016

Mr. Richard N. Azar II

VIA EMAIL AT RICHARDA@SEZARENERGY.COM

Manager

RAD2 Minerals, Ltd.

P.O. Box 6172

San Antonio, Texas 78209

Re:

Post-Closing Adjustments Associated with Assets To be Conveyed Pursuant to December 30, 2015 Asset Purchase Agreement

Dear Richard,

As we have discussed, we (RAD2 Minerals, Ltd. and Lucas Energy, Inc.), believe that there may be post-closing adjustments required to the purchase price payable to the sellers named in that certain Asset Purchase Agreement dated December 30, 2015, as amended to date, by and between Lucas Energy, Inc. as purchaser (“ Lucas ”), and the various sellers named therein, including Segundo Resources, LLC, as representative of the sellers (the “ Asset Purchase ”), due to certain leasehold acreage expirations and the Equal Lien situation. The current estimated deficiency that exists between the total assets required to be delivered by the sellers and the current value of the assets the sellers propose to deliver at closing (the “ Deficiency ”) is $1,030,941 (the “ Estimated Deficiency ”). You have agreed to accept full liability for any and all deficiencies between the “ Agreed Assets Value ” set forth in the Asset Purchase of $80,697,710, and the mutually agreed upon value of the assets delivered at closing of the Asset Purchase, up to a maximum of the Estimated Deficiency, pursuant to your counter signature on this letter, below, and as described below.

Additionally, you have agreed to establish an escrow account within 3 business days of the closing and place into escrow with The Loev Law Firm, PC, or another mutually acceptable escrow agent, 288,779 shares of Lucas common stock (along with a blank stock power with medallion guaranty)(the “ Escrowed Shares ”) received by RAD2 Minerals, Ltd. (“ RAD2 ”) in connection with the closing of the Asset Purchase (the “ Closing ”), within 15 business days from the date of the Closing, subject to the terms of a standard escrow agreement. The Escrowed Shares shall be held in escrow pending (a) RAD2’s transfer of assets to Lucas following the Closing, equal to at least the value of the Deficiency (as valued in the reasonable determination of Lucas); or (b) another mutually agreeable solution to the Deficiency ((a) or (b) as applicable, the “ Make-Whole ”). In the event the Make-Whole occurs on or prior to 45 business days from the date of Closing, 2016 (the “ Make-Whole Deadline ”), the Escrowed Shares shall be released to RAD2, and in the event the Make-Whole does not occur prior to the Make-Whole Deadline, the Escrowed Shares (or such portion thereof that equals the Deficiency, in the reasonable determination of Lucas) shall be released to Lucas for cancellation as consideration for the Deficiency. The Deficiency shall be considered waived and forgiven by Lucas upon the occurrence of either (a) the Make-Whole, or (b) the cancellation by Lucas of the Escrowed Shares, or the applicable portion thereof, as applicable.

RAD2 shall also take such other action and execute, acknowledge and deliver such contracts, deeds, representations, confirmations or other documents as may be reasonably requested and necessary or appropriate to affect the transactions contemplated herein.

450 Gears Road
Suite 860
Houston, TX 77067
Phone: (713) 528-1881
Fax: (713) 337-1510

This letter and Escrow Agreement, sets forth all of the promises, agreements, conditions, understandings, warranties and representations among the parties with respect to the transactions contemplated hereby and thereby, and supersedes all prior agreements, arrangements and understandings between the parties, whether written, oral or otherwise, other than the Purchase Agreement, which shall remain in full force and effect.

This letter and the terms and conditions hereof shall be governed by and construed in accordance with the laws of the State of Texas and applicable laws of the United States of America.

This letter and any signed agreement or instrument entered into in connection with this letter, may be executed in one or more counterparts, all of which shall constitute one and the same instrument. Any such counterpart, to the extent delivered by means of a facsimile machine or by .pdf, .tif, .gif, .peg or similar attachment to electronic mail shall be treated in all manner and respects as an original executed counterpart and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person.

Regards,

Anthony C. Schnur

Chief Executive Officer

Agreed, confirmed and acknowledged:

RAD2 Minerals, Ltd.

By: RAD2 Management, LLC, General Partner

	/s/ Richard N. Azar, II
	Richard N. Azar, II
	Manager

	Date:	08-25-2016

Lucas Energy, Inc. 8-K

Exhibit 10.2

PROMISSORY NOTE

US $1,500,000

August 25, 2016

NOW THEREFORE FOR VALUE RECEIVED, the undersigned, Lucas Energy, Inc. , a Nevada corporation (“ Lucas ”), hereby promises to pay to the order of RAD2 Minerals, Ltd. (the “ Lender ”), the principal sum of One Million Five Hundred Thousand Dollars ($1,500,000), in lawful money of the United States of America, which shall be legal tender, bearing interest (as described below) and payable as provided herein. This Promissory Note (this “ Note ” or “ Promissory Note ”) evidences $1,500,000 loaned by the Lender to Lucas on August 25, 2016.

This Note shall (a) not accrue interest until September 25, 2016; and (b) shall accrue interest beginning on September 25, 2016, at the rate of five percent (5%) per annum, compounded monthly in arrears, on the 25 ^th day of each month following September 25, 2016, in each case unless an Event of Default shall occur hereunder at which time interest shall accrue at the rate of fifteen percent (15%) per annum until paid in full.

This Note is payable on the earlier of (a) October 31, 2016, the “ Maturity Date ”; and (b) three business days following the date that Lucas receives at least $1.5 million in proceeds from the transactions contemplated by that certain Stock Purchase Agreement dated April 6, 2016, entered into by and between Lucas and Discover Growth Fund.

This Note may be prepaid in whole or in part, at any time and from time to time, without premium or penalty.

If any payment of principal or interest on this Note shall become due on a Saturday, Sunday or any other day on which national banks are not open for business, such payment shall be made on the next succeeding business day.

This Note shall be binding upon Lucas and inure to the benefit of the Lender named herein and Lender’s respective successors and assigns.

Notwithstanding anything to the contrary in this Note or any other agreement entered into in connection herewith, whether now existing or hereafter arising and whether written or oral, it is agreed that the aggregate of all interest and any other charges constituting interest, or adjudicated as constituting interest, and contracted for, chargeable or receivable under this Note or otherwise in connection with this loan transaction, shall under no circumstances exceed the Maximum Rate (as defined below).

If an Event of Default (as defined below) occurs (unless all Events of Default have been cured or waived by Lender), Lender may, by written notice to Lucas, declare the principal amount then outstanding of, and the accrued interest (if any) and all other amounts payable on, this Note to be immediately due and payable. The following are “ Events of Default ” under this Note:

(a)

Lucas shall fail to pay, when and as due, the principal or interest payable hereunder (if any) within fifteen (15) days from the due date of such payment; or

(b)

Lucas shall: (i) make an assignment for the benefit of creditors, file a petition in bankruptcy, petition or apply to any tribunal for the appointment of a custodian, receiver or a trustee for it or a substantial portion of its assets; (ii) commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation or statute of any jurisdiction, whether now or hereafter in effect; (iii) have filed against it any such petition or application in which an order for relief is entered or which remains undismissed for a period of ninety (90) days or more; (iv) indicate its consent to, approval of or acquiescence in any such petition, application, proceeding or order for relief or the appointment of a custodian, receiver or trustee for it or a substantial portion of its assets; or (v) suffer any such custodianship, receivership or trusteeship to continue undischarged for a period of ninety (90) days or more; or

Page 1 of 3

Promissory Note

(c)

Lucas shall take any action authorizing, or in furtherance of, any of the foregoing.

If from any circumstance any holder of this Note shall ever receive interest or any other charges constituting interest, or adjudicated as constituting interest, the amount, if any, which would exceed the Maximum Rate shall be applied to the reduction of the principal amount owing on this Note, and not to the payment of interest; or if such excessive interest exceeds the unpaid balance of principal hereof, the amount of such excessive interest that exceeds the unpaid balance of principal hereof shall be refunded to Lucas. In determining whether or not the interest paid or payable exceeds the Maximum Rate, to the extent permitted by applicable law (i) any non-principal payment shall be characterized as an expense, fee or premium rather than as interest; and (ii) all interest at any time contracted for, charged, received or preserved in connection herewith shall be amortized, prorated, allocated and spread in equal parts during the period of the full stated term of this Note. The term “ Maximum Rate ” shall mean the maximum rate of interest allowed by applicable federal or state law.

This Note may be executed in several counterparts, each of which is an original. It shall not be necessary in making proof of this Note or any counterpart hereof to produce or account for any of the other counterparts. A copy of this Note signed by one party and faxed or scanned and emailed to another party (as a PDF or similar image file) shall be deemed to have been executed and delivered by the signing party as though an original. A photocopy or PDF of this Note shall be effective as an original for all purposes.

10.

It is the intention of the parties hereto that the terms and provisions of this Note are to be construed in accordance with and governed by the laws of the State of Texas, except as such laws may be preempted by any federal law controlling the rate of interest which may be charged on account of this Note. The parties hereby consent and agree that, in any actions predicated upon this Note, venue is properly laid in Texas and that the Circuit Court in and for Bexar Country, Texas, shall have full subject matter and personal jurisdiction over the parties to determine all issues arising out of or in connection with the execution and enforcement of this Note.

11.

Every provision of this Note is intended to be severable. If, in any jurisdiction, any term or provision hereof is determined to be invalid or unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired, (b) any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such term or provision in any other jurisdiction, and (c) the invalid or unenforceable term or provision shall, for purposes of such jurisdiction, be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. In the event a court of competent jurisdiction determines that any provision of this Note is invalid or against public policy and cannot be so reduced or modified so as to be made enforceable, the remaining provisions of this Note shall not be affected thereby, and shall remain in full force and effect.

12.

No modification, amendment, addition to, or termination of this Note, nor waiver of any of its provisions, shall be valid or enforceable unless in writing and signed by all the parties hereto.

13.

The Note constitutes the entire agreement of the parties regarding the matters contemplated herein, or related thereto, and supersedes all prior and contemporaneous agreements, and understandings of the parties in connection therewith. In this Note, words in the singular include the plural and words in the plural include the singular, and words importing the masculine gender include the feminine and neuter genders.

14.

This Note and the repayment of this Note shall be unsecured by Lucas and Lender shall have no rights to any collateral or security interests in connection herewith or the payment of this Note.

[Remainder of page left intentionally blank. Signature pages follow.]

Page 2 of 3

Promissory Note

IN WITNESS WHEREOF , Lucas has duly executed this Promissory Note as of the day and year first above written.

	“Lucas”

	Lucas Energy, Inc.
	(A Nevada Corporation)

	/s/ Anthony C. Schnur
	Anthony C. Schnur
	President

Page 3 of 3

Promissory Note

Lucas Energy, Inc. 8-K

Exhibit 10.3

LOAN AGREEMENT

DATED

AUGUST 25, 2016

BETWEEN

LUCAS ENERGY, INC.,

A NEVADA CORPORATION, AS BORROWER,

RICHARD N. AZAR, II, DONNIE B. SEAY, RICHARD MENCHACA,

RAD2 MINERALS, LTD., a Texas limited partnership,

DBS INVESTMENTS, LTD., a Texas limited partnership, and

SAXUM ENERGY, LLC, a Texas limited liability company, AS GUARANTORS,

AND

INTERNATIONAL BANK OF COMMERCE,

A TEXAS STATE BANKING CORPORATION, AS LENDER

INDEX

ARTICLE			PAGE

1.	Definitions		1

2.	Advance of the Loan		29
	2.1	Commitment of Lender	29
	2.2	Conditions to the Advance	29
	2.3	Intentionally Deleted	29
	2.4	Intentionally Deleted	29
	2.5	Conditions Precedent for the Benefit of Lender	29
	2.6	Approvals and Inspections	29

3.	Assumption of Prior Indebtedness and Renewal and Extension		29
	3.1	Assumption	29
	3.2	Release	30
	3.3	Renewal and Extension	30

4.	Representations and Warranties of Obligor		30
	4.1	Good Standing and Identity	30
	4.2	Guarantor	31
	4.3	Common Enterprise	31
	4.4	Authority and Compliance of Borrower	32
	4.5	Authority and Compliance of Guarantor	32
	4.6	Ownership of Collateral	32
	4.7	Obligor Taxes	32
	4.8	Mortgaged Properties Taxes	33
	4.9	Disposition of Mortgaged Properties	33
	4.10	Contracts	33
	4.11	Defects/Personal Property	34
	4.12	Royalty	34
	4.13	Take-or-Pay	34
	4.14	Compliance With Laws	35
	4.15	Oil and Gas Lease Impediment	35
	4.16	Basic Documents	35
	4.17	Gas Contracts	36
	4.18	Regulatory Compliance	36
	4.19	Litigation	37
	4.20	Hedging Contracts	37
	4.21	Financial Statements	37
	4.22	Suits, Actions, Etc.	38
	4.23	Valid and Binding Obligations	38
	4.24	Title to the Collateral	39
	4.25	Solvency	39

	4.26	Full Disclosure	39
	4.27	Environmental and Other Governmental Requirements	39
	4.28	Inducement to Lender	40
	4.29	Sale of Production	40
	4.30	Operation of Mortgaged Properties	41
	4.31	APA	41
	4.32	Investment Company Act of 1940	41
	4.33	ERISA	41
	4.34	Valid and Binding Obligations	41
	4.35	Preferential Rights, Rights of First Refusal, Consents to Assign, and Reversionary Interests	41

5.	Covenants of Obligor		42
	5.1	Compliance with Governmental Requirements	42
	5.2	Hedging Contracts	42
	5.3	IBC Sinking Fund Account	42
	5.4	IBC Account	43
	5.5	Future IBC Accounts	43
	5.6	Inspection of the Mortgaged Properties	43
	5.7	Notices by Governmental Authority, Casualty, Condemnation	43
	5.8	Costs and Expenses	43
	5.9	Defense of Actions	44
	5.10	Payment of Claims	44
	5.11	Payment of Taxes and Other Indebtedness	44
	5.12	Maintenance of Existence and Rights; Conduct of Business	44
	5.13	Compliance with all Agreements Covering the Mortgaged Properties	44
	5.14	Compliance with Loan Instruments	45
	5.15	Compliance with Material Agreements	45
	5.16	Operations and Properties	45
	5.17	Books and Records; Access	45
	5.18	Compliance with Law	45
	5.19	Insurance	45
	5.20	Current Financial Statements	46
	5.21	Tax Receipts	46
	5.22	Loan Participations	46
	5.23	Notice of Litigation, Claims and Financial Change	46
	5.24	Hold Harmless	46
	5.25	Hazardous Materials; Environmental Reviews	47
	5.26	Government Regulation	48
	5.27	USA PATRIOT ACT NOTIFICATION	48
	5.28	Subordinate Financing	49
	5.29	Further Acts	49
	5.30	Security Interests in Guarantor's Common Stock in Borrower and No Sales of Common Stock Pledged	49
	5.31	Corporate Compliance	50
	5.32	Restricted Payments	50
	5.33	Revisions to the Corporate Documents	50
	5.34	Indemnity of Lender	50

	5.35	Engineer Reserve Report	51
	5.36	Good Standing	51
	5.37	Mortgaged Properties	52
	5.38	Performance of Obligations	52
	5.39	Representations and Warranties	53
	5.40	Cash Flow Test	53
	5.41	Loan to Value Determination Base	53
	5.42	Shares of Borrower and Underwriting Fee	53
	5.43	Additional Collateral	54
	5.44	Oil and Gas Leases	55
	5.45	Negative Covenants	55
	5.46	APA	56
	5.47	Transactions with Affiliates	57
	5.48	Management	57
	5.49	Net Worth	57

6.	Rights and Remedies of Lender		57
	6.1	Rights of Lender	57
	6.2	Acceleration	57
	6.3	Funds of Lender	58
	6.4	Rights of Set Off	58
	6.5	No Waiver or Exhaustion	58
	6.6	Preferences	58
	6.7	Proceeds of Production	59
	6.8	No Notice	59
	6.9	Execution of Division Orders, Etc.	59
	6.10	Cumulative Rights	59

7.	General Terms and Conditions		59
	7.1	Notices	59
	7.2	Entire Agreement and Modifications	60
	7.3	Severability	60
	7.4	Election of Remedies	60
	7.5	Form and Substance	60
	7.6	Limitation on Interest	60
	7.7	No Third Party Beneficiary	61
	7.8	Borrower in Control	61
	7.9	Number and Gender	61
	7.10	Captions	61
	7.11	Prepayment of Note	61
	7.12	Cross Default	62
	7.13	Applicable Law	62
	7.14	ARBITRATION	62
	7.15	No Oral Agreements	69
	7.16	Claims Against Lender	69
	7.17	Insolvency Proceeding	70

7.18	Post-Closing Covenants	71
7.19	Venue	73
7.20	Time	73
7.21	Multiple Counterparts	73
7.22	Opinions of Obligor's Counsel	73
7.23	West Texas Properties	74
7.24	Grace and Curative Period	74
7.25	Mineral Liens	74

LOAN AGREEMENT

THIS LOAN AGREEMENT dated August 25, 2016 (this "Loan Agreement"), is made by and among INTERNATIONAL BANK OF COMMERCE , a Texas state banking corporation ("Lender"), whose mailing address is 130 E. Travis St., San Antonio, Texas 78205, and LUCAS ENERGY, INC., a Nevada corporation, whose mailing address is 450 Gears Road, Suite 780, Houston, Texas 77067 (the "Borrower"), and RICHARD N. AZAR, II, whose mailing address is 4040 Broadway, Suite 305, San Antonio, Texas 78209, DONNIE B. SEAY , whose mailing address is 105 Nadine, San Antonio, Texas 78209, RICHARD E. MENCHACA , whose mailing address is 225 W. Castano, San Antonio, Texas 78209, RAD2 MINERALS, LTD., a Texas limited partnership, whose mailing address is 4040 Broadway, Suite 305, San Antonio, Texas 78209, DBS INVESTMENTS, LTD., a Texas limited partnership, whose mailing address is 105 Nadine, San Antonio, Texas 78209, and SAXUM ENERGY, LLC, a Texas limited liability company , whose mailing address is 225 W. Castano, San Antonio, Texas 78209 (collectively, the "Guarantor"), with respect to a loan in the principal sum of FORTY MILLION AND NO/100 DOLLARS ($40,000,000.00).

NOW, THEREFORE, in consideration of the extension of financial and credit accommodations by Lender to the Borrower evidenced by the Loan, and the agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower, Guarantors and Lender agree as follows:

ARTICLE I - DEFINITIONS

For purposes of this Loan Agreement, the following terms shall have the respective meanings assigned to them.

1.1

30 Day Plus Contracts .

The term "30 Day Plus Contracts" shall collectively mean (i) that certain purchase agreement dated June 1, 2014 by and between Scissortail Energy, LLC, as Processor, and Sezar Energy, LP, et al, as Supplier, as amended in that certain First Amendment to the Gas Purchase and Processing Agreement dated effective January 1, 2008, between Scissortail Energy, LLC, as Buyer, and Azar Minerals, Ltd., as Seller, as amended; (ii) that certain Gas Purchase Contract dated January 1, 2007, between DCP Midstream, LP, as Buyer, and Special Energy Corp., as Seller, as amended; (iii) that certain Gas Gathering and Processing Agreement dated August 1, 2005, as amended October 1, 2007, by and between Superior Pipeline Company, as Buyer, and Brittany Energy, LLC, as Supplier, as amended; (iv) that certain Gas Purchase Contract dated January 1, 2008, between DCP Midstream, LP, as Buyer, and Altex Energy Corporation, as Seller; (v) that certain Replacement Gas Purchase Contract to be effective January 1, 2016, between DCP Midstream, LP, as Buyer, and Equal Energy US, Inc., as Seller, as amended; and (vi) that certain Natural Gas Purchase Agreement dated September 1, 2011 by and between Apache Corporation, Buyer, and Sezar Energy, LP, as Seller; as amended.

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1.2

Advance .

The term "Advance" shall mean the disbursement by Lender of the proceeds of the Loan.

1.3

Affiliate .

The term "Affiliate" shall mean any Person directly or indirectly, controlling, or under common control with, the Borrower and includes any Subsidiary of the Borrower and any “affiliate” of the Borrower within the meaning of Reg. §240. 12b-2 of the Securities Exchange Act of 1934, with “control,” as used in this definition, meaning possession, directly or indirectly, of the power to direct or cause the direction of management, policies or action through ownership of voting securities, contract, voting trust, or membership in management or in the group appointing or electing management or otherwise through formal or informal arrangements or business relationships.

1.4

AMI Agreement .

The term "AMI Agreement" shall mean that certain Central Prospect Participation Agreement dated June 15, 2014, by and between Sezar Energy, LP, a Texas limited partnership, Brittany Energy, L.L.C., a Texas limited liability company, and Petroflow Energy Corporation, a Delaware corporation, regarding an area of mutual interest located in Lincoln, Logan, and Payne Counties, Oklahoma, as more particularly described on Exhibit "A" thereto (the "AMI Area") regarding the acquisition of oil and gas leases, and the exploration and production of oil and gas in the AMI Area, all as more particularly discussed therein.

1.5

APA .

The term "APA" shall mean that certain Asset Purchase Agreement by and between Lucas Energy, Inc., as Purchaser, and Segundo Resources, LLC, as Seller, representative to the various sellers therein dated December 30, 2015, regarding the sale and purchase of the Assets, as defined therein, which includes without limitation, the Mortgaged Properties, as amended.

1.6

Borrower .

The term "Borrower" shall mean all parties named Borrower in the first paragraph of this Loan Agreement.

1.7

Borrower’s Net Monthly Income .

The term "Borrower’s Net Monthly Income" shall mean the gross income earned by Borrower from the Collateral, including without limitation, the Mortgaged Properties, less deductions for taxes, Lease Operating Costs, and General and Administrative Expenses, which will be certified by Borrower to Lender monthly on a trailing one (1) month cash basis by such written certificate as approved by Lender in its sole and absolute discretion.

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1.8

Cash Flow Test .

The term "Cash Flow Test" is defined as an amount equal to the projected net cash flow (based upon the most recent Engineering Reserve Report of the Mortgaged Properties), less taxes, Lease Operating Costs, and General and Administrative Expenses, and other expenses which would fully amortize the principal balance due under the Note on a monthly basis within the economic half-life of the Mortgaged Properties, as determined in the sole and absolute discretion of Lender.

1.9

Change of Control .

The term "Change of Control" means any person, entity, or group (other than Guarantor) acquires Equity Interests representing beneficial ownership (within the meaning of Rule 13d-3 under the Commodity Exchange Act) of fifty percent (50%) or more of the Equity Interests in the Borrower or more than fifty percent (50%) of the members of the Board of Directors of Borrower change without the consent of Lender.

1.10

CMM .

The term "CMM" shall mean Coyle Manna Management, LLC, a Texas limited liability company.

1.11

Code .

The term "Code" shall mean the Uniform Commercial Code as in force in the state in which the Collateral is located and, if different, the state of the Borrower's residence.

1.12

Collateral .

The term "Collateral" shall mean any and all assets of Borrower, both tangible and intangible, including without limitation, the Mortgaged Properties and the "Assets," as defined in the APA, and any and all other personal and real property howsoever evidenced, including without limitation, the Permits, obtained by Borrower pursuant to the terms of the APA and in the future during the term of the Loan, all of which are to be collaterally pledged, mortgaged and/or otherwise conveyed as security for repayment of the Indebtedness, including without limitation, the Loan, and for the performance of all of the Obligations. Notwithstanding the foregoing sentence, the term “Collateral” shall exclude the Outside Mineral Interests.

1.13

Commodity Exchange Act .

The term "Commodity Exchange Act" means the Commodity Exchange Act (7 U.SC § 1 et seq.) as amended and any successor statute.

1.14

DBS .

The term "DBS" shall mean DBS Investments, Ltd, a Texas limited partnership.

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1.15

Debtor Relief Laws .

The term "Debtor Relief Laws" shall mean any applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, insolvency, reorganization, or similar laws affecting the rights or remedies of creditors generally, as in effect from time to time.

1.16

Elk Creek .

The term "Elk Creek" shall mean AMWD Elk Creek Resources, LLC, a Texas limited liability company.

1.17

Engineer .

The term "Engineer" shall mean such employees, representatives and agents of Lender or third parties, including without limitation, Ralph E. Davis Associates, LLC, who may, from time to time issue an Engineering Reserve Report, conduct inspections of the Mortgaged Properties, verify and evaluate the value of the oil and gas reserves of the Mortgaged Properties, and/or offer other services related thereto.

1.18

Engineering Reserve Report .

The term "Engineering Reserve Report" shall mean that certain Segundo et al Interests Estimated Reserves and Future Net Reserves dated as of April 1, 2016, rendered by Engineer and each subsequent engineering report delivered to Lender pursuant to Section 5.35 hereof by Engineer whereby the oil and gas reserves of the Mortgaged Properties are verified and evaluated by the Engineer semi-annually.

1.19

Environmental Event .

The term "Environmental Event" means any environmental claim against Borrower or, in the absence of any environmental claim against Borrower, to the best of Borrower’s kknowledge, the occurrence of a release or threatened release of Hazardous Materials at, under, on or from any real property currently owned, leased or operated by Borrower, including without limitation, the Mortgaged Properties, or to the extent such release or threatened release arose from the operations of Borrower, or any predecessor of Borrower at, under, on or from any real property (x) formerly owned, leased or operated by Borrower or any predecessor of Borrower, or (y) offsite the Mortgaged Properties or any predecessor of Borrower to which Borrower has sent Hazardous Materials for treatment, storage or disposal.

1.20

Environmental Laws .

The term "Environmental Laws" means any and all Governmental Requirements relating to the environment or to emissions, discharges, releases or threatened releases of Hazardous Materials, including without limitation, pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of Hazardous Materials, including without limitation, pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.

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1.21

Equity Interests .

The term "Equity Interests" shall mean any shares of capital stock or other equity interest, including without limitation, any option, warrant, or other right to acquire any share of capital stock issued by Borrower.

1.22

Event of Default .

The term "Event of Default" shall mean the occurrence of any one of the following after the expiration of the Grace and Curative Period:

(a)

Any indebtedness evidenced, governed or secured by any of the Loan Instruments is not paid when due, whether by acceleration or otherwise, including without limitation, the Indebtedness, as evidenced by the Note.

(b)

Any covenant, obligation, agreement, or other provision in this Loan Agreement or any of the other Loan Instruments, including without limitation, the Mortgage, is not fully and timely performed, or the occurrence of any default thereunder.

(c)

Any statement, representation or warranty in the Loan Instruments, any Financial Statements or any other writing delivered to Lender in connection with the Loan is false, misleading or erroneous in any respect.

(d)

Any default or defined Event of Default under any Loan Instruments or other instrument executed by Borrower or Guarantor pursuant to or as included by and required by this Loan Agreement, now and in the future.

(e)

Obligor or any person obligated to pay any part of the Indebtedness evidenced, governed or secured by the Loan Instruments:

(1)

does not pay its debts as they become due or admits in writing its inability to pay its debts or makes a general assignment for the benefit of creditors; or

(2)

commences any case, proceeding or other action seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any Debtor Relief Laws; or

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(3)

in any involuntary case, proceeding or other action commenced against it which seeks to have an order for relief entered against it, as debtor, or seeks reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, (i) fails to obtain a dismissal of such case, proceeding or other action within sixty (60) days of its commencement, or (ii) converts the case from one chapter of the Federal Bankruptcy Code to another chapter, or (iii) is the subject of an order for relief; or

(4)

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 makes 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 suffers or permits while insolvent, any creditor to obtain a lien upon any of its property through legal proceedings which is not vacated within sixty (60) days from the date thereof; or

(5)

has a trustee, receiver, custodian or other similar official appointed for or take possession of all or any part of the Collateral or any other of its property or has any court take jurisdiction of any other of its property which remains undismissed for a period of sixty (60) days [except where a shorter period is specified in the immediately following subparagraph (6)]; or

(6)

fails to have discharged or file an action for replevin within a period of ten (10) days any attachment, sequestration, or similar writ levied upon any property of such person; or

(7)

fails to pay immediately any final non-appealable money judgment against such person.

(f)

Title to all or any part of the Collateral (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 the Borrower, whether by operation of law or otherwise, without the consent of Lender. Lender may, in its sole discretion, waive this Event of Default, but it shall have no obligation to do so, and any waiver may be conditioned upon such one or more of the following as Lender may require: the grantee's integrity, reputation, character, credit worthiness and management ability being satisfactory to Lender in its sole judgment, the grantee executing, prior to such sale or transfer, a written assumption agreement containing such terms as Lender may require, a principal pay-down on the Note, an increase in the rate of interest payable under the Note, a transfer fee, and any other modification of the Loan Instruments which Lender may require.

(g)

Without the prior written consent of Lender, Borrower encumbers the Collateral, unless such action is expressly permitted by the Loan Instruments or does not affect the Collateral.

(h)

Borrower abandons any of the Mortgaged Properties.

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(i)

The holder of any lien, security interest or assignment on the Mortgaged Properties institutes foreclosure or other proceedings or takes other action for the enforcement of its remedies thereunder.

(j)

The liquidation, termination, dissolution, death, or legal incapacity of Borrower.

(k)

The sale, lease, transfer or other disposition of all or any substantial part [i.e., ten percent (10%) or more in any fiscal year] of Obligor's assets (now or hereafter acquired) except that Obligor may sell non-material (as determined by Lender) assets no longer used or useful in its business and Obligor may sell or lease other assets in the ordinary course of business as presently conducted, provided that such sale or lease shall not be for less than the fair market value of such assets or be on terms which are not commercially reasonable (and if Obligor is a corporation, said value or the reasonableness of such terms shall have been determined by the board of directors of such corporation in good faith and in the exercise of prudent business judgment), and provided further that such sale or lease shall not constitute or give rise to a default under any agreement to which Obligor is a party or by which Obligor is bound.

(l)

The pledging, mortgaging, granting of a lien on or security interest in, or other hypothecation or encumbrance of all or any substantial part [i.e., ten percent (10%) or more (based on fair market value) in any fiscal year] of Obligor's assets (now or hereafter acquired) except to secure indebtedness to Lender.

(m)

There is a Change of Control in Borrower.

(n)

A default by Borrower of the Oil and Gas Leases and/or any other agreement(s) concerning the Mortgaged Properties.

(o)

A Material Adverse Change occurs.

(p)

An Environmental Event occurs.

(q)

A Restricted Payment is made by Borrower to any officer, director, or shareholder or Guarantor unless approved in advance by Lender in its sole and absolute discretion.

1.23

Financial Statements .

The term "Financial Statements" shall mean audited financial statements of the Obligor, which shall consist of such balance sheets, Lease Operating Statements, cash flow statements and listing of contingent liabilities, and other financial information of Obligor as shall be required by Lender, from time to time, which statements shall be certified as true and correct by the party submitting such statements, prepared in accordance with General Accepted Accounting Principles.

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1.24

Financing Statements .

The term "Financing Statements" shall mean the Form UCC-1 financing statements perfecting the security interests securing the Loan, to be filed with the appropriate offices for the perfection of a security interest in any of the Collateral, including without limitation, the Mortgaged Properties.

1.25

General and Administrative Expenses .

The term "General and Administrative Expenses" shall mean Borrower's general and administrative expenses, including without limitation, employee compensation, but excluding non-cash expenses, including but not limited to stock and warrants issued as compensation, etc. for the applicable period in accordance with Generally Accepted Accounting Principles.

1.26

Generally Accepted Accounting Principles .

The term "Generally Accepted Accounting Principles" shall mean those principles set forth in opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants or the Financial Accounting Standards Board, or which have other authorities' support and are applicable in the circumstances as of the date of the Financial Statements.

1.27

Governmental Authority .

The term "Governmental Authority" shall mean the United States, the State, the Parish, the City or any other political subdivision in which the Mortgaged Properties or other Collateral is located, and any other political subdivision, agency, or instrumentality exercising jurisdiction over Obligor, or the Collateral, including without limitation, the Mortgaged Properties.

1.28

Governmental Requirements .

The term "Governmental Requirements" shall mean all laws, ordinances, rules and regulations of any Governmental Authority applicable to Obligor, or the Mortgaged Properties, including without limitation, the Environmental Laws.

1.29

Grace and Curative Period .

The term "Grace and Curative Period" shall mean (A) as to any default involving (i) the payment of money to Lender, or (ii) the payment of insurance and/or ad valorem taxes and other assessments on the Property as and when due pursuant to the Loan Instruments [(A)(i) and (A)(ii) being collectively referred to herein as a "Monetary Default"], a period of ten (10) days following written notice of a Monetary Default to Borrower and Guarantor, and the failure of Borrower (or the Guarantor) to cure such default within such ten (10) day period, provided that Lender shall not be obligated to provide such notice more than two (2) times in any calendar year, and if Lender shall provide such notice two (2) times in any calendar year, then thereafter, no notice of a Monetary Default shall be required; and (B) as to any other default, a period of thirty (30) days following written notice from Lender to Borrower and Guarantor to cure such default within such thirty (30) day period.

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1.30

Guarantor .

The term "Guarantor" shall mean all parties named Guarantor in the first paragraph of this Loan Agreement.

1.31

Guaranty Agreement .

The term "Guaranty Agreement" shall mean all Limited Guaranty Agreements executed by Guarantor to secure the Indebtedness, or a portion thereof.

1.32

Hazardous Materials .

The term "Hazardous Materials" shall mean (a) any "hazardous waste" as defined by the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901 et seq.), as amended from time to time, and regulations promulgated thereunder; (b) any "hazardous substance" as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. section 9601 et seq.), as amended from time to time, and regulations promulgated thereunder; (c) asbestos; (d) polychlorinated biphenyls; (3) underground storage tanks, whether empty, filled or partially filled with any substance; (f) any substance the presence of which on the Mortgaged Properties is prohibited by any Governmental Requirements; and (g) any other substance, pollutant, contaminant, chemical or industrial, toxic or hazardous substance or waste which by any Governmental Requirements requires special handling or notification of any federal, state or local governmental entity in its collection, storage, treatment or disposal.

1.33

Hedging Contract .

The term "Hedging Contract" means (a) any agreement providing for options, swaps, floors, caps, collars, forward sales, or forward purchases involving interest rates, commodities or commodity prices, equities, currencies, bonds, or indexes based on any of the foregoing, (b) any option, futures, or forward contract traded on an exchange, and (c) any other derivative agreement or other similar agreement or arrangement.

1.34

IBC Account .

The term "IBC Account" shall mean an International Bank of Commerce checking account for the benefit of Borrower, which shall hold the Advance and which will be Borrower's primary account for its operations. If an Event of Default occurs, no deposits in the IBC Account may be withdrawn by Borrower except as permitted at the sole discretion of Lender in writing. All interest payments made under the Note shall be made from the IBC Account unless otherwise approved by Lender in its sole discretion.

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1.35

IBC Sinking Fund Account .

The term "IBC Sinking Fund Account" shall mean an International Bank of Commerce certificate of deposit account for the benefit of Borrower, pledged to secure the Loan, which shall hold on the date hereof $3,360,000.00 during the term of the Loan. Money on deposit in the IBC Sinking Fund Account shall, in the sole discretion of Lender, be applied by Lender to pay principal on the Note as it becomes due. Borrower may not withdraw any amount from the IBC Sinking Fund Account during the term of the Loan without the prior written consent of Lender.

1.36

IBC Sinking Fund Account Assignment .

The term "IBC Sinking Fund Account Assignment" shall mean any and all Assignments of Deposit Account (Security Agreement) executed by Borrower granting to Lender a security interest in the IBC Sinking Fund Account, to secure the Loan.

1.37

Improvements .

The term "Improvements" shall mean any and all improvements located on the Mortgaged Properties.

1.38

Indebtedness .

The term "Indebtedness" shall mean the principal amount of the Loan as described in the Note and interest payable thereto together with any fees, late charges, and all other sums due under, or secured by, the Loan Instruments.

1.39

Insurance Policies .

The term "Insurance Policies" shall mean such insurance policies and certificates as Lender may require against loss or damage of the kinds customarily insured with respect to the collateral, including without limitation, the Mortgaged Properties and as required by the Mortgage and the other Loan Instruments.

All Insurance Policies shall be issued on forms and by companies satisfactory to Lender and shall be delivered to Lender. All risk insurance policies shall have loss made payable to Lender as Mortgagee, together with the standard Mortgagee clause, and all Insurance Policies shall have a provision giving Lender a thirty (30) days' prior notice of cancellation or material change of the coverage.

1.40

Lease Operating Statements .

The term "Lease Operating Statements" shall mean a statement or report, including without limitation, monthly plant statements, in a form and substance satisfactory to Lender reflecting by each Mortgaged Property, the quantities of oil and/or gas sold by barrels (42 United States gallons) and MCF (million cubic feet), dollar amounts received for said oil and/or gas sold, average price per barrel of oil and/or MCF of gas, operating expenses and revenues, and such other information as Lender may require in its sole discretion.

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1.41

Lender .

The term "Lender" shall mean the Lender named in the first paragraph of this Loan Agreement.

1.42

Loan .

The term "Loan" shall mean the Loan by Lender to Borrower, in the amount set forth in the first paragraph of this Loan Agreement.

1.43

Loan Finance Charge .

The term "Loan Finance Charge" shall mean the sum of $400,000.00, which shall be paid to Lender as follows:

(i)

$200,000.00 of the Loan Finance Charge shall be paid to Lender on the date hereof; and

(ii)

$200,000.00 of the Loan Finance Charge shall be paid on or before one hundred eighty (180) days from the date hereof.

1.44

Loan Instruments .

The term "Loan Instruments" shall mean this Loan Agreement, the Mortgage, the Uncertificated Pledge, the Share Certificate Pledge, the Note, the IBC Sinking Fund Account Assignment, the Guaranty Agreement, the Security Agreement, the Financing Statements, and such other instruments evidencing, securing, or pertaining to the Loan as shall, from time to time, be executed and delivered by Obligor, or any other party to Lender pursuant to this Loan Agreement.

1.45

Loan to Value Determination Base .

The term "Loan to Value Determination Base" shall mean a base that will be equal to or less than the lesser of (i) sixty-five percent (65%) of the present worth of future net income ("PWFNI") of the proved producing Mortgaged Properties discounted at twenty percent (20%), or (ii) fifty percent (50%) of the PWFNI of the proved producing Mortgaged Properties discounted at nine percent (9%) as determined by Lender in its sole discretion, using such materials and information as Lender may require, including without limitation, the Engineering Reserve Report. Notwithstanding anything in this definition to the contrary, Lender, in its sole and absolute discretion, may attribute some value to the proved undeveloped Mortgaged Properties discounted at nine percent (9%) to determine the Loan to Value Determination Base.

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1.46

Material Adverse Change .

The term "Material Adverse Change" shall mean a material adverse change, from the state of affairs existing as of the date of this Loan Agreement, or as represented or warranted in any Loan Instrument, in (a) the business, operations, property or condition (financial or otherwise) of the Obligor to that extent such Material Adverse Change has a negative economic impact of $2,000,000.00 or more, (b) the ability of Obligor to perform any of its obligations under any Loan Instrument, (c) the validity or enforceability of any Loan Instrument, or (d) the rights and remedies of or benefits available to Lender under any Loan Instrument. Furthermore, a Material Adverse Change shall also be deemed to have occurred when (1) there has been, or there is likely to occur a decline of ten percent (10%) or more in the tangible net worth of Borrower or any one of Guarantor, as applicable, as shown on the Financial Statements delivered to Lender in connection with the Loan, or (2) actual sources and uses of funds for any twelve-month period adversely vary by ten percent (10%) or more with the pro forma sources and uses of funds statement submitted for such period.

1.47

Menchaca .

The term "Menchaca" shall collectively mean Richard E. Menchaca, Kimberly Menchaca, and Saxum Energy, LLC, a Texas limited liability company.

1.48

Mortgage .

The term "Mortgage" shall collectively mean (i) that certain Mortgage, Deed of Trust, Assignment, Security Agreement and Financing Statement to Michael K. Sohn, Trustee, with respect to the Mortgaged Properties located in the State of Texas, (ii) that certain Oil and Gas Mortgage, Security Agreement, Financing Statement and Assignment of Production covering the Mortgaged Properties located in the State of Oklahoma SAVE AND EXCEPT Elk Creek Wells and Leases (defined in Section 7.18), (iii) that certain First Supplemental Oil and Gas Mortgage, Security Agreement, Financing Statement, and Assignment of Production covering the Elk Creek Wells and Leases, and (iv) any and all future mortgages and/or deeds of trust covering the Mortgaged Properties executed by Borrower and to be executed by Borrower securing the payment of the Note and the payment and performance of all obligations specified in the Mortgage and this Loan Agreement, and evidencing a valid and enforceable lien on the Mortgaged Properties.

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1.49

Mortgaged Properties .

The term "Mortgaged Properties" shall mean (i) all Oil and Gas Leases, oil, gas or mineral properties, mineral servitudes, and/or mineral rights of any kind of Borrower (including without limitation, the Prior Mortgaged Interests, all mineral interests of any kind conveyed to Borrower by the APA, and all other mineral fee interests, lease interests, farmout interests, overriding royalty and royalty interests, working interests, net profits interests, oil payment interests, production payment interests, and other types of mineral interests) both in Texas and Oklahoma, and all oil and gas gathering, treating, storage, processing, and handling assets of Borrower, including without limitation, those certain interests more particularly described on Exhibit "A," attached hereto and incorporated herein for all purposes, and those interests to be acquired by Borrower in the future, (ii) all pipelines, and (iii) all platforms, wells, wellhead equipment, pumping units, flowlines, tanks, buildings, injection facilities, saltwater disposal facilities, compression facilities, gathering systems, and other equipment, improvements, and instruments howsoever evidenced, including without limitation, the Equipment, as defined in the APA. The Mortgaged Properties include all right, title, and interest of Borrower in the interests described above, even if the working interests and net revenue interests of Borrower may be more than the percentage interests of Borrower reflected on Exhibit "A." Notwithstanding the foregoing, the term “Mortgaged Properties” shall exclude the Outside Mineral Interests.

1.50

MPII .

The term "MPII" shall mean MPII, Inc., a Texas corporation.

1.51

Non-Producing Wells .

The term "Non-Producing Wells" shall mean the wells known as the Athena 1-20H, the Adonis 1-22H, the Sphinx I-10H, and the Elmo I-17H, all located in Lincoln County, Oklahoma.

1.52

Note .

The term "Note" shall mean that certain the Real Estate Lien Note in the original principal sum of $40,000,000.00, executed by Borrower and payable to the order of Lender dated effective of even date herewith evidencing the Loan. Monthly payments under the Note shall constitute the greater of (i) fifty percent (50%) of Borrower's Net Monthly Income, or (ii) monthly principal and interest payments of $425,000.00 each. The interest rate shall be floating at two percent (2%) per annum above the New York Prime Rate, as defined in the Note, as it fluctuates from time to time; provided, however, that in no event shall the rate of interest to be paid on the unpaid principal of the Note be less than five and one-half percent (5.5%) per annum, nor more than the maximum legal rate allowed by applicable law. The final maturity date of the Note is August 25, 2019.

1.53

Obligations .

The term "Obligations" shall mean any and all of the covenants, warranties, representations and other obligations (other than to repay the Indebtedness) made or undertaken by Obligor, or any other person to the Lender or any other Person, as set forth in the Loan Instruments.

1.54

Obligor .

The term "Obligor" shall collectively mean the Borrower and the Guarantor.

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1.55

Oil and Gas Leases .

The term "Oil and Gas Leases" shall mean those certain oil, gas and/or mineral leases more particularly described on Exhibit "A," together with any future oil, gas and/or mineral leases which Borrower may own in the future howsoever evidenced, for the production of oil, gas and other minerals from the lands described therein or lands pooled therewith SAVE AND EXCEPT the Outside Mineral Interests.

1.56

Outside Mineral Interests .

The term "Outside Mineral Interests" shall mean any mineral interests, including, oil and gas leases, to be owned by Borrower in the future after the date hereof, and the associated personal property therewith, including equipment and inventory, that are (x) located outside of (i) Lincoln, Logan, and Payne Counties, Oklahoma, and Glasscock County, Texas, and (ii) any areas identified in the Engineering Reserve Report as proven, undeveloped reserves (PUDs) located outside of Lincoln, Logan, and Payne Counties, Oklahoma, and Glasscock County, Texas, and (y) acquired with financing provided other than by Lender in the future. Borrower covenants and agrees to provide Lender at least sixty (60) days prior written notice of any acquisition of Outside Mineral Interests, and Guarantor covenants and agrees not to be a guarantor (i) for any financing for the purchase of Outside Mineral Interests or (ii) in connection with any drilling loan program concerning the Outside Mineral Interests. Furthermore, it is understood and agreed that none of the "Assets," as defined in the APA, constitute Outside Mineral Interests.

1.57

Permits .

The term "Permits" shall mean all of Borrower's rights to any permit, certificate or other governmental entitlement, including without limitation, those certain permits described in the APA, issued by a Governmental Authority.

1.58

Person .

The term "Person" shall mean any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Government Authority, or other entity.

1.59

Prior Liens .

The term "Prior Liens" shall mean collectively mean the RAD2 Liens (defined in Section 1.62, the DBS Liens (defined in Section 1.62), the Menchaca Liens (defined in Section 1.62), the CMM Lien (defined in Section 1.62, and the Elk Creek Liens (defined in Section 1.62).

1.60

Prior Loan Instruments .

The term "Prior Loan Instruments" shall collectively mean any and all instruments, agreements, and contracts regarding the Prior Note and/or the Prior Liens.

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1.61

Prior Mortgaged Interests .

The term "Prior Mortgaged Interests" shall collectively mean the RAD2 Mortgaged Interests, the DBS Mortgaged Interests, the Menchaca Mortgaged Interests, the CMM Mortgaged Interests, and the Elk Creek Mortgaged Interests.

1.62

Prior Note .

The term "Prior Note" shall collectively mean the RAD2 Indebtedness (defined below), the DBS Indebtedness (defined below), the Menchaca Indebtedness (defined below), the CMM Indebtedness (defined below), and the Elk Creek Indebtedness, all as more particularly described as follows:

RAD2 Indebtedness to Lender

That certain promissory note dated December 15, 2006 executed by Azar Minerals, Ltd, (now RAD2) payable to the order of Lender in the original principal sum of Five Million and No/100 Dollars ($5,000,000.00) (the "RAD2 Note"), which term includes all subsequent modifications and increases thereto) pursuant to a loan agreement of even date therewith between said RAD2 and Lender (the "RAD2 Loan Agreement"), which Note was secured by a Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment dated December 15, 2006, from RAD2 to Steve Edlund, Trustee, recorded in Volume 1727, Page 282, Official Records of Lincoln County, Oklahoma; and recorded in Book 1969, Page 598, Official Records of Logan County, Oklahoma and recorded in Book 581, Page 374, Official Records of Grant County, Oklahoma and in Book 1682, Page 124, Official Records of Payne County, Oklahoma.

Thereafter, under date of May 25, 2007, RAD2 further secured the RAD2 Note by a First Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from RAD2 to Steve Edlund, Trustee, recorded in Volume 1749, Page 30, Official Records of Lincoln County, Oklahoma; and recorded in Book 1999, Page 539, Official Records of Logan County, Oklahoma and recorded in Book 581, Page 392, Official Records of Grant County, Oklahoma and in Book 1714, Page 366 , Official Records of Payne County, Oklahoma.

Thereafter, under date of October 1, 2007, RAD2 and Lender modified the RAD2 Note and RAD2 Loan Agreement by increasing the original principal sum of the Note (line of credit) to Ten Million and No/100 Dollars ($10,000,000.00).

PAGE 15

Thereafter, under date of October 10, 2007, RAD2 further secured the RAD2 Note by a Second Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from RAD2 to Steve Edlund, Trustee, recorded in Volume 1766, Page 674, Official Records of Lincoln County, Oklahoma; and recorded in Book 2033, Page 315, Official Records of Logan County, Oklahoma and recorded in Book 630, Page 41, Official Records of Harper County, Oklahoma and in Book 1740, Page 669, Official Records of Payne County, Oklahoma.

Thereafter, under date of January 22, 2008, RAD2 further secured the RAD2 Note by a Third Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from RAD2 to Steve Edlund, Trustee, recorded in Volume 1890, Page 59, Official Records of Garfield County, Oklahoma; and recorded in Volume 587, Page 54, Official Records of Grant County, Oklahoma; and recorded in Book 634, Page 162, Official Records of Harper County and recorded in Book 2051, Page 356, Official Records of Logan County, Oklahoma, Oklahoma and in Book 1757, Page 218, Official Records of Payne County, Oklahoma.

Thereafter, under date of May 8, 2008, RAD2 further secured the RAD2 Note by a Fourth Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from RAD2 to Steve Edlund, Trustee, recorded in Volume 1779, Page 916, Official Records of Payne County, Oklahoma and recorded in Volume 1799, Page 135, Official Records of Lincoln County, Oklahoma.

Thereafter, under date of September 24, 2008, RAD2 further secured the RAD2 Note by a Fifth Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from RAD2 to Steve Edlund, Trustee, recorded in Volume 1815, Page 280, Official Records of Lincoln County, Oklahoma and under date of September 28, 2008, RAD2 further secured the Note by a Texas First Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from RAD2 to Steve Edlund, Trustee, recorded in Book 123, Page 236, Official Records of Glasscock County, Texas.

Thereafter, under date of January 15, 2009, RAD2 further secured the RAD2 Note by a Sixth Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from RAD2 to Steve Edlund, Trustee, recorded in Volume 1828, Page 205, Official Records of Lincoln County, Oklahoma; recorded in Volume 2110, Page 102, Official Records of Logan County, Oklahoma; and recorded in Volume 1929, Page 924, Official Records of Garfield County, Oklahoma.

PAGE 16

Thereafter, under date of June 29, 2009, RAD2 and Lender modified the RAD2 Note and RAD2 Loan Agreement by increasing the original principal sum of the Note (line of credit) to Twelve Million and No/100 Dollars ($12,000,000.00) and further secured the payment of the Note and supplemented all previous liens granted by a Seventh Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from RAD2 to Steve Edlund, Trustee, recorded in Book 600, Page 169, Official Records of Grant County, Oklahoma and recorded in Book 1850, Page 285, Official Records of Lincoln County, Oklahoma and a Texas Second Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from RAD2 to Steve Edlund, Trustee, recorded in Book 155, Page 44, Official Records of Glasscock County, Texas.

10.

That certain Real Estate Lien Note dated November 12, 2010 in the original principal amount of $2,500,000.00, executed by RAD2 and payable to the order of Lender ( the "RAD2 $2,500,000.00 Note") whereby RAD2 granted to Lender a second lien in certain interests by a Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment (Second Lien and With Power of Sale) recorded in Book 0664, Page 359, Official Public Records of Harper County, Oklahoma; recorded in Book 1901, Page 541, Official Public Records of Lincoln County, Oklahoma; recorded in Book 2008, Page 1161, Official Public Records of Garfield County, Oklahoma; recorded in Book 2220, Page 4, Official Public Records of Logan County, Oklahoma; recorded in Book 1922, Page 276, Official Public Records of Payne County, Oklahoma, recorded in Book 613, Page 691, Official Records of Grant County, Oklahoma, and recorded in Book 155, Page 24, Real Property Records of Glasscock County, Texas.

11.

Thereafter, under date of May 10, 2011, RAD2 further secured the RAD2 Note by an Eighth Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from RAD2 to Steve Edlund, Trustee, recorded in Book 1920, Page 95, Official Records of Lincoln County, Oklahoma; and a Texas Third Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from RAD2 to Steve Edlund, Trustee, recorded in Book 166, Page 400, Official Records of Glasscock County, Texas.

12.

Thereafter, under date of April 26, 2013, RAD2 further secured the RAD2 Note by an Ninth Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from RAD2 to Michael K. Sohn, Trustee, recorded in Book 2054, Page 01, Official Records of Lincoln County, Oklahoma.

PAGE 17

13.

Thereafter, under date of May 15, 2014, RAD2 and Lender modified the RAD2 Note and RAD2 Loan Agreement by increasing the original principal sum of the RAD2 Note (line of credit) to Fifteen Million and No/100 Dollars ($15,000,000.00) and further secured the payment of the Note and supplemented all previous liens granted by a Texas Fourth Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from RAD2 to Michael K. Sohn, Trustee, recorded in Volume 254, Page 488, Official Records of Glasscock County, Texas and a Renewal, Extension and/or Modification Agreement For Commercial Loans, recorded in Book 255, Page 130, Official Records of Glasscock County, Texas, and Book 2197, Page 753 Official Records of Payne County, Oklahoma; Book 2522, Page 77 of the Official Records of Logan County, Oklahoma; Book 699, Page 689 of the Official Records of Harper County, Oklahoma, Book 696, Page 254 of the Official Records of Grant County, Oklahoma; Book 2201, Page 1050 of the Official Records of Garfield County, Oklahoma, and Book 2116, Page 352 of the Official Records of Lincoln County, Oklahoma.

14.

Thereafter, under date of January 1, 2014, RAD2 further secured the RAD2 Note by a Tenth Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from RAD2 to Michael K. Sohn, Trustee, recorded in Book 2122, Page 631, Official Records of Lincoln County, Oklahoma, and Book 2211, Page 778 of the Official Records of Payne County, Oklahoma.

15.

Thereafter, under date of August 19, 2015, RAD2 further secured the RAD2 Note by an Eleventh Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from RAD2 to Bernardo dela Garza, Trustee, recorded in Book 2176, Page 422, Official Records of Lincoln County, Oklahoma and a Texas Fifth Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from RAD2 to Michael K. Sohn, Trustee, recorded in Volume 294, Page 524, Official Records of Glasscock County, Texas.

16.

Thereafter, under date of November 5, 2015, RAD2 further secured the RAD2 Note by an Twelfth Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from RAD2 to Bernardo dela Garza, Trustee, recorded in the Official Records of Lincoln County, Oklahoma in Volume 2184, Page 530 and under date of November 6, 2015, RAD2 further secured the RAD2 Note by a Texas Sixth Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from RAD2 to Bernardo dela Garza, Trustee, recorded in the Official Records of Glasscock County, Texas in Volume 300, Page 745.

PAGE 18

17.

Thereafter, under date of November 16, 2015, RAD2 further secured the RAD2 Note by an Thirteenth Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from RAD2 to Bernardo dela Garza, Trustee, recorded in the Official Records of Lincoln County, Oklahoma in Volume 2185, Page 648.

The RAD2 Note and the RAD2 $2,500,000.00 Note and any and all other indebtedness of RAD2 to Lender, including without limitation, under the RAD2 Loan Agreement, are collectively referred to herein as the "RAD2 Indebtedness," and each and every Mortgage and Supplemental Mortgage referenced above executed by RAD2 securing the RAD2 Indebtedness are collectively referred to herein as the "RAD2 Liens"). Furthermore, all interests, including without limitation, all oil, gas and other mineral interests of RAD2 covered by the RAD2 Liens are collectively referred to as "RAD2 Mortgaged Interests."

DBS Indebtedness to Lender

REFERENCE IS HEREBY MADE FOR ALL PURPOSES TO that certain promissory note dated December 15, 2006, executed by DBS payable to the order of Lender in the original principal sum of Five Million and No/100 Dollars ($5,000,000.00) (the "DBS Note," which term includes all subsequent modifications and increases thereto) pursuant to a loan agreement of even date therewith between DBS and Lender (the "DBS Loan Agreement"), which Note was secured by a Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment dated December 15, 2006, from DBS to Steve Edlund, Trustee, recorded in Volume 1727, Page 314, Official Records of Lincoln County, Oklahoma; and recorded in Book 1969, Page 632, Official Records of Logan County, Oklahoma and recorded in Book 581, Page 417, Official Records of Grant County, Oklahoma and recorded in Book 1682, Page 159, Official Records of Payne County, Oklahoma.

Thereafter, under date of May 25, 2007, DBS further secured the DBS Note by a First Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from DBS to Steve Edlund, Trustee, recorded in Volume 1749, Page 06, Official Records of Lincoln County, Oklahoma; and recorded in Book 581, Page 435, Official Records of Grant County, Oklahoma and in Book 1714, Page 342, Official Records of Payne County, Oklahoma.

Thereafter, under date of October 1, 2007, DBS and Lender modified the DBS Note and DBS Loan Agreement by increasing the original principal sum of the Note (line of credit) to Ten Million and No/100 Dollars ($10,000,000.00).

PAGE 19

Thereafter, under date of October 10, 2007, DBS further secured the DBS Note by a Second Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from DBS to Steve Edlund, Trustee, recorded in Volume 1766, Page 692, Official Records of Lincoln County, Oklahoma; and recorded in Book 2033, Page 297, Official Records of Logan County, Oklahoma and recorded in Book 630, Page 23, Official Records of Harper County, Oklahoma and in Book 1740, Page 705, Official Records of Payne County, Oklahoma.

Thereafter, under date of January 22, 2008, DBS further secured the DBS Note by a Third Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from DBS to Steve Edlund, Trustee, recorded in Volume 1890, Page 78, Official Records of Garfield County, Oklahoma; and recorded in Volume 587, Page 73, Official Records of Grant County, Oklahoma; and recorded in Book 634, Page 181, Official Records of Harper County and recorded in Book 2051, Page 375, Official Records of Logan County, Oklahoma, and in Book 1757, Page 237, Official Records of Payne County, Oklahoma.

Thereafter, under date of May 8, 2008, DBS further secured the DBS Note by a Fourth Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from DBS to Steve Edlund, Trustee, recorded in Volume 1779, Page 897, Official Records of Payne County, Oklahoma and recorded in Volume 1799, Page 116, Official Records of Lincoln County, Oklahoma.

Thereafter, under a stipulated date of September 24, 2008, DBS further secured the DBS Note by a Fifth Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from DBS to Steve Edlund, Trustee, recorded in Volume 1815, Page 261, Official Records of Lincoln County, Oklahoma, and a Texas First Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment to Steve Edlund, Trustee, recorded in Volume 123, Page 217, of the Real Property Records of Glasscock County, Texas.

Thereafter, under date of January 15, 2009, DBS further secured the DBS Note by a Sixth Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from DBS to Steve Edlund, Trustee, recorded in Volume 1828, Page 228, Official Records of Lincoln County, Oklahoma; recorded in Volume 2110, Page 125, Official Records of Logan County, Oklahoma; and recorded in Volume 1929, Page 947, Official Records of Garfield County, Oklahoma.

Thereafter, under date of June 29, 2009, DBS and Lender modified the DBS Note and DBS Loan Agreement by increasing the original principal sum of the Note (line of credit) to Twelve Million and No/100 Dollars ($12,000,000.00) and further secured the payment of the Note supplement all previous liens granted by a Seventh Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from DBS to Steve Edlund, Trustee, recorded in Book 600, Page 169, Official Public Records of Grant County, Oklahoma; and recorded in Book 1850, Page 304, Official Records of Lincoln County, Oklahoma.

PAGE 20

10.

Thereafter, under date of May 10, 2011, DBS further secured the DBS Note by an Eighth Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from DBS to Michael K. Sohn, Trustee, recorded in Volume 1920, Page 118, Official Records of Lincoln County, Oklahoma and a Texas Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from DBS to Michael K. Sohn, Trustee, recorded in Volume 166, Page 428, Official Records of Glasscock County, Texas.

11.

Thereafter, under date of October 1, 2011, DBS and Lender modified the DBS Note and DBS Loan Agreement by extending the final maturity date until October 1, 2013.

12.

Thereafter, under date of April 26, 2013, DBS further secured the DBS Note by a Ninth Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from DBS to Michael K. Sohn, Trustee, recorded in Volume 2053, Page 760, Official Records of Lincoln County, Oklahoma.

13.

Thereafter, under date of October 1, 2013, DBS and Lender modified the DBS Note and DBS Loan Agreement by extending the final maturity date until October 1, 2015.

14.

Thereafter, by a Third Amendment to the loan agreement dated October 1, 2014, DBS and Lender modified the DBS Note and DBS Loan Agreement by extending the final maturity date until October 1, 2016.

15.

Thereafter, under date of October 1, 2014, DBS further secured the payment of the DBS Note and supplemented all previous liens granted by a Texas First Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from DBS to Michael K. Sohn, Trustee, recorded in Volume 265, Page 359, Official Records of Glasscock County, Texas and a Renewal, Extension and/or Modification Agreement For Commercial Loans, recorded in Book 267, Page 716, Official Records of Glasscock County, Texas, and Book 2223, Page 706 Official Records of Payne County, Oklahoma; Book 701, Page 822 of the Official Records of Grant County, Oklahoma; Book 702, Page 745 of the Official Records of Harper County, Oklahoma and Book 2152, Page 760 of the Official Records of Lincoln County, Oklahoma.

PAGE 21

16.

Thereafter, under date of October 1, 2014, DBS further secured the DBS Note by a Tenth Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from DBS to Michael K. Sohn, Trustee, recorded in Book 2131, Page 99, Official Records of Lincoln County, Oklahoma and Book 2219, Page 127, Official Records of Payne County, Oklahoma.

17.

Thereafter, under date of September 4, 2015, DBS further secured the DBS Note by an Eleventh Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from DBS to Michael K. Sohn, Trustee, recorded in Book 2176, Page 456, Official Records of Lincoln County, Oklahoma.

The DBS Note and any and all other indebtedness of DBS to Lender, including without limitation, under the DBS Loan Agreement, are collectively referred to herein as the "DBS Indebtedness," and each and every Mortgage and Supplemental Mortgage referenced above executed by DBS securing the DBS Indebtedness are collectively referred to herein as the "DBS Liens"). Furthermore, all interests including without limitation, all oil, gas and other mineral interests of DBS covered by the DBS Liens are collectively referred to herein as the "DBS Mortgaged Interests."

Menchaca Indebtedness to Lender

That certain promissory note executed by Richard E. Menchaca and Kimberly Menchaca dated August 20, 2014, payable to the order of Lender in the original principal sum of Three Million and No/100 Dollars ($3,000,000.00) (the "Menchaca Note" which term includes all subsequent modifications and increases thereto) pursuant to a Loan Agreement dated February 15, 2007 between said Menchaca and Lender (the "Menchaca Loan Agreement") [which Menchaca Note renewed and extended the original debt ($2,000,000.00) of Menchaca to Lender] which Menchaca Note is secured by a Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment dated February 15, 2007, from Menchaca to Steve Edlund, Trustee, recorded in Book 579, Page 425, Official Records of Grant County, Oklahoma; Book 1735, Page 726, Official Records of Lincoln County, Oklahoma and in Book 1692, Page 601, Official Records of Payne County, Oklahoma.

Under date of May 25, 2007, Menchaca further secured the Menchaca Note by a First Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from Menchaca to Steve Edlund, Trustee, recorded in Volume 1748, Page 790, Official Records of Lincoln County, Oklahoma; and recorded in Book 581, Page 460, Official Records of Grant County, Oklahoma and in Book 1714, Page 318, Official Records of Payne County, Oklahoma.

PAGE 22

Thereafter, under date of October 1, 2007, Menchaca further secured the Menchaca Note by a Second Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from Menchaca to Steve Edlund, Trustee, recorded in Volume 1766, Page 710, Official Records of Lincoln County, Oklahoma; and recorded in Book 2033, Page 333, Official Records of Logan County, Oklahoma and recorded in Book 630, Page 59, Official Records of Harper County, Oklahoma and in Book 1740, Page 687, Official Records of Payne County, Oklahoma.

Thereafter, under date of January 22, 2008, Menchaca further secured the Menchaca Note by a Third Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from Menchaca to Steve Edlund, Trustee, recorded in Volume 1890, Page 97, Official Records of Garfield County, Oklahoma; and recorded in Volume 1780, Page 638, Official Records of Lincoln County, Oklahoma, and recorded in Volume 587, Page 92, Official Records of Grant County, Oklahoma; and recorded in Book 634, Page 200, Official Records of Harper County and recorded in Book 2051, Page 394, Official Records of Logan County, Oklahoma, and in Book 1757, Page 256, Official Records of Payne County, Oklahoma.

Thereafter, under date hereby stipulated as May 8, 2008, Menchaca further secured the Menchaca Note by a Fourth Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from Menchaca to Steve Edlund, Trustee, recorded in Volume 1804, Page 364, Official Records of Lincoln County, Oklahoma.

Thereafter, under date hereby stipulated as September 24, 2008, Menchaca further secured the Menchaca Note by a Fifth Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from Menchaca to Steve Edlund, Trustee, recorded in Volume 1815, Page 299, Official Records of Lincoln County, Oklahoma and a Texas Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment recorded in Volume 123, Page 255, Official Records of Glasscock County, Texas.

Thereafter, under date hereby stipulated as January 15, 2009, Menchaca further secured the Menchaca Note by a Sixth Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from Menchaca to Steve Edlund, Trustee, recorded in Volume 1828, Page 251, Official Records of Lincoln County, Oklahoma; recorded in Volume 2110, Page 148, Official Records of Logan County, Oklahoma; and recorded in Volume 1929, Page 970, Official Records of Garfield County, Oklahoma.

PAGE 23

Thereafter, under date hereby stipulated as May 10, 2011, Menchaca further secured the Menchaca Note by a Seventh Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from Menchaca to Steve Edlund, Trustee, recorded in Volume 1920, Page 141, Official Records of Lincoln County, Oklahoma and by a Texas Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from Menchaca to Steve Edlund, Trustee, recorded in Volume 166, Page 457, Official Records of Glasscock County, Texas.

Thereafter, under date hereby stipulated as April 26, 2013, Saxum Energy, LLC further secured the Menchaca Note by an Eighth Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from Saxum to Michael K. Sohn, Trustee, recorded in Volume 2053, Page 783of the Official Records of Lincoln County, Oklahoma.

10.

Thereafter, on August 20, 2014, Saxum, Lender and Menchaca entered into a First Amended Loan Agreement (the "Menchaca Amended Loan Agreement") and modified the Menchaca Note and Menchaca Loan Agreement by increasing the original principal sum of the Note (line of credit) to Three Million and No/100 Dollars ($3,000,000.00).

11.

Thereafter, under date of August 20, 2014, Saxum further secured the Menchaca Note by a Ninth Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from Mortgagor to Michael K. Sohn, Trustee, recorded in Volume 2122, Page 611 of the Official Records of Lincoln County, Oklahoma; Volume 2211, Page 750, Official Records of Payne County, Oklahoma and Instrument No. 201400012507 of the Official Records of Pottawatomie County, Oklahoma and a mortgage nominated as Texas Second Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from Menchaca to Michael K. Sohn, Trustee, recorded in Volume 268, Page 558, Official Records of Glasscock County, Texas.

12.

Thereafter, under date of September 28, 2015, Saxum further secured the Menchaca Note by a Tenth Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment from Mortgagor to Bernardo de la Garza, Trustee, recorded in Volume 2180, Page 673 of the Official Records of Lincoln County, Oklahoma.

The Menchaca Note and any and all other indebtedness of Menchaca to Lender, including without limitation, under the Menchaca Loan Agreement and the Menchaca Amended Loan Agreement, are collectively referred to herein as the "Menchaca Indebtedness," and each and every Mortgage and Supplemental Mortgage referenced above executed by Menchaca securing the Menchaca Indebtedness are collectively referred to as the "Menchaca Liens"). Furthermore, all interests, including without limitation, all oil, gas and other mineral interests of Menchaca covered by Menchaca Liens are collectively referred to herein as the "Menchaca Mortgaged Interests."

PAGE 24

CMM Indebtedness to Lender

That certain promissory note dated December 30, 2014 executed by CMM payable to the order of Lender in the original principal sum of Four Million and No/100 Dollars ($4,000,000.00) (the "CMM Note"), which term includes all subsequent modifications and increases thereto) which Note is secured by a Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment dated December 30, 2014, from CMM to Michael K. Sohn, Trustee, recorded in Book 2561, Page 469, Official Records of Logan County, Oklahoma and recorded in Book 2238, Page 238, Official Records of Payne County, Oklahoma (Brittany Wells).

The CMM Note and any and all other indebtedness of CMM to Lender are collectively referred to herein as the "CMM Indebtedness," and the Mortgage referenced above executed by CMM is referred to herein as the "CMM Lien"). Furthermore, all interests, including without limitation, all oil, gas other and mineral interests of CMM, covered by the CMM Liens are collectively referred to as the "CMM Mortgaged Interests."

Elk Creek Indebtedness to Lender

That certain promissory note dated June 29, 2012 executed by Elk Creek payable to Lender in the original principal sum of Two Million and No/100 Dollars ($2,000,000.00) (the "Elk Creek Note"), which term includes all subsequent modifications and increases thereto) which Note is secured by a Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment dated June 29, 2012, from Elk Creek to Steve Edlund, Trustee, recorded in Book 2032, Page 52, Official Records of Payne County, Oklahoma, as supplemented in a First Supplemental Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment dated December 19, 2013, from AMWD Elk Creek Resources, LLC to Michael K. Sohn, Trustee, recorded in Book 2274, Page 778, Official Records of Payne County, Oklahoma and recorded in Book 2165, Page 694, Official Records of Lincoln County, Oklahoma.

The Elk Creek Note and any and all other indebtedness of Elk Creek to Lender are collectively referred to herein as the "Elk Creek Indebtedness," and the Mortgage and First Supplemental Mortgage referenced above are collectively referred to herein as the "Elk Creek Liens"). Furthermore, all interests, including without limitation, all oil, gas other and mineral interests of Elk Creek, covered by the Elk Creek Liens are collectively referred to as the "Elk Creek Mortgaged Interests."

PAGE 25

1.63

Prior Note – RAD2 to MPII .

The term "Prior Note – RAD2 to MPII" shall mean the RAD2 to MPII Indebtedness as more particularly described below.

RAD2 to MPII Indebtedness

That certain promissory note dated June 1, 2012 executed by Azar Minerals, Ltd, (now RAD2) payable to the order of MPII in the original principal sum of Two Million Five Hundred Thousand and No/100 Dollars ($2,500,000.00) (the "RAD2 to MPII Note"), which term includes all subsequent modifications and increases thereto) which Note is secured by a Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment dated June 1, 2012, from RAD2 to A. J. Range, Trustee, recorded in Book 2324, Page 41, Official Records of Logan County, Oklahoma and recorded in Book 2023, Page 981, Official Records of Payne County, Oklahoma (Brittany Wells).

Thereafter, under date of July 30, 2014, Azar Minerals, Ltd., modified the RAD2 to MPII Note by a Modification and Extension Agreement by and between Azar Minerals, Ltd. and MPII, Inc., recorded in Book 2524, Page 425, Official Records of Lincoln County, Oklahoma, and recorded in Book 2201, Page 153, Official Records of Payne County, Oklahoma.

That certain promissory note dated December 20, 2013 executed by Azar Minerals, Ltd, (now RAD2) payable to the order of MPII in the original principal sum of Two Million Five Hundred Thousand and No/100 Dollars ($2,500,000.00) (the "Second RAD2 to MPII Note"), which term includes all subsequent modifications and increases thereto) which Second RAD2 to MPII Note is secured by a Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment dated December 20, 2013 from RAD2 to A. J. Range, Trustee, recorded in Book 238, Page 56, Official Records of Glasscock County, Texas (Apache Wells).

Thereafter, under date of July 30, 2014, Azar Minerals, Ltd., modified the Second RAD2 to MPII Note by a Modification and Extension Agreement by and between Azar Minerals, Ltd. and MPII, Inc., recorded in Book 257, Page 780, Official Records of Glasscock County, Texas.

The RAD2 to MPII Note, the Second RAD2 to MPII Note, and any and all other indebtedness of RAD2 to MPII are collectively referred to herein as the "RAD2 to MPII Indebtedness," and each and every Mortgage referenced above executed by RAD2 or its predecessor, Azar Minerals, Ltd., are collectively referred to as the "RAD2 to MPII Liens"). Furthermore, all interests, including without limitation, all oil, gas and other mineral interests of RAD 2 covered by the RAD 2 to MPII Liens are collectively referred to as the "RAD2 to MPII Mortgaged Interests."

PAGE 26

1.64

RAD2 .

The term "RAD2" shall mean RAD2 Minerals, Ltd., a Texas limited partnership, f/k/a Azar Minerals, Ltd.

1.65

Restricted Payment .

The term "Restricted Payment" shall mean any cash dividend or other cash distribution with respect to any Equity Interests, or any cash payment on account of the purchase, redemption, retirement, acquisition, cancellation, or termination of any such Equity Interests in the Borrower.

1.66

Security Agreement .

The term "Security Agreement" shall mean all security agreements granting to Lender a security interest in that portion of the personal or movable property, which makes up the Mortgaged Properties that cannot be secured by the Mortgage, and all Collateral howsoever described.

1.67

Share Certificate Pledge .

The term "Share Certificate Pledge" shall mean that certain Certificated Investment Property Pledge Agreement of even date herewith, executed by RAD2 to secure its Guaranty Agreement guaranteeing the payment of certain of the Indebtedness covering the share certificates described therein.

1.68

Title Audit Letter .

The term "Title Audit Letter" shall mean all letters, the form of which has been approved by Lender in its sole discretion, which provides how record title to one or more of the Mortgaged Properties is held since the date of the last Title Opinion, including without limitation, all working and net revenue interests, both before and after payout, and current liens, judgments and/or pending lawsuits covering such Mortgaged Property. Borrower covenants and agrees to obtain Title Audit Letters covering ninety percent (90%) of the value of the Mortgaged Properties.

1.69

Title Opinion .

The term "Title Opinion" shall mean all title and/or division order opinions reflecting how record title to one or more of the Mortgaged Properties is held, including without limitation, all working and net revenue interests, both before and after payment, and current liens, judgments, and/or pending lawsuits, and in a form as approved by Lender in its sole discretion.

PAGE 27

1.70

Uncertificated Pledge .

The term "Uncertificated Pledge" shall collectively mean the Uncertificated Pledge DBS, the Uncertificated Pledge-RAD2, and the Uncertificated Pledge-Saxum.

1.71

Uncertificated Pledge - DBS .

The term "Uncertificated Pledge" shall mean that certain Uncertificated Investment Property Pledge Agreement of even date herewith, executed by DBS to secure its Guaranty Agreement guaranteeing the payment of certain of the Indebtedness, covering the investment bank account described therein whose custodian is Frost Bank. As discussed in Section 5.30, DBS shall reserve 935,934 common shares in Borrower on the date hereof (the "DBS Shares") which will be delivered to the investment bank account whose custodian is Frost Bank. In the event Lender forecloses/ exercises its rights under the Uncertificated Pledge – DBS and receives cash proceeds therefrom, the maximum amount of such proceeds that may be applied by Lender to discharge the Indebtedness covered by the Guaranty Agreement executed by DBS and Donnie B. Seay, which may be applied in such manner as Lender determines in its sole discretion, is (i) $4,000,000.00, plus the cash value of the DBS Shares at the time such shares are sold by Lender, plus (ii) all accrued and unpaid interest on the Indebtedness evidenced by the Note, plus (iii) all attorneys' fees and other costs incurred by Lender in the collection of the Indebtedness covered by the Guaranty Agreement executed by DBS.

1.72

Uncertificated Pledge – RAD2 .

The term "Uncertificated Pledge-RAD2" shall mean that certain Uncertificated Investment Property Pledge Agreement of even date herewith, executed by RAD2 to Secure its Guaranty Agreement guaranteeing the payment of Certificate of Indebtedness, covering the investment bank account described therein, whose custodian is LPL Financial LLC.

1.73

Uncertificated Pledge - Saxum .

The term "Uncertificated Pledge-Saxum" shall mean that certain Uncertificated Investment Property Pledge Agreement of even date herewith, executed by Saxum to Security Guaranty Agreement guarantee, the payment of certain of the Indebtedness, covering the investment bank account described therein, whose custodian is LPL Financial, LLC.

1.74

Uncertificated Pledge .

The term "Uncertificated Pledge" shall collectively mean the Uncertificated Pledge-DBS, the Uncertificated Pledge-RAD2, and the Uncertificated Pledge-Saxum.

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ARTICLE 2 - THE ADVANCE OF THE LOAN

2.1

Commitment of Lender .

Subject to the conditions hereof, and provided that an Event of Default has not occurred, Lender will make the Advance to Borrower in accordance with this Loan Agreement, such Advance to be disbursed in a single advance on the date hereof.

2.2

Conditions to the Advance .

As a condition precedent to the Advance of the Loan hereunder, Borrower must expressly satisfy all of the conditions that are noted by (x) described in Exhibit "B," and provide and execute such other documents, instruments and certificates as Lender may require.

2.3

Intentionally Deleted .

2.4

Intentionally Deleted .

2.5

Conditions Precedent for the Benefit of Lender .

All conditions precedent to the obligation of Lender to make the Advance are imposed hereby solely for the benefit of Lender, and no other party may require satisfaction of any such condition precedent or be entitled to assume that Lender will refuse to make the Advance in the absence of strict compliance with such conditions precedent. All requirements of this Loan Agreement may be waived by Lender, in whole or in part, at any time.

2.6

Approvals and Inspections .

Lender shall not be obligated to make, nor shall Borrower be entitled to, the Advance until such time as Lender shall have received, to the extent requested by Lender, inspection reports, including without limitation, Engineering Reserve Reports and any other item, document or report as required by Lender in its sole and absolute discretion.

ARTICLE 3 - ASSUMPTION OF PRIOR INDEBTEDNESS

AND RENEWAL AND EXTENSION

3.1

Assumption .

Borrower expressly assumes and agrees to pay and perform any and all obligations represented by the Prior Note and the Prior Loan Instruments, and agrees to be bound by all of the terms, conditions, and covenants contained therein, including without limitation, the Prior Liens. Borrower expressly confirms that it is personally liable and obligated (a) for the timely payment, as the same becomes due, of all principal and interest now or hereafter due and payable under the Prior Note until the Prior Note shall have been fully paid and satisfied, and (b) for all other indebtedness now or hereafter existing, whether accrued or contingent, under this Loan Agreement and all other Loan Instruments.

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3.2

Release .

RAD2, DBS, Menchaca, and CMM are hereby released from personal liability for payment and performance of all indebtedness and other obligations now or hereafter outstanding under the Prior Note and the other Prior Loan Instruments. It is specifically understood and agreed that (a) no modification or release of Borrower from any personal liability for any indebtedness now or hereafter outstanding under the Prior Note and any Prior Loan Instruments is made or intended to be made hereby, (b) no modification or release of any obligations of any of the undersigned Guarantor which are owing or may hereafter become owing to Lender under any guaranty agreement is made or intended to be made hereby, and (c) no modification or release of any lien currently securing or relating to any of the indebtedness is made or intended to be made hereby and all such liens shall remain and continue to be valid and subsisting in accordance with the face, tenor, effect and reading of the Prior Loan Instruments evidencing the same. Borrower hereby (i) consents to such release of RAD2, DBS, Menchaca, and CMM from personal liability for payment and performance of all indebtedness and other obligations now or hereafter outstanding under the Prior Note and the other Prior Loan Instruments, and (ii) confirms that such release of RAD2, DBS, Menchaca, and CMM from personal liability shall not affect in any manner the joint and several personal liability of Borrower for the full payment and performance of all indebtedness and other obligations now or hereafter outstanding under the Prior Note, and all other Prior Loan Instruments.

3.3

Renewal and Extension .

A portion of the Indebtedness evidenced by the Note renews and extends the unpaid principal balance that Borrower has assumed under the Prior Note, which is secured by the Prior Liens covering the Prior Mortgaged Interests, which constitute certain of the Mortgaged Properties. Obligor acknowledges and agrees that the Prior Liens securing the Prior Note are valid, that they subsist against the Prior Mortgaged Interests, which constitute certain of the Mortgaged Properties, and that by the Mortgage, they are renewed and extended in full force to secure the payment of the Note. Furthermore, the Note is secured by any and all collateral securing the Prior Note in addition to the Collateral, including without limitation, the collateral described in the Prior Loan Instruments. Furthermore Lender is subrogated to any and all rights under the Prior Liens, Prior Note, and Prior Loan Instruments.

ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF OBLIGOR

Borrower (except to the extent a specific representation or warranty is made by one [1] or more of Guarantor) hereby represents and warrants as follows:

4.1

Good Standing and Identity .

Borrower is a Nevada corporation, duly organized and in good standing under the Laws of the State of Nevada. Borrower's legal name is reflected in the introductory paragraph of this Loan Agreement. Borrower has the power to own its property and to carry on its business in each jurisdiction in which Borrower operates. Borrower has heretofore delivered to Lender true, correct and complete copies of its Certificate of Incorporation, Bylaws, and Corporate Resolution authorizing this transaction, each as amended (if necessary) to the date hereof.

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4.2

Guarantor .

Obligor hereby represents and warrants as follows:

Richard N. Azar, II, Guarantor, is an individual whose full legal residence is in San Antonio, Bexar County, Texas. Guarantor's legal name is correctly reflected herein and in the address section of this Loan Agreement.

Donnie B. Seay, Guarantor, is an individual whose full legal residence is in San Antonio, Bexar County, Texas. Guarantor's legal name is correctly reflected herein and in the address section of this Loan Agreement.

Richard E. Menchaca, Guarantor, is an individual whose full legal residence is in San Antonio, Bexar County, Texas. Guarantor's legal name is correctly reflected herein and in the address section of this Loan Agreement.

RAD2 is a Texas limited partnership, duly organized and in good standing under the Laws of the State of Texas. RAD2's legal name is reflected in the introductory paragraph of this Loan Agreement. RAD2 has the power to own its property and to carry on its business in each jurisdiction in which RAD2 operates. RAD2 has heretofore delivered to Lender true, correct and complete copies of its Certificate of Formation, Partnership Agreement, and LLC Resolution of its General Partner authorizing this transaction, each as amended (if necessary) to the date hereof.

DBS is a Texas limited partnership, duly organized and in good standing under the Laws of the State of Texas. DBS 's legal name is reflected in the introductory paragraph of this Loan Agreement. DBS has the power to own its property and to carry on its business in each jurisdiction in which DBS operates. DBS has heretofore delivered to Lender true, correct and complete copies of its Certificate of Formation, Partnership Agreement, and LLC Resolution of its General Partner authorizing this transaction, each as amended (if necessary) to the date hereof.

Saxum is a Texas limited liability company, duly organized and in good standing under the Laws of the State of Texas. Saxum's legal name is reflected in the introductory paragraph of this Loan Agreement. Saxum has the power to own its property and to carry on its business in each jurisdiction in which Saxum operates. Saxum has heretofore delivered to Lender true, correct and complete copies of its Certificate of Formation, Company Agreement, and LLC Resolution authorizing this transaction, each as amended (if necessary) to the date hereof.

4.3

Common Enterprise .

Borrower and the Guarantor are involved in common business interests and enterprises, and the Guarantor will directly benefit from the Loan extended by Lender to Borrower.

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4.4

Authority and Compliance of Borrower .

Borrower has full power and authority to enter into this Loan Agreement, to make the borrowing hereunder, to execute and deliver the Note, to mortgage, pledge, assign the Collateral to Lender, including without limitation, the Mortgaged Properties, and to incur the Indebtedness and Obligations provided for herein, all of which will be duly authorized by all proper and necessary corporate action. The person signing as the representative of Borrower, represents, warrants and covenants to Lender that all authorizations for the transaction contemplated herein have been properly obtained. The execution and delivery of this Loan Agreement by Borrower, the performance by Borrower of all the terms and conditions hereof to be performed by it and the consummation of the transactions contemplated hereby have been, or will be, duly authorized, reviewed, and approved by Borrower. This Loan Agreement has been duly executed and delivered by Borrower and constitutes the valid and binding obligation of Borrower, enforceable against it in accordance with its terms, except as such enforceability may be limited by Debtor Relief Laws.

4.5

Authority and Compliance of Guarantor .

Guarantor represents and warrants that it has full power and authority to enter into this Loan Agreement and execute the Guaranty Agreement and has read, reviewed and approved all Loan Instruments. No consent or approval of any public authority is required as a condition to the validity of this Loan Agreement, the Note, and the Loan Instruments.

4.6

Ownership of Collateral .

Except as to solely the Non-Producing Wells, as of the date of this Agreement, Borrower has good title to the Collateral, including without limitation, the Mortgaged Properties, which is all owned free and clear of liens, claims, judgments, or liabilities excepting liens in favor of Lender or expressly permitted under this Loan Agreement. Borrower will at all times maintain the Collateral, including without limitation, the Mortgaged Properties, real and personal, in good order and repair.

4.7

Obligor Taxes .

Borrower represents and warrants that all income taxes, franchise taxes, ad valorem taxes and other taxes due and payable and which may be owing by Borrower through the date of this Loan Agreement have been paid without contest or dispute prior to becoming delinquent. Guarantor represents and warrants that all income taxes, franchise taxes, ad valorem taxes and other taxes due and payable and which may be owing by Guarantor through the date of this Loan Agreement have been paid without contest or dispute prior to becoming delinquent.

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4.8

Mortgaged Properties Taxes .

All ad valorem, property, production, severance and similar taxes and assessments based on or measured by the ownership of property or the production of hydrocarbons or the receipt of proceeds therefrom on the Mortgaged Properties that are due and payable have been properly paid and all such taxes and assessments which become due and payable shall be properly paid by Borrower on its behalf and as operator of any of the wells drilled or to be drilled under the Mortgaged Properties in which Borrower is the operator.

4.9

Disposition of Mortgaged Properties .

Except as to solely the Non-Producing Wells, there has not been and will not be:

(i)

Any Material Adverse Change in the business, financial condition or results of operations of Borrower which change was not the result of an industry-wide development affecting other companies in the oil or gas industries;

(ii)

Any material damage, destruction or loss to or of the Collateral, including without limitation, the Mortgaged Properties, whether or not covered by insurance;

(iii)

Any sale, lease, mortgage, loss of title, or other disposition of the Collateral, except as permitted by the terms of this Loan Agreement;

(iv)

Any mortgage, pledge or grant of alien or security interest in any of the Collateral, including without limitation, the Mortgaged Properties except as permitted by the terms of this Loan Agreement; or

(v)

Any contract or commitment to do any of the foregoing.

4.10

Contracts .

Exhibit "C," attached hereto and incorporated herein for all purposes, sets forth a list of the following contracts, agreements, plan and commitments to which Borrower is a party or by which Borrower or any of the Mortgaged Properties are bound:

(i)

Any contract, commitment, or agreement that involves aggregate expenditures by Borrower of more than One Hundred Thousand and No/100 Dollars ($100,000.00) per year;

(ii)

Any indenture, trust agreement, loan agreement, escrow or note under which Borrower or Guarantor has outstanding indebtedness, obligations or liabilities for borrowed money;

(iii)

Any lease, sublease, installment purchase or similar arrangement for the use or occupancy of real property (other than the Oil and Gas Leases) that involves aggregate expenditures by Borrower of more than One Hundred Thousand and No/100 ($100,000.00) Dollars per year, together with a list of the location of such leased property, the date of termination of such arrangements, the name of the other party and the annual rental payments required to be made for such arrangements;

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(iv)

Any guaranty, direct or indirect, by any affiliate of Borrower of any contract, lease or agreement entered into by Borrower;

(v)

Any agreement of surety, guarantee or indemnification by Borrower or Guarantor; and

(vi)

All Gas Contracts (defined below) and agreements for the transportation for gas affecting the Mortgaged Properties.

(vii)

All authorities for expenditure ("AFEs") in excess of $500,000.00 net to Borrower, received by Borrower and/or the sellers executing the APA after December 30, 2015, regardless of whether Borrower and/or the sellers to the APA have approved, disapproved or not yet responded, with respect to the Mortgaged Properties‎.

All bills and AFEs relating to all operations of the Mortgaged Properties, including without limitation, joint operations, under any joint operating agreement or other agreements are paid in full as of the date hereof.

4.11

Defects / Personal Property .

To the best of Borrower's knowledge, there are no material defects in the personal property and fixtures, including without limitation, the Equipment, as defined in the APA, to be pledged to Lender pursuant to the terms hereof which would prevent the continued operation of the Mortgaged Properties in accordance with prior practice.

4.12

Royalty .

All royalties (other than royalties held in suspense), rentals and other payments due under the Oil and Gas Leases have been properly and timely paid and accepted, and all conditions necessary to keep the Oil and Gas Leases in force have been fully performed. To the best of Borrower's knowledge, no notices have been received by Borrower of any claim to the contrary and all of the Oil and Gas Leases are in full force and effect.

4.13

Take - or-Pay .

Borrower is not obligated by virtue of any prepayment arrangement under any contract for the sale of hydrocarbons and containing a "take or pay" or similar provision or a production payment or any other arrangement to deliver hydrocarbons produced from the Mortgaged Properties at some future time without then or thereafter receiving full payment therefor, and Borrower has not produced a share of gas greater than its ownership percentage and Borrower is under no obligation to reduce its share of production under any gas balancing agreement or similar contract to allow under-produced parties to come back into balance.

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4.14

Compliance With Laws .

All laws, regulations and orders of all governmental agencies having jurisdiction over the Collateral have been and shall continue to be complied with during the terms of the Loan. All Permits in connection with the Mortgaged Properties have been obtained and have been timely, properly and accurately made and will continue to be timely, properly and accurately made. To the knowledge of Borrower, all plugged wells located on the lands covered by the Oil and Gas Leases or lands pooled therewith have been properly plugged and there are no abandoned unplugged wellbores located thereon which good oil field practice would require plugging.

4.15

Oil and Gas Lease Impediment .

To the best of Borrower's knowledge, none of the Oil and Gas Leases is subject to any top leases or reversionary interests, and there exists no unrecorded document or agreement which may result in impairment or loss of Borrower's ability to mortgage, pledge or convey the Collateral, including without limitation, the Mortgaged Properties.

4.16

Basic Documents .

With respect to the "Basic Documents" (defined below):

(i)

Except as to solely the Non-Producing Wells, all of such Basic Documents are in full force and effect and are the valid and legally binding obligations of the parties thereto;

(ii)

Neither Borrower nor Guarantor are in breach or default with respect to any material obligations pursuant to any such Basic Document or any regulations incorporated therein or governing same;

(iii)

All material payments (including, without limitation, royalties, delay rentals, shut-in royalties, and joint interest or other billings under unit or operating agreements) due thereunder have been made by Borrower or will be made by Borrower throughout the term of this Loan;

(iv)

No other party to any Basic Document (or any successor in interest thereto) is in breach or default with respect to any of its material obligations thereunder; and

(v)

Neither Borrower nor any other party to any Basic Document has given or threatened to give notice of any action to terminate, cancel, rescind or procure a judicial reformation of any Basic Document or any provision thereof.

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As used herein the term "Basic Documents" shall mean all of the Oil and Gas Leases, contracts for the sale and purchase of gas produced from the Mortgaged Properties (collectively, the "Gas Contracts"), and farmout, dry hole, bottom hole, acreage contribution, purchase and acquisition agreements, area of mutual interest agreements, including without limitation, the AMI Agreement, and joint development, salt water disposal agreements, servicing contracts, easement and/or right-of-way agreements, unitization or pooling agreements and all other material executory contracts and agreements relating to the Mortgaged Properties.

4.17

Gas Contracts .

There are no Mortgaged Properties with respect to which:

(i)

Deliveries of natural gas dedicated to interstate commerce have been terminated or diverted therefrom without there having been obtained an appropriate abandonment orders or other required regulatory approvals; or

(ii)

Borrower is not receiving on a current basis the payments required under the terms of the Gas Contracts; or

(iii)

Borrower is not receiving now, or may not receive for the period of time from the effective date of the information contained in the data furnished by Borrower, the price (per MMBTU) for natural gas reflected in the data furnished by Borrower to Lender.

During the time period from the effective date of the information contained in the data furnished by Borrower to Lender until the Loan is paid in full, no purchaser of natural gas under the Gas Contracts has or shall curtail (other than seasonal curtailment) its takes of natural gas. Furthermore, Borrower covenants and agrees that, if a purchaser of natural gas under the Gas Contracts gives notice (either written or verbal) that such purchaser desires to amend any of the Gas Contracts with respect to price or quantity of deliveries under take-or-pay provisions, Borrower shall not agree to such amendment without the prior written consent of Lender, which may be withheld in Lender's sole discretion.

All Gas Contracts of Borrower are listed on Exhibit "C," attached hereto.

4.18

Regulatory Compliance .

To the best of Borrower's knowledge:

(i)

Borrower, as Operator, has not caused or allowed the generation, treatment, storage, disposal or release of Hazardous Materials on the Mortgaged Properties except in accordance with local, state and federal statutes, ordinances, rules and regulations.

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(ii)

The Mortgaged Properties operated by Borrower, and all of the Mortgaged Properties not operated by Borrower have been operated in compliance with all applicable local, state, and federal statutes, ordinances, rules and regulations concerning the handling of Hazardous Materials.

(iii)

Borrower, as Operator, has complied with all laws, regulations and orders of all Governmental Authorities having jurisdiction over the Mortgaged Properties in connection with laws regarding protection of the environment.

(iv)

All material necessary Permits or exemptions have been obtained from Governmental Authorities having jurisdiction over the Mortgaged Properties in connection with laws regarding protection of the environment.

(v)

Borrower has not received notice of any proceeding, claim or lawsuit relating to the breach of any law regarding protection of the environment.

(vi)

No hazardous substance has ever been disposed of on the Mortgaged Properties.

4.19

Litigation .

On the date hereof no suit, action or other proceeding is pending before any court or governmental agency to which Borrower is a party and which might result in impairment or loss of Borrower's title to any part of the Collateral, including without limitation, the Mortgaged Properties, or that might hinder or impede operation of the Mortgaged Properties and to the best of Borrower's knowledge, no such suit, action or other proceeding is threatened. Borrower will immediately notify in writing (certified mail, return receipt requested) Lender of any such proceeding arising at any time in the future.

4.20

Hedging Contracts .

Neither Borrower nor its predecessors in title have entered into any Hedging Contracts regarding the Mortgaged Properties as of the date hereof.

4.21

Financial Statements .

Borrower represents and warrants that the Financial Statements are true, correct and complete as of the dates specified therein and fully and accurately present the financial condition of Obligor and, if required, as of the dates specified. Borrower represents and warrants that no material adverse change has occurred in the financial condition of Obligor since the dates of the Financial Statements provided by Borrower to Lender. Each Guarantor represents and warrants that the Financial Statements provided by such Guarantor are true, correct and complete as of the dates specified therein and fully and accurately present the financial condition of such Guarantor and, if required, as of the dates specified. Each Guarantor represents that no Material Adverse Change has occurred in the financial condition of such Guarantor since the dates of the Financial Statements provided by such Guarantor.

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4.22

Suits, Actions, Etc .

Borrower represents and warrants that there are no actions, suits or proceedings pending or threatened in any court or before or by any Governmental Authority against or affecting Borrower, or the Collateral, including without limitation, the Mortgaged Properties, or involving the validity, enforceability, or priority of any of the Loan Instruments, at law or in equity. Borrower represents and warrants that the consummation of the transactions contemplated hereby, and the performance of any of the terms and conditions hereof and of the other Loan Instruments, will not result in a breach of, or constitute a default in, any mortgage, deed of trust, lease, promissory note, loan agreement, credit agreement, partnership agreement, or other agreement to which Borrower is a party or by which Borrower may be bound or affected. Each Guarantor represents and warrants that there are no actions, suits or proceedings pending or threatened in any court or before or by any Governmental Authority against or affecting such Guarantor, or the Collateral, including without limitation, the Mortgaged Properties, or involving the validity, enforceability, or priority of any of the Loan Instruments, at law or in equity. Each Guarantor represents and warrants that the consummation of the transactions contemplated hereby, and the performance of any of the terms and conditions hereof and of the other Loan Instruments, will not result in a breach of, or constitute a default in, any mortgage, deed of trust, lease, promissory note, loan agreement, credit agreement, partnership agreement, or other agreement to which such Guarantor is a party or by which such Guarantor may be bound or affected. Borrower represents and warrants that Borrower is not in default of any order of any court or any requirement of any Governmental Authority. Guarantor represents and warrants that Guarantor is not in default of any order of any court or any requirement of any Governmental Authority.

4.23

Valid and Binding Obligations .

Borrower represents and warrants that all of the Loan Instruments, and all other documents referred to herein to which Borrower is a party, upon execution and delivery, will constitute valid and binding obligations of Borrower, enforceable in accordance with their terms, except as limited by Debtor Relief Laws. Each Guarantor represents and warrants that all of the Loan Instruments, and all other documents referred to herein to which such Guarantor is a party, upon execution and delivery, will constitute valid and binding obligations of such Guarantor, enforceable in accordance with their terms, except as limited by Debtor Relief Laws. Furthermore, Obligor represents and warrants that the legal descriptions of the Mortgaged Properties as set forth in the Mortgages are all valid and enforceable, and all of Borrower's oil and gas leases and oil and gas wells covered by such leases located on the Mortgaged Properties in the State of Texas are listed on Exhibit "A."

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4.24

Title to the Collateral .

Except as to solely the Non-Producing Wells, Borrower holds full legal and equitable title to the Collateral, including without limitation, the Mortgaged Properties.

4.25

Solvency .

Borrower represents and warrants that Borrower is solvent as such term is used in applicable bankruptcy, liquidation, receivership, insolvency, or other similar laws. Each Guarantor represents and warrants that Guarantor is solvent as such term is used in applicable bankruptcy, liquidation, receivership, insolvency, or other similar laws.

4.26

Full Disclosure .

Borrower represents and warrants that neither the Financial Statements nor any statements contained in this Loan Agreement, nor any other written data specifically described in this Loan Agreement which has been furnished to Lender by Borrower in connection with this Loan Agreement, contains any material untrue statement of a fact or omits and/or fails to state a material fact necessary in order to make such statements or data not misleading in light of the circumstances under which it was made or furnished. Furthermore, Borrower represents and warrants that there is no fact that Borrower has not disclosed to Lender in writing that could reasonably be expected to result in a Material Adverse Change. Each Guarantor represents and warrants that neither the Financial Statements nor any statements contained in this Loan Agreement, nor any other written data specifically described in this Loan Agreement which has been furnished to Lender by such Guarantor in connection with this Loan Agreement, contains any material untrue statement of a fact or omits and/or fails to state a material fact necessary in order to make such statements or data not misleading in light of the circumstances under which it was made or furnished. Furthermore, each Guarantor represents and warrants that there is no fact that such Guarantor has not disclosed to Lender in writing that could reasonably be expected to result in a Material Adverse Change.

4.27

Environmental and Other Governmental Requirements .

(a) Borrower is conducting its businesses in material compliance with all applicable Governmental Requirements, including without limitation, the Environmental Laws, and has and is in compliance with all licenses and permits required under any such Governmental Requirements; (b) none of the operations or properties of Borrower is the subject of federal, state or local investigation evaluating whether any material remedial action is needed to respond to a release of any Hazardous Materials into the environment or to the improper storage or disposal ( including storage or disposal at offsite locations) of any Hazardous Materials; (c) Borrower, and to the best of Borrower’s knowledge, no other person or other third party has filed any notice under any Governmental Requirements indicating that Borrower or its predecessor in title to the Mortgaged Properties is responsible for the improper release into the environment, or the improper storage or disposal, of any amount of any Hazardous Materials or that any Hazardous Materials have been improperly released, or are improperly stored or disposed of, upon any property of Borrower; (d) Borrower has not transported or arranged for the transportation of any Hazardous Material to any location which is (i) listed on the National Priorities List under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, listed for possible inclusion on such National Priorities List by the Environmental Protection Agency in its Comprehensive Environmental Response, Compensation and Liability Information System List, or listed on any similar state list or (ii) the subject of federal, state or local enforcement actions or other investigations which may lead to claims against any Borrower for clean-up costs, remedial work, damages to natural resources or for personal injury claims (whether under Environmental Laws or otherwise); and (e) Borrower does not have any known contingent liability under any Environmental Laws or in connection with the release into the environment, or the storage or disposal, of any Hazardous Materials. Borrower covenants and agrees that at the time it acquired the Mortgaged Properties that it took all appropriate inquiry into the previous ownership and uses of the Mortgaged Properties and any potential environmental liabilities associated therewith.

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4.28

Inducement to Lender .

The representations and warranties contained in the Loan Instruments are made by Borrower, Guarantor, or jointly as Obligor as an inducement to Lender to make the Loan, and Obligor understands that Lender is relying on such representations and warranties and that such representations and warranties shall survive any (a) bankruptcy proceedings involving Obligor, or the Collateral, including without limitation, the Mortgaged Properties, or (b) foreclosure of the Mortgage or (c) conveyance of title to the Mortgaged Properties in lieu of foreclosure of the Mortgage.

4.29

Sale of Production .

To the best of Borrower's knowledge, none of the Mortgaged Properties is subject to any contractual or other arrangement (i) whereby payment for production is or can be deferred for a substantial period after the month in which such production is delivered (in the case of oil, not in excess of 60 days, and in the case of gas, not in excess of 90 days) or (ii) whereby payments are made to Borrower other than by checks, drafts, wire transfer advises or other similar writings, instruments or communications for the immediate payment of money. Furthermore, to the best of Borrower's knowledge, SAVE AND EXCEPT SOLELY the 30 Day Plus Contracts, none of the Mortgaged Properties are subject to any contractual or other arrangement for the sale, processing, or transportation of production (or otherwise related to the marketing of production) which cannot be canceled on thirty (30) days (or less) notice. Additionally, to the best of Borrower's knowledge, all contractual or other arrangements for the sale, processing, or transportation of production (or otherwise related to the marketing of production) are bona fide arm's length transactions made with third parties not affiliated with Borrower. To the best of Borrower's knowledge, Borrower is presently receiving a price for all production from (or attributable to) each of the Mortgaged Properties covered by a production sales contract or marketing contract listed on as Exhibit "C" that is computed in accordance with the terms of such contract, and Borrower is not having deliveries of production from such Mortgaged Properties curtailed substantially below such property's delivery capacity.

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4.30

Operation of Mortgaged Properties .

To the best of Borrower's knowledge, the Mortgaged Properties (and all properties unitized therewith) are being and will be maintained, operated, and developed in a good and workmanlike manner, in accordance with prudent industry standards and in conformity with all applicable Governmental Requirements. None of the Mortgaged Properties are subject to having allowable production after the date hereof reduced below the full and regular allowable (including the maximum permissible tolerance) because of any overproduction (whether or not the same was permissible at the time) prior to the date hereof and none of the wells located on the Mortgaged Properties (or properties unitized therewith) are or will be deviated from the vertical more than the maximum permitted by applicable Governmental Requirements, and such wells are bottomed under and producing from, with the well bores wholly within, such unitized properties or the wells are located on appropriately permitted off-lease surface locations and conform to applicable penetration and drainhole regulations covering such off-lease locations.). There are no dry holes, or otherwise inactive wells, located on the Mortgaged Properties or on lands pooled or unitized therewith, except for wells that have been properly plugged and abandoned. To the best of Borrower's knowledge, Borrower has all Permits necessary or appropriate to own and operate the Mortgaged Properties. Borrower has not received notice of any violations in respect of any Permits.

4.31

APA .

To the best of Borrower's knowledge, Borrower has provided Lender copies of all material communications regarding the APA, including without limitation, any amendments or modifications thereto.

4.32

Investment Company Act of 1940 .

The Borrower is not an investment company within the meaning of the Investment Company Act of 1940.

4.33

ERISA .

Borrower is in compliance in all respects and will continue to be in compliance in all respects with the applicable provisions of "ERISA" (Employee Retirement Income Security Act of 1974, as amended), and to the best of Borrower's knowledge, no "reportable event" as such term is defined in Section 4043 of ERISA, has occurred with respect to any plan of Borrower.

4.34

Valid and Binding Obligations .

S ubject to applicable bankruptcy and insolvency laws, all of the Loan Instruments and all other documents referred to herein to which Obligor is a party, upon execution and delivery, will constitute valid and binding obligations of Obligor, enforceable in accordance with their terms.

4.35

Rights of First Refusal, Consents to Assign, and Reversionary Interests.

Obligor covenants and agrees that no party has any call upon, preferential right or option to purchase, right of first refusal or similar rights under any agreement with respect to the Collateral, including without limitation, the Mortgaged Properties, or to the production therefrom or the proceeds from the sale of such production. Obligor further covenants and agrees that no party has any consent to assign or transfer any of the Mortgaged Properties or any reversionary interests in the Mortgaged Properties.

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ARTICLE 5 - COVENANTS OF BORROWER AND GUARANTOR

Borrower and Guarantor, to the extent Guarantor joins in a covenant, hereby covenant and agree as follows:

5.1

Compliance with Governmental Requirements .

Borrower shall timely comply with all Governmental Requirements and deliver to Lender evidence thereof. Borrower assumes full responsibility for the compliance of the Collateral, including without limitation, the Mortgaged Properties with all Governmental Requirements and, notwithstanding any approvals by Lender, Lender shall have no obligation or responsibility whatsoever for any matter incident to the Mortgaged Properties. Immediately upon Borrower's receipt of any notice from a Governmental Authority of noncompliance with any Governmental Requirements, Borrower shall provide Lender with written notice thereof.

5.2

Hedging Contracts .

During the term of the Loan, Borrower shall not enter into any Hedging Contracts without the prior written consent of Lender, which Lender may withhold in its sole and absolute discretion. In the event that Lender gives consent to Borrower to enter into Hedging Contracts, such Hedging Contracts shall be upon such terms as approved by Lender in its sole and absolute discretion.

5.3

IBC Sinking Fund Account .

At all times during the term of this Agreement, Borrower shall maintain the IBC Sinking Fund Account with Lender by which, at the sole discretion of Lender, principal payments of the Note shall be paid, (the "IBC Sinking Fund Account"), and which account shall begin with a balance of $3,360,000.00. The IBC Sinking Fund Account shall be pledged to Lender by such Loan Instruments as required by Lender in Lender's sole and absolute discretion, including without limitation, by the IBC Sinking Fund Account Assignment. No money may be withdrawn from the IBC Sinking Fund Account without the prior written approval of Lender, which may be granted or withheld in the sole discretion of Lender. In the event that the West Texas Properties (defined in Section 7.23) are sold, fifty percent (50%) of the sales proceeds therefrom shall be deposited in the IBC Sinking Fund Account.

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5.4

IBC Account .

At all times during the term of this Agreement, Borrower shall maintain the IBC Account with Lender, into which the Advance under the Loan and other funds of Borrower required by Lender, shall be deposited by Borrower. Monthly interest payments of the Note will be taken from the IBC Account except as otherwise permitted by Lender in Lender's sole discretion. If an Event of Default occurs, Lender has the right, in its sole discretion, to place a hold on the IBC Account whereby no money may be withdrawn from the IBC Account without the prior written approval of Lender, which may be withheld in Lender's sole discretion.

5.5

Future IBC Accounts .

Borrower shall ensure that all accounts of Borrower are located at Lender and will be pledged to secure the Note within three (3) days after such accounts are opened unless otherwise approved by Lender in Lender's sole discretion. Upon receipt of oil and gas runs, all such deposits shall be made to the IBC Account. Monthly principal payments of the Note will be taken from the IBC Sinking Fund Account except as otherwise permitted by Lender in Lender's sole discretion. Monthly interest payments of the Note will be taken from the IBC Account except as otherwise permitted by Lender in Lender's sole discretion.

5.6

Inspection of the Mortgaged Properties .

Borrower shall permit Lender, the Engineer, any Governmental Authority, and their agents and representatives, to enter upon the Mortgaged Properties for the purpose of inspection of the Mortgaged Properties and such materials at all times required by Lender. Furthermore, with respect to the Collateral, Borrower shall permit Lender and its agents to inspect the Collateral, other than the Mortgaged Properties, at all times as required by Lender.

5.7

Notices by Governmental Authority, Casualty, Condemnation .

Borrower shall timely comply with and promptly furnish to Lender true and complete copies of any official notice or claim by any Governmental Authority pertaining to the Mortgaged Properties. Borrower shall promptly notify Lender of any fire or other casualty or any notice of taking or eminent domain action or proceeding affecting the Mortgaged Properties, or the threat of any such action or proceeding of which Borrower becomes aware.

5.8

Costs and Expenses .

Borrower shall pay when due all costs and expenses required by this Loan Agreement, including, without limitation, (a) all taxes and assessments applicable to the Mortgaged Properties, (b) all fees for filing or recording the Loan Instruments, (c) all fees and expenses of counsel to Lender, (d) all title examination and Title Audit Letter charges, and (e) all other costs and expenses payable to third parties incurred by Lender in connection with the consummation of the transactions contemplated by this Loan Agreement.

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5.9

Defense of Actions .

Lender may (but shall not be obligated to) commence, appear in, or defend any action or proceeding purporting to affect the Loan, the Mortgaged Properties or the respective rights and obligations of Lender and Borrower pursuant to this Loan Agreement. Lender may (but shall not be obligated to) pay all necessary expenses, including attorneys' fees and expenses incurred in connection with such proceedings or actions, which Borrower agrees to repay to Lender.

5.10

Payment of Claims .

Borrower shall promptly pay or cause to be paid when due all costs and expenses incurred in connection with the Collateral, including without limitation, the Mortgaged Properties, and Borrower shall keep the Mortgaged Properties free and clear of any lien, charge, or claim other than the encumbrances of the Mortgage and other liens approved in writing by Lender in advance in its sole discretion.

5.11

Payment of Taxes and Other Indebtedness .

Borrower will pay and discharge (i) all taxes imposed upon it or upon its income or profits, or upon any assets or properties belonging to it, before delinquent, (ii) all lawful claims, including claims for labor, materials and supplies), which, if unpaid, might become a lien upon any of its assets or properties, and (iii) all of its other indebtedness, except as prohibited hereunder; provided, however, that Borrower shall not be required to pay any such tax, if and so long as the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings and appropriate accruals and reserves therefor have been duly and properly established.

5.12

Maintenance of Existence and Rights; Conduct of Business .

Borrower will preserve and maintain its existence and all of its rights and privileges necessary or desirable in the normal conduct of its business, and conduct its business in an orderly and efficient manner consistent with good business practices and in accordance with all valid regulations and order of any Governmental Authority. Borrower will operate the Mortgaged Properties in a prudent and business like manner.

5.13

Compliance with All Agreements Covering the Mortgaged Properties .

Borrower shall timely comply with the requirements of all agreements covering the Mortgaged Properties, including without limitation, the Basic Documents and the Gas Contracts (collectively, the "Mortgaged Properties Agreements") and deliver to Lender evidence thereof as requested by Lender, including without limitation, contracts, operating agreements, Oil and Gas Leases, etc. Borrower assumes full responsibility for the satisfaction of the terms and conditions of the Mortgaged Properties Agreements. Lender shall have no obligation or responsibility whatsoever for the Mortgaged Properties Agreements, or any other matter incident to the Mortgaged Properties Agreements. Immediately upon Borrower's receipt of any notice from the any party to the Mortgaged Properties Agreements besides Borrower of noncompliance with any requirements of any of the Mortgaged Properties Agreements, Borrower shall promptly provide Lender with written notice thereof.

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5.14

Compliance with Loan Instruments .

Borrower will promptly comply with any and all covenants and provisions of this Loan Agreement, the Note and all of the Loan Instruments. Guarantor will comply with the covenants and provisions of the Loan Agreement applicable to Guarantor and with the covenants and provisions of the Guaranty Agreement and any pledge agreements executed by Guarantor.

5.15

Compliance with Material Agreements .

Obligor will comply in all respects with all material agreements, indentures, mortgages, deeds of trust or documents binding on it or affecting its assets, properties or business.

5.16

Operations and Properties .

Obligor will act prudently and in accordance with customary industry standards in managing or operating its assets, properties, business and investments; Obligor will keep in good working order and condition, ordinary wear and tear excepted, all of its assets and properties which are necessary to the conduct of its business.

5.17

Books and Records; Access .

Obligor will give any representative of Lender access during all hours to, and permit such representative to examine, copy or make excerpts from, any and all books, records and documents in the possession of Obligor and relating to its affairs, and to inspect any of the assets or properties of Obligor. Obligor will maintain complete and accurate books and records of its transactions in accordance with good accounting practices.

5.18

Compliance with Law .

Obligor will comply with all applicable laws and all orders of any Governmental Authority applicable to it or any of its assets or properties, business operations or transactions.

5.19

Insurance .

Obligor will maintain the Insurance Policies against such casualties, risks and contingencies, and in such types and amounts as are consistent with customary practices and standards of companies engaged in similar businesses and as may be required by Lender.

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5.20

Current Financial Statements .

Obligor shall (1) on or before the fifteenth (15th) day following the end of each calendar quarter, deliver or cause to be delivered to Lender current Financial Statements, Lease Operating Statements, and income and expenses of the Mortgaged Properties for the immediately preceding calendar quarter all in a form approved by Lender in its sole discretion, (2) on or before the one hundred and twentieth (120th) day following the end of each calendar year, deliver or cause to be delivered to Lender then current Financial Statements of Obligor audited by a third party accounting firm/company approved by Lender in accordance with Generally Accepted Accounting Principles, (3) within one hundred twenty (120) days following the end of each calendar year, the Obligor shall deliver to the Lender copies of its tax returns, and (4) from time to time, as Lender may request, deliver to Lender additional Financial Statements of Obligor.

5.21

Tax Receipts .

Borrower shall furnish Lender with receipts or tax statements marked "Paid" to evidence the payment of all taxes levied on the Mortgaged Properties on or before thirty (30) days prior to the date such taxes become delinquent.

5.22

Loan Participations .

Obligor acknowledges and agrees that Lender may, from time to time, sell or offer to sell interests in the Loan and the Loan Instruments to one or more participants. Obligor authorizes Lender to disseminate any information it has pertaining to the Loan, including, without limitation, complete and current credit information on Obligor, or any of its principals, to any such participant or prospective participant.

5.23

Notice of Litigation, Claims and Financial Change .

Borrower shall promptly inform Lender of (a) any litigation against Obligor or affecting the Mortgaged Properties, which, if determined adversely, might have a Material Adverse Change upon the financial condition of Obligor, or upon the Mortgaged Properties, or might cause an Event of Default, (b) any claim or controversy which might become the subject of such litigation, and (c) any Material Adverse Change in the financial condition of Borrower. Each Guarantor shall promptly inform Lender of (a) any litigation against such Guarantor, which, if determined adversely, might have a Material Adverse Change upon the financial condition of such Guarantor, or might cause an Event of Default, (b) any claim or controversy which might become the subject of such litigation, and (c) any Material Adverse Change in the financial condition of such Guarantor.

5.24

Hold Harmless .

Borrower shall defend, at its own cost and expense, and hold Lender harmless from, any proceeding or claim in any way relating to the Mortgaged Properties or the Loan Instruments. All costs and expenses incurred by Lender in protecting its interests hereunder, including all court costs and attorneys' fees and expenses, shall be borne by Borrower. The provisions of this Section shall survive the payment in full of the Loan and all other indebtedness secured by the Mortgage and the release of the Mortgage as to events occurring and causes of action arising before such payment and release.

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5.25

Hazardous Materials; Environmental Reviews .

(a)

Borrower will (i) comply in all respects with all Environmental Laws now or hereafter applicable to Borrower and all contractual obligations and agreements with respect to environmental remediation or other environmental matters, (ii) obtain, at or prior to the time required by applicable Environmental Laws, all environmental, health and safety permits, licenses and other authorizations necessary for its operations and maintain such authorizations in full force and effect. Borrower will not do anything or permit anything to be done which will subject any of the Mortgaged Properties to any remedial obligations under, or result in noncompliance with applicable permits and licenses issued under, any applicable Environmental Laws, assuming disclosure to the applicable Governmental Authorities of all relevant facts, conditions and circumstances. Upon Lender's request, at any time and from time to time, Borrower will provide at its own expense an environmental inspection of any of the Mortgaged Properties and audit of its environmental compliance procedures and practices, in each case from an engineering or consulting firm approved by Lender, including without limitation, the Engineer. Borrower will promptly furnish to Lender all written notices of violation, orders, claims, citations, complaints, penalty assessments, suits or other proceedings received by Borrower, or of which it has notice, pending or threatened against Borrower, by any Governmental Authority with respect to any alleged violation of or non-compliance with any Environmental Laws or any permits, licenses or authorizations in connection with its ownership or use of its properties or the operation of its business if the Borrower reasonably anticipates that such action will result in liability. Borrower will promptly furnish to Lender all requests for information, notices of claim, demand letters, and other notifications, received by Borrower in connection with its ownership or use of the Mortgaged Properties or the conduct of its business, relating to potential responsibility with respect to any investigation or clean-up of Hazardous Material at any location.

(b)

Borrower shall not cause or suffer any liens to be recorded against the Mortgaged Properties as a consequence of, or in any way related to, the presence, remediation or disposal of Hazardous Material in or about the Mortgaged Properties, including any state, federal or local so-called "Superfund" lien relating to such matters.

(c)

Borrower shall at all times retain any and all liabilities arising from the presence, handling, treatment, storage, transportation, removal or disposal of Hazardous Materials on the Mortgaged Properties. Regardless of whether any Event of Default shall have occurred and be continuing or any remedies in respect of the Mortgaged Properties are exercised by Lender, Borrower shall defend, indemnify and hold harmless Lender from and against any and all liabilities (including strict liability), suits, actions, claims, demands, penalties, damages (including, without limitation, lost profits, consequential damages, interest, penalties, fines and monetary sanctions), losses, costs or expenses (including, without limitation, attorneys' fees and expenses, and remedial costs) (the foregoing are hereinafter collectively referred to as "Liabilities") which may now or in the future (whether before or after the culmination of the transactions contemplated by this Loan Agreement) incurred or suffered by Lender by reason of, resulting from, in connection with, or arising in any manner whatsoever out of the breach of any warranty or covenant or the inaccuracy of any representation of Borrower contained or referred to in this Section or elsewhere in this Loan Agreement or which may be asserted as a direct or indirect result of the presence on or under, or escape, seepage, leakage, spillage, discharge, emission, or release from the Mortgaged Properties of any Hazardous Materials or arise out of or result from the environmental condition of the Mortgaged Properties or the applicability of any Governmental Requirements relating to Hazardous Materials, whether or not occasioned wholly or in part by any condition, accident or event caused by any act or omission of Lender.

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Such Liabilities shall include, without limitation: (i) injury or death to any person; (ii) damage to or loss of the use of any Mortgaged Properties; (iii) the cost of any repair or remediation and the preparation of any activity required by any Governmental Authority; (iv) any lawsuit brought or threatened, good faith settlement reached, or governmental order relating to the presence, disposal, release or threatened release of any Hazardous Material on, from or under the Mortgaged Properties; (v) the imposition of any lien on the Mortgaged Properties arising from the activity of Borrower or Borrower’s predecessors in interest on the Mortgaged Properties or from the existence of Hazardous Materials upon the Mortgaged Properties; and (vi) any Environmental Event.

The covenants and agreements contained in this Section shall survive the consummation of the transactions contemplated by this Loan Agreement.

5.26

Government Regulation .

Borrower shall not: (1) be or become subject at any time to any law, regulation, or list of any government agency (including, without limitation, the U.S. Office of Foreign Asset Control list) that prohibits or limits Lender from making any advance or extension of credit to Borrower or from otherwise conducting business with Borrower, or (2) fail to provide documentary and other evidence of Borrower's identity as may be requested by Lender at any time to enable Lender to verify Borrower's identity or to comply with any applicable law or regulation, including, without limitation, Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318.

5.27

USA PATRIOT ACT NOTIFICATION .

The following notification is provided to Borrower pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318:

IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person or entity that opens an account, including any deposit account, treasury management account, loan, other extension of credit, or other financial services product. What this means for Borrower: When Borrower opens an account, if Borrower is an individual Lender will ask for Borrower's name, taxpayer identification number, residential address, date of birth, and other information that will allow Lender to identify Borrower, and if Borrower is not an individual Lender will ask for Borrower's name, taxpayer identification number, business address, and other information that will allow Lender to identify Borrower. Lender may also ask, if Borrower is an individual to see Borrower's driver's license or other identifying documents, and if Borrower is not an individual to see Borrower's legal organizational documents or other identifying documents.

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5.28

Subordinate Financing .

Borrower shall not have the right to further encumber the Mortgaged Properties or any other real or personal Mortgaged Properties pledged to Lender in connection with the Loan.

5.29

Further Acts .

Borrower shall execute and deliver all such financing statements, security agreements, and such other instruments and documents as Lender may request on or before ten (10) days after such request is made by Lender to Borrower in order to perfect Lender's security interests in and upon the Collateral. Borrower shall at all times do, make, execute, deliver, record, register or file all such instruments, acts, pledges, assignments and transfers (or cause the same to be done) and shall deliver to Lender such instruments constituting or evidencing the collateral securing the Loan as Lender may request, to better assure Lender with respect to the security interests granted to it under the documents in connection with the Loan.

5.30

Security Interests in Guarantor's Common Stock in Borrower and No Sales of Common Stock Pledged .

Obligor covenants and agrees that each Guarantor shall not pledge nor permit a security interest in its Common Stock in Borrower that has been pledged as collateral to secure the Loan, which Common Stock in Borrower constitutes at least seventy-five percent (75%) of each Guarantor's Common Stock in Borrower during the term of this Loan. There shall be no transfer or sale of any Common Stock of Borrower owned by Guarantor and pledged to Lender without the prior written consent of Lender, which may be withheld in Lender's sole and absolute discretion.

With respect to RAD2, Richard N. Azar, II and RAD2 covenant and agree that RAD2 has pledged 3,120,606 common shares in Borrower to Lender.

With respect to DBS, Donnie B. Seay and DBS covenant and agree that DBS has pledged 935,934 common shares in Borrower to Lender.

With respect to Saxum, Richard Menchaca and Saxum covenant and agree that Saxum has pledged 673,392 common shares in Borrower to Lender.

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5.31

Corporate Compliance .

Borrower covenants and agrees to comply with all terms and conditions of the corporate documents of Borrower.

5.32

No Restricted Payments .

Obligor covenants and agrees that Borrower shall not make any Restricted Payments to any Person during the term of this Loan without the prior written consent of Lender, which may be withheld in in Lender's sole and absolute discretion. In the event that Lender permits the sale of certain of the Mortgaged Properties, no distributions of the proceeds from such sale shall be permitted, as such funds may only be used as Lender permits, including without limitation, as a principal pay down of the Loan.

5.33

Revisions to the Corporate Documents .

Borrower covenants and agrees that there will be no revisions, changes or amendments to the corporate documents of Borrower without the prior written consent of Lender which may be withheld in Lender's sole discretion.

5.34

Indemnity of Lender .

BORROWER COVENANTS AND AGREES TO FULLY INDEMNIFY AND HOLD HARMLESS, LENDER FROM AND AGAINST ANY AND ALL COSTS, CLAIMS, LIENS, DAMAGES, LOSSES, EXPENSES, FEES, FINES, PENALTIES, PROCEEDINGS, ACTIONS, DEMANDS, CAUSES OF ACTION, LIABILITY AND SUITS OF ANY KIND AND NATURE, INCLUDING BUT NOT LIMITED TO, PERSONAL OR BODILY INJURY, DEATH AND PROPERTY DAMAGE, MADE UPON THE LENDER, DIRECTLY OR INDIRECTLY ARISING OUT OF, RESULTING FROM OR RELATED TO BORROWER'S ACTIVITIES UNDER THIS LOAN AGREEMENT, INCLUDING ANY ACTS OR OMISSIONS OF BORROWER , ANY AGENT, OFFICER, DIRECTOR, REPRESENTATIVE, EMPLOYEE, CONSULTANT, OF BORROWER, AND ITS RESPECTIVE OFFICERS, AGENTS, EMPLOYEES, DIRECTORS AND REPRESENTATIVES WHILE IN THE EXERCISE OR PERFORMANCE OF THE RIGHTS OR DUTIES UNDER THIS LOAN AGREEMENT.

IT IS FURTHER COVENANTED AND AGREED THAT SUCH INDEMNITY SHALL APPLY EVEN WHERE SUCH COSTS, CLAIMS, LIENS, DAMAGES, LOSSES, EXPENSES, FEES, FINES, PENALTIES, ACTIONS, DEMANDS, CAUSES OF ACTION, LIABILITY AND/OR SUITS ARISE IN ANY PART FROM THE NEGLIGENCE OF LENDER UNDER THIS LOAN AGREEMENT. THE PROVISIONS OF THIS INDEMNIFICATION AGREEMENT ARE SOLELY FOR THE BENEFIT OF THE PARTIES HERETO AND NOT INTENDED TO CREATE OR GRANT ANY RIGHTS, CONTRACTUAL OR OTHERWISE, TO ANY OTHER PERSON OR ENTITY. BORROWER SHALL PROMPTLY ADVISE LENDER IN WRITING OF ANY CLAIM OR DEMAND AGAINST THE LENDER OR BORROWER KNOWN TO BORROWER RELATED TO OR ARISING OUT OF BORROWER'S ACTIVITIES UNDER THIS LOAN AGREEMENT AND SHALL SEE TO THE INVESTIGATION AND DEFENSE OF SUCH CLAIM OR DEMAND AT BORROWER'S COST. LENDER SHALL HAVE THE RIGHT, AT ITS OPTION AND AT ITS OWN EXPENSE, TO PARTICIPATE IN SUCH DEFENSE WITHOUT RELIEVING BORROWER OF ANY OF THEIR OBLIGATIONS UNDER THIS PARAGRAPH.

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IT IS THE EXPRESS INTENT OF THE PARTIES TO THIS LOAN AGREEMENT THAT THE INDEMNITY PROVIDED FOR IN THIS SECTION IS AN INDEMNITY EXTENDED BY BORROWER TO INDEMNIFY, PROTECT AND HOLD HARMLESS THE LENDER FROM THE CONSEQUENCES OF THE LENDER'S OWN NEGLIGENCE. BORROWER FURTHER AGREE TO DEFEND, AT THEIR OWN EXPENSE, AND ON BEHALF OF THE LENDER AND IN THE NAME OF THE LENDER, ANY CLAIM OR LITIGATION BROUGHT AGAINST THE LENDER IN CONNECTION WITH ANY SUCH INJURY, DEATH OR DAMAGE FOR WHICH THIS INDEMNITY SHALL APPLY, AS SET FORTH ABOVE.

THE COVENANTS AND AGREEMENTS CONTAINED IN THIS SECTION SHALL SURVIVE THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS LOAN AGREEMENT.

5.35

Engineer Reserve Report .

On June 30 (with such report relating back to reserves as of April 1) and December 30 (with such report relating back to reserves as of October 1) of each year, beginning December 30, 2016, Borrower covenants and agrees to provide an Engineering Reserve Report prepared by the Engineer to verify and evaluate the oil and gas reserves of the Mortgaged Properties for the preceding six month period. This report is subject to the approval of Lender, shall take into account any "over-produced" status under gas balancing arrangements, and shall contain information and analysis comparable in scope to that contained in the initial Engineering Report dated as of April 1, 2016. This report shall project monthly production volumes attributable to the Mortgaged Properties and interests. With such report, Borrower shall provide Lender with an accompanying report on property sales, property purchases, and changes in categories, both in form and scope as the Engineering Report. Furthermore, Borrower agrees to pay to Lender an engineering fee of $10,000.00 per year, the first such fee to be paid on October 1, 2016, and subsequent annual fees shall be paid on the same date each year thereafter until the Note is paid in full.

5.36

Good Standing .

Borrower covenants and agrees to maintain the existence and good standing of Borrower, including without limitation, in the States of Nevada, Texas, and Oklahoma, during the term of the Loan.

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Richard N. Azar covenants and agrees to maintain the existence and good standing of RAD2 Minerals, Ltd. , including without limitation, in the State of Texas, during the term of the Loan.

Donnie B. Seay covenants and agrees to maintain the existence and good standing of DBS Investments, Ltd. , including without limitation, in the State of Texas, during the term of the Loan.

Richard E. Menchaca covenants and agrees to maintain the existence and good standing of Saxum Energy, LLC, including without limitation, in the State of Texas, during the term of the Loan.

5.37

Mortgaged Properties .

Borrower covenants and agrees at Lender's request and in no event less frequently than semi-annually on January 1 and July 1 of each year to (i) furnish Lender with any notices or information it receives with respect to any federal or state agency audits regarding the pricing or marketing of oil or gas produced and sold from any of the Mortgaged Properties, (ii) furnish to Lender a report in a form and substance satisfactory to Lender all well information, production history, electrical logs, and other data available to Borrower that may have a bearing upon the value of the Mortgaged Properties, including without limitation, quantities of oil and/or gas sold by barrels and MCF's, dollar amounts received for said oil and/or gas, average price per barrel of oil and/or MCF of gas for said oil and/or gas, and such other information as Lender may request (iii) furnish to Lender any information received by Borrower that affects the value of any of the Mortgaged Properties, (iv) furnish to Lender upon its request copies of any reports available to Borrower which are filed with regulatory agencies having jurisdiction of the Mortgaged Properties; and (v) pay all taxes and other costs pertaining to the Mortgaged Properties. Furthermore, in the event Borrower acquires additional interests in any of the Mortgaged Properties or renewals, extensions, or new Oil and Gas Leases covering any of the Mortgaged Properties, Borrower covenants and agrees to notify Lender of such acquisitions on or before three (3) days after such acquisition and deliver to Lender upon its request such supplemental Mortgage or other instruments which Lender may require in order to subject such additional or new interests to the terms of the Mortgage or to a new mortgage on or before five (5) days after Borrower obtains such additional interests and/or Oil and Gas Leases.

5.38

Performance of Obligations .

Borrower will maintain in full force and effect all Oil and Gas Leases, contracts, servitudes, and other agreements regarding any of the Mortgaged Properties, and Obligor will timely perform all of its obligations thereunder. Borrower will properly and timely pay all rents, royalties, and other payments due and payable under any such Oil and Gas Leases, contracts, servitudes, and other agreements, or otherwise attendant to its ownership or operation of any such Mortgaged Properties. Borrower will promptly notify Lender of any claim that Borrower is obligated to account for any royalties, or overriding royalties or other payments out of production, on a basis (other than delivery in kind) less favorable to Borrower than proceeds received by Borrower (calculated at the well) from sale of production.

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5.39

Representations and Warranties .

At all times that this Loan Agreement is in effect (and not just at, and as of, the times such representations and warranties are made), all representations and warranties in Article 4 hereof shall remain true and correct.

5.40

Cash Flow Test .

Borrower covenants and agrees to meet the requirements of the Cash Flow Test during the term of the Loan. If at any time the Loan does not meet the requirements of the Cash Flow Test, Borrower shall either (i) pledge or cause to be pledged Additional Collateral acceptable to Lender or provide additional security or guaranties, all by instruments satisfactory in execution, form, and substance to Lender, or (ii) pay down the outstanding principal balance of the Note to bring the Loan into compliance with the herein described requirements within fifteen (15) days after notice thereof from Lender. Failure to bring the Loan into compliance to Lender's satisfaction in its sole and absolute discretion within such fifteen (15) day time period shall constitute an Event of Default hereunder, and Lender shall be entitled to enforce all remedies under the Loan Instruments in equity and at law. Testing of the Cash Flow Test shall be administered semi-annually on June 30 and December 30 of each year; with the first Cash Flow Test to be administered on June 30, 2017, however, it may also occur from time to time and at any time in Lender's sole discretion.

5.41

Loan to Value Determination Base .

Borrower covenants and agrees that it shall not exceed the Loan to Value Determination Base during the term of the Loan. Testing of the Loan to Value Determination Base shall be administered semi-annually on June 30 and December 30 of each year; with the first Loan to Value Determination Base to be tested on December 30, 2016, however, it may also occur from time to time at any time in Lender's sole discretion. If at any time the outstanding principal balance of the Note exceeds the Loan to Value Determination Base, the Borrower shall either (i) pledge or cause to be pledged Additional Collateral acceptable to Lender or provide additional security or guaranties, all by instruments satisfactory in execution, form, and substance to Lender, or (ii) pay down the outstanding principal balance of the Note to bring the Note into compliance with the herein described requirements within fifteen (15) days after written notice thereof from Lender. Failure to bring the Note into compliance to Lender's satisfaction in its sole discretion within such fifteen (15) day time period shall constitute, at the option of Lender, an Event of Default hereunder and Lender shall be entitled to enforce all remedies under the Loan Instruments, in equity and at law.

5.42

Shares of Borrower and Underwriting Fee .

As of the date of this Loan Agreement, Borrower has issued 15,139,351 shares of common stock in Borrower. Borrower will issue to Lender the sum of 390,290 common shares of Borrower September 2, 2016, which share amount constitutes approximately 2.6% of the outstanding shares of Borrower. The delivery of 390,290 common shares of Borrower (the “Underwriting Shares”) constitutes an underwriting fee to Lender for the Loan.

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Lender is an “accredited investor,” as such term is defined in Regulation D of the Securities Act of 1933, as amended (the “Securities Act”), and will acquire the Underwriting Shares for its own account and not with a view to a sale or distribution thereof as that term is used in Section 2(a)(11) of the Securities Act, in a manner which would require registration under the Securities Act or any state securities laws. Lender has such knowledge and experience in financial and business matters that Lender is capable of evaluating the merits and risks of the Underwriting Shares. Lender can bear the economic risk of the Underwriting Shares, has knowledge and experience in financial business matters and is capable of bearing and managing the risk of investment in the Underwriting Shares. Lender recognizes that the Underwriting Shares have not been registered under the Securities Act, nor under the securities laws of any state and the certificates evidencing such shares will include a legend stating the same, and, therefore, cannot be resold unless the resale of the Underwriting Shares is registered under the Securities Act or unless an exemption from registration is available. Lender has carefully considered and has, to the extent Lender believes such discussion necessary, discussed with its professional, legal, tax and financial advisors, the suitability of an investment in the Underwriting Shares for its particular tax and financial situation and its advisers, if such advisors were deemed necessary, and has determined that the Underwriting Shares are a suitable investment for it. The Lender has not been offered the Underwriting Shares by any form of general solicitation or advertising, including, but not limited to, advertisements, articles, notices or other communications published in any newspaper, magazine, or other similar media or television or radio broadcast or any seminar or meeting where, to Lender’s knowledge, those individuals that have attended have been invited by any such or similar means of general solicitation or advertising. Lender has had an opportunity to ask questions of and receive satisfactory answers from Borrower, or any person or persons acting on behalf of Borrower, concerning the terms and conditions of the Underwriting Shares and Borrower, and all such questions have been answered to the full satisfaction of Lender. Borrower has not supplied Lender any information regarding the Underwriting Shares or an investment in the Underwriting Shares other than as contained in this Loan Agreement, and Lender is relying on its own investigation and evaluation of the Borrower and the Underwriting Shares and not on any other information.

5.43

Additional Collateral .

Borrower covenants and agrees that all assets of Borrower, including without limitation, all Collateral which Borrower now owns and will own in the future SAVE AND EXCEPT the Outside Mineral Interests, will be pledged by Borrower to Lender to secure the Loan, including without limitation, the Assets, as defined in the APA. In that regard, neither Borrower nor any Affiliate of Borrower may obtain Additional Collateral without the prior written consent of Lender, which may be withheld in Lender's sole discretion. If and when Borrower or any Affiliate of Borrower acquires Additional Collateral, including without limitation, additional mineral interests in the Mortgaged Properties that Borrower already owns an interest, after written approval by Lender upon such terms and conditions as Lender may require in its sole discretion, Borrower covenants and agrees to pledge such interests to Lender by a supplemental Mortgage and other instruments which Lender may require upon such terms as required by Lender in its sole and absolute discretion on or before three (3) days after Borrower acquires such interests. Before granting any Mortgage liens in such interests, Borrower will furnish Lender with title opinions and other title evidence in form, substance, and authorship satisfactory to Lender and such other due diligence items as required by Lender. Furthermore, Borrower will furnish Lender a written description, analysis, and professional evaluation in a report acceptable to Lender (a "Supplemental Collateral Report") of any additional Collateral (collectively, "Additional Collateral") that Borrower intends to acquire. Lender may evaluate such Supplemental Collateral Report and in conjunction with such evaluation, conduct a full credit analysis of Borrower and the existing Collateral and/or Additional Collateral. Borrower agrees to pay the cost and expense associated with Lender's evaluation of the Supplemental Collateral Report. Such additional acquired interest shall be used in all testing conducted hereunder by Lender to ensure Borrower is in compliance with its covenants under this Loan Agreement.

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5.44

Oil and Gas Leases .

Borrower shall timely comply with all requirements of the Oil and Gas Leases and deliver to Lender written evidence thereof. Borrower assumes full responsibility for the satisfaction of the terms and conditions of the Oil and Gas Leases. Lender shall have no obligation or responsibility whatsoever for the Oil and Gas Leases, or any other matter incident to the Oil and Gas Leases. Immediately upon Borrower's receipt of any material notice regarding the Oil and Gas Leases, including without limitation, a default of the Oil and Gas Leases by either Borrower or the lessor, Borrower shall provide Lender with written notice thereof within three (3) days of the date of the receipt of such notice by Borrower. There shall be no amendments to the Oil and Gas Leases without the prior written consent of Lender, which may be withheld in Lender's sole discretion.

5.45

Negative Covenants .

Without the prior written consent of Lender, Borrower will not incur any other debt in excess of One Hundred Thousand and No/100 Dollars ($100,000.00) per year and in the aggregate, and with respect to such other debt, violate or fail to comply with any covenants or obligations that would constitute a default thereof..

Borrower will use Generally Accepted Accounting Principles for its accounting and make available to Lender all matters, functions, calculations, and methods regarding its accounting and will not make any change in its current accounting method nor change its present fiscal year.

Borrower will not make any substantial change in the nature of its business as now conducted, nor change the management of Borrower or engage in any other business not reasonably related to Borrower's business as presently and normally conducted.

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Borrower will not reorganize, merge, or affiliate with any other entity without the prior consent of Lender, and Borrower will not change the present positions of Anthony C. Schnur and Richard N. Azar, II without the prior written consent of Lender.

Borrower will not sell, contract to sell, convey, assign, transfer, mortgage, pledge, hypothecate, encumber, or in any way alienate any interest in the Collateral, including without limitation, the Mortgaged Properties, including without limitation, the income or proceeds of production therefrom, without the prior written consent and approval of Lender, which may be withheld in Lender's sole and absolute discretion.

Obligor shall not become a guarantor or surety of, or otherwise become or be responsible in any manner with respect to any loan or other undertaking of another, or make or permit to exist any loans or advances to a third party.

Without the prior written consent of Lender, the maximum General and Administrative Expenses of Borrower, as determined by Lender in its sole discretion, shall not exceed $233,333.00 per month nor in the aggregate, $2,800,000.00 annually based on Borrower’s fiscal year (the “G&A Caps”). On August 25, 2017, and every August 25 thereafter during the term of this Loan (each a "G&A Determination Date"), Lender shall evaluate what should be the maximum monthly and annual General and Administrative Expenses of the Borrower based on the totality of Borrower's financial well-being. On or before the G&A Determination Date, after Lender's evaluation of the General and Administrative Expenses and Borrower's financial well-being, including without limitation, review of written documentation provided by Borrower and discussions with Borrower, Lender shall deliver to Borrower in writing the maximum monthly and annual General and Administrative Expenses of Borrower through the next G&A Determination Date. There will be no change to the maximum monthly and annual General and Administrative Expenses without the prior written consent of Lender, which may be withheld in Lender's sole and absolute discretion. Notwithstanding the foregoing, Borrower may pay cash bonuses (“Bonus Payments) to Borrower’s directors, officers, and employees (each actual recipient a “Bonus Recipient” and all such actual recipients the “Bonus Recipients”), even if such payments exceed the G&A Caps, so long as: (1) the Bonus Payments during any one Borrower fiscal year to any Bonus Recipient does not exceed $100,000.00, and (2) the Bonus Payments during any one Borrower fiscal year to all of the Bonus Recipients do not exceed $500,000.00.

Borrower shall not knowingly grant, suffer, or permit liens on or security interest in the Collateral, including without limitation, the Mortgaged Properties, or fail to promptly pay all lawful claims, whether for labor, materials, or otherwise.

5.46

APA

Borrower shall promptly provide Lender copies of all material communication in relation to the APA, including without limitation, any settlement statement for the sale of the Assets.

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5.47

Transactions with Affiliates .

Borrower shall not directly or indirectly enter into any transaction (including without limitation, the sale, lease, or exchange of the Mortgaged Properties or the rendering of service) with any of its Affiliates, other than upon fair and reasonable terms no less favorable than could be obtained in an arms length transaction with Persons which are not an Affiliate.

5.48

Management .

Borrower shall not make or permit any change in the employment, position, or scope of duties of any member of its senior management staff, which are deemed to be Anthony C. Schnur and Richard N. Azar, II, except changes resulting from death or disability. Anthony C. Schnur shall remain the President and Chief Executive Officer of Borrower and Richard N. Azar, II shall remain the Executive Director and Chairman of the Board of Directors of Borrower unless otherwise approved by Lender in its sole discretion.

5.49

Net Worth .

In the event that the tangible net worth of Borrower as shown on the Financial Statements delivered to Lender is $30,000,000.00 or less, such event shall constitute, at the option of Lender in its sole and absolute discretion, an Event of Default of this Loan Agreement.

ARTICLE 6 - RIGHTS AND REMEDIES OF LENDER

6.1

Rights of Lender .

Upon the occurrence of an Event of Default, Lender shall have the right, in addition to any other right or remedy of Lender, but not the obligation, in its own name or in the name of Borrower, to enter into possession of the Mortgaged Properties; to perform all work necessary, if any, and to employ watchmen and other safeguards to protect the Mortgaged Properties. Borrower hereby appoints Lender as the attorney-in-fact of Borrower, with full power of substitution, and in the name of Borrower, if Lender elects to do so, upon the occurrence of an Event of Default, to (a) use such sums as are necessary, including any proceeds of the Loan, to maintain and protect the Mortgaged Properties and the Improvements, (b) endorse the name of Borrower on any checks or drafts or instruments payable to Borrower with respect to the Mortgaged Properties, and (c) prosecute or defend any action or proceeding incident to the Mortgaged Properties. The power of attorney granted hereby is a power coupled with an interest and irrevocable. Lender shall have no obligation to undertake any of the foregoing actions, and, if Lender should do so, it shall have no liability to Borrower for the sufficiency or adequacy of any such actions taken by Lender.

6.2

Acceleration .

Upon the occurrence of an Event of Default, Lender may, at its option, declare the Loan immediately due and payable without notice of any kind.

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6.3

Funds of Lender .

Any funds of Lender used for any purpose referred to in this Article 6 shall constitute an Advance secured by the Loan Instruments and shall bear interest at the rate specified in the Note to be applicable after default thereunder.

6.4

Rights of Set Off .

Upon the occurrence of any Event of Default, Lender is hereby authorized at any time and from time to time, without notice to Borrower and Guarantor (any such notice being expressly waived by Borrower), to set off and apply all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Lender to or for the credit or the account of Borrower and Guarantor against any and all of the obligations of Borrower and Guarantor (to the extent of each Guarantor’s Guaranty) now or hereafter existing pursuant to the Loan Instruments, provided that the Lender agrees promptly to notify Borrower and Guarantor after any such setoff and application and, provided further, that the failure to give such notice shall not affect the validity of such setoff and application or create any liability on the part of the Lender. The rights of the Lender under this section are in addition to other rights and remedies (including, without limitation, other rights of setoff) which the Lender may have.

6.5

No Waiver or Exhaustion .

No waiver by Lender of any of its rights or remedies hereunder, in the other Loan Instruments, or otherwise, shall be considered a waiver of any other or subsequent right or remedy of Lender; no delay or omission in the exercise or enforcement by Lender of any rights or remedies shall ever be construed as a waiver of any right or remedy of Lender; and no exercise or enforcement of any such rights or remedies shall ever be held to exhaust any right or remedy of Lender.

6.6

Preferences .

If, after receipt of any payment of, or proceeds of any collateral applied to the payment of, all or any part of the indebtedness hereunder, Lender is for any reason compelled to surrender such payment, or proceeds to any person or entity because such payment or proceeds is determined to be void or voidable as a preference, impermissible set-off, or a diversion of trust funds, or for any other reason, then: the indebtedness hereunder or part thereof intended to be satisfied shall be revived and continue as if such payment or proceeds had not been received by Lender; this Loan Agreement shall continue in full force as if such payment or proceeds had not been received; and Borrower and Guarantor (to the extent of each Guarantor’s Guaranty) shall be liable to, and shall indemnify and hold Lender harmless for, the amount of such payment or proceeds surrendered. The provisions of this Section shall be and remain effective notwithstanding any contrary action which may have been taken by Lender in reliance upon such payment or proceeds, and any such contrary action so taken shall be without prejudice to Lender's rights under this Loan Agreement and shall be deemed to have been conditioned upon such payment or proceeds having become final and irrevocable. The provisions of this Section shall survive the termination of this Loan Agreement.

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6.7

Proceeds of Production .

Upon the occurrence of an Event of Default, Lender, in its sole and absolute discretion, may require payments on the Note of amounts up to one hundred percent (100%) of proceeds of the sale of production of oil and gas from the Mortgaged Properties, any provision herein or in the Loan Instruments to the contrary notwithstanding.

6.8

No Notice and Opportunity To Cure .

ONCE AN EVENT OF DEFAULT HAS OCCURRED, LENDER MAY PURSUE THE REMEDIES PROVIDED FOR IN THIS LOAN AGREEMENT, THE NOTE, AND THE OTHER LOAN INSTRUMENTS WITHOUT PRESENTMENT, DEMAND, PROTEST, NOTICE OF ACCELERATION, NOTICE OF INTENT TO ACCELERATE, NOTICE OF PROTEST OR NOTICE OF DISHONOR, OR ANY OTHER NOTICE OF ANY KIND, ALL OF WHICH ARE EXPRESSLY WAIVED BY OBLIGOR.

6.9

Execution of Division Orders, Etc.

Upon an Event of Default, Borrower covenants and agrees to execute such division orders, transfer orders, and/or such other documents to arrange for payment directly to Lender of the proceeds from the sale of production from the Mortgaged Properties attributable to the interest of Borrower; and whenever production proceeds are paid directly to Lender, Lender may accumulate such proceeds in a collection account without interest until the next installment payment date of the Note

6.10

Cumulative Rights .

All rights, powers, and remedies of Lender in connection with this Loan Agreement, the Note, the Loan Instruments, or any other contract or instrument on which Borrower may at any time be obligated to Lender (or any holder thereof) are cumulative and not exclusive and will be in addition to any other rights, powers, or remedies provided by law or equity.

ARTICLE 7 - GENERAL TERMS AND CONDITIONS

7.1

Notices .

All notices, demands, requests, approvals and other communications required or permitted hereunder shall be in writing and shall be deemed to have been given when presented personally or deposited in a regularly maintained mail receptacle of the United States Postal Service, postage prepaid, registered or certified, return receipt requested, addressed to Borrower, Guarantor, or Lender, as the case may be, at the respective addresses set forth on the first page of this Loan Agreement, or such other address as Borrower, Guarantor, or Lender may from time to time designate by written notice to the other as herein required. Lender shall send copies of all notices sent to Borrower also to Guarantor at the same time such notices are sent to Borrower.

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7.2

Entire Agreement and Modifications .

The Loan Instruments constitute the entire understanding and agreement between the undersigned with respect to the transactions arising in connection with the Loan and supersede all prior written or oral understandings and agreements between the undersigned in connection therewith. No provision of this Loan Agreement or the other Loan Instruments may be modified, waived, or terminated except by instrument in writing executed by the party against whom a modification, waiver or termination is sought to be enforced.

7.3

Severability .

In case any of the provisions of this Loan Agreement shall for any reason be held to be invalid, illegal, or unenforceable, such invalidity, illegality, or unenforceability, shall not affect any other provision hereof, and this Loan Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein.

7.4

Election of Remedies .

Lender shall have all of the rights and remedies granted in the Loan Instruments and available at law or in equity, and these same rights and remedies shall be cumulative and may be pursued separately, successively or concurrently against Obligor, or any Mortgaged Properties covered under the Loan Instruments, at the sole discretion of Lender. The exercise or failure to exercise any of the same shall not constitute a waiver or release thereof or of any other right or remedy, and the same shall be nonexclusive.

7.5

Form and Substance .

All documents, certificates, insurance policies, and other items required under this Loan Agreement to be executed and/or delivered to Lender, shall be in form and substance satisfactory to Lender.

7.6

Limitation on Interest .

All agreements between Borrower and Lender, whether now existing or hereafter arising, and whether written or oral, are hereby limited so that in no contingency, whether by reason of acceleration of the maturity of any indebtedness governed hereby or otherwise, shall the interest contracted for, charged or received by Lender exceed the maximum amount permissible under applicable law. If, from any circumstance whatsoever, interest would otherwise be payable to Lender in excess of the maximum lawful amount, the interest payable to Lender shall be reduced to the maximum amount permitted under applicable law; and, if from any circumstance the Lender shall ever receive anything of value deemed interest by applicable law in excess of the maximum lawful amount, an amount equal to any excessive interest shall be applied to the reduction of the principal of the Loan and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of principal of the Loan, such excess shall be refunded to Borrower. All interest paid or agreed to be paid to Lender shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full period until payment in full of the principal of the Loan (including the period of any renewal or extension thereof), so that interest thereon for such full period shall not exceed the maximum amount permitted by applicable law. This paragraph shall control all agreements between the Borrower and Lender.

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7.7

No Third Party Beneficiary .

This Loan Agreement is for the sole benefit of Lender and Obligor and is not for the benefit of any third party.

7.8

Borrower in Control .

In no event shall Lender's rights and interests under the Loan Instruments be construed to give Lender the right to, or be deemed to indicate that Lender is in control of the business, management or properties of Borrower, or has power over the daily management functions and operating decisions made by Borrower.

7.9

Number and Gender .

Whenever used herein, the singular number shall include the plural and the plural the singular, and the use of any gender shall be applicable to all genders. The duties, covenants, obligations and warranties of Obligor in this Loan Agreement shall be joint and several obligations of Obligor and of each Obligor, if more than one.

7.10

Captions .

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

7.11

Prepayment of Note .

The Borrower may from time to time and without penalty prepay the Note in whole or in part. With each prepayment the Borrower shall pay all accrued interest to the date of prepayment of principal. All prepayments of principal shall apply to installments last maturing (if any). The Mortgage and all additional security taken or to be taken in connection with the Loan are and shall continue to be security for the payment of all Indebtedness, so that even if the Note describe herein is paid in full, Lender shall not be required to release any lien or security interest securing payment of the Loan until all Indebtedness of Borrower at Lender is paid in full. Furthermore, all liens, security interests, and collateral of any kind or character heretofore given by Obligor, Elk Creek, and CMM to Lender or MPII as security for payment of the Prior Note shall continue to be held by Lender as security for payment of the Loan.

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7.12

Cross Default .

A default of any of the Loan Instruments, including without limitation, the Note and/or this Loan Agreement, shall constitute a default of all Loan Instruments.

7.13

Applicable Law .

THIS LOAN AGREEMENT AND THE LOAN INSTRUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES APPLICABLE TO TRANSACTIONS WITHIN SUCH STATE.

7.14

ARBITRATION .

BINDING ARBITRATION AGREEMENT
PLEASE READ THIS CAREFULLY. IT AFFECTS YOUR RIGHTS.

OBLIGOR AND LENDER AGREE TO ARBITRATION AS FOLLOWS (hereinafter referred to as the "Arbitration Provisions"):

Special Provisions and Definitions applicable to both CONSUMER DISPUTES and BUSINESS DISPUTES:

Informal Resolution of Customer Concerns. Most customer concerns can be resolved quickly and to the customer's satisfaction by contacting your account officer, branch manager or by calling the Customer Service Department in your region. The region and numbers are:

1.	Laredo	956-722-7611
2.	Austin	512-397-4506
3.	Brownsville	956-547-1000
4.	Commerce Bank	956-724-1616
5.	Corpus Christi	361-888-4000
6.	Eagle Pass	830-773-2313
7.	Houston	713-526-1211
8.	McAllen	956-686-0263
9.	Oklahoma	405-841-2100
10.	Port Lavaca	361-552-9771
11.	San Antonio	210-518-2500
12.	Zapata	956-765-8361

In the unlikely event that your account officer, branch manager or the customer service department is unable to resolve a complaint to your satisfaction or if the Lender has not been able to resolve a dispute it has with you after attempting to do so informally, you and the Lender agree to resolve those disputes through binding arbitration or small claims court instead of in courts of general jurisdiction.

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Sending Notice of Dispute . If either you or the Lender intend to seek arbitration, then you or the Lender must first send to the other by certified mail, return receipt requested, a written Notice of Dispute. The Notice of Dispute to the Lender should be addressed to: Dennis E. Nixon, President, at International Bancshares Corporation, P.O. Drawer 1359, Laredo, Texas 78042-1359 or if by email, ibcchairman@ibc.com. The Notice of Dispute must (a) describe the nature and basis of the claim or dispute; and (b) explain specifically what relief is sought. You may download a copy of the Notice of Dispute at www.ibc.com or you may obtain a copy from your account officer or branch manager.

If the Dispute is not Informally Resolved . If you and the Lender do not reach an agreement to resolve the claim or dispute within thirty (30) days after the Notice of Dispute is received, you or the Lender may commence a binding arbitration proceeding. During the binding arbitration proceeding, any settlement offers made by you or the Lender shall not be disclosed to the Arbitrator.

" DISPUTE(S) ." As used herein, the word "DISPUTE(S)" includes any and all controversies or claims between the PARTIES of whatever type or manner, including without limitation, any and all claims arising out of or relating to this Loan Agreement, compliance with applicable laws and/or regulations, any and all services or products provided by the Lender, any and all past, present and/or future loans, lines of credit, letters of credit, credit facilities or other form of indebtedness and/or agreements involving the PARTIES , any and all transactions between or involving the PARTIES , and/or any and all aspects of any past or present relationship of the PARTIES , whether banking or otherwise, specifically including but not limited to any claim founded in contract, tort, fraud, fraudulent inducement, misrepresentation or otherwise, whether based on statute, regulation, common law or equity.

" CONSUMER DISPUTE " and " BUSINESS DISPUTE ." As used herein, "CONSUMER DISPUTE" means a DISPUTE relating to an account (including a deposit account), agreement, extension of credit, loan, service or product provided by the Lender that is primarily for personal, family or household purposes. "BUSINESS DISPUTE" means any DISPUTE that is not a CONSUMER DISPUTE .

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" PARTIES " or " PARTY ." As used in these Arbitration Provisions, the term "PARTIES" or " PARTY " means Obligor, Lender, and each and all persons and entities signing this Loan Agreement or any other agreements between or among any of the PARTIES as part of this transaction. "PARTIES" or "PARTY" shall be broadly construed and include individuals, beneficiaries, partners, limited partners, limited liability members, shareholders, subsidiaries, parent companies, affiliates, officers, directors, employees, heirs, agents and/or representatives of any party to such documents, any other person or entity claiming by or through one of the foregoing and/or any person or beneficiary who receives products or services from the Lender and shall include any other owner and holder of this Loan Agreement. Throughout these Arbitration Provisions, the term "you" and "your" refer to Obligor, and the term "Arbitrator" refers to the individual arbitrator or panel of arbitrators, as the case may be, before which the DISPUTE is arbitrated.

BINDING ARBITRATION . The PARTIES agree that any DISPUTE between the PARTIES shall be resolved by mandatory binding arbitration pursuant to these Arbitration Provisions at the election of either PARTY . BY AGREEING TO RESOLVE A DISPUTE IN ARBITRATION, THE PARTIES ARE WAIVING THEIR RIGHT TO A JURY TRIAL OR TO LITIGATE IN COURT (except for matters that may be taken to small claims court for a CONSUMER DISPUTE as provided below).

CLASS ACTION WAIVER . The PARTIES agree that (i) no arbitration proceeding hereunder whether a CONSUMER DISPUTE or a BUSINESS DISPUTE shall be certified as a class action or proceed as a class action, or on a basis involving claims brought in a purported representative capacity on behalf of the general public, other customers or potential customers or persons similarly situated, and (ii) no arbitration proceeding hereunder shall be consolidated with, or joined in any way with, any other arbitration proceeding. THE PARTIES AGREE TO ARBITRATE A CONSUMER DISPUTE OR BUSINESS DISPUTE ON AN INDIVIDUAL BASIS AND EACH WAIVES THE RIGHT TO PARTICIPATE IN A CLASS ACTION.

FEDERAL ARBITRATION ACT AND TEXAS LAW . The PARTIES acknowledge that this Loan Agreement evidences a transaction involving interstate commerce. The Federal Arbitration Act shall govern (i) the interpretation and enforcement of these Arbitration Provisions, and (ii) all arbitration proceedings that take place pursuant to these Arbitration Provisions. THE PARTIES AGREE THAT, EXCEPT AS OTHERWISE EXPRESSLY AGREED TO BY THE PARTIES IN WRITING, OR UNLESS EXPRESSLY PROHIBITED BY LAW, TEXAS SUBSTANTIVE LAW (WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES) WILL APPLY IN ANY BINDING ARBITRATION PROCEEDING OR SMALL CLAIMS COURT ACTION REGARDLESS OF WHO INITIATES THE PROCEEDING, WHERE YOU RESIDE OR WHERE THE DISPUTE AROSE.

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II.

Provisions applicable only to a CONSUMER DISPUTE:

(a)

Any and all CONSUMER DISPUTES shall be resolved by arbitration administered by the American Arbitration Association ("AAA") under the Commercial Arbitration Rules and the Supplemental Procedures for Resolution of Consumer Disputes and Consumer Due Process Protocol (which are incorporated herein for all purposes). It is intended by the PARTIES that these Arbitration Provisions meet and include all fairness standards and principles of the American Arbitration Association's Consumer Due Process Protocol and due process in predispute arbitration. If a CONSUMER DISPUTE is for a claim of actual damages above $250,000 it shall be administered by the AAA before three neutral arbitrators at the request of any PARTY .

(b)

Instead of proceeding in arbitration, any PARTY hereto may pursue its claim in your local small claims court, if the CONSUMER DISPUTE meets the small claims court's jurisdictional limits. If the small claims court option is chosen, the PARTY pursuing the claim must contact the small claims court directly. The PARTIES agree that the class action waiver provision also applies to any CONSUMER DISPUTE brought in small claims court.

(c)

For any claim for actual damages that does not exceed $2,500, the Lender will pay all arbitration fees and costs provided you submitted a Notice of Dispute with regard to the CONSUMER DISPUTE prior to initiation of arbitration. For any claim for actual damages that does not exceed $5,000, the Lender also agrees to pay your reasonable attorney's fees and reasonable expenses your attorney charges you in connection with the arbitration (even if the Arbitrator does not award those to you) plus an additional $2,500 if you obtain a favorable arbitration award for your actual damages which is greater than any written settlement offer for your actual damages made by the Lender to you prior to the selection of the Arbitrator.

(d)

Under the AAA's Supplemental Procedures for Consumer Disputes, if your claim for actual damages does not exceed $10,000, you shall only be responsible for paying up to a maximum of $125 in arbitration fees and costs. If your claim for actual damages exceeds $10,000 but does not exceed $75,000, you shall only be responsible for paying up to a maximum of $375 in arbitration fees and costs. For any claim for actual damages that does not exceed $75,000, the Lender will pay all other arbitrator's fees and costs imposed by the administrator of the arbitration. With regard to a CONSUMER DISPUTE for a claim of actual damages that exceeds $75,000, or if the claim is a non-monetary claim, the Lender agrees to pay all arbitration fees and costs you would otherwise be responsible for that exceed $1,000. The fees and costs stated above are subject to any amendments to the fee and cost schedules of the AAA. The fee and cost schedule in effect at the time you submit your claim shall apply. The AAA rules also permit you to request a waiver or deferral of the administrative fees and costs of arbitration if paying them would cause you financial hardship.

(e)

Although under some laws, the Lender may have a right to an award of attorney's fees and expenses if it prevails in arbitration, the Lender agrees that it will not seek such an award in a binding arbitration proceeding with regard to a CONSUMER DISPUTE for a claim of actual damages that does not exceed $75,000.

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(f)

To request information on how to submit an arbitration claim, or to request a copy of the AAA rules or fee schedule, you may contact the AAA at 1-800-778-7879 (toll free) or at www.adr.org .

III.

Provisions applicable only to a BUSINESS DISPUTE:

(a)

Any and all BUSINESS DISPUTES between the PARTIES shall be resolved by arbitration in accordance with the Commercial Arbitration Rules of the AAA in effect at the time of filing, as modified by, and subject to, these Arbitration Provisions. A BUSINESS DISPUTE for a claim of actual damages that exceeds $250,000 shall be administered by AAA before at least three (3) neutral arbitrators at the request of any PARTY . In the event the aggregate of all affirmative claims asserted exceeds $500,000, exclusive of interest and attorney's fees, or upon the written request of any PARTY , the arbitration shall be conducted under the AAA Procedures for Large, Complex Commercial Disputes. If the payment of arbitration fees and costs will cause you extreme financial hardship you may request that AAA defer or reduce the administrative fees or request the Lender to cover some of the arbitration fees and costs that would be your responsibility.

(b)

The PARTIES shall have the right to (i) invoke self-help remedies (such as setoff, notification of account debtors, seizure and/or foreclosure of collateral, and nonjudicial sale of personal Mortgaged Properties and real Mortgaged Properties collateral) before, during or after any arbitration, and/or (ii) request ancillary or provisional judicial remedies (such as garnishment, attachment, specific performance, receiver, injunction or restraining order, and sequestration) before or after the commencement of any arbitration proceeding (individually, and not on behalf of a class). The PARTIES need not await the outcome of the arbitration proceeding before using self-help remedies. Use of self-help or ancillary and/or provisional judicial remedies shall not operate as a waiver of either PARTY 's right to compel arbitration. Any ancillary or provisional judicial remedy which would be available from a court at law shall be available from the Arbitrator. The PARTIES agree that the AAA Optional Rules for Emergency Measures of Protection shall apply in an arbitration proceeding where emergency interim relief is requested.

(c)

Except to the extent the recovery of any type or types of damages or penalties may not by waived under applicable law, the Arbitrator shall not have the authority to award either PARTY (i) punitive, exemplary, special or indirect damages, (ii) statutory multiple damages, or (iii) penalties, statutory or otherwise.

(d)

The Arbitrator may award attorney's fees and costs including the fees, costs and expenses of arbitration and of the Arbitrator as the Arbitrator deems appropriate to the prevailing PARTY . The Arbitrator shall retain jurisdiction over questions of attorney's fees for fourteen (14) days after entry of the decision.

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IV.

General provisions applicable to both CONSUMER DISPUTES and BUSINESS DISPUTES:

(a)

The Arbitrator is bound by the terms of these Arbitration Provisions. The Arbitrator shall have exclusive authority to resolve any DISPUTES relating to the scope or enforceability of these Arbitration Provisions, including (i) all arbitrability questions, and (ii) any claim that all or a part of these Arbitration Provisions are void or voidable (including any claims that they are unconscionable in whole or in part).

(b)

These Arbitration Provisions shall survive any termination, amendment, or expiration of this Loan Agreement, unless all of the PARTIES otherwise expressly agree in writing .

(c)

If a PARTY initiates legal proceedings, the failure of the initiating PARTY to request arbitration pursuant to these Arbitration Provisions within 180 days after the filing of the lawsuit shall be deemed a waiver of the initiating PARTY'S right to compel arbitration with respect to the claims asserted in the litigation. The failure of the defending PARTY in such litigation to request arbitration pursuant to these Arbitration Provisions within 180 days after the defending PARTY'S receipt of service of judicial process , shall be deemed a waiver of the right of the defending PARTY to compel arbitration with respect to the claims asserted in the litigation. If a counterclaim, cross-claim or third party action is filed and properly served on a PARTY in connection with such litigation, the failure of such PARTY to request arbitration pursuant to these Arbitration Provisions within ninety (90) days after such PARTY'S receipt of service of the counterclaim, cross-claim or third party claim shall be deemed a waiver of such PARTY'S right to compel arbitration with respect to the claims asserted therein. The issue of waiver pursuant to these Arbitration Provisions is an arbitrable dispute. Active participation in any pending litigation described above by a PARTY shall not in any event be deemed a waiver of such PARTY'S right to compel arbitration. All discovery obtained in the pending litigation may be used in any subsequent arbitration proceeding.

(d)

Any PARTY seeking to arbitrate shall serve a written notice of intent to any and all opposing PARTIES after a DISPUTE has arisen. The PARTIES agree a timely written notice of intent to arbitrate by either PARTY pursuant to these Arbitration Provisions shall stay and/or abate any and all action in a trial court, save and except a hearing on a motion to compel arbitration and/or the entry of an order compelling arbitration and staying and/or abating the litigation pending the filing of the final award of the Arbitrator.

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(e)

Any Arbitrator selected shall be knowledgeable in the subject matter of the DISPUTE and be licensed to practice law.

(f)

For a one (1) member arbitration panel, the PARTIES are limited to an equal number of strikes in selecting the arbitrator from the AAA neutral list, such that at least one arbitrator remains after the PARTIES exercise all of their respective strikes. For a three (3) member arbitration panel, the PARTIES are limited to an equal number of strikes in selecting the arbitrators from the AAA neutral list, such that at least three arbitrators remain after the PARTIES exercise all of their respective strikes. After exercising all of their allotted respective strikes, the PARTIES shall rank those potential arbitrators remaining numerically in order of preference (with "1" designating the most preferred). The AAA shall review the PARTIES rankings and assign a score to each potential arbitrator by adding together the ranking given to such potential arbitrator by each PARTY . The arbitrator(s) with the lowest score total(s) will be selected. In the event of a tie or ties for lowest score total and if the selection of both or all of such potential arbitrators is not possible due to the required panel size, the AAA shall select the arbitrator(s) it believes to be best qualified.

(g)

The PARTIES and the Arbitrator shall treat all aspects of the arbitration proceedings, including, without limitation, any documents exchanged, testimony and other evidence, briefs and the award, as strictly confidential; provided, however, that a written award or order from the Arbitrator may be filed with any court having jurisdiction to confirm and/or enforce such award or order.

(h)

Any statute of limitation which would otherwise be applicable shall apply to any claim asserted in any arbitration proceeding under these Arbitration Provisions, and the commencement of any arbitration proceeding tolls such statute of limitations.

(i)

If the AAA is unable for any reason to provide arbitration services, then the PARTIES agree to select another arbitration service provider that has the ability to arbitrate the DISPUTE pursuant to and consistent with these Arbitration Provisions. If the PARTIES are unable to agree on another arbitration service provider, any PARTY may petition a court of competent jurisdiction to appoint an Arbitrator to administer the arbitration proceeding pursuant to and consistent with these Arbitration Provisions.

(j)

The award of the Arbitrator shall be final and Judgment upon any such award may be entered in any court of competent jurisdiction. The arbitration award shall be in the form of a written reasoned decision and shall be based on and consistent with applicable law.

(k)

Unless the PARTIES mutually agree to hold the binding arbitration proceeding elsewhere, venue of any arbitration proceeding under these Arbitration Provisions shall be in the county and state where Lender is located, which is Lender's address set out in the first paragraph on page 1 hereof.

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(l)

If any of these Arbitration Provisions are held to be invalid or unenforceable, the remaining provisions shall be enforced without regard to the invalid or unenforceable term or provision.

JURY WAIVER: IF A DISPUTE BETWEEN OBLIGOR AND LENDER PROCEEDS IN COURT RATHER THAN THROUGH MANDATORY BINDING ARBITRATION, THEN OBLIGOR AND LENDER BOTH WAIVE THE RIGHT TO A JURY TRIAL, AND SUCH DISPUTE WILL BE TRIED BEFORE A JUDGE ONLY.

7.15

No Oral Agreements .

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

7.16

Claims Against Lender .

(a)

Obligor hereby represents and warrants that there are no known claims, causes of action, suits, debts, liens, obligations, liabilities, demands, losses, costs and expenses (including attorneys' fees) of any kind, character or nature whatsoever, fixed or contingent, which Obligor may have or claim to have against Lender, which might arise out of or be connected with any act of commission or omission of Lender existing or occurring on or prior to the date of this Loan Agreement, including, without limitation, any claims, liabilities or obligations arising with respect to the Loan or arising under any of the Loan Instruments.

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(b)

In consideration of Lender's agreements as provided herein, Obligor hereby releases, acquits, waives and forever discharges Lender, its partners, affiliates, subsidiaries and related parties and their respective directors, officers, employees, agents, predecessors, successors, assigns, attorneys, and representatives (collectively the "Lender Parties") from any and all claims, demands, cross-actions, cause or causes of action, at law or in equity, costs and expenses, including legal expenses, as well as any other kind or character of claim or action, in each case to the extend held by Obligor on or before the closing date of the Loan, whether based upon tort, fraud, breach of any duty of fair dealing, breach of confidence, undue influence, duress, economic coercion, conflict of interest, negligence, bad faith, intentional or negligent infliction of mental distress, tortious interference with contractual relations, tortious interference with corporate governance or prospective business advantage, breach of contract, deceptive trade practices, libel, slander, conspiracy (collectively, the "Released Claims"), to the fullest and maximum extent permitted by applicable law, but in each case only to the extent permitted by applicable law, contract, usury, common law or statutory right, known or unknown, arising, directly or indirectly, proximately or remotely, out of any of the Loan Instruments or any of the documents, instruments or any other transactions relating thereto, solely with respect to such claims, which arise in connection with events which occurred prior to the date hereof. Without limiting the generality of the foregoing, this release shall include all aspects of the negotiations between and among Obligor and Lender. This release is intended to release all liability of any character claimed for damages, of any type or nature, for injunctive or other relief, for attorneys' fees, interest or any other liability whatsoever, whether statutory, contractual or tort in character, or of any other nature or character, now or henceforth in any way related to the Released Claims, including, without limitation, any loss, cost or damage in connection with, or based upon, any breach of fiduciary duty, breach of any duty of fair dealing or good faith, breach of confidence, breach of funding commitment, breach of any other duty, breach of any statutory right, fraud, usury, undue influence, duress, economic coercion, conflict of interest, negligence, bad faith, malpractice, violations of the Racketeer Influenced and Corrupt Organizations Act, intentional or negligent infliction of mental distress, tortious interference with corporate or other governance or prospective business advantage, breach of contract, deceptive trade practices, libel, slander, conspiracy, or any other cause of action, any of which arise in connection with events which occurred prior to the date of execution hereof. Obligor understands and agrees that this is a full, final and complete release of the Released Claims and agrees that this release may be pleaded as an absolute and final bar to any or all suit or suits pending or which may hereafter be filed or prosecuted by Obligor, or anyone claiming, by, through or under Obligor in respect of the Released Claims, and that no recovery on account of the Released Claims may hereafter be had from anyone whomsoever, and that the consideration given for this release is no admission of liability and that Obligor, nor those claiming under Obligor will ever claim that it is.

7.17

Insolvency Proceeding .

In the event any proceeding (an "Insolvency Proceeding") is brought by or against Obligor and/or the Mortgaged Properties under or pursuant to any bankruptcy, insolvency, receivership or similar law or laws of the United States or any other state or other jurisdiction, including the Bankruptcy Code, and any other law or laws of the United States or any other state or other jurisdiction which affect the rights of debtors and/or creditors generally, including, without limitation: (i) any proceeding seeking to appoint or appointing a receiver or trustee; (ii) any proceeding filed by or against Obligor under the Bankruptcy Code; (iii) any assignment by Obligor of all or substantially all of their respective assets for the benefit of creditors; and (iv) any proceeding or other action wherein all or substantially all of Obligor's assets are attached, seized, subjected to a writ or distress warrant, or otherwise levied upon, Obligor hereby agrees as follows:

(a)

Venue for an Insolvency Proceeding, without waiving the provisions requiring arbitration as set forth in the Loan Instruments, shall lie exclusively in (i) the county where the Mortgaged Properties is located or the Division within the Federal District where the Mortgaged Properties is located, or (ii) the United States Bankruptcy Court for the Western District of Texas, San Antonio Division, as applicable.

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(b)

Obligor agrees that, subject to court approval, Lender shall be deemed pursuant to this Loan Agreement to have and be entitled to relief from the automatic stay under Section 362 of the Bankruptcy Code, and Obligor hereby unconditionally and irrevocably consents to the granting to Lender of relief from the automatic stay under Section 362 of the Bankruptcy Code to permit Lender to exercise any and all of its rights, recourses and remedies under the Loan Instruments, at law and/or in equity, including, without limitation, foreclosure of the Mortgage and sale of the Mortgaged Properties pursuant thereto and/or collection of the rents and profits directly by Lender. Further, if Lender requests such relief, Obligor shall not object to or oppose Lender's request for immediate relief from the automatic stay for purposes of exercising any and all rights, recourses, remedies and benefits Lender may have under the Loan Instruments, at law and/or in equity, including, without limitation, foreclosure of the Mortgage and sale of the Mortgaged Properties pursuant thereto and/or collection of the rents and profits directly by Lender.

(c)

Obligor hereby acknowledges and agrees that Lender has a properly perfected, valid and enforceable lien upon and security interest in all or any portion of the Mortgaged Properties, including, without limitation, the leases, rents and profits, and Obligor will acknowledge the same in any Insolvency Proceeding. Further, Obligor shall not contest that Lender holds a properly perfected, valid and enforceable first priority lien on and security interest in each and every portion of the Mortgaged Properties, including, without limitation, the leases, rents and profits.

(d)

Obligor hereby agrees to indemnify, defend and hold Lender harmless from and against any and all loss, cost, liability, damage or expense Lender may suffer or incur as a result of Obligor's breach of their respective obligations, covenants and agreements under this Section.

7.18

Post-Closing Covenants .

On or before September 2, 2016 (the "September 2, 2016 Deadline"), Obligor covenants and agrees that the Underwriting Shares shall be delivered to Lender in a form approved by Lender in its sole and absolute discretion. Failure to deliver to Lender the Underwriting Shares on or before the September 2, 2016 Deadline shall constitute an Event of Default of this Loan Agreement at the option of Lender in its sole discretion.

On or before October 31, 2016 (the "October 31, 2016 Deadline"), Obligor covenants and agrees that the Sellers of the APA and Elk Creek shall convey all of their right, title, and interest to the Jersey 1-10 Well, the Angus #1 Well, the Angus #2 Well, the Shorthorn Well, and the Becket SWDW, all located in Payne County, Oklahoma, and the Saturn 1-27 Well, the Earth #1-23 Well, and the Mars #1-27 Well, all located in Lincoln County, Oklahoma, together with any and all oil and gas leases in connection with such wells (collectively, the "Elk Creek Wells and Leases") to Borrower to the satisfaction of Lender in its sole and absolute discretion. The failure of Obligor to achieve the assignment of all of the right, title, and interest of the Sellers to the APA and Elk Creek to the Elk Creek Wells and Leases to Borrower on or before the October 31, 2016 Deadline shall constitute an Event of Default of this Loan Agreement at the option of Lender in its sole discretion.

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On or before December 31, 2016 (the "December 2016 Deadline"), Obligor covenants and agrees that as to the Cheney Shot #1-H Well, the Buck Shot #1-H Well, and the Rifle Shot #1-H Well, and all oil and gas leases in connection with such wells (collectively, the "Brittany Wells and Leases"), and the Nectar #1-4H Well, the Crete #1-5H Well, the Gilbert #1-12H Well, the Vesta #1-14H Well, the Elizabeth #1-14H Well, the Alfred #1-18H Well, the Francisco #1-20H Well, the Abel #1-21H Well, the Zephir #1-23H Well, the Midas #1-8H Well, the Telluride #1-10H Well, the Starvos #1-11H Well, the Brixey #1-13H Well, the Santa Fe #1-15H Well, and the Whistler #1-26H Well (collectively, the "Altex Wells and Leases"), Obligor will complete all curative required by Lender and Lender's counsel with respect to the Brittany Wells and Leases, and the Altex Wells and Leases which are all described more particularly on Exhibit "A," hereto, and shall provide Lender and Lender's counsel with written evidence thereof, including without limitation, any and all assignments of leases as required by Lender (collectively, the "Lender Curative Required Assignments") in a form approved by Lender. Failure to deliver the Lender Curative Required Assignments on or before the December 2016 Deadline shall constitute an Event of Default of this Loan Agreement at the option of Lender in its sole discretion.

On or before the October 31, 2016 Deadline , Obligor covenants and agrees to deliver to Lender a fully executed agreement between RAD2 and MPII in a form approved by Lender in its sole discretion for the release of the RAD2 to MPII Liens on or before December 31, 2017 (the "Release Agreement"). Failure to deliver to Lender the Release Agreement in a form approved by Lender on or before the October 31, 2016 Deadline shall constitute an Event of Default of this Loan Agreement at the option of Lender in its sole discretion.

On or before the October 31, 2016 Deadline , Obligor covenants and agrees to deliver to Lender a supplemental mortgage and/ or deed of trust in a form approved by Lender in its sole discretion covering any and all interests of Borrower in the Mortgaged Properties that are not covered by the Mortgage (the “Supplemental Mortgage”) to the satisfaction of Lender. Failure to deliver to Lender the Supplemental Mortgage in a form approved by Lender on or before the October 31, 2016 Deadline shall constitute an Event of Default of this Loan Agreement at the option of Lender in its sole discretion.

On or before September 9, 2016 (the “September 9, 2016 Deadline”, Obligor covenants and agrees to deliver to Lender a certificated property pledge agreement and all corresponding loan documents in connection therewith covering the shares of Saxum and DBS discussed in Section 5.30 hereof (collectively, the “Certificated Agreements”). Failure to deliver to Lender the Certificated Agreements in a form approved by Lender on or before the September 9, 2016 Deadline shall constitute an Event of Default of this Loan Agreement at the option of Lender in its sole discretion.

PAGE 72

On or before December 31, 2017 (the "December 2017 Deadline"), Obligor covenants and agrees that MP II will release the RAD2 to MP II Liens covering the RAD2 to MPII Mortgaged Interests, and shall provide Lender with written evidence thereof, including without limitation, a recordable release of the RAD2 to MP II Liens (the "MP II Release") in a form approved by Lender. Failure to deliver a MP II Release in a form approved by Lender on or before the December 2017 Deadline shall constitute an Event of Default of this Loan Agreement at the option of Lender in its sole discretion.

7.19

Venue .

Venue for any action hereunder shall reside solely in state district court in Bexar County, Texas, subject to Section 7.14 above.

7.20

Time .

Time is of the essence as to all provisions of this Loan Agreement.

7.21

Multiple Counterparts .

This Loan Agreement may be executed in several original counterparts, all of which are identical. Each of the executed counterparts hereof shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument, and facsimile, PDF/Document Imaging or other electronic signatures shall be just as binding as originals.

7.22

Opinions of Obligor's Counsel .

The Borrower shall cause to be delivered at the closing written opinions from the Borrower's counsel addressed to Lender, in form and substance acceptable to Lender and Lender's legal counsel, which will include but not be limited to:

(a)

Usury . The Loan as reflected in the Note and Loan Instruments does not violate the usury law of the State of Texas or any other applicable usury law of the United States of America.

(b)

Authorization . The loan transaction is within the legal capacity of Borrower and Guarantors. Execution of the Loan Instruments has been duly authorized by all necessary acts of Borrower and Guarantors, and such documents have been duly executed by the persons authorized to do so, on behalf of Borrower and Guarantors, as applicable.

(c)

Enforceability . This Loan Agreement and each of the other Loan Instruments executed and delivered on the closing are binding obligations of Borrower and each such document is enforceable in accordance with its terms.

(d)

Priority . Lender has a first lien security interest in the Collateral except as otherwise permitted by Lender.

PAGE 73

(e)

Other . Such other opinions as Lender shall require in its sole and absolute discretion, including without limitation, from counsel to Borrower licensed in the States of Oklahoma and Nevada.

7.23

West Texas Properties .

With respect to the Mortgaged Properties located in Glasscock County, Texas (collectively, the "West Texas Properties"), Borrower has the right to sell the West Texas Properties after (i) Lender approves the purchase and sale agreement for the sale of the West Texas Properties in its sole discretion, (ii) Lender receives as a prepayment of the Loan fifty percent (50%) of the sales proceeds of the West Texas Properties, but in no event less than $2,000,000.00, and (iii) the balance of the sales proceeds of the West Texas Properties are deposited in the IBC Sinking Fund Account, to be used to pay certain principal payments of the Note as approved by Lender in its sole discretion.

7.24

Grace and Curative Period .

It is understood and agreed that the Grace and Curative Period, as defined herein, shall apply to any default or Event of Default under the Loan Instruments with the same force and effect as if the Grace and Curative Period was set forth in each of the other Loan Instruments besides this Loan Agreement.

7.25

Mineral Liens .

No more than $117,000.00 of the Advance may be used to pay off any outstanding mineral liens covering the Mortgaged Properties as of the date hereof (collectively, the "Outstanding Mineral Liens"). After the above loan funds of the Advance as used to payoff the Outstanding Mineral Liens, Borrower covenants and agrees that there are no mineral liens covering the Mortgaged Properties as of the date hereof.

EXECUTED AND DELIVERED as of the date first recited.

[Signatures are on the following pages.]

PAGE 74

SIGNATURE PAGE

LOAN AGREEMENT

DATED AUGUST 25, 2016

BY AND BETWEEN

LUCAS ENERGY, INC., a Nevada corporation,

RICHARD N. AZAR, II, DONNIE B. SEAY, RICHARD MENCHACA,

RAD2 MINERALS, LTD., a Texas limited partnership,

DBS INVESTMENTS, LTD., a Texas limited partnership, and

SAXUM ENERGY, LLC, a Texas limited liability company,

AND

INTERNATIONAL BANK OF COMMERCE

	OBLIGOR:

	BORROWER:


	LUCAS ENERGY, INC.,
	a Nevada corporation


	By:	/s/ Anthony C. Schnur
		Anthony C. Schnur, President




	GUARANTOR:

	/s/ Richard N. Azar, II
	RICHARD N. AZAR, II

	/s/ Donnie B. Seay
	DONNIE B. SEAY

	/s/ Richard Menchaca
	RICHARD MENCHACA

SIGNATURE PAGE

RAD2 MINERALS, LTD.,
a Texas limited partnership

By:	RAD2 Management, LLC,
	a Texas limited liability company,
	its General Partner

	By:	/s/ Richard N. Azar, II
		Richard N. Azar, II, Manager


DBS INVESTMENTS, LTD.,
a Texas limited partnership

By:	DBS Management, LLC,
	a Texas limited liability company,
	its General Partner

	By:	/s/ Donnie B. Seay
		Donnie B. Seay, Manager


SAXUM ENERGY, LLC,
a Texas limited liability company

By:	/s/ Richard Menchaca
	Richard Menchaca, Manager

SIGNATURE PAGE

SIGNATURE PAGE

LOAN AGREEMENT

DATED AUGUST 25, 2016

BY AND BETWEEN

LUCAS ENERGY, INC., a Nevada corporation,

RICHARD N. AZAR, II, DONNIE B. SEAY, RICHARD MENCHACA,

RAD2 MINERALS, LTD., a Texas limited partnership,

DBS INVESTMENTS, LTD., a Texas limited partnership, and

SAXUM ENERGY, LLC, a Texas limited liability company,

AND

INTERNATIONAL BANK OF COMMERCE

	LENDER:

	INTERNATIONAL BANK OF COMMERCE,
	a Texas state banking corporation


	By:	/s/ Bernardo de la Garza
		Bernardo de la Garza
		Assistant Vice President

SIGNATURE PAGE

EXHIBIT "A"

THE MORTGAGED PROPERTIES

ATTACHED TO

AND

INCORPORATED BY REFERENCE

INTO THE

LOAN AGREEMENT

DATED AUGUST 25, 2016

BY AND BETWEEN

LUCAS ENERGY, INC., a Nevada corporation,

RICHARD N. AZAR, II, DONNIE B. SEAY, RICHARD MENCHACA,

RAD2 MINERALS, LTD., a Texas limited partnership,

DBS INVESTMENTS, LTD., a Texas limited partnership, and

SAXUM ENERGY, LLC, a Texas limited liability company,

AND

INTERNATIONAL BANK OF COMMERCE

[See attached]

EXHIBIT PAGE

EXHIBIT "B"

CONDITIONS TO THE ADVANCE

ATTACHED TO

AND

INCORPORATED BY REFERENCE

INTO THE

LOAN AGREEMENT

DATED AUGUST 25, 2016

BY AND BETWEEN

LUCAS ENERGY, INC., a Nevada corporation,

RICHARD N. AZAR, II, DONNIE B. SEAY, RICHARD MENCHACA,

RAD2 MINERALS, LTD., a Texas limited partnership,

DBS INVESTMENTS, LTD., a Texas limited partnership, and

SAXUM ENERGY, LLC, a Texas limited liability company,

AND

INTERNATIONAL BANK OF COMMERCE

(X)

Payment of one-half of the Loan Finance Charge;

(X)

The Loan Instruments;

(X)

Financial Statements;

(X)

Evidence of Borrower's compliance with or satisfaction of all conditions applicable to the Mortgaged Properties;

(X)

Evidence of the Mortgaged Properties' compliance with the requirements of all applicable "environmental protection" laws, rules and regulations, whether federal, state, or municipal;

(X)

Evidence that all necessary action on the part of Borrower has been taken with respect to the execution and delivery of this Loan Agreement and the consummation of the transactions contemplated hereby, so that this Loan Agreement and all Loan Instruments to be executed and delivered by or on behalf of Borrower will be valid and binding upon Borrower or the person or entity executing and delivering such document. Such evidence shall include, at the option of the Lender, a legal opinion of Borrower's legal counsel, confirming such authority, validity and binding effect, confirming that neither the Loan nor any of the financing arrangements contemplated by this Loan Agreement violates the usury laws of the State of Texas, or any other applicable jurisdiction, and covering such other matters as Lender may require;

EXHIBIT PAGE

(X)

Tax or assessment certificates or other similar evidences of payment from all appropriate bodies or entities which have taxing or assessing authority over any of the Property, stating that all taxes and assessments are current;

(X)

Title Opinions and/or Title Audit letters, in a form approved by Lender in its sole discretion, as to all of the Mortgaged Properties shall have been provided to and approved by Lender;

(X)

All mineral liens covering the Mortgaged Properties, if any, have been released of record.

10.

(X)

Any and all UCC financing statements and any and all other liens, howsoever created, covering Borrower have been released of record in all appropriate Governmental offices.

EXHIBIT PAGE

EXHIBIT "C"

CONTRACTS

ATTACHED TO

AND

INCORPORATED BY REFERENCE

INTO THE

LOAN AGREEMENT

DATED AUGUST 25, 2016

BY AND BETWEEN

LUCAS ENERGY, INC., a Nevada corporation,

RICHARD N. AZAR, II, DONNIE B. SEAY, RICHARD MENCHACA,

RAD2 MINERALS, LTD., a Texas limited partnership,

DBS INVESTMENTS, LTD., a Texas limited partnership, and

SAXUM ENERGY, LLC, a Texas limited liability company,

AND

INTERNATIONAL BANK OF COMMERCE

[See following pages]

EXHIBIT PAGE

Exhibit C
Contracts

Texas Contracts:

Rimrock Exploitation and Development Agreement dated February 20, 2008, by and between Special Energy Corporation and Maddox Oil Properties, Inc., et al, as amended by Amendment to Rimrock Exploitation & Development Agreement dated March 2, 2010;

Rimrock Project Participation Agreement, dated March 14, 2008 but effective February 20, 2008, by and between Special Energy Corporation and Sezar Energy, L.P.;

Assignment of Oil and Gas Lease, dated February 19, 2008, effective February 20, 2008, recorded in Volume 113, Page 478, Official Public Records of Glasscock County, Texas, by and between Maddox Oil Properties, Inc. and Special Energy Corporation;

Partial Assignment of Oil and Gas Leasehold, dated February 15, 2010, by and between Special Energy Corporation and Sezar Energy, L.P., recorded in Book 142, Page 351, Official Public Records of Glasscock County, Texas;

Partial Assignment of Oil and Gas Leases, dated March 2, 2010, by and among Maddox Oil Properties, Inc., assignor and Sezar Energy, L.P. and U.S. Oil & Gas Holdings, LLC, assignees, recorded in Book 143, Page 161, Official Public Records of Glasscock County, Texas;

Assignment of Oil and Gas Leases, dated March 31, 2010, by and among U.S. Oil & Gas Holdings, LLC and Sezar Energy, LP, grantors, and Mariner Energy, Inc., grantee, recorded in Book 143, Page 680, Official Public Records of Glasscock County, Texas;

Assignment of Oil and Gas Leases, dated July 19, 2010, by and among U.S. Oil & Gas Holdings, LLC, U.S. Oil & Gas Acquisition & Development Fund II, LP, U.S. Oil & Gas Acquisition & Development Fund III, LP, and Sezar Energy, LP, grantors, and Mariner Energy, Inc., grantee, recorded in Book 149, Page 589, Official Public Records of Glasscock County, Texas;

Letter Agreement with Francys Ann Ballenger, effective March 31, 2010;

Purchase and Participation Agreement, dated March 31, 2010, between Mariner Energy, Inc., U.S. Oil & Gas Holdings LLC and Sezar Energy, L.P., including the assignments thereunder (Exhibit A) and (Exhibit B) executed on July 19, 2010;

Assignment of Interest in Oil and Gas Leases, executed and effective October 18, 2011, among U.S. Oil & Gas Holdings LLC, Sezar Energy, L.P. and Apache Corporation, recorded in Book 177, Page 106, Official Public Records of Glasscock County, Texas;

The Joint Operating Agreement dated March 31, 2010 by and between Mariner Energy, Inc., as Operator, and US Oil and Gas Holdings, LLC et al, as Non Operators; and

EXHIBIT PAGE

The Natural Gas Purchase Agreement dated September 1, 2011 by and between Apache Corporation, Buyer, and Sezar Energy, LP, as Seller for the purchase of Hydrocarbons from the Wells and Leases.

Oklahoma Contracts:

Central Prospect Participation Agreement, dated effective June 15, 2014, by and between Sezar Energy, LP, Brittany Energy and Petroflow Energy Corp., as assigned to Segundo Resources, LLC, by Sezar Energy, LP, by Assignment of Central Prospect Participation Agreement dated effective October 15, 2014;

The Joint Operating Agreement dated July 1, 2011 by and between Equal Energy, US, Inc., as Operator, and Azar Minerals, et al, as Non Operators, said Joint Operating Agreement covering a total of 46 wells;

The purchase agreement dated June 1, 20 14 by and between Scissortail Energy, LLC, Processor, and Sezar Energy, LP, et al, as Supplier, for the purchase of Hydrocarbons from the Wells and Leases;

First Amendment to the Gas Purchase and Processing Agreement dated effective January 1, 2008, between Scissortail Energy, LLC, as Buyer, and Azar Minerals, Ltd., as Seller, for the purchase of Hydrocarbons from the Wells and Leases;

Gas Purchase Contract dated January 1, 2007, between DCP Midstream, LP, as Buyer, and Special Energy Corp., as Seller, for the purchase of Hydrocarbons from the Wells and Leases;

Crude Oil Purchase Agreement dated March 25, 2015, between Pacer Energy Marketing, LLC, as First Purchaser, and Equal Energy US, Inc., as Seller, for the purchase of Hydrocarbons from the Wells and Leases;

Gas Gathering and Processing Agreement dated August 1, 2005, as amended October 1, 2007, by and between Superior Pipeline Company, as Buyer, and Brittany Energy, LLC, as Supplier, for the purchase of Hydrocarbons from the Wells and Leases;

Gas Purchase Contract dated January 1, 2008, between DCP Midstream, LP, as Buyer, and Altex Energy Corporation, as Seller, for the purchase of Hydrocarbons from the Wells and Leases;

Gas Purchase Contract dated March 1, 2012, between DCP Midstream, LP, as Buyer, and Petroflow Energy Corporation, as Seller, for the purchase of Hydrocarbons from the Wells and Leases: and

Replacement Gas Purchase Contract to be effective January 1, 2016, between DCP Midstream, LP, as Buyer, and Equal Energy US, Inc., as Seller, for the purchase of Hydrocarbons from the Wells and Leases.

EXHIBIT PAGE

Lucas Energy, Inc. 8-K

Exhibit 10.4

Lucas Energy, Inc. 8-K

Exhibit 10.5

Lucas Energy, Inc. 8-K

Exhibit 10.6

Lucas Energy, Inc. 8-K

Exhibit 10.7

LUCAS ENERGY, INC.

CONSULTING AGREEMENT

This Consulting Agreement (this “ Agreement ”) is made and entered into on August 29, 2016, to be effective as of, August 26, 2016 (the “ Effective Date ”) by and between Lucas Energy, Inc., a Nevada corporation (the “ Company ”), and Richard N. Azar, II, an individual (“ Consultant ”) (each herein sometimes referred to individually as a “ Party ”, or collectively as the “ Parties ”).

WHEREAS , the Consultant was appointed as the non-executive Chairman of the Board of Directors of the Company (the “ Chairman ”), effective August 26, 2016; and

WHEREAS , the Company desires to engage Consultant to provide services to the Company as the Chairman of the Company pursuant to the terms and conditions of this Agreement, and the Consultant desires to accept such engagement.

NOW, THEREFORE , in consideration of the foregoing and the terms, covenants, and conditions hereinafter set forth, the Parties hereto, intending to be legally bound hereby, mutually agree as follows:

Position and Duties . The Company hereby engages Consultant as the non-executive Chairman of the Board of Directors (the “ Board ”) of the Company. As such, Consultant shall have the responsibilities, duties and authority reasonably expected of a non-executive Chairman of the Board, as more specifically set forth on Exhibit A hereto and as may be further defined by, or amended by, the Board from time to time (collectively the “ Services ”). Consultant hereby accepts this engagement upon the terms and conditions herein contained and agrees to devote as much of his professional time, attention, and efforts as necessary to promote and further the business of the Company. Consultant shall faithfully adhere to, execute, and fulfill his responsibilities, duties and authorities, and shall comply with all Board directives and policies established or adopted by the Company. Subject to the restrictions set forth in Section 7 of this Agreement, if during the Term, Consultant desires to render services to any other organization, prior to agreeing to provide those services, he shall disclose to the Board in writing the identity of the organization and the nature of the services to be performed. Consultant represents and warrants that Consultant has no agreements, relationships, or commitments to any other person or entity that conflict with the provisions of this Agreement, Consultant’s obligations to the Company under this Agreement, or Consultant’s ability to perform the Services. Consultant will not enter into any such conflicting agreement during the term of this Agreement.

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Term .

(a)

Consultant’s engagement under this Agreement shall be for a one (1) year period beginning on the Effective Date and ending on the day preceding the first anniversary of the Effective Date (the “ Initial Term ”); provided that this Agreement shall automatically extend for additional one (1) year periods after the Initial Term (each an “ Automatic Renewal Term ” and the Initial Term together with all Automatic Renewal Terms, if any, the “ Term ”), subject to the Renewal Requirements, in the event that neither Party provides the other written notice of their intent not to automatically extend the term of this Agreement at least thirty (30) days prior to the end of the Initial Term or any Automatic Renewal Term, as applicable (each a “ Non-Renewal Notice ”). The Term shall only be extended for an Automatic Renewal Term, provided that (i) Consultant is re-elected to the Board at the Annual Meeting of Stockholders of the Company immediately preceding the date that such Automatic Renewal Term begins; and (ii) the Board affirms his appointment as Chairman for the applicable Automatic Renewal Term (or fails to appoint someone else as Chairman prior to such applicable Automatic Renewal Term)(collectively, the “ Renewal Requirements ”).

(b)

The Term shall expire immediately upon the earlier of: (i) the date upon which Consultant no longer serves as Chairman; and (ii) any earlier date requested by either (1) the Company (as evidenced by a vote of a majority of the Board (excluding Consultant) at a meeting of the Board), or (2) Consultant (as evidenced by written notice from Consultant to the Board). Additionally, the Company may terminate this Agreement immediately and without prior notice if Consultant is unable or refuses to perform the Services, and either Party may terminate this Agreement immediately and without prior notice if the other Party is in breach of any material provision of this Agreement.

(b)

The terms of this Agreement may be amended from time to time, with the mutual consent of the Board (or the Compensation Committee of the Board) and the Consultant.

Compensation . The Company shall provide Consultant the following compensation in exchange for the Services:

(a)

Cash Compensation . During the Term, the Company shall pay Consultant an annual fee of $100,000 (the “ Salary ”). The Salary shall be payable in regular installments in accordance with the normal payroll practices of the Company, in effect from time to time, but in any event no less frequently than on a monthly basis. The Compensation Committee of the Company shall review the Salary not less than once per calendar year during each Automatic Renewal Term, and determine whether any increase in the Salary is warranted, based on upon such criteria as it deems relevant, including, the compensation paid to Chairpersons of similarly sized companies in the Company’s industry who are performing the same or similar duties as the Consultant is providing the Company, and any increase in Salary, if any, shall not be required to be set forth in an amendment to the Agreement, but can instead solely be noted in the minutes of the Compensation Committee, which shall become the “ Salary ” payable hereunder for all purposes.

(b)

Expenses . The Company shall reimburse Consultant for all ordinary and reasonable out-of-pocket business expenses incurred by him in connection with his performance of services for the Company during Term, provided Consultant submits an expense reimbursement request and supporting documentation in accordance with the Company’s expense reimbursement policy in effect from time to time.

(c)

No Other Compensation . The payments and benefits set forth in Section 3 are in lieu of any other payments or benefits that Consultant would otherwise receive as a director of the Company, unless otherwise approved by the Board, and Consultant hereby waives any right or entitlement to such payments or benefits.

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Compensation Upon Termination . On the date this Agreement terminates pursuant to Section 2 , the Company shall pay Consultant the fees earned under Section 3(a) through the effective date of termination and reimburse any reasonable expenses incurred on or prior to the effective date of termination under Section 3(c) . If following the termination of this Agreement, Consultant remains a director of the Company, he shall be entitled to receive any compensation otherwise payable to him as a director.

Confidentiality . In connection with his engagement under this Agreement, Consultant will be exposed to, and may develop or create, certain information concerning the business, data, results, programs, processes and techniques, customers and other information and materials that embody trade secrets or technical or business information that is confidential and proprietary to the Company (collectively, “ Confidential Information ”). Consultant hereby agrees not to disclose or use, other than in connection with his Services performed for the Company or its affiliates, any Confidential Information without the Company’s prior, written consent, unless such information becomes publicly available through no fault of Consultant or a third party obligated by contract or other legal duty to keep such information confidential. Consultant further agrees not to make any notes or memoranda relating to the business of the Company, other than for the Company’s benefit. In addition, Consultant agrees promptly upon the Company’s request to return to the Company or permanently destroy (at the Company’s option) any and all documentary, machine-readable, electronic, magnetic or other elements or evidence based on or containing Confidential Information and any copies that may be in Consultant’ possession or under his control. Consultant also agrees, upon the request of the Company, to provide the Company, all electronically-stored information and passwords to access such property related to the Company, and any reproductions of any of the foregoing items that Consultant may have in Consultant’s possession or control. The provisions of this Section 5 shall apply both during and after the Term.

Independent Contractor; Tax Consequences .

(a)

It is the express intention of the Company and Consultant that Consultant perform the Services as an independent contractor to the Company. Nothing in this Agreement shall in any way be construed to constitute Consultant as an agent or employee of the Company. Without limiting the generality of the foregoing, Consultant is not authorized to bind the Company to any liability or obligation or to represent that Consultant has any such authority. Consultant acknowledges and agrees that Consultant is obligated to report as income all compensation received by Consultant pursuant to this Agreement. Consultant agrees to and acknowledges the obligation to pay all self-employment and other taxes on such income. The Company and Consultant agree that Consultant will receive no Company-sponsored benefits from the Company.

(b)

The Company makes no representations or warranties with respect to the tax consequences of the payments and any other consideration provided to Consultant under the terms of this Agreement. Consultant agrees and understands that he is responsible for payment, if any, of local, state, and/or federal taxes on the payments and any other consideration provided hereunder by the Company and any penalties or assessments thereon. Consultant agrees to indemnify and hold harmless the Company and its affiliates and their directors, officers and employees from and against all taxes, losses, damages, liabilities, costs and expenses, including attorneys’ fees and other legal expenses, arising from or in connection with (i) any obligation imposed on the Company to pay withholding taxes or similar items, (ii) any determination by a court or agency that the Consultant is not an independent contractor.

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(c)

Consultant is solely responsible for, and will file, on a timely basis, all tax returns and payments required to be filed with, or made to, any federal, state or local tax authority with respect to the performance of services and receipt of fees under this Agreement. Consultant is solely responsible for, and must maintain adequate records of, expenses incurred in the course of performing services under this Agreement. Contractor will comply with all applicable federal, state, local, and foreign laws governing self-employed individuals, including laws requiring the payment of taxes, such as income and employment taxes, and social security, disability, and other contributions. No part of Consultant’s compensation will be subject to withholding by the Company for the payment of any social security, federal, state or any other employee payroll taxes. The Company will regularly report amounts paid to Consultant by filing Form 1099-MISC with the Internal Revenue Service as required by law.

Noninterference; Non-Solicitation; Non-Competition .

(a)

To the fullest extent permitted under applicable law, from the Effective Date, until twelve (12) months after the termination of this Agreement for any reason (the “ Restricted Period ”), Consultant will not, without the Company’s prior written consent, either directly or indirectly solicit, induce, recruit or encourage any of the Company’s employees with whom he has worked and/or about whom he has received material, Confidential Information during his engagement hereunder, to leave their employment, or take away such employees, or attempt to solicit, induce, recruit, encourage or take away employees of the Company, either for himself or any other person or entity. During the period of time he is a Consultant, Consultant will not, whether for Consultant’s own account or for the account of any other person, firm, corporation or other business organization, intentionally interfere with any person who is or during the period of Consultant’s engagement by the Company was a partner, supplier, customer or client of the Company or its affiliates.

(b)

During the Term, Consultant shall not, alone or as a partner, officer, director, consultant, employee, stockholder or otherwise, engage in any commercial employment, consulting or business activity, occupation or other activity that is or is intended to be competitive with the Company, unless otherwise approved by the Board in writing, provided, however, that the holding by Consultant of any investment in any security shall not be deemed to be a violation of this Section 7(b) if such investment does not constitute over five percent (5%) of the outstanding issue of such security.

Special Remedy . The restrictions in Sections 5 and 7 of this Agreement shall survive the termination of this Agreement and are necessary for the protection of the Company’s business and goodwill. Consultant acknowledges that the restrictions are reasonable and that any breach or threatened breach of Section 5 or 7 of this Agreement will cause the Company substantial and irreparable damage. Accordingly, in the event of any breach or threatened breach of Section 5 or 7 of this Agreement, in addition to any other remedies that may be available by contract or at law, the Company shall have the right to seek specific performance by Consultant and to seek temporary, preliminary and permanent relief enjoining Consultant from any breach or threatened breach, without the posting of any bond or other similar measures.

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Miscellaneous .

(a)

Governing Law; Consent to Personal Jurisdiction; Remedies . This Agreement shall be governed by the laws of the State of Texas, without regard to Texas’s conflicts of law rules. To the extent that any lawsuit is permitted under this Agreement, the Parties hereby expressly consent to the personal and exclusive jurisdiction and venue of the state and federal courts located in Texas. Consultant’s obligations under this Agreement are of a unique character that gives them particular value; breach of any of such obligations will result in irreparable and continuing damage to the Company for which there will be no adequate remedy at law; and, in the event of such breach, the Company will be entitled to injunctive relief and/or a decree for specific performance, and such other and further relief as may be proper (including monetary damages if appropriate).

(b)

Assignability . This Agreement will be binding upon Consultant’s heirs, executors, assigns, administrators, and other legal representatives, and will be for the benefit of the Company, its successors, and its assigns. Consultant may not sell, assign or delegate any rights or obligations under this Agreement. Company may assign this Agreement and its rights and obligations under this Agreement to any successor to all or substantially all of Company’s relevant assets, whether by merger, consolidation, reorganization, reincorporation, sale of assets or stock.

(c)

Entire Agreement . This Agreement constitutes the entire agreement and understanding between the Parties with respect to the subject matter herein and supersedes all prior written and oral agreements, discussions, or representations between the Parties. Consultant represents and warrants that he is not relying on any statement or representation not contained in this Agreement.

(d)

Severability . If a court or other body of competent jurisdiction determines any provision of this Agreement, or portion thereof, to be invalid or unenforceable, such provision will be enforced to the maximum extent permissible so as to effect the intent of the Parties, and the remainder of this Agreement will continue in full force and effect.

(e)

Modification, Waiver . No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in a writing signed by the Parties. Waiver by the Company of a breach of any provision of this Agreement will not operate as a waiver of any other or subsequent breach.

(f)

Notices . All notices, approvals, consents, requests, and other communications hereunder shall be in writing and shall be delivered (i) by personal delivery, or (ii) by national overnight courier service, or (iii) by certified or registered mail, return receipt requested, or (iv) via facsimile transmission, with confirmed receipt, or (v) via email. Notice shall be effective upon receipt except for notice via fax (as discussed above) or email, which shall be effective only when the recipient, by return or reply email or notice delivered by other method provided for in this Section 9(f) , acknowledges having received that email (with an automatic “ read receipt ” or similar notice not constituting an acknowledgement of an email receipt for purposes of this Section 9(f) , or but which acknowledgement of acceptance shall include cases where recipient ‘replies’ to such prior email). Such notices shall be sent to the applicable party or parties at the address specified on the signature page hereof.

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(1)

If to the Company, to:

Lucas Energy, Inc.

450 Gears Road, Suite 860

Houston, Texas 77067

Attention: Anthony C. Schnur

(2)

If to Consultant, to the address for notice on the signature page to this Agreement or, if no such address is provided, to the last address of Consultant provided by Consultant to the Company.

(g)

Attorneys’ Fees . In any court action at law or equity that is brought by one of the Parties to this Agreement to enforce or interpret the provisions of this Agreement, the prevailing Party will be entitled to reasonable attorneys’ fees, in addition to any other relief to which that Party may be entitled.

(h)

Captions . The captions, headings and titles of the sections of this Agreement are inserted merely for convenience and ease of reference and shall not affect or modify the meaning of any of the terms, covenants or conditions of this Agreement.

(i)

Counterparts . This Agreement and any signed agreement or instrument entered into in connection with this Agreement, and any amendments hereto or thereto, may be executed in one or more counterparts, all of which shall constitute one and the same instrument. Any such counterpart, to the extent delivered by means of a facsimile machine or by .pdf, .tif, .gif, .peg or similar attachment to electronic mail shall be treated in all manners and respects as an original executed counterpart and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person.

[Remainder of page left intentionally blank. Signature page follows.]

Consulting Agreement

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IN WITNESS WHEREOF , the Parties hereto have executed this Consulting Agreement to be effective as of the Effective Date.

CONSULTANT	LUCAS ENERGY, INC.


/s/ Richard N. Azar, II	By:	/s/ Anthony C. Schnur
Signature


Name: Richard N. Azar, II	Name:	Anthony C. Schnur


	Title:	Chief Executive Officer


Address for Notice:

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EXHIBIT A

Duties of the Chairman

The Chairman will have a substantial influence in the company but will not actively participate in day-to-day operations. The Chairman will have the following primary responsibilities:

Board Chairman

· Preparing meeting agendas, calling meetings

· Primary interface between Directors and the Company

· Responsible to see that and assist committees to perform duties

Strategic and Business Development

· Participate in defining and setting strategic objectives of the company

· Actively seek out acquisition and merger candidates

Capital Formation

· Meet and introduce the company to energy focused funds to determine their interest

· Manage relationships for a pipeline of potential sources of capital

Responsibilities

The Chairman of the Board:

(a) Plans and organizes all of the activities of the Board of Directors including:

(i)

The preparation for, and the conduct of, Board meetings;

(ii)

The quality, quantity and timeliness of the information that goes to Board members;

(iii)

The formation of Board committees and the integration of their activity with the work of the Board;

(iv)

The evaluation of the Board’s effectiveness and implementation of improvements;

(v)

The development of the Board, but not including Director recruitment, in concert with the Nominating and Corporate Governance Committee, and compensation, in concert with the Compensation Committee,

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(vi)

Collects input from Board members and management on agenda for Board of Director’s meetings and in concert with the Chief Executive Officer (CEO), creates Board agenda;

(vii)

Reports relevant feedback from Board of Director’s meetings to CEO and other management;

(viii)

The ongoing formal and informal communication with and among Directors;

(ix)

Ensures that Board members receive accurate, timely and clear information to enable them to monitor performance, make sound decisions and give appropriate advice to promote the success of the Company;

(x)

Manages Board meetings so that sufficient time is allowed for the discussion of complex or contentious issues and that all members’ contributions are encouraged and valued; and

(xi)

Periodically reviewing and evaluating the performance of the CEO, the other Board members and the Corporation’s management.

(b)

Chairs annual and special meetings of the shareholders. In conjunction with and at the request of the CEO, the Chairman may meet with various groups (such as major shareholder groups), governments, the financial press, industry associations, etc.

(c)

acts as a liaison between management and the Board;

(d)

provides independent advice and counsel to the CEO;

(e)

recommends an annual schedule of the date, time and location of Board and Committee meetings;

(f)

calls special meetings of the Board where appropriate;

(g)

in concert with the CEO, determines the date, time and location of the annual meeting of shareholders and to develop the agenda for the meeting;

(h)

assesses and makes recommendations to the Board annually regarding the effectiveness of the Board as a whole, the Committees of the Board and individual Directors;

(i)

ensures that regularly, upon completion of the ordinary business of a meeting of the Board, the Directors hold discussions without management present;

(j)

Works closely with, and through the CEO, to:

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(i)

Participate in the development of the Corporation’s vision, strategic agenda, and business plan to facilitate communication and understanding between management and the Board;

(ii)

Ensure operations conform with the Board’s view on corporate policy; and

(iii)

Ensure, that succession plans are in place at senior executive levels.

(k)

In conjunction with the CEO, participates in external relationships which fulfill the Corporation’s obligations as a member of industry and the community.

(l)

Provides the key link between the Board and management, and as a result, has a significant communication, coaching and team-building responsibility including:

(i)

Maintaining a close ongoing relationship and open communication with the CEO;

(ii)

Representing the shareholders and Board to management and management to the shareholders and Board; and

(iii)

Monitoring and evaluating the performance of the CEO.

(m)

May attend all Board committee meetings as a non-voting participant.

(n)

Carries out special assignments in collaboration with the CEO and management or the Board of Directors.

(o)

Operational Insight:

●

Provides insight and shares historical field and production knowledge; and

●

Advises and proposes for consideration, various drilling and production methods.

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Lucas Energy, Inc. 8-K

Exhibit 99.5

Contacts:

Carol Coale / Ken Dennard
Dennard ▪ Lascar Associates LLC
(713) 529-6600

FOR IMMEDIATE RELEASE

LUCAS ENERGY CLOSES ACQUISITION TRANSACTION AND

RELATED FINANCINGS

HOUSTON, TEXAS – August 31, 2016 -- Lucas Energy, Inc. (NYSE MKT: LEI) (“Lucas” or the “Company”), an independent oil and gas company, announced that, effective August 25, 2016, it closed the acquisition of working interests in producing properties and undeveloped acreage in Texas and Oklahoma, including varied interests in two contiguous acreage blocks in the liquids-rich Mid-Continent region of the U.S., from Segundo Resources LLC (“Segundo”) and other sellers. The assets are currently producing over one thousand net barrels of oil equivalent per day (BOE/d), of which 53% are liquids and which are being produced primarily from the Hunton formation. Additional offset development drilling opportunities have been identified and specific development activities are being planned.

On August 26, 2016 and in conjunction with the closing, three new members were added to Lucas’ Board of Directors: Richard N. Azar II, Robert D. Tips and Alan W, Dreeben, with Mr. Azar appointed as Chairman of the Board. Mr. Azar has more than 30 years of experience in the oil and gas exploration and production industry. Over the last 20 years, Mr. Azar has been instrumental in developing the Hunton Dewatering Resource play in central Oklahoma through his ownership/partnership in Altex Resources, Inc., which was sold to a Canadian Energy Trust in March 2006. Mr. Tips is a highly-recognized San Antonio business leader who oversees a family-owned organization and engages in various volunteer activities, and Mr. Dreeben is an owner and director of Republic National Distributing Company, LLC, currently serves on two other boards, and engages in various philanthropic activities. Anthony C. Schnur, Lucas’ Chief Executive Officer, will continue to serve as a member of the Board in addition to existing members Mr. Fred Zeidman and Mr. Fred Hofheinz.

In consideration for the purchase of the assets, Lucas assumed approximately $30.6 million of commercial bank debt and issued the sellers 552,000 shares of Series B Redeemable Convertible Preferred Stock and approximately 13 million shares of restricted common stock in addition to a cash payment of $4,975,000. At closing, Lucas also entered into a $40 million loan agreement with the International Bank of Commerce (“IBC”), the majority of which funds were used for the debt assumption and closing payment discussed above, which is due on August 25, 2019, and a promissory note pursuant to which $1.5 million was borrowed from RAD2 Minerals, Ltd., one of the sellers owned and controlled by Mr. Azar, payable on or before the earlier of (a) October 31, 2016 and (b) the date that Lucas receives at least $1.5 million in proceeds from the April 2016 Stock Purchase Agreement.

Additional information regarding the transactions and related financings are included in the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 31, 2016.

“We are very pleased to have closed the acquisition of properties in Texas and Oklahoma,” said Anthony C. Schnur, Chief Executive Officer of Lucas. “We now have a foundation of producing and undeveloped assets on which to grow the Company. Not only are we diversifying our production profile to include natural gas liquids, but the conventional nature of the long-lived Hunton reserves are lower-risk and lower-cost to develop than our Eagle Ford assets.

“This has been an eventful month for the Company. Last week, we entered into an agreement to fund the development of our Eagle Ford shale assets with a successful operator in the area, and with the closing of the Segundo transaction, we have completed a significant step toward our strategy of expanding the Company into proven reservoirs outside of the Eagle Ford, while improving our financial stability. We want to thank IBC for having confidence in our team and being an integral part of the financing transaction and look forward to working with them in the future as we continue to execute on our acquisition strategy.”

As reported previously, the Company did not receive the required number of votes to approve the amendment to the Company’s Articles of Incorporation to change the Company’s name to ‘Camber Energy, Inc.’ at the Company’s recent shareholder meeting. The Company currently anticipates that the shareholders who received shares in the closing will approve the name change via a written consent without a meeting, and we plan to file and mail an information statement relating to such approval in the near future in connection therewith.

ROTH Capital Partners acted as financial advisor on the Transaction.

About Lucas Energy, Inc.

Based in Houston, Texas, Lucas Energy (NYSE MKT: LEI) is a growth-oriented, independent oil and gas company engaged in the development of crude oil, natural gas and natural gas liquids in the Hunton formation in Central Oklahoma in addition to the Austin Chalk and Eagle Ford formations in South Texas.

For more information, please visit the updated Lucas Energy web site at www.lucasenergy.com .

Safe Harbor Statement and Disclaimer

This news release includes “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward looking statements give our current expectations, opinion, belief or forecasts of future events and performance. A statement identified by the use of forward looking words including “may,” “expects,” “projects,” “anticipates,” “plans,” “believes,” “estimate,” “should,” and certain of the other foregoing statements may be deemed forward-looking statements. Although Lucas believes that the expectations reflected in such forward-looking statements are reasonable, these statements involve risks and uncertainties that may cause actual future activities and results to be materially different from those suggested or described in this news release. These include risks inherent in natural gas and oil drilling and production activities, including risks of fire, explosion, blowouts, pipe failure, casing collapse, unusual or unexpected formation pressures, environmental hazards, and other operating and production risks, which may temporarily or permanently reduce production or cause initial production or test results to not be indicative of future well performance or delay the timing of sales or completion of drilling operations; delays in receipt of drilling permits; risks with respect to natural gas and oil prices, a material decline which could cause Lucas to delay or suspend planned drilling operations or reduce production levels; risks relating to the availability of capital to fund drilling operations that can be adversely affected by adverse drilling results, production declines and declines in natural gas and oil prices; risks relating to unexpected adverse developments in the status of properties; risks relating to the absence or delay in receipt of government approvals or fourth party consents; and other risks described in Lucas’s Annual Report on Form 10-K and other filings with the SEC, available at the SEC’s website at www.sec.gov. Investors are cautioned that any forward-looking statements are not guarantees of future performance and actual results or developments may differ materially from those projected. The forward-looking statements in this press release are made as of the date hereof. The Company takes no obligation to update or correct its own forward-looking statements, except as required by law, or those prepared by third parties that are not paid for by the Company. The Company's SEC filings are available at http://www.sec.gov.