EXHIBIT 10.7
 
August 1, 2012
 
Lazarus Energy LLC
801 Travis, Suite 2100
Houston, Texas 77002
Attention: Jonathan Carroll
 
GEL TEX Marketing, LLC
Milam Services, Inc.
919 Milam, Suite 2100
Houston, Texas 77002
Attention: Steve Nathanson
 
Re: Letter Agreement Regarding Distribution of Nixon Products Revenues
 
Gentlemen:
 
Reference is made to that certain (i) Joint Marketing Agreement dated August 12,
2011 (as amended, restated or supplemented from time to time, the "JMA"), by and
between Lazarus Energy LLC, a Delaware limited liability company ("Lazarus"),
and GEL Tex Marketing, LLC, a Delaware limited liability company ("GEL"), (ii)
Construction and Funding Contract dated August 12, 2011 (as amended, restated or
supplemented from time to time, the "CFC"), by and between Lazarus and Milam
Services, Inc., a Delaware corporation ("MSI"), (iii) Crude Oil Supply and
Throughput Services Agreement dated August 12, 2011 by and between GEL and
Lazarus, (iv) Letter Agreement dated June 25, 2012 by and between GEL, MSI and
Lazarus regarding expense payments and reservations of rights ("Operating
Expense Payment Letter Agreement"), and (v) Acknowledgement Letter dated June 1,
2012 addressed to Lazarus by GEL (the "Acknowledgment  Letter").  Capitalized
terms not otherwise defmed herein shall have the meanings set forth in the CFC.
 
The parties to this Letter Agreement desire to set forth certain
acknowledgements and agree to certain modifications to the JMA as more
particularly set forth herein.
 
 
 

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Section 1. Acknowledgements
 
The parties agree that Lazarus owes to GEL the principal sum of$2,342,324.00
(the "Deficit Crude Amount") for Costs of Crude Oil  for Crude Oil as defined in
the Supply Agreement  delivered in the months of May and June 2012 which remain
unpaid since the delivery thereof.  Under the JMA and the Supply Agreement, the
Deficit Crude Amount must be paid from total revenue from the sale of the Nixon
Products in subsequent months.  The parties further agree that the current
outstanding principal balance as of the date hereof of all other obligations
owed to GEL or to Milam pursuant to the JMA, the Operating Expense Letter
Agreement or the Acknowledgement Letter (excluding amounts funded by Milam under
the CFC) due to losses sustained by Lazarus during months in which total
revenues from the sale of the Nixon Products were not sufficient is
$1,984,152.00 (the "Other Deficit Amounts" and together with the Deficit Crude
Amount, the "Deficit Amounts").
 
Section 2.  Modifications to Distributions and Payments Provisions of JMA.
 
The amount (the" Available Proceeds") equal to the sum of total revenue from the
sale of the Nixon Products for a calendar month less the Costs of Crude Oil for
such calendar month and less the Costs of Crude Oil unpaid for any prior months
(other than the Deficit Crude Amount) shall be distributed as follows:
 
(i) an amount equal to the "Advanced Lazarus Profit Share" shall be paid
directly to 1st International to be applied by 1st International in accordance
with the terms of the Loan Agreement; and
 
(ii) the remaining Available Proceeds, to the extent sufficient, shall be
distributed in the following order of priority: (1) to GEL an amount equal to
the then outstanding balance of the Deficit Crude Amount; (2) to GEL an amount
equal to the Construction Payment; (3) to Lazarus an amount equal to the
Operations Payment; (4) to GEL an amount equal to the expenses incurred by GEL
for the transportation of the Nixon Products undertaken by GEL pursuant to
Section 4.4 of the JMA (including any amounts owing from prior months other than
the Other Deficit Amounts); (5) to GEL an amount equal to the Financial
Statement Preparation Fees, if any (including any amounts owing from prior
months other than the Other Deficit Amounts); (6) to GEL an amount equal to Tank
Storage Fees (as such term is defined in the Supply Agreement) paid by GEL
(including any amounts owing from prior months other than the Other Deficit
Amounts); (7) to GEL an amount equal to Other Deficit Amounts; (8) to GEL, as
the GEL Profit Share, an amount equal to 80% of the sum of the remaining balance
plus the Advanced Lazarus Profit Share for the applicable month; and (9) any
remaining amounts to Lazarus as the Lazarus Profit Share, provided however if in
any month the Advanced Lazarus Profit Share is greater than the Lazarus Profit
Share, the amount of such excess shall be paid to GEL the following month(s) out
of the Lazarus Profit Share.
 
 
 

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The Advanced Lazarus Share shall be determined as follows: (A minus B) times
(1/2 of20%);where A is the amount of Available Proceeds; and B is the sum of
items (2)(Construction Payment for applicable month), (3) (Operations Payment
for applicable month), (4)(Transportation expenses for applicable month),
(5)(Financial Statement Preparation Fees for applicable month) and (6)(Tank
Storage Fees for applicable month) listed in this Section 2(ii), excluding
however (to the extent applicable) any arrearages in such items attributable to
prior months.
 
Section 3.  Term; Other Agreements
 
(a) The provisions of Section 2 of this Letter Agreement shall apply and replace
the provisions of Sections 4.2, 5.2 and Exhibit B ofthe JMA that provide for
distributions and payments different from those set forth in Section 2 of this
Letter Agreement until the earlier of(i) the termination of the Forbearance
Period and the Extended Forbearance Period (as such terms are defined in the
Forbearance Agreement dated August 12, 2011 between 1st International, Lazarus,
Jonathan P. Carroll, Gina L. Carroll, Lazarus Energy Holdings LLC, GEL and MSI
(the "Forbearance  Agreement") ,(ii) a notice of termination is delivered by GEL
to Lazarus stating that GEL elects to terminate the provisions of Section 2 of
this Letter Agreement, which Lazarus acknowledges that GEL may do in its sole
discretion, or (iii) GEL has been paid in full all Deficit Amounts and has
received an amount equal to 80% of all amounts paid to 1st International
pursuant to Section 2(i) of this Letter Agreement.  When the provisions of
Section 2 of this Letter Agreement cease to be effective and for the period from
and after such time, all provisions of Sections 4.2, 5.2 and Exhibit B of the
JMA shall apply to any future distributions of total revenue from the sale of
the Nixon Products , and the Deficit Crude Amount remaining unpaid, if any,
shall be paid from the total revenue from the sale of the Nixon Products
in subsequent months.
 
(b) Any Costs of Crude Oil for Crude Oil delivered after the month of June 2012
which are not paid for in full from total revenue from the sale of Nixon
Products in an applicable calendar month shall be paid from total revenue from
the sale of the
Nixon Products in subsequent months prior to the determination of Gross Profits
or Available Proceeds, until such amounts are indefeasibly paid in full.
 
 
 

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(c) Notwithstanding any provision to the contrary in this Letter Agreement, the
Deficit Amounts, until indefeasibly paid in full, shall constitute and be a part
of Obligations (as such term is defined in the CFC).  In addition, nothing
herein shall modify or otherwise alter any security interests of GEL under the
Supply Agreement, the JMA, the CFC, the Operating Expense Payment Letter
Agreement, the Acknowledgement Letter or any Project Document.
 
Section 4. Certain Representations
 
(a) Each party hereby represents to the other that (a) it has full power and
authority to execute and deliver this Letter Agreement and to consummate the
transactions contemplated hereby, (b) the execution and delivery of this Letter
Agreement by such party have been duly and validly authorized by all necessary
corporate action on the part of such party and (c) this Letter Agreement has
been duly and validly executed and delivered by such party and constitutes a
valid and binding obligation of such party, enforceable against such party in
accordance with its terms, except that such enforceability (i) may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to the enforcement of creditors' rights generally and (ii) is subject to general
principles of equity and the discretion of the court before which any
proceedings seeking injunctive relief or specific performance may be brought.
 
(b) Lazarus hereby represents and warrants to GEL that, after giving effect to
this Letter Agreement, all conditions and requirements for the extension of the
Forbearance Agreement for another 12 months period as set forth in Section 2(b)
of the Forbearance Agreement have been satisfied and no Forbearance Termination
Event, as defined in the Forbearance Agreement has occurred, and no facts or
circumstance exist that would cause a Forbearance Termination Event to occur
under the Forbearance Agreement.
 
As modified by this Letter Agreement, all of the terms of the JMA, CFC, Supply
Agreement, Operating Expense Payment Letter Agreement, Acknowledgement Letter
and other Project Documents are hereby ratified and confirmed and shall remain
in full force and effect.

 

Signature Page Follows
 
 
 

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IN WI1NESS WHEREOF, the parties hereto have caused this Letter Agreement to be
executed by their duly authorized representatives effective as of the date first
written above.
 
 

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