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Exhibit 10.1

NOTE AND SECURITY AGREEMENT
 
This Note and Security Agreement, dated as of April 10th, 2014 (this
“Agreement”), is entered into by RJ RESOURCES CORP., a Delaware corporation
(“Borrower”), and given to RJ CREDIT LLC (“Lender”).
 
BACKGROUND
 
WHEREAS, Borrower desires to borrow funds from Lender to provide financing for
the working capital needs of Borrower.
 
WHEREAS, subject to the terms and conditions set forth herein, Lender has agreed
to provide Loans to Borrower.
 
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and intending to be legally bound hereby, the
parties covenant and agree as follows:
 
1.           Loan.
 
(a)           Subject to the terms and conditions of this Agreement, and relying
upon the representations and warranties set forth in this Agreement, Lender may,
in Lender’s reasonable discretion, make loans to Borrower from time to time on
or after the Effective Date (as defined in Section 4) until the earlier of (i)
April 10th, 2016 (the “Termination Date”) and (ii) the termination of Lender’s
commitment in accordance with the terms hereof.  Each loan made by Lender to
Borrower shall be referred to as an “Advance” and all Advances shall be referred
to, collectively, as the “Loan”.  The maximum aggregate principal amount of the
Loan at any time outstanding shall not exceed $10,000,000 (the
“Commitment”).  Within the foregoing limits, Borrower may borrow, repay and
re-borrow the Loan. This Agreement shall evidence Borrower’s obligation to pay
to Lender, in accordance with the terms of this Agreement, the Loan outstanding
from time to time and interest thereon.
 
(b)           Borrower shall give the Lender an advance request, substantially
in the form attached here to as Exhibit A (an “Advance Request”), which may be
by facsimile or other electronic transmission (if followed immediately by
telephone confirmation), no later than noon (New York City time) on the third
Business Day prior to the date of the proposed Advance.  Each Advance Request
shall be revocable and shall specify, among other things, a description of use
of the proceeds of such Advance, the amount of the proposed Advance and the
proposed date of such Advance. For purposes of this Agreement, “Business Day”
means a day that is not a Saturday, Sunday or legal holiday on which Lender is
not open for business in New York City. Borrower shall have the right to, at any
time, withdraw such Advance Request or extend the date of the requested Advance
as long as it reimburses Lender for its actual and out-of-pocket reasonable
expenses incurred by Lender in connection with such withdrawal or extension.
 
(c)           Each Advance, and all unpaid interest thereon, shall, unless
accelerated after the occurrence of an Event of Default, be due and payable on
the Termination Date.  Accrued and unpaid interest on the Loan shall be due and
payable on the first Business Day of each January, March, May, July, September
and November, commencing on July 1, 2014, until the Loan and all interest
thereof have been paid in full.

 
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(d)           If the date on which any interest or the outstanding principal
amount of the Loan is required to be paid falls on a day that is not a Business
Day, then such interest or such outstanding principal amount, as the case may
be, shall be payable on the next succeeding Business Day with additional accrued
interest thereon.
 
(e)           The principal amount of each Advance shall bear interest at the
per annum rate of twenty percent (20%) on an actual/360 basis.  Following the
occurrence and during the continuance of an Event of Default (as defined in
Section 8), the per annum interest rate on each Advance shall be increased to
twenty-four percent (24%) per annum.
 
(f)           Borrower shall have the right at any time, upon at least five (5)
Business Days’ prior written or telephonic notice (promptly confirmed in
writing) to Lender, to terminate or, from time to time, permanently reduce the
Commitment, without premium or penalty; provided however, that the Commitment
may not be reduced to the extent that following such reduction the sum of the
aggregate unpaid principal of all the Loan would exceed the Commitment thus
reduced.
 
(g)           Borrower shall have the right at any time and from time to time to
prepay any Advance, in whole or in part, without premium or penalty. Prepayment
of any portion of an Advance shall be made upon one (1) Business Day’s prior
written notice to Lender. Each notice of prepayment shall specify the prepayment
date and the principal amount to be prepaid.  All prepayments shall be
accompanied by accrued interest on the principal amount being prepaid to the
date of prepayment.  Borrower shall have the right to, at any time, withdraw
such prepayment notice or extend the date of the proposed prepayment as long as
it reimburses Lender for its actual and out-of-pocket reasonable expenses
incurred by Lender in connection with such withdrawal or extension.
 
2.           Collateral; Release of Collateral.
 
(a)           In order to secure all existing and future liabilities and
obligations of every kind or nature at any time owing by Borrower to Lender in
connection herewith, the transactions contemplated hereby, administration
thereof or otherwise, whether related or unrelated, primary or secondary,
matured or contingent, direct or indirect, due or to become due, and whether
principal, interest (including interest which may accrue as post-petition
interest in connection with any bankruptcy or similar proceeding), fees, costs
or expenses (including without limitation attorneys’ fees), and any extensions,
modifications, substitutions, increases and renewals thereof, and the payment of
all reasonable amounts advanced or costs incurred by Lender, to preserve,
protect and enforce its rights hereunder and/or in connection herewith
(collectively, the “Obligations”), Borrower hereby collaterally assigns,
mortgages, pledges, hypothecates and grants to Lender a lien on and security
interest in all of Borrower’s right, title, and interest in and to the
following, whether now owned or hereafter arising and wherever located (the
“Collateral”): (i) General Intangibles arising under and in connection with AS
Purchase Agreement, including but not limited to all of Borrower’s AS Contract
Rights, and (ii) the Pledged Interests, including but not limited to the
Purchased Units, including all of the proceeds and products, whether tangible or
intangible, of any of the foregoing, including proceeds of insurance, and any
and all General Intangibles, money, or other tangible or intangible property
resulting from the sale, lease, license, exchange, collection, or other
disposition of any of the foregoing, the proceeds of any award in condemnation
with respect to any of the foregoing, any rebates or refunds, whether for taxes
or otherwise, and all proceeds of any such proceeds, or any portion thereof or
interest therein, and the proceeds thereof, and all proceeds of any loss of,
damage to, or destruction of the above, whether insured or not insured, and, to
the extent not otherwise included, any indemnity, warranty, or guaranty payable
by reason of loss or damage to, or otherwise with respect to any of the
foregoing (the “Proceeds”).  Without limiting the generality of the foregoing,
the term “Proceeds” includes whatever is receivable or received when the Pledged
Interests or proceeds are sold, exchanged, collected, or otherwise disposed of,
whether such disposition is voluntary or involuntary, and includes proceeds of
any indemnity or guaranty payable to Borrower, Lender or an Investor from time
to time with respect to any of the Pledged Interests.  For purposes of this
Agreement, the following terms shall have the following meanings:

 
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(iii)           “AS Purchase Agreement” means that certain Asia Sixth Purchase
Agreement, dated as of March 7, 2014 between Borrower and Pacific Energy
Development Corp. (“Pacific Energy”), pursuant to which Borrower has agreed to
certain future commitments should Pacific Energy obtain fifty-one percent (51%)
or more of the equity interests in Asia Sixth Resources Limited (Borrower’s
contract rights thereunder, the “AS Contract Rights”).
 
(iv)           “General Intangibles” means general intangibles (as that term is
defined in the Code), and, in any event, includes payment intangibles, contract
rights, rights to payment, rights arising under common law, statutes, or
regulations, choses or things in action, goodwill, programs, programming
materials, blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights
under any royalty or licensing agreements, including infringement claims,
computer programs, information contained on computer disks or tapes, software,
literature, reports, catalogs, pension plan refunds, pension plan refund claims,
insurance premium rebates, tax refunds, and tax refund claims, interests in a
partnership or limited liability company which do not constitute a security
under Article 8 of the Code, and any other personal property other than money,
Accounts, Chattel Paper, Deposit Accounts, goods, the Pledged Interests,
Negotiable Collateral, and oil, gas, or other minerals before extraction.
 
(v)           “MIPA” means that certain Membership Interest Purchase Agreement,
dated as of March 7, 2014, between Borrower and Pacific Energy, pursuant to
which Borrower purchased fifty percent (50%) of the limited liability company
interests issued by Pacific Energy Development MSL, LLC (“PED MSL”) (such
limited liability company interests, the “Purchased Units”).
 
(vi)           “Pledged Interests” means all of Borrower’s right, title and
interest in and to all of the Stock in PED MSL now or hereafter owned by
Borrower in connection with the MIPA, regardless of class or designation,
including all substitutions therefor and replacements thereof, all proceeds
thereof and all rights relating thereto, also including any certificates
representing the Stock, the right to receive any certificates representing any
of the Stock, all warrants, options, share appreciation rights and other rights,
contractual or otherwise, in respect thereof, and the right to receive
dividends, distributions of income, profits, surplus, or other compensation by
way of income or liquidating distributions, in cash or in kind, and cash,
instruments, and other property from time to time received, receivable, or
otherwise distributed in respect of or in addition to, in substitution of, on
account of, or in exchange for any or all of the foregoing.
 

 
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(vii)           “Stock” means all shares, options, warrants, interests,
participations, or other equivalents (regardless of how designated) of or in a
Person, whether voting or nonvoting, including common stock, preferred stock, or
any other “equity security” (as such term is defined in Rule 3a11-1 of the
General Rules and Regulations promulgated by the Commission under the Exchange
Act).
 
(b)           On the date this Agreement is terminated in accordance with its
terms and Lender has received payment of all outstanding Obligations, Lender
shall automatically and without further action be deemed to have released,
without recourse, representation or warranty, Lender’s liens and security
interests in, to and under all Collateral and all future monies due or to become
due with respect thereto and all Proceeds with respect thereto.  Lender, shall,
at the sole expense of Borrower, execute such instruments of release in favor of
Borrower with respect to the Collateral to be released from the lien of this
Agreement, as Borrower may reasonably request (in recordable form if necessary),
and otherwise take such actions as are necessary and appropriate to release the
liens and security interests of Lender on the Collateral to be released.
 
3.           Further Assurances.
 
(a)           Lender is hereby authorized by Borrower to file any financing
statements covering the Collateral or, after any such financing statement is
filed, an amendment that adds collateral covered by a financing statement and
Lender may file such financing statements and amendments to financing statements
describing the Collateral in any filing office as Lender, in its sole
discretion, may determine.  Borrower shall perform all further acts that may be
lawfully and reasonably required by Lender to secure Lender and effectuate the
intentions and objectives of this Agreement.
 
(b)           Borrower shall, at Lender’s request, at any time and from time to
time, execute and deliver to Lender within ten (10) days of such request, such
financing statements, documents and other agreements and instruments (and pay
the cost of filing or recording the same in all public offices deemed necessary
or desirable by Lender) and do such other acts and things as Lender may deem
reasonably necessary or desirable in order to establish and maintain a valid,
attached and perfected security interest in the Collateral in favor of Lender
(free and clear of all other liens, claims and rights of third parties
whatsoever, whether voluntarily or involuntarily created).
 
(c)           Lender shall have no obligation with respect to the Collateral or
any other property held or received by it hereunder except to use reasonable
care in the custody thereof to the extent required by law.  Lender may hold the
Collateral or such other property in the form in which it is received by
it.  Lender shall have no obligation to sell or otherwise deal with the
Collateral or such other property at any time for any reason, whether or not
upon request of Borrower, and whether or not the value thereof, in the opinion
of Lender or Borrower, is more or less than the aggregate amount of the
Obligations secured hereby, and any such refusal or inaction by Lender shall not
be deemed a breach of any duty which Lender may have under law to preserve the
Collateral.
 
 
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(d)           Borrower shall, at Lender’s request, at any time and from time to
time, execute and deliver to Lender within ten (10) days of such request, deeds
of trust, in form and substance satisfactory to Lender, pursuant to which
Borrower shall grant to Lender security interests in Borrower’s right, title and
interest in and to oil and gas leases and other interests and estates and the
lands and premises covered or affected thereby with respect to oil and gas
properties located in Morgan and Weld Counties, Colorado, which security
interests shall be subordinated only to the liens of BAM and to other liens
reasonably acceptable to Lender; provided that Lender shall not record such
deeds of trust prior to the recording by BAM of deeds of trust with respect to
the same oil and gas properties.
 
4.           Conditions to Effective Date.  This Agreement shall take effect
upon the first date on which the following conditions precedent have been
satisfied or waived by Lender in its sole discretion (such date, the “Effective
Date”):
 
(a)           Lender shall have received the following, all in form and
substance satisfactory to Lender:
 
(i)           this Agreement executed and delivered by Borrower;
 
(ii)           results of a recent lien search (including UCC, tax and judgment
lien) in Delaware, and such searches shall reveal no liens on the Collateral;
 
(iii)          a certificate of good standing for Borrower from the Secretary of
the State of the State of Delaware; and
 
(iv)          such other documents as Lender may reasonably request.
 
(b)           No litigation shall be pending or threatened in writing, which
does or, with respect to any threatened litigation, seeks to, enjoin, prohibit
or restrain, the purchase or repayment of the Loan or the consummation of the
transactions contemplated by this Agreement.
 
(c)           All proceedings in connection with the transactions contemplated
by this Agreement and all documents and instruments incidental to all such
transactions shall be satisfactory to Lender and Lender’s counsel, and Lender
and Lender’s counsel shall have received all such counterpart originals or
certified or other copies of such documents as Lender or Lender’s counsel may
request.
 
The parties agree that upon Lender’s execution and delivery of this Agreement
the conditions precedent shall be deemed satisfied.
 
5.           Conditions to Each Advance.  The obligation of Lender to make any
Advance under this Agreement is subject to the satisfaction of the following
conditions, unless waived by Lender in its sole discretion:
 
(a)           Borrower shall have performed and complied in all material
respects with all agreements and conditions contained in this Agreement required
to be performed or complied with by it prior to or at the date of the making of
such Advance and no Event of Default or monetary or material non-monetary event
which upon notice or lapse of time or both would constitute an Event of Default
shall have occurred and be continuing.

 
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(b)           The representations and warranties of Borrower set forth in this
Agreement shall be true and correct in all respects on and as of the date of the
making of such Loan, unless such representation or warranty refers to a specific
date.
 
(c)           On the date of the making of such Advance, no event shall have
occurred and be continuing that could reasonably be expected to have a Material
Adverse Effect.  For purposes of this Agreement, “Material Adverse Effect” means
a material adverse effect on (i) the business, assets, operations or financial
condition of Borrower, (ii) the ability of Borrower to pay any of the Advances
in accordance with the terms of this Agreement, (iii) the Collateral or Lender’s
liens on the Collateral or the priority of such liens or (iv) Lender’s rights
and remedies under this Agreement.
 
6.           Representations and Warranties.
 
(a)           Borrower is duly organized, validly existing and in good standing
under the laws of the State of Delaware, has all requisite power and authority,
and has all material governmental licenses, authorizations, consents and
approvals necessary, to own its assets and to carry on its business as now
conducted, and is qualified to do business in, and is in good standing in, every
jurisdiction where such qualification is required for purposes of carrying out
its businesses.
 
(b)           This Agreement has been duly authorized by all necessary corporate
action.  This Agreement has been duly executed and delivered by Borrower and
constitutes a legal, valid and binding obligation of Borrower, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors’ rights generally
and subject to general principles of equity, regardless of whether considered in
a proceeding in equity or at law.
 
(c)           No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body (other than those
which have been or, concurrently herewith, will be made) is required for (i) the
pledge by Borrower of the Collateral pursuant to this Agreement or the
execution, delivery or performance of this Agreement by Borrower, (ii) the
perfection of Lender’s security interest in the Collateral (to the extent
perfection is achieved by filing a UCC-1 financing statement) other than the
filing of all necessary UCC-1 financing statements, or (iii) the exercise by
Lender of the voting or other rights provided for in this Agreement or Lender’s
rights and remedies under this Agreement or in respect of the Collateral
pursuant to this Agreement.
 
(d)           The execution and delivery of this Agreement and the performance
of the transactions contemplated hereunder (i) will not violate any applicable
law or regulation or the organizational documents of Borrower or any order of
any court, governmental authority or regulatory body, (ii) will not violate or
result in a default under any indenture, agreement or other instrument binding
upon Borrower, or give rise to a right thereunder to require any payment to be
made by Borrower and (iii) will not result in the creation or imposition of any
lien on any property of Borrower (other than the liens created by this
Agreement).

 
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(e)           Borrower is in compliance in all material respects with all
governmental requirements applicable to it or its property and all agreements
and other instruments binding upon it or its property, and possesses all
licenses, permits, franchises, exemptions, approvals and other governmental
authorizations necessary for the ownership of its property and the conduct of
its business.
 
(f)           Borrower’s jurisdiction of organization is the State of Delaware;
the name of Borrower as listed in the public records of its jurisdiction of
organization is “RJ Resources Corp.”; and Borrower’s principal place of business
and chief executive office is located at 152 West 57th Street, 4th Floor, New
York, New York 10019.
 
(g)           All capitalized words and phrases and all defined terms used in
the USA Patriot Act of 2001, 107 Public Law 56 (October 26, 2001) and in other
statutes and all orders, rules and regulations of the United States government
and its various executive departments, agencies and offices, related to the
subject matter of the Patriot Act, including Executive Order 13224 effective
September 24, 2001 (collectively referred to in this Section only as the
“Patriot Act”) are incorporated into this Section. Borrower is: (i) not a
“blocked” person listed in the Annex to Executive Order Nos. 12947, 13099 and
13224 and all modifications thereto or thereof (the “Annex”); (ii) in full
material compliance with the requirements of the Patriot Act and all other
requirements contained in the rules and regulations of the Office of Foreign
Assets Control, Department of the Treasury (as used in this Section only,
“OFAC”); (iii) operated under policies, procedures and practices, if any, that
are in full material compliance with the Patriot Act and available to the Lender
for its review and inspection during normal business hours and upon reasonable
prior notice; (iv) not in receipt of any notice from the Secretary of State or
the Attorney General of the United States or any other department, agency or
office of the United States claiming a violation or possible violation of the
Patriot Act; (v) not listed as a Specially Designated Terrorist or as a
“blocked” person on any lists maintained by OFAC pursuant to the Patriot Act or
any other list of terrorist or terrorist organizations maintained pursuant to
any of the rules and regulation of OFAC issued pursuant to the Patriot Act, or
on any other list of terrorist or terrorist organizations maintained pursuant to
the Patriot Act; (vi) not a Person who has been determined by competent
authority to be subject to any of the prohibitions contained in the Patriot Act;
and (vii) to Borrower’s knowledge not owned or Controlled by or now acting
and/or will in the foreseeable future act for or on behalf of any Person named
in the Annex or any other list promulgated under the Patriot Act or for or on
behalf of any other Person who has been determined to be subject to the
prohibitions contained in the Patriot Act.
 
(h)           Any assessed deficiencies resulting from Internal Revenue Service
examinations of the federal income tax returns of Borrower have been discharged
or reserved against. Borrower has filed or caused to be filed all federal,
state, local and other tax returns which are required to be filed (taking into
account any permitted extensions), and has paid or has caused to be paid all
taxes as shown on said returns or on any assessment received by them, to the
extent that such taxes have become due (taking into account any permitted
extensions), except (i) to the extent the failure to do so would not reasonably
be expected to have a Material Adverse Effect or (ii) any such taxes, levies,
assessments, deficiencies or claims which are being contested in good faith by
appropriate proceedings, and as to which Borrower has set aside on its books
adequate reserves (in accordance with generally accepted accounting principles
in the United States of America as in effect from time to time (“GAAP”)) with
respect to any such tax, levy assessment, deficiency or claim so contested.
 
 
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(i)           Borrower has good and valid title to the Collateral, free and
clear of mortgages, pledges, liens, charges and other encumbrances other than
the security interest granted, assigned and pledged by Borrower to BAM
Administrative Services LLC (“BAM”) pursuant to that certain Security Agreement,
dated as of March 7, 2014 (as amended, supplemented or otherwise modified from
time to time, (the “Senior Security Agreement”) between Borrower and BAM, as
agent for the investors party to the Purchase Agreement referred to therein.
 
(j)           There are no actions, suits or proceedings (whether or not
purportedly on behalf of Borrower pending or, to the knowledge of Borrower,
threatened in writing against or affecting Borrower), at law or in equity or
before or by any court or governmental authority, which involve any of the
transactions contemplated by this Agreement that could reasonably be expected to
result in a Material Adverse Effect.
 
(k)           No part of the proceeds of any Advance will be used, whether
directly or indirectly, and whether immediately, incidentally or ultimately (i)
in violation of Regulation U of the Board of Governors of the Federal Reserve
System of the United States of America, to “purchase” or to “carry” margin stock
or to extend credit to others for the purpose of “purchasing” or “carrying”
margin stock, or to refund indebtedness originally incurred for such purpose
(within the meaning of Regulation U as amended to the date hereof), or (ii) for
any purpose which violates or is inconsistent with the provisions of the
Regulations T or X of the Board of Governors of the Federal Reserve System of
the United States of America.
 
(l)           Borrower is not required to be registered as an “investment
company” as defined in, or subject to regulation under, the Investment Company
Act of 1940, as amended.
 
(m)           (i) The fair value of the assets of Borrower exceeds Borrower’s
liabilities, and (ii) Borrower will (A) be able to pay its debts as they mature,
(B) own property with fair saleable value greater than the amount required to
pay its debts and (C) have capital sufficient to carry on its business as then
constituted.
 
7.           Covenants.  Borrower covenants and agrees with Lender that, so long
as the Loan or interest on amounts outstanding under this Agreement or any fees
incurred hereunder, or any other expense or amounts payable under this
Agreement, shall be unpaid:
 
(a)           Borrower shall:
 
(i)           (A) do or cause to be done, all things necessary to preserve and
keep in full force and effect the existence of Borrower as a corporation; (B)
comply with all contractual obligations applicable to it except where the
failure to so comply could not reasonably be expected to have a Material Adverse
Effect; and (C) preserve all of its property used or useful in the conduct of
its business except as could not reasonably be expected to have a Material
Adverse Effect;

 
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(ii)           pay and discharge or cause to be paid and discharged promptly all
taxes, assessments and governmental charges or levies imposed upon its income
and profits, or upon any of its property, real, personal or mixed, or upon any
part thereof, before the same shall become delinquent, as well as all lawful
claims for labor, materials and supplies or otherwise which, if unpaid, might
become a lien or charge upon such properties or any part thereof; provided,
however, that except for a tax, charge, assessment, levy or claim, Borrower
shall not be required to pay and discharge or cause to be paid and discharged
any such tax, assessment, charge, levy or claim so long as the validity thereof
shall be contested in good faith by appropriate proceedings and Borrower shall
have set aside on its books appropriate reserves (in accordance with GAAP) with
respect to any such tax, assessment, charge, levy or claim so contested;
 
(iii)           maintain financial records in accordance with GAAP and permit
internal consultants of Lender or similar representatives of Lender upon prior
written notification of the same (except that during the continuance of an Event
of Default, no such notice shall be required) to have reasonable access to the
financial records, and other records of Borrower and its properties during
normal business hours, and permit such consultants or representatives to make
such excerpts from such records and to conduct, once in any one (1) year period
(and as often as requested after an Event of Default has occurred and is
continuing), at Lender’s cost and expense (so long as no Event of Default has
occurred and is continuing, and otherwise at Borrower’s cost and expense), such
audits of the Collateral and their books and records as such representatives
reasonably deem necessary;
 
(iv)           give Lender prompt written notice of any action, investigation or
audit which, if adversely determined against Borrower or any of Borrower’s
rights in the Collateral on the basis of the allegations and information set
forth in the complaint or other notice of such action, suit or proceeding, or in
the amendments thereof, if any, which could reasonably be expected to have a
Material Adverse Effect;
 
(v)           comply with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority, the breach of which could
reasonably be expected to have Material Adverse Effect;
 
(vi)           furnish to the Lender the following, which must be in form
reasonably satisfactory to Lender:
 
(A)           within 120 days after the end of each fiscal year, a consolidated
and consolidating balance sheet, statement of income and expense and a statement
of cash flow of the Borrower or its sole member and their subsidiaries with
supporting consolidating schedules, audited and certified by independent
certified public accountants (the “Auditor”) of recognized standing acceptable
to the Lender in its reasonable discretion (the Bank hereby confirming that, as
of the Closing Date, Deloitte LLP is acceptable), and prepared in each case in
accordance with GAAP;
 
 
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(B)           within 45 days after the end of the first three fiscal quarters of
each fiscal year, a consolidating balance sheet, statement of income and expense
and a statement of cash flow of the Borrower or its sole member and their
subsidiaries, together with supporting consolidating schedules, prepared by
management in accordance with GAAP and certified by Borrower, showing the
financial condition and the results of operations at the close of such period;
and
 
(C)           from time to time, such other information regarding the
operations, business affairs and financial condition of the Borrower as Lender
may reasonably request.
 
(b)           Borrower shall not:
 
(i)           incur, create, assume or suffer to exist any lien or other
encumbrance of any nature whatsoever on the Collateral, other than the lien
granted to BAM pursuant to the Senior Security Agreement;
 
(ii)           sell, lease, transfer or otherwise dispose of all of any portion
of the Collateral unless the proceeds thereof are paid to Lender to the extent
necessary repay the all or a portion of the Loan and all accrued and unpaid
interest thereon; or
 
(iii)           change or alter in any material respect the nature of its
business to the extent that the same could reasonably be expected to have a
Material Adverse Effect.
 
(c)           In the event that any Collateral, including Proceeds, is evidenced
by or consists of negotiable collateral, the Pledged Interests, or chattel
paper, and if and to the extent that perfection or priority of Lender’s Security
Interest is dependent on or enhanced by possession, the Borrower, promptly (and
in any event within one (1) Business Day) upon the request of Lender, shall
execute such other documents and instruments as shall be reasonably requested by
Lender or, if applicable, endorse and deliver physical possession of such
negotiable collateral, the Pledged Interests, or chattel paper to Lender or its
representative, together with such undated powers endorsed in blank as shall be
reasonably requested by Lender.
 
(d)           Upon the occurrence and during the continuance of an Event of
Default, all sums of money and property paid or distributed in respect of the
Pledged Interests which are received by Borrower shall be held by Borrower in
trust for the benefit of Lender segregated from Borrower’s other property, and
Borrower shall deliver it forthwith to Lender in the exact form received.
 
(e)           Borrower shall promptly deliver to Lender a copy of each notice or
other communication received by it in respect of any Pledged Interests.
 
 
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(f)           Borrower shall not make or consent to any amendment or other
modification or waiver with respect to any Pledged Interests, or enter into any
agreement or permit to exist any restriction with respect to any Pledged
Interests;
 
8.           Events of Default.  Each of the following events shall constitute
an event of default (each, an “Event of Default”):
 
(a)           if Borrower fails to make any payment of principal of or interest
on any Advance on the date when any such payment is due and payable; or
 
(b)           if Borrower fails to pay any charges, fees, costs or expenses or
other monetary obligations (other than principal of or interest on any Advance)
owing to Lender, arising out of or incurred in connection with this Agreement on
the date when any such payment is due and payable, whether upon maturity,
acceleration, demand or otherwise and such failure continues for a period of ten
(10) days after such payment becomes due and payable; or
 
(c)           Borrower shall (i) voluntarily commence any proceeding or file any
petition seeking relief under Title 11 of the United States Code or any other
federal or state bankruptcy, insolvency or similar law, (ii) consent to the
institution of, or fail to controvert in a timely and appropriate manner, any
such proceeding or the filing of any such petition, (iii) apply for or consent
to the employment of a receiver, trustee, custodian, sequestrator or similar
official for itself or for a substantial part of its property, (iv) make a
general assignment for the benefit of creditors, or (v) take any corporate (or
equivalent) action for the purpose of effecting any of the foregoing; or
 
(d)           an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i) relief
in respect of Borrower, or of a substantial part of the property of Borrower
under Title 11 of the United States Code or any other federal or state
bankruptcy, insolvency or similar law (U.S. or foreign), (ii) the appointment of
a receiver, trustee, custodian, sequestrator or similar official for Borrower,
or for a substantial part of the property of Borrower, or (iii) the winding-up
or liquidation of Borrower, which, in any such case, is not dismissed, stayed or
vacated within sixty (60) days after the commencement or the filing thereof; or
 
(e)           default shall occur in respect of any agreement or obligation
relating to any obligation for borrowed money of Borrower (other than the
agreements and obligations referred to in the subsections (a) and (b) above), if
the effect of such default is (or would be with the giving of notice, passage of
time or both) to accelerate the maturity of such obligation or to permit the
holder or obligee thereof (or a trustee on behalf of such holder or obligee) to
cause such obligation to become due prior to the stated maturity thereof, or if
any such obligation shall not be paid when due (or within any applicable grace
period); provided, that a default, event or condition described in this
subsection (e) shall not at any time constitute an Event of Default unless, at
such time, one or more defaults, events or conditions of the type described in
this subsection (e) shall have occurred and be continuing with respect to
obligation for borrowed money the outstanding principal amount of which exceeds
in the aggregate $100,000; or
 
(f)           a final judgment or judgments for the payment of money in excess
of an aggregate amount of $500,000, to the extent not covered by insurance,
shall be rendered against Borrower, and the same shall remain undischarged,
unbonded, unstayed or is not pending an appeal for a period of thirty (30)
consecutive days; or
 
 
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(g)           this Agreement shall not be in full force and effect in any
material respect at any time; or
 
(h)           any representation or warranty made or deemed made by or on behalf
of Borrower in or in connection with this Agreement or any amendment or
modification of this Agreement or waiver under this Agreement, shall prove to
have been incorrect in any material respect when made or deemed made; or
 
(i)           Borrower shall fail to observe or perform any covenant, condition
or agreement contained in (i) Section 7(b) of this Agreement or (ii) any other
provision if this Agreement and such failure shall continue unremedied for a
period of thirty (30) days following the earlier of the date on which (A)
Borrower knew, or should have known, of such failure and (B) Borrower receives
written notice of such failure from Lender.
 
(j)           Borrower or any executive officer of Borrower shall (i) become
named on any list of persons who are or may be engaged in or who have been or
may have been engaged in possible criminal activity or other wrongdoing, which
list is promulgated under the Patriot Act (as defined in Section 6(g), or (ii)
be indicted, arraigned or custodially detained on charges involving money
laundering or any predicate crime to money laundering, and with respect to such
executive officer, such officer is not removed as an officer of Borrower
promptly after the occurrence of such act described in this subsection(j).
 
Upon the occurrence of an Event of Default and at any time thereafter, Lender
may terminate the Commitment and declare all Obligations immediately due and
payable, all without demand, notice, presentment or protest or further action of
any kind (it also being understood that the occurrence of any of the events or
conditions set forth in Section 8(c) or 8(d) shall automatically cause a
termination of the Commitment and an acceleration of the Obligations), and
Lender shall have, in addition to any remedies provided herein or by any
applicable law, all of the rights and remedies of a secured party under the
Uniform Commercial Code, as enacted in the applicable jurisdiction and as in
effect from time to time.  Unless the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, Lender will give Borrower reasonable notice of the time and place of any
public sale thereof or of the time after which any private sale or any other
intended disposition thereof is to be made. The requirements of reasonable
notice shall be met if such notice is mailed, postage prepaid, to the business
address of Borrower shown in this Agreement at least ten (10) days before the
time of the intended sale or disposition.  Expenses of retaking, holding,
preparing for sale, selling or the like shall include Lender’s reasonable
attorneys’ fees and legal expenses incurred or expended by Lender to enforce any
payment due it under this Agreement or any other right or remedy under this
Agreement or at law or in equity, or in the prosecution or defense of any action
(all of which shall be included in the Obligations).  All rights and remedies
granted Lender hereunder and under any agreements, instruments or documents
executed and/or delivered in connection herewith, or otherwise available at law
or in equity, shall be deemed concurrent and cumulative, and not alternative
remedies, and Lender may proceed with any number of remedies at the same time
until all Obligations are satisfied in full.

 
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9.           Power or Attorney. Lender is hereby irrevocably made, constituted
and appointed the true and lawful attorney for Borrower (without requiring it to
act as such) with full power of substitution to do the following from and after
the occurrence and during the continuance of an Event of Default:  (a) endorse
the name of Borrower upon any and all checks, drafts, money orders and other
instruments for the payment of monies that are payable to Borrower; (b) execute
in the name of Borrower, schedules, assignments, instruments, documents and
statements that Borrower is obligated to give Lender hereunder or is necessary
to perfect or continue to evidence the perfection of the security interests and
liens granted to Lender hereunder; and (c) do such other and further acts and
deeds in the name of Borrower that Lender may reasonably deem necessary or
desirable to enforce any Collateral or perfect or continue to evidence the
perfection of such security interests and liens.  The powers of attorney granted
pursuant to this Agreement and all authority hereby conferred are granted and
conferred solely to protect Lender’s interests and shall not impose any duty
upon the attorney-in-fact to exercise such powers.  Such powers of attorney are
coupled with an interest and shall be irrevocable prior to the payment in full
of the Obligations and the termination of this Agreement, and shall not be
terminated prior thereto or affected by any act of Borrower or other persons or
by operation of law.  The foregoing appointment shall be binding on each
transferee of Borrower’s interest in this Agreement; provided that Borrower
shall not transfer its interest in this Agreement without the prior written
consent of Lender, which consent may be withheld in Lender’s sole discretion.
 
10.           Notices.  Any notice, request, demand, waiver, consent, approval
or other communication required or permitted hereunder shall be in writing and
shall be deemed given only if delivered personally or sent by registered or
certified mail or by nationally recognized overnight courier service, postage
prepaid, or by facsimile, with written confirmation to follow, as follows:
 
If to Lender:
RJ Credit LLC
152 West 57th Street, 4th Floor
New York, New York 10019
Attn: Ezra Beren
 
   
If to Borrower:
RJ Resources Corp.
152 West 57th Street, 4th Floor
New York, New York 10019
Attn: David Steinberg
 

 
and all such other addresses as any party may have specified in a notice duly
given to the other parties as provided herein. Such notice, request, demand,
waiver, consent, approval or other communication will be deemed to have been
given as of the date so delivered.
 
11.           Fees and Expenses.  Borrower will pay all reasonable and
out-of-pocket expenses of Lender on demand (including, without limitation,
search costs, audit fees, appraisal fees, and the reasonable fees and expenses
of legal counsel for Lender) relating to this Agreement and all related
agreements and documents, including, without limitation, expenses incurred in
the analysis, negotiation, preparation, closing, administration and enforcement
of this Agreement and any and all related agreements, instruments and documents,
the enforcement, protection and defense of the rights of Lender hereunder and
with respect to the Collateral, and any reasonable expenses relating to
extensions, amendments, waivers or consents pursuant to the provisions hereof,
or any related agreements and documents or relating to agreements with other
creditors, or termination of this Agreement. Any such expenses not paid upon
demand by Lender shall bear interest at the highest per annum interest rate then
applicable to any Advance.  Lender agrees that, unless an Event of Default has
occurred and is continuing, Lender shall use commercially reasonable efforts to
give Borrower prior written notice of any acts by Lender that would result in
Borrower be obligated to make a payment under this Section 11, provided,
however, that the failure of Lender to give such notice shall not relieve
Borrower of its obligations to make such payment.
 
 
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12.           Indemnification.
 
(a)           Borrower agrees to indemnify Lender and its affiliates and the
respective directors, officers, employees, agents and advisers of Lender and
such affiliates (each an “Indemnitee”) against, and hold each Indemnitee
harmless from, any and all actual and out of pocket losses, claims, damages,
liabilities and related expenses, including the reasonable fees, charges and
disbursements of any counsel for any Indemnitee, incurred by or asserted against
any Indemnitee arising out of, in connection with, or as a result of (i) the
execution or delivery of this Agreement or any other agreement or instrument
contemplated hereby, the performance by the parties hereto of their respective
obligations hereunder or thereunder, or the consummation of any transactions
contemplated hereby or thereby, (ii) the Loan or the use of the proceeds
thereof, or (iii) any prospective claim, litigation, investigation or proceeding
relating to any of the foregoing, whether based on contract, tort or any other
theory and regardless of whether any Indemnitee is a party thereto; provided
that such indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, liabilities or related expenses are
determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or willful misconduct of
such Indemnitee.
 
(b)           To the extent permitted by applicable law, Borrower shall not
assert, and hereby waives, any claim against any Indemnitee, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with, or as a result
of, this Agreement or any agreement or instrument contemplated hereby, the
transactions contemplated hereby, or the Loan or the use of the proceeds
thereof.
 
(c)           All amounts due under this Section 12 shall be payable promptly
(and in any event within ten (10) Business Days) after written demand therefor.
 
13.           Governing Law; Jurisdiction, Waiver of Jury Trial.
 
(a)           THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
 
 
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(b)           ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS
SHALL BE BROUGHT EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK SITTING IN
NEW YORK CITY OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF
NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HEREBY
ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING,
WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS
OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF
ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS.  THIS SUBMISSION
TO JURISDICTION IS EXCLUSIVE AND PRECLUDES A PARTY FROM OBTAINING JURISDICTION
OVER ANOTHER PARTY IN ANY COURT OTHERWISE HAVING JURISDICTION.
 
(c)           LENDER AND BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE
ANY RIGHTS THEY MAY HAVE TO A JURY TRIAL IN ANY AND ALL DISPUTES BETWEEN LENDER
AND BORROWER HEREUNDER.
 
14.           Miscellaneous.
 
(a)           Lender shall not be deemed to have waived any of Lender’s right
hereunder or under any other agreement, instrument or paper signed by Borrower
unless such waiver is in writing and signed by Lender.  No delay or omission on
the part of Lender in exercising any right shall operate as a waiver of such
right or any other right.  A waiver on any one occasion shall not be construed
as a bar to or waiver of any right or remedy on any future occasion.
 
(b)           The liability of Borrower under this Agreement is absolute and
unconditional and shall not be reduced, impaired or affected in any way by
reason of (i) any failure to obtain, retain or preserve, or the lack of prior
enforcement of, any rights against any person or persons, or in any property,
(ii) the invalidity or unenforceability of any Obligations or rights in any
Collateral, (iii) any delay in making demand upon any other person or entity
liable on account of the Obligations or any delay in enforcing, or any failure
to enforce, any rights against any such other person or entity or in any
Collateral even if such rights are thereby lost, (iv) any failure, neglect or
omission to obtain, perfect or retain any lien upon, protect, exercise rights
against, or realize on, any Collateral, or any other party securing the
Obligations, or (v) the commencement of any bankruptcy or receivership
proceeding or case filed by or against Borrower.
 
(c)           The provisions of this Agreement and other agreements and
documents referred to herein are to be deemed severable, and the invalidity or
unenforceability of any provision shall not affect or impair the remaining
provisions which shall continue in full force and effect.  All covenants of
Borrower hereunder or under any related agreement, instrument or document, shall
be deemed continuing until all of the Obligations are paid in full and this
Agreement is terminated.
 
 
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(d)           This Agreement together with any documents referenced herein
constitute the entire understanding of the parties hereto regarding the subject
matter hereof, and no amendment to, or modification of, this Agreement shall be
binding unless in writing and signed by Borrower and Lender.
 
(e)           All provisions herein shall inure to, become binding upon the
successors, representatives, trustees, administrators, executors, heirs and
assigns of the parties hereto, except that Borrower shall not assign its
obligations or rights hereunder without the prior written consent of Lender.
 
(f)           No rights are intended to be created hereunder, or under any
related agreements or documents for the benefit of any third party donee,
creditor or incidental beneficiary of Borrower.  Nothing contained in this
Agreement shall be construed as a delegation to Lender of Borrower duty of
performance, including, without limitation, Borrower duties under any account or
contract with any other person.
 
(g)           Except as set forth in the Guarantee, in no event shall any direct
or indirect partner, member, shareholder or other owner of Borrower be liable
under this Agreement and Lender’s sole recourse for Borrower’s failure to
satisfy its obligations hereunder shall be to the assets of the Borrower
 
(h)           Signature by pdf or facsimile shall bind the parties hereto.
 
[Signatures Appear on Following Page]
 

 
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Dated as of the date and year first set forth above.
 

 
RJ RESOURCES CORP.
 
By:  /s/David Steinberg    
David Steinberg
Authorized Signatory
 
RJ CREDIT LLC
 
By:  /s/Ezra Beren             
Ezra Beren
Authorized Signatory

 

 
 
 
 
 
Signature Page to Note and Security Agreement 

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