Exhibit 10.5
 
CONSTRUCTION RIDER TO LOAN AGREEMENT
 
This Construction Rider To Loan Agreement (this “Construction Rider”) is made
and entered as of the Closing Date, by and among Sovereign Bank, as Lender,
Lazarus Energy LLC, as Borrower, and Guarantor (as defined in the Loan Agreement
defined below). In the event the terms and provisions of this Construction Rider
are in conflict with the terms and provisions of the Loan Documents, the terms
and provisions of this Construction Rider will control. However, the terms,
conditions, requirements, and agreements contained herein are intended to be in
addition to, and not a replacement of, the terms, conditions, requirements, and
agreements contained in, and consistent with, the Loan Agreement.
 
Unless a particular term, word or phrase is otherwise defined or the context
otherwise requires, capitalized terms, words and phrases used herein have the
following meanings (all definitions that are defined in this Construction Rider
in the singular to have the same meanings when used in the plural and vice
versa). Capitalized terms not otherwise defined in this Construction Rider shall
have the same meaning as defined in the Loan Agreement:
 
“Advance” means a disbursement by Lender of any of the Escrow or proceeds of the
Loan from the Disbursement Account for the construction of the Storage
Improvements.
 
“Approved Budget” means a budget and cost itemization prepared by Borrower, and
approved in writing by Lender, specifying the cost by item of (a) all labor,
materials, and services necessary for the construction of the Storage
Improvements in accordance with the Plans and all Legal Requirements; and (b)
all other expenses anticipated by Borrower incident to the Loan, the Land, and
the construction of the Storage Improvements.
 
“Architect” means the architect, if any, named on Exhibit “1” attached hereto
and incorporated herein by reference.
 
“Architectural Contract” means a written agreement between Borrower and
Architect, if any, for architectural services pertaining to construction of the
Storage Improvements.
 
“Borrower’s Affidavit” means a sworn affidavit of Borrower (and such other
parties as Lender may require) to the effect that all statements, invoices,
bills, and other expenses incident to the construction of the Storage
Improvements incurred to a specified date, whether or not specified in the
Approved Budget, have been paid in full, except for (a) amounts retained
pursuant to a Construction Contract, and (b) items to be paid from the proceeds
of an Advance then being requested or in another manner satisfactory to Lender.
 
“Completion” is defined in Section C of this Construction Rider.
 
“Completion Date” means the Completion Date specified in Exhibit “1”.
 
“Construction Contract” means each agreement made by Borrower for construction
of the Storage Improvements.
 
“Contractor” means each Person with whom Borrower makes a Construction Contract.
 
 
 
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“Deed of Trust” means the Deed of Trust (as defined in the Loan Agreement)
covering and encumbering, among other things, the Land and/or Storage
Improvements to secure payment and performance of the Obligations.
 
“Escrow” means any funds placed on deposit with Lender or Lender's
Representative and to be disbursed per the Loan Agreement or any other
agreement.
 
“Inspecting Architects/Engineers” means the inspecting architects and/or
engineers, if any, specified by Lender from time to time.
 
“Lender's Representative” means the party who would make the actual advances
from the Escrow or the Disbursement Account to Borrower.
 
“Loan Agreement” shall mean the Loan Agreement dated as of the date hereof,
among Sovereign Bank, as Lender, Lazarus Refining & Marketing, LLC, as Borrower,
and Jonathan Pitts Carroll, Sr., Lazarus Energy Holdings LL, Lazarus Energy LLC
and Blue Dolphin Energy Company, collectively as Guarantor, to which this
Construction Rider is attached, as it may from time to time be amended,
modified, restated or supplemented.
 
“Plans” means the final working drawings and specifications and timeline for the
construction of the Storage Improvements (including soil reports and engineering
calculations) prepared by Architect (or Borrower, if there is no Architect) and
as modified or supplemented from time to time and approved by Lender, Borrower,
any lessee of the Land, if applicable, and, to the extent necessary, by each
Governmental Authority.
 
“Principal Debt” means the aggregate unpaid balance of all Advances of the Loan,
and all other principal indebtedness, if any, under the Note, at the time in
question.
 
“Request for Advance” means a written request by Borrower (and such other
parties as Lender may require) to Lender, on a form approved by Lender,
specifying by name, current address, and amount all parties to whom Borrower is
obligated for labor, materials, or services supplied for the construction of the
Storage Improvements and all other expenses incident to the Loan, the Land, and
the construction of the Storage Improvements, whether or not specified in the
Approved Budget, requesting an Advance for the payment of such items,
containing, if requested by Lender, an Borrower’s Affidavit, accompanied by such
schedules, affidavits, releases waivers, statements, invoices, bills, and other
documents as Lender may request.
 
“Title Company” means the title company or title companies named in Exhibit “1”.
 
“Title Insurance” means one or more title insurance commitments, binders, or
policies, as Lender may require, issued by the Title Company, on a coinsurance
or reinsurance basis (with direct access in Texas) if and as required by Lender,
in the maximum amount of the Loan insuring or committing to insure that the Deed
of Trust constitutes a valid lien covering the Land and all Storage Improvements
thereon subject only to those exceptions which Lender may approve.
 
A. General. Subject to the conditions hereof and the other terms, conditions,
and requirements contained in the Loan Agreement, and provided that an Event of
Default has not occurred, Lender will make Advances for construction-related
expenses to Borrower in accordance with this Construction Rider. However, prior
to any construction-related Advance, the following additional terms and
conditions must be satisfied:
 
 
 
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1.  
Borrower must pay to Lender all required fees, costs, and expenses.

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

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

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

 
5.  
Borrower shall procure and deliver to Lender, if required by Lender, releases or
waivers of mechanic's liens and receipted bills showing payment of all amounts
due to all Persons who have furnished materials or services or performed labor
of any kind in connection with the construction of any of the Storage
Improvements or otherwise with respect to the Land.

 
6.  
At the option of Lender, Advances shall be made only on the certificate of the
Inspecting Architects/Engineers or other designated agent of Lender approved by
the Lender, to which certificate shall be attached an estimate by the Contractor
setting forth items to be paid out of the proceeds of each such Advance.
However, the Lender may, at its discretion, make advances without requiring such
certificate and Contractor's estimate, in which event Borrower shall furnish
Lender a list of and the amounts of each items to be paid out of the Advances,
or such other evidence that Lender may require.

 
B. Procedure for Borrowing. Lender shall not be required to make Advances more
frequently than specified in Exhibit “1”, hereto. Each Application for Advance
shall be submitted by Borrower to Lender a reasonable time (but not less than
five Business Days) prior to the requested date (which must be a Business Day)
of the Advance. Except as Lender may otherwise determine from time to time, each
Advance will be made at Lender's principal office or at such other place as
Lender may designate.
 
C. Advances. Advances shall be made only for costs and expenses specified in the
Approved Budget, and then only for work performed, services rendered, or
materials furnished; invoices for same must be provided to Lender; no Advance
shall be made for advance or unearned payments (or for making a dividend or
distribution to any shareholder of Borrower). Advances for payment of costs of
construction of the Storage Improvements shall be made only after actual
commencement of construction of the Storage Improvements and shall not exceed
the aggregate of (a) the costs of labor, materials, and services incorporated
into the Storage Improvements in a manner acceptable to Lender, plus (b) if
approved by Lender, the purchase price of all uninstalled materials to be
utilized in the construction of the Storage Improvements stored on the Land, or
elsewhere with the written consent of, and in a manner acceptable to, Lender,
less (c) retainage, if any, specified in Exhibit “1”, and less (d) all prior
Advances for payment of costs of labor, materials, and services for the
construction of the Storage Improvements. Without limitation of other conditions
applicable thereto, the final Advance, including all retainage, will not
 
 
 
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be made until Completion of the Storage Improvements has occurred.  “Completion”
shall have occurred with respect to the Storage Improvements when (i)
“completion” (as that term is used in §53.106 of the Texas Property Code) of the
Storage Improvements has occurred and (ii) Lender has received the following to
its satisfaction (or waived them in writing): (1) a completion certificate from
the Architect and from the Inspecting Architects/Engineers, if any, (2) evidence
that all Legal Requirements have been satisfied, including, but not limited to,
delivery to Lender of certificates of occupancy permitting the Storage
Improvements to be legally occupied, if applicable, (3) evidence that no
mechanic's or materialmen's liens or other encumbrances have been filed and
remain in effect against the Land, (4) final lien releases or waivers by
Architect, Contractor, and all subcontractors, materialmen and other Persons who
have supplied labor, materials or services for the construction of the Storage
Improvements, or who otherwise might be entitled to claim a contractual,
statutory or constitutional lien against the Land, (5) an “as-built” Survey
showing that the Storage Improvements as completed do not encroach on any
boundary line, easement, building set back line, or other restricted area. Ten
percent (10%) retainage shall be withheld from all Advances until thirty (30)
days after Completion of the Storage Improvements. In addition, the final
Advance hereunder shall, at Lender's option, be withheld until thirty (30) days
after (i) the Completion of the Storage Improvements and (ii) an affidavit of
completion has been filed with the county clerk of the county in which the Land
is located in compliance with §53.106 of the Texas Property Code. To the extent
that the Storage Improvements are divided into phases or identifiable segments,
references in the preceding sentence to a final Advance shall include each final
Advance with respect to such a phase or segment. As a condition precedent to the
first Advance for labor, materials, or construction services (whether or not it
is the first Advance), Borrower and each original Contractor shall have jointly
executed and recorded with the county clerk of the county in which the Land is
situated, an affidavit of commencement of work, in form and substance approved
by Lender, which contains the information required by §53.124(c) of the Texas
Property Code, provided further that the date of commencement of work specified
in such affidavit shall be subsequent to the date of recordation of the Deed of
Trust.
 
D. Approved Budget Allocations. Lender shall not be obligated to make an Advance
of an item allocated in the Approved Budget to the extent that the amount of the
Advance of such item, when added to the amount of prior Advance of such item,
would exceed the amount allocated to such item in the Approved Budget. Lender
reserves the right to make Advances which are allocated to any of the items in
the Approved Budget for such other items therein or in such different
proportions as Lender may, in its sole discretion, deem necessary or advisable.
Borrower may not reallocate items of cost in or change the Approved Budget
without the prior written consent of Lender.
 
E. Disbursement of Loan Proceeds. Borrower and Lender agree, anything herein or
in the other Loan Documents to the contrary notwithstanding, that the Lender
shall have the right, in its sole discretion, to advance the proceeds of the
Loan in installments, from time to time, as, in the opinion of the Lender, funds
are needed by Borrower for the purposes herein expressed; and the Lender
reserves the right in its discretion to advance only such part of said Loan
proceeds as it deems best, and to discontinue making such Advances to Borrower
if, in its discretion, further or additional Advances shall seem to it
unjustified, unwise or undesirable or if it deems itself insecure; and said Loan
Documents shall be and remain valid and binding as security for the aggregate
amount advanced at any time, whether or not the full amount of said Loan is
Advanced. Lender will endeavor to make a requested disbursement within ___ days
after Borrower has made a written request for payment and Lender has received
all supporting information and documentation as may be required by Lender and/or
any construction manager retained by Lender.
 
 
 
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F. Timely Payment of Construction Costs. Borrower agrees to pay, as the work
progresses, all bills for labor and materials going into construction of the
Storage Improvements, and agrees to submit to the Lender all such receipts,
affidavits, canceled checks or other evidences of payment as may be requested
from time to time, and when and if requested by the Lender at any time to
furnish adequate proof of payment of all indebtedness of every kind and
character incurred in the development of the Land and/or the construction of
Storage Improvements.
 
G. No Work Done - Condition of Premises. Borrower warrants that no construction
materials, supplies or equipment have been placed on the Land, that no labor has
been performed therein incidental to the contemplated construction, and that
Borrower has not received any notice of a claim of a mechanic's or materialman's
lien against the Land except those liens shown on Exhibit “G” to the Loan
Agreement and which will be paid in full with proceeds of the Loan and released.
Borrower also warrants that the Storage Improvements are not now damaged or
injured as a result of any fire, explosion, accident, flood or other casualty.
 
H. Work in Accordance with Plans. Borrower agrees to proceed with diligence to
construct the Storage Improvements called for by the Plans and the Construction
Contract, a copy of which Plans and Construction Contract have been delivered to
the Lender, and Borrower further agrees that said construction work shall be
done strictly in accordance with Plans and Construction Contract as approved by
the Lender, and with all applicable Legal Requirements. The Plans and the
Construction Contract heretofore delivered to, and approved by, the Lender may
not be materially changed, altered or added to without the prior written consent
of Lender.  Borrower shall use achieve Completion by no later than the
Completion Date (or such later date as is consent to by Lender in writing).
 
I. Disbursements. Inspections shall be made by a representative of Lender for
all disbursements. At no time and in no event shall Lender be obligated to
disburse funds in excess of the amount recommended by Lender's agent or the
Inspecting Architects/Engineers; or if any Event of Default shall have occurred;
or if Lender is unsatisfied with the progress of construction; or, if in the
sole opinion of Lender, the estimated remaining cost of construction in
accordance with the Plans exceeds the remaining undisbursed portion of the Loan
proceeds; or if any Storage Improvements shall have been damaged by fire or
other casualty and Lender shall not have received insurance proceeds sufficient
in the sole judgment of Lender to effect the restoration of the Storage
Improvements to the condition immediately preceding such damage and in
accordance with the Plans, if applicable, and permit the completion of the
Storage Improvements on or before the scheduled completion date. It is
understood that any sum or sums required for the construction of the Storage
Improvements over and above the proceeds of the Loan herein agreed to be made
shall be advanced by, and be the sole responsibility of, Borrower.
 
J. Remedies of Lender. Upon the occurrence of any Event of Default, and after
the expiration of any applicable cure period, Lender shall at its option be
entitled, in addition to and not in lieu of the remedies provided in the Loan
Agreement and other Loan Documents, to proceed to exercise any or all of the
following remedies:
 
 
 
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1. Require Borrower to vacate the Land and Storage Improvements.  Borrower
agrees that, upon Lender's request in the event of an Event of Default, to
immediately vacate the Land and Storage Improvements;
 
2. Enter into possession of the Land and Storage Improvements;
 
3. Perform or cause to be performed any and all work and labor necessary to
complete the Storage Improvements in accordance with the Plans and Construction
Contract;
 
4. Employ security watchmen to protect the Land and Storage Improvements;
 
5. Disburse that portion of the Loan proceeds not previously disbursed
(including any retainage) to the extent necessary to complete construction of
the Storage Improvements in accordance with Plans and Construction Contract, and
if the completion requires a larger sum than the remaining undisbursed portion
of the Loan, to disburse such additional funds, all of which funds so disbursed
by Lender shall be deemed to have been disbursed to Borrower and shall be
secured by the Security Documents. For this purpose, Borrower hereby constitutes
and appoints Lender its true and lawful attorney-in-fact with full power of
substitution to complete the construction of the Storage Improvements in the
name of Borrower, and hereby empowers Lender as said attorney to take all
actions necessary in connection therewith including any Escrow and any funds
which may remain unadvanced under the Loan for the purpose of completing the
Storage Improvements in the manner called for by the Plans; to make such
additions and changes and corrections in the Plans which shall be necessary or
desirable to complete the Storage Improvements in substantially the manner
contemplated by the Plans; to employ such contractors, subcontractors, agents,
architects, and inspectors as shall be required for said purposes; to pay,
settle or compromise all existing or future bills and claims which are or may be
liens against said Land, or may be necessary or desirable for the completion of
the Storage Improvements or the clearance of the title to the Land; to execute
all applications and certificates in the name of Borrower which may be required
by any construction contract and to do any and every act with respect to the
construction of the Storage Improvements and to take such action and require
such performance as it deems necessary. In accordance therewith Borrower hereby
assigns and quitclaims to Lender all sums to be advanced hereunder including
retainage and any sums in escrow conditioned upon the use of said sums, if any,
for the completion of the Storage Improvements; and/or
 
6. Take any other action that Lender, in its sole discretion, deems necessary or
advisable under the circumstances to protect and preserve the Collateral.
Borrower agrees to immediately reimburse Lender for all costs incurred to
protect and preserve the Collateral.
 
K. Right of Inspection. Borrower agrees to permit Lender and its representatives
and agents to enter upon the Land during normal business hours with 24 hours’
notice and to inspect the Storage Improvements and all materials to be used in
the construction thereof and to cooperate and cause Contractor to cooperate with
Lender and its representatives and agents during such inspections; provided,
however, that this provision shall not be deemed to impose upon Lender any duty
or obligation whatsoever to undertake such inspection, to correct any defects in
the Storage Improvements or to notify any person with respect thereto.
 
 
 
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L. Correction of Defects. Borrower agrees to promptly correct any structural
defect in the Storage Improvements and to promptly correct any departure from
the Plans not previously approved by Lender. An Advance shall not constitute a
waiver of Lender's right to require compliance with this, or any other,
covenant.
 
M. General Conditions. The following conditions shall be applicable throughout
the term of the Loan Agreement:
 
1. Rights of Third Parties. All conditions of the obligations of Lender
hereunder, including the obligation to make Advances, are imposed solely and
exclusively for the benefit of Borrower and Borrower's successors and assigns
and no other person shall have standing to require satisfaction of such
conditions in accordance with their terms or be entitled to assume that Lender
will refuse to make advances in the absence of strict compliance with any or all
thereof and no other person shall, under any circumstances, be deemed to be a
beneficiary of such conditions, any and all of which may be freely waived in
whole or in part by the Lender at any time if in its sole discretion it deems it
desirable to do so. In particular, Lender makes no representations and assumes
no duties or obligations as to third parties concerning the quality of the
construction by Borrower or the Storage Improvements or the absence therefrom of
defects. In this connection, Borrower agrees to and shall indemnify Lender from
any liability, claims or losses resulting from the disbursement of the Loan
proceeds or from the condition of the Storage Improvements whether related to
the quality of construction or otherwise and whether arising during or after the
term of the Loan. This provision shall survive the repayment of said Loan and
shall continue in full force and effect so long as the possibility of such
liability, claims, or losses exists.
 
2. Evidence of Satisfaction of Conditions.  Any condition of this Construction
Rider which requires the submission of evidence of the existence or nonexistence
of a specified fact or facts implies as a condition the existence or
nonexistence, as the case may be, of such fact or facts, and Lender shall, at
all times, be free to independently establish to its satisfaction and in its
absolute discretion such existence or nonexistence.
 
N. Advances Do Not Constitute a Waiver. No Advance shall constitute a waiver of
the conditions of Lender's obligation to make further Advances nor, in the event
Borrower is unable to satisfy any such condition, shall any such waiver have the
effect of precluding Lender from thereafter declaring such inability to be a
Default. In addition, any waiver of any provision of the Loan Agreement shall
not constitute a waiver of any other provision, and shall not act as a future
waiver of any provision of the Loan Agreement.
 
O. Compliance With Federal Law. Borrower will ensure that each Contractor
complies with Executive Order 11246, entitled “Equal Employment Opportunity”, as
amended by Executive Order 11375, and as supplemented by applicable Department
of Labor Regulations (41 CFR, Part 60). Failure of the Contractor to comply with
these laws will be an Event of Default.
 
 
 
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P. Cost Overruns. Borrower will not allow any change and/or cost overrun on any
contract or other commitment which will result in an additional cash flow
expenditure and/or debt to the business and/or request for a subsequent loan,
either guaranteed or not, without the express written approval of RBS. In no
event will a subsequent Business & Industry Guaranteed Loan be approved to cover
such costs. Furthermore, Borrower will not divert Loan funds from purposes
identified in Section 2.2 of the Loan Agreement for any of the aforementioned
items without the express written approval of RBS. Failure to comply with the
terms of this paragraph will be considered a material adverse change in
Borrower's financial condition and a default under the Loan. In the event any of
the aforementioned increases in costs and/or expenses are incurred by Borrower,
Borrower must provide for such increases in a manner that there is no diminution
of Borrower's operating capital.
 
Q. Contingency Allocations.  Any amount allocated in the Approved Budget for
“contingencies” or other non-specific purposes may, in Lender’s discretion, be
disbursed by Lender to pay contingent costs and expenses of maintaining, leasing
and promoting the “Property” or the “Collateral” (in each case as defined in the
Deed of Trust or any other Security Document) and such other costs or expenses
as Lender shall approve.  Under no circumstances shall Borrower have the right
to require Lender to disburse any amounts so allocated and Lender may impose
such requirements and conditions as it deems prudent and necessary should it
elect to disburse all or any portion of the amounts so allocated.
 
R. Funds Control Agreement.  At Lender’s sole discretion, Lender’s obligations
to make advances under the Loan (including any advances under Section 3.3 of the
Credit Agreement) will be subject to Borrower’s entering into and complying with
all of conditions precedent, procedures and obligations specified in one or more
Funds Control Agreements as Lender deems necessary or advisable, which Funds
Flow Agreements may, at Lender’s discretion or specification, supersede some or
all of funding conditions and other terms of this Construction Rider.  At
Lender’s direction, Borrower shall promptly enter into such Funds Control
Agreements.  In the absence of any Funds Control Agreement, the terms and
conditions of this Construction Rider shall apply, subject to any waivers hereto
as permitted by Lender at its sole discretion.
 
S. Purpose of Loan and Escrow. The proceeds of the Loan and Escrow will be used
for the purposes specified in the Loan Documents. Such Loan and Escrow will not
be used directly or indirectly for personal, family, household or agricultural
purposes or for the purposes of purchasing or carrying any Margin Stock or for
the purpose of extending credit to others for the purpose of purchasing or
carrying any Margin Stock.
 
 
 
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Dated:  December 4, 2015.
 
 
 

 
LENDER:

Sovereign Bank

By: ________________________
Name: ______________________
Title: _______________________

BORROWER:

Lazarus Refining & Marketing, LLC

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

By: ________________________
Name: Jonathan Pitts Carroll, Sr.
Title: President

GUARANTORS:

______________________________

Jonathan Pitts Carroll, Sr., as Guarantor

Blue Dolphin Energy Company, as Guarantor

By: ________________________
Name: Jonathan Pitts Carroll, Sr.
Title: President
 

 

 
 
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Lazarus Energy LLC, as Guarantor

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

By: ________________________
Name: Jonathan Pitts Carroll, Sr.
Title: President

Lazarus Energy Holdings LLC, as Guarantor

By: ________________________
Name: Jonathan Pitts Carroll, Sr.
Title: Member
 

 

 
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EXHIBIT “1”
 
TO
 
CONSTRUCTION RIDER
 
 

Loan:  $10,000,000.00      The Architect:  N/A      The Closing Date:  The date
of the Loan Agreement.      The Completion Date:  On or before twelve (12)
months from Closing Date.     
The Contractor(s):
Lazarus Energy Holdings LLC     
The Expansion: Improvements:
Construction of Storage Improvements (as defined in the Loan Agreement) on the
Land (as defined in the Loan Agreement) pursuant to the construction contract
relating to the Storage Tank Expansion Project J.O. / W.O. No. 130908 between
Lazarus Energy LLC and the Contractor; and in each case in accordance with plans
and specifications as more particularly described in said contract.
   
Retainage to be
deducted from Advance: 
Ten Percent (10%), if and to the extent required by Lender at its discretion.
      Frequency of Advances:   At sole discretion of Lender.     
The Title Company:
Providence Title
5001 HWY 287 South, Ste 105
Arlington, TX 76017

 

 
 
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