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thereafter prior to maturity, the principal of this Note shall be due and payable in monthlyinstallments of $17,437.50 each for the payments due May 1 through October 1 of each year untilscheduled maturity, and $35,403.42 each for the payments due November 1 through April 1 untilscheduled maturity, and interest on the unpaid principal balance of this Note shall be payable asit accrues on the same dates as and in addition to the installments of principal. On January 31,2014, the then unpaid principal balance of this Note and all accrued and unpaid interest on thisNote shall be finally due and payable in full, without presentment, demand, protest or any othernotice of any kind, all of which are hereby expressly waived. All payments on this Note shall beapplied first to accrued interest and then to principal.     This Note is not a revolving line of credit, and the total amount of all advances hereundershall not exceed $1,514,420.87.     All past due principal and/or interest or installments thereof shall bear interest frommaturity at the Highest Lawful Rate. For so long as any Event of Default exists under this Note orunder any of the other Loan Documents (hereinafter defined), regardless of whether or not there hasbeen an acceleration of the indebtedness evidenced by this Note, and at all times after thematurity of the indebtedness evidenced by this Note (whether by acceleration or otherwise), and inaddition to all other rights and remedies of Lender hereunder, interest shall accrue on theoutstanding principal balance hereof at the Highest Lawful Rate, and such accrued interest shall beimmediately due and payable. “***Highest Lawful Rate***” means the maximum interest rate permitted underapplicable law.     Subject to the terms of the Loan Documents, upon the failure to pay any installment of theprincipal of or interest on this Note as above promised or upon the occurrence of an Event ofDefault specified in this Note or any other Loan Document, the holder of this Note or any partthereof shall have the option of declaring the principal balance hereof and the interest accruedhereon to be immediately due and payable. The term “***Loan Documents***” shall mean this Note and anyother instrument or agreement executed in connection with this Note, including but not limited to,(i) each Personal Guaranty executed by Tom Kelly, Brock Hardy, and Max Hardy of even date herewith,and (ii) Limited Guaranty executed by Michael Montgomery of even date herewith.     Subject to the terms and conditions of the Subordination Agreement, Borrower shall have theright to prepay, without penalty, at any time and from time to time prior to maturity, all or anypart of the unpaid principal balance of this Note and/or all or any part of the unpaid interestaccrued to the date of such prepayment, provided that any such principal thus paid is accompaniedby accrued interest on such principal. All prepayments of principal shall be applied in theinverse order of maturity.     **1. ****Initial Advance**. The obligation of Lender to make the initial advance hereundershall be subject to satisfaction of each of the following conditions precedent:     (a) There shall have been executed, where appropriate, and delivered by Borrower and anyguarantors (and/or any other requisite party thereto) executed Loan Documents and such otherdocuments or instruments as Lender may reasonably require.     (b) No Material Adverse Change shall have occurred in the financial condition, assets orbusiness prospects of Borrower or any guarantor.
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     **2. ****Representations and Warranties**. In order to induce Lender to enter into this Note,Borrower represents and warrants to Lender as of the date hereof, which representations andwarranties shall survive the delivery of the Notes, as follows:     (a) Existence and Authority. Borrower is a limited liability company duly organized,legally existing and in good standing under the laws of the State of Texas. Borrower is dulyqualified in all other jurisdictions wherein its operations, transaction of business or ownershipof property makes such qualification necessary.     (b) Powers. Borrower is duly authorized and empowered to execute and deliver thisNote, the other Loan Documents and all other instruments referred to or mentioned herein to whichit is a party, and all action (limited liability company or otherwise) on Borrower’s part requisitefor the due creation, issuance and delivery of the Notes and the due execution and delivery of thisNote and the other Loan Document to which it is a party has been duly and effectively taken. ThisNote is, and the other Loan Documents when duly executed and delivered will be, legal, valid andbinding obligations of Borrower, to the extent it is a party thereto, enforceable in accordancewith their terms (subject to any applicable bankruptcy, insolvency or other laws generallyaffecting the enforcement of creditors’ rights). The Loan Documents do not violate any provisionsof Borrower’s certificate of formation, company agreement or other governing documents, or of anycontract or other agreement, law or regulation to which Borrower is subject, and the same do notrequire the consent or approval of any other person or entity, including without limitation, anyregulatory authority or governmental body of the United States, of any state or of any politicalsubdivision of the United States or of any State.     (c) Financial Statements. The pro forma and projected financial statements ofBorrower which have been delivered to Lender, are complete and correct, and fairly present the proforma and projected financial condition and results of operations of Borrower, as of the dates andfor the periods stated.     (d) Liabilities. As of the date hereof, Borrower has no material liabilities, director contingent, other than those set forth in the pro forma financial statements referenced inSection (c) immediately preceding above. Borrower knows of no fact, circumstance, act, conditionor development that will or could cause a Material Adverse Change. “***Material Adverse Change***” isdefined as a material adverse effect on, as applicable (i) the validity, performance, orenforceability of any Loan Document, (ii) the financial condition or business operations ofBorrower, or (iii) the ability of Borrower to fulfill its obligations under the terms andconditions of the Loan Documents.     (e) Litigation. Borrower is not involved in, or is not aware of the threat of, anylitigation, nor are there any outstanding or unpaid judgments against Borrower.     (f) Taxes. All tax returns required to be filed by Borrower in all jurisdictions havebeen filed, and all taxes, assessments, fees and other governmental charges upon Borrower or uponany of its property, income or franchises, which are due and payable, have been paid, or adequatereserves determined in conformity with United States generally accepted accounting principles aspromulgated by the Financial Accounting Standards Board (“***GAAP***”) have been provided for paymentthereof.     (g) Purpose of Loan. The proceeds of any advances (i) are not and will not be useddirectly or indirectly for the purpose of purchasing or carrying, or for the purpose of extendingcredit to others for the purpose of purchasing or carrying, any “margin stock” as that term is
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defined in Regulation U of the Board of Governors of the Federal Reserve System, as amended;and (ii) will be otherwise used for lawful purposes.     (h) ERISA. All employee benefits plans maintained by Borrower are in compliance withall funding and other requirements of the Employee Retirement Income Security Act of 1974, asamended (“***ERISA***”), and none have been terminated or have accrued any funding deficiency for whichBorrower would be liable under said statute.     (i) Permits and Franchises, Etc. Borrower has all rights, licenses, permits,franchises, patents, trademarks, trademark rights and copyrights that are required in order for itto conduct its business as now conducted without known conflict with the rights of others.Borrower is not aware of any fact or condition that might cause any of such rights not to berenewed in due course.     (j) Subsidiaries. Borrower has no subsidiaries and does not own any stock in anyother corporation or association. Borrower is not a member of any general or limited partnership,joint venture or association of any type whatsoever.     (k) Hazardous Wastes and Substances. Borrower and its properties are in compliance inall material respects with applicable state and federal environmental laws and regulations andBorrower is not aware of, and has not received any notice of, any violation of any applicable stateor federal environmental law or regulation and there has not heretofore been filed any complaint,nor commenced any administrative procedure, against Borrower, or any of its predecessors, alleginga violation of any environmental law or regulation. Except in compliance with relevantenvironmental laws, Borrower has not installed, used, generated, stored or disposed of anyhazardous waste, toxic substance, asbestos or related material (“***Hazardous Materials***”) on itsproperties. For the purposes of this Note, Hazardous Materials shall include, but shall not belimited to, substances defined as “hazardous substances” or “toxic substances” in the ComprehensiveEnvironmental Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. §9061, etseq., Hazardous Materials Transportation Act, 49 U.S.C. §1802, et seq., and the ResourceConservation and Recovery Act, 42 U.S.C. §6901, et seq., or as “hazardous substances,” “hazardouswaste” or “pollutant or contaminant” in any other applicable federal, state or local environmentallaw or regulation.     (l) Compliance with Laws. Borrower is in compliance in all material respects with alllaws and orders of all governmental authorities that are applicable to it or its business,operations or properties.     (m) General. There are no significant material facts or conditions relating to theLoan Documents, or the financial condition or business of Borrower that could, collectively orindividually, cause a Material Adverse Change and that have not been related, in writing, to Lenderas an attachment to this Note; and all writings heretofore or hereafter exhibited or delivered toLender by or on behalf of Borrower are and will be genuine and in all respects what they purportand appear to be.     (n) Public Utility Holding Company Act. Neither Borrower nor any subsidiary is a“holding company”, or “subsidiary company” of a “holding company”, or an “affiliate” of a “holdingcompany” or of a “subsidiary company” of a “holding company”, or a “public utility” within themeaning of the Public Utility Holding Company Act of 1935, as amended.
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     **3. ****Affirmative Covenants**. As an inducement to Lender to enter into this Note,Borrower covenants and agrees that, from the date hereof and until termination of this Note andpayment in full of the obligation, unless otherwise agreed to by Lender in writing:     (a) Financial Statements and Other Information. Borrower and each guarantor willpromptly furnish or cause to be furnished to Lender copies of (i) such information regarding theirbusiness and affairs and financial condition as Lender may reasonably request, and (ii) withoutrequest, the following:     (i) as soon as available and in any event within ninety (90) days after the end ofeach fiscal year of Borrower, an audited balance sheet of Borrower as of the close of suchfiscal year and the related audited statements of income, cash flows, contingentobligations and owners’ equity of Borrower for such year, prepared in accordance with GAAP;     (ii) as soon as available and in any event within fifteen (15) days after the end ofeach calendar month, a balance sheet of Borrower as of the end of such month and therelated statements of income (including information relating to the amount ofcommodity-based inventory sold), cash flows, contingent obligations and owners’ equity ofBorrower for such month;     (iii) as soon as available and in any event within five (5) days after the1st and 15th of each calendar month, a schedule of accountsreceivable listing all accounts receivable of Borrower as of the 1st and15th of such month setting forth (i) the name of each account debtor, togetherwith a schedule of the date each account is, or is expected to be, due and receivable or,as may be required by Lender, detail by invoice number, amount, invoice date and terms, and(ii) an aging of all accounts setting forth accounts 30 days past due or less, accountsover 30 days past due less than 61 days past due, accounts over 60 days past due but lessthan 91 days past due, accounts over 90 days past due but less than 121 days past due, andaccounts over 120 days past due;     (iv) as soon as available and in any event within thirty (30) days after the filing ofsame, copies of all federal and state tax returns filed by Borrower;     (v) immediately upon becoming aware of the existence of, or any material change in thestatus of, any litigation which could create a Material Adverse Change if determinedadversely against Borrower or any guarantor, a written communication to Lender of suchmatter;     (vi) immediately upon becoming aware of an Event of Default or the existence of anycondition or event that constitutes, or with notice or lapse of time, or both, wouldconstitute an Event of Default, a verbal notification to Lender specifying the nature andperiod of existence thereof and what action Borrower or any guarantors are taking orpropose to take with respect thereto and, immediately thereafter, a written confirmation toLender of such matters;     (vii) immediately upon becoming aware that any person has given notice or taken anyother action with respect to a claimed default under any material indenture, mortgage, deedof trust, promissory note, loan agreement, note agreement or joint venture agreement or anyother material agreement or undertaking to which Borrower, any guarantor or any subsidiaryof Borrower is a party, a verbal notification to Lender
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specifying the notice given or action taken by such person and the nature of theclaimed default and what action Borrower or any guarantors are taking or propose to takewith respect thereto and, immediately thereafter, a written communication to Lender of suchmatters; and     (viii) immediately upon becoming aware of the commencement of any material action ormaterial proceeding against Borrower, a guarantor, any subsidiary of Borrower or any oftheir respective properties by any governmental agency, including, without limitation, theInternal Revenue Service, the Environmental Protection Agency, the U.S. Department ofEnergy or the Federal Energy Regulatory Commission, a written communication to Lender ofsuch matter. All financial statements, schedules and other financial information deliveredby Borrower hereunder shall be prepared in conformity with GAAP and all such itemsdelivered hereunder shall be certified as true and correct by the President or ChiefFinancial Officer of Borrower, by signature and date thereon.     (b) Taxes and Other Liens. Borrower will pay and discharge or cause to be paid anddischarged all taxes, assessments and governmental charges or levies imposed upon either of them orupon their respective income and profits or upon any of their respective property, real, personalor mixed, or upon any part thereof, before the same shall become in default, as well as all lawfulclaims for labor, materials and supplies or otherwise, which, if not paid, might become a lien uponsuch properties or any part thereof; provided that Borrower shall not be required to pay anddischarge or cause to be paid or discharged any such tax, assessment, charge, levy or claimcontested by it in good faith by appropriate proceedings if it shall have set up adequate reservestherefor in conformity with GAAP; and provided, further, that the immediately preceding provisoshall not apply to any lien imposed by the U. S. Government for failure to pay income, payroll,FICA or similar taxes, and payment with respect to any such tax, assessment, charge, levy or claimshall be made before any property of Borrower shall be seized and sold in satisfaction thereof.     (c) Discharge of Contractual Obligations. Borrower will, in all material respects, doand perform every act and discharge all of the obligations provided to be performed and dischargedunder the Loan Documents, and any and all of the instruments or documents referred to or mentionedherein at the time or times and in the manner required.     (d) Legal Status. Borrower will do or cause to be done all things necessary topreserve, renew and keep in full force and effect its existence, rights, licenses, patents,trademarks, trademark rights, copyrights, permits and franchises and comply in all materialrespects with all laws and regulations applicable to it, and, further, comply with all applicablelaws and regulations, whether now in effect or hereafter enacted or promulgated by any governmentalauthority having jurisdiction over any of its assets or properties, noncompliance with which couldcause a Material Adverse Change.     (e) Indemnification. Borrower agrees to indemnify and defend Lender, its officers,directors, shareholders, employees, and affiliates (collectively “***Indemnitee***”), from and againstany and all liabilities, obligations, claims, losses, damages, penalties, actions, judgments,suits, remedial actions, costs, expenses or disbursements (collectively, “***Claims***”) of any kind ornature whatsoever that may be imposed on, incurred by, or asserted against Indemnitee growing outof or resulting from (i) the Loan Documents and the transactions and events at any time associatedtherewith (including, without limitation, the enforcement of the Loan Documents and the defense ofIndemnitee’s actions and inactions in connection with the loans hereunder), except to the limitedextent such Claims are proximately caused by Indemnitee’s willful misconduct; or (ii)
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Borrower’s intellectual property. Indemnitee shall have the right to defend any such Claims,employing its attorneys therefore. While Borrower shall also be entitled to employ its ownattorneys and to participate in the defense of any such Claims, Indemnitee shall, if not furnishedwith reasonable indemnity, have the right to compromise and adjust all such Claims againstIndemnitee. The covenants and conditions of this section shall at all times be construed to bepersonal covenants in favor of Indemnitee and such covenants and conditions shall remain in fullforce and effect notwithstanding the payment in full of the obligation and the release, eitherpartially or wholly, of the lien in favor of Borrower or any foreclosure thereunder. All suchClaims as may be paid by Indemnitee shall bear interest at the Highest Lawful Rate per annum untilpaid by Borrower or any guarantors and shall be part of the obligation. THE PARTIES HERETO INTENDFOR THE PROVISIONS OF THIS PARAGRAPH TO APPLY TO AND PROTECT EACH INDEMNIFIED PARTY FROM THECONSEQUENCES OF STRICT LIABILITY IMPOSED OR THREATENED TO BE IMPOSED ON ANY INDEMNIFIED PARTY ASWELL AS FROM THE CONSEQUENCES OF ITS OWN NEGLIGENCE (EXCLUDING GROSS NEGLIGENCE), WHETHER OR NOTTHAT NEGLIGENCE IS THE SOLE, CONTRIBUTING OR CONCURRING CAUSE OF ANY CLAIMS INDEMNIFIED AGAINST INTHIS PARAGRAPH.     (f) Curing of Defects. Borrower will promptly cure any material defects in theexecution and delivery of any of the Loan Documents, and in any other instrument or documentreferred to or mentioned herein. Borrower will immediately execute and deliver to Lender, uponrequest, all such other and further instruments as may be reasonably required or desired by Lenderfrom time to time in compliance with or accomplishment of the covenants and agreements of Borrowermade in the Loan Documents, provided such inspection and copying is done at Lender’s expense anddoes not disrupt Borrower’s normal business operations.     (g) Inspection and Appraisal. (i) Borrower will grant Lender access to all of itsbooks and records, and allow inspection and copying of same by Lender or its designatedrepresentatives at any time during normal business hours or such other time as Lender mayreasonably request, and (ii) at Lender’s request, Borrower will furnish to Lender an appraisal orupdated appraisal of all or a portion of the collateral as specified by Lender, prepared by anappraiser acceptable to Lender, in each case at Borrower’s expense.     (h) Notices. Borrower will give prompt written notice to Lender of any proceedingsinstituted against it by or in any federal or state court or before any commission or otherregulatory body, federal, state or local, which, if adversely determined, could cause a MaterialAdverse Change.     (i) Compliance. Borrower will observe and comply with:     (i) all laws, statutes, codes, acts, ordinances, rules, regulations, directions andrequirements of all federal, state, county, municipal and other governments, departments,commissions, boards, courts, authorities, officials and officers, domestic and foreign,where the failure to observe or comply could cause a Material Adverse Change; and     (ii) all orders, judgments, decrees, injunctions, certificates, franchises, permits,licenses and authorizations of all federal, state, county, municipal and other governments,departments, commissions, boards, courts, authorities, officials and officers, domestic andforeign, where the failure to observe or comply could cause a Material Adverse Change.
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     (j) Compliance with Environmental Laws. Borrower is and will remain in compliance inall material respects with all state and federal environmental laws and regulations and Borrowerwill not place or permit to be placed any Hazardous Materials on any of its properties in violationof applicable state and federal environmental laws. In the event Borrower should discover anyHazardous Materials on any of its properties which could result in a breach of the foregoingcovenant, it shall notify Lender within three (3) days after such discovery. Borrower shalldispose of all material amounts of Hazardous Materials generated by it only at facilities and/orwith carriers that maintain valid governmental permits under the Resource Conservation and RecoveryAct, 42 U.S.C. §6901. In the event of any notice or filing of any complaint or commencement of anyadministrative hearing or procedure against Borrower alleging a violation of any environmental lawor regulation, Borrower shall give notice to Lender within five (5) days after Borrower hasreceived notice of such notice or filing.     **4. ****Negative Covenants**. As an inducement to Lender to enter into this Note, Borrowerhereby covenants and agrees that, from the date hereof and until termination of this Note andpayment in full of the obligation, unless otherwise agreed to by Lender in writing:     (a) Liens. Borrower will not create, assume or suffer to exist any lien upon any ofits properties or assets now owned or hereafter acquired or acquire or agree to acquire anyproperty under any conditional sale agreement or other title retention agreement, excluding,however, from the operation of this section:     (i) liens in favor of Citibank, N.A., a national banking association as evidenced byone or more security documents executed from time to time;     (ii) deposits or pledges to secure payments of workmen’s compensation, unemploymentinsurance, old age pensions or other social security;     (iii) deposits or pledges to secure performance of bids, tenders, contracts (otherthan contracts for the payment of money), leases, public or statutory obligations, suretyor appeal bonds, or other deposits or pledges for purposes of like general nature in theordinary course of business;     (iv) Liens for taxes, assessments or other governmental charges or levies that are notdelinquent or that are in good faith being contested or litigated, if such reserve as shallbe required by GAAP shall have been made therefor, provided, that this exception shall notallow any lien imposed by the U.S. Government for failure to pay income, payroll, FICA orsimilar taxes;     (v) mechanics’, carriers’, workmen’s, repairman’s or other like liens arising in theordinary course of business securing obligations less than forty-five (45) days from thedate of invoice, and on which no suit to foreclose has been filed, or which are in goodfaith being contested or litigated, if such reserve as shall be required by GAAP shall havebeen made therefor;     (v) Liens created by or resulting from any litigation or legal proceeding that iscurrently being contested in good faith by appropriate proceedings, if such reserve asshall be required by GAAP shall have been made therefor;
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     (vi) Liens, charges and encumbrances incidental to the conduct of its business or theownership of its properties or assets, which were not incurred in connection with theborrowing of money or the obtaining of advances or credit and that do not materiallydetract from the value of such property or assets or materially impair the use thereof inthe operation of its business;     (vii) landlords’ liens for rental not yet due and payable;     (viii) Liens securing the Promissory Note (Deed of Trust Note) (the “***Deed of TrustNote***”) by and between Borrower and Lender of even date herewith.     (b) Indebtedness. Borrower will not create, assume, incur or have outstanding, or inany manner become or be liable directly or indirectly (whether by way of guaranty or otherwise) inrespect of, any indebtedness for borrowed money or the purchase price of any property (includingdirect, indirect and capitalized leases), excluding, however, from the operation of this section:     (i) the Multiple Advance Term Note and Revolver Note (collectively, the “***CitibankNotes***”), both by and between Borrower and Citibank, N.A. of even date herewith, and anyother indebtedness of Borrower to Citibank, N.A. or its affiliates;     (ii) accounts payable for services furnished and for the purchase price of materialsand supplies acquired in the ordinary course of their business, not more than forty-five(45) days from the date of invoice; and     (ii) this Note and Deed of Trust Note.     (c) ERISA Compliance. Borrower will not at any time permit any plan subject to ERISAmaintained by it to (i) engage in any “prohibited transaction” as such term is defined in Section4975 of the Internal Revenue Code of 1986, as amended; (ii) incur any “accumulated fundingdeficiency” as such term is defined in Section 302 of ERISA; or (iii) terminate any such plan in amanner which could result in the imposition of a lien on its property pursuant to Section 4068 ofERISA.     (d) Investments. Borrower will not make or commit to make, any advance, loan,extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures orother securities of, or make any other investment in any person, or accept any item in satisfactionof indebtedness (all of the aforesaid transactions being herein called “***Investments***”), except:     (i) Investments in accounts, contract rights and chattel paper (as defined in theUniform Commercial Code), and notes receivable, arising or acquired in the ordinary courseof business; and     (ii) Investments with maturities of not more than 180 days in direct obligations ofthe United States of America, or obligations, the principal and interest of which areunconditionally guaranteed by the United States of America.     (e) Mergers, Consolidations. Borrower will not (i) amend or otherwise modify itsorganizational documents, (ii) change its structure in any manner that could cause a MaterialAdverse Change; (iii) form any new subsidiary; (iv) consolidate with or merge into, or acquire
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any party or permit any party to consolidate with or merge into, or acquire it; or (v)dissolve or liquidate.     (f) Dividends and Distributions. Borrower will not declare, pay or make any loans,advances, dividends or distributions of any kind to its members, or make any other distribution onaccount of any ownership interest in it, except that Borrower may: (1) pay salaries in the ordinarycourse of business to Bruce Max Hardy and Brock Michael Hardy in an amount not to exceed $400,000annually, (2) make cash distributions to its members in an amount not to exceed each such member’sfederal income tax liability resulting from allocation of net income of Borrower to such member;provided that no such distribution to any member of Borrower shall exceed 38% of the income soallocated to such member; and (3) pay cash dividends to holders of preferred units of Borrower inaccordance with the Borrower’s company agreement provided to Lender at Closing, so long as an Eventof Default has not occurred and is not continuing on the date of such payment and such payment willnot result in an Event of Default. Borrower will not purchase, acquire or redeem or retire anyownership interest in Borrower.     (g) Transactions with Affiliates. Borrower will not, directly or indirectly, enterinto any transaction (including, but not limited to, the sale or exchange of property or therendering of services) with any of its affiliates, other than in the ordinary course of businessand upon fair and reasonable terms no less favorable than Borrower could obtain or could becomeentitled to in an arm’s length transaction with a person that was not an affiliate.     (h) Accounting Method and Fiscal Year. Borrower will not make any change in itspresent accounting method or change its present fiscal year.     (i) Nature of Business. Borrower will not make any substantial change in the natureof its businesses as now conducted.     (j) Membership Interests of Borrower. The membership interests of Borrower shall notbe transferred or assigned to a Person other than any guarantor or Borrower, and Borrower shall notissue any new membership interests or other securities of Borrower.     (l) Line of Business. Borrower will not engage in any line of business other thanthat in which it is presently engaged.     (m) Debt Service Coverage Ratio. Borrower will not permit the ratio of its EBITDA toDebt Service to be less than 1.25 to 1.00. This ratio shall be calculated at the end of eachfiscal quarter using the results (i) of the fiscal quarter ending March 31, 2009, (ii) of the two(2) preceding fiscal quarters ending June 30, 2009, (iii) of the three (3) preceding fiscalquarters ending September 30, 2009, and (iv) of the four (4) preceding fiscal quarters ending withthe fiscal quarter for which the measurement is being made beginning with the fiscal quarter endingDecember 31, 2009. “***EBITDA***” means for any period, Borrower’s earnings during such period fromcontinuing operations, before provision for interest expense, income taxes, depreciation,depletion, amortization, deferred employee compensation expense, gains and losses on asset salesand other non-cash charges. ***“Debt Service”***means for any period, the aggregate amount of (i)required principal payments under the Citibank Notes, this Note, the Deed of Trust Note or anyother indebtedness for borrowed money during such period; and (ii) the required interest paymentsunder the Citibank Notes, this Note, the Deed of Trust Note or any other indebtedness for borrowedmoney during such period.
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     (n) Debt to EBITDA Ratio. Borrower will not permit the ratio of its Total Debt toEBITDA to be in excess of (a) 2.50 to 1.00 prior to March 31, 2010, and (b) 2.00 to 1.00 from andafter March 31, 2010. *“****Total Debt****”*means all indebtedness owing by Borrower to Lender or any otherPerson. This ratio shall be calculated at the end of each fiscal quarter using the results (i) ofthe two (2) preceding fiscal quarters ending June 30, 2009, (ii) of the three (3) preceding fiscalquarters ending September 30, 2009, and (iii) of the four (4) preceding fiscal quarters ending withthe fiscal quarter for which the measurement is being made beginning with the fiscal quarter endingDecember 31, 2009.     (o) Net Worth. At all times, Borrower’s Net Worth shall not be less than$4,000,000.00 plus fifty percent (50%) of Borrower’s net income (determined in accordance with GAAP). ***“Net Worth”***means Borrower’s aggregate member paid-in capital and retained earnings, bothas determined in accordance with GAAP, plus all unpaid principal on the this Note.     **5. ****Events of Default**. The occurrence of any of the following shall constitute an“***Event of Default***” under this Note:     (a) Failure to Pay. The Borrower shall fail to pay when due (i) any principal paymentrequired under the terms of this Note or (ii) any interest or other payment required under theterms of this Note;     (b) Breach of Agreements. The Borrower shall breach, in any material respect, itsobligations under (i) this Note or any document or instrument evidencing or securing the repaymentof this Note, including, without limitation, the Deed of Trust, (ii) any other Loan Document; or(iii) that certain Asset Purchase Agreement of even date herewith by and between Borrower andLender;     (c) Default under Other Indebtedness. Any default or event of default shall occurunder the terms applicable to any indebtedness for borrowed money of the Borrower (other than underthis Note), including but not limited to, a default or event of default under the Deed of TrustNote or the Citibank Notes, or under the terms applicable to any other monetary obligation of theBorrower (except any obligation which at the time is being contested in good faith by appropriateproceedings and with respect to which the Borrower shall have set aside on its books adequatereserves);     (d) Voluntary Bankruptcy or Insolvency Proceedings. The Borrower shall (i) apply foror consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of allor a substantial part of its property, (ii) be unable, or admit in writing its inability, to payits debts generally as they mature, (iii) make a general assignment for the benefit of its or anyof its creditors, (iv) be dissolved or liquidated, (v) become insolvent (as such term may bedefined or interpreted under any applicable statute), (vi) commence a voluntary case or otherproceeding seeking liquidation, reorganization or other relief with respect to itself or its debtsunder any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to anysuch relief or to the appointment of or taking possession of its property by any official in aninvoluntary case or other proceeding commenced against it, or (vii) take any action for the purposeof effecting any of the foregoing; or     (e) Involuntary Bankruptcy or Insolvency Proceedings. A proceeding for theappointment of a receiver, trustee, liquidator or custodian of the Borrower or of all or asubstantial part of the Borrower’s property, or an involuntary case or other proceeding seekingliquidation, reorganization or other relief with respect to the Borrower or the Borrower’s debts
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under any bankruptcy, insolvency or other similar law now or hereafter in effect shall becommenced and an order for relief entered or such proceeding shall not be dismissed or dischargedwithin thirty (30) days of commencement.     It is the intent of the payee of this Note and Borrower in the execution of this Note and allother instruments now or hereafter securing or related to this Note to contract in strictcompliance with applicable usury law. In furtherance thereof, the said payee and Borrowerstipulate and agree that none of the terms and provisions contained in this Note, or in any otherinstrument executed in connection herewith, shall ever be construed to create a contract to pay forthe use, forbearance or detention of money, at a rate in excess of the Highest Lawful Rate; thatneither Borrower nor any guarantors, endorsers or other parties now or hereafter becoming liablefor payment of this Note shall ever be obligated or required to pay interest on this Note at a ratein excess of the Highest Lawful Rate; and that the provisions of this paragraph shall control overall other provisions of this Note and any other instruments now or hereafter executed in connectionherewith which may be in apparent conflict herewith. The holder of this Note expressly disavowsany intention to charge or collect excessive unearned interest or finance charges in the event thematurity of this Note is accelerated. If the maturity of this Note shall be accelerated for anyreason or if the principal of this Note is paid prior to the end of the term of this Note, and as aresult thereof the interest received for the actual period of existence of the loan evidenced bythis Note exceeds the Highest Lawful Rate, the holder of this Note shall, at its option, eitherrefund to Borrower the amount of such excess or credit the amount of such excess against theprincipal balance of this Note then outstanding and thereby shall render inapplicable any and allpenalties of any kind provided by applicable law as a result of such excess interest. In the eventthat the said payee or any other holder of this Note shall contract for, charge or receive anyamount or amounts and/or any other thing of value which are determined to constitute interest whichwould increase the effective interest rate on this Note to a rate in excess of the Highest LawfulRate, an amount equal to interest in excess of the Highest Lawful Rate shall, upon suchdetermination, at the option of the holder of this Note, be either immediately returned to Borroweror credited against the principal balance of this Note then outstanding, in which event any and allpenalties of any kind under applicable law as a result of such excess interest shall beinapplicable. By execution of this Note Borrower acknowledges that it believes the loan evidencedby this Note to be non-usurious and agrees that if, at any time, Borrower should have reason tobelieve that such loan is in fact usurious, it will give the holder of this Note notice of suchcondition and Borrower agrees that said holder shall have ninety (90) days in which to makeappropriate refund or other adjustment in order to correct such condition if in fact such exists.The term “applicable law” as used in this Note shall mean the laws of the State of Texas or thelaws of the United States, whichever laws allow the greater rate of interest, as such laws nowexist or may be changed or amended or come into effect in the future.     Should the indebtedness represented by this Note or any part thereof be collected at law or inequity or through any bankruptcy, receivership, probate or other court proceedings or if this Noteis placed in the hands of attorneys for collection after default, Borrower and all endorsers,guarantors and sureties of this Note jointly and severally agree to pay to the holder of this Notein addition to the principal and interest due and payable hereon all the costs and expenses of saidholder in enforcing this Note including, without limitation, reasonable attorneys’ fees and legalexpenses.     Borrower and all endorsers, guarantors and sureties of this Note and all other persons liableor to become liable on this Note severally waive presentment for payment, demand, notice of demandand of dishonor and nonpayment of this Note, notice of acceleration, notice of intention toaccelerate the maturity of this Note, protest and notice of protest, diligence in
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collecting, and the bringing of suit against any other party, and agree to all renewals,extensions, modifications, partial payments, releases or substitutions of security, in whole or inpart, with or without notice, before or after maturity.     **6. ****Waiver of Jury; Binding Arbitration**. Any claim or controversy (“***Claim***”) betweenthe parties, whether arising in contract or tort or by statute including, but not limited to,Claims resulting from or relating to this Note or any Loan Document shall, upon the request ofeither party, be resolved by binding arbitration in accordance with the Federal Arbitration Act(Title 9, US Code). Arbitration proceedings will be conducted in accordance with the applicablerules for the arbitration of disputes of the American Arbitration Association or any successorthereof. The arbitration shall be conducted in any U.S. state where real or tangible personalproperty collateral for the credit is located or if there is no such collateral, in Texas. Thearbitration hearing shall commence within 90 days of the demand for arbitration and close within 90days of commencement, and any award, which may include legal fees, shall be issued (with a briefwritten statement of the reasons therefor) within 30 days of the close of hearing. Any disputeconcerning whether a claim is arbitrable or barred by the statute of limitations shall bedetermined by the arbitrator. This arbitration provision is not intended to limit the right of anyparty to exercise self-help remedies, to seek and obtain interim or provisional relief of any kindor to initiate judicial or non-judicial foreclosure against any real or personal propertycollateral. BY AGREEING TO BINDING ARBITRATION, THE PARTIES IRREVOCABLY AND VOLUNTARILY WAIVE ANYRIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM. FURTHERMORE, IF FOR ANY REASON ACLAIM IS NOT ARBITRATED, THE PARTIES IRREVOCABLY AND VOLUNTARILY AGREE TO WAIVE ANY RIGHT TO ATRIAL BY JURY IN RESPECT OF SUCH CLAIM.     THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HEREUNDER SHALL BE GOVERNED FOR ALLPURPOSES BY THE LAW OF THE STATE OF TEXAS AND THE LAW OF THE UNITED STATES APPLICABLE TOTRANSACTIONS WITHIN SUCH STATE.     THIS WRITTEN NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THEPARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORALAGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.     **7. ****Counterparts**. This Note may be executed in counterparts, which shall collectivelyconstitute one original document.
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                   EXECUTED as of the date first above written.             **LENDER:** **BORROWER:**           **UNITED FUEL & ENERGY CORPORATION,**