Document:

ex1069063rdamendcreditagrmt.htm

    EX-10.69.06

     

    THIRD
AMENDMENT TO CREDIT AGREEMENT

    

    

    THIS AMENDMENT TO CREDIT AGREEMENT
(this "Amendment") is entered into as of June 30, 2009, by and between EMERITUS
CORPORATION, a Washington corporation ("Borrower"), and WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank").

    

    RECITALS

    

    WHEREAS, Borrower is currently indebted
to Bank pursuant to the terms and conditions of that certain Credit Agreement
between Borrower and Bank dated as of January 17, 2008, as amended from time to
time ("Credit Agreement").

    

    WHEREAS, Bank and Borrower have agreed
to certain changes in the terms and conditions set forth in the Credit Agreement
and have agreed to amend the Credit Agreement to reflect said
changes.

    

    NOW, THEREFORE, for valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree that the Credit Agreement shall be amended as
follows:

    

    1.  Section 1.1 (a) is hereby
amended by deleting "June 30, 2009" as the last day on which Bank will make
advances under the Line of Credit, and by substituting for said date "June 30,
2010," with such change to be effective upon the execution and delivery to Bank
of a promissory note dated as of June 30, 2009 (which promissory note shall
replace and be deemed the Line of Credit Note defined in and made pursuant to
the Credit Agreement) and all other contracts, instruments and documents
required by Bank to evidence such change.

    

    2.  Section 4.9 (a) is
hereby deleted in its entirety, and the following substituted
therefor:

    

    "(a)  Fixed Charge Coverage
Ratio not less than 1.10 o 1.0 determined on a current quarter basis for the
quarter ending June 30, 2009, and as of each fiscal quarter end thereafter, with
“Fixed Charge Coverage Ratio” defined as Adjusted EBITDAR divided by the sum of
Fixed Charges.  “Adjusted EBITDAR” is defined as net income after
taxes plus interest expense, tax expense, depreciation expense, amortization
expense, and rent expense and plus or minus mutually agreed upon adjustments for
non-cash items such as lease expense adjustments and amortization of deferred
fees less the greater of maintenance capital expenditures as detailed on
management’s compliance certificate or $450 per owned unit per
year.  “Fixed Charges” is defined as the sum of current maturities of
long term debt plus current portion of capital leases plus interest expense and
rent expense.  For purposes of computing fixed charge coverage ratio,
adjusted EBITDAR and fixed charges will be normalized on a pro-forma basis for
any acquisitions and/or divestitures occurring during each
quarter.”

    

    3.  Except as specifically
provided herein, all terms and conditions of the Credit Agreement remain in full
force and effect, without waiver or modification.  All terms defined
in the Credit Agreement shall have the same meaning when used in this
Amendment.  This Amendment and the Credit Agreement shall be read
together, as one document.

    

    

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    4.  Borrower
hereby remakes all representations and warranties contained in the Credit
Agreement and reaffirms all covenants set forth therein.  Borrower
further certifies that as of the date of this Amendment there exists no Event of
Default as defined in the Credit Agreement, nor any condition, act or event
which with the giving of notice or the passage of time or both would constitute
any such Event of Default.

    

    ORAL
AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR
ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
LAW.

    

    IN WITNESS WHEREOF, the parties hereto
have caused this Amendment to be executed as of the day and year first written
above.

    

    WELLS FARGO BANK,

    EMERITUS
CORPORATION                                                                     NATIONAL
ASSOCIATION

    

    By: /s/
Jim L.
Hanson________________                                                                                     By:
/s/ Gloria Nemechek ___________

          Jim
L. Hanson, Sr. Vice President
of                                                                                           Gloria
Nemechek, Vice President

           Financial
Services, Controller

    
      
         

      

      
        2LOAN AND
                                OPTION AGREEMENT

         THIS  LOAN  AND  OPTION  AGREEMENT,  dated  as of 31  July,  2009  (the
"Agreement"),  is by and among Lazarus Energy Holdings,  LLC, a Delaware limited
liability  company  ("LEH") , Lazarus  Louisiana  Refinery  II,  LLC, a Delaware
limited liability company,  ("LLRII"),  Lazarus Energy,  LLC, a Delaware limited
liability  company  ("LE"),  Lazarus  Environmental,  LLC,  a  Delaware  limited
liability  company  ("LEN") (LE,  LEH,  LLRII,  LEN are  sometimes  collectively
referred to herein as the "Lazarus Entities") and Blue Dolphin Energy Company, a
Delaware corporation ("Blue Dolphin"). The Lazarus Entities and Blue Dolphin are
sometimes referred to herein as the "Parties").

                                    RECITALS

         WHEREAS,  it has  been  proposed  that (i) Blue  Dolphin  loan  certain
amounts to the Lazarus Entities,  (ii) the Parties enter into certain agreements
pursuant to which Blue Dolphin may in its discretion loan additional  amounts to
the Lazarus  Entities,  and (iii) the Lazarus  Entities  grant an option to Blue
Dolphin to require the closing of a transaction pursuant to which certain assets
of the Lazarus  Entities  will be  transferred  to Blue  Dolphin in exchange for
shares of the stock of Blue Dolphin;

         WHEREAS, the Board of Directors of Blue Dolphin and the managers of the
Lazarus Entity have determined  that the  transactions  contemplated  hereby are
consistent  with, and in  furtherance  of, the best interests of the parties and
their respective stockholders and members;

         WHEREAS,   the  parties   desire  to  make   certain   representations,
warranties,  covenants and agreements in connection  with this  transaction  and
also to prescribe various conditions to various aspects of the transactions; and

         WHERAS,  in  anticipation  of the  execution  of this  Agreement,  Blue
Dolphin has prior to the date hereof loaned to LLRII $300,000;

         NOW,   THEREFORE,   in   consideration   of  the   premises   and   the
representations,  warranties,  covenants and agreements  contained  herein,  the
parties  hereto,  intending  to be  legally  bound,  enter  into  the  following
agreements.

                                    ARTICLE I
                            CONTRUCTION OF AGREEMENT

         Section 1.1. Definitions. The definitions of certain terms used in this
Agreement are set forth in Section 10.1.

<PAGE>

         Section 1.2. Interpretative Provisions.

                  (a) The words "hereof,"  "herein" and "hereunder" and words of
similar  impact when used in this  Agreement  refer to this Agreement as a whole
and not to any particular  provision of this  Agreement,  and article,  section,
schedule  and  exhibit   references  are  to  this  Agreement  unless  otherwise
specified.

                  (b) The meaning of defined  terms shall be equally  applicable
to the singular and plural forms of the defined terms.

                  (c) The terms  "include" and  "including" are not limiting and
mean "including without limitation."

                  (d) No consideration shall be given to the fact or presumption
that one party had a greater or lesser hand in drafting the Agreement.

                                   ARTICLE II
                                    THE LOANS

         Section  2.1.  The  Bridge  Loan.   At  the  Bridge  Loan  Closing  (as
hereinafter  defined),  upon the  satisfaction  of the  conditions  set forth in
Section 2.2, Blue Dolphin will loan  $1,700,000  to LLRII,  resulting in a total
loan of $2,000,000  from Blue Dolphin to LLRII pursuant to the terms hereof (the
"Bridge Loan"). The transaction  described in the first sentence of this Section
2.1 is referred to herein as the "Bridge Loan Transaction."

         Section  2.2.  Conditions  to the Bridge  Loan.  Blue Dolphin will loan
$1,700,000  to LLRII at the Bridge  Loan  Closing  only if all of the  following
conditions are satisfied.  The Lazarus Entities will cause such conditions to be
satisfied prior to the Bridge Loan Closing.

                  (a) The Lazarus  Entities shall have executed and delivered to
Blue Dolphin a promissory  note in the form attached  hereto as Exhibit  2.2(a),
jointly  and  severally  payable by the  Lazarus  Entities  to the order of Blue
Dolphin in the original principal amount of $2,000,000 (the "Note");

                  (b) LLRII shall have  executed and delivered to Blue Dolphin a
mortgage in the form attached  hereto as Exhibit 2.2(b) (the "LLRII  Mortgage"),
granting to Blue  Dolphin a lien second in priority  only to the Notre Dame Lien
and pari passu with the Rio Vista Lien  against the real  property  described as
Parcel 1 in the attached  LLRII Mortgage (the  "Mermentau  Property") and a lien
first  in  priority  against  the real  property  described  as  Parcel 2 in the
attached LLRII Mortgage (the "Disposal Well Property") securing the repayment of
the Bridge Loan;

                  (c) LLRII shall have  executed and delivered to Blue Dolphin a
commercial security agreement in the form attached hereto as Exhibit 2.2(c) (the
"LLRII Security  Agreement")  granting to Blue Dolphin a lien second in priority
only to the Notre Dame Lien and pari passu with the Rio Vista Lien  against  the
personal  property  described  on  Exhibit  A to  the  attached  LLRII  Security

                                       2
<PAGE>

Agreement  (the  "Mermentau  Personal  Property")  and a lien first in  priority
against  the  personal  property  associated  with the  Disposal  Well  Property
described in the attached LLRII Security  Agreement (the "Disposal Well Personal
Property") securing the repayment of the Bridge Loan;

                  (d) None of the Lazarus  Entities  shall have been  subject to
any Material Adverse Effect since June 1, 2009;

                  (f) No preliminary  or permanent  injunction or other order or
decree by any federal or state court which prevents the  consummation  of any of
the  Transactions  shall  have been  issued  and  remain in effect  (each  party
agreeing to use its  reasonable  efforts to have any such  injunction,  order or
decree lifted);

                  (g) No action shall have been taken,  and no statute,  rule or
regulation  shall  have been  enacted,  by any state or  federal  government  or
governmental  agency  which  would  prevent  the  consummation  of  any  of  the
Transactions or make the consummation of the Transactions illegal;

                  (h) The Lazarus  Entities shall have performed in all material
respects  (or in all  respects  in the  case  of any  agreement  containing  any
materiality   qualification)  their  respective  agreements  contained  in  this
Agreement  required to be performed on or prior to the Bridge Loan Closing Date;
and

                  (i) The  representations  and  warranties of Lazarus  Entities
contained in this Agreement  shall be true and correct in all material  respects
(or in all respects in the case of any representation or warranty containing any
materiality  qualification)  on  and as of the  date  made  and on and as of the
Bridge Loan Closing as if made at and as of such date,  and Blue  Dolphin  shall
have received a certificate  executed on behalf of LEH by the Director of LEH to
that effect.

         Section 2.3. Closing.  The closing of the Bridge Loan (the "Bridge Loan
Closing") shall take place at the offices of counsel to Blue Dolphin in Houston,
Texas on July 31st,  2009 or if later on the third  business day  following  the
date on which the last of the  conditions  set forth in Section 2.2 is fulfilled
or waived,  or at such other time and place as LEH and Blue Dolphin shall agree.
At the Bridge Loan  Closing,  each of the parties  hereto will take  actions and
execute  such  documents  and  instruments  as may  be  reasonably  required  to
consummate the Bridge Loan.

         Section  2.4.  The  Regional  Acquisition.  LEH must keep Blue  Dolphin
apprised  of the  status  of any  negotiations  of any of the  Lazarus  Entities
relating to the proposed  acquisition by one or more of the Lazarus  Entities of
the assets described on Exhibit 2.4-1 (the "Regional  Acquisition") at all times
prior to the payment of the Bridge Loan, and shall in particular, but not by way
of  limitation,  provide  Blue  Dolphin  with copies of all drafts of  documents
relating to the Regional  Acquisition as such drafts are provided from one party
to the other,  and shall provide to Blue Dolphin  prompt and complete  access to
the  due  diligence  materials  relating  to the  Regional  Acquisition  as such
materials become available to LEH.

         Section  2.5.  Use of  Proceeds.  The  Lazarus  Entities  shall use the
proceeds of the Bridge Loan solely for the following purposes:

                                       3
<PAGE>

                  (a) Making  expenditures which are permitted to be capitalized
under GAAP to renovate  the  Mermentau  Assets,  the Disposal  Well Assets,  the
assets  described  on Exhibit  1.6(a) (the  "Nixon  Assets"),  and the  Regional
Assets;

                  (b) Partially funding the payment of the purchase price or any
deposit thereof payable pursuant to the Regional Acquisition; and

                  (c) The  payment  of the fees  provided  for  pursuant  to the
Consulting Agreement (as hereinafter defined).

                                   ARTICLE III
                                     OPTION

         Section 3.1. Option.  Each Lazarus Entity hereby grants to Blue Dolphin
the option (the  "Option"),  exercisable  by written notice from Blue Dolphin to
LEH at any time  prior to the  latter of the date of the  payment in full of the
Bridge Loan or March 1, 2010, to require that the Parties  promptly enter into a
purchase  and  sale  agreement  substantially  in the form of  Exhibit  2.1 (the
"Purchase  Agreement"),  and thereafter  close the transaction  described in the
Purchase Agreement pursuant to its terms, provided, however, that an exercise of
the Option shall not be considered  effective if LEH gives Blue Dolphin  written
notice that a Material  Adverse Effect is then  applicable to Blue Dolphin until
Blue Dolphin has remedied that Material  Adverse  Effect.  The Lazarus  Entities
agree that within  thirty (30) days of the  exercise of the Option,  the Lazarus
Entities  shall  obtain and  provide to Blue  Dolphin  written  evidence  of any
consent  agreed to be granted by any third party to waive any term or  condition
set forth in any  note,  bond,  mortgage,  indenture,  deed of  trust,  license,
franchise, permit, concession,  contract, lease or other instrument,  obligation
or agreement of any kind to which any Lazarus  Entity is a party or by which any
Lazarus Entity or any of their  respective  properties or assets may be bound or
affected that is violated by the exercise of the Option and the  consummation of
any  transactions  contemplated  in the Purchase  Agreement,  including  but not
limited to the 1st International Loan Agreement Blue Dolphin agrees that it will
not  exercise  the Option if the Closing  will cause a violation of any material
term or condition  set forth in any note,  bond,  mortgage,  indenture,  deed of
trust,  license,  franchise,  permit,  concession,   contract,  lease  or  other
instrument,  obligation or agreement of any kind to which Blue Dolphin or any of
its  subsidiaries is a party or by which any of them or any of their  respective
properties  or assets may be bound or affected.  The Parties  agree to negotiate
the final  Purchase  Agreement in good faith based on the terms set forth in the
attached Purchase Agreement, recognizing that certain factual matters may change
subsequent to the date hereof in  compliance  with this  Agreement.  The Parties
will in addition determine pursuant to these good faith negotiations whether the
Option transaction should be structured as an acquisition of assets, as provided
in the attached  Purchase  Agreement,  or as an acquisition of the membership or
other equity interests of the Lazarus Entities which own the respective  Subject
Assets (as hereinafter  defined)  primarily  considering the practicality of the
transfer of the Subject Assets,  and  secondarily  considering the tax effect on
all parties and other reasonable factors. At any time, Blue Dolphin may elect to
terminate the Option by written notice to LEH.

                                       4
<PAGE>

                                   ARTICLE IV
                        REPRESENTATIONS AND WARRANTIES OF
                                  BLUE DOLPHIN

         Blue  Dolphin  represents  and  warrants  to the  Lazarus  Entities  as
follows:

         Section  4.1.  Organization.   Blue  Dolphin  is  a  corporation,  duly
organized,  validly existing and in good standing under the laws of the State of
Delaware and has the requisite  corporate  power and authority to own, lease and
operate  its assets and  properties  and to carry on its  business  as it is now
being conducted.

         Section  4.2.  Capitalization.  As of June  30,  2009,  the  authorized
capital stock of Blue Dolphin  consisted of  100,000,000  shares of Blue Dolphin
Common Stock and 2,500,000  shares of preferred  stock, par value $.10 per share
("Blue Dolphin Preferred Stock").  As of June 30, 2009, (i) 11,785,299 shares of
Blue Dolphin Common Stock were issued and outstanding, all of which were validly
issued  and  are  fully  paid,  duly  authorized,  non-assessable  and  free  of
preemptive rights, (ii) 0 shares of Blue Dolphin Preferred Stock were issued and
outstanding and (iii) 0 shares of Blue Dolphin Common Stock and 0 shares of Blue
Dolphin Preferred Stock were held in the treasury of Blue Dolphin.

         Section 4.3.  Authority; Non-Contravention; Approvals.

                  (a) Blue  Dolphin has full  corporate  power and  authority to
execute  and  deliver  this   Agreement  and  to  consummate   the  Bridge  Loan
Transaction.  This Agreement has been approved by the Board of Directors of Blue
Dolphin,  and no other  corporate  proceedings on the part of Blue Dolphin,  are
necessary  to authorize  the  execution  and  delivery of this  Agreement or the
consummation by Blue Dolphin of the Bridge Loan Transaction.  This Agreement has
been  duly  executed  and  delivered  by Blue  Dolphin,  and,  assuming  the due
authorization,  execution  and  delivery  hereof  by  Carroll  and  the  Lazarus
Entities,  constitutes  a valid and legally  binding  agreement  of Blue Dolphin
enforceable   against  it  in  accordance  with  its  terms,  except  that  such
enforcement  may be  subject  to  (i)  bankruptcy,  insolvency,  reorganization,
moratorium  or other  similar  laws  affecting  or  relating to  enforcement  of
creditors' rights generally and (ii) general equitable principles.

                  (b) The  execution  and  delivery  of this  Agreement  by Blue
Dolphin and the  consummation by Blue Dolphin of the Bridge Loan  Transaction do
not and will  not  violate  or  result  in a  breach  of any  provision  of,  or
constitute a default (or an event  which,  with notice or lapse of time or both,
would  constitute  a  default)  under,  or  result  in the  termination  of,  or
accelerate the  performance  required by, or result in a right of termination or
acceleration  under, or result in the creation of any lien,  security  interest,
charge or encumbrance upon any of the properties or assets of Blue Dolphin under
any of the terms, conditions or provisions of (i) the charters or bylaws of Blue
Dolphin, (ii) any statute, law, ordinance,  rule, regulation,  judgment, decree,
order,  injunction,  writ,  permit  or  license  of any  court  or  governmental
authority  applicable to Blue Dolphin or any of their  properties or assets,  or
(iii) any note, bond, mortgage,  indenture,  deed of trust, license,  franchise,
permit, concession, contract, lease or other instrument, obligation or agreement
of any kind to which Blue Dolphin is now a party or by which Blue Dolphin or any
of their respective properties or assets may be bound or affected.

                                       5
<PAGE>

         Section 4.4.  Reports and Financial Statements.

                  (a) Blue  Dolphin has filed with the  Securities  and Exchange
Commission  (the "SEC") all material  forms,  statements,  reports and documents
(including all exhibits,  amendments  and  supplements  thereto)  required to be
filed by it under the Securities Act of 1933, as amended (the "Securities Act"),
the  Securities  Exchange Act of 1934, as amended (the  "Exchange  Act") and the
respective  rules  and  regulations  thereunder,  all of which  complied  in all
material  respects with all applicable  requirements  of the appropriate act and
the rules and regulations thereunder.

                  (b) Blue Dolphin has previously made available or delivered to
LEH copies of all reports,  including annual,  quarterly and current reports, or
registration  statements  filed by Blue Dolphin with the SEC  including  but not
limited to the Form 10-KSB with respect to the period  ending  December 31, 2007
and Form 10-Q for the period ending March 31, 2009 ("SEC Reports"
                                    ARTICLE V
                         REPRESENTATIONS AND WARRANTIES
                             OF THE LAZARUS ENTITIES

         Each Lazarus Entity jointly and severally represent and warrant to Blue
Dolphin that:

         Section 5.1.  Organization and Qualification.  Each Lazarus Entity is a
limited liability company duly organized,  validly existing and in good standing
under the laws of the State of Delaware and has the  requisite  corporate  power
and authority to own,  lease and operate its assets and  properties and to carry
on its  business  as it is now  being  conducted.  Each  Lazarus  Entity is duly
qualified  to do  business as a foreign  entity and is in good  standing in each
jurisdiction  in which the properties  owned,  leased,  or operated by it or the
nature of the business conducted by it makes such qualification necessary. True,
accurate and  complete  copies of the  organizational  documents of each Lazarus
Entity,  as amended,  including all amendments  thereto,  have  heretofore  been
delivered to Blue Dolphin.

         Section 5.2.   Authority; Non-Contravention; Approvals.

                  (a) Each Lazarus  Entity has full company  power and authority
to execute and deliver this Agreement and to consummate the  Transactions.  This
Agreement has been approved by the managers of each Lazarus Entity, and no other
company  proceedings  on the  part  of any  Lazarus  Entity,  are  necessary  to
authorize the execution and delivery of this  Agreement or the  consummation  by
the Lazarus  Entities of any of the  Transactions.  This Agreement has been duly
executed  and  delivered  by  each  Lazarus  Entity,   and,   assuming  the  due

                                       6
<PAGE>

authorization,  execution  and delivery  hereof by Blue  Dolphin,  constitutes a
valid and legally binding agreement of each Lazarus Entity  enforceable  against
each Lazarus Entity in accordance with its terms,  except that such  enforcement
may be subject to (i)  bankruptcy,  insolvency,  reorganization,  moratorium  or
other similar laws  affecting or relating to  enforcement  of creditors'  rights
generally and (ii) general equitable principles.

                  (b)  Except  as set  forth  in the  Disclosure  Schedule,  the
execution  and  delivery  of this  Agreement  by  each  Lazarus  Entity  and the
consummation  by each  Lazarus  Entity of the  Transactions  do not and will not
violate or result in a breach of any  provision  of, or constitute a default (or
an event  which,  with  notice  or lapse of time or  both,  would  constitute  a
default)  under,  or result in the termination of, or accelerate the performance
required  by, or result in a right of  termination  or  acceleration  under,  or
result in the creation of any lien,  security  interest,  charge or  encumbrance
upon any of the  properties  or assets of any  Lazarus  Entity  under any of the
terms,  conditions  or  provisions  of (i) the  organizational  documents of any
Lazarus Entity, (ii) any statute, law, ordinance,  rule,  regulation,  judgment,
decree, order, injunction,  writ, permit or license of any court or governmental
authority applicable to any Lazarus Entity or any of their respective properties
or assets, or (iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession,  Contract, lease or other instrument,  obligation
or agreement of any kind to which any Lazarus  Entity is now a party or by which
any Lazarus Entity or any of their respective  properties or assets may be bound
or affected.

                  (c) No declaration, filing or registration with, or notice to,
or authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the  execution and delivery of this  Agreement by any
Lazarus Entity or the consummation by any Lazarus Entity of the Transactions.

         Section 5.3. Reports and Financial  Statements.  LEH has furnished Blue
Dolphin with audited and  consolidated  balance  sheets,  income  statements and
statements of cash flows for each Lazarus  Entity as of and for the period ended
December 31, 2006 and December 31, 2007, and unaudited and consolidated  balance
sheet and income  statement for the period ended December 31, 2008 and as of and
for the 6th month  period  ending June 30, 2009  (collectively,  the  "Financial
Statements").  The Financial  Statements  have been prepared in accordance  with
GAAP and fairly present the financial condition and result of operations of each
Lazarus Entity.

         Section 5.4. Absence of Undisclosed Liabilities. Except as disclosed in
the Disclosure  Schedule,  no Lazarus Entity is subject to  Liabilities,  except
Liabilities which are provided for in the Financial Statements.

         Section 5.5. Absence of Certain Changes or Events.  Except as disclosed
in Disclosure Schedule,  since July 31, 2006 the business of each Lazarus Entity
has been  conducted  in the  ordinary  course of business  consistent  with past
practices, and there has not been any event, occurrence, development or state of
circumstances  or facts which has had, or could  reasonably  be  anticipated  to
have,  individually or in the aggregate,  a Material Adverse Effect with respect
to any Lazarus Entity.

                                       7
<PAGE>

         Section 5.6.  Title to and  Condition of Assets.  The Lazarus  Entities
have good and  indefeasible  title to the  Mermentau  Assets,  the Disposal Well
Assets,  and the Nixon Assets  (collectively,  the "Subject  Assets"),  free and
clear of any Liens,  except  for  Permitted  Liens.  The  Subject  Assets are in
adequate  condition for their intended use, after the  performance of reasonable
and customary start up and refurbishment procedures.  Such assets constitute all
of the  properties  necessary for the  respective  Lazarus Entity to conduct its
business as now conducted.

         Section 5.7. Employees.  The only Lazarus Entity which has employees is
LEH.

         Section  5.8.  Litigation.  There are no  claims,  suits,  actions,  or
proceedings  pending or, to the  Knowledge  of each Lazarus  Entity,  threatened
against or  relating  to any  Lazarus  Entity,  before  any court,  governmental
department, commission, agency, instrumentality or authority, or any arbitrator.
To the knowledge of each Lazarus  Entity,  there are no state of facts,  events,
conditions,  or occurrences which would properly  constitute  grounds for or the
basis of any material claim,  suit, action, or proceeding against or relating to
any Lazarus Entity.  Except as set forth in the Disclosure Schedule,  no Lazarus
Entity is  subject to any  judgment,  decree,  injunction,  rule or order of any
court,   governmental  department,   commission,   agency,   instrumentality  or
authority, or any arbitrator.

         Section 5.9. No Violation of Law. No Lazarus  Entity is in violation of
and no Lazarus  Entity has been given notice or been charged with any  violation
of, any law,  statute,  order,  rule,  regulation,  ordinance or judgment of any
governmental  or  regulatory  body or  authority.  Except  as  disclosed  in the
Disclosure Schedule, as of the date of this Agreement,  to the Knowledge of each
Lazarus Entity,  no  investigation  or review by any  governmental or regulatory
body or  authority  is  pending  or  threatened,  nor has  any  governmental  or
regulatory  body or authority  indicated  an intention to conduct the same.  The
Lazarus Entities have all permits, licenses, franchises,  variances, exemptions,
orders and other governmental  authorizations,  consents and approvals necessary
to  conduct  their  businesses  as  presently   conducted   (collectively,   the
"Permits"). No Lazarus Entity is in violation of the terms of any Permits.

         Section 5.10. Insurance Policies. No Lazarus Entity has received notice
from any  current  insurance  carrier of the  intention  of such  carrier (a) to
discontinue any material  insurance  coverage afforded to the Lazarus Entity; or
(b) to  materially  increase the premium costs of such  insurance.  The types of
insurance policies  maintained by the Lazarus Entities and the coverage afforded
by such policies with respect to the  operations of each Lazarus  Entity are, in
the opinion of the Lazarus  Entities,  reasonable  in light of the nature of the
businesses conducted and the risks associated with such businesses.

         Section  5.11.  Taxes.  All returns  and  reports,  including,  without
limitation,  information and  withholding  returns and reports and any schedules
and  attachments  thereto  or any  amendments  of any  of  the  foregoing  ("Tax
Returns"),  of or  relating  to any Taxes,  that are  required to be filed on or
before the date hereof by or with  respect to any Lazarus  Entity have been duly
and timely filed. All such Tax Returns were correct and complete in all material
respects  and all the  Taxes,  including  interest  and  penalties,  owed by any
Lazarus  Entity have been timely  paid.  There are no pending Tax audits by U.S.

                                       8
<PAGE>

tax authorities  with respect to Tax Returns of any Lazarus Entity.  The Lazarus
Entities  have made all deposits  (including  estimated tax payments for taxable
years for which the  federal  income  tax return is not yet due)  required  with
respect to Taxes.

         Section 5.12.  Environmental Matters.

                  (a) Except as set forth in the Disclosure Schedule:

                    (i) no notice,  demand,  request for information,  citation,
summons  or order  hasbeen  received  by, no  complaint  has been  served on, no
penalty has been assessed against,  and no investigation,  action,  claim, suit,
proceeding or review is pending or, to the Knowledge of each Lazarus Entity,  is
threatened by any governmental entity or other person against any Lazarus Entity
or any  predecessor  of any  Lazarus  Entity,  relating to or arising out of any
Environmental Law (as defined below);

                    (ii)  Each  Lazarus  Entity  is and  has  been  in  material
compliance with all  Environmental  Laws and  Environmental  Permits (as defined
below),  and, to the Knowledge of each Lazarus  Entity,  any  predecessor of any
Lazarus  Entity  was in  material  compliance  with all  Environmental  Laws and
Environmental Permits; or

                    (iii) No Lazarus  Entity has,  and to the  Knowledge of each
Lazarus  Entity,  no predecessor of any Lazarus  Entity,  has,  entered into any
obligation,   Liability,  order,  settlement,  judgment,  injunction  or  decree
involving  uncompleted,  outstanding or unresolved  requirements  relating to or
arising under  Environmental  Law and to the  Knowledge of each Lazarus  Entity,
there are no facts,  conditions,  situations or set of circumstances which could
reasonably  be  expected  to result in or be the basis for any such  obligation,
Liability, order, settlement, judgment, injunction or decree.

                  (b) For purposes of this Agreement,  (i) "Environmental  Laws"
means any and all laws,  statutes,  ordinances,  rules,  regulations,  orders or
determinations of any Governmental  Authority (as defined below) relating to the
protection  of the  environment  or  protection of human health from exposure to
hazardous materials that is currently in effect in any jurisdiction in which the
Lazarus Entity owns property or conducts business, including without limitation,
the  Clean Air Act,  as  amended,  the  Comprehensive  Environmental,  Response,
Compensation, and Liability Act of 1980, as amended, the Federal Water Pollution
Control  Act, as amended,  the  Occupational  Safety and Health Act of 1970,  as
amended,  the Resource  Conservation  and Recovery Act of 1976, as amended,  the
Safe  Drinking  Water Act,  as amended,  the Toxic  Substances  Control  Act, as
amended,  the Superfund  Amendments and Reauthorization Act of 1986, as amended,
the  Hazardous  Materials   Transportation  Act,  as  amended,   (ii)  the  term
"Governmental  Authority"  includes the United States of America, as well as any
other jurisdiction or state,  county,  city and political  subdivisions in which
the  Lazarus  Entity  owns  property  or  conducts  business,  and  any  agency,
department,  commission,  board,  bureau or  instrumentality of any of them that
exercises  jurisdiction over any Lazarus Entity pursuant to Environmental  Laws,
and (iii)  "Environmental  Permits" means all permits,  licenses,  certificates,
registrations,   identification  numbers,  applications,   consents,  approvals,

                                       9
<PAGE>

variances,  notices of intent, and exemptions  necessary for the ownership,  use
and/or  operation of any  facility or operation of any Lazarus  Entity to comply
with requirements of Environmental Laws.

         Section 5.13.  Material  Contracts and  Relationships.  The  Disclosure
Schedule  lists  all  Contracts,  undertakings  or  understandings  to which any
Lazarus Entity is a party which require an expenditure  or  expenditures  by the
Lazarus Entity in excess of $25,000 or more (except for purchase and sale orders
incurred in the ordinary  course of business  consistent with past practices for
amounts less than  $200,000) or are  otherwise  material to the Lazarus  Entity,
including but not limited to service  agreements,  purchase or sale  agreements,
supply agreements,  distribution or distributor agreements,  real estate leases,
purchase orders, customer orders and equipment rental agreements (the "Operating
Agreements").  Each  Operating  Agreement  is a valid,  binding and  enforceable
agreement of the Lazarus Entity and, to the Knowledge of the Lazarus Entity, the
other  parties  thereto.  There has not occurred any breach or default under any
Operating  Agreement on the part of the Lazarus  Entity or, to the  Knowledge of
the Lazarus Entity, any other parties thereto.  No event has occurred which with
the giving of notice or the lapse of time, or both,  would  constitute a default
under any Operating Agreement on the part of any of the Lazarus Entities, or, to
the Knowledge of the Lazarus Entity, any of the other parties thereto.  There is
no  dispute   between  the  parties  to  any  Operating   Agreement  as  to  the
interpretation  thereof  or as to  whether  any party is in  breach  or  default
thereunder,  and no party to any Operating Agreement has indicated its intention
to, or suggested it may evaluate whether to, terminate any Operating Agreement.

         Section  5.14.  Brokers  and  Finders.  Except  as  set  forth  on  the
Disclosure  Schedule,  (i) no Lazarus  Entity  has  entered  into any  Contract,
arrangement  or  understanding  with any  person or firm which may result in the
obligation of any Lazarus  Entity to pay any finder's  fees,  brokerage or agent
commissions  or  other  like  payments  in  connection  with  the   transactions
contemplated  hereby;  and (ii)  there is no claim for  payment  by any  Lazarus
Entity  of any  investment  banking  fees,  finder's  fees,  brokerage  or agent
commissions or other like payments in connection with the  negotiations  leading
to this Agreement or the consummation of the transactions contemplated hereby.

         Section 5.15. Disclosure.  No representation or warranty of any Lazarus
Entity or Carroll set forth hereunder or in the schedules  attached hereto or in
any certificate  delivered  pursuant hereto contains any untrue statement of the
material  fact or most to state a material  fact  necessary in order to make the
statements contained herein or therein not misleading.

                                   ARTICLE VI
                              AFFIRMATIVE COVENANTS

         Section 6.1. Affirmative  Covenants of the Lazarus Entities.  Until the
Payment Date, the Lazarus Entities covenant as follows:

                  (a)  Compliance  with Laws,  Etc.  Each  Lazarus  Entity shall
comply in all material respects with all applicable laws, rules, regulations and
orders, such compliance to include,  without limitation,  paying before the same
become delinquent all taxes,  assessments and governmental  charges imposed upon
it or upon  its  property  except  to the  extent  contested  in good  faith  by
appropriate proceedings diligently conducted,  and shall comply with and perform

                                       10
<PAGE>

and observe all material  covenants,  provisions  and conditions to be performed
and observed on the part of that Lazarus  Entity in  connection  with all of its
Operating Agreements.  Notwithstanding the foregoing,  each Lazarus Entity shall
(i) comply in a timely  fashion with,  or operate  pursuant to valid waivers of,
the provisions of all  Environmental  Laws, (ii) notify Blue Dolphin promptly in
the event of any actual or alleged material noncompliance with any Environmental
Laws or any notice of any actual or alleged obligation to take corrective action
with respect to any or petroleum  product and (iii) promptly forward to the Blue
Dolphin  a copy  of any  claim,  judgment,  order,  notice,  civil  or  criminal
complaint,  actual or threatened  Lien,  request for  injunction,  threatened or
actual withdrawal of any Environmental  Permit or other  communication or report
in  connection  with any material  matter  relating to  Environmental  Laws,  or
petroleum  products as it may  adversely  affect a Lazarus  Entity or any of the
Subject Assets.

                  (b) Reporting Requirements.  LEH will furnish or will cause to
be furnished at its expense to Blue Dolphin:

                    (i) As soon as  available  and in any event  within 120 days
after the end of each fiscal  year of LEH, a copy of the balance  sheets of each
Lazarus  Entity as of the end of such year and the related  statements of income
and cash flows for such year,  audited  and  bearing an  unqualified  opinion by
independent  certified  public  accountants   acceptable  to  Blue  Dolphin  and
certified  by the  chief  financial  officer  of each  Lazarus  Entity as fairly
presenting  the financial  position of the  respective  Lazarus Entity as at the
dates  indicated and in  accordance  with GAAP together with a statement of such
accountants stating that, in making the examination  necessary for their report,
they obtained no knowledge of any Default,  or, if such  accountants  shall have
obtained  knowledge of any such Default,  specifying  the details and the nature
and status thereof;

                    (ii) As soon as  available  and in any event  within 25 days
after the end of each calendar month,  the balance sheets of each Lazarus Entity
as of the end of such month and the related  statements of income and cash flows
of each Lazarus Entity for such month all in reasonable detail, certified by the
chief  financial  officer  of each  Lazarus  Entity  as  fairly  presenting  the
financial  position  of each  Lazarus  Entity as at the dates  indicated  and in
accordance with GAAP;

                    (iii) Promptly after the commencement thereof, notice of all
actions,  suits,  investigations  and  proceedings  before any court,  tribunal,
agency or other governmental authority, affecting any Lazarus Entity;

                    (iv) Within the 10 days of making an  expenditure  permitted
pursuant to Section 2.5, a written report describing each such expenditure; and

                    (v) Such other  information as Blue Dolphin may from time to
time reasonably request.

                  (c) Visitation Rights. At any reasonable time and from time to
time upon prior notice to the  respective  Lazarus  Entity,  each Lazarus Entity

                                       11
<PAGE>

shall  permit Blue Dolphin or any agents or  representatives  thereof to examine
and make copies of and  abstracts  from the records and books of account of, and
visit and inspect the Subject  Assets and to discuss the  affairs,  finances and
accounts of each  Lazarus  Entity with any  officer of each  Lazarus  Entity and
their independent public accountants.

                  (d)  Maintenance  of  Insurance.  Each  Lazarus  Entity  shall
maintain  insurance with responsible and reputable  insurance  companies in such
amounts and covering such risks as are usually  carried by companies  engaged in
similar  businesses and owning similar  properties in the same trade and general
areas in which such Lazarus Entity  operates.  Each liability  insurance  policy
shall name Blue Dolphin as an  additional  insured and each  property  insurance
policy shall name Blue Dolphin as loss payee. Each Lazarus Entity will,  furnish
evidence of any such insurance  referred to in this Section upon request by Blue
Dolphin.

                  (e) Maintenance of Properties,  Etc. Each Lazarus Entity shall
maintain and preserve all of its  properties,  necessary or useful in the proper
conduct of its business in good working order and  condition,  ordinary wear and
tear excepted.

                  (f)  Keeping of Records  and Books of  Account.  Each  Lazarus
Entity shall keep adequate records and books of account in accordance with GAAP.

                  (g) Preservation of Existence,  Etc. Each Lazarus Entity shall
preserve and maintain its  existence,  rights,  franchises and privileges in the
state of its formation and qualify and remain qualified in each  jurisdiction in
which such  qualification  is necessary or desirable in view of its business and
operations and the ownership of its properties.

                  (h) Notification of Adverse Events.  Each Lazarus Entity shall
notify Blue Dolphin of all Events of Default  within five days of the occurrence
thereof.

         Section 6.2 Affirmative Covenants of Blue Dolphin. Until the expiration
or  termination  of the Option,  Blue Dolphin  covenants that it will furnish or
will cause to be furnished at its expense to LEH:

                    (i) Within the 10 days of making any single  expenditure  in
excess of $50,000, a written report describing each such expenditure;

                    (ii) Promptly after the commencement thereof,  notice of all
actions,  suits,  investigations  and  proceedings  before any court,  tribunal,
agency or other governmental authority, affecting Blue Dolphin

                    (ii)  Such  other  information  as LEH may from time to time
reasonably request.

                                       12
<PAGE>

                                   ARTICLE VII
                               NEGATIVE COVENANTS

                  Section 7.1.  Negative  Covenants.  Neither any Lazarus Entity
nor Blue Dolphin  shall do any of the following  prior to the  expiration of the
obligations of the respective Party under this Article.  The obligations of Blue
Dolphin  pursuant  to the terms  hereof  shall  expire  upon the  earlier of the
expiration  or  termination  of the  Option or the  consummation  of the  Option
transaction,  and the  obligations  of the Lazarus  Entities shall expire on the
Payment  Date.  If the effect of the breach of this  Section  may be remedied in
full,  then the party who committed such breach shall have 15 days from the date
of written notice of a breach to cure such breach.

                  (a) Liens.  Create,  incur, assume or suffer to exist any Lien
upon or with respect to any of the Subject Assets, or assign or otherwise convey
any right to receive income from the Subject Assets,  except (i) Permitted Liens
and (ii) Liens required to secure Permitted Indebtedness.

                  (b) Indebtedness. Create, incur, assume or suffer to exist any
Liability,  other than  accounts  payable  incurred  in the  ordinary  course of
business and Permitted  Indebtedness,  or, with respect to the Lazarus Entities,
Liabilities  which do not negatively impact or devalue LLRII, LE, LEN, or any of
the Subject Assets, or the collateral for the Bridge Loan.

                  (c) Change in Nature of Business.  Make any material change in
the nature of the business of any such Party as carried on at the date hereof.

                  (d) Transactions  with Affiliates.  Make any sale to, make any
purchase from, extend credit to, make payment for services rendered by, or enter
into any other  transaction with any Affiliate  unless, in each case, such sale,
purchase or  extension  of credit is made or such  services are rendered or such
other  transaction  is entered  into in the  ordinary  course of business and on
terms and  conditions  at least as favorable to the Lazarus  Entity as the terms
and conditions that would apply in a similar transaction on an arms-length basis
with a Person other than such Affiliate.

                  (e) Investments.  With respect to LLRII, LE, or LEN only, make
any Investments in any Person, other than the Regional Acquisition.

                  (f)  Distributions.  With  respect to LLRII,  LE, or LEN only,
directly or indirectly  declare,  order,  pay, make or set apart any sum for any
Restricted Payment.

                  (g) Other Debt.  Prepay any Permitted  Indebtedness  of LLRII,
LE, or LEN.

                  (h) Prohibition of Fundamental Changes. With respect to LLRII,
LE, or LEN only,  merge or consolidate  with, or acquire all or any  substantial
part of the assets or class of stock or other ownership  interests of, any other
Person without the prior written consent of Blue Dolphin.

                  (i) Asset Sales. No Lazarus Entity shall, sell, convey, lease,
transfer  or  otherwise   dispose  of,  in  one   transaction  or  a  series  of
transactions, any assets included within ithe Subject Assets.

                                       13
<PAGE>

                  (j) Equity Issuances.  Issue any stock,  membership interests,
or other equity interests, either by way of original issuances, stock dividends,
stock splits,  recapitalizations,  or otherwise, except stock issued pursuant to
existing employee incentive or benefit plans of Blue Dolphin.

         Section 7.2. Acquisition Transactions.  After the date hereof and prior
to the latter of the  termination of this Agreement or expiration of termination
of the  Option,  neither  LLRII,  LE,  LEN,  nor Blue  Dolphin  nor any of their
Affiliates will initiate, solicit, negotiate,  encourage or provide confidential
information to facilitate,  and no such Party shall cause any officer,  director
or employee of such  Party,  or any  attorney,  accountant,  investment  banker,
financial advisor or other agent retained by any of them to, initiate,  solicit,
negotiate,  encourage  or provide  non-public  or  confidential  information  to
facilitate,  or conduct any negotiations or discussions relating to any proposal
or offer to acquire all or any  substantial  part of the business or  properties
of, with respect to LLRII, LE, LEN, any of the Subject Assets,  and with respect
to Blue  Dolphin,  any of its material  assets,  whether by merger,  purchase of
assets,  tender offer or  otherwise,  whether for cash,  securities or any other
consideration or combination thereof.

                                  ARTICLE VIII
                              ADDITIONAL AGREEMENTS

         Section 8.1. Access. The Lazarus Entities and Blue Dolphin shall afford
to each other, and their respective accountants, counsel, financial advisors and
other representatives, reasonable access during normal business hours throughout
the  period  prior to the latter of the  termination  of this  Agreement  or the
Payment  Date,  to  all  of  the  properties,   books,   Contracts,   personnel,
representatives  of or contacts with  governmental  or  regulatory  authorities,
agencies or bodies, commitments, and records (including, but not limited to, Tax
Returns and any and all records or documents  which are within the possession of
governmental or regulatory  authorities,  agencies or bodies, and the disclosure
of which such party can  facilitate or control) of the Lazarus  Entities or Blue
Dolphin and, such parties as its  representatives  may reasonably  request.  Any
investigation  pursuant to this Section shall be conducted in such manner as not
to interfere unreasonably with the conduct of the business of any Lazarus Entity
or Blue Dolphin or with the  performance  of any of the employees of any Lazarus
Entity or Blue Dolphin.  No investigation  pursuant to this Section shall affect
any representation or warranty made by any party.

         Section 8.2.  Expenses and Fees.  Except as otherwise  provided in this
Agreement, all costs and expenses incurred in connection with this Agreement and
the transactions  contemplated hereby shall be paid by the party who incurs such
cost or expense.

         Section 8.3.  Agreement to Cooperate.

                  (a) Subject to the terms and conditions herein provided,  each
of the parties hereto shall use all  reasonable  efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things  necessary,  proper
or advisable  under  applicable  laws and  regulations  to  consummate  and make
effective the  Transactions  required to be closed by this Agreement,  including
using its  reasonable  efforts  to obtain  all  necessary,  proper or  advisable

                                       14
<PAGE>

waivers,  consents  and  approvals  under  applicable  laws and  regulations  to
consummate and make effective the  Transactions,  including using its reasonable
efforts to obtain all necessary or appropriate waivers, consents or approvals of
third parties required in order to preserve material  contractual  relationships
of any Lazarus Entity and Blue Dolphin and to lift any injunction or other legal
bar to the Transactions  (and, in such case, to proceed with the Transactions as
expeditiously as possible).

                  (b) In the event any claim,  action,  suit,  investigation  or
other  proceeding  by any  governmental  body or other  person or other legal or
administrative  proceeding is commenced  that questions the validity or legality
of the Transactions or seeks damages in connection therewith,  whether before or
after the Effective  Time,  the parties  hereto agree to cooperate and use their
reasonable efforts to defend against and respond thereto.

         Section 8.4. Public Statements.  Blue Dolphin, and the Lazarus Entities
shall:  (a)  consult  with each other with  enough  advance  notice to allow the
notified  party to submit  comments,  prior to issuing any press  release or any
written public statement with respect to this Agreement or the Transactions; (b)
not unless  otherwise  required  by law issue any such press  release or written
public  statement  prior to such  consultation;  and (c) shall  incorporate  any
reasonable  comments  provided  to the  issuing  party in such press  release or
written public  statement,  except to the extent prohibited by applicable law or
regulations.

         Section  8.5.  Notification  of Certain  Matters.  Each of the  parties
hereto  agrees  to  give  prompt  notice  to each  other  of,  and to use  their
respective  reasonable  best  efforts  to prevent or  promptly  remedy,  (a) the
occurrence  or failure to occur or the  impending or  threatened  occurrence  or
failure to occur,  of any event  which  occurrence  or failure to occur would be
likely to cause any representations or warranties in this Agreement to be untrue
or  inaccurate  in any  material  respect (or in all respects in the case of any
representation or warranty containing any materiality qualification) and (b) any
material  failure  (or any  failure in the case of any  covenant,  condition  or
agreement  containing any materiality  qualification) on its part to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder;  provided, however, that the delivery of any notice pursuant to
this  Section 8. shall not limit or  otherwise  affect  the  remedies  available
hereunder to the party receiving such notice.

         Section 8.6.  Consulting  Agreement.  LEH and Blue Dolphin  shall enter
into a  consulting  agreement  in the form of  Exhibit  8.6 at the  Bridge  Loan
Closing (the "Consulting Agreement").

                                   ARTICLE IX
                                   TERMINATION

         Section 9.1. Termination.  This Agreement may be terminated at any time
prior to the Bridge Loan Closing, as follows:

                  (a) LEH shall have the right to  terminate  this  Agreement so
long as no Lazarus Entity is in material  breach of its  obligations  under this
Agreement:

                                       15
<PAGE>

                    (i) if the  representations  and  warranties of Blue Dolphin
shall fail to be true and correct,  not being  satisfied and shall not have been
cured  in all  material  respects  (or  in  all  respects  in  the  case  of any
representation or warranty containing any materiality  qualification)  within 15
days  after  written  notice of such  failure  is given to Blue  Dolphin  by any
Lazarus Entity;

                    (ii) if Blue  Dolphin  (A) fails to perform in any  material
respect any of its  covenants  (or in all  respects in the case of any  covenant
containing  any  materiality  qualification)  in this Agreement and (B) does not
cure such default in all material  respects  within 15 days after written notice
of such default is given to Blue Dolphin by a Lazarus Entity;

                    (iii) if the Bridge Loan Transaction is enjoined by a final,
unappealable court order.

                  (b) Blue  Dolphin  shall  have the  right  to  terminate  this
Agreement  so  long as Blue  Dolphin  is not  then  in  material  breach  of its
obligations under this Agreement:

                    (i) if the  representations  and  warranties  of any Lazarus
Entity  shall fail to be true and  correct  and shall not have been cured in all
material  respects and shall not have been cured in all material respects (or in
all  respects  in the case of any  representation  or  warranty  containing  any
materiality  qualification)  within 15 days after written notice of such failure
is given to any Lazarus Entity by Blue Dolphin;

                    (ii) if any  Lazarus  Entity  (A)  fails to  perform  in any
material respect (or in all respects in the case of any covenant  containing any
materiality  qualification)  any of its covenants in this Agreement and (B) does
not cure such default in all  material  respects (or in all respects in the case
of any covenant containing any materiality  qualification)  within 15 days after
notice of such default is given to any Lazarus Entity by Blue Dolphin;

                    (iii) if the Bridge Loan  Transaction  is not  completed  by
August 5, 2009; or

                    (iv) if the Bridge Loan  Transaction is enjoined by a final,
unappealable court order.

                  (c) Blue Dolphin and the Lazarus  Entities may terminate  this
Agreement upon the execution of a written agreement to that effect.

         Section 9.2. Effect of Termination. In the event of termination of this
Agreement  by either  Blue  Dolphin  or the  Lazarus  Entities  pursuant  to the
provisions of Section 9.1, this Agreement shall forthwith  become void and there
shall be no further obligations on the part of any Lazarus Entity, Blue Dolphin,
or their respective officers, managers or directors (except as set forth in this
Section  9.2 and in  Sections  8.2,  11 and 12, all of which  shall  survive the
termination). Nothing in this Section 9.2 shall relieve any party from liability
for any breach of this Agreement.

                                       16
<PAGE>

                                    ARTICLE X
                                   DEFINITIONS

         Section 10.1.  Definitions.  For purposes of this Agreement:

         "Affiliate" means a person controlling,  controlled by, or under common
control with, the person to whom the reference is made.

         "Blue  Dolphin  Common  Stock" means the common stock of Blue  Dolphin,
$.01 par value per share.

         "Contract" means any legally binding  obligation or agreement,  whether
or not reduced to writing, and specifically including,  without limitation,  any
client or customer agreement,  note, bond,  mortgage,  lease of real or personal
property (including, without limitation, automobile, vehicle and other equipment
leases), license and other instrument.

         "Default"  means an Event of  Default or any event or  condition  that,
with notice or lapse of time or both would,  unless  cured or waived,  become an
Event of Default pursuant to the Note or the Security Documents.

         "Disclosure  Schedule"  means the  disclosure  schedule  which has been
delivered by LEH to Blue Dolphin which is attached to this Agreement.

         "Disposal  Well  Assets"  means  the  Disposal  Well  Property  and the
Disposal Well Personal Property.

         "Event of  Default"  means any event of  default  with  respect  to the
Bridge Loan,  whether so provided pursuant to the Note or any documents securing
the Bridge Loan or otherwise.

         "1st   International   Debt"  means  the  indebtedness  of  LE  to  1st
International  Bank  its  assigns  and  sureties  in an  amount  not  to  exceed
$10,000,000  pursuant to that certain 1st  International  Loan  Agreement,  that
certain  Promissory Note dated September 29, 2008, payable by LE to the order of
1st International  Bank, and any related  document,  as such indebtedness may be
refinanced, extended, or amended.

         "1st   International   Liens"   means  the  Liens   securing   the  1st
International Debt against the Nixon Assets.

         "1st  International  Loan Agreement"  means that certain Loan Agreement
dated September 29, 2008 among 1st International Bank as Lender, LE as Borrower,
and Jonathan Pitts Carroll, Sr. and LEH as Guarantors.

         "GAAP" means generally  accepted  accounting  principles,  consistently
applied, of the United States of America.

                                       17
<PAGE>

         "Investment"  means any  investment  so  classified  under GAAP made by
stock purchase, capital contribution, loan or advance or by purchase of property
or otherwise.

         "Knowledge"  means the actual  knowledge  after  reasonable  inquiry of
Carroll.

         "Liabilities" means all actual liabilities or obligations of any nature
whatsoever,  whether  absolute or contingent,  due or to become due,  accrued or
unaccrued,  known or  unknown,  or  otherwise,  including,  but not  limited to,
indebtedness for money borrowed,  obligations under Contracts, accounts payable,
liabilities imposed by law and/or Governmental Authorities.

         "Liens" means all mortgages,  restrictions,  liens,  pledges,  charges,
claims,  options,  calls,  rights of first refusal, or encumbrance of any nature
whatsoever.

         "Material  Adverse Effect" means with respect to either Blue Dolphin or
a Lazarus Entity any event,  occurrence,  change or  development,  which has, or
could  reasonably be expected to have, a material  adverse effect on the results
of operations or financial condition of that party,  including its subsidiaries,
taken as a whole other than any event,  occurrence,  change or  development  (a)
relating to the  economy in general  (including  commodities  prices or exchange
rates),  (b) relating to the  industry in which that Party  operates in general,
except to the extent such event, occurrence, change or development has, or could
reasonably  be expected  to have,  a  disproportionate  effect on the results of
operations  or  financial  condition  of that  Party,  (c)  resulting  from  the
announcement  or  pendency  of any  of the  Transactions  contemplated  by  this
Agreement  (including  the  impact  thereof  on  relationships,  contractual  or
otherwise, with customers, suppliers, distributors,  partners or employees), (d)
changes  in the law or in GAAP,  or  changes in  general  legal,  regulatory  or
political  conditions  or  (e)  acts  of  war,  sabotage  or  terrorism,  or any
escalation  or  worsening  of any  such  acts  of  war,  sabotage  or  terrorism
threatened or underway as of the date of this Agreement.

         "Mermentau  Assets"  means the  Mermentau  Property  and the  Mermentau
Personal Property.

         "Notre Dame Debt" means the  indebtedness of LE, LEH and LLRII to Notre
Dame Investors, Inc. in an amount not to exceed $2,500,000.

         "Notre Dame Lien" means the security interest in the Mermentau Property
and the Mermentau  Personal  Property  granted by LLRII to Notre Dame Investors,
Inc., as security for the indebtedness of LLRII and LEH to Notre Dame Investors,
Inc. in the amount of $1,106,528  pursuant to that certain Credit Sale dated May
11,  2009  between  Notre  Dame  Investors,  Inc.  and  LLRII  and that  certain
Promissory  Note  dated May 11,  2009,  payable by LLRII and LEH to the order of
Notre Dame Investors, Inc.

         "Person" means an individual, corporation,  partnership, joint venture,
association, joint-stock company, trust, enterprise, or other entity.

         "Payment  Date" means the date on which the Bridge Loan,  including any
interest,  fees and other amounts payable under the Note the Security Documents,

                                       18
<PAGE>

or other  applicable  loan document (other than  obligations  for taxes,  costs,
indemnifications,  reimbursements  and  similar  amounts  for  which no claim or
demand for payment has been made) have been paid,  and the Option has expired or
been terminated.

         "Permitted  Liens" means any of the following Liens: (a) Liens in favor
of  carriers,  warehousemen,  mechanics,  landlords  and  materialmen  and other
similar  Persons that are  incurred in the ordinary  course of business for sums
not yet due and payable;  (b) Liens for current  Taxes  incurred in the ordinary
course of business that are not delinquent or remain payable without any penalty
or are being contested in good faith by appropriate proceedings and with respect
to  which  adequate  reserves  are  maintained;   (c)  rights  reserved  to  any
Governmental  Authority to regulate the affected property;  (d) as to any leased
assets or  properties,  rights of the  lessors  thereof;  (e) Liens  incurred or
deposits  made in the ordinary  course of business in  connection  with workers'
compensation and other types of social security,  unemployment insurance, or old
age pension  programs  mandated under  applicable laws or  regulations,  and (f)
Liens securing Permitted Indebtedness.

         "Permitted  Indebtedness"  means (i) with respect the Lazarus Entities,
(a) Liabilities owed to the Notre Dame Debt, (b) the 1st International Debt, (c)
the Rio Vista Debt, (d) any  indebtedness  for borrowed money incurred after the
date  hereof  with the  consent  of Blue  Dolphin,  which  consent  shall not be
unreasonably  withheld  provided  that the  proceeds  of such  indebtedness  are
reasonably  anticipated  to (1) enhance  the value of the  Subject  Assets by at
least the amount of such indebtedness,  or (2) finance the Regional Acquisition,
and (e) Liabilities  incurred in the ordinary course of business consistent with
past practice,  and (ii) with respect to Blue Dolphin,  Liabilities reflected in
the SEC Reports or  incurred  after  March 31,  2009 in the  ordinary  course of
business consistent with past practice.

         "Restricted   Payment"  means  (a)  any  payment,   dividend  or  other
distribution, direct or indirect, in respect of any equity interest, and (b) any
payment, direct or indirect, on account of the redemption,  retirement, purchase
or other acquisition of any equity interest.

         "Rio Vista" means Rio Vista Energy Partners L.P. and its Affiliates.

         "Rio  Vista  Debt"  means a future  loan by Rio  Vista to LLRII  not in
excess of the total aggregate amount of $4,000,000.00 (including but not limited
to all principal advances,  interest,  default interest,  attorneys fees, costs,
collection costs and expenses).

         "Rio Vista Lien"  means a future  security  interest  in the  Mermentau
Property  and  Mermentau  Personal  Property  granted by LLRII to Rio Vista,  as
security for the Rio Vista Debt.

         "Security  Documents"  means the LLRII  Mortgage and the LLRII Security
Agreement.

         "Taxes" means any foreign,  federal,  state or local tax, assessment or
other governmental charge.

         "Transactions"  means the  transactions  contemplated  pursuant to this
Agreement and all related agreements, documents, and instruments.

                                       19
<PAGE>

         Section 10.2.  Other Defined Terms. In addition to the terms defined in
the  preamble  and the  recitals  to this  Agreement  and in Section  10.1,  the
following  terms  are used in this  Agreement  as  defined  in the  Articles  or
Sections set forth opposite such terms.

      Other Defined Term                                               Reference
      ------------------                                               ---------

      Blue Dolphin Preferred Stock...................................Section 4.2
      Bridge Loan....................................................Section 2.1
      Bridge Loan Closing............................................Section 2.3
      Bridge Loan Transaction........................................Section 2.1
      Consulting Agreement..........................................Section 8.6
      Disposal Well Assets........................................Section 2.1(c)
      Environmental Laws........................................Section 5.12.(b)
      Environmental Permits.....................................Section 5.12.(b)
      Exchange Act................................................Section 4.4(a)
      Financial Statements...........................................Section 5.3
      Governmental Authority.....................................Section 5.12(b)
      Indemnified Parties.............................................Article IX
      LEN Mortgage................................................Section 2.1(c)
      LLRII Mortgage..............................................Section 2.1(b)
      Mermentau Assets............................................Section 2.1(b)
      Nixon Assets................................................Section 2.5(a)
      Note........................................................Section 2.2(a)
      Operating Agreements..........................................Section 5.13
      Option.........................................................Section 3.1
      Purchase Agreement.............................................Section 3.1
      Regional Acquisition...........................................Section 2.4
      Regional Assets................................................Section 2.4
      SEC.........................................................Section 4.4(a)
      SEC Reports.................................................Section 4.4(b)
      Securities Act..............................................Section 4.4(a)
      Tax Returns...................................................Section 5.11

                                   ARTICLE XI
                                 INDEMNIFICATION

         The Lazarus  Entities shall  indemnify Blue Dolphin,  the Affiliates of
Blue Dolphin,  and their  respective  directors,  officers,  employees,  agents,
representatives and attorneys of each of them (the "Indemnified  Parties") from,
and hold each of them harmless  against,  any and all liabilities,  obligations,
losses, penalties,  actions,  judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever to which any of them may become subject arising
out of or based  on Blue  Dolphin  having  made  any of the  loans  contemplated
herein,  but excluding any such  liabilities,  obligations,  losses,  penalties,
actions,  judgments,  suits,  costs,  expenses or  disbursements  of any kind or
nature  whatsoever  incurred  by  reason  of the  gross  negligence  or  willful

                                       20
<PAGE>

misconduct of the Indemnified  Party.  The  obligations of the Lazarus  Entities
under this Article shall survive the  termination of this  Agreement  and/or the
payment or assignment of the Notes.  IT IS THE EXPRESS  INTENTION OF THE LAZARUS
ENTITIES THAT THE  INDEMNIFIED  PARTIES SHALL BE  INDEMNIFIED  AND HELD HARMLESS
AGAINST  ANY AND  ALL  LIABILITIES,  OBLIGATIONS,  LOSSES,  PENALTIES,  ACTIONS,
JUDGMENTS,  SUITS,  COSTS,  EXPENSES  OR  DISBURSEMENTS  OF ANY  KIND OR  NATURE
WHATSOEVER ARISING OUT OF THE SOLE OR CONTRIBUTORY NEGLIGENCE OF THE INDEMNIFIED
PARTY OR EACH OF THEM.

                                   ARTICLE XII
                                  MISCELLANEOUS

         Section 12.1.  Attorneys' Fees. If any legal action or other proceeding
is  brought  for the  enforcement  of this  Agreement,  or because of an alleged
dispute,  breach,  default or  misrepresentation  in connection  with any of the
provisions of this  Agreement,  the  successful  or prevailing  party or parties
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that action or  proceeding  in addition to any other relief to which it or he
may be entitled at law or equity.

         Section  12.2.  Notices.  All  notices,   consents,  demands  or  other
communications  required or  permitted  to be given  pursuant to this  Agreement
shall be deemed  sufficiently  given:  (i) when  delivered  personally  during a
business day to the  appropriate  location  described  below or telefaxed to the
telefax number indicated below, or (ii) five (5) business days after the posting
thereof by United  States first class,  registered  or  certified  mail,  return
receipt requested, with postage fee prepaid and addressed:

         If to Blue Dolphin:                     801 Travis Street, Suite 2100
                                                 Houston, Texas 77002
                                                 Attention: Thomas W. Heath
                                                 Telefax No. (713) 227-7626

            With a copy to:                      Doherty & Doherty LLP
                                                 1717 St. James Place, Suite 520
                                                 Houston, Texas 77056
                                                 Attention: Casey W. Doherty
                                                 Telefax No. (713) 572-1001

         If to Lazarus Entity:                   801 Travis Street, Suite 2100
                                                 Houston, Texas 77002
                                                 Attention: Jonathan P. Carroll
                                                 Telefax No.(713) 850-0520

                                       21
<PAGE>

         Section 12.3. Successors.  This Agreement shall be binding upon each of
the parties upon their execution, and inure to the benefit of the parties hereto
and their successors and assigns.

         Section  12.4.  Severability.  In the event that any one or more of the
provisions  contained in this Agreement or in any other  instrument  referred to
herein, shall, for any reason, be held to be invalid,  illegal, or unenforceable
in any respect,  such  invalidity,  illegality,  or  unenforceability  shall not
affect any other provision of this Agreement or any such other instrument.

         Section 12.5.  Section  Headings.  The section headings used herein are
descriptive only and shall have no legal force or effect  whatsoever.  Except to
the extent the context  specifically  indicates  otherwise,  all  references  to
articles and sections refer to articles and sections of this Agreement,  and all
references  to the  exhibits  and  schedules  refer to  exhibits  and  schedules
attached hereto, each of which is made a part hereof for all purposes.

         Section 12.6. Gender.  Whenever the context so requires,  the masculine
shall include the feminine and neuter, and the singular shall include the plural
and conversely.

         Section 12.7.  Governing Law. This  Agreement  shall be governed by and
construed  in  accordance  with  the  laws of the  State  of  Delaware,  U.S.A.,
applicable  to  agreements  and  contracts  executed and to be wholly  performed
there, without giving effect to the conflicts of law principles thereof.

         Section 12.8. Multiple Counterparts.  This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original.

         Section 12.9. Waiver. Any waiver by either party to be enforceable must
be in  writing  and no waiver by either  party  shall  constitute  a  continuing
waiver.

         Section  12.10.   Entire  Agreement.   This  Agreement  and  the  other
agreements referred to herein set forth the entire  understanding of the parties
hereto relating to the subject matter hereof and thereof and supersede all prior
agreements and  understandings  among or between any of the parties  relating to
the subject matter hereof and thereof.

         Section 12.11. Specific Performance.  The right and remedy to have each
and every  one of the  covenants  in this  Agreement  of any Party  specifically
enforced  and to  obtain  injunctive  or other  equitable  relief,  including  a
temporary restraining order and a preliminary or temporary injunction,  it being
agreed that any breach or threatened breach of any of the restrictive  covenants
and  agreements  contained  herein would cause  irreparable  injury to the other
Parties,  and that money damages will not provide an adequate remedy at law to a
Party.

       [REMINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGE FOLLOWS]

                                       22
<PAGE>

IN WITNESS WHEREOF,  the parties have executed this Agreement as of the date and
year first set forth above.

                                   LAZARUS ENERGY HOLDINGS, LLC, a
                                   Delaware limited liability company

                                   By:_______________________________________
                                            Jonathan P. Carroll
                                            Director / Manager

                                   LAZARUS LOUISIANA REFINERY II, LLC, a
                                   Delaware limited liability company,

                                   By:_______________________________________
                                            Jonathan P. Carroll
                                            Director / Manager

                                   LAZARUS ENERGY, LLC, a
                                   Delaware limited liability company,

                                   By:_______________________________________
                                            Jonathan P. Carroll
                                            Director / Manager

                                   LAZARUS ENVIRONMENTAL, LLC, a
                                   Delaware limited liability company

                                   By:_______________________________________
                                            Jonathan P. Carroll
                                            Director / Manager

                                   BLUE DOLPHIN ENERGY COMPANY, a
                                   Delaware corporation

                                   By:_______________________________________
                                            Thomas W. Heath
                                            President

                                       23

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