Document:

ex10-3.htm

Exhibit 10.3

STOCK PLEDGE AGREEMENT

 

STOCK PLEDGE AGREEMENT, dated as of February 26, 2015 (this “Agreement”), between LUCAS ENERGY, INC., a Nevada corporation (the “Pledgor”), whose address is 3555 Timmons Lane, Suite 1550, Houston, Texas 77027 and VICTORY ENERGY CORPORATION (the “Secured Party”),  whose address is 3355 Bee Caves Road, Suite 608, Austin, Texas 78746.

 

BACKGROUND

Secured Party and Pledgor have entered into a Pre Merger Loan and Funding Agreement, dated on or about the date hereof (the “Loan Agreement”) pursuant to which the Secured Party has agreed to loan the Pledgor up to Two Million Dollars ($2,000,000) (the “Credit Limit”) as evidenced by Delayed Draw Term Note as it may be amended from time to time (the “Note”).

The Loan Agreement requires that all obligations of Pledgor to Secured Party under the Loan Agreement and the Note be secured by a number of shares of the Common Stock of the Pledgor having a value that is equal to the then outstanding principal and unpaid interest under the Note.  

AGREEMENT

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Pledgor hereby agrees with the Secured Party as follows:

1.           COLLATERAL PLEDGE; SECURITY INTEREST; DEFINITIONS

 

(a)           Pledge of Securities. In consideration for Secured Party extending credit to the Pledgor under the Loan Agreement, and to secure the Obligations (as defined below) of Pledgor to the Secured Party thereunder, Pledgor shall concurrently with the Initial Draw and each subsequent Draw under the Loan Agreement deliver to the Secured Party, a certificate representing a number of shares of Pledgor’s Common Stock that is equal to the quotient of the amount of the Draw (whether the Initial Draw or any subsequent Draw), divided by the volume weighted average closing price of Pledgor’s Common Stock over the twenty (20) trading day period prior to the date that the Draw is made.  The shares of Pledgor’s Common Stock shall be registered in the name of the Pledgor and be accompanied by duly executed instruments of assignment thereof to the Secured Party (which, together with all replacements and substitutions therefor are hereinafter referred to as the “Pledged Shares”). Pledgor hereby pledges to Secured Party and grants to the Secured Party a continuing lien and security interest (the “Security Interest”) in, all of the Pledgor’s right, title and interest in the Pledged Shares, and all rights and remedies relating to, or arising out of, any and all of the foregoing, and all proceeds thereof (collectively, the “Collateral”) to secure the payment and performance of all Obligations of Pledgor to the Secured Party.   Notwithstanding the foregoing, the number of Pledged Shares shall not exceed 19.9% of the issued and outstanding common stock of Pledgor on the date of this Agreement without the prior written consent of Pledgor and its stockholders in accordance with applicable exchange listing requirements; provided, however, that if Pledgor is unable to provide sufficient Pledged Shares as a result of such limitation, it shall in lieu of pledging additional Pledged Shares provide other collateral having an equal value as mutually determined by Pledgor and Secured Party and such other collateral shall be deemed to be “Collateral” hereunder.  Furthermore, no Pledged Shares shall be issued hereunder until the NYSE MKT, as and if applicable, has approved the additional listing of such Pledged Shares.

 

  

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Any and all stock dividends, rights, warrants, options, puts, calls, conversion rights and other securities and any and all property and money distributed or delivered with respect to the Collateral or issued upon the exercise of any puts, calls, conversion rights, options, warrants or other rights included in or pertaining to the Securities shall be included in the term “Pledged Shares” and “Collateral” as used herein and shall be subject to this Pledge Agreement, and Pledgor shall deliver the same to the Secured Party immediately upon receipt thereof together with any necessary instruments of transfer; provided, however, that until an Event of Default (as hereinafter defined) shall occur, Pledgor may retain any dividends paid in cash or its equivalent, with respect to any stock included in the Collateral and any interest paid with respect to any bonds, debentures or other evidences of indebtedness included in the Collateral. Pledgor hereby acknowledges that the acceptance of the pledge of the Collateral by the Secured Party shall not constitute a commitment of any kind by the Secured Party to permit Pledgor to incur Obligations.

 

Secured Party acknowledges and agrees that the stock certificates representing the Pledged Shares issued hereunder shall contain legends substantially in the form of the following, as well as any additional legends that may be required by applicable law:

 

THESE SECURITIES HAVE BEEN PLEDGED PURSUANT TO, AND ARE SUBJECT TO CERTAIN RESTRICTIONS AND CANCELLATION RIGHTS SET FORTH IN, THE STOCK PLEDGE AGREEMENT DATED FEBRUARY [ ], 2015, BY AND AMONG LUCAS ENERGY, INC. AND VICTORY ENERGY CORPORATION.  A COPY OF SUCH PLEDGE AGREEMENT IS AVAILABLE FOR REVIEW BY THE RECORD HOLDER OF THESE SECURITIES AT THE PRINCIPAL OFFICES OF THE ISSUER.

 

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

  

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(b)           Certain Definitions.

 

(i)           “Obligations” means all of the Pledgor’s obligations and liabilities to the Secured Party pursuant to this Agreement, the Loan Agreement, the Note, whether or not such Obligations exist under this Agreement, the Loan Agreement, or any other agreements between Pledgor and the Secured Party, whether now or hereafter existing, including, without limitation, any note, any credit line agreement, any loan or security agreement, and any other agreement for services, financial accommodations or credit extended by the Secured Party to Pledgor even though not specifically enumerated herein.

 

(ii)           Other Defined Terms. Unless otherwise defined, the terms set forth in this Agreement shall have the meanings set forth in the Loan Agreement and the Note.

 

2.           NO VOTING RIGHTS

 

(a)           No Voting and Other Rights.  The Pledged Shares constitute treasury shares of the Pledgor and unless and until there is a default under the Loan Agreement or the Note or a failure to satisfy any other Obligation, the Pledged Shares may not be voted by the Pledgor or the Secured Party.

 

3.           WARRANTIES AND COVENANTS

 

In addition to all other warranties, representations and covenants in the Loan Agreement or the Note, which are expressly incorporated herein by reference, if Pledgor as part of this Agreement and while any Obligations of Pledgor to the Secured Party remain unpaid or outstanding, Pledgor agrees, represents and warrants as follows:

(a)           Pledgor’s Name, Location; Notice of Location Changes.  Except as set forth herein, Pledgor’s name and organizational structure have remained the same since the date of the Note.  Pledgor will continue to use only the name set forth with Pledgor’s signature unless Pledgor gives Secured Party prior written notice of any change. Furthermore, Pledgor shall not do business under another name nor use any trade name without giving ten (10) days prior written notice to the Secured Party. Pledgor will not change its status or organizational structure without the prior written consent of the Secured Party, which consent shall not be unreasonably withheld, conditioned or delayed. Pledgor will not change its location or registration (if Pledgor is a registered organization) to another state without prior written notice to the Secured Party.

 

(b)           Accuracy of Information/Verification.  All information, certificates and statements given to the Secured Party pursuant to this Agreement will be accurate and complete when given. Also, the Secured Party may verify any Collateral or documents evidencing the Collateral in any manner and Pledgor shall assist the Secured Party in so doing.

 

(c)           Organization and Authority. The execution, delivery and performance of this Agreement, the accompanying assignments, stockpowers and other documents to which Pledgor is a party: (i) are within Pledgor’s power; (ii) have been duly authorized by proper corporate action; (iii) do not require the approval of any governmental agency, other entity or person; (iv) will not violate any law, agreement or restriction by which Pledgor is bound; and (v) any such assignments or pledges of any interest in any corporation have been approved and acknowledged by the directors of such corporation. This Agreement is the legal, valid and binding obligation of Pledgor, and is enforceable against Pledgor in accordance with its terms.

 

  

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(d)           Warranty of Title of Securities/Collateral.  Pledgor now has, and throughout the term of this Agreement will at all times have, good title to the Collateral, free and clear of any and all security interests, liens and claims of any kind whatsoever.  The Collateral is not subject to any restrictions on transfer and/or disposition by Pledgor or the Secured Party, except for restrictions under applicable federal and state securities laws.

 

(e)           Maintenance of Securities/Collateral; Restriction on Liens and Dispositions. Pledgor will: (i) not permit waste, removal or loss of identity of the Collateral; (ii) keep the Collateral free from all liens, adverse claims, executions, attachments, claims, encumbrances and security interests (other than the Secured Party’s sole and paramount security interest and those interests permitted in writing by the Secured Party); (iii) defend the Collateral against all claims and legal proceedings by persons other than the Secured Party; (iv) pay and discharge when due all taxes, levies and other charges or fees which may be assessed against the Collateral (except for payment of taxes contested by Pledgor in good faith by appropriate proceedings so long as no levy or lien has been imposed upon the Collateral); (v) not sell or transfer the Collateral to any party; (vi) not permit the Collateral to be used or owned in violation of any applicable law, regulation or policy of insurance; (vii) preserve the Secured Party’s rights and security interest in the Collateral against all other parties; and (viii) not make any instructions or entitlement orders which are contrary to the terms of this Agreement.  Pledgor will promptly deliver to the Secured Party a copy of any notices, statements or communications received by Pledgor regarding the Collateral.

 

(f)           Maintenance of Security Interest. Pledgor will take any action requested by the Secured Party to preserve the Collateral and to perfect, establish the priority of, continue perfection and enforce the Secured Party’s interest in the Collateral and the Secured Party’s rights under this Agreement (including the delivery of any stock or bond powers, assignments and endorsements deemed necessary by the Secured Party); and Pledgor will pay all costs and expenses related thereto.  Pledgor shall also cooperate with the Secured Party in obtaining control (for purposes of perfection under the Uniform Commercial Code) of Collateral. Pledgor hereby authorizes the Secured Party on behalf of the Pledgor to take any and all actions described above and in place of Pledgor with respect to the Collateral and hereby authorizes and/or ratifies any such actions.

 

(g)           Delivery of Securities/Collateral.  All certificates or instruments representing or evidencing the Collateral shall be promptly delivered by Pledgor to Secured Party pursuant hereto at a location designated by the Secured Party and shall be held by or on behalf of the Secured Party pursuant hereto, and shall be in suitable form for transfer by delivery, or shall be accompanied by duly endorsed stock powers, in blank, with signature medallion guaranteed or other instrument of transfer or assignment in blank, in form and substance satisfactory to the Secured Party. Upon the occurrence and during the continuance of an Event of Default and the failure to cure said default as provided herein, Secured Party shall have the right, at any time in its discretion and without notice to Pledgor, to transfer to or to register on the books of the Pledgor (or of any other Person maintaining records with respect to the Collateral) in the name of the Secured Party or any of its nominees any or all of the Collateral.

 

  

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4.           RIGHTS AND DUTIES OF THE SECURED PARTY

 

In addition to all other rights of the Secured Party under the Note and the Loan Agreement, which are expressly incorporated herein as a part of this Agreement, the following provisions will also apply:

(a)           Authority to Perform for Pledgor/Entitlement Holder. To facilitate the Secured Party’s ability to preserve and dispose of the Collateral, Pledgor unconditionally appoints the Secured Party, as Pledgor’s attorney-in-fact (coupled with an interest and irrevocable while any Obligations remain unpaid) to do any of the following upon default by Pledgor hereunder (notwithstanding any notice requirements or grace/cure periods under this or any other agreements between Pledgor and the Secured Party): to file, endorse the name of Pledgor on any Collateral, payments, and any documents needed to perfect, protect and/or realize upon the Secured Party’s interest in the Collateral; to nominate itself as entitlement holder as to any or all of the Collateral; and to do all such other acts and things necessary to carry out Pledgor’s obligations under this Agreement and the Loan Agreement and the Note.  All acts taken by the Secured Party pursuant to the above-described authority are hereby ratified and approved by the Pledgor, and the Secured Party will not be liable to Pledgor for any acts of commission or omission, nor for any errors of judgment or mistakes in undertaking such actions except for the Secured Party’s willful misconduct.  For good and valuable consideration, Pledgor agrees not to assert any claims against any third-party (including any issuer or any securities intermediary) holding Collateral for complying with the Secured Party’s requests hereunder, and Pledgor waives any claims against such third parties for actions taken at the request of the Secured Party.

 

(b)           Collateral Preservation. The Secured Party will use reasonable care as to any Collateral in its physical possession but in determining such standard of reasonable care, Pledgor expressly acknowledges that the Secured Party has no duty to: (i) insure the Collateral against hazards; (ii) protect the Collateral from seizure, levy, lien, claim or conversion by third parties, or acts of God; (iii) give to Pledgor any notices, account statements, proxies or communications received by the Secured Party regarding the Collateral; (iv) perfect or continue perfection of any security interest in the Collateral in favor of Pledgor; (v) inform Pledgor of any decline in the value of the Collateral or the existence of any option or elections with respect to the Collateral; (vi) take any action to invest or manage the Collateral; (vii) exercise, preserve or notify Pledgor with respect to any exchanges, puts, calls, redemptions, conversions, maturities, offers, tenders and other rights or requirements regarding the Collateral or Pledgor’s interest therein; or (viii) sue or otherwise take action to preserve Pledgor’s or the Secured Party’s interest in the Collateral. Notwithstanding any failure by the Secured Party to use reasonable care in preserving the Collateral, Pledgor agrees that the Secured Party will not be liable to Pledgor for any consequential or special damages arising from such failure. The foregoing also applies if the Secured Party is deemed entitlement holder as to any Collateral.

 

  

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5.           DEFAULTS AND REMEDIES

 

(a)           Events of Defaults. Notwithstanding any cure periods described below, Pledgor will immediately notify Secured Party in writing when Pledgor obtains knowledge of the occurrence of any default specified in this Agreement, the Note or the Loan Agreement.  A default shall occur hereunder if Pledgor (a) fails to perform any of the terms, covenants or conditions of this Agreement, the Note, or the Loan Agreement, or (b) fails to make any payment when due, and has not cured said default within fourteen (14) days of receipt of written notice thereof from Secured Party (or such shorter period of time as may be provided for in the Note or the Loan Agreement).

 

(b)           Acceleration of Obligations. Upon the occurrence of an event of default as provided in Section 5(a) above and the passage of any applicable cure periods, the Secured Party may at any time thereafter, by written notice to Pledgor, declare the unpaid principal balance of any Obligations, together with the interest accrued thereon and other amounts accrued hereunder, to be immediately due and payable; and the unpaid balance will thereupon be due and payable, all without presentation, demand, protest or further notice of any kind, all of which are hereby waived, and notwithstanding anything to the contrary contained herein or in any of the other Loan Documents. Notwithstanding the above, to the extent any of the Obligations referred to herein are payable upon demand, nothing herein will restrict nor negate the demand nature of such Obligations.

 

(c)           Remedies.  After maturity of any of the Obligations, or if an Event of Default shall occur, Pledgor shall give immediate written notice thereof to Secured Party. Upon the occurrence of an Event of Default, and at, any time thereafter, the Secured Party shall have the right, without notice to or demand upon Pledgor, to exercise any one or more of the following remedies:

 

(i)           accelerate and declare all or any part of the Obligations to be immediately due, payable and performable, notwithstanding any deferred or installment payments allowed by any agreement or instrument evidencing or relating to any of the same;

 

(ii)           transfer any of the Pledged Shares into the Secured Party’s name, without notice to or consent of Pledgor;

 

(iii)           exercise all of Pledgor’s rights as an entitlement holder and/or owner of the Pledged Shares;

 

(iv)           notify any issuer, transfer agent or securities intermediary, or holder of any Collateral or Certificates of this pledge of the Collateral, and direct such issuer, transfer agent or securities intermediary to comply with all instructions and entitlement orders originated by the Secured Party without further consent of Pledgor, and/or deliver directly in trust to the Secured Party any Collateral, Certificates and subsequent shares of stock, dividend payments or other distributions pertaining to the Collateral or arising from Pledgor’s ownership of the Collateral, and in each case Pledgor hereby unconditionally directs such parties to comply with the Secured Party’s requests in all respects; and

 

  

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(v)           sell or otherwise dispose of the Pledged Shares as provided for herein and at law, and other Collateral, at a public or private sale, for cash, or other property, or on credit, with the authority to adjourn or postpone any such sale from time to time without notice other than oral announcement at the time scheduled for sale.  The Secured Party may directly or through any affiliate purchase the Collateral, at any such public disposition, and if permissible under applicable law, at any private disposition. Pledgor and the Secured Party hereby agree that it shall conclusively be deemed commercially reasonable for the Secured Party, in connection with any sale or disposition of the Collateral, to impose restrictions and conditions as to the investment intent of a purchaser or bidder, the ability of a purchaser or bidder to bear the economic risk of an investment in the Pledged Shares or other Collateral, the knowledge and experience in business and financial matters of a purchaser or bidder, the access of a purchaser or bidder to information concerning the issuer of the Pledged Shares or other Collateral, as well as legend conditions and stop transfer instructions restricting subsequent transfer of the Pledged Shares or other Collateral, and any other restrictions or conditions which the Secured Party believes to be necessary or advisable in order to comply with any state or federal securities or other laws. Pledgor acknowledges that the foregoing restrictions may result in fewer proceeds being received upon such sale then would otherwise be the case. Pledgor hereby agrees to provide to Secured Party any and all information required by Secured Party in connection with any sales of Pledged Shares or other Collateral by the Secured Party. Any and all attorneys’ fees, expenses, costs, liabilities and obligations incurred by Secured Party in connection with the foregoing shall be added to and become a part of the Obligations and shall be due from Pledgor to the Secured Party upon demand.

 

(d)           Cumulative Remedies; Notice; Waiver. In addition to the remedies set forth herein, the Secured Party will have all other rights and remedies for default provided by the uniform commercial code, as well as any other applicable law, including, without limitation, the right to dispose of the collateral without judicial process. The rights and remedies specified herein are cumulative and are not exclusive of any rights or remedies which the Secured Party would otherwise have. With respect to such rights and remedies:

 

(i)           Notice of Disposition. Written notice, when required by law, sent to any address of Pledgor in this Agreement or otherwise provided to Secured Party, at least five (5) calendar days (counting the day of sending) before the date of a proposed disposition of the Collateral will be deemed reasonable notice but less notice may be reasonable under the circumstances;

 

(ii)           Possession of Collateral/Commercial Reasonableness.  The Secured Party shall not, at any time, be obligated to either take or retain possession or control of the Collateral. With respect to Collateral in the possession or control of the Secured Party, Pledgor, and the Secured Party agree that as a standard for determining commercial reasonableness, (and in addition to the provisions of Section 4(b) above) the Secured Party need not liquidate, collect, sell or otherwise dispose of any of the Collateral if Secured Party believes, in good faith, that disposition of the Collateral would not be commercially reasonable, would subject the Secured Party to third-party claims or liability, would cause the Secured Party to violate federal or state securities laws, that other potential purchasers could be attracted or that a better price could be obtained if Secured Party held the Collateral for up to one (1) year.  The Secured Party may sell Collateral without giving any warranties and may specifically disclaim any warranties of title or the like. Furthermore, Secured Party may sell the Collateral on credit (and reduce the Obligations only when payment is received from the buyer), at wholesale and/or with or without an agent or broker.  The Secured Party need not register any securities collateral under state or federal law; and Secured Party need not complete, process, or otherwise prepare the Collateral prior to disposition. If the purchaser fails to pay for the Collateral, Secured Party may resell the Collateral and Pledgor shall be credited with the cash proceeds of the sale. The Secured Party may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral.

 

  

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(iii)            Waiver by Pledgor.  Secured Party has no obligation and Pledgor waives any obligation to attempt to satisfy the Obligations by collecting the obligations from any third parties and Secured Party may release, modify or waive any collateral provided by any third party to secure any of the Obligations, all without affecting the Secured Party’s rights against Pledgor. Pledgor further waives any obligation on the part of Secured Party to marshal any assets in favor of Pledgor or in payment of the Obligations. Notwithstanding any provisions in this Agreement or any other agreement between Pledgor, the Secured Party, Pledgor does not waive any statutory rights except to the extent that the waiver thereof is permitted by law.

 

(iv)           Waiver by the Secured Party.  Secured Party may permit Pledgor to attempt to remedy any default without waiving its rights and remedies hereunder, and Secured Party may waive any default without waiving any other subsequent or prior default by Pledgor. Furthermore, delay on the part of the Secured Party in exercising any right, power or privilege hereunder or at law will not operate as a waiver thereof, nor will any single or partial exercise of such right, power or privilege preclude other exercise thereof or the exercise of any other right, power or privilege. No waiver or suspension will be deemed to have occurred unless the Secured Party has expressly agreed in writing to such waiver or suspension.

 

6.           MISCELLANEOUS

 

(a)           Term.  This Agreement and the Secured Party’s rights hereunder shall continue in full force and effect until all of the Obligations have been fully paid, performed and discharged. Upon termination, Secured Party shall return the Collateral to Pledgor, with any necessary instruments of transfer.

 

(b)            Revivor. If any payment made on any of the Obligations shall for any reason be required to be returned by the Secured Party, whether on the ground that such payment constituted a preference or for any other reason, then for purposes of this Agreement, and notwithstanding any prior termination of this Agreement, such payment on the Obligations shall be treated as not having been made, and this Agreement shall in all respects be effective with respect to the Obligations as though such payment had not been made; and if the Collateral has been released or returned to Pledgor, then Pledgor shall return the Collateral to Secured Party to be held and dealt with in accordance with the terms of this Agreement.

 

  

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(c)           Relationship to Other Documents. The warranties, representations, covenants and duties of Pledgor (and the rights and remedies of the Secured Party) that are outlined in this Agreement, the Note and the Loan Agreement, are intended to supplement each other. In the event of any inconsistencies between the terms in the Note, the Loan Agreement and this Agreement, all such inconsistencies will be construed so as to give the Secured Party the most favorable rights. Furthermore, Pledgor and the Secured Party waive any presumption or rule requiring construction of this Agreement against the drafter.

 

(d)           Notices.  All notices, requests, demands and other communications under this Agreement, shall be in writing and shall be deemed to have been duly given on the date of service if served personally on the party to whom notice is to be given or within five (5) business days if mailed to the party to whom notice is to be given, by first-class mail, registered, or certified, postage prepaid and properly addressed as follows:

 

If to the Pledgor, addressed to:

Lucas Energy, Inc.

3555 Timmons Lane

Suite 1550

Houston, Texas 77027

with a copy (which shall not constitute notice) to:

David M. Loev, Esq.

The Loev Law Firm, PC

6300 West Loop South, Suite 280

Bellaire, Texas 77401

Fax (713) 524-4122

dloev@loevlaw.com

If to Secured Party, addressed to:

Victory Energy Corporation

3355 Bee Caves Road

Suite 608

Austin, Texas 78746

with a copy (which shall not constitute notice) to:

BEVILACQUA PLLC

Attention: Louis A. Bevilacqua, Esq.

1629 K Street, NW

Suite 300

Washington, DC  20006

lou@bevilacquapllc.com

Fax: 301-874-8635

Any notice mailed to any party hereunder will be deemed effective within five (5) business days of deposit in the United States mail.

  

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(e)           Nature of Liability/Successors. The rights, powers and remedies granted in this Agreement to Secured Party will extend to Secured Party’s successors and assigns, and the provisions of this Agreement will be binding upon Pledgor and its successors and assigns.

 

(f)           Expenses and Attorneys’ Fees. Pledgor will reimburse Secured Party for all fees and out-of-pocket disbursements incurred by the Secured Party in connection with: the preparation of this Agreement; perfecting, establishing and confirming the priority of the Secured Party’s security interest in the Collateral; any confirmations, audits or appraisals of Pledgor’s business operations and the Collateral; the amendment, administration, defense and enforcement of this Agreement, the Note or the Loan Agreement, and any waivers with respect thereto. Pledgor also will reimburse Secured Party, including all attorneys’ fees, before and after judgment, and all costs of preservation and/or liquidation of the Collateral.

 

(g)           Applicable Law and Jurisdiction; Interpretation and Modification. This Agreement, the Note and the Loan Agreement will be governed by and interpreted in accordance with the laws of the State of Texas, except to the extent that the validity, perfection or enforcement of a security interest hereunder in respect of any Collateral is governed by the laws of the state of Nevada or some other state, in which case such laws shall govern.  Invalidity of any provision of this Agreement will not affect the validity of any other provision. The provisions of this Agreement, the Note or Loan Agreement, will not be altered, amended or waived without the express written consent of all the Secured Party (and Pledgor, when appropriate).  Pledgor hereby consents to the nonexclusive jurisdiction of any state or federal court situated in Harris County, Texas, and waives any objection based on forum non conveniens, with regard to any actions, claims, disputes or proceedings relating to this agreement, the collateral, any other loan document, or any transactions arising therefrom, or enforcement and/or interpretation of any of the foregoing. Nothing herein will affect Secured Party’s right to serve process in any manner permitted by law, or limit the Secured Party’s right to bring proceedings against Pledgor in the competent courts of any other jurisdiction or jurisdictions.

 

(h)           Copies; Entire Agreement; Modification. Pledgor hereby acknowledges the receipt of a copy of this Agreement.

 

(i)           Waiver of Jury Trial.   Pledgor and the Secured Party hereby jointly and severally waive any and all right to trial by jury in any action or proceeding relating to any of the loan documents, this agreement, the obligations thereunder, the collateral or any transaction arising therefrom or connected thereto. Pledgor and the Secured Party each represents to the other that this waiver is knowingly, willingly and voluntarily given.

 

(j)           Attachments. All documents attached hereto, including any appendices, schedules, riders, and exhibits to this Agreement, are hereby expressly incorporated by reference.

 

[Signature page follows]

  

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IN WITNESS WHEREOF, the undersigned has/have executed this Pledge Agreement the date and year first written above.

 

PLEDGOR

LUCAS ENERGY, INC.

By: /s/ Anthony Schnur                                                                                

Name: Anthony Schnur

Title: CEO

SECURED PARTY

VICTORY ENERGY CORPORATION

By: /s/ Kenneth Hill                                   

Name: Kenneth Hill

Title: CEO

 

 

 

 11ex10-4.htm

Exhibit 10.4

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SUCH SALE, TRANSFER, OR OTHER DISPOSITION IS REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.

DATE OF ISSUANCE: February 26, 2015

$250,000

LUCAS ENERGY, INC.

SECURED SUBORDINATED DELAYED DRAW TERM NOTE

 

This Secured Subordinated Delayed Draw Term Note (the “Note”) is issued by LUCAS ENERGY, INC., a Nevada corporation (the “Borrower”), pursuant to that certain Pre Merger Loan and Funding Agreement (the “Loan Agreement”) entered into concurrently herewith by and between the Borrower and Victory Energy Corporation.  Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Loan Agreement.  The principal amount of this Note is subject to increase to up to $2,000,000 pursuant to one or more Draws by the Borrower as permitted under the terms of the Loan Agreement.

1.           Payment Obligation.

 

(a)           For value received, the Borrower promises to pay to VICTORY ENERGY CORPORATION or its permitted successors and assigns (collectively, the “Holder”), (i) the principal amount of Two Hundred and Fifty Thousand Dollars ($250,000.00) and (ii) interest on the outstanding principal amount at the applicable federal rate as in effect on the date of issuance of this Note (the “Rate”), payable as described below.  The principal amount of this Note, together with all accrued and unpaid interest, shall be due and payable on February 26, 2016 (the “Maturity Date”).

 

(b)           Interest on the outstanding principal amount of this Note shall be paid in one lump sum on the Maturity Date (as the same may be extended in accordance herewith).  The maximum interest payment due under this Note (the “Maximum Amount”) shall be calculated based on the Rate then in effect.  Accrual of interest on the outstanding principal amount shall commence on the “Date of Issuance” shown above and shall continue until full payment of the outstanding principal amount has been made or duly provided for.

 

(c)           The Borrower may prepay all or any portion of the outstanding principal amount of this Note at any time upon ten (10) days prior written notice to the Holder.

 

  

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2.           Provisions as to Payment; Option to Pay in Kind.

 

(a)           Payments on this Note are payable to the Holder in whose name this Note (or one or more successor Notes) is registered on the records of the Borrower regarding registration and transfer of this Note (the “Note Register”).

 

(b)           Except as specified in Section 2(c) below, payments on this Note are payable in immediately available funds in currency of the United States of America at the address last appearing on the Note Register of the Borrower as designated in writing by the Holder hereof from time-to-time.  The Borrower shall pay the outstanding principal amount and all accrued and unpaid interest due upon this Note on the Maturity Date (subject to any agreed extension), less any amounts required by law to be deducted or withheld, to the Holder of this Note appearing of record as of the fifth business day (as defined in the Loan Agreement) prior to the Maturity Date (again, subject to any agreed extension) and addressed to such Holder at the last address appearing on the Note Register. The forwarding of such funds (or payment in kind as provided for in Section 2(c) below) shall constitute full payment of all outstanding principal and accrued interest hereunder and shall satisfy and discharge the liability for principal and interest on this Note to the extent of the sum represented by such payment plus any amounts so deducted or withheld.  Unless otherwise expressly provided herein, all payments on this Note shall be credited first to reimburse the Holder for any cost or expense reimbursable hereunder, then to the payment of accrued interest, and third to the payment of principal.

 

(c)           Notwithstanding anything to the contrary set forth in this Note, at Maturity, Borrower shall have the right and option to pay all or any amounts due and payable hereunder in kind in lieu of making cash payments as provided for in Section 2(b) hereof.  In order to exercise this option to pay in kind, Borrower shall provide Holder with at least ten (10) day’s advance written notice of its election to pay in kind. Thereafter, the Holder shall assist the Borrower in confirming reasonable and customary representations to the Borrower regarding the Holder’s financial status and other items as may be necessary for the Borrower to confirm an exemption from registration for the in kind election. After electing to pay in kind, Borrower shall issue to Holder a number of shares of Borrower’s Common Stock (the “PIK Shares”) as is equal to the quotient of all amounts due under the Note at Maturity to be payable in kind, divided by the volume weighted average closing price of Borrower’s Common Stock over the twenty (20) trading day period prior to Maturity. After making an election to pay in kind, Borrower shall issue the PIK Shares to Holder as soon as reasonably practicable following Maturity and in any event within five (5) days following the Maturity Date.  Notwithstanding the foregoing, if Borrower’s Shareholder Approval (as defined below) or regulatory approval is a prerequisite to issuing the PIK Shares to the Holder, then Borrower shall use its best efforts to obtain shareholder and/or regulatory approval as expeditiously as possible, but in any event, within sixty (60) days of the Maturity Date. If Borrower elects to pay in kind at Maturity, then at the request of Holder, Borrower shall, as soon as possible following the issuance of the PIK Shares, file a registration statement covering the resale of the PIK Shares (or such number which is allowable by the SEC pursuant to Rule 415 of the Securities Act of 1933, as amended) and shall use its best efforts to cause such registration statement to be declared effective by the Securities and Exchange Commission and Borrower and Holder shall enter into a customary registration rights agreement governing the registration of the PIK Shares.

 

  

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(d)           Notwithstanding anything herein to the contrary, the maximum number of shares of Borrower Common Stock to be issued hereunder shall not (i) exceed 19.9% of the outstanding shares of Borrower Common Stock immediately prior to the date of the Loan Agreement, (ii) exceed 19.9% of the combined voting power of the then outstanding voting securities of Borrower immediately prior to the date of the Loan Agreement, in each of subsections (i) and (ii) before the issuance of the Borrower Common Stock hereunder, or (iii) otherwise exceed such number of shares of Borrower Common Stock that would violate applicable listing rules of the NYSE MKT in the event the Borrower stockholders do not approve the issuance of the Borrower Common Stock hereunder (the “Shareholder Approval” and the “Share Cap”).  In the event the number of shares of Borrower Common Stock to be issued to Sellers hereunder exceeds the Share Cap, then Borrower shall instead repay such applicable portion of this Note in cash.

 

(e)           No issuance of PIK Shares shall be made hereunder until or unless such PIK Shares are subject to an additional listing application with the NYSE MKT, to the extent required by applicable NYSE MKT rules and regulations.

 

3.           Transfer of Note; Restrictions.

 

(a)           The Holder understands and acknowledges by its acceptance hereof that (i) this Note if issued hereunder, the PIK Shares, have not been, and are not being, registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred except in compliance with applicable federal and state securities laws; and (ii) neither the Borrower nor any other person is under any obligation to register this Note or the PIK Shares (except as expressly provided above) under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder.

 

(b)           Prior to presentment of this Note for transfer, the Borrower and any agent of the Borrower may treat the person in whose name this Note is duly registered on the Note Register as the Holder hereof for the purpose of receiving payments as herein provided and for all other purposes, whether or not this Note be overdue, and neither the Borrower nor any such agent shall be affected or bound by notice to the contrary.

 

4.           Obligations of the Borrower Herein Are Unconditional.   The Borrower’s obligations to repay this Note at the time, place, interest rate and in the currency hereinabove stated are absolute and unconditional.  This Note and all other instruments now or hereafter issued in replacement of this Note on the same or similar terms are direct obligations of the Borrower.

 

5.           Waiver of Demand, Presentment, etc.   To the extent permitted by law, the Borrower hereby expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, bringing of suit and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereunder, regardless of and without any notice, diligence, act or omission as or with respect to the collection of any amount called for herein.  No delay or omission of the Holder hereof in exercising any right or remedy hereunder shall constitute a waiver of any such right or remedy.  A waiver on one occasion shall not operate as a bar to, or waiver of, any such right or remedy on any future occasions.

 

  

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6.           Attorneys’ Fees; Reimbursable Expenses.  In the event it should become necessary for the Holder to employ counsel to enforce this Note or any other document entered into by the Borrower in connection herewith, the Borrower agrees to pay the reasonable and documented attorneys’ fees and costs of the Holder, irrespective of whether suit is brought, including, without limitation, any and all pre-judgment and post-judgment attorneys’ fees and costs incurred (including, without limitation, fees and costs reasonably incurred in connection with any matter arising under Title 11 of the United States Code).  In addition, the Borrower agrees to pay for all of the Holder’s other reasonable and documented out-of-pocket costs incurred in connection with the enforcement of this Note or any other document entered into by the Borrower in connection herewith, including, without limitation, all of the Holder’s consultants’ fees, appraisers’ fees, accountants’ fees, and trustee’s fees.

 

7.           Events of Default.    If one or more of the following described “Events of Default” shall occur:

 

(a)           the Borrower shall fail to make timely payment of any amount then due and owing under this Note;

 

(b)           the Borrower shall fail to make timely payment of any amount then due and owing under any of the other Closing Documents and the same shall continue uncured for a period of three (3) business days after the date payment became due;

 

(c)           any of the representations or warranties made by the Borrower in any of the Closing Documents or in any certificate or other written statement heretofore or hereafter furnished by or on behalf of the Borrower in connection with the execution and delivery of any of the Closing Documents shall be false or misleading in any material respect at the time made and the Holder shall have provided written notice to the Borrower of the alleged misrepresentation or breach of warranty and the same shall continue uncured for a period of fifteen (15) business days after such written notice from the Holder;

 

(d)           if the Borrower shall fail to perform or observe, in any material respect, any covenant, term, provision, condition, agreement or obligation of the Borrower under any of the Closing Documents not covered by clause (a), (b) or (c) above and the Holder shall have provided written notice to the Borrower of the alleged failure (the “Notice”) and the same shall continue uncured for a period of thirty (30) days after the Borrower’s receipt of the Notice, unless such default cannot reasonably be cured within such thirty (30) day period, in which case, no Event of Default shall be deemed to have occurred so long as the Borrower commences to cure such default within such thirty (30) day period and diligently pursues such cure to completion within sixty (60) days of its receipt of the Notice;

 

(e)           the Borrower shall (i) become insolvent, (ii) make an assignment for the benefit of creditors or commence proceedings for its dissolution or (iii) apply for, or consent to the appointment of, a trustee, liquidator, or receiver for all or a substantial part of its property or business;

 

  

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(f)           a trustee, liquidator or receiver shall be appointed for the Borrower, or for a substantial part of its property or business, without its consent and such appointment is not discharged within sixty (60) days after such appointment;

 

(g)           any governmental agency, or any court of competent jurisdiction at the instance of any governmental agency, shall assume custody or control of the whole or any substantial portion of the assets of the Borrower and such custody or control shall not be released within forty-five (45) days thereafter;

 

(h)           any money judgment, writ of attachment, or similar process in excess of Fifty Thousand Dollars ($50,000) in the aggregate (and not covered by insurance) shall be entered or filed against the Borrower, or any of its assets, and shall remain unpaid, unvacated, unbonded or unstayed for a period of ten (10) business days, or in any event later than five (5) business days prior to the date of any proposed sale of assets pursuant thereto;

 

(i)           bankruptcy, reorganization, insolvency or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower and, if instituted against the Borrower, shall not be dismissed within sixty (60) days after such institution, or the Borrower shall by any action or answer approve of, consent to, or acquiesce in any such proceedings or admit the material allegations of, or default in answering a petition filed in, any such proceeding;

 

(j)           the occurrence of any event of default or other event triggering acceleration of, or a right to accelerate, any indebtedness by the Borrower, or any of its subsidiaries, under any note, agreement or other instrument, whether such indebtedness now exists or is hereafter created, except for amounts owed by the Borrower to Louise H. Rogers, if such debt is not subject to a subordination agreement or any right of subordination with the Holder and the principal amount of such indebtedness exceeds, individually or in the aggregate, Fifty Thousand Dollars ($50,000); or

 

(k)           the Holder shall reasonably believe that (i) there has been a material adverse change in the operations, properties, management or condition (financial or otherwise) of the Borrower or any of its subsidiaries (taken as a whole), or (ii) that any litigation, governmental proceeding or investigation has been commenced against the Borrower or any of its subsidiaries or any officer, director, member or key employee of the Borrower or any of its subsidiaries, which has a reasonable probability of materially adversely affecting the Borrower’s business, operations, assets, liabilities, results of operations (taken as a whole) or the Borrower’s ability to repay this Note;

 

then, or at any time thereafter, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver in one instance shall not be deemed to be a waiver in another instance or for any other prior or subsequent Event of Default), at the option of the Holder and in the Holder’s sole discretion, the Holder may immediately accelerate the maturity hereof by providing written notice to the Borrower, whereupon all principal and accrued interest hereunder shall be immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Borrower (anything herein or in any other instrument to the contrary notwithstanding), and the Holder may immediately enforce any and all of the Holder's rights and remedies provided herein or any other rights or remedies afforded by law or equity.  Upon the occurrence and during the continuance of an Event of Default, the Rate shall automatically increase by five percent (5.0%).

  

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8.           Security.    As provided in the Loan Agreement and the Pledge Agreement contemplated thereby, repayment of this Note is secured by a security interest in the Pledged Shares (as defined in the Pledge Agreement).  An Event of Default under the terms of this Note shall also constitute an event of default under the Pledge Agreement, the Loan Agreement and any other agreements now or hereafter entered into by the Borrower to secure payment of this Note.

 

9.           Subordination.  All claims of the Holder to principal, interest and any other amounts at any time owed under this Note (collectively, “Junior Indebtedness”) are hereby expressly subordinated in right of payment, as herein set forth, to the prior payment in full of all Superior Indebtedness (as defined below).  In addition, the Junior Indebtedness is hereby expressly made paripassu in right of payment to any other unsecured indebtedness incurred, now or in the future, by the Borrower in favor of a seller or seller-related party as all or part of the consideration given by the Borrower in an acquisition of stock or assets for its business, and all other paripassu holders shall be similarly subordinated to the Superior Indebtedness.  For the purpose hereof, “Superior Indebtedness” shall mean all indebtedness of the Borrower, whether outstanding on the date of execution of this Note or thereafter created, in favor of Louise H. Rogers or her assigns.  No payment under Junior Indebtedness shall be made by the Borrower, nor shall the Holder exercise any remedies under the Junior Indebtedness (including taking any legal action (whether judicial or otherwise) to collect the Junior Indebtedness), if, at the time of such payment, exercise or immediately after giving effect thereto, (i) there shall exist any “Default” or “Event of Default” under any agreements governing any of the Superior Indebtedness or (ii) the maturity of any of the Superior Indebtedness has been accelerated and such acceleration has not been waived or such Superior Indebtedness has not been paid in full; provided, however, that (x) in the event that the holder of any Superior Indebtedness accelerates such Superior Indebtedness, then the Holder may accelerate the indebtedness evidenced by this Note, and (y) if the Borrower is permitted under the terms of the Superior Indebtedness to pay an amount due and owing under this Note and fails to make such payment, then so long as the terms of the Superior Indebtedness do not prohibit such action, the Holder may exercise its rights to be paid such amount, but only such amount (and Holder shall not be permitted to accelerate hereunder).

 

           Upon any payment or distribution of assets of the Borrower of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding up or total or partial liquidation or reorganization of the Borrower, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all Superior Indebtedness of the Borrower shall first be paid in full, or payment thereof provided for in money, before any payment is made under Junior Indebtedness; and upon any such dissolution or winding up or liquidation or reorganization, any distribution of assets of the Borrower of any kind or character, whether in cash, property or securities, to which the Holder as holder of the Junior Indebtedness would be entitled except for the provisions hereof, shall be paid by the Borrower or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, or by the Holder if received by Holder, directly to the holders of the Superior Indebtedness (pro rata to each such holder on the basis of the respective amounts of such Superior Indebtedness held by such holder), or their representatives, to the extent necessary to pay all such Superior Indebtedness in full, in money, after giving effect to any concurrent prepayment or distribution to or for the benefit of the holders of such Superior Indebtedness, before any payment or distribution is made to the Holder with respect to the Junior Indebtedness.  If the holders of the Superior Indebtedness in good faith believe Holder may fail to timely file a proof of claim in any such proceeding, the holder(s) of the Superior Indebtedness may do so for Holder.

  

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In the event that any payment or distribution of assets of the Borrower of any kind or character, whether in cash, property or securities, prohibited by the foregoing shall be received by the Holder before all the Superior Indebtedness is paid in full, or provisions made for such payment, in accordance with its terms, such payment or distribution shall be held for the benefit of, and shall be paid over or delivered to, the holders of the Superior Indebtedness or their representative or representatives, as their respective interests may appear, for application to the payment of all the Superior Indebtedness remaining unpaid to the extent necessary to pay all such Superior Indebtedness in full, in money, in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of such Superior Indebtedness.

The provisions hereof are solely for the purpose of defining the relative rights of the holders of the Superior Indebtedness on the one hand and the Holder as holder of the Junior Indebtedness on the other hand, and nothing herein shall impair, as between the Borrower and the Holder, the obligations of the Borrower under the Junior Indebtedness, which are unconditional and absolute.  With this in mind, notwithstanding the other provisions of this Section 9, if and so long as all documents governing the Superior Indebtedness permit one of the actions restricted by this Section 9, the restriction shall be waived and the restricted action permitted hereunder. 

No right of any present or future holder of any Superior Indebtedness to enforce the subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Borrower or any act or failure to act, in good faith, by any such holder of the Superior Indebtedness, or any noncompliance by the Borrower with the terms, provisions and covenants hereof, regardless of any knowledge thereof any holder of the Superior Indebtedness may have or be otherwise charged with.  Without in any way limiting the generality of the foregoing, the holders of the Superior Indebtedness may, at any time and from time to time, without the consent of or notice to the Holder, without incurring responsibility to the Holder and without impairing or releasing the subordination provided in this Note or the obligations hereunder of the Holder to the holders of the Superior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or create, renew or alter, the Superior Indebtedness, or otherwise amend or supplement in any manner the Superior Indebtedness or any instrument evidencing the same or any agreement under which the Superior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing the Superior Indebtedness; (iii) release any person liable or contingently liable in any manner for the payment or collection of the Superior Indebtedness; and/or (iv) exercise or refrain from exercising any rights against the Borrower or any other person.

Each holder of any Superior Indebtedness, whether such Superior Indebtedness was created or acquired before or after the issuance of this Note, shall be entitled to rely on the subordination provisions set forth in this Note.

  

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Notwithstanding the provisions of this Section 9, the Holder shall not be charged with knowledge of the existence of facts which would prohibit the making of any payments on the Junior Indebtedness unless and until the holder(s) of the Superior Indebtedness or their representatives send written notice to Holder of same.

Subject to the payment in full of all the Superior Indebtedness, Holder as holder of the Junior Indebtedness shall be subrogated to the rights of the holders of the Superior Indebtedness to receive payments or distributions of assets of the Borrower applicable to the Superior Indebtedness until the Superior Indebtedness shall be paid in full.

The Holder shall confirm (in writing) the above subordination provisions if requested by any holder of the Superior Indebtedness, and shall execute and deliver such additional subordination agreements, consistent with the foregoing as any holder of Superior Indebtedness may require.

10.           Enforceability; Maximum Interest Rate.

 

(a)           In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Note shall not in any way be affected or impaired thereby.

 

(b)           Notwithstanding anything to the contrary contained in this Note, the Borrower shall not be obligated to pay, and the Holder shall not be entitled to charge, collect, receive, reserve or take interest (“interest” being defined, for purposes of this paragraph, as the aggregate of all charges which constitute interest under applicable law that are contracted for, charged, reserved, received or paid under this Note) in excess of the maximum rate allowed by applicable law (the “Maximum Lawful Rate”).  During any period of time in which the Rate exceeds such Maximum Lawful Rate, interest shall accrue and be payable only at such Maximum Lawful Rate; provided, however, that if at any time thereafter the Rate is less than the Maximum Lawful Rate, the Borrower shall, to the extent permitted by law, continue to pay interest to the account of the Holder at the Maximum Lawful Rate until such time as the total interest received by the Holder is equal to the total interest which the Holder would have received had the Rate been (but for the operation of this provision) the interest rate payable.  Thereafter, the interest rate payable for the account of the Holder shall be the Rate unless and until the Rate again would exceed the Maximum Lawful Rate, in which event this provision shall again apply.  In no event shall the total interest received by the Holder exceed the amount which the Holder could lawfully have received had the interest been calculated for the term during which the Holder actually received interest from the Borrower at the Maximum Lawful Rate.  If the Holder has received interest hereunder in excess of the Maximum Lawful Rate, such excess amount shall be applied to the reduction of the principal balance hereof or to other amounts (other than interest) payable hereunder to the Holder, and if no such principal or other amounts are then outstanding, such excess or part thereof remaining shall be repaid by the Holder to the Borrower.  For purposes of this Note, the term “applicable law” shall mean that law in effect from time-to-time and applicable to the transaction between the Borrower and the Holder which lawfully permits the charging and collection of the highest permissible rate of interest on such transaction and this Note, including the laws of the state of Texas, and to the extent controlling, laws of the United States of America.  Notwithstanding anything to the contrary in the foregoing, in no event shall this paragraph be interpreted to provide for any greater amount of interest payable to the Holder under this Note (including any default interest) than would be provided for under this Note in the absence of this paragraph.

 

  

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11.           Entire Agreement.  This Note, together with the other applicable Closing Documents and any exhibits or schedules attached thereto, and any addenda to any of the foregoing, constitute the full and entire understanding between the Borrower and the Holder with respect to the subject matter hereof and thereof and supersede all prior negotiations, agreements and understandings, written or oral, with respect to such subject matter.  No provision of this Note shall be amended, waived, discharged or terminated other than by a written instrument signed by the Borrower and the Holder.

 

12.           Governing Law.     This Note shall be governed by and construed in accordance with the laws of the State of Texas without giving effect to applicable principles of conflict of law.  The Parties hereby consent to the nonexclusive jurisdiction of any state or federal court situated in Harris County, Texas, and waive any objection based on forum non conveniens, with regard to any actions, claims, disputes or proceedings relating to this Agreement or any transactions arising herefrom, or enforcement and/or interpretation of any of the foregoing. Nothing herein will affect a Party’s right to serve process in any manner permitted by law, or limit a Party’s right to bring proceedings against another Party in the competent courts of any other jurisdiction or jurisdictions.

 

13.           Headings.   The headings in this Note are for convenience only, and shall not be used in the construction of this Note.

 

14.           Successors.  Any provision of this Note to the contrary notwithstanding, the Borrower shall not assign any of its rights or obligations hereunder and any such assignment shall be absolutely void.  Subject to the transfer restrictions arising under applicable law, the Holder may assign and/or participate any of its interest in this Note to any individual or entity.  Each reference herein to powers or rights of the Holder shall also be deemed a reference to the same power or right of such assignees, to the extent of the interest assigned to them. All the covenants, agreements, representations and warranties contained in this Note shall bind the Borrower and the Holder and their respective administrators, distributees, successors and permitted assigns, including any person or entity to whom the Holder has granted a participation interest in this Note.

 

15.           No Strict Construction.  The Borrower agrees that it has had sufficient opportunity to review and comment on the provisions of this Note.  As a result, any uncertainty or ambiguity existing herein shall not be interpreted against the Borrower or the Holder.

 

16.           Waiver of Jury Trial.  THE BORROWER AND THE HOLDER EACH WAIVE, TO THE EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO THIS NOTE.

 

  

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IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed by its authorized persons on the Date of Issuance.

	  	
The Borrower:

	  
	  	  	  	  
	  	
LUCAS ENERGY, INC.

	  
	  	  	  	  
	  	  	  	  
	  	  	  	  
	  	
By:

	 /s/ Anthony Schnur	  
	  	  	
Name: Anthony Schnur

	  
	  	  	
Title:   CEO

	  

 

 

 

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