NET PROFITS INTEREST AGREEMENT GULF COAST OIL CORPORATION and VALENS U.S. SPV I, LLC and VALENS OFFSHORE SPV II, CORP. Dated as of November 20, 2007
Exhibit 10.7
GULF
COAST OIL CORPORATION
“WI
Owner”
and
VALENS
U.S. SPV I, LLC
and
VALENS
OFFSHORE SPV II, CORP.
“Assignees”
Dated
as of
November
20, 2007
THIS
NET PROFITS INTEREST AGREEMENT (“Agreement”) is made and entered
into as of this 20th day of November, 2007, and is between GULF COAST OIL
CORPORATION, a Delaware corporation (“WI Owner”), and VALENS U.S. SPV I,
LLC, a Delaware limited liability company, and VALENS OFFSHORE SPV II, CORP.,
a
Delaware corporation (collectively, “Assignees”).
W
I T N E
S S E T H:
WHEREAS,
WI Owner is the owner of various interests in the Leases; and
WHEREAS,
WI Owner desires to drill fourteen (14) Hydrocarbon ▇▇▇▇▇ on the Leases
financed, in part, by loans provided to WI Owner by the Creditor Parties
pursuant to the Securities Purchase Agreement; and
WHEREAS,
as a condition to the obligation of the Creditor Parties to make the loans
provided for in the Securities Purchase Agreement, WI Owner must convey to
Assignees a Net Profits Interest to be discharged out of Hydrocarbons produced
from the ▇▇▇▇▇ financed, in part, by the Creditor Parties pursuant to the
Securities Purchase Agreement.
NOW,
THEREFORE, in consideration of the mutual benefits and obligations of the
Parties contained herein and the benefits to be received by Assignees pursuant
to the Securities Purchase Agreement, Assignees and WI Owner agree as
follows:
ARTICLE
1.
DEFINITIONS
1.1 Defined
Terms. In addition to the terms defined in the introductory
paragraph and the Recitals of this Agreement, for purposes hereof, the
capitalized expressions and terms set forth in Schedule 1.1 shall have
the meanings set forth therein, unless expressly indicated
otherwise. Other terms may be defined elsewhere in this Agreement and
shall, for purposes hereof, have the meanings so specified, unless expressly
indicated otherwise.
1.2 References. The
words “hereby,” “herein,” “hereinabove,” “hereinafter,” “hereinbelow,” “hereof,”
“hereto,” “hereunder,” and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular article,
section, or provision of this Agreement. References in this Agreement
to articles, sections, exhibits, or schedules are to such articles, sections,
exhibits, or schedules of this Agreement unless otherwise
specified.
1.3 Articles
and Sections. This Agreement, for convenience only, has been
divided into articles and sections. The rights and other legal
relations of the Parties shall be determined from this Agreement as an entirety
and without regard to the aforesaid division into articles and sections and
without regard to headings prefixed to such articles and sections.
1.4 Number
and Gender. Whenever the context requires, reference herein
made to a single number shall be understood to include the plural; and likewise,
the plural shall be understood to include the singular. Words
denoting sex shall be construed to include the masculine, feminine, and neuter,
when such construction is appropriate; and specific enumeration shall not
exclude the general but shall be construed as cumulative. Definitions
of terms defined in the singular or plural shall be equally applicable to the
plural or singular, as applicable, unless otherwise indicated.
ARTICLE
2.
CONVEYANCE
OF NET PROFITS INTEREST
Subject
to and in accordance with the terms hereof, and in satisfaction of the terms
of
Section 3.2 of the Securities Purchase Agreement, WI Owner agrees to convey
to
Assignees, effective as of the Effective Date, the Net Profits
Interest. The specific terms and conditions applicable to the Net
Profits Interest are set forth in the NPI Conveyance. Concurrently
with the execution of this Agreement, (a) WI Owner and Assignees have executed,
acknowledged, and delivered counterparts of the NPI Conveyance in sufficient
numbers to permit recording and filing in all relevant jurisdictions, and (b)
WI
Owner has delivered to Assignees all consents, waivers, and other matters
pertaining to the Subject Interests required to be obtained by WI Owner to
cause
the representation and warranty contained in Section 3.1(g) to be true
and correct with respect to the Subject Interests as of the date of execution
hereof.
ARTICLE
3.
REPRESENTATIONS
AND WARRANTIES OF WI OWNER
3.1 Representations
and Warranties of WI Owner. As a principal cause and
material inducement to Assignees to execute this Agreement and the NPI
Conveyance and to consummate the transactions described herein and therein,
WI
Owner hereby represents and warrants to Assignees, as follows:
(a) WI
Owner is a corporation duly organized, validly existing, and in good standing
under the Laws of the State of Delaware and is qualified to do business in,
and
is in good standing under the Laws of, the State of Texas. WI Owner
has all requisite legal right, power, and authority to own and operate its
properties (including, without limitation, the Assets) and to carry on its
business as now conducted.
(b) WI
Owner has full capacity, legal right, power, and authority to enter into and
perform this Agreement, the NPI Conveyance, and the transactions contemplated
herein and therein. The execution, delivery, and performance by WI
Owner of this Agreement, the NPI Conveyance, and the transactions contemplated
herein and therein have been duly and validly authorized and approved by all
necessary corporate action of WI Owner. This Agreement and the NPI
Conveyance have been duly executed and delivered by WI Owner. This
Agreement and the NPI Conveyance constitute the legal, valid, and binding
obligations of WI Owner, enforceable against WI Owner in accordance with their
respective terms, subject to the effects of bankruptcy, insolvency,
reorganization, moratorium, and similar Laws, as well as to principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
(c) The
execution, delivery, and performance by WI Owner of this Agreement and the
NPI
Conveyance do not and will not (i) conflict with or result in a breach of any
of
the provisions of the organizational and governing documents of WI Owner; (ii)
violate any provision of any Law or any order, writ, judgment, decree, or
determination currently in effect having applicability to WI Owner; (iii) result
in a breach of or constitute a default under any indenture, bank loan,
securities purchase agreement, credit agreement, Lease, Property Agreement,
Marketing Agreement, or other agreement or instrument to which WI Owner is
a
party or by which WI Owner or the Assets may be currently bound or affected;
or
(iv) result in or require the creation or imposition of any mortgage, lien,
pledge, security interest, charge, or other encumbrance upon any of the Assets
under any such indenture, bank loan, securities purchase agreement, credit
agreement, Lease, Property Agreement, Marketing Agreement, or other agreement
or
instrument. WI Owner is not in default under any such order, writ,
judgment, decree, determination, indenture, agreement, or instrument in any
way
that now or in the future will materially adversely affect the ability of WI
Owner to perform its obligations under this Agreement or the NPI
Conveyance.
(d) Upon
the due execution and delivery by WI Owner of the NPI Conveyance, the Net
Profits Interest will constitute an interest in real property under the Laws
of
the State of Texas.
(e) Except
as set forth on Schedule 3.1(e), there is no suit, action, Claim,
investigation, or inquiry by any person or entity or by any administrative
agency or governmental body, and no legal, administrative, or arbitration
proceeding (including, without limitation, bankruptcy or insolvency-related
proceedings) pending or, to WI Owner’s Knowledge, threatened against WI Owner or
the Assets, or to which WI Owner is a party, that reasonably may be expected
to
(i) result in the material impairment of WI Owner’s title to any of the Subject
Interests; (ii) hinder or impede the operation of all or any portion of the
Leases; (iii) cause the Leases to be subject to reduced rates of production
or
other penalties because of Hydrocarbon production in excess of applicable
allowables or otherwise; or (iv) otherwise have a material adverse effect upon
(A) the Subject Interests, (B) the validity or enforceability of this Agreement
or the NPI Conveyance, (C) the ability of WI Owner to consummate the
transactions contemplated in this Agreement or perform its obligations under
the
NPI Conveyance, or (D) generally the business, properties, assets, or condition,
financial or otherwise, of WI Owner.
(f) No
authorization, consent, approval, exemption, franchise, permit, or license
of,
or filing with, any Governmental Authority is required to authorize, or is
otherwise required in connection with, the valid execution, delivery, and
performance by WI Owner of this Agreement and the NPI Conveyance.
(g) Except
as set forth in Schedule 3.1(g), none of the Subject Interests is subject
to a preferential right to purchase, third Person consent to assignment
requirement, right of first refusal, right of first offer or similar right
or
restriction, the operation
of which is triggered by the execution and delivery of this Agreement or the
NPI
Conveyance. All consents to assignment and waivers of preferential
purchase or other rights necessary to permit the valid conveyance to Assignees
of the Net Profits Interest and the execution and delivery of this Agreement
and
the NPI Conveyance have been obtained or the time for giving such consents
or
waivers has expired following a written request therefor. All advance
notifications to third Persons of the transactions contemplated herein and
in
the NPI Conveyance necessary to permit the valid conveyance to Assignees of
the
Net Profits Interest and the execution and delivery of this Agreement and the
NPI Conveyance have been timely and properly given.
(h) The
Subject Interests are free and clear of any liens, mortgages, deeds of trust,
pledges, security interests, or other encumbrances, except as set forth on
Schedule 3.1(h).
(i) All
Taxes imposed or assessed with respect to, measured by, charged against, or
attributable to the Subject Interests have been duly paid.
(j) Each
Lease is in full force and effect, at a minimum, with respect to the lands
described in conjunction therewith on Exhibit A as comprising the Subject
Interests. WI Owner is not in material breach or material default,
and there has occurred no event, fact, or circumstance that, with the lapse
of
time or the giving of notice, or both, would constitute such a breach or default
by WI Owner, with respect to any of its obligations under any Lease, and, to
WI
Owner’s Knowledge, no other Person owning any interest in any Lease is in
material breach or material default with respect to any of its obligations
thereunder. No lessor under any Lease has given or, to WI Owner’s
Knowledge, threatened to give notice of any action to terminate, cancel,
rescind, repudiate, or procure a judicial reformation of any Lease or any
provision thereof. None of the Leases is subject to a limitation as
to depths covered.
(k) WI
Owner has correctly made, or caused to be correctly made, all payments,
including, without limitation, royalties, rentals, shut-in well payments, and
other lease maintenance payments, due in respect of the Leases
thereunder.
(l)
Each Lease authorizes surface operations on the lands covered thereby for the
drilling, development, operation, and production of Hydrocarbon ▇▇▇▇▇, or for
those Leases as to which surface operations are restricted or impractical for
operational or regulatory reasons, there exist Leases covering contiguous
acreage from which surface operations with respect to such surface-restricted
Leases may be conducted.
(m) There
are no agreements, instruments, or documents affecting the Subject Interests
other than the Property Agreements and the Marketing Agreements described on
Schedule 3.1(m). WI Owner has furnished or made available to
Assignees true and complete copies of all of the Property Agreements and
Marketing Agreements. With respect to the Property Agreements and
Marketing Agreements: (i) all of the Property Agreements and
Marketing Agreements are in full force and effect; (ii) WI Owner
is
not in material breach or material default, and there has occurred no event,
fact, or circumstance that, with the lapse of time or the giving of notice,
or
both, would constitute such a breach or default by WI Owner, with respect to
any
of its obligations under any Property Agreement or Marketing Agreement; (iii)
to
WI Owner’s Knowledge, no other Person who is a party thereto is in material
breach or material default with respect to any of its obligations under any
Property Agreement or Marketing Agreement; and (iv) neither WI Owner nor, to
WI
Owner’s Knowledge, any other party to any Property Agreement or Marketing
Agreement has given or threatened to give notice of any action to terminate,
cancel, rescind, or procure a judicial reformation of such Property Agreement
or
Marketing Agreement or any provision thereof.
(n) Except
as set forth on Schedule 3.1(n), the Subject Interests are not subject to
any area of mutual interest provision, interest reversion or conversion, or
other contract or provision thereof under which WI Owner or Assignees may be
obligated to make assignments to third parties of interests in any Subject
Interest prior to the Effective Date.
(o) All
costs and expenses incurred in connection with the operation of the Subject
Interests for which WI Owner is responsible and has received invoices from
the
operator(s) thereof have been paid, and there are no outstanding calls or
payments due from WI Owner under the terms of the Property Agreements or the
Marketing Agreements. Neither the Leases nor the Property Agreements
contain any expressed contractual obligations to drill additional ▇▇▇▇▇ or
to
engage in other development operations, except for obligations arising under
offset well provisions and obligations arising under Property Agreements that
allow the parties thereto to elect whether to participate. There are
no material operations on any Lease under any of the Property Agreements with
respect to which either WI Owner or any other Person has become a non-consenting
party.
(p) The
Subject Interests are not subject to any regulatory refund obligation, and,
to
WI Owner’s Knowledge, there has occurred no event, fact, or circumstance that,
with the lapse of time or the giving of notice, or both, would give rise to
such
a regulatory refund obligation.
(q) No
third party has any call, right of first refusal, or preferential right to
purchase any Hydrocarbons produced from or allocable to the Subject
Interests.
(r)
Except as set forth in Schedule 3.1(r), WI Owner is not a party to or
bound by, and the Subject Interests and the Hydrocarbons attributable thereto
are not encumbered or affected by, any gas balancing, deferred production,
gas
banking, or similar agreement or arrangement. Except as shown on
Schedule 3.1(r), WI Owner is not in an “overlift,” “overproduced,”
“underproduced”, or similar status under any such agreement or
arrangement.
(s) Neither
the Subject Interests nor the Hydrocarbons attributable thereto are subject
to
any contract, agreement, or arrangement (including, without limitation, advance
payment agreements, prepayments, take-or-pay makeup obligations, or
otherwise) whereby the owner of the Hydrocarbons or any part thereof is not
entitled to convey the Hydrocarbons or to market the Hydrocarbons and to obtain
the full market price or value of the same at the time of
delivery.
(t) To
WI Owner’s Knowledge, no Casualty Event or Environmental Liability adversely
affecting any material portion of the Subject Interests or the operation
thereof, or adversely affecting the ability of WI Owner to perform its
obligations under this Agreement or the NPI Conveyance, has occurred or
accrued.
(u) WI
Owner and, to WI Owner’s Knowledge, the operators of the Leases, have complied
in all material respects with all Laws (including, without limitation,
Environmental Laws), licenses, and permits relating to the Assets, other than
violations that could not (either individually or collectively) reasonably
be
expected to have a Material Adverse Effect on WI Owner. WI Owner and,
to WI Owner’s Knowledge, the operator(s) of the Leases, as applicable, have all
approvals, authorizations, consents, licenses, and permits from Governmental
Authorities required under applicable Laws (including, without limitation,
Environmental Laws) in connection with the ownership and operation of the
Leases, and have properly made all filings necessary or appropriate to obtain
such approvals, authorizations, consents, licenses, and permits. All
of such licenses, permits, filings, approvals, authorizations, and consents
are
in full force and effect. Neither WI Owner nor, to WI Owner’s
Knowledge, any other Person has received notice from any Governmental Authority
having jurisdiction over the Leases that any such applicable Law, permit,
license, or filing has been violated or not complied with by WI Owner or any
other Person.
(v) Without
limiting the representations and warranties contained in Section 3.1(u),
WI Owner has not (i) received notice or otherwise learned of any Environmental
Liability in, on, affecting, or otherwise relating in any way to any Lease
that
could, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on WI Owner arising in connection with (A) any
non-compliance with or violation of any Environmental Law or (B) the Release
(or
threatened Release) of a Hazardous Substance, or (ii) received notice or
otherwise learned of any federal or state investigation evaluating whether
any
remedial action is needed to respond to a Release (or threatened Release) of
a
Hazardous Substance in, on, affecting, or otherwise relating in any way to
any
Lease for which WI Owner may be liable. No Release of Hazardous
Substances by WI Owner in, on, from, affecting, or relating in any way to any
Lease or any property of WI Owner adjacent thereto has occurred, and WI Owner
has not received any Environmental Complaint.
(w) There
are no bankruptcy, insolvency, reorganization, or arrangement proceedings
pending, being contemplated by, or to WI Owner’s Knowledge, threatened against
WI Owner or any Affiliate that controls WI Owner.
ARTICLE
4.
MISCELLANEOUS
4.1 Further
Assurances. WI Owner and Assignees agree to take all such
further actions and to execute, acknowledge, and deliver all such further
documents as are necessary or useful to effectuate the conveyance of the Net
Profits Interest and to carry out the purposes of this Agreement and the NPI
Conveyance.
4.2 Survival. The
representations, warranties, covenants, agreements, and indemnities in this
Agreement shall survive the execution and delivery of the NPI Conveyance and
the
consummation of the transactions described herein and therein.
4.3 Expenses;
Taxes. WI Owner shall bear and pay all fees, costs, and
expenses incurred by both WI Owner and Assignees in negotiating this Agreement
and the NPI Conveyance and consummating the transactions contemplated herein
and
therein. All required documentary, filing, and recording fees and
expenses incurred in connection with the filing and recording of the NPI
Conveyance, as well as all state sales and use taxes and real estate transfer
taxes (including any applicable interest or penalties) incurred or imposed
with
respect to the transactions described in this Agreement and the NPI Conveyance,
shall be borne and paid by WI Owner. Each Party shall assume
responsibility for, and shall bear and pay, all federal and state income,
franchise, and other similar taxes (including any applicable interest or
penalties) incurred by or imposed upon such Party with respect to the
transactions described in this Agreement. Prior to the Effective
Date, all Taxes based upon or measured by the ownership of the Subject
Interests, Hydrocarbon production therefrom, or the receipt of proceeds thereof,
shall be borne and paid by WI Owner, and after the Effective Date, shall be
allocated as set forth in the NPI Conveyance.
4.4 Notices. All
notices, requests, demands, instructions and other communications required
or
permitted to be given hereunder shall be in writing and shall be (a) delivered
personally, (b) mailed by certified U.S. mail, postage prepaid and return
receipt requested, (c) sent by bonded courier, or (d) sent by facsimile, as
follows:
|
If
to WI Owner:
Gulf
Coast Oil Corporation
▇▇▇▇
▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief
Financial Officer
Facsimile
No.: (▇▇▇) ▇▇▇-▇▇▇▇
|
If
to Assignees:
Valens
U.S. SPV I, LLC
Valens
Offshore SPV II, Corp.
c/o
Valens Capital Management, LLC
▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: Portfolio
Services
Facsimile
No.: (▇▇▇) ▇▇▇-▇▇▇▇
|
|
with
a copy to:
▇▇▇▇▇
▇. ▇▇▇▇, Esquire
The
Loev Law Firm, PC
▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇
Facsimile
No.: (▇▇▇) ▇▇▇-▇▇▇▇
|
with
a copy to:
Loeb
& Loeb, LLP
▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile
No.: (▇▇▇) ▇▇▇-▇▇▇▇
|
|
and
to:
▇▇▇▇▇▇▇
▇▇▇▇▇▇ L.L.P.
▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇, Esquire
Facsimile
No.: (▇▇▇) ▇▇▇-▇▇▇▇
|
|
or
to
such other place within the United States of America as either Party may
designate as to itself by written notice to the other. All notices
given by personal delivery, courier, or mail shall be effective on the date
of
actual receipt at the appropriate address. Notice given by telecopier
shall be effective upon actual receipt if received during recipient’s normal
business hours or at the beginning of the next Business Day after receipt if
received after the recipient’s normal business hours.
4.5 Indemnification.
(a) Notwithstanding
the execution of the NPI Conveyance, regardless of any investigation made at
any
time by or on behalf of Assignees or any information Assignees may have, and
regardless of the presence or absence of insurance, WI Owner shall indemnify
and
hold harmless Assignees and Assignees’ respective successors, assigns,
Affiliates, shareholders, partners, members, directors, officers, managers,
employees, agents, and representatives (collectively, the “Indemnified
Parties”) from and against any and all Claims caused by, arising out of,
resulting from, or relating in any way to, and shall pay the Indemnified Parties
any sum that the Indemnified Parties pay or become obligated to pay on account
of: (i) any breach or default in the performance by WI Owner of any covenant
or
agreement of WI Owner contained in this Agreement or the NPI Conveyance; (ii)
any breach of a warranty or an inaccurate or erroneous representation made
by WI
Owner in this Agreement or the NPI Conveyance; and (iii) all liability or
obligation to third Persons (including, without limitation, liabilities
resulting from injury to or death of any Person, Persons, or other living
things, or loss or destruction of or damage to property, as well as
Environmental Liabilities), whether arising in contract, in tort, or by
operation of Law, arising out of, resulting from, or relating in any way to
the
ownership, use, possession, and operation of the Assets and the production,
handling, and marketing of Hydrocarbons therefrom by WI Owner; provided,
however, that in no event shall the terms of this Section 4.5(a) be
deemed to create personal liability on the part of WI Owner with respect to
the
satisfaction or discharge of the Net Profits Interest. IT IS
THE INTENT OF THE PARTIES THAT THE FOREGOING INDEMNITY BE WITHOUT REGARD TO
THE
CAUSE OR CAUSES
OF THE CLAIM TO BE INDEMNIFIED, INCLUDING, WITHOUT LIMITATION, THE NEGLIGENCE
OF
ASSIGNEES, OR EITHER OF THEM, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT, OR
CONCURRENT, OR ACTIVE OR PASSIVE, OR THE STRICT LIABILITY OF ASSIGNEES, OR
EITHER OF THEM.
(b) Assignees
shall give to WI Owner prompt written notice and particulars of any Claim for
which indemnification is sought. At its option, WI Owner
may: (i) permit Assignees to respond to the Claim in the manner set
forth in its notice; or (ii) assume responsibility for and conduct the
negotiation, defense, or settlement of the Claim; provided, however, that
Assignees shall at all times have the right to participate in the defense
thereof and to be represented, at their sole expense, by counsel selected by
them. No such Claim shall be compromised or settled by either WI
Owner or Assignees, as applicable, in any manner that might adversely affect
the
interest of the other Party without the prior written consent of such other
Party.
4.6 Governing
Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD
TO
ANY CONFLICTS OF LAW PRINCIPLES.
4.7 Limitation
on Damages. For the breach or non-performance by any Party
of any representation, warranty, covenant, or agreement contained in this
Agreement, the liability of the obligor shall be limited to direct actual
damages only, except to the extent that the obligee is entitled to specific
performance or injunctive relief. NEITHER WI OWNER NOR
ASSIGNEES SHALL BE LIABLE TO THE OTHER FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE,
EXEMPLARY, OR INDIRECT DAMAGES, LOST PROFITS, OR OTHER BUSINESS INTERRUPTION
DAMAGES, IN TORT, IN CONTRACT, UNDER ANY INDEMNITY PROVISION, ARISING BY
OPERATION OF LAW, OR OTHERWISE AS TO ANY MATTER RELATING TO THIS AGREEMENT,
THE
NPI CONVEYANCE, OR THE TRANSACTIONS CONTEMPLATED HEREIN OR
THEREIN. Without limiting the foregoing, if the NPI
Conveyance or any Lease is rejected as an unexpired lease or executory contract
pursuant to any of the terms of ▇▇▇▇▇▇▇ ▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ Bankruptcy
Code, the damages recoverable as a result of such rejection shall equal the
value as of the date of rejection of the future obligations remaining under
the
NPI Conveyance at the time of the rejection, determined in a commercially
reasonably manner.
4.8 Successors
and Assigns.
(a) This
Agreement shall be binding upon and, subject to the following restriction,
shall
inure to the benefit of the Parties and their respective permitted successors
and assigns. Nothing contained herein shall in any way limit or
restrict the right of Assignees, or Assignees’ successors and assigns, to sell,
convey, assign, transfer, mortgage, pledge, or create a lien or security
interest in their respective rights or obligations hereunder in whole or in
part; provided, however, that (i) any such transfer shall expressly be made
subject to the terms of this Agreement and the NPI Conveyance
and (ii) the prospective transferee from Assignees shall expressly agree to
assume and perform all of Assignees’ covenants and obligations under the terms
of this Agreement and the NPI Conveyance. WI Owner shall not Transfer
its rights or obligations hereunder separately from the Subject Interests
without the prior written consent of Assignees.
(b) Transfers
by WI Owner of the Subject Interests shall be subject to the terms of Section
7.2 of the NPI Conveyance. In the event of a Transfer by WI Owner
that includes only the Subject Interests, or any portion thereof, and Net
Profits Interest attributable thereto, WI Owner shall pay to Assignees, as
consideration for Assignees’ reconveyance to WI Owner of the Net Profits
Interest in advance of such Transfer as required under Section 7.2(b) of the
NPI
Conveyance, an amount equal to forty-nine percent (49%) of the total purchase
price (net of all applicable adjustments) to be paid by the prospective
transferee to WI Owner with respect to the Subject Interests (including the
Net
Profits Interest) being Transferred as part of the same transaction or series
of
transactions.
(c) In
the event of a Transfer by WI Owner that includes the Subject Interests, or
any
portion thereof, and the Net Profits Interest attributable thereto, as part
of a
larger transaction, WI Owner shall pay to Assignees, as consideration for
Assignees’ reconveyance to WI Owner of the Net Profits Interest in advance of
such Transfer as required under Section 7.2(b) of the NPI Conveyance, an amount
equal to forty-nine percent (49%) of the portion of the total purchase price
(net of all applicable adjustments) to be paid by the prospective transferee
to
WI Owner with respect to all properties, assets, and interests of every kind
and
character being Transferred by WI Owner to such prospective transferee as part
of the same transaction or series of related transactions that is allocable,
under the terms of the relevant acquisition document(s), to the Subject
Interests, or the portion thereof being Transferred, and the Net Profits
Interest attributable thereto. Notwithstanding the preceding sentence
of this Section 4.8(c) to the contrary, in the absence of such an
allocation of values to the individual properties, assets, and interests being
Transferred in the relevant acquisition documents, or if Assignees determine,
in
the good faith exercise of their business judgment, that the values allocated
to
the relevant Subject Interests (including the Net Profits Interest) set forth
in
the acquisition documents are not at least equivalent to the values established
for such Subject Interests (including the Net Profits Interest) in the most
recent reserve report provided by WI Owner to the Creditor Parties pursuant
to
Section 6.18 of the Securities Purchase Agreement (adjusted to reflect
production from or allocable to such Subject Interests during the period from
the effective date of such reserve report through the effective date of the
Transfer), the consideration payable to Assignees for the reconveyance to WI
Owner of the Net Profits Interest, or relevant portion thereof, in advance
of
such Transfer shall be an amount equal to forty-nine percent (49%) of the values
established for the Subject Interests being transferred (including the Net
Profits Interest) in such reserve report.
4.9 Unenforceable
or Inapplicable Provisions. If any provision hereof is
invalid or unenforceable in any jurisdiction, the other provisions hereof shall
remain in full force and effect in such jurisdiction, and the remaining
provisions hereof shall be liberally
construed in favor of Assignees, and their successors and assigns, in order
to
effectuate the terms hereof, and the invalidity of any provision hereof in
any
jurisdiction shall not affect the validity or enforceability of any such
provision in any other jurisdiction.
4.10 Execution
in Counterparts. This Agreement has been executed in several
counterparts, each of which shall be deemed to be an original and all of which
are identical. All of such counterparts together shall constitute but
one and the same agreement. All of said documents are integral parts
of one consolidated transaction and are to be construed as a single
transaction.
4.11 Entire
Agreement. This Agreement, together with the NPI Conveyance,
shall constitute the entire agreement between the Parties covering the subject
matter hereof, and there are no agreements, modifications, conditions, or
understandings, written or oral, expressed or implied, pertaining to the subject
matter hereof which are not contained herein or therein.
4.12 Amendment;
Waiver. This Agreement shall not be modified or changed
except in writing signed by all Parties. No provision of this
Agreement shall be waived except in writing signed by the Party granting the
waiver. A waiver of any breach or a failure to enforce any of the
terms or conditions of this Agreement shall not in any way affect, limit, or
waive a Party’s rights under this Agreement at any time to enforce strict
compliance thereafter with every term or condition of this
Agreement.
EXECUTED
on the date first set forth above.
WI
OWNER:
GULF
COAST OIL CORPORATION
By: /s/
▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇
▇.
▇▇▇▇▇▇▇▇▇
President
and Chief
Executive Officer
ASSIGNEES:
VALENS
U.S. SPV I, LLC
By: Valens
Capital Management, LLC,
its
Investment Manager
By: /s/
▇▇▇▇▇▇▇
▇▇▇▇▇
Name: ▇▇▇▇▇▇▇
▇▇▇▇▇
Authorized
Signatory
VALENS
OFFSHORE SPV II, CORP.
By: Valens
Capital Management, LLC,
its
Investment Manager
By: /s/
▇▇▇▇▇▇▇
▇▇▇▇▇
Name: ▇▇▇▇▇▇▇
▇▇▇▇▇
Authorized
Signatory
SCHEDULES
|
Schedule
1.1
|
-
|
Definitions
|
|
Schedule
3.1(e)
|
-
|
WI
Owner’s Litigation
|
|
Schedule
3.1(g)
|
-
|
Preferential
Purchase Rights; Required Third Person Consents to
Assignment
|
|
Schedule
3.1(h)
|
-
|
Liens
and Encumbrances
|
|
Schedule
3.1(m)
|
-
|
Property
Agreements; Marketing Agreements
|
|
Schedule
3.1(n)
|
-
|
Future
Assignment Obligations
|
|
Schedule
3.1(r)
|
-
|
Production
Imbalances and Related Items
|
EXHIBITS
|
Exhibit
A
|
-
|
Subject
Interests
|
|
Exhibit
B
|
-
|
Form
of Conveyance of Net Profits Overriding Royalty
Interest
|
SCHEDULE
1.1
Definitions
“Affiliate”
means, with respect to any person, any other person that directly, or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with such person. The term “control” (including, with
correlative meaning, the terms “controlled by” and “under common control with”)
as used with respect to any person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and
policies of such person, whether through the ownership of voting securities,
by
contract, or otherwise.
“Business
Day” means any day which is not a day on which national banking institutions
in New York, New York, are closed as authorized or required by Law.
“Casualty
Event” means, with respect to all or any material portion of an Asset, any
destruction by fire, blowout, leak, explosion, or other casualty (above or
below
ground) or any taking, or pending or threatened taking, in condemnation or
under
the right of eminent domain, of any Asset or portion thereof.
“Central
Time” means Central Standard Time or Central Daylight Savings Time, as in
effect in Dallas, Texas, on the day in question.
“Claims”
means any and all claims, demands, liens, notices of non-compliance or
violation, notices of liability or potential liability, investigations, actions
(whether judicial, administrative, or arbitrational), causes of action, suits,
controversies, losses, judgments, damages, liabilities, costs, expenses,
interest, penalties, taxes, fines, obligations, and deficiencies, including,
without limitation, reasonable attorneys’ fees and other costs and expenses of
the Party defending a claim incident to the investigation and defense thereof
that results in litigation or arbitration, or the settlement of any claim,
or,
in the case of a claim subject to indemnification hereunder, the enforcement
by
the Party receiving indemnification of the provisions of Section 4.5, as
applicable.
“Creditor
Parties”, as defined in the Securities Purchase Agreement, means,
collectively, Assignees, as “Purchasers” under the terms of the Securities
Purchase Agreement, and LV Administrative Services, Inc., as administrative
and
collateral agent for each Purchaser.
“Effective
Date” means 7:00 A.M., Central Time, on the first Day of the Month following
the first to occur of (a) the payment in full by WI Owner to Assignees of all
amounts (including principal and accrued interest) owed by WI Owner under the
terms of the Notes, or (b) the “Maturity Date” of the Notes (as such term is
defined therein).
“Environmental
Complaint” means any written or oral complaint, order, directive, claim,
citation, notice of environmental report or investigation, or other notice
by
any governmental authority or any other Person with respect to (a) air
emissions, (b) spills, releases, or discharges to soils, any improvements
located thereon, surface water, groundwater,
or the sewer, septic, waste treatment, storage, or disposal systems servicing
any Lease, (c) solid or liquid waste disposal, (d) the use, generation, storage,
transportation, or disposal of any Hazardous Substance, or (e) other
environmental, health, or safety matters affecting any Lease or the business
conducted thereon.
“Environmental
Laws” means (a) the following federal laws as they may be cited, referenced,
and amended from time to time: the Clean Air Act, the Clean Water
Act, the Safe Drinking Water Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Endangered Species Act, the Resource
Conservation and Recovery Act, the Hazardous Materials Transportation Act,
the
Superfund Amendments and Reauthorization Act, and the Toxic Substances Control
Act; (b) any and all equivalent environmental statutes of any state in which
any
Asset is situated, as they may be cited, referenced and amended from time to
time; (c) any rules or regulations promulgated under or adopted pursuant to
the
above federal and state laws; and (d) any other equivalent federal, state,
or
local statute or any requirement, rule, regulation, code, ordinance, or order
adopted pursuant thereto, including those relating to the generation,
transportation, treatment, storage, recycling, disposal, handling, or Release
of
Hazardous Substances.
“Environmental
Liability” means any claim, demand, obligation, cause of action,
accusation, allegation, order, violation, damage, injury, judgment, penalty
or
fine, cost of enforcement, cost of remedial action, or any other cost or expense
whatsoever, including reasonable attorneys’ fees and disbursements, resulting
from the violation or alleged violation of any Environmental Law or the
imposition of any Environmental Lien.
“Environmental
Lien” means a lien in favor of a Governmental Authority or other Person for
(a) any liability under an Environmental Law or (b) damages arising from or
costs incurred by such Governmental Authority or other Person in response to
a
Release (or threatened Release) of Hazardous Substances into the
environment.
“Governmental
Authority” means any governmental or quasi-governmental federal, state,
provincial, county, city, or other political subdivision of the United States,
any foreign country, or any department, bureau, agency, commission, court,
or
other statutory or regulatory body or instrumentality thereof.
“Hazardous
Substances” shall mean flammables, explosives, radioactive materials,
hazardous wastes, asbestos, or any material containing asbestos, polychlorinated
biphenyls (PCBs), toxic substances or related materials, petroleum, petroleum
products, associated oil or natural gas exploration, production, and development
wastes, or any substances defined as “hazardous substances,” “hazardous
materials,” “hazardous wastes,” or “toxic substances” under the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the
Superfund Amendments and Reauthorization Act, as amended, the Hazardous
Materials Transportation Act, as amended, the Resource Conservation and Recovery
Act, as amended, the Toxic Substances Control Act, as amended, or any other
Environmental Laws.
“Hydrocarbons”
shall have the meaning given that term in the NPI Conveyance.
The
term
“Indemnified Parties” is defined in Section 4.5(a).
“Knowledge”
means, for purposes of Article 3, (a) knowledge of those matters of which
a Person is charged with constructive notice under applicable Law, and (b)
actual knowledge.
“Laws”
means all constitutions, laws, statutes, ordinances, rules, and
regulations of the United States, any foreign country, or any domestic or
foreign state, and any local, state, or federal political subdivision or agency
thereof, as well as all decisions of courts having the effect of law in each
such jurisdiction.
“Leases”
means the oil and gas leases, fee mineral interests, and other interests
described, referred to, or identified in Exhibit A as to all lands
covered thereby (or the applicable part or portion thereof if specifically
limited in depth and/or areal extent), together with, in the case of an oil
and
gas lease, any renewal or extension of such lease (as to all or any part or
portion thereof), and any replacement lease taken upon or in anticipation of
the
expiration or termination of such lease (if executed and delivered during the
term of or within one (1) year after expiration of the predecessor lease),
as to
all lands and depths described in the predecessor lease (unless the predecessor
lease is specifically limited in depth or areal extent, in which event only
such
portion of such lease shall be considered a renewal or extension or a
replacement lease subject to this Agreement).
“Marketing
Agreements” means the Hydrocarbon processing, sale, purchase, exchange,
gathering, transportation, and other marketing-related contracts, agreements,
and rights owned by WI Owner or to which WI Owner is a party and that are
appurtenant to or affect the Subject Interests, described more particularly
on
Schedule 3.1(m).
“Material
Adverse Effect” shall have the meaning given to that term in the Securities
Purchase Agreement.
“NPI
Conveyance” means the Conveyance of Net Profits Overriding Royalty Interest
to be executed by WI Owner in favor of Assignee with respect to the Net Profits
Interest, substantially in the form attached hereto as Exhibit
B.
“Net
Profits Interest” means the net profits overriding royalty interest to be
conveyed by WI Owner to Assignee out of the Subject Interests as provided in
this Agreement, subject to and in accordance with the terms of the NPI
Conveyance.
“Notes”
mean, collectively, (a) the Secured Term Note dated of even date herewith,
from
WI Owner to Valens U.S. SPV I, LLC, in the original principal amount of
$3,100,000.00, and (b) the Secured Term Note dated of even date herewith, from
WI Owner to Valens Offshore SPV II, Corp., in the original principal amount
of
$4,000,000.00.
“Parties”
shall mean, collectively, WI Owner and Assignees.
“Permitted
Encumbrances” shall have the meaning given that term in the NPI
Conveyance.
“Person”
means any individual, natural person, corporation, joint venture, partnership,
limited partnership, limited liability company, limited liability partnership,
trust, estate, business trust, association, governmental entity or other
entity.
“Property
Agreements” means all of the operating agreements, unit operating
agreements, processing plant operating agreements, pooling and unitization
agreements, and other contracts, agreements, and rights owned by WI Owner,
in
whole or in part, to the extent that they are appurtenant to or affect the
Subject Interests, described more particularly on Schedule
3.1(m).
“Release
of Hazardous Substances” means any emission, spill, release, disposal, or
discharge, except in accordance with a valid permit, license, certificate,
or
approval of the relevant governmental authority, of any Hazardous Substance
into
or upon (a) the air, (b) soils or any improvements located thereon, (c) surface
water or groundwater, or (d) the sewer or septic system, or the waste treatment,
storage, or disposal system servicing any Lease, with respect to which WI Owner
is legally obligated to respond under applicable Environmental Laws by notifying
the relevant governmental authority, investigating, or undertaking corrective
action.
“Securities
Purchase Agreement” means the Securities Purchase Agreement dated of even
date herewith, between Gulf Coast Oil Corporation, the purchasers from time
to
time a party thereto, and LV Administrative Services, Inc., as administrative
and collateral agent for each purchaser.
“Subject
Interests” means: (a) the undivided leasehold interests and the
associated net revenue interests of WI Owner described more particularly on
Exhibit A in and to the Leases and the other rights and interests
described more particularly in Exhibit A, INSOFAR ONLY AS the Leases
cover and include the lands identified in Exhibit A, which comprise the
drill site locations for the proposed ▇▇▇▇▇ listed on Exhibit A, all as
provided in Exhibit A; (b) all rights, titles, and interests of WI Owner
in and to all Hydrocarbons produced, saved, and marketed from or allocable
to
the proposed Hydrocarbon ▇▇▇▇▇ listed on Exhibit A once such ▇▇▇▇▇
are drilled and completed, and any Hydrocarbon ▇▇▇▇▇ drilled thereafter on
the
Leases, INSOFAR ONLY AS the Leases cover and include the lands identified in
Exhibit A, and any unit into which any such Lease, INSOFAR ONLY AS such
Lease covers and includes the lands identified in Exhibit A, is pooled or
unitized; and (c) any and all other rights, titles, and interests of WI Owner
in
or with respect to all voluntary or compulsory pooling or unitization agreements
or orders, farmout agreements, farmin agreements, operating agreements,
Hydrocarbon purchase and sale agreements, licenses, permits, and all other
contracts of any kind whatsoever covering or affecting the production or
marketing of Hydrocarbons from the Leases, INSOFAR ONLY AS the Leases cover
and
include the lands identified in Exhibit A, and any unit into which any
such Lease, INSOFAR ONLY AS such Lease covers and includes the lands identified
in Exhibit A, is pooled or unitized, and attributable to the interests of
WI Owner therein.
“Taxes”
means all ad valorem, property, occupation, gathering, pipeline regulating,
windfall profit, severance, gross production, gross receipts, Btu, energy,
excise, and other taxes and governmental charges and assessments imposed on
the
Subject Interests, the Net Profits Interest, the Hydrocarbons attributable
thereto, or the proceeds therefrom, other than income, franchise, or similar
taxes.
“Transfer”
means, for purposes of Section 4.8, as applicable, (a) a sale,
exchange, assignment, conveyance, gift, bequest, devise, disposition, or other
direct transfer of title to an asset, (b) a transfer of the equity
interests of the Person owning the relevant asset or, in the case of an entity
other than an individual, the direct parent of such entity, or (c) a
merger, consolidation, reorganization, or other business combination of such
Person or, in the case of an entity other than an individual, the direct parent
of such entity.
SCHEDULE
3.1(e)
WI
OWNER’S LITIGATION
None.
SCHEDULE
3.1(g)
PREFERENTIAL
PURCHASE RIGHTS; REQUIRED THIRD
PERSON
CONSENTS TO ASSIGNMENT
None.
SCHEDULE
3.1(h)
LIENS
AND ENCUMBRANCES
|
1.
|
Mortgage,
Deed of Trust, Security Agreement, Financing Statement and Assignment
of
Production, from Gulf Coast Oil Corporation, as Mortgagor, to ▇▇▇▇▇▇
Grin,
as Trustee, for the benefit of Laurus Master Fund, Ltd., as Mortgagee,
dated as of April 26, 2006, filed and recorded as
follows:
|
|
|
JURISDICTION
|
FILING
DATA
|
|
|
Atascosa
County
|
Filed
on April 27, 2006, under Instrument No. 81631, Official
Records
|
|
|
▇▇▇▇▇▇▇▇
County
|
Filed
on April 27, 2006, under Instrument No. 61695 Volume 168 Page
371
|
|
|
2.
|
UCC-1
Financing Statement reflecting Gulf Coast Oil Corporation, as Debtor,
and
Laurus Master Fund, Ltd., as Secured Party, relating to the Mortgage
dated
as of April 26, 2006, filed and recorded as follows:
|
|
|
JURISDICTION
|
FILING
DATA
|
|
|
▇▇▇▇▇▇▇▇
County
|
Filed
on April 28, 2006, Volume 168 Page
426
|
|
|
3.
|
Amended
and Restated Mortgage, Deed of Trust, Security Agreement, Financing
Statement and Assignment of Production from Gulf Coast Oil Corporation,
as
Mortgagor, to ▇▇▇▇▇▇ Grin, as Trustee, for the benefit of Laurus
Master
Fund, Ltd., as Mortgagee, dated as of June 30, 2006, filed and recorded
as
follows:
|
|
|
JURISDICTION
|
FILING
DATA
|
|
|
Atascosa
County
|
Filed
on July 3, 2006, under Instrument No. 83177, Official
Records
|
|
|
▇▇▇▇▇▇▇▇
County
|
Filed
on July 3, 2006, under Instrument No. 61899 Volume 170 Page
01
|
|
|
4.
|
UCC-1
Financing Statement reflecting Gulf Coast Oil Corporation, as Debtor,
and
Laurus Master Fund, Ltd., as Secured Party, relating to the Mortgage
dated
as of June 30, 2006, filed and recorded as follows:
|
|
|
JURISDICTION
|
FILING
DATA
|
|
|
Atascosa
County
|
Filed
on July 10, 2006, under Instrument No. 83277, Official
Records
|
|
|
▇▇▇▇▇▇▇▇
County
|
Filed
on July 3, 2006, Volume 170
Page 92
|
|
|
5.
|
First
Amendment to Amended and Restated Mortgage, Deed of Trust, Security
Agreement, Financing Statement and Assignment of Production from
Gulf
Coast Oil Corporation, as Mortgagor, to ▇▇▇▇▇▇ Grin, as Trustee,
for the
benefit of Laurus Master Fund, Ltd., as Mortgagee, dated January
30, 2007,
filed and recorded as follows:
|
|
|
JURISDICTION
|
FILING
DATA
|
|
|
Atascosa
County
|
Filed
on February 5, 2007, under Instrument No. 88090, Official
Records
|
|
|
▇▇▇▇▇▇▇▇
County
|
Filed
on February 5, 2007, under Instrument No. 62467 Volume 173
Page 89
|
|
|
6.
|
UCC-1
Financing Statement reflecting Gulf Coast Oil Corporation, as Debtor,
and
Laurus Master Fund, Ltd., as Secured Party, relating to the First
Amendment dated January 30, 2007, filed and recorded as
follows:
|
|
|
JURISDICTION
|
FILING
DATA
|
|
|
Atascosa
County
|
Filed
on January 10, 2007, under Instrument No. 87556, Official
Records
|
|
SCHEDULE
3.1(m)
PROPERTY
AGREEMENTS; MARKETING AGREEMENTS
|
A.
|
Property
Agreements
|
|
|
None.
|
|
B.
|
Marketing
Agreements
|
|
|
Crude
Oil Purchase Agreement, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇. ▇▇▇▇▇, dated May 19,
2006,
between Gulf Coast Oil Corporation, as Seller, and GulfMark Energy,
Inc.,
as Buyer, as amended.
|
SCHEDULE
3.1(n)
FUTURE
ASSIGNMENT OBLIGATIONS
None.
SCHEDULE
3.1(r)
PRODUCTION
IMBALANCES AND RELATED ITEMS
None.
EXHIBIT
A
[Confidential
Information
Removed]
EXHIBIT
B
Attached
to and made a part of Net Profits Interest Agreement
dated
as of November 20, 2007, between
Gulf
Coast Oil Corporation, as WI Owner, and
Valens
U.S. SPV I, LLC, and Valens Offshore SPV II, Corp., as
Assignees
Form
of Conveyance of Net Profits Overriding Royalty
Interest