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EXHIBIT 10.3
 
Confidential                                                                                                                     Execution
Version

ADDITIONAL INTERESTS GRANT AGREEMENT

between

STRANDED OIL RESOURCES CORPORATION, a Delaware corporation

and

LAREDO OIL, INC., a Delaware corporation

___________________________

Dated as of June 14, 2011
___________________________

 

 

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ADDITIONAL INTERESTS GRANT AGREEMENT
 
THIS ADDITIONAL INTERESTS GRANT AGREEMENT (this “Agreement”) is dated as of June
14, 2011 (“Agreement Date”), and is between STRANDED OIL RESOURCES CORPORATION,
a Delaware corporation (the “Company”) and LAREDO OIL, INC., a Delaware
corporation (“Laredo”).
 
RECITALS
 
WHEREAS, concurrently herewith the Company and Laredo are entering into a
certain License Agreement dated of even date herewith (“Laredo License
Agreement”) pursuant to which the Company will obtain from Laredo an exclusive
license (“Laredo License”) to use and exploit certain intellectual property
owned by Laredo and Mark See, an individual (“MS”), relating to the UGD Process
and the Selection Process under the terms and conditions set forth in the Laredo
License Agreement;
 
WHEREAS, concurrently herewith, Laredo and MS are entering into a certain
License Agreement of even date herewith (“MS-Laredo License Agreement”) pursuant
to which MS grants to Laredo an exclusive license to use the “Licensed
Intellectual Property” defined therein solely for the purpose of including such
“Licensed Intellectual Property” in the Licensed Intellectual Property which is
the subject of the Laredo License Agreement;
 
WHEREAS, concurrently herewith the Company and Laredo are entering into a
certain Management Services Agreement of even date herewith (“Management
Services Agreement”);
 
WHEREAS, concurrently herewith, Licensee and Alleghany Capital Corporation, a
Delaware corporation (“Alleghany”) are executing and delivering a certain
Funding Agreement of even date herewith (“Funding Agreement”);
 
WHEREAS, the Company is willing to issue and grant to Laredo the “Additional
Interests” (as defined in Section 1 below) in consideration of (a) the grant of
the Laredo License under the Laredo License Agreement and the continuation of
the Laredo License; and (b) the past satisfactory performance by Laredo of its
duties and obligations under the Management Services Agreement and the continued
satisfactory performance by Laredo of its duties and obligations under the
Management Services Agreement, subject to the terms and conditions of this
Agreement;
 
NOW, THEREFORE, in consideration of the mutual covenants and obligations set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Laredo, on the one
hand, and the Company, on the other, hereby agree as follows:
 
AGREEMENT
 
1.           Defined Terms
 
1.1           All terms not herein defined shall have the meaning attributed to
them in the Laredo License Agreement.
 

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1.2           As used in this Agreement, the following terms shall have the
following meanings.
 
“Additional Interests” means (a) interests in the “Net Profits” (as this term is
defined in the Laredo License Agreement) of the Company, containing
substantially the same terms and conditions as the “Royalty” referred to in the
Laredo License Agreement, including the conversion provisions set forth in the
Laredo License Agreement, and containing such other terms and conditions,
including, without limitation, vesting restrictions, as the Company may, in its
sole and absolute discretion, determine; and/or (b) restricted common stock of
the Company, options to purchase common stock of the Company, or other common
stock equity grants or incentives, containing such terms and conditions,
including, without limitation, vesting restrictions, as the Company may, in its
sole and absolute discretion, determine.  The Additional Interests available for
issuance shall represent the “Percentage Interest” (as defined below) in the Net
Profits referred to in subparagraph (a) above and the common stock equity
referred to in subparagraph (b) above, assuming full conversion of the Net
Profits interests into common stock of the Company pursuant to Section 3.4 of
the Laredo License Agreement, and assuming full vesting and lapse of all other
restrictions, and exercise of all options, with respect to the common stock
equity.
 
“Alleghany” means Alleghany Capital Corporation, a Delaware corporation.
 
“Aggregate Payoff Amount” shall have the meaning set forth in Section 2.1 below.
 
“Change of Control” with respect to Laredo shall have the meaning set forth in
the Laredo License Agreement.
 
“Corporate Event” shall have the meaning set forth in the Laredo License
Agreement.
 
“Effective Date” means the Agreement Date.
 
“Event of Default” means the existence or occurrence of any one or more of the
following: (a) any breach or failure on the part of Laredo to perform one or
more of its duties and obligations under this Agreement or any Related Agreement
and, if such breach or failure is capable of being cured or remedied, such
breach or failure is not cured or remedied (i) within thirty (30) days after
Laredo receives written notice of such breach or failure or (ii) if any other
cure period for such breach or failure is expressly set forth in this Agreement
or any Related Agreement, within such cure period expressly set forth in this
Agreement or any Related Agreement; (b) the breach or inaccuracy of any
representation or warranty made by Laredo in this Agreement or any Related
Agreement and, if such breach or inaccuracy is capable of being cured or
remedied, such breach or inaccuracy is not cured or remedied (i) within thirty
(30) days after Laredo receives written notice of such breach or inaccuracy or
(ii) if any other cure period for such breach or inaccuracy is expressly set
forth in this Agreement or any Related Agreement, within such cure period
expressly set forth in this Agreement or any Related Agreement; (c) any breach
or failure on the part of Laredo to perform one or more of its duties and
obligations under any other written agreement with any Person other than the
Company if such breach or failure materially and adversely affects or is
reasonably expected to materially and adversely affect Licensor’s ability to
perform its duties and obligations under this Agreement or any Related
Agreement; (d) any MS-Laredo Event of Default; and/or (e) any termination of the
Laredo License Agreement, the MS-Laredo License Agreement and/or the Management
Services Agreement, including, without limitation, any such termination or
deemed termination in any bankruptcy proceeding.
 

 
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“Issued Additional Interests” means Additional Interests which are actually
granted or issued.
 
“MS-Laredo Event of Default” shall have the meaning set forth in the Laredo
License Agreement.
 
“Net Profits” shall have the meaning set forth in the Laredo License Agreement.
 
“Payoff Percentage” means a percentage determined by application of the
following formula:
 
.50% x A ÷ B
 
A
= Aggregate Payoff Amount (which means the actual aggregate amount funded by the
Company to Laredo pursuant to Section 2.1 of this Agreement).

 
B
= $415,000.00

 
For avoidance of doubt, if the Aggregate Payoff Amount is zero, then the Payoff
Percentage will be zero.
 
“Percentage Interest” means a percentage determined by application of the
following formula:
 
2.74%, minus the Payoff Percentage
 
“Person” or “person” means any individual, sole proprietorship, corporation,
limited liability company, general partnership, limited partnership, limited
liability partnership, trust, association, fund, firm or other entity.
 
“Qualified IPO” shall have the meaning set forth in the Laredo License
Agreement.
 
“Related Agreements” means and includes all of the following: (a) the Management
Services Agreement; (b) that certain Loan Agreement dated as of November 22,
2010 between Alleghany Capital Corporation and Laredo; (c) that certain Senior
Promissory Note dated November 22, 2010 made by Laredo; (d) that certain Loan
Agreement dated as of April 6, 2011 between Alleghany Capital Corporation and
Laredo; (e) that certain Senior Promissory Note dated April 6, 2011 made by
Laredo; and (f) the Laredo License Agreement; (g) the MS-Laredo License
Agreement; (h) the “MS License” (as this term is defined in the Funding
Agreement); and (i) any other written agreement entered into either as of the
Effective Date or after the Effective Date between the Company and/or its
Affiliates, on the one hand, and Laredo and/or its Affiliates, on the other
hand.
 
“Selection Process” shall have the meaning set forth in the definition of the
term “Licensed Intellectual Property” as set forth in the Laredo License
Agreement.
 
“Term” has the meaning set forth in Section 8.1 of the Laredo License Agreement.
 

 
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“UGD Process” shall have the meaning set forth in the definition of the term
“Licensed Intellectual Property” as set forth in the Laredo License Agreement.
 
2.           Payoff Amount; Additional Interests
 
2.1           Aggregate Payoff Amount.  During the sixty (60) day period
following the Effective Date, the Company shall fund to Laredo an aggregate
amount not to exceed Four Hundred and Fifteen Thousand Dollars ($415,000.00) to
be used by Laredo for the sole purpose of paying and retiring in full one or
more of Laredo’s debt obligations listed on Exhibit A attached hereto (“Laredo
Debt Obligations”).  The actual aggregate amount funded by the Company to Laredo
pursuant to this Section 2.1 during such 60-day period is referred to as the
“Aggregate Payoff Amount.”  Prior to funding any amounts pursuant to this
Section 2.1, the Company may require such documentation (including, without
limitation, a written payoff demand from the holder of the applicable Laredo
Debt Obligations) and such other evidence as the Company may reasonably request
to verify that such funds are being used to pay in full and retire one or more
of the Laredo Debt Obligations.  If and to the extent funds for the Aggregate
Payoff Amount are contributed to the Company by Alleghany, such funds shall
constitute capital contributed in respect of the common stock of the Company
owned by Alleghany and shall not constitute “Preferred Stock Capital” as this
term is defined in the Laredo License Agreement.
 
2.2           Additional Interests.  The Company acknowledges that the
Additional Interests have been set aside for issuance or grant by the Company to
Laredo and/or such additional executive officers, key employees and key
consultants of the Company as the Company’s Board of Directors may determine,
from time to time, in its sole and absolute discretion.  The Company agrees that
so long as the Laredo License Agreement remains in full force and effect and
there has been no termination by Laredo of the exclusivity of the Laredo License
by reason of any Development Failure pursuant to Section 8.2 of the Laredo
License Agreement (a) the Additional Interests will not be issued or granted by
the Company to any employees of Laredo; and (b) the Additional Interests will
not be issued or granted to any shareholder of the Company who is not also an
officer and/or employee of the Company, or to any director, officer or
shareholder of Alleghany or any of its Affiliates.  For avoidance of doubt, once
any such Additional Interests are issued or granted by the Company to Laredo
pursuant to this Agreement, then Laredo shall have the right, as determined by
the Board of Directors or Compensation Committee of Laredo, in its sole and
absolute discretion, to transfer such Additional Interests to one or more
officers, directors or employees of Laredo.
 
2.3           Grant of Additional Interests to Laredo.
 
(a)           Upon the occurrence of a Corporate Event, all Additional Interests
which have not been issued or granted prior to the date of such Corporate Event
shall be issued or granted to Laredo if: (i) no Event of Default has occurred
and continues to exist as of the date of such Corporate Event; (ii) prior to the
date of such Corporate Event the exclusivity of the Laredo License has not been
terminated by Laredo by reason of any Development Failure pursuant to Section
8.2 of the Laredo License Agreement; (iii) the Company reasonably believes that
the Laredo License under the Laredo License Agreement will continue on an
exclusive basis after the date of such Corporate Event; (iv) the Company
reasonably believes that the performance by Laredo of its duties and obligations
under the Management Services Agreement prior to the date of such Corporate
Event has been satisfactory; and (v) the Company reasonably believes that the
performance by Laredo of its duties and obligations under the Management
Services Agreement will continue at a satisfactory level for at least eighteen
(18) months after the date of such Corporate Event.
 

 
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(b)           If no Corporate Event has occurred prior to the date (“Production
Level Date”) on which the Company has produced a cumulative aggregate of ten
(10) million barrels of oil through the UGD Facilities, then all Additional
Interests which have not been issued or granted prior to such date shall be
issued or granted to Laredo if: (i) no Event of Default has occurred and
continues to exist as of the Production Level Date; (ii) prior to the Production
Level Date the exclusivity of the Laredo License has not been terminated by
Laredo by reason of any Development Failure pursuant to Section 8.2 of the
Laredo License Agreement; (iii) the Company reasonably believes that the Laredo
License under the Laredo License Agreement will continue on an exclusive basis
after the Production Level Date; (iv) the Company reasonably believes that the
performance by Laredo of its duties and obligations under the Management
Services Agreement prior to the Production Level Date has been satisfactory; and
(v) the Company reasonably believes that the performance by Laredo of its duties
and obligations under the Management Services Agreement will continue at a
satisfactory level for at least eighteen (18) months after the Production Level
Date.
 
3.           Termination.  The Company shall have the right, exercisable in its
sole and absolute discretion, to terminate this Agreement at any time after the
existence or occurrence of one or more of the following circumstances,
conditions or events:
 
3.1           The termination by Laredo of the exclusivity of the Laredo License
in accordance with Section 8.2 of the Laredo License Agreement.
 
3.2           The termination of the Management Services Agreement, the Laredo
License Agreement and/or the MS-Laredo License Agreement by either party
thereto.
 
3.3           The occurrence of an Event of Default hereunder.
 
3.4           The occurrence of an “Event of Default” within the meaning of the
Management Services Agreement, the Laredo License Agreement and/or the MS-Laredo
License Agreement, as this term is defined in such applicable agreement.
 
3.5           The consummation of any Corporate Event.
 
4.           Miscellaneous
 
4.1           No Third Party Beneficiaries.  This Agreement is not intended to
and shall not confer upon any Person (other than the Company and Laredo) or
otherwise give any Person (other than the Company and Laredo), directly or
indirectly, any right, benefit, remedy or claim under or in respect of this
Agreement, or the performance by any party hereto of their duties and
obligations under this Agreement, and no such Person shall have any right to
enforce any provisions of this Agreement.
 

 
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4.2           Governing Law.  This Agreement shall be governed by, and construed
and interpreted, in accordance with the internal laws of the State of New York
without giving effect to any choice of law rule that would cause the application
of the laws of any jurisdiction other than the internal laws of the State of New
York to the rights and duties of the parties.
 
4.3           Force Majeure.  No party shall be held responsible for any delay
or failure in performance under this Agreement to the extent caused by strikes,
embargoes, unexpected governmental and/or regulatory requirements (including,
without limitation, moratoriums), court, administrative or governmental orders
or decrees (including, without limitation, injunctions and/or cease and desist
orders), civil or military authorities, acts of God, earthquake, or by the
public enemy, or other causes reasonably beyond such party’s control and without
such party’s fault or negligence (“Force Majeure Event(s)”).  The affected party
shall notify each unaffected party as soon as reasonably possible of the
existence of such Force Majeure Event.  Any time period for the performance by
the affected party of any duties and obligations under this Agreement, and any
time period for the satisfaction or accomplishment of any condition, event,
milestone or deadline, including, without limitation, those associated with a
Development Failure, shall be extended for a period of time equal to the
duration of the Force Majeure Event(s).  In addition, the affected party shall
be excused from the performance of its obligations hereunder to the extent such
performance is prevented or impeded by any such Force Majeure Event(s) for the
duration of such Force Majeure Event(s).
 
4.4           Assignment.
 
(a)           Notwithstanding anything to the contrary in this Agreement, Laredo
shall not, directly or indirectly, either voluntarily or involuntarily, by
merger, operation of law or otherwise, assign, or suffer or permit an assignment
of, its rights or obligations under or its interests in this Agreement, without
the express prior written consent of the Company, which the Company may withhold
in its sole discretion.  Any purported assignment by Laredo without the express
prior written consent of the Company shall be null and void.  For the purposes
of this Section, the terms “assign” and “assignment” shall be deemed to include,
without limitation, a Change of Control or the voluntary or involuntary
dissolution or liquidation of Laredo.  Subject to the foregoing, this Agreement
shall be binding upon and shall inure to the benefit of the parties and their
respective successors and permitted assigns.
 
(b)           Notwithstanding anything to the contrary in this Agreement, the
Company shall not, directly or indirectly, either voluntarily or involuntarily,
by merger, operation of law or otherwise, assign, or suffer or permit an
assignment of, its rights or obligations under or its interests in this
Agreement, without the express prior written consent of Laredo, which Laredo may
withhold in its sole and absolute discretion, and any purported assignment by
the Company without the express prior written consent of Laredo shall be null
and void; provided, however, that any assignment or transfer by the Company,
directly or indirectly, of its rights or obligations under or its interests in
this Agreement either in connection with a Corporate Event or to any one or more
Affiliates of the Company shall not require the prior consent or approval,
written or otherwise, of Laredo and any such assignment or transfer shall be
permitted and effective without such consent or approval.  Subject to the
foregoing, this Agreement shall be binding upon and shall inure to the benefit
of the parties and their respective successors and permitted assigns.
 

 
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4.5           Notices.  Any notice, report, communication or consent required or
permitted by this Agreement shall be in writing and shall be sent (a) by prepaid
registered or certified mail, return receipt requested, (b) by overnight express
delivery service by an internationally recognized courier, for next business day
delivery, or (c) via confirmed facsimile or telecopy, followed within fourteen
(14) days by a copy mailed in the preceding manner, addressed to the other party
at the address shown below or at such other address for which such party gives
notice hereunder.  Such notice will be deemed to have been given when actually
delivered or, if delivery is not accomplished by some fault of the addressee,
when tendered.
 
If to Laredo:
 
Laredo Oil, Inc.
111 Congress Avenue, Suite 400
Austin, Texas 78701
Facsimile:  817.753.2091
Attention:  Mark See, Chief Executive Officer

  With a copy to:

James L. Rice III, Esq.
 
Akin Gump Strauss Hauer & Feld LLP
 
1111 Louisiana Street, 44th Floor
 
Houston, Texas  77002-5200
 
Facsimile: 713.236.0822
 
If to the Company:
 
Stranded Oil Resources Corporation
c/o Alleghany Capital Corporation
7 Times Square Tower, 17th Floor
New York, NY  10036
Facsimile:  212.759.8149
Attention:  Mr. David Van Geyzel

  With a copy to:

Alleghany Corporation
7 Times Square Tower, 17th Floor
New York, NY  10036
Facsimile:  212.759.3295
Attention:  Christopher K. Dalrymple, Vice President and General Counsel
 
4.6           Modification; Waiver.  This Agreement may not be altered, amended
or modified in any way except by a writing signed by the parties hereto.  The
failure of a party to enforce any rights or provisions of this Agreement shall
not be construed to be a waiver of such rights or provisions, or a waiver by
such party to thereafter enforce such rights or provision or any other rights or
provisions hereunder.  No waiver shall be effective unless made in writing and
signed by the waiving parties.
 

 
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4.7           Severability. If any provision of this Agreement is found by a
court of competent jurisdiction to be void, invalid or unenforceable, the same
shall be reformed to comply with applicable law or stricken if not so
conformable, so as not to affect the validity or enforceability of this
Agreement; provided that if such reformation or striking would materially change
the economic benefit of this Agreement to the parties hereto, such provision
shall be modified in accordance with this Section 4.7 to obtain a legal, valid
and enforceable provision and provide an economic benefit to the parties hereto
that most nearly effects the parties’ intent in entering into this Agreement.
 
4.8           Entire Agreement.  The parties hereto acknowledge that this
Agreement, together with the exhibit attached hereto, sets forth the entire
agreement and understanding of the parties as to the subject matter hereof, and
supersedes all prior and contemporaneous discussions, agreements and writings in
respect hereto.
 
4.9           Headings.  The section and paragraph headings contained in this
Agreement are for the purposes of convenience only, and are not intended to
define or limit the contents of the sections or paragraphs to which such
headings apply.
 
4.10           Counterparts.  This Agreement may be executed in counterparts,
each of which shall be deemed an original, and all of which together shall
constitute one and the same instrument, binding on all parties hereto.
 
[Next Page Is Signature Page]
 

 
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[Signature Page]
 
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective duly authorized representatives as of the Agreement Date.
 

 
LAREDO
LAREDO OIL, INC., a Delaware corporation
 
By:  ______________________
Name:  ___________________
Title:  ____________________
 
COMPANY
STRANDED OIL RESOURCES CORPORATION, a Delaware corporation
 
By:  ______________________
Name:  ___________________
Title:  ____________________
 

 

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EXHIBIT A
 
Not Shown
 
 

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