Document:

Exhibit 10.1

 

CONSULTING AGREEMENT

 

This Consulting Agreement (“Agreement”)
is made and entered into effective as of April 30, 2008 (the “Effective
Date”) between (i) Heelys, Inc., a Delaware corporation (the “Company”)
and (ii) Patrick F. Hamner (the “Consultant”).  The Company and the Consultant are
collectively referred to herein as the “Parties.”

 

WHEREAS, Consultant is a Director of the
Company;

 

WHEREAS, Consultant is a past Chairman of the
Board of the Company, and an immediate past Senior Vice President of the
Company;

 

WHEREAS, the Consultant was employed with the
Company pursuant to that EMPLOYMENT AGREEMENT,
INCLUDING AGREEMENT TO ARBITRATE, NON-COMPETITION AGREEMENT AND NON-DISCLOSURE
AGREEMENT entered into in September 2006 and effective as of May 19,
2006, as amended by that certain FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT, INCLUDING AGREEMENT TO
ARBITRATE, NON-COMPETITION AGREEMENT AND NON-DISCLOSURE AGREEMENT
dated as of April 11, 2007 (the “Employment Agreement”);

 

WHEREAS, the Parties hereby stipulate and
agree that Consultant’s employment with the Company pursuant to the Employment
Agreement will terminate based upon Consultant’s resignation effective as of April 30,
2008 (the “Resignation Date”);

 

WHEREAS, the Parties stipulate and acknowledge
that by virtue of this Agreement, the Parties are generally waiving and
releasing all post-employment rights and obligations provided for in the
Employment Agreement, except as otherwise stated herein, in exchange for
the good and valuable consideration provided for in this Agreement;

 

NOW, THEREFORE, Consultant and the Company
hereby agree as follows:

 

1.             Independent
Contractor.  Subject to the terms and
conditions of this Agreement, the Company hereby engages the Consultant as an
independent contractor to perform the services set forth herein, and the
Consultant hereby accepts such engagement. 
This Agreement does not create an employment relationship, and nothing
about this Agreement shall be construed to render Consultant an employee of the
Company for any purpose.  Further,
nothing about this Agreement shall be construed to render Consultant a partner
or joint venturer with the Company for any purpose.  The Consultant is and shall remain an
independent contractor in his relationship to the Company.

 

a.             No Insurance or
Benefits.  The Company will not be
liable for, and will not provide Consultant with coverage or compensation for,
health, dental, disability, unemployment, accident, life, or worker’s
compensation insurance, or any other insurance not expressly stated in this
Agreement, unless required by law.  The
Company will not be liable for, and will not provide Consultant with, vacation
pay, sick leave pay, retirement benefits, social security pay, or any other
benefits not expressly stated in this Agreement, unless required by law.

 

b.             Control.  Consultant shall have the sole and exclusive
right to control and exercise discretion as to the manner and means by which
services under this Agreement are to be performed.  The Company shall control the expected
results of such services to ensure conformity with its requirements.  The Parties acknowledge that the result of
Consultant’s services under this Agreement is the primary factor bargained for
by the Parties.  For that purpose, the
Consultant shall provide reports to the Company as reasonably requested.  Consultant shall obtain the 

 

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approval of the Company before commencing any new project under this
Agreement.  Consultant shall be
responsible for obtaining, at Consultant’s expense, all licenses and permits,
and any insurance, required for the performance of his services hereunder.

 

c.             Taxes.  Under this Agreement, Consultant shall be
treated as an independent contractor and not as an employee for federal tax
purposes and for all other tax purposes. 
Consultant shall be solely responsible for payment of any and all
applicable taxes, penalties, and interest with regard to payments made in
accordance with this Agreement, and Consultant shall INDEMNIFY THE COMPANY
AGAINST, AND HOLD IT HARMLESS FROM, any and all taxes, penalties, and interest
assessed by any taxing authority as a result of payments made in accordance
with this Agreement.  The Company shall
have no duty or obligation to make any withholding as part of such payments.

 

2.             Services.

 

a.             M&A and
Other Services.  Under this
Agreement, Consultant shall perform services (i) relating to consulting
about mergers and acquisitions (“M&A Consulting”); and (ii) relating
to such other matters as agreed upon by the Parties.  The Consultant shall report to the Chief
Executive Officer of the Company (the “CEO”) or the CEO’s designee.  The services to be provided by Consultant
pursuant to this Agreement may be amended or supplemented from time to time by
the written agreement of the Parties, without otherwise affecting this
Agreement.

 

b.             Litigation
Support.  The Consultant shall
cooperate fully with the Company, specifically including any attorney retained
by the Company or its affiliates, in connection with the prosecution or defense
of any pending or future litigation, arbitration, business, or investigatory
matter.  Such cooperation may include,
but shall not be limited to, the Consultant making himself available for interviews
by any such attorney, and providing direction, documents and/or information to
the extent feasible.  When feasible, the
Company will provide Consultant with reasonable notice of the need for such
assistance, to schedule such assistance in such a manner as not to interfere
with any employment obtained by the Consultant.

 

3.             Term
and Termination.

 

a.             Term.  The term of this Agreement is twenty-six (26)
months from the Effective Date (the “Term”).  This Agreement will terminate of its own
accord and without prior notice at the conclusion of the Term, without any
further action required by either Party, unless terminated earlier as provided
herein, or unless the Parties renew or extend this Agreement by separate
written addendum.

 

b.             Cause
Termination.  The Company may
terminate this Agreement at any time without notice, for Cause.  For the purpose of this Paragraph, “Cause”
shall mean (i) Consultant’s felony conviction; (ii) Consultant’s
theft, misappropriation and/or misdirection of Company funds and/or property; (iii) Consultant’s
misappropriation and/or misdirection of Company business opportunities; and/or (iv) Consultant’s
material violation of this Agreement; provided, however, that with
respect to clauses (iii) and (iv) of this Paragraph, if the Cause in
issue is susceptible to cure, then Company shall provide Consultant with
advance written notice of such Cause, and a fifteen (15) day period to cure or
remedy such Cause; provided further, that the Board of Company shall
have the sole discretion to determine whether such Cause is subject to cure,
and if so, whether the Consultant successfully effected a cure following
notice.  Termination of this Agreement
for Cause shall include the immediate and prospective termination of any
further payments or other consideration recited in Paragraph 4 of this
Agreement (including subparts).

 

 

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c.             Death or
Disability.  Upon Consultant’s
disability (as defined in paragraph 5.b. of the Employment Agreement) or
death:  (i) the Company may
immediately and prospectively terminate any further payments or other
consideration recited in Paragraphs 4.b., 4.c., 4.d., and/or 4.e. of this
Agreement, by written notice to Consultant or his estate or guardian, as
applicable except that any consideration earned and/or billed prior to the date
of disability or death, but not yet paid, shall be paid in the normal course
when due; and (2) the Company shall not be relieved from the obligation to
pay the M&A Consulting Fee as required by Paragraph 4.a. of this Agreement,
to Consultant or his estate or guardian, as applicable, provided, however, that
such M&A Consulting Fee shall be reduced to the amount of TWO HUNDRED
THIRTY-ONE THOUSAND AND NO/100 DOLLARS ($231,000.00), and Company shall not be
required to pay in excess of that reduced amount.

 

d.             Information
Return.  Upon termination of this
Agreement for any reason, Consultant shall immediately return all Company
property, documents and business information to the Company, as directed.

 

4.             Consideration.

 

a.             M&A
Consulting Fee.  The Company shall
pay Consultant the total sum of TWO HUNDRED AND SIXTY-NINE THOUSAND, FIVE
HUNDRED AND NO/100 DOLLARS ($269,500.00) for M&A Consulting under this
Agreement (the “M&A Consulting Fee”).  The M&A Consulting Fee will be paid out
over a twenty-five (25) month period, in monthly installments of TEN THOUSAND,
SEVEN HUNDRED AND EIGHTY DOLLARS AND NO/100 ($10,780.00), with the first
payment to be made on June 30, 2008 and the last payment to be made on June 30,
2010.

 

b.             Success Fee.  The Company shall pay Consultant a fee for
originating merger and acquisition transactions that are consummated by the
Company or any of its subsidiaries (the “Success Fee”), as follows:

 

i.              The Company shall
pay Consultant a fee equal to 3% of the first $1 million, 2% of the second $1
million, and 1% of every $1 million above the first $2 million, based on the
Total Value (as defined below) of each transaction that Consultant
originates:  (A) between April 30,
2008 and June 30, 2010, for those transactions that close prior to June 30,
2011; and/or (B) prior to April 30, 2008, but with no detailed
financial information submitted, that close prior to June 30, 2011.  The “Total Value” of a transaction is
determined by the amount of cash paid by the Company or its subsidiary, the
merchantable securities or equity instruments issued by the Company or its
subsidiary, the amount of debt instruments issued by the Company or its
subsidiary, and/or the principal amount of indebtedness for borrowed money
assumed by the Company or any of its subsidiaries in connection with a
transaction, in each case in connection with any such transaction; provided,
however, that any contingent portion of any such consideration payable in
connection with any such transaction shall be determined and any fee related
thereto shall be paid if and when such contingent future payment obligations
arise, and all other fees due shall be paid within fifteen (15) days of closing
of the transaction, for purposes of this Paragraph and Paragraph 4.b.ii. of this
Agreement.

 

ii.             The Company shall
pay Consultant a fee of 1.5% of the first $1 million, 1% of the second $1
million, and 0.5% of every $1 million above the first $2 million, of the 

 

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Total Value of each transaction that Consultant originates prior to April 30,
2008, with detailed financial information submitted, that close prior to June 30,
2011.

 

c.             Litigation
Support Fee.  The Company shall pay
the Consultant a fee of ONE HUNDRED AND TWENTY-FIVE DOLLARS AND NO/100
($125.00) per hour, up to a maximum of ONE THOUSAND DOLLARS AND NO/100
($1,000.00) per day, for rendering litigation support services as described in
Paragraph 2.b. of this Agreement (the “Litigation Support Fee”), in
addition to expense reimbursement as provided in Paragraph 5 of this
Agreement.  The Company will pay the
Litigation Support Fee only for actual time billed by the Consultant to the
Company for litigation support as described in Paragraph 2.b. of this
Agreement.

 

d.             Other Matters Fee.  The Company shall pay the Consultant a fee of
ONE HUNDRED AND TWENTY-FIVE DOLLARS AND NO/100 ($125.00) per hour, up to a
maximum of ONE THOUSAND DOLLARS AND NO/100 ($1,000.00) per day, for rendering
M&A related services not originated by Consultant, and other services not
included in M&A Consulting and Litigation Support (“Other Matters Fee”),
in addition to expense reimbursement as provided in Paragraph 5 of this
Agreement.  The Company will pay the
Other Matters Fee only for actual time billed by the Consultant to the Company
for working on other matters in accordance with this Agreement.

 

e.             COBRA Premium
Reimbursement.  Following the
Resignation Date, during the required period of continuation coverage within
the meaning of Code §4980B(f)(2)(B)(i)(I), Consultant shall be reimbursed by
the Company within five (5) days of each payment by Consultant of the
monthly premium payable to continue coverage of Consultant and his dependents
under the Company’s group health plan or plans, in an amount equal to the
amount of that monthly premium payable by Consultant for such continuation
coverage.

 

5.             Expense
Reimbursement.  The Company shall
reimburse Consultant for Consultant’s reasonable travel, meal, entertainment,
communication, and other business expenses incurred in connection with the
performance of consulting services and litigation support under this Agreement;
provided, however, that Consultant shall bill the Company for such
expenses within forty-five (45) days of expenditure, and that on a not less than
monthly basis, Consultant shall provide the Company with a written accounting
of such expenses together with such supporting documentation and other
substantiation of reimbursable expenses as will conform to Internal Revenue
Service requirements.

 

6.             E-Mail
Usage.  During the first sixty (60)
days of the term of this Agreement, the Consultant may retain and use his
Company e-mail account and internet access, subject to Company policy and
practice regulating e-mail and internet usage.

 

7.             Mutual
General Releases.

 

a.             Consultant,
individually, and on behalf of, as applicable, Consultant’s current, former,
and successor attorneys, representatives, guardians, heirs, assigns,
successors, executors, administrators, insurers, servants, agents, employees,
affiliates, and entities does hereby GENERALLY RELEASE, ACQUIT, AND DISCHARGE
the Company, and as applicable, its respective current, former, and successor
officers, employees, agents, attorneys, assigns, representatives, directors,
shareholders, owners, servants, administrators, insurers, parents,
subsidiaries, affiliates, and related corporations, firms, associations,
partnerships, and entities, specifically including the Other Heelys Releasees
(as defined below), from any and all Claims and Controversies (as defined
below), including without limitation, any and all obligations under the
Employment Agreement; provided, however, that nothing in this Agreement
will be 

 

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considered a release of Consultant’s claims, if any, for vested
employment benefits pursuant to the Employee Retirement Income Security Act of
1974 as amended, worker’s compensation insurance coverage, unemployment
insurance coverage, and/or the Company’s breach of this Agreement.

 

b.             The Company does
hereby GENERALLY RELEASE, ACQUIT, AND DISCHARGE the Consultant, individually,
and as applicable, Consultant’s current, former, and successor attorneys,
representatives, guardians, heirs, assigns, successors, executors,
administrators, insurers, servants, agents, employees, affiliates, and
entities, from any and all Claims and Controversies; provided, however,
that nothing in this Agreement will be considered a release of the Company’s
claims, if any, for the Consultant’s breach of this Agreement.

 

c.             Notwithstanding
anything to the contrary herein, the Company’s obligations to Consultant under
that certain Indemnification Agreement, effective August 31, 2006 (the “Indemnification
Agreement”), and this Agreement are not released, are not affected, and
expressly survive the release herein in all respects.  Similarly, the Company’s indemnification
obligations to Consultant under Heelys, Inc.’s Articles of Incorporation
and ByLaws or at law are not released, are not affected, and expressly survive
the release herein.  As of the Effective
Date of this Agreement, to the Company’s knowledge, Consultant has fully
complied with the Indemnification Agreement.

 

8.             Definitions.

 

a.             For the purposes of
this Agreement, the term “Other Heelys Releasees” means all affiliates
of the Company and all of their respective officers and directors.

 

b.             For the purpose of
this Agreement, the term “Claims and Controversies” means the
following:  all claims, debts, damages,
demands, liabilities, benefits, suits in equity, complaints, grievances,
obligations, promises, agreements, rights, controversies, costs, losses,
remedies, attorneys’ fees and expenses, back pay, front pay, severance pay,
percentage recovery, injunctive relief, lost profits, emotional distress,
mental anguish, personal injuries, liquidated damages, punitive damages,
disability benefits, fraud, interest, expert fees and expenses, reinstatement,
other compensation, suits, appeals, actions, and causes of action, of whatever
kind or character, including, but not limited to, any dispute, claim, charge,
or cause of action arising under the Civil Rights Act of 1964, Title VII, 42
U.S.C. §§ 2000e et seq., as amended (including the Civil Rights Act of 1991),
the Civil Rights Act of 1866, 42 U.S.C. §§ 1981 et seq., as amended, the Equal
Pay Act, 29 U.S.C. §§ 201 et seq., as amended, the Americans with Disabilities
Act of 1990, 42 U.S.C. §§ 12101 et seq., as amended, the Age Discrimination in Employment Act, 29 U.S.C. §§ 621 et seq., as
amended, the Employee Retirement Income Security Act of 1974, 29
U.S.C. §§ 1001 et seq., as amended, the Fair Labor Standards Act of 1938, 29
U.S.C. §§ 201 et seq., as amended, the Family and Medical Leave Act, 29 U.S.C.
§§ 2601 et seq., as amended, the Labor Management Relations Act, 29 U.S.C. §§ 141
et seq., as amended, the Employee Polygraph Protection Act, 29 U.S.C. §§ 2001
et seq., as amended, RICO, 18 U.S.C. §§ 1961 et seq., as amended, the
Occupational Safety and Health Act, 29 U.S.C. §§ 651 et seq., as amended, the
Texas discrimination, retaliation, and wrongful discharge laws, including
without limitation Tex. Lab. Code §§ 21.001 et seq., 451.001, and 411.082, as
amended, Tex. Civ. Prac. & Rem. Code § 122.001, as amended, Tex. Gov’t.
Code §§ 431.005, 431.006, 554.001, and 554.002, as amended, Tex. Elec. Code §§
253.102, 276.001, and 276.004, as amended, and Tex. Health & Safety
Code §§ 81.102 and 165.002, as amended, the Texas pay day laws, including
without limitation Tex. Lab. Code §§ 61.001 et seq. and 62.001 et seq., as
amended, and all other constitutional, federal, state, local, and municipal law
claims, whether statutory, regulatory, common law or otherwise, 

 

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arising out of or relating to any and all disputes now existing between
Consultant and the Company, whether related to or in any way growing out of,
resulting from, or to result from the Consultant’s employment with the Company
and/or termination or resignation from employment with the Company, for or
because of any matter or thing done, omitted, or allowed to be done by, the
Consultant, the Company or the Other Heelys Releasees, for any incidents,
including those past and present, which existed at any time prior to and/or
contemporaneously with the Effective Date of this Agreement, including all
past, present, and future damages, injuries, costs, expenses, fees, effects,
and results in any way related to or connected with such incidents.

 

9.             Statement
of Understanding.  By executing this
Agreement, Consultant acknowledges that (a) Consultant has been given at
least twenty-one (21) days to consider the terms of this Agreement, and has
either considered it for that period of time or knowingly and voluntarily
waived the right to do so; (b) Consultant has been advised by virtue of
this part of the Agreement to consult with an attorney regarding the terms of
this Agreement; (c) Consultant has consulted with, or had sufficient
opportunity to consult with, an attorney of 
Consultant’s own choosing regarding the terms of this Agreement; (d) Consultant
has read this Agreement and fully understands the terms of this Agreement and
their import; (e) except as provided by this Agreement, Consultant has no
contractual right or claim to the payments and benefits described herein; (f) the
consideration provided for herein is good and valuable; and (g) Consultant
is entering into this Agreement voluntarily, of Consultant’s own free will, and
without any coercion, undue influence, threat, or intimidation of any
kind.  Consultant further acknowledges
that for purposes of the Heeling, Inc. 2006 Stock Incentive Plan, as
amended (the “Plan”), that his services hereunder will not be deemed to
be “Continuous Service” (as defined pursuant to the Plan); that the vesting of
his options issued under the Plan will only continue so long as he remains a
Director of the Company; and that Company makes no representation or warranty
with respect to the term of Consultant’s status as a Director of the Company.

 

10.           Revocation.  Within the seven (7) consecutive
calendar days following Consultant’s execution of this Agreement (the “Revocation
Period”), Consultant may revoke this Agreement by written notice sent by
BOTH fax and first class mail to the Company in care of its attorney, Kenneth
C. Broodo, Gardere Wynne Sewell LLP, 1601 Elm Street, Suite 3000, Dallas,
Texas  75201-4761, fax number (214)
999-3626.  If Consultant revokes this
Agreement, the Consultant shall have no right or entitlement to any of the
consideration described in Paragraph 4 or elsewhere in this Agreement.  Consultant understands that if the Company
does not receive notice of revocation prior to the expiration of the Revocation
Period, Consultant shall have forever waived the right to revoke this
Agreement, and this Agreement and all of its terms shall have full force and
effect.

 

11.           Restrictive
Covenants; Arbitration.  The
following contractual terms stated in the Employment Agreement, to the extent
that they apply post-employment, shall survive the execution of this Agreement
and continue in full force and effect: 
paragraphs 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 20, and 21 of
the Employment Agreement.  For the sake
of clarity, no non-compete covenants are intended to commence upon the
termination of this Agreement, and this Agreement is not intended to be
exclusive.

 

12.           Survival.  The terms and obligations stated in this
Paragraph and Paragraphs 1, 2.b., 3.b., 3.c., 5, 7, 8, 9, 11, 12, 13, 14, 15,
16, 17, 18, 19, 20, 21, 22, and 23 of this Agreement shall survive the
termination of this Agreement (regardless of the basis for termination), and
remain in full force and effect based on the terms as stated.  (All referenced Paragraphs include their
subparts unless otherwise specified.)

 

13.           Entire
Agreement.  This Agreement
constitutes the entire agreement of the Parties with regard to the subject
matter of this Agreement, and supersedes all prior and contemporaneous
negotiations and agreements, oral or written, with regard to the same subject
matter, except as otherwise stated herein.  All 

 

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prior and contemporaneous negotiations and
agreements regarding the subject matter of this Agreement are deemed
incorporated and merged into this Agreement and are deemed to have been
abandoned if not so incorporated, subject to the exceptions stated in
this Agreement.  No representations, oral
or written, are being relied upon by either Party in executing this Agreement
other than the express representations set forth in this Agreement.  The Parties have each entered into this
Agreement based on their own independent judgment.  This Agreement cannot be changed or
terminated without the express written consent of the Parties.

 

14.           Other
Documentation.  The Parties shall
promptly execute, acknowledge and deliver all further documents and instruments
that may be necessary or convenient to consummate this Agreement; and to
execute, acknowledge, attest and deliver all additional documents, instruments,
consents and approvals necessary or advisable to more fully evidence and
perfect each Party’s rights and obligations described in this Agreement.

 

15.           Non-Waiver.  One or more waivers of a breach of any
covenant, term, or provision of this Agreement by any Party shall not be
construed as a waiver of a subsequent breach of the same covenant, term or
provision; nor shall it be considered a waiver of any other then existing,
preceding, or subsequent breach of a different covenant, term, or provision.

 

16.           Authority.  The Consultant hereby acknowledges and
expressly warrants and represents for himself, and for his predecessors,
successors, assigns, heirs, executors, administrators, and legal
representatives, as applicable, that he (a) is legally competent and
authorized to execute this Agreement; (b) has not assigned, pledged, or
otherwise in any manner, sold or transferred, either by instrument in writing
or otherwise, any right, title, interest, or claim that he may have by reason
of any matter described in this Agreement; (c) has the full right and
authority to enter into this Agreement and to consummate the covenants
contemplated herein; and (d) will execute and deliver such further
documents and undertake such further actions as may reasonably be required to
effect any of the agreements and covenants in this Agreement.  The Company hereby represents that this
Agreement has been duly authorized by the Company and that the person executing
this Agreement on behalf of the Company is authorized to execute this
Agreement.

 

17.           Severability.  If any provision or term of this Agreement is
held to be illegal, invalid, or unenforceable, such provision or term shall be
fully severable; this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised part of this
Agreement; and the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance from this Agreement.  Furthermore, in lieu of each such illegal,
invalid, or unenforceable provision or term there shall be added automatically
as a part of this Agreement another provision or term as similar to the
illegal, invalid, or unenforceable provision as may be possible and that is
legal, valid, and enforceable.

 

18.           Attorneys’
Fees in the Event of Breach.  Should
a Party to this Agreement make a claim against another Party to this Agreement
for a breach of any provision of this Agreement, the prevailing Party shall be
entitled to recover its reasonable attorneys’ fees, expenses, and costs.  Each Party shall have the right to seek
specific performance of this Agreement, and declaratory and injunctive relief.

 

19.           Governing
Law; Exclusive Venue.  All questions
concerning the construction, validity and interpretation of this Agreement and
its exhibits will be governed by and construed in accordance with the laws of
the State of Texas without giving effect to any choice of law or conflict of
law provision or rule (whether of Texas or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than Texas,
unless preempted by federal law or otherwise stated in this Agreement.  The 

 

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Parties consent, stipulate and agree that the
exclusive venue of any lawsuit, arbitration, or other proceeding referenced in,
arising from, or related to this Agreement shall be Dallas, Texas.

 

20.           Successors
and Assigns.  All of the provisions
of this Agreement shall be binding upon and inure to the benefit of the Parties
hereto and their respective heirs, if any, successors, and assigns; provided,
however, that the Consultant shall not assign any of his rights under this
Agreement, or delegate the performance of any of his duties hereunder, without
the prior written consent of the Company. 
The merger or consolidation of the Company into or with any other entity
shall not terminate this Agreement.

 

21.           Construction.  The Parties were each fully represented by
counsel in negotiating this Agreement. 
The language of all parts of this Agreement shall in all cases be
construed as a whole, according to its fair meaning, and not strictly for or
against any Party.  As used in this
Agreement, the singular or plural number shall be deemed to include the other
whenever the context so indicates or requires.

 

22.           Counterparts.  This Agreement may be executed in multiple
originals and/or counterparts, each of which shall be deemed an original for
all purposes, but all such counterparts together shall constitute one and the
same instrument.

 

23.           Headings.  The headings of this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.

 

{THE REMAINDER OF THIS PAGE
INTENTIONALLY LEFT BLANK.}

 

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IN WITNESS WHEREOF, THE PARTIES, INTENDING TO
BE LEGALLY BOUND BY THIS AGREEMENT, HAVE DULY EXECUTED THIS AGREEMENT, AS OF
THE DATES INDICATED BELOW:

 

	
  COMPANY:

  	
   

  	
  HEELYS, INC., A DELAWARE CORPORATION

  	
   

  
	
  Address:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  3200 Belmeade Drive

  	
   

  	
  By:

  	
  /s/ Gary L. Martin 

  
	
  Suite 100

  	
   

  	
  Name:

  	
  Gary L. Martin

  
	
  Carrollton TX 75006

  	
   

  	
  Title:  

  	
  Chairman of the Board

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date: April 30, 2008

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  CONSULTANT:

  	
   

  	
  PATRICK F. HAMNER

  	
   

  
	
  Address:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7327 Centenary Avenue

  	
   

  	
  /s/ Patrick F. Hamner  

  
	
  Dallas, TX 75225

  	
   

  	
   

  
	
   

  	
   

  	
  Date: April 30, 2008

  	
   

  
					

 

 

 

9Execution Copy

                                                                    Exhibit 10.1
                                                                    ------------

                          FORECLOSURE-RELATED AGREEMENT

         THIS FORECLOSURE-RELATED AGREEMENT (the "Agreement") is made and
entered into as of April 30, 2008, by and among Petrol Oil and Gas, Inc., a
Nevada corporation ("POIG"), Neodesha Pipeline, Inc., a Nevada corporation
("Neodesha"), Coal Creek Pipeline, Inc., a Nevada corporation ("Coal Creek,"
POIG, Neodesha and Coal Creek are collectively referred to as "Petrol"), LV
Administrative Services, Inc. ("LV"), administrative and collateral agent for
Laurus Master Fund, Ltd. ("Laurus"), Valens Offshore SPV I, Ltd. ("Valens
Offshore"), Valens U.S. SPV I, LLC ("Valens US"), Calliope Capital Corporation
("Calliope") and Pallas Production Corp. ("Pallas", and together with, Laurus,
Valens Offshore, Valens US and Calliope, the "Holders").

                                    RECITALS:

         WHEREAS, Petrol has outstanding obligations owing to Holders under that
certain (i) Secured Convertible Term Note, dated October 28, 2004, in the
principal amount of $8,000,000 issued by Petrol to Laurus and subsequently
assigned in full to Pallas (as amended, restated, modified and/or supplemented
from time to time, the "Note A"), (ii) Secured Term Note, dated October 31,
2005, in the principal amount of $10,000,000, issued by Petrol to Laurus and
subsequently assigned in part to Valens US, Valens Offshore and Calliope (as
amended, restated, modified and/or supplemented from time to time, the "Note
B"), (iii) Secured Term Note, dated March 31, 2006, in the principal amount of
$5,000,000 issued by Petrol to Laurus and subsequently assigned in full to
Calliope (as amended, restated, modified and/or supplemented from time to time,
the "Note C") and (iv) Secured Term Note, dated May 26, 2006, in the principal
amount of $10,000,000 issued by Petrol to Laurus and subsequently assigned in
full to Calliope (as amended, restated, modified and/or supplemented from time
to time, the "Note D" , and collectively with Note A, Note B and Note C, the
"Notes", and all other obligations of Petrol associated therewith (the
"Outstanding Obligations"); and

         WHEREAS, Petrol acknowledges, ratifies and confirms that, all of the
terms, conditions, representations and covenants contained in the Loan Documents
(as defined below) are in full force and effect and shall remain in full force
and effect after giving effect to the execution and effectiveness of the this
Agreement, subject to the releases and other terms and conditions set forth
herein; and

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         WHEREAS, Petrol acknowledges, ratifies and confirms that the defined
term " Outstanding Obligations", includes, without limitation, all obligations
and liabilities of Petrol and its subsidiaries under this Agreement and the Loan
Documents (as defined below) to LV and each Holder (including interest accruing
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, whether or not a claim for
post-filing or post-petition interest is allowed or allowable in such
proceeding), whether now existing or hereafter arising, direct or indirect,
liquidated or unliquidated, absolute or contingent; and

         WHEREAS, the Outstanding Obligations are secured by various mortgages
and other fixed and mixed assets and real and personal property pursuant to
security and other agreements (collectively with the Notes, the "Loan
Documents") covering assets or other rights to which Petrol has rights (all such
assets, rights and collateral, collectively, the "Collateral"), a portion of
which are assets and rights referred to as the "Petrol-Neodesha Project,"
located in Neosho and Wilson Counties, Kansas, consisting of, among other
Collateral, mortgages, and real, personal property and fixed and mixed assets
used in connection with the Petrol-Neodesha Project, and shall include, without
limitation, all undeveloped Neodesha sites and all gas gathering systems and
other rights relating to the Petrol-Neodesha Project (collectively, the
"Neodesha Collateral"); and

         WHEREAS, there is presently due and owing to the Holders as of April
30, 2008, the aggregate principal sum of $26,605,296.16 under the Notes, which,
together with accrued interest and accrued default fees thereon and certain
costs and expenses of the Holders total, as of the date hereof, $35,730,434.08
and which amount is owed to the Holders; and

                  WHEREAS, on April 9, 2008, LV delivered to Petrol a letter
asserting certain events of default under the Loan Documents and related
documents and accelerating the indebtedness pursuant to the terms thereof
(collectively, the "Designated Defaults"); and

         WHEREAS, Petrol acknowledges the occurrence and the continuance of the
Designated Defaults, and by reason of the existence of the Designated Defaults,
the Holders have full legal right to exercise their rights and remedies under
the Loan Documents, such remedies include, but are not limited to, the right to
foreclose on the Neodesha Collateral; and

         WHEREAS, Petrol and Holder desire to conduct an orderly foreclosure of
the Neodesha Collateral subject to the terms and conditions set forth herein.

                                    AGREEMENT

         In consideration of the foregoing Recitals, the mutual promises and
covenants contained herein, LV, the Holders and Petrol agree as follows:

               1.   Intention to Foreclose.

               (a) LV and the Holders hereby provide notice of their intention
          to institute foreclosure proceedings with respect to the Outstanding
          Obligations and the Neodesha Collateral, and Petrol acknowledges that

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          it has no basis to defend, nor object to, such proceedings and Petrol
          shall refrain from unduly delaying, and it will reasonably assist, LV
          and the Holders in the expeditious completion of the judicial
          foreclosure proceedings and the resulting public judicial foreclosure
          sale (the "Foreclosure Sale"). LV and the Holders agree to proceed
          without undue delay (attributable to them) to the Foreclosure Sale. In
          the event LV, the Holders or any affiliate of LV or the Holders
          acquire the Neodesha Collateral at the Foreclosure Sale, the Neodesha
          Collateral shall be taken in full satisfaction of all Outstanding
          Obligations as of the date of Foreclosure Sale.

               (b) Holders would bid the entire amount of the Outstanding
          Obligations plus all accrued interest and other sums due and owing
          from Petrol to LV and the Holders at the Foreclosure Sale or otherwise
          ensure that there is no deficiency judgment or other sums of money due
          and owing from Petrol to the Holders (or their successors and assigns)
          following the Release Date (as defined below).

               (c) Petrol agrees that it shall not contest Holders' foreclosure
          proceedings with respect to the Foreclosure Sale and acknowledges that
          it has no basis to defend, nor object to, such proceedings and that it
          is in the best interests of Petrol to consent to the foreclosure
          referred to herein and to refrain from unduly delaying such
          proceedings. Petrol shall take all necessary steps to facilitate the
          Foreclosure Sale.

               2. Release of Non-Neodesha Collateral. On the later of the date
          of consummation of the Foreclosure Sale and the date upon which the
          judgment for judicial foreclosure of the Neodesha Collateral becomes
          final and non-appealable (the "Release Date"), LV and the Holders
          shall release Petrol of all remaining amounts due and owing to the
          Holders, including the Outstanding Obligations, and properties subject
          to a mortgage or security interest pledged to the Holders (other than
          the Neodesha Collateral) will be released by the Holders, and LV and
          the Holders shall immediately deliver to Petrol each of the originally
          executed Notes and each originally executed Prior Warrant (as defined
          below) for cancellation. By way of further assurances, LV and the
          Holders shall take all steps, and execute and deliver forthwith upon
          demand by Petrol all documents, reasonably necessary to effect the
          foregoing releases. Petrol will be responsible for preparation of the
          documents, together with any filing fees or other official charges
          related thereto.

               3. Mutual Releases.

               (a) Effective on the Release Date, and without any further action
          by the parties hereto, Petrol, on behalf of itself and its
          subsidiaries and affiliates, hereby releases, remises, acquits and
          discharges LV and the Holders and their respective employees, agents,
          representatives, consultants, attorneys, fiduciaries, servants,
          officers, directors, managers, members, partners, predecessors,
          successors and assigns, subsidiary corporations, parent corporations,
          related corporate divisions, investment funds and affiliates (all of
          the foregoing hereinafter called the "Laurus Released Parties"), from
          any and all actions and causes of action, judgments, executions,
          suits, debts, claims, demands, liabilities, obligations, damages and
          expenses of any and every character, known or unknown, direct and/or
          indirect, at law or in equity, of whatsoever kind or nature,

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          heretofore arising, for or because of any matter or things done,
          omitted or suffered to be done by any of the Laurus Released Parties
          prior to and including the date of execution hereof, and in any way
          directly arising out of or in any way connected to the Collateral, the
          Notes, this Agreement, the Loan Documents and the Outstanding
          Obligations (all of the foregoing hereinafter called the "Laurus
          Released Matters"). Petrol acknowledges that the agreements in this
          paragraph are intended to be in full satisfaction of all or any
          alleged injuries or damages arising in connection with the Laurus
          Released Matters. Petrol acknowledges, represents and warrants to LV
          and the Holders that it has not purported to transfer, assign or
          otherwise convey any right, title or interest of such Petrol in any
          Laurus Released Matter to any other person and that the foregoing
          constitutes a full and complete release of all Laurus Released
          Matters.

               (b) Effective on the Release Date, and without any further action
          by the parties hereto, and in addition to the releases set forth in
          Section 2, above, LV and each Holder hereby releases, remises, acquits
          and discharges Petrol and its employees, agents, representatives,
          consultants, attorneys, fiduciaries, servants, officers, directors,
          partners, predecessors, successors and assigns, subsidiary
          corporations, parent corporations, and related corporate divisions
          (all of the foregoing hereinafter called the "Petrol Released
          Parties"), from any and all actions and causes of action, judgments,
          executions, suits, debts, claims, demands, liabilities, obligations,
          damages and expenses of any and every character, known or unknown,
          direct and/or indirect, at law or in equity, of whatsoever kind or
          nature, heretofore arising, for or because of any matter or things
          done, omitted or suffered to be done by any of the Petrol Released
          Parties prior to and including the date of execution hereof, and in
          any way directly arising out of or in any way connected to the
          Neodesha Collateral, the Notes, this Agreement, and the Loan Documents
          and the Outstanding Obligations (all of the foregoing hereinafter
          called the "Petrol Released Matters"). LV and each Holder acknowledges
          that the agreements in this paragraph are intended to be in full
          satisfaction of all or any alleged injuries or damages arising in
          connection with the Petrol Released Matters. LV and each Holder
          acknowledges, represents and warrants to Petrol that it has not
          purported to transfer, assign or otherwise convey any right, title or
          interest of such party in any Petrol Released Matter to any other
          person and that the foregoing constitutes a full and complete release
          of all Petrol Released Matters.

               4. Overriding Royalty Interests. Effective on the Release Date,
          the Holders shall reassign to Petrol the three percent (3%) overriding
          royalty interest in the mineral leases located at Petrol's Coal Creek
          Project, and thereafter Holders shall, upon demand by Petrol, transfer
          to Petrol any other interest Holders may have in any non-Neodesha
          Collateral, whether real, personal, fixed or mixed, owned by Petrol,
          on the Release Date.

               5. Operating/Services Agreement. If and only if LV, any Holder or
          any affiliate of LV or the Holders acquires the Neodesha Collateral at
          the Foreclosure Sale (the "Laurus-Valens Acquiring Party"), the
          Laurus-Valens Acquiring Party and Petrol intend to enter into an
          operating/servicing agreement pursuant to which Petrol shall continue
          to operate such properties on behalf of the Laurus-Valens Acquiring

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          Party. Such agreement would become effective only if there is a
          Laurus-Valens Acquiring Party and shall be effective on the date of
          consummation of the Foreclosure Sale ( the "Sale Date"). Within thirty
          (30) days of the date hereof, the parties hereto will negotiate in
          good faith for the purpose of entering into an operating/services
          agreement for this purpose, which agreement would include usual and
          customary terms and conditions for the provision of well and lease
          operating services.

               6. Warrants. Effective on the Release Date, all warrants for the
          purchase of securities of Petrol issued to Holders in connection with
          the Outstanding Obligations that are issued and outstanding on the
          Release Date (the "Prior Warrants") shall be cancelled and replaced
          with warrants to purchase an aggregate of 1,000,000 shares of common
          stock of Petrol at an initial exercise price of $0.20, in the form
          attached hereto as Exhibit A.

               7. Block Account Agreement. Reference is made to that certain
          letter agreement, dated October 28, 2004, by and among Petrol, the
          Holders and Cornerstone Bank ("Bank"), as amended by that certain
          letter dated November 5, 2007, and further amended by that certain
          letter agreement, dated April 21, 2008 (the "Block Account
          Agreement"). All proceeds derived from oil and gas production on or
          after the Sale Date from the Neodesha Collateral, whether or not
          deposited in the Bank bank account to which the Block Account
          Agreement applies, and the $75,000.00 minimum balance under the Block
          Account Agreement shall be property of the Holders, free and clear of
          all security interests, liens and encumbrances, and shall be promptly
          remitted by Petrol to LV, on behalf of the Holders. LV and the Holders
          will not give Bank a Payment Direction Notice (as defined in the Block
          Account Agreement) on or prior to the Sale Date.

               8. Representations and Warranties. Petrol hereby represents and
          warrants to LV and Holders as follows:

               (a) Corporate Power; Authorization. Petrol has the corporate
          power, and has been duly authorized by all requisite corporate action,
          to execute and deliver this Agreement and to perform its obligations
          hereunder and thereunder. This Agreement has been duly executed and
          delivered by Petrol.

               (b) Enforceability. This Agreement is the legal, valid and
          binding obligation of Petrol, enforceable against Petrol in accordance
          with its terms.

               (c) No Violation. Petrol's execution, delivery and performance of
          this Agreement does not and will not (i) violate any law, rule,
          regulation or court order to which Petrol is subject; or (ii) conflict
          with or result in a breach of Petrol's organizational documents or any
          agreement or instrument to which Petrol is party or by which it or its
          properties are bound.

               9. Representations and Warranties. LV and the Holders hereby
          represent and warrant to Petrol as follows:

               (a) Corporate Power; Authorization. LV and each Holder has the
          corporate or company power, and has been duly authorized by all
          requisite corporate or company action, to execute and deliver this

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          Agreement and to perform its obligations hereunder and thereunder.
          This Agreement has been duly executed and delivered by LV and the
          Holders.

               (b) Enforceability. This Agreement is the legal, valid and
          binding obligation of LV and the Holders, enforceable against LV and
          the Holders in accordance with its terms.

               (c) No Violation. The execution, delivery and performance of this
          Agreement by LV and the Holders does not and will not (i) violate any
          law, rule, regulation or court order to which LV or any Holder is
          subject; or (ii) conflict with or result in a breach of the
          organizational documents of LV and the Holders or any agreement or
          instrument to which LV or any Holders is party or by which it or its
          properties are bound.

               10. Bankruptcy Considerations. For purposes hereof, the term
          "Proceeding" shall mean any case, suit, or proceeding or other action
          for relief, protection, reorganization, liquidation, dissolution or
          similar relief for debtors under any local, state, federal or other
          insolvency law or laws providing relief for debtors including, but not
          limited to a voluntary or involuntary petition under Title 11 of the
          United States Code (the "Bankruptcy Code"). Petrol agrees that in the
          event Petrol or any of its subsidiaries shall commence, or be the
          subject of, any Proceeding (A) under any existing or future law of any
          jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
          reorganization or relief of debtors, seeking to have an order for
          relief entered with respect to it, or seeking to adjudicate it a
          bankrupt or insolvent, or seeking reorganization, arrangement,
          adjustment, winding-up, liquidation, dissolution, composition or other
          relief with respect to it or its debts, or (B) seeking appointment of
          a receiver, trustee, custodian or other similar official for it or for
          all or any substantial part of its assets, or shall make a general
          assignment for the benefit of its creditors, or (C) seeking issuance
          of a warrant of attachment, execution, distraint or similar process
          against all or any substantial part of its assets, or an order of
          relief is granted, then, in consideration of the promises provided in
          this Agreement and other good and valuable consideration, the receipt
          and sufficiency of which Petrol acknowledges, Petrol agrees as
          follows:

               (a) Prohibition Against Financing or Use of Cash Collateral. This
          Agreement, without modification, shall be deemed to be a stipulation
          among LV, the Holders and Petrol providing that Petrol is not entitled
          to continued financing hereunder of under the Loan Documents, the use
          of cash collateral or "priming" financing in any manner, unless
          consented to in writing by the LV and the Holders, in their sole and
          absolute discretion, and approved by an order of the United States
          Bankruptcy Court in such Proceeding (the "Bankruptcy Court"). In the
          event that LV and the Holders consent to continued financing pursuant
          to 11 U.S.C. ss. 364 of the Bankruptcy Code, Petrol agrees that Petrol
          shall cooperate in and shall not in any way resist having this
          Agreement, become and be fully incorporated in an order entered by the
          Bankruptcy Court. Such Order shall incorporate all the terms provided
          by this Agreement.

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               (b) Relief From Automatic Stay. LV and the Holders shall be
          entitled at all times to relief from the automatic stay under Section
          362 of the Bankruptcy Code, any stay or other form of creditor
          restraint imposed under Section 105 or any other section of the
          Bankruptcy Code or any other stay or creditor restraint imposed under
          any other Proceeding, any of which would adversely impact the rights
          and remedies that are available to LV and the Holders under this
          Agreement and the Loan Documents. Petrol, to the fullest extent
          permitted by law, knowingly, willingly, irrevocably and
          unconditionally consent to such relief and hereby irrevocably and
          unconditionally waive their right to object to the foregoing relief.
          Notwithstanding any other provision in the U.S Bankruptcy Code to the
          contrary, Petrol agrees that if a voluntary or involuntary bankruptcy
          petition is filed by or against Petrol (the "Bankruptcy Case"), in the
          Bankruptcy Case, Petrol will not contest a motion for relief from the
          automatic stay filed by LV or Holders pursuant to 11 U.S.C. ss. 362 to
          enforce its rights with respect to the Neodesha Collateral. Petrol
          fully understands and acknowledges that this Agreement represents a
          final attempt to resolve the financial problems of Petrol and that
          this Agreement is made conditioned on Petrol's agreement to permit the
          lifting of the automatic stay in the Bankruptcy Case as set forth
          herein. Petrol further acknowledges that it does not have, and does
          not expect to have, any equity in the Neodesha Collateral, and that
          the Neodesha Collateral is not, and is not expected to be, necessary
          to an effective reorganization within the meaning of 11 U.S.C. ss.
          362(d).

               (c) Waiver of Supplemental Stay. Petrol shall not assert or
          request any other party to assert that the automatic stay provided by
          Section 362 of the Bankruptcy Code or any other stay or creditor
          restraint imposed by any other Proceeding shall operate or be
          interpreted to stay, prevent, interdict, condition, reduce or inhibit
          the ability of LV and the Holders to enforce any rights they have by
          virtue of this Agreement or the Loan Documents or any other rights
          they have, whether now or subsequently acquired, against Petrol or any
          of it subsidiaries. Petrol shall not seek a supplemental stay or any
          other relief, whether injunctive or otherwise pursuant to Section 105
          of the Bankruptcy Code or any other provision of the Bankruptcy Code,
          or any provision of any other Proceeding to stay, prevent, interdict,
          condition, reduce or inhibit the ability of LV and the Holders to
          enforce any rights they have by virtue of this Agreement or the Loan
          documents, whether now or hereafter acquired, against Petrol or any of
          its subsidiaries.

               11. Waiver of Redemption Rights. To the fullest extent permitted
          by applicable law, Petrol hereby waives all redemption rights, if any,
          respecting the Neodesha Collateral and agrees not to insist upon, or
          plead, or in any manner whatsoever claim or take any benefit or
          advantage of, any stay or extension or moratorium law, and any
          exemption from execution or sale of the Neodesha Collateral.

               12. Conduct of Operations of Neodesha Collateral. Petrol
          covenants and agrees that, between the date of this Agreement and the
          Release Date, except as contemplated by this Agreement or as required
          by law, or LV shall otherwise consent in writing, which consent shall
          not be unreasonably withheld or delayed, the operation of the Neodesha
          Collateral shall be conducted only in, and Petrol shall not take any
          action except in, the ordinary course of business and in a manner
          consistent with past practice, and Petrol will use its commercially
          reasonable efforts to preserve substantially intact the Neodesha

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          Collateral, to preserve the present relationships of Petrol with
          customers, clients, suppliers and other persons with which Petrol has
          significant business relations and to maintain in full force and
          effect all permits and licenses necessary for the conduct of the
          business of operating the Neodesha Collateral. Petrol further
          covenants and agrees that on the first day of each month, commencing
          May 1, 2008, it will provide monthly revenue, operating and general
          expense statements to LV relating to the operations of the
          Petrol-Neodesha Project.

               13. Effect and Construction of Agreement. Except as expressly
          provided herein, the Loan Documents shall remain in full force and
          effect in accordance with their respective terms, and this Agreement
          shall not be construed to:

               (a) impair the validity, perfection or priority of any lien or
          security interest securing the Loans Documents;

               (b) waive or impair any rights, powers or remedies of the Holders
          under the Loan Documents prior to the Release Date; or

               (c) make any additional loans or other extensions of credit to
          Petrol.

This Agreement shall be construed without regard to any presumption or rule
requiring that it be construed against the party causing this Agreement or any
part hereof to be drafted.

               14. Expenses. Each party shall pay its costs, fees and expenses
          (including attorneys' fees) incurred in connection with the
          negotiation, preparation, administration and enforcement of this
          Agreement, provided, in the event of a breach of this Agreement, the
          prevailing party, if any, may recover reasonable attorneys' fees as
          additional damages; provided, however, Petrol acknowledges that,
          pursuant to the Loan Documents, the costs and expenses of LV's and the
          Holder's legal counsel will be added to the amount of the Outstanding
          Obligations.

               15. 8-K Filing. Petrol hereby agrees to, no later than five (5)
          days after the date hereof, file a current report on Form 8-K
          disclosing the potential public Foreclosure Sale and the other
          transactions set forth in this Agreement.

               16. Miscellaneous.

               (a) Further Assurance. If any further action is reasonably
          necessary to carry out the purposes of this Agreement or the
          transactions contemplated by this Agreement, the proper officers of
          Petrol, LV and the Holders shall execute such other and further
          documents and instruments and take such further action as any party
          hereto may reasonably request.

               (b) Benefit of Agreement. This Agreement shall be binding upon
          and inure to the benefit of and be enforceable by the parties hereto,
          their respective successors and assigns. No other person or entity
          shall be entitled to claim any right or benefit hereunder, including,
          without limitation, the status of a third-party beneficiary of this
          Agreement.

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               (c) Entire Agreement. This Agreement, together with the Loan
          Documents, constitutes the entire agreement and understanding among
          the parties relating to the subject matter hereof, and supersedes all
          prior proposals, negotiations, agreements and understandings relating
          to such subject matter. In entering this Agreement, the parties hereto
          acknowledge that they are relying on no statement, representation,
          warranty, covenant or agreement of any kind made by any other party
          hereto or any employee or agent of such party, except as expressly
          provided for herein.

               (d) Severability. If any provision of this Agreement shall be
          held invalid or unenforceable in whole or in part in any jurisdiction,
          such provision shall, as to such justification, be ineffective to the
          extent of such invalidity or enforceability without in any manner
          affecting the validity or enforceability of such provision in any
          other jurisdiction or the remaining provisions of this Agreement in
          any jurisdiction.

               (e) Governing Law. This Agreement shall be governed by and
          construed in accordance with the internal substantive laws of the
          State of New York, without regard to the choice of law principles of
          such state.

               (f) Counterparts; Telecopied Signatures. This Agreement may be
          executed in any number of counterparts and by different parties to
          this Agreement on separate counterparts, each of which, when so
          executed, shall be deemed an original, but all such counterparts shall
          constitute one and the same agreement. Any signature delivered by a
          party by facsimile transmission shall be deemed to be an original
          signature hereto.

               (g) Notices. Any notices with respect to this Agreement shall be
          given in the manner provided for in the Loan Documents, except that
          notices to Petrol shall be made to the following addresses:

                   Petrol Oil and Gas, Inc.
                   11020 King Street, Suite 375
                   Overland Park, KS 66210
                   Attn:  Loren Moll, Chief Executive Officer

                   with a copy to:

                   Stinson Morrison Hecker LLP
                   1201 Walnut Street, Suite 2900
                   Kansas City, MO 64106
                   Attn:  Craig L. Evans

               (h) Amendment. No amendment, modification, rescission, waiver or
          release of any provision of this Agreement shall be effective unless
          the same shall be in writing and signed by the parties hereto.

                         [signatures on following pages]

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         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

PETROL OIL AND GAS, INC.

By:  /s/
   ----------------------------------------------
          Loren Moll, Chief Executive Officer

NEODESHA PIPELINE, INC.

By:  /s/
   ----------------------------------------------
          Loren Moll, Chief Executive Officer

COAL CREEK PIPELINE, INC.

By:  /s/
   ----------------------------------------------
          Loren Moll, Chief Executive Officer

LV ADMINISTRATIVE SERVICES, INC.,
as Agent

By:  /s/
   ----------------------------------------------
          Name:
          Title:

                                       10

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                                                                  Execution Copy

LAURUS MASTER FUND, LTD.
By:  Laurus Capital Management, LLC,
        its investment manager

By:  /s/
   ----------------------------------------------
          Name:
          Title:

VALENS OFFSHORE SPV I, LTD.
By:  Valens Capital Management, LLC,
        its investment manager

By:  /s/
   ----------------------------------------------
          Name:
          Title:

VALENS U.S. SPV I, LLC
By:  Valens Capital Management, LLC,
        its investment manager

By:  /s/
   ----------------------------------------------
          Name:
          Title:

CALLIOPE CAPITAL CORPORATION
By:  Laurus Capital Management, LLC,
        its investment manager

By:  /s/
   ----------------------------------------------
          Name:
          Title:

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PALLAS PRODUCTION CORP.
By:  Laurus Capital Management, LLC,
        its investment manager

By:  /s/
   ----------------------------------------------
          Name:
          Title:

                                       12

<PAGE>

                                    EXHIBIT A

     THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON
     EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
     SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.
     THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
     WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
     HYPOTHECATED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
     STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND ANY APPLICABLE
     STATE SECURITIES LAWS OR (B) AN EXEMPTION FROM SUCH REGISTRATION
     REQUIREMENTS.

          Right to Purchase up to __________ Shares of Common Stock of
                            Petrol Oil and Gas, Inc.
                   (subject to adjustment as provided herein)

                      FORM OF COMMON STOCK PURCHASE WARRANT

No. _________________                                Issue Date:  ________, 2008

         Petrol Oil and Gas, Inc., a corporation organized under the laws of the
State of Nevada (the "Company"), hereby certifies that, for value received,
___________________, or assigns (the "Holder"), is entitled, subject to the
terms set forth below, to purchase from the Company (as defined herein) from and
after the Issue Date of this Warrant and at any time or from time to time before
5:00 p.m., New York time, through the close of business , 2008 (the "Expiration
Date"), up to __________ fully paid and non-assessable shares of Common Stock
(as hereinafter defined), $0.01 par value per share, at the applicable Exercise
Price per share (as defined below). The number and character of such shares of
Common Stock and the applicable Exercise Price per share are subject to
adjustment as provided herein.

         As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:

               (a) Common Stock" means (i) the Company's Common Stock, par value
          $0.01 per share; and (ii) any other securities into which or for which
          any of the securities described in the preceding clause (i) may be
          converted or exchanged pursuant to a plan of recapitalization,
          reorganization, merger, sale of assets or otherwise.

               (b) "Company" means Petrol Oil and Gas, Inc. and any person or
          entity which shall succeed, or assume the obligations of, Petrol Oil
          and Gas, Inc. hereunder.

               (c) "Exercise Price" means a price of $0.20 per share, subject to
          adjustment as provided herein.

<PAGE>

               (d) "Other Securities" means any stock (other than Common Stock)
          and other securities of the Company or any other person (corporate or
          otherwise) which the Holder at any time shall be entitled to receive,
          or shall have received, on the exercise of this Warrant, in lieu of or
          in addition to Common Stock, or which at any time shall be issuable or
          shall have been issued in exchange for or in replacement of Common
          Stock or Other Securities pursuant to Section 4 or otherwise.

          1. Exercise of Warrant.

             1.1 Number of Shares Issuable upon Exercise. From and after the
date hereof through and including the Expiration Date, the Holder shall be
entitled to receive, upon exercise of this Warrant in whole or in part, by
delivery of an original or fax copy of an exercise notice in the form attached
hereto as Exhibit A (the "Exercise Notice"), shares of Common Stock of the
Company, subject to adjustment pursuant to Section 4.

             1.2 Fair Market Value. For purposes hereof, the "Fair Market Value"
of a share of Common Stock as of a particular date (the "Determination Date")
shall mean:

               (a) If the Company's Common Stock is traded on the American Stock
          Exchange or another national exchange or is quoted on the National or
          Capital Market of The Nasdaq Stock Market, Inc. ("Nasdaq"), then the
          closing or last sale price, respectively, reported for the last
          business day immediately preceding the Determination Date.

               (b) If the Company's Common Stock is not traded on the American
          Stock Exchange or another national exchange or on the Nasdaq but is
          traded on the NASD Over The Counter Bulletin Board, then the mean of
          the average of the closing bid and asked prices reported for the last
          business day immediately preceding the Determination Date.

               (c) Except as provided in clause (d) below, if the Company's
          Common Stock is not publicly traded, then as the Holder and the
          Company agree or in the absence of agreement by arbitration in
          accordance with the rules then in effect of the American Arbitration
          Association, before a single arbitrator to be chosen from a panel of
          persons qualified by education and training to pass on the matter to
          be decided.

               (d) If the Determination Date is the date of a liquidation,
          dissolution or winding up, or any event deemed to be a liquidation,
          dissolution or winding up pursuant to the Company's charter, then all
          amounts to be payable per share to holders of the Common Stock
          pursuant to the charter in the event of such liquidation, dissolution
          or winding up, plus all other amounts to be payable per share in
          respect of the Common Stock in liquidation under the charter, assuming
          for the purposes of this clause (d) that all of the shares of Common
          Stock then issuable upon exercise of this Warrant are outstanding at
          the Determination Date.

1.3 Company Acknowledgment. The Company will, at the time of the exercise of
this Warrant, upon the request of the Holder acknowledge in writing its
continuing obligation to afford to the Holder any rights to which the Holder
shall continue to be entitled after such exercise in accordance with the

                                       2

<PAGE>

provisions of this Warrant. If the Holder shall fail to make any such request,
such failure shall not affect the continuing obligation of the Company to afford
to the Holder any such rights.

             1.4 Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the Holder pursuant to
Subsection 3.2, such bank or trust company shall have all the powers and duties
of a warrant agent (as hereinafter described) and shall accept, in its own name
for the account of the Company or such successor person as may be entitled
thereto, all amounts otherwise payable to the Company or such successor, as the
case may be, on exercise of this Warrant pursuant to this Section 1.

           2. Procedure for Exercise.

             2.1 Delivery of Stock Certificates, Etc., on Exercise. The Company
agrees that the shares of Common Stock purchased upon exercise of this Warrant
shall be deemed to be issued to the Holder as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares in accordance herewith. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within three (3) business days thereafter, the Company at its expense
(including the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the Holder, or as the Holder (upon
payment by the Holder of any applicable transfer taxes) may direct in compliance
with applicable securities laws, a certificate or certificates for the number of
duly and validly issued, fully paid and non-assessable shares of Common Stock
(or Other Securities) to which the Holder shall be entitled on such exercise,
plus, in lieu of any fractional share to which the Holder would otherwise be
entitled, cash equal to such fraction multiplied by the then Fair Market Value
of one full share, together with any other stock or other securities and
property (including cash, where applicable) to which the Holder is entitled upon
such exercise pursuant to Section 1 or otherwise.

             2.2 Exercise.

               (a) Payment may be made either (i) in cash by wire transfer of
          immediately available funds or by certified or official bank check
          payable to the order of the Company equal to the applicable aggregate
          Exercise Price, (ii) by delivery of this Warrant, or shares of Common
          Stock and/or Common Stock receivable upon exercise of this Warrant in
          accordance with the formula set forth in subsection (b) below, or
          (iii) by a combination of any of the foregoing methods, for the number
          of shares of Common Stock specified in such Exercise Notice (as such
          exercise number shall be adjusted to reflect any adjustment in the
          total number of shares of Common Stock issuable to the Holder per the
          terms of this Warrant) and the Holder shall thereupon be entitled to
          receive the number of duly authorized, validly issued, fully-paid and
          non-assessable shares of Common Stock (or Other Securities) determined
          as provided herein.

               (b) Notwithstanding any provisions herein to the contrary, if the
          Fair Market Value of one share of Common Stock is greater than the
          Exercise Price (at the date of calculation as set forth below), in
          lieu of exercising this Warrant for cash, the Holder may elect to
          receive shares equal to the value (as determined below) of this

                                       3

<PAGE>

          Warrant (or the portion thereof being exercised) by surrender of this
          Warrant at the principal office of the Company together with the
          properly endorsed Exercise Notice in which event the Company shall
          issue to the Holder a number of shares of Common Stock computed using
          the following formula:

          X=                  Y(A-B)
                              ------
                                A

          Where X =           the number of shares of Common Stock to be issued
                              to the Holder

          Y                   = the number of shares of Common Stock purchasable
                              under this Warrant or, if only a portion of this
                              Warrant is being exercised, the portion of this
                              Warrant being exercised (at the date of such
                              calculation)

          A =                 the Fair Market Value of one share of the
                              Company's Common Stock (at the date of such
                              calculation)

          B =                 the Exercise Price per share (as adjusted to the
                              date of such calculation)

          [Notwithstanding anything to the contrary set forth in Section 2.2(a)
          above, to the extent that a registration statement registering all the
          shares of Common Stock of the Company issuable upon exercise of this
          Warrant has been declared effective by the Securities and Exchange
          Commission and remains effective as of the date of the proposed
          exercise set forth in an Exercise Notice, the Holder shall upon such
          proposed exercise, make payment to the Company of each respective
          Exercise Price set forth in such Exercise Notice in cash by wire
          transfer of immediately available funds or by certified or official
          bank check only.]

          3. Effect of Reorganization, Etc.; Adjustment of Exercise Price.

             3.1 Reorganization, Consolidation, Merger, Etc. If there occurs any
capital reorganization or any reclassification of the Common Stock of the
Company, the consolidation or merger of the Company with or into another person
(other than a merger or consolidation of the Company in which the Company is the
continuing entity and which does not result in any reorganization or
reclassification of its outstanding Common Stock) or the sale or conveyance of
all or substantially all of the assets of the Company to another person, then,
as a condition precedent to any such reorganization, reclassification,
consolidation, merger, sale or conveyance, the Holder will be entitled to
receive upon surrender of this Warrant to the Company (x) to the extent there
are cash proceeds resulting from the consummation of such reorganization,
reclassification, consolidation, merger, sale or conveyance, in exchange for
such Warrant, cash in an amount equal to the cash proceeds that would have been
payable to the Holder had the Holder exercised such Warrant immediately prior to
the consummation of such reorganization, reclassification, consolidation,
merger, sale or conveyance, less the aggregate Exercise Price payable upon
exercise of this Warrant, and (y) to the extent that the Holder would be
entitled to receive Common stock (or Other Securities) (in addition to or in
lieu of cash in connection with any such reorganization, reclassification,
consolidation, merger, sale or conveyance), the same kind and amounts of
securities or other assets, or both, that are issuable or distributable to the
holders of outstanding Common Stock (or Other Securities) of the Company with

                                       4

<PAGE>

respect to their Common Stock (or Other Securities) upon such reorganization,
reclassification, consolidation, merger, sale or conveyance, as would have been
deliverable to the Holder had the Holder exercised such Warrant immediately
prior to the consummation of such reorganization, reclassification,
consolidation, merger, sale or conveyance less an amount of such securities
having a value equal to the aggregate Exercise Price payable upon exercise of
this Warrant.

             3.2 Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, concurrently with any distributions made to holders of its Common
Stock, shall at its expense deliver or cause to be delivered to the Holder the
stock and other securities and property (including cash, where applicable)
receivable by the Holder pursuant to Section 3.1, or, if the Holder shall so
instruct the Company, to a bank or trust company specified by the Holder and
having its principal office in New York, NY as trustee for the Holder (the
"Trustee").

             3.3 Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does not continue in full force and effect after the
consummation of the transactions described in this Section 3, then the Company's
securities and property (including cash, where applicable) receivable by the
Holder will be delivered to the Holder or the Trustee as contemplated by Section
3.2.

          4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock or any preferred stock issued by
the Company, (b) subdivide its outstanding shares of Common Stock or (c) combine
its outstanding shares of the Common Stock into a smaller number of shares of
the Common Stock, then, in each such event, the Exercise Price shall,
simultaneously with the happening of such event, be adjusted by multiplying the
then Exercise Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such event and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such event, and the product so obtained shall thereafter be
the Exercise Price then in effect. The Exercise Price, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive event or
events described herein in this Section 4. The number of shares of Common Stock
that the Holder shall thereafter, on the exercise hereof as provided in Section
1, be entitled to receive shall be adjusted to a number determined by
multiplying the number of shares of Common Stock that would otherwise (but for
the provisions of this Section 4) be issuable on such exercise by a fraction of
which (a) the numerator is the Exercise Price that would otherwise (but for the
provisions of this Section 4) be in effect, and (b) the denominator is the
Exercise Price in effect on the date of such exercise (taking into account the
provisions of this Section 4). Notwithstanding the foregoing, in no event shall
the Exercise Price be less than the par value of the Common Stock.

                                       5

<PAGE>

          5. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of this Warrant, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder and any warrant agent of the
Company (appointed pursuant to Section 11 hereof).

          6. Reservation of Stock, Etc., Issuable on Exercise of Warrant. The
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of this Warrant, shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of this Warrant.

          7. Assignment; Exchange of Warrant. Subject to compliance with
applicable securities laws, this Warrant, and the rights evidenced hereby, may
be transferred by any registered holder hereof (a "Transferor") in whole or in
part. On the surrender for exchange of this Warrant, with the Transferor's
endorsement in the form of Exhibit B attached hereto (the "Transferor
Endorsement Form") and together with evidence reasonably satisfactory to the
Company demonstrating compliance with applicable securities laws, which shall
include, without limitation, a legal opinion from the Transferor's counsel (at
the Company's expense) that provides that such transfer is exempt from the
registration requirements of applicable securities laws, the Company at its
expense (but with payment by the Transferor of any applicable transfer taxes)
will issue and deliver to or on the order of the Transferor thereof a new
Warrant of like tenor, in the name of the Transferor and/or the transferee(s)
specified in such Transferor Endorsement Form (each a "Transferee"), calling in
the aggregate on the face or faces thereof for the number of shares of Common
Stock called for on the face or faces of this Warrant so surrendered by the
Transferor.

          8. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.

          9. Maximum Exercise. Notwithstanding anything herein to the contrary,
in no event shall the Holder be entitled to exercise any portion of this Warrant
in excess of that portion of this Warrant upon exercise of which the sum of (1)

                                       6

<PAGE>

the number of shares of Common Stock beneficially owned by the Holder and its
Affiliates (other than shares of Common Stock which may be deemed beneficially
owned through the ownership of the unexercised portion of this Warrant or the
unexercised or unconverted portion of any other security of the Holder subject
to a limitation on conversion analogous to the limitations contained herein) and
(2) the number of shares of Common Stock issuable upon the exercise of the
portion of this Warrant with respect to which the determination of this proviso
is being made, would result in beneficial ownership by the Holder and its
Affiliates of any amount greater than 9.99% of the then outstanding shares of
Common Stock (whether or not, at the time of such exercise, the Holder and its
Affiliates beneficially own more than 9.99% of the then outstanding shares of
Common Stock). As used herein, the term "Affiliate" means any person or entity
that, directly or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with a person or entity, as such terms
are used in and construed under Rule 144 under the Securities Act of 1933, as
amended. For purposes of the second preceding sentence, beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and Regulations 13D-G thereunder, except as otherwise
provided in clause (1) of such sentence. For any reason at any time, upon
written or oral request of the Holder, the Company shall within one (1) business
day confirm orally and in writing to the Holder the number of shares of Common
Stock outstanding as of any given date. The limitations set forth herein (may be
waived by the Holder upon provision of no less than sixty-one (61) days prior
written notice to the Company; provided, however, that, such written notice of
waiver shall only be effective if delivered at a time when no indebtedness
(including, without limitation, principal, interest, fees and charges) of the
Company of which the Holder or any of its Affiliates was, at any time, the
owner, directly or indirectly is outstanding..

          10. Warrant Agent. The Company may, by written notice to the Holder of
this Warrant, appoint an agent for the purpose of issuing Common Stock (or Other
Securities) on the exercise of this Warrant pursuant to Section 1, exchanging
this Warrant pursuant to Section 7, and replacing this Warrant pursuant to
Section 8, or any of the foregoing, and thereafter any such issuance, exchange
or replacement, as the case may be, shall be made at such office by such agent.

          11. Transfer on the Company's Books. Until this Warrant is transferred
on the books of the Company, the Company may treat the registered holder hereof
as the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.

          12. Rights of Shareholders. No Holder shall be entitled to vote or
receive dividends or be deemed the holder of the shares of Common Stock or any
other securities of the Company which may at any time be issuable upon exercise
of this Warrant for any purpose (the "Warrant Shares"), nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a shareholder of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon the
recapitalization, issuance of shares, reclassification of shares, change of
nominal value, consolidation, merger, conveyance or otherwise) or to receive
notice of meetings, or to receive dividends or subscription rights or otherwise,
in each case, until the earlier to occur of (x) the date of actual delivery to
Holder (or its designee) of the Warrant Shares issuable upon the exercise hereof
or (y) the third business day following the date such Warrant Shares first
become deliverable to Holder, as provided herein.

                                       7

<PAGE>

          13. Notices, Etc. All notices and other communications from the
Company to the Holder shall be mailed by first class registered or certified
mail, postage prepaid, at such address as may have been furnished to the Company
in writing by the Holder from time to time.

          14. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS. ANY ACTION BROUGHT CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS
WARRANT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL
COURTS LOCATED IN THE STATE OF NEW YORK; PROVIDED, HOWEVER, THAT THE HOLDER MAY
CHOOSE TO WAIVE THIS PROVISION AND BRING AN ACTION OUTSIDE THE STATE OF NEW
YORK. The individuals executing this Warrant on behalf of the Company agree to
submit to the jurisdiction of such courts and waive trial by jury. The
prevailing party shall be entitled to recover from the other party its
reasonable attorneys' fees and costs. In the event that any provision of this
Warrant is invalid or unenforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
of this Warrant. The headings in this Warrant are for purposes of reference
only, and shall not limit or otherwise affect any of the terms hereof. The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision hereof. The Company
acknowledges that legal counsel participated in the preparation of this Warrant
and, therefore, stipulates that the rule of construction that ambiguities are to
be resolved against the drafting party shall not be applied in the
interpretation of this Warrant to favor any party against the other party.

                   [BALANCE OF PAGE INTENTIONALLY LEFT BLANK;
                             SIGNATURE PAGE FOLLOWS]

                                       8

<PAGE>

         IN WITNESS WHEREOF, the Company has executed this Warrant as of the
date first written above.

WITNESS:                                    Petrol Oil and Gas, Inc.

                                            By:  /s/
-----------------------------                  -------------------------------
                                            Name:
                                            Title:

                                        9

<PAGE>

                                    EXHIBIT A

                              FORM OF SUBSCRIPTION

                   (To Be Signed Only On Exercise Of Warrant)

To:      [Newco]
         _____________________
         _____________________
         Attention:

         The undersigned, pursuant to the provisions set forth in the attached
Warrant (No.____) (the "Warrant"), hereby irrevocably elects to purchase (check
applicable box):

______             ______ shares of the common stock covered by the Warrant; or

______             the maximum number of shares of common stock covered by the
                   Warrant pursuant to the cashless exercise procedure set forth
                   in Section 2 of the Warrant.

         The undersigned herewith makes payment of the full Exercise Price for
such shares at the price per share provided for in the Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):

______             $__________ in lawful money of the United States; and/or

______             the cancellation of such portion of the Warrant as is
                   exercisable for a total of _______ shares of Common Stock
                   (using a Fair Market Value of $_______ per share for purposes
                   of this calculation); and/or

______             the cancellation of such number of shares of Common Stock as
                   is necessary, in accordance with the formula set forth in
                   Section 2.2 of the Warrant, to exercise this Warrant with
                   respect to the maximum number of shares of Common Stock
                   purchasable pursuant to the cashless exercise procedure set
                   forth in Section 2 of the Warrant.

         The undersigned requests that the certificates for such shares be
issued in the name of, and delivered to________________________ whose address is
___________________________________________________________________________.

         The undersigned represents and warrants that all offers and sales by
the undersigned of the securities issuable upon exercise of the Warrant shall be
made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act") or pursuant to an exemption from
registration under the Securities Act.

Dated:___________________                   ____________________________________
                                            (Signature must conform to name of
                                            holder as specified on the face of
                                            the Warrant)
                                            Address:___________________________

                                                    ___________________________

<PAGE>

                                    EXHIBIT B

                         FORM OF TRANSFEROR ENDORSEMENT

                   (To Be Signed Only On Transfer Of Warrant)

         For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of [Newco] into which the within Warrant relates
specified under the headings "Percentage Transferred" and "Number Transferred,"
respectively, opposite the name(s) of such person(s) and appoints each such
person Attorney to transfer its respective right on the books of [Newco] with
full power of substitution in the premises.

                                             Percentage               Number
                                             ----------               ------
     Transferees       Address               Transferred            Transferred
     -----------       -------               -----------            -----------

Dated:_______________________               ___________________________________
                                            (Signature must conform to name of
                                            holder as specified on the face of
                                            the Warrant)
                                            Address:___________________________

                                                    ___________________________

                                            SIGNED IN THE PRESENCE OF:

                                            ___________________________________
                                                         (Name)

ACCEPTED AND AGREED:
[TRANSFEREE]

_____________________________
         (Name)

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