Document:

ex10-7.htm

Exhibit 10.7

    NET
      PROFITS INTEREST AGREEMENT

     

    GULF
      COAST OIL CORPORATION

     

    “WI
      Owner”

     

    and

     

    VALENS
      U.S. SPV I, LLC

     

    and

     

    VALENS
      OFFSHORE SPV II, CORP.

     

    “Assignees”

     

    Dated
      as of

     

    November
      20, 2007

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    NET
      PROFITS INTEREST AGREEMENT

     

    THIS
      NET PROFITS INTEREST AGREEMENT (“Agreement”) is made and entered
      into as of this 20th day of November, 2007, and is between GULF COAST OIL
      CORPORATION, a Delaware corporation (“WI Owner”), and VALENS U.S. SPV I,
      LLC, a Delaware limited liability company, and VALENS OFFSHORE SPV II, CORP.,
      a
      Delaware corporation (collectively, “Assignees”).

     

    W
      I T N E
      S S E T H:

     

    WHEREAS,
      WI Owner is the owner of various interests in the Leases; and

     

    WHEREAS,
      WI Owner desires to drill fourteen (14) Hydrocarbon wells on the Leases
      financed, in part, by loans provided to WI Owner by the Creditor Parties
      pursuant to the Securities Purchase Agreement; and

     

    WHEREAS,
      as a condition to the obligation of the Creditor Parties to make the loans
      provided for in the Securities Purchase Agreement, WI Owner must convey to
      Assignees a Net Profits Interest to be discharged out of Hydrocarbons produced
      from the wells financed, in part, by the Creditor Parties pursuant to the
      Securities Purchase Agreement.

     

    NOW,
      THEREFORE, in consideration of the mutual benefits and obligations of the
      Parties contained herein and the benefits to be received by Assignees pursuant
      to the Securities Purchase Agreement, Assignees and WI Owner agree as
      follows:

     

    ARTICLE
      1.

     

    DEFINITIONS

     

    1.1           Defined
      Terms.  In addition to the terms defined in the introductory
      paragraph and the Recitals of this Agreement, for purposes hereof, the
      capitalized expressions and terms set forth in Schedule 1.1 shall have
      the meanings set forth therein, unless expressly indicated
      otherwise.  Other terms may be defined elsewhere in this Agreement and
      shall, for purposes hereof, have the meanings so specified, unless expressly
      indicated otherwise.

     

    1.2           References.  The
      words “hereby,” “herein,” “hereinabove,” “hereinafter,” “hereinbelow,” “hereof,”
“hereto,” “hereunder,” and words of similar import when used in this Agreement
      shall refer to this Agreement as a whole and not to any particular article,
      section, or provision of this Agreement.  References in this Agreement
      to articles, sections, exhibits, or schedules are to such articles, sections,
      exhibits, or schedules of this Agreement unless otherwise
      specified.

     

    1.3           Articles
      and Sections.  This Agreement, for convenience only, has been
      divided into articles and sections.  The rights and other legal
      relations of the Parties shall be determined from this Agreement as an entirety
      and without regard to the aforesaid division into articles and sections and
      without regard to headings prefixed to such articles and sections.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    1.4           Number
      and Gender.  Whenever the context requires, reference herein
      made to a single number shall be understood to include the plural; and likewise,
      the plural shall be understood to include the singular.  Words
      denoting sex shall be construed to include the masculine, feminine, and neuter,
      when such construction is appropriate; and specific enumeration shall not
      exclude the general but shall be construed as cumulative.  Definitions
      of terms defined in the singular or plural shall be equally applicable to the
      plural or singular, as applicable, unless otherwise indicated.

     

    ARTICLE
      2.

     

    CONVEYANCE
      OF NET PROFITS INTEREST

     

    Subject
      to and in accordance with the terms hereof, and in satisfaction of the terms
      of
      Section 3.2 of the Securities Purchase Agreement, WI Owner agrees to convey
      to
      Assignees, effective as of the Effective Date, the Net Profits
      Interest.  The specific terms and conditions applicable to the Net
      Profits Interest are set forth in the NPI Conveyance.  Concurrently
      with the execution of this Agreement, (a) WI Owner and Assignees have executed,
      acknowledged, and delivered counterparts of the NPI Conveyance in sufficient
      numbers to permit recording and filing in all relevant jurisdictions, and (b)
      WI
      Owner has delivered to Assignees all consents, waivers, and other matters
      pertaining to the Subject Interests required to be obtained by WI Owner to
      cause
      the representation and warranty contained in Section 3.1(g) to be true
      and correct with respect to the Subject Interests as of the date of execution
      hereof.

     

    ARTICLE
      3.

     

    REPRESENTATIONS
      AND WARRANTIES OF WI OWNER

     

    3.1           Representations
      and Warranties of WI Owner.  As a principal cause and
      material inducement to Assignees to execute this Agreement and the NPI
      Conveyance and to consummate the transactions described herein and therein,
      WI
      Owner hereby represents and warrants to Assignees, as follows:

     

    (a)           WI
      Owner is a corporation duly organized, validly existing, and in good standing
      under the Laws of the State of Delaware and is qualified to do business in,
      and
      is in good standing under the Laws of, the State of Texas.  WI Owner
      has all requisite legal right, power, and authority to own and operate its
      properties (including, without limitation, the Assets) and to carry on its
      business as now conducted.

     

    (b)           WI
      Owner has full capacity, legal right, power, and authority to enter into and
      perform this Agreement, the NPI Conveyance, and the transactions contemplated
      herein and therein.  The execution, delivery, and performance by WI
      Owner of this Agreement, the NPI Conveyance, and the transactions contemplated
      herein and therein have been duly and validly authorized and approved by all
      necessary corporate action of WI Owner.  This Agreement and the NPI
      Conveyance have been duly executed and delivered by WI Owner.  This
      Agreement and the NPI Conveyance constitute the legal, valid, and binding
      obligations of WI Owner, enforceable against WI Owner in accordance with their
      respective terms, subject to the effects of bankruptcy, insolvency,
      reorganization, moratorium, and similar Laws, as well as to principles of equity
      (regardless of whether such enforceability is considered in a proceeding in
      equity or at law).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (c)           The
      execution, delivery, and performance by WI Owner of this Agreement and the
      NPI
      Conveyance do not and will not (i) conflict with or result in a breach of any
      of
      the provisions of the organizational and governing documents of WI Owner; (ii)
      violate any provision of any Law or any order, writ, judgment, decree, or
      determination currently in effect having applicability to WI Owner; (iii) result
      in a breach of or constitute a default under any indenture, bank loan,
      securities purchase agreement, credit agreement, Lease, Property Agreement,
      Marketing Agreement, or other agreement or instrument to which WI Owner is
      a
      party or by which WI Owner or the Assets may be currently bound or affected;
      or
      (iv) result in or require the creation or imposition of any mortgage, lien,
      pledge, security interest, charge, or other encumbrance upon any of the Assets
      under any such indenture, bank loan, securities purchase agreement, credit
      agreement, Lease, Property Agreement, Marketing Agreement, or other agreement
      or
      instrument.  WI Owner is not in default under any such order, writ,
      judgment, decree, determination, indenture, agreement, or instrument in any
      way
      that now or in the future will materially adversely affect the ability of WI
      Owner to perform its obligations under this Agreement or the NPI
      Conveyance.

     

    (d)          Upon
      the due execution and delivery by WI Owner of the NPI Conveyance, the Net
      Profits Interest will constitute an interest in real property under the Laws
      of
      the State of Texas.

     

    (e)           Except
      as set forth on Schedule 3.1(e), there is no suit, action, Claim,
      investigation, or inquiry by any person or entity or by any administrative
      agency or governmental body, and no legal, administrative, or arbitration
      proceeding (including, without limitation, bankruptcy or insolvency-related
      proceedings) pending or, to WI Owner’s Knowledge, threatened against WI Owner or
      the Assets, or to which WI Owner is a party, that reasonably may be expected
      to
      (i) result in the material impairment of WI Owner’s title to any of the Subject
      Interests; (ii) hinder or impede the operation of all or any portion of the
      Leases; (iii) cause the Leases to be subject to reduced rates of production
      or
      other penalties because of Hydrocarbon production in excess of applicable
      allowables or otherwise; or (iv) otherwise have a material adverse effect upon
      (A) the Subject Interests, (B) the validity or enforceability of this Agreement
      or the NPI Conveyance, (C) the ability of WI Owner to consummate the
      transactions contemplated in this Agreement or perform its obligations under
      the
      NPI Conveyance, or (D) generally the business, properties, assets, or condition,
      financial or otherwise, of WI Owner.

     

    (f)           No
      authorization, consent, approval, exemption, franchise, permit, or license
      of,
      or filing with, any Governmental Authority is required to authorize, or is
      otherwise required in connection with, the valid execution, delivery, and
      performance by WI Owner of this Agreement and the NPI Conveyance.

     

    (g)           Except
      as set forth in Schedule 3.1(g), none of the Subject Interests is subject
      to a preferential right to purchase, third Person consent to assignment
      requirement, right of first refusal, right of first offer or similar right
      or
      restriction, the operation
      of which is triggered by the execution and delivery of this Agreement or the
      NPI
      Conveyance.  All consents to assignment and waivers of preferential
      purchase or other rights necessary to permit the valid conveyance to Assignees
      of the Net Profits Interest and the execution and delivery of this Agreement
      and
      the NPI Conveyance have been obtained or the time for giving such consents
      or
      waivers has expired following a written request therefor.  All advance
      notifications to third Persons of the transactions contemplated herein and
      in
      the NPI Conveyance necessary to permit the valid conveyance to Assignees of
      the
      Net Profits Interest and the execution and delivery of this Agreement and the
      NPI Conveyance have been timely and properly given.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (h)           The
      Subject Interests are free and clear of any liens, mortgages, deeds of trust,
      pledges, security interests, or other encumbrances, except as set forth on
      Schedule 3.1(h).

     

    (i)           All
      Taxes imposed or assessed with respect to, measured by, charged against, or
      attributable to the Subject Interests have been duly paid.

     

    (j)           Each
      Lease is in full force and effect, at a minimum, with respect to the lands
      described in conjunction therewith on Exhibit A as comprising the Subject
      Interests.  WI Owner is not in material breach or material default,
      and there has occurred no event, fact, or circumstance that, with the lapse
      of
      time or the giving of notice, or both, would constitute such a breach or default
      by WI Owner, with respect to any of its obligations under any Lease, and, to
      WI
      Owner’s Knowledge, no other Person owning any interest in any Lease is in
      material breach or material default with respect to any of its obligations
      thereunder.  No lessor under any Lease has given or, to WI Owner’s
      Knowledge, threatened to give notice of any action to terminate, cancel,
      rescind, repudiate, or procure a judicial reformation of any Lease or any
      provision thereof.  None of the Leases is subject to a limitation as
      to depths covered.

     

    (k)           WI
      Owner has correctly made, or caused to be correctly made, all payments,
      including, without limitation, royalties, rentals, shut-in well payments, and
      other lease maintenance payments, due in respect of the Leases
      thereunder.

     

    (l)           
      Each Lease authorizes surface operations on the lands covered thereby for the
      drilling, development, operation, and production of Hydrocarbon wells, or for
      those Leases as to which surface operations are restricted or impractical for
      operational or regulatory reasons, there exist Leases covering contiguous
      acreage from which surface operations with respect to such surface-restricted
      Leases may be conducted.

     

    (m)           There
      are no agreements, instruments, or documents affecting the Subject Interests
      other than the Property Agreements and the Marketing Agreements described on
      Schedule 3.1(m).  WI Owner has furnished or made available to
      Assignees true and complete copies of all of the Property Agreements and
      Marketing Agreements.  With respect to the Property Agreements and
      Marketing Agreements:  (i) all of the Property Agreements and
      Marketing Agreements are in full force and effect; (ii) WI Owner
      is
      not in material breach or material default, and there has occurred no event,
      fact, or circumstance that, with the lapse of time or the giving of notice,
      or
      both, would constitute such a breach or default by WI Owner, with respect to
      any
      of its obligations under any Property Agreement or Marketing Agreement; (iii)
      to
      WI Owner’s Knowledge, no other Person who is a party thereto is in material
      breach or material default with respect to any of its obligations under any
      Property Agreement or Marketing Agreement; and (iv) neither WI Owner nor, to
      WI
      Owner’s Knowledge, any other party to any Property Agreement or Marketing
      Agreement has given or threatened to give notice of any action to terminate,
      cancel, rescind, or procure a judicial reformation of such Property Agreement
      or
      Marketing Agreement or any provision thereof.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (n)           Except
      as set forth on Schedule 3.1(n), the Subject Interests are not subject to
      any area of mutual interest provision, interest reversion or conversion, or
      other contract or provision thereof under which WI Owner or Assignees may be
      obligated to make assignments to third parties of interests in any Subject
      Interest prior to the Effective Date.

     

    (o)           All
      costs and expenses incurred in connection with the operation of the Subject
      Interests for which WI Owner is responsible and has received invoices from
      the
      operator(s) thereof have been paid, and there are no outstanding calls or
      payments due from WI Owner under the terms of the Property Agreements or the
      Marketing Agreements.  Neither the Leases nor the Property Agreements
      contain any expressed contractual obligations to drill additional wells or
      to
      engage in other development operations, except for obligations arising under
      offset well provisions and obligations arising under Property Agreements that
      allow the parties thereto to elect whether to participate.  There are
      no material operations on any Lease under any of the Property Agreements with
      respect to which either WI Owner or any other Person has become a non-consenting
      party.

     

    (p)           The
      Subject Interests are not subject to any regulatory refund obligation, and,
      to
      WI Owner’s Knowledge, there has occurred no event, fact, or circumstance that,
      with the lapse of time or the giving of notice, or both, would give rise to
      such
      a regulatory refund obligation.

     

    (q)           No
      third party has any call, right of first refusal, or preferential right to
      purchase any Hydrocarbons produced from or allocable to the Subject
      Interests.

     

    (r)           
      Except as set forth in Schedule 3.1(r), WI Owner is not a party to or
      bound by, and the Subject Interests and the Hydrocarbons attributable thereto
      are not encumbered or affected by, any gas balancing, deferred production,
      gas
      banking, or similar agreement or arrangement.  Except as shown on
Schedule 3.1(r), WI Owner is not in an “overlift,” “overproduced,”
“underproduced”, or similar status under any such agreement or
      arrangement.

     

    (s)           Neither
      the Subject Interests nor the Hydrocarbons attributable thereto are subject
      to
      any contract, agreement, or arrangement (including, without limitation, advance
      payment agreements, prepayments, take-or-pay makeup obligations, or
      otherwise) whereby the owner of the Hydrocarbons or any part thereof is not
      entitled to convey the Hydrocarbons or to market the Hydrocarbons and to obtain
      the full market price or value of the same at the time of
      delivery.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (t)           To
      WI Owner’s Knowledge, no Casualty Event or Environmental Liability adversely
      affecting any material portion of the Subject Interests or the operation
      thereof, or adversely affecting the ability of WI Owner to perform its
      obligations under this Agreement or the NPI Conveyance, has occurred or
      accrued.

     

    (u)           WI
      Owner and, to WI Owner’s Knowledge, the operators of the Leases, have complied
      in all material respects with all Laws (including, without limitation,
      Environmental Laws), licenses, and permits relating to the Assets, other than
      violations that could not (either individually or collectively) reasonably
      be
      expected to have a Material Adverse Effect on WI Owner.  WI Owner and,
      to WI Owner’s Knowledge, the operator(s) of the Leases, as applicable, have all
      approvals, authorizations, consents, licenses, and permits from Governmental
      Authorities required under applicable Laws (including, without limitation,
      Environmental Laws) in connection with the ownership and operation of the
      Leases, and have properly made all filings necessary or appropriate to obtain
      such approvals, authorizations, consents, licenses, and permits.  All
      of such licenses, permits, filings, approvals, authorizations, and consents
      are
      in full force and effect.  Neither WI Owner nor, to WI Owner’s
      Knowledge, any other Person has received notice from any Governmental Authority
      having jurisdiction over the Leases that any such applicable Law, permit,
      license, or filing has been violated or not complied with by WI Owner or any
      other Person.

     

    (v)           Without
      limiting the representations and warranties contained in Section 3.1(u),
      WI Owner has not (i) received notice or otherwise learned of any Environmental
      Liability in, on, affecting, or otherwise relating in any way to any Lease
      that
      could, individually or in the aggregate, reasonably be expected to have a
      Material Adverse Effect on WI Owner arising in connection with (A) any
      non-compliance with or violation of any Environmental Law or (B) the Release
      (or
      threatened Release) of a Hazardous Substance, or (ii) received notice or
      otherwise learned of any federal or state investigation evaluating whether
      any
      remedial action is needed to respond to a Release (or threatened Release) of
      a
      Hazardous Substance in, on, affecting, or otherwise relating in any way to
      any
      Lease for which WI Owner may be liable.  No Release of Hazardous
      Substances by WI Owner in, on, from, affecting, or relating in any way to any
      Lease or any property of WI Owner adjacent thereto has occurred, and WI Owner
      has not received any Environmental Complaint.

     

    (w)           There
      are no bankruptcy, insolvency, reorganization, or arrangement proceedings
      pending, being contemplated by, or to WI Owner’s Knowledge, threatened against
      WI Owner or any Affiliate that controls WI Owner.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ARTICLE
      4.

     

    MISCELLANEOUS

     

    4.1           Further
      Assurances.  WI Owner and Assignees agree to take all such
      further actions and to execute, acknowledge, and deliver all such further
      documents as are necessary or useful to effectuate the conveyance of the Net
      Profits Interest and to carry out the purposes of this Agreement and the NPI
      Conveyance.

     

    4.2           Survival.  The
      representations, warranties, covenants, agreements, and indemnities in this
      Agreement shall survive the execution and delivery of the NPI Conveyance and
      the
      consummation of the transactions described herein and therein.

     

    4.3           Expenses;
      Taxes.  WI Owner shall bear and pay all fees, costs, and
      expenses incurred by both WI Owner and Assignees in negotiating this Agreement
      and the NPI Conveyance and consummating the transactions contemplated herein
      and
      therein.  All required documentary, filing, and recording fees and
      expenses incurred in connection with the filing and recording of the NPI
      Conveyance, as well as all state sales and use taxes and real estate transfer
      taxes (including any applicable interest or penalties) incurred or imposed
      with
      respect to the transactions described in this Agreement and the NPI Conveyance,
      shall be borne and paid by WI Owner.  Each Party shall assume
      responsibility for, and shall bear and pay, all federal and state income,
      franchise, and other similar taxes (including any applicable interest or
      penalties) incurred by or imposed upon such Party with respect to the
      transactions described in this Agreement.  Prior to the Effective
      Date, all Taxes based upon or measured by the ownership of the Subject
      Interests, Hydrocarbon production therefrom, or the receipt of proceeds thereof,
      shall be borne and paid by WI Owner, and after the Effective Date, shall be
      allocated as set forth in the NPI Conveyance.

     

    4.4           Notices.  All
      notices, requests, demands, instructions and other communications required
      or
      permitted to be given hereunder shall be in writing and shall be (a) delivered
      personally, (b) mailed by certified U.S. mail, postage prepaid and return
      receipt requested, (c) sent by bonded courier, or (d) sent by facsimile, as
      follows:

     

    
      	
              If
                to WI Owner:

               

              Gulf
                Coast Oil Corporation

              5851
                San Felipe, Suite 775

              Houston,
                Texas  77057

              Attention:  Chief
                Financial Officer

              Facsimile
                No.:  (713) 266-4358

            	
              If
                to Assignees:

               

              Valens
                U.S. SPV I, LLC

              Valens
                Offshore SPV II, Corp.

              c/o
                Valens Capital Management, LLC

              335
                Madison Avenue, 10th
                Floor

              New
                York, New York  10017

              Attention:  Portfolio
                Services

              Facsimile
                No.:  (212) 581-5037

            
	 	 
	
              with
                a copy to:

               

              David
                M. Loev, Esquire

              The
                Loev Law Firm, PC

              6300
                West Loop South, Suite 280

              Bellaire,
                Texas  77401

              Facsimile
                No.:  (713) 524-4122

            	
              with
                a copy to:

               

              Loeb
                & Loeb, LLP

              345
                Park Avenue

              New
                York, New York  10154

              Attention:  Scott
                J. Giordano, Esq.

              Facsimile
                No.:  (212) 407-4990

            
	 	 
	 	
              and
                to:

               

              Jackson
                Walker L.L.P.

              1401
                McKinney, Suite 1900

              Houston,
                Texas  77010

              Attention:  Michael
                P. Pearson, Esquire

              Facsimile
                No.:  (713) 752-4221

            
	 	 

    

    or
      to
      such other place within the United States of America as either Party may
      designate as to itself by written notice to the other.  All notices
      given by personal delivery, courier, or mail shall be effective on the date
      of
      actual receipt at the appropriate address.  Notice given by telecopier
      shall be effective upon actual receipt if received during recipient’s normal
      business hours or at the beginning of the next Business Day after receipt if
      received after the recipient’s normal business hours.

     

    4.5           Indemnification.

     

    (a)           Notwithstanding
      the execution of the NPI Conveyance, regardless of any investigation made at
      any
      time by or on behalf of Assignees or any information Assignees may have, and
      regardless of the presence or absence of insurance, WI Owner shall indemnify
      and
      hold harmless Assignees and Assignees’ respective successors, assigns,
      Affiliates, shareholders, partners, members, directors, officers, managers,
      employees, agents, and representatives (collectively, the “Indemnified
      Parties”) from and against any and all Claims caused by, arising out of,
      resulting from, or relating in any way to, and shall pay the Indemnified Parties
      any sum that the Indemnified Parties pay or become obligated to pay on account
      of: (i) any breach or default in the performance by WI Owner of any covenant
      or
      agreement of WI Owner contained in this Agreement or the NPI Conveyance; (ii)
      any breach of a warranty or an inaccurate or erroneous representation made
      by WI
      Owner in this Agreement or the NPI Conveyance; and (iii) all liability or
      obligation to third Persons (including, without limitation, liabilities
      resulting from injury to or death of any Person, Persons, or other living
      things, or loss or destruction of or damage to property, as well as
      Environmental Liabilities), whether arising in contract, in tort, or by
      operation of Law, arising out of, resulting from, or relating in any way to
      the
      ownership, use, possession, and operation of the Assets and the production,
      handling, and marketing of Hydrocarbons therefrom by WI Owner; provided,
      however, that in no event shall the terms of this Section 4.5(a) be
      deemed to create personal liability on the part of WI Owner with respect to
      the
      satisfaction or discharge of the Net Profits Interest.  IT IS
      THE INTENT OF THE PARTIES THAT THE FOREGOING INDEMNITY BE WITHOUT REGARD TO
      THE
      CAUSE OR CAUSES
      OF THE CLAIM TO BE INDEMNIFIED, INCLUDING, WITHOUT LIMITATION, THE NEGLIGENCE
      OF
      ASSIGNEES, OR EITHER OF THEM, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT, OR
      CONCURRENT, OR ACTIVE OR PASSIVE, OR THE STRICT LIABILITY OF ASSIGNEES, OR
      EITHER OF THEM.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b)           Assignees
      shall give to WI Owner prompt written notice and particulars of any Claim for
      which indemnification is sought.  At its option, WI Owner
      may:  (i) permit Assignees to respond to the Claim in the manner set
      forth in its notice; or (ii) assume responsibility for and conduct the
      negotiation, defense, or settlement of the Claim; provided, however, that
      Assignees shall at all times have the right to participate in the defense
      thereof and to be represented, at their sole expense, by counsel selected by
      them.  No such Claim shall be compromised or settled by either WI
      Owner or Assignees, as applicable, in any manner that might adversely affect
      the
      interest of the other Party without the prior written consent of such other
      Party.

     

    4.6           Governing
      Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND
      CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD
      TO
      ANY CONFLICTS OF LAW PRINCIPLES.

     

    4.7           Limitation
      on Damages.  For the breach or non-performance by any Party
      of any representation, warranty, covenant, or agreement contained in this
      Agreement, the liability of the obligor shall be limited to direct actual
      damages only, except to the extent that the obligee is entitled to specific
      performance or injunctive relief.  NEITHER WI OWNER NOR
      ASSIGNEES SHALL BE LIABLE TO THE OTHER FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE,
      EXEMPLARY, OR INDIRECT DAMAGES, LOST PROFITS, OR OTHER BUSINESS INTERRUPTION
      DAMAGES, IN TORT, IN CONTRACT, UNDER ANY INDEMNITY PROVISION, ARISING BY
      OPERATION OF LAW, OR OTHERWISE AS TO ANY MATTER RELATING TO THIS AGREEMENT,
      THE
      NPI CONVEYANCE, OR THE TRANSACTIONS CONTEMPLATED HEREIN OR
      THEREIN.  Without limiting the foregoing, if the NPI
      Conveyance or any Lease is rejected as an unexpired lease or executory contract
      pursuant to any of the terms of Section 365 of the United States Bankruptcy
      Code, the damages recoverable as a result of such rejection shall equal the
      value as of the date of rejection of the future obligations remaining under
      the
      NPI Conveyance at the time of the rejection, determined in a commercially
      reasonably manner.

     

    4.8           Successors
      and Assigns.

     

    (a)           This
      Agreement shall be binding upon and, subject to the following restriction,
      shall
      inure to the benefit of the Parties and their respective permitted successors
      and assigns.  Nothing contained herein shall in any way limit or
      restrict the right of Assignees, or Assignees’ successors and assigns, to sell,
      convey, assign, transfer, mortgage, pledge, or create a lien or security
      interest in their respective rights or obligations hereunder in whole or in
      part; provided, however, that (i) any such transfer shall expressly be made
      subject to the terms of this Agreement and the NPI Conveyance
      and (ii) the prospective transferee from Assignees shall expressly agree to
      assume and perform all of Assignees’ covenants and obligations under the terms
      of this Agreement and the NPI Conveyance.  WI Owner shall not Transfer
      its rights or obligations hereunder separately from the Subject Interests
      without the prior written consent of Assignees.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b)           Transfers
      by WI Owner of the Subject Interests shall be subject to the terms of Section
      7.2 of the NPI Conveyance.  In the event of a Transfer by WI Owner
      that includes only the Subject Interests, or any portion thereof, and Net
      Profits Interest attributable thereto, WI Owner shall pay to Assignees, as
      consideration for Assignees’ reconveyance to WI Owner of the Net Profits
      Interest in advance of such Transfer as required under Section 7.2(b) of the
      NPI
      Conveyance, an amount equal to forty-nine percent (49%) of the total purchase
      price (net of all applicable adjustments) to be paid by the prospective
      transferee to WI Owner with respect to the Subject Interests (including the
      Net
      Profits Interest) being Transferred as part of the same transaction or series
      of
      transactions.

     

    (c)           In
      the event of a Transfer by WI Owner that includes the Subject Interests, or
      any
      portion thereof, and the Net Profits Interest attributable thereto, as part
      of a
      larger transaction, WI Owner shall pay to Assignees, as consideration for
      Assignees’ reconveyance to WI Owner of the Net Profits Interest in advance of
      such Transfer as required under Section 7.2(b) of the NPI Conveyance, an amount
      equal to forty-nine percent (49%) of the portion of the total purchase price
      (net of all applicable adjustments) to be paid by the prospective transferee
      to
      WI Owner with respect to all properties, assets, and interests of every kind
      and
      character being Transferred by WI Owner to such prospective transferee as part
      of the same transaction or series of related transactions that is allocable,
      under the terms of the relevant acquisition document(s), to the Subject
      Interests, or the portion thereof being Transferred, and the Net Profits
      Interest attributable thereto.  Notwithstanding the preceding sentence
      of this Section 4.8(c) to the contrary, in the absence of such an
      allocation of values to the individual properties, assets, and interests being
      Transferred in the relevant acquisition documents, or if Assignees determine,
      in
      the good faith exercise of their business judgment, that the values allocated
      to
      the relevant Subject Interests (including the Net Profits Interest) set forth
      in
      the acquisition documents are not at least equivalent to the values established
      for such Subject Interests (including the Net Profits Interest) in the most
      recent reserve report provided by WI Owner to the Creditor Parties pursuant
      to
      Section 6.18 of the Securities Purchase Agreement (adjusted to reflect
      production from or allocable to such Subject Interests during the period from
      the effective date of such reserve report through the effective date of the
      Transfer), the consideration payable to Assignees for the reconveyance to WI
      Owner of the Net Profits Interest, or relevant portion thereof, in advance
      of
      such Transfer shall be an amount equal to forty-nine percent (49%) of the values
      established for the Subject Interests being transferred (including the Net
      Profits Interest) in such reserve report.

     

    4.9           Unenforceable
      or Inapplicable Provisions.  If any provision hereof is
      invalid or unenforceable in any jurisdiction, the other provisions hereof shall
      remain in full force and effect in such jurisdiction, and the remaining
      provisions hereof shall be liberally
      construed in favor of Assignees, and their successors and assigns, in order
      to
      effectuate the terms hereof, and the invalidity of any provision hereof in
      any
      jurisdiction shall not affect the validity or enforceability of any such
      provision in any other jurisdiction.

     

    4.10           Execution
      in Counterparts. This Agreement has been executed in several
      counterparts, each of which shall be deemed to be an original and all of which
      are identical.  All of such counterparts together shall constitute but
      one and the same agreement.  All of said documents are integral parts
      of one consolidated transaction and are to be construed as a single
      transaction.

     

    4.11           Entire
      Agreement.  This Agreement, together with the NPI Conveyance,
      shall constitute the entire agreement between the Parties covering the subject
      matter hereof, and there are no agreements, modifications, conditions, or
      understandings, written or oral, expressed or implied, pertaining to the subject
      matter hereof which are not contained herein or therein.

     

    4.12           Amendment;
      Waiver.  This Agreement shall not be modified or changed
      except in writing signed by all Parties.  No provision of this
      Agreement shall be waived except in writing signed by the Party granting the
      waiver.  A waiver of any breach or a failure to enforce any of the
      terms or conditions of this Agreement shall not in any way affect, limit, or
      waive a Party’s rights under this Agreement at any time to enforce strict
      compliance thereafter with every term or condition of this
      Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXECUTED
      on the date first set forth above.

     

    

     

    WI
      OWNER:

     

    

     

    GULF
      COAST OIL CORPORATION

     

    

     

    

     

    By:  /s/
      Edward R.
      DeStefano                                                     

     

      Edward
      R.
      DeStefano

     

      President
      and Chief
      Executive Officer

     

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

     

    ASSIGNEES:

     

    

     

    VALENS
      U.S. SPV I, LLC

     

    

     

    By:           Valens
      Capital Management, LLC,

    its
      Investment Manager

     

    By:   /s/
      Patrick
      Regan                                                  

    Name:  Patrick
      Regan                                                             

     

              Authorized
      Signatory

     

    VALENS
      OFFSHORE SPV II, CORP.

     

    

     

    By:           Valens
      Capital Management, LLC,

    its
      Investment Manager

     

     

    By:   /s/
      Patrick
      Regan                                                 

    Name:  Patrick
      Regan                                                            

     

              Authorized
      Signatory

     

    SCHEDULES

     

    
      	
              Schedule
                1.1

            	
              -

            	
              Definitions

            
	
              Schedule
                3.1(e)

            	
              -

            	
              WI
                Owner’s Litigation

            
	
              Schedule
                3.1(g)

            	
              -

            	
              Preferential
                Purchase Rights; Required Third Person Consents to
                Assignment

            
	
              Schedule
                3.1(h)

            	
              -

            	
              Liens
                and Encumbrances

            
	
              Schedule
                3.1(m)

            	
              -

            	
              Property
                Agreements; Marketing Agreements

            
	
              Schedule
                3.1(n)

            	
              -

            	
              Future
                Assignment Obligations

            
	
              Schedule
                3.1(r)

            	
              -

            	
              Production
                Imbalances and Related Items

            
	 	 	 

    

    EXHIBITS

     

    
      	
              Exhibit
                A

            	
              -

            	
              Subject
                Interests

            
	
              Exhibit
                B

            	
              -

            	
              Form
                of Conveyance of Net Profits Overriding Royalty
                Interest

            
	 	 	 

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      1.1

     

     

    Definitions

     

    “Affiliate”
      means, with respect to any person, any other person that directly, or indirectly
      through one or more intermediaries, controls, is controlled by, or is under
      common control with such person.  The term “control” (including, with
      correlative meaning, the terms “controlled by” and “under common control with”)
      as used with respect to any person, means the possession, directly or
      indirectly, of the power to direct or cause the direction of the management
      and
      policies of such person, whether through the ownership of voting securities,
      by
      contract, or otherwise.

     

     “Business
      Day” means any day which is not a day on which national banking institutions
      in New York, New York, are closed as authorized or required by Law.

     

    “Casualty
      Event” means, with respect to all or any material portion of an Asset, any
      destruction by fire, blowout, leak, explosion, or other casualty (above or
      below
      ground) or any taking, or pending or threatened taking, in condemnation or
      under
      the right of eminent domain, of any Asset or portion thereof.

     

    “Central
      Time” means Central Standard Time or Central Daylight Savings Time, as in
      effect in Dallas, Texas, on the day in question.

     

    “Claims”
      means any and all claims, demands, liens, notices of non-compliance or
      violation, notices of liability or potential liability, investigations, actions
      (whether judicial, administrative, or arbitrational), causes of action, suits,
      controversies, losses, judgments, damages, liabilities, costs, expenses,
      interest, penalties, taxes, fines, obligations, and deficiencies, including,
      without limitation, reasonable attorneys’ fees and other costs and expenses of
      the Party defending a claim incident to the investigation and defense thereof
      that results in litigation or arbitration, or the settlement of any claim,
      or,
      in the case of a claim subject to indemnification hereunder, the enforcement
      by
      the Party receiving indemnification of the provisions of Section 4.5, as
      applicable.

     

    “Creditor
      Parties”, as defined in the Securities Purchase Agreement, means,
      collectively, Assignees, as “Purchasers” under the terms of the Securities
      Purchase Agreement, and LV Administrative Services, Inc., as administrative
      and
      collateral agent for each Purchaser.

     

    “Effective
      Date” means 7:00 A.M., Central Time, on the first Day of the Month following
      the first to occur of (a) the payment in full by WI Owner to Assignees of all
      amounts (including principal and accrued interest) owed by WI Owner under the
      terms of the Notes, or (b) the “Maturity Date” of the Notes (as such term is
      defined therein).

     

    “Environmental
      Complaint” means any written or oral complaint, order, directive, claim,
      citation, notice of environmental report or investigation, or other notice
      by
      any governmental authority or any other Person with respect to (a) air
      emissions, (b) spills, releases, or discharges to soils, any improvements
      located thereon, surface water, groundwater,
      or the sewer, septic, waste treatment, storage, or disposal systems servicing
      any Lease, (c) solid or liquid waste disposal, (d) the use, generation, storage,
      transportation, or disposal of any Hazardous Substance, or (e) other
      environmental, health, or safety matters affecting any Lease or the business
      conducted thereon.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Environmental
      Laws” means (a) the following federal laws as they may be cited, referenced,
      and amended from time to time:  the Clean Air Act, the Clean Water
      Act, the Safe Drinking Water Act, the Comprehensive Environmental Response,
      Compensation and Liability Act, the Endangered Species Act, the Resource
      Conservation and Recovery Act, the Hazardous Materials Transportation Act,
      the
      Superfund Amendments and Reauthorization Act, and the Toxic Substances Control
      Act; (b) any and all equivalent environmental statutes of any state in which
      any
      Asset is situated, as they may be cited, referenced and amended from time to
      time; (c) any rules or regulations promulgated under or adopted pursuant to
      the
      above federal and state laws; and (d) any other equivalent federal, state,
      or
      local statute or any requirement, rule, regulation, code, ordinance, or order
      adopted pursuant thereto, including those relating to the generation,
      transportation, treatment, storage, recycling, disposal, handling, or Release
      of
      Hazardous Substances.

     

    “Environmental
      Liability”  means any claim, demand, obligation, cause of action,
      accusation, allegation, order, violation, damage, injury, judgment, penalty
      or
      fine, cost of enforcement, cost of remedial action, or any other cost or expense
      whatsoever, including reasonable attorneys’ fees and disbursements, resulting
      from the violation or alleged violation of any Environmental Law or the
      imposition of any Environmental Lien.

     

    “Environmental
      Lien” means a lien in favor of a Governmental Authority or other Person for
      (a) any liability under an Environmental Law or (b) damages arising from or
      costs incurred by such Governmental Authority or other Person in response to
      a
      Release (or threatened Release) of Hazardous Substances into the
      environment.

     

    “Governmental
      Authority” means any governmental or quasi-governmental federal, state,
      provincial, county, city, or other political subdivision of the United States,
      any foreign country, or any department, bureau, agency, commission, court,
      or
      other statutory or regulatory body or instrumentality thereof.

     

    “Hazardous
      Substances” shall mean flammables, explosives, radioactive materials,
      hazardous wastes, asbestos, or any material containing asbestos, polychlorinated
      biphenyls (PCBs), toxic substances or related materials, petroleum, petroleum
      products, associated oil or natural gas exploration, production, and development
      wastes, or any substances defined as “hazardous substances,” “hazardous
      materials,” “hazardous wastes,” or “toxic substances” under the Comprehensive
      Environmental Response, Compensation and Liability Act, as amended, the
      Superfund Amendments and Reauthorization Act, as amended, the Hazardous
      Materials Transportation Act, as amended, the Resource Conservation and Recovery
      Act, as amended, the Toxic Substances Control Act, as amended, or any other
      Environmental Laws.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Hydrocarbons”
      shall have the meaning given that term in the NPI Conveyance.

     

    The
      term
“Indemnified Parties” is defined in Section 4.5(a).

     

    “Knowledge”
      means, for purposes of Article 3, (a) knowledge of those matters of which
      a Person is charged with constructive notice under applicable Law, and (b)
      actual knowledge.

     

    “Laws”
      means all constitutions, laws, statutes, ordinances, rules,  and
      regulations of the United States, any foreign country, or any domestic or
      foreign state, and any local, state, or federal political subdivision or agency
      thereof, as well as all decisions of courts having the effect of law in each
      such jurisdiction.

     

    “Leases”
      means the oil and gas leases, fee mineral interests, and other interests
      described, referred to, or identified in Exhibit A as to all lands
      covered thereby (or the applicable part or portion thereof if specifically
      limited in depth and/or areal extent), together with, in the case of an oil
      and
      gas lease, any renewal or extension of such lease (as to all or any part or
      portion thereof), and any replacement lease taken upon or in anticipation of
      the
      expiration or termination of such lease (if executed and delivered during the
      term of or within one (1) year after expiration of the predecessor lease),
      as to
      all lands and depths described in the predecessor lease (unless the predecessor
      lease is specifically limited in depth or areal extent, in which event only
      such
      portion of such lease shall be considered a renewal or extension or a
      replacement lease subject to this Agreement).

     

    “Marketing
      Agreements” means the Hydrocarbon processing, sale, purchase, exchange,
      gathering, transportation, and other marketing-related contracts, agreements,
      and rights owned by WI Owner or to which WI Owner is a party and that are
      appurtenant to or affect the Subject Interests, described more particularly
      on
Schedule 3.1(m).

     

    “Material
      Adverse Effect” shall have the meaning given to that term in the Securities
      Purchase Agreement.

     

    “NPI
      Conveyance” means the Conveyance of Net Profits Overriding Royalty Interest
      to be executed by WI Owner in favor of Assignee with respect to the Net Profits
      Interest, substantially in the form attached hereto as Exhibit
      B.

     

    “Net
      Profits Interest” means the net profits overriding royalty interest to be
      conveyed by WI Owner to Assignee out of the Subject Interests as provided in
      this Agreement, subject to and in accordance with the terms of the NPI
      Conveyance.

     

    “Notes”
      mean, collectively, (a) the Secured Term Note dated of even date herewith,
      from
      WI Owner to Valens U.S. SPV I, LLC, in the original principal amount of
      $3,100,000.00, and (b) the Secured Term Note dated of even date herewith, from
      WI Owner to Valens Offshore SPV II, Corp., in the original principal amount
      of
      $4,000,000.00.

     

    “Parties”
      shall mean, collectively, WI Owner and Assignees.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Permitted
      Encumbrances” shall have the meaning given that term in the NPI
      Conveyance.

     

    “Person”
      means any individual, natural person, corporation, joint venture, partnership,
      limited partnership, limited liability company, limited liability partnership,
      trust, estate, business trust, association, governmental entity or other
      entity.

     

    “Property
      Agreements” means all of the operating agreements, unit operating
      agreements, processing plant operating agreements, pooling and unitization
      agreements, and other contracts, agreements, and rights owned by WI Owner,
      in
      whole or in part, to the extent that they are appurtenant to or affect the
      Subject Interests, described more particularly on Schedule
      3.1(m).

     

    “Release
      of Hazardous Substances” means any emission, spill, release, disposal, or
      discharge, except in accordance with a valid permit, license, certificate,
      or
      approval of the relevant governmental authority, of any Hazardous Substance
      into
      or upon (a) the air, (b) soils or any improvements located thereon, (c) surface
      water or groundwater, or (d) the sewer or septic system, or the waste treatment,
      storage, or disposal system servicing any Lease, with respect to which WI Owner
      is legally obligated to respond under applicable Environmental Laws by notifying
      the relevant governmental authority, investigating, or undertaking corrective
      action.

     

    “Securities
      Purchase Agreement” means the Securities Purchase Agreement dated of even
      date herewith, between Gulf Coast Oil Corporation, the purchasers from time
      to
      time a party thereto, and LV Administrative Services, Inc., as administrative
      and collateral agent for each purchaser.

     

    “Subject
      Interests” means:  (a) the undivided leasehold interests and the
      associated net revenue interests of WI Owner described more particularly on
      Exhibit A in and to the Leases and the other rights and interests
      described more particularly in Exhibit A, INSOFAR ONLY AS the Leases
      cover and include the lands identified in Exhibit A, which comprise the
      drill site locations for the proposed wells listed on Exhibit A, all as
      provided in Exhibit A; (b) all rights, titles, and interests of WI Owner
      in and to all Hydrocarbons produced, saved, and marketed from or allocable
      to
      the proposed Hydrocarbon wells listed on Exhibit A once such wells
      are drilled and completed, and any Hydrocarbon wells drilled thereafter on
      the
      Leases, INSOFAR ONLY AS the Leases cover and include the lands identified in
      Exhibit A, and any unit into which any such Lease, INSOFAR ONLY AS such
      Lease covers and includes the lands identified in Exhibit A, is pooled or
      unitized; and (c) any and all other rights, titles, and interests of WI Owner
      in
      or with respect to all voluntary or compulsory pooling or unitization agreements
      or orders, farmout agreements, farmin agreements, operating agreements,
      Hydrocarbon purchase and sale agreements, licenses, permits, and all other
      contracts of any kind whatsoever covering or affecting the production or
      marketing of Hydrocarbons from the Leases, INSOFAR ONLY AS the Leases cover
      and
      include the lands identified in Exhibit A, and any unit into which any
      such Lease, INSOFAR ONLY AS such Lease covers and includes the lands identified
      in Exhibit A, is pooled or unitized, and attributable to the interests of
      WI Owner therein.

     

    “Taxes”
      means all ad valorem, property, occupation, gathering, pipeline regulating,
      windfall profit, severance, gross production, gross receipts, Btu, energy,
      excise, and other taxes and governmental charges and assessments imposed on
      the
      Subject Interests, the Net Profits Interest, the Hydrocarbons attributable
      thereto, or the proceeds therefrom, other than income, franchise, or similar
      taxes.

     

    “Transfer”
      means, for purposes of Section 4.8, as applicable, (a) a sale,
      exchange, assignment, conveyance, gift, bequest, devise, disposition, or other
      direct transfer of title to an asset, (b) a transfer of the equity
      interests of the Person owning the relevant asset or, in the case of an entity
      other than an individual, the direct parent of such entity, or (c) a
      merger, consolidation, reorganization, or other business combination of such
      Person or, in the case of an entity other than an individual, the direct parent
      of such entity.

     

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      3.1(e)

     

    

     

    WI
      OWNER’S LITIGATION

     

    None.

     

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      3.1(g)

     

    

     

    PREFERENTIAL
      PURCHASE RIGHTS; REQUIRED THIRD

     

    PERSON
      CONSENTS TO ASSIGNMENT

     

    None.

     

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      3.1(h)

     

    

     

    LIENS
      AND ENCUMBRANCES

     

    

    

    
      	
              1.

            	
              Mortgage,
                Deed of Trust, Security Agreement, Financing Statement and Assignment
                of
                Production, from Gulf Coast Oil Corporation, as Mortgagor, to Eugene
                Grin,
                as Trustee, for the benefit of Laurus Master Fund, Ltd., as Mortgagee,
                dated as of April 26, 2006, filed and recorded as
                follows:

            
	 	 
	 	
              JURISDICTION

            	
              FILING
                DATA

            
	 	 	 
	 	
              TEXAS

            	 
	 	 	 
	 	
              Atascosa
                County

            	
              Filed
                on April 27, 2006, under Instrument No. 81631, Official
                Records

            
	 	 	 
	 	
              McMullen
                County

            	
              Filed
                on April 27, 2006, under Instrument No. 61695 Volume 168 Page
                371

            

    

    

    

    
      	
              2.

            	
              UCC-1
                Financing Statement reflecting Gulf Coast Oil Corporation, as Debtor,
                and
                Laurus Master Fund, Ltd., as Secured Party, relating to the Mortgage
                dated
                as of April 26, 2006, filed and recorded as follows:

            
	 	 	 
	 	
              JURISDICTION

            	
              FILING
                DATA

            
	 	 	 
	 	
              TEXAS

            	 
	 	 	 
	 	
              McMullen
                County

            	
              Filed
                on April 28, 2006, Volume 168 Page
                426

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	
              3.

            	
              Amended
                and Restated Mortgage, Deed of Trust, Security Agreement, Financing
                Statement and Assignment of Production from Gulf Coast Oil Corporation,
                as
                Mortgagor, to Eugene Grin, as Trustee, for the benefit of Laurus
                Master
                Fund, Ltd., as Mortgagee, dated as of June 30, 2006, filed and recorded
                as
                follows:

            
	 	 
	 	
              JURISDICTION

            	
              FILING
                DATA

            
	 	 	 
	 	
              TEXAS

            	 
	 	 	 
	 	
              Atascosa
                County

            	
              Filed
                on July 3, 2006, under Instrument No. 83177, Official
                Records

            
	 	 	 
	 	
              McMullen
                County

            	
              Filed
                on July 3, 2006, under Instrument No. 61899 Volume 170 Page
                01

            

    

    

    

    
      	
              4.

            	
              UCC-1
                Financing Statement reflecting Gulf Coast Oil Corporation, as Debtor,
                and
                Laurus Master Fund, Ltd., as Secured Party, relating to the Mortgage
                dated
                as of June 30, 2006, filed and recorded as follows:

            
	 	 
	 	
              JURISDICTION

            	
              FILING
                DATA

            
	 	 	 
	 	
              TEXAS

            	 
	 	 	 
	 	
              Atascosa
                County

            	
              Filed
                on July 10, 2006, under Instrument No. 83277, Official
                Records

            
	 	 	 
	 	
              McMullen
                County

            	
              Filed
                on July 3, 2006, Volume 170
                Page 92

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	
              5.

            	
              First
                Amendment to Amended and Restated Mortgage, Deed of Trust, Security
                Agreement, Financing Statement and Assignment of Production from
                Gulf
                Coast Oil Corporation, as Mortgagor, to Eugene Grin, as Trustee,
                for the
                benefit of Laurus Master Fund, Ltd., as Mortgagee, dated January
                30, 2007,
                filed and recorded as follows:

            
	 	 
	 	
              JURISDICTION

            	
              FILING
                DATA

            
	 	 	 
	 	
              TEXAS

            	 
	 	 	 
	 	
              Atascosa
                County

            	
              Filed
                on February 5, 2007, under Instrument No. 88090, Official
                Records

            
	 	 	 
	 	
              McMullen
                County

            	
              Filed
                on February 5, 2007, under Instrument No. 62467 Volume 173
                Page 89

            

    

    

    

    
      	
              6.

            	
              UCC-1
                Financing Statement reflecting Gulf Coast Oil Corporation, as Debtor,
                and
                Laurus Master Fund, Ltd., as Secured Party, relating to the First
                Amendment dated January 30, 2007, filed and recorded as
                follows:

            
	 	 
	 	
              JURISDICTION

            	
              FILING
                DATA

            
	 	 	 
	 	
              TEXAS

            	 
	 	 	 
	 	
              Atascosa
                County

            	
              Filed
                on January 10, 2007, under Instrument No. 87556, Official
                Records

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      3.1(m)

     

    

     

    PROPERTY
      AGREEMENTS; MARKETING AGREEMENTS

     

    
      	
              A.

            	
              Property
                Agreements

            

    

     

    
      	
               

            	
              None.

            

    

     

    
 

     

    
      	
              B.

            	
              Marketing
                Agreements

            

    

     

    
      	
               

            	
              Crude
                Oil Purchase Agreement, GulfMark Contract No. 52010, dated May 19,
                2006,
                between Gulf Coast Oil Corporation, as Seller, and GulfMark Energy,
                Inc.,
                as Buyer, as amended.

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      3.1(n)

     

    

     

    FUTURE
      ASSIGNMENT OBLIGATIONS

     

    None.

     

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      3.1(r)

     

    

     

    PRODUCTION
      IMBALANCES AND RELATED ITEMS

     

    None.

     

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A

     

    

     

    [Confidential
      Information
      Removed]

     

    

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    EXHIBIT
      B

     

    

     

    

     

    Attached
      to and made a part of Net Profits Interest Agreement

     

    dated
      as of November 20, 2007, between

     

    Gulf
      Coast Oil Corporation, as WI Owner, and

     

    Valens
      U.S. SPV I, LLC, and Valens Offshore SPV II, Corp., as
      Assignees

     

    Form
      of Conveyance of Net Profits Overriding Royalty
      Interestex10-8.htm

    Exhibit 10.8

     

    CONVEYANCE
      OF NET PROFITS OVERRIDING ROYALTY INTEREST

     

    FROM

     

    GULF
      COAST OIL CORPORATION

     

    TO

     

    VALENS
      U.S. SPV I, LLC

     

    and

     

    VALENS
      OFFSHORE SPV II, CORP.

     

     

    DATED
      AS OF NOVEMBER 20, 2007

     

     

     

     

     

     

     

     

     

     

     

    

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    CONVEYANCE
      OF NET PROFITS OVERRIDING ROYALTY INTEREST

     

    THIS
      CONVEYANCE OF NET PROFITS OVERRIDING ROYALTY INTEREST is dated as of November
      20, 2007 (the “Conveyance”), and is from GULF COAST OIL CORPORATION, a
      Delaware corporation having as its address 5851 San Felipe, Suite 775, Houston,
      Texas 77057 (“WI Owner”), to VALENS U.S. SPV I, LLC, a Delaware limited
      liability company, and VALENS OFFSHORE SPV II, CORP., a Delaware corporation,
      both having as their address c/o Valens Capital Management, LLC, 335 Madison
      Avenue, 10th
      Floor, New York, New York 10017 (collectively “Assignees”).

     

    RECITALS:

     

    WHEREAS,
      WI Owner owns certain oil and gas leasehold properties and other interests
      described more particularly herein; and

     

    WHEREAS,
      pursuant to the terms of that certain Net Profits Interest Agreement dated
      of
      even date herewith, between WI Owner and Assignees (as such agreement may be
      amended from time to time, the “NPI Agreement”), WI Owner has agreed to
      sell and convey to Assignees the “Net Profits Interest” (as that term is defined
      hereinafter) to be discharged out of the production of “Hydrocarbons” (as that
      term is also defined hereinafter) from such oil and gas properties, in
      accordance with the terms and conditions set forth below.

     

    NOW,
      THEREFORE, KNOW ALL MEN BY THESE PRESENTS:

     

    ARTICLE
      I

     

    CONVEYANCE

     

    1.1           Grant
      and Habendum.

     

    (a)           For
      and in consideration of TEN AND NO/100 DOLLARS ($10.00) cash and other good
      and
      valuable consideration in hand paid to WI Owner, the receipt and sufficiency
      of
      which are hereby acknowledged, WI Owner hereby GRANTS, BARGAINS, SELLS, CONVEYS,
      TRANSFERS, ASSIGNS, SETS OVER, AND DELIVERS unto Assignees, in the proportions
      of forty-three and seven tenths percent (43.7%) to Valens U.S. SPV I, LLC,
      and
      fifty-six and three tenths percent (56.3%) to Valens Offshore SPV II, Corp.,
      effective as of the Effective Date and subject to the terms and conditions
      set
      forth hereinafter, a net profits overriding royalty interest (the “Net
      Profits Interest”) in and to all Subject Hydrocarbons if, as, and when
      produced, saved, and marketed equal to the Net Profits Percentage of the Net
      Profits attributable to the Subject Interests.

     

    (b)           TO
      HAVE AND TO HOLD the Net Profits Interest unto Assignees, and Assignees’
respective successors and assigns, forever.

     

    1.2           Calculation
      as Single Property.  For the purposes of this Conveyance, the Net
      Profits Interest shall be calculated and computed in respect and on the basis
      of
      the Subject Interests as a whole, and to that end, the Parties agree and
      stipulate that the Net Profits Interest shall apply to the Subject Interests
      in
      their entirety as one property, even though the Subject Interests may be
      comprised of multiple properties, as identified herein.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ARTICLE
      II

     

    DEFINITIONS

     

    In
      addition to the terms defined in the introductory paragraph and recitals of
      this
      Conveyance, the following terms shall have the meanings given to them when
      used
      in this Conveyance and the exhibits and schedules hereto:

     

    “Affiliate”
      means, with respect to a Party, any person that directly or indirectly controls,
      is controlled by, or is under common control with, the relevant
      Party.  For purposes of this definition, the term “control” means the
      possession, directly or indirectly, of the power to direct or cause the
      direction of the management and policies of a person, whether through ownership
      of voting securities, contract, voting trust, membership in management or in
      the
      group appointing or electing management, or otherwise through formal or informal
      arrangements or business relationships.

     

    “Alternate
      Zone Operations” means any of the following operations performed in the well
      bore of a Hydrocarbon well located on the Subject Interests after such well
      is
      completed and equipped for production for the purpose of establishing production
      from a subsurface interval different from that in which such well was originally
      completed.  Such operations include, without limitation, (a)
      deepening, (b) sidetracking, (c) plugging back, (d) completion and equipping
      for
      production (as those terms are used in the definition of the term “Drilling
      Operations” herein) following any of the foregoing operations, and (e)
      recompletion operations.  Alternate Zone Operations shall not include
      Drilling Operations, Reworking Operations, or Enhanced Recovery
      Operations.

     

    “Business
      Day” means any day which is not a day on which national banking institutions
      in New York, New York are closed as authorized or required by law.

     

    “Capital
      Costs” means the costs and expenses incurred in connection with all, or any,
      of the following types of operations:  (a) Drilling Operations; (b)
      Alternate Zone Operations; (c) Reworking Operations; (d) Enhanced Recovery
      Operations; and/or (e) the design, construction, and installation, or
      acquisition, of Processing, gathering, compression, dehydration, separation,
      treatment, transportation, marketing, and other facilities, regardless of
      whether such facilities serve, are located on or are appurtenant to, or relate
      in any way to the Subject Interests.

     

    “Central
      Time” means Central Standard Time or Central Daylight Savings Time, as in
      effect in Houston, Texas, on the Day in question.

     

    “Claims”
      means, any and all claims, demands, liens, notices of non-compliance or
      violation, notices of liability or potential liability, investigations, actions
      (whether judicial, administrative, or arbitrational), causes of action, suits,
      controversies, losses, judgments, damages, liabilities, costs, expenses,
      interest, penalties, taxes, fines, obligations, and deficiencies, including,
      without limitation, reasonable attorneys’ fees and other costs and expenses of
      the Party defending a claim incident to the investigation and defense of any
      claim that results in litigation or arbitration, or the settlement of any claim,
      or the enforcement by the Party receiving indemnification of the terms of such
      indemnity.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “COPAS
      Accounting Practices” means the accounting procedures and guidelines
      promulgated by the Council of Petroleum Accountants’ Societies (“COPAS”)
      and in effect from time to time under joint operating agreements or similar
      agreements in effect with respect to the Leases, or, if no COPAS accounting
      procedures or guidelines are in effect under any such agreement, the COPAS
      accounting procedures and guidelines set forth in the [1974] promulgated form
      of
      such accounting procedures and guidelines.

     

    “Day”
      means each period of twenty-four (24) consecutive hours beginning and ending
      at
      7:00 A.M., Central Time.  The reference date for any Day shall be the
      calendar date upon which the twenty-four (24) hour period
      commences.

     

    “Default
      Rate” means, on any day, a per annum interest rate equal to (a) four percent
      (4%) plus (b) the prime rate as published in the “Money Rates” table of
The Wall Street Journal for such Day, but in no event exceeding the
      maximum, non-usurious rate of interest permissible under applicable state and
      federal laws as in effect from time to time.  If multiple prime rates
      are quoted in such table, then the highest prime rate quoted therein shall
      be
      used to determine the Default Rate.  If a prime rate is not published
      in The Wall Street Journal’s“Money Rates” table for any reason, Assignee
      will choose a substitute prime rate for purposes of calculating the interest
      rate applicable hereunder, which rate is based on comparable information, until
      such time as a prime rate is published in The Wall Street Journal’s“Money
      Rates” table.  If The Wall Street Journal is not published on
      any Day, the applicable prime rate for each such Day shall be the most recent
      prime rate published by The Wall Street Journal in its “Money Rates”
table if published no more than three (3) Days prior to such date.

     

    “Drilling
      Operations” means any of the following operations performed in or with
      respect to a Hydrocarbon well located on the Subject Interests:  (a)
      drilling; (b) logging, coring, and testing prior to a completion attempt; (c)
      deepening, sidetracking, or plugging back operations conducted prior to the
      completion of such well; (d) completion (including, without limitation, the
      of
      the setting of production casing and tubing, perforation, and the installation
      of wellhead facilities), and equipping for production (including, without
      limitation, the installation of pumping equipment, tanks, separators, flow
      lines, saltwater disposal equipment, and other production facilities); and/or
      (e) plugging and abandonment as a dry hole (including, without limitation,
      the
      restoration of the surface of the drill site premises).

     

    “Due
      Date” shall have the meaning set forth in Section 3.8.

     

    “Effective
      Date” means 7:00 A.M., Central Time, on the first Day of the Month following
      the first to occur of (a) the payment in full by WI Owner to Assignees of all
      amounts (including principal and accrued interest) owed by WI Owner under the
      terms of the Notes, or (b) the “Maturity Date” of the Notes (as such term is
      defined therein).

     

    “Enhanced
      Recovery Operations” means all methods of supplementing natural forces and
      mechanisms of primary Hydrocarbon recovery or otherwise increasing ultimate
      recovery of Hydrocarbons from the Subject Interests, including, without
      limitation, water flooding, pressure maintenance, gas cycling, fluid injection,
      polymer flooding, chemical flooding, and similar operations.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Environmental
      Laws” means (a) the following federal laws as they may be cited, referenced,
      and amended from time to time: the Clean Air Act, the Clean Water Act, the
      Safe
      Drinking Water Act, the Comprehensive Environmental Response, Compensation
      and
      Liability Act, the Endangered Species Act, the Resource Conservation and
      Recovery Act, the Hazardous Materials Transportation Act, the Superfund
      Amendments and Reauthorization Act, and the Toxic Substances Control Act; (b)
      any and all equivalent environmental statutes of any state in which any Subject
      Interest is situated, as they may be cited, referenced and amended from time
      to
      time; (c) any rules or regulations promulgated under or adopted pursuant to
      the
      above federal and state laws; and (d) any other equivalent federal, state,
      or
      local statute or any requirement, rule, regulation, code, ordinance, or order
      adopted pursuant thereto, including those relating to the generation,
      transportation, treatment, storage, recycling, disposal, handling, or release
      of
      Hazardous Substances.

     

    “Farmout”
      means an arrangement whereby the owner of an interest in a Lease who does not
      desire to conduct Drilling Operations on the Lease or on any unit into which
      the
      Lease has been pooled or unitized agrees to assign its interest in the Lease,
      or
      some geographic and/or subsurface portion of it, to a co-owner of the Lease
      or
      unit in consideration of such co-owner’s agreement to drill one or more
      Hydrocarbon wells on the assigned portion of the Lease.  The assignor
      in such a transaction may or may not retain an overriding royalty, production
      payment, or other similar non-operating interest, or the right to exchange
      such
      non-operating interest for a leasehold interest in the Lease upon the assignee’s
      recoupment of the costs and expenses of its Drilling Operations.

     

    “Hazardous
      Substances” shall mean flammables, explosives, radioactive materials,
      hazardous wastes, asbestos, or any material containing asbestos, polychlorinated
      biphenyls (PCBs), toxic substances or related materials, petroleum, petroleum
      products, associated oil or natural gas exploration, production, and development
      wastes, or any substances defined as “hazardous substances,” “hazardous
      materials,” “hazardous wastes,” or “toxic substances” under the Comprehensive
      Environmental Response, Compensation and Liability Act, as amended, the
      Superfund Amendments and Reauthorization Act, as amended, the Hazardous
      Materials Transportation Act, as amended, the Resource Conservation and Recovery
      Act, as amended, the Toxic Substances Control Act, as amended, or any other
      Environmental Laws.

     

    “Hydrocarbons”
      means, collectively, Oil and Produced Gas.

     

    “Knowledge”
      means (a) knowledge of those matters of which a person is charged with
      constructive notice under applicable law, and (b) actual knowledge.

     

    “Lease”
      means an oil and gas lease, fee mineral interest, royalty interest, or other
      interest described, referred to, or identified in Exhibit A, as to all
      lands and subsurface intervals covered thereby (or the applicable part or
      portion thereof, if specifically limited in depth and/or areal extent), together
      with, in the case of an oil and gas lease, any renewal or extension of such
      lease (as to all or any part or portion thereof), and any replacement lease
      taken upon or in anticipation of the expiration or termination of such lease
      (if
      executed and delivered during the term of or within one (1) year after the
      expiration of the predecessor lease), in each case as to all lands and
      subsurface intervals described in the predecessor lease (unless the predecessor
      lease is specifically limited in depth or areal extent, in which event only
      such
      portion of such lease shall be
      considered a renewal or extension or a replacement lease subject to this
      Conveyance); and “Leases” shall mean all such leases, fee mineral
      interests, royalty interests, and other interests and all such renewals and
      extensions and replacement leases.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Lease
      Use Hydrocarbons” shall mean any Hydrocarbons which are unavoidably lost in
      the production thereof or used by WI Owner or the operator of any Lease or
      unit
      into which such Lease is pooled or unitized for drilling and production
      operations conducted prudently and in good faith for the purpose of producing
      Hydrocarbons from or allocable to such Lease (including, without limitation,
      Enhanced Recovery Operations), but only for so long as and to the extent such
      Hydrocarbons are so used.

     

    “Month”
      means each period beginning at 7:00 A.M., Central Time, on the first Day of
      a
      calendar month and ending at 7:00 A.M., Central Time, on the first Day of the
      next succeeding calendar month.

     

    “Net
      Profits” shall have the meaning set forth in Section
      3.2.

     

    “Net
      Profits Account” shall have the meaning set forth in Section
      3.1.

     

    “Net
      Profits Interest” means the net profits overriding royalty interest created
      pursuant to this Conveyance.

     

    “Net
      Profits Percentage” means forty-nine percent (49%).

     

    “Non-Consent
      Hydrocarbons” means Hydrocarbons produced from a Hydrocarbon well during the
      applicable period of recoupment or reimbursement pursuant to a Non-Consent
      Provision covering that well, which Hydrocarbons have been relinquished by
      the
      non-consenting party to the consenting or participating party under the terms
      of
      such Non-Consent Provision as the result of the election by the non-consenting
      party not to participate in the particular operation.

     

    “Non-Consent
      Provision” means a contractual provision contained in a third-party
      operating agreement, unit agreement, contract for development, or other similar
      agreement which is a Permitted Encumbrance, which provision covers so-called
      “non-consent” operations or sole benefit operations and provides for
      relinquishment of production by non-consenting or non-participating parties
      during a period of recoupment or reimbursement of costs and expenses of the
      consenting or participating parties.

     

    “Notes”
      mean, collectively, (a) the Secured Term Note dated of even date herewith,
      from
      WI Owner to Valens U.S. SPV I, LLC, in the original principal amount of
      $3,100,000.00, and (b) the Secured Term Note dated of even date herewith, from
      WI Owner to Valens Offshore SPV II, Corp., in the original principal amount
      of
      $4,000,000.00.

     

    “Oil”
      means crude oil, distillate, and other associated liquid hydrocarbons, as such
      substances exist prior to Processing. For purposes of this Conveyance, the
      term
“Oil” shall include condensate produced in association with Produced
      Gas.

     

    “Parties”
      means, collectively, WI Owner and Assignee.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Permitted
      Encumbrances” means the following:

     

    (a)           the
      NPI Agreement and the agreements, contracts, and other documents described
      in
      conjunction with the description of the Leases on Exhibit A attached
      hereto (to the extent the same are valid and enforceable and burden the Subject
      Interests);

     

    (b)           all
      royalties, overriding royalties, production payments, carried interests, net
      profits interests (other than the Net Profits Interest), and other similar
      interests constituting burdens upon, measured by, or payable out of Hydrocarbons
      produced and saved from or attributable to the Subject Interests that are in
      effect as of the date of execution of this Conveyance, to the extent that the
      foregoing, taken in the aggregate, (i) do not reduce WI Owner’s share of
      Hydrocarbons produced and saved from or attributable to each well or portion
      of
      the Subject Interests listed on Exhibit A to less than the undivided
      interest identified on Exhibit A as the “Net Revenue Interest” of WI
      Owner in such well or portion of the Subject Interests, and (ii) do not increase
      WI Owner’s share of the costs and expenses relating to the operation and
      development of any such well or portion of the Subject Interests to a share
      greater than the undivided interest identified on Exhibit A as WI Owner’s
“Working Interest” in such well or portion of the Subject
      Interests;

     

    (c)           the
      Senior Liens;

     

    (d)          division
      orders;

     

    (e)           liens
      for Taxes or assessments not yet delinquent;

     

    (f)           materialman’s,
      mechanic’s, repairman’s, employee’s, contractor’s, operator’s, and other similar
      liens or charges arising in the ordinary course of business, to the extent
      the
      same secure amounts not yet due and payable or that are being contested in
      good
      faith by appropriate proceedings diligently conducted;

     

    (g)          easements,
      rights-of-way, servitudes, permits, surface leases, and other rights pertaining
      to surface operations, to the extent the same do not materially interfere with
      operations on, or the operation, value, or use of any Subject Interest;
      and

     

    (h)          other
      valid and enforceable encumbrances, contracts, agreements, obligations, defects,
      and irregularities affecting the Subject Interests which, taken in the aggregate
      and together with the matters identified in clauses (a) through
(f) of this definition: (i) do not materially interfere with operations
      on, or the operation, value, or use of, any Subject Interest; (ii) do not
      prevent WI Owner from receiving any proceeds of any Subject Hydrocarbons; (iii)
      do not reduce the share of WI Owner of all Hydrocarbons produced and saved
      from
      or attributable to each well or portion of the Subject Interests listed on
      Exhibit A, and of the proceeds of such Hydrocarbon production, after
      giving effect to all valid royalties, overriding royalties, production payments,
      carried interests, net profits interests (other than the Net Profits Interest),
      and other similar interests constituting burdens upon, measured by, or payable
      out of Hydrocarbons produced and saved from or attributable to such well or
      portion of the Subject Interests, to a share less than the undivided interest
      identified on Exhibit A as WI Owner’s “Net Revenue Interest” in such well
      or portion of the Subject Interests; (iv) do not increase WI Owner’s share of
      the costs and expenses relating to the operation and development of
      any
      such well or portion of the Subject Interests to a share greater than the
      undivided interest identified on Exhibit A as WI Owner’s “Working
      Interest” in such well or portion of the Subject Interests; and (v) do not
      secure an obligation in respect of borrowed money.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Permitted
      Environmental Expenses” means expenses incurred from and after the Effective
      Date in (a) complying with any applicable Environmental Law governing the normal
      operation of the Subject Interests as would a prudent operator in accordance
      with sound oilfield practices; and (b) the management as a prudent operator
      in
      accordance with sound oilfield practices of any Hazardous Substance generated
      during the normal operation of the Subject Interests from and after the
      Effective Date.

     

    “Process”
      or “Processing” means to manufacture, fractionate, treat, absorb (other
      than by means of a gas recycling plant), compress (to the extent necessary
      to
      cause residue gas after processing to enter transportation facilities), or
      refine Hydrocarbons using equipment and facilities other than conventional
      wellhead-type equipment and facilities, such as dehydrators, field separators,
      heater-treaters, lease compression facilities utilized to cause Produced Gas
      to
      enter gathering or transportation facilities at or near the wellhead, and
      similar equipment.

     

    “Produced
      Gas” means a mixture consisting primarily of methane but including other
      constituents (which may include natural gas liquids, other liquid or liquefiable
      hydrocarbon substances, and other impurities) that is recoverable through a
      well
      from an underground reservoir and that is in a gaseous state when its volume
      is
      measured at the wellhead, as such substances exist prior to
      Processing.  For purposes of this Conveyance, condensate produced in
      association with Produced Gas shall be treated as Oil.

     

    “Reworking
      Operations” means operations performed in the well bore of a Hydrocarbon
      well located on the Subject Interests after such well is completed and equipped
      for production for the purpose of securing, restoring, or improving Hydrocarbon
      production in a subsurface interval that is then open to production in such
      well
      bore. Such operations include, without limitation, fracturing, refracturing,
      and
      other formation stimulation operations and recompletion operations conducted
      in
      the subsurface interval where such reworking operations were conducted after
      the
      conclusion of such operations, but shall not include routine repairs or well
      maintenance work or Drilling Operations, Alternate Zone Operations, or Enhanced
      Recovery Operations.

     

    “Senior
      Liens” means the liens against and security interests in the Subject
      Interests granted by WI Owner and described more particularly on Exhibit
      B.

     

    “Subject
      Hydrocarbons” means all Hydrocarbons produced from or attributable to the
      Subject Interests, after deducting therefrom all royalties, overriding
      royalties, production payments, net profits interests (other than the Net
      Profits Interest), and other burdens upon, measured by, or payable out of
      Hydrocarbon production from or attributable to the Subject Interests that are
      outstanding in third parties and reflected of record as of the date of execution
      of this Conveyance.  For purposes of this Conveyance, there shall be
      excluded from the calculation of the Subject Hydrocarbons (a) all Lease Use
      Hydrocarbons, (b) all Non-Consent Hydrocarbons owed by WI Owner, as the
      non-consenting party pursuant to a Non-Consent Provision, to the consenting
      or
      participating party(ies) under the terms of such Non-Consent Provision during
      the applicable
      period of recoupment or reimbursement, and (c) all Hydrocarbons (if any)
      produced from any lands or subsurface intervals covered by or included in the
      Leases and/or pooled therewith that are not specifically described in
Exhibit A.

     

    “Subject
      Interests” means:  (a) the undivided leasehold interests and the
      associated net revenue interests of WI Owner described more particularly on
      Exhibit A in and to the Leases and the other rights and interests
      described more particularly in Exhibit A, INSOFAR ONLY AS the Leases
      cover and include the lands identified in Exhibit A, which comprise the
      drill site locations for the proposed wells listed on Exhibit A, all as
      provided in Exhibit A; (b) all rights, titles, and interests of WI Owner
      in and to all Hydrocarbons produced, saved, and marketed from or allocable
      to
      the proposed Hydrocarbon wells listed on Exhibit A once such wells
      are drilled and completed, and any Hydrocarbon wells drilled thereafter on
      the
      Leases, INSOFAR ONLY AS the Leases cover and include the lands identified in
      Exhibit A, and any unit into which any such Lease, INSOFAR ONLY AS such
      Lease covers and includes the lands identified in Exhibit A, is pooled or
      unitized; and (c) any and all other rights, titles, and interests of WI Owner
      in
      or with respect to all voluntary or compulsory pooling or unitization agreements
      or orders, farmout agreements, farmin agreements, operating agreements,
      Hydrocarbon purchase and sale agreements, licenses, permits, and all other
      contracts of any kind whatsoever covering or affecting the production or
      marketing of Hydrocarbons from the Leases, INSOFAR ONLY AS the Leases cover
      and
      include the lands identified in Exhibit A, and any unit into which any
      such Lease, INSOFAR ONLY AS such Lease covers and includes the lands identified
      in Exhibit A, is pooled or unitized, and attributable to the interests of
      WI Owner therein.

     

    “Taxes”
      means all ad valorem, property, occupation, gathering, pipeline, severance,
      gross production, gross receipts, Btu, energy, excise, and other taxes and
      governmental charges and assessments imposed on the Subject Interests, the
      Subject Hydrocarbons, the Net Profits Interest, or the proceeds therefrom,
      other
      than income, franchise, or similar taxes.

     

    “Transfer”
      means, for purposes of Section 7.2, as applicable, (a) a sale, exchange,
      assignment, conveyance, gift, bequest, devise, disposition, or other direct
      transfer of title to an asset, (b) a transfer of the equity interests of the
      person or entity owning the relevant asset or, in the case of an entity other
      than an individual, the direct parent of such entity, or (c) a merger,
      consolidation, reorganization, or other business combination of such person
      or
      entity or, in the case of an entity other than an individual, the direct parent
      of such entity.

     

    ARTICLE
      III

     

    CALCULATION
      AND PAYMENT OF NET PROFITS INTEREST

     

    3.1           Net
      Profits Account.  For purposes of calculating the Net Profits
      Interest, WI Owner shall maintain an account for the Subject Interests (the
      “Net Profits Account”) in accordance with the terms of this Conveyance
      and COPAS Accounting Practices consistently applied that sets forth the charges
      and credits made thereto pursuant to this Conveyance on a monthly
      basis.  WI Owner shall furnish Assignees, within thirty (30) Days
      after the end of each Month after the Effective Date, a report in form and
      substance reasonably satisfactory to Assignees that sets forth the charges
      and
      credits made to the Net Profits Account during the preceding Month.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    3.2           Definition
      of “Net Profits”.  The term “Net Profits” means an amount
      (not less than zero) determined for each Month after the Effective Date by
      subtracting (a) the sum of (i) any charge balance existing in the
      Net Profits Account on the first Day of such Month, plus (ii) the total
      charges properly made thereto during such Month, from (b) the sum
      of (i) any undistributed credit balance existing in the Net Profits Account on
      the first Day of such Month, plus (ii) the total credits properly made
      thereto during such Month.  To the extent that the aggregate credits
      exceed the aggregate charges at the end of any such Month, the resulting Net
      Profits shall be payable to Assignees as provided in Section 3.8, and the
      Net Profits Account shall be adjusted to reflect each such
      distribution.  To the extent that the aggregate charges exceed the
      aggregate credits at the end of any such Month, such excess charges shall be
      carried forward to the succeeding Month(s).  All payments made to
      Assignees on account of the Net Profits Interest shall be made entirely and
      exclusively out of the sums credited to the Net Profits Account pursuant to
      Section 3.3.  Nothing contained in this Conveyance shall ever
      be interpreted or applied in any manner that will require or permit any
      duplication of all or any part of any credit or charge to the Net Profits
      Account with respect to the same transaction.  In no event shall the
      cumulative Net Profits payable to Assignee hereunder ever exceed ninety percent
      (90%) of the cumulative “gross income from the property”, as that term is used
      in Section 613(a) of the Internal Revenue Code of 1986 (as amended or superseded
      from time to time), attributable to the Subject Interests after the Effective
      Date.  Any amounts not paid by reason of this limitation shall be
      carried forward and shall be paid if and when such cumulative gross income
      from
      the property is sufficient to permit such a payment.

     

    3.3           Credits
      to the Net Profits Account.

     

    (a)           Beginning
      with the Month in which the Effective Date falls and each Month thereafter,
      the
      Net Profits Account shall be credited with an amount equal to the sum
      of:  (i) the total proceeds actually received by WI Owner from the
      sale of all Subject Hydrocarbons during the immediately preceding Month;
plus (ii) all advance payments, payments pursuant to take-or-pay or
      similar provisions, and payments representing “cover” or similar damages
      associated with a Hydrocarbon purchaser’s failure to receive Hydrocarbons
      scheduled for delivery by WI Owner, in each case as provided for in any
      Hydrocarbon purchase and sale agreement and actually received by WI Owner during
      such preceding Month (provided, however, that no amount shall be credited to
      the
      Net Profits Account in connection with make-up Hydrocarbon production
      subsequently delivered without receipt of payment therefor); plus (iii) any
      amount representing damages received by WI Owner in connection with a judgment
      in or settlement of any dispute or litigation related to the amount of the
      proceeds from the sale of the Subject Hydrocarbons, to the extent such amount
      has not previously been credited to the Net Profits Account pursuant to
clause (i) of this Section 3.3(a).

     

    (b)           If
      any Subject Hydrocarbons are Processed prior to their sale by WI Owner, then
      for
      purposes of Section 3.3(a), the Net Profits Account shall be credited
      with an amount equal to the proceeds actually received by WI Owner from the
      sale
      of all such Subject Hydrocarbons after Processing plus the proceeds
      received by WI Owner from the sale of natural gas liquids or other Hydrocarbon
      products yielded by the Processing of such Subject Hydrocarbons, less all costs
      and expenses incurred by WI Owner in gathering, compressing, and transporting
      such Subject Hydrocarbons from the wellhead to the Processing facility, product
      quality adjustments, and the Processing of such Subject
      Hydrocarbons.

     

    (c)           If
      a controversy or possible controversy (whether by reason of any statute, order,
      decree, rule, regulation, contract, or otherwise) exists between WI Owner and
      any Hydrocarbon purchaser that makes any portion of the proceeds from WI Owner’s
      sale of the Subject Hydrocarbons subject to possible refund,
      then:  (i) amounts withheld by such Hydrocarbon purchaser or deposited
      by it with an escrow agent shall not be considered to have been received by
      WI
      Owner and shall not be credited to the Net Profits Account until actually
      collected by WI Owner; provided, however, that the Net Profits Account shall
      not
      be credited with any interest, penalty, or other amount subsequently paid by
      such Hydrocarbon purchaser to WI Owner that is not derived directly from the
      sale of the Subject Hydrocarbons, but, instead, WI Owner shall pay directly
      to
      Assignee the share of any interest, penalty, or other amounts allocable to
      the
      Net Profits Interest; (ii) amounts received by WI Owner and promptly deposited
      by it with an escrow agent or into the registry of a court of competent
      jurisdiction shall not be considered to have been received by WI Owner and
      shall
      not be credited to the Net Profits Account until disbursed to WI Owner by such
      escrow agent or court; provided, however, that the Net Profits Account shall
      not
      be credited with any interest, penalty, or other amount earned on such amounts
      while held in escrow or the registry of a court, but, instead, WI Owner shall
      pay directly to Assignee the share of any such interest, penalty, or other
      amount that is allocable to the Net Profits Interest; and (iii) if, as the
      result of the bankruptcy or insolvency of any Hydrocarbon purchaser or any
      other
      reason whatsoever, any amounts previously credited to the Net Profits Account
      are, in fact, required to be refunded by or are reclaimed from WI Owner, then
      there shall be a charge to the Net Profits Account equal to any amounts thus
      refunded or reclaimed promptly following WI Owner’s payment
      thereof.

     

    (d)           Notwithstanding
      any of the preceding provisions of this Section 3.3, the Net Profits
      Account shall not be credited with:  (i) any proceeds received
      by WI Owner from the sale of all or any portion of the Subject Interests or
      any
      personal property, material, supplies, equipment, facilities, or fixtures
      located thereon or used in connection therewith; (ii) except as otherwise
      provided in Section 3.3(b), any revenues received by WI Owner in
      connection with the ownership and operation of any Processing, field or pipeline
      compression, gathering, transportation, or marketing facilities located on
      or
      used in connection with the Subject Interests; (iii) any amount received by
      WI
      Owner as a bonus for the granting of any Hydrocarbon lease relating to the
      Subject Interests or as delay rentals, shut-in well payments, minimum royalties,
      and other payments received by WI Owner in connection with the maintenance
      of
      any such Hydrocarbon leases granted by WI Owner; (iv) any payments received
      by
      WI Owner in connection with the drilling or deferral of drilling of any
      Hydrocarbon well on the Subject Interests (including dry hole payments, bottom
      hole payments, and payments received as consideration for refraining from
      drilling an offset well) or as an adjustment of any Hydrocarbon well or the
      leasehold equipment located thereon or used in connection therewith upon the
      pooling or unitization of any of the Subject Interests; (v) any amounts received
      by WI Owner from any borrowings; (vi) any revenues received by WI Owner or
      its
      Affiliates as the result of their risk management or hedging activities in
      respect of the Subject Interests; or (vii) any amounts received by WI Owner
      from
      other persons as payment of direct overhead charges or operating charges
      invoiced by WI Owner in its capacity as operator of one or more Leases under
      the
      terms of applicable joint operating or similar agreements.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    3.4           Charges
      to the Net Profits Account.

     

    (a)           Beginning
      with the Month in which the Effective Date falls and each Month thereafter,
      there shall be charged against the Net Profits Account an amount equal to the
      sum of the following items of cost and expense paid by WI Owner during
      the immediately preceding Month, insofar only as such items of cost and expense
      were incurred after the Effective Date and are properly allocable to the Subject
      Interests and the production and marketing of the Subject
      Hydrocarbons:

     

    (i)           all
      costs of materials, equipment and supplies (at WI Owner’s actual cost if
      purchased by WI Owner, or, if provided from WI Owner’s inventory or by an
      Affiliate of WI Owner, at the market value thereof, net of any salvage or
      trade-in value received by WI Owner with respect thereto), labor, and services
      incurred in the operation and maintenance of the Subject Interests and the
      production and marketing of the Subject Hydrocarbons, including, without
      limitation:  (A) all costs of complying with applicable local, state,
      and federal statutes, ordinances, rules, regulations, and orders (except for
      Environmental Laws, for which costs of compliance are addressed below in
clause F of this Section 3.4(a)(i)); (B) all costs of well
      operations, routine repairs, and maintenance work conducted on the Subject
      Interests; (C) all costs of lifting and producing the Subject Hydrocarbons,
      including, without limitation, all costs of labor, fuel, repairs, hauling,
      materials, supplies, utility charges, saltwater disposal, and other costs
      incident thereto; (D) to the extent not taken into account in determining the
      proceeds from the sale of Subject Hydrocarbons that are Processed prior to
      their
      sale by WI Owner as provided in Section 3.3(b), all costs (other than
      Capital Costs) of Processing, gathering, compressing, dehydrating, separating,
      treating, transporting, and marketing the Subject Hydrocarbons; (E) all direct
      overhead charges and operating charges paid to the operator or operators
      (including, without limitation, WI Owner or its Affiliates) of the Subject
      Interests under the terms of applicable joint operating or similar agreements
      or
      to others for services rendered in conducting operations thereon; provided,
      however, that if WI Owner or any of its Affiliates either serves as, or provides
      services to, the operator of any of the Subject Interests, the Net Profits
      Account shall be charged with no more than the pro rata share allocable to
      the
      Subject Interests of any charges invoiced by either WI Owner or its Affiliate
      in
      connection with the performance of such services, with any such charges being
      calculated on the same basis as the like charges invoiced to other parties
      owning cost-bearing interests in the relevant Lease or unit into which such
      Lease has been pooled or unitized; (F) all Permitted Environmental Expenses
      relating to the Subject Interests; (G) the costs of plugging and abandoning
      wells now or hereafter located on the Subject Interests that have once produced
      Hydrocarbons in paying quantities; (H) all delay rentals, shut-in well payments,
      minimum royalties, and other payments made by WI Owner to maintain the Leases;
      (I) any amount paid by WI Owner in connection with the drilling or deferral
      of
      drilling of any Hydrocarbon well on the Subject Interests (including dry hole
      payments, bottom hole payments, and payments made to third parties as
      consideration for refraining from drilling an offset well) or as an adjustment
      of any Hydrocarbon well or the leasehold equipment located thereon or used
      in
      connection therewith upon the pooling or unitization of any of the Subject
      Interests; and (J) rent and other consideration paid by WI Owner for the use
      of,
      or damage to, the surface of the lands covered by any Lease or any unit into
      which such Lease is pooled or unitized;

     

    (ii)           
      except as otherwise provided in clause (vii) of Section 3.4(b),
      the amounts of any damages, losses, judgments, refunds, interest, penalties,
      costs, and expenses (including attorneys’ fees) paid by WI Owner in connection
      with litigation (or the settlement thereof), collections, liens (other than
      the
      Senior Liens and the liens and security interests securing the Notes),
      judgments, liquidated liabilities, and claims on account of WI Owner’s ownership
      of the Subject Interests, or incident to the operation or maintenance thereof,
      or the production or marketing of the Subject Hydrocarbons;

     

    (iii)           all
      Taxes paid by WI Owner for the benefit of WI Owner and Assignees that are
      assessed against or attributable to the Subject Interests, the Subject
      Hydrocarbons, or the Net Profits Interest; provided, however, that if either
      Assignee is assessed Taxes individually, the Taxes which such Assignee is
      assessed individually shall not be charged to the Net Profits
      Account;

     

    (iv)          insurance
      premiums paid by WI Owner on account of its ownership of the Subject Interests
      for insurance carried with respect to the Subject Interests or any part thereof;
      and

     

    (v)           all
      other expenditures reasonably incurred by WI Owner for the operation,
      maintenance, and marketing of Hydrocarbon production from wells now or hereafter
      situated on the Subject Interests and for the necessary or proper operation,
      maintenance, and utilization of such wells.

     

    (b)           Notwithstanding
      the provisions of Section 3.4(a), no charge to the Net Profits Account
      shall be made for any of the following items:  (i) any amount that has
      also been used to reduce the amount of the Subject Hydrocarbons or the proceeds
      from the sale thereof for purposes of Section 3.3; (ii) any overriding
      royalty interest, production payment, carried interest, net profits interest
      (in
      addition to the Net Profits Interest), or other similar interest that burdens,
      is measured by, or is payable out of Hydrocarbons produced and saved from or
      attributable to the Subject Interests that are created after the date of
      execution of this Conveyance; (iii) any costs of operating or maintaining any
      Processing plant or facility, to the extent used other than in connection with
      the Processing of the Subject Hydrocarbons; (iv) any amount (including, without
      limitation, any purchase price or other consideration) paid by WI Owner in
      connection with the acquisition of the Subject Interests and all related
      personal property, materials, supplies, equipment, facilities, and fixtures;
      (v)
      any Capital Costs incurred at any time in connection with the Subject Interests;
      (vi) any costs and expenses other than Capital Costs incurred in connection
      with
      the Subject Interests prior to the Effective Date, regardless of when paid
      by WI
      Owner, and allocable to WI Owner or its predecessors in interest; (vii) any
      costs, expenses, damages, interest, penalties, or similar charges incurred
      by WI
      Owner in favor of any third party as the result of WI Owner’s failure to perform
      any of its obligations under Section 6.2(a); (viii) any principal,
      interest, fees, or similar amounts paid by WI Owner in connection with any
      borrowings or any purchases on credit; (ix) any losses or costs incurred by
      WI
      Owner in connection with any risk management or hedging activities in respect
      of
      the Subject Interests; (x) any damages, liabilities, costs, or expenses that
      are
      environmental in character and are attributable to the ownership and operation
      of the Subject Interests or the production and marketing of the Subject
      Hydrocarbons other than Permitted Environmental Expenses; (xi) any general
      and
      administrative overhead expenses of WI Owner; or (xii) any charges by any
      Affiliate of WI Owner for any accounting, technical, legal, or other services
      provided by such Affiliate to WI Owner.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (c)           In
      calculating the costs and expenses charged to the Net Profits Account, the
      items
      of cost and expense described in Section 3.4(a) shall be reduced by the
      amount of the following items actually received by WI Owner, to the extent
      that
      such items are attributable to the Subject Interests:  (i) the
      proceeds received by WI Owner from the sale, after the Effective Date, of (or,
      if disposed of after the Effective Date by WI Owner other than by sale, the
      then-current market value of) any personal property, materials, supplies,
      equipment, surface interests, facilities, or fixtures, or any part thereof
      or
      interest therein, located on, used in connection with, or attributable to the
      Subject Interests; (ii) any amounts received by WI Owner as an adjustment of
      any
      well or leasehold equipment located on or used in connection with the Subject
      Interests upon the pooling or unitization of the Subject Interests; (iii) the
      proceeds of all insurance, the cost of which is charged to the Net Profits
      Account, collected by or on behalf of WI Owner on account of its ownership
      of
      the Subject Interests as a consequence of the loss of or damage to the Subject
      Interests or the personal property or equipment located thereon; (iv) except
      as
      otherwise provided in clause (iii) of Section 3.3(a), the proceeds
      of all judgments and claims collected by WI Owner as the result of its ownership
      of the Subject Interests; (v) any payments made to WI Owner in connection with
      the drilling or deferral of drilling of any Hydrocarbon well on the Subject
      Interests (including, without limitation, dry hole payments, bottom hole
      payments, and payments received as consideration for refraining from drilling
      an
      offset well); (vi) the amount of all bonuses or other consideration, delay
      rentals, shut-in well payments, minimum royalties, and other payments made
      to WI
      Owner in connection with the granting or maintenance, as applicable, of any
      Lease granted by WI Owner and included in the Subject Interests; and (vii)
      the
      amount of all direct overhead charges and operating charges paid by
      non-Affiliate third persons to WI Owner in its capacity as operator of one
      or
      more Leases under the terms of applicable joint operating or similar
      agreements.

     

    3.5           Satisfaction
      Exclusively from Production.  The Net Profits Interest does not
      include any right, title, or interest in and to any personal property, fixtures,
      equipment, or facilities now or hereafter placed on the Subject Interests and
      is
      exclusively a non-operating interest carved from the Subject Interests.
      Assignees shall look solely to the production of the Subject Hydrocarbons for
      the satisfaction and realization of the Net Profits Interest.

     

    3.6           No
      Personal Liability.  Assignees shall never be personally
      responsible for the payment of any part of the costs and expenses charged
      against the Net Profits Account or for any liabilities incurred in connection
      with the exploration, drilling, development, equipping, and operation of the
      Subject Interests, the ownership and maintenance of the oil and gas leasehold
      estate in the Leases, or the production and marketing of the Subject
      Hydrocarbons.  WI OWNER HEREBY COVENANTS AND AGREES TO
      INDEMNIFY AND TO HOLD HARMLESS ASSIGNEES, THEIR RESPECTIVE DIRECTORS, OFFICERS,
      MANAGERS, PARTNERS, SHAREHOLDERS, MEMBERS, AGENTS, EMPLOYEES, SUCCESSORS AND
      ASSIGNS FROM AND AGAINST ANY AND ALL CLAIMS OF THIRD PERSONS SUFFERED BY
      ASSIGNEES (OR EITHER OF THEM) AND CAUSED BY, ARISING OUT OF, RESULTING FROM,
      OR
      RELATING IN ANY WAY TO SUCH EXPLORATION, DRILLING, DEVELOPMENT, EQUIPPING,
      LEASEHOLD OWNERSHIP AND MAINTENANCE, PRODUCTION, AND OPERATION OF THE SUBJECT
      INTERESTS.

     

    3.7           Marketing
      Responsibility.  As between WI Owner and Assignees, WI Owner shall
      have exclusive charge and control of the marketing of all Subject
      Hydrocarbons.  WI Owner
      shall market, or cause to be marketed, all Subject Hydrocarbons with due
      diligence, at the best prices, and on the best terms that WI Owner shall deem
      reasonably obtainable under the circumstances, with due regard to the interests
      of both WI Owner and Assignees, and in any event at prices and on terms at
      least
      as favorable as WI Owner obtains for Hydrocarbons of the same character and
      delivered in the same geographic area but that are not subject to this
      Conveyance.  WI Owner shall collect and receive the proceeds from the
      sale of all such production. WI Owner will perform all obligations binding
      on it
      under all Hydrocarbon sales, purchase, exchange, or other marketing agreements
      relating to the Subject Hydrocarbons in accordance with the terms thereof,
      and
      will use reasonable commercial efforts to enforce performance of the obligations
      of third parties thereunder; provided, however, that WI Owner shall have no
      liability to Assignees for its failure so to perform, except when such failure
      is due to the gross negligence or willful misconduct of WI Owner.  As
      to any third persons, the actions of WI Owner in connection with the marketing
      of the Subject Hydrocarbons shall be binding on Assignees.

     

    3.8           Payment
      of Net Profits.  To the extent that, at the end of any Month after
      the Effective Date, there exist Net Profits as provided in Section 3.2,
      WI Owner shall disburse to Assignees, within thirty (30) Days after the end
      of
      the relevant Month (the “Due Date”), all Net Profits that have accrued to
      the Net Profits Interest as of the end of such Month.  If any amount
      due from WI Owner to Assignees hereunder is not paid by the applicable Due
      Date,
      then such amount shall bear interest from such Due Date through the date of
      receipt of such amount by Assignee at the Default Rate.  If, at any
      time, WI Owner inadvertently pays Assignees more than the amount due under
      this
      Conveyance, Assignees shall not be obligated to refund any such overpayment,
      but
      the amount or amounts otherwise payable for any subsequent Month or Months
      shall
      be reduced by the amount of such overpayment.

     

    3.9           Audit.  The
      books of account and records of WI Owner relating to the Net Profits Interest
      shall be open and made available to Assignees and their representatives at
      all
      reasonable times for examination, inspection, copying, and audit by Assignees
      and their representatives, at Assignees’ expense.  If Assignees desire
      to audit such books of account and records, Assignees or their representatives
      shall give written notice thereof to WI Owner, and WI Owner shall make the
      same
      available to Assignees or their representatives during normal business hours
      on
      consecutive Business Days no later than thirty (30) Days following such
      notice.  If, pursuant to such audit, Assignees or their
      representatives shall notify WI Owner of any defects, inconsistencies, or errors
      in such books of account or records, and WI Owner disagrees with Assignees’ or
      their representatives’ conclusions in respect of the same, then no later than
      sixty (60) Days following such notification, WI Owner shall reply to such audit
      report, such reply to describe in reasonable detail the facts and other
      information supporting WI Owner’s position in respect of the contested
      items.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    3.10           Dispute
      Resolution.  Any disagreement, difference, or dispute among the
      Parties relating to charges or credits to the Net Profits Account shall be
      resolved by arbitration according to the procedures set forth in this Section
      3.10.  Either Party may commence an arbitration proceeding
      hereunder by giving written notice to the other Party.  No later than
      five (5) Business Days after the delivery of the notice commencing the
      arbitration proceeding, WI Owner and Assignees shall each select an
      arbitrator.  Promptly following their selection, the arbitrators
      selected by, respectively, WI Owner and Assignees jointly shall select a third
      arbitrator.  The three (3) arbitrators shall hear and decide all
      matters relating to the relevant dispute.  All arbitrators
      selected pursuant to this Section 3.10 shall be certified public
      accountants having at least eight (8) years of professional experience in oil
      and gas accounting matters, shall not previously have been employed by any
      Party, and shall not have a direct or indirect interest in any Party or the
      subject matter of the arbitration.  The arbitration shall commence as
      soon as is practical, but in no event later than fifteen (15) Days after the
      selection of the third arbitrator.  The Rules for Non-Administered
      Arbitration of the International Institute for Conflict Prevention and
      Resolution (“CPR Rules”) shall apply to the extent not inconsistent with
      the rules specified in this Section 3.10.  If any arbitrator
      selected under this Section 3.10 should die, resign, or otherwise be
      unable to perform its duties hereunder, a successor arbitrator shall be selected
      pursuant to the CPR Rules.  Arbitration hearings shall be held at a
      neutral location agreed upon by the Parties or, absent such an agreement,
      selected pursuant to the CPR Rules.  All hearings shall be conducted
      on a confidential basis without continuance or adjournment.  At the
      arbitration hearing, the Parties will each present to the arbitrators a single
      dollar figure for resolution of the dispute, together with such supporting
      information as the relevant Party deems appropriate.  Evidence
      concerning the financial position or organizational makeup of the Parties,
      any
      offer made or the details of any negotiation prior to arbitration, and the
      cost
      to the Parties of their representatives and counsel shall not be
      admissible.  The law governing all such disputes shall be the laws of
      the State of Texas, without regard to conflicts of laws
      principles.  The charges and expenses of the arbitrators shall be
      shared equally by the Parties.  The arbitrators shall resolve the
      dispute within thirty (30) Days after the Parties have presented their positions
      to the arbitrators by selecting one or the other of the two dollar figures
      submitted by the Parties.  The decision of the arbitrators shall be
      binding on the Parties and, if necessary, may be enforced in any court of
      competent jurisdiction. Any payment to be made as a result of any such dispute
      will be made by wire transfer of immediately available funds on the third (3rd)
      Business Day following the receipt by WI Owner and Assignee of a written notice
      from the arbitrators of their determination.

     

    ARTICLE
      IV

     

    GOVERNING
      DOCUMENTS; SENIOR LIENS

     

    4.1           Governing
      Documents.  Assignees hereby accept this Conveyance, and agree
      that the Net Profits Interest is expressly made, subject to the terms,
      provisions, exceptions, and reservations contained in (a) the NPI Agreement
      and
      (b) all other Permitted Encumbrances.  The delivery of this Conveyance
      shall not affect, enlarge, diminish, or otherwise impair any of the
      representations, warranties, covenants, conditions, indemnities, terms, or
      provisions of the NPI Purchase Agreement, and all of the representations,
      warranties, covenants, conditions, indemnities, terms, and provisions contained
      in the NPI Agreement shall survive the delivery of this Conveyance to the
      extent, and in the manner, set forth in such agreement.  In the event
      of a conflict between the terms of this Conveyance and the terms of the NPI
      Agreement, the terms of the NPI Agreement shall govern and control; provided,
      however, that the inclusion in this Conveyance of terms not addressed in the
      NPI
      Agreement shall not be deemed a conflict, and all such additional terms
      contained in this Conveyance shall be given full force and effect, subject
      to
      the provisions of this Section 4.1.

     

    4.2           Senior
      Liens.  Assignees acknowledge that among the Permitted
      Encumbrances to which the Net Profits Interest is subject are the Senior
      Liens.  WI Owner acknowledges that, although the Net Profits Interest
      is subject to the Senior Liens, Assignees have not assumed, and are not obligors
      with respect to, the obligations of WI Owner secured by the Senior
      Liens.  In connection
      with Assignees’ acceptance of the Net Profits Interest subject to the Senior
      Liens, WI Owner represents and covenants as follows:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (a)           as
      of the date of execution of this Conveyance, WI Owner is not, and as of the
      Effective Date, WI Owner will not be in default under any of the terms of the
      Senior Liens or any securities purchase agreement, credit agreement, note,
      or
      other document executed by WI Owner in connection therewith, and WI Owner agrees
      that it will use its best efforts to perform and comply with all of the terms
      contained in the Senior Liens and all credit agreements, notes, and other
      documents executed in connection therewith for as long as the indebtedness
      secured by the Senior Liens remains outstanding;

     

    (b)           to
      the extent that WI Owner becomes entitled to a partial release of the Senior
      Liens, WI Owner shall use its best efforts to cause the holder of the Senior
      Liens to execute and deliver a release thereof with respect to the Subject
      Interests (including, without limitation, the Net Profit Interest) prior to
      its
      execution and delivery of partial releases of the Senior Liens with respect
      to
      any other property of WI Owner serving as collateral thereunder;
      and

     

    (c)           WI
      Owner agrees to provide to Assignees prompt written notice upon the occurrence
      of an event of default by WI Owner under the terms of the Senior Liens or any
      credit agreement, note, or other document executed by WI Owner in connection
      therewith.

     

    WI
      Owner
      hereby covenants and agrees to indemnify and hold harmless Assignees, their
      respective directors, officers, managers, shareholders, members, partners,
      agents, employees, successors, and assigns, from and against any and all Claims
      of third persons suffered by Assignees and caused by, arising out of, resulting
      from, or relating in any way to the existence of the Senior Liens as
      encumbrances against the Subject Interests and the Net Profits
      Interest.

     

    

    

    ARTICLE
      V

     

    WARRANTY
      OF TITLE

     

    WI
      Owner
      warrants and agrees forever to defend title to the Net Profits Interest unto
      Assignee against every person who now or at any time hereafter lawfully claims
      the same or any part thereof, but limited to Claims arising by, through, or
      under WI Owner, and not otherwise; provided, however, that the foregoing
      warranty shall not be breached in any manner by the existence of the Permitted
      Encumbrances.  Any warranty implied by the use in this Conveyance of
      the words “grant” or “convey” is expressly negated.  Without limiting
      or expanding the foregoing warranty:

     

    (a)           WI
      Owner warrants and represents to Assignees and their successors and assigns
      that: (i) to WI Owner’s Knowledge, WI Owner is the true and lawful owner of the
      Subject Interests; (ii) WI Owner has not transferred, assigned, or conveyed
      the
      Subject Interests to any other party, and has full right and authority to sell
      and convey, as herein provided, the Net Profits Interest; (iii) to WI Owner’s
      Knowledge, the Leases are valid and subsisting and in full force and effect;
      (iv) all rentals, royalties, and other amounts due and payable under the Leases,
      or any of them, have been duly paid or provided for, and no default now exists
      under any of the Leases;
      and (v) WI Owner has not taken any action, or omitted to take any action, that
      would cause the Subject Interests to become subject to any lien, mortgage,
      security interest, or other encumbrance of any kind or character, except for
      Permitted Encumbrances.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b)           WI
      Owner warrants and represents to Assignees and their successors and assigns,
      but
      limited to Claims arising by, through, or under WI Owner, and not otherwise,
      that WI Owner’s ownership of the Subject Interests:  (i) entitles WI
      Owner to a share of the oil and gas leasehold estate created by the Leases
      covering, or the fee mineral estate in, each well or portion of the Subject
      Interests listed on Exhibit A that is not less than the interest
      identified as the “Working Interest” for such well or portion of the Subject
      Interests on Exhibit A; (ii) entitles WI Owner to receive, from its
      record fee mineral, oil and gas leasehold, and/or royalty ownership in each
      well
      or portion of the Subject Interests listed on Exhibit A, percentages of
      all Hydrocarbons produced, saved, and marketed from each such well or portion
      of
      the Subject Interests (without taking into account the Net Profits Interest)
      that are not less than the interest identified as the “Net Revenue Interest” for
      such well or portion of the Subject Interests on Exhibit A, without
      reduction, suspension, or termination for the respective productive life of
      each
      such well or portion of the Subject Interests; and (iii) obligates WI Owner
      to
      bear a percentage of the costs and expenses of operations on and the maintenance
      and development of the oil and gas leasehold or fee mineral estates in each
      well
      or portion of the Subject Interests listed on Exhibit A that is not
      greater than the “Working Interest” set forth for such well or portion of the
      Subject Interests on Exhibit A, without increase for the respective
      productive life of each such well or portion of the Subject
      Interests.

     

    (c)           This
      Conveyance is made with full substitution and subrogation of Assignees in and
      to
      all covenants and warranties by others heretofore given or made in respect
      of
      any of the Subject Interests or any part thereof; provided, however, that such
      substitution and subrogation of Assignees shall not restrict or impair the
      right
      of WI Owner to enforce all such covenants and warranties on its own behalf
      with
      respect to its remaining interests in the Subject Interests after giving effect
      to this Conveyance.

     

    ARTICLE
      VI

     

    COVENANTS

     

    6.1           Access.  Assignees
      and their representatives shall, at their risk and expense and to the extent
      permitted by agreements covering the Subject Interests, have access to the
      Leases at all times and to the derrick floor of each Hydrocarbon well drilled
      or
      being drilled thereon and the right to observe all operations conducted
      thereon.

     

    6.2           Operational
      Matters.

     

    (a)           WI
      Owner agrees, to the extent that WI Owner controls such matters:  (i)
      to comply with the terms and provisions of the Leases and all operating
      agreements, unit operating agreements, contracts for development, and other
      agreements applicable to the Subject Interests; (ii) to drill, complete,
      produce, and operate (or, if the Subject Interests are operated by a party
      other
      than WI Owner, to use reasonable efforts to cause to be drilled, completed,
      produced and operated) all of the Hydrocarbon wells listed on Exhibit B
      in good faith, at legal locations on, and within the subsurface intervals
      covered by, the Subject Interests, in a good and workmanlike manner consistent
      with the standard of a prudent operator whose interest is not burdened
      with the Net Profits Interest, and in accordance with the provisions of the
      Leases, the provisions of all applicable operating agreements, unit operating
      agreements, contracts for development, or similar agreements, and all applicable
      federal, state, and local laws, statutes, ordinances, rules, regulations, and
      orders; (iii) to maintain the capacity of each Hydrocarbon well located on
      the
      Subject Interests to produce at the maximum efficient rate of flow (subject
      to
      applicable field rules or other applicable laws, statutes, ordinances, rules,
      regulations, or orders relating to the allowable rate of production); (iv)
      to
      cause all wells, machinery, equipment, facilities, fixtures, and other personal
      property located on or used in connection with the Subject Interests to be
      provided and maintained in good operating condition and repair and to cause
      all
      repairs, replacements, additions, and improvements thereto to be performed
      in a
      timely manner consistent with the standard of the prudent operator; (v) to
      pay,
      or to use reasonable efforts to cause to be paid, when due, all royalties,
      overriding royalties, and other burdens upon or payable out of Hydrocarbon
      production from or allocable to the Subject Interests (in addition to the Net
      Profits Interest); (vi) to participate in each Drilling Operation, Reworking
      Operation, or Alternate Zone Operation proposed for each Hydrocarbon well
      located on the Subject Interests, unless WI Owner, exercising good faith and
      without regard to the burden of the Net Profits Interest, elects not to
      participate and notifies Assignees of such election and the reasons therefor;
      (vii) to pay, or to cause to be paid, when due, all costs and expenses of
      operations on the Subject Interests which are properly invoiced under the
      applicable operating agreements, unit operating agreements, contracts for
      development, or similar agreements and which are allocable to the Subject
      Interests; (viii) to maintain, or to cause to be maintained, the insurance
      coverage for the Subject Interests required under the terms of the applicable
      operating agreements, unit operating agreements, contracts for development,
      or
      similar agreements; (ix) to pay, or cause to be paid, before delinquency all
      Taxes assessed against or attributable to the Subject Interests, the Subject
      Hydrocarbons, and if not otherwise paid by Assignees, the Net Profits Interest;
      (x) to keep the Subject Interests free and clear of any and all liens,
      mortgages, security interests, defects of title, and other encumbrances of
      any
      kind or character, except for Permitted Encumbrances; and (xi) to give prompt
      written notice to Assignee of any material adverse Claim or proceeding of which
      WI Owner becomes aware relating to the Subject Interests, any Hydrocarbon well
      located thereon, or the Subject Hydrocarbons and to keep Assignees informed
      of
      the progress of WI Owner’s response thereto and defense thereof.

     

    (b)           Nothing
      contained in this Conveyance shall obligate WI Owner to continue to operate
      and
      produce, or prevent WI Owner from plugging and abandoning, any Hydrocarbon
      well
      that WI Owner, exercising good faith and without regard to the burden of the
      Net
      Profits Interest, determines no longer to be capable of production in paying
      quantities. All operations, if any, on the Subject Interests, and the extent
      and
      duration thereof, as well as the preservation of the Subject Interests by rental
      payments or otherwise, shall, subject to the other terms hereof (including,
      without limitation, Sections 6.2(a) and 6.2(c)), be solely at the
      discretion of WI Owner, exercised in good faith and without regard to the burden
      of the Net Profits Interest.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (c)           Without
      limiting the terms of Section 6.2(b), if WI Owner, in the exercise of
      good faith and without regard to the burden of the Net Profits Interest, elects
      to release, surrender, or abandon all or any portion of the Subject Interests,
      and such Subject Interests, or portion thereof, are not purchased from WI Owner
      by a co-owner of the affected Lease(s) under the terms of applicable operating
      agreements, unit operating agreements, contracts for development, or similar
      agreements, then prior to such release, surrender, or abandonment, WI Owner
      shall provide written notice of the proposed release, surrender, or abandonment
      to Assignees.  Assignees
      shall have thirty (30) Days (or such shorter period of time as may be required
      by applicable laws, rules, regulations, or orders) after their receipt of such
      notice within which to notify WI Owner concerning whether Assignees desire
      to
      purchase from WI Owner the Subject Interests, or portion thereof, to be
      released, surrendered, or abandoned.  The failure of Assignees to
      respond to such notice within the relevant response period shall be deemed
      to
      constitute Assignees’ election not to acquire such Subject Interests from WI
      Owner.  If Assignees elect, or are deemed to have elected, not to
      acquire such Subject Interests from WI Owner, WI Owner may release, surrender,
      or abandon such Subject Interests without the joinder of Assignees and without
      further obligation to Assignees with respect thereto.  If Assignees
      elect, in a timely manner as provided in this Section 6.2(c), to acquire
      the Subject Interests to be released, surrendered, or abandoned, WI Owner shall
      assign to Assignees, free and clear of liens and encumbrances except for
      Permitted Encumbrances, but otherwise without warranty of title, either
      expressed or implied, all of WI Owner’s interest in and to such Subject
      Interests.  In consideration for such assignment, Assignee shall pay
      to WI Owner the reasonable salvage value of WI Owner’s interest in all of the
      salvageable materials and equipment located on or attributable to such Subject
      Interests, determined in accordance with COPAS Accounting Procedures consistent
      with the terms of any applicable operating agreement or unit operating
      agreement, less the estimated cost of salvaging and the estimated cost of
      plugging and abandoning any Hydrocarbon wells located thereon and restoring
      the
      surface.  If such value is less than such estimated costs, WI Owner
      shall pay Assignees the amount of such deficit.  Thereafter, as
      between the Parties, WI Owner shall have no further responsibility, liability,
      or interest in the operation of or production from such Subject Interests,
      and
      such Subject Interests shall cease to be subject to the terms of this
      Conveyance, it being the intention of Assignees that any right, title, or
      interest of Assignees in and to such Subject Interests existing by reason of
      this Conveyance shall be merged with and into the interest therein assigned
      by
      WI Owner to Assignees pursuant to this Section 6.2(c).

     

    6.3           Non-Consent
      Operations.

     

    (a)           Subject
      to the terms of Section 6.2, and except for the drilling of the proposed
      Hydrocarbon wells listed on Exhibit B, nothing contained in this
      Agreement shall obligate WI Owner to participate in any Drilling Operation,
      Reworking Operation, Alternate Zone Operation, Enhanced Recovery Operation,
      or
      other operation on the Subject Interests proposed by a co-owner of a Lease
      under
      the terms of an applicable Non-Consent Provision.  If WI Owner, in the
      exercise of good faith and without regard to the burden of the Net Profits
      Interest, elects to be a non-consenting or non-participating party with respect
      such an operation proposed pursuant to a Non-Consent Provision, then during
      the
      applicable period of recoupment under such Non-Consent Provision, the Subject
      Interests, or portion thereof, relinquished by WI Owner, as a non-consenting
      party, to the consenting party(ies) as the result of such non-consent election
      shall cease to be subject to the Net Profits Interest, with the result that,
      during such period of recoupment, there shall be no credit to the Net Profits
      Account for the proceeds from the sale of the Non-Consent Hydrocarbons
      attributable to such relinquished Subject Interests, and no charge to the Net
      Profits Account for any costs and expenses incurred in connection with such
      non-consent operations that are attributable to such relinquished Subject
      Interests.  Upon the recoupment by the consenting parties of the
      amounts to which such parties are entitled under the applicable Non-Consent
      Provision, and the corresponding reversion to WI Owner of such relinquished
      Subject Interests, the Net Profits Interest shall once again encumber and apply
      to such Subject Interests without further action by WI Owner or
      Assignee.

     

    (b)           If
      WI Owner consents to, or elects to participate in, a Drilling Operation,
      Reworking Operation, Alternate Zone Operation, Enhanced Recovery Operation,
      or
      other operation subject to a Non-Consent Provision as to which other co-owners
      of the relevant Lease or unit into which such Lease is pooled or unitized elect
      not to consent or participate, then during the applicable period of recoupment
      under such Non-Consent Provision, the interests in such Lease relinquished
      to WI
      Owner by such non-consenting party(ies) shall become subject to this Conveyance
      and the Net Profits Interest, with the result that, during such period of
      recoupment, there shall be credited to the Net Profits Account, in accordance
      with Section 3.3, the proceeds from the sale of the Hydrocarbons
      attributable to the relinquished interests of the non-consenting party(ies),
      and
      charged to the Net Profits Account, in accordance with Section 3.4, the
      costs and expenses incurred in connection with such non-consent operations
      attributable to such relinquished interests of the non-consenting
      party(ies).  Upon the recoupment by the consenting parties of the
      amounts to which they are entitled under the applicable Non-Consent Provision,
      and the corresponding reversion to the non-consenting parties of such
      relinquished interests, the Net Profits Interest shall cease to encumber and
      apply to such relinquished interests without further action by WI Owner or
      Assignees.

     

    6.4           Farmouts.  If
      WI Owner desires to enter into a Farmout with respect to one or more of the
      Subject Interests, WI Owner shall provide to Assignees prompt written notice
      thereof, which notice shall include the identity of the farmee and a description
      of the material terms of such Farmout.  Such a Farmout shall
      constitute a transfer of a portion of the Subject Interests subject to the
      terms
      of Section 7.2(c).  This Conveyance and the Net Profits
      Interest shall continue to encumber and apply to both the portion of the Subject
      Interests assigned to the farmee under the relevant Farmout and the portion
      of
      the Subject Interests retained by WI Owner under the terms of such Farmout,
      including, without limitation, any other or additional interest in the affected
      Lease that subsequently reverts to or is otherwise acquired by WI Owner under
      the terms of such Farmout.

     

    6.5           Pooling
      and Unitization.  The owner of the Subject Interests may not,
      without the prior written approval of Assignees, pool or unitize the Subject
      Interests and the lands affected thereby, or portions thereof, with other lands
      or leases to form one or more pooled units.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    6.6           Conveyance
      of Interest in Real Property.  THIS CONVEYANCE IS AN
      ABSOLUTE CONVEYANCE OF AN INTEREST IN REAL PROPERTY, AND THE COVENANTS CONTAINED
      IN THIS CONVEYANCE ARE COVENANTS RUNNING WITH AND BURDENING THE LAND. IN
      ADDITION TO THE RIGHTS AND COVENANTS CONTAINED IN THIS CONVEYANCE, ASSIGNEES
      ARE
      ENTITLED TO ALL OF THE BENEFITS, IMPLIED RIGHTS, AND COVENANTS TO WHICH NET
      PROFITS INTEREST OWNERS ARE ENTITLED AS A MATTER OF LAW.

     

    6.7           Reports.  If
      requested by Assignees, WI Owner shall furnish to Assignees (a) one copy of
      such
      reports as WI Owner customarily prepares with respect to (i) the productivity
      and productive life of all or any of the Hydrocarbon wells located on the
      Subject Interests, (ii) the quantity of Hydrocarbons recoverable from all or
      any
      of such wells, (iii) the projected proceeds and costs attributable to the
      Subject Interests in respect of each such well, (iv) any changes made or
      proposed to be made in the methods of treatment and operation of each such
      well,
      any proposed abandonment of a well, any plugging of a well and reopening thereof
      at a different subsurface interval, any method of repressuring which may affect
      such well, or any other action that
      may
      materially increase or reduce the value of the Net Profits Interest, and (b)
      to
      the extent not prohibited by agreements with third parties (WI Owner here
      agreeing to use reasonable commercial efforts to obtain the requisite consent
      from such third parties to disclose such information to Assignees), pertinent
      well data sufficient for making well and reserve evaluations, including, without
      limitation, electric logs, core data, bottom hole pressure data, and other
      well
      data.

     

    ARTICLE
      VII

     

    TRANSFERS
      OF INTEREST

     

    7.1           Transfers
      of Interest by Assignee.  Nothing contained in this Conveyance
      shall, in any way, limit or restrict the right of Assignees, or either of them,
      or their respective successors or assigns, to sell, convey, assign, transfer,
      mortgage, pledge, or create a lien or security interest in the Net Profits
      Interest in whole or in undivided part; provided, however, that (a) any such
      transfer shall expressly be made subject to the terms of the NPI Agreement
      and
      this Conveyance and (b) the prospective transferee from Assignees shall
      expressly agree to assume and perform all of Assignees’ covenants and
      obligations under the terms of the NPI Agreement and this
      Conveyance.

     

    7.2           Transfers
      of Interest by WI Owner.

     

    (a)           Nothing
      contained in this Conveyance shall in any way limit or restrict the right of
      WI
      Owner, or its successors or assigns, after the date hereof to mortgage, pledge,
      or create a lien or security interest in the Subject Interests (exclusive of
      the
      Net Profits Interest) in whole or in part.

     

    (b)           If
      WI Owner desires to Transfer the Subject Interests, or any portion thereof,
      WI
      Owner shall cause any such Transfer to include both the affected Subject
      Interests and the Net Profits Interest attributable thereto.  WI Owner
      shall provide to Assignees written notice of, and full particulars regarding,
      any proposed Transfer of or affecting the Subject Interests, including the
      identity of the prospective transferee and the proposed purchase
      price.  Immediately prior to the Transfer of the Subject Interests, or
      the affected portion thereof, by WI Owner to the prospective transferee,
      Assignees, in consideration of WI Owner’s payment to Assignees of the amount
      determined in accordance with Section 4.8(b) or Section 4.8(c) of the NPI
      Agreement, as applicable, shall convey to WI Owner the Net Profits Interest
      attributable to the affected Subject Interests, free and clear of liens and
      encumbrances except for Permitted Encumbrances, but otherwise without warranty
      of title, either expressed or implied, so that such Transfer of the Subject
      Interests may be consummated inclusive of the Net Profits Interest.

     

    (c)           In
      the event of a permitted Transfer by WI Owner of less than all of the Subject
      Interests under this Section 7.2, the Parties agree that the Net Profits
      Interest shall be deemed to have been partitioned into two (2) separate and
      distinct Net Profits Interests, one of which burdens only those Subject
      Interests retained by WI Owner, and the other of which burdens only those
      Subject Interests transferred to WI Owner’s transferee.  Both such Net
      Profits Interests shall otherwise continue to be governed by, and calculated
      as
      provided in, this Conveyance.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ARTICLE
      VIII

     

    MISCELLANEOUS

     

    8.1           Notices.  All
      notices, requests, demands, instructions and other communications required
      or
      permitted to be given hereunder shall be in writing and shall be (a) delivered
      personally, (b) mailed by certified U.S. mail, postage prepaid and return
      receipt requested, (c) sent by bonded courier, or (d) sent by facsimile, as
      follows:

     

    
      	
              If
                to WI Owner:

            	
              If
                to Assignees:

            
	 	 
	
              Gulf
                Coast Oil Corporation

            	
              Valens
                U.S. SPV I, LLC

            
	
              5851
                San Felipe, Suite 775

            	
              Valens
                Offshore SPV II, Corp.

            
	
              Houston,
                Texas 77057

            	
              c/o
                Valens Capital Management, LLC

            
	
              Attention:  Chief
                Financial Officer

            	
              335
                Madison Avenue, 10th
                Floor

            
	
              Facsimile:  (713)
                266-4358

            	
              New
                York, New York 10017

            
	 	
              Attention:  Portfolio
                Services

            
	 	
              Facsimile:  (212)
                581-5037

            
	 	 
	
              with
                a copy to:

            	
              with
                a copy to:

            
	 	 
	
              David
                M. Loev, Esquire

            	
              Loeb
                & Loeb, LLP

            
	
              The
                Loev Law Firm, PC

            	
              345
                Park Avenue

            
	
              6300
                West Loop South, Suite 280

            	
              New
                York, New York 10154

            
	
              Bellaire,
                Texas 77401

            	
              Attention:  Scott
                J. Giordano, Esq.

            
	
              Facsimile:  (713)
                524-4122

            	
              Facsimile:  (212)
                407-4990

            
	 	 
	 	
              and
                to:

            
	 	 
	 	
              Jackson
                Walker L.L.P.

            
	 	
              1401
                McKinney, Suite 1900

            
	 	
              Attention:  Michael
                P. Pearson, Esquire

            
	 	
              Houston,
                Texas 77010

            
	 	
              Facsimile
                No.:  (713) 752-4221

            

    

     

    or
      to
      such other place within the United States of America as either Party may
      designate as to itself by written notice to the other.  All notices
      given by personal delivery, courier, or mail shall be effective on the date
      of
      actual receipt at the appropriate address.  Notice given by facsimile
      shall be effective upon actual receipt if received during recipient’s normal
      business hours or at the beginning of the next Business Day after receipt if
      received after the recipient’s normal business hours.

     

    8.2           Unenforceable
      or Inapplicable Provisions.  If any provision hereof is invalid or
      unenforceable in any jurisdiction, the other provisions hereof shall remain
      in
      full force and effect in such jurisdiction, and the remaining provisions hereof
      shall be liberally construed in favor of Assignee, and its successors and
      assigns, in order to effectuate the provisions hereof, and the invalidity of
      any
      provision hereof in any jurisdiction shall not affect the validity or
      enforceability of any such provision in any other jurisdiction.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    8.3           Further
      Assurances.  WI Owner and Assignees will execute and deliver all
      such other and additional assignments, reassignments, instruments, notices,
      releases, and other documents, and will do all such other acts and things,
      as
      may be necessary or appropriate more fully to assure to the other Party or
      its
      successors or assigns all of the respective rights and interests herein and
      hereby granted or intended so to be.

     

    8.4           Execution
      in Counterparts.  This Conveyance has been executed in several
      counterparts, each of which shall be deemed to be an original and all of which
      are identical.  All of such counterparts together shall constitute but
      one and the same Conveyance.  All of said documents are integral parts
      of one consolidated transaction and are to be construed as a single
      transaction.

     

    8.5           Limitation
      of Relationship.  Nothing contained in this Conveyance shall be
      deemed or construed to create a relationship among the Parties of partnership,
      joint venture, agency, mining partnership, or other relationship creating
      fiduciary, quasi-fiduciary, or similar duties or obligations
interse, or that would otherwise subject the Parties to joint
      and several or vicarious liability in favor of any third party.

     

    8.6           APPLICABLE
      LAW.  THE PROVISIONS OF THIS CONVEYANCE AND THE
      RELATIONSHIP OF THE PARTIES SHALL BE GOVERNED BY AND INTERPRETED AND ENFORCED
      IN
      ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY CONFLICTS OF
      LAW
      RULE OR PRINCIPLE THAT WOULD REFER CONSTRUCTION OF SUCH PROVISIONS TO THE LAWS
      OF ANOTHER JURISDICTION.

     

    8.7           Entire
      Agreement.  This Conveyance and the NPI Agreement constitute the
      entire agreement between the Parties covering the subject matter hereof, and
      there are no agreements, modifications, conditions, or understandings, written
      or oral, expressed or implied, pertaining to the subject matter hereof which
      are
      not contained herein or therein.

     

    8.8           Headings
      for Convenience.  All captions, numbering sequences, paragraph
      headings, and punctuation used in this Conveyance are inserted for convenience
      only and shall in no way define, limit, or describe the scope or intent of
      this
      Conveyance or any part thereof. nor have any legal effect other than to aid
      a
      reasonable interpretation of this Conveyance.  References contained
      herein to articles, sections, exhibits, and schedules are to articles, sections,
      exhibits, and schedules of this Conveyance unless expressly indicated
      otherwise.

     

    8.9           Amendment;
      Waiver.  This Conveyance shall not be modified or changed except
      in writing signed by both Parties.  No provision of this Conveyance
      may be waived except in writing signed by the Party granting the
      waiver.  A waiver of any breach or a failure to enforce any of the
      terms or conditions of this Conveyance shall not in any way affect, limit,
      or
      waive a Party’s rights under this Conveyance at any time to enforce strict
      compliance thereafter with every term or condition of this
      Conveyance.

     

    8.10         Successors
      and Assigns.  Subject to the terms of Article VII, this
      Conveyance, and the Net Profits Interest created hereby, shall inure to and
      be
      binding upon the successors and assigns of WI Owner and Assignees.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXECUTED
      on the date first above written.

     

    

     

    WI
      Owner

     

    

     

    GULF
      COAST OIL CORPORATION

     

    

     

    

     

    By:
      /s/ Edward R. DeStefano

     

    Edward
      R. DeStefano

     

    President
      and Chief Executive
      Officer

     

    

     

    THE
      STATE
      OF
      TEXAS                                                                        

     

    COUNTY
      OF
      HARRIS                                                                          

     

    This
      instrument was acknowledged before me on the 20th day of November, 2007, by
      Edward R. DeStefano, as President and Chief Executive Officer of Gulf Coast
      Oil
      Corporation, a Delaware corporation, on behalf of such corporation.

     

    

     

    

                                                                                                                          
      /s/ Sharon Mork

          Notary
      Public – State of Texas

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

     

    Assignees

     

    

     

    VALENS
      U.S. SPV I, LLC

     

    By:       Valens
      Capital Management, LLC,

                                              its
      Investment
      Manager

     

    By:  /s/
      Patrick
      Regan                                                         

    Name:
      Patrick Regan

              Authorized
      Signatory

     

    

     

    VALENS
      OFFSHORE SPV II, CORP.

     

    By:         Valens
      Capital Management, LLC,

    its
      Investment Manager

     

    By:  /s/
      Patrick
      Regan                                                         

    Name:
      Patrick Regan

              Authorized
      Signatory

    THE
      STATE
      OF NEW
      YORK                                                                                  

     

    COUNTY
      OF NEW
      YORK                                                                               

     

    This
      instrument was acknowledged before me on the 16th day of November, 2007, by
      Patrick Regan, as Authorized Signatory of Valens Capital Management, LLC, a
      Delaware limited liability company, in its capacity as Investment Manager for,
      respectively, Valens U.S. SPV I, LLC, a Delaware limited liability company,
      on
      behalf of such limited liability company, and VALENS OFFSHORE SPV II, CORP.,
      a
      Delaware corporation, on behalf of such corporation.

     

    /s/
      Christian Thomas

    Notary
      Public - State of New York

     

    EXHIBITS

     

    Exhibit
      A
– Subject Interests

     

    Exhibit
      B
– Senior Liens

     

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A

     

     

     

     

     

    [Confidential
      Information Removed]

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      B

     

    Attached
      to and made a part of Conveyance of

    Net
      Profits Overriding Royalty Interest dated

    as
      of November 20, 2007, from Gulf Coast Oil Corporation to

    Valens
      U.S. SPV I, LLC, and Valens Offshore SPV II, Corp.

     

     

    SENIOR
      LIENS

     

    
      	
              1.

            	
              Mortgage,
                Deed of Trust, Security Agreement, Financing Statement and Assignment
                of
                Production, from Gulf Coast Oil Corporation, as Mortgagor, to Eugene
                Grin,
                as Trustee, for the benefit of Laurus Master Fund, Ltd., as Mortgagee,
                dated as of April 26, 2006, filed and recorded as
                follows:

            
	 	 
	 	
              JURISDICTION

            	
              FILING
                DATA

            
	 	 	 
	 	
              TEXAS

            	 
	 	 	 
	 	
              Atascosa
                County

            	
              Filed
                on April 27, 2006, under Instrument No. 81631, Official
                Records

            
	 	 	 
	 	
              McMullen
                County

            	
              Filed
                on April 27, 2006, under Instrument No. 61695 Volume 168 Page
                371

            

    

    

    

    
      	
              2.

            	
              UCC-1
                Financing Statement reflecting Gulf Coast Oil Corporation, as Debtor,
                and
                Laurus Master Fund, Ltd., as Secured Party, relating to the Mortgage
                dated
                as of April 26, 2006, filed and recorded as follows:

            
	 	 	 
	 	
              JURISDICTION

            	
              FILING
                DATA

            
	 	 	 
	 	
              TEXAS

            	 
	 	 	 
	 	
              McMullen
                County

            	
              Filed
                on April 28, 2006, Volume 168 Page
                426

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	
              3.

            	
              Amended
                and Restated Mortgage, Deed of Trust, Security Agreement, Financing
                Statement and Assignment of Production from Gulf Coast Oil Corporation,
                as
                Mortgagor, to Eugene Grin, as Trustee, for the benefit of Laurus
                Master
                Fund, Ltd., as Mortgagee, dated as of June 30, 2006, filed and recorded
                as
                follows:

            
	 	 
	 	
              JURISDICTION

            	
              FILING
                DATA

            
	 	 	 
	 	
              TEXAS

            	 
	 	 	 
	 	
              Atascosa
                County

            	
              Filed
                on July 3, 2006, under Instrument No. 83177, Official
                Records

            
	 	 	 
	 	
              McMullen
                County

            	
              Filed
                on July 3, 2006, under Instrument No. 61899 Volume 170 Page
                01

            

    

    

    

    
      	
              4.

            	
              UCC-1
                Financing Statement reflecting Gulf Coast Oil Corporation, as Debtor,
                and
                Laurus Master Fund, Ltd., as Secured Party, relating to the Mortgage
                dated
                as of June 30, 2006, filed and recorded as follows:

            
	 	 
	 	
              JURISDICTION

            	
              FILING
                DATA

            
	 	 	 
	 	
              TEXAS

            	 
	 	 	 
	 	
              Atascosa
                County

            	
              Filed
                on July 10, 2006, under Instrument No. 83277, Official
                Records

            
	 	 	 
	 	
              McMullen
                County

            	
              Filed
                on July 3, 2006, Volume 170
                Page 92

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	
              5.

            	
              First
                Amendment to Amended and Restated Mortgage, Deed of Trust, Security
                Agreement, Financing Statement and Assignment of Production from
                Gulf
                Coast Oil Corporation, as Mortgagor, to Eugene Grin, as Trustee,
                for the
                benefit of Laurus Master Fund, Ltd., as Mortgagee, dated January
                30, 2007,
                filed and recorded as follows:

            
	 	 
	 	
              JURISDICTION

            	
              FILING
                DATA

            
	 	 	 
	 	
              TEXAS

            	 
	 	 	 
	 	
              Atascosa
                County

            	
              Filed
                on February 5, 2007, under Instrument No. 88090, Official
                Records

            
	 	 	 
	 	
              McMullen
                County

            	
              Filed
                on February 5, 2007, under Instrument No. 62467 Volume 173
                Page 89

            

    

    

    

    
      	
              6.

            	
              UCC-1
                Financing Statement reflecting Gulf Coast Oil Corporation, as Debtor,
                and
                Laurus Master Fund, Ltd., as Secured Party, relating to the First
                Amendment dated January 30, 2007, filed and recorded as
                follows:

            
	 	 
	 	
              JURISDICTION

            	
              FILING
                DATA

            
	 	 	 
	 	
              TEXAS

            	 
	 	 	 
	 	
              Atascosa
                County

            	
              Filed
                on January 10, 2007, under Instrument No. 87556, Official
                Records

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