Agreement on Joint Cooperation, dated April 27, 2011, by Pacific Energy Development Company LLC and South Texas Reservoir Alliance LLC

This Agreement on Joint Cooperation (“Agreement”), dated April 27, 2011 (the “Effective Date”), is executed by and between South Texas Reservoir Alliance LLC, a company organized under the laws of the State of Delaware (“STXRA”), and Pacific Energy Development Company LLC, a company organized under the laws of the State of Nevada (“PEDCO”).  STXRA and PEDCO may each be referred to as a “Party” herein, and together as the “Parties.”

 

 

A.	Employees, officers, managers, and directors of the Party receiving the information and data;

B.	Employees, officers, managers, and directors of affiliates;

C.	With respect to PEDCO, employees, officers, managers, directors, consultants and advisors of its strategic Chinese partner previously disclosed to STXRA;

D.	Agents and consultants of the Party or its affiliates; or

E.	Any bank or other financial institution or person or entity funding or proposing to fund a Party's participation in a venture, including any agent or consultant retained by such bank or other financial institution or entity.

2.2	Exception to the Confidential Treatment of Data and Information.

The receiving Party may disclose the information and data without the disclosing Party's prior written consent only to the extent such information and data:

Notwithstanding anything to the contrary herein, nothing herein shall restrict either Party from disclosing this Agreement or the terms hereof, including, but not limited to, in public filings or releases, and nothing restricts either Party from disclosing confidential data or information that, in such Party’s reasonable determination as advised by legal counsel, is required or advised to be disclosed under applicable legal and regulatory requirements, including, but not limited to, SEC rules and regulations.

 

B. STXRA shall be compensated for Acquisition Services provided to PEDCO hereunder as follows:

i.

Upon the successful closing of an acquisition by PEDCO of, or an investment made by (collectively, an “Investment”), PEDCO in an energy project originally introduced by STXRA to PEDCO, in connection with which Investment STXRA has provided material and substantial assistance to PEDCO with technical, engineering and economic due diligence, and has assisted PEDCO with the structuring and consummation of such Investment, PEDCO shall:

a.	Pay to STXRA within five (5) business days of the initial closing of the Investment (the “Initial Closing”) a cash amount equal to 2% of the Initial Closing Investment Cash Consideration (as defined below) paid by PEDCO at the Closing;

b.	Allocate a 3% carried Working Interest (defined below) of the interest PEDCO acquires in the Investment to STXRA;  and

c.

Issue to STXRA a number of membership interests in PEDCO (contemplated to be Class A or Class E Units) (the “PEDCO Interests”) equal to (x) 5% of the Total Investment Cash Consideration (as defined below) to be paid by PEDCO in the Investment divided by (y) the price per membership unit paid/to be paid by investors in PEDCO’s anticipated first equity financing (contemplated to be Class I1 Membership Units).  The PEDCO Interests shall be issued subject to compliance with applicable securities laws and pursuant to a membership unit purchase agreement acceptable to PEDCO with appropriate STXRA representations and warranties.  The PEDCO Interests shall also be subject to a lock-up agreement terminating on the same date as the lock-up agreement entered into with PEDCO’s founders (May 2012).  Issuance of the PEDCO Interests shall be further contingent upon STXRA being an “accredited investor” within the meaning of Rule 501 of Regulation D of the Securities Act, and STXRA’s entry into PEDCO’s amended and restated operating agreement as a “member” thereunder.

ii.

For purposes of this Agreement, “Initial Closing Investment Cash Consideration” shall mean the amount of cash consideration actually paid by PEDCO to a third party seller in an arm’s length transaction for the acquisition of, or investment in, a qualified Investment.  For avoidance of doubt, Initial Closing Investment Cash Consideration shall not include any post-Initial Closing consideration paid by PEDCO in an Investment, including any carried amounts, milestone payments, or otherwise.

iii.

For purposes of this Agreement, “Total Investment Cash Consideration” shall mean the total amount of cash or other consideration agreed to be paid by PEDCO to a third party in an arm’s length transaction for the acquisition of, or investment in, a qualified Investment, including any amounts agreed to be carried by, or debt assumed by, PEDCO on behalf of the selling party, as reasonably determined by PEDCO at the time of the Initial Closing.

iv.

For purposes of this Agreement, “Working Interest” shall mean the right granted to the lessee of a property to explore for and to produce and own oil, gas or other minerals. The working interest owners bear the exploration, development, and operating costs on either a cash, penalty or carried basis.

v.

By way of example, if STXRA were to provide Acquisition Services with respect to PEDCO’s purchase from “Seller A” of a 50% interest in “Asset A,” wherein PEDCO pays Seller A an aggregate of $8 million total consideration structured as (x) $4 million cash due at the Initial Closing and (y) PEDCO funding 100% of certain Asset A development costs until PEDCO pays the balance due of $4 million on Seller A’s behalf, PEDCO would be required to pay and issue to STXRA the following:  (a) 2% of the $4 million cash paid by PEDCO at the Initial Closing ($80,000); (b) a carried Working Interest equal to 3% of PEDCO’s 50% interest acquired in Asset A (1.5% of Asset A); and (c) a number of PEDCO Interests equal to 5% * $8 million / $1.00 (the contemplated price/membership interests in PEDCO’s next equity financing) = 400,000 PEDCO Interests.

 

The term of this Agreement shall commence upon the Effective Date and shall continue with full force and effect until terminated by either Party in writing upon 30 days’ prior written notice.  Notwithstanding the foregoing, each Party’s obligations arising under Section 2 shall survive for a period of three (3) years following termination of this Agreement.

 

A.           STXRA is, and throughout the term of this Agreement shall be, an independent consulting contractor and not an employee, partner or agent of PEDCO.  STXRA shall not be entitled to nor receive any benefit normally provided to PEDCO’s employees such as, but not limited to, vacation pay, retirement, health insurance or sick pay.  PEDCO shall not be responsible for withholding income or other taxes from the payments made to STXRA.  STXRA shall be solely responsible for filing all returns and paying any income, social security or other tax levied upon or determined with respect to the payments made to STXRA pursuant to this Agreement.  STXRA agrees to indemnify, defend and hold PEDCO harmless from any liability for, or assessment of, any claims or penalties with respect to such withholding taxes, labor or employment requirements, including any liability for, or assessment of, withholding taxes imposed on PEDCO by the relevant taxing authorities with respect to any compensation paid to STXRA.

 

B.           STXRA acknowledges and agrees that it has no authority to enter into contracts that bind PEDCO or create obligations on the part of PEDCO without the prior written authorization of PEDCO.

C.           Each Party shall bear its own costs, expenses, risks, and liabilities incurred in connection with this Agreement, including but not limited to, identification and evaluation of energy projects.    

5.2           Indemnification.  Each of Party, at its own expense, shall indemnify, defend and hold the other, its partners, shareholders, members, managers, directors, officers, employees, and agents harmless from and against any and all third-party suits, actions, investigations and proceedings, and related costs and expenses (including reasonable attorney's fees) resulting solely and directly from the indemnifying party's negligence or willful misconduct. Neither Party shall be required hereunder to defend, indemnify or hold harmless the other and/or its partners, shareholders, members, managers, directors, officers, directors, employees and agents, or any of them, from any liability resulting from the negligence or wrongful acts of the party seeking indemnification or of any third-party. Each Party agrees to give the other prompt written notice of any claim or other matter as to which it believes this indemnification provision is applicable. The indemnifying party shall have the right to defend against any such claim with counsel of its own choosing and to settle and/or compromise such claim as it deems appropriate. Each Party further agrees to cooperate with the other in the defense of any such claim or other matter.

5.3           Counterparts.  This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party.

5.4           Governing Law; Jurisdiction.  This Agreement and the transactions contemplated hereby shall be governed by and interpreted in accordance with the laws of the State of Texas without giving effect to principles thereof relating to conflicts of law rules that would direct the application of the laws of another jurisdiction.

5.5           Entire Agreement.  This Agreement constitutes the entire agreement between the Parties pertaining to the subject matter hereof, and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties regarding the subject matter hereof.

 

5.6           Notices.  Any notice required or permitted to be given under this Agreement shall be in writing, by hand delivery, commercial overnight courier or registered or certified U.S. Mail, to the applicable Party’s address as indicated on the signature page hereto, or such other address as designated in writing to the other Party, and shall be deemed duly given upon receipt, or if by registered or certified mail three (3) business days following deposit in the U.S. Mail. The parties hereto may from time to time designate in writing other addresses expressly for the purpose of receipt of notice hereunder.

5.7           Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and assigns; provided, however, that the rights and obligations of STXRA shall not be assignable or delegable by STXRA without the express written consent of PEDCO.  Any purported assignment by STXRA of this Agreement in whole or in part without the written consent of PEDCO shall be void.

 

5.8           Amendments and Waivers.  This Agreement may not be modified or amended except by an instrument or instruments in writing signed by the Party against whom enforcement of any such modification or amendment is sought.  Either Party may, only by an instrument in writing, waive compliance by the other Party with any term or provision of this Agreement on the part of such other Party to be performed or complied with.  The waiver by any Party of a breach of any term or provision of this Agreement shall not be construed as a waiver of any subsequent breach.

5.9           Attorneys’ Fees.  The prevailing Party in any legal proceeding or arbitration brought under or to enforce this Agreement shall be additionally entitled to recover court costs and reasonable attorneys’ fees (including reasonable charges for the time of the prevailing Party’s in-house attorneys) from the non-prevailing Party.

5.10         Severability.  If any provision of this Agreement is declared invalid or unenforceable, such provision shall be deemed modified to the extent necessary and possible to render it valid and enforceable. In any event, the unenforceability or invalidity of any provision shall not affect any other provision of this Agreement, and this Agreement shall continue in full force and effect, and be construed and enforced, as if such provision had not been included, or had been modified as above provided, as the case may be.

 

 

IN WITNESS WHEREOF, this Agreement on Joint Cooperation has been signed by or on behalf of each of the Parties as of the day first written above.