EXHIBIT 10.26
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT, made as of this 1st day of April, 2008 (this
"AGREEMENT"), is by each of SOUTH TEXAS OIL COMPANY, a Nevada corporation
("COMPANY"), and STO OPERATING COMPANY, a Texas corporation ("STO OPERATING";
STO Operating, together with Company are each referred to individually herein
as a "PLEDGOR" and collectively as the "PLEDGORS"), in favor of VIKING ASSET
MANAGEMENT, LLC, a California limited liability company., in its capacity as
collateral agent for the Buyers identified on Schedule B attached hereto (in
such capacity, together with its successors and assigns in such capacity, the
"PLEDGEE"), as successor lienholder to certain of the Buyers under the Original
Security Agreements (as defined in the Security Agreement referred to below).
WHEREAS:
A. WHEREAS, pursuant to that certain Loan Agreement (as amended,
restated, supplemented or otherwise modified from time to time and in effect
immediately prior to the effectiveness of the Purchase Agreement (as defined
below), the "ORIGINAL LOAN AGREEMENT"), dated January 31, 2007 between Company
and The Longview Fund, L.P., a California limited partnership ("LONGVIEW"),
Company initially had the right to borrow from Longview an aggregate amount not
to exceed $15,000,000, which obligation was represented by that certain
Revolving Credit Note (as amended, restated, supplemented or otherwise modified
from time to time and in effect immediately prior to the effectiveness of the
Purchase Agreement, the "REVOLVING NOTE"), dated January 31, 2007, issued by
the Company in favor of Longview in connection with the Original Loan
Agreement;
B. WHEREAS, Company and Longview entered into that certain First
Amendment to Loan Agreement and Revolving Credit Note (the "FIRST AMENDMENT"),
dated as of September 25, 2007, pursuant to which (i) Company and Longview
agreed to amend and restate the Original Loan Agreement and the Revolving Note
to increase the aggregate amount that Company was entitled to borrow from
Longview (subject to the terms and conditions of the Original Loan Agreement),
and the principal amount of the Revolving Note, to $30,000,000, and (ii)
Pledgors agreed to enter into, as applicable, (a) a guaranty of all
obligations, liabilities and indebtedness of Company under the Original Loan
Agreement and the Revolving Note (as amended, restated, supplemented or
otherwise modified from time to time, the "SUBSIDIARY GUARANTY" and the
guarantees under the Subsidiary Guaranty, including any such guarantee added
after the date hereof, the "GUARANTEES"), and (b) security and pledge
agreements and such other documents and instruments as were necessary to
provide Pledgee with a valid, perfected, first priority security interest in
substantially all of the assets of each of the Pledgors;
C. WHEREAS, Company and Buyers have entered into that certain
Securities Purchase Agreement dated as of the date hereof (as amended,
restated, supplemented or otherwise modified from time to time, the "PURCHASE
AGREEMENT"), pursuant to which, among other things, (i) Company and Buyers are
amending and restating in its entirety the Original Loan Agreement, (ii)
Company is issuing to Buyers the Initial Notes (as defined in the Purchase
Agreement) in replacement of, and as an amendment and restatement in the
entirety of, the Revolving Note, and (iii) Company may from time to time, in
accordance with the terms of the Purchase Agreement, issue Additional Notes (as
defined in the Purchase Agreement) to the Buyers;
D. WHEREAS, pursuant to an Amended and Restated Security Agreement of
even date herewith, as may be further amended, restated, modified or supplement
and in effect from time to time (the "SECURITY AGREEMENT"), each Pledgor has
granted to Pledgee, for its benefit and the benefit of the Buyers, a first
priority security interest in, lien upon and pledge of its rights in the
Collateral (as defined in the Security Agreement);
E. WHEREAS, (i) Company legally and beneficially owns all of the
issued and outstanding shares of Capital Stock (as defined in the Purchase
Agreement) of each of STO Operating Company, a Texas corporation formerly known
as Leexus Operating Company ("STO OPERATING"), Southern Texas Oil Company, a
Texas corporation ("SOUTHERN TEXAS") and STO Drilling Company, a Texas
corporation ("STO DRILLING"), and (ii) STO Operating legally and beneficially
owns all of the issued and outstanding membership interests of STO Properties
LLC, a Texas limited liability company ("STO PROPERTIES", together with STO
Operating, Southern Texas and STO Drilling and each other corporation or
limited liability company, the stock or other equity interests of which is
owned or acquired by a Pledgor and described on an addendum hereto from time to
time executed by a Pledgor in form and substance satisfactory to Pledgee, is
referred to herein as a "PLEDGED ENTITY" and collectively as the "PLEDGED
ENTITIES"); and
F. WHEREAS, to induce Buyers to enter into the Purchase Agreement and
to purchase the Notes (as defined in the Purchase Agreement), and in order to
secure the payment and performance by each Pledgor of the Obligations (as
defined in the Security Agreement), each Pledgor has agreed to pledge to
Pledgee all of the Capital Stock, membership interests and other equity
interests and securities of the Pledged Entities now or hereafter owned or
acquired by a Pledgor, as collateral security for the Obligations.
NOW, THEREFORE, in consideration of the premises and in order to induce
Buyers to purchase the Notes under the Purchase Agreement and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, each Pledgor hereby agrees with Pledgee as follows:
1. Defined Terms. Unless otherwise defined herein, all
capitalized terms used herein shall have the meanings given them in the
Purchase Agreement.
2. Pledge.
(a) Each Pledgor hereby pledges, assigns, hypothecates,
transfers, delivers and grants to Pledgee, for the benefit of itself and
Buyers, a first lien on and first priority perfected security interest in
(i) all of the Capital Stock, membership interests or other equity
interests of the Pledged Entities now owned or hereafter acquired by such
Pledgor (collectively, the "PLEDGED SHARES", which include, without
limitation, the owned shares described on Exhibit A attached hereto),
(ii) all other property hereafter delivered to, or in the possession or
in the custody of, Pledgee, in substitution for or in addition to the
Pledged Shares, (iii) any other property of a Pledgor, as described in
Section 4 below or otherwise, now or hereafter delivered to, or in the
possession or custody of a Pledgor, and (iv) all proceeds of the
collateral described in the preceding clauses (i), (ii) and (iii) (the
collateral described in clauses (i) through (iv) of this Section 2 being
collectively referred to as the "PLEDGED COLLATERAL"), as collateral
security for the prompt and complete payment and performance when due
(whether at the stated maturity, by acceleration or otherwise) of the
Obligations. All of the Pledged Shares now owned by a Pledgor which are
presently represented by stock certificates or membership interests
certificates are listed on Exhibit A hereto, which stock certificates or
membership interest certificates, with undated stock powers duly executed
in blank by the applicable Pledgor and irrevocable proxies, are being
delivered to Pledgee simultaneously herewith. Upon the creation or
acquisition of any new Pledged Shares, Pledgor shall execute an Addendum
in the form of Exhibit C attached hereto (a "PLEDGE ADDENDUM"). Any
Pledged Collateral described in a Pledge Addendum executed by Pledgor
shall thereafter be deemed to be listed on Exhibit A hereto. Pledgee
shall maintain possession and custody of the certificates representing
the Pledged Shares and any additional Pledged Collateral.
(b) Pledgor shall cause each Pledged Share consisting of
either (i) a membership interest in a Person that is a limited liability
company or (ii) a partnership interest in a Person that is a partnership
(if any) to be "securities" governed by Article 8 of the UCC at all
times. Pledgor shall cause the applicable Persons to issue certificates
evidencing such membership interests or partnership interests (if any) to
Pledgor. Pledgor shall not cause and shall not permit any Pledged Entity
which is not a corporation to "opt-out" of Article 8 of the UCC (provided
that STO Operating, as the sole member of STO Properties, shall have ten
(10) business days from the date of this Agreement to certificate the
membership interests of STO Properties and deliver same to Pledgee
together with an assignment separate from certificate duly executed in
blank). Pledgor shall not take, and shall not permit any Pledged Entity
which is not a corporation to take, any actions to cause the Capital
Stock, membership interests, partnership interests or similar equity
interests of such Pledged Entity to cease to be classified as
"securities" governed by Article 8 of the UCC.
3. Representations and Warranties of Pledgors. Each Pledgor
represents and warrants to Pledgee, and covenants with Pledgee, that:
(a) Exhibit A sets forth (i) the authorized Capital Stock
or membership interests of each Pledged Entity, (ii) the number of shares
of Capital Stock or membership interests of each Pledged Entity that are
issued and outstanding as of the date hereof, and (iii) the percentage of
the issued and outstanding shares of Capital Stock or membership
interests of each Pledged Entity held by a Pledgor. Each Pledgor is the
record and beneficial owner of, and has good and marketable title to, the
Pledged Shares owned by it, and such shares are and will remain free and
clear of all pledges, liens, security interests and other encumbrances
and restrictions whatsoever, except the liens and security interests
created by this Agreement;
(b) there are no outstanding options, warrants or other
agreements with respect to the Pledged Shares or any of the other Pledged
Collateral;
(c) this Agreement is the legal, valid and binding
obligation of each Pledgor, enforceable against such Pledgor in
accordance with its terms, except and to the extent that such
enforceability is subject to applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance and moratorium laws and other laws
of general application affecting enforcement of creditors' rights
generally, or the availability of equitable remedies, all of which are
subject to the discretion of the court before which an action may be
brought;
(d) the Pledged Shares have been duly and validly
authorized and issued, are fully paid and non-assessable, and the Pledged
Shares listed on Exhibit A constitute all of the issued and outstanding
Capital Stock of the Pledged Entities;
(e) no consent, approval or authorization of or designation
or filing with any governmental or regulatory authority on the part of
any Pledgor is required in connection with the pledge and security
interest granted under this Agreement;
(f) the execution, delivery and performance of this
Agreement will not violate any provision of any applicable law or
regulation or of any order, judgment, writ, award or decree of any court,
arbitrator or governmental authority, domestic or foreign, or of the
articles of incorporation, bylaws or any other similar organizational
documents of any Pledgor or any Pledged Entity or of any securities
issued by any Pledgor or any Pledged Entity or of any mortgage,
indenture, lease, contract, or other agreement, instrument or undertaking
to which a Pledgor or any Pledged Entity is a party or which purports to
be binding upon a Pledgor or any Pledged Entity or upon any of the assets
of a Pledgor or any Pledged Entity, and will not result in the creation
or imposition of any lien, charge or encumbrance on or security interest
in any of the assets of a Pledgor or any Pledged Entity, except as
otherwise contemplated by this Agreement;
(g) the pledge, assignment and delivery of the Pledged
Shares and the other Pledged Collateral pursuant to this Agreement
creates a valid first lien on and perfected first priority security
interest in such Pledged Shares and Pledged Collateral and the proceeds
thereof in favor of Pledgee, subject to no prior pledge, lien, mortgage,
hypothecation, security interest, charge, option or encumbrance nor to
any agreement purporting to grant to any third party a security interest
in the property or assets of a Pledgor, which would include the Pledged
Shares or any other Pledged Collateral. Until this Agreement is
terminated pursuant to Section 11 hereof, each Pledgor covenants and
agrees that it will defend, for the benefit of Pledgee, Pledgee's right,
title and security interest in and to the applicable Pledged Shares, the
other Pledged Collateral and the proceeds thereof against the claims and
demands of all other persons or entities; and
(h) Neither Pledgor nor any Pledged Entity (i) will become
a person whose property or interests in property are blocked or subject
to blocking pursuant to Section 1 of Executive Order 13224 of September
23, 2001 Blocking Property and Prohibiting Transactions with Persons Who
Commit, Threaten to Commit or Support Terrorism (66 Fed. Reg.
49079(2001), (ii) will engage in any dealings or transactions prohibited
by Section 2 of such executive order, or (iii) will otherwise become a
person on the list of Specially Designated Nationals and Blocked Persons
or subject to the limitations or prohibitions under any other Office of
Foreign Asset Control regulation or executive order.
4. Stock Dividends, Distributions, Etc. If, while this
Agreement is in effect, a Pledgor shall become entitled to receive or
shall receive (i) any stock certificate (including, without limitation,
any certificate representing a stock dividend or a stock distribution in
connection with any reclassification, increase or reduction of capital,
or issued in connection with any reorganization, merger or
consolidation), or any options or rights, whether as an addition to, in
substitution for, or in exchange for any of the Pledged Shares or
otherwise, each Pledgor agrees, in each case, to accept the same as
Pledgee's agent and to hold the same in trust for Pledgee, and to deliver
the same promptly (but in any event within five days) to Pledgee in the
exact form received, with the endorsement of the applicable Pledgor when
necessary and/or with appropriate undated assignments separate from
certificates or stock powers duly executed in blank, to be held by
Pledgee subject to the terms hereof, as additional collateral security
for the Obligations. The applicable Pledgor shall promptly deliver to
Pledgee (i) a Pledge Addendum with respect to such additional stock
certificates, and (ii) any financing statements or amendments to
financing statements as requested by Pledgee. Each Pledgor hereby
authorizes Pledgee to attach each such Pledge Addendum to this Agreement.
In case any distribution of capital shall be made on or in respect of the
Pledged Shares or any property shall be distributed upon or with respect
to the Pledged Shares pursuant to the recapitalization or
reclassification of the capital of the issuer thereof or pursuant to the
reorganization thereof, the property so distributed shall be delivered to
Pledgee to be held by it as additional Pledged Collateral. Except as
provided in Section 5(b) below, all sums of money and property so paid or
distributed in respect of the Pledged Shares which are received by
Pledgor shall, until paid or delivered to Pledgee, be held by Pledgor in
trust as additional Pledged Collateral.
5. Voting Rights; Dividends.
(a) So long as no Event of Default (as defined in the
Notes) has occurred and is continuing, each Pledgor shall be entitled
(subject to the other provisions hereof, including without limitation
Section 8 below) to exercise its voting and other consensual rights with
respect to the applicable Pledged Shares and to otherwise exercise the
incidents of ownership thereof in any manner not inconsistent with this
Agreement or the Purchase Agreement and the other Transaction Documents.
Each Pledgor hereby grants to Pledgee or its nominee, an irrevocable
proxy to exercise all voting and corporate rights relating to the Pledged
Shares in any instance, which proxy shall be effective, at the discretion
of Pledgee, upon the occurrence and during the continuance of an Event of
Default. After the occurrence and during the continuance of an Event of
Default and upon request of Pledgee, each Pledgor agrees to deliver to
Pledgee such further evidence of such irrevocable proxy or such further
irrevocable proxies to vote the Pledged Shares as Pledgee may request.
(b) So long as no Event of Default shall have occurred and
be continuing, Pledgor shall be entitled to receive cash dividends or
other distributions made in respect of the Pledged Shares, to the extent
permitted to be made pursuant to the terms of the Purchase Agreement or
the Notes. Upon the occurrence and during the continuance of an Event of
Default, in the event that a Pledgor, as record and beneficial owner of
certain Pledged Shares, shall have received or shall have become entitled
to receive, any cash dividends or other distributions in the ordinary
course, such Pledgor shall deliver to Pledgee, and Pledgee shall be
entitled to receive and retain, for the benefit of Pledgee, all such cash
or other distributions as additional security for the Obligations.
(c) Subject to any sale or other disposition by Pledgee of
the Pledged Shares, any other Pledged Collateral or other property
pursuant to this Agreement, upon full payment in cash, satisfaction and
termination of all of the Obligations and the termination of this
Agreement pursuant to Section 11 hereof of the liens and security
interests hereby granted, the Pledged Shares, the other Pledged
Collateral and any other property then held as part of the Pledged
Collateral in accordance with the provisions of this Agreement shall be
returned to the applicable Pledgor or to such other persons or entities
as shall be legally entitled thereto.
(d) Pledgor shall cause all Pledged Shares to be
certificated at all times while this Agreement is in effect.
6. Rights of Pledgee. Pledgee shall not be liable for failure
to collect or realize upon the Obligations or any collateral security or
guaranty therefor, or any part thereof, or for any delay in so doing, nor
shall Pledgee be under any obligation to take any action whatsoever with
regard thereto. Any or all of the Pledged Shares held by Pledgee
hereunder may, if an Event of Default has occurred and is continuing,
without notice, be registered in the name of Pledgee or its nominee, and
Pledgee or its nominee may thereafter without notice exercise all voting
and corporate rights at any meeting with respect to any Pledged Entity
and exercise any and all rights of conversion, exchange, subscription or
any other rights, privileges or options pertaining to any of the Pledged
Shares as if it were the absolute owner thereof, including, without
limitation, the right to vote in favor of, and to exchange at its
discretion any and all of the Pledged Shares upon, the merger,
consolidation, reorganization, recapitalization or other readjustment
with respect to any Pledged Entity or upon the exercise by any Pledged
Entity, a Pledgor or Pledgee of any right, privilege or option pertaining
to any of the Pledged Shares, and, in connection therewith, to deposit
and deliver any and all of the Pledged Shares with any committee,
depository, transfer agent, registrar or other designated agency upon
such terms and conditions as Pledgee may reasonably determine, all
without liability except to account for property actually received by
Pledgee, but Pledgee shall have no duty to exercise any of the aforesaid
rights, privileges or options and shall not be responsible for any
failure to do so or delay in so doing.
7. Remedies. Upon the occurrence and during the continuance of
an Event of Default, Pledgee may exercise in respect of the Pledged
Collateral, in addition to other rights and remedies provided for herein
or otherwise available to it, all the rights and remedies of a secured
party under the Uniform Commercial Code ("UCC") in effect in the State of
New York from time to time, whether or not the UCC applies to the
affected Pledged Collateral (or the Uniform Commercial Code as in effect
in any other relevant jurisdiction). Pledgee also, without demand of
performance or other demand, advertisement or notice of any kind (except
the notice specified below of time and place of public or private sale)
to or upon any Pledgor or any other person or entity (all and each of
which demands, advertisements and/or notices are hereby expressly
waived), may, upon the occurrence and during the continuance of an Event
of Default, forthwith collect, receive, appropriate and realize upon the
Pledged Collateral, or any part thereof, and/or may forthwith date and
otherwise fill in the blanks on any assignments separate from certificate
or stock power or otherwise sell, assign, give an option or options to
purchase, contract to sell or otherwise dispose of and deliver said
Pledged Collateral, or any part thereof, in one or more portions at one
or more public or private sales or dispositions, at any exchange or
broker's board or at any of Pledgee's offices or elsewhere upon such
terms and conditions as Pledgee may deem advisable and at such prices as
it may deem best, for any combination of cash and/or securities or other
property or on credit or for future delivery without assumption of any
credit risk, with the right to Pledgee upon any such sale, public or
private, to purchase the whole or any part of said Pledged Collateral so
sold, free of any right or equity of redemption in the applicable
Pledgor, which right or equity is hereby expressly waived or released.
Pledgee shall apply the net proceeds of any such collection, recovery,
receipt, appropriation, realization, sale or disposition, after deducting
all costs and expenses of every kind incurred therein or incidental to
the safekeeping of any and all of the Pledged Collateral or in any way
relating to the rights of Pledgee hereunder, including attorneys' fees
and legal expenses, first to the payment, in whole or in part, of the
Obligations, in such order as Pledgee may elect. Pledgors shall remain
liable for any deficiency remaining unpaid after such application. Only
after so paying over such net proceeds and after the payment by Pledgee
of any other amount required by any provision of law, including, without
limitation, Section 9-608 of the UCC, will Pledgee be required to account
for the surplus, if any, to the applicable Pledgor. Each Pledgor agrees
that Pledgee is not required to give more than ten (10) days' notice of
the time and place of any public sale or of the time after which a
private sale or other intended disposition is to take place and that such
notice is reasonable notification of such matters. No notification needs
to be given to a Pledgor, if it has signed after default a statement
renouncing or modifying any right to notification of sale or other
intended disposition.
8. No Disposition, Etc. Until the irrevocable payment in full
in cash of the Obligations, each Pledgor agrees that it will not sell,
assign, transfer, exchange, or otherwise dispose of, or grant any option
with respect to, the Pledged Shares or any other Pledged Collateral, nor
will such Pledgor create, incur or permit to exist any pledge, lien,
mortgage, hypothecation, security interest, charge, option or any other
encumbrance with respect to any of the Pledged Shares or to any other
Pledged Collateral, or any interest therein, or any proceeds thereof,
except for the lien and security interest provided for by this Agreement
and the Security Agreement and Permitted Liens.
9. Sale of Pledged Shares.
(a) Each Pledgor recognizes that Pledgee may be unable to
effect a public sale or disposition (including without limitation any
disposition in connection with a merger of a Pledged Entity) of any or
all the Pledged Shares by reason of certain prohibitions contained in the
Securities Act of 1933, as amended (the "1933 ACT"), and applicable state
securities laws, but may be compelled to resort to one or more private
sales or dispositions thereof to a restricted group of purchasers who
will be obliged to agree, among other things, to acquire such securities
for their own account, for investment and not with a view to the
distribution or resale thereof. Each Pledgor acknowledges and agrees
that any such private sale or disposition may result in prices and other
terms (including the terms of any securities or other property received
in connection therewith) less favorable to the seller than if such sale
or disposition were a public sale or disposition and, notwithstanding
such circumstances, agrees that any such private sale or disposition
shall be deemed to be reasonable and consummated in a commercially
reasonable manner. Pledgee shall be under no obligation to delay a sale
or disposition of any of the Pledged Shares in order to permit a Pledgor
or a Pledged Entity to register such securities for public sale under the
1933 Act, or under applicable state securities laws, even if a Pledgor or
a Pledged Entity would agree to do so.
(b) Each Pledgor further agrees to do or cause to be done
all such other acts and things as may be necessary to make such sales or
dispositions of the Pledged Shares valid and binding and in compliance
with any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators or
governmental instrumentalities, domestic or foreign, having jurisdiction
over any such sales or dispositions, all at the applicable Pledgor's
expense; provided that Pledgor shall not have an obligation to register
the Pledged Shares as securities under the 1933 Act or the applicable
state securities laws solely by virtue of this Section 9(b). Each
Pledgor further agrees that a breach of any of the covenants contained in
Sections 4, 5(a), 5(b), 8, 9 and 24 will cause irreparable injury to
Pledgee and that Pledgee has no adequate remedy at law in respect of such
breach and, as a consequence, agrees, without limiting the right of
Pledgee to seek and obtain specific performance of other obligations of
each Pledgor contained in this Agreement, that each and every covenant
referenced above shall be specifically enforceable against each Pledgor,
and each Pledgor hereby waives and agrees not to assert any defenses
against an action for specific performance of such covenants.
(c) Each Pledgor further agrees to indemnify and hold
harmless the Buyers, Pledgee, and their respective successors and
assigns, their respective officers, directors, employees, attorneys and
agents, and any person or entity in control of any thereof, from and
against any loss, liability, claim, damage and expense, including,
without limitation, legal fees and expenses (in this paragraph
collectively called the "INDEMNIFIED LIABILITIES"), under federal and
state securities laws or otherwise insofar as such Indemnified Liability
(i) arises out of or is based upon any untrue statement or alleged untrue
statement of a material fact contained in any registration statement,
prospectus or offering memorandum or in any preliminary prospectus or
preliminary offering memorandum or in any amendment or supplement to any
thereof or in any other writing prepared in connection with the offer,
sale or resale of all or any portion of the Pledged Collateral unless
such untrue statement of material fact was provided by Pledgee, in
writing, specifically for inclusion therein, or (ii) arises out of or is
based upon any omission or alleged omission to state therein a material
fact required to be stated or necessary to make the statements therein
not misleading, such indemnification to remain operative regardless of
any investigation made by or on behalf of Pledgee or any successor
thereof, or any person or entity in control of any thereof. In
connection with a public sale or other distribution, Pledgor will provide
customary indemnification to any underwriters, their successors and
assigns, officers and directors and each person or entity who controls
any such underwriter (within the meaning of the 1933 Act). If and to the
extent that the foregoing undertakings in this paragraph may be
unenforceable for any reason, each Pledgor agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The obligations
of each Pledgor under this paragraph (c) shall survive any termination of
this Agreement.
(d) Each Pledgor further agrees to waive any and all rights
of subrogation it may have against a Pledged Entity upon the sale or
disposition of all or any portion of the Pledged Collateral by Pledgee
pursuant to the terms of this Agreement.
10. No Waiver; Cumulative Remedies. Pledgee shall not by any
act, delay, omission or otherwise be deemed to have waived any of its
remedies hereunder, and no waiver by Pledgee shall be valid unless in
writing and signed by Pledgee, and then only to the extent therein set
forth. A waiver by Pledgee of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which
Pledgee would otherwise have on any further occasion. No course of
dealing between a Pledgor and Pledgee and no failure to exercise, nor any
delay in exercising on the part of Pledgee or the Buyers of, any right,
power or privilege hereunder or under the other Transaction Documents
shall impair such right or remedy or operate as a waiver thereof; nor
shall any single or partial exercise of any right, power or privilege
hereunder preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein
provided are cumulative and may be exercised singly or concurrently, and
are not exclusive of any rights or remedies provided by law or in the
Purchase Agreement.
11. Termination. This Agreement and the liens and security
interests granted hereunder shall terminate, and Pledgee, at Pledgors'
sole cost and expense, shall return the Pledged Shares or other Pledged
Collateral then held by Pledgee to the applicable Pledgor, at the time
the Security Agreement and all Liens granted thereunder terminate in
accordance with Section 4.12 of the Security Agreement.
12. Possession of Collateral. Beyond the exercise of reasonable
care to assure the safe custody of the Pledged Shares in the physical
possession of Pledgee pursuant hereto, neither Pledgee, nor any nominee
of Pledgee, shall have any duty or liability to collect any sums due in
respect thereof or to protect, preserve or exercise any rights pertaining
thereto (including any duty to ascertain or take action with respect to
calls, conversions, exchanges, maturities, tenders or other matters
relating to the Pledged Collateral and any duty to take any necessary
steps to preserve rights against any parties with respect to the Pledged
Collateral), and shall be relieved of all responsibility for the Pledged
Collateral upon surrendering them to a Pledgor. Each Pledgor assumes the
responsibility for being and keeping itself informed of the financial
condition of a Pledged Entity and of all other circumstances bearing upon
the risk of non-payment of the Obligations, and Pledgee shall have no
duty to advise any Pledgor of information known to Pledgee regarding such
condition or any such circumstance. Pledgee shall have no duty to
inquire into the powers of a Pledged Entity or its officers, directors,
managers, members, partners or agents thereof acting or purporting to act
on its behalf.
13. Taxes and Expenses. Each Pledgor will upon demand pay to
Pledgee, (a) any taxes (excluding income taxes, franchise taxes or other
taxes levied on gross earnings, profits or the like of Pledgee) payable
or ruled payable by any federal or state authority in respect of this
Agreement, together with interest and penalties, if any, and (b) all
expenses, including the fees and expenses of counsel for Pledgee and of
any experts and agents that Pledgee may incur in connection with (i) the
administration of this Agreement, (ii) the custody or preservation of, or
the sale of, collection from, or other realization upon, any of the
Pledged Collateral, (iii) the exercise or enforcement of any of the
rights of Pledgee hereunder, or (iv) the failure of a Pledgor to perform
or observe any of the provisions hereof.
14. Pledgee Appointed Attorney-In-Fact. Each Pledgor hereby
irrevocably appoints Pledgee as such Pledgor's attorney-in-fact, with
full authority in the place and stead of such Pledgor and in the name of
such Pledgor or otherwise, from time to time in Pledgee's discretion, to
take any action and to execute any instrument that Pledgee deems
reasonably necessary or advisable to accomplish the purposes of this
Agreement, including without limitation to receive, endorse and collect
all instruments made payable to such Pledgor representing any dividend,
interest payment or other distribution in respect of the Pledged
Collateral or any part thereof and to give full discharge for the same,
when and to the extent permitted by this Agreement; provided that the
power of attorney granted hereunder shall only be exercised by Pledgee
after the occurrence and during the continuance of an Event of Default.
15. Governing Law; Jurisdiction; Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of
this Agreement shall be governed by the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other
jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and
federal courts sitting in the City of New York, Borough of Manhattan, for
the adjudication of any dispute hereunder or in connection herewith or
with any transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action
or proceeding is improper. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit,
action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any
way any right to serve process in any manner permitted by law. The
Parties acknowledge that each of the Buyers has executed each of the
Transaction Documents to be executed by it in the State of New York and
will have made the payment of the Purchase Price from its bank account
located in the State of New York. Notwithstanding the foregoing, the
Pledgee may enforce its rights and remedies in any other jurisdiction
applicable to the Pledged Collateral. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR
THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
16. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and which shall become effective when counterparts have been
signed by each party and delivered to the other party; provided, however,
that a facsimile, pdf or similar electronically transmitted signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an
original, not a facsimile signature.
17. Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, nor affect the interpretation
of, this Agreement.
18. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other
jurisdiction.
19. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between each Pledgor, Pledgee, the
Buyers and their affiliates and persons acting on their behalf with
respect to the matters discussed herein, and this Agreement and the
Transaction Documents and instruments referenced herein and therein
contain the entire understanding of the parties with respect to the
matters covered herein and therein.
20. Notices. All notices, approvals, requests, demands and other
communications hereunder shall be delivered or made in the manner set
forth in, and shall be effective in accordance with the terms of, the
Purchase Agreement.
21. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors
and assigns, including any purchasers of the Notes. No Pledgor shall
assign this Agreement or any rights or obligations hereunder without the
prior written consent of Pledgee. Pledgee may assign its rights
hereunder without the consent of any Pledgor, in which event such
assignee shall be deemed to be Pledgee hereunder with respect to such
assigned rights.
22. No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted
successors and permitted assigns, and is not for the benefit of, nor may
any provision hereof be enforced by, any other person or entity.
23. Survival. All representations, warranties, covenants and
agreements of each Pledgor shall survive the execution and delivery of
this Agreement.
24. Further Assurances. Each Pledgor agrees that at any time and
from time to time upon the written request of Pledgee, each Pledgor will
execute and deliver all assignments separate from certificate, stock
powers, financing statements and such further documents and do such
further acts and things as Pledgee may reasonably request consistent with
the provisions hereof in order to carry out the intent and purpose of
this Agreement and the consummation of the transactions contemplated
hereby.
25. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their
mutual intent, and no rules of strict construction will be applied
against any party.
26. Pledgee Authorized. Each Pledgor hereby authorizes Pledgee
to file one or more financing or continuation statements and amendments
thereto (or similar documents required by any laws of any applicable
jurisdiction) relating to all or any part of the Pledged Shares or other
Pledged Collateral without the signature of the applicable Pledgor.
27. Pledgee Acknowledgment.Pledgor acknowledges receipt of an
executed copy of this Agreement. The Pledgor waives the right to receive
any amount that it may now or hereafter be entitled to receive (whether
by way of damages, fine, penalty, or otherwise) by reason of the failure
of the Pledgee to deliver to the Pledgor a copy of any financing
statement or any statement issued by any registry that confirms
registration of a financing statement relating to this Agreement.
28. Amendment and Restatement. This Agreement, taken together
with the Security Agreement dated as of the date hereof executed by
Company, STO Operating, Southern Texas, STO Drilling and STO Properties,
amends and restates the Original Security Agreements (as defined in the
Security Agreement) in their entirety, and shall not be deemed to
constitute a novation of the Original Security Agreements (as defined in
the Security Agreement) or any obligations of any "Debtor" thereunder.
Each Pledgor acknowledges, ratifies, confirms and reaffirms the grant of
Liens and security interests and the pledges of Capital Stock or
membership interests granted pursuant to the Original Security
Agreements, and each Pledgor further acknowledges and agrees that (i) all
of such Liens and security interests are intended and shall be deemed and
construed to secure, to the fullest extent set forth therein, all
currently existing and hereafter arising Obligations and (ii) all of such
Liens and security interests shall continue hereunder in favor of the
Pledgee uninterrupted from the date of the original grant thereof.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement
to be duly executed and delivered by their duly authorized officers on the date
first above written.
SOUTH TEXAS OIL COMPANY,
a Nevada corporation, as a Pledgor
By:________________________________
Name: _____________________________
Title:_______________________________
STO OPERATING COMPANY,
a Texas corporation, as a Pledgor
By:________________________________
Name:_____________________________
Title:_______________________________
VIKING ASSET MANAGEMENT, LLC, a California
limited liability company, in its capacity
as collateral agent for the Buyers
By:________________________________
Name: _____________________________
Title:_______________________________
60626439
Pledge
ACKNOWLEDGEMENT
The undersigned hereby (i) acknowledges receipt of a copy of the
foregoing Pledge Agreement, (ii) waives any rights or requirement at any time
hereafter to receive a copy of such Pledge Agreement in connection with the
registration of any Pledged Shares (as defined therein) in the name of Pledgee
or its nominee or the exercise of voting rights by Pledgee and (iii) agrees
promptly to note on its books and records the grant of the security interest in
the stock of the undersigned as provided in such Pledge Agreement.
Dated: April 1, 2008
STO OPERATING COMPANY,
a Texas corporation
By:
Name: _________________________
Title:
STO DRILLING COMPANY,
a Texas corporation
By:
Name: _________________________
Title:
STO PROPERTIES LLC,
a Texas limited liability company
By:
Name: _________________________
Title:
SOUTHERN TEXAS OIL COMPANY,
a Texas corporation
By:
Name: _________________________
Title:
EXHIBIT A
to Pledge Agreement
DESCRIPTION OF CAPITAL STOCK OR MEMBERSHIP INTERESTS OF PLEDGED ENTITIES HELD
BY SOUTH TEXAS OIL COMPANY
Issuer Owner Class of Stock orAuthorized No. of Stock No. of Shares Issued and Percentage of
Membership Shares Certificate Represented by Outstanding Shares Held by
Interests No. Certificate Shares Pledgor
STO Operating Company, a South Common 50,000,000 #1 1,000,000 1,000,000
Texas corporation Texas 100%
Oil
Company
STO Drilling Company, a South Common 50,000,000 #1 1,000,000 1,000,000
Texas corporation Texas 100%
Oil
Company
Southern Texas Oil South Common 50,000,000 #2 1,000,000 1,000,000
Company, a Texas Texas 100%
corporation Oil
Company
DESCRIPTION OF CAPITAL STOCK OR MEMBERSHIP INTERESTS OF PLEDGED ENTITIES HELD
BY STO OPERATING COMPANY
Issuer Owner Class of Authorized No. of Stock No. of Shares Issued and Percentage of Shares
Stock or Shares Certificate Represented Outstanding or Interests Held by
Membership No. by Shares Pledgor
Interests Certificate
STO Properties LLC, a STO Sole n/a #1 n/a n/a 100%
Texas limited liability Operating membership
company Company interest
EXHIBIT B
to Pledge Agreement
BUYER'S NAME BUYER'S ADDRESS
AND FACSIMILE NUMBER
The Longview Fund, L.P. 000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxxxxxxx,
XX 00000
Longview Marquis Master 000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxxxxxxx,
Fund, L.P. CA 94111
EXHIBIT C
to Pledge Agreement
ADDENDUM TO PLEDGE AGREEMENT
The undersigned, being the Pledgor pursuant to that certain Pledge Agreement
dated as of April 1, 2007 (as amended, restated, supplemented or otherwise
modified from time to time, the "PLEDGE AGREEMENT") in favor of Viking Asset
Management, LLC, a California limited liability company, as collateral agent
("PLEDGEE"), by executing this Addendum, hereby acknowledges that Pledgor has
acquired and legally and beneficially owns all of the issued and outstanding [
shares of Capital Stock ] of [__________________, a _______ corporation ]
("COMPANY") described below (the "SHARES"). Pledgor hereby agrees and
acknowledges that the Shares shall be deemed Pledged Shares pursuant to the
Pledge Agreement. Pledgor hereby represents and warrants to Pledgee that (i)
all of the [ Capital Stock ] of the Company now owned by Pledgor is presently
represented by the certificates listed below, which certificates, with undated
assignments separate from certificate or stock powers duly executed in blank by
Pledgor, are being delivered to Pledgee, simultaneously herewith (or have been
previously delivered to Pledgee), and (ii) after giving effect to this
addendum, the representations and warranties set forth in Section 3 of the
Pledge Agreement are true, complete and correct as of the date hereof.
PLEDGED SHARES
No. of Shares
Name of Represented by
the CompanyClass of Equity InterestCertificate No. Certificate
IN WITNESS WHEREOF, Pledgor has executed this Addendum this _____ day of
______.
PLEDGOR:
________________________, A
_____________________
By:________________________________
Name: ____________________________
Title: ____________________________
