PLEDGE AGREEMENT
EXHIBIT
99.7
THIS
PLEDGE AGREEMENT,
made as
of this 19th day of September, 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 benefit of the entities (the
“Buyers”)
identified on the Schedule
of Buyers
attached
to the Purchase Agreement defined below (in such capacity, together with its
successors and assigns in such capacity, the “Pledgee”).
WHEREAS:
A. 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, Company is issuing to Buyers the
Bridge Notes (as defined in the Purchase Agreement);
B. WHEREAS,
pursuant to a Security Agreement of even date herewith (as 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);
C. 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, 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
D. WHEREAS,
to induce Buyers to enter into the Purchase Agreement and to purchase the Bridge
Notes, 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
Bridge 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
B
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 (as defined below) 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. 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:
-
2 -
(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,
subject to Permitted Liens, of all pledges, liens, security interests and other
encumbrances and restrictions whatsoever, except the liens and security
interests created by this Agreement;
(b) except
as
set forth on Schedule 4.1(d) of the Purchase Agreement, 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 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, subject to Permitted Liens,
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
-
3 -
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 Bridge 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
-
4 -
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 Bridge 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
-
5 -
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
-
6 -
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
-
7 -
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.
-
8 -
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.
-
9 -
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 Bridge
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.
-
10 -
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.
[Signature
Pages Follow]
-
11 -
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:_______________________________
Signature
Page to Pledge Agreement
VIKING
ASSET MANAGEMENT, LLC,
a California limited liability company,
in its capacity as collateral agent for the Buyers
a California limited liability company,
in its capacity as collateral agent for the Buyers
By:________________________________
Name:
_____________________________
Title:_______________________________
Signature
Page to Pledge Agreement
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:
September 19, 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:_______________________________
Signature
Page to Pledge Agreement Acknowledgment
EXHIBIT
A
DESCRIPTION
OF CAPITAL STOCK OR MEMBERSHIP INTERESTS OF PLEDGED ENTITIES HELD BY SOUTH
TEXAS
OIL COMPANY
|
Issuer
|
Owner
|
Class
of Stock or Membership Interests
|
Authorized
No. of
Shares
|
Stock
Certificate No.
|
No.
of Shares Represented by Certificate
|
Issued
and Outstanding Shares
|
Percentage
of Shares Held by Pledgor
|
|
STO
Operating Company, a Texas corporation
|
South
Texas Oil Company
|
Common
|
50,000,000
|
#1
|
1,000,000
|
1,000,000
|
100%
|
|
STO
Drilling Company, a Texas corporation
|
South
Texas Oil Company
|
Common
|
50,000,000
|
#1
|
1,000,000
|
1,000,000
|
100%
|
|
Southern
Texas Oil Company, a Texas corporation
|
South
Texas Oil Company
|
Common
|
50,000,000
|
#2
|
1,000,000
|
1,000,000
|
100%
|
DESCRIPTION
OF CAPITAL STOCK OR MEMBERSHIP INTERESTS OF PLEDGED ENTITIES HELD BY STO
OPERATING COMPANY
|
Issuer
|
Owner
|
Class
of Stock or Membership Interests
|
Authorized
No. of
Shares
|
Stock
Certificate No.
|
No.
of Shares Represented by Certificate
|
Issued
and Outstanding Shares
|
Percentage
of Shares or Interests Held by Pledgor
|
|
STO
Properties LLC, a Texas limited liability company
|
STO
Operating Company
|
Sole
membership interest
|
n/a
|
#1
|
n/a
|
n/a
|
100%
|
EXHIBIT
B
to
Pledge Agreement
Addendum
to Pledge Agreement
The
undersigned, being the Pledgor pursuant to that certain Pledge Agreement dated
as of September 19, 2008 (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
|
Name
of
the
Company
|
Class
of Equity Interest
|
Certificate
No.
|
No.
of Shares
Represented
by
Certificate
|
IN
WITNESS WHEREOF, Pledgor has executed this Addendum this _____ day of
______.
PLEDGOR:
________________________,
a
_____________________
By:________________________________
Name: ____________________________
Title: ____________________________
