Contract
EXECUTION COPY
This SUBORDINATION
AGREEMENT (this
“Agreement”) dated
as of November 13, 2008 is among Sonterra Resources,
Inc., a
Delaware corporation (the “Company”),
North Texas Drilling Services,
Inc., a Texas
corporation (“North Texas”),
Sonterra Operating, Inc.,
a
Delaware corporation (“Operating”),
Velocity Energy Limited
LLC, a Texas
limited liability company (“Limited”),
Velocity Energy
Inc., a
Delaware corporation (“Velocity”),
Velocity Energy Offshore
LP, a
Delaware limited partnership (“Offshore”),
Velocity Energy Partners
LP, a
Delaware limited partnership (“Onshore”; the
Company, North Texas, Operating, Limited, Velocity, Offshore and Onshore, each
an “Obligor” and,
together, “Obligors”),
Longview Marquis Master Fund,
L.P., a
British Virgin Island limited partnership (“Marquis”),
The Longview Fund,
L.P., a
California limited partnership (“Longview”), the
Buyers (as defined below), and Summerline Asset Management,
LLC, a
Delaware limited liability company, in its capacity as collateral agent for
itself and for the Buyers (including any successor agent, hereinafter, the
“Collateral Agent”).
RECITALS
A. Company
has executed and delivered to the Buyers those certain senior secured notes
dated as of the date hereof (such notes, together with any promissory notes or
other securities issued in exchange or substitution therefor or in replacement
thereof, and as any of the same may be amended, supplemented, restated or
modified and in effect from time to time, being herein referred to individually
and collectively as the “Notes”). The
Notes were issued pursuant to that certain Securities Purchase Agreement dated
as of November 13, 2008 (as the same has been and hereafter may be amended,
modified, supplemented or restated, the “Purchase
Agreement”) by and
among the Company and Buyers.
B. Each of
the Obligors (other than the Company) (each such entity, together with each
other person or entity who becomes a party to the Guaranty (as defined herein)
by execution of a joinder in the form of Exhibit A attached
thereto, is referred to individually as a “Guarantor” and
collectively as the “Guarantors”) have
executed a Guaranty dated as of November 13, 2008 (as the same may be amended,
supplemented, restated or modified and in effect from time to time, the
“Guaranty”) in
favor of the Collateral Agent in respect of Company’s obligations under the
Purchase Agreement and the Notes.
C. The
Company and Longview have entered into a Subordinated Note dated as
of November 13, 2008 pursuant
to which, among other things, Longview has extended credit to the Company in the
aggregate original principal amount of $2,210,550.92 (as the same may be
amended, supplemented, restated or otherwise modified from time to time as
permitted hereunder and including any notes issued in exchange or substitution
therefor, collectively, the “Longview Subordinated
Note”), and
pursuant to which the Company has incurred and may hereafter incur other
obligations and liabilities to Longview.
D. The
Company and Marquis have entered into a Subordinated Note dated as of November
13, 2008 pursuant to which, among other things, Marquis has extended credit to
the Company in the aggregate original principal amount of $9,440,000 (as the
same may be amended, supplemented, restated or otherwise modified from time to
time as permitted hereunder and including any notes issued in exchange or
substitution therefor, collectively, the “Marquis Subordinated
Note”;
Longview Subordinated Note and Marquis Subordinated Note, each a “Subordinated Note” and,
together, “Subordinated Notes”), and
pursuant to which the Company has incurred and may hereafter incur other
obligations and liabilities to Marquis.
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E. The
Subordinated Notes were issued pursuant to that certain Securities Exchange
Agreement dated as of November 13, 2008 (as the same has been and hereafter may
be amended, modified, supplemented or restated, the “Exchange Agreement”) by and
among the Company and the Subordinated Creditors.
NOW, THEREFORE, in
reliance upon this Agreement, to induce the Buyers enter into the Purchase
Agreement, purchase the Notes and make the financial accommodations available to
the Company under the Purchase Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which hereby are acknowledged, the
parties hereto hereby agree as follows:
1. Definitions. All
capitalized terms used but not elsewhere defined in this Agreement shall have
the respective meanings ascribed to such terms in the Purchase Agreement and the
Notes. The following terms shall have the following meanings in this
Agreement:
Buyers shall
mean holders of Senior Indebtedness, including, without limitation, any holder
of any Senior Indebtedness after the consummation of any Permitted
Refinancing.
Enforcement
Action is
defined in subsection
2.7.
Loan
Documents means
collectively the Purchase Agreement, the Notes, the Warrants, the Mortgages, the
Security Agreement and other Security Documents, the Guaranty, the Pledge
Agreement, the other Transaction Documents and each of the other agreements to
which any Obligor is a party or is bound in connection with the transactions
contemplated under the Purchase Agreement and the Notes.
Paid in
Full or
Payment in
Full means
the indefeasible payment in full in cash of all Senior Indebtedness and
termination of all commitments to lend under the Loan Documents and Permitted
Refinancing Loan Documents.
Permitted
Refinancing means
any refinancing of the Senior Indebtedness.
Permitted Refinancing Loan
Documents means
any and all agreements, documents and instruments executed in connection with a
Permitted Refinancing of Senior Indebtedness.
Proceeding is
defined in subsection
2.3.
Senior
Indebtedness means
the obligations, liabilities and other amounts owed under the Purchase
Agreement, the Notes or any other Loan Document, including all principal,
interest, fees, expenses, indemnities and enforcements costs, whether before or
after the commencement of a Proceeding and without regard to whether or not an
allowed claim, and all obligations and liabilities incurred with respect to
Permitted Refinancings, together with any amendments, restatements,
modifications, renewals or extensions of any thereof.
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Subordinated
Creditor shall
mean any “Subordinated Creditor” which is a signatory to this Agreement and any
other holders of any Subordinated Note or any other Subordinated Indebtedness
from time to time as permitted hereunder.
Subordinated
Default means a
default in the payment of the Subordinated Indebtedness, or performance of any
term, covenant or condition contained in the Subordinated Indebtedness Documents
or the occurrence of any event or condition, which default, event or condition
permits a Subordinated Creditor to accelerate or demand payment of all or any
portion of the Subordinated Indebtedness.
Subordinated Default
Notice means a
written notice to Collateral Agent pursuant to which Collateral Agent is
notified of the existence of a Subordinated Default, which notice incorporates a
reasonably detailed description of such Subordinated Default.
Subordinated
Indebtedness means
all of the obligations of Obligors to Subordinated Creditors evidenced by the
Subordinated Notes and all other amounts now or hereafter owed by Obligors to
Subordinated Creditors pursuant to the Subordinated Indebtedness
Documents.
Subordinated Indebtedness
Documents means
the Exchange Agreement, the Subordinated Notes, the Subordinated Warrant and all
other documents and instruments evidencing or pertaining to any portion of the
Subordinated Indebtedness, as amended, supplemented, restated or otherwise
modified from time to time as permitted hereunder.
Subordinated
Warrant means
the Warrant (as defined in the Exchange Agreement).
2. Subordination of
Subordinated Indebtedness to Senior Indebtedness.
2.1 Subordination. The
payment of any and all of the Subordinated Indebtedness hereby expressly is
subordinated, to the extent and in the manner set forth herein, to the Payment
in Full of the Senior Indebtedness. Each holder of Senior Indebtedness, whether
now outstanding or hereafter arising, shall be deemed to have acquired Senior
Indebtedness in reliance upon the provisions contained herein.
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2.2 Restriction on
Payments.
Notwithstanding any provision of the Subordinated Indebtedness Documents to the
contrary and in addition to any other limitations set forth herein or therein,
no payment (whether made in cash, securities or other property or by set-off) of
principal, interest or any other amount due with respect to the Subordinated
Indebtedness shall be made or received, and no Subordinated Creditor shall
exercise any right of set-off or recoupment with respect to any Subordinated
Indebtedness, until all of the Senior Indebtedness is Paid in Full; provided,
however, that Company may make regularly scheduled payments of interest, at the
per annum rate of not more than the Interest Rate (as defined in the
Subordinated Notes), on the Subordinated Notes due and payable on a
non-accelerated basis in accordance with the terms of the Subordinated Notes as
in effect on the date hereof or as modified in accordance with the terms of this
Agreement, including, without limitation, subject to the restrictions set forth
in Section 2.7; provided, further, that the Obligors and Subordinated Creditors
further agree that no such payment (whether in cash, equity, or other property
or by set-off) of principal, interest, or any amount due with respect to the
Subordinated Notes may be made by any Obligor or accepted by any Subordinated
Creditor if, at the time of such payment, an Event of Default under any Loan
Document exists or would occur after giving effect thereto. The Company may
resume making such permitted payments (and may make any such permitted payments
missed due to the application of this Section 2.2 in respect of the Subordinated
notes) upon a cure or waiver of such Event of Default (as evidenced by a written
notice from the Collateral Agent to Subordinated Creditors).
2.3 Proceedings. In the
event of any insolvency, bankruptcy, receivership, custodianship, liquidation,
reorganization, assignment for the benefit of creditors or other proceeding for
the liquidation, dissolution or other winding up of any Obligor or any of its
Subsidiaries (a “Proceeding”):
(i) the
Buyers shall be entitled to receive payment in full in cash of the Senior
Indebtedness before any Subordinated Creditor is entitled to receive any payment
upon the Subordinated Indebtedness, and Buyers shall be entitled to receive for
application in payment such Senior Indebtedness any payment or distribution of
any kind or character, whether in cash, property or securities or by set-off or
otherwise, which may be payable or deliverable in any such Proceedings in
respect of the Subordinated Indebtedness;
(ii) any
payment or distribution of assets of any Obligor of any kind or character,
whether in cash, property or securities, by set-off or otherwise, to which any
Subordinated Creditor would be entitled pursuant to the Subordinated
Indebtedness but for the provisions hereof shall be paid by the liquidating
trustee or agent or other Person making such payment or distribution, whether a
trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly
to the Collateral Agent for the benefit of Buyers until the Senior Indebtedness
shall have been Paid in Full, and each Subordinated Creditor acknowledges and
agrees that such payment or distribution may, particularly with respect to
interest on Senior Indebtedness after the commencement of a Proceeding, result
in such Subordinated Creditor receiving less than it would otherwise
receive;
(iii) each
Subordinated Creditor hereby irrevocably (x) authorizes, empowers and directs
all receivers, trustees, debtors in possession, liquidators, custodians,
conservators and others having authority in the premises to effect all such
payments and deliveries, and each Subordinated Creditor also irrevocably
authorizes, empowers and directs, the Collateral Agent until the Senior
Indebtedness shall have been Paid in Full, to demand, xxx for, collect and
receive every such payment or distribution, and (y) agrees to execute and
deliver to the Collateral Agent and the Buyers all such further instruments
confirming the authorization referred to in the foregoing clause (x);
and
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(iv) each
Subordinated Creditor hereby irrevocably authorizes, empowers and appoints
Collateral Agent (until the Senior Indebtedness shall have been Paid in Full) as
its agent and attorney in fact to (x) execute, verify, deliver and file such
proofs of claim upon the failure of a Subordinated Creditor promptly to do so
(and in any event prior to thirty (30) days before the expiration of the time to
file any proof) and (y) vote such claims in any such Proceeding; provided that
no holder of Senior Indebtedness shall have any obligation to execute, verify,
deliver and/or file any such proof of claim or vote such claim. In the event the
Collateral Agent or any Buyer (or any agent, designee or nominee thereof) votes
any claim in accordance with the authority granted hereby, no Subordinated
Creditor shall be entitled to change or withdraw such vote.
The
Senior Indebtedness shall continue to be treated as Senior Indebtedness and the
provisions hereof shall continue to govern the relative rights and priorities of
Buyers and the Subordinated Creditors even if all or part of the Senior
Indebtedness or the security interests securing the Senior Indebtedness are
subordinated, set aside, avoided or disallowed in connection with any such
Proceeding and the provisions hereof shall be reinstated if at any time any
payment of any of the Senior Indebtedness is rescinded or must otherwise be
returned by Collateral Agent, any Buyer or any agent, designee or nominee of
such holder.
2.4 Incorrect
Payments. If any
payment (whether made in cash, securities or other property) not permitted under
this Agreement is received by any Subordinated Creditor on account of the
Subordinated Indebtedness before all Senior Indebtedness is Paid in Full, such
payment shall not be commingled with any asset of such Subordinated Creditor,
shall be held in trust by such Subordinated Creditor for the benefit of the
Buyers and shall promptly be paid over to the Collateral Agent or its designated
representative, for application (in accordance with the Purchase Agreement, the
Notes or the Permitted Refinancing Loan Documents) to the payment of the Senior
Indebtedness then remaining unpaid, until all of the Senior Indebtedness is Paid
in Full.
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2.5 Sale,
Transfer. No
Subordinated Creditor shall sell, assign, dispose of or otherwise transfer all
or any portion of the Subordinated Indebtedness (a) without giving prior written
notice of such action to Collateral Agent, (b) unless prior to the consummation
of any such action, the transferee thereof shall execute and deliver to
Collateral Agent a joinder to this Agreement, or an agreement substantially
identical to this Agreement and acceptable to the Collateral Agent, in either
case providing for the continued subordination and forbearance of the
Subordinated Indebtedness to the Senior Indebtedness as provided herein and for
the continued effectiveness of all of the rights of Collateral Agent and Buyers
arising under this Agreement and (c) unless following such sale, assignment,
pledge, disposition or other transfer, there shall either be (i) no more than
two holders of Subordinated Indebtedness or (ii) one Person acting as agent for
all holders of the Subordinated Indebtedness pursuant to documentation
reasonably satisfactory to Collateral Agent such that any notices and
communications to be delivered to Subordinated Creditors hereunder and any
consents required by Subordinated Creditors shall be made to or obtained from
such agent and shall be binding on each Subordinated Creditor as if directly
obtained from such Subordinated Creditor. In the event of a permitted sale,
assignment, disposition or other transfer, the Subordinated Creditors engaging
in such sale, assignment, disposition or other transfer, prior to the
consummation of any such action, shall cause the transferee thereof to execute
and deliver to Collateral Agent a joinder to this Agreement, or an agreement
substantially identical to this Agreement and acceptable to the Collateral
Agent, in either case providing for the continued subordination and forbearance
of the Subordinated Indebtedness to the Senior Indebtedness as provided herein
and for the continued effectiveness of all of the rights of Buyers and
Collateral Agent arising under this Agreement. Notwithstanding the failure to
execute or deliver any such agreement, the subordination effected hereby shall
survive any sale, assignment, disposition or other transfer of all or any
portion of the Subordinated Indebtedness, and the terms of this Agreement shall
be binding upon the successors and assigns of each Subordinated Creditor, as
provided in Section 10 below.
2.6 Legends. Until
the Senior Indebtedness is Paid in Full, each of the Subordinated Indebtedness
Documents at all times shall contain in a conspicuous manner the following
legend:
“This
Note [or other Subordinated Indebtedness
Document] and the
indebtedness evidenced hereby are subordinate in the manner and to the extent
set forth in that certain Subordination Agreement (the “Subordination
Agreement”) dated as of November 13, 2008, among Sonterra Resources, Inc., a
Delaware corporation, North Texas Drilling Services, Inc., a Texas corporation,
Sonterra Operating, Inc., a Delaware corporation, Velocity Energy Limited LLC, a
Texas limited liability company, Velocity Energy Inc., a Delaware corporation,
Velocity Energy Offshore LP, a Delaware limited partnership, Velocity Energy
Partners LP, a Delaware limited partnership, Longview Marquis Master Fund, L.P.,
a British Virgin Island limited partnership, The Longview Fund, L.P., a
California limited partnership, and Summerline Asset Management, LLC, to the
Senior Indebtedness (as defined in the Subordination Agreement); and each holder
of this Note [or other Subordinated Indebtedness
Document], by its
acceptance hereof, shall be bound by the provisions of the Subordination
Agreement.”
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2.7 Restriction on Action by
Subordinated Creditors.
(a) Until the
Senior Indebtedness is Paid in Full and notwithstanding anything contained in
the Subordinated Indebtedness Documents, the Purchase Agreement, the other Loan
Documents or the Permitted Refinancing Loan Documents to the contrary, no
Subordinated Creditor shall, without the prior written consent of Collateral
Agent, agree to any amendment, modification or supplement to the Subordinated
Indebtedness Documents, the effect of which is to (i) increase the maximum
principal amount of the Subordinated Indebtedness or rate of interest (or cash
pay rate of interest) on any of the Subordinated Indebtedness, (ii) shorten the
dates upon which payments of principal or interest on the Subordinated
Indebtedness are due, (iii) change in a manner adverse to any Obligor or add any
event of default or add or make more restrictive any covenant with respect to
the Subordinated Indebtedness, (iv) change the redemption, prepayment or put
provisions of the Subordinated Indebtedness, (v) alter the subordination
provisions with respect to the Subordinated Indebtedness, including, without
limitation, subordinating the Subordinated Indebtedness to any other debt, (vi)
shorten the maturity date of any of the Subordinated Indebtedness or otherwise
alter the repayment terms of the Subordinated Indebtedness in a manner adverse
to any Obligor, (vii) take any liens in any assets of any Obligor or any of its
Subsidiaries or any other assets securing the Senior Indebtedness, or (viii)
change or amend any other term of the Subordinated Indebtedness Documents if
such change or amendment would increase the obligations of any Obligor or confer
additional material rights on any Subordinated Creditor or any other holder of
the Subordinated Indebtedness in a manner adverse to any Obligor, Collateral
Agent or Buyers. Notwithstanding the foregoing, until the Senior Indebtedness is
Paid in Full and notwithstanding anything contained in the Subordinated Warrant,
the Purchase Agreement, the other Loan Documents or the Permitted Refinancing
Loan Documents to the contrary, no Subordinated Creditor shall, without the
prior written consent of Collateral Agent, agree to any amendment, modification
or supplement to the Subordinated Warrant.
(b) Until the
Senior Indebtedness is Paid in Full, no Subordinated Creditor shall, without the
prior written consent of Collateral Agent, take or continue any action, or
exercise any rights, remedies or powers in respect of any of the Subordinated
Note or any other Subordinated Indebtedness Documents, or exercise or continue
to exercise any other right or remedy at law or in equity that a Subordinated
Creditor might otherwise possess, to collect any amount due and payable in
respect of any Subordinated Note or any of the other Subordinated Indebtedness,
including, without limitation, the acceleration of the Subordinated
Indebtedness, the commencement of any action to enforce payment or foreclosure
on any lien or security interest, the filing of any petition in bankruptcy or
the taking advantage of any other insolvency law of any jurisdiction (any of the
foregoing, an “Enforcement
Action”). If any
Subordinated Creditor shall attempt to take any Enforcement Action or otherwise
seek to collect or realize upon any of the Subordinated Indebtedness in
violation of the terms hereof, the holders of the Senior Indebtedness may, by
virtue of the terms hereof, restrain any such Enforcement Action or other
action, either in its own name or in the name of the applicable
Obligor.
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(c) Until the
Senior Indebtedness is Paid in Full, any Liens of Subordinated Creditors in the
Collateral which may exist in breach of each Subordinated Creditor's agreement
pursuant to subsection
2.7(a)(vii) or
Section
18 of this
Agreement shall be and hereby are subordinated for all purposes and in all
respects to the Liens of Collateral Agent and Buyers in the Collateral,
regardless of the time, manner or order of perfection of any such Liens. In the
event that any Subordinated Creditor obtains any Liens in the Collateral in
violation of subsection
2.7(a)(vii) or
Section
18 of this
Agreement, Subordinated Creditors (i) shall (or shall cause their agent) to
promptly execute and deliver to Collateral Agent such termination statements and
releases as Collateral Agent shall request to effect the release of the Liens of
such Subordinated Creditor in such Collateral and (ii) shall be deemed to have
authorized Collateral Agent to file any and all termination statements required
by Collateral Agent in respect of such Liens. In furtherance of the foregoing,
each Subordinated Creditor hereby irrevocably appoints Collateral Agent its
attorney-in-fact, with full authority in the place and stead of such
Subordinated Creditor and in the name of such Subordinated Creditor or
otherwise, to execute and deliver any document or instrument which such
Subordinated Creditor may be required to deliver pursuant to this subsection
2.7(c).
3. Continued Effectiveness of
this Agreement; Modifications to Senior Indebtedness.
(a) The terms
of this Agreement, the subordination effected hereby, and the rights and the
obligations of Subordinated Creditors, Collateral Agent and Buyers arising
hereunder, shall not be affected, modified or impaired in any manner or to any
extent by: (i) any amendment or modification of or supplement to the Purchase
Agreement, any other Loan Document or any Permitted Refinancing Loan Document or
any Subordinated Indebtedness Document; (ii) the validity or enforceability of
any of such documents; or (iii) any exercise or non-exercise of any right, power
or remedy under or in respect of the Senior Indebtedness or the Subordinated
Indebtedness or any of the instruments or documents referred to in clause (i)
above.
(b) Collateral
Agent and Buyers may at any time and from time to time in their sole discretion,
renew, amend, refinance, extend or otherwise modify the terms and provisions of
Senior Indebtedness (including, without limitation, the terms and provisions
relating to the principal amount outstanding thereunder, the rate of interest
thereof, the payment terms thereof and the provisions thereof regarding default
or any other matter) or exercise (or refrain from exercising) any of their
rights under the Loan Documents, all without notice to or consent from the
Subordinated Creditors and without incurring liability to any Subordinated
Creditor and without impairing or releasing the obligations of any Subordinated
Creditor under this Agreement. No compromise, alteration, amendment, renewal,
restatement, refinancing or other change of, or waiver, consent or other action
in respect of any liability or obligation under or in respect of, any terms,
covenants or conditions of Senior Indebtedness or the Loan Documents, whether or
not in accordance with the provisions of the Senior Indebtedness, shall in any
way alter or affect any of the subordination provisions hereof.
4. Representations and
Warranties.
(a) Each
Subordinated Creditor hereby represents and warrants (as to itself and not as to
any other Subordinated Creditor) to Collateral Agent and Buyers as
follows:
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4.1 Existence and
Power. Such
Subordinated Creditor is duly organized or formed, validly existing and in good
standing under the laws of the state of its organization.
4.2 Authority. Such
Subordinated Creditor has full power and authority to enter into, execute,
deliver and carry out the terms of this Agreement and to incur the obligations
provided for herein, all of which have been duly authorized by all proper and
necessary action and are not prohibited by the organizational documents of such
Subordinated Creditor.
4.3 Binding
Agreements. This
Agreement, when executed and delivered, will constitute the valid and legally
binding obligation of such Subordinated Creditor enforceable in accordance with
its terms.
4.4 Conflicting Agreements;
Litigation. No
provisions of any mortgage, indenture, contract, agreement, statute, rule,
regulation, judgment, decree or order binding on such Subordinated Creditor or
affecting the property of such Subordinated Creditor conflicts with, or requires
any consent which has not already been obtained under, or would in any way
prevent the execution, delivery or performance of the terms of, this Agreement.
The execution, delivery and carrying out of the terms of this Agreement will not
constitute a default under, or result in the creation or imposition of, or
obligation to create, any Lien upon the property of such Subordinated Creditor
pursuant to the terms of any such mortgage, indenture, contract or agreement. No
pending or, to the best of such Subordinated Creditor’s knowledge, threatened,
litigation, arbitration or other proceedings if adversely determined would in
any way prevent the performance of the terms of this Agreement.
4.5 No
Divestiture. On the
date hereof, each Subordinated Creditor which is signatory hereto is the current
owner and holder of its Subordinated Note and all other Subordinated
Indebtedness Documents.
4.6 Default under Subordinated
Indebtedness Documents.
(a) On the
date hereof, no default exists under or with respect to the Subordinated Note or
any of the other Subordinated Indebtedness Documents.
(b) Each
Obligor hereby represents and warrants to Collateral Agent and Buyers that the
signatories to this Agreement under the heading “Subordinated Creditors”
constitute all of the holders of the Subordinated Note and the other
Subordinated Indebtedness.
5. Cumulative Rights, No
Waivers. Each
and every right, remedy and power granted to Collateral Agent or Buyers
hereunder shall be cumulative and in addition to any other right, remedy or
power specifically granted herein, in the Purchase Agreement, the other Loan
Documents or Permitted Refinancing Loan Documents or now or hereafter existing
in equity, at law, by virtue of statute or otherwise, and may be exercised by
Collateral Agent or Buyers, from time to time, concurrently or independently and
as often and in such order as Collateral Agent or Buyers may deem expedient. Any
failure or delay on the part of Collateral Agent or Buyers in exercising any
such right, remedy or power, or abandonment or discontinuance of steps to
enforce the same, shall not operate as a waiver thereof or affect Collateral
Agent’s or Buyers’ right thereafter to exercise the same, and any single or
partial exercise of any such right, remedy or power shall not preclude any other
or further exercise thereof or the exercise of any other right, remedy or power,
and no such failure, delay, abandonment or single or partial exercise of
Collateral Agent’s or Buyers’ rights hereunder shall be deemed to establish a
custom or course of dealing or performance among the parties
hereto.
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6. Modification. Any
modification or waiver of any provision of this Agreement, or any consent to any
departure by Collateral Agent or any Subordinated Creditor therefrom, shall not
be effective in any event unless the same is in writing and signed by Collateral
Agent and the holders of at least 66 2/3% of the then outstanding principal
balance of the Subordinated Notes, and then such modification, waiver or consent
shall be effective only in the specific instance and for the specific instance
and for the specific purpose given; provided, that, any such modification,
waiver or consent shall be effective with respect to all of the Subordinated
Notes. Any notice to or demand on any Subordinated Creditor in any event not
specifically required of Collateral Agent hereunder shall not entitle any
Subordinated Creditor to any other or further notice or demand in the same,
similar or other circumstances unless specifically required
hereunder.
7. Additional Documents and
Actions. Each
Subordinated Creditor at any time, and from time to time, after the execution
and delivery of this Agreement, upon the request of Collateral Agent and at the
expense of Company, promptly will execute and deliver such further documents and
do such further acts and things as Collateral Agent may request in order to
effect fully the purposes of this Agreement.
8. Notices. Any
notices, consents, waivers or other communications required or permitted to be
given under the terms of this Agreement must be in writing and will be deemed to
have been delivered: (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one (1) Business Day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
|
If
to Subordinated
Creditors:
|
The
Longview Fund, L.P.
c/o
Viking Asset Management, LLC
000
Xxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Attention:
S. Xxxxxxx Xxxxxxx
Telecopy:
(000) 000-0000
|
10
|
and:
with
a copy to:
|
Longview
Marquis Master Fund, L.P.
c/o
Viking Asset Management, LLC
000
Xxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Attention:
Xxxxx X. Benz
Telecopy:
(000) 000-0000
Summerline
Asset Management, LLC
00
Xxxx Xxx Xxx Xxxx, 0xx Xxxxx
Xxxxx
Xxxxxx, Xxx Xxxx 00000
Attention:
Xxxxxx X. Xxxxxxxx
Telecopy:
(000) 000-0000
|
|
If
to any Obligor:
|
000
X. Xxx Xxxxxxx Xxxx. X., Xxxxx 000
Xxxxxxx,
Xxxxx 00000
Attention:
X.X. Xxxxxxxxxx
Telecopy:
000-000-0000
|
|
with
a copy to:
|
Xxxxx
Xxxxxx LLP
0000
Xxxxxxxxx Xxxxxxx, Xxxxx 0000
Xxxxxxx,
Xxxxx 00000
Attention:
Xxxxxxx Xxxxxxx, Esq.
Facsimile:
713-402-3901
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If
to Collateral Agent:
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Summerline
Asset Management, LLC
00
Xxxx Xxx Xxx Xxxx, 0xx Xxxxx
Xxxxx
Xxxxxx, Xxx Xxxx 00000
Attention:
Xxxxxx X. Xxxxxxxx
Telecopy:
(000) 000-0000
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with
a copy to:
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Xxxxxx
Xxxxxx Rosenman LLP
000
Xxxx Xxxxxx Xxxxxx
Xxxxxxx,
Xxxxxxxx 00000-0000
Attn:
Xxxx Xxxx, Esq.
Telecopy:
(000) 000-0000
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or, in
the case of party named above, at such other address and/or facsimile number
and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender’s facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally recognized overnight
delivery service shall be rebuttable evidence of personal service, receipt by
facsimile or deposit with a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
11
9. Severability. In the
event that any provision of this Agreement is deemed to be invalid by reason of
the operation of any law or by reason of the interpretation placed thereon by
any court or governmental authority, this Agreement shall be construed as not
containing such provision and the invalidity of such provision shall not affect
the validity of any other provisions hereof, and any and all other provisions
hereof which otherwise are lawful and valid shall remain in full force and
effect.
10. Successors and
Assigns. This
Agreement shall inure to the benefit of the successors and assigns of Collateral
Agent and Buyers and shall be binding upon the successors and assigns of
Subordinated Creditors and Obligors.
11. Counterparts. This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to each other party;
provided that a facsimile 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.
12. Defines Rights of Creditors;
Subrogation.
(a) The
provisions of this Agreement are solely for the purpose of defining the relative
rights of Subordinated Creditors, Collateral Agent and Buyers and shall not be
deemed to (i) create any rights or priorities in favor of any other Person,
including, without limitation, any Obligor, or (ii) amend any of the Loan
Documents or in any way waive any of the rights that the Collateral Agent and
the Buyers have against any Obligor under the Loan Documents.
(b) Subject
to the Payment in Full of the Senior Indebtedness, in the event and to the
extent cash, property or securities otherwise payable or deliverable to the
holders of the Subordinated Indebtedness shall have been applied pursuant to
this Agreement to the payment of Senior Indebtedness, then and in each such
event, the holders of the Subordinated Indebtedness shall be subrogated to the
rights of each holder of Senior Indebtedness to receive any further payment or
distribution in respect of or applicable to the Senior Indebtedness; and, for
the purposes of such subrogation, no payment or distribution to the holders of
Senior Indebtedness of any cash, property or securities to which any holder of
Subordinated Indebtedness would be entitled except for the provisions of this
Agreement shall, and no payment over pursuant to the provisions of this
Agreement to the holders of Senior Indebtedness by the holders of the
Subordinated Indebtedness shall, as between any Obligor, its creditors other
than the holders of Senior Indebtedness and the holders of Subordinated
Indebtedness, be deemed to be a payment by such Obligor to or on account of
Senior Indebtedness.
13. Conflict. In the
event of any conflict between any term, covenant or condition of this Agreement
and any term, covenant or condition of any of the Subordinated Indebtedness
Documents, the provisions of this Agreement shall control and govern. For
purposes of this Section 13, to the extent that any provisions of any of the
Subordinated Indebtedness Documents provide rights, remedies and benefits to
Collateral Agent or Buyers that exceed the rights, remedies and benefits
provided to Collateral Agent or Buyers under this Agreement, such provisions of
the applicable Subordinated Indebtedness Documents shall be deemed to supplement
(and not to conflict with) the provisions hereof.
12
14. Statement of Indebtedness to
Subordinated Creditors. Company
will furnish to Collateral Agent upon demand, a statement of the indebtedness
owing from Obligors to Subordinated Creditors, and will give Collateral Agent
access to the books of Obligors in accordance with the Purchase Agreement so
that Collateral Agent can make a full examination of the status of such
indebtedness.
15. Headings. The
paragraph headings used in this Agreement are for convenience only and shall not
affect the interpretation of any of the provisions hereof.
16. Termination. This
Agreement shall terminate upon the Payment in Full of the Senior
Indebtedness.
17. Subordinated Default
Notice.
Subordinated Creditors and Company each shall provide Collateral Agent with a
Subordinated Default Notice upon the occurrence of each Subordinated Default,
and Subordinated Creditors shall notify Collateral Agent in the event such
Subordinated Default is cured or waived.
18. No Contest of Senior
Indebtedness or Liens; No Security for Subordinated
Indebtedness. Each
Subordinated Creditor agrees that it will not, and will not encourage any other
Person to, at any time, contest the validity, perfection, priority or
enforceability of the Senior Indebtedness or Liens in the Collateral granted to
Collateral Agent pursuant to the Purchase Agreement, the other Loan Documents or
the Permitted Refinancing Loan Documents or accept or take any collateral
security for the Subordinated Indebtedness. In furtherance of the foregoing, on
the date hereof, each Subordinated Creditor hereby represents and warrants that
it has not taken or received a security interest in, or lien upon, any asset of
any Obligor, whether in respect of the Subordinated Indebtedness or
otherwise.
19. Governing Law, Jurisdiction
Waiver of 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 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.
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.
13
20. Waiver of
Consolidation. Each
Subordinated Creditor acknowledges and agrees that (i) Obligors are each
separate and distinct entities; and (ii) it will not at any time insist upon,
plead or seek advantage of any substantive consolidation, piercing the corporate
veil or any other order or judgment that causes an effective combination of the
assets and liabilities of Obligors in any case or proceeding under Title 11 of
the United States Code or other similar proceeding.
21. Waiver. Each of
Existing Collateral Agent (as defined below), Collateral Agent, Marquis and
Longview acknowledges and agrees that (i) Xxxxxx Xxxxxx Xxxxxxxx LLP
(“Katten”)
regularly represents each of Existing Collateral Agent, Collateral Agent,
Marquis and Longview on various matters, including matters similar to those
contemplated by this Agreement, and represented (a) Viking Asset Management,
LLC, a California limited liability company (“Existing Collateral
Agent”), and
Longview in connection with Longview’s acquisition of certain notes previously
issued by certain Obligors (the “Existing
Indebtedness”), which
notes have been converted into the Longview Subordinated Note pursuant to the
Securities Exchange Agreement, and (b) Collateral Agent and Marquis in
connection with the Loan Documents, (ii) Marquis has requested that Katten
draft, and Katten has drafted, the Marquis Subordinated Note based on terms
provided to Katten by Marquis, (iii) the interests of each of Existing
Collateral Agent, Collateral Agent, Marquis and Longview differ, and may be
adverse to, those of the other with respect to this Agreement, the Loan
Documents and the Subordinated Indebtedness Documents, and the interests of any
of the parties hereto may otherwise be adverse to the interests of other parties
hereto, (iv) Existing Collateral Agent and Longview have retained separate
counsel to represent such Person in connection with negotiating this Agreement
and the Longview Subordinated Note, and the terms and provisions hereof and
thereof, (v) Katten has represented Marquis and the Collateral Agent in
connection with any negotiation between or among the parties hereto with respect
to this Agreement, the Loan Documents and the Marquis Subordinated Note, but, in
the event of any dispute arising between or among Existing Collateral Agent,
Collateral Agent, Marquis, or Longview in connection with, or relating to, this
Agreement, the Loan Documents, or the Subordinated Indebtedness Documents,
Katten will be unable to represent any of Existing Collateral Agent, Collateral
Agent, Marquis, or Longview, and (vi) each of Existing Collateral Agent,
Collateral Agent, Marquis and Longview consents to Katten’s representation of
Marquis and Collateral Agent as described above, notwithstanding the existence
of any potential or actual conflicts of interest between or among Existing
Collateral Agent, Collateral Agent, Marquis and Longview.
[remainder
of page intentionally left blank]
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IN WITNESS WHEREOF, each
Subordinated Creditor, each Obligor, Collateral Agent and Buyers has caused this
Agreement to be executed as of the date first above written.
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SUBORDINATED
CREDITORS:
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LONGVIEW MARQUIS MASTER FUND,
L.P., a
British Virgin Island limited partnership, as a Subordinated
Creditor
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By:
Viking Asset Management, LLC
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Its:
Investment Adviser
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By:
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/s/
Xxxxx X. Benz
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Name:
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Xxxxx
X. Benz
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Title:
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Chairman
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THE LONGVIEW FUND, L.P.,
a
California limited partnership, as a Subordinated
Creditor
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By:
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Viking
Asset Management, LLC
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Its:
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Investment
Advisor
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By:
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/s/
S. Xxxxxxx Xxxxxxx
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Name:
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S.
Xxxxxxx Xxxxxxx
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Title:
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Chief
Financial Officer
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SOLELY FOR THE PURPOSE
OF SECTION 21 HEREOF
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VIKING ASSET MANAGEMENT, LLC, a
California limited liability company
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By:
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/s/
S. Xxxxxxx Xxxxxxx
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Name:
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S.
Xxxxxxx Xxxxxxx
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Title:
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Chief
Financial Officer
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OBLIGORS:
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SONTERRA RESOURCES, INC.,
a
Delaware corporation
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By:
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/s/
X. X. Xxxxxxxxxx
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Name:
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X.X.
Xxxxxxxxxx
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Title:
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President
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NORTH TEXAS DRILLING SERVICES,
INC., a Texas corporation
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By:
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/s/
X. X. Xxxxxxxxxx
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Name:
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X.
X. Xxxxxxxxxx
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Title:
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President
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SONTERRA OPERATING, INC.,
a
Delaware corporation
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By:
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/s/ X. X. Xxxxxxxxxx |
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Name:
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X.
X. Xxxxxxxxxx
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Title:
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President
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VELOCITY ENERGY LIMITED LLC,
a
Texas limited liability company
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By:
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/s/
X. X. Xxxxxxxxxx
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Name:
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X.
X. Xxxxxxxxxx
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Title:
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President
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VELOCITY ENERGY INC.,
a
Delaware corporation
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By:
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/s/
X. X. Xxxxxxxxxx
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Name:
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X.
X. Xxxxxxxxxx
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Title:
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President
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VELOCITY ENERGY OFFSHORE LP,
a
Delaware limited partnership
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By:
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Velocity
Energy Limited LLC, its general partner
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By:
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/s/
X. X. Xxxxxxxxxx
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Name:
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X.
X. Xxxxxxxxxx
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Title:
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President
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VELOCITY ENERGY PARTNERS LP,
a
Delaware limited partnership
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By:
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Velocity
Energy Limited LLC, its general partner
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By:
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/s/
X. X. Xxxxxxxxxx
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Name:
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X.
X. Xxxxxxxxxx
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Title:
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President
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SUMMERLINE ASSET MANAGEMENT,
LLC, in
its capacity as collateral agent for Buyers
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By:
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/s/
Xxxxxx X. Xxxxxxxx
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Name:
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Xxxxxx
X. Xxxxxxxx
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Title:
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Co-Managing
Member
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BUYERS:
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LONGVIEW MARQUIS MASTER FUND,
L.P., a
British Virgin Island limited partnership, as a Buyer
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By:
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Viking
Asset Management, LLC
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Its:
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Investment
Adviser
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By:
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/s/
Xxxxx X. Benz
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| Name: | Xxxxx X. Benz |
| Title: | Chairman |
