Unassociated Document


    


    EXECUTION COPY

    


    PLEDGE AGREEMENT

    


    THIS PLEDGE
AGREEMENT made as
of this 13th day of November, 2008 (this “Agreement”),
between VELOCITY ENERGY LIMITED
LLC, a
Delaware limited liability company (“Pledgor”), and
SUMMERLINE ASSET MANAGEMENT,
LLC, a
Delaware limited liability company, in its capacity as collateral agent for the
Buyers identified below (in such capacity, together with its successors and
assigns, the “Pledgee”).


    


    WHEREAS:

    


    A. Sonterra
Resources, Inc., a Delaware corporation (the “Company”), has
executed and delivered to each of the Buyers those certain senior secured notes
each made by the Company and dated as of the date hereof in an original
aggregate principal amount of $8,875,000 (such
notes, together with any promissory notes or other securities issued in exchange
or substitution therefor or replacement thereof, and as any of the same may be
amended, supplemented, restated or modified and in effect from time to time, the
“Notes”). The
Notes were issued pursuant to a certain Securities Purchase Agreement dated as
of November 13, 2008 (as the same may be amended, restated, supplemented or
otherwise modified, the “Purchase Agreement”), among
the Company and the entities listed on the Schedule of Buyers thereto (together
with their respective successors and assigns, the “Buyers”).

    


    B. The
Pledgor legally and beneficially owns all of the general partnership interests
in Velocity Energy Offshore LP, a Delaware limited partnership (“Offshore”) and
Velocity Energy Partners LP, a Delaware limited partnership (“Onshore”;
Offshore, Onshore and each other corporation or other entity, the stock or other
equity interests and securities of which are owned or acquired by Pledgor and
described on an addendum hereto from time to time executed by Pledgor in form
and substance satisfactory to Pledgee, is referred to herein as a “Pledge Entity” and
collectively as the “Pledge Entities”;
provided that the parties hereto agree that, as of the date hereof, Offshore and
Onshore are the only Pledged Entities).

     

    C. Pursuant
to a Security Agreement of even date herewith by and among Pledgor, the other
entities party thereto as “Debtors” and Pledgee (as the same may be amended,
restated, modified or supplement and in effect from time to time, the
“Security Agreement”),
Pledgor has granted 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
Pledgor’s Collateral (as defined in the Security Agreement).

     

    D. Pursuant
to a Guaranty of even date herewith by and among Pledgor, the other entities
party thereto as “Guarantors” and Pledgee, Pledgor has guaranteed, for the
benefit of Pledgee and the Buyers, the repayment and performance of all of the
Company’s Liabilities (as defined in the Security Agreement); and

     

    E. To induce
the Buyers to enter into the Purchase Agreement, purchase the Notes and make the
financial accommodations available to the Company under the Purchase Agreement,
and in order to secure the payment and performance by Pledgor of the
Liabilities, Pledgor has agreed to pledge to Pledgee all of the capital stock
and other equity interests and securities of the Pledge Entities now or
hereafter owned or acquired by Pledgor to secure the Liabilities.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    NOW, THEREFORE, in
consideration of the premises and in order to induce the Buyers to purchase the
Notes under the Purchase Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
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) Subject
to the term of this Agreement, Pledgor hereby pledges, assigns, hypothecates,
delivers and grants to Pledgee, for the benefit of itself and the Buyers, a
first lien on and first priority perfected security interest in (i) all of the
Capital Stock or other equity interests of the Pledge Entities now owned or
hereafter acquired by Pledgor (collectively, the “Pledged Shares”), (ii)
any other shares of Capital Stock hereafter pledged or referred to be pledged to
the Pledgee pursuant to this Agreement; (ii) all “investment property” as such
term is defined in §9-102(a)(49) of the UCC (as defined below) with respect
thereto; (iv) any “security entitlement” as such term is defined in §
8-102(a)(17) of the UCC with respect thereto; (v) all books and records relating
to the foregoing; and (vi) all Accessions and Proceeds (as each is defined in
the UCC) of the foregoing, including, without limitation, all distributions
(cash, stock, or otherwise), dividends, stock dividends, securities, cash,
instruments, rights to subscribe, purchase, or sell, and other property, rights,
and interest that such Pledgor is at any time entitled to receive or is
otherwise distributed in respect of, or in exchange for, any or all of the
Pledged Collateral (as defined below), and without affecting the obligations of
Pledgor under any provision of the Security Agreement, in the event of any
consolidation or merger in which Pledgor is not the surviving corporation, all
shares of each class or Capital Stock of the successor entity formed by or
resulting from such consolidation or merger (the collateral described in
clauses
(i) through
(vi) 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
Liabilities. All of the Pledged Shares now owned by Pledgor which are presently
represented by certificates are listed on Exhibit A hereto,
which certificates, with undated assignments separate from certificates or stock
powers duly executed in blank by 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.

     

    
      
        
        

      

      
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    (b) Pledgor
shall cause each Pledged Share consisting of either (i) a membership interest in
a Person that is a limited liability company or (ii) a partnership interest in a
Person that is a partnership (if any) to be “securities” governed by Article 8
of the UCC at all times. Pledgor shall cause the applicable Persons to issue
certificates evidencing such membership interests or partnership interests (if
any) to Pledgor. Pledgor shall not cause and shall not permit any Pledged Entity
which is not a corporation to “opt-out” of Article 8 of the UCC. 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 Pledgor. Pledgor
represents and warrants to Pledgee, and covenants with Pledgee, that for so long
as the Liabilities remain outstanding (other than indemnity obligations for
which no claim is asserted):

     

    (a) Exhibit A sets
forth (i) the authorized capital stock or other equity interests of each Pledge
Entity, (ii) the number of shares of capital stock or other equity interests of
each Pledge 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
other equity interests of each Pledge Entity held by Pledgor. Pledgor is the
legal and beneficial owner of, and has good and marketable title to, the Pledged
Shares, and such shares are and will remain free and clear of all pledges,
liens, security interests and other encumbrances and restrictions whatsoever,
except the liens and security interests in favor of Pledgee created by this
Agreement;

     

    (b) Except as
set forth on Exhibit A, there
are no outstanding options, warrants or other similar 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 Pledgor, enforceable
against Pledgor in accordance with its terms except 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, 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 or other equity
interests of the Pledge Entities;

     

    (e) no
consent, approval or authorization of or designation or filing with any
governmental or regulatory authority on the part of Pledgor is required in
connection with the pledge and security interest granted under this
Agreement;

     

    
      
        
        

      

      
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    (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, which are
applicable to Pledgor, or of the articles or certificate of incorporation,
certificate of formation, bylaws or any other similar organizational documents
of Pledgor or any Pledge Entity or of any securities issued by Pledgor or any
Pledge Entity or of any mortgage, indenture, lease, contract, or other
agreement, instrument or undertaking to which Pledgor or any Pledge Entity is a
party or which is binding upon Pledgor or any Pledge Entity or upon any of the
assets of Pledgor or any Pledge 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 Pledgor or any Pledge Entity, except as otherwise contemplated by
this Agreement;

     

    (g) assuming
the Pledgee retains control of and holds all certificates and executed stock
powers for the Pledged Shares and the Pledged Collateral, the pledge, assignment
and delivery of the Pledged Shares and the other Pledged Collateral pursuant to
this Agreement creates a valid first lien on and perfected first priority
security interest in such Pledged Shares and Pledged Collateral and the proceeds
thereof in favor of Pledgee, subject to no prior pledge, lien, mortgage,
hypothecation, security interest, charge, option or encumbrance or to any
agreement purporting to grant to any third party a security interest in the
property or assets of Pledgor which would include the Pledged Shares or any
other Pledged Collateral. Until this Agreement is terminated pursuant to Section
11 hereof, Pledgor covenants and agrees that it will defend, for the benefit of
Pledgee, Pledgee’s right, title and security interest in and to the 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.

     

    
      
        
        

      

      
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    4. Dividends, Distributions,
Etc. If, prior
to irrevocable repayment in full in cash of the Liabilities, Pledgor shall
receive any certificate (including, without limitation, any certificate
representing a dividend or a 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, 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 Business Days) to Pledgee in the
exact form received, with the endorsement of 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 Pledged Collateral. Pledgor shall promptly deliver to Pledgee (i) a
Pledge Addendum with respect to such additional certificates, and (ii) any
financing statements or amendments to financing statements as requested by
Pledgee in writing. 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;
Certificates.

     

    (a) So long
as no Event of Default (as defined in the Notes) has occurred and is continuing,
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 Pledged
Shares and otherwise exercise the incidents of ownership thereof in any manner
not inconsistent with this Agreement or the Purchase Agreement and the other
Transaction Documents. 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. Upon the
request of Pledgee at any time, 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
Notes. Upon the occurrence and during the continuance of an Event of Default, in
the event that Pledgor, as record and beneficial owner of the Pledged Shares,
shall have received or shall have become entitled to receive, any cash dividends
or other distributions in the ordinary course, Pledgor shall deliver to Pledgee,
and Pledgee shall be entitled to receive and retain, for the benefit of Pledgee
and the Buyers, all such cash or other distributions as additional security for
the Liabilities.

     

    (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 the
indefeasible full payment in cash, satisfaction and termination of all of the
Liabilities and the termination of this Agreement pursuant to Section
11 hereof
and 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 Pledgor or to such other persons or entities as shall be legally entitled
thereto.

     

    
      
        
        

      

      
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    (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 Liabilities 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 Pledge 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 Pledge Entity or upon the exercise by any Pledge Entity, Pledgor
or Pledgee of any right, privilege or option pertaining to any of the Pledged
Shares, and in connection therewith, to deposit and deliver any and all of the
Pledged Shares with any committee, depository, transfer agent, registrar or
other designated agency upon such terms and conditions as Pledgee may reasonably
determine, all without liability except to account for property actually
received by Pledgee, but Pledgee shall have no duty to exercise any of the
aforesaid rights, privileges or options and shall not be responsible for any
failure to do so or delay in so doing.

     

    7. Remedies. Upon the
occurrence and during the continuance of an Event of Default, Pledgee may
exercise in respect of the Pledged Collateral, in addition to other rights and
remedies provided for herein or otherwise available to it, all the rights and
remedies of a secured party under the Uniform Commercial Code (“UCC”) of the
jurisdiction applicable to the affected Pledged Collateral from time to time.
Without limiting the foregoing, Pledgee may, 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 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
certificates 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 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, to the payment, in
whole or in part, of the Liabilities, in such order as Pledgee may elect.
Pledgor 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, need Pledgee account for the
surplus, if any, to Pledgor. Pledgor agrees that Pledgee need not 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
need be given to Pledgor if it has signed after default a statement renouncing
or modifying any right to notification of sale or other intended disposition.


     

    
      
        
        

      

      
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    8. No Disposition,
Etc. Until the
irrevocable payment in full in cash of the Liabilities, 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 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 any other Pledged
Collateral, or any interest therein, or any proceeds thereof, except for the
lien and security interest of Pledgee provided for by this Agreement and the
Security Agreement and Permitted Liens, as defined in the Purchase
Agreement.

     

    9. Sale of Pledged
Shares.

     

    (a) 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
Pledge Entity) of any or all the Pledged Shares by reason of certain
prohibitions contained in the Securities Act of 1933, as amended (the
“1933 Act”), and
applicable state securities laws, but may be compelled to resort to one or more
private sales or dispositions thereof to a restricted group of purchasers who
will be obliged to agree, among other things, to acquire such securities for
their own account, for investment and not with a view to the distribution or
resale thereof. 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 affected 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 Pledgor or a Pledge
Entity to register such securities for public sale under the 1933 Act, or under
applicable state securities laws, even if Pledgor or a Pledge Entity would agree
to do so.

     

    
      
        
        

      

      
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    (b) Pledgor
further agrees to do or cause to be done all such other acts and things as may
be reasonably 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 Pledgor's
expense; provided that Pledgor shall not have any 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). 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 Pledgor contained in this Agreement, that each and every covenant
referenced above shall be specifically enforceable against Pledgor, and Pledgor
hereby waives and agrees not to assert any defenses against an action for
specific performance of such covenants.

     

    (c) 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 by Pledgor in connection with the offer, sale
or resale of all or any portion of the Pledged Collateral unless such untrue
statement of material fact was provided by Pledgee, in writing, specifically for
inclusion therein, or (ii) arises out of or is based upon any omission or
alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading, such indemnification to
remain operative regardless of any investigation made by or on behalf of Pledgee
or any successor thereof, or any person or entity in control of any thereof. In
connection with a public sale or other distribution, Pledgor will provide
customary indemnification to any underwriters, their successors and assigns,
officers and directors and each person or entity who controls any such
underwriter (within the meaning of the 1933 Act). If and to the extent that the
foregoing undertakings in this paragraph may be unenforceable for any reason,
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 Pledgor under this paragraph
(c) shall
survive any termination of this Agreement.

     

    (d) Pledgor
further agrees not to exercise any and all rights of subrogation it may have
against a Pledge Entity upon the sale or disposition of all or any portion of
the Pledged Collateral by Pledgee pursuant to the terms of this Agreement until
the termination of this Agreement in accordance with Section
11
below.

     

    
      
        
        

      

      
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    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 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 shall return any Pledged Shares or other Pledged Collateral then
held by Pledgee in accordance with the provisions of this Agreement to Pledgor
upon the termination of the Notes and the full and complete performance and
indefeasible satisfaction of all of the Liabilities (i) in respect of the Notes
(including, without limitation, the indefeasible payment in full in cash of all
such Liabilities) and (ii) with respect to which claims have been asserted by
Pledgee and/or Buyers.

     

    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 Pledgor. Pledgor assumes the responsibility for being and keeping itself
informed of the financial condition of a Pledge Entity and of all other
circumstances bearing upon the risk of non-payment of the Liabilities, and
Pledgee shall have no duty to advise 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 Pledge Entity or its officers, directors, managers,
members, partners or agents thereof acting or purporting to act on its behalf.


     

    13. Taxes and
Expenses. 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 Governmental Authority (as defined in
the Security Agreement) 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, modification or amendment 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
Pledgor to perform or observe any of the provisions hereof.

     

    
      
        
        

      

      
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    14. Pledgee Appointed
Attorney-In-Fact. Pledgor
hereby irrevocably appoints Pledgee as Pledgor’s attorney-in-fact, with full
authority in the place and stead of Pledgor and in the name of 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 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 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.
Notwithstanding the foregoing, the Pledgee may enforce its rights and remedies
in any other jurisdiction applicable to the Pledged Collateral. EACH PARTY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A
JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.

     

    16. Counterparts. This
Agreement may be executed in two or more identical counterparts, all of which
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party; provided 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 signature.

     

    17. Headings. The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.

     

    
      
        
        

      

      
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    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, TOGETHER WITH THE
OTHER TRANSACTION DOCUMENTS, SUPERSEDES ALL OTHER PRIOR ORAL OR WRITTEN
AGREEMENTS BETWEEN PLEDGOR, PLEDGEE, THEIR AFFILIATES AND PERSONS ACTING ON
THEIR BEHALF WITH RESPECT TO THE MATTERS DISCUSSED HEREIN, AND THIS AGREEMENT,
TOGETHER WITH THE OTHER TRANSACTION DOCUMENTS AND THE OTHER INSTRUMENTS
REFERENCED HEREIN AND THEREIN, CONTAIN THE ENTIRE UNDERSTANDING OF THE PARTIES
WITH RESPECT TO THE MATTERS COVERED HEREIN AND THEREIN AND, EXCEPT AS
SPECIFICALLY SET FORTH HEREIN OR THEREIN, NEITHER THE PLEDGEE NOR THE PLEDGOR
MAKES ANY REPRESENTATION, WARRANTY, COVENANT OR UNDERTAKING WITH RESPECT TO SUCH
MATTERS. AS OF THE DATE OF THIS AGREEMENT, THERE ARE NO UNWRITTEN AGREEMENT
BETWEEN THE PARTIES WITH RESPECT TO THE MATTERS DISCUSSED HEREIN. EXCEPT AS SET
FORTH IN SECTION 2(A) HEREOF, NO PROVISION OF THIS AGREEMENT MAY BE AMENDED,
MODIFIED OR SUPPLEMENTED OTHER THAN BY AN INSTRUMENT IN WRITING SIGNED BY THE
PLEDGOR AND PLEDGEE.

     

    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, in the case of
communications to the Collateral Agent, directed to the notice address set forth
in the Security Agreement.

     

    21. Successors and
Assigns. This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns, including any purchasers of the Notes.
Pledgor shall not 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 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
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 Pledgor and Pledgee
shall survive the execution and delivery of this Agreement.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    


    24. Further
Assurances. Pledgor
agrees that at any time and from time to time upon the written request of
Pledgee, Pledgor will execute and deliver all assignments separate from
certificates or 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 accomplish the
purpose of this Agreement and the consummation of the transactions contemplated
hereby.

     

    25. No Strict
Construction. The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction will
be applied against any party.

     

    26. Pledgee
Authorized. 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 Pledgor.

     

    27. Pledgee
Acknowledgement. Pledgor
acknowledges receipt of an executed copy of this Agreement. The Pledgor waives
the right to receive any amount that it may now or hereafter be entitled to
receive (whether by way of damages, fine, penalty, or otherwise) by reason of
the failure of the Pledgee to deliver to the Pledgor a copy of any financing
statement or any statement issued by any registry that confirms registration of
a financing statement relating to this Agreement.

     

    28. Collateral
Agent. The
terms and provisions of Section
5.11 of the
Security Agreement which set forth the appointment of the Pledgee as Collateral
Agent and the indemnifications to which the Collateral Agent is entitled are
hereby incorporated by reference herein as if fully set forth
herein.

     

    [Signature Page
Follows] 


    
      
        
        

      

      
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    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.

     

    
      	
              PLEDGOR:

            
	 
	
              VELOCITY ENERGY LIMITED LLC,
      a
      Texas limited liability company

            
	 
	
              By:
      

            	
              /s/
      D. E. Vandenberg

            
	
              Name:

            	
              D.
      E. Vandenberg

            
	
              Title:

            	
              President

            


    

     

    
      Pledge
Agreement (Velocity)

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              PLEDGEE:

            
	 
	
              SUMMERLINE ASSET MANAGEMENT,
      LLC, a
      Delaware limited liability company, in its capacity as collateral agent
      for the Buyers

            
	 	 
	
              By:

            	
              /s/
      Robert J. Brantman

            
	
              Name:

            	
              Robert
      J. Brantman

            
	
              Title:

            	
              Co-Managing
      Member

            


    

    

      Pledge
Agreement (Velocity)

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    ACKNOWLEDGEMENT

    


    Each of
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 or other
equity interests of the undersigned as provided in such Pledge Agreement.


    


    Dated:
November 13, 2008

    


    
      	
              VELOCITY ENERGY OFFSHORE LP,
      a
      Delaware limited partnership

            
	 	 
	
              By:
      Velocity Energy Limited LLC, its general partner

            
	 	 
	
              By:
      

            	
              /s/
      D. E. Vandenberg

            
	
              Name:

            	
              D.
      E. Vandenberg

            
	
              Title:

            	
              President

            
	 	 
	
              VELOCITY ENERGY PARTNERS
      LP, a Delaware limited partnership

            
	 	 
	
              By:
      

            	
              Velocity
      Energy Limited LLC, its general partner

            
	 	 
	
              By:
      

            	
              /s/
      D. E. Vandenberg

            
	
              Name:

            	
              D.
      E. Vandenberg

            
	
              Title:

            	
              President

            
	 	 
	
              VELOCITY ENERGY INC.,
      a
      Delaware corporation

            
	 	 
	
              By:
      

            	
              /s/
      D. E. Vandenberg

            
	
              Name:

            	
              D.
      E. Vandenberg

            
	
              Title:

            	
              President

            


    

    

      Pledge
Agreement (Velocity)

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
       
EXHIBIT
A

    to Pledge
Agreement

     

    DESCRIPTION OF CAPITAL STOCK
OR EQUITY INTERESTS OF PLEDGE ENTITIES

     

    
      	
              Name of

              Pledge Entity

            	 	
              Class of Stock
      

              or Other Equity
      

              Interests

            	 	
              Authorized
      

              No. of

              Shares or
      

              Units

            	 	
              Issued and
      

              Outstanding
      

              Shares or
      

              Units

            	 	
              Percentage of
      

              Shares or

              Interests


              
                Held
      by Pledgor

              

            	 
	 	 	 	 	 	 	 	 	 	 
	
              Velocity
      Energy Offshore LP

            	 	 	
              Partnership
      Interests

            	 	 	
              N/A

            	 	 	
              N/A

            	 	 	
              9.09

            	
              %

            
	
              Velocity
      Energy Partners LP

            	 	 	
              Partnership
      Interests

            	 	 	
              N/A

            	 	 	
              N/A

            	 	 	
              9.09

            	
              %

            


    

     

    DESCRIPTION OF PLEDGED
SHARES OR UNITS

    


    
      	
              Name of

              Pledge Entity

            	 	
              Class of Stock or Other
      

              Equity Interests

            	 	
              Stock or Unit
      

              Certificate No.

            	 	
              No. of Shares or
      

              Percentage of Partnership
      

              or Membership Interests

              Represented by

              Certificate

            	 
	
              Velocity
      Energy Offshore LP

            	 	 	
              Partnership
      Interests

            	 	 	
              2

            	 	 	
              9.09

            	
              %

            
	
              Velocity
      Energy Partners LP

            	 	 	
              Partnership
      Interests

            	 	 	
              2

            	 	 	
              9.09

            	
              %

            


    

     

    
      
        
        

      

      
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    EXHIBIT
B

    to Pledge
Agreement

    


    Addendum to Pledge
Agreement

    


    The
undersigned, being the Pledgor pursuant to that certain Pledge Agreement dated
as of November __, 2008 (as amended, restated, supplemented or otherwise
modified from time to time, the “Pledge Agreement”) in
favor of Summerline Asset Management, LLC, a Delaware 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 Pledged Entity

            	 	
              Class of Equity Interest

            	 	
              Certificate No.

            	 	
              No. of Shares

              Represented by

              Certificate

            	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 


    

     

    IN
WITNESS WHEREOF, Pledgor has executed this Addendum this _____ day of
______.

     

    
      	
              PLEDGOR:

            
	 
	
              VELOCITY ENERGY LIMITED LLC,
      a
      Texas limited liability company

            
	 	 
	
              By:

            	   
	
              Name:

            	
               
      

            
	
              Title:

            	
               
      

            


    

     

    
      
        
        

      

      
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