Document:

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.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    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.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    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.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    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, sue 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

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    (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.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    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.”

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    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.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    (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:

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    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.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    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

              600
      Montgomery Street, 44th Floor

              San
      Francisco, California 94111

              Attention:
      S. Michael Rudolph

              Telecopy:
      (415) 981-5301

               

            

    

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    
      	
              and:

               

               

               

               

               

               

              with
      a copy to:

            	
              Longview
      Marquis Master Fund, L.P.

              c/o
      Viking Asset Management, LLC

              600
      Montgomery Street, 44th Floor

              San
      Francisco, California 94111

              Attention:
      Peter T. Benz

              Telecopy:
      (415) 981-5301

               

              Summerline
      Asset Management, LLC 

              70
      West Red Oak Lane, 4th Floor

              White
      Plains, New York 10604

              Attention:
      Robert J. Brantman

              Telecopy:
      (914) 697-4767

               

            
	
              If
      to any Obligor:

            	
              c/o
      Sonterra Resources, Inc.

              523
      N. Sam Houston Pkwy. E., Suite 175

              Houston,
      Texas 77060

              Attention:
      D.E. Vandenberg

              Telecopy:
      281-741-0895

               

            
	
              with
      a copy to:

            	
              Duane
      Morris LLP

              3200
      Southwest Freeway, Suite 3150

              Houston,
      Texas 77027

              Attention:
      Charles Harrell, Esq.

              Facsimile:
      713-402-3901

               

            
	
              If
      to Collateral Agent:

            	
              Summerline
      Asset Management, LLC

              70
      West Red Oak Lane, 4th Floor

              White
      Plains, New York 10604

              Attention:
      Robert J. Brantman

              Telecopy:
      (914) 697-4767

               

            
	
              with
      a copy to:

            	
              Katten
      Muchin Rosenman LLP

              525
      West Monroe Street

              Chicago,
      Illinois 60661-3693

              Attn:
      Mark Wood, Esq.

              Telecopy:
      (312) 577-8858

            

    

     

    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) Katten Muchin Rosenman 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]

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      	
              SUBORDINATED
      CREDITORS:

            
	 
	
              LONGVIEW MARQUIS MASTER FUND,
      L.P., a
      British Virgin Island limited partnership, as a Subordinated
      Creditor

            
	 
	
              By:
      Viking Asset Management, LLC

            
	
              Its:
      Investment Adviser

            
	 
	
              By:
      

            	
              /s/
      Peter T. Benz

            
	
              Name:
      

            	
              Peter
      T. Benz

            
	
              Title:
      

            	
              Chairman

            
	 	 
	
              THE LONGVIEW FUND, L.P.,
      a
      California limited partnership, as a Subordinated
  Creditor

            
	 	 
	
              By:

            	
              Viking
      Asset Management, LLC

            
	
              Its:

            	
              Investment
      Advisor

            
	 	 
	
              By:
      

            	
              /s/
      S. Michael Rudolph

            
	
              Name:
      

            	
              S.
      Michael Rudolph

            
	
              Title:
      

            	
              Chief
      Financial Officer

            
	 	 
	
              SOLELY FOR THE PURPOSE
      OF SECTION 21 HEREOF

            
	 
	
              VIKING ASSET MANAGEMENT, LLC, a
      California limited liability company

            
	 	 
	
              By:
      

            	
              /s/
      S. Michael Rudolph

            
	
              Name:
      

            	
              S.
      Michael Rudolph

            
	
              Title:
      

            	
              Chief
      Financial Officer

            

    

     

    Subordination Agreement

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	
              OBLIGORS:

            
	 
	
              SONTERRA RESOURCES, INC.,
      a
      Delaware corporation

            
	 	 
	
              By:
      

            	
              /s/
      D. E. Vandenberg

            
	
              Name:
      

            	
              D.E.
      Vandenberg

            
	
              Title:
      

            	
              President

            
	 	 
	
              NORTH TEXAS DRILLING SERVICES,
      INC., a Texas corporation

            
	 
	
              By:
      

            	
              /s/
      D. E. Vandenberg

            
	
              Name:

            	
              D.
      E. Vandenberg

            
	
              Title:
      

            	
              President

            
	 	 
	
              SONTERRA OPERATING, INC.,
      a
      Delaware corporation

            
	 	 
	
              By:
      

            	/s/ D. E. Vandenberg 
	
              Name:

            	
              D.
      E. Vandenberg

            
	
              Title:
      

            	
              President

            
	 	 
	
              VELOCITY ENERGY LIMITED LLC,
      a
      Texas limited liability company

            
	 	 
	
              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

            
	 	 
	
              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

            

    

     

    Subordination Agreement

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	
              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

            

    

     

    Subordination Agreement

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      
        
          
            
              
                
                  
                    
                      	
                              COLLATERAL
      AGENT:

                            
	 	 
	
                              SUMMERLINE ASSET MANAGEMENT,
      LLC, in
      its capacity as collateral agent for Buyers

                            
	 	 
	
                              By:
      

                            	
                              /s/
      Robert J. Brantman

                            
	
                              Name:
      

                            	
                              Robert
      J. Brantman

                            
	
                              Title:

                            	
                              Co-Managing
      Member

                            
	 
	
                              BUYERS:

                            
	 
	
                              LONGVIEW MARQUIS MASTER FUND,
      L.P., a
      British Virgin Island limited partnership, as a Buyer

                            
	 	 
	
                              By:
      

                            	
                              Viking
      Asset Management, LLC

                            
	
                              Its:

                            	
                              Investment
      Adviser

                            
	 	 
	
                              By:
      

                            	
                              /s/
      Peter T. Benz

                            
	Name:	Peter
      T. Benz
	Title:	Chairman

                    

                  

                

              

            

          

        

      

    

    
       

      Subordination
AgreementEXECUTION COPY

    

    PLEDGE AGREEMENT

    

    THIS PLEDGE
AGREEMENT made as
of this 13th day of November, 2008 (this “Agreement”),
between SONTERRA RESOURCES,
INC., a
Delaware corporation (“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. The
Pledgor has executed and delivered to each of the Buyers those certain senior
secured notes each made by Pledgor 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 Pledgor 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 (i) one hundred percent (100%) of the
issued and outstanding shares of Capital Stock of North Texas Drilling Services,
Inc., a Texas corporation (“North Texas”),
Velocity Energy Limited LLC, a Texas limited liability company (“Limited”),
Velocity Energy Inc., a Delaware corporation (“Velocity”),
Sonterra Operating, Inc., a Delaware corporation (“Operating”) and
(ii) all of the limited partnership interests in Velocity Energy Offshore LP, a
Delaware limited partnership (“Offshore”) and
Velocity Energy Partners LP, a Delaware limited partnership (“Onshore”; North
Texas, Limited, Velocity, Operating, 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, North Texas,
Limited, Velocity, Operating, 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. To induce
the Buyers to enter into the Purchase Agreement, purchase the Notes and make the
financial accommodations available to the Pledgor under the Purchase Agreement,
and in order to secure the payment and performance by Pledgor of the Liabilities
(as defined in the Security Agreement), 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.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    (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;

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    (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.

     

    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.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    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.

     

    (d) Pledgor
shall cause all Pledged Shares to be certificated at all times while this
Agreement is in effect.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    (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.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    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.

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    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.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    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.

     

    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.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    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]

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    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:

                    
	 
	
                      SONTERRA RESOURCES, INC.,
      a
      Delaware corporation

                    
	 	 
	
                      By:

                    	
                      /s/
      D. E. Vandenberg

                    
	
                      Name:
      

                    	
                      D.
      E. Vandenberg

                    
	
                      Title:
      

                    	
                      President

                    

            

          

        

      

    

    

    Pledge
Agreement
(Borrower)

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        
          	
                  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
(Borrower)

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    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

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                  
                                                    
                                                      
                                                        
                                                          
                                                            
                                                              
                                                                
                                                                  
                                                                    
                                                                      
                                                                        
                                                                          	
                                                                                  NORTH TEXAS DRILLING SERVICES,
      INC., a
      Texas corporation

                                                                                
	 	 
	
                                                                                  By:
      

                                                                                	
                                                                                  /s/
      D. E. Vandenberg

                                                                                
	Name:	D.
      E. Vandenberg
	Title:	Director
	 	 
	
                                                                                  SONTERRA OPERATING, INC.,
      a
      Delaware corporation

                                                                                
	 	 
	
                                                                                  By:
      

                                                                                	
                                                                                  /s/
      D. E. Vandenberg

                                                                                
	Name:	D.
      E. Vandenberg
	Title:	President
	 	 
	
                                                                                  VELOCITY ENERGY LIMITED LLC,
      a
      Texas limited liability company

                                                                                
	 	 
	
                                                                                  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
	 	 
	
                                                                                  VELOCITY ENERGY OFFSHORE LP,
      a
      Delaware limited partnership

                                                                                
	 	 
	
                                                                                  By:
      

                                                                                	
                                                                                  /s/
      D. E. Vandenberg

                                                                                
	Name:	D.
      E. Vandenberg
	Title:	Presiden

                                                                        

                                                                      

                                                                    

                                                                  

                                                                

                                                              

                                                            

                                                          

                                                        

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    Pledge
Agreement (Borrower)

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        
          
            
              
                
                  
                    	
                            VELOCITY ENERGY PARTNERS LP,
      a
      Delaware limited partnership

                          
	 	 
	
                            By:
      

                          	
                            /s/
      D. E. Vandenberg

                          
	Name:	D.
      E. Vandenberg
	Title:	President

                  

                

              

            

          

        

      

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    
      

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

            	 
	 	 	 	 	 	 	 	 	 	 
	
              North
      Texas Drilling Services, Inc.*

            	 	
              Common

            	 	 	
              1,000

            	 	 	
              1,000

            	 	 	
              100

            	
              %

            
	
              Sonterra
      Operating, Inc.

            	 	
              Common

            	 	 	
              1,000

            	 	 	
              1,000

            	 	 	
              100

            	
              %

            
	
              Velocity
      Energy Limited LLC

            	 	
              Membership
      Interests

            	 	 	
              N/A

            	 	 	
              N/A

            	 	 	
              100

            	
              %

            
	
              Velocity
      Energy Inc.

            	 	
              Common

            	 	 	
              1,500

            	 	 	
              1,000

            	 	 	
              100

            	
              %

            
	
              Velocity
      Energy Offshore LP

            	 	
              Partnership
      Interests

            	 	 	
              N/A

            	 	 	
              N/A

            	 	 	
              90.91

            	
              %

            
	
              Velocity
      Energy Partners LP

            	 	
              Partnership
      Interests

            	 	 	
              N/A

            	 	 	
              N/A

            	 	 	
              90.91

            	
              %

            

    

    *Pledgor
does not represent or warrant that there are no outstanding options, warrants or
other similar agreements to these pledged shares.

    

    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

            	
               

            
	
              Sonterra Operating, Inc.

            	 	
              Common

            	 	
              1

            	 	 	
              1,000

            	 
	
              North
      Texas Drilling Services, Inc.*

            	 	
              Common

            	 	
              C-7

            	 	 	
              1,000

            	 
	
              Velocity
      Energy Limited LLC

            	 	
              Membership
      Interests

            	 	
              1

            	 	 	
              100

            	
              %

            
	
              Velocity
      Energy Inc.

            	 	
              Common

            	 	
              1

            	 	 	
              1,000

            	 
	
              Velocity
      Energy Offshore LP 

            	 	
              Partnership
      Interests

            	 	
              1

            	 	 	
              90.91

            	
              %

            
	
              Velocity
      Energy Partners LP 

            	 	
              Partnership
      Interests

            	 	
              1

            	 	 	
              90.91

            	
              %

            

    

    *Pledgor
does not represent or warrant that there are no outstanding options, warrants or
other similar agreements to these pledged shares.

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    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:

              
	 
	
                SONTERRA RESOURCES, INC.,
      a
      Delaware corporation

              
	 	 
	
                By:

              	   
	
                Name:

              	   
	
                Title:
      

              	   

      

    

     

    
      
        
        

      

      
        4

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00150-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00150-of-00352.parquet"}]]