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Unassociated Document

    

    EXECUTION COPY

    

    PLEDGE AGREEMENT

    

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

    

    WHEREAS:

    

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

    

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

     

    C. Pursuant
to a Security Agreement of even date herewith by and among Pledgor, the other
entities party thereto as “Debtors” and Pledgee (as the same may be amended,
restated, modified or supplement and in effect from time to time, the
“Security Agreement”),
Pledgor has granted Pledgee, for its benefit and the benefit of the Buyers, a
first priority security interest in, lien upon and pledge of its rights in the
Pledgor’s Collateral (as defined in the Security Agreement).

     

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

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    NOW, THEREFORE, in
consideration of the premises and in order to induce the Buyers to purchase the
Notes under the Purchase Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Pledgor hereby agrees with Pledgee as follows:

    

    1. Defined
Terms. Unless
otherwise defined herein, all capitalized terms used herein shall have the
meanings given them in the Purchase
Agreement. 

     

    2. Pledge.

     

    (a) Subject
to the term of this Agreement, Pledgor hereby pledges, assigns, hypothecates,
delivers and grants to Pledgee, for the benefit of itself and the Buyers, a
first lien on and first priority perfected security interest in (i) all of the
Capital Stock or other equity interests of the Pledge Entities now owned or
hereafter acquired by Pledgor (collectively, the “Pledged Shares”), (ii)
any other shares of Capital Stock hereafter pledged or referred to be pledged to
the Pledgee pursuant to this Agreement; (ii) all “investment property” as such
term is defined in §9-102(a)(49) of the UCC (as defined below) with respect
thereto; (iv) any “security entitlement” as such term is defined in §
8-102(a)(17) of the UCC with respect thereto; (v) all books and records relating
to the foregoing; and (vi) all Accessions and Proceeds (as each is defined in
the UCC) of the foregoing, including, without limitation, all distributions
(cash, stock, or otherwise), dividends, stock dividends, securities, cash,
instruments, rights to subscribe, purchase, or sell, and other property, rights,
and interest that such Pledgor is at any time entitled to receive or is
otherwise distributed in respect of, or in exchange for, any or all of the
Pledged Collateral (as defined below), and without affecting the obligations of
Pledgor under any provision of the Security Agreement, in the event of any
consolidation or merger in which Pledgor is not the surviving corporation, all
shares of each class or Capital Stock of the successor entity formed by or
resulting from such consolidation or merger (the collateral described in
clauses
(i) through
(vi) of this Section 2 being
collectively referred to as the “Pledged Collateral”), as
collateral security for the prompt and complete payment and performance when due
(whether at the stated maturity, by acceleration or otherwise) of the
Liabilities. All of the Pledged Shares now owned by Pledgor which are presently
represented by certificates are listed on Exhibit A hereto,
which certificates, with undated assignments separate from certificates or stock
powers duly executed in blank by Pledgor and irrevocable proxies, are being
delivered to Pledgee simultaneously herewith. Upon the creation or acquisition
of any new Pledged Shares, Pledgor shall execute an Addendum in the form of
Exhibit B attached
hereto (a “Pledge Addendum”). Any
Pledged Collateral described in a Pledge Addendum executed by Pledgor shall
thereafter be deemed to be listed on Exhibit A hereto.
Pledgee shall maintain possession and custody of the certificates representing
the Pledged Shares and any additional Pledged Collateral.

     

    
      
        
        

      

      
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    (b) Pledgor
shall cause each Pledged Share consisting of either (i) a membership interest in
a Person that is a limited liability company or (ii) a partnership interest in a
Person that is a partnership (if any) to be “securities” governed by Article 8
of the UCC at all times. Pledgor shall cause the applicable Persons to issue
certificates evidencing such membership interests or partnership interests (if
any) to Pledgor. Pledgor shall not cause and shall not permit any Pledged Entity
which is not a corporation to “opt-out” of Article 8 of the UCC. Pledgor shall
not take, and shall not permit any Pledged Entity which is not a corporation to
take, any actions to cause the capital stock, membership interests, partnership
interests or similar equity interests of such Pledged Entity to cease to be
classified as “securities” governed by Article 8 of the UCC.

     

    3. Representations and
Warranties of Pledgor. Pledgor
represents and warrants to Pledgee, and covenants with Pledgee, that for so long
as the Liabilities remain outstanding (other than indemnity obligations for
which no claim is asserted):

     

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

     

    (b) Except as
set forth on Exhibit A, there
are no outstanding options, warrants or other similar agreements with respect to
the Pledged Shares or any of the other Pledged Collateral;

     

    (c) this
Agreement is the legal, valid and binding obligation of Pledgor, enforceable
against Pledgor in accordance with its terms except to the extent that such
enforceability is subject to applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance and moratorium laws and other laws of general application
affecting enforcement of creditors’ rights generally, or the availability of
equitable remedies, which are subject to the discretion of the court before
which an action may be brought;

     

    (d) the
Pledged Shares have been duly and validly authorized and issued, are fully paid
and non-assessable, and the Pledged Shares listed on Exhibit A
constitute all of the issued and outstanding capital stock or other equity
interests of the Pledge Entities;

     

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

     

    
      
        
        

      

      
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    (f) the
execution, delivery and performance of this Agreement will not violate any
provision of any applicable law or regulation or of any order, judgment, writ,
award or decree of any court, arbitrator or governmental authority, which are
applicable to Pledgor, or of the articles or certificate of incorporation,
certificate of formation, bylaws or any other similar organizational documents
of Pledgor or any Pledge Entity or of any securities issued by Pledgor or any
Pledge Entity or of any mortgage, indenture, lease, contract, or other
agreement, instrument or undertaking to which Pledgor or any Pledge Entity is a
party or which is binding upon Pledgor or any Pledge Entity or upon any of the
assets of Pledgor or any Pledge Entity, and will not result in the creation or
imposition of any lien, charge or encumbrance on or security interest in any of
the assets of Pledgor or any Pledge Entity, except as otherwise contemplated by
this Agreement;

     

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

     

    (h) Neither
Pledgor nor any Pledged Entity (i) will become a person whose property or
interests in property are blocked or subject to blocking pursuant to Section 1
of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting
Transactions with Persons Who Commit, Threaten to Commit or Support Terrorism
(66 Fed. Reg. 49079(2001), (ii) will engage in any dealings or transactions
prohibited by Section 2 of such executive order, or (iii) will otherwise become
a person on the list of Specially Designated Nationals and Blocked Persons or
subject to the limitations or prohibitions under any other Office of Foreign
Asset Control regulation or executive order.

     

    
      
        
        

      

      
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    4. Dividends, Distributions,
Etc. If, prior
to irrevocable repayment in full in cash of the Liabilities, Pledgor shall
receive any certificate (including, without limitation, any certificate
representing a dividend or a distribution in connection with any
reclassification, increase or reduction of capital, or issued in connection with
any reorganization, merger or consolidation), or any options or rights, whether
as an addition to, in substitution for, or in exchange for any of the Pledged
Shares or otherwise, Pledgor agrees, in each case, to accept the same as
Pledgee’s agent and to hold the same in trust for Pledgee, and to deliver the
same promptly (but in any event within five Business Days) to Pledgee in the
exact form received, with the endorsement of Pledgor when necessary and/or with
appropriate undated assignments separate from certificates or stock powers duly
executed in blank, to be held by Pledgee subject to the terms hereof, as
additional Pledged Collateral. Pledgor shall promptly deliver to Pledgee (i) a
Pledge Addendum with respect to such additional certificates, and (ii) any
financing statements or amendments to financing statements as requested by
Pledgee in writing. Pledgor hereby authorizes Pledgee to attach each such Pledge
Addendum to this Agreement. In case any distribution of capital shall be made on
or in respect of the Pledged Shares or any property shall be distributed upon or
with respect to the Pledged Shares pursuant to the recapitalization or
reclassification of the capital of the issuer thereof or pursuant to the
reorganization thereof, the property so distributed shall be delivered to
Pledgee to be held by it as additional Pledged Collateral. Except as provided in
Section
5(b) below,
all sums of money and property so paid or distributed in respect of the Pledged
Shares which are received by Pledgor shall, until paid or delivered to Pledgee,
be held by Pledgor in trust as additional Pledged Collateral.

     

    5. Voting Rights; Dividends;
Certificates.

     

    (a) So long
as no Event of Default (as defined in the Notes) has occurred and is continuing,
Pledgor shall be entitled (subject to the other provisions hereof, including,
without limitation, Section 8 below)
to exercise its voting and other consensual rights with respect to the Pledged
Shares and otherwise exercise the incidents of ownership thereof in any manner
not inconsistent with this Agreement or the Purchase Agreement and the other
Transaction Documents. Pledgor hereby grants to Pledgee or its nominee, an
irrevocable proxy to exercise all voting and corporate rights relating to the
Pledged Shares in any instance, which proxy shall be effective, at the
discretion of Pledgee, upon the occurrence and during the continuance of an
Event of Default. Upon the
request of Pledgee at any time, Pledgor agrees to deliver to Pledgee such
further evidence of such irrevocable proxy or such further irrevocable proxies
to vote the Pledged Shares as Pledgee may request.

     

    (b) So long
as no Event of Default shall have occurred and be continuing, Pledgor shall be
entitled to receive cash dividends or other distributions made in respect of the
Pledged Shares, to the extent permitted to be made pursuant to the terms of the
Notes. Upon the occurrence and during the continuance of an Event of Default, in
the event that Pledgor, as record and beneficial owner of the Pledged Shares,
shall have received or shall have become entitled to receive, any cash dividends
or other distributions in the ordinary course, Pledgor shall deliver to Pledgee,
and Pledgee shall be entitled to receive and retain, for the benefit of Pledgee
and the Buyers, all such cash or other distributions as additional security for
the Liabilities.

     

    (c) Subject
to any sale or other disposition by Pledgee of the Pledged Shares, any other
Pledged Collateral or other property pursuant to this Agreement, upon the
indefeasible full payment in cash, satisfaction and termination of all of the
Liabilities and the termination of this Agreement pursuant to Section
11 hereof
and of the liens and security interests hereby granted, the Pledged Shares, the
other Pledged Collateral and any other property then held as part of the Pledged
Collateral in accordance with the provisions of this Agreement shall be returned
to Pledgor or to such other persons or entities as shall be legally entitled
thereto.

     

    
      
        
        

      

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

     

    6. Rights of
Pledgee. Pledgee
shall not be liable for failure to collect or realize upon the Liabilities or
any collateral security or guaranty therefor, or any part thereof, or for any
delay in so doing, nor shall Pledgee be under any obligation to take any action
whatsoever with regard thereto. Any or all of the Pledged Shares held by Pledgee
hereunder may, if an Event of Default has occurred and is continuing, without
notice, be registered in the name of Pledgee or its nominee, and Pledgee or its
nominee may thereafter without notice exercise all voting and corporate rights
at any meeting with respect to any Pledge Entity and exercise any and all rights
of conversion, exchange, subscription or any other rights, privileges or options
pertaining to any of the Pledged Shares as if it were the absolute owner
thereof, including, without limitation, the right to vote in favor of, and to
exchange at its discretion any and all of the Pledged Shares upon, the merger,
consolidation, reorganization, recapitalization or other readjustment with
respect to any Pledge Entity or upon the exercise by any Pledge Entity, Pledgor
or Pledgee of any right, privilege or option pertaining to any of the Pledged
Shares, and in connection therewith, to deposit and deliver any and all of the
Pledged Shares with any committee, depository, transfer agent, registrar or
other designated agency upon such terms and conditions as Pledgee may reasonably
determine, all without liability except to account for property actually
received by Pledgee, but Pledgee shall have no duty to exercise any of the
aforesaid rights, privileges or options and shall not be responsible for any
failure to do so or delay in so doing.

     

    7. Remedies. Upon the
occurrence and during the continuance of an Event of Default, Pledgee may
exercise in respect of the Pledged Collateral, in addition to other rights and
remedies provided for herein or otherwise available to it, all the rights and
remedies of a secured party under the Uniform Commercial Code (“UCC”) of the
jurisdiction applicable to the affected Pledged Collateral from time to time.
Without limiting the foregoing, Pledgee may, without demand of performance or
other demand, advertisement or notice of any kind (except the notice specified
below of time and place of public or private sale) to or upon Pledgor or any
other person or entity (all and each of which demands, advertisements and/or
notices are hereby expressly waived), may upon the occurrence and during the
continuance of an Event of Default forthwith collect, receive, appropriate and
realize upon the Pledged Collateral, or any part thereof, and/or may forthwith
date and otherwise fill in the blanks on any assignments separate from
certificates or stock power or otherwise sell, assign, give an option or options
to purchase, contract to sell or otherwise dispose of and deliver said Pledged
Collateral, or any part thereof, in one or more portions at one or more public
or private sales or dispositions, at any exchange or broker’s board or at any of
Pledgee’s offices or elsewhere upon such terms and conditions as Pledgee may
deem advisable and at such prices as it may deem best, for any combination of
cash and/or securities or other property or on credit or for future delivery
without assumption of any credit risk, with the right to Pledgee upon any such
sale, public or private, to purchase the whole or any part of said Pledged
Collateral so sold, free of any right or equity of redemption in Pledgor, which
right or equity is hereby expressly waived or released. Pledgee shall apply the
net proceeds of any such collection, recovery, receipt, appropriation,
realization, sale or disposition, after deducting all costs and expenses of
every kind incurred therein or incidental to the safekeeping of any and all of
the Pledged Collateral or in any way relating to the rights of Pledgee
hereunder, including attorneys’ fees and legal expenses, to the payment, in
whole or in part, of the Liabilities, in such order as Pledgee may elect.
Pledgor shall remain liable for any deficiency remaining unpaid after such
application. Only after so paying over such net proceeds and after the payment
by Pledgee of any other amount required by any provision of law, including,
without limitation, Section 9-608 of the UCC, need Pledgee account for the
surplus, if any, to Pledgor. Pledgor agrees that Pledgee need not give more than
ten (10) days’ notice of the time and place of any public sale or of the time
after which a private sale or other intended disposition is to take place and
that such notice is reasonable notification of such matters. No notification
need be given to Pledgor if it has signed after default a statement renouncing
or modifying any right to notification of sale or other intended disposition.

     

    
      
        
        

      

      
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    8. No Disposition,
Etc. Until the
irrevocable payment in full in cash of the Liabilities, Pledgor
agrees that it will not sell, assign, transfer, exchange, or otherwise dispose
of, or grant any option with respect to, the Pledged Shares or any other Pledged
Collateral, nor will Pledgor create, incur or permit to exist any pledge, lien,
mortgage, hypothecation, security interest, charge, option or any other
encumbrance with respect to any of the Pledged Shares or any other Pledged
Collateral, or any interest therein, or any proceeds thereof, except for the
lien and security interest of Pledgee provided for by this Agreement and the
Security Agreement and Permitted Liens, as defined in the Purchase
Agreement.

     

    9. Sale of Pledged
Shares.

     

    (a) Pledgor
recognizes that Pledgee may be unable to effect a public sale or disposition
(including, without limitation, any disposition in connection with a merger of a
Pledge Entity) of any or all the Pledged Shares by reason of certain
prohibitions contained in the Securities Act of 1933, as amended (the
“1933 Act”), and
applicable state securities laws, but may be compelled to resort to one or more
private sales or dispositions thereof to a restricted group of purchasers who
will be obliged to agree, among other things, to acquire such securities for
their own account, for investment and not with a view to the distribution or
resale thereof. Pledgor acknowledges and agrees that any such private sale or
disposition may result in prices and other terms (including the terms of any
securities or other property received in connection therewith) less favorable to
the seller than if such sale or disposition were a public sale or disposition
and, notwithstanding such circumstances, agrees that any such private sale or
disposition shall be deemed to be reasonable and affected in a commercially
reasonable manner. Pledgee shall be under no obligation to delay a sale or
disposition of any of the Pledged Shares in order to permit Pledgor or a Pledge
Entity to register such securities for public sale under the 1933 Act, or under
applicable state securities laws, even if Pledgor or a Pledge Entity would agree
to do so.

     

    
      
        
        

      

      
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    (b) Pledgor
further agrees to do or cause to be done all such other acts and things as may
be reasonably necessary to make such sales or dispositions of the Pledged Shares
valid and binding and in compliance with any and all applicable laws,
regulations, orders, writs, injunctions, decrees or awards of any and all
courts, arbitrators or governmental instrumentalities, domestic or foreign,
having jurisdiction over any such sales or dispositions, all at Pledgor's
expense; provided that Pledgor shall not have any obligation to register the
Pledged Shares as securities under the 1933 Act or the applicable state
securities laws solely by virtue of this Section
9(b). Pledgor
further agrees that a breach of any of the covenants contained in Sections
4,
5(a),
5(b),
8,
9 and
24 will
cause irreparable injury to Pledgee and that Pledgee has no adequate remedy at
law in respect of such breach and, as a consequence, agrees, without limiting
the right of Pledgee to seek and obtain specific performance of other
obligations of Pledgor contained in this Agreement, that each and every covenant
referenced above shall be specifically enforceable against Pledgor, and Pledgor
hereby waives and agrees not to assert any defenses against an action for
specific performance of such covenants.

     

    (c) Pledgor
further agrees to indemnify and hold harmless the Buyers, Pledgee and their
respective successors and assigns, their respective officers, directors,
employees, attorneys and agents, and any person or entity in control of any
thereof, from and against any loss, liability, claim, damage and expense,
including, without limitation, legal fees and expenses (in this paragraph
collectively called the “Indemnified
Liabilities”), under
federal and state securities laws or otherwise insofar as such Indemnified
Liability (i) arises out of or is based upon any untrue statement or alleged
untrue statement of a material fact contained in any registration statement,
prospectus or offering memorandum or in any preliminary prospectus or
preliminary offering memorandum or in any amendment or supplement to any thereof
or in any other writing prepared by Pledgor in connection with the offer, sale
or resale of all or any portion of the Pledged Collateral unless such untrue
statement of material fact was provided by Pledgee, in writing, specifically for
inclusion therein, or (ii) arises out of or is based upon any omission or
alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading, such indemnification to
remain operative regardless of any investigation made by or on behalf of Pledgee
or any successor thereof, or any person or entity in control of any thereof. In
connection with a public sale or other distribution, Pledgor will provide
customary indemnification to any underwriters, their successors and assigns,
officers and directors and each person or entity who controls any such
underwriter (within the meaning of the 1933 Act). If and to the extent that the
foregoing undertakings in this paragraph may be unenforceable for any reason,
Pledgor agrees to make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law. The obligations of Pledgor under this paragraph
(c) shall
survive any termination of this Agreement.

     

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

     

    
      
        
        

      

      
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    10. No Waiver; Cumulative
Remedies. Pledgee
shall not by any act, delay, omission or otherwise be deemed to have waived any
of its remedies hereunder, and no waiver by Pledgee shall be valid unless in
writing and signed by Pledgee, and then only to the extent therein set forth. A
waiver by Pledgee of any right or remedy hereunder on any one occasion shall not
be construed as a bar to any right or remedy which Pledgee would otherwise have
on any further occasion. No course of dealing between Pledgor and Pledgee and no
failure to exercise, nor any delay in exercising on the part of Pledgee or the
Buyers of, any right, power or privilege hereunder or under the other
Transaction Documents shall impair such right or remedy or operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided are cumulative and may be exercised singly or concurrently, and are not
exclusive of any rights or remedies provided by law or in the Purchase
Agreement.

     

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

     

    12. Possession of
Collateral. Beyond
the exercise of reasonable care to assure the safe custody of the Pledged Shares
in the physical possession of Pledgee pursuant hereto, neither Pledgee, nor any
nominee of Pledgee, shall have any duty or liability to collect any sums due in
respect thereof or to protect, preserve or exercise any rights pertaining
thereto (including any duty to ascertain or take action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relating to the
Pledged Collateral and any duty to take any necessary steps to preserve rights
against any parties with respect to the Pledged Collateral), and shall be
relieved of all responsibility for the Pledged Collateral upon surrendering them
to Pledgor. Pledgor assumes the responsibility for being and keeping itself
informed of the financial condition of a Pledge Entity and of all other
circumstances bearing upon the risk of non-payment of the Liabilities, and
Pledgee shall have no duty to advise Pledgor of information known to Pledgee
regarding such condition or any such circumstance. Pledgee shall have no duty to
inquire into the powers of a Pledge Entity or its officers, directors, managers,
members, partners or agents thereof acting or purporting to act on its behalf.

     

    13. Taxes and
Expenses. Pledgor
will upon demand pay to Pledgee, (a) any taxes (excluding income taxes,
franchise taxes or other taxes levied on gross earnings, profits or the like of
Pledgee) payable or ruled payable by any Governmental Authority (as defined in
the Security Agreement) in respect of this Agreement, together with interest and
penalties, if any, and (b) all expenses, including the fees and expenses of
counsel for Pledgee and of any experts and agents that Pledgee may incur in
connection with (i) the administration, modification or amendment of this
Agreement, (ii) the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Pledged Collateral, (iii) the exercise or
enforcement of any of the rights of Pledgee hereunder, or (iv) the failure of
Pledgor to perform or observe any of the provisions hereof.

     

    
      
        
        

      

      
        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.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    24. Further
Assurances. Pledgor
agrees that at any time and from time to time upon the written request of
Pledgee, Pledgor will execute and deliver all assignments separate from
certificates or stock powers, financing statements and such further documents
and do such further acts and things as Pledgee may reasonably request consistent
with the provisions hereof in order to carry out the intent and accomplish the
purpose of this Agreement and the consummation of the transactions contemplated
hereby.

     

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

     

    26. Pledgee
Authorized. Pledgor
hereby authorizes Pledgee to file one or more financing or continuation
statements and amendments thereto (or similar documents required by any laws of
any applicable jurisdiction) relating to all or any part of the Pledged Shares
or other Pledged Collateral without the signature of Pledgor.

     

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

     

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

     

    [Signature Page
Follows] 

    
      
        
        

      

      
        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:

            
	 
	
              VELOCITY ENERGY LIMITED LLC,
      a
      Texas limited liability company

            
	 
	
              By:
      

            	
              /s/
      D. E. Vandenberg

            
	
              Name:

            	
              D.
      E. Vandenberg

            
	
              Title:

            	
              President

            

    

     

    
      Pledge
Agreement (Velocity)

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              PLEDGEE:

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

            
	 	 
	
              By:

            	
              /s/
      Robert J. Brantman

            
	
              Name:

            	
              Robert
      J. Brantman

            
	
              Title:

            	
              Co-Managing
      Member

            

    

    

      Pledge
Agreement (Velocity)

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    ACKNOWLEDGEMENT

    

    Each of
the undersigned hereby (i) acknowledges receipt of a copy of the foregoing
Pledge Agreement, (ii) waives any rights or requirement at any time hereafter to
receive a copy of such Pledge Agreement in connection with the registration of
any Pledged Shares (as defined therein) in the name of Pledgee or its nominee or
the exercise of voting rights by Pledgee and (iii) agrees promptly to note on
its books and records the grant of the security interest in the stock or other
equity interests of the undersigned as provided in such Pledge Agreement.

    

    Dated:
November 13, 2008

    

    
      	
              VELOCITY ENERGY OFFSHORE LP,
      a
      Delaware limited partnership

            
	 	 
	
              By:
      Velocity Energy Limited LLC, its general partner

            
	 	 
	
              By:
      

            	
              /s/
      D. E. Vandenberg

            
	
              Name:

            	
              D.
      E. Vandenberg

            
	
              Title:

            	
              President

            
	 	 
	
              VELOCITY ENERGY PARTNERS
      LP, a Delaware limited partnership

            
	 	 
	
              By:
      

            	
              Velocity
      Energy Limited LLC, its general partner

            
	 	 
	
              By:
      

            	
              /s/
      D. E. Vandenberg

            
	
              Name:

            	
              D.
      E. Vandenberg

            
	
              Title:

            	
              President

            
	 	 
	
              VELOCITY ENERGY INC.,
      a
      Delaware corporation

            
	 	 
	
              By:
      

            	
              /s/
      D. E. Vandenberg

            
	
              Name:

            	
              D.
      E. Vandenberg

            
	
              Title:

            	
              President

            

    

    

      Pledge
Agreement (Velocity)

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
       
EXHIBIT
A

    to Pledge
Agreement

     

    DESCRIPTION OF CAPITAL STOCK
OR EQUITY INTERESTS OF PLEDGE ENTITIES

     

    
      	
              Name of

              Pledge Entity

            	 	
              Class of Stock
      

              or Other Equity
      

              Interests

            	 	
              Authorized
      

              No. of

              Shares or
      

              Units

            	 	
              Issued and
      

              Outstanding
      

              Shares or
      

              Units

            	 	
              Percentage of
      

              Shares or

              Interests

              
                Held
      by Pledgor

              

            	 
	 	 	 	 	 	 	 	 	 	 
	
              Velocity
      Energy Offshore LP

            	 	 	
              Partnership
      Interests

            	 	 	
              N/A

            	 	 	
              N/A

            	 	 	
              9.09

            	
              %

            
	
              Velocity
      Energy Partners LP

            	 	 	
              Partnership
      Interests

            	 	 	
              N/A

            	 	 	
              N/A

            	 	 	
              9.09

            	
              %

            

    

     

    DESCRIPTION OF PLEDGED
SHARES OR UNITS

    

    
      	
              Name of

              Pledge Entity

            	 	
              Class of Stock or Other
      

              Equity Interests

            	 	
              Stock or Unit
      

              Certificate No.

            	 	
              No. of Shares or
      

              Percentage of Partnership
      

              or Membership Interests

              Represented by

              Certificate

            	 
	
              Velocity
      Energy Offshore LP

            	 	 	
              Partnership
      Interests

            	 	 	
              2

            	 	 	
              9.09

            	
              %

            
	
              Velocity
      Energy Partners LP

            	 	 	
              Partnership
      Interests

            	 	 	
              2

            	 	 	
              9.09

            	
              %

            

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    EXHIBIT
B

    to Pledge
Agreement

    

    Addendum to Pledge
Agreement

    

    The
undersigned, being the Pledgor pursuant to that certain Pledge Agreement dated
as of November __, 2008 (as amended, restated, supplemented or otherwise
modified from time to time, the “Pledge Agreement”) in
favor of Summerline Asset Management, LLC, a Delaware limited
liability company, as Collateral Agent (“Pledgee”), by
executing this Addendum, hereby acknowledges that Pledgor has acquired and
legally and beneficially owns all of the issued and outstanding [ shares of
capital stock ] of [__________________, a _______ corporation ] (“Company”)
described below (the “Shares”).
Pledgor hereby agrees and acknowledges that the Shares shall be deemed Pledged
Shares pursuant to the Pledge Agreement. Pledgor hereby represents and warrants
to Pledgee that (i) all of the [ capital stock ] of the Company now owned by
Pledgor is presently represented by the certificates listed below, which
certificates, with undated assignments separate from certificate or stock powers
duly executed in blank by Pledgor, are being delivered to Pledgee,
simultaneously herewith (or have been previously delivered to Pledgee), and (ii)
after giving effect to this addendum, the representations and warranties set
forth in Section 3 of the Pledge Agreement are true, complete and correct as of
the date hereof.

    

    Pledged
Shares

    

    
      	
              Name of

              the Pledged Entity

            	 	
              Class of Equity Interest

            	 	
              Certificate No.

            	 	
              No. of Shares

              Represented by

              Certificate

            	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 

    

     

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

     

    
      	
              PLEDGOR:

            
	 
	
              VELOCITY ENERGY LIMITED LLC,
      a
      Texas limited liability company

            
	 	 
	
              By:

            	   
	
              Name:

            	
               
      

            
	
              Title:

            	
               
      

            

    

     

    
      
        
        

      

      
        3DEPOSIT
      ACCOUNT CONTROL AGREEMENT

     

    
      	
              Dated
                as of:

              November
                13, 2008

               

            	
              Company:

              Sonterra
                Operating, Inc., a Delaware corporation

            
	
              The
                Bank:

              Sterling
                Bank, a Texas banking corporation

               

            	 
	
              Address
                of Bank:

              4040
                Broadway, Suite 110

              San
                Antonio, Texas 78209

            	
              Secured
                Party/Pledgee:

              Summerline
                Asset Management, LLC,
                a
                Delaware limited liability company, in its capacity as Collateral
                Agent
                for the benefit of itself and Buyers referred to
                below

            

    

     

    This
      DEPOSIT
      ACCOUNT CONTROL AGREEMENT (as
      amended, restated, supplemented or otherwise modified from time to time, this
      “Agreement”),
      by
      and among the Bank identified above, the Company identified above, and the
      Secured Party/Pledgee identified above (the “Collateral
      Agent”)
      is
      dated as of the date written above. 

     

    WHEREAS:

     

    A. Sonterra
      Resources, Inc., a Delaware corporation (“Sonterra”),
      and
      the Buyers (as defined in the Purchase Agreement described below) have entered
      into that certain Securities Purchase Agreement dated as of November 13, 2008
      (as amended, restated, supplemented or otherwise modified and in effect from
      time to time, the “Purchase
      Agreement”)
      pursuant to which Buyers have purchased certain senior secured notes dated
      as of
      November 13, 2008 in the aggregate original principal amount of $8,800,000
      (such
      note, 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”)
      and
      made certain financial accommodations to the Sonterra .

     

    B. Pursuant
      to a Security Agreement dated as of November 13, 2008 (as the same may be
      amended, restated, modified or supplemented and in effect from time to time,
      the
“Security
      Agreement”),
      entered into among the Company and Collateral Agent, the Company has granted
      the
      Collateral Agent, for its benefit and the benefit of Buyers, a first priority
      security interest in, lien upon and pledge of all of its right, title and
      interest in and to the Account(s) (as defined below) and the Account Collateral
      (as defined below), including, without limitation, all free credit balances,
      cash and cash balances contained or on deposit in the Accounts and all proceeds
      thereof, whether now existing or hereafter arising.

     

    C. This
      Agreement is intended to perfect Collateral Agent’s and Buyers’ security
      interest in the Account(s) and the Account Collateral pursuant to Sections
      9.104, 9.312 and 9.314 of the Uniform Commercial Code and shall also serve
      as
      instructions regarding the operation of and procedures for all deposit accounts
      now or hereafter maintained at Bank by, or for the deposit, credit or custody
      of
      property of, the Company. 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    NOW
      THEREFORE,
      the
      Bank, the Company and Collateral Agent hereby agree as follows:

     

    1. Account
      Identification.
      This
      Agreement applies to the accounts identified below that have been established
      at
      the Bank on behalf of and in the name of the Company and to each other deposit
      account hereafter established at the Bank on behalf of the Company
      (collectively, the “Accounts”).
      The
      Bank represents and warrants to the Company and the Collateral Agent, on its
      behalf and on behalf of Buyers, that (a) the Bank is a “Bank”
(within
      the meaning of Article 9 of the Uniform Commercial Code) with which the Accounts
      are maintained, (b) each of the Accounts is a “Deposit
      Account”
(within
      the meaning of Article 9 of the Uniform Commercial Code) and (c) the Company
      is
      the only “Customer”
(within
      the meaning of Article 4 of the Uniform Commercial Code) of the Bank with
      respect to the Accounts.

     

    
      	
              Account
                Holder

            	 	
              Name
                of Account

            	 	
              Account
                Number

            
	 	 	 	 	 
	
              Sonterra
                Operating, Inc.

            	 	
              Company
                Checking Account

            	 	 

    

    

    2. Security
      Interest; Agency.
      

     

    (a) Each
      of
      Bank, the Company and Collateral Agent acknowledges that, in order to secure
      the
      prompt and complete payment, performance and observance of all “Liabilities”
(as
      defined in the Security Agreement), the Company has granted, and for avoidance
      of doubt and without limiting any prior grant, does hereby grant, to Collateral
      Agent, for the benefit of itself and Buyers, a continuing lien upon, and
      security interest in, the Accounts and all funds, checks, cash, items,
      instruments, investments, securities and other things of value at any time
      paid,
      deposited, credited or held in, payable or withdrawable from or in transit
      to
      any Account (whether for collection, provisionally or otherwise), and all other
      property of the Company from time to time in the possession or under the control
      of, or in transit to, the Bank or any agent, bailee or custodian therefor,
      and
      all proceeds of all of the foregoing (collectively, the “Account
      Collateral”).

     

    (b) The
      Bank
      agrees to comply with instructions originated by Collateral Agent directing
      disposition of the funds in the Accounts or any other Account Collateral or
      to
      take such other action as shall from time to time be specified in writing from
      Collateral Agent, in all cases without notice to or the consent of the Company.
      The Bank shall follow the instructions of Collateral Agent as to the holding,
      investment and transfer of all Account Collateral. The Company hereby
      irrevocably authorizes and directs the Bank to comply with any such instructions
      by Collateral Agent without further action or consent by the Company and
      notwithstanding any subsequent objection or contrary direction the Bank may
      receive from the Company. In addition, the Company agrees that the Bank may
      act
      as the agent of Collateral Agent in exercising any rights of set-off provided
      by
      applicable law or by any Transaction Document (as defined in the Purchase
      Agreement) as to any Account Collateral. The Company agrees that the Bank shall
      be entitled to rely, without independent investigation, on any written notice
      in
      the form of Exhibit
      A
      from
      Collateral Agent to the effect that an Event of Default (each as defined in
      the
      Notes) has occurred and is continuing or any other statement of Collateral
      Agent
      to the effect that any exercise of set-off requested by Collateral Agent is
      permitted under applicable law, the Security Agreement or any applicable
      Transaction Document.

     

    (c) Without
      limiting or qualifying the provisions of clause (b) above, Collateral Agent,
      on
      its behalf and on behalf of Buyers, hereby appoints the Bank as Collateral
      Agent’s and Buyers’ agent and pledgee-in-possession for the Accounts and all
      Account Collateral, for the purpose of perfecting Collateral Agent’s and Buyers’
security interest therein; and the Bank by its execution and delivery of this
      Agreement hereby accepts such appointment and agrees to be bound by the terms
      of
      this Agreement. The Company hereby agrees to such appointment of the Bank and
      further agrees that the Bank, on behalf of Collateral Agent and Buyers, shall
      be
      entitled to exercise, upon the instructions of Collateral Agent, any and all
      rights that the Collateral Agent and Buyers may have under the Purchase
      Agreement, the Security Agreement and all other agreements, documents and
      instruments executed pursuant thereto, or under applicable law, with respect
      to
      the Accounts and the Account Collateral. 

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    3. Debtor’s
      Access to Accounts.
      Collateral Agent agrees that, until such time as Bank receives written notice
      in
      the form of Exhibit
      A
      from
      Collateral Agent of the occurrence of any Event of Default, the Company shall
      be
      allowed full use of, and access to, the Accounts and the Account Collateral
      without Collateral Agent’s further consent (including, without limitation,
      presenting items drawn on the Accounts or giving Bank instructions as to the
      withdrawal or other disposition of any funds from time to time credited to
      the
      Accounts); provided, that the Company shall not be permitted to close any of
      the
      Accounts. Upon receipt by Bank of notice by Collateral Agent of the occurrence
      of an Event of Default, and at all times thereafter, the Company shall not
      be
      entitled use of, or access to, the Accounts or the Account Collateral and the
      Bank shall not comply with any instructions or directions originated by the
      Company or otherwise permit the Company access to or control over the Accounts
      or the Account Collateral, including without limitation giving stop payment
      orders, presenting items for payment or making withdrawals therefrom.

     

    4. Irrevocable
      Agreement.
      The
      Company hereby agrees and acknowledges that the agreements made by it and the
      authorizations granted by it herein are irrevocable and that the authorizations
      granted herein are powers coupled with an interest.

     

    5. Set-off.
      The
      Bank hereby waives all existing and future rights of recoupment or set-off
      and
      banker’s liens against the Accounts and the Account Collateral, except those
      rights of set-off and banker’s liens arising in connection with (a) items
      deposited in the Accounts that are subsequently returned to the Bank unpaid
      and
      (b) any compensation and expenses owing and payable to Bank with respect to
      the
      Accounts which are assessed in accordance with the Bank’s standard account
      documentation. 

     

    6. Account
      Information.
      The
      Bank shall provide Collateral Agent, at the address indicated in Section 11
      below, with such information with respect to the Accounts and Account Collateral
      as Collateral Agent may from time to time reasonably request, including, without
      limitation and duplicate copies of all bank statements which are sent to the
      Company. The Company hereby consents to such information being provided to
      Collateral Agent. 

     

    7. Exculpation.
      The
Company
      and the Collateral Agent agree that Bank shall have no liability to either
      of
      them for any loss or damage that one or both may claim to have suffered or
      incurred, either directly or indirectly, by reason of this Agreement or any
      transaction or service contemplated by the provisions hereof, other than any
      loss or damage incurred as a result of the gross negligence or willful
      misconduct of, or breach of this Agreement by, the Bank or its officers, agents
      or employees. Without limitation of the preceding sentence, the Company agrees
      that Bank shall have no liability to Company for any wrongful dishonor in
      connection with the execution by Bank of any Collateral Agent instructions,
      as
      authorized by and in accordance with Paragraph 2, and the Banks subsequent
      dishonor of any items presented for payment.
      In no
      event shall Bank
      be
      liable
      for
      losses or delays resulting from computer malfunction, interruption of
      communication facilities, labor difficulties or other causes beyond Bank’s
      reasonable control or
      for
      indirect, special or consequential damages.

     

    8. Indemnity.
      The
      Company agrees to indemnify the Bank and hold it harmless against any loss,
      damage, or expense (including reasonable attorneys’ fees and other litigation
      expenses) that it may suffer as a direct result of the Bank’s entering into this
      Agreement and performing its obligation hereunder, including, honoring any
      instructions or direction it receives from Collateral Agent with respect to
      the
      Accounts during the term of this Agreement, other than any loss, damage or
      expense incurred as a result of the gross negligence or willful misconduct
      of,
      or breach of this Agreement by, the Bank or its officers, agents or
      employees.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    9. No
      Other Assignments.
      Bank
      represents and warrants to Collateral Agent, on its behalf and on behalf of
      Buyers, that no other notices of assignment of, lien upon or security interest
      in the Accounts or the Account Collateral are reflected in Bank’s records
      concerning the Accounts, and Bank has no knowledge of any such assignment or
      lien. The Company hereby instructs Bank and Bank hereby agrees to record in
      Bank’s records concerning the Accounts any such notice of assignment of the
      Accounts that it receives, including the notice conferred by this Agreement.
      Bank agrees with and covenants to Collateral Agent, on its behalf and on behalf
      of Buyers, that it shall not enter into any other agreement with any Person
      which would obligate Bank to follow such Person’s instructions with respect to
      the Account or the Account Collateral, or which would otherwise confer control
      of the Accounts or the Account Collateral upon such Person.

     

    10. Termination.
      This
      Agreement shall remain in full force and effect until such time as Collateral
      Agent shall deliver written notice to the Bank that all of the Liabilities
      have
      been indefeasibly paid in full in cash and the Security Agreement has been
      terminated, whereupon this Agreement shall terminate. All rights of the Bank
      under Sections 7 and 8 for the period prior to any such termination shall
      survive such termination.

     

    11. 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:

     

    
      	
              Collateral
                Agent:

               

            	
              Summerline
                Asset Management, LLC

              70
                West Red Oak Lane, 4th Floor

              White
                Plains, New York 10604

              Attention:
                Robert Brantman

              Telecopy:
                (914) 697-4767

               

            
	
              Bank:

               

            	
              Sterling
                Bank

              4040
                Broadway, Suite 110

              San
                Antonio, Texas 78209

              Attention: Steve
                York

              Telephone: (210)
                277-3301

              Facsimile: (210)
                826-6641

               

              With
                a copy to:

               

              Sterling
                Bank

              2550
                North Loop West, Suite 600 

              Houston,
                Texas 77092

              Attention: Chris
                M. Shamaly

              Telephone: (713)
                507-7952

              Facsimile: (713)
                507-2900

            

    

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    
      	
              Company:

               

            	
              Sonterra
                Operating , Inc.

              c/o
                Sonterra Resources, Inc.

              523
                North Sam Houston Pkwy East

              Suite
                175

              Houston,
                Texas 77060

              Attention: D.
                E. Vandenberg 

              Telephone: (281)
                _______

              Facsimile: (281)
                741-0895

               

            

    

    If
      to any
      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.

    

    12. Applicable
      Law.
      TEXAS
      LAW
      WITHOUT
      REGARD TO ITS CONFLICT OF LAW
      PRINCIPLES GOVERNS THIS AGREEMENT. BEXAR COUNTY, TEXAS IS THE PLACE OF
      PERFORMANCE OF THIS AGREEMENT AND IS THE PROPER VENUE FOR ANY ACTION OR
      PROCEEDING RELATING TO THIS AGREEMENT, WHETHER SUCH ACTION IS IN CONTRACT,
      TORT,
      OR OTHERWISE.

     

    13. Miscellaneous
      Provisions.
      This
      Agreement shall supersede any other agreement (to the extent conflicting
      herewith) relating to the matters referred to herein, including any conflicting
      provision of the Bank’s customary account documentation or any other account
      agreement between the Company and the Bank. This Agreement is binding upon
      the
      parties hereto and their respective successors and assigns (including any
      trustee of the Company appointed or elected in any action under the Bankruptcy
      Reform Act of 1978, as amended) and shall inure to their benefit. This Agreement
      may not be changed, amended, modified or waived, except by a writing signed
      by
      the parties hereto, provided that any such writing need be signed only by the
      Bank and Collateral Agent if it does not change any rights or obligations of,
      or
      authorizations granted by, the Company hereunder and notice thereof is provided
      to the Company by Collateral Agent. Any provision of this Agreement that may
      prove unenforceable under any law or regulation shall not affect the validity
      of
      any other provision hereof. 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.

     

    -
      Remainder of Page Intentionally Left Blank; Signature Page Follows
      -

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    

    IN
      WITNESS WHEREOF, the undersigned have executed this Deposit Account Control
      Agreement by their respective duly authorized officers as of the date first
      forth above.

    

    Company:

    

    
      	
              SONTERRA
                OPERATING, INC.,
                a
                Delaware corporation

            
	 	 
	
              By:

            	 

	
              Name:

            	 
	
              Title:

            	 

    

     

    
      Account
        Control Agreement

       

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Secured
      Party/Pledgee:

    

    SUMMERLINE
      ASSET MANAGEMENT, LLC,
      a

    Delaware
      limited liability company, in its 

    capacity
      as Collateral Agent

    

    
      	
              By:

            	    

	
              Name:

            	
              Robert
                J. Brantman

            
	
              Title:

            	
              Co-Managing
                Member

            

    

     

    
      Account
        Control Agreement

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Bank:

    

    STERLING
      BANK,
      a Texas
      banking corporation

    

    
      	
              By:

            	   

	
              Name:

            	  

	
              Title:

            	  

    

     

    
      Account
        Control Agreement

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    EXHIBIT
      A

    

    Form
      of Notification of Event of Default

    

    Sterling
      Bank

    4040
      Broadway, Suite 110

    San
      Antonio, Texas 78209

    Attention:
      Steve York

    

    Ladies
      and Gentlemen:

    

    Reference
      is made to the Deposit Account Control Agreement, dated as of November __,
      2008
      (the “Account
      Control Agreement”)
      among
      Sterling Bank, a Texas banking corporation, Sonterra Operating, Inc., a Delaware
      corporation, and Summerline Asset Management, LLC, in its capacity as Collateral
      Agent. Capitalized terms used and not otherwise defined in this notification
      letter are used with the meanings set forth in the Account Control Agreement.
      

    

    You
      are
      hereby notified, in accordance with Section 3 of the Account Control Agreement,
      that an Event of Default has occurred. In light of the foregoing, you are hereby
      instructed not to allow Company to access the Accounts or the Account Collateral
      and not to comply with any instructions or directions originated by Company
      or
      otherwise permit Company access to or control over the Accounts or the Account
      Collateral, including without limitation giving stop payment orders, presenting
      items for payment or making withdrawals therefrom. 

    

    

    
      	
              Date:
                [                  
                ], 200__

            	 	
              SUMMERLINE
                ASSET MANAGEMENT, LLC,
                in
                its capacity as Collateral Agent

            
	 	 	 	 
	 	 	
              By:

            	   

	 	 	
              Name:
                

            	   

	 	 	
              Title:

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