December 4, 2008 Mr. D. E. Vandenberg CEO and President Sonterra Resources, Inc. Houston, Texas 78258 Dear Don:
December
4, 2008
▇▇. ▇. ▇.
▇▇▇▇▇▇▇▇▇▇
CEO and
President
▇▇▇ ▇.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇., ▇▇▇▇▇ ▇▇▇
Houston,
Texas 78258
Dear
▇▇▇:
Reference
is hereby made to each of (i) that certain Securities Purchase Agreement, dated
as of November 13, 2008, by and between Sonterra Resources, Inc. (the “Company”) and Longview Marquis
Master Fund, L.P. (“Marquis”) (such Securities
Purchase Agreement, as amended, restated, supplemented or modified and in effect
from time to time, the “SPA”), and (ii) the
Supplemental Account Control Agreement (as defined in the SPA) (the “SACA”). Pursuant to
the SPA, $5,000,000 (the “Acquisition Funds”) paid by
▇▇▇▇▇▇▇ to the Company pursuant to the SPA is being held in a deposit account at
Sterling Bank (account no. 5000389794) covered by the SACA (the “Deposit Account”), to be used
to fund Agreed Acquisitions (as defined in the SPA), subject to the terms of the
SPA. Capitalized terms used herein without definition shall have the
meanings ascribed to them in the SPA.
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1.
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Agreement for Release
of Funds; New Overriding Royalty Interest. Marquis and
Summerline Asset Management LLC, as collateral agent for the benefit of
itself and Marquis (the “Collateral Agent”),
hereby agree with the Company that up to an aggregate of $1,300,000.00 of
the Acquisition Funds (such amount, the “Investment Amount”)
shall be released from the Deposit Account, upon the terms and conditions
set forth in paragraph no. 2 of this letter agreement. As
consideration for (and as a condition to) such agreement by ▇▇▇▇▇▇▇ and
the Collateral Agent, contemporaneously with the execution
hereof, the Company is delivering a new Conveyance of Wellbore
Limited Overriding Royalty (the “New ORRI”) with respect
to Said Well (as defined below), in the form attached hereto as Exhibit A. The
New ORRI is in addition to, and not in lieu of, Marquis’ existing
overriding royalty interest in the Subject Lands (as defined in the New
ORRI). For purposes hereof, “Said Well” means the
Wellbore (as defined in the New
ORRI).
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2.
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Release of Acquisition
Funds. The Investment Amount (or any portion thereof)
shall be released for payment directly to STO Operating Company or another
third party operating the Wellbore (in any case, “STO”) for amounts owed
to STO by the Company for dry hole costs, well completion costs and
plugging and abandonment costs associated with Said Well, in each case (a)
as set forth in an authorization for expenditure with respect to Said Well
that has been approved in writing by Marquis, which approval shall not be
unreasonably withheld, and (b) in accordance with written payment
instructions. In order to effectuate any release of any portion
of the Investment Amount as set forth in the immediately preceding
sentence, the Collateral Agent will execute and deliver to the Bank (as
defined in the SACA) written instructions directing the Bank to release
such portion of the Investment Amount to STO, such instructions to be in
substantially the form set forth as Exhibit B
hereto.
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SUMMERLINE
ASSET MANAGEMENT, LLC
▇▇ ▇▇▇▇
▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
PHONE:
▇▇▇-▇▇▇-▇▇▇▇ • FAX: ▇▇▇-▇▇▇-▇▇▇▇
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3.
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Representations and
Warranties. The Company hereby represents and warrants
that this letter agreement and the New ORRI have been duly authorized,
executed and delivered by the Company and constitute valid and binding
obligations of the Company, enforceable against the Company in accordance
with their respective terms, and that neither this letter agreement nor
the New ORRI breaches or violates, or will constitute or give rise to any
default under, the charter documents of the Company or any of the
Subsidiaries, any agreement or instrument to which the Company or any of
the Subsidiaries is a party, or any order, decree, law, rule or regulation
to which the Company or any of the Subsidiaries is a party or subject or
to which any of their respective assets is subject. Each of
Marquis and the Collateral Agent hereby represents and warrants that this
letter agreement has been duly authorized, executed and delivered by such
party and constitutes a valid and binding obligation of such party,
enforceable against such party in accordance with its
terms.
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4.
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Costs. The
Company shall promptly reimburse Marquis for all of its out-of-pocket
fees, costs and expenses, including attorneys’ fees and expenses, incurred
in connection with the drafting, revising, negotiation and execution of
this letter agreement, the New ORRI and any other documents and
instruments in connection herewith or therewith or the release of any of
the Investment Amount, and any other expense incurred in connection with
the actions and transactions contemplated hereby or
thereby. The Company and Marquis acknowledge agree that such
reimbursable amount as of the date hereof is $5,000.00 and that the
Company shall pay Marquis such amount contemporaneously with the execution
and delivery of this letter
agreement
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5.
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Form
8-K. Prior to 3:00 p.m., New York City time, on the
second business day following the date hereof, the Company shall file a
current report on Form 8-K with the SEC, describing the terms of this
letter agreement and of the New ORRI, in the form required by the 1934
Act, and attaching as exhibits thereto each of this letter agreement and
the New ORRI.
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6.
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Reservation of
Rights. The parties hereto hereby agree that ▇▇▇▇▇▇▇ has
not hereby waived (a) any breach, default or event of default that may be
continuing under any of the Transaction Documents or (b) any of Marquis’
rights or remedies arising from any such breach, default or event of
default or otherwise available under the Transaction Documents or at
law. Marquis expressly reserves all such rights and
remedies.
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7.
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Successors and
Assigns. This letter agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. The successors and assigns of
such entities shall include their respective receivers, trustees or
debtors-in-possession.
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8.
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Section
9 of the SPA is hereby incorporated herein mutatis
mutandis.
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Please
have a duly authorized and directed representative of the Company execute this
letter agreement to confirm all of the foregoing.
2
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Sincerely,
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LONGVIEW
MARQUIS MASTER FUND, L.P.
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By:
Summerline Asset Management, LLC
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Its:
Investment Adviser
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By:
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▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇
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Its:
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Co-Managing
Member
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SUMMERLINE
ASSET MANAGEMENT LLC.
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By:
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ | |
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Its:
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Co-Managing Member | |
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▇▇▇▇▇▇
and accepted this 5th day of
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December,
2008 by:
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/s/
▇. ▇. ▇▇▇▇▇▇▇▇▇▇
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By: ▇▇.
▇. ▇. ▇▇▇▇▇▇▇▇▇▇
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Its:
CEO and President
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cc:
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3
EXHIBIT
A
Conveyance
of Wellbore Limited Overriding Royalty
For a good and valuable consideration,
the receipt of which is hereby acknowledged, Sonterra Resources, Inc., a
Delaware corporation, with principal offices located at ▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ (“Grantor”), does hereby grant,
bargain, sell, transfer, assign and convey to Longview Marquis Master Fund,
L.P. (“Grantee”), a British Virgin
Island limited partnership, whose address is c/o Summerline Asset Management
LLC, ▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, an
overriding royalty interest (the “Overriding Royalty”) equal to
seven percent (7.0%) of the Applicable Percentage (defined below) of the oil,
gas and other minerals in, under and that may be produced from the Wellbore
(defined below) of State Tract 150 #1 ST #1 Well, API No. ▇▇-▇▇▇-▇▇▇▇▇ (the
“Well”), provided,
however, at that first point in time at which Grantee has received $250,000 from
the proceeds of the sale of the production of oil, gas and other minerals
attributable to such seven percent (7.0%) of the Applicable Percentage (the
“Reduction Point in
Time”), the amount of the Overriding Royalty shall be three percent
(3.0%) of the Applicable Percentage of the oil, gas and other minerals in, under
and that may be produced from the Wellbore of the Well.
The
surface location of the Well is located on the lands covered by the oil and gas
lease described on Part Two of Exhibit “A” attached hereto, and the bottom hole
location of the Well is located on the lands covered by the oil and gas lease
described on Part One of Exhibit “A” attached hereto (such oil and gas leases
being hereinafter collectively referred to as the “Subject Leases” and such lands
being hereinafter collectively referred to as the “Subject Lands”).
As used
herein, the terms (i) “Wellbore
” shall include, without limitation, the wellbore of the Well and/or the
wellbore of any and all ▇▇▇▇▇ located on the Subject Lands which are drilled as
a substitute well for the Well (collectively, the “Substitute Well”), and any and
all deeper, shallower and/or sidetrack extensions of the wellbore of the Well or
the Substitute Well, (ii) “Working Interest” and “WI” mean the cost bearing
percentage interest that the owner thereof must bear relative to 100% of all
costs to explore, develop, and produce oil and/or gas from the applicable
portion of the Subject Lands, and (iii) “Applicable Percentage” shall
mean the percentage set forth on Exhibit “A” as the “Working Interest” or “WI”
for the Well.
It is understood and agreed that though
the Overriding Royalty is conveyed by Grantor to Grantee out of Grantor's
interest (such interest, subject to the Overriding Royalty, being herein called
the “Burdened Interest”)
in the Subject Leases insofar as they cover Subject Lands, such Overriding
Royalty shall be equal to seven percent (7.0%), or three percent (3.0%), as
above described, of the Applicable Percentage, of the oil, gas and other
minerals in, under and that may be produced in, through or from the Wellbore
(the “ORRI Percentage”),
commencing at the Effective Time and at all times thereafter, and the ORRI
Percentage shall not be reduced by Grantor for any reason to less than such
percentages of the Applicable Percentage for any reason, including, without
limitation, the same shall not be reduced if the Working Interest of Grantor in
a Subject Lease is less than the Working Interest stated on Exhibit “A” with
respect to such Subject Lease or that portion of the Subject Lands covered by
such Subject Lease, or if the interest in oil, gas and other minerals underlying
any portion of the Subject Lands which is covered by a particular Subject Lease
(or group of Subject Leases) is less than the entire interest in the oil, gas
and other minerals underlying such portion of the Subject Lands, or if the share
of production from any portion of Subject Lands to which Grantor is entitled by
virtue of its ownership interest in the Subject Leases is less than the
Applicable Percentage set forth on Exhibit “A” for such portion of the Subject
Lands.
TO HAVE AND TO HOLD the Overriding
Royalty unto Grantee, its successors and assigns forever. The
Overriding Royalty herein conveyed, and the Burdened Interest of Grantor, shall
be subject to the following provisions:
1. Grantor
shall have the obligation to market, or cause to be marketed, the oil, gas and
other minerals produced from the Subject Lands and attributable to the
Overriding Royalty (the “ORRI
Hydrocarbons”) on behalf of and for the account of Grantee in
arm's-length transactions with reputable purchasers in accordance with prudent
business judgment, with each such sale to be: (i) upon terms and conditions
which are the best terms and conditions reasonably available taking into account
all relevant circumstances, including without limitation, price, quality of
production, access to markets or lack thereof, minimum purchase guarantees,
identify of purchaser and length of commitment, (ii) upon terms and conditions
at least as favorable as (a) Grantor obtains for the share of oil, gas and/or
other minerals attributable to the Burdened Interest in the Subject Lands to
which such sale relates, (b) Grantor obtains for its interest in other oil, gas
and/or other minerals which are of comparable type and quality and which are
produced in the same area as the Subject Lands to which such sale relates, and
(c) those obtained by any Affiliates (below defined) of Grantor for oil, gas
and/or other minerals produced from the Subject Lands to which such sale relates
or from lands in the same area, and (iii) made to a party who is not an
Affiliate of Grantor. As used herein, “Affiliate” shall mean, with
respect to any person or entity, another person or entity that, directly or
indirectly, (a) has an equity interest in that person or entity, (b) has a
common ownership with that person or entity, (c) controls that person or entity,
(d) is controlled by that person or entity or (e) shares common control with
that person or entity. “Control” or “controls” for purposes hereof
means that a person or entity has the power, direct or indirect, to conduct or
govern the policies of another person or entity. Grantor shall duly
perform all obligations performable by it under production sales contracts under
which ORRI Hydrocarbons are sold and shall take all appropriate measures to
enforce the performance under each such production sales contract of the
obligations of the other parties thereto.
2. Grantor
does hereby represent and warrant to Grantee (i) that Grantor owns the interests
specified in Exhibit “A” hereto in and to the Well and the Subject Lease on
which is located the bottom hole of the Well (and Grantor has good and
marketable title to such interests, free of liens and encumbrances, except liens
and encumbrances in favor of Summerline Asset Management, LLC on its own behalf
and in its capacity as collateral agent), (ii) that Grantor has good right and
authority to sell and convey the Overriding Royalty, and (iii) that this
Conveyance of Overriding Royalty Interest (“this Conveyance”) vests in
Grantee good and marketable title to the Overriding Royalty free of any other
liens and encumbrances not referenced in this sentence. Grantor
hereby covenants and agrees to use its reasonable best efforts to rectify any
defects in its title to the interests specified in Exhibit “A” hereto, and
otherwise to cause the foregoing representations and warranties to be true and
correct in all respects (without giving effect to the exception set forth in the
clause at the end of the immediately preceding sentence), to the extent
reasonably possible. Grantor hereby binds itself to warrant and
forever defend, all and singular, title to the Overriding Royalty unto Grantee,
its successors and assigns, against the claims and demands of all persons
claiming or to claim the same or any part thereof by, through or under
Grantor. This Conveyance is made with full substitution and
subrogation of Grantee in and to all covenants and warranties by others
heretofore given or made.
3. Grantor
shall be obligated to explore, develop, operate and maintain the Burdened
Interest as would a prudent operator. As to any portions of the
Burdened Interest as to which Grantor is not the operator, Grantor shall take
all such action and exercise all such rights and remedies as are reasonably
available to it to cause the operator to so explore, develop, maintain and
operate such portions of the Burdened Interest. Grantor shall
promptly (and, unless the same are being contested in good faith and by
appropriate proceedings, before the same are delinquent) pay all costs and
expenses (including all taxes and all costs, expenses and liabilities for labor,
materials and equipment incurred in connection with the Burdened Interests and
all obligations to the holders of royalty interests and other interests
affecting the Subject Leases) incurred in developing, operating and maintaining
the Burdened Interests.
4. Grantor
shall revise and supplement Exhibit “A” promptly upon any increase in the
Grantor’s Working Interest in the Subject Lands, by purchase or otherwise, that
occurs at any time prior to the date on which Grantor has repaid in full all of
the outstanding Notes (as defined in the Securities Purchase Agreement dated
November 13, 2008, between Grantor and Grantor, pursuant to which this
Conveyance was originally issued), to reflect such increase and to reflect the
accordingly increased “Applicable Percentage” pertaining to the Subject
Lands. For purposes of clarification, upon any increase in Grantor’s
Working Interests in the Subject Lands that occurs at any time prior to the date
on which Grantor has repaid in full all of the outstanding Notes, whether or not
Exhibit “A” has been updated in accordance with this Section 4, such increase in
Working Interests shall become subject to this Overriding Royalty and with
respect to that portion of the Subject Lands in which Grantor increases its
Working Interest, such increased Working Interest shall be the revised increased
“Applicable Percentage”
for such portion of the Subject Lands; provided, however, that the ORRI
Percentage shall (i) always equal seven percent (7.0%) of the Applicable
Percentage until the Reduction Point in Time, after which point in time the ORRI
Percentage shall always equal three percent (3.0%) of the Applicable Percentage,
in each case as such Applicable Percentage may be increased from time to time
pursuant to this Section 4, and (ii) with respect to each portion of Subject
Lands identified on Exhibit “A”, the amount of the Applicable Percentage, shall
never be less than the percentage set forth on such Exhibit “A” as the “Working
Interest” or “WI” for the Well, as the same may be increased from time to time
pursuant to this Section 4.
5. Grantee
shall be entitled to receive payment for all ORRI Hydrocarbons directly from the
purchasers thereof or from other parties obligated to make payment
therefor. Grantor shall cause to be prepared and executed such
division orders, transfer orders, or instructions in lieu thereof, as Grantee
(or any third party) may require from time to time to cause payments to be made
directly to Grantee. In the event that, for any reason, Grantee
cannot (or does not) receive such payments directly, the same shall be collected
by Grantor and shall constitute trust funds in Grantor's hands and shall be
immediately paid over to Grantor. Grantee may also, at any time, and
from time to time, at Grantee's option, take all or any part of the ORRI
Hydrocarbons in kind and all production sales contracts entered into by Grantor
covering ORRI Hydrocarbons shall be subject to such right; during such time or
times as Grantee is so taking ORRI Hydrocarbons in kind Grantor's obligation to
market the same, as provided above, shall be suspended as to the ORRI
Hydrocarbons so taken, but shall again become effective where Grantee elects to
cease such taking in kind.
6. Grantor
shall keep full, true, and correct records of the oil, gas, and other
hydrocarbons produced from or attributable to the Subject Lands each calendar
month, and the portion attributable to the Overriding Royalty. Such
records may be inspected by Grantee or its authorized representatives and copies
thereof may be made by Grantee at all reasonable times upon prior written notice
from Grantee to Grantor requesting such inspection and
copying. Grantee shall also have, upon request, access to review all
reports, data and information relating to the Subject Lands or to exploration,
development, production and other operations conducted on the Subject Lands. On
or before the earlier of (a) the fifth business day after Grantor’s first public
disclosure, by issuance of a press release or filing of a report with the
Securities and Exchange Commission, of Grantor’s production from the Subject
Lands or other results of operations for the most recently completed fiscal
quarter or fiscal year, or (b) the last day on which the Grantor can timely
(without giving effect to any extensions of time permitted by Rule 12b-25 under
the Securities Exchange Act of 1934) file a quarterly report on Form 10-Q or
annual report on Form 10-K, as applicable, with respect to such fiscal quarter
of fiscal year, Grantor shall (a) deliver to Grantee a statement (a “Production Statement”) setting
forth (i) the production from the Subject Lands for the most recently completed
fiscal quarter, (ii) the portion of such production attributable to the
Overriding Royalty, (iii) to the extent Grantee does not receive direct payment
of proceeds from sale of ORRI Hydrocarbons (or take ORRI Hydrocarbons in kind)
pursuant to Section 5 above, the gross proceeds (“ORRI Collected Proceeds”)
attributable to the sale of ORRI Hydrocarbons (and the taxes and other costs
permitted to be deducted therefrom under Section 7 below) during such fiscal
quarter and (iv) such other data as Grantee may reasonably request in such form
as Grantee may reasonably request, and (b) make a payment to Grantee of such
ORRI Collected Proceeds (less such costs permitted to be deducted therefrom
under Section 7 below) in immediately available funds by wire transfer (or such
other form specified by Grantee) to such bank or location as Grantee may direct
from time to time in writing. No Production Statement delivered to
Grantee shall contain any information regarding the production from the Subject
Lands or reserves that has not been publicly disclosed by Grantor or any other
material non-public information. If any Production Statement
contains, or Grantor otherwise provides Grantee, any information regarding
aggregate production from the Subject Lands or reserves that has not been
publicly disclosed (or any other material non-public information), Grantee shall
have the right to make public disclosure of such information and Grantee shall
not have any liability to Grantor, any of its subsidiaries or any of its or
their respective officers, directors, employees, shareholders or agents for any
such disclosure. Grantor shall not publicly disclose its results of
operations for any fiscal quarter or fiscal year unless it contemporaneously
publicly discloses, or prior thereto has publicly disclosed, the production from
the Subject Lands for the most recently completed fiscal
quarter.
7. The
Overriding Royalty shall be free of all costs, expenses, and liabilities, of
whatever kind or character, except the Overriding Royalty shall bear its
proportionate share of the costs charged to Grantor by a third party (not an
Affiliate of Grantor) for compression, dehydration and transportation that are
incurred between the first point of receipt of production by such third party
and the redelivery of such compressed and dehydrated production to
Grantor. Specifically, but not by way of limitation, the Overriding
Royalty shall never bear, either directly or indirectly, any costs, expenses or
liabilities for building, constructing, acquiring, drilling, developing,
producing, operating, gathering, separating, trucking, or transporting (except
as set forth in the first sentence of this Section 7) or any post production
expenses, related or pertaining to the Subject Lands, Subject Leases, or ▇▇▇▇▇,
pipelines, or other facilities or improvements situated on the Subject Lands or
lands pooled therewith, or production of oil and/or gas from the Subject Lands
or lands pooled therewith; provided, however, the Overriding Royalty shall bear
its proportionate share of (i) the third party costs identified in the first
sentence of this Section 7 and (ii) production, severance and similar
taxes.
8. ▇▇▇▇▇▇▇
agrees to execute and deliver, and, to the extent it is within Grantor's power
to do so, to cause any third parties to execute and deliver, to Grantee all such
other and additional instruments and to do all such further acts and things as
may be necessary more fully to vest in and assure to Grantee all of the rights,
titles, interests, remedies, powers and privileges herein granted or intended so
to be.
9. [Intentionally
Deleted]
10. Nothing
herein contained shall in any way limit or restrict the right of Grantee to
sell, convey, assign or mortgage (or grant a deed of trust on) the Overriding
Royalty (including its rights, titles, interests, estates, remedies, powers and
privileges appurtenant or incident to the Overriding Royalty under this
Conveyance) in whole or in part. No change of ownership of the
Overriding Royalty shall be binding upon Grantor until Grantor is furnished with
copies of the original documents evidencing such change. Upon receipt
by Grantor of copies of the original documents evidencing a sale, conveyance,
assignment or mortgage (or grant of a deed of trust on) the Overriding Royalty,
Grantor shall deal with the purchaser or assignee in place of Grantee and shall
deal with the mortgagee (or the beneficiary of the deed of trust) in addition to
the Grantee, and references herein to the Grantee shall thereafter also be
deemed to be references to such purchaser, assignee or mortgagee (or the
beneficiary of the deed of trust).
11. If
the Grantor proposes or intends to make any sale, transfer or other disposition
of all or any portion of its Burdened Interest, including without limitation a
proposed or intended sale, transfer or disposition of its Burdened Interest by
merger, reorganization, consolidation, or by sale of all or substantially all of
its assets (other than a sale, transfer or other disposition to a directly or
indirectly wholly-owned subsidiary of Grantor), and such sale, transfer or other
disposition will result in Grantor owning less than a fifty percent (50%)
Working Interest in such Burdened Interest and/or resigning as operator of such
Burdened Interest, Grantor shall so inform Grantee by notice in writing (the
“Transfer Notice”)
describing the interest (or portion thereof) that is the subject of such
proposed or intended sale, transfer or disposition (the “Offered Interest”), and the
other pertinent and reasonable details of such proposed or intended sale,
transfer or disposition. Grantee shall thereupon have fifteen (15)
days after receipt of the Transfer Notice to notify Grantor in writing that
Grantee desires to participate in such sale, transfer or disposition and
contribute the Overriding Royalty, or some portion thereof, as a part of the
properties to be covered by such sale, transfer or
disposition. Failure of Grantee to notify Grantor in writing that
Grantee desires to participate in such sale, transfer or disposition within such
fifteen (15) day period shall be deemed an election by Grantee not to
participate. If Grantee does timely submit its notice to Grantor (i)
the Burdened Interest, or portion thereof that is to be covered by such sale,
transfer or disposition, shall not be sold or disposed of separate and apart of
the Overriding Royalty (or portion thereof as designated by Grantee in its
notice) and (ii) Grantor and Grantee shall mutually agree upon the price or
value that Grantee shall receive upon conclusion of such sale, transfer or
disposition for the Overriding Royalty (or portion thereof) that is to be a part
of the properties covered by such sale, transfer or disposition. In
the event Grantor and ▇▇▇▇▇▇▇ cannot so mutually agree, Grantor and Grantee
shall retain the services of a petroleum reservoir engineer experienced in the
valuation of oil and gas properties employed by ▇▇▇▇▇ ▇▇▇▇▇ & Associates of
Houston, Texas (or its successors in interest) to serve as the sole arbiter of
such disagreement (the “Arbiter”). In the
event ▇▇▇▇▇ ▇▇▇▇▇ & Associates (or its successor in interest) is unwilling
or incapable of having one of its petroleum reservoir engineers serve as
Arbiter, then Grantor and Grantee shall mutually agree on the person to serve as
Arbiter, and in the event Grantor and Grantee cannot so mutually agree, the
selection of the Arbiter shall be made by a federal judge sitting in the
Southern District of New York in the borough of Manhattan, New York, New York,
upon petition filed by either Grantor or Grantee requesting that such selection
be made. The decision of the Arbiter as to such price or value
Grantee shall receive shall be delivered by the Arbiter within ten (10) days of
his retention, and shall be final as to Grantor and Grantee for all
purposes. The costs of such Arbiter shall be borne equally by Grantor
and ▇▇▇▇▇▇▇.
12. Grantor
shall have the right without the joinder of Grantee to release, surrender and/or
abandon its Burdened Interest, or any part thereof, or interest therein, even
though the effect of such release, surrender or abandonment will be to release,
surrender or abandon the Overriding Royalty; provided, however, that Grantor
shall not release, surrender or abandon any Burdened Interest unless and until
Grantor has determined in good faith that such Burdened Interest will no longer
produce in paying quantities, and provided further that, Grantor will, at least
thirty (30) days prior to the release, surrender or abandonment (unless a lesser
period of time governing such release, surrender or abandonment is provided for
in an applicable operating agreement entered into by and between Grantor and a
person or entity that is not an Affiliate of Grantor, in which case at least the
number of days provided for in such lesser time period) of any Burdened
Interest, or any part thereof or interest therein, notify Grantee (in writing,
giving a description of each Burdened Interest, or part thereof or interest
therein, proposed to be released, surrendered or abandoned, and the date upon
which such release, surrender or abandonment is projected to occur) and, if
Grantee shall so request, Grantor shall assign to Grantee the interests proposed
to be released, surrendered or abandoned, together with the interest
attributable to the Burdened Interests in all equipment located thereon or used
in connection therewith; provided further that, in the event of such an
assignment from Grantor to Grantee, Grantee shall pay to Grantor the salvage
value of any equipment so conveyed by Grantor to Grantee.
13. Without
prior written notice to Grantee providing Grantee with the opportunity to
acquire the affected interest of Grantor at no additional cost to Grantee other
than assumption by Grantee of the obligations of Grantor pertaining to the
affected interest, Grantor shall not elect to be a non-participating party
(whether pursuant to an operating agreement or other agreement or arrangement,
including without limitation, non-consent rights and obligations imposed by
statute and/or regulatory agency) with respect to any drilling, deepening,
plugging back, reworking, sidetracking or completion (or other) operation on any
Burdened Interest or elect to be an abandoning party with respect to a well
located on any Burdened Interest; provided, however, if such direct acquisition
by Grantee would be prohibited by the applicable operating agreement or other
agreement or arrangement and Grantee has timely notified Grantor that Grantee
elects to acquire such affected interest, Grantor agrees to use reasonable
commercial efforts to enter into a mutually satisfactorily contractual
arrangement with Grantee that would allow Grantee to indirectly acquire such
affected interest, or have the same economic consequences of ownership of such
affected interest, and not be in violation or breach of such applicable
operating agreement or other agreement or arrangement. ▇▇▇▇▇▇▇ agrees
to provide such prior written notice to ▇▇▇▇▇▇▇ as soon as is reasonably
possible in order to afford Grantee as much time as reasonably possible to
respond. Such prior written notice shall include information advising
Grantee of the time period required by the applicable operating agreement, other
agreement or arrangement for response on this matter, and failure on the part of
Grantee to notify Grantor of its election to acquire such affected interest
within such time period shall be deemed an election by Grantee to not acquire
such affected interest. Notwithstanding anything to the contrary
contained herein, Grantor shall not elect, as to any Burdened Interest, to be a
non-participating party with respect to any operation contemplated in this
Section 11 in the event Grantor or any Affiliate of Grantor will also be a
participating party in such operation.
14. The
Overriding Royalty shall apply to all renewals, extensions and other similar
arrangements (and/or interests therein) of the Subject Leases insofar as they
cover Subject Lands. A new lease taken before the expiration of the
existing Subject Lease which it replaced or within one (1) year after expiration
of such Subject Lease, and covering the same interest (or any part thereof) that
was covered by the Subject Lease, shall be considered a renewal or extension for
the purposes hereof. Additionally, the Overriding Royalty shall
continue in force and effect and not be extinguished in the event Grantor
acquires the mineral estate covered by a Subject Lease and thereafter releases
such Subject Lease.
15, The
agreements and obligations of Grantor in Sections 9, 11 and 13 above shall not
be covenants running with the land and shall be personal agreements and
obligations of Grantor and any Affiliate of Grantor that shall terminate upon a
sale, transfer or disposition of Grantor’s Burdened Interest to a third party
that is not an Affiliate of Grantor. All other covenants and
agreements of Grantor herein contained shall be deemed to be covenants running
with the Burdened Interest. All of the provisions hereof shall inure
to the benefit of Grantee and its successors and assigns.
16. All
communications required or permitted to be given under this Conveyance shall be
in writing and shall be given by registered or certified mail, postage prepaid
or telecopy, or by personal service (including express or courier service), and
addressed to the addresses specified at the beginning of this Conveyance (or to
such other address or telecopy number as may be designated in writing in
accordance herewith). Notices shall be deemed given upon
receipt.
17. This
Conveyance is being executed in several counterparts, all of which are
identical, except that, to facilitate recordation, in certain counterparts
hereof only that portion of Exhibit “A” which contains specific descriptions of
the Subject Lands located in the recording jurisdiction in which the counterpart
is to be recorded shall be included, and all other portions of Exhibit “A” shall
be included by reference only. Complete copies of this Conveyance
containing the entire Exhibit “A” have been retained by ▇▇▇▇▇▇▇ and
▇▇▇▇▇▇▇. All of such counterparts together shall constitute but one
and the same instrument.
18. WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW, THIS CONVEYANCE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE AND THE LAWS OF THE UNITED
STATES OF AMERICA, EXCEPT THAT TO THE EXTENT THAT THE LAW OF A STATE IN WHICH A
PORTION OF THE OVERRIDING ROYALTY IS LOCATED (OR WHICH IS OTHERWISE APPLICABLE
TO A PORTION OF THE OVERRIDING ROYALTY) NECESSARILY OR, IN THE SOLE DISCRETION
OF GRANTEE, APPROPRIATELY GOVERNS, WITH RESPECT TO PROCEDURAL AND SUBSTANTIVE
MATTERS RELATING TO THE CREATION, PERFECTION AND VESTING OF THE OVERRIDING
ROYALTY, AND OTHER RIGHTS AND REMEDIES OF THE GRANTEE GRANTED HEREIN, THE LAW OF
SUCH STATE SHALL APPLY AS TO THAT PORTION OF THE OVERRIDING ROYALTY LOCATED IN
(OR WHICH IS OTHERWISE SUBJECT TO THE LAWS OF) SUCH STATE. GRANTOR
AND GRANTEE HEREBY
IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS
SITTING IN THE CITY OF NEW YORK, 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
WAIVE, AND AGREE 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. GRANTOR AND GRANTEE
HEREBY IRREVOCABLY WAIVE PERSONAL SERVICE OF PROCESS AND CONSENT TO PROCESS
BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF TO
SUCH PARTY AT THE ADDRESS SHOWN ABOVE FOR SUCH PARTY, AND AGREE THAT SUCH
SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY
ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE
PARTIES ACKNOWLEDGE THAT ▇▇▇▇▇▇▇’S PRINCIPAL OFFICE IS IN THE STATE OF NEW YORK
AND GRANTEE HAS MADE PAYMENTS TO GRANTOR FROM ITS BANK ACCOUNT LOCATED IN THE
STATE OF NEW YORK. 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 CONVEYANCE OR
ANY TRANSACTION CONTEMPLATED HEREBY.
19. It
is not the intent of the Grantor or Grantee that any provision herein violate
any applicable law regarding the rule against perpetuities, and this Conveyance
shall be construed as not violating such rule to the extent the same can be
construed consistent with the expressed intent of the Grantor and Grantee as set
forth in this Conveyance. In the event, however, that any provision
of this Conveyance is determined to violate such rule, then such provision shall
nevertheless be effective for the maximum period (but not longer than the
maximum period) permitted by such rule that will result in no such
violation. To the extent such maximum period is permitted to be
determined by reference to lives in being, Grantor and ▇▇▇▇▇▇▇ agree that “lives
in being” shall refer to the lifetime of the last to die of the now living
lineal descendants of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, 41st
President of the United States of America.
IN WITNESS WHEREOF, this Conveyance is
executed as of the date indicated below, effective as of 7 o'clock a.m. local
time at the locations of the Subject Lands, respectively on December 4, 2008
(the “Effective
Time”)
[signatures
and acknowledgement pages to follow]
| “GRANTOR” | |
| SONTERRA RESOURCES, INC. | |
| By: |
/s/
▇. ▇. ▇▇▇▇▇▇▇▇▇▇
|
|
▇.
▇. ▇▇▇▇▇▇▇▇▇▇,
President
|
|
|
“GRANTEE”
|
||
|
LONGVIEW
MARQUIS MASTER FUND, L.P.
|
||
|
By:
Summerline Asset Management, LLC
|
||
|
Its:
Investment Adviser
|
||
|
By:
|
▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇
|
|
|
Its:
|
Co-Managing
Member
|
|
|
STATE
OF TEXAS
|
)
|
|
) ss:
|
|
|
COUNTY
OF ▇▇▇▇▇▇
|
)
|
The
foregoing instrument was acknowledged before me on this 5th day of December,
2008, by ▇.▇. ▇▇▇▇▇▇▇▇▇▇, President of Sonterra Resources, Inc., a Delaware
corporation, as the act and deed and on behalf of said corporation.
|
/s/
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
|
|
|
Notary
Public, State of Texas
|
|
|
[SEAL]
|
|
|
▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
|
|
(printed
name)
|
My
commission expires:
|
STATE
OF NEW YORK
|
)
|
|
)
ss:
|
|
|
COUNTY
OF ______________
|
)
|
The
foregoing instrument was acknowledged before me on this ___ day
of December, 2008, by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Co-Managing Member of
Summerline Asset Management, LLC, as investment adviser to Longview Marquis
Master Fund, L.P., a British Virgins Island limited partnership, as the act and
deed of such entity on behalf of said limited partnership.
|
Notary
Public, State of New York and County of
|
|
|
[SEAL]
|
|
|
(printed
name)
|
My
commission expires:
EXHIBIT
“A”
Well
Interest:
State
Tract ▇▇▇ ▇▇. ▇ ▇▇ #▇ ▇▇▇▇, API No. ▇▇-▇▇▇-▇▇▇▇▇: 37.40% WI / 27.58252%
NRI
Part One - Oil and Gas Lease
(Bottom Hole and all productive intervals):
Oil and
Gas Lease dated July 6, 2004, from the State of Texas, by and through the
Commissioner of the General Land office of the State of Texas, as Lessor, to
LLOG Exploration Texas, L.P., as Lessee, covering Oil and Gas Lease Number
M-104022, being the North One-Half (N/2) of Tract 150, Matagorda Bay, ▇▇▇▇▇▇▇
County, Texas, containing approximately 320 acres as shown on the applicable
Official Submerged Area Map on file in the Texas General Land Office, Austin,
Texas, and recorded in the Official Records of ▇▇▇▇▇▇▇ County, Texas, as File
No. 00088242, Volume 381, Page 433.
Part Two - Oil and Gas Lease
(Surface Location only):
Oil and
Gas Lease dated July 1, 2003, from the State of Texas, as Lessor, to Cinco
Natural Resources Corporation, as Lessee, covering Oil and Gas Lease No.
M-103194, being the South One-Half (S/2) of State Tract 150, Matagorda Bay,
▇▇▇▇▇▇▇ County, Texas, containing approximately 320.0 acres, recorded in File
No. 82095, Volume 349, Page 1 of the Official Records of ▇▇▇▇▇▇▇ County,
Texas.
EXHIBIT
B
Instructions
to Bank
___________
__, 200_
Mr. ▇▇▇▇▇
▇▇▇▇
Executive
Vice President
Commercial
Lending Manager – San
Antonio VIA
FAX (▇▇▇) ▇▇▇-▇▇▇▇
Sterling
Bank
▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
San
Antonio, Texas 78209
|
Re:
|
Letter
of Instructions to Sterling Bank for Transfer of Funds
|
|
|
Deposit
Account Control Agreement Dated as of November 13, 2008
|
||
|
Account
Holder:
|
||
|
Account
Name:
|
Sonterra/Velocity
Acquisition Fund
|
|
|
Account Number:
|
|
|
Dear
▇▇▇▇▇:
Pursuant to Paragraphs 2(b) and 3 of
that certain Deposit Account Control Agreement dated as of November 13, 2008
among Sonterra Resources, Inc., a Delaware corporation (“Sonterra”), Summerline
Asset Management, LLC, a Delaware limited liability company, as collateral agent
(“Collateral Agent”), and Sterling Bank (the “Bank”), this letter is sent by
Collateral Agent and Sonterra to direct the Bank to transfer $[_______] on the
date hereof from the above-referenced account by electronic wire transfer to the
following account:
|
Bank:
|
▇▇▇▇▇
Fargo, N.A.
|
|
ABA
No:
|
▇▇▇▇▇▇▇▇▇
|
|
Account
Holder:
|
STO
Operating Company
|
|
Account
Name:
|
STO
Operating Account
|
|
Account
Number:
|
|
Please execute, or have another duly
authorized and directed representative of the Bank execute, this letter to
acknowledge receipt of this letter of instructions and to confirm that the Bank
will honor the instruction set forth in this letter of
instructions. Please fax the executed letter of instructions to my
attention at (▇▇▇) ▇▇▇-▇▇▇▇. Thank you for your assistance in this
matter.
▇▇▇▇▇▇▇▇
N E A S S E T MANAGEMENT, L L C
7 0 WES T
RED OAK LANE, 4 T H F ▇▇▇▇ , W H I T E P LA I
N S , N Y 1 0 6 0 4
PHONE : 9
1 4 - 6 9 7 - 4 7 5 1 • F A X : 9 1 4 - 6 9 7 - 4 9 6 7
|
Sincerely,
|
|
SUMMERLINE
ASSET MANAGEMENT LLC
|
|
By: ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇
|
|
Its: Co-Managing
Member
|
|
Agreed
and Acknowledged this __ day of
|
|
____________,
200_, by:
|
|
By: ▇▇.
▇. ▇. ▇▇▇▇▇▇▇▇▇▇
|
|
Its:
CEO and President
|
|
Sterling
Bank
|
|
By: ▇▇▇▇▇
▇▇▇▇
|
|
Its:
Executive Vice President and
|
|
Commercial
Lending Manager – San
Antonio
|
|
cc:
|
▇▇▇▇▇
▇▇▇▇▇▇
|
|
▇▇▇
▇▇▇▇
|
|
▇▇.
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
|
|
|
Sterling
Bank VIA
FAX (▇▇▇) ▇▇▇-▇▇▇▇
|
|
|
▇▇▇▇
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
|
|
|
Houston,
Texas 77092
|