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EXHIBIT 10.5
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "AGREEMENT") dated as of June 30, 1999, is
made by VENUS EXPLORATION, INC., a Delaware corporation ("PLEDGOR"), whose
address is 1250 N.E. Loop 410, Suite 1000, San Antonio, Texas 78209, for the
benefit of EXCO RESOURCES, INC., a Texas corporation ("SECURED PARTY"), whose
address is 5735 Pineland, Suite 235, Dallas, Texas 75231.
R E C I T A L S
1. Pursuant to that certain Convertible Promissory Note dated as of
June 30, 1999, executed by Pledgor and payable to the order of Secured Party in
the original principal amount of $8,000,000.00, (together with all
modifications, amendments, renewals, extensions, and restatements, if any, from
time to time thereafter thereto, the "NOTE"), Secured Party has made certain
loans to Pledgor.
2. As a condition precedent to the making of advances and other
extensions of credit under the Note, Pledgor is required to execute and deliver
this Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Pledgor agrees, for the benefit of
Secured Party, as follows:
SECTION 1
DEFINITIONS
1.1 NOTE DEFINITIONS. Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and
recitals, have the meanings provided in the Note.
1.2 CERTAIN TERMS. The following terms when used in this Agreement,
including its preamble and recitals, shall have the following meanings (such
definitions to be equally applicable to the singular and plural forms thereof):
"CODE" means the Uniform Commercial Code as in effect in the State of
Texas.
"COLLATERAL" is defined in SECTION 2.1.
"COMPANY" means EXUS Energy, LLC, a Delaware limited liability company,
as such limited liability company exists or may hereinafter be restated,
amended, or restructured, and any limited liability company, partnership, joint
venture, or corporation formed as a result of the restructure, reorganization,
or amendment of any of such limited liability company.
"EVENT OF DEFAULT" is defined in SECTION 5.1.
"LOAN DOCUMENTS" means the Note, this Agreement, and the other loan and
collateral documents now or hereafter evidencing or securing payment thereof or
executed in connection therewith, and all modifications, amendments, renewals,
extension, restatements, and supplements thereof.
PLEDGE AGREEMENT
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"LLC AGREEMENT" means (a) that certain Certificate of Formation of the
Company dated as of June 25, 1999, (b) that certain Limited Liability Company
Agreement of the Company dated as of June 30, 1999, and (c) all modifications,
amendments, restatements, or supplements thereof.
"PLEDGED INTERESTS" means all of Pledgor's membership interests in the
Company including, without limitation (a) all of Pledgor's right, title, and
interest now or hereafter accruing under the LLC Agreement with respect to any
interest now owned or hereafter acquired or owned by Pledgor in the Company, and
(b) all distributions, proceeds, fees, preferences, payments, or other benefits,
which Pledgor now is or may hereafter become entitled to receive with respect to
such interests in the Company and with respect to the repayment of all loans now
or hereafter made by Pledgor to the Company, and Pledgor's undivided percentage
interest in the assets of the Company.
"SECURED INDEBTEDNESS" is defined in SECTION 2.2.
"SECURITY INTERESTS" means the pledge and security interests securing
the Secured Indebtedness, including (a) the pledge and security interest in the
Pledged Interests granted in this Agreement, and (b) all other security
interests created or assigned as additional security for the Secured
Indebtedness pursuant to the provisions of this Agreement.
1.3 CODE DEFINITIONS. Unless otherwise defined herein or the context
otherwise requires, terms for which meanings are provided in the Code are used
in this Agreement, including its preamble and recitals, with such meanings.
SECTION 2
COLLATERAL AND OBLIGATIONS
2.1 GRANT OF SECURITY INTEREST.
(a) As collateral security for the Secured Indebtedness, Pledgor hereby
pledges and grants to Secured Party a first priority lien on and security
interest in and to, and agrees and acknowledges that Secured Party has and shall
continue to have, a security interest in and to, and assigns, transfers,
pledges, and conveys to Secured Party, all of Pledgor's right, title, and
interest in and to the following described collateral (the "COLLATERAL") now
owned or hereafter acquired, wherever located, howsoever arising or created, and
whether now existing or hereafter arising, existing, or created:
(i) the Pledged Interests and all rights of Pledgor with
respect thereto and all proceeds, income, and profits therefrom;
(ii) all of Pledgor's distribution rights, income rights,
liquidation interest, accounts, contract rights, general intangibles,
notes, instruments, drafts, and documents relating to the Pledged
Interests;
(iii) to the extent attributable to the Pledged Interests, all
promissory notes, notes receivable, accounts, accounts receivable, and
instruments owned or held by Pledgor or, in which Pledgor owns or holds
an interest, evidencing obligations of the Company;
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(iv) all Liens, security interests, collateral, property, and
assets securing any of the promissory notes, notes receivables,
instruments, accounts receivable, and other claims and interests
described in CLAUSE (III) above;
(v) all books, files, computer records, computer software,
electronic information, and other files, records, or information
relating to any or all of the foregoing; and
(vi) all substitutions, replacements, products, proceeds,
income, and profits arising from any of the foregoing, including,
without limitation, insurance proceeds.
(b) The Security Interests are granted as security only and shall not
subject Secured Party or any holder of the Secured Indebtedness to, or transfer
or in any way affect or modify, any obligation or liability of Pledgor with
respect to any of the Collateral.
2.2 SECURITY FOR THE OBLIGATION. The Collateral shall secure the
payment of the Obligation, including, without limitation, all obligations now or
hereafter existing under the Note, this Agreement, and each of the other Loan
Documents to which Pledgor is or may become a party, whether for principal,
interest, costs, fees, expenses, or otherwise (including all such amounts which
would become due but for the operation of the automatic stay under Section
362(a) of the United States Bankruptcy Code, 11 U.S.C. ss. 362(a), and the
operation of Sections 502(b) and 506(b) of the United States Bankruptcy Code, 11
U.S.C. ss.ss. 502(b) and 506(b)) (all of the foregoing, together with all
renewals, extensions and modifications of all or any part thereof, being the
"SECURED INDEBTEDNESS")
2.3 PLEDGOR REMAINS LIABLE. Notwithstanding anything to the contrary
contained herein, (a) Pledgor shall remain liable under the LLC Agreement to the
extent set forth therein to perform all of its duties and obligations thereunder
to the same extent as if this Agreement had not been executed, (b) the exercise
by Secured Party of any of its rights hereunder shall not release Pledgor from
any of its duties or obligations under the contracts and agreements included in
the Collateral, and (c) Secured Party shall not have any obligation or liability
under the LLC Agreement by reason of this Agreement, nor shall Secured Party be
obligated to perform any of the obligations or duties of Pledgor thereunder or
to take any action to collect or enforce any claim for payment assigned
hereunder.
2.4 CONSENT. To the extent the LLC Agreement requires the consent or
agreement of Pledgor to the transfer, conveyance, or encumbrance of all or any
portion of the Pledged Interests, Pledgor hereby irrevocably consents to (a) the
grant of the security interest described in SECTION 2.1 of this Agreement, and
(b) the transfer or conveyance of the Pledged Interests and other Collateral
pursuant to Secured Party's exercise of its rights and remedies under SECTION
5.4 of this Agreement or any of the other Loan Documents.
SECTION 3
REPRESENTATIONS AND WARRANTIES
Pledgor hereby represents and warrants to Secured Party as follows:
(a) Pledgor is the sole legal and beneficial owner of good and
indefeasible title to a fifty percent (50%) membership interest in the Company.
Pledgor has good and indefeasible title to the Pledged Interests and other
Collateral free and clear of any Lien except for the Security Interests created
by this Agreement and
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has all necessary authority to pledge, sell, transfer, and assign the Pledged
Interests and other Collateral as provided herein, and such assignment and
transfer, and any subsequent foreclosure or other realization upon the Pledged
Interests or other Collateral pursuant hereto (whether acquired by Secured Party
or a third party), are not contrary to or in conflict with the LLC Agreement or
any other agreement;
(b) No financing statement or other instrument similar in effect
covering all or any part of the Collateral is on file in any recording office,
except such as may have been filed in favor of Secured Party relating to this
Agreement;
(c) This Agreement has been duly executed and delivered by Pledgor and
is the legal and binding obligation of Pledgor enforceable in accordance with
its terms;
(d) Upon execution of this Agreement and an appropriate financing
statement by Pledgor and the recording of the financing statement in the
appropriate office, Secured Party will have a valid, first, and prior perfected
security interest in the Collateral;
(e) Neither the execution and delivery of this Agreement, nor the
consummation of any of the transactions hereby contemplated, nor compliance with
the terms and provisions hereof, will contravene or materially conflict with (i)
any material provision of law, statute, or regulation to which Pledgor or the
Company is subject, or (ii) any judgment, license, order, or permit applicable
to Pledgor or the Company;
(f) No consent, approval, authorization, or order of any Governmental
Authority, partner, or third party is required that has not been received or
taken (i) for the grant by Pledgor of the Security Interests, (ii) for the
execution, delivery, or performance of this Agreement by Pledgor, (iii) for the
perfection of the Security Interests, or (iv) except for such notices as are
required by the Code, for the exercise by Secured Party of its rights and
remedies hereunder; and
(g) The chief executive office and principal place of business of
Pledgor is in Bexar County, Texas.
SECTION 4
PLEDGOR'S COVENANTS
Pledgor hereby covenants and agrees that until the Secured Indebtedness
is paid and performed in full:
(a) Pledgor will pay and discharge promptly when due all taxes,
assessments, forced contributions, governmental charges, fines, penalties, and
any other lawful claims, of every description, payable by Pledgor with respect
to (or which, if not paid, could result in an encumbrance upon) any of the
Collateral, except for taxes, assessments, forced contributions, governmental
charges, fines, penalties, and any other lawful claims that are being contested
in good faith by appropriate proceedings and for which reserves in accordance
with generally acceptable accounting principles have been established. In the
event that Pledgor should, for any reason, fail to pay and discharge promptly
any taxes, assessments, forced contributions, governmental charges, fines, or
penalties when due, then Secured Party shall be authorized, but shall not be
obligated, to pay the same, with full subrogation to all rights of any Person by
reason of such payment, and the amounts so paid, together with interest thereon
as provided herein, shall be secured by the Security Interests.
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(b) Pledgor will not sell, transfer, mortgage, or otherwise encumber
any Collateral in any manner without first obtaining the written consent of
Secured Party, which consent may be withheld in Secured Party's sole and
absolute discretion. Any written consent to any such sale, mortgage, transfer,
or encumbrance shall not be construed to be a waiver of this provision in
respect of any subsequent proposed sale, mortgage, transfer, or encumbrance.
(c) Pledgor will, at its expense and in such manner and form as Secured
Party may from time to time reasonably require, execute, deliver, file, and
record any financing statement, specific assignment, or other instruments,
certificates, or papers, and take any other action that may be necessary or
desirable, or that Secured Party may from time to time reasonably request, in
order to create, preserve, perfect, or validate any Security Interest, or to
enable Secured Party to exercise and enforce its rights hereunder with respect
to any of the Collateral. In the event, for any reason, that the law of any
jurisdiction other than the State of Texas becomes or is applicable to the
Collateral, or any part thereof, Pledgor agrees to execute and deliver all such
instruments and to do all such other things that may be necessary or appropriate
to preserve, protect, and enforce the Security Interests of Secured Party under
the law of such other jurisdiction, to at least the same extent that the
Security Interests would be protected under the Code. To the extent permitted by
applicable law, Pledgor hereby authorizes Secured Party to execute and file, in
the name of Pledgor or otherwise, financing statements that Secured Party in its
sole discretion may deem necessary or appropriate to further perfect the
Security Interests.
(d) If Pledgor receives, by virtue of being or having been an owner of
any of the Collateral, any notes, other instruments, options, cash
distributions, or any other distribution, then Pledgor shall receive the same in
trust for the benefit of Secured Party, shall immediately notify Secured Party
of such receipt, and shall immediately take all such actions and execute all
such documents as Secured Party deems necessary or appropriate to continue or
create as first and prior perfected Liens, in favor of Secured Party covering
such notes, other instruments, or options.
(e) Pledgor will notify Secured Party in writing prior to any change of
Pledgor's chief executive office or principal place of business.
(f) Pledgor shall cause to be obtained any and all waivers and consents
necessary to make effective the grant contained in and to perfect the security
interest granted to Secured Party pursuant to SECTION 2.1 hereof, including,
without limitation, all necessary waivers and consents from the other partners,
if any, of the Company.
(g) Pledgor shall perform fully all obligations imposed upon it by any
agreements or instruments concerning all or any part of the Collateral,
including, without limitation, the LLC Agreement, and shall maintain in full
force and effect all such agreements and instruments, and shall not amend or
modify, or consent to the amendment or modification of such agreements or
instruments, without the prior written consent of Secured Party.
(h) Pledgor shall promptly notify Secured Party of any material adverse
change in any material fact or material circumstance warranted or represented by
Pledgor in this Agreement or the Note or in any other writing furnished by
Pledgor to Secured Party in connection with the Collateral or the Secured
Indebtedness, and shall promptly notify Secured Party of any claim, action, or
proceeding affecting title to the Collateral, or any part thereof, or the
Security Interests herein, and, at the request of Secured Party, shall appear
and defend, at Pledgor's expense, any such action or proceeding.
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SECTION 5
GENERAL AUTHORITY AND POWERS AND REMEDIES
5.1 EVENTS OF DEFAULT. For purposes hereof, the term "EVENT OF DEFAULT"
means the occurrence of any of the following events or conditions:
(a) an Event of Default under the Note; or
(b) the failure of Pledgor to observe any of the terms,
conditions, or covenants contained in this Agreement or any other Loan
Document; or
(c) any legal or equitable interest in any of the Collateral
becomes vested in a person or entity other than Pledgor.
5.2 VOTING RIGHTS; DIVIDENDS, ETC., PRIOR TO EVENT OF DEFAULT.
(a) RIGHTS PRIOR TO EVENT OF DEFAULT. So long as no Event of Default
exists and Secured Party shall not have given written notice to Pledgor or the
Company of its intention to foreclose upon or otherwise dispose of all or any
part of the Collateral, or to exercise its voting rights pertaining to the
Pledged Interests, Pledgor shall be entitled to exercise any and all voting
and/or consensual rights and powers relating or pertaining to the Pledged
Interests or any part thereof for any purpose not inconsistent with the terms of
this Agreement; provided, however, that Pledgor shall not exercise or refrain
from exercising any such right or power if such action would have a Material
Adverse Effect on the value of the Pledged Interests or any part thereof.
(b) TERMINATION OF RIGHTS. Upon (i) the occurrence of an Event of
Default and the expiration of any period of grace or notice, if any, and (ii)
the giving of written notice by Secured Party to Pledgor or the Company of its
intention to (A) foreclose upon or otherwise dispose of all or any part of the
Collateral or (B) exercise its voting rights pertaining to the Pledged
Interests, all rights of Pledgor to exercise the voting and/or consensual rights
and powers which it is entitled to exercise pursuant to SECTION 5.2(A) hereof
shall cease, at the option of Secured Party, and all such rights shall thereupon
become vested in Secured Party, who shall have the sole and exclusive right and
authority to exercise such voting and/or consensual rights.
(c) NO RIGHT TO RECEIVE DISTRIBUTIONS. If an Event of Default exists,
all payments and distributions made to Pledgor upon or with respect to the
Collateral shall be paid or delivered to Secured Party, and Pledgor agrees to
take all such action as Secured Party may reasonably deem necessary or
appropriate to cause all such payments and distributions to be made to Secured
Party. Further, Secured Party shall have the right, at any time after the
occurrence of an Event of Default, to notify and direct the Company to
thereafter make all payments, dividends, and any other distributions payable in
respect thereof directly to Secured Party. The Company shall be fully protected
in relying on the written statement of Secured Party that it then holds a
security interest which entitles it to receive such payments and distributions.
Any and all money and other property paid over to or received by Secured Party
pursuant to this SECTION 5.2 shall be retained by Secured Party as additional
collateral hereunder and may be applied (and upon Pledgor's written request all
cash shall promptly be applied) in accordance with SECTION 5.6 hereof.
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5.3 GENERAL AUTHORITY. Pledgor hereby irrevocably appoints Secured
Party, and its successors and assigns, the true and lawful attorney-in-fact of
Pledgor, with full power of substitution, in the name of Pledgor, for the sole
use and benefit of Secured Party, but at Pledgor's expense, to the extent
permitted by law to exercise, at any time and from time to time while an Event
of Default exists, all or any of the following powers with respect to all or any
of the Collateral:
(a) to ask, demand, sue for, collect, receive, and give acquittance and
receipts for any and all monies due or to become due upon or by virtue thereof;
(b) to receive, endorse, and collect any drafts or other instruments,
documents, and chattel paper, in connection with CLAUSE (A) preceding;
(c) to settle, compromise, compound, prosecute, or defend any action or
proceeding with respect thereto;
(d) subject to SECTION 5.4 hereof, to sell, transfer, assign, or
otherwise deal in or with the same or the proceeds thereof as fully and
effectually as if Secured Party were the absolute owner thereof; and
(e) to extend the time of payment of any or all thereof and to make any
allowance and other adjustments with reference thereto.
In addition, Secured Party, at any time after an Event of Default, shall, upon
reasonable advance notice, have the right, together with such accountants and
other agents or representatives as it may from time to time designate, to visit
and inspect the Company's properties, assets, books, records, and documents and
to discuss the Company's affairs, finances, and accounts with Pledgor's and the
Company's representatives, officers, or directors, during all business hours as
Secured Party may designate, and to make and take away copies of the Company's
records at Secured Party's expense. Pledgor shall furnish to Secured Party any
information reasonably requested by Secured Party in connection with the
Collateral. Pledgor will maintain complete and accurate books and records
regarding the Collateral.
5.4 REMEDIES UPON EVENT OF DEFAULT.
(a) If any Event of Default shall have occurred and is continuing, then
Secured Party, at its option, without demand, presentment, notice of
acceleration, intention to accelerate, or other notice (which are fully waived)
may:
(i) exercise all the rights of a secured party under the Code
(whether or not the Code is in effect in the jurisdiction where such
rights are exercised, unless prohibited by applicable law).
(ii) apply the cash, if any, then held by Secured Party as
Collateral as specified in SECTION 5.6.
(iii) sell all of the Collateral or any part thereof at public
or private sale or at any broker's board or on any securities exchange,
for cash, upon credit, or for future delivery, and at such price or
prices as Secured Party may reasonably deem satisfactory. Upon Secured
Party's demand, Pledgor will take all steps necessary to prepare the
Collateral for and otherwise assist in any proposed disposition of the
Collateral. Any holder of the Secured Indebtedness may be the purchaser
of any or
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all of the Collateral so sold at any public sale (or, if the Collateral
is of a type customarily sold in a recognized market or is of a type
which is the subject of widely distributed standard price quotations or
if the subject Collateral is an interest or other Collateral that is
the subject of the immediately following paragraph, at any private
sale) and thereafter hold the same absolutely free from any right or
claim of whatsoever kind. Any holder of the Secured Indebtedness shall
have the right to offset the amount of its bid against an equal amount
of the Secured Indebtedness held by such holder. If a third party is
the purchaser at a foreclosure sale, neither Secured Party nor any of
its affiliates may directly or indirectly benefit from such foreclosure
sale, other than payment of the Secured Indebtedness from the proceeds
of such foreclosure sale.
(b) The sale of the Collateral is also subject to the following:
(i) Pledgor agrees that, because of the Securities Act of
1933, as amended, or any other laws or regulations, and for other
reasons, there may be legal and/or practical restrictions or
limitations affecting Secured Party in any attempts to dispose of
certain portions of the Collateral and for the enforcement of their
rights. For these reasons, Secured Party is hereby authorized by
Pledgor, but not obligated, upon the occurrence and during the
continuation of an Event of Default, to sell all or any part of the
Collateral at private sale, subject to investment letter or in any
other manner which will not require the Collateral, or any part
thereof, to be registered in accordance with the Securities Act of
1933, as amended, or the rules and regulations promulgated thereunder,
or any other laws, at a reasonable price at such private sale or other
distribution in the manner mentioned above. Pledgor understands that
Secured Party may in its discretion approach a limited number of
potential purchasers and that a sale under such circumstances may yield
a lower price for the Collateral, or any part thereof, than would
otherwise be obtainable if such Collateral were either afforded to a
larger number of potential purchasers or registered or sold in the open
market. Pledgor agrees that such private sale shall be deemed to have
been made in a commercially reasonable manner, and that Secured Party
has no obligation to delay the sale of any Collateral to permit the
issuer thereof to register it for public sale under any applicable
federal or state securities laws.
(ii) Secured Party is authorized in connection with any such
sale to (A) restrict the prospective bidders on or purchasers of any of
the Collateral to a limited number of sophisticated investors who will
represent and agree that they are purchasing for their own account for
investment and not with a view to the distribution or sale of any of
such Collateral, and (B) impose such other limitations or conditions in
connection with any such sale as Secured Party reasonably deems
necessary in order to comply with applicable law.
(c) Pledgor covenants and agrees that it will execute and deliver such
documents and take such other action as Secured Party reasonably deems necessary
in order that any such sale may be made in compliance with applicable law. Upon
any such sale Secured Party shall have the right to deliver, assign, and
transfer to the purchaser thereof the Collateral so sold. Each purchaser at any
such sale shall hold the Collateral so sold absolutely free from any claim or
right of Pledgor of whatsoever kind, including any equity or right of redemption
of Pledgor. Pledgor, to the extent permitted by applicable law, hereby
specifically waives all rights of redemption, stay, or appraisal which it has or
may have under any law now existing or hereafter enacted. In case of any sale of
all or any part of the Collateral on credit or for future delivery, the
Collateral so sold may be retained by Secured Party until the selling price is
paid by the purchaser thereof, but Secured Party shall not incur any liability
in case of the failure of such purchaser to take up and pay for the Collateral
so sold, and in case of any such failure, such Collateral may again be sold upon
like notice.
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Secured Party, instead of exercising the power of sale herein conferred upon it,
may proceed by a suit or suits at law or in equity to foreclose the Security
Interests and sell the Collateral, or any portion thereof, under a judgment or
decree of a court or courts of competent jurisdiction.
(d) Pledgor agrees that ten (10) days' written notice from Secured
Party to Pledgor of Secured Party's intention to make any such public or private
sale or sale at a broker's board or on a securities exchange shall constitute
"reasonable notification" within the meaning of Section 9-504(c) of the Code.
Such notice shall (i) in case of a public sale, state the time and place fixed
for such sale, (ii) in case of sale at a broker's board or on a securities
exchange, state the board or exchange at which such a sale is to be made and the
day on which the Collateral, or the portion thereof so being sold, will first be
offered to sale at such board or exchange, and (iii) in the case of a private
sale, state the day after which such sale may be consummated. Any such public
sale shall be held at such time or times within ordinary business hours and at
such place or places as Secured Party may fix in the notice of such sale. At any
such sale, the Collateral may be sold in one lot as an entirety or in separate
parcels, as Secured Party may reasonably determine. Secured Party shall not be
obligated to make any such sale pursuant to any such notice. Secured Party may,
without notice or publication, adjourn any public or private sale or cause the
same to be adjourned from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or place to which the
same may be so adjourned.
(e) Without limiting the foregoing or imposing upon Secured Party any
obligations or duties not required by applicable law, Pledgor acknowledges and
agrees that, in foreclosing upon any of the Collateral or exercising any other
rights or remedies provided Secured Party hereunder or under applicable law,
Secured Party may, but shall not be required to: (i) qualify or restrict
prospective purchasers of the Collateral by requiring evidence of sophistication
and/or creditworthiness, and requiring the execution and delivery of
confidentiality agreements or other documents and agreements as a condition to
such prospective purchasers' receipt of information regarding the Collateral or
participation in any public or private foreclosure sale process; (ii) provide to
prospective purchasers the LLC Agreement and business and financial information
regarding the Company available in the files of Secured Party at the time of
commencing the foreclosure process, without the requirement that Secured Party
obtain, or seek to obtain, any updated business or financial information or LLC
Agreement, or verify or certify to prospective purchasers the accuracy of any
such business or financial information or LLC Agreement; (iii) sell at
foreclosure all, or a portion but not all, of the rights, titles, and interests
of Pledgor in the Company; it being further specifically acknowledged by Pledgor
that limitations or potential limitations on the transfer of certain Collateral
under the LLC Agreement or other applicable agreements or law may limit Secured
Party's right or ability to foreclose upon or sell certain rights, titles, and
interests of Pledgor in the Company; or (iv) offer for sale, and sell,
membership interests either with, or without, first employing an appraiser,
investment banker, or broker with respect to the evaluation of Collateral, the
solicitation of purchasers for Collateral, or the manner of sale of Collateral.
(f) Secured Party shall have all rights, remedies, and recourse granted
in the Note and the other Loan Documents or existing at common law or equity
(including specifically those granted by the Code), and such rights and remedies
(i) shall be cumulative and concurrent, (ii) may be pursued separately,
successively, or concurrently against Pledgor and any party obligated to pay or
perform the Secured Indebtedness, any of the Collateral, or any other security
for any of the Secured Indebtedness, at the sole discretion of Secured Party,
and (iii) may be exercised as often as occasion therefor shall arise, it being
agreed by Pledgor that the exercise or failure to exercise any such rights or
remedies shall in no event be construed as a waiver or release thereof or of any
other right, remedy, or recourse.
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(g) Notwithstanding a foreclosure upon any of the Collateral or
exercise of any other remedy by Secured Party in connection with an Event of
Default, until the payment in full of all Secured Indebtedness, Pledgor shall
not be subrogated thereby to any rights of Secured Party against the Collateral
or any other security for any of the Secured Indebtedness. Pledgor shall not be
deemed based on any subrogation or other rights it may have to be the owner of
any interest in any of the Secured Indebtedness unless and until all of the
Secured Indebtedness has been indefeasibly paid to Secured Party and fully
performed and discharged.
(h) All recitals in any instrument of assignment or any other
instrument executed by Secured Party incident to the sale, transfer, assignment,
or other disposition or utilization of the Collateral or any part thereof
hereunder shall be presumptive evidence of the matters stated therein and all
prerequisites of such sale or other action contained in such recitals shall be
presumed to have been performed or to have occurred.
(i) Secured Party agrees that if (A) Secured Party elects to sell the
Collateral at a public sale, and (B) Secured Party purchases the Collateral at
such public sale, then the purchase price of the Collateral paid by Secured
Party shall not be less than an amount equal to the Applicable Percentage of the
difference between (i) the value of the Company's oil and gas properties at the
time of foreclosure determined by an independent engineering firm selected by
Secured Party recognized as an expert in reservoir engineering using the
parameters set forth on EXHIBIT A attached hereto, and (ii) all indebtedness,
obligations, and liabilities of the Company (including the amount of any liens,
security interests, or encumbrances affecting any of the assets or properties of
the Company) at the time of foreclosure; provided that nothing contained in this
SUBSECTION (I) shall be deemed to require that Secured Party conduct a public
sale of any of the Collateral or purchase any of the Collateral at any public
sale of the Collateral. "APPLICABLE PERCENTAGE" means the ratio that the
membership interests in the Company comprising the Collateral sold bears to the
entire membership interests in the Company.
5.5 WAIVERS BY PLEDGOR. Subject to SECTION 5.4 above, in case of any
Event of Default, neither Pledgor nor anyone claiming by, through, or under
Pledgor, to the extent Pledgor may lawfully so agree, shall or will set up,
claim, or seek to take advantage of any appraisement, valuation, stay,
extension, or redemption law now or hereafter in force under any applicable law,
in order to prevent or hinder the enforcement of this Agreement, or the absolute
sale of the Collateral, or the final and absolute putting into possession
thereof, immediately after such sale, of the purchaser thereof; and Pledgor in
Pledgor's own right and for all who may claim under Pledgor, hereby waives, to
the fullest extent that Pledgor may lawfully do so, the benefit of any and all
right to have the Collateral marshaled upon any enforcement of the Security
Interests herein granted, and Pledgor agrees that Secured Party or any court
having jurisdiction to enforce the Security Interests may sell the Collateral in
parts or as an entirety.
5.6 APPLICATION OF PROCEEDS. Upon the maturity of any instrument
evidencing the Secured Indebtedness or any part thereof, whether such maturity
be by such terms of such instruments or through the exercise of any power of
acceleration, Secured Party is authorized and empowered to apply any and all
funds realized from the sale of all or any part of the Collateral to the Secured
Indebtedness in such order and in such manner as Secured Party in its sole
discretion shall determine.
5.7 ENFORCEMENT OF SECURED INDEBTEDNESS. Nothing in this Agreement
shall affect or impair the unconditional and absolute right of Secured Party to
enforce the Secured Indebtedness as and when the same shall become due in
accordance with the terms of the Loan Documents whether by acceleration or
otherwise.
PLEDGE AGREEMENT 10
11
SECTION 6
MISCELLANEOUS
6.1 TERMS COMMERCIALLY REASONABLE. The terms of this Agreement shall be
deemed commercially reasonable within the meaning of the Uniform Commercial Code
in effect and applicable hereto.
6.2 LOAN DOCUMENT. This Agreement is a Loan Document executed pursuant
to the Note and shall (unless otherwise expressly indicated herein) be
construed, administered, and applied in accordance with the terms and provisions
thereof.
6.3 AMENDMENTS. No change, amendment, modification, cancellation, or
discharge of any provision of this Agreement shall be valid unless consented to
in writing by the party or parties against whom enforcement thereof is sought.
6.4 NOTICES. Any notices or other communications required or permitted
to be given by this Agreement or any other documents and instruments referred to
herein must be given in accordance with the Note.
6.5 HEADINGS. The headings of sections herein are inserted only for
convenience and shall in no way define, describe, or limit the scope or intent
of any provision of this Agreement.
6.6 LIMITATION. Regardless of any provisions contained in this
Agreement, the Note, or other evidences of the Secured Indebtedness, or other
instruments executed or delivered in connection therewith, Secured Party shall
not be entitled to receive, collect, or apply, as interest on the Secured
Indebtedness, any amount in excess of the highest lawful rate and, in the event
that Secured Party ever receives, collects, or applies, as interest, any such
excess, such amount which would be excessive interest shall be applied to the
reduction of the unpaid principal balance of the Secured Indebtedness, and if
the principal balance of the Secured Indebtedness is paid in full, any remaining
excess shall be forthwith paid to Pledgor. In determining whether or not the
interest paid or payable, under any specific contingency, exceeds the highest
lawful rate, Pledgor, Secured Party shall, to the maximum extent permitted under
applicable law, (a) characterize any non-principal payment as an expense, fee,
or premium rather than as interest, (b) exclude voluntary prepayments and the
effects thereof, and (c) "spread" the total amount of interest throughout the
entire term of the Note so that the interest rate is uniform throughout the
entire term of the Note.
6.7 ASSIGNMENT OF SECURED PARTY'S RIGHTS. Secured Party shall have the
right to assign all or any portion of its rights under this Agreement to any
subsequent holder or holders of the Secured Indebtedness.
6.8 PARTIES IN INTEREST. As and when used herein, the term "Pledgor"
shall mean and include Pledgor herein named and its successors and permitted
assigns, and the term "Secured Party" shall mean and include Secured Party
herein named and its successors and assigns, and all covenants and agreements
herein shall be binding upon and inure to the benefit of Pledgor and Secured
Party and their respective assigns, provided that Pledgor shall have no right to
assign his rights hereunder to any other Person.
PLEDGE AGREEMENT 11
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6.9 FINANCING STATEMENT. Secured Party shall be entitled at any time to
file a photographic or other reproduction of this Agreement as a financing
statement, but the failure of Secured Party to do so shall not impair the
validity or enforceability of this Agreement.
6.10 APPLICABLE LAWS. THIS AGREEMENT AND ALL ISSUES AND CLAIMS ARISING
IN CONNECTION WITH OR RELATING TO THE SECURED INDEBTEDNESS, INCLUDING BUT
WITHOUT LIMITATION, ALL CONTRACT, TORT, EQUITY, OR OTHER CLAIMS OR COUNTERCLAIMS
SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS (WITHOUT CONSIDERATION OF ITS CONFLICTS OF LAWS RULES) AND THE APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. If any provision of this Agreement is held
to be invalid or unenforceable, the validity and enforceability of the other
provisions of this Agreement shall remain unaffected.
6.11 ENTIRETY. THIS AGREEMENT AND THE NOTE EMBODY THE FINAL, ENTIRE
AGREEMENT AMONG PLEDGOR AND SECURED PARTY WITH RESPECT TO THE PLEDGE AND
ASSIGNMENT OF THE COLLATERAL AND THE OTHER MATTERS ADDRESSED HEREIN AND THEREIN,
AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF
AND THEREOF, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES
HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO.
6.12 OBLIGATIONS ABSOLUTE. All rights and remedies of Secured Party
hereunder, and all obligations of Pledgor hereunder, shall be absolute and
unconditional irrespective of:
(a) any lack of validity or enforceability of any of the Loan Documents
or any other agreement or instrument relating to any of the foregoing;
(b) any change in the time, manner, or place of payment of, or in any
other term of, all or any of the Secured Indebtedness, or any other amendment or
waiver of or any consent to any departure from any of the Loan Documents;
(c) any exchange, release, or non-perfection of any Collateral, or any
release or amendment or waiver of or consent to any departure from any
guarantee, for all or any of the Secured Indebtedness; or
(d) any other circumstance (other than payment in full of the Secured
Indebtedness) that might otherwise constitute a defense available to, or a
discharge of, Pledgor.
6.13 WAIVER OF NOTICE AND HEARING. PLEDGOR HEREBY WAIVES ANY AND ALL
RIGHTS IT MAY HAVE TO NOTICE OR HEARING PRIOR TO SEIZURE BY SECURED PARTY OF THE
COLLATERAL, WHETHER BY WRIT OF POSSESSION OR OTHERWISE.
6.14 LIMITATION OF LIABILITY. Anything herein or the Note to the
contrary notwithstanding, it is specifically provided that Pledgor shall not
have any personal or corporate liability for the payment of the Note or be
liable for a money judgment or otherwise in the event of an Event of Default, it
being understood that the holders of the Note may look only to the security
provided by this Agreement to enforce the payment of the
PLEDGE AGREEMENT 12
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Secured Indebtedness, except for the interest of Pledgor in the Collateral or
any other property of Pledgor covered by a lien or security interest securing
payment of the Note or other Secured Indebtedness; provided, however, that the
liability of Pledgor shall at all times be one hundred percent (100%) liability
for (a) any and all damages, costs, and expenses suffered or incurred by Secured
Party as a result of, in connection with or relating to any representation or
warranty made by Pledgor to Secured Party which shall prove to be untrue or
inaccurate in any material respects, and (b) the costs, expenses, and fees,
including but not limited to, court costs and reasonable attorneys' fees,
arising in connection with the collection of the Secured Indebtedness.
IN WITNESS WHEREOF, Pledgor has executed this Agreement as of the day
and year first above written.
PLEDGOR:
VENUS EXPLORATION, INC., a Delaware corporation
By:
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Name:
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Title:
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PLEDGE AGREEMENT 13
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EXHIBIT A
APPRAISAL METHODOLOGY
1. The Company's proved producing properties shall be valued at one
hundred percent (100%) of their present value discounted at ten percent (10%)
per annum, using the NYMEX three (3) year strip (as adjusted for the difference
between NYMEX and actual prices received at the wellhead, in each case being the
average prices for the three (3) months preceding the appraisal date) and flat
pricing after three (3) years.
2. The Company's proved developed non-producing properties shall be
valued at seventy-five percent (75%) of their present value discounted at ten
percent (10%) per annum, using the NYMEX three (3) year strip (as adjusted for
the difference between NYMEX and actual prices received at the wellhead, in each
case being the average prices for the three (3) months preceding the appraisal
date) and flat pricing after three (3) years.
3. The Company's proved undeveloped non-producing properties shall be
valued at fifty percent (50%) of their present value discounted at ten percent
(10%) per annum, using the NYMEX three (3) year strip (as adjusted for the
difference between NYMEX and actual prices received at the wellhead, in each
case being the average prices for the three (3) months preceding the appraisal
date) and flat pricing after three (3) years.