EXHIBIT 99.2 Secured Convertible Note -
Longview Equity Fund, LP
THIS NOTE AND THE COMMON SHARES
ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THIS NOTE
AND
THE COMMON SHARES ISSUABLE UPON
CONVERSION
OF THIS NOTE MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE
UNDER SAID ACT OR AN
OPINION OF COUNSEL
REASONABLY SATISFACTORY TO SOUTH TEXAS OIL
COMPANY THAT SUCH
REGISTRATION
IS
NOT REQUIRED.
SECURED CONVERTIBLE NOTE
FOR
VALUE RECEIVED, SOUTH TEXAS OIL COMPANY, a Nevada corporation
(hereinafter called "Borrower"), hereby promises to pay to LONGVIEW
EQUITY
FUND, LP, 600 Montgomery Street, 44th
Floor, San
Francisco,
CA 94111, Fax:
(415) 981-5300 (the "Holder") or order, without demand, the sum
of $254,348
Dollars with simple interest accruing
on July 28, 2007 (the "Maturity
Date"),
or sooner as described herein.
This Note has
been entered into pursuant to the terms of a subscription
agreement between the Borrower and the
Holder, dated of even date herewith (the
"Subscription Agreement"), and shall be governed by the terms of such
Subscription Agreement. Unless otherwise separately defined herein, all
capitalized terms used in this Note shall
have the same meaning as is set forth
in the Subscription Agreement. The following terms shall apply to
this Note:
ARTICLE I
GENERAL PROVISIONS
1.1
Interest Rate.
Subject to
Section 5.7 hereof,
interest payable
on this Note shall accrue at a rate per
annum (the "Interest Rate") equal to
the "prime rate" published in The Wall Street
Journal from time to time, plus
four percent (4%). The interest rate shall be increased or
decreased as the
case may be for each increase or decrease
in the prime rate in
an amount equal
to such increase or decrease in the prime
rate; each change to
be effective as
of the day of the change in such rate.
The Interest
Rate shall not be less
than eight percent (8%).
1.2
Conversion
Privileges.
The Conversion Privileges set forth
in
Article II shall remain in full force and
effect immediately
from the date
hereof and until the Note is paid in full regardless of
the occurrence of an
Event of Default. The Note shall be payable in full on the Maturity Date,
unless previously converted into Common
Stock in accordance
with Article
II
hereof; provided, that if an Event of Default has occurred,
the Borrower may
not pay this Note, without the consent of the Holder, until up to one year
after the later of the date the Event of
Default has been cured
or one year
after the Maturity Date.
1.3
Default
Interest Rate. A default interest rate of fifteen
percent (15%) per annum shall apply to amounts owed
hereunder which are
not
paid on their respective due dates.
Interest payable on
this Note shall accrue
from the date of this Note and be payable upon each Conversion, January
1,
2006, semi-annually thereafter, and on the Maturity Date, accelerated or
otherwise, when the principal and remaining
accrued but unpaid interest shall
be due and payable, or sooner as described
below.
ARTICLE II
CONVERSION RIGHTS
The
Holder shall have the right to convert the principal due under this
Note into Shares of the Borrower's Common Stock, $.001
par value per
share
("Common Stock") as set forth below.
2.1.
Conversion into the
Borrower's Common Stock.
(a)
The Holder shall
have the right from and after the date of the
issuance of this Note and then at any time
until this Note
is fully paid, to
convert any outstanding and unpaid
principal portion of this Note, and accrued
interest, at the election of the Holder (the
date of giving of such notice of
conversion being a "Conversion Date") into fully
paid and nonassessable shares
of Common Stock as such stock exists on the date of
issuance of this Note, or
any shares of capital stock of Borrower into which such Common Stock shall
hereafter be changed or reclassified, at the
conversion price as
defined in
Section 2.1(b) hereof (the "Conversion Price"),
determined as provided herein.
Upon delivery to the Borrower of a completed Notice of
Conversion, a form of
which is annexed hereto, Borrower
shall issue and
deliver to the Holder within
three (3) business days from the Conversion
Date (such third day being the
"Delivery Date") that number of shares of
Common Stock for the portion of the
Note converted in accordance with the foregoing. At the election of the
Holder, the Borrower will deliver accrued
but unpaid interest on
the Note in
the manner provided in Section 1.3 through
the Conversion Date directly to the
Holder on or before the Delivery Date (as defined in the Subscription
Agreement). The number of shares of Common Stock to be issued upon
each
conversion of this Note shall be determined
by dividing that portion of the
principal of the Note and interest to be
converted, by the Conversion Price.
(b)
The Borrower shall issue for each $1,000 of Note
principal and
interest for which a Notice of Conversion
is given, an amount of Common
Stock
equal to 0.000195652 of the Common Stock of
the Company
outstanding on a fully
diluted basis as of the last day preceding
the relevant
Conversion Date.
For
the purposes of the aforedescribed calculation, "fully
diluted basis" shall
include all of the Shares of Common Stock issuable upon conversion of
all of
the Notes issuable to the Subscription
Agreement as
if all such Notes were
fully converted on the Initial Closing Date but shall
not thereafter include
shares of Common Stock issued upon actual
conversion of such Notes and exercise
of the Warrants; issuable pursuant to the Subscription Agreement. As
employed
in this Note, "fully diluted basis" means
all of the outstanding Common
Stock
together with all Common Stock that may be issued
upon the conversion or
exercise of all outstanding options, warrants, convertible instruments and
similar agreements as of a determination
date, including Common Stock added to
treasury after Initial Closing Date.
(c)
The
Conversion
Price and number and kind of shares or other
securities to be issued upon conversion
determined pursuant to
Section 2.1(a),
shall be subject to adjustment from time to
time upon the happening of certain
events while this conversion right remains
outstanding, as follows:
A.
Merger,
Sale of Assets, etc. If the Borrower at any time
shall
consolidate with or merge into or sell or convey all or
substantially all its
assets to any other corporation, this
Note, as to the unpaid
principal portion
thereof and accrued interest thereon, shall
thereafter
be deemed to evidence
the right to purchase such number and
kind of shares or other securities and
property as would have been issuable or distributable on account of
such
consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion
or purchase right immediately prior to
such consolidation, merger, sale or
conveyance. The
foregoing provision
shall
similarly apply to successive transactions of a
similar nature by any
such
successor or purchaser. Without limiting the
generality of the foregoing, the
anti-dilution provisions of this Section
shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or
conveyance.
B.
Reclassification, etc.
If the Borrower
at any time shall, by
reclassification or otherwise, change the Common Stock into the same or
a
different number of securities of any class
or classes that
may be issued or
outstanding, this Note, as to the unpaid
principal portion thereof and accrued
interest thereon, shall thereafter be
deemed to evidence the right to purchase
an adjusted number of such securities and
kind of securities as would have been
issuable as the result of such change with respect to the Common Stock
immediately prior to such reclassification
or other change.
C.
Stock
Splits, Combinations and Dividends. If the shares of Common
Stock are subdivided or combined into a
greater or smaller number of shares of
Common Stock, or if a dividend is paid on
the Common Stock in shares of Common
Stock, the Conversion Price shall be proportionately reduced in case of
subdivision of shares or stock dividend or
proportionately increased in the
case of combination of shares, in each such case by the ratio which
the total
number of shares of Common Stock
outstanding immediately after such event bears
to the total number of shares of Common
Stock outstanding
immediately prior to
such event.
D.
Share
Issuance. So
long as this
Note is outstanding, if the
Borrower shall issue or agree to issue any shares of
Common Stock except for
the Excepted Issuances (as
defined in the Subscription Agreement) for a
consideration less than the Conversion Price in effect at the time of
such
issue, then, and thereafter successively
upon each such issue, the Conversion
Price shall be reduced to such other lower
issue price. For
purposes of this
adjustment, the issuance of any security carrying the right
to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in an
adjustment to the
Conversion
Price
upon the issuance of the above-described security and
again upon the issuance
of shares of Common Stock upon exercise of such conversion or
purchase rights
if such issuance is at a price lower
than the then applicable Maximum Base
Price. The reduction of the Conversion
Price described in this paragraph is in
addition to other rights of the Holder described in this Note and the
Subscription Agreement.
(d)
Whenever
the Conversion Price is adjusted pursuant to Section
2.1(c) above, the Borrower shall promptly
mail to the Holder
a notice setting
forth the Conversion Price after such
adjustment and setting forth a statement
of the facts requiring such adjustment.
(e)
During
the period the conversion right exists, Borrower
will
reserve from its authorized and unissued
Common Stock not less than 175% of the
number of shares of Common Stock issuable
upon the full
conversion of
this
Note. Borrower represents that upon issuance, such shares will be duly
and
validly issued, fully paid and non-assessable.
Borrower
agrees that its
issuance of this Note shall constitute full authority to its
officers, agents,
and transfer agents who are charged
with the duty of executing and issuing
stock certificates to execute and issue the
necessary certificates
for shares
of Common Stock upon the conversion of this
Note.
2.2
Method of
Conversion. This Note
may be converted by the Holder in
whole or in part as described in Section 2.1(a)
hereof and the Subscription
Agreement. Upon partial conversion of this Note, a new Note containing
the
same date and provisions of t
