AUGUST 2009 WAIVER AND AMENDMENT
AGREEMENT
THIS AUGUST 2009 WAIVER AND AMENDMENT AGREEMENT
(this “ Agreement ”) is made as of August 14,
2009, among South Texas Oil Company, a Nevada corporation (the
“ Company ”), the Subsidiaries (as defined in
the Purchase Agreements (as defined below)), Longview Marquis
Master Fund, L.P., a British Virgin Islands limited partnership
(“ Marquis ”), and Summerview Marquis Fund,
L.P., a Delaware limited partnership (“ Summerview
” and, together with Marquis, the “ Buyers
”).
WITNESSETH:
WHEREAS, the Company, Marquis and The Longview
Fund, L.P., a California limited partnership (“
Longview ” and, together with Marquis, the “
April Buyers ”), entered into that certain Securities
Purchase Agreement, dated as of April 1, 2008 (as has been or may
be amended, supplemented, restated or modified and in effect from
time to time, the “ April Purchase Agreement
”), pursuant to which (i) the Company issued to Longview
senior secured notes in an aggregate original principal amount of
$23,908,013.11, none of which remains outstanding as of the date
hereof, (ii) the Company issued to Marquis senior secured notes in
an aggregate original principal amount of $8,469,337.71 (such
senior secured notes, together with any promissory notes or other
securities issued in exchange or substitution therefor or
replacement thereof, and as any of the same have been or may be
amended, supplemented, restated or otherwise modified and in effect
from time to time, the “ Marquis April
Notes ”), and (iii) the Warrants (as defined in the
April Purchase Agreement) were amended and restated;
WHEREAS, the Company and Marquis entered into a
Securities Purchase Agreement, dated as of September 18, 2008 (as
has been or may be amended, restated, supplemented or otherwise
modified and in effect from time to time, the “ Bridge
Purchase Agreement ” and, together with the April
Purchase Agreement, the “ Purchase Agreements
”), pursuant to which the Company sold, and Marquis
purchased, a senior secured note in the original principal amount
of $7,000,000 (such senior secured note, together with any
promissory notes or other securities issued in exchange or
substitution therefor or replacement thereof, and as any of the
same have been or may be amended, supplemented, restated or
otherwise modified and in effect from time to time, the “
Marquis Bridge Notes ” and, together with the
Marquis April Notes, the “ Marquis Initial Notes
”);
WHEREAS, the Purchase Agreements, as applicable,
reflect amendments set forth in that certain June 2008 Amendment
Agreement, dated as of June 18, 2008, among the Company and the
April Buyers, that certain June 2008 Amendment to Senior Notes and
Purchase Agreement, dated as of June 30, 2008 (the “
Second June 2008 Amendment ”), among the Company and
the April Buyers, and that certain September 2008 Waiver and
Amendment, dated as of September 19, 2008 (the “ September
2008 Amendment ”), among the Company and the April
Buyers;
WHEREAS, pursuant to a Waiver, dated as of May
14, 2009, Marquis agreed to waive the requirement of the Company to
comply with Section 6(t)(i) (Financial Covenant) of the April
Purchase Agreement with respect to the Daily Barrel Average (as
defined in the Purchase Agreements) for the calendar quarter ending
March 31, 2009, on the terms and subject to the conditions set
forth herein;
WHEREAS, pursuant to a Waiver, dated as of May
14, 2009, Marquis agreed to waive the requirement of the Company to
comply with Section 6(t)(i) (Financial Covenant) of the Bridge
Purchase Agreement with respect to the Daily Barrel Average for the
calendar quarter ending March 31, 2009, on the terms and subject to
the conditions set forth herein, including the Company’s
delivery to Marquis of a fee in the amount of $75,000 (the “
First Quarter Waiver Payment Amount ”) within 30 days
of the date thereof (the “ First Quarter Waiver
Payment ”);
WHEREAS, pursuant to that certain Assignment and
Assumption Agreement, dated as of May 29, 2009, Marquis transferred
to Summerview, among other things, a portion of the Marquis April
Notes in the principal amount of $2,252,994.73 (the “
Summerview Transferred April Notes ”), a portion of
the Warrants representing the right to acquire 62,841 shares of
common stock (“ Common Stock ”) of the Company
(the “ Summerview Transferred Warrants ”), a
portion of the Marquis Bridge Notes in the principal amount of
$1,759,556.47 (the “ Summerview Transferred Bridge
Notes ”), including all of Marquis’s right, title
and interest, legal and equitable, therein and thereto (which
includes all of Marquis’s rights under the transferred
portions of the Marquis Initial Notes with respect to the First
Quarter Waiver Payment), and all of Marquis’s rights and
obligations under the Purchase Agreements and the other Transaction
Documents (as defined in the Purchase Agreements) with respect to
the Summerview Transferred Aprils Notes, the Summerview Transferred
Warrants and the Summerview Transferred Bridge Notes, with the
remainder of the Marquis April Notes in the principal amount of
$6,710,038.53 (the “ Marquis Remaining April Notes
” and, together with the Summerview Transferred April Notes,
the “ April Notes ”), the remainder of the
Warrants representing the right to acquire 187,159 shares of Common
Stock (the “ Marquis Remaining Warrants ”), the
remainder of the Marquis Bridge Notes in the principal amount of
$5,240,433.53 (the “ Marquis Remaining Bridge Notes
” and, together with the Summerview Transferred Bridge Notes,
the “ Bridge Notes ;” the Bridge Notes
and the April Notes being collectively referred to herein as the
“ Notes ”), and all of Marquis’s rights
and obligations under the Purchase Agreements and the other
Transaction Documents with respect to the Marquis Remaining April
Notes, the Marquis Remaining Warrants and the Marquis Remaining
Bridge Notes, continuing to be held by Marquis;
WHEREAS, the Notes, as applicable, reflect
amendments set forth in the Second June 2008 Amendment, the
September 2008 Amendment, that certain June 2009 Waiver and
Amendment Agreement, dated as of June 10, 2009, among the Company
and the Buyers, and that certain June 2009 Waiver and Amendment
Agreement, dated as of June 16, 2009, among the Company and the
Buyers;
WHEREAS, (i) the Company failed to deliver the
First Quarter Waiver Payment to the Buyers in a timely manner (the
“ First Quarter Waiver Payment Default
”); (ii) the Company failed to deliver to the Buyers in a
timely manner Interest (as defined in the Notes) (collectively, the
“ Interest Default Amounts ” and, together with
the First Quarter Waiver Payment Amount, the “ Payment
Default Amounts ”), due and payable on July 1, 2009 and
August 3, 2009, respectively (such failures, collectively, the
“ Interest Payment Default ” and, together with
the First Quarter Waiver Payment Default, the “ Payment
Defaults ”); and (iii) a Financial Covenant Test Failure
(as defined in each of the Purchase Agreements) exists with respect
to the calendar quarter ended June 30, 2009 (the “
Financial Covenant Default ”; the Financial Covenant
Default and the Payment Defaults being referred to collectively as
the “ Subject Defaults ”), which Subject
Defaults, individually and in the aggregate, constitute Events of
Default (as defined in the Notes) under the Notes;
WHEREAS, as a result of the Payment Defaults,
each of the First Quarter Waiver Payment Amount and the Interest
Default Amounts has borne interest at the Default Rate (as defined
in the Notes) from the first date of such Event of Default through
the date of this Agreement (such amounts due and payable to the
Buyers at the Default Rate, collectively, the “ Interest
and Waiver Default Rate Amounts ”);
WHEREAS, as a result of the Subject Defaults,
the outstanding Principal (as defined in the Notes) of each of the
Notes has borne interest at the Default Rate from the date of the
first Subject Default through the date of this Agreement (such
interest due and payable on the Notes that is attributable to the
percentage points by which the Default Rate exceeds the Interest
Rate (as defined in the Notes) (i.e., 5.00% or 500 basis points),
collectively, the “ Principal Default Rate
Amounts ”; the Principal Default Rate Amounts together
with the Interest and Waiver Default Rate Amounts being
collectively referred to herein as the “ Default Rate
Interest Amounts ”);
WHEREAS, pursuant to that certain
Bill of Sale, dated as of July 10, 2009 (the “ Asset Sale
Transaction Date ”), the Company transferred, assigned,
granted, sold and conveyed to Horizon Drilling Ltd and Drillstuff
Ltd (the “ Asset Sale Transaction ”) all of its
right, title and interest in that certain Schramm T130XD
Rota-drill, serial number J130-0131, mounted on a Crane Carriage
custom transport truck, and all associated equipment and
accessories (the “ Transferred Assets
”);
WHEREAS, pursuant to certain restrictive
covenants set forth in the Amended and Restated Security Agreement
(as defined in the April Purchase Agreement), the Bridge Security
Agreement (as defined in the Bridge Purchase Agreement) and the
other Transaction Documents (collectively, the “
Applicable Restrictive Covenants ”), the Company would
have been prohibited from consummating the Asset Sale Transaction
without the prior written consent of the Buyers; however ,
on or prior to the Asset Sale Transaction Date, the Buyers provided
their oral waiver of the Applicable Restrictive Covenants, solely
with respect to the Asset Sale Transaction and only insofar as the
Amended and Restated Security Agreement, the Bridge Security
Agreement and the other Transaction Documents pertain to and
include the Transferred Assets as assets under the Transaction
Documents, and agreed to confirm and memorialize such waiver in
writing thereafter;
WHEREAS, the Company desires to confirm and
memorialize, in writing, the Buyers’ waiver of the Applicable
Restrictive Covenants, effective as of the Asset Sale Transaction
Date, solely with respect to the Asset Sale Transaction and only
insofar as the Amended and Restated Security Agreement, the Bridge
Security Agreement and the other Transaction Documents pertain to
and include the Transferred Assets as assets under the Transaction
Documents;
WHEREAS, as partial consideration for the
Buyers’ agreement to waive the Subject Defaults and the
Applicable Restrictive Covenants as provided herein, the Company
has delivered to the Buyers an aggregate amount in cash equal to
$160,000 (the “ August Waiver Fee ”), in
satisfaction of the Company’s obligation to deliver to the
Buyers (i) the First Quarter Waiver Payment; (ii) the Default Rate
Interest Amounts; and (iii) an amount for the reimbursement of the
Buyers’ legal expenses through the date hereof (but not in
satisfaction of the Company’s obligation to reimburse the
Buyers’ for their legal expenses related to this Agreement
pursuant to Section 10 hereof) pursuant to the Transaction
Documents (the “ Reimbursement Amount ” and,
together with the First Quarter Waiver Payment Amount and the
Default Rate Interest Amounts, the “ Company Obligation
Amount ”); and
WHEREAS, the Buyers have agreed, subject to the
terms and conditions set forth herein, to waive (i) the Subject
Defaults, (ii) the Company’s obligation to pay to the Buyers
any portion of the Company Obligation Amount in excess of the
August Waiver Fee and (iii) the Applicable Restrictive Covenants
solely with respect to the Asset Sale Transaction.
NOW, THEREFORE, in consideration of the
agreements, provisions and covenants contained herein and for other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, each of the undersigned agrees as
follows:
1.
Amendment to the Purchase Agreements .
a.
E ach of the Buyers, severally and
not jointly, hereby agrees with the Company that, as of the date
first above written, the first sentence of Section 6(t)(i) of each
of the Purchase Agreements is hereby amended and restated in its
entirety to read as follows:
(i) The
Company shall not allow the Daily Barrel Average to be less than
125 barrels of oil and/or its equivalent in natural gas (including
barrels of oil and barrels of oil equivalents from gas produced
into a sales pipeline at a ratio of one (1) barrel of oil for each
six thousand (6,000) cubic feet (“ MCF ”) of gas
(collectively, “ BOEs ”)) in the calendar
quarter ending September 30, 2009, or be less than 200 BOEs in the
calendar quarter ending December 31, 2009, or be less than 250
BOEs in any calendar quarter ending on or after March
31, 2010(the failure of the Daily Barrel Average to be at least the
applicable minimum (as set forth in this sentence) in any such
calendar quarter being referred to as a “ Financial
Covenant Failure ”).
b. As
amended hereby, the Purchase Agreements shall remain in full force
and effect.
2.
Amendment of the April Notes .
a. The
Company hereby agrees with each of the Buyers, severally and not
jointly, that, as of the date first above written, the second
sentence of Section 2 of the April Notes shall be amended and
restated to read in its entirety as follows:
“Interest
shall be paid quarterly in arrears on each Interest Payment Date
and on the Maturity Date.”
b. The
Company hereby agrees with each of the Buyers, severally and not
jointly, that, as of the date first above written, the following
definitions set forth in the Appendix to the April Notes shall be
amended and restated to read in their entirety as
follows:
“
Interest Payment Date ” means the first Business Day
of each calendar quarter, beginning with the calendar quarter that
commences on July 1, 2008, through and including the last calendar
quarter that commences prior to the Maturity Date.
c. The
Company hereby agrees with each of the Buyers, severally and not
jointly, that, notwithstanding anything set forth in the April
Notes, the Interest Amount (as defined in the Notes) due and
payable on July 1, 2009 with respect to Principal on each April
Note shall not be paid in cash to the Buyers, but shall instead be
added to the Principal on such April Note (i.e., by capitalizing
such Interest Amount), effective as of July 1, 2009; accordingly,
the Principal for each April Note shall be increased to the amount
set forth opposite the description of such April Note on
Schedule A hereto.
d. The
Company shall promptly, and in no event later than five Business
Days (as defined in the Purchase Agreements) from the date of this
Agreement, execute and deliver to each Buyer the April Notes of
such Buyer, representing the increased Principal amounts thereof as
set forth on Schedule A hereto and as otherwise
amended. Upon the issuance by the Company to each Buyer
of such Buyer’s April Notes, representing the increased
Principal amounts thereof as set forth on Schedule A hereto
and as otherwise amended, each of such Buyer’s existing April
Notes will be void and of no further force and effect, and such
Buyer shall promptly return its existing April Notes to the Company
for cancellation.
e. As
amended hereby, each of the April Notes shall remain in full force
and effect.
3.
Amendment of the Bridge Notes .
a. The
Company hereby agrees with each of the Buyers, severally and not
jointly, that, as of the date first above written, the second
sentence of Section 2 of the Bridge Notes shall be amended and
restated to read in its entirety as follows:
“Interest
shall be paid quarterly in arrears on each Interest Payment Date
and on the Maturity Date.”
b. The
Company hereby agrees with each of the Buyers, severally and not
jointly, that, as of the date first above written, the following
definitions set forth in the Appendix to the Bridge Notes shall be
amended and restated to read in their entirety as
follows:
“
Interest Payment Date ” means the first Business Day
of each calendar quarter, beginning with the calendar quarter that
commences on October 1, 2008, through and including the last
calendar quarter that commences prior to the Maturity
Date.
c. The
Company hereby agrees with each of the Buyers, severally and not
jointly, that, notwithstanding anything set forth in the Bridge
Notes, the Interest Amount (as defined in the Notes) due and
payable on July 1, 2009 with respect to Principal on each Bridge
Note shall not be paid in cash to the Buyers, but instead shall be
added to the Principal on such Bridge Note (i.e., by capitalizing
such Interest Amount), effective as of July 1, 2009; accordingly,
the Principal for each Bridge Note shall be increased to the amount
set forth opposite the description of such Bridge Note on
Schedule A hereto.
d. The
Company shall promptly, and in no event later than five Business
Days (as defined in the Purchase Agreements) from the date of this
Agreement, execute and deliver to each Buyer the Bridge Notes of
such Buyer, representing the increased Principal amounts thereof as
set forth on Schedule A hereto and as otherwise
amended. Upon the issuance by the Company to each Buyer
of such Buyer’s Bridge Notes, representing the increased
Principal amounts thereof as set forth on Schedule A hereto
and as otherwise amended, each of such Buyer’s existing
Bridge Notes will be void and of no further force and effect, and
such Buyer shall promptly return its existing Bridge Notes to the
Company for cancellation.
e. As
amended hereby, each of the Bridge Notes shall remain in full force
and effect.
a. The
Company hereby grants to the Buyers, or their respective designees,
the joint and several right, during the period commencing on the
date hereof and ending on the date that is 120 days after the date
hereof (the “ Exchange Option Period ”), (i) to
purchase from the Company and the Subsidiaries, as applicable, all
of the Company’s and such Subsidiaries’ right, title
and interest in the Exchange Property (as defined below), in
exchange, and in full consideration (without the payment or
delivery of cash), for (ii) the satisfaction in full and
cancellation of $3,000,000 in principal amount of the Notes, in
accordance with Section 4(b) hereof (the “ Exchange
Option ”). For purposes hereof, the “
Exchange Property ” means the Real Property (as
defined in the Purchase Agreements) set forth on Schedule B
hereto (which the Company he
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