SHARE EXCHANGE
AGREEMENT
THIS SHARE
EXCHANGE AGREEMENT (this
“ Agreement ”) is made this 27
th day of July, 2009, by and between VELOCITY
ENERGY INC. (f/k/a Sonterra Resources, Inc.), a Delaware
corporation (the “ Company ” or “
Velocity ”), and THE LONGVIEW FUND, L.P ., a
California limited partnership (the “ Stockholder
”), to be effective as of November 1, 2008 (the “
Effective Date ”).
A. The Stockholder currently holds
23,182,876 shares or 87.99% of the issued and outstanding shares of
the common stock of the Company. The Stockholder and the Company
desire to exchange (the “ Share Exchange ”)
20,000,000 shares of Company common stock for 20,000,000 shares of
Series “A” Convertible Preferred Stock issued by the
Company (“ Preferred Stock ”). Each share of
Preferred Stock is valued at $1.20 per share for an aggregate value
of twenty-four million dollars ($24,000,000) and will be
convertible into shares of common stock at a fixed rate of $1.20
per share (“Stated Value”), which will also be the
Conversion Value and the Liquidation Value as defined in the
Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock of Velocity Energy Inc. filed with the
Delaware Secretary of State on March 4, 2009, as corrected by the
Certificate of Correction filed with the Delaware Secretary of
State on April 9, 2009, copies of which are attached hereto as
Exhibits “A” and “B”, respectively, and
made a part hereof. The Share Exchange will be effective upon the
execution of this Agreement by all Parties hereto, to be effective
as of the Effective Date, at which time the 20,000,000
shares of common stock would be retired concurrently with the
issuance of the Preferred Stock; and
B. The Company and Stockholder also
desire to effectuate its previous understanding and agreement in
connection with the Financial Restructuring of the Company on
November 13, 2008, wherein the Stockholder herein accepted payment
of $1,000,000.00 in exchange for (i) the partial repayment of its
Senior Secured Note issued in connection with the Securities
Exchange on February 13, 2008; (ii) Stockholder’s agreement
to subordinate its remaining indebtedness in the form of the
Longview Subordinated Note; and (iii) Stockholder’s
cancellation of its warrants to purchase 3,000,000 shares of
Company common stock (the “ Warrants ”) out of
the 4,958,678 total shares underlying the Stockholder’s
convertible note and warrants.
NOW,
THEREFORE , in
consideration of the premises, their mutual covenants and
agreements, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Stockholder
and the Company agree as follows:
1. Assignment of Common
Shares . The Stockholder agrees to assign over
to the Company 20,000,000 shares of Velocity common stock for
cancellation and retirement in exchange for 20,000,000 shares of
Velocity Preferred Stock having a Stated Value of a fixed rate of
$1.20 per share.
2. Issuance and Assignment of
Preferred Shares . The Company agrees to issue
to Stockholder 20,000,000 shares of Velocity Preferred Stock with
the aforementioned Stated Value in exchange for 20,000,000 shares
of Velocity common stock on a one-for-one exchange basis to be
transferred by the Stockholder to the Company for cancellation and
retirement.
3. Representations and
Warranties . Recognizing that the Company will be
relying on the information and on the representations and
warranties set forth herein, the Stockholder hereby acknowledges,
represents and warrants to the Company as follows:
a.
Title to the Warrants . The Stockholder owns
beneficially and of record, free and clear of any encumbrances, the
Warrants, and the Stockholder has the unrestricted right, power and
author
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