SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT
(this “Agreement”) is made this
27th
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”).
WHEREAS:
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 authority to sell, assign, transfer and deliver
the Warrants to the Company as contemplated in this Agreement.
b. Access to
Information. The Stockholder represents that it has been
afforded access, prior to Stockholder’s receipt of the Preferred Stock, to such
information relating to the Company as it has desired, and that it has been
given the opportunity to (i) ask questions of, and receive answers from, the
Company and its officers, directors and representatives concerning the Company
and the terms and conditions of the Share Exchange and the acquisition of the
Preferred Stock, and (ii) obtain any additional information about the business
and financial condition of the Company that the Company possesses or can
reasonably obtain without the expenditure of undue time or expense, which
additional information has been timely and satisfactorily received. The
Stockholder has approved the Exchange with full knowledge and understanding of
the terms and conditions set forth in this Agreement.
c. Investment
Purpose. The shares of Preferred Stock (and the underlying
shares of Velocity common stock) are being acquired by the Stockholder for
investment purposes only, for the Stockholder’s own account, and not with a view
toward resale or other distribution thereof, and the Stockholder is not
participating, directly or indirectly, in any underwriting or other such
undertaking in connection therewith. The Stockholder represents that
the Preferred Stock (and the underlying shares of Velocity common stock) to be
received by Stockholder hereunder will not be sold or transferred by the
Stockholder in violation of the Securities Act of 1933, as amended (the “Securities Act”), or any state
securities law, and the Stockholder has no present or contemplated agreement or
commitment providing for, or which is likely to compel, the disposition of the
Preferred Stock without registration of the Preferred Stock.
d. Restrictions on Transfer of
Preferred; Legend. The Stockholder acknowledges that it will
not sell, pledge or otherwise dispose of any part of the Preferred Stock (and
the underlying shares of Velocity common stock) owned by it, unless and except
for such sale, pledge, or other disposition undertaken in full compliance with
all of the applicable provisions of the Securities Act and the rules and
regulations thereunder, and the securities laws of any applicable
state. The Stockholder agrees that the Company may refuse to transfer
any part of the Preferred Stock (and the underlying shares of Velocity common
stock) owned by the Stockholder until the Company has received written
confirmation from counsel reasonably acceptable to it to the effect that the
provisions of this Section 3(d) have been satisfied. The Stockholder
acknowledges that the Company shall be duly authorized and empowered to place a
stop transfer order against the transfer of that part of the Preferred Stock
(and the underlying shares of Velocity common stock) owned by the Stockholder
until it satisfies the conditions set forth in this Section 3(d). All stock
certificates representing the Preferred Stock owned by the Stockholder shall be
endorsed with a restrictive legend consistent with the foregoing.
4. Cancellation of
Warrants. The Stockholder hereby transfers and assigns
all of its rights, title and interests in and to warrants to purchase 3,000,000
shares of Company common stock, out of a total of 4,958,678 shares underlying a
convertible note and warrants held by the Stockholder, and the Stockholder
hereby instructs the Company to contemporaneously cancel and terminate those
warrants and hereby releases any claim thereto.
5. Partial Payment and
Subordination of Longview Senior Secured
Note. The Company and Stockholder also acknowledge and agree that in
connection with the Financial Restructuring of the Company on November 13, 2008,
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; and (ii) Stockholder’s agreement to
subordinate its remaining indebtedness in the form of the Longview Subordinated
Note, in addition to the assignment and cancellation of the warrants as set
forth in Section 4.
6. Headings. The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.
7. Severability. If
any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement.
8. Survival of
Representations. The representations, warranties and
agreements of the Stockholder contained herein shall survive the execution and
delivery of this Agreement and the receipt by the Stockholder of the Preferred
Stock.
9. Entire Agreement;
Amendments. This Agreement supersedes all other prior oral or
written agreements between the Company, Stockholder, and their affiliates and
persons acting on their behalf with respect to the matters discussed herein, and
this Agreement and the Transaction Documents and instruments referenced herein
and therein contain the entire understanding of the parties with respect to the
matters covered herein and therein.
10. Governing
Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Texas. Venue for any action arising out
of this Agreement shall be exclusively in any state or federal court sitting in
Xxxxxx County, Texas.
ACCEPTED
AND AGREED:
VELOCITY
ENERGY INC. (f/k/a Sonterra Resources, Inc.)
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By:
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/s/ X.X.
Xxxxxxxxxx
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Name:
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Xxxxxx X. Xxxxxxxxxx |
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Title:
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Chief Executive Officer |
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Date:
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7/27/2007 |
THE
LONGVIEW FUND, L.P.
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By:
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/s/ S. Xxxxxxx
Xxxxxxx
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Name:
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S. Xxxxxxx Xxxxxxx |
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Title:
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CEO and Managing Member |
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Date:
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7/27/2007 |
