SECURITIES
      EXCHANGE AGREEMENT

    


    BY
      AND AMONG

    


    SONTERRA
      RESOURCES, INC.,

     

    THE
      LONGVIEW FUND, L.P.

    


    AND

    


    LONGVIEW
      MARQUIS MASTER FUND, L.P.

    


    


    Dated
      as of November 13, 2008


    
      
         

      

      
         

        
          

        

      

      
         

      

    


    TABLE
      OF CONTENTS

     

    
      	 	 	 	
              Page

            
	 	 	 
	
              1.

            	
              EXCHANGE
                OF WARRANT AND NORTH TEXAS SHARES

            	
              3

            
	 	
              a.

            	
              Exchange

            	
              3

            
	 	
              b.

            	
              The
                Closing Date

            	
              3

            
	 	 	 
	
              2.

            	
              BUYER
                REPRESENTATIONS AND WARRANTIES

            	
              3

            
	 	
              a.

            	
              Investment
                Purpose

            	
              4

            
	 	
              b.

            	
              Accredited
                Investor Status

            	
              4

            
	 	
              c.

            	
              Reliance
                on Exemptions

            	
              4

            
	 	
              d.

            	
              Information

            	
              4

            
	 	
              e.

            	
              No
                Governmental Review

            	
              4

            
	 	
              f.

            	
              Transfer
                or Resale

            	
              5

            
	 	
              g.

            	
              Legends

            	
              5

            
	 	
              h.

            	
              Authorization;
                Enforcement; Validity

            	
              6

            
	 	
              i.

            	
              Residency
                and Offices

            	
              6

            
	 	
              j.

            	
              Title
                to Units

            	
              6

            
	 	
              k.

            	
              No
                Conflict

            	
              6

            
	 	
              2A.

            	
              MARQUIS
                REPRESENTATIONS AND WARRANTIES REGARDING NORTH TEXAS

            	 
	 	
              a.

            	
              Organization
                and Qualification

            	
              7

            
	 	
              b.

            	
              Capitalization

            	
              7

            
	 	
              c.

            	
              Financial
                Information

            	
              8

            
	 	
              d.

            	
              Absence
                of Litigation

            	
              8

            
	 	
              e.

            	
              Tangible
                Assets

            	
              8

            
	 	 	 
	
              3.

            	
              REPRESENTATIONS
                AND WARRANTIES OF THE COMPANY

            	
              8

            
	 	
              a.

            	
              Organization
                and Qualification

            	
              9

            
	 	
              b.

            	
              Authorization;
                Enforcement; Validity

            	
              10

            
	 	
              c.

            	
              Capitalization

            	
              11

            
	 	
              d.

            	
              Issuance
                of Securities

            	
              12

            
	 	
              e.

            	
              No
                Conflicts

            	
              13

            
	 	
              f.

            	
              SEC
                Reports; Financial Statements; Public Communications

            	
              14

            
	 	
              g.

            	
              Absence
                of Certain Changes

            	
              15

            
	 	
              h.

            	
              Absence
                of Litigation

            	
              16

            
	 	
              i.

            	
              Full
                Disclosure; No Undisclosed Events, Liabilities, Developments or
                Circumstances

            	
              16

            
	 	
              j.

            	
              Acknowledgment
                Regarding Buyers’ Purchase of Securities

            	
              17

            
	 	
              k.

            	
              No
                General Solicitation

            	
              17

            
	 	
              l.

            	
              No
                Integrated Offering

            	
              17

            
	 	
              m.

            	
              Dilutive
                Effect

            	
              18

            
	 	
              n.

            	
              Employee
                Relations

            	
              18

            
	 	
              o.

            	
              Intellectual
                Property Rights

            	
              19

            
	 	
              p.

            	
              Environmental
                Laws

            	
              20

            


    


    
      
         

      

      
         

        
          

        

      

      
         

      

    

    


    
      	 	
              q.

            	
              Title

            	
              21

            
	 	
              r.

            	
              Insurance

            	
              22

            
	 	
              s.

            	
              Regulatory
                Permits

            	
              22

            
	 	
              t.

            	
              Internal
                Accounting Controls; Disclosure Controls and Procedures; Books and
                Records

            	
              23

            
	 	
              u.

            	
              Bank
                Accounts

            	
              24

            
	 	
              v.

            	
              Tax
                Status

            	
              24

            
	 	
              w.

            	
              Transactions
                With Affiliates

            	
              24

            
	 	
              x.

            	
              Application
                of Takeover Protections; Rights Agreement

            	
              25

            
	 	
              y.

            	
              Foreign
                Corrupt Practices

            	
              25

            
	 	
              z.

            	
              Outstanding
                Indebtedness; Liens

            	
              25

            
	 	
              aa.

            	
              Ranking
                of Notes

            	
              26

            
	 	
              bb.

            	
              Real
                Property

            	
              26

            
	 	
              cc.

            	
              Excluded
                Subsidiaries

            	
              27

            
	 	
              dd.

            	
              No
                Materially Adverse Contracts, Etc

            	
              27

            
	 	
              ee.

            	
              Investment
                Company

            	
              27

            
	 	
              ff.

            	
              Stock
                Options

            	
              27

            
	 	
              gg.

            	
              Schedules

            	
              28

            
	 	 	 
	
              4.

            	
              AFFIRMATIVE
                COVENANTS

            	
              28

            
	 	
              a.

            	
              Reasonable
                Best Efforts

            	
              28

            
	 	
              b.

            	
              Form D
                and Blue Sky

            	
              28

            
	 	
              c.

            	
              Reporting
                Status

            	
              28

            
	 	
              d.

            	
              [Reserved]

            	
              30

            
	 	
              e.

            	
              Financial
                Information

            	
              30

            
	 	
              f.

            	
              Internal
                Accounting Controls

            	
              30

            
	 	
              g.

            	
              Reservation
                of Shares

            	
              30

            
	 	
              h.

            	
              Listing

            	
              31

            
	 	
              i.

            	
              Expenses

            	
              31

            
	 	
              j.

            	
              Disclosure
                of Transactions and Other Material Information.

            	
              31

            
	 	
              k.

            	
              Pledge
                of Securities

            	
              32

            
	 	
              l.

            	
              Notices

            	
              33

            
	 	
              m.

            	
              Compliance
                with Laws and Maintenance of Permits

            	
              34

            
	 	
              n.

            	
              Inspection
                and Audits

            	
              34

            
	 	
              o.

            	
              Insurance

            	
              34

            
	 	
              p.

            	
              [Reserved]

            	
              35

            
	 	
              q.

            	
              Taxes

            	
              35

            
	 	
              r.

            	
              Intellectual
                Property

            	
              35

            
	 	
              s.

            	
              Patriot
                Act, Investor Secrecy Act and Office of Foreign Assets
                Control

            	
              35

            
	 	
              t.

            	
              Drilling
                Title Opinions

            	
              35

            
	 	
              u.

            	
              [Reserved

            	
              36

            
	 	
              v.

            	
              [Reserved]

            	
              36

            
	 	
              w.

            	
              Subsidiary
                Restrictions

            	
              36

            
	 	
              x.

            	
              Further
                Instruments and Acts

            	
              37

            
	 	
              y.

            	
              Additional
                Financial Information

            	
              37

            
	 	
              z.

            	
              Cancellation
                of Old Notes

            	
              37

            


    


    
      
         

      

      
        ii

        
          

        

      

      
         

      

    

    


    
      	 	
              aa.

            	
              Repayment
                of North Texas Demand Note

            	
              37

            
	 	
              bb.

            	
              Release
                of Liens

            	
              37

            
	 	 	 
	
              5.

            	
              NEGATIVE
                COVENANTS

            	
              38

            
	 	
              a.

            	
              Prohibition
                Against Variable Priced Securities

            	
              38

            
	 	
              b.

            	
              Status

            	
              38

            
	 	
              c.

            	
              Stay,
                Extension and Usury Laws

            	
              38

            
	 	
              d.

            	
              Payment
                Restrictions Affecting Subsidiaries

            	
              39

            
	 	
              e.

            	
              Prepayments

            	
              39

            
	 	
              f.

            	
              Indebtedness

            	
              39

            
	 	
              g.

            	
              Liens

            	
              40

            
	 	
              h.

            	
              [Reserved]

            	
              40

            
	 	
              i.

            	
              Corporate
                Existence; Leases

            	
              40

            
	 	
              j.

            	
              Restrictions
                on Loans; Investments; Subsidiary Equity

            	
              40

            
	 	
              k.

            	
              [Reserved]

            	
              41

            
	 	
              l.

            	
              Affiliate
                Transactions

            	
              41

            
	 	
              m.

            	
              [Reserved]

            	
              41

            
	 	
              n.

            	
              Executive
                Compensation

            	
              41

            
	 	
              o.

            	
              Limitation
                on Sale and Leaseback Transactions

            	
              41

            
	 	
              p.

            	
              Investment
                Company

            	
              41

            
	 	
              q.

            	
              Leases

            	
              42

            
	 	
              r.

            	
              Restriction
                on Purchases or Payments

            	
              42

            
	 	
              s.

            	
              No
                Avoidance of Obligations

            	
              42

            
	 	
              t.

            	
              [Reserved].

            	
              42

            
	 	
              u.

            	
              Limits
                on Additional Issuances

            	
              42

            
	 	
              v.

            	
              No
                Integrated Offering

            	
              43

            
	 	
              w.

            	
              Regulation
                M

            	
              43

            
	 	 	 
	
              6.

            	
              CONDITIONS
                TO THE OBLIGATION OF THE COMPANY TO ISSUE

            	
              43

            
	 	 	 
	
              7.

            	
              CONDITIONS
                TO THE OBLIGATION OF THE BUYERS TO ACQUIRE

            	
              44

            
	 	 	 
	
              8.

            	
              INDEMNIFICATION

            	
              46

            
	 	 	 
	
              9.

            	
              GOVERNING
                LAW; MISCELLANEOUS

            	
              48

            
	 	
              a.

            	
              Governing
                Law; Jurisdiction; Jury Trial

            	
              48

            
	 	
              b.

            	
              Counterparts

            	
              48

            
	 	
              c.

            	
              Headings

            	
              48

            
	 	
              d.

            	
              Severability

            	
              48

            
	 	
              e.

            	
              Entire
                Agreement; Amendments

            	
              49

            
	 	
              f.

            	
              Notices

            	
              49

            
	 	
              g.

            	
              Successors
                and Assigns

            	
              51

            
	 	
              h.

            	
              No
                Third Party Beneficiaries

            	
              51

            
	 	
              i.

            	
              Survival

            	
              51

            
	 	
              j.

            	
              Further
                Assurances

            	
              51

            
	 	
              k.

            	
              Termination

            	
              51

            


    


    
      
         

      

      
        iii

        
          

        

      

      
         

      

    

    


    
      	 	
              l.

            	
              No
                Strict Construction

            	
              51

            
	 	
              m.

            	
              Remedies

            	
              52

            
	 	
              n.

            	
              Rescission
                and Withdrawal Right

            	
              52

            
	 	
              o.

            	
              Payment
                Set Aside

            	
              52

            
	 	
              p.

            	
              Transfer
                Agent Instructions

            	
              52

            
	 	
              q.

            	
              Interpretative
                Matters

            	
              53

            
	 	
              r.

            	
              Independent
                Nature of the Buyers

            	
              53

            


    


    
      
         

      

      
        iv

        
          

        

      

      
         

      

    

     

    SECURITIES
      EXCHANGE AGREEMENT

     

    SECURITIES
      EXCHANGE AGREEMENT
      (the
“Agreement”),
      dated
      as of November 13, 2008, by and among Sonterra Resources, Inc., a Delaware
      corporation, with principal offices located at 523 North Sam Houston Pkwy.
      East,
      Suite 175, Houston, Texas 77060 (together with its predecessors, the
“Company”),
      The
      Longview Fund, L.P., a California limited partnership (“Longview”)
      and
      Longview Marquis Master Fund, L.P., a British Virgin Island limited partnership
      (“Marquis”
and,
      together with Longview, each a “Buyer”
and,
      collectively, the “Buyers”).

     

    WHEREAS:

     

    A. The
      Company and Buyers are executing and delivering this Agreement in reliance
      upon
      the exemption from securities registration afforded by Rule 506 of
      Regulation D (“Regulation D”)
      as
      promulgated by the United States Securities and Exchange Commission (the
“SEC”)
      under
      the Securities Act of 1933, as amended (the “1933
      Act”).

     

    B. Marquis
      is the owner of (i) all of the issued and outstanding shares of common stock,
      par value $0.001 per share, of North Texas (the “North
      Texas Shares”)
      and
      (ii) that certain Ninth Amended and Restated Senior Secured Note, dated October
      3, 2008, in the principal outstanding amount of $8,575,000 (such note, including
      all outstanding principal thereof, plus, all accrued but outstanding interest
      thereon through the Closing Date, the “North
      Texas Note”),
      issued by North Texas Drilling Services, Inc., a Texas corporation (together
      with its predecessors, “North
      Texas”).

     

    C. Longview
      is the owner of the Amended and Restated Senior Secured Note, dated February
      14,
      2008 (amended and restated May 16, 2008), (no. SSN-001) and the Senior Secured
      Note, dated May 22, 2008, (no. SSN-002), in the aggregate outstanding principal
      amount of $3,000,000 (of which principal amount $1,000,000 shall be paid by
      the
      Company to Longview pursuant to the Securities Purchase Agreement (as defined
      below)), issued by the Company (each an “Old
      Note”
and,
      together, the “Old Notes”),
      and a
      warrant to purchase 4,958,678 shares of Common Stock (as defined below) (the
      “Old
      Warrant”
and,
      together with the North Texas Shares, the North Texas Note and the Old Notes,
      each an “Exchanged
      Security”
and,
      collectively, the “Exchanged
      Securities”).

     

    D. Marquis
      wishes to acquire from the Company, and the Company wishes to issue to Marquis,
      on the Closing Date (as defined in Section
      1(b)),
      upon
      the terms and conditions stated in this Agreement, (i) an unsecured subordinated
      promissory note, in the form attached as Exhibit
      A,
      in an
      original aggregate principal amount of $9,440,000 (such note, together with
      any
      promissory note or other securities issued in exchange or substitution therefor
      or replacement thereof, and as any of the same may be amended, supplemented,
      restated or modified and in effect from time to time, the “Marquis
      Note”)
      and
      (ii) a warrant, in the form attached as Exhibit
      B,
      to
      acquire 1,000,000 shares (subject to adjustment) of the Company’s common stock,
      par value $0.001 per share (“Common
      Stock”),
      at an
      initial exercise price per share of $0.01 (such warrant, together with any
      warrant or other securities issued in exchange or substitution therefor or
      replacement thereof, and as any of the same may be amended, supplemented,
      restated or modified and in effect from time to time, being referred to as
      the
“Warrant”;
      and
      the shares of Common Stock issuable from time to time upon exercise of the
      Warrant being referred to as the “Warrant
      Shares”),
      in
      exchange for the North Texas Shares and the North Texas Note.


    
      
         

      

      
         

        
          

        

      

      
         

      

    


    E. Longview
      wishes to acquire from the Company, and the Company wishes to issue to Longview,
      on the Closing Date (as defined in Section
      1(b)),
      upon
      the terms and conditions stated in this Agreement, an unsecured subordinated
      promissory note, in the form attached as Exhibit
      A,
      in an
      original aggregate principal amount equal to the sum of $2,000,000 plus the
      aggregate amount of all accrued and unpaid interest on the Old Notes through
      the
      Closing Date (such note, together with any promissory note or other securities
      issued in exchange or substitution therefor or replacement thereof, and as
      any
      of the same may be amended, supplemented, restated or modified and in effect
      from time to time, the “Longview
      Note”
and,
      together with the Marquis Note, each a “Sub
      Note”
and,
      collectively, the “Sub
      Notes”),
      in
      exchange for the Old Notes and Longview’s surrender of the Old Warrant with
      respect to 3,000,000 shares of Common Stock.

     

    F. Contemporaneously
      with the closing of the purchase and sale of the Sub Notes and the Warrant
      (the
“Closing”),
      the
      Company will execute and deliver a Securities Purchase Agreement, in the form
      attached as Exhibit C
      (as the
      same may be amended, supplemented, restated or modified and in effect from
      time
      to time, the “Securities
      Purchase Agreement”
and,
      together with each of the documents and agreements entered into pursuant
      thereto, the “Securities
      Purchase Documents”),
      pursuant to which the Company shall sell to Marquis and any other purchasers
      named therein, and Marquis and any other purchasers named therein shall purchase
      from the Company, senior secured promissory notes issued by the Company (the
      “Senior Notes”)
      and
      warrants to acquire 1,050,000 shares of Common Stock, upon the terms and
      conditions stated in the Securities Purchase Documents, the proceeds of such
      sale to be used in part to pay $1,000,000 in principal of the Old
      Notes.

     

    G. Contemporaneously
      with the Closing, each of the Subsidiaries will execute and deliver a Guaranty,
      in the form attached hereto as Exhibit D
      (as the
      same may be amended, supplemented, restated or modified and in effect from
      time
      to time, together, the “Guaranty”),
      pursuant to which the Subsidiaries will agree to guaranty certain obligations
      of
      the Company (the guarantees under the Guaranty, including any such guarantee
      added after the Closing, being referred to herein as the “Guarantees”).
      

     

    H. Contemporaneously
      with the Closing, the Company, North Texas, Marquis and Longview will execute
      and deliver a Subordination Agreement in the form attached as Exhibit E
      (as the
      same may be amended, supplemented, restated or modified and in effect from
      time
      to time, together, the “Subordination
      Agreement”),
      pursuant to which the parties thereto shall agree, among other things, that
      interest may be paid on the Sub Notes (as defined in the Securities Exchange
      Agreement) only so long as there is no event of default under the Senior Notes,
      but no payments of principal may be made on the Sub Notes (except in the form
      of
      junior securities) until the Senior Notes have been repaid in
      full.


    
      
         

      

      
        2

        
          

        

      

      
         

      

    


    I.
       For
      purposes of this Agreement, “Transaction
      Documents”
means
      this Agreement, the Sub Notes, the Warrant, the Guaranty, the Subordination
      Agreement, the Irrevocable Transfer Agent Instructions and each of the other
      agreements or instruments to which the Company or any of its Subsidiaries are
      a
      party or by which they are bound and which are entered into by the parties
      hereto in connection with the transactions contemplated hereby and thereby.
      

     

    NOW
      THEREFORE,
      the
      Company, North Texas and each of the Buyers, severally and not jointly, hereby
      agree as follows:

     

    1. EXCHANGE
      OF WARRANT AND NORTH TEXAS SHARES.

     

    a. Exchange.
      Subject
      to the satisfaction (or waiver) of the conditions set forth in Sections
      6
      and
7
      below,
      the Company shall (i) issue to (A) Marquis, in exchange for the North Texas
      Shares and the North Texas Note, the Marquis Note and the Warrant and (B)
      Longview, in exchange for the Old Notes and the agreement to surrender the
      Old
      Warrant as provided in Section 4(cc), the Longview Note, and (ii) pay to
      Longview $1,000,000 of the principal amount owed under the Old Notes.


     

    b. The
      Closing Date.
      The
      date and time of the Closing (the “Closing
      Date”)
      shall
      be 10:00 a.m., New York City time, on the first Business Day following the
      date
      of this Agreement, subject to the satisfaction (or waiver) of all of the
      conditions to the Closing set forth in Sections
      6
      and
7
      (or such
      later or earlier date as is mutually agreed to by the Company and Marquis).
      The
      Closing shall occur on the Closing Date at the offices of Katten Muchin Rosenman
      LLP, 525 West Monroe Street, Suite 1900, Chicago, Illinois 60661, or at such
      other place as the Company and Marquis may designate in writing. As used in
      this
      Agreement, “Business
      Day”
means
      any day other than Saturday, Sunday or other day on which commercial banks
      in
      the New York City are authorized or required by law to remain
      closed.

     

    2. BUYER
      REPRESENTATIONS AND WARRANTIES.

     

    Each
      Buyer, individually and not jointly and severally, represents and warrants,
      as
      of the date of this Agreement and the Closing Date, with respect to only itself,
      that:

     

    a. Investment
      Purpose.
      Such
      Buyer (i) is acquiring the Sub Notes (along with the related Guarantees) and
      the
      Warrant acquired by such Buyer hereunder, (ii) upon any exercise of the Warrant,
      will acquire the Warrant Shares issuable upon such exercise thereof, and (iii)
      upon any exercise of the Investor Share Option (as defined in each of the Sub
      Notes), will acquire the shares of Common Stock issuable upon such exercise
      thereof (the “Option
      Shares”
and,
      collectively with the Sub Notes, the Guarantees, the Warrant and the Warrant
      Shares, the “Securities”)
      for
      its own account and not with a view towards, or for resale in connection with,
      the public sale or distribution thereof, except pursuant to sales registered
      under, or exempted from the registration requirements of, the 1933 Act;
provided,
      however, that by making the representations herein, such Buyer does not agree
      to
      hold any of the Securities acquired by it for any minimum or other specific
      term
      and reserves the right to dispose of the Securities at any time in accordance
      with or pursuant to an effective registration statement or an exemption from
      registration under the 1933 Act.


    
      
         

      

      
        3

        
          

        

      

      
         

      

    


    b. Accredited
      Investor Status.
      Such
      Buyer is an “accredited investor” as that term is defined in Rule 501(a) of
      Regulation D.

     

    c. Reliance
      on Exemptions.
      Such
      Buyer understands that the Securities are being offered and sold to it in
      reliance on specific exemptions from the registration requirements of the
      securities laws and that the Company is relying in part upon the truth and
      accuracy of, and such Buyer’s compliance with, the representations, warranties,
      agreements, acknowledgments and understandings of such Buyer set forth herein
      in
      order to determine the availability of such exemptions and the eligibility
      of
      such Buyer to acquire the Securities. For purposes hereof, “securities
      laws”
means
      the securities laws, legislation and regulations of, and the instruments,
      policies, rules, orders, codes, notices and interpretation notes of, the
      securities regulatory authorities (including the SEC) of the United States
      and
      any applicable states and other jurisdictions. 

     

    d. Information.
      Such
      Buyer and its advisors, if any, have been furnished with all materials relating
      to the business, finances and operations of the Company and the Subsidiaries
      and
      materials relating to the offer and sale of the Securities that have been
      requested by such Buyer. Such Buyer and its advisors, if any, have been afforded
      the opportunity to ask questions of the Company. Neither such inquiries nor
      any
      other due diligence investigations conducted by such Buyer or its advisors,
      if
      any, or its representatives shall modify, amend or affect such Buyer’s right to
      rely on the Company’s representations and warranties contained in Section
      3
      below or
      contained in any of the other Transaction Documents. Such Buyer understands
      that
      its investment in the Securities involves a high degree of risk. Such Buyer
      has
      sought such accounting, legal and tax advice as it has considered necessary
      to
      make an informed investment decision with respect to its acquisition of the
      Securities. 

     

    e. No
      Governmental Review.
      Such
      Buyer understands that no Governmental Entity has passed on or made any
      recommendation or endorsement of the Securities or the fairness or suitability
      of an investment in the Securities nor have such authorities passed upon or
      endorsed the merits of the offering of the Securities. As used in this
      Agreement, “Governmental
      Entity”
means
      the government of the United States or any other nation, or any political
      subdivision thereof, whether state, provincial or local, or any agency
      (including any self-regulatory agency or organization), authority,
      instrumentality, regulatory body, court, central bank or other entity exercising
      executive, legislative, judicial, taxing, regulatory or administration powers
      or
      functions of or pertaining to government over the Company or any of the
      Subsidiaries, or any of their respective properties, assets or
      undertakings.


    
      
         

      

      
        4

        
          

        

      

      
         

      

    


    f. Transfer
      or Resale.
      Such
      Buyer understands that: (i) the Securities have not been and are not being
      registered under the 1933 Act or any other securities laws, and may not be
      offered for sale, sold, assigned or transferred unless (A) subsequently
      registered thereunder, (B) such Buyer shall have delivered to the Company an
      opinion of counsel, in a generally acceptable form, to the effect that such
      Securities to be sold, assigned or transferred may be sold, assigned or
      transferred pursuant to an exemption from such registration, or (C) such
      Buyer provides the Company with reasonable assurance that such Securities can
      be
      sold, assigned or transferred pursuant to Rule 144 promulgated under the
      1933 Act, as amended (or a successor rule thereto) (“Rule
      144”);
      (ii) any sale of the Securities made in reliance on Rule 144 may be made
      only in accordance with the terms of Rule 144, and further, if Rule 144 is
      not
      applicable, any resale of the Securities under circumstances in which the seller
      (or the Person through whom the sale is made) may be deemed to be an underwriter
      (as that term is defined in the 1933 Act) may require compliance with some
      other
      exemption under the 1933 Act or any other securities laws; and
      (iii) neither the Company nor any other Person is under any obligation to
      register the Securities under the 1933 Act or any other securities laws.
      Notwithstanding the foregoing, the Securities may be pledged in connection
      with
      a bona fide margin account or other loan or financing arrangement secured by
      the
      Securities. As used in this Agreement, “Person”
means
      an individual, a limited liability company, a partnership, a joint venture,
      a
      corporation, a trust, an unincorporated organization or a Governmental Entity
      or
      any other legal entity.

     

    g. Legends.
      Such
      Buyer understands that the certificates or other instruments representing the
      Securities, except as set forth below, shall bear a restrictive legend in the
      following form (the “1933
      Act Legend”)
      (and a
      stop-transfer order may be placed against transfer of such
      certificates):

     

    THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
      SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN
      THE
      ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
      THE
      SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR
      (B)
      AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS
      NOT
      REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS
      SOLD
      PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE
      SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
      OTHER
      LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.


    
      
         

      

      
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    Upon
      the
      written request to the Company of a holder of a certificate or other instrument
      representing any Securities, the 1933 Act Legend shall be removed and the
      Company shall issue a certificate without the 1933 Act Legend to the holder
      of
      the Securities upon which it is stamped, if (i) such Securities are registered
      for resale under the 1933 Act, (ii) in connection with a sale transaction,
      such
      holder provides the Company with an opinion of counsel, in a generally
      acceptable form, to the effect that a public sale, assignment or transfer of
      the
      Securities may be made without registration under the 1933 Act, (iii) such
      holder provides the Company with reasonable assurances that the Securities
      can
      be sold pursuant to Rule 144 without compliance with Rule 144(e) or Rule 144(f)
      (or successors thereto), (iv) such holder provides the Company reasonable
      assurances that the Securities have been or are being sold pursuant to Rule
      144,
      or (v) such holder certifies, on or after the date that is six (6) months after
      the date on which such holder acquired the Securities (or is deemed to have
      acquired the Securities under Rule 144), that such holder is not an “affiliate”
of the Company (as defined in Rule 144). Any Option Shares issued pursuant
      to
      the Investor Share Option on or after the date that is six (6) months after
      the
      Closing Date to any Buyer that certifies that such Buyer is not an affiliate
      of
      the Company, as defined in Rule 144, shall be issued without the 1933 Act
      Legend. The Company shall be responsible for the fees of its transfer agent
      and
      all of The Depository Trust Company (the “DTC”)
      fees
      associated with such issuance. The Company acknowledges that a breach by it
      of
      its obligations hereunder will cause irreparable harm to the holders of the
      Securities. Accordingly, the Company acknowledges that the remedy at law for
      a
      breach of its obligations under this Section
      3(g)
      will be
      inadequate and agrees that, in the event of a breach or threatened breach of
      this Section
      3(g),
      such
      holder shall be entitled, in addition to all other available remedies, to an
      injunctive order and/or injunction restraining any breach and requiring
      immediate issuance and transfer, without the necessity of showing economic
      loss
      and without any bond or other security being required. 

     

    h. Authorization;
      Enforcement; Validity.
      Such
      Buyer is a validly existing limited partnership and has the requisite limited
      partnership power and authority to purchase the Securities pursuant to this
      Agreement. This Agreement has been duly and validly authorized, executed and
      delivered on behalf of such Buyer and is the valid and binding agreement of
      such
      Buyer enforceable against such Buyer in accordance with its terms. Each of
      the
      Transaction Documents and the other documents entered into and executed by
      such
      Buyer in connection with the transactions contemplated hereby and thereby as
      of
      the Closing will have been duly and validly authorized, executed and delivered
      on behalf of such Buyer as of the Closing Date, and will constitute valid and
      binding agreements of such Buyer, enforceable against such Buyer in accordance
      with their respective terms.

     

    i. Residency
      and
      Offices.
      Such
      Buyer is a resident of that jurisdiction specified below its name and address
      on
      the Schedule
      of Buyers.

     

    j. Title
      to Units.
      Such
      Buyer immediately prior to Closing will have good and marketable title to each
      of the Exchanged Securities owned by it, free and clear of any Liens. There
      are
      no preemptive, conversion, subscription or other rights, options, warrants
      or
      agreements granted or issued by, or binding upon, such Buyer for the purchase
      or
      acquisition of any of the Exchanged Securities. Upon delivery to the Company
      by
      such Buyer of the Exchanged Securities owned by it, good and marketable title
      to
      such Exchanged Securities (in the case of the Old Warrant, only with respect
      to
      3,000,000 shares of Common Stock subject thereto) will be sold, assigned,
      conveyed, transferred and delivered to the Company, free and clear of all Liens.
      

     

    k. No
      Conflict.
      Neither
      the execution and delivery of this Agreement or any Transaction Document by
      such
      Buyer nor the performance by such Buyer of the transactions contemplated hereby
      or thereby will, directly or indirectly, contravene, conflict with, or result
      in
      (with or without notice or lapse of time) a violation or breach of any of the
      Exchanged Securities owned by it, or give any Person the right (with or without
      notice or lapse of time) to declare a default or exercise any remedy under,
      or
      to accelerate the maturity or performance of, or to cancel, terminate, modify,
      withdraw or suspend any of the Exchanged Securities owned by
      it.


    
      
         

      

      
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    2A. MARQUIS
      REPRESENTATIONS AND WARRANTIES REGARDING NORTH TEXAS. 

     

    Marquis
      hereby represents and warrants, as of the date hereof and as of the Closing
      Date, that:

     

    a. Organization
      and Qualification.
      North
      Texas is a corporation duly organized and validly existing in good standing
      under the laws of the State of Texas and has the requisite corporate power
      and
      authority to own its properties and to carry on its business as now being
      conducted and as proposed to be conducted by North Texas. North Texas does
      not
      have any subsidiaries. North Texas is duly qualified to do business and is
      in
      good standing in every jurisdiction in which such qualification is required,
      except to the extent that the failure to be so qualified or be in good standing
      could not have and could not be, individually or in the aggregate, reasonably
      be
      expected to have any material adverse effect on (i) the business, properties,
      assets, operations, results of operations, condition (financial or otherwise),
      credit worthiness or prospects of North Texas, (ii) the transactions
      contemplated hereby or the agreements and instruments to be entered into in
      connection herewith, or (iii) the authority or ability of North Texas to enter
      into the Transaction Documents and perform its obligations thereunder.


     

    b. Capitalization.
      As of
      the date of this Agreement and as of the Closing Date, (i) the authorized
      Capital Stock of North Texas consists of (A) 10,000,000 shares of common stock,
      of which 1,000 shares are issued and outstanding, and (B) 1,000,000 shares
      of
      preferred stock, of which no shares are issued and outstanding, (ii) no shares
      of common stock or preferred stock of North Texas are reserved for issuance
      under any plan or agreement other than as set forth on Schedule
      2(A)(b),
      and
      (iii) other than the North Texas Note and as set forth on Schedule
      2(A)(b),
      there
      are no other securities of North Texas issued, outstanding or reserved for
      issuance. All of such outstanding or issuable shares have been, or upon issuance
      will be, validly issued and are, or upon issuance will be, fully paid and
      nonassessable. (A) Except as set forth on Schedule
      2(A)(b),
      no
      shares of the Capital Stock of North Texas are subject to preemptive rights
      or
      any other similar rights or any Liens suffered or permitted by North Texas;
      (B)
      there are no outstanding options, warrants, scrip, rights to subscribe to,
      calls
      or commitments of any character whatsoever relating to, or securities or rights
      convertible into or exercisable for, any shares of Capital Stock of North Texas,
      or contracts, commitments, understandings or arrangements by which North Texas
      is or may become bound to issue additional shares of Capital Stock of North
      Texas or options, warrants, scrip, rights to subscribe to, calls or commitments
      of any character whatsoever relating to, or securities or rights convertible
      into or exercisable for, any shares of Capital Stock of North Texas; (C) there
      are no agreements or arrangements under which North Texas is obligated to
      register the sale of any of its securities under the 1933 Act; (D) there are
      no
      outstanding securities or instruments of North Texas that contain any redemption
      or similar provisions, and there are no contracts, commitments, understandings
      or arrangements by which North Texas is or may become bound to redeem a security
      of North Texas, and there are no other stockholder agreements or similar
      agreements to which North Texas or any holder of North Texas’ Capital Stock is a
      party; (E) North Texas does not have any stock appreciation rights or “phantom
      stock” plans or agreements or any similar plan or agreement; and (F) no officer
      or director or beneficial owner of any of North Texas’ outstanding Capital Stock
      has pledged such Capital Stock in connection with a margin account or other
      loan
      secured by such Capital Stock. Buyer has furnished to the Company true and
      correct copies of the North Texas’ Articles of Incorporation and Bylaws, in each
      case as amended and in effect on the date of this Agreement.


    
      
         

      

      
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    c. Financial
      Information.
      Schedule
      2A(c)
      hereto
      sets forth the balance sheet of North Texas as of September 30, 2008. Such
      balance sheet is consistent with the financial books and records of North Texas
      and fairly presents such information as of the date presented. 

     

    d. Absence
      of Litigation.
      During
      the past five (5) years there has not been any Litigation (as defined below)
      before or by any court, public board, Governmental Entity, self-regulatory
      organization or body pending or, to Buyer’s knowledge, threatened against or
      affecting North Texas. To Buyer’s knowledge, no director or officer of North
      Texas has been involved in securities-related Litigation during the past five
      (5) years. 

     

    e. Tangible
      Assets.
      North
      Texas has good and defensible title to all of its tangible assets, all of which
      are free and clear of any Lien, other than Permitted Liens and Liens of Viking
      Asset Management, LLC to be released contemporaneously with the Closing. There
      are no existing agreements, options, commitments or rights with, of or to any
      Person to acquire any such assets, or any interests therein (other than this
      Agreement).

     

    3. REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY.

     

    The
      Company represents and warrants, as of the date of this Agreement and on the
      Closing Date, to each Buyer, that:


    
      
         

      

      
        8

        
          

        

      

      
         

      

    


    a. Organization
      and Qualification.
      (i) The
      Company was incorporated on July 1, 1999. Set forth on Schedule
      3(a)
      is a
      true and correct list of the Subsidiaries and the jurisdiction in which each
      is
      organized or incorporated, together with the percentage of the outstanding
      Capital Stock or other equity interests of each such entity that is held by
      the
      Company or any of the Subsidiaries. Other than with respect to the entities
      listed on Schedule
      3(a),
      the
      Company does not directly or indirectly own any security or beneficial ownership
      interest, in any other Person (including through joint venture or partnership
      agreements) or have any interest in any other Person. Each of the Company and
      the Subsidiaries is a corporation, limited liability company, partnership or
      other entity and is duly organized or formed and validly existing in good
      standing under the laws of the jurisdiction in which it is incorporated or
      organized and has the requisite corporate, partnership, limited liability
      company or other organizational power and authority to own its properties and
      to
      carry on its business as now being conducted and as proposed to be conducted
      by
      the Company and the Subsidiaries. Each of the Company and the Subsidiaries
      is
      duly qualified to do business and is in good standing in every jurisdiction
      in
      which its ownership of property or the nature of the business conducted makes
      such qualification necessary, except to the extent that the failure to be so
      qualified or be in good standing could not have and could not be, individually
      or in the aggregate, reasonably be expected to have a Material Adverse Effect.
      Except as set forth on Schedule
      3(a),
      the
      Company holds all right, title and interest in and to 100% of the Capital Stock,
      equity or similar interests of each of the Subsidiaries, in each case, free
      and
      clear of any Liens (as defined below), including any restriction on the use,
      voting, transfer, receipt of income or other exercise of any attributes of
      free
      and clear ownership by a current holder, and no such Subsidiary owns Capital
      Stock or holds an equity or similar interest in any other Person. As used in
      this Agreement, “Material
      Adverse Effect”
means
      any material adverse effect on (i) the business, properties, assets, operations,
      results of operations, condition (financial or otherwise), credit worthiness
      or
      prospects of the Company and the Subsidiaries, taken as a whole, (ii) the
      transactions contemplated hereby or the agreements and instruments to be entered
      into in connection herewith, or (iii) the authority or ability of the Company
      or
      any other Person (other than Buyers) party to any of the Transaction Documents
      to enter into the Transaction Documents and perform its obligations thereunder.
      The Company holds all right, title and interest in and to 100% of the Capital
      Stock, equity or similar interests of each of the Subsidiaries, in each case,
      free and clear of any Liens (as defined below), including
      any restriction on the use, voting, transfer, receipt of income or other
      exercise of any attributes of free and clear ownership by a current holder
      (other than restrictions arising under federal or state securities laws), and
      no
      such Subsidiary owns
      Capital Stock or holds an equity or similar interest in any other Person. As
      used in this Agreement, “Lien”
means
      with respect to any asset, any mortgage, lien, pledge, hypothecation, charge,
      security interest, encumbrance or adverse claim of any kind and any
      restrictive covenant, condition, restriction or exception of any kind that
      has
      the practical effect of creating a mortgage, lien, pledge, hypothecation,
      charge, security interest, encumbrance or adverse claim of any kind
      (including any of the foregoing created by, arising under or evidenced by any
      conditional sale or other title retention agreement, the interest of a lessor
      with respect to a Capital Lease Obligation, or any financing lease having
      substantially the same economic effect as any of the foregoing); “Subsidiary”
means
      any entity in which the Company, directly or indirectly, owns Capital Stock
      or
      holds an equity or similar interest (at the time of this Agreement or at any
      time hereafter); “Capital
      Lease Obligation”
means,
      as to any Person, any obligation that is required to be classified and accounted
      for as a capital lease on a balance sheet of such Person prepared in accordance
      with U.S. generally accepted accounting principles (“GAAP”),
      and
      the amount of such obligation shall be the capitalized amount thereof,
      determined in accordance with GAAP; and “Capital
      Stock”
means
      any and all shares, interests, participations or other equivalents (however
      designated) of capital stock of a corporation, any and all equivalent ownership
      interests in a Person (other than a corporation) and any and all warrants,
      rights or options to purchase any of the foregoing


    
      
         

      

      
        9

        
          

        

      

      
         

      

    


    b. Authorization;
      Enforcement; Validity.
      The
      Company and each of the Subsidiaries have the requisite corporate power and
      authority to enter into and perform their obligations under each of the
      Transaction Documents, and solely with respect to the Company, to issue the
      Securities in accordance with the terms hereof and thereof. The execution and
      delivery of the Transaction Documents by the Company and each of the
      Subsidiaries and the consummation by the Company and each of the Subsidiaries
      of
      the transactions contemplated hereby and thereby, including the issuance of
      the
      Sub Notes and the Warrant and the reservation for issuance and the issuance
      of
      the Warrant Shares issuable upon exercise of the Warrant and the Option Shares
      upon the exercise of any Investor Share Option, have been duly authorized by
      the
      respective boards of directors, members, managers, stockholders or other
      equityholders, as applicable, of the Company and each of the Subsidiaries and
      no
      further consent or authorization is required by the Company, any of the
      Subsidiaries or any of their respective boards of directors, members, managers,
      stockholders or other equityholders, as applicable. This Agreement and the
      other
      Transaction Documents dated of even date herewith to which the Company or any
      Subsidiary is a party have been duly executed and delivered by the Company
      and
      such Subsidiary, and constitute the valid and binding obligations of the Company
      and each such Subsidiary, enforceable against the Company and each such
      Subsidiary in accordance with their respective terms, except as may be limited
      by bankruptcy, insolvency, fraudulent conveyance or similar laws affecting
      creditors’ rights generally and general principles of equity. As of the Closing,
      the Transaction Documents dated after the date of this Agreement and on or
      prior
      to the Closing Date shall have been duly executed and delivered by the Company
      and each Subsidiary party thereto and shall constitute the valid and binding
      obligations of the Company and each such Subsidiary, enforceable against the
      Company and each such Subsidiary in accordance with their respective terms,
      except as may be limited by bankruptcy, insolvency, fraudulent conveyance or
      similar laws affecting creditors’ rights generally and general principles of
      equity.


    
      
         

      

      
        10

        
          

        

      

      
         

      

    


    c. Capitalization.
      As of
      the date of this Agreement and as of the Closing Date, (i) the authorized
      Capital Stock of the Company consists of 50,000,000 shares of Common Stock,
      of
      which 26,347,359 shares are issued and outstanding and no shares of preferred
      stock, (ii) no shares of Common Stock or Preferred Stock are reserved for
      issuance under any plan or agreement, other than shares of Common Stock with
      respect to the Warrant, the Investor Share Option, the Override Exchange (as
      defined in the Securities Purchase Agreement), the Warrants (as defined in
      the
      Securities Purchase Agreement, the “SPA
      Warrants”),
      the
      Preferred Override Exchange Shares (as defined in the Securities Purchase
      Agreement) and the Company’s 2007 Non-Qualified Stock Option Plan and 2008
      Sonterra Resources, Inc. Equity Compensation Plan (together, the “Company
      Equity Compensation Plan”),
      and
      (iii) there are no other securities of the Company issued, outstanding or
      reserved for issuance. As of the date of the Preferred Authorization (as defined
      in the Securities Purchase Agreement), the authorized Capital Stock of the
      Company will also consist of 50,000,000 shares of preferred stock, par value
      $0.001 per share (the “Preferred
      Stock”),
      none
      of which will be reserved for issuance under any plan or agreement, other than
      the Preferred Override Exchange Shares. All of the outstanding or issuable
      shares have been, or upon issuance will be, validly issued and are, or upon
      issuance will be, fully paid and nonassessable. Except as set forth on
Schedule
      3(c),
      (A) no shares of the Capital Stock of the Company or any of the
      Subsidiaries are subject to preemptive rights or any other similar rights or
      any
      Liens suffered or permitted by the Company or any of the Subsidiaries; (B)
      there
      are no outstanding options, warrants, scrip, rights to subscribe to, calls
      or
      commitments of any character whatsoever relating to, or securities or rights
      convertible into or exercisable for, any shares of Capital Stock of the Company
      or any of the Subsidiaries, or contracts, commitments, plans, understandings
      or
      arrangements by which the Company or any of the Subsidiaries is or may become
      bound to issue additional shares of Capital Stock of the Company or any of
      the
      Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
      commitments of any character whatsoever relating to, or securities or rights
      convertible into or exercisable for, any shares of Capital Stock of the Company
      or any of the Subsidiaries; (C) there are no agreements or arrangements
      under which the Company or any of the Subsidiaries is obligated to register
      the
      sale of any of their securities under the 1933 Act; (D) there are no outstanding
      securities or instruments of the Company or any of the Subsidiaries that contain
      any redemption or similar provisions, and there are no contracts, commitments,
      understandings or arrangements by which the Company or any of the Subsidiaries
      is or may become bound to redeem a security of the Company or any of the
      Subsidiaries, and there are no other stockholder agreements or similar
      agreements to which the Company, any of the Subsidiaries, or, to the Company’s
      Knowledge, any holder of the Company’s Capital Stock is a party; (E) there
      are no securities or instruments containing anti-dilution or similar provisions
      that will or may be triggered by the issuance of the Securities; (F) the Company
      does not have any stock appreciation rights or “phantom stock” plans or
      agreements or any similar plan or agreement; and (G) to the Company’s Knowledge,
      no officer or director or beneficial owner of any of the Company’s outstanding
      Common Stock, has pledged Common Stock in connection with a margin account
      or
      other loan secured by such Common Stock. The Company has furnished to Buyers
      true and correct copies of the Company’s Certificate of Incorporation, as
      amended and as in effect on the date of this Agreement and each date this
      representation is made (the “Certificate
      of Incorporation”),
      and
      the Company’s Bylaws, as amended and as in effect on the date of this Agreement
      and each date this representation is made (the “Bylaws”),
      the
      organizational documents of each of the Subsidiaries, as amended and in effect
      on the date of this Agreement, and all documents and instruments containing
      the
      terms of all securities, if any, that are convertible into, or exercisable
      or
      exchangeable for, Common Stock, and the material rights of the holders thereof
      in respect thereto. All of the equity interests of each of the Subsidiaries
      are
      certificated or otherwise represented in tangible form. “To
      the Company’s Knowledge”
and
      similar language means the actual knowledge of Donald E. Vandenberg, Gary L.
      Lancaster or Donald J. Sebastian or any other currently employed officer of
      the
      Company and the knowledge any such Persons would be expected to have after
      reasonable due diligence and inquiry.


    
      
         

      

      
        11

        
          

        

      

      
         

      

    


    d. Issuance
      of Securities.
      At
      least 5,550,000 shares
      of
      Common Stock (subject to adjustment pursuant to the Company’s covenant set forth
      in Section
      4(g)
      below or
      otherwise for any stock split, stock dividend, stock combination or similar
      transaction) have been duly authorized and reserved for issuance upon exercise
      of the Warrant, the Investor Share Option, the Override Exchange, the Preferred
      Override Exchange Shares and the SPA Warrants. Upon the Preferred Authorization,
      at least 2,000,000 shares Preferred Stock (subject to adjustment for any stock
      split, stock dividend, stock combination or similar transaction) will have
      been
      duly authorized and reserved for issuance as Preferred Override Exchange Shares.
      Upon exercise in accordance with the Warrant, the Investor Share Option, the
      SPA
      Warrants or the Preferred Override Exchange Shares, or upon issuance in
      accordance with the Override Exchange, as the case may be, the Warrant Shares,
      Option Shares, Warrant Shares (as defined in the Securities Purchase Agreement),
      or Override Exchange Shares (as defined in the Securities Purchase Agreement),
      as applicable, will be validly issued, fully paid and nonassessable and free
      from all taxes and Liens with respect to the issuance thereof, with the holders
      being entitled to all rights accorded to a holder of shares of Common Stock
      or
      Preferred Stock, as applicable. The Sub Notes and the Warrant are duly
      authorized and, upon issuance in accordance with the terms hereof, shall be
      (i)
      free from all taxes and Liens with respect to the issuance thereof and (ii)
      entitled to the rights set forth in the Sub Notes and the Warrant, as
      applicable. Assuming the accuracy of the representations and warranties of
      Buyers set forth in Section
      2
      above,
      the issuance by the Company of the Securities is exempt from registration under
      the 1933 Act and any other applicable securities laws. 


    
      
         

      

      
        12

        
          

        

      

      
         

      

    


    e. No
      Conflicts.
      Except
      as set forth on Schedule
      3(e),
      the
      execution and delivery of this Agreement and the other Transaction Documents
      by
      the Company and each of the Subsidiaries, the performance by the Company and
      each of the Subsidiaries of their respective obligations hereunder and
      thereunder and the consummation by the Company and each of the Subsidiaries
      of
      the transactions contemplated hereby and thereby (including the reservation
      for
      issuance and issuance of the Warrant Shares and the Option Shares) will not:
      (i)
      result in a violation of the charter, certificate or articles of incorporation,
      certificate or articles of organization, bylaws, operating agreement,
      partnership agreement or any other governing documents, as applicable, of any
      such Person; (ii) conflict with, or constitute a breach or default (or an
      event which, with the giving of notice or passage of time or both, constitutes
      or would constitute a breach or default) under, or give to others any right
      of
      termination, amendment, acceleration or cancellation of, or other remedy with
      respect to, any agreement, indenture or instrument to which any such Person
      is a
      party; (iii) result in a violation of any law, rule, regulation, order,
      judgment or decree (including securities laws and the rules and regulations,
      if
      any, of the Principal Market (as defined in Section
      3(s))
      applicable to any such Person or by which any property or asset of any such
      Person is bound or affected. Neither the Company nor any of the Subsidiaries
      is
      in violation of any term of its charter, certificate or articles of
      incorporation, certificate or articles of organization, bylaws, operating
      agreement, partnership agreement or any other governing document, as applicable.
      Neither the Company nor any of the Subsidiaries is or has been in violation
      of
      any term of or in default under (or with the giving of notice or passage of
      time
      or both would be in violation of or default under) any contract, agreement,
      mortgage, indebtedness, indenture, instrument, judgment, decree or order or
      any
      Law applicable to the Company or the Subsidiaries, except where such violation
      or default could not reasonably be expected to have a Material Adverse Effect
      or
      to result in the acceleration of any Indebtedness or other obligation. The
      business of the Company and the Subsidiaries has not been and is not being
      conducted, in violation of any Law of any Governmental Entity except as could
      not, individually or in the aggregate, reasonably be expected to have a Material
      Adverse Effect. Except for the filing of instruments to perfect security
      interests and filings to be made pursuant to Section
      4(b) hereof,
      and as set forth on Schedule
      3(e),
      neither
      the Company nor any of the Subsidiaries is or has been required to obtain any
      consent, authorization or order of, or make any filing or registration with,
      any
      court or Governmental Entity in order for it to execute, deliver or perform
      any
      of its obligations under, or contemplated by, the Transaction Documents in
      accordance with the terms hereof or thereof. All consents, authorizations,
      orders, filings and registrations that the Company or any of the Subsidiaries
      is
      or has been required to obtain as described in the preceding sentence have
      been
      obtained or effected on or prior to the date of this Agreement or shall be
      obtained prior to the Closing Date, in both cases prior to the date of the
      effectiveness of such requirement. Except as set forth on Schedule
      3(e),
      the
      Company and the Subsidiaries are in all material respects in compliance with
      the
      applicable provisions of the Sarbanes-Oxley Act of 2002, as amended, and the
      rules and regulations thereunder (collectively, “Sarbanes-Oxley”).
      As
      used in this Agreement, “Laws”
means
      all present or future federal, state local or foreign laws, statutes, common
      law
      duties, rules, regulations, ordinances and codes, together with all
      administrative or judicial orders, consent agreements, directed duties,
      requests, licenses, authorizations and permits of, and agreements with, any
      Governmental Entity; “Indebtedness”
of
      any
      Person means, without duplication (A) all indebtedness for borrowed money,
      (B)
      all trade accounts payable and other obligations issued, undertaken or assumed
      as the deferred purchase price of property or services, (C) all reimbursement
      or
      payment obligations with respect to letters of credit, surety bonds and other
      similar instruments, (D) all obligations evidenced by notes, bonds, debentures,
      redeemable Capital Stock or similar instruments, including obligations so
      evidenced incurred in connection with the acquisition of property, assets or
      businesses, (E) all indebtedness created or arising under any conditional sale
      or other title retention agreement, or incurred as financing, in either case
      with respect to any property or assets acquired with the proceeds of such
      indebtedness (even though the rights and remedies of the seller, bank or other
      financing source under such agreement in the event of default are limited to
      repossession or sale of such property), (F) all Capital Lease Obligations,
      (G)
      all indebtedness referred to in clauses (A) through (F) above secured by (or
      for
      which the holder of such indebtedness has an existing right, contingent or
      otherwise, to be secured by) any mortgage, lien, pledge, charge, security
      interest or other encumbrance upon or in any property or assets (including
      accounts and contract rights) owned by such Person, even though such Person
      has
      not assumed or become liable for the payment of such indebtedness, and (H)
      all
      Contingent Obligations in respect of indebtedness or obligations of others
      of
      the kinds referred to in clauses (A) through (G) above; and “Contingent
      Obligation”
means,
      as to any Person, any direct or indirect liability, contingent or otherwise,
      of
      that Person with respect to any indebtedness, lease, dividend or other
      obligation of another Person if the primary purpose or intent of the Person
      incurring such liability, or the primary effect thereof, is to provide assurance
      to the obligee of such liability that such liability will be paid or discharged,
      or that any agreements relating thereto will be complied with, or that the
      holders of such liability will be protected (in whole or in part) against loss
      with respect thereto.


    
      
         

      

      
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    f. SEC
      Reports; Financial Statements;
      Public Communications.
      Except
      as set forth in Schedule
      3(f),
      since
      December 31, 2005, the Company has filed all reports, schedules, forms,
      statements and other documents required to be filed by it with the SEC pursuant
      to the reporting requirements of the 1934 Act (all of the foregoing filed since
      December 31, 2005 and prior to the date this representation is made (including
      all exhibits included therein and financial statements and schedules thereto
      and
      documents incorporated by reference therein) being referred to herein as the
      “SEC
      Documents”
and
      the
      Company’s consolidated balance sheet as of June 30, 2008, as included in the
      Company’s quarterly report on Form 10-Q for the period then ended, as filed with
      the SEC on August 15, 2008, being referred to herein as the “Latest
      Balance Sheet”).
      A
      complete and accurate list of the SEC Documents is set forth on Schedule
      3(f).
      The
      Company has made available to each Buyer or its respective representatives
      true
      and complete copies of the SEC Documents. Each of the SEC Documents was filed
      with the SEC within the time frames prescribed by the SEC for filing of such
      SEC
      Documents (including any extensions of such time frames permitted by Rule 12b-25
      under the 1934 Act pursuant to timely filed Forms 12b-25) such that each filing
      was timely filed (or deemed timely filed pursuant to Rule 12b-25 under the
      1934
      Act) with the SEC. As of their respective dates, the SEC Documents complied
      in
      all material respects with the securities laws. Except as set forth on
Schedule
      3(f),
      none of
      the SEC Documents, at the time they were filed with the SEC, contained any
      untrue statement of a material fact or omitted to state a material fact required
      to be stated therein or necessary in order to make the statements therein,
      in
      light of the circumstances under which they were made, not misleading. Except
      as
      set forth on Schedule
      3(f),
      since
      the filing of each of the SEC Documents, no event has occurred that would
      require an amendment or supplement to any such SEC Document and as to which
      such
      an amendment has not been filed and made publicly available on the SEC’s EDGAR
      system no less than five (5) Business Days prior to the date the representation
      is made. The Company has not received any written comments from the SEC staff
      that have not been resolved to the satisfaction of the SEC staff. As of their
      respective dates, the consolidated financial statements of the Company and
      the
      Subsidiaries included in the SEC Documents (including the notes thereto, the
      “Financial
      Information”)
      complied as to form in all material respects with applicable accounting
      requirements and the securities laws with respect thereto. Such consolidated
      financial statements have been prepared in accordance with GAAP, consistently
      applied, during the periods involved (except (i) as may be otherwise indicated
      in such financial statements or the notes thereto, or (ii) in the case of
      unaudited interim statements, to the extent they may exclude footnotes or may
      be
      condensed or summary statements) and fairly present in all material respects
      the
      financial position of the Company and the Subsidiaries as of the dates thereof
      and the results of their operations and cash flows for the periods then ended
      (subject, in the case of unaudited statements, to normal year-end audit
      adjustments that are not material individually or in the aggregate). As of
      the
      date hereof and as of the Closing Date, the Financial Information is true,
      accurate and complete, has been prepared in accordance with GAAP, is consistent
      with the books and records of the Company and its predecessors (which are true,
      accurate and complete), and fairly presents such information as of the dates,
      and for the periods, presented. Since the date of the Latest Balance Sheet,
      there has been no change in the Company’s reserve or accrual amounts or
      policies. Schedule
      3(f)
      lists
      all press releases, analyst reports, advertisements and other written
      communications with stockholders or other investors, or potential stockholders
      or other potential investors, on behalf of the Company or any of the
      Subsidiaries or otherwise relating to the Company or any of the Subsidiaries,
      issued, made, distributed, paid for or approved since December 31, 2005 by
      the
      Company, any of the Subsidiaries or any of their respective officers, directors
      or Affiliates (as defined in Section
      3(k)),
      by any
      Person engaged by (or otherwise acting on behalf of) the Company, any of the
      Subsidiaries or any of their respective officers, directors or Affiliates,
      or,
      to the Company’s Knowledge, by any stockholder of the Company. None of the
      Company, the Subsidiaries and their respective officers, directors and
      Affiliates or, to the Company’s Knowledge, any stockholder of the Company has
      made any filing with the SEC, issued any press release or made, distributed,
      paid for or approved (or engaged any other Person to make or distribute) any
      other public statement, report, advertisement or communication on behalf of
      the
      Company or any of the Subsidiaries or otherwise relating to the Company or
      any
      of the Subsidiaries that contains any untrue statement of a material fact or
      omits any statement of material fact necessary in order to make the statements
      therein, in the light of the circumstances under which they are or were made,
      not misleading or has provided any other information to any Buyer, including
      information referred to in Section
      2(d),
      that,
      considered in the aggregate, contains any untrue statement of a material fact
      or
      omits to state any material fact necessary in order to make the statements
      therein, in the light of the circumstances under which they are or were made,
      not misleading. Except as set forth on Schedule
      3(f),
      none of
      the Company, the Subsidiaries and their respective officers, directors,
      employees or agents has provided any Buyer with any material, non-public
      information. The Company is not required to file and will not be required to
      file any agreement, note, lease, mortgage, deed or other instrument entered
      into
      prior to the date this representation is made and in effect on the date this
      representation is made and to which the Company or any Subsidiary is a party
      or
      by which the Company or any Subsidiary is bound that has not been previously
      filed as an exhibit (including by way of incorporation by reference) to the
      Company’s reports filed or made with the SEC under the 1934 Act. The accounting
      firm that has expressed its opinion with respect to the consolidated financial
      statements included in the Company’s most recently filed annual report on Form
      10-K or 10-KSB (the “Audit
      Opinion”)
      is
      independent of the Company pursuant to the standards set forth in Rule 2-01
      of
      Regulation S-X promulgated by the SEC and such firm was otherwise qualified
      to
      render the Audit Opinion under applicable securities laws. Each other accounting
      firm that since such filing has conducted or will conduct a review or audit
      of
      any of the Company’s consolidated financial statements is independent of the
      Company pursuant to the standards set forth in Rule 2-01 of Regulation S-X
      promulgated by the SEC and is otherwise qualified to conduct such review or
      audit and render an audit opinion under applicable securities laws. There is
      no
      transaction, arrangement or other relationship between the Company and an
      unconsolidated or other off-balance-sheet entity that is required to be
      disclosed by the Company in its reports pursuant to the 1934 Act that has not
      been so disclosed in the SEC Documents. Since December 31, 2003, except as
      set
      forth on Schedule
      3(f),
      neither
      the Company nor any of the Subsidiaries nor any director, officer or employee,
      of the Company or any of the Subsidiaries has received or otherwise had or
      obtained Knowledge of any material complaint, allegation, assertion or claim,
      whether written or oral, regarding the accounting or auditing practices,
      procedures, methodologies or methods of the Company or any of the Subsidiaries
      or its internal accounting controls, including any complaint, allegation,
      assertion or claim that the Company or any of the Subsidiaries has engaged
      in
      questionable accounting or auditing practices. No attorney representing the
      Company or any of the Subsidiaries, whether or not employed by the Company
      or
      any of the Subsidiaries, has reported evidence of a material violation of
      securities laws, breach of fiduciary duty or similar violation by the Company
      or
      any of the Subsidiaries or any of their respective officers, directors,
      employees or agents to their respective boards of directors or any committee
      thereof or pursuant to Section 307 of the Sarbanes-Oxley Act of 2002, and the
      SEC’s rules and regulations promulgated thereunder. Since December 31, 2001,
      there have been no internal or SEC investigations regarding accounting or
      revenue recognition discussed with, reviewed by or initiated at the direction
      of
      any executive officer, board of directors or any committee thereof of the
      Company or any of the Subsidiaries. As of the date of this Agreement, the
      Company is not, and at no time since February 14, 2008 has been, a “shell
      company” (as defined in Rule 12b-2 under the Exchange Act).


    
      
         

      

      
        14

        
          

        

      

      
         

      

    


    g. Absence
      of Certain Changes.
      Neither
      the Company nor any of the Subsidiaries has taken any steps, and neither the
      Company nor any such Subsidiary expects to take any steps to seek protection
      pursuant to any bankruptcy law, and neither the Company nor any Subsidiary
      has
      received any written notice or has any other knowledge or reason to believe
      that
      the creditors of such Person intend to initiate involuntary bankruptcy
      proceedings against the Company or any of the Subsidiaries or any knowledge
      of
      any fact that would reasonably lead a creditor to do so. Neither the Company
      nor
      any Subsidiary is as of the date this representation is made, nor after giving
      effect to the transactions contemplated hereby or by any of the other
      Transaction Documents, will be Insolvent (as defined below). As used in this
      Agreement, “Insolvent”
means,
      with respect to any Person, (i) the present fair saleable value of such Person’s
      assets is less than the amount required to pay such Person’s total indebtedness,
      contingent or otherwise, (ii) such Person is unable to pay its debts and
      liabilities, subordinated, contingent or otherwise, as such debts and
      liabilities become absolute and matured, (iii) such Person intends to
      incur, prior to the second anniversary of the date this representation is made,
      or believes that it will incur, prior to the second anniversary of the date
      this
      representation is made, debts that would be beyond its ability to pay as such
      debts mature or (iv) such Person has unreasonably small capital with which
      to conduct the business in which it is engaged as such business is now conducted
      and is proposed to be conducted. Except as disclosed on Schedule
      3(g),
      since
      December 31, 2005, neither the Company nor any of the Subsidiaries has declared
      or paid any dividends or sold any assets outside of the ordinary course of
      business. Except as disclosed on Schedule
      3(g),
      since
      February 14, 2008, neither the Company nor any of the Subsidiaries has had
      any capital expenditures outside the ordinary course of its
      business.


    
      
         

      

      
        15

        
          

        

      

      
         

      

    


    h. Absence
      of Litigation.
      Except
      as disclosed on Schedule
      3(h),
      (i)
      during the past five (5) years there has not been any action, suit, proceeding,
      inquiry or investigation (“Litigation”)
      before
      or by any court, public board, Governmental Entity, self-regulatory organization
      or body pending or, to the Company’s Knowledge, threatened against or affecting
      the Company or any of the Subsidiaries or any of their respective assets, and
      (ii) no officer of the Company nor, to the Company’s Knowledge, any officer or
      director of the Company or holder of more than five percent (5%) of the
      outstanding securities of the Company or any of the Subsidiaries has been
      involved in securities-related Litigation during the past ten (10) years. No
      Litigation disclosed on Schedule
      3(h)
      has, has
      had or, if determined adversely to the Company or any of the Subsidiaries,
      could
      reasonably be expected to have a Material Adverse Effect.

     

    i. Full
      Disclosure; No Undisclosed Events, Liabilities, Developments or
      Circumstances.
      Except
      as set forth on Schedule
      3(i),
      since
      December 31, 2003, there has been no Material Adverse Effect and no
      circumstances exist that could reasonably be expected to be, cause or have
      a
      Material Adverse Effect. Other than the liabilities and obligations under this
      Agreement or as set forth on Schedule
      3(i),
      the
      only
      liabilities of the Company or any Subsidiary (whether fixed or unfixed, known
      or
      unknown, absolute or contingent, asserted or unasserted, choate or inchoate,
      liquidated or unliquidated, or secured or unsecured, and regardless of when
      any
      action, claim, suit or proceeding with respect thereto is instituted) are the
      liabilities reflected on Schedule
      3(i),
      as of
      the date of this Agreement, all of which will be reflected on the Pro Forma
      Balance Sheet (as defined in Section
      4(y)).
      As of
      the Closing Date, the only liabilities of the Company (whether fixed or unfixed,
      known or unknown, absolute or contingent, asserted or unasserted, choate or
      inchoate, liquidated or unliquidated, or secured or unsecured, and regardless
      of
      when any action, claim, suit or proceeding with respect thereto is instituted)
      are the liabilities reflected on Schedule
      3(i),
      as of
      the date of this Agreement, all of which will be reflected on the Pro Forma
      Balance Sheet. As of the Closing Date, the only liabilities of the Company
      (whether fixed or unfixed, known or unknown, absolute or contingent, asserted
      or
      unasserted, choate or inchoate, liquidated or unliquidated, or secured or
      unsecured, and regardless of when any action, claim, suit or proceeding with
      respect thereto is instituted) will be those reflected on the Latest Balance
      Sheet or Schedule
      3(i),
      those
      assumed or created pursuant to, or as a result of, this Agreement and the other
      Transaction Documents and the consummation of the Closing, and liabilities
      and
      obligations of not more than $50,000 for
      operating expenses incurred in the ordinary course of business consistent with
      past practices subsequent to June 30, 2008, all of which will be reflected
      on
      the Pro Forma Balance Sheet. No representation or warranty or other statement
      made by the Company or the Subsidiaries in this Agreement or any of the other
      Transaction Documents, the Schedules hereto or any certificate or instrument
      delivered pursuant to this Agreement contains any untrue statement or omits
      to
      state a material fact necessary to make any such statement, in light of the
      circumstances in which it was made, not misleading.


    
      
         

      

      
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    j. Acknowledgment
      Regarding Buyers’ Purchase of Securities.
      The
      Company acknowledges and agrees that each Buyer is acting solely in the capacity
      of an arm’s length purchaser with respect to the Company in connection with this
      Agreement and the other Transaction Documents and the transactions contemplated
      hereby and thereby. The Company further acknowledges that each Buyer is not
      acting as a financial advisor or fiduciary of any party to this Agreement or
      any
      of the other Transaction Documents (or in any similar capacity) with respect
      to
      this Agreement and the other Transaction Documents and the transactions
      contemplated hereby and thereby, and any advice given by any Buyer or any of
      its
      representatives or agents in connection with the Transaction Documents and
      the
      transactions contemplated hereby and thereby is merely incidental to such
      Buyer’s purchase of the Securities. The Company further represents to each Buyer
      that the decision of each of the Company and each of the Subsidiaries to enter
      into the Transaction Documents has been based solely on the independent
      evaluation by such Person and its representatives.

     

    k. No
      General Solicitation.
      Except
      as set forth on Schedule
      3(k),
      neither
      the Company nor any of its Affiliates, nor any Person acting on the behalf
      of
      any of the foregoing, has engaged or will engage in any form of general
      solicitation or general advertising (within the meaning of Regulation D
      under the 1933 Act), including advertisements, articles, notices, or other
      communications published
      in any
      newspaper, magazine or similar media or broadcast over radio, television or
      internet or any seminar meeting whose attendees have been invited by general
      solicitation or general advertising, in connection with the offer or sale of
      the
      Securities. As used in this Agreement, “Affiliate”
means,
      with respect to any Person, a second Person (A) in which the first Person owns
      a
      five percent (5%) equity interest, or (B) that, directly or indirectly,
      (i) has a five percent (5%) equity interest in such first Person, (ii) has
      a common ownership with such first Person, (iii) controls such first
      Person, (iv) is controlled by such first Person or (v) shares or is under common
      control with such first Person; and “control”
or
      “controls”
means
      that a Person has the power, direct or indirect, to conduct or govern the
      policies of another Person; provided
      however,
      that Longview shall not be considered to be an Affiliate of the Company for
      purposes of this Section
      3(k).

     

    l. No
      Integrated Offering.
      Neither
      the Company nor any Subsidiaries, Affiliates of the foregoing or any Person
      acting on the behalf of any of the foregoing, has, directly or indirectly,
      made
      any offers or sales of any security or solicited any offers to purchase any
      security, under circumstances that would require registration of any of the
      Securities under the 1933 Act or cause this offering of the Securities to be
      integrated with prior offerings by the Company for purposes of the 1933 Act
      or
      any applicable stockholder approval requirements of any authority, nor will
      the
      Company, any Subsidiaries, any Affiliates of the foregoing, or any Person acting
      on behalf of any of the foregoing, take any action or steps that would require
      registration of the issuance of any of the Securities under the 1933 Act or
      cause the offering of the Securities to be integrated with other offerings
      for
      purposes of the 1933 Act or any applicable stockholder approval requirements
      of
      any authority.


    
      
         

      

      
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    m. Dilutive
      Effect.
      The
      Company understands and acknowledges that the number of Warrant Shares that
      the
Company
      is
      obligated to issue upon exercise of the Warrant will increase in certain
      circumstances. The Company further acknowledges that its obligation to issue
      the
      Warrant Shares upon exercise of the Warrant is absolute and unconditional
      regardless of the dilutive effect that such issuance may have on the ownership
      interests of other stockholders of the Company. Taking the foregoing into
      account, the Company’s board of directors has determined in its good faith
      business judgment that the issuance of the Warrant and the consummation of
      the
      other transactions contemplated hereby and by the other Transaction Documents
      are in the best interests of the Company and its stockholders.

     

    n. Employee
      Relations.
      Except
      as set forth on Schedule
      3(n),
      neither
      the Company nor any of the Subsidiaries is involved in any labor union dispute
      nor, to the Knowledge of the Company, is any such dispute threatened. None
      of
      the employees of either the Company or any of the Subsidiaries is or has been
      a
      member of a union that relates to such employee’s relationship with the Company
      or of any of the Subsidiaries. Neither the Company nor any of the Subsidiaries
      is a party to a collective bargaining agreement. Except as set forth on
Schedule
      3(n),
      no
      executive officer (as defined in Rule 3b-7 under the 1934 Act) nor any other
      individual whose termination would be required to be disclosed on a Current
      Report on Form 8-K but that has not been so reported, has notified the Company
      or any of the Subsidiaries that such individual intends to leave the Company
      or
      any of the Subsidiaries or otherwise terminate such individual’s employment or
      relationship with the Company or any of the Subsidiaries. No such individual,
      to
      the Company’s Knowledge, is, has been, or is expected to be, in violation of any
      material term of any employment contract, confidentiality, disclosure or
      proprietary information agreement or non-competition agreement, or any other
      contract or agreement or any restrictive covenant, and the continued employment
      of each such individual does not, has not and will not subject the Company
      or
      any of the Subsidiaries to any liability with respect to any of the foregoing
      matters. Except as set forth on Schedule
      3(n),
      the
      Company and each of the Subsidiaries is and has been in compliance with all
      Laws
      relating to employment and employment practices, terms and conditions of
      employment and wages and hours. 


    
      
         

      

      
        18

        
          

        

      

      
         

      

    


    o. Intellectual
      Property Rights.
      Except
      as set forth on Schedule
      3(o),
      the
      Company and the Subsidiaries own or possess adequate rights or licenses to
      use
      all trademarks, trademark applications and registrations, trade names, service
      marks, service mark registrations, service names, patents, patent rights, patent
      applications, copyrights (whether or not registered), inventions, licenses,
      approvals, governmental authorizations, trade secrets and other intellectual
      property rights (collectively, “Intellectual
      Property”)
      necessary to conduct their respective businesses as conducted as of the date
      this representation is made. Schedule
      3(o)
      contains
      a complete and accurate list of all patented and registered Intellectual
      Property owned by the Company and the Subsidiaries and all pending patent
      applications and applications for the registration of other Intellectual
      Property owned or filed by the Company or any of the Subsidiaries. Schedule
      3(o)
      also
      contains a complete and accurate list of all material licenses and other rights
      granted by the Company or any Subsidiaries to any third party with respect
      to
      Intellectual Property and material licenses and other rights with respect to
      Intellectual Property granted by any third party to the Company or any of the
      Subsidiaries. Except as set forth on Schedule
      3(o),
      (i)
      none of the rights of the Company and the Subsidiaries in their Intellectual
      Property have expired or terminated, or are expected to expire or terminate
      within five (5) years from the date of this Agreement, except to the extent
      such
      termination would not and would not reasonably be expected to have a Material
      Adverse Effect, (ii) there are no third parties who have rights to any of the
      Intellectual Property owned or licensed by the Company or any of the
      Subsidiaries, except for the rights retained by the owners of the Intellectual
      Property that is licensed to the Company or any of the Subsidiaries, and there
      are no third parties who have rights to any of the Intellectual Property owned
      or licensed by the Company or any of the Subsidiaries, except for the rights
      retained by the owners of the Intellectual Property that is licensed to the
      Company or any of the Subsidiaries, (iii) there has been no infringement by
      the
      Company or any of the Subsidiaries or any of the Company’s or the Subsidiaries’
licensors or licensees of any Intellectual Property rights of others and the
      Company has no Knowledge of any infringement by the Company or any of the
      Subsidiaries or any of their licensors or licensees of any Intellectual Property
      rights of others, (iv) there has been no infringement by any third parties
      of
      any Intellectual Property owned or licensed by the Company or any of the
      Subsidiaries, or of any development of similar or identical trade secrets or
      technical information by others, (v) there is no claim, action or proceeding
      against, or being threatened against, the Company, any of the Subsidiaries
      or
      any of their respective licensors regarding its Intellectual Property or
      infringement of other Intellectual Property rights, and there is no claim,
      action or proceeding against or being threatened against the Company, any of
      the
      Subsidiaries or any of their respective licensors regarding its Intellectual
      Property or infringement of other Intellectual Property rights, (vi) there
      are
      no facts or circumstances that could reasonably be expected to give rise to
      any
      of the foregoing, (vii) there is no patent or patent application which contains
      claims that interfere with the issued or pending claims of any of the
      Intellectual Property owned or licensed by the Company or any of the
      Subsidiaries, and there is no patent or patent application which contains claims
      that interfere with the issued or pending claims of any of the Intellectual
      Property owned or licensed by the Company or any of the Subsidiaries, and (viii)
      none of the technology employed by the Company or any of the Subsidiaries has
      been obtained or is being used by the Company or any of the Subsidiaries in
      violation of any material contractual obligation binding on the Company or
      any
      of the Subsidiaries or is being used by any of the officers, directors or
      employees of the Company or any of the Subsidiaries on behalf of the Company
      or
      any of the Subsidiaries in violation of the rights of any Person or Persons.
      The
      Company and the Subsidiaries have taken reasonable security measures to protect
      the secrecy, confidentiality and value of all of their material Intellectual
      Property. 


    
      
         

      

      
        19

        
          

        

      

      
         

      

    


    p. Environmental
      Laws.
      Except
      as set forth on Schedule
      3(p),
      each of
      the Company and the Subsidiaries and each Person that has operated any Real
      Property (as defined in Section
      3(bb))
      (i) is,
      and has at all times been, in compliance with any and all Environmental Laws
      (as
      defined below) and has not violated any Environmental Laws, (ii) has no,
      and has never had any, liability for failure to comply with any Environmental
      Law, (iii) has received all permits, licenses or other approvals required of
      it
      under applicable Environmental Laws to conduct its business as presently
      conducted, and (iv) is in com-pliance with all terms and conditions of any
      such permit, license or approval except as could not reasonably be expected
      to
      have a Material Adverse Effect. Except as set forth on Schedule
      3(p),
      with
      respect to each Real Property, (I) there has not occurred an event in the use
      and operation of any Real Property and there does not exist on any Real Property
      a condition which constitutes a violation of any Environmental Laws, (II) there
      have been timely filed all required reports, there have been obtained all
      required approvals and permits, and there have been generated and maintained
      all
      required data, documentation and records under all applicable Environmental
      Laws, (III) there are no environmental investigations, studies or audits with
      respect to any Real Property owned or commissioned by, or in the possession
      of,
      the Company that have not been disclosed to Buyers, and (IV) no Hazardous
      Material or solid wastes (as such terms are defined under any Environmental
      Law)
      generated from any Real Property have been sent to a site which, pursuant to
      CERCLA or any similar state law, or other Environment Law has been placed,
      or is
      proposed to be placed, on the “National Priority List” of hazardous waste sites
      or which is subject to a claim, an administrative order or other request to
      take
      any cleanup, removal or remedial action or to pay for any costs relating to
      such
      site. All Hazardous Material or solid wastes generated from any Real Property
      and requiring disposal have, to the extent required by any Environmental Law,
      been transported only by carriers maintaining valid authorizations and been
      treated, stored and disposed of only at facilities maintaining valid
      authorizations. As used in this Agreement, “Environmental
      Laws”
means
      all Laws relating to any matter arising out of or relating to public health
      and
      safety, or pollution or protection of the environment (including ambient air,
      surface water, groundwater, land surface or subsurface strata) or workplace,
      including any of the foregoing relating to the presence, use, production,
      generation, handling, transport, treatment, storage, disposal, distribution,
      discharge, emission, release, threatened release, control or cleanup of any
      Hazardous Materials, including the Comprehensive Environmental Response,
      Compensation and Liability Act of 1980, 42 U.S.C. §9601 et seq., as amended
      (“CERCLA”), the Resource Conservation and Recovery Act of 1976, as amended, 42
      U.S.C. §6901, et seq., the Clean Air Act, 42 U.S.C. §7401, et seq., as amended,
      the Federal Water Pollution Control Act, 33 U.S.C. §1251, et seq., as amended,
      the Oil Pollution Act of 1990, 33 U.S.C. §2701, et seq., and the Toxic
      Substances Control Act, 15 U.S.C. §2601, et seq.; and “Hazardous
      Materials”
means
      any hazardous, toxic or dangerous substance, materials and wastes, including
      hydrocarbons (including naturally occurring or man-made petroleum and
      hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation,
      radioactive materials, biological substances, polychlorinated biphenyls,
      pesticides, herbicides and any other kind and/or type of pollutants or
      contaminants (including materials which include hazardous constituents), sewage,
      sludge, industrial slag, solvents and/or any other similar substances,
      materials, or wastes and including any other substances, materials or wastes
      that are or become regulated under any Environmental Law (including any that
      are
      or become classified as hazardous or toxic under any Environmental Law).



    
      
         

      

      
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    q. Title.
      Except
      as set forth on Schedule
      3(q),
      neither
      the Company nor any of the Subsidiaries has any interest in any real property
      or
      any oil, gas or other mineral drilling, exploration or development rights.
      The
      Company and each Subsidiary has good and valid title to all personal property
      currently possessed by them that is material to the business of such Person,
      in
      each case free and clear of all Liens except such as are described on
Schedule 3(q).
      The
      Company and each of the Subsidiaries has good, marketable and defensible title
      in fee simple to all real property owned (rather than leased) by such Person
      (the “Owned
      Real Property”)
      as set
      forth on Schedule
      3(q),
      in each
      case free and clear of all Liens, other than Permitted Liens, except such as
      are
      described on Schedule
      3(q)
      and
      Liens of Viking Asset Management, LLC to be released contemporaneously with
      the
      Closing. As used in this Agreement, “Permitted
      Lien”
means
      (I) Liens created by the “Security
      Documents”
(as
      defined in the Securities Purchase Agreement); (II) Liens for taxes or other
      governmental charges not at the time due and payable, or (if foreclosure,
      distraint sale or other similar proceeding shall not have been initiated) which
      are being contested in good faith by appropriate proceedings diligently
      prosecuted, so long as foreclosure, distraint, sale or other similar proceedings
      have not been initiated, and in each case for which the Company and the
      Subsidiaries maintain adequate reserves in accordance with GAAP in respect
      of
      such taxes and charges; (III) Liens arising in the ordinary course of business
      in favor of carriers, warehousemen, mechanics and materialmen, or other similar
      Liens imposed by law, which remain payable without penalty or which are being
      contested in good faith by appropriate proceedings diligently prosecuted, which
      proceedings have the effect of preventing the forfeiture or sale of the property
      subject thereto, and in each case for which adequate reserves in accordance
      with
      GAAP are being maintained; (IV) Liens arising in the ordinary course of business
      in connection with worker’s compensation, unemployment compensation and other
      types of social security (excluding Liens arising under ERISA); (V) attachments,
      appeal bonds (and cash collateral securing such bonds), judgments and other
      similar Liens, for sums not exceeding $100,000 in the aggregate for the Company
      and the Subsidiaries, arising in connection with court proceedings, provided
      that the
      execution or other enforcement of such Liens is effectively stayed; (VI)
      easements, rights of way, restrictions, minor defects or irregularities in
      title
      and other similar Liens arising in the ordinary course of business and not
      materially detracting from the value of the property subject thereto and not
      interfering in any material respect with the ordinary conduct of the business
      of
      the Company or any of the Subsidiaries; (VII) surety bonds, bids, performance
      bonds, and similar obligations (exclusive of obligations for the payment of
      borrowed money) obtained by the Company and the Subsidiaries in the ordinary
      course of business for the purpose of satisfying federal, state, provincial
      and
      territorial and/or local legal requirements for owning and operating their
      oil
      and gas properties, in an aggregate amount not to exceed $100,000 outstanding
      at
      any time; (VIII) Liens arising solely by virtue of any statutory or common
      law
      provision relating to banker’s liens, rights of set-off or similar rights and
      remedies and burdening only deposit accounts or other funds maintained with
      a
      creditor depository institution, provided
      that no
      such deposit account is a dedicated cash collateral account or is subject to
      restrictions against access by the depositor in excess of those set forth by
      regulations promulgated by the Board of Governors of the U.S. Federal Reserve
      System and that no such deposit account is intended by the Company or any of
      the
      Subsidiaries to provide collateral to the depository institution; and (IX)
      the
      FNBW Security Interest (but only so long as the FNBW Indebtedness remains
      outstanding). 


    
      
         

      

      
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    r. Insurance.
      The
      Company and each of the Subsidiaries are insured by insurers of recognized
      financial responsibility against such losses and risks and in such amounts
      as
      management of the Company believes to be prudent and customary in the businesses
      in which the Company and the Subsidiaries are engaged. Neither the Company
      nor
      any Subsidiary has been refused any insurance coverage sought or applied for,
      and neither the Company nor any Subsidiary has any reason to believe that it
      will not be able to renew its existing insurance coverage as and when such
      coverage expires or to obtain similar coverage from similar insurers as may
      be
      necessary to continue its business at a cost that would not reasonably be
      expected to have a Material Adverse Effect.

     

    s. Regulatory
      Permits.
      Except
      as set forth on Schedule
      3(s)
      or as
      could not, individually or in the aggregate, reasonably be expected to have
      a
      Material Adverse Effect or a material adverse effect on the production,
      extraction, transportation or sale of oil, gas, minerals or other hydrocarbons
      from any portion of any Real Property (as defined in Section
      3(bb))
      that is
      producing oil, gas, minerals and/or other hydrocarbons at the time this
      representation is made, the Company and the Subsidiaries possess all
      certificates, authorizations, approvals, licenses and permits issued by the
      appropriate federal, state or foreign regulatory authorities necessary to
      conduct their respective businesses
      as
      conducted at the time this representation is made (“Permits”),
      and
      neither the Company nor any Subsidiary has received any notice of proceedings
      relating to the revocation or modification of any such Permit. Without limiting
      the foregoing, except as set forth on Schedule
      3(s),
      the
      Company and the Subsidiaries possess all Permits necessary to produce, extract,
      transport and sell the oil, gas and other minerals in that portion of Real
      Property that is producing oil, gas, minerals and/or other hydrocarbons at
      the
      time this representation is made. Except as set forth on Schedule
      3(s)
      or as
      could not reasonably be expected to have a Material Adverse Effect, the Company
      and the Subsidiaries do not have any reason to believe that they will not be
      able to obtain necessary Permits as and when necessary to enable the Company
      to
      produce, extract, transport and sell the oil, gas, minerals and other
      hydrocarbons in any Real Property. Except as set forth on Schedule
      3(s),
      the
      Company is not in violation of any of the rules, regulations or requirements
      of
      the OTC Bulletin Board (the “Principal
      Market”;
      provided
      however,
      that, if after the date of this Agreement the Common Stock is listed on a
      national securities exchange, the “Principal
      Market”
shall
      mean such national securities exchange) and the Company has no Knowledge of
      any
      facts or circumstances which would reasonably lead to delisting or suspension,
      or termination of the trading of, the Common Stock by or on the Principal Market
      in the foreseeable future. Except as set forth on Schedule
      3(s),
      since
      December 31, 2005, (i) the Company’s Common Stock has been quoted on the
      Principal Market, (ii) trading in the Common Stock has not been suspended by
      the
      SEC or the Principal Market and (iii) the Company has received no communication,
      written or oral, from the SEC or the Principal Market regarding the suspension
      or delisting, or termination of the trading, of the Common Stock by or on the
      Principal Market. 


    
      
         

      

      
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    t. Internal
      Accounting Controls; Disclosure Controls and Procedures; Books and
      Records.
      The
      Company has, and has caused each of the Subsidiaries to, at all times keep
      books, records and accounts with respect to all of such Person’s business
      activities, in accordance with sound accounting practices and GAAP consistently
      applied. The Company and each of the Subsidiaries maintains a system of internal
      accounting controls sufficient to provide reasonable assurance that (i)
      transactions are executed in accordance with management’s general or specific
      authorizations, (ii) transactions are recorded as necessary to permit
      preparation of financial statements in conformity with GAAP and to maintain
      asset and liability accountability, (iii) access to assets or incurrence of
      liability is permitted only in accordance with management’s general or specific
      authorization and (iv) the recorded accountability for assets and liabilities
      is
      compared with the existing assets and liabilities at reasonable intervals and
      appropriate action is taken with respect to any differences. Except as set
      forth
      on Schedule
      3(t),
      the
      Company has timely filed (or has been deemed to have timely filed pursuant
      to
      Rule 12b-25 under the 1934 Act) and made publicly available on the SEC’s EDGAR
      system no less than five (5) days prior to the date hereof, all certifications
      and statements required by (A) Rule 13a-14 or Rule 15d-14 under
      the 1934 Act and (B) Section 906 of Sarbanes Oxley with respect to any SEC
      Documents. The Company maintains disclosure controls and procedures required
      by
      Rule 13a-15 or Rule 15d-15 under the 1934 Act; except as set
      forth on Schedule
      3(t),
      such
      disclosure controls and procedures are, and at all times have been, effective
      to
      ensure that the information required to be disclosed by the Company in the
      reports that it files with or submits to the SEC (X) is recorded,
      processed, summarized and reported accurately within the time periods specified
      in the SEC’s rules and forms and (Y) is accumulated and communicated to the
      Company’s management, including its principal executive officer and principal
      financial officer, as appropriate to allow timely decisions regarding required
      disclosure. Except as set forth on Schedule
      3(t),
      the
      Company maintains internal control over financial reporting required by
      Rule 13a-14 or Rule 15d-14 under the 1934 Act; such internal
      control over financial reporting is, and has at all times been, effective and
      does not contain, and has not contained, any material weaknesses.



    
      
         

      

      
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    u. Bank
      Accounts.
      Except
      as set forth on Schedule
      3(u),
      neither
      the Company nor any of the Subsidiaries maintains, or has any interest in,
      any
      bank account, brokerage account or other similar account. Schedule
      3(u) sets
      forth the funds (and any securities) contained in any such account as of the
      date hereof. As of the date that this representation is made, all funds (and
      securities) of the Company and the Subsidiaries will be held in bank (or
      brokerage) accounts in the United States subject to Account Control Agreements,
      and all other bank accounts, brokerage accounts or other similar accounts of
      the
      Company and the Subsidiaries will have been closed. 

     

    v. Tax
      Status.
      Except
      as set forth on Schedule
      3(v),
      the
      Company and each of the Subsidiaries
      (i) has
      made or filed all foreign, federal and state income and all other tax returns,
      reports and declarations required by any jurisdiction to which it is subject,
      (ii) has paid all taxes and other governmental assessments and charges that
      are
      material in amount, shown or determined to be due on such returns, reports
      and
      declarations, except those being contested in good faith and for which the
      Company has made appropriate reserves on its books, and (iii) has set aside
      on
      its books provisions reasonably adequate for the payment of all taxes for
      periods subsequent to the periods to which such returns, reports or declarations
      (referred to in clause (i) above) apply. Except as set forth on Schedule
      3(v),
      there
      are no unpaid taxes in any material amount claimed in writing to be due from
      the
      Company or any of the Subsidiaries by the taxing authority of any jurisdiction,
      and there is no basis for any such claim. Neither the Company nor any of the
      Subsidiaries is, or after giving effect to the transactions contemplated by
      this
      Agreement and the other Transaction Documents will be, a “United States real
      property holding corporation” (“USRPHC”)
      as
      that term is defined in Section 897(c)(2) of the Internal Revenue Code of 1986,
      as amended, and the Treasury Regulations promulgated thereunder.

     

    w. Transactions
      With Affiliates.
      Except
      for transactions consummated pursuant to this Agreement and the other
      Transaction Documents, and except as set forth on Schedule
      3(w),
      no
      Related Party (as defined below) of the Company or any of the Subsidiaries,
      nor
      any Affiliate thereof, is presently, has
      been
      within the past three (3) years, or will be as a result of the transactions
      contemplated by this Agreement and the other Transaction Documents, a party
      to
      any transaction, contract, agreement, instrument, commitment, understanding
      or
      other arrangement or relationship with the Company or any of the Subsidiaries,
      whether for the furnishing of services to or by, providing for rental of real
      or
      personal property to or from, or otherwise requiring payments or consideration
      to or from, any such Related Party. Except as set forth on Schedule
      3(w),
      no
      Related Party of the Company or any of the Subsidiaries, or any of their
      respective Affiliates, has any direct or indirect ownership interest in any
      Person (other than ownership of less than two percent (2%) of the outstanding
      common stock of a publicly traded corporation) in which the Company or any
      of
      the Subsidiaries has any direct or indirect ownership interest or with which
      the
      Company or any of the Subsidiaries competes or has a business relationship.
      “Related
      Party”
means
      the Company’s or any of the Subsidiary’s officers or directors, individuals who
      were officers or directors of any such Person at any time during the previous
      two (2) years, stockholders of any such Person (other than any holder of less
      than five percent (5%) of the outstanding shares of any such Person), or
      Affiliates of any such Person, or any individual related by blood, marriage
      or
      adoption to any such individual or any entity in which any such entity or
      individual owns a beneficial interest. 


    
      
         

      

      
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    x. Application
      of Takeover Protections; Rights Agreement.
      The
      Company and the Board have taken all necessary action, if any, in order to
      render inapplicable any control share acquisition, business combination, or
      other similar anti-takeover provision under the Certificate of Incorporation
      or
      any certificates of designations or the laws of the jurisdiction of its
      formation or incorporation to the transactions contemplated by this Agreement,
      the Company’s issuance of the Securities in accordance with the terms hereof and
      any Buyer’s ownership of the Securities. Except as set forth on Schedule
      3(x),
      the
      Company has not adopted a stockholder rights plan or similar arrangement
      relating to accumulations of beneficial ownership of Common Stock or a change
      in
      control of the Company. 

     

    y. Foreign
      Corrupt Practices.
      Neither
      the Company, nor any of the Subsidiaries, nor any director, officer, agent,
      employee or other person acting on behalf of the Company or any of the
      Subsidiaries has, in the course of its actions for, or on behalf of, the
      Company, used any corporate funds for any unlawful contribution, gift,
      entertainment or other unlawful expenses relating to political activity; made
      any direct or indirect unlawful payment to any foreign or domestic government
      official or employee from corporate funds; violated or is in violation of any
      provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or
      made
      any unlawful bribe, rebate, payoff, influence payment, kickback or other
      unlawful payment to any foreign or domestic government official or
      employee.

     

    z. Outstanding
      Indebtedness; Liens.
      Payments of principal and other payments due under the Sub Notes will, upon
      issuance at the Closing, rank senior to all other Indebtedness of the Company
      or
      any of the Subsidiaries (other than the Indebtedness under the Senior Notes
      and
      the FNBW Indebtedness) and, by virtue of their secured position, and to the
      extent of the Collateral, to all trade account payables of the Company, and
      the
      obligations of the Subsidiaries under the Guaranty will, upon issuance of the
      Sub Notes at the Closing, rank senior to all other Indebtedness of the
      Subsidiaries other than the Senior Notes and, by virtue of the secured position
      of the Guaranty and to the extent of the Collateral, to all trade account
      payables of any of the Subsidiaries. Except as set forth on Schedule 3(z),
      (i)
      neither the Company nor any of the Subsidiaries has any, and upon consummation
      of the transactions contemplated hereby and by the other Transaction Documents
      will not have any, outstanding Indebtedness other than (A) pursuant to the
      Senior Notes, the Securities Purchase Documents and the Transaction Documents,
      (B) the FNBW Indebtedness and (C) the Vandenberg Indebtedness, (ii) there are
      no, and upon consummation of the transactions contemplated hereby and by the
      other Transaction Documents there will not be any, Liens on any of the assets
      of
      the Company or the Subsidiaries, other than (X) pursuant to the Security
      Documents and (Y) the FNBW Security Interest, and (iii) there are no, and upon
      consummation of the transactions contemplated hereby and by the Senior Notes,
      the Securities Purchase Documents and the Transaction Documents there will
      not
      be any, financing statements securing obligations of any amounts filed against
      the Company or any of the Subsidiaries or any of their respective assets, other
      than under the Security Documents. As used in this Agreement, “FNBW
      Note”
means
      that certain promissory note, dated July 11, 2008, in the outstanding principal
      amount of $150,000 (as in effect as of the date hereof, without any increase
      in
      the principal thereof or the interest rate thereon, and without any waiver,
      amendment, supplement, restatement or modification thereof, other than to the
      extend the term thereof) issued by North Texas to the First National Bank of
      Weatherford (“FNBW”);
      “FNBW
      Indebtedness”
means
      the obligation evidenced by the FNBW Note; “FNBW
      Security Interest”
means
      the security interest granted by North Texas in certain of its vehicles, as
      specified on Schedule
      3(z),
      in
      favor of FNBW, as security for the FNBW Indebtedness (as such security interest
      is in effect on the date hereof, without any waiver, amendment, supplement,
      restatement or modification after the date hereof); “Vandenberg
      Note”
means
      that certain promissory note, dated July 8, 2006, in the outstanding principal
      amount of $75,000 (as in effect as of the date hereof, without any increase
      in
      the principal thereof or the interest rate thereon, and without any waiver,
      amendment, supplement, restatement or modification thereof, other than to the
      extend the term thereof) issued by Velocity Energy Partners LP to
      Donald
      E. Vandenberg; and “Vandenberg
      Indebtedness”
means
      the obligation evidenced by the Vandenberg Note.


    
      
         

      

      
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    aa. Ranking
      of Notes.
      No
      Indebtedness (as defined in the Notes) of the Company (other than the FNBW
      Indebtedness and the Indebtedness under the Senior Notes) is, or will be upon
      consummation of the transactions contemplated hereby and by the other
      Transaction Documents, senior to or ranks or will rank pari
      passu
      with the
      Sub Notes in right of payment, whether with respect of payment of redemptions,
      interest or damages or upon liquidation or dissolution or otherwise; provided
      that, the fees owing under this Agreement pursuant to Section
      4(i)
      shall
      rank first in priority and ahead of the Sub Notes.

     

    bb. Real
      Property.
      Schedule
      3(bb)
      contains
      a complete and correct list of all the real property; leasehold interests;
      fee
      interests; oil, gas and other mineral drilling, exploration and development
      rights; royalty, overriding royalty, and other payments out of or pursuant
      to
      production; other rights in and to oil, gas and other minerals, including
      contractual rights to production, concessions, net profits interests, working
      interests and participation interests (including all Hydrocarbon Property (as
      defined in the Mortgages (as defined in the Securities Purchase Agreement)));
      any other contractual rights for the acquisition or earning of any of such
      interests in the real property; facilities; fixtures; equipment that (i) are
      leased or otherwise owned or possessed by the Company or any of the
      Subsidiaries, (ii) in connection with which the Company or any of the
      Subsidiaries has entered into an option agreement, participation agreement
      or
      acquisition and drilling agreement or (iii) the Company or any of the
      Subsidiaries has agreed to lease or otherwise acquire or may be obligated to
      lease or otherwise acquire in connection with the conduct of its business
      (collectively, including any of the foregoing acquired after the date of this
      Agreement, the “Real
      Property”),
      which
      list identifies all of the Real Property and specifies which of the Company
      or
      the Subsidiaries leases, owns or possesses each of the Real Properties or will
      do so upon consummation of the Purchases. Schedule
      3(bb)
      also
      contains a complete and correct list of all leases and other agreements with
      respect to which the Company or any of the Subsidiaries is a party or otherwise
      bound or affected with respect to the Real Property, except easements, rights
      of
      way, access agreements, surface damage agreements, surface use agreements or
      similar agreements that pertain to Real Property that is contained wholly within
      the boundaries of any owned or leased Real Property otherwise described on
      Schedule
      3(bb)
      (the
“Real
      Property Leases”).
      Except as set forth on Schedule
      3(bb),
      the
      Company or one of the Subsidiaries is the legal and equitable owner of a
      leasehold interest in all of the Real Property, and possesses good, marketable
      and defensible title thereto, free and clear of all Liens (other than Permitted
      Liens) and other matters affecting title to such leasehold that could impair
      the
      ability of the Company or the Subsidiaries to realize the benefits of the rights
      provided to any of them under the Real Property Leases. Except as set forth
      on
Schedule
      3(bb),
      all of
      the Real Property Leases are valid and in full force and effect and are
      enforceable against all parties thereto. Except as set forth on Schedule
      3(bb),
      neither
      the Company nor any of the Subsidiaries nor, to the Company’s Knowledge, any
      other party thereto is in default in any material respect under any of such
      Real
      Property Leases and no event has occurred which with the giving of notice or
      the
      passage of time or both could constitute a default under, or otherwise give
      any
      party the right to terminate, any of such Real Property Leases, or could
      adversely affect the Company’s or any of the Subsidiaries’ interest in and title
      to the Real Property subject to any of such Real Property Leases. No Real
      Property Lease is subject to termination, modification or acceleration as a
      result of the transactions contemplated hereby or by the other Transaction
      Agreements. Except as set forth on Schedule
      3(bb),
      all of
      the Real Property Leases will remain in full force and effect upon, and permit,
      the consummation of the transactions contemplated hereby (including the granting
      of leasehold mortgages). The Real Property is permitted for its present uses
      under applicable zoning laws, is permitted conforming structures and complies
      with all applicable building codes, ordinances and other similar Laws. Except
      as
      set forth on Schedule
      3(bb),
      there
      are no pending or threatened condemnation, eminent domain or similar
      proceedings, or litigation or other proceedings affecting the Real Property,
      or
      any portion or portions thereof. Except as set forth on Schedule
      3(bb),
      there
      are no pending or threatened requests, applications or proceedings to alter
      or
      restrict any zoning or other use restrictions applicable to the Real Property
      that would interfere with the conduct of the Company’s or any of the
      Subsidiaries’ business as conducted or proposed to be conducted (including as
      described to Buyers) at the time this representation is made. Except as set
      forth on Schedule
      3(bb),
      there
      are no restrictions applicable to the Real Property that would interfere with
      the Company’s or any Subsidiary’s making an assignment or granting of a
      leasehold or other mortgage to Sonterra Buyers as contemplated by the Security
      Documents, including any requirement under any Real Property Leases requiring
      the consent of, or notice to, any lessor of any such Real Property. Except
      as
      set forth on Schedule
      3(bb),
      all of
      the Real Property is located in the State of Texas. Except as set forth on
      Schedule
      3(bb),
      all of
      the wells on the Real Property have been drilled and completed at legal
      locations within the boundaries of the appropriate Real Property Lease; and
      no
      such well is subject to penalties on allowables after the date hereof because
      of
      any overproduction or violation of applicable laws, rules, regulations, permits
      or judgments, orders or decrees of any court or governmental body or agency
      which would prevent such well from being entitled to its full legal and regular
      allowance from and after the date hereof as prescribed by any court or
      Governmental Entity. Except as set forth on Schedule
      3(bb),
      there
      are no joint operating agreements applicable to the Real Property. Neither
      the
      Company nor any of the Subsidiaries will be obligated, as of the Closing Date
      or
      thereafter, including by virtue of a prepayment arrangement, make-up right
      under
      a production sales contract containing a “take or pay” or similar provision,
      production payment, buydowns, buyouts, or any other arrangement, (i) to deliver
      hydrocarbons, or proceeds from the sale thereof, attributable to any of the
      Real
      Property at some future time without then or thereafter receiving the full
      contract price therefore, or (ii) to deliver oil or gas (or cash in lieu
      thereof) from the Real Property to other owners of interests as a result of
      past
      production by any such owner, the Company or the Subsidiaries or any of their
      respective predecessors in excess of the share to which it was entitled with
      respect to such Real Property. Except as set forth on Schedule
      3(bb),
      no
      Person has any call upon, option to purchase or similar right to obtain
      production from the portion of the Real Property. To the Company’s Knowledge,
      the Real Property Leases will by their terms remain in effect for at least
      as
      long as oil, gas or other minerals are produced in paying quantities or they
      are
      otherwise maintained by operations. For purposes of this Agreement,
“Sonterra
      Buyers”
means
      the “Buyers” as defined in the Securities Purchase Agreement. 


    
      
         

      

      
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    cc. Excluded
      Subsidiaries
      and
      Velocity Subsidiaries.
      All of
      the assets and liabilities of each of River Reinsurance Limited, a Barbados
      exempt insurance company (“River
      Sub”),
      River
      Capital Holdings Limited, a Barbados exempt corporation (“Holdings
      Sub”;
      and
      together with River Sub, the “Excluded
      Subsidiaries”),
      Velocity Energy Limited LLC, a Texas limited liability company (“VEL”),
      Velocity Energy Partners LP, a Delaware limited partnership (“VEP”),
      and
      Velocity Energy Offshore LP, a Delaware limited partnership (together with
      VEL
      and VEP, the “Velocity
      Subsidiaries”),
      are
      set forth on Schedule
      3(cc).
      Except
      as set forth on Schedule
      3(cc),
      no
      Excluded Subsidiary or Velocity Subsidiary has employed any employees or engaged
      in any business operations or other activities. No Excluded Subsidiary or
      Velocity Subsidiary has or is authorized to maintain, except as set forth on
      Schedule
      3(u),
      any
      bank account, brokerage account or other similar account, possesses any cash
      or
      other assets or has any other means to acquire cash or to use or spend cash
      or
      credit. 

     

    dd. No
      Materially Adverse Contracts, Etc.
      Neither
      the Company nor any Subsidiary is subject to any charter, contract, agreement,
      instrument, corporate or other legal restriction, or any judgment, decree,
      order, rule, regulation or other Law that in the judgment of the Company’s
      officers, respectively, has, or is expected in the future to have, a Material
      Adverse Effect.

     

    ee. Investment
      Company.
      Neither
      the Company nor any Subsidiary is, or upon Closing will be, an “investment
      company,” a company controlled by an “investment company,” or an “affiliated
      person” of, or “promoter” or “principal underwriter” for, an “investment
      company,” as such terms are defined in the Investment Company Act of 1940, as
      amended (the “Investment
      Company Act”).

     

    ff. Stock
      Options.
      Except
      as set forth on Schedule
      3(ff),
      every
      Option issued by the Company (I) has (or, if no longer outstanding, had), with
      respect to each share of Common Stock into which it was or is convertible or
      for
      which it was or is exercisable or exchangeable, an exercise price equal to
      or
      greater than the fair market value per share of Common Stock on the date of
      grant of such Option, (II) was issued in compliance with the terms of the plan
      under which it was issued and in compliance with applicable Laws, rules and
      regulations, including the rules and regulations of the Principal Market, and
      (III) has been accounted for in accordance with GAAP and otherwise been
      disclosed accurately and completely and in accordance with the requirements
      of
      the securities laws, including Rule 402 of Regulation S-B promulgated under
      the
      1933 Act and Rule 402 of Regulation S-K promulgated under the 1933 Act, as
      applicable, and the Company has paid, or properly reserved for, all taxes
      payable with respect to each such Option (including with respect to the issuance
      and exercise thereof), and has not deducted any amounts from its taxable income
      that it is not entitled to deduct with respect to any such stock option
      (including the issuance and exercise thereof). As used in this Agreement,
“Options”
means
      any rights, warrants or options to subscribe for or purchase Common Stock or
      Convertible Securities; and “Convertible
      Securities”
means
      any stock or securities (other than Options) directly or indirectly convertible
      into or exchangeable or exercisable for Common Stock.


    
      
         

      

      
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    gg. Schedules.
      Each
      Schedule with respect to the statements made in Section
      3
      accurately indicates, as applicable, the Person (e.g., the Company or the
      specific Subsidiary) to which the disclosures thereon apply.

     

    4. AFFIRMATIVE
      COVENANTS.

     

    a. Reasonable
      Best Efforts.
      Each
      party shall use its reasonable best efforts to timely satisfy each of the
      conditions to be satisfied by it as provided in Sections
      6
      and
7
      of this
      Agreement.

     

    b. Form D
      and Blue Sky.
      The
      Company agrees to timely file a Form D with respect to the Securities as
      required under Regulation D and to provide a copy thereof to Buyers
      promptly after such filing. The Company shall, on or before the Closing Date,
      take such action as the Company shall reasonably determine is necessary in
      order
      to obtain an exemption for, or to qualify the Securities for, sale to Buyers
      at
      the Closing to occur on the Closing Date pursuant to this Agreement under
applicable
      securities or “Blue Sky” laws of the states of the United States, and shall
      provide to Buyers evidence of any such action so taken on or prior to the
      Closing Date. The Company shall make all filings and reports relating to the
      offer and sale of the Securities required under applicable securities or “Blue
      Sky” laws of the states of the United States following the Closing Date.


     

    c. Reporting
      Status.
      

     

    (i) Until
      the
      latest of (i) the first date on which no Notes remain outstanding, (ii) the
      date
      on which the Security Agreement has terminated, and (iii) the date on which
      the
      Buyers no longer own any Securities (the period ending on such latest date,
      the
“Reporting
      Period”),
      the
      Company shall timely file all reports required to be filed with the SEC pursuant
      to the 1934 Act, and the Company shall not terminate its status as an issuer
      required to file reports under the 1934 Act, even if the securities laws would
      otherwise permit such termination. 

     

    (ii) With
      a
      view to making available to the holders of the Securities the benefits of Rule
      144, the Company agrees to, during the Reporting Period, (A) make and keep
      public information available, as those terms are understood and defined in
      Rule
      144; (B) file with the SEC in a timely manner all reports and other documents
      required of the Company under the 1934 Act; and (C) furnish to each holder
      of
      Securities so long as such holder of Securities owns Securities, promptly upon
      request, (1) a written statement by the Company, if true, that it has complied
      with the reporting requirements of Rule 144 and the 1934 Act, (2) a copy of
      the
      most recent annual or quarterly report of the Company and such other reports
      and
      documents so filed by the Company if such reports are not publicly available
      via
      EDGAR, and (3) such other information as may be reasonably requested to permit
      the holders of Securities to sell such Securities pursuant to Rule 144 without
      registration.


    
      
         

      

      
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    (iii) If
      the
      Company at any time, during the period commencing on the date that is six (6)
      months after the Closing Date and ending on the first date on which (A) no
      shares of Common Stock may be issued pursuant to an Investor Share Option or
      upon exercise of the Warrant and (B) all of the Warrant Shares and the Option
      Shares may be sold by the holders thereof pursuant to Rule 144 without
      limitation and without compliance with the current public information
      requirement thereof, fails to timely file with the SEC an annual report on
      Form
      10-K or a quarterly report on Form 10-Q (i.e., fails to file any such report
      on
      or before the applicable filing deadline therefor, without giving effect to
      any
      extensions of time that may be permitted by Rule 12b-25 under the 1934 Act
      (or
      successor thereto)), or on any day hereafter sales of all of the Securities
      cannot be made as a result of a breach or violation of this Section
      4(c),
      then,
      as partial relief for the damages to any holder of Securities by reason of
      any
      reduction of its ability to sell the Securities (which remedy shall not be
      exclusive of any other remedies available hereunder, at law or in equity),
      the
      Company shall pay to each such holder an amount in cash equal to two percent
      (2%) of the Aggregate Market Value of the Warrant Shares and the Option Shares
      held by (or issuable upon exercise (without regard to any limitation thereon)
      of
      the Warrant or any Investor Shares Option held by) such holder with respect
      to
      each thirty (30) day period occurring on and after such failure, breach or
      violation and prior to the date that the applicable annual or quarterly report
      is filed with the SEC or the breach or violation is cured, as applicable (in
      each case, pro rated for periods totaling less than thirty (30) days). The
      payments to which a holder shall be entitled pursuant to this Section
      4(c)
      are
      referred to herein as “Filing
      Delay Payments.”
Filing
      Delay Payments shall be paid on the earlier of (I) the last day of the calendar
      month during which such Filing Delay Payments are incurred and (II) the third
      Business Day after the failure, breach or violation giving rise to the Filing
      Delay Payments is cured. Notwithstanding the foregoing, no Filing Delay Payments
      shall accrue with respect to any period after the later of (A) the one-year
      anniversary of the date hereof, and (B) the first date after the Override
      Exchange Date (or, if the Company fails to deliver an Override Exchange Notice
      by the two-year anniversary of the Closing Date, the first date after such
      two-year anniversary) as of which the holders of Securities may sell all of
      the
      Securities pursuant to Rule 144 without the requirement for compliance with
      Rule
      144(c) (or successor thereto). In the event the Company fails to make Filing
      Delay Payments in a timely manner, such Filing Delay Payments shall bear
      interest, in each case until paid in full, at the rate of one and one-half
      percent (1.5%) per month, prorated for partial months. For purposes hereof,
      (i)
“Market
      Value”
of
      any
      of the Warrant Shares or the Option Shares means the arithmetic average of
      the
      Weighted Average Price of the Common Stock on the Principal Market (X) on each
      of the five (5) Trading Days immediately preceding the date of original issuance
      of such Warrant Share or Option Share, pursuant to the Warrant or the Investor
      Share Option, as applicable, or (Y) if not yet issued but issuable upon exercise
      (without regard to any limitation thereon) of the Warrant or the Investor Share
      Option, on each of the five (5) Trading Days immediately preceding the date
      of
      the failure, breach or violation initially giving rise to the Filing Delay
      Payments; (ii) “Aggregate
      Market Value”
of
      the
      Warrant Shares and the Option Shares held by any holder thereof means the sum
      of
      the respective Market Values of all of the Warrant Shares and the Option Shares
      held by such holder; and (iii) “Trading
      Days”
means
      any day on which the Common Stock is traded on its Principal Market (as defined
      in Section
      3(s));
      provided
      however,
      that “Trading Day” shall not include any day on which the Common Stock is
      scheduled to trade, or actually trades, on its Principal Market for less than
      4.5 hours.


    
      
         

      

      
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    d. [Reserved]

     

    e. Financial
      Information.
      The
      Company agrees to send the following to each Buyer during the Reporting Period
      (i) unless the following are filed with the SEC through EDGAR and are
      immediately available to the public through the EDGAR system, within one (1)
      Business Day after the filing thereof with the SEC, a copy of each of its
      quarterly reports on Form 10-Q and annual reports on Form 10-K (each, a
“Periodic
      Report”),
      Current Reports on Form 8-K, registration statements (other than on Form S-8)
      and amendments and supplements to each of the foregoing, (ii) unless immediately
      available through Bloomberg Financial Markets (or any successor thereto),
      facsimile copies of all press releases issued by the Company or any of the
      Subsidiaries, contemporaneously with the issuance thereof, and (iii) copies
      of
      any notices and other information made available or given to the stockholders
      of
      the Company generally, contemporaneously with the making available or giving
      thereof to the stockholders. 

     

    f. Internal
      Accounting Controls.
      During
      the Reporting Period, the Company shall, and shall cause each of the
      Subsidiaries to (i) at all times keep books, records and accounts with respect
      to all of such Person’s business activities, in accordance with sound accounting
      practices and GAAP consistently applied, (ii) maintain a system of internal
      accounting controls sufficient to provide reasonable assurance that (A)
      transactions are executed in accordance with management’s general or specific
      authorizations, (B) transactions are recorded as necessary to permit preparation
      of financial statements in conformity with GAAP and to maintain asset and
      liability accountability, (C) access to assets or incurrence of liability is
      permitted only in accordance with management’s general or specific authorization
      and (D) the recorded accountability for assets and liabilities is compared
      with
      the existing assets and liabilities at reasonable intervals and appropriate
      action is taken with respect to any differences, (iii) timely file and make
      publicly available on the SEC’s EDGAR system, all certifications and statements
      required by (M) Rule 13a-14 or Rule 15d-14 under the 1934 Act and (N) Section
      906 of Sarbanes Oxley with respect to any Company SEC Documents, (iv) maintain
      disclosure controls and procedures required by Rule 13a-15 or Rule 15d-15 under
      the 1934 Act, (v) cause such disclosure controls and procedures to be effective
      at all times to ensure that the information required to be disclosed by the
      Company in the reports that it files with or submits to the SEC (X) is recorded,
      processed, summarized and reported accurately within the time periods specified
      in the SEC’s rules and forms and (Y) is accumulated and communicated to the
      Company’s management, including its principal executive officer and principal
      financial officer, as appropriate to allow timely decisions regarding required
      disclosure, (vi) maintain internal control over financial reporting required
      by
      Rule 13a-14 or Rule 15d-14 under the 1934 Act, and (vii) cause such internal
      control over financial reporting to be effective at all times and not contain
      any material weaknesses.

     

    g. Reservation
      of Shares.
      The
      Company shall take all action necessary to at all times have authorized, and
      reserved for the purpose of issuance, no less than 100% of the aggregate number
      of shares of Common Stock issuable upon exercise of the Warrant and the Investor
      Share Option (without regard to any limitations on exercise
      thereof).


    
      
         

      

      
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    h. Listing.
      The
      Company shall take all actions necessary to cause the Common Stock to remain
      eligible for quotation on the OTC Bulletin Board, unless listed on a national
      securities exchange. The Company shall use its reasonable commercial efforts
      to
      (i) secure the listing of the Common Stock on a national securities exchange
      as
      promptly as reasonably practicable following the first date on which the Company
      meets the quantitative listing standards therefor and (ii) maintain such listing
      at all times thereafter. Following such listing, the Company shall not, and
      shall cause each of the Subsidiaries not to, take any action that would be
      reasonably expected to result in the delisting or suspension or termination
      of
      trading of the Common Stock on the Principal Market. The Company shall pay
      all
      fees and expenses in connection with satisfying its obligations under this
      Section
      4(h).

     

    i. Expenses.
      Subject
      to Section
      9(k)
      below,
      at the Closing, the Company shall pay each Buyer a reimbursement amount equal
      to
      all such Buyer’s legal, due diligence and other expenses (less such amounts
      previously paid by the Company) incurred in connection with the Closing,
      including without limitation fees and expenses of attorneys, investigative
      and
      other consultants and travel costs and all other expenses relating to
      negotiating and preparing the Transaction Documents and consummating the
      transactions contemplated thereby. The aggregate amount payable to each Buyer
      pursuant
      to the
      preceding sentence at Closing shall be withheld as an off-set by such Buyer
      from
      any purchase price to be paid by such Person at Closing pursuant to any
      Transaction Document or Securities Purchase Document. Additionally, at the
      Closing, the Company shall pay all of its own legal, due diligence and other
      expenses, including fees and expenses of attorneys, investigative and other
      consultants and travel costs and all other expenses, relating to negotiating
      and
      preparing the Transaction Documents and consummating the transactions
      contemplated thereby. In addition to the fee and reimbursement obligations
      of
      the Company set forth above in this Section
      4(i),
      and not
      in limitation thereof, following the Closing, the Company shall promptly
      reimburse each Buyer, each holder of Securities for all of the respective
      out-of-pocket fees, costs and expenses incurred thereby in connection with
      any
      amendment, modification or waiver of any of the Transaction Documents, the
      enforcement of such Person’s rights and remedies under any of the Transaction
      Documents. 

     

    j. Disclosure
      of Transactions and Other Material Information.

     

    (i) Not
      later
      than 5:30 p.m. (New York City time) on the second Business Day following the
      execution and delivery of this Agreement, the Company shall file the Announcing
      8-K with the SEC. The “Announcing
      Form 8-K”
(A)
      shall describe the terms of the transactions contemplated by this Agreement
      and
      the other Transaction Documents to which the Company is a party, including
      the
      issuance of the Sub Notes and the Warrant, (B) shall include as exhibits to
      such
      Form 8-K this Agreement (including the schedules hereto), the form of Sub Note,
      the form of Warrant and the form of Guaranty and (C) shall include any other
      information required to be disclosed therein pursuant to any securities laws
      or
      other Laws.

     

    (ii) Subject
      to the agreements and covenants set forth in this Section
      4(j),
      the
      Company shall not issue any press releases or any other public statements with
      respect to the transactions contemplated hereby or disclosing the name of any
      Buyer; provided,
      however, that the Company shall be entitled, without the prior approval of
      any
      Buyer, to make any press release or other public disclosure with respect to
      such
      transactions (A) in substantial conformity with the Announcing Form 8-K and
      contemporaneously therewith and (B) as is required by applicable Law, including
      as is required by Form 8-K or any successor form thereto (provided
      that
      such Buyer shall be consulted by the Company in connection with any such press
      release or other public disclosure prior to its release and shall be provided
      with a copy thereof upon request).


    
      
         

      

      
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    (iii) The
      Company represents, warrants and covenants to each Buyer that, from and after
      the filing of the Announcing Form 8-K with the SEC (subject to Section
      4(n)),
      such
      Buyer shall not be in possession of any material non-public information received
      from the Company, any of the Subsidiaries or any of their respective officers,
      directors, employees or agents. Notwithstanding any provision herein to the
      contrary, the Company shall not, and shall cause each of the Subsidiaries and
      its and each of their respective officers, directors, employees and agents
      not
      to, provide any Buyer or Investor (as defined in Section
      4(k))
      with
      any material non-public information regarding the Company or any of the
      Subsidiaries from and after the filing of the Announcing Form 8-K with the
      SEC,
      without the express prior written consent of such Buyer or Investor. In the
      event of a breach of the foregoing covenant by the Company, any of the
      Subsidiaries, or any of its or their respective officers, directors, employees
      and agents, in addition to any other remedy provided herein or in the
      Transaction Documents, such Buyer or Investor shall have the right to make
      a
      public disclosure in the form of a press release, public advertisement or
      otherwise, of such material non-public information without the prior approval
      by
      the Company, the Subsidiaries, or any of its or their respective officers,
      directors, employees or agents. Buyers shall not have any liability to the
      Company, the Subsidiaries or any of its or their respective officers, directors,
      employees, stockholders or agents for any such disclosure. Notwithstanding
      anything to the contrary herein, in the event that the Company believes that
      a
      notice or communication to any Buyer or Investor contains material, non-public
      information relating to the Company or any of the Subsidiaries, the Company
      so
      shall indicate to such Buyer or Investor contemporaneously with delivery of
      such
      notice or communication, and such indication shall provide such Buyer or
      Investor the means to refuse to receive such notice or communication; and in
      the
      absence of any such indication, the holders of the Securities shall be allowed
      to presume that all matters relating to such notice or communication do not
      constitute material, non-public information relating to the Company or any
      of
      the Subsidiaries. Upon receipt or delivery by the Company or any of the
      Subsidiaries of any notice in accordance with the terms of the Transaction
      Documents, unless the Company has in good faith determined that the matters
      relating to such notice do not constitute material, non-public information
      relating to the Company or the Subsidiaries, the Company shall within one (1)
      Business Day after any such receipt or delivery publicly disclose such material,
      non-public information pursuant to the securities laws.

     

    k. Pledge
      of Securities.
      The
      Company acknowledges and agrees that the Securities may be pledged by Buyers
      or
      their transferees (each, including any such Buyer, an “Investor”)
      in
      connection with a bona fide margin agreement or other bona fide loan secured
      by
      the Securities. The pledge of Securities shall not be deemed to be a transfer,
      sale or assignment of the Securities hereunder, and no Investor effecting any
      such pledge of Securities shall be required to provide the Company with any
      notice thereof or otherwise make any delivery to the Company pursuant to this
      Agreement or any other Transaction Document, including Section
      2(f)
      of this
      Agreement. The Company hereby agrees to execute and deliver such documentation
      as a pledgee of the Securities may reasonably request in connection with a
      pledge of the Securities to such pledgee by an Investor.


    
      
         

      

      
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    l. Notices.
      From
      the date of this Agreement until the first date following the Closing Date
      on
      which the Sub Notes are no longer outstanding (the “Sub
      Note Period”),
      the
      Company shall and shall cause each of the Subsidiaries to: 

     

    (i) Names
      and Trade Names.
      Notify
      Buyers in writing (A) at least thirty (30) days in advance of any change in
      such
      Person’s legal name and (B) within ten (10) days of the change of the use of any
      trade name, assumed name, fictitious name or division name not previously
      disclosed to all Buyers in writing.

     

    (ii) ERISA
      Matters.
      Promptly notify Buyers of (x) the occurrence of any “reportable event” (as
      defined in the Employee Retirement Income Security Act of 1974, as amended
      (“ERISA”)),
      which might result in the termination by the Pension Benefit Guaranty
      Corporation (the “PBGC”)
      of any
      employee benefit plan (“Plan”)
      covering any officers or employees of such Person, any benefits of which are,
      or
      are required to be, guaranteed by the PBGC, (y) receipt of any notice from
      the
      PBGC of its intention to seek termination of any Plan or appointment of a
      trustee therefor or (z) its intention to terminate or withdraw from any
      Plan.

     

    (iii) Environmental
      Matters.
      Immediately notify Buyers upon becoming aware of any investigation, proceeding,
      complaint, order, directive, claim, citation or notice with respect to any
      non-compliance with or violation of the requirements of any Environmental Law
      by
      such Person or the generation, use, storage, treatment, transportation,
      manufacture handling, production or disposal of any Hazardous Materials in
      violation of the requirements of any Environmental Law or any other
      environmental, health or safety matter which affects such Person or its business
      operations or assets or any properties at which such Person has transported,
      stored or disposed of any Hazardous Materials, unless the foregoing could not
      reasonably be expected to have a Material Adverse Effect. 

     

    (iv) Default;
      Material Adverse Effect.
      Promptly advise Buyers of any material adverse change in the business, property,
      assets, operations or financial condition of such Person, any other Material
      Adverse Effect, or the occurrence of any Event of Default (as defined in any
      Note) or the occurrence of any event which, if uncured, will become an Event
      of
      Default after notice or lapse of time (or both). 

     

    All
      of
      the foregoing notices shall be provided by the Company or applicable Subsidiary
      to such Buyers in writing.


    
      
         

      

      
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    m. Compliance
      with Laws and Maintenance of Permits.
      During
      the Sub Note Period, the Company shall, and shall cause each of the Subsidiaries
      to, maintain all governmental consents, franchises, certificates, licenses,
      authorizations, approvals and permits, the lack of which would reasonably
      be
      expected to have a Material Adverse Effect and to remain in compliance with
      all
      Laws (including Environmental Laws and Laws relating to taxes, employer and
      employee contributions and similar items, securities, ERISA or employee health
      and safety) the failure with which to comply would have a Material Adverse
      Effect on such Person. Following any determination by Marquis in its sole
      discretion that there is non-compliance, or any condition which requires any
      action by or on behalf of the Company or any of the Subsidiaries in order to
      avoid non-compliance, with any Environmental Law, Marquis may, at the Company’s
      expense, cause an independent environmental engineer reasonably acceptable
      to
      Marquis to conduct such tests of the relevant site(s) as are appropriate and
      prepare and deliver to Buyers a report setting forth the results of such tests,
      a proposed plan for remediation and an estimate of the costs thereof, and the
      Company and/or its applicable Subsidiary(ies) shall promptly undertake such
      recommended or necessary remedial actions as shall be necessary to avoid a
      Material Adverse Effect

     

    n. Inspection
      and Audits.
      During
      the Sub Note Period, the Company shall, and shall cause each of the Subsidiaries
      to, permit the holders of the Warrant and the Sub Notes, or any Persons
      designated thereby, to call at such Person’s places of business at any
      reasonable times and upon prior written notice, and, without unreasonable
      hindrance or delay, to inspect, audit, check and make extracts from such
      Person’s books, records, journals, orders, receipts and any correspondence and
      other data relating to such Person’s business or any transactions between the
      parties hereto, and shall have the right to make such verification concerning
      such Person’s business as such holder may consider reasonable under the
      circumstances. Notwithstanding anything to the contrary herein, upon written
      request to the Company by any such holder, the Company shall promptly provide
      such holder with any financial, operating or other type of information requested
      by such holder, subject to such holder’s execution of a confidentiality
      agreement reasonably acceptable to the Company with respect to such information,
      which execution shall constitute a waiver, with respect to any material
      non-public information regarding the Company and the Subsidiaries provided
      to
      such holder directly in response to such written request, of the restriction
      herein on the Company’s disclosure to such holder of material non-public
      information. The Company shall pay to any such holder all costs and
      out-of-pocket expenses incurred by such holder in the exercise of its rights
      hereunder, and all of such fees, costs and expenses shall constitute
      Indebtedness under the Sub Notes held by such holder, shall be payable on demand
      by the Company to such holder and, until paid, shall bear interest at the
      Applicable Interest Rate (as defined in the Sub Notes).

     

    o. Insurance.
      During
      the Sub Note Period, the Company shall, and shall cause each of the Subsidiaries
      to maintain, at
      its
      expense, such public liability and third party property damage insurance with
      companies that regularly insure Persons engaged in businesses similar to that
      of
      the Company or applicable Subsidiary, such coverage and the premiums payable
      in
      respect thereof to be acceptable in scope and amount to Buyer. Original (or
      certified) copies of such policies have been or shall be, no later than ten
      (10)
      days prior to the Closing Date, delivered to Buyer, together with evidence
      of
      payment of all premiums therefor. 


    
      
         

      

      
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    p. [Reserved] . 

     

    q. Taxes.
      During
      the Sub Note Period, the Company shall and shall cause each of the Subsidiaries
      to file all required tax returns and pay all of its taxes when due, subject
      to
      any extensions granted by the applicable taxing authority, including taxes
      imposed by federal, state or municipal agencies, and shall cause any Liens
      for
      taxes to be promptly released; provided, that Person shall have the right to
      contest the payment of such taxes in good faith by appropriate proceedings
      so
      long as (i) the amount so contested is shown on such Person’s financial
      statements; (ii) the contesting of any such payment does not give rise to a
      Lien
      for taxes; (iii) such Person keeps on deposit with the Collateral Agent (such
      deposit to be held without interest) an amount of money which, in the sole
      judgment of the Collateral Agent, is sufficient to pay such taxes and any
      interest or penalties that may accrue thereon; and (iv) if such Person fails
      to
      prosecute such contest with reasonable diligence, the Collateral Agent may
      apply
      the money so deposited in payment of such taxes. If the Company or a Subsidiary
      fails to pay any such taxes (other than taxes not yet due, subject to an
      extension or subject to a contest) and in the absence of any such contest by
      such Person, holders of the Warrant or Sub Notes may (but shall be under no
      obligation to) advance and pay any sums required to pay any such taxes and/or
      to
      secure the release of any Lien therefor, and any sums so advanced by such
      holders shall constitute Indebtedness of the Company to such holders, shall
      be
      payable by the Company to such holders on demand, and, until paid, shall bear
      interest at the Applicable Interest Rate (as defined in the Sub Notes).


     

    r. Intellectual
      Property.
      During
      the Reporting Period, the Company shall and shall cause each of the Subsidiaries
      to maintain adequate licenses, patents, patent applications, copyrights, service
      marks and trademarks to continue its business as presently proposed to be
      conducted by it (including as
      described to Buyers prior to the date hereof) or as hereafter conducted by
      it,
      unless the failure to maintain any of the foregoing would not reasonably be
      expected to have a Material Adverse Effect. 

     

    s. Patriot
      Act, Investor Secrecy Act and Office of Foreign Assets Control.
      As
      required by federal law and each
      Buyer’s
      policies and practices, Buyers may need to obtain, verify and record certain
      customer identification information and documentation in connection with opening
      or maintaining accounts, or establishing or continuing to provide services,
      and,
      from the date of this Agreement until the end of the Reporting Period, the
      Company agrees to, and shall cause each of the Subsidiaries to, provide such
      information to Buyers.

     

    t. Drilling
      Title Opinions.
      During
      the Sub Note Period, prior to the Company’s or any of the Subsidiaries’ drilling
      on any of the Real Property, the Company or such Subsidiary will obtain a
      customary drilling title opinion with respect to such drillsite. Upon written
      request to the Company by a Buyer, the Company shall promptly provide such
      Buyer
      with a copy of such drilling title opinion, subject to such Buyer’s execution of
      a confidentiality agreement reasonably acceptable to the Company with respect
      thereto; provided,
      however, that any such request shall constitute a waiver, with respect to any
      material non-public information regarding the Company and the Subsidiaries
      contained in such drilling title opinion, of the restriction herein on the
      Company’s disclosure to such Buyer of material non-public
      information. 


    
      
         

      

      
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    u. [Reserved].

     

    v. [Reserved].
      

     

    w. Subsidiary
      Restrictions.
      

     

    (i) Excluded
      Subsidiaries.
      The
      Company shall sell, transfer or otherwise divest itself of all interests in
      the
      Excluded Subsidiaries in a transaction that is negotiated on an arm’s length
      basis, is on terms and conditions that the Company reasonably believes are
      no
      less favorable to the Company than those that would have been obtained on an
      arm’s length basis from a third party that is not a Related Party (the
“Divestiture”),
      as
      soon as reasonably practicable after the Closing Date and following the
      Divestiture shall have no interest in, or obligations with respect to, any
      of
      the assets or liabilities of the Excluded Subsidiaries or the businesses
      thereof. The Company shall not incur, or be subject to, any expense or liability
      in connection with the Divestiture. As of the date hereof and at all times
      thereafter, no Excluded Subsidiary (while it remains a Subsidiary) (A) shall
      employ any employees, (B) shall engage in any business operations or other
      activities, or (C) except for the Permitted Insurance Sub Accounts and the
      Permitted Insurance Sub Funds, shall have, or be authorized to maintain, any
      bank account, brokerage account or other account with any financial institution,
      or possess any cash or have, or be authorized to have, any other means to
      acquire cash or to use or spend cash or credit or lease, own or otherwise
      possess any properties or assets (other than the insurance licenses held as
      of
      the date hereof). At no time prior to the Divestiture shall any additional
      monies or funds shall be deposited, or be permitted to be deposited, into the
      Permitted Insurance Sub Account. As used in this Agreement, the “Permitted
      Insurance Sub Accounts”
means
      the bank accounts of the Excluded Subsidiaries listed on Schedule
      3(u) as
      each
      such account exists as of the date of this Agreement; and “Permitted
      Insurance Sub Funds”
means
      funds in the Permitted Insurance Sub Accounts necessary to capitalize the
      Excluded Subsidiaries for purposes of maintaining their insurance license,
      in an
      amount not in excess of $135,000. 

     

    (ii) Velocity
      Subsidiaries. As
      of the
      date hereof and at all times thereafter until the first date on which (I) all
      Liens on the assets of the Velocity Subsidiaries in favor of Amaroil, LLC and
      evidenced by UCC financing statements filed with the Delaware Department of
      State as of May 5, 2005 have been terminated and (II) the Collateral Agent
      has a
      valid perfected first priority security interest on all of the assets of the
      Velocity Subsidiaries (such date, the “Velocity
      Lien Clearance Date”),
      no
      Velocity Subsidiary (while it remains a Subsidiary) shall (A) employ any
      employees, (B) engage in any business operations or other activities, (C) have
      or be authorized to maintain, any bank account, brokerage account or other
      account with any financial institution, (D) possess any cash or have, or be
      authorized to have, any other means to acquire cash or to use or spend cash
      or
      credit, or (E) lease, own or otherwise possess any properties or assets (other
      than any licenses or permits held as of the date hereof). At no time prior
      to
      the Velocity Lien Clearance Date shall any additional monies or funds shall
      be
      deposited, or be permitted to be deposited, into any account of any Velocity
      Subsidiary. The Company shall cause the Velocity Lien Clearance Date to be
      no
      later than twenty-five (25) calendar days after the Closing Date.



    
      
         

      

      
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    For
      purposes of this Agreement and the other Transaction Documents, “Included Subsidiaries”
means
      all of the Subsidiaries other than the Excluded Subsidiaries and, prior to
      the
      Velocity Lien Clearance Date, the Velocity Subsidiaries. 

     

    x. Further
      Instruments and Acts.
      From
      the date of this Agreement until the end of the Reporting Period, upon request
      of any Buyer or Investor, and the Company will execute and deliver such further
      instruments and do such further acts as may be reasonably necessary or proper
      to
      carry out more effectively the purposes of this Agreement and the other
      Transaction Documents. 

     

    y. Additional
      Financial Information.
      The
      Company shall deliver to each Buyer, on the Closing Date. a pro forma
      consolidated balance sheet (the “Pro
      Forma Balance Sheet”)
      of the
      Company and the Subsidiaries dated as of the date of the Latest Balance Sheet,
      that gives effect to the transactions contemplated by this Agreement, each
      of
      the other Transaction Documents, the Securities Purchase Agreement and the
      other
      agreements and instruments contemplated thereby, as occurring on or as of the
      Closing Date. The Company represents and warrants to Buyers that the Pro Forma
      Balance Sheet, (i) shall fairly present such pro forma financial position,
      (ii)
      shall be prepared based upon assumptions that provide a reasonable basis for
      presenting the effects of such transactions, and the pro forma adjustments
      shall
      give appropriate effect to such assumptions, (iii) shall be based upon financial
      information prepared in accordance with GAAP, (iv) shall be consistent with
      the
      books and records of the Company and the Subsidiaries (which shall be true,
      accurate and complete) and (v) shall fairly present such information as of
      the
      date presented.

     

    z. Cancellation
      of Old Notes.
      The
      Company shall, immediately following the Closing, cause the Old Notes
      surrendered by Longview in exchange for the Longview Note to be irrevocably
      cancelled and retired in their entirety.

     

    aa. Repayment
      of North Texas Demand Note.
      Contemporaneously with the Closing, the Company shall cause North Texas to
      (and
      North Texas shall) repay in full (including all outstanding principal of, and
      accrued interest on) those certain demand notes, dated October 30, 2008 and
      November 7, 2008, in the original aggregate principal amount of $125,000, issued
      by North Texas to Marquis. Such amount shall be withheld by Marquis as an offset
      against the purchase price payable by Marquis pursuant to the Securities
      Purchase Agreement.

     

    bb. Release
      of Liens.
      Contemporaneously with the Closing, Marquis shall cause Viking Asset Management,
      LLC, as collateral agent, to release all of its Liens on the assets of North
      Texas securing the Indebtedness under the North Texas Note and Longview shall
      cause Viking Asset Management, LLC, as collateral agent, to release all of
      its
      Liens on the assets of the Company and the Subsidiaries securing the
      Indebtedness under the Old Notes, in each case by delivering to the Company
      such
      instruments as shall be reasonably necessary to effect such
      release.


    
      
         

      

      
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    cc. Surrender
      of Old Warrant.
      No
      later than five (5) Business Days after the Closing Date, Longview shall deliver
      the Old Warrant to the Company, for cancellation with respect to 3,000,000
      shares of the Common Stock subject thereto, and the Company shall, within five
      (5) Business Days of the date of such delivery, deliver to Longview a new
      warrant, duly executed by the Company, containing the same terms and conditions,
      and in the same form, as the Old Warrant (such new warrant, the “New
      Longview Warrant”),
      except that the New Longview Warrant shall represent the right to purchase
      1,958,678 shares (subject to adjustment as provided therein) of Common
      Stock.

     

    5. NEGATIVE
      COVENANTS

     

    a. Prohibition
      Against Variable Priced Securities.
      During
      the Reporting Period, the Company shall not in any manner issue or sell any
      Options (as defined in Section
      3(ff))
      or
      Convertible Securities (as defined in Section
      3(ff)
      that are
      convertible into or exchangeable or exercisable for shares of Common Stock
      at a
      price that varies or may vary with the market price of shares of Common Stock,
      including by way of one or more resets to a fixed price or increases in the
      number of shares of Common Stock issued or issuable, or at a price that upon
      the
      passage of time or the occurrence of certain events automatically is reduced
      or
      is adjusted or at the option of any Person may be reduced or adjusted, whether
      or not based on a formulation of the then current market price of the Common
      Stock. Notwithstanding the foregoing, this Section
      5(a)
      shall
      not prohibit the issuance of Options or Convertible Securities that contain
      customary anti dilution provisions that are no more favorable to the holder
      thereof than those contained in the Warrant.

     

    b. Status.
      During
      the Reporting Period, the Company shall not, nor will it permit any of the
      Subsidiaries to, become a USRPHC; and upon any Buyer’s request, the Company
      shall inform such Buyer whether any of the Securities then held by such Buyer
      constitute a U.S. real property interest pursuant to Treasury Regulation Section
      1.897-2(h) without regard to Treasury Regulation Section 1.897-2(h)(3).


     

    c. Stay,
      Extension and Usury Laws.
      The
      Company covenants (to the extent that it may lawfully do so) that it shall
      not
      at any time insist upon, plead, or in any manner whatsoever claim or take the
      benefit or advantage of, any stay, extension or usury law or other law that
      would prohibit or forgive it from paying all or any portion of any principal
      of,
      or interest or premium on any of the Sub Notes as contemplated herein or
      therein, wherever enacted, now or at any time hereafter in force, or which
      may
      affect the covenants or the performance of any of the Transaction Documents;
      and
      the Company (to the extent it may lawfully do so), on behalf of itself and
      the
      Subsidiaries, hereby expressly waives all benefit or advantage of any such
      law,
      and covenants that it will not, by resort to any such law, hinder, delay or
      impede the execution of any power herein granted to any Buyer, but will suffer
      and permit the execution of every such power as though no such law has been
      enacted.


    
      
         

      

      
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    d. Payment
      Restrictions Affecting Subsidiaries.
      During
      the Sub Notes Period, (i) the Company shall not, nor will it permit any of
      the
      Subsidiaries to, enter into or assume any agreement prohibiting or otherwise
      restricting the creation or assumption of any Lien upon its properties or
      assets, whether now owned or hereafter acquired, or requiring the grant of
      any
      security for an obligation, except to the extent any such agreement provides
      for
      Permitted Liens; and (ii) except as provided herein, the Company shall not
      and
      shall not cause or permit the Subsidiaries to directly or indirectly create
      or
      otherwise cause or suffer to exist or become effective any consensual
      encumbrance or consensual restriction of any kind on the ability of any such
      Subsidiary to: (1) pay dividends or make any other distribution on any of such
      Person’s Capital Stock owned by the Company or any other Subsidiary; (2) pay any
      Indebtedness owed to the Company or any other Subsidiary; (3) make loans or
      advances to the Company or any other Subsidiary; or (4) transfer any of its
      property or assets to the Company or any other Subsidiary.

     

    e. Prepayments.
      During
      the Reporting Period, the Company shall not, nor will it permit any of the
      Subsidiaries to (i) prepay any Indebtedness that is in parity with or
      subordinate to the Sub Notes by structure or contract, or (ii) repay, redeem
      or
      make any other payment with respect to any of the Vandenberg Indebtedness
      (including any principal thereof or interest or premium thereon).

     

    f. Indebtedness.
      During
      the Sub Notes Period, the Company shall not, and shall cause each of the
      Subsidiaries not to, create, incur, assume, extend the term of, become obligated
      on or suffer to exist (directly or indirectly), any Indebtedness other than
      Indebtedness under the Senior Notes and the Sub Notes, except that the Company
      and the Included Subsidiaries may, after the Closing, (i) incur non-convertible
      Indebtedness for borrowed money in an aggregate principal amount outstanding
      not
      in excess of $3,000,000, but only to the extent (A) a subordination agreement
      in
      favor of and in form and substance satisfactory to Marquis in its sole and
      absolute discretion is executed and delivered to Marquis with respect thereto
      (which subordination agreement shall prohibit payments in respect of such
      subordinated Indebtedness for so long as any Sub Notes are outstanding), (B)
      the
      terms of such subordinated Indebtedness does not require or permit payment
      of
      principal thereon until at least ninety (90) days after the Maturity Date of
      any
      outstanding Sub Note, and (C) such subordinated Indebtedness is not secured
      by
      any of the assets of the Company or any of the Subsidiaries; (ii) incur purchase
      money Indebtedness or Capital Lease Obligations in an aggregate amount not
      to
      exceed $200,000 outstanding at any time; (iii) incur unsecured intercompany
      Indebtedness amongst the Company and one or more of its directly or indirectly
      wholly-owned domestic Included Subsidiaries that is a party to, and in
      compliance with, the Security Agreement and the Guaranty, to the extent such
      Indebtedness is evidenced by a promissory note that has been pledged to the
      Collateral Agent; (iv) incur Indebtedness of the Company and the Included
      Subsidiaries for taxes, assessments, municipal or governmental charges not
      yet
      due; (v) incur obligations of itself and its subsidiaries resulting from
      endorsements for collection or deposit in the ordinary course of business;
      (vi)
      incur unsecured account trade payables that are (W) entered into or incurred
      in
      the ordinary course of the Company’s and the Included Subsidiaries’ business,
      (X) on terms that require full payment within ninety (90) days from the date
      entered into or incurred, (Y) not unpaid in excess of ninety (90) days from
      the
      date entered into or incurred, or are being contested in good faith and as
      to
      which such reserve as is required by GAAP has been made, and (Z) not exceeding
      at any one time an aggregate amount among the Company and its Included
      Subsidiaries of $500,000; (vii) suffer to exist the FNBW Indebtedness; and
      (viii) suffer to exist the Vandenberg Indebtedness. 


    
      
         

      

      
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    g. Liens.
      During
      the Sub Notes Period, the Company shall not, and shall cause each of the
      Subsidiaries not
      to,
      grant or suffer to exist (voluntarily or involuntarily) any Lien, claim,
      security interest or other encumbrance whatsoever on any of its assets, other
      than Permitted Liens.

     

    h. [Reserved].

     

    i. Corporate
      Existence; Leases.
      During
      the Reporting Period, the Company shall maintain its corporate existence and
      shall not sell all or substantially all of the Company’s assets (including, for
      the avoidance of any doubt, all or substantially all of the assets of the
      Subsidiaries in the aggregate), except in the event of a merger or consolidation
      or sale or transfer of all or substantially all of the Company’s
      assets
      (including, for the avoidance of any doubt, all or substantially all of the
      assets of the Subsidiaries in the aggregate) where (i) the surviving or
      successor entity in such transaction (A) assumes the Company’s obligations
      hereunder and under the agreements and instruments entered into in connection
      herewith and (B) is a publicly traded corporation whose common stock is quoted
      on the Principal Market or listed on a national securities exchange, (ii)
      immediately before and immediately after giving effect to such transaction,
      no
      Event of Default (as defined in the Senior Notes) shall have occurred and be
      continuing, and (iii) immediately before and immediately after giving effect
      to
      such transaction, there shall not be a Financial Covenant Test Failure (as
      defined in the Senior Notes), and if such transaction had occurred as of the
      last day of the period covered by the most recently filed Periodic Report,
      there
      would not have been a Financial Covenant Test Failure.

     

    j. Restrictions
      on Loans; Investments; Subsidiary Equity.
      During
      the Sub Notes Period, the Company shall not, and shall not permit any of the
      Subsidiaries to, (i) except for Permitted Investments (as defined herein) in
      which the holders of the Senior Notes have a valid, perfected first priority
      security interest and except that the Company may consummate one or more Agreed
      Acquisitions (as defined in the Securities Purchase Agreement) as provided
      in
Section
      4(d)
      of the
      Securities Purchase Agreement, make any loans to, or investments in, any other
      person or entity, including through lending money, deferring the purchase price
      of property or services (other than trade accounts receivable on terms of ninety
      (90) days or less), purchasing any note, bond, debenture or similar instrument,
      entering into any letter of credit, guaranteeing (or taking any action that
      has
      the effect of guaranteeing) any obligations of any other person or entity,
      or
      acquiring any equity securities of, or other ownership interest in, or making
      any capital contribution to any other entity, other than unsecured intercompany
      indebtedness permitted by Section
      5(f)
      (and not
      otherwise prohibited hereunder) and capital contributions to Included
      Subsidiaries incident to the formation and capitalization of such Included
      Subsidiaries in accordance with this Agreement and limited to de minimis amounts
      necessary to form and capitalize such Included Subsidiaries, (ii) invest in,
      participate in, lease, purchase, obtain or otherwise acquire any real property,
      facilities, or oil, gas or other mineral drilling, exploration or development
      rights, concessions, working interests or participation interests (collectively,
      “Interests”)
      in
      which Buyers are not provided with a valid, perfected first priority security
      interest in such Interests, or (iii) issue, transfer or pledge any Capital
      Stock
      or equity interest in any Subsidiary to any Person other than the Company.
      “Permitted
      Investments”
means
      any investment in (A) direct obligations of the United States or
      obligations guaranteed by the United States, in each case which mature and
      become payable within ninety (90) days of the investment by the Company or
      any
      Included Subsidiary, (B) commercial paper rated at least A-1 by Standard &
Poor’s Ratings Service and P-1 by Moody’s Investors Services, Inc., (C) time
      deposits with, including certificates of deposit issued by, any office located
      in the United States of any bank or trust company which is organized under
      the laws of the United States or any State thereof and has capital, surplus
      and undivided profits aggregating at least $250,000,000 and which issues (or
      the
      parent of which issues) certificates of deposit or commercial paper with a
      rating described in clause (B) above, in each case which mature and become
      payable within ninety (90) days of the investment by the Company or any Included
      Subsidiary, (D) repurchase agreements with respect to securities described
      in
      clause (A) above entered into with an office of a bank or trust company meeting
      the criteria specified in clause (C) above, provided
      in each
      case that such investment matures and becomes payable within ninety (90) days
      of
      the investment by the Company or any Included Subsidiary, or (E) any money
      market or mutual fund which invests only in the foregoing types of investments
      and the liquidity of which is satisfactory to the Secured Party (as defined
      in
      the Security Agreement).


    
      
         

      

      
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    k. [Reserved].
      

     

    l. Affiliate
      Transactions.
      During
      the Reporting Period, the Company shall not, and shall cause each of the
      Subsidiaries not to, enter into, amend, modify or supplement any transaction,
      contract, agreement, instrument, commitment, understanding or other arrangement
      with any Related Party, except for transactions with the Collateral
      Agent (as
      defined in the Securities Purchase Agreement) and intercompany transactions
      between or among the Company and its wholly-owned Included Subsidiaries, in
      each
      case as permitted (and not otherwise prohibited) hereunder, and customary
      employment arrangements and benefit programs, on reasonable terms, that are
      not
      otherwise prohibited by this Agreement.

     

    m. [Reserved].
      

     

    n. Executive
      Compensation.
      During
      the Reporting Period, the Company shall not, and shall cause each of the
      Subsidiaries not to, pay any salary, bonus, management, consulting, incentive
      or
      other compensation, or provide any perquisites or benefits, to any of the
      Company’s executive officers except as set forth in their respective employment
      agreements and shall not modify or amend any such employment agreement.


     

    o. Limitation
      on Sale and Leaseback Transactions.
      During
      the Reporting Period, the Company shall not, and shall cause each of the
      Subsidiaries not to, directly or indirectly, enter into any arrangement with
      any
      Person whereby in a substantially contemporaneous transaction the Company or
      any
      of the Subsidiaries sells or transfers all or substantially all of its right,
      title and interest in an asset and, in connection therewith, acquires or leases
      back the right to use such asset.

     

    p. Investment
      Company.
      During
      the Reporting Period, the Company shall not become an “investment company,” a
      company controlled by an “investment company,” or an “affiliated person” of, or
“promoter” or “principal underwriter” for, an “investment company,” as such
      terms are defined in the Investment Company Act of 1940.


    
      
         

      

      
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    q. Leases.
      During
      the Sub Notes Period, the Company shall not, and shall cause each of the
      Subsidiaries not to, amend, modify, violate, breach or default under in any
      respect, or take or fail to take any action that (with or without notice or
      lapse of time or both) would constitute a violation or breach of, or default
      under, any term or provision of, or would result in a reversion of rights to
      a
      Person under, any Real Property Lease to which the Company or any of the
      Subsidiaries is a party, except to the extent such amendment, modification,
      violation, breach or default, action or in-action could not reasonably be
      expected, either individually or in the aggregate, to have a Material Adverse
      Effect. 

     

    r. Restriction
      on Purchases or Payments.
      During
      the Sub Notes Period, the Company shall not, and shall cause each of the
      Subsidiaries not to, (i) declare, set aside or pay any dividends on or make
      any
      other distributions (whether in cash, stock, equity securities or property)
      in
      respect of any Capital Stock or split, combine or reclassify any Capital Stock
      or issue or authorize the issuance of any other securities in respect of, in
      lieu of or in substitution for any Capital Stock; provided
      however,
      that any Included Subsidiary may declare, set aside or pay any dividends on
      or
      make any other distributions (whether in cash, stock, equity securities or
      property) in respect of any of its Capital Stock that is held solely by the
      Company or by a domestic Included Subsidiary, provided that all of the equity
      of
      such domestic Included Subsidiary is directly or indirectly owned by the
      Company, such domestic Included Subsidiary is controlled by the Company and
      such
      domestic Included Subsidiary is a party to the Guaranty (as defined in the
      Securities Purchase Agreement) and the Security Agreement, or (ii) purchase,
      redeem or otherwise acquire, directly or indirectly, any shares of the Company’s
      Capital Stock or the Capital Stock of any of the Subsidiaries.

     

    s. No
      Avoidance of Obligations.
      During
      the Reporting Period, the Company shall not, and shall cause each of the
      Subsidiaries not to, enter into any agreement which would limit or restrict
      the
      Company’s or any of the Subsidiaries’ ability to perform under, or take any
      other voluntary action to avoid or seek to avoid the observance or performance
      of any of the terms to be observed or performed by it under, this Agreement,
      the
      Senior Notes or the other Transaction Documents.

     

    t. [Reserved].

     

    u. Limits
      on Additional Issuances.
      Neither
      the Company nor any Subsidiary shall, in any manner, until at least 180 days
      after the Closing Date, issue or sell any Common Stock, Convertible Securities
      or Options (the “Equity
      Limitation”)
      or
      file any registration statement. The Equity Limitation shall not apply to (i)
      any transaction involving the Company’s issuances of securities (A) as
      consideration in a merger or consolidation (the primary purpose or material
      result of which is not to raise or obtain equity capital or cash), (B) in
      connection with any strategic partnership or joint venture (the primary purpose
      or material result of which is not to raise or obtain equity capital or cash),
      or (C) as consideration for the acquisition of a business, product, license
      or
      other assets by the Company (the primary purpose or material result of which
      is
      not to raise or obtain equity capital or cash) or (ii) Exempted Issuances (as
      defined in the Warrant).


    
      
         

      

      
        42

        
          

        

      

      
         

      

    


    v. No
      Integrated Offering.
      Neither
      the Company nor any of the Subsidiaries, nor any Affiliates of the foregoing
      or
      any Person acting on the behalf of any of the foregoing, shall, directly or
      indirectly, make any offers or sales of any security or solicit any offers
      to
      purchase any security, under any circumstances that would require registration
      of any of the Securities under the 1933 Act or cause the offering of the
      Securities to be integrated with prior offerings by the Company for purposes
      of
      the 1933 Act or the rules or requirements of any regulatory or self-regulatory
      authority.

     

    w. Regulation
      M.
      Neither
      the Company, nor any of the Subsidiaries nor any Affiliates of the foregoing
      will take any action prohibited by Regulation M under the 1934 Act, in
      connection with the offer, sale and delivery of the Securities contemplated
      hereby. 

     

    x. Fundamental
      Changes; Line of Business.
      During
      the Reporting Period, the Company shall not, and shall not permit any of the
      Subsidiaries to, (i) except as contemplated by Section
      4(z)
      of the
      Securities Purchase Agreement, amend its organizational documents or change
      its
      fiscal year unless (A) such actions could not reasonably be expected to have
      a
      Material Adverse Effect; (B) such actions would not adversely affect any Buyer
      or any Buyer’s rights and remedies under this Agreement and the other
      Transaction Documents; and (C) each Buyer has received at least ten (10) days
      prior written notice of such amendment or change; or (ii) engage in any business
      other than the business currently conducted by the Company and the Subsidiaries,
      as disclosed in the Company's annual report on Form 10-K for the year ended
      December 31, 2007, and the business currently conducted by North Texas.


     

    6. CONDITIONS
      TO THE OBLIGATION OF THE COMPANY TO ISSUE.
      The
      obligation of the Company to issue the Marquis Note and the Warrant to Marquis
      and the Longview Note to Longview at the Closing is subject to the satisfaction,
      at or before the Closing Date, of each of the following conditions, provided
      that these conditions are for the Company’s sole benefit and may be waived by
      the Company at any time in its sole discretion by providing Buyers with prior
      written notice thereof:

     

    a. Each
      Buyer shall have executed each of the Transaction Documents to which it is
      a
      party and delivered the same to the Company.

     

    b. Marquis
      shall have delivered to the Company the North Texas Shares, including stock
      powers executed in blank, and the North Texas Note (which thereafter shall
      be of
      no further force or effect and shall be cancelled on the books and records
      of
      North Texas) as consideration for the Marquis Note and the Warrant being
      acquired by Marquis at the Closing.

     

    c. Longview
      shall have delivered to the Company the Old Notes as consideration for the
      Longview Note being acquired by Longview at the Closing.

     

    d. Marquis
      shall have delivered to the Company true and correct copies of North Texas’
Articles of Incorporation and Bylaws, and all other books and records of North
      Texas.


    
      
         

      

      
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    e. The
      representations and warranties of each Buyer herein shall be true and correct
      as
      of the date when made and as of the Closing Date as though made at that time
      (except for representations and warranties that speak as of a specific date,
      which shall be true and correct as of such date), and such Buyer shall have
      performed, satisfied and complied with the covenants, agreements and conditions
      required by the Transaction Documents to be performed, satisfied or complied
      with by such Buyer at or prior to the Closing Date. The Company shall have
      received a certificate of such Buyer, dated as of the Closing Date, to the
      foregoing effect.

     

    7. CONDITIONS
      TO THE OBLIGATION OF THE BUYERS TO ACQUIRE.
      The
      obligation of any Buyer to acquire the Sub Notes (and in the case of Marquis,
      the Warrant) from the Company at the Closing is subject to the satisfaction,
      at
      or before the Closing Date, of each of the following conditions, provided that
      these conditions are for such Buyer’s sole benefit and may be waived only by
      such Buyer at any time in their sole discretion by providing the Company with
      prior written notice thereof:

     

    a. Each
      of
      the Company and each other Person (other than such Buyer) party to the
      Transaction Documents (other than the Sub Notes and Warrant) shall have executed
      and delivered the same to such Buyer.

     

    b. The
      representations and warranties of the Company herein and in all Transaction
      Documents shall be true and correct as of the date when made and as of the
      Closing Date as though made at that time (except for representations and
      warranties that speak as of a specific date, which shall be true and correct
      as
      of such date) and the Company shall have performed, satisfied and complied
      with
      the covenants, agreements and conditions required by the Transaction Documents
      to be performed, satisfied or complied with by the Company at or prior to the
      Closing Date. Buyers shall have received a certificate, executed by the chief
      executive officer of the Company, dated as of the Closing Date, to the foregoing
      effect and as to such other matters as may be reasonably requested by
      Buyers.

     

    c. Longview
      shall have received from the Company a payment of $1,000,000 toward the
      aggregate outstanding principal amount under the Old Notes.

     

    d. Each
      Buyer shall have received the opinion(s) of Duane Morris LLP, dated as of the
      Closing Date, which opinion(s) will collectively address, among other things,
      certain federal laws and the laws of the States of Delaware and New York
      applicable to the transactions contemplated hereby, in form, scope and substance
      reasonably satisfactory to such Buyer.

     

    e. The
      Company shall have executed and delivered to such Buyer the Sub Note being
      acquired by such Buyer and, in the case of Marquis, the Warrant. 

     

    f. The
      Board
      and the board of directors (or other governing body) of each of the Subsidiaries
      shall have adopted, and not rescinded or otherwise amended or modified,
      resolutions consistent with Section 3(b)
      above
      and in a form reasonably acceptable to Buyers (the “Resolutions”).

     

    g. As
      of the
      Closing Date, the Company shall have reserved out of its authorized and unissued
      Common Stock, solely for the purpose of effecting (A) the exercise of the
      Warrant and (B) the exercise of the Investor Share Option, at least 5,550,000
      shares of Common Stock (such number to be adjusted for any stock splits, stock
      dividends, stock combinations or other similar transactions involving the Common
      Stock that are effective at any time after the date of this
      Agreement).


    
      
         

      

      
        44

        
          

        

      

      
         

      

    


    h. The
      Company shall have delivered to Buyers a certificate evidencing the
      incorporation (or other organization) and good standing of the Company and
      each
      Subsidiary in such entity’s state or other jurisdiction of incorporation or
      organization issued by the Secretary of State (or other applicable authority)
      of
      such state or jurisdiction of incorporation or organization as of a date within
      sixteen (16) days of the Closing Date.

     

    i. The
      Company shall have delivered to Buyers a secretary’s certificate, dated as of
      the Closing Date, certifying as to (A) the Certificate of Incorporation,
      certified as of a date within ten (10) days of the Closing Date, by the
      Secretary of State of Delaware, (B) the Bylaws of the Company, (C) the
      Resolutions, (D) the certificate or articles of incorporation or other
      organizational documents of each of the Company’s Subsidiaries, each certified
      as of a date within ten (10) days of the Closing Date, by the Secretary of
      State
      of the state of such entity’s jurisdiction of incorporation or organization, and
      (E) the bylaws or other similar documents of each of the Company’s Subsidiaries,
      each as in effect at the Closing.

     

    j. The
      Company shall have delivered to Buyers a letter from the Company’s transfer
      agent certifying the number of shares of Common Stock outstanding as of a date
      within five (5) days of the Closing Date.

     

    k. As
      of the
      Closing Date, the Company shall have delivered to Buyers the Pro Forma Balance
      Sheet required by Section
      4(y).

     

    l. The
      Company shall have made all filings under all applicable securities laws
      necessary to consummate the issuance of the Securities (including the Sub Notes)
      pursuant to this Agreement at the Closing in compliance with such
      laws.

     

    m. The
      Company shall not have made any public announcement regarding the transactions
      contemplated by the Agreement prior to the Closing.

     

    n. The
      Company shall have delivered to Buyers drilling title opinions, in form and
      substance acceptable to Buyers, with respect to all of each Real Property that
      is producing, or on which drilling has commenced or is imminent for, oil, gas,
      minerals and/or other hydrocarbons (the “Producing
      Property”).
      

     

    o. The
      Company shall have delivered to Buyers “landman reports,” in form and substance
      acceptable to Buyers, with respect to each Real Property (other than the
      Producing Property).

     

    p. The
      Company shall have delivered to Buyers such other documents relating to the
      transactions contemplated by this Agreement as Buyers or their counsel may
      reasonably request.


    
      
         

      

      
        45

        
          

        

      

      
         

      

    


    8. INDEMNIFICATION.
      

     

    a. In
      consideration of each Buyer’s execution and delivery of the Transaction
      Documents and acquiring the Securities thereunder and in addition to all of
      the
      Company’s and the Subsidiaries’ other obligations under the Transaction
      Documents, the Company shall defend, protect, indemnify and hold harmless such
      Buyer and each other holder of the Securities and all of their stockholders,
      partners, officers, directors, members, managers, employees and direct or
      indirect investors and any of the foregoing Persons’ agents or other
      representatives (including those retained in connection with the transactions
      contemplated by this Agreement) (collectively, the “Indemnitees”)
      from
      and against any and all actions, causes of action, suits, claims, losses, costs,
      penalties, fees, liabilities and damages, and expenses in connection therewith
      (irrespective of whether any such Indemnitees is a party to the action for
      which
      indemnification hereunder is sought), and including reasonable attorneys’ fees
      and disbursements (the “Indemnified
      Liabilities”),
      incurred by any Indemnitees as a result of, or arising out of, or relating
      to
      (i) any misrepresentation or breach of any representation or warranty made
      by the Company or any of the Subsidiaries in any of the Transaction Documents
      or
      any other certificate, instrument or document contemplated hereby or thereby,
      (ii) any breach of any covenant, agreement or obligation of the Company or
      any of the Subsidiaries contained in the Transaction Documents or any other
      certificate, instrument or document contemplated hereby or thereby,
      (iii) any cause of action, suit or claim brought or made by any party
      (other than a cause of action, suit or claim that is brought or made by the
      Company on its own behalf and is not a stockholder derivative action, suit
      or
      claim) against such Indemnitees and arising out of or resulting from the
      execution, delivery, performance or enforcement of the Transaction Documents
      in
      accordance with the terms thereof or any other certificate, instrument or
      document contemplated hereby or thereby in accordance with the terms thereof
      (other than a cause of action, suit or claim brought or made against an
      Indemnitee by such Indemnitee’s owners, investors or Affiliates), (iv) any
      other transaction financed or to be financed in whole or in part, directly
      or
      indirectly, with the proceeds of the issuance of the Securities, or (v) the
      status of such Buyer or holder of the Securities as an investor in the Company
      (other than a cause of action, suit or claim brought by the Company against
      such
      Buyer or holder relating to a breach of any representation or warranty made
      by
      such Buyer or holder herein). To the extent that the foregoing undertaking
      by
      the Company may be unenforceable for any reason, the Company shall make the
      maximum contribution to the payment and satisfaction of each of the Indemnified
      Liabilities that is permissible under applicable law. 


    
      
         

      

      
        46

        
          

        

      

      
         

      

    


    b. Promptly
      after receipt by an Indemnitee under this Section
      8
      of
      notice of the commencement of any action or proceeding (including any
      governmental action or proceeding) involving any Indemnified Liabilities, such
      Indemnitee shall, if any claim for Indemnified Liabilities in respect thereof
      is
      to be made against the Company under this Section
      8, deliver
      to the Company a written notice of the commencement thereof, and the Company
      shall have the right to participate in, and, to the extent the Company so
      desires, to assume control of the defense thereof with counsel mutually
      satisfactory to the Company and the Indemnitee, as the case may be. In any
      such
      proceeding, any Indemnitee may retain its own counsel, but, except as provided
      in the following sentence, the fees and expenses of that counsel will be at
      the
      expense of that Indemnitee, as the case may be, unless (i) the Company and
      the
      Indemnitee, as applicable, shall have mutually agreed to the retention of that
      counsel, (ii) the Company does not assume the defense of such proceeding in
      a
      timely manner or (iii) in the reasonable opinion of counsel retained by the
      Company, the representation by such counsel for the Indemnitee and the Company
      would be inappropriate due to actual or potential differing interests between
      such Indemnitee and any other party represented by such counsel in such
      proceeding. The Company shall pay reasonable fees for only one separate legal
      counsel (plus any local counsel) for the Investors, and such legal counsel
      shall
      be selected by Investors holding at least 2/3 in interest of the outstanding
      Sub
      Notes (or, if no Sub Notes are outstanding, of the outstanding Warrant). The
      Indemnitee shall cooperate fully with the Company in connection with any
      negotiation or defense of any such action by the Company and shall furnish
      to
      the Company all information reasonably available to the Indemnitee which relates
      to such action. The Company shall keep the Indemnitee fully apprised at all
      times as to the status of the defense or any settlement negotiations with
      respect thereto. The Company shall not be liable for any settlement of any
      action, claim or proceeding effected without its prior written consent;
provided,
      however, that the Company shall not unreasonably withhold, delay or condition
      its consent. The Company shall not, without the prior written consent of the
      Indemnitee, consent to entry of any judgment or enter into any settlement or
      other compromise with respect to any pending or threatened action or claim
      in
      respect of which indemnification or contribution may be or has been sought
      hereunder (whether or not the Indemnitee is an actual or potential party to
      such
      action or claim) which does not include as an unconditional term thereof the
      giving by the claimant or plaintiff to such Indemnitee of a release from all
      liability in respect to such litigation and such settlement shall not include
      any admission as to fault on the part of the Indemnitee. Following
      indemnification as provided for hereunder, the Company shall be subrogated
      to
      all rights of the Indemnitee with respect to all third parties, firms or
      corporations relating to the matter for which indemnification has been made.
      The
      failure to deliver written notice to the Company within a reasonable time of
      the
      commencement of any such action shall not relieve such Company of any liability
      to the Indemnitee under this Section
      8,
      except
      to the extent that the Company is prejudiced in its ability to defend such
      action.

     

    c. The
      indemnification required by this Section
      8
      shall be
      made by periodic payments of the amount thereof during the course of the
      investigation or defense, as and when bills are received or Indemnified
      Liabilities are incurred.

     

    d. The
      indemnity agreements contained herein shall be in addition to (i) any cause
      of
      action or similar right of the Indemnitee against the Company or others, and
      (ii) any liabilities the Company may be subject to pursuant to the
      law.


    
      
         

      

      
        47

        
          

        

      

      
         

      

    


    9. GOVERNING
      LAW; MISCELLANEOUS.

     

    a. Governing
      Law; Jurisdiction; Jury Trial.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be governed by the internal laws of the State of New
      York, without giving effect to any choice of law or conflict of law provision
      or
      rule (whether of the State of New York or any other jurisdiction) that would
      cause the application of the laws of any jurisdiction other than the State
      of
      New York. Each party hereby irrevocably submits to the exclusive jurisdiction
      of
      the state and federal courts sitting in the New York City, borough of Manhattan,
      for the adjudication of any dispute hereunder or in connection herewith or
      with
      any transaction contemplated hereby or discussed herein, and hereby irrevocably
      waives, and agrees not to assert in any suit, action or proceeding, any claim
      that it is not personally subject to the jurisdiction of any such court, that
      such suit, action or proceeding is brought in an inconvenient forum or that
      the
      venue of such suit, action or proceeding is improper. Each party hereby
      irrevocably waives personal service of process and consents to process being
      served in any such suit, action or proceeding by mailing a copy thereof to
      such
      party at the address for such notices to it under this Agreement and agrees
      that
      such service shall constitute good and sufficient service of process and notice
      thereof. Nothing contained herein shall be deemed to limit in any way any right
      to serve process in any manner permitted by law. The parties acknowledge that
      each Buyer has executed each of the Transaction Documents to be executed by
      it
      in the State of New York and will have made the payment of any purchase price
      to
      be paid by it on the Closing Date pursuant to any Transaction Document from
      its
      bank account located in the State of New York. EACH PARTY HEREBY IRREVOCABLY
      WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
      ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING
      OUT
      OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

     

    b. Counterparts.
      This
      Agreement and any amendments hereto may be executed and delivered in one or
      more
      counterparts, and by the different parties hereto in separate counterparts,
      each
      of which when executed shall be deemed to be an original, but all of which
      taken
      together shall constitute one and the same agreement, and shall become effective
      when counterparts have been signed by each party hereto and delivered to the
      other parties hereto, it being understood that all parties need not sign the
      same counterpart. In the event that any signature to this Agreement or any
      amendment hereto is delivered by facsimile transmission or by e-mail delivery
      of
      a “.pdf” format data file, such signature shall create a valid and binding
      obligation of the party executing (or on whose behalf such signature is
      executed) with the same force and effect as if such facsimile or “.pdf”
signature page were an original thereof. At the request of any party each other
      party shall promptly re-execute an original form of this Agreement or any
      amendment hereto and deliver the same to the other party. No party hereto shall
      raise the use of a facsimile machine or e-mail delivery of a “.pdf” format data
      file to deliver a signature to this Agreement or any amendment hereto or the
      fact that such signature was transmitted or communicated through the use of
      a
      facsimile machine or e-mail delivery of a “.pdf” format data file as a defense
      to the formation or enforceability of a contract, and each party hereto forever
      waives any such defense.

     

    c. Headings.
      The
      headings of this Agreement are for convenience of reference and shall not form
      part of, or affect the interpretation of, this Agreement.

     

    d. 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 in that jurisdiction or
      the
      validity or enforceability of any provision of this Agreement in any other
      jurisdiction.


    
      
         

      

      
        48

        
          

        

      

      
         

      

    


    e. Entire
      Agreement; Amendments.
      This
      Agreement, together with the other Transaction Documents, supersedes all other
      prior oral or written agreements between each Buyer, the Company, the
      Subsidiaries, their Affiliates and Persons acting on their behalf with respect
      to the matters discussed herein, and this Agreement, together with the other
      Transaction Documents and the other instruments referenced herein and therein,
      contains the entire understanding of the parties with respect to the matters
      covered herein and therein and, except as specifically set forth herein or
      therein, neither the Company nor such Buyer makes any representation, warranty,
      covenant or undertaking with respect to such matters. As of the date of this
      Agreement, there are no unwritten agreement between the parties with respect
      to
      the matters discussed herein. No provision of this Agreement may be amended,
      modified or supplemented other than by an instrument in writing signed by the
      Company and the Buyers that purchased at least two-thirds (2/3) of the aggregate
      original principal amount of the Sub Notes on the Closing Date or, if prior
      to
      the Closing Date, by the Buyers listed on the Schedule
      of Buyers
      as being
      obligated to purchase at least two-thirds (2/3) of the aggregate original
      principal amount of the Sub Notes. Any such amendment shall bind all holders
      of
      the Notes and the Warrant. No such amendment shall be effective to the extent
      that it applies to less than all of the Notes or Warrant then
      outstanding.

     

    f. Notices.
      Any
      notices, consents, waivers or other communications required or permitted to
      be
      given under the terms of this Agreement must be in writing and will be deemed
      to
      have been delivered: (i) upon receipt, when delivered personally; (ii) upon
      receipt, when sent by facsimile (provided
      confirmation of transmission is mechanically or electronically generated and
      kept on file by the sending party); or (iii) one (1) Business Day after deposit
      with a nationally recognized overnight delivery service, in each case properly
      addressed to the party to receive the same. The addresses and facsimile numbers
      for such communications shall be:

     

    If
      to the
      Company:

    


    Sonterra
      Resources, Inc.

    523
      North
      Sam Houston Parkway East, Suite 175

    Houston,
      Texas 77060

    Facsimile:
      281-741-0895

    Attention:
      D. E. Vandenberg

    


    With
      a
      copy to:

    


    Duane
      Morris LLP

    3200
      Southwest Freeway, Suite 3150

    Houston,
      Texas 77027

    Facsimile:
      713-402-3901

    Attention:
      Charles E. Harrell

    


    If
      to
      Longview Marquis Master Fund, L.P.:

    


    Longview
      Marquis Master Fund, L.P., a British Virgin Island limited
      partnership

    c/o
      Viking Asset Management, LLC

    600
      Montgomery Street, 44th Floor

    San
      Francisco, CA 94111

    Facsimile:
      415-981-5301

    Attention:
      Peter T. Benz


    
      
         

      

      
        49

        
          

        

      

      
         

      

    


    With
      copies to:

    


    Summerline
      Asset Management, LLC 

    70
      West
      Red Oak Lane, 4th
      Floor

    White
      Plains, New York 10604

    Facsimile:
      (914) 697-4767

    Attention:
      Robert J. Brantman

    


    and:
      

    


    Katten
      Muchin Rosenman LLP

    525
      W.
      Monroe Street 

    Chicago,
      Illinois 60661-3693

    Facsimile:
      (312) 902-1061

    Attention:
      Mark D. Wood, Esq.

    


    If
      to The
      Longview Fund, L.P.:

    


    The
      Longview Fund, L.P., a California limited partnership

    c/o
      Viking Asset Management, LLC

    600
      Montgomery Street, 44th Floor

    San
      Francisco, CA 94111

    Facsimile:
      415-981-5301

    Attention:
      S. Michael Rudolph

     

    With
      a
      copy to:

    


    Grushko
      & Mittman, P.C.

    551
      Fifth
      Avenue, Suite 1601

    New
      York,
      NY 10176

    Facsimile:
      (212) 697-3575 

    Attention:
      Edward M. Grushko

    


    or
      at
      such other address and/or facsimile number and/or to the attention of such
      other
      person as the recipient party has specified by written notice to the other
      party
      at least five (5) Business Days prior to the effectiveness of such change.
      Written confirmation of receipt (A) given by the recipient of such notice,
      consent, waiver or other communication, (B) mechanically or electronically
      generated by the sender’s facsimile machine containing the time, date, recipient
      facsimile number and an image of the first page of such transmission or
      (C) provided by a nationally recognized overnight delivery service shall be
      rebuttable evidence of personal service, receipt by facsimile or deposit with
      a
      nationally recognized overnight delivery service in accordance with clause
      (i),
      (ii) or (iii) above, respectively.


    
      
         

      

      
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    g. Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their respective successors and assigns, including any purchasers of the
      Securities. The Company shall not assign this Agreement or any rights or
      obligations hereunder without the prior written consent of the holders of at
      least two-thirds (2/3) of the aggregate principal of the Sub Notes then
      outstanding, including by merger or consolidation. Buyers may assign some or
      all
      of their rights hereunder without the consent of the Company; provided,
      however, that any such assignment shall not release a Buyer from its obligations
      hereunder unless such obligations are assumed by such assignee (as evidenced
      in
      writing) and the Company has consented to such assignment and assumption, which
      consent shall not be unreasonably withheld. Notwithstanding anything to the
      contrary contained in the Transaction Documents, Buyers shall be entitled to
      pledge the Securities in connection with a bona fide margin account or other
      loan or financing arrangement secured by the Securities. 

     

    h. No
      Third Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      permitted successors and assigns and, to the extent provided in Section
      8
      hereof,
      each Indemnitee, and is not for the benefit of, nor may any provision hereof
      be
      enforced by, any other Person.

     

    i. Survival.
      Unless
      this Agreement is terminated under Section
      9(k),
      the
      representations and warranties of the Company and Buyers contained in
Sections 2
      and
3,
      the
      agreements and covenants set forth in Sections 4,
      5
      and
9,
      and the
      indemnification and contribution provisions set forth in Section
      8,
      shall
      survive the Closing. The Company acknowledges and agrees that the provisions
      of
Section
      15
      of the
      Sub Notes shall survive the redemption, repayment or surrender of such Sub
      Notes.

     

    j. Further
      Assurances.
      Each
      party shall do and perform, or cause to be done and performed, all such further
      acts and things, and shall execute and deliver all such other agreements,
      certificates, instruments and documents, as the other party may reasonably
      request in order to carry out the intent and accomplish the purposes of this
      Agreement and the consummation of the transactions contemplated
      hereby.

     

    k. Termination.
      In the
      event that the Closing shall not have occurred on or before the third Business
      Day following the date of this Agreement due to the Company’s or Buyers’ failure
      to satisfy the conditions set forth in Sections
      6
      and
7
      above
      (and the nonbreaching party’s failure to waive such unsatisfied condition(s)),
      the nonbreaching party (i.e., the Company in the case of a breach by a Buyer,
      and any Buyer in the case of a breach by the Company) shall have the option
      to
      terminate this Agreement with respect to such breaching party at the close
      of
      business on such date without liability of any party to any other party;
provided,
      however, that if this Agreement is terminated pursuant to this Section
      9(k),
      the
      Company shall be obligated to pay each Buyer (so long as such Buyer is not
      a
      breaching party) its transaction fees and reimbursement amounts as set forth
      in
Section
      4(i)
      as if
      such Buyer had purchased the Sub Notes (and in the case of Marquis, the
      Warrant).

     

    l. No
      Strict Construction.
      The
      language used in this Agreement will be deemed to be the language chosen by
      the
      parties to express their mutual intent, and no rules of strict construction
      will
      be applied against any party.


    
      
         

      

      
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    m. Remedies.
      Buyers
      and each holder of the Securities shall have all rights and remedies set forth
      in the Transaction Documents and all rights and remedies that Buyers and holders
      have been granted at any time under any other agreement or contract and all
      of
      the rights that Buyers and holders have under any law. Any Person having any
      rights under any provision of this Agreement shall be entitled to enforce such
      rights specifically (without any requirement to post a bond or other security
      or
      prove actual damages, which requirements each of the parties waives to the
      fullest extent permitted by Law), to recover damages by reason of any breach
      of
      any provision of this Agreement and to exercise all other rights granted by
      law.

     

    n. Rescission
      and Withdrawal Right.
      Notwithstanding anything to the contrary contained in (and without limiting
      any
      similar provisions of) the Transaction Documents, whenever a Buyer exercises
      a
      right, election, demand or option under a Transaction Document and the Company
      or any of the Subsidiaries does not timely perform its related obligations
      within the periods therein provided, then such Buyer may rescind or withdraw,
      in
      its sole discretion from time to time upon written notice to the Company, any
      relevant notice, demand or election in whole or in part without prejudice to
      its
      future actions and rights.

     

    o. Payment
      Set Aside.
      To the
      extent that the Company or any of the Subsidiaries makes a payment or payments
      to a Buyer pursuant to this Agreement, the Sub Notes, the Guaranty or any other
      Transaction Document or a Buyer enforces or exercises its rights hereunder
      or
      thereunder, and such payment or payments or the proceeds of such enforcement
      or
      exercise or any part thereof are subsequently invalidated, declared to be
      fraudulent or preferential, set aside, recovered from, disgorged by or are
      required to be refunded, repaid or otherwise restored to the Company or any
      of
      the Subsidiaries, by a trustee, receiver or any other Person under any law
      (including any bankruptcy law, state or federal law, common law or equitable
      cause of action), then to the extent of any such restoration the obligation
      or
      part thereof originally intended to be satisfied shall be revived and continued
      in full force and effect as if such payment had not been made or such
      enforcement or setoff had not occurred. 

     

    p. Transfer
      Agent Instructions.
      The
      Company shall issue irrevocable instructions to its transfer agent in the form
      attached hereto as Exhibit
      F
      (the
“Irrevocable
      Transfer Agent Instructions”),
      and
      any subsequent transfer agent, to issue certificates or credit shares to the
      applicable balance accounts at DTC, registered in the name of each Buyer or
      its
      nominee(s), for Warrant Shares upon exercise of the Warrant or Option Shares
      upon exercise of the Investor Share Option (as applicable), in such amounts
      as
      specified from time to time by each Buyer to the Company. On or before November
      14, 2008, the Company shall deliver to each Buyer a fully executed copy of
      the
      Irrevocable Transfer Agent Instructions (including execution by the Company’s
      transfer agent). The Company warrants that no instruction other than the
      Irrevocable Transfer Agent Instructions referred to in this Section
      9(p) and
      stop
      transfer instructions to give effect to Section
      2(g)
      will be
      given by the Company to its transfer agent and that the Securities shall
      otherwise be freely transferable on the books and records of the Company as
      and
      to the extent provided in this Agreement. If any Buyer provides the Company
      with
      an opinion of counsel, in a generally acceptable form, to the effect that a
      public sale, assignment or transfer of the Securities may be made without
      registration under the 1933 Act or such Buyer provides the Company with
      reasonable assurance that the Securities can be sold pursuant to Rule 144
      without any restriction as to the number of securities acquired as of a
      particular date that can then be immediately sold, the Company shall permit
      the
      transfer and, in the case of the Warrant Shares or the Option Shares, promptly
      instruct its transfer agent to issue one or more certificates or credit shares
      to the applicable balance accounts at DTC in such name and in such denominations
      as specified by such Buyer and without any restrictive legend. The Company
      acknowledges that a breach by it of its obligations hereunder will cause
      irreparable harm to each Buyer by vitiating the intent and purpose of the
      transactions contemplated hereby. Accordingly, the Company acknowledges that
      the
      remedy at law for a breach of its obligations under this Section
      9(p)
      will be
      inadequate and agrees, in the event of a breach or threatened breach by the
      Company of the provisions of this Section
      9(p),
      that
      each Buyer shall be entitled, in addition to all other available remedies,
      to an
      injunctive order and/or injunction restraining any breach and requiring
      immediate issuance and transfer, without the necessity of showing economic
      loss
      and without any bond or other security being required.


    
      
         

      

      
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    q. Interpretative
      Matters.
      Unless
      the context otherwise requires, (a) all references to Sections, Schedules
      or Exhibits are to Sections, Schedules or Exhibits contained in or attached
      to
      this Agreement, (b) each accounting term not otherwise defined in this Agreement
      has the meaning assigned to it in accordance with GAAP, (c) words in the
      singular or plural include the singular and plural and pronouns stated in either
      the masculine, the feminine or neuter gender shall include the masculine,
      feminine and neuter, and (d) the use of the word “including” in this
      Agreement shall be by way of example rather than limitation.
      All
      references herein and in each of the other Transaction Documents to
“dollars”
or
      “$”
shall
      mean the lawful money of the United States of America.

     

    r. Independent
      Nature of the Buyers.
      The
      obligations of each Buyer hereunder are several and not joint with the
      obligations of any other Buyer, and no Buyer shall be responsible in any way
      for
      the performance of the obligations of any other Buyer hereunder. Each Buyer
      shall be responsible only for its own representations, warranties, agreements
      and covenants hereunder. The decision of each Buyer to acquire the Securities
      pursuant to this Agreement has been made by such Buyer independently of any
      other Buyer and independently of any information, materials, statements or
      opinions as to the business, affairs, operations, assets, properties,
      liabilities, results of operations, condition (financial or otherwise) or
      prospects of the Company or any of the Subsidiaries which may have been made
      or
      given by any other Buyer or by any agent or employee of any other Buyer, and
      no
      Buyer or any of its agents or employees shall have any liability to any other
      Buyer (or any other Person or entity) relating to or arising from any such
      information, materials, statements or opinions. Nothing contained herein, and
      no
      action taken by any Buyer pursuant hereto or thereto, shall be deemed to
      constitute the Buyers as a partnership, an association, a joint venture or
      any
      other kind of entity, or create a presumption that the Buyers are in any way
      acting in concert or as a group with respect to such obligations or the
      transactions contemplated hereby. Each Buyer shall be entitled to independently
      protect and enforce its rights, including the rights arising out of this
      Agreement, the Bridge Notes and the other Transaction Documents, and it shall
      not be necessary for any other Buyer to be joined as an additional party in
      any
      proceeding for such purpose.

     

    s. Waiver
      of Old Warrant Anti-Dilution Provisions.
      Longview hereby waives any adjustment to the Warrant Exercise Price (as defined
      in the Old Warrant (and in the New Longview Warrant)), or to the number of
      shares of Common Stock issuable upon exercise of the Old Warrant (or of the
      New
      Longview Warrant), pursuant to Section 8 of the Old Warrant (or of the New
      Longview Warrant), solely to the extent that such adjustment would directly
      result from the Company’s issuance of the Warrant, the Warrant Shares, the Sub
      Notes, the Option Shares, the Warrants (as defined in the Securities Purchase
      Agreement), the Warrant Shares (as defined in the Securities Purchase
      Agreement), the Override Exchange Shares or the Conversion Shares, all in
      accordance with the terms and conditions set forth in this Agreement, the
      Securities Purchase Agreement, the Warrants and the Sub Notes.


    
      
         

      

      
        53

        
          

        

      

      
         

      

    


    IN
      WITNESS WHEREOF,
      Buyers
      and the Company have caused this Securities Exchange Agreement to be duly
      executed as of the date first written above.

     

    COMPANY:

    


    SONTERRA
      RESOURCES, INC.,
      a
      Delaware corporation 

    


    
      	
              By:

            	 
	
              Name:

            	 
	
              Title:
                

            	 


    

    


    BUYERS:

    


    LONGVIEW
      MARQUIS MASTER FUND, L.P.,
      a
      British Virgin Island limited partnership

    


    
      	
              By:
                Viking Asset Management, LLC

            
	
              Its:
                Investment Adviser

            
	 	 
	
              By:

            	 
	
              Name:

            	
              Peter
                T. Benz

            
	
              Title:

            	
              Chairman

            


    

    


    THE
      LONGVIEW FUND, L.P.,
      a
      California limited partnership

    


    By:
      Viking Asset Management, LLC

    Its:
      Investment Adviser

    


    
      	
              By:

            	 
	
              Name:

            	
              S.
                Michael Rudolph

            
	
              Title:

            	
              Chief
                Financial Officer

            


    


    
      
         

      

      
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    SCHEDULES

    


    EXHIBITS