Exhibit 10.5

 

FORM OF CONVERTIBLE NOTE PURCHASE AGREEMENT

 

This Convertible Note Purchase Agreement (the “Agreement”) is made as of the
[    ]th day of December, 2015 by and between Lilis Energy, Inc., a Nevada
corporation (the “Company”), and [         ] (the “Purchaser”).

 

RECITALS

 

The Company desires to issue and sell, and the Purchaser desires to purchase,
(i) a convertible promissory note in substantially the form attached hereto as
Exhibit A (the “Note”) in an aggregate principal amount of [         ] Dollars
($[    ]) convertible into shares of common stock, par value $0.0001 per share,
(the “Common Stock”) of the Company (the “Conversion Shares”) at a conversion
price of $0.50 and (ii) a warrant registered in the name of the Purchaser in the
form attached hereto as Exhibit B (the “Warrant”) to purchase, at any time
following the Closing Date (as defined below) of the offering and prior to the
third (3rd) anniversary of the date hereof (the “Warrant Expiration Date”), a
number of shares of Common Stock as set forth therein (the “Warrant Shares” and,
collectively with the Note, the Conversion Shares and the Warrant, the
“Securities”), upon the terms and conditions set forth below. Notwithstanding
the forgoing, both the conversion of the Note and the exercise of the Warrant,
shall be subject to the receipt of requisite stockholder approval pursuant to
the Nasdaq Marketplace Rules (“Nasdaq”), in the event the Company deems it
necessary to maintain compliance with Nasdaq; and

 

The Company has existing secured loans from Heartland Bank (the “Heartland Bank
Indebtedness”), which Heartland Bank Indebtedness shall be senior in ranking to
the indebtedness contemplated by this Agreement. The Company has additional
existing secured indebtedness in the form of its 8.0% Senior Secured Convertible
Debentures due 2018, which indebtedness is junior in priority to the Heartland
Bank Indebtedness but shall also be senior in priority to the Note. This
Agreement, together with the Note and any and all amendments and modifications
thereof, are individually referred to in this Agreement as a “Loan Document” and
collectively referred to as the “Loan Documents.” Capitalized terms used but not
defined herein shall have the meaning assigned to them in the Note.

 

In consideration of the mutual promises contained herein and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties to
this Agreement agree as follows:

 

ARTICLE I

SECURITIES

1.   Purchase and Sale of Securities.

 

1.01         Sale and Issuance of Note: Subject to the terms and conditions of
this Agreement, Purchaser agrees to purchase at the Closing Date (as defined
below) and the Company agrees to sell and issue to Purchaser the Note. The
purchase price of the Note shall be equal to 100% of the principal amount
thereof.

 

 

 

 

1.02        Description.

 

i)Note. The Note will be dated the date of issue, to mature as set forth
therein.     ii)Conversion Shares. The Note will be convertible into shares of
Common Stock, subject to stockholder approval as deemed necessary by the
Company, at a conversion price of $0.50, subject to certain adjustments as
described in the Note.     iii)Warrant. The Warrant shall entitle the holder to
purchase, at any time following the Closing Date and prior to the Warrant
Expiration Date, subject to stockholder approval as deemed necessary by the
Company, the Warrant Shares at an initial exercise price equal to $0.25, subject
to adjustments as described in the Warrant.

 

1.03        Stockholder Approval. Notwithstanding anything in this Agreement,
the Note or the Warrant to the contrary, under no circumstances shall the
Company effect a conversion of the Note or an exercise of the Warrant into
Common Stock without first obtaining stockholder approval if required by law or
Nasdaq.

 

1.04        Execution of Equity Agreements. Purchaser understands and agrees
that the conversion of the Note into equity securities of the Company and the
delivery of the duly executed certificates evidencing such equity securities
will require Purchaser’s execution of certain mutually acceptable agreements
relating to the purchase and sale of such securities as well as any rights
relating to such equity securities, to the extent Purchaser has not already
executed such agreements.

 

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company hereby represents and warrants to the Purchaser that:

 

2.01.       Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on its business or properties.

 

2.02        Authorization. The Company has all requisite power and authority to
execute, deliver and perform its obligations under the Loan Documents. The
execution and delivery of the Loan Documents, and the consummation by the
Company of the transactions contemplated hereby, have been duly authorized by
all necessary corporate action and no further action on the part of the Company
or its Board of Directors is required, except that the Company may be required
to obtain stockholder approval pursuant to Nasdaq Marketplace Rules prior to
conversion of the Note or exercise of the Warrant by Purchaser. The Loan
Documents have been validly executed and delivered by the Company and constitute
legal, valid and binding agreements of the Company enforceable against the
Company in accordance with their terms, except to the extent (i) rights to
indemnity and contribution may be limited by state or federal securities laws or
the public policy underlying such laws, (ii) such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors’ and contracting parties’ rights generally and (iii) such
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).

 

2.03        Absence of Required Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority on the part of the Company is required
in connection with the consummation of the transactions contemplated by this
Agreement, except for such filing(s) pursuant to applicable securities laws as
may be necessary, which filing will be timely effected after the Closing Date.

 

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2.04        Offering. Subject in part to the truth and accuracy of the
Purchaser’s representations set forth in Article III of this Agreement, the
offer, sale and issuance of the Note as contemplated by this Agreement are
exempt from the registration requirements of the Securities Act of 1933, as
amended, and will not result in a violation of the qualification or registration
requirements of any applicable state securities laws.

 

ARTICLE III

REPRESENTATIONS OF THE PURCHASERS

 

Purchaser represents and warrants to the Company as follows:

 

3.01        Accredited Investor. Purchaser is an “accredited investor” as
defined by Rule 501 of Regulation D (“Regulation D”) promulgated under the
Securities Act of 1933, as amended (the “Act”), and Purchaser is capable of
evaluating the merits and risks of Purchaser’s investment in the Company and has
the ability and capacity to protect Purchaser’s own interests.

 

3.02        Securities Unregistered. Purchaser understands that the Securities
will not be registered under the Act on the grounds that the issuance thereof is
exempt from the registration requirements of the Act by Section 4(2) of the Act
and/or Regulation D promulgated thereunder as a transaction by an issuer not
involving any public offering and that, in the view of the United States
Securities and Exchange Commission (the “Commission”), the statutory basis for
the exception claimed would not be present if the representations and warranties
of Purchaser contained in this Agreement or the Confidential Purchaser
Questionnaire attached hereto as Exhibit C are untrue or, notwithstanding
Purchaser’s representations and warranties, Purchaser currently has in mind
acquiring the Securities for resale or distribution upon the occurrence or
non-occurrence of some predetermined event. Purchaser is aware that the
Securities are and will be, when issued, “restricted securities” as that term is
defined in Rule 144 promulgated under the Act.

 

3.03        Legend.

 

(a)          Purchaser understands that any and all certificates representing
the Securities and any and all securities issued in replacement thereof or in
exchange therefore shall bear the following legend or one substantially similar
thereto, which Purchaser has read and understands:

 

“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES
NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS
WHICH, IN THE OPINION OF COUNSEL FOR THIS CORPORATION, IS AVAILABLE.”

 

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(b)          In addition, the certificates representing the Securities, and any
and all securities issued in replacement thereof or in exchange therefore, shall
bear such legend as may be required by the securities laws of the jurisdiction
in which Purchaser resides.

 

(c)          Because of the restrictions imposed on resale, Purchaser
understands that the Company shall have the right to note stop-transfer
instructions in its transfer records, and Purchaser has been informed of the
Company’s intention to do so. Any sales, transfers, or any other dispositions of
the Securities by Purchaser, if any, will be in compliance with the Act and all
applicable rules and regulations promulgated thereunder.

 

3.04        Purpose. Purchaser is purchasing the Securities for investment
purposes for their own account and not with a view to distribution or resale,
nor with the intention of selling, transferring or otherwise disposing of all or
any part thereof for any particular price, or at any particular time, or upon
the happening of any particular event or circumstances, except selling,
transferring, or disposing the Securities in full compliance with all applicable
provisions of the Act, the rules and regulations promulgated by the Commission
thereunder, and applicable state securities laws; and that an investment in the
Securities is not a liquid investment. Purchaser understands that the Company is
privately held, there is no trading market for its securities and that the
Company does not file any reports with the Commission.

 

3.05        Exemption From Registration Required. Purchaser acknowledges that
the Securities must be held indefinitely unless subsequently registered under
the Act or unless an exemption from such registration is available. Purchaser is
aware of the provisions of Rule 144 promulgated under the Act, which permits
limited resale of securities purchased in a private placement subject to certain
limitations and to the satisfaction of certain conditions, including, among
other things, the existence of a public market for the securities, the
availability of certain current public information about the Company, the lapse
of at least six months after a party purchases and pays for the securities, the
sale being effected through a “broker’s transaction” or in transactions directly
with a “market maker” and the observance of certain volume restrictions.

 

3.06        Received Information. Purchaser acknowledges that Purchaser has had
the opportunity to ask questions of, and receive answers from, the Company or
any authorized person acting on its behalf concerning the Company and its
business and to obtain any additional information, to the extent possessed by
the Company (or to the extent it could have been acquired by the Company without
unreasonable effort or expense) necessary to verify the accuracy of the
information received by Purchaser. In connection therewith, Purchaser
acknowledges that Purchaser has had the opportunity to discuss the Company’s
business, management and financial affairs with the Company’s management or any
authorized person acting on its behalf. Purchaser has received and reviewed all
the information, both written and oral, that Purchaser desires. Without limiting
the generality of the foregoing, Purchaser has been furnished with or has had
the opportunity to acquire, and to review all information, both written and
oral, that Purchaser desires with respect to the Company’s business, management,
financial affairs and prospects. In determining whether to make this investment,
Purchaser has relied solely on Purchaser’s own knowledge and understanding of
the Company and its business based upon Purchaser’s own due diligence
investigations and the information furnished pursuant to this paragraph. No
representations or warranties have been made to Purchaser by the Company, or any
officer, employee, agent, affiliate or subsidiary of the Company, other than the
representations of the Company contained herein, and in purchasing the
Securities the Purchaser is not relying upon any representations other than
those contained in this Agreement. Purchaser understands that no person has been
authorized to give any information or to make any representations, whether oral
or written, which were not contained in this Agreement and Purchaser has not
relied on any other representations or information.

 

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3.07        Authorization; Enforceability. Purchaser has all requisite legal and
other power, authority and capacity to execute and deliver this Agreement and to
carry out and perform Purchaser’s obligations under the terms of this Agreement.
The execution and delivery of this Agreement and Purchaser’s purchase of the
Securities has been duly authorized by all necessary action on behalf of the
Purchaser and constitute a legal, valid and binding agreement of Purchaser. This
Agreement constitutes a valid and legally binding obligation of Purchaser,
enforceable in accordance with its terms, and subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
other general principals of equity, whether such enforcement is considered in a
proceeding in equity or law.

 

3.08        Suitability. Purchaser has carefully considered and has discussed
with Purchaser’s legal, tax, accounting and financial advisors, to the extent
Purchaser has deemed necessary, the suitability of this investment and the
transactions contemplated by this Agreement for the Purchaser’s particular
federal, state, local and foreign tax and financial situation and has
independently determined that this investment and the transactions contemplated
by this Agreement are a suitable investment for the Purchaser. Purchaser has
relied solely on such advisors and not on any statements or representations of
the Company or any of its agents. Purchaser understands that Purchaser (and not
the Company) shall be responsible for Purchaser’s own tax liability that may
arise as a result of this investment or the transactions contemplated by this
Agreement.

 

3.09        No Untrue Statement. This Agreement and the Confidential Purchaser
Questionnaire accompanying this Agreement do not contain any untrue statement of
a material fact or omit any material fact concerning Purchaser. Purchaser has a
net worth and annual gross income as stated in the Confidential Purchaser
Questionnaire, and all of the answers and statements in the Confidential
Purchaser Questionnaire are true and correct.

 

3.10        Litigation. There are no actions, suits, proceedings or
investigations pending against Purchaser or Purchaser’s assets before any court
or governmental agency (nor, to Purchaser’s knowledge, is there any threat
thereof) which would impair in any way Purchaser’s ability to enter into and
fully perform Purchaser’s commitments and obligations under this Agreement or
the transactions contemplated hereby.

 

3.11        No Conflict. The execution, delivery and performance of and
compliance with this Agreement, including but not limited to the purchase of the
Securities, will not result in any violation of, or conflict with, or constitute
a default under, any of Purchaser’s articles of incorporation or bylaws or other
organizational documents, if applicable, or any agreement to which Purchaser is
a party or by which Purchaser is bound, nor result in the creation of any
mortgage, pledge, lien, encumbrance or charge against any of the assets or
properties of Purchaser or the Securities.

 

3.12        Risk. Purchaser has adequate means of providing for current needs
and personal contingencies and has no need for liquidity in an investment in the
Securities. Purchaser’s overall financial commitment to investments that are not
readily marketable is not disproportionate to Purchaser’s net worth, and
Purchaser’s investment in the Securities will not cause an overall commitment to
become excessive. Purchaser has no reason to anticipate any change in
Purchaser’s personal circumstances, financial or otherwise, which may cause
Purchaser to attempt to resell or transfer the Securities.

 

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3.13        No Endorsement. Purchaser recognizes that no federal, state or
foreign agency has recommended or endorsed the purchase of the Securities.

 

3.14        Sophistication. Purchaser represents that: (i) Purchaser could be
reasonably assumed to have the capacity to protect his/her/its own interests in
connection with this Agreement; or (ii) Purchaser has a pre-existing personal or
business relationship with either the Company or any affiliate thereof or of
such duration and nature as would enable a reasonably prudent purchaser to be
aware of the character, business acumen and general business and financial
circumstances of the Company or such affiliate and is otherwise personally
qualified to evaluate and assess the risks, nature and other aspects associated
with the transactions contemplated by this Agreement.

 

3.15        Residence. Purchaser further represents that the address set forth
on the Signature Page hereto is Purchaser’s principal residence (or, if
Purchaser is a company, partnership or other entity, the address of its
principal place of business).

 

3.16        No Public Solicitation. Purchaser represents that Purchaser is not
purchasing Securities as a result of or subsequent to any advertisement,
article, notice or other communication published in any newspaper, magazine or
similar media or broadcast over the Internet, television or radio or presented
at any seminar or meeting or any public announcement by the Company.

 

3.17        Fees. To the best of Purchaser’s knowledge, no finder, broker,
agent, financial advisor or other intermediary, nor any purchaser representative
or any broker-dealer acting as a broker, is entitled to any compensation in
connection with the transactions contemplated by this Agreement.

 

3.18        Confidentiality. Purchaser has refrained and shall refrain from
trading in any securities of the Company or any other relevant company for so
long as such recipient has been in possession of the material non-public
information about the Company or any Subsidiary.

 

3.19        Incumbency of Authorized Signatory. If Purchaser is a corporation,
partnership, limited liability company, trust or other entity, the person
executing this Agreement on Purchaser’s behalf hereby represents and warrants
that the above representations and warranties shall be deemed to have been made
on behalf of such entity and the Purchaser has made such representations and
warranties after due inquiry to determine the truthfulness of such
representations and warranties.

 

3.21        Status of Purchaser; Authorization. If the Purchaser is a
corporation, partnership, limited liability company, trust or other entity, it
is duly organized, validly existing and in good standing in its jurisdiction of
incorporation or organization and has all requisite power and authority to
execute and deliver this Agreement and purchase the Securities, as provided
herein.

 

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3.22        Consents and Approvals. Purchaser has obtained each consent,
approval or authorization of, or filing, registration or qualification with, any
Governmental Entity or other Person or the vote, consent or approval in any
manner of any holder of any equity or other securities of Purchaser necessary to
the consummation of the transactions contemplated by this Agreement and the
other Loan Documents, as a condition to the execution and delivery of this
Agreement or any other Loan Document by Purchaser, the performance by Purchaser
of its obligations hereunder or thereunder or the consummation of the
transactions contemplated hereby or thereby.

 

ARTICLE IV

CLOSING

 

4.1          Closing Date. The closing of the purchase and sale of the Note in
principal amount of [     ] ($[     ]) and the Securities hereunder shall be
held immediately following the execution and delivery of this Agreement (the
“Closing Date”).

 

4.2          Delivery at Closing. At the Closing, the Company will deliver to
the Purchaser (i) the Note, duly executed, substantially in the form of Exhibit
A hereto, (ii) Warrant duly completed and executed, substantially in the form of
Exhibit B hereto, and (iii) an executed copy of this Agreement; the Purchaser
will deliver to the Company (x) the funds being loaned to the Company pursuant
to the Note by wire transfer to the bank designated by the Company, (y) the
Note, duly executed, substantially in the form of Exhibit A, and (z) an executed
copy of this Agreement.

 

ARTICLE V

TERMINATION

 

5.1          This Agreement will remain in full force and effect until the later
of (i) the maturity date of the Note as set forth therein, or (ii) the
indefeasible repayment in full of the Note.

 

ARTICLE VI

MISCELLANEOUS

 

6.1          Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.

 

6.2          Governing Law. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
New York, without giving effect to principles of conflicts of law.

 

6.3          Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.

 

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6.4          Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

 

6.5          Notices. Any notice required or permitted by this Agreement shall
be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile or
electronic mail, or forty-eight (48) hours after being deposited in the U.S.
mail as certified or registered mail with postage prepaid, if such notice is
addressed to the party to be notified at such party’s address or facsimile
number as set forth below or as subsequently modified by written notice.

 

6.6          Fees and Expenses. Each party shall bear its own expenses,
including, but not limited to, legal fees, that it incurs with respect to the
Loan Documents and the transactions contemplated thereby.

 

6.7          Amendments and Waivers. Any term of this Agreement may be amended
or waived only with the prior written consent of the Company and the Purchaser.
Any amendment or waiver effected in accordance with this Section 6.7 shall be
binding upon the Purchaser and each transferee of the Securities, each future
holder of all such Securities, and the Company.

 

6.8          Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith, in order to maintain the economic position enjoyed by
each party as close as possible to that under the provision rendered
unenforceable. In the event that the parties cannot reach a mutually agreeable
and enforceable replacement for such provision, then (i) such provision shall be
excluded from this Agreement, (ii) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms.

 

6.9         Entire Agreement. This Agreement, and the documents referred to
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
existing between the parties hereto are expressly canceled.

 

[Signature Pages Follow]

 

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The parties have executed this Convertible Note Purchase Agreement as of the
date first written above.

 

  COMPANY:         LILIS ENERGY, INC.         By:     Name: Abraham Mirman  
Title: Chief Executive Officer         Address:           PURCHASER:        
[                                 ]         By:     Name:     Title:  

 

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EXHIBIT A

 

FORM OF CONVERTIBLE SUBORDINATED PROMISSORY NOTE

 

[See Exhibit 4.1] 

  

  

 

 

EXHIBIT B

 

FORM OF WARRANT

 

[See Exhibit 4.2]