EXHIBIT 10.1

 
 
SECURITIES PURCHASE AGREEMENT

 
This Securities Purchase Agreement (this “Agreement”) is dated as of November
25, 2015, between Royale Energy, Inc., a California corporation (the “Company”),
and the purchaser identified on the signature page hereto (the “Purchaser”).
 
WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to (i) an effective registration statement under the Securities Act of
1933, as amended (the “Securities Act”) covering the Shares, and (ii) an
exemption from the registration requirements of Section 5 of the Securities Act
contained in Section 4(a)(2) thereof and/or Regulation D thereunder as to the
Warrants, the Company desires to issue and sell to the Purchaser, and the
Purchaser desires to purchase from the Company, securities of the Company as
more fully described in this Agreement (the “Offering”).
 
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchaser agree
as follows:
 
ARTICLE I.
 
DEFINITIONS
 
1.1   Definitions.  In addition to the terms defined elsewhere in this Agreement
(including in the preamble and recitals above), for all purposes of this
Agreement, the following terms have the meanings set forth in this Section 1.1:
 
“Acquiring Person” shall have the meaning ascribed to such term in Section 4.10.
 
“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144 promulgated under
the Securities Act.
 
“Board of Directors” means the board of directors of the Company.
 
“Closing” means the closing of the purchase and sale of the Securities pursuant
to Section 2.1.
 
“Closing Date” means the Trading Day on which this Agreement has been executed
and delivered by the parties hereto, and all conditions precedent to (i) the
Purchaser’s obligations to pay the Subscription Amount and (ii) the Company’s
obligations to deliver the Securities, in each case, have been satisfied or
waived.
 
“Commission” means the United States Securities and Exchange Commission.
 
“Common Stock Equivalents” means, collectively, Options and Convertible
Securities.
 
“Company Fixtures and Equipment” shall have the meaning ascribed to such term in
Section 3.1(bb).
 
“Contracts” shall have the meaning ascribed to such term in Section 3.1(s).
 
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“Convertible Securities” means any stock or securities (other than Options)
convertible into or exercisable or exchangeable for shares of Common Stock.
 
“Damages” shall have the meaning ascribed to such term in Section 4.4.
 
“Disclosure Requirement” shall have the meaning ascribed to such term in Section
4.1(b).
 
“DWAC” shall have the meaning ascribed to such term in Section 2.2(a)(i).
 
“EDGAR” shall have the meaning ascribed to such term in Section 3.1(a).
 
“Environmental Laws” shall have the meaning ascribed to such term in Section
3.1(ff).
 
 “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
 
 
“FCPA” shall have the meaning ascribed to such term in Section 3.1(ee).

 
“Filing Date” shall have the meaning ascribed to such term in Section 3.1(ll).
 
“FINRA” shall have the meaning ascribed to such term in Section 3.1(z).
 
“GAAP” shall have the meaning ascribed to such term in Section 3.1(f).
 
“Hazardous Materials” shall have the meaning ascribed to such term in Section
3.1(ff).
 
“Incorporated Documents” shall have the meaning ascribed to such term in Section
3.1(a).
 
“Intellectual Property” shall have the meaning ascribed to such term in Section
3.1(dd).
 
 
“Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as
defined in Rule 433 under the Securities Act relating to the Shares in the form
filed or required to be filed with the Commission or, if not required to be
filed, in the form retained in the Company’s records pursuant to Rule 433(g)
under the Securities Act.

 
“Liens” means any lien, charge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction, other than restrictions imposed
by securities laws.
 
“Material Adverse Effect” shall have the meaning ascribed to such term in
Section 3.1(p).
 
“NASDAQ” shall have the meaning ascribed to such term in Section 3.1(i).
 
“OFAC” shall have the meaning ascribed to such term in Section 3.1(gg).
 
“Options” means any rights, warrants or options to subscribe for or purchase
shares of Common Stock or Convertible Securities.
 
“Other Real Property” shall have the meaning ascribed to such term in Section
3.1(aa).
 
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“Per Share Purchase Price” equals $0.50, subject to adjustment for reverse and
forward stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the date of this Agreement and
on or prior to the Closing Date.
 
“Permits” shall have the meaning ascribed to such term in Section 3.1(z).
 
“Person” means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.
 
“Prospectus” shall have the meaning ascribed to such term in Section 3.1(a).
 
“Prospectus Supplement” shall have the meaning ascribed to such term in Section
3.1(a).
 
“Purchaser Party” shall have the meaning ascribed to such term in Section 4.4.
 
“Registration Statement” shall have the meaning ascribed to such term in Section
3.1(a).
 
“Securities” means the Shares, the Warrants and the Warrant Shares.
 
“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
 
“Shares” means the shares of Common Stock issuable pursuant to this Agreement
other than the Warrant Shares.
 
“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act (but shall not be deemed to include the location and/or
reservation of borrowable shares of Common Stock).
 
“Subscription Amount” means the aggregate amount to be paid for the Shares and
Warrants purchased hereunder as specified below the Purchaser’s name on the
signature page of this Agreement and next to the heading “Subscription Amount,”
in United States dollars and in immediately available funds.
 
“Trading Day” means a day on which the principal Trading Market is open for
trading.
 
“Trading Market” means any of the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the NYSE
MKT, The Nasdaq Capital Market, The Nasdaq Global Market, The Nasdaq Global
Select Market, the New York Stock Exchange (or any successors to any of the
foregoing).
 
 “Warrants” means, collectively, the Common Stock purchase warrants delivered to
the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which
Warrants shall be exercisable six months from the Closing Date, subject to the
conditions specified therein, and have a term of exercise equal to five (5)
years from the initial exercise date, substantially in the form of Exhibit A
attached hereto.
 
“Warrant Shares” means the shares of Common Stock issuable upon exercise of the
Warrants.
 
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ARTICLE II.
 
PURCHASE AND SALE
 
2.1    Closing.  On the Closing Date, upon the terms and subject to the
conditions set forth herein, substantially concurrently with the execution and
delivery of this Agreement by the parties hereto, the Company shall sell, and
the Purchaser shall purchase, the number of Shares specified on the signature
page hereto and Warrant to purchase the number of shares determined according to
Section 2.2(ii). At the Closing, the Purchaser shall deliver to the Company, via
wire transfer of immediately available funds, an amount equal to the Purchaser’s
Subscription Amount as set forth on the signature page hereto executed by the
Purchaser, and the Company shall deliver to the Purchaser its respective Shares
and Warrant as determined according to Section 2.2(ii), and the Company and the
Purchaser shall deliver the other items set forth in Section 2.2 deliverable at
the Closing. Upon satisfaction of the covenants and conditions set forth in
Sections 2.2 and 2.3, the Closing of the transactions contemplated by this
Agreement shall occur by exchange of executed documents delivered via facsimile
or electronic transmission on the Closing Date.
 
2.2    Deliveries.
 
(a)  On or prior to the Closing Date, the Company shall deliver or cause to be
delivered to the Purchaser the following:
 
(i)  a copy of the irrevocable instructions to the Transfer Agent instructing
the Transfer Agent to deliver on an expedited basis via The Depository Trust
Company Deposit or Withdrawal at Custodian system (“DWAC”) Shares equal to such
Purchaser’s Subscription Amount divided by the Per Share Purchase Price,
registered in the name of such Purchaser;
 
(ii)  a Warrant registered in the name of such Purchaser to purchase up to a
number of shares of Common Stock equal to 50]% of such Purchaser’s total Shares,
with an exercise price equal to $1.00 per share of Common Stock, subject to
adjustment therein (such Warrant certificate may be delivered within three
Trading Days of the Closing Date); and
 
(iii)  the Prospectus and Prospectus Supplement (which may be delivered in
accordance with Rule 172 under the Securities Act).
 
(b)  On or prior to the Closing Date, the Purchaser shall deliver or cause to be
delivered to the Company the following:
 
        (i)  this Agreement duly executed by such Purchaser; and
 
(ii) the Purchaser’s Subscription Amount by wire transfer of immediately
available funds to the account as specified in writing by the Company.
 
2.3    Closing Conditions.
 
(a)           The obligations of the Company hereunder in connection with the
Closing are subject to the following conditions being met or waived by the
Company:
 
(i)  each of the representations and warranties of the Purchaser contained
herein shall be true and correct in all respects (in the case of any
representation or warranty containing a materiality or Material Adverse Effect
qualification) or in all material respects (in the case of any representation or
warranty not containing a materiality or Material Adverse Effect qualification)
at the Closing Date as if made on and as of such date, and all covenants and
agreements contained herein to be performed on the part of the Purchaser and all
conditions contained herein to be fulfilled or complied with by the Purchaser at
or prior to the Closing Date shall have been duly performed, fulfilled or
complied with; and
 
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(ii)  the delivery by the Purchaser of the items set forth in Section 2.2(b) of
this Agreement.
 
(b) The obligations of the Purchaser hereunder in connection with the Closing
are subject to the following conditions being met or waived by the Purchaser:
 
(i)  each of the representations and warranties of the Company contained herein
shall be true and correct in all respects (in the case of any representation or
warranty containing a materiality or Material Adverse Effect qualification) or
in all material respects (in the case of any representation or warranty not
containing a materiality or Material Adverse Effect qualification) at the
Closing Date as if made on and as of such date, and all covenants and agreements
contained herein to be performed on the part of the Company and all conditions
contained herein to be fulfilled or complied with by the Company at or prior to
the Closing Date shall have been duly performed, fulfilled or complied with,
unless such conditions have been waived;
 
(ii)  the delivery by the Company of the items set forth in Section 2.2(a) of
this Agreement;
 
(iii)  there shall have been no Material Adverse Effect with respect to the
Company since the date hereof;
 
(iv)  from the date hereof to the Closing Date, trading in the Common Stock
shall not have been suspended by the Commission or the Company’s principal
Trading Market (except for any suspension of trading of limited duration agreed
to by the Company, which suspension shall be terminated prior to the Closing),
and, at any time prior to the Closing Date, trading in securities generally
shall not have been suspended or limited, or minimum prices shall not have been
established on the New York Stock Exchange, the Nasdaq Capital Market, the
Nasdaq Global Market, the Nasdaq Global Select Market, or in the
over-the-counter market, nor shall a banking moratorium have been declared
either by the United States or New York State authorities nor shall there have
occurred any material outbreak or escalation of hostilities or other national or
international calamity of such magnitude in its effect on, or any material
adverse change in, any financial market which, in each case, in the reasonable
judgment of the Purchaser, makes it impracticable or inadvisable to purchase the
Securities at the Closing;
 
(v)  each Issuer Free Writing Prospectus, if any, and the Prospectus, shall have
been filed with the Commission within the applicable time period prescribed for
such filing by, and in compliance with, the Securities Act;
 
(vi)  prior to the Closing: (i) no stop order suspending the effectiveness of
the Registration Statement or any part thereof, preventing or suspending the use
of the Prospectus or any Issuer Free Writing Prospectus or any part thereof
shall have been issued under the Securities Act and no proceedings for that
purpose or pursuant to Section 8A under the Securities Act shall have been
initiated or threatened by the Commission, (ii) no order suspending the
qualification or registration of the Securities under the securities or blue sky
laws of any jurisdiction shall be in effect and (iii) all requests for
additional information on the part of the Commission (to be included or
incorporated by reference in the Registration Statement, the Prospectus or any
Issuer Free Writing Prospectus or otherwise) shall have been complied with. On
or prior to the Closing Date, the Registration Statement or any amendment
thereof or supplement thereto shall not contain an untrue statement of material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, and neither the Registration
Statement, nor any Issuer Free Writing Prospectus nor the Prospectus nor any
amendment thereof or supplement thereto shall contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading; and
 
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(vii)  no action shall have been taken and no law, statute, rule, regulation or
order shall have been enacted, adopted or issued by any governmental agency or
body which would prevent the issuance or sale of the Securities or result in a
Material Adverse Effect on the Company; and no injunction, restraining order or
order of any other nature by any federal or state court of competent
jurisdiction shall have been issued which would prevent the issuance or sale of
the Securities or result in a Material Adverse Effect on the Company.
 
ARTICLE III.
 
REPRESENTATIONS AND WARRANTIES
 
3.1    Representations and Warranties of the Company.  The Company hereby
represents and warrants to the Purchaser as follows:
 
(a)  The Company has filed, in accordance with the provisions of the Securities
Act, with the Commission a registration statement on Form S-3 (File No.
333-203229), as amended, including a base prospectus, relating to certain
securities, including the Shares, but not the Warrants or the Warrant Shares,
and which incorporates by reference documents that the Company has filed or will
file in accordance with the provisions of the Exchange Act. The Company has
prepared a prospectus supplement to the base prospectus included as part of such
registration statement specifically relating to the Shares (the “Prospectus
Supplement”). Copies of the prospectus included as part of such registration
statement, as amended, as supplemented by the Prospectus Supplement, relating to
the Shares have heretofore been delivered by the Company to the Purchaser.
Except where the context otherwise requires, such registration statement, as
amended when it became effective, including all documents filed as part thereof
or incorporated by reference therein, and including any information contained in
a Prospectus (as defined below) subsequently filed with the Commission pursuant
to Rule 424(b) under the Securities Act or deemed to be a part of such
registration statement pursuant to Rule 430B or 462(b) of the Securities Act, as
well as any comparable successor registration statement filed by the Company for
the sale of shares of its Common Stock or warrants to purchase its Common Stock,
including the Shares, collectively are herein called the “Registration
Statement.” The base prospectus, including all documents incorporated therein by
reference, included in the Registration Statement, as it may be supplemented by
the Prospectus Supplement, in the form in which such prospectus and/or
Prospectus Supplement have most recently been filed by the Company with the
Commission pursuant to Rule 424(b) under the Securities Act, together with the
then issued Issuer Free Writing Prospectus(es) and any other prospectus filed
after the date hereof by the Company with respect to the Shares, is herein
called the “Prospectus.” Any reference herein to the Registration Statement, the
Prospectus or any amendment or supplement thereto shall be deemed to refer to
and include the documents incorporated by reference therein, and any reference
herein to the terms “amend,” “amendment” or “supplement” with respect to the
Registration Statement or the Prospectus shall be deemed to refer to and include
the filing after the execution hereof of any document with the Commission deemed
to be incorporated by reference therein (the “Incorporated Documents”). For
purposes of this Agreement, all references to the Registration Statement, the
Prospectus or any amendment or supplement to either thereof shall be deemed to
include any copy filed with the Commission pursuant to the Electronic Data
Gathering, Analysis and Retrieval system (“EDGAR”).
 
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(b)  The Registration Statement has been filed with the Commission under the
Securities Act and declared effective by the Commission under the Securities
Act. No stop order suspending the effectiveness of the Registration Statement is
in effect and no proceedings for such purpose have been instituted or are
pending or, to the Company’s knowledge, are contemplated or threatened by the
Commission. The Company satisfied all applicable requirements for the use of
Form S-3 under the Securities Act when the Registration Statement was filed. The
Commission has not issued an order preventing or suspending the use of the base
prospectus, any Issuer Free Writing Prospectus or the Prospectus relating to the
proposed offering of the Shares and no proceedings for such purpose have been
instituted or are pending or, to the Company’s knowledge, are contemplated or
threatened by the Commission. The Prospectus delivered to the Purchaser for use
in connection with the offering of Shares was, at the time of such delivery,
identical to the electronically transmitted copies thereof filed with the
Commission. At the respective times each part of the Registration Statement and
each amendment thereto became effective or was deemed effective, as the case may
be, the Registration Statement complied and will comply in all material respects
with the Securities Act (including, but not limited, to the requirements set
forth in Rule 415(a)(1)(x) under the Securities Act) and did not and will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading. The Registration Statement contains all exhibits and schedules
required to be filed by the Securities Act.
 
(c)  The Company has delivered to the Purchaser, or made available through
EDGAR, one complete copy of the Registration Statement and of each consent of
experts filed as a part thereof, and conformed copies of the Registration
Statement (without exhibits), and the Prospectus, as amended or supplemented.
 
(d)  Neither the Prospectus nor any amendments or supplements thereto, at the
time the Prospectus or any such amendment or supplement was issued, as of the
date hereof contains, or will contain, as the case may be, included or will
include an untrue statement of a material fact or omitted or will omit to state
a material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
 
(e)  Each Incorporated Document, at the time it was or hereafter is filed with
the Commission, conformed and will conform when filed in all material respects
with the requirements of the Exchange Act and the rules and regulations
promulgated thereunder, and was or will be filed on a timely basis with the
Commission; no Incorporated Document when it was filed (or, if an amendment with
respect to any Incorporated Document was filed, when such amendment was filed),
contained an 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 not misleading; and no Incorporated Document, when it is filed, will
contain an untrue statement of a material fact or will omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading. There is no material document of a character required to
be described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement which was not described or filed as
required. All material agreements of the Company and all agreements governing or
evidencing any and all related party transactions have been filed with the
Commission in accordance with the Exchange Act.
 
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(f)  The financial statements of the Company, together with the related notes,
included or incorporated by reference in the Registration Statement and the
Prospectus comply in all material respects with the requirements of the
Securities Act and the Exchange Act and fairly present the financial condition
of the Company as of the dates indicated and the results of operations and
changes in cash flows for the periods covered thereby and the supporting
schedules included in the Registration Statement present fairly the information
required to be stated therein. The assumptions used in preparing the pro forma
financial statements, if any, provide a reasonable basis for presenting the
significant effects attributable to the transactions or events described
therein, any related pro forma adjustments comply with Regulation G and give
appropriate effect to the assumptions, and the pro forma columns and
reconciliations therein reflect the proper application of adjustments to the
corresponding historical financial statements. Such financial statements and
supporting schedules, if any, have been prepared in conformity with generally
accepted accounting principles as applied in the United States (“GAAP”), as
applicable, applied on a consistent basis throughout the periods involved,
except as may be expressly stated in the related notes thereto and comply in all
material respects with the Securities Act, the Exchange Act and the applicable
rules and regulations of the Commission thereunder. No other financial
statements or schedules are required to be included in the Registration
Statement or the Prospectus. To the Company’s knowledge, Padgett, Stratemann &
Co., L.L.P. was (at all relevant times), and SingerLewak LLP is, an independent
public accounting firm with respect to the Company within the meaning of the
Securities Act.
 
(g)  The Company had a reasonable basis for, and made in good faith, each
“forward-looking statement” (within the meaning of Section 27A of the Securities
Act or Section 21E of the Exchange Act) contained or incorporated by reference
in the Registration Statement or the Prospectus.
 
(h)  All statistical or market-related data included or incorporated by
reference in the Registration Statement or the Prospectus are based on or
derived from sources that the Company reasonably believes to be reliable and
accurate, and the Company has obtained the written consent of such sources to
the use of such data, to the extent required.
 
(i)  Except for (i) the notification from The Nasdaq Capital Market (“NASDAQ”),
received on April 7, 2015, that the Company no longer complies with NASDAQ
Listing Rule 5550(b), (ii) the notification from NASDAQ received on October 6,
2015, that the Company had failed to regain compliance with NASDAQ Listing Rule
5550(b) and was therefore subject to delisting, in response to which the Company
has submitted a request for hearing on the delisting notice before the NASDAQ
Listing Qualifications Panel, (iii) the notification from NASDAQ, received on
August 31, 2015, that the Company no longer complies with NASDAQ Listing Rule
5550(a)(2) and must regain compliance by February 27, 2016 (subject to the
possibility of an additional compliance period of 180 days), and (iv) the
notification from NASDAQ, received on September 11, 2015, that the Company no
longer complies with NASDAQ Listing Rules 5605(b)(1) and (c)(2) and must submit
to NASDAQ a plan to regain compliance with such rules, there is no action
pending to delist the shares of Common Stock from NASDAQ, and the Company has
taken no action designed to, or likely to have the effect of terminating the
registration of the Common Stock under the Exchange Act or suspending the Common
Stock from trading on NASDAQ, nor has the Company received any notification that
NASDAQ is currently contemplating terminating such listing. When issued, the
Shares will be listed on NASDAQ.
 
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(j)  The Securities, including the Warrants and Warrant Shares, have been
qualified for sale under the securities laws of such jurisdictions (United
States and foreign) as the Company determines to be applicable to sales of the
Securities, or are or will be exempt from the qualification and broker-dealer
requirements of such jurisdictions. The Company will make such applications,
file such documents, and furnish such information as may be reasonably required
for that purpose, provided the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any
jurisdiction where it is not now so qualified or required to file such a
consent, and provided further that the Company shall not be required to produce
any new disclosure document other than a Prospectus Supplement.
 
(k)  The Company has not taken, directly or indirectly, any action that is
designed to or that has constituted or that would reasonably be expected to
cause or result in the stabilization or manipulation of the price of any
security of the Company, including the Common Stock, to facilitate the sale or
resale of the Securities.
 
(l)  The Company is not an “ineligible issuer,” as defined in Rule 405 under the
Securities Act. The Company has not, directly or indirectly, distributed and
will not distribute any prospectus or other offering material in connection with
the Offering other than the Prospectus and other materials, if any, permitted
under the Securities Act to be distributed. Each Issuer Free Writing Prospectus
relating to the Shares that (i) was required to be filed with the Commission by
the Company or (ii) is exempt from filing pursuant to Rule 433(d)(5)(i), in each
case in the form filed or required to be filed with the Commission or, if not
required to be filed, in the form retained in the Company’s records pursuant to
Rule 433(g), as of its issue date did not, does not and will not include any
information that conflicted, conflicts or will conflict with the information
contained in the Registration Statement or the Prospectus, including any
incorporated document deemed to be a part thereof that has not been superseded
or modified. The Company has satisfied or will satisfy the conditions in Rule
433 so as not to be required to file with the Commission any electronic road
show.
 
(m)  The Company is not and, after giving effect to the Offering, will not be an
“investment company,” as such term is defined in the Investment Company Act of
1940, as amended.
 
(n)  The Company was at the time of filing of the Registration Statement and at
the date hereof remains eligible to use Form S-3 under the Securities Act for
the primary offering of the Shares contemplated by this Agreement. The issuance
and sale of the Shares pursuant to the Registration Statement as contemplated by
this Agreement complies with the requirements of Form S-3 and General
Instruction I.B.6 thereunder.
 
(o)  There are no transfer taxes or other similar fees or charges under United
States law or the laws of any state or any political subdivision thereof,
required to be paid in connection with the execution and delivery of this
Agreement or the issuance and sale by the Company of the Securities.
 
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(p)  The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation. The Company has the corporate power and authority to own its
properties and conduct its business as currently being carried on and as
described in the Registration Statement and the Prospectus, and is duly
qualified to do business as a foreign corporation in good standing in each
jurisdiction (other than its jurisdiction of incorporation) in which it owns or
leases real property or in which the conduct of its business makes such
qualification necessary and in which the failure to so qualify would have or is
reasonably likely to result in a material adverse effect upon the business,
prospects, properties, operations, condition (financial or otherwise) or results
of operations of the Company or in its ability to perform its obligations under
this Agreement (“Material Adverse Effect”).
 
(q)  The Company (i) has no subsidiaries and does not own any securities issued
by any other business organization or governmental authority, and (ii) does not
directly or indirectly, control any capital stock or other ownership interest in
or have any direct or indirect interest in or control over any corporation,
partnership, business trust, limited liability company, limited liability
partnership, joint stock company, trust, unincorporated association, joint
venture or other entity of any kind.
 
(r)  The Company has the power and authority to enter into this Agreement. This
Agreement has been duly authorized, executed and delivered by the Company, and
constitutes a valid, legal and binding obligation of the Company, enforceable in
accordance with its terms, except as rights to indemnity hereunder may be
limited by federal or state securities laws and except as such enforceability
may be limited by bankruptcy, insolvency, reorganization or similar laws
affecting the rights of creditors generally and subject to general principles of
equity.
 
(s)  The execution, delivery and performance of this Agreement and the
consummation of the transactions herein contemplated will not (A) result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, any law, rule or regulation to which the Company is subject, or
by which any property or asset of the Company is bound or affected, including
without limitation the federal securities laws with respect to any further
securities issued or issuable under the terms of existing warrants as a result
of the sales of the Securities, (B) conflict with, result in any violation or
breach of, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation (with or without notice,
lapse of time or both) of, any agreement, lease, credit facility, debt, note,
bond, mortgage, indenture or other instrument (the “Contracts”) or obligation or
other understanding to which the Company is a party or by which any property or
asset of the Company is bound or affected, or (C) result in a breach or
violation of any of the terms and provisions of, or constitute a default under,
the Company’s charter or bylaws.
 
(t)  All consents, approvals, orders, authorizations and filings required on the
part of the Company in connection with the execution, delivery or performance of
this Agreement have been obtained or made, other than such consents, approvals,
orders and authorizations the failure of which to make or obtain is not
reasonably likely to result in a Material Adverse Effect. Except as disclosed in
the Prospectus, there are no holders of securities of the Company having rights
of first refusal or preemptive rights to purchase Common Stock or registration
rights requiring the Company to register under the Securities Act any shares of
Common Stock or shares of any other capital stock or other securities of the
Company, or to include any such shares or other securities in the Registration
Statement or the offering contemplated thereby, whether as a result of the
filing or effectiveness of the Registration Statement or the sale of the Shares
as contemplated thereby or otherwise, and the Company has complied with or
obtained waiver of the notice requirements of the disclosed rights of first
refusal, preemptive rights and/or registration rights, if any.
 
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(u)  All of the issued and outstanding shares of capital stock of the Company
are duly authorized and validly issued, fully paid and nonassessable, and
conform to the description thereof in the Registration Statement and the
Prospectus. None of the outstanding shares of capital stock of the Company was
issued in violation of any preemptive rights, rights of first refusal or other
similar rights to subscribe for or purchase securities. The authorized capital
stock of the Company, as of November 16, 2015, consists of (i) 20,000,000 shares
of Common Stock, no par value, of which 15,725,356 shares are issued and
outstanding, 290,000 shares are issuable upon the exercise of outstanding
options and 500,000 shares are issuable upon the exercise of outstanding
warrants; (ii) 10,000,000 shares of Preferred Stock, no par value, of which
147,500 have been designated Series AA Preferred Stock, of which 46,662 shares
of Series AA Preferred Stock are issued and outstanding. Since November 16,
2015, the Company has not issued any securities or granted any rights to acquire
securities. There are no authorized or outstanding options, warrants, preemptive
rights, rights of first refusal or other rights to purchase, or equity or debt
securities convertible into or exchangeable or exercisable for, any capital
stock of the Company other than those described in the Prospectus. The
description of the Company’s equity incentive plans or arrangements, and the
options, warrants or other rights granted thereunder, set forth in the
Prospectus accurately and fairly presents the information required by the
Securities Act to be shown with respect to such plans, arrangements, options and
rights.
 
(v)  The Securities, when issued, will be duly authorized and validly issued,
fully paid and nonassessable, issued in compliance with all applicable
securities laws, and free of preemptive, registration or similar rights.
 
(w)  The Company has filed all foreign, federal, state and local returns (as
hereinafter defined) required to be filed with taxing authorities prior to the
date hereof or has duly obtained extensions of time for the filing thereof. The
Company has paid all taxes (as hereinafter defined) shown as due on such returns
that were filed and has paid all taxes imposed on or assessed against the
Company. The provisions for taxes payable, if any, shown on the financial
statements filed with or as part of the Registration Statement are sufficient
for all accrued and unpaid taxes, whether or not disputed, and for all periods
to and including the dates of such financial statements. Except as disclosed in
writing to the Purchaser, (i) no issues have been raised (and are currently
pending) by any taxing authority in connection with any of the returns or taxes
asserted as due from the Company, and (ii) no waivers of statutes of limitation
with respect to the returns or collection of taxes have been given by or
requested from the Company. The term “taxes” means all federal, state, local,
foreign, and other net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs, duties or other taxes, fees, assessments,
or charges of any kind whatever, together with any interest and any penalties,
additions to tax, or additional amounts with respect thereto. The term “returns”
means all returns, declarations, reports, statements, and other documents
required to be filed in respect to taxes.
 
(x)  Subsequent to the date as of which information is given in the base
prospectus included in the Registration Statement, except (i) as may be
disclosed in any subsequent reports pursuant to the Exchange Act and (ii) as
disclosed in subsequent reports pursuant to the Exchange Act incorporated by
reference therein and in the Prospectus Supplement, (a) the Company has not
incurred any material liabilities or obligations, direct or contingent, required
to be reflected on a balance sheet in accordance with GAAP, or entered into any
material transactions other than in the ordinary course of business, (b) the
Company has not declared or paid any dividends or made any distribution of any
kind with respect to its capital stock; (c) there has not been any change in the
capital stock of the Company, (d) there has not been any material change in the
Company’s long-term or short-term debt, on a basis in accordance with GAAP, and
(e) there has not been the occurrence of any Material Adverse Effect.
 
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(y)  Except as disclosed in the Registration Statement, there is no pending or,
to the knowledge of the Company, threatened, action, suit or proceeding to which
the Company is a party or of which any property or assets of the Company is the
subject before or by any court or governmental agency, authority or body, or any
arbitrator or mediator, which is reasonably likely to result, individually or in
the aggregate, in a Material Adverse Effect.
 
(z)  The Company holds, and is in compliance with, all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates and orders
(“Permits”) of any governmental or self regulatory agency, authority or body
required for the conduct of its business, and all such Permits are in full force
and effect, in each case except where the failure to hold, or comply with, any
of them is not reasonably likely to result in a Material Adverse Effect. The
Company has not received any notice of proceedings relating to the revocation,
modification, suspension or non-renewal of any such Permit. No approval,
authorization, consent or order of or filing with any national, state or local
governmental or regulatory commission, board, body, authority or agency is
required in connection with the issuance and sale of the Securities or the
consummation by the Company of the transactions contemplated hereby (including,
without limitation, NASDAQ, or approval of the stockholders of the Company
(including as may be required by NASDAQ)), other than (i) registration of the
Shares under the Securities Act, (ii) any necessary qualification under the
securities or blue sky laws of the various jurisdictions in which the Securities
are being offered, (iii) filing of any reports under the Exchange Act, (iv) such
approvals as may be required by the Conduct Rules of the Financial Industry
Regulatory Authority, Inc. (“FINRA”), or (v) approval of the listing of the
shares by NASDAQ.
 
(aa)  The Company owns or possesses or has valid right to use all patents,
patent applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights, licenses, inventions,
trade secrets and similar rights (“Intellectual Property”) necessary for the
conduct of the business of the Company as currently carried on and as described
in the Registration Statement and the Prospectus. To the knowledge of the
Company, no action or use by the Company will involve or give rise to any
infringement of, or license or similar fees for, any Intellectual Property of
others, except where such action, use, license or fee is not reasonably likely
to result in a Material Adverse Effect. The Company has not received any notice
alleging any such infringement or fee.
 
(bb)  The Company has complied with, is not in violation of, and has not
received any notice of violation relating to, any law, rule or regulation
relating to the conduct of its business, or the ownership or operation of its
property and assets, including, without limitation, (A) the Currency and Foreign
Transactions Reporting Act of 1970, as amended, or any money laundering laws,
rules or regulations, (B) the Sarbanes-Oxley Act of 2002 and the rules and
regulations of the Commission thereunder, (C) the Foreign Corrupt Practices Act
of 1977 and the rules and regulations thereunder (the “FCPA”), and (D) the
Employment Retirement Income Security Act of 1974 and the rules and regulations
thereunder, in each case except where the failure to be in compliance is not
reasonably likely to result in a Material Adverse Effect.
 
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(cc)  Neither the Company nor, to the knowledge of the Company, any director,
officer, employee, representative, agent or Affiliate of the Company is
currently subject to any U.S. sanctions administered by the Office of Foreign
Assets Control of the U.S. Treasury Department (“OFAC”); and the Company will
not directly or indirectly use the proceeds of the sale of the Securities, or
lend, contribute or otherwise make available such proceeds to any Person or
entity, for the purpose of financing the activities of any Person currently
subject to any U.S. sanctions administered by OFAC.
 
(dd)  The Company carries, or is covered by, insurance in such amounts and
covering such risks as is adequate for the conduct of its business and the value
of its properties and as is customary for companies engaged in similar
businesses in similar industries.
 
(ee)  No labor dispute with the employees of the Company exists or, to the
knowledge of the Company, is imminent that is reasonably likely to result in a
Material Adverse Effect.
 
(ff)  The Company is not in violation, breach or default under its Articles of
Incorporation as presently in effect, its Bylaws as presently in effect or other
equivalent organizational or governing documents.
 
(gg)  Neither the Company nor, to its knowledge, any other party is in
violation, breach or default of any Contract that is reasonably likely to result
in a Material Adverse Effect or that is required to be disclosed in accordance
with the Exchange Act but is not so disclosed.
 
(hh)  The Company has not made any direct or indirect payments (in cash,
securities or otherwise) to (i) any Person, as a finder’s fee, investing fee or
otherwise, in consideration of such Person raising capital for the Company or
introducing to the Company Persons who provided capital to the Company, (ii) any
FINRA member, or (iii) any Person or entity that has any direct or indirect
affiliation or association with any FINRA member within the 12-month period
prior to the date on which the Registration Statement was filed with the
Commission (“Filing Date”) or thereafter.
 
(ii)  To the Company’s knowledge, no (i) officer or director of the Company,
(ii) owner of 5% or more of the Company’s unregistered securities or (iii) owner
of any amount of the Company’s unregistered securities acquired within the
180-day period prior to the Filing Date, has any direct or indirect affiliation
or association with any FINRA member.
 
(jj)  The Company (i) is not required to register as a “broker” or “dealer” in
accordance with the provisions of the Exchange Act or (ii) does not directly or
indirectly through one or more intermediaries, control or is a “person
associated with a FINRA member” or “associated person of a FINRA member” (within
the meaning of Article I of the Bylaws of FINRA).
 
(kk)  No transaction has occurred between or among the Company and any of its
officers or directors, stockholders or any Affiliate or Affiliates of any such
officer or director or stockholder that is required to be and is not described
in the Registration Statement and the Prospectus.
 
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(ll)  The Company has established and maintains disclosure controls and
procedures (as defined in Rules 13a-14 and 15d-14 under the Exchange Act) and
such controls and procedures are effective in ensuring that material information
relating to the Company is made known to the principal executive officers and
the principal financial officer. The Company has utilized such controls and
procedures in preparing and evaluating the disclosures included or incorporated
by reference in the Registration Statement and Prospectus.
 
(mm)  The Company 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 generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management’s general or specific authorization; and (iv) amounts
reflected on the Company’s balance sheet for assets are compared with existing
assets at reasonable intervals and appropriate action is taken with respect to
any differences.
 
(nn)  The Company has not ever been a U.S. real property holding corporation
within the meaning of Section 897 of the Internal Revenue Code of 1986, as
amended.
 
(oo)  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 the Registration Statement or the Prospectus
and is not so disclosed or that otherwise could be reasonably likely to have a
Material Adverse Effect.
 
(pp)  Neither the Company, nor any of its Affiliates, nor any Person or entity
acting on their behalf has, directly or indirectly, made any offers or sales of
any security or solicited any offers to buy any security, under circumstances
that would cause the transactions contemplated by this Agreement to require
approval of stockholders of the Company under any applicable stockholder
approval provisions, including, without limitation, under the rules and
regulations of NASDAQ. Neither the Company nor any of its Affiliates nor any
Person or entity acting on their behalf will take any action or steps that would
cause the offering of any of the Securities to be integrated with other
offerings of securities of the Company.
 
(qq)  The Company and its Board of Directors have taken all necessary action, if
any, in order to render inapplicable any control share acquisition, interested
stockholder, business combination, poison pill (including, without limitation,
any distribution under a rights agreement) or other similar anti-takeover
provision under the Company’s Articles of Incorporation as presently in effect,
Bylaws as presently in effect or other organizational documents or the laws of
the jurisdiction of its incorporation or otherwise which is or could become
applicable as a result of the transactions contemplated by this Agreement. The
Company and its Board of Directors have taken all necessary action, if any, in
order to render inapplicable any stockholder rights plan or similar arrangement
relating to accumulations of beneficial ownership of shares of Common Stock or a
change in control of the Company.
 
The Purchaser acknowledges and agrees that the Company does not make and has not
made any representations or warranties with respect to the transactions
contemplated hereby other than the Registration Statement, the Prospectus, and
those representations and warranties specifically set forth in this Agreement.
 
3.2 Representations and Warranties of the Purchaser.  The Purchaser hereby
represents and warrants to the Company as follows:
 
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(a)  The Purchaser is either an individual or an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with full right, corporate, partnership or limited liability
company power and authority to enter into and to consummate the transactions
contemplated by this Agreement and otherwise to carry out its obligations
hereunder. The execution and delivery of this Agreement and performance by the
Purchaser of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate, partnership, limited liability company or
similar action, as applicable, on the part of the Purchaser. This Agreement has
been duly executed by the Purchaser, and when delivered by the Purchaser in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of the Purchaser, enforceable against it in accordance with its
terms, except: (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
 
(b)  The execution, delivery and performance by the Purchaser of the Agreement
and the consummation by it of the transactions contemplated hereby do not and
will not (i) conflict with or violate any provision of the Purchaser’s
certificate of incorporation, bylaws or other organizational or charter
documents, or (ii) conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Purchaser is subject (including
federal and state securities laws and regulations), or by which any property or
asset of the Purchaser is bound or affected.
 
(c)  The Purchaser is acquiring the Securities as principal for its own account
and not with a view to or for distributing or reselling such Securities or any
part thereof in violation of the Securities Act or any applicable state
securities law, has no present intention of distributing any of such Securities
in violation of the Securities Act or any applicable state securities law and
has no direct or indirect arrangement or understandings with any other Persons
to distribute or regarding the distribution of such Securities in violation of
the Securities Act or any applicable state securities law (this representation
and warranty not limiting the Purchaser’s right to sell the Securities or any
part thereof in compliance with applicable federal and state securities laws).
The Purchaser is acquiring the Securities hereunder in the ordinary course of
its business.
 
(d)  Other than consummating the transactions contemplated hereunder, the
Purchaser has not, nor has any Person acting on behalf of or pursuant to any
understanding with the Purchaser, directly or indirectly executed any purchases
or sales, including Short Sales, of the securities of the Company during the
period commencing as of the time that the Purchaser first became aware of the
proposed transactions contemplated hereunder and ending immediately prior to the
execution hereof. Notwithstanding the foregoing, in the case of a Purchaser that
is a multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of the Purchaser’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of the Purchaser’s assets, the representation set forth
above shall only apply with respect to the portion of assets managed by the
portfolio manager that made the investment decision to purchase the Securities
covered by this Agreement. Other than to other Persons party to this Agreement
and its Affiliates and their respective investment advisors, agents, counsel and
other advisors, the Purchaser has maintained the confidentiality of all
disclosures made to it in connection with this transaction (including the
existence and terms of this transaction). Notwithstanding the foregoing, for
avoidance of doubt, nothing contained herein shall constitute a representation
or warranty, or preclude any actions, with respect to the identification of the
availability of, or securing of, available shares to borrow in order to effect
Short Sales or similar transactions in the future.
 
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(e)  At the time such Purchaser was offered the Securities, it was, and as of
the date hereof it is, and on each date on which it exercises any Warrants, it
will be either: (i) an “accredited investor” as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified
institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such
Purchaser is not required to be registered as a broker-dealer under Section 15
of the Exchange Act. Such Purchaser, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities and has so evaluated the merits and
risks of such investment. Such Purchaser is able to bear the economic risk of an
investment in the Securities and, at the present time, is able to afford a
complete loss of such investment.
 
(f)  Purchaser is not purchasing the Securities as a result of any
advertisement, article, notice or other communication regarding the Securities
published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar or any other general
solicitation or general advertisement.
 
(g)  As of the Closing Date, such Purchaser will not beneficially own more than
9.99% of the number of shares of the Common Stock outstanding immediately
following the issuance of the Shares on the Closing Date, assuming for such
purposes that the number of shares of Common Stock outstanding immediately
following the issuance of the Shares on the Closing Date will be 15,725,356.
Such Purchaser understands that the Warrants and Warrant Shares are “restricted
securities” and have not been registered under the Securities Act or any
applicable state securities law (this representation and warranty not limiting
Purchaser’s right to sell the Securities pursuant to a registration statement or
otherwise in compliance with applicable federal and state securities laws).
 
The Company acknowledges and agrees that the Purchaser does not make or has not
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 3.2.
 
ARTICLE IV.
 
OTHER AGREEMENTS OF THE PARTIES
 
4.1 Securities Laws Disclosure; Publicity.
 
(a)  The Company shall, by 9:00 a.m. (New York City time) on the Trading Day
immediately following the date hereof, issue a press release disclosing the
material terms of the transactions contemplated hereby. The Company shall, by
9:00 a.m. (New York City time) on the second Trading Day immediately following
the date hereof, file a Current Report on Form 8-K disclosing the material terms
of the transactions contemplated hereby and including the form of this Agreement
as an exhibit thereto. From and after the issuance of such press release and
Form 8-K, the Company shall have publicly disclosed all material, non-public
information delivered to the Purchaser by the Company or any of its
subsidiaries, or any of their respective officers, directors, employees or
agents in connection with the transactions contemplated by this Agreement. The
Company and the Purchaser shall consult with each other in issuing any other
press releases with respect to the transactions contemplated hereby, and neither
the Company nor the Purchaser shall issue any such press release nor otherwise
make any such public statement without the prior consent of the Company, with
respect to any press release of the Purchaser, or without the prior consent of
the Purchaser, with respect to any press release of the Company, which consent
shall not unreasonably be withheld or delayed, except if such disclosure is
required by law, in which case the disclosing party shall promptly provide the
other party with prior notice of such public statement or communication.
 
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(b)   The Company shall not identify the Purchaser by name in any press release
or public filing, or otherwise publicly disclose the Purchaser’s name, without
the Purchaser’s prior written consent, unless required by law or the rules and
regulations of an applicable securities exchange, provided, however, that
promptly after becoming aware of any request or requirement to so disclose (a
“Disclosure Requirement”), and in any event prior to any such disclosure, the
Company will provide the Purchaser with notice of such request or requirement so
that the Purchaser may at its election seek a protective order or other
appropriate remedy and the Company will fully cooperate with the Purchaser’s
efforts to obtain the same; provided, further, however, if, absent the entry of
such a protective order or other remedy, the Company is compelled by applicable
law, rule or regulation or a court order, subpoena, similar judicial process,
regulatory agency or stock exchange rule to disclose the Purchaser’s name, the
Company may disclose only that portion of such information that the Company is
so compelled to disclose and will use its reasonable best efforts to obtain
assurance that confidential treatment will be accorded to that portion of such
information that is being disclosed. As of the date hereof, the Company is not
aware of any Disclosure Requirement.
 
4.2 Non-Public Information.  Except with respect to the material terms and
conditions of the transactions contemplated by this Agreement which will
subsequently become public information in accordance with Section 4.1, the
Company covenants and agrees that neither it, nor any other Person acting on its
behalf, will provide the Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto the Purchaser shall have executed a written agreement with the
Company regarding the confidentiality and use of such information. The Company
understands and confirms that the Purchaser shall be relying on the foregoing
covenant in effecting transactions in securities of the Company.
 
4.3  Indemnification of Purchaser.  Subject to the provisions of this Section
4.4 and to the extent permitted by law, the Company will indemnify and hold the
Purchaser, its Affiliates, and their respective directors, managers, officers,
shareholders, members, partners, employees and agents (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls the Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, managers, officers,
shareholders, agents, members, partners, employees and agents (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title) of such controlling
Persons (each, a “Purchaser Party”) harmless from any and all losses,
liabilities, obligations, contingencies, damages, costs and expenses, including
all judgments, amounts paid in settlements, court costs and reasonable
attorneys’ fees and costs of investigation (“Damages”) that any Purchaser Party
may suffer or incur due to a claim by a third party as a result of or relating
to (a) any breach of any of the representations, warranties, covenants or
agreements made by the Company in this Agreement or (b) any action instituted
against a Purchaser in any capacity, or any of them or their respective
Affiliates, by any shareholder of the Company who is not an Affiliate of the
Purchaser, with respect to any of the transactions contemplated by this
Agreement (except to the extent such Damages are based upon a breach of the
Purchaser’s representations, warranties or covenants under this Agreement or any
agreements or understandings the Purchaser may have with any such shareholder or
any violations by the Purchaser of state or federal securities laws or any
conduct by the Purchaser which constitutes fraud, gross negligence, willful
misconduct or malfeasance). If any action shall be brought against the Purchaser
Party in respect of which indemnity may be sought pursuant to this Agreement,
the Purchaser Party shall promptly notify the Company in writing, and the
Company shall have the right to assume the defense thereof with counsel of its
own choosing reasonably acceptable to the Purchaser Party. The Purchaser Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Purchaser Party except to the extent that (i) the
employment thereof has been specifically authorized by the Company in writing,
(ii) the Company has failed after a reasonable period of time to assume such
defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of counsel, a material conflict on any material issue between
the position of the Company and the position of the Purchaser Party, in which
case the Company shall be responsible for the reasonable fees and expenses of no
more than one such separate counsel (together with any necessary local counsel).
The Company will not be liable to the Purchaser Party under this Agreement (y)
for any settlement by a Purchaser Party effected without the Company’s prior
written consent, which shall not be unreasonably withheld or delayed; or (z) to
the extent, but only to the extent that a loss, claim, damage or liability is
attributable to the Purchaser Party’s breach of any of the representations,
warranties, covenants or agreements made by the Purchaser Party in this
Agreement. The Company will not settle any such claim, action or proceeding
without the prior written consent of the Purchaser Party, which will not be
unreasonably withheld or delayed; provided, however, that such consent shall not
be required if the settlement includes a full and unconditional release
satisfactory to the Purchaser Party from all liability arising or that may arise
out of such claim or proceeding and does not include a statement as to or an
admission of fault, culpability or a failure to act by or on behalf of the
Purchaser Party.
 
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4.4 Reservation of Common Stock.  As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of any Liens, a sufficient number of shares of Common Stock for the
purpose of enabling the Company to issue shares of Common Stock issued (i)
pursuant to this Agreement and (ii) upon the exercise of the Warrants issued
pursuant to this Agreement.
 
4.5 Listing of Common Stock.  The Company hereby agrees to use commercially
reasonable efforts to maintain the listing of the Common Stock on the principal
Trading Market, and as soon as reasonably practicable (but not later than the
Closing Date) to list all of the shares of Common Stock issued or issuable as
part of the Securities, except the Warrant Shares, on the principal Trading
Market. The Company further agrees, if the Company applies to have the Common
Stock traded on any other securities exchange, it will include in such
application all of such shares of Common Stock, and will take such other action
as is necessary to cause all of such shares of Common Stock to be listed on such
other securities exchange as promptly as possible. The Company will take all
action reasonably necessary to continue the listing and trading of its Common
Stock on such securities exchange and will comply in all respects with the
Company’s reporting, filing and other obligations under the bylaws or rules of
such securities exchange.
 
4.6 Equal Treatment of Purchaser.  The sale and purchase of the Securities under
this Agreement is, and shall be, on the same terms and conditions offered all
other purchasers of the Securities in the Offering. If the Company offers better
terms to any other purchaser of Securities in the Offering than are being
offered to the Purchaser under this Agreement, including, without limitation, by
amendment or modification to this Agreement or otherwise, then the Company shall
afford Purchaser offer to sell the Securities to the Purchaser on the same
terms.
 
4.7 Certain Transactions and Confidentiality. The Purchaser covenants that
neither it nor any Affiliate acting on its behalf or pursuant to any
understanding with it will execute any purchases or sales, including Short
Sales, of any of the Company’s securities during the period commencing with the
execution of this Agreement and ending at such time that the transactions
contemplated by this Agreement are first publicly announced pursuant to the
initial press release as described in Section 4.1. The Purchaser covenants that
until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company pursuant to the initial press release as described in
Section 4.1, the Purchaser will maintain the confidentiality of the existence
and terms of this transaction. Notwithstanding the foregoing and notwithstanding
anything contained in this Agreement to the contrary, the Company expressly
acknowledges and agrees that (i) no Purchaser makes any representation, warranty
or covenant hereby that it will not engage in effecting transactions in any
securities of the Company after the time that the transactions contemplated by
this Agreement are first publicly announced pursuant to the initial press
release as described in Section 4.1, (ii) no Purchaser shall be restricted or
prohibited from effecting any transactions in any securities of the Company in
accordance with applicable securities laws from and after the time that the
transactions contemplated by this Agreement are first publicly announced
pursuant to the initial press release as described in Section 4.1 and (iii) no
Purchaser shall have any duty of confidentiality to the Company or its
subsidiaries after the issuance of the initial press release as described in
Section 4.1. Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of the Purchaser’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of the Purchaser’s assets, the covenants and agreements
set forth in the first two sentences of this Section 4.8 shall only apply with
respect to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.
 
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4.8   Form D; Blue Sky Filings.  The Company agrees to timely file a Form D with
respect to the Warrant and Warrant Shares as required under Regulation D and to
provide a copy thereof, promptly upon request of any Purchaser. The Company
shall 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 the
Purchasers at the Closing under applicable securities or “Blue Sky” laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of any Purchaser.
 
4.9   Acknowledgment of Dilution.  The Company acknowledges that the issuance of
the Securities may result in dilution of the outstanding shares of Common Stock,
which dilution may be substantial under certain market conditions. The Company
further acknowledges that its obligations under this Agreement, including,
without limitation, its obligation to issue the Shares and Warrant Shares, are
unconditional and absolute and not subject to any right of set off,
counterclaim, delay or reduction, regardless of the effect of any such dilution
or any claim the Company may have against any Purchaser and regardless of the
dilutive effect that such issuance may have on the ownership of the other
stockholders of the Company.
 
4.10   Shareholder Rights Plan.  No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that any
Purchaser is an “Acquiring Person” under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar anti-takeover plan or arrangement in effect or hereafter adopted by
the Company, or that any Purchaser could be deemed to trigger the provisions of
any such plan or arrangement, by virtue of receiving Securities under this
Agreement or under any other agreement between the Company and the Purchaser.
 
ARTICLE V.
 
MISCELLANEOUS
 
5.1 Termination.  This Agreement may be terminated by the Purchaser by written
notice to the Company, if the Closing has not been consummated on or before
November 30, 2015, in which case this Agreement shall be of no further force and
effect; provided, however, that no such termination will affect the right of any
party to sue for any breach by the other party (or parties).
 
5.2 Fees and Expenses.  Except as expressly set forth in this Agreement to the
contrary, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement.
 
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5.3 Entire Agreement.  This Agreement, together with the exhibits and schedules
hereto, the Registration Statement and the Prospectus, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules.
 
5.4 Notices.  Any and all notices or other communications or deliveries required
or permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest of: (a) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto prior to 5:30 p.m. (New York City
time) on a Trading Day, (b) the next Trading Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
number set forth on the signature pages attached hereto on a day that is not a
Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c)
the next Trading Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service or (d) upon actual receipt by the party to
whom such notice is required to be given. The address for such notices and
communications shall be as set forth on the signature pages attached hereto.
 
5.5 Amendments; Waivers.  No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and the Purchaser or, in the case of a
waiver, by the party against whom enforcement of any such waived provision is
sought. No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such
right.
 
5.6 Headings.  The headings herein are for convenience only, do not constitute a
part of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof.
 
5.7 Successors and Assigns.  This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchaser (other than by merger,
consolidation or sale of all or substantially all of the Company’s assets). The
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom the Purchaser assigns or transfers any Securities, provided that such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of this Agreement that apply to the “Purchaser.”
 
5.8 No Third-Party Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and the
Purchaser Parties (with respect to Section 4.4) and is not for the benefit of,
nor may any provision hereof be enforced by, any other Person.
 
5.9 Governing Law.  All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
California, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement
(whether brought against a party hereto or its respective Affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively in
the state and federal courts sitting in the City and County of San Diego. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City and County of San Diego 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 improper or is an inconvenient venue for such proceeding. 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 via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for 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 other manner permitted by
law. If either party shall commence an action or proceeding to enforce any
provisions of this Agreement, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its reasonable attorneys’
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.
 
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5.10   Execution.  This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature 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.
 
5.11   Severability.  If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
 
5.12 Replacement of Certificates.  If any certificate evidencing the shares of
Common Stock issued or issuable hereunder is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation thereof (in the case of mutilation), or
in lieu of and substitution therefor, a new certificate, but only upon receipt
of evidence reasonably satisfactory to the Company of such loss, theft or
destruction and customary and reasonable indemnity or security, if
requested.  The applicant for a new certificate under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement certificates.
 
5.13  Remedies.  In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of the Purchaser
and the Company will be entitled to specific performance under this Agreement.
The parties agree that monetary damages may not be adequate compensation for any
loss incurred by reason of any breach of obligations contained in this Agreement
and hereby agree to waive and not to assert in any action for specific
performance of any such obligation the defense that a remedy at law would be
adequate.
 
5.14  Construction.  The parties agree that each of them and/or their respective
counsel has reviewed and had an opportunity to revise this Agreement and,
therefore, the normal rule of construction to the effect that any ambiguities
are to be resolved against the drafting party shall not be employed in the
interpretation of this Agreement or any amendments hereto. In addition, each and
every reference to share prices and shares of Common Stock in this Agreement
shall be subject to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions of the Common Stock
that occur after the date of this Agreement.
 
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5.15  WAIVER OF JURY TRIAL.  IN ANY ACTION, SUIT, OR PROCEEDING IN ANY
JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH
KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW,
HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER
TRIAL BY JURY.
 
5.16  Survival of Representations, Warranties and Agreements. All
representations and warranties made by the Company and the Purchaser herein will
survive the execution of this Agreement, the Closing and the delivery to the
Purchaser of the Securities being purchased and the payment therefor until the
first anniversary of the Closing Date. All covenants and other agreements set
forth in this Agreement shall survive the Closing for the respective periods set
forth therein and if no such period is specified until the first anniversary of
the Closing Date. Notwithstanding anything to the contrary contained herein,
Sections 4.1, 4.4, and 5.5 shall survive for the applicable statute of
limitations.
 
[Signature Page Follows]
 

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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
 
 

ROYALE ENERGY, INC.     Address for Notice:        
3777 Willow Glen Drive
El Cajon, California 92019-4601
Attention: Donald H. Hosmer
Fax: (619) 383-6699
 

 

By:    /s/ Donald H. Hosmer               Name:        Donald H. Hosmer         
      Title:    Co-President               

 
 
With a copy to (which shall not constitute notice):
Fax: (619) 383-6699
 
Strasburger & Price LLP
720 Brazos Street, Suite 700
Austin, Texas 78701
Attention: Lee Polson
 
 

Purchaser
Amount
No. Shares
No. Warrant Shares
       
Steven Sass
$  35,000.00
85,784
42,892
Donald Taylor
6,000.00
14,705
7.353
Irene Marrs
5,000.00
12,254
6,127
Kouichi Tanaka
50,000.00
122,549
61,275
John Braver
10,000.00
24,509
12,255
Leonard Wohletz
8,000.00
19,607
9,804
George R. Kempto
50,000.00
122,549
61,275
Abe Holtzman
4,165.00
10,208
5,104
Tom Magnow
10,000.00
24,509
12,255
Bob Berece
25,000.00
61,274
30,637
Totals
$203,165.00
497,948
248,977

Purchaser Signature Page to Securities Purchase Agreement

 
 

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EXHIBIT A

Form of Warrant

Filed with the Securities Exchange Commission as Exhibit 4.1 to the Company’s
Report on Form 8-K filed November 30, 2015.

Exhibit A

 
 

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