Securities Purchase Agreement


 Exhibit 10.1 
 SECURITIES PURCHASE AGREEMENT 
 This SECURITIES PURCHASE AGREEMENT (the
“Agreement”), dated as of June 7, 2008, is by and among Royale Energy, Inc., a California corporation with headquarters located at 7676 Hazard Center Drive, Suite 1500, San Diego, California 92108
(the “Company”), and the undersigned buyers (each, a “Buyer” and collectively, the “Buyers”). 
 RECITALS 
 A. The Company and each Buyer is executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by
the United States Securities and Exchange Commission (the “SEC”) under the 1933 Act. 
 B. Each Buyer wishes to purchase,
and the Company wishes to sell, upon the terms and conditions stated in this Agreement, (i) that aggregate number of shares of the common stock, no par value, of the Company (the “Common Stock”), set forth opposite such
Buyer’s name in column (3) on the Schedule of Buyers (which aggregate amount for all Buyers together shall be 547,945 shares of Common Stock and shall collectively be referred to herein as the “Common Shares”) and
(ii) a warrant to acquire up to that number of additional shares of Common Stock set forth opposite such Buyer’s name in column (4) on the Schedule of Buyers (the “Warrants”), in the form attached hereto as
Exhibit A (as exercised, collectively, the “Warrant Shares”). 
 C. At the Closing, the parties hereto shall
execute and deliver a Registration Rights Agreement, in the form attached hereto as Exhibit B (the “Registration Rights Agreement”), pursuant to which the Company has agreed to provide certain registration rights with
respect to the Registrable Securities (as defined in the Registration Rights Agreement), under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws. 
 D. The Common Shares, the Warrants and the Warrant Shares are collectively referred to herein as the “Securities.” 
 AGREEMENT 
 NOW, THEREFORE, in
consideration of the premises and the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and each Buyer hereby agree as follows: 
  

	1.	PURCHASE AND SALE OF COMMON SHARES AND WARRANTS. 

 (a) Common Shares and Warrants. Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall issue and sell to each Buyer, 







 
and each Buyer severally, but not jointly, agrees to purchase from the Company on the Closing Date (as defined below), the number of Common Shares, as is set
forth opposite such Buyer’s name in column (3) on the Schedule of Buyers, along with the Warrants to acquire that number of Warrant Shares as is set forth opposite such Buyer’s name in column (4), on the Schedule of Buyers.

 (b) Closing. The closing (the “Closing”) of the purchase of
the Common Shares and the Warrants by the Buyers shall occur at the offices of Greenberg Traurig, LLP, 77 W. Wacker Drive, Suite 2400, Chicago, Illinois 60601. The date and time of the Closing (the “Closing Date”) shall be 10:00
a.m., New York time, on the first (1st) Business Day on which the conditions to the Closing set forth in Sections 6 and 7 below are satisfied
or waived (or such later date as is mutually agreed to by the Company and each Buyer). As used herein “Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are
authorized or required by law to remain closed. 
 (c) Purchase Price. The aggregate purchase price for the Common Shares and the
Warrants to be purchased by each Buyer (the “Purchase Price”) shall be the amount set forth opposite such Buyer’s name in column (5) on the Schedule of Buyers. Each Buyer shall pay its respective Purchase Price for its
Common Shares and related Warrants to be purchased by such Buyer at the Closing. 
 (d) Form of Payment. On the Closing Date,
(i) each Buyer shall pay its respective Purchase Price to the Company for the Common Shares and the Warrants to be issued and sold to such Buyer at the Closing, by wire transfer of immediately available funds in accordance with the
Company’s written wire instructions and (ii) the Company shall deliver to each Buyer (A) one or more stock certificates, free and clear of all restrictive and other legends (except as expressly provided in Section 5(c) hereof),
evidencing the number of Common Shares such Buyer is purchasing as is set forth opposite such Buyer’s name in column (3) of the Schedule of Buyers and (B) a Warrant pursuant to which such Buyer shall have the right to acquire such
number of Warrant Shares as is set forth opposite such Buyer’s name in column (4) of the Schedule of Buyers, in all cases duly executed on behalf of the Company and registered in the name of such Buyer or its designee. 
  

	2.	BUYER’S REPRESENTATIONS AND WARRANTIES. 

 Each
Buyer, severally and not jointly, represents and warrants to the Company with respect to only itself that: 
 (a) Organization;
Authority. Such Buyer is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite power and authority to enter into and to consummate the transactions contemplated
by the Transaction Documents (as defined below) to which it is a party and otherwise to carry out its obligations hereunder and thereunder. 
 (b) No Public Sale or Distribution. Such Buyer is (i) acquiring the Common Shares and the Warrants and (iii) upon exercise of its Warrants will acquire the Warrant Shares issuable upon exercise thereof, in each case, for
its own account and not with a view towards, or for 

  

 2 







 
resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the 1933 Act; provided,
however, that by making the representations herein, such Buyer does not agree, or make any representation or warranty, to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at
any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act. Such Buyer is acquiring the Securities hereunder in the ordinary course of its business. Such Buyer does not presently have any agreement or
understanding, directly or indirectly, with any Person to distribute any of the Securities. 
 (c) Accredited Investor Status. Such
Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D. 
 (d) Reliance on Exemptions.
Such Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the
truth and accuracy of, and such Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Buyer set forth herein in order to determine the availability of such exemptions and the
eligibility of such Buyer to acquire the Securities. 
 (e) Information. Such Buyer and its advisors, if any, have been furnished with
all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by such Buyer. Such Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company. Neither such inquiries nor any other due diligence investigations conducted by such Buyer or its advisors, if any, or its representatives shall modify, amend or affect such Buyer’s right to rely on
the Company’s representations and warranties contained herein or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or
the consummation of the transaction contemplated hereby. Such Buyer understands that its investment in the Securities involves a high degree of risk. Such Buyer has sought such accounting, legal and tax advice as it has considered necessary to make
an informed investment decision with respect to its acquisition of the Securities. 
 (f) No Governmental Review. Such Buyer
understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor
have such authorities passed upon or endorsed the merits of the offering of the Securities. 
 (g) Transfer or Resale. Such Buyer
understands that except as provided in the Registration Rights Agreement and Section 4(h) hereof: (i) the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for
sale, sold, assigned or transferred unless (A) subsequently registered thereunder, (B) such Buyer shall have delivered to the Company (if requested by the Company) an opinion of counsel to such Buyer, in a form reasonably acceptable to the
Company, to the effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption 

  

 3 







 
from such registration, or (C) such Buyer provides the Company with reasonable assurance that such Securities can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act (or a successor rule thereto) (collectively, “Rule 144”); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the
terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the Person (as defined in Section 3(s)) through whom the sale is made) may be deemed to be an underwriter (as
that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC promulgated thereunder; and (iii) neither the Company nor any other Person is under any obligation
to register the Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. 
 (h) Validity; Enforcement. This Agreement has been duly and validly authorized, executed and delivered on behalf of such Buyer and constitutes the legal, valid and binding obligations of such Buyer enforceable against such Buyer in
accordance with their respective terms, except as such enforceability may be limited by general principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors’ rights and remedies. 
 (i) No Conflicts. The execution, delivery and
performance by such Buyer of this Agreement and the Registration Rights Agreement and the consummation by such Buyer of the transactions contemplated hereby and thereby will not (i) result in a violation of the organizational documents of such
Buyer or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which such Buyer is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws) applicable to such Buyer, except in the case of clauses
(ii) and (iii) above, for such conflicts, defaults, rights or violations which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of such Buyer to perform its obligations
hereunder. 
 (j) Residency. Such Buyer is a resident of that jurisdiction specified below its address on the Schedule of Buyers.

 (k) Certain Trading Activities. Such Buyer has not directly or indirectly, nor has any Person acting on behalf of or pursuant to
any understanding with such Buyer, engaged in any transactions in the securities of the Company (including, without limitation, any Short Sales involving the Company’s securities) since the time that such Buyer was first contacted by the
Placement Agent (as defined below) regarding the investment in the Company contemplated by this Agreement through the date hereof. “Short Sales” include, without limitation, all “short sales” as defined in Rule 200
promulgated under Regulation SHO under the 1934 Act (“Regulation SHO”) and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, swaps and similar arrangements (including on a total return
basis), and sales and other transactions through non-U.S. broker dealers or foreign regulated brokers (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock). Such Buyer does not as of the date
hereof, and will not immediately following the Closing, own 

  

 4 







 
10% or more of the Company’s issued and outstanding shares of Common Stock (calculated based on the assumption that all Equivalents (as defined below)
owned by such Buyer, whether or not presently exercisable or convertible, have been fully exercised or converted (as the case may be) but taking into account any limitations on exercise or conversion (including “blockers”) contained
therein). 
 (l) General Solicitation. Such Buyer 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. 
  

	3.	REPRESENTATIONS AND WARRANTIES OF THE COMPANY. 

 The
Company represents and warrants to each of the Buyers that: 
 (a) Organization and Qualification. Each of the Company and its
“Subsidiaries” (which for purposes of this Agreement means any Person in which the Company, directly or indirectly, owns capital stock or holds an equity or similar interest) are entities duly organized and validly existing and in
good standing under the laws of the jurisdiction in which they are formed, and have the requisite power and authorization to own their properties and to carry on their business as now being conducted and as presently proposed to be conducted. Each
of the Company and its Subsidiaries is duly qualified as a foreign entity to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Agreement, “Material Adverse Effect” means any material adverse effect on
(i) the business, properties, assets, liabilities, operations (including results thereof), condition (financial or otherwise) or prospects of the Company and its Subsidiaries, individually or taken as a whole, (ii) the transactions
contemplated hereby or in the other Transaction Documents or (iii) the authority or ability of the Company to perform its obligations under the Transaction Documents (as defined below). The Company has no Subsidiaries. The Company owns various
contractual economic interests in oil and gas well drilling programs and joint working interest contractual arrangements in oil and gas well drilling programs, and none of such interests could be considered a Subsidiary hereunder. 
 (b) Authorization; Enforcement; Validity. The Company has the requisite power and authority to enter into and perform its obligations under this
Agreement and the other Transaction Documents and to issue the Securities in accordance with the terms hereof and thereof. The execution and delivery of this Agreement and the other Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Common Shares, the issuance of the Warrants and the reservation for issuance and issuance of the Warrant Shares issuable upon exercise of
the Warrants) have been duly authorized by the Company’s board of directors and (other than the filing with the SEC of one or more Registration Statements in accordance with the requirements of the Registration Rights Agreement, a Form D with
the SEC and any other filings as may be required by any state securities agencies) no further filing, consent or authorization is required by the Company, its board of directors or its stockholders or other 

  

 5 







 
governing body. This Agreement and the other Transaction Documents have been duly executed and delivered by the Company, and constitutes the legal, valid and
binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies and except as rights to indemnification and to contribution may be limited by federal or state securities
law. “Transaction Documents” means, collectively, this Agreement, the Warrants, the Registration Rights Agreement, the Irrevocable Transfer Agent Instructions (as defined in Section 5(b)) and each of the other agreements and
instruments entered into by the parties hereto in connection with the transactions contemplated hereby and thereby. 
 (c) Issuance of
Securities. The issuance of the Common Shares and the Warrants are duly authorized and upon issuance in accordance with the terms of the Transaction Documents shall be validly issued, fully paid and non-assessable and free from all taxes, liens,
charges and other encumbrances with respect to the issue thereof. As of the Closing, the Company shall have reserved from its duly authorized capital stock not less than 120% of the maximum number of shares of Common Stock issuable upon exercise of
the Warrants (without regard to any limitations on the exercise of the Warrants set forth therein). Upon exercise in accordance with the Warrants the Warrant Shares will be validly issued, fully paid and nonassessable and free from all preemptive or
similar rights, taxes, liens, charges and other encumbrances with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. Subject to the accuracy of the representations and warranties of the
Buyers in this Agreement, the offer and issuance by the Company of the Securities is exempt from registration under the 1933 Act. 
 (d)
No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the
Common Shares, the Warrants and Warrant Shares and the reservation for issuance of the Warrant Shares) will not (i) result in a violation of the Articles of Incorporation (as defined in Section 3(r)) (including, without limitation, any
certificates of designation contained therein) or other organizational documents of the Company or any of its Subsidiaries or Bylaws (as defined in Section 3(r)), (ii) conflict with, or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party, or
(iii) result in a violation of any law, rule, regulation, order, judgment or decree (including foreign, federal and state securities laws and regulations and the rules and regulations of The Nasdaq Global Market (the “Principal
Market”) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected except, in the case of clause (ii) or (iii) above, to the extent such
violations that could not reasonably be expected to have a Material Adverse Effect. 
 (e) Consents. The Company is not required to
obtain any consent, authorization or order of, or make any filing or registration (other than the filing with the SEC of one or more Registration Statements in accordance with the requirements of the Registration Rights 

  

 6 







 
Agreement, a Form D with the SEC and any other filings as may be required by any state securities agencies) with, any court, governmental agency or any
regulatory or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of its obligations under the Transaction Documents, in each case, in accordance with the terms thereof. All consents, authorizations, orders,
filings and registrations which the Company is required to obtain pursuant to the Transaction Documents at or prior to the Closing have been obtained or effected on or prior to the Closing Date, and neither the Company nor any of its Subsidiaries
are aware of any facts or circumstances which might prevent the Company from obtaining or effecting any of the registration, application or filings contemplated by the Transaction Documents. The Company is not in violation of the requirements of the
Principal Market and has no knowledge of any facts or circumstances which could reasonably lead to delisting or suspension of the Common Stock in the foreseeable future. 
 (f) Acknowledgment Regarding Buyer’s Purchase of Securities. The Company acknowledges and agrees that each Buyer is acting solely in the capacity of an arm’s length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby and thereby and that no Buyer is (i) an officer or director of the Company or any of its Subsidiaries, (ii) an “affiliate” (as defined in Rule 144) of the Company or
any of its Subsidiaries or (iii) to its knowledge, a “beneficial owner” of more than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “1934
Act”)). The Company further acknowledges that no Buyer is acting as a financial advisor or fiduciary of the Company or any of its Subsidiaries (or in any similar capacity) with respect to the Transaction Documents and the transactions
contemplated hereby and thereby, and any advice given by a Buyer or any of its representatives or agents in connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to such Buyer’s
purchase of the Securities. The Company further represents to each Buyer that the Company’s decision to enter into the Transaction Documents has been based solely on the independent evaluation by the Company and its representatives. 

(g) No General Solicitation; Placement Agent’s Fees. Neither the Company, nor any of its Subsidiaries or affiliates, nor any Person acting
on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Securities. The Company shall be responsible for the payment of any
placement agent’s fees, financial advisory fees, or brokers’ commissions (other than for persons engaged by any Buyer or its investment advisor) relating to or arising out of the transactions contemplated hereby. Other than JP
Turner & Company, L.L.C. (the “Placement Agent”), neither the Company nor any of its Subsidiaries has engaged any placement agent or other agent in connection with the sale of the Securities. 
 (h) No Integrated Offering. None of the Company, its Subsidiaries or any of their affiliates, nor any Person 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 require registration of the issuance of any of the Securities under the 1933 Act, whether through integration with
prior offerings or otherwise, or cause this offering of the Securities to require approval of stockholders of the Company under any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any
exchange or automated quotation system on which any of the securities of the Company are listed or designated. None 

  

 7 







 
of the Company, its Subsidiaries, their affiliates nor any Person acting on their behalf will take any action or steps referred to in the preceding sentence
that would require registration of the issuance of any of the Securities under the 1933 Act or cause the offering of any of the Securities to be integrated with other offerings. 
 (i) Dilutive Effect. The Company understands and acknowledges that the number of Warrant Shares will increase in certain circumstances. The
Company further acknowledges that its obligation to issue the Warrant Shares upon exercise of the Warrants in accordance with this Agreement and the Warrants is, absolute and unconditional regardless of the dilutive effect that such issuance may
have on the ownership interests of other stockholders of the Company. 
 (j) Application of Takeover Protections; Rights Agreement.
The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Articles of Incorporation or other organizational documents or the laws of the jurisdiction of its incorporation or otherwise which is or could become applicable to any Buyer as a result of the transactions
contemplated by this Agreement, including, without limitation, the Company’s issuance of the Securities and any Buyer’s ownership of the Securities. 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 or any of its Subsidiaries. 
 (k) SEC Documents; Financial Statements. During the two (2) years prior to the date hereof, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial
statements, notes and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the “SEC Documents”). The Company has delivered to the Buyers or their respective representatives true, correct
and complete copies of each of the SEC Documents not available on the EDGAR system. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form
in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as in effect as of the time of filing. Such financial statements have been prepared in accordance with generally
accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the
extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments which will not be material, either individually or in the aggregate). No other 

  

 8 







 
information provided by or on behalf of the Company to the Buyers which is not included in the SEC Documents, including, without limitation, information
referred to in Section 2(e) of this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein not misleading, in the light of the circumstance under which
they are or were made. 
 (l) Absence of Certain Changes. Since the date of the Company’s most recent audited or reviewed
financial statements contained in a Form 10-K, there has been no material adverse change and no material adverse development in the business, assets, liabilities, properties, operations (including results thereof), condition (financial or otherwise)
or prospects of the Company or any of its Subsidiaries. Since the date of the Company’s most recent audited financial statements contained in a Form 10-K, neither the Company nor any of its Subsidiaries has (i) declared or paid any
dividends, (ii) sold any assets, individually or in the aggregate, outside of the ordinary course of business or (iii) made any material capital expenditures, individually or in the aggregate, outside of the ordinary course of business.
Neither the Company nor any of its Subsidiaries has taken any steps to seek protection pursuant to any law or statute relating to bankruptcy, insolvency, reorganization, liquidation or winding up, nor does the Company or any Subsidiary have any
knowledge or reason to believe that any of their respective creditors intend to initiate involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so. The Company and its Subsidiaries,
individually and on a consolidated basis, are not as of the date hereof, and after giving effect to the transactions contemplated hereby to occur at the Closing, will not be Insolvent (as defined below). For purposes of this Section 3(l),
“Insolvent” means, (I) with respect to the Company and its Subsidiaries, on a consolidated basis, (i) the present fair saleable value of the Company’s and its Subsidiaries’ assets is less than the amount required
to pay the Company’s and its Subsidiaries’ total Indebtedness (as defined in Section 3(s)), (ii) the Company and its Subsidiaries are unable to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts
and liabilities become absolute and matured or (iii) the Company and its Subsidiaries intend to incur or believe that they will incur debts that would be beyond their ability to pay as such debts mature; and (II) with respect to the Company and
each Subsidiary, individually, (i) the present fair saleable value of the Company’s or any of its Subsidiaries’ assets is less than the amount required to pay each of their respective total Indebtedness, (ii) the Company or any
of its Subsidiaries are unable to pay their respective debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured or (iii) the Company or any of its Subsidiaries intend to incur or
believe that they will incur debts that would be beyond their respective ability to pay as such debts mature. Neither the Company nor any of its Subsidiaries has engaged in business or in any transaction, and is not about to engage in business or in
any transaction, for which the Company’s or such Subsidiary’s remaining assets constitute unreasonably small capital. 
 (m) No
Undisclosed Events, Liabilities, Developments or Circumstances. No event, liability, development or circumstance has occurred or exists, or is reasonably expected to exist or occur with respect to the Company, any of its Subsidiaries or their
respective business, properties, liabilities, prospects, operations (including results thereof) or condition (financial or otherwise), that would be required to be disclosed by the Company under applicable securities laws on a registration statement
on Form S-1 filed with the SEC relating to an issuance and sale by the Company of its Common Stock and which has not been publicly announced or which could have a Material Adverse Effect. 
  

 9 







 (n) Conduct of Business; Regulatory Permits. Neither the Company nor any of its Subsidiaries is in
violation of any term of or in default under its Articles of Incorporation, any certificate of designation, preferences or rights of any other outstanding series of preferred stock of the Company or any of its Subsidiaries or Bylaws or their
organizational charter, certificate of formation or certificate of incorporation or bylaws, respectively. Neither the Company nor any of its Subsidiaries is in violation of any judgment, decree or order or any statute, ordinance, rule or regulation
applicable to the Company or any of its Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct its business in violation of any of the foregoing, except in all cases for possible violations which could not, individually or in
the aggregate, have a Material Adverse Effect. Without limiting the generality of the foregoing, the Company is not in violation of any of the rules, regulations or requirements of the Principal Market and has no knowledge of any facts or
circumstances that could reasonably lead to delisting or suspension of the Common Stock by the Principal Market in the foreseeable future. Since January 1, 2006, (i) the Common Stock has been designated for quotation on the Principal
Market, (ii) trading in the Common Stock has not been suspended by the SEC or the Principal Market and (iii) the Company has received no communication, written or oral, from the SEC or the Principal Market regarding the suspension or
delisting of the Common Stock from the Principal Market. The Company and each of its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate regulatory authorities necessary to conduct their respective businesses,
except where the failure to possess such certificates, authorizations or permits would not have, individually or in the aggregate, a Material Adverse Effect, and neither the Company nor any such Subsidiary has received any notice of proceedings
relating to the revocation or modification of any such certificate, authorization or permit. 
 (o) Foreign Corrupt Practices. Neither
the Company nor any of its Subsidiaries nor any director, officer, nor to the Company’s knowledge, any agent, employee or other Person acting on behalf of the Company or any of its Subsidiaries has, in the course of its actions for, or on
behalf of, the Company or any of its Subsidiaries (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment
to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee. 
 (p)
Sarbanes-Oxley Act. The Company and each Subsidiary is in material compliance with all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and all applicable rules and regulations promulgated by
the SEC thereunder that are effective as of the date hereof. 
 (q) Transactions With Affiliates. Other than the grant of stock
options disclosed on Schedule 3(q) and other than as disclosed in the SEC Documents, none of the officers, directors or employees of the Company or any of its Subsidiaries is presently a party to any transaction with the Company or any of its
Subsidiaries (other than for ordinary course services as 

  

 10 







 
employees, officers or directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments to or from any such officer, director or employee or, to the knowledge of the Company or any of its Subsidiaries, any corporation, partnership, trust or other entity in
which any such officer, director, or employee has a substantial interest or is an officer, director, trustee or partner. 
 (r) Equity
Capitalization. As of the date hereof, the authorized capital stock of the Company consists of (i) 10,000,000 shares of Common Stock, of which 7,965,854 are issued and outstanding and 388,708 shares are reserved for issuance pursuant to
securities (other than the Common Shares and the Warrants) exercisable or exchangeable for, or convertible into, shares of Common Stock and (ii) 147,500 shares of Series AA preferred stock, 57,411 of which are issued and outstanding. 33,087
shares of Common Stock are held in treasury. All of such outstanding shares are duly authorized and have been, or upon issuance will be, validly issued and are fully paid and nonassessable. 2,798,927 shares of the Company’s issued and
outstanding Common Stock on the date hereof are as of the date hereof owned by Persons who are “affiliates” (as defined in Rule 405 of the 1933 Act and calculated based on the assumption that only officers, directors and holders of at
least 10% of the Company’s issued and outstanding Common Stock are “affiliates” without conceding that any such Persons are “affiliates” for purposes of federal securities laws) of the Company or any of its Subsidiaries. To
the Company’s knowledge, except as disclosed in the SEC Documents, no Person owns 10% or more of the Company’s issued and outstanding shares of Common Stock (calculated based on the assumption that all Equivalents, whether or not presently
exercisable or convertible, have been fully exercised or converted (as the case may be) taking account of any limitations on exercise or conversion (including “blockers”) contained therein without conceding that such identified
Person is a 10% stockholder for purposes of federal securities laws). Except as disclosed in Schedule 3(r): (i) none of the Company’s or any Subsidiary’s capital stock is subject to preemptive rights or any other similar rights or any
liens or encumbrances suffered or permitted by the Company or any Subsidiary; (ii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to
issue additional capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any capital stock of the Company or any of its Subsidiaries; (iii) there are no outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing Indebtedness (as
defined in Section 3(s)) of the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries is or may become bound; (iv) there are no financing statements securing obligations in any material amounts, either
individually or in the aggregate, filed in connection with the Company or any of its Subsidiaries; (v) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their
securities under the 1933 Act (except pursuant to the Registration Rights Agreement); (vi) there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and
there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of 

  

 11 







 
its Subsidiaries; (vii) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (viii) neither the Company nor any Subsidiary has any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement; and (ix) neither the Company nor any of its Subsidiaries
have any liabilities or obligations required to be disclosed in the SEC Documents which are not so disclosed in the SEC Documents, other than those incurred in the ordinary course of the Company’s or its Subsidiaries’ respective businesses
and which, individually or in the aggregate, do not or could not have a Material Adverse Effect. The Company has furnished to the Buyers true, correct and complete copies of the Company’s Articles of Incorporation, as amended and as in effect
on the date hereof (the “Articles of Incorporation”), and the Company’s bylaws, as amended and as in effect on the date hereof (the “Bylaws”), and the terms of all securities convertible into, or exercisable or
exchangeable for, shares of Common Stock and the material rights of the holders thereof in respect thereto that have not been disclosed in the SEC Documents. 
 (s) Indebtedness and Other Contracts. Except as disclosed on Schedule 3(s) or in the SEC Documents, neither the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness (as defined below),
(ii) is a party to any contract, agreement or instrument, the violation of which, or default under which, by the other party(ies) to such contract, agreement or instrument could reasonably be expected to result in a Material Adverse Effect,
(iii) is in violation of any term of or in default under any contract, agreement or instrument relating to any Indebtedness, except where such violations and defaults would not result, individually or in the aggregate, in a Material Adverse
Effect, or (iv) is a party to any contract, agreement or instrument relating to any Indebtedness, the performance of which, in the judgment of the Company’s officers, has or is expected to have a Material Adverse Effect. For purposes of
this Agreement: (x) “Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or
services (including, without limitation, “capital leases” in accordance with generally accepted accounting principles) (other than trade payables entered into in the ordinary course of business), (C) all reimbursement or payment
obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the
acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or
similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through
(F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses (A) through (G) above; (y) “Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that
Person 

  

 12 







 
with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such
liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability
will be protected (in whole or in part) against loss with respect thereto; and (z) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency thereof. 
 (t) Absence of Litigation. Except as disclosed
in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by the Principal Market, any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries, the Common Stock or any of the Company’s or its Subsidiaries’ officers or directors which is outside of the ordinary course of business or individually or in the
aggregate material to the Company. 
 (u) Insurance. The Company and each of its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any such
Subsidiary has been refused any insurance coverage sought or applied for, and neither the Company nor any such Subsidiary has any reason to believe that it will be unable to renew its existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect. 
 (v) Employee Relations. Neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement or employs any member of a union. The Company believes that its and its
Subsidiaries’ relations with their respective employees are good. No executive officer (as defined in Rule 501(f) promulgated under the 1933 Act) or other key employee of the Company or any of its Subsidiaries has notified the Company or any
such Subsidiary that such officer intends to leave the Company or any such Subsidiary or otherwise terminate such officer’s employment with the Company or any such Subsidiary. No executive officer or other key employee of the Company or any of
its Subsidiaries is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any
restrictive covenant, and the continued employment of each such executive officer or other key employee (as the case may be) does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. The
Company and its Subsidiaries are in compliance with all federal, state, local and foreign laws and regulations respecting labor, employment and employment practices and benefits, terms and conditions of employment and wages and hours, except where
failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. 
 (w) Title. Except with respect to oil, gas and mineral leases, working interests, royalties, production payments and similar oil, gas and mineral interests (“Oil & Gas 

  

 13 







 
Interests”), the Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to
all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case, free and clear of all liens, encumbrances and defects except such as do not materially affect the value of such property and do
not interfere with the use made and proposed to be made of such property by the Company and any of its Subsidiaries. Any real property and facilities held under lease by the Company or any of its Subsidiaries are held by them under valid, subsisting
and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company or any of its Subsidiaries. The Company and its Subsidiaries have legal,
valid and binding and enforceable rights with respect to all their Oil & Gas Interests, free and clear of all liens, encumbrances and defects except such as (i) are normal and customary in the oil and gas drilling and development
business and (ii) do not materially affect the value of such Oil & Gas Interests and do not interfere with the use made and proposed to be made of such Oil & Gas Interests by the Company or any of its Subsidiaries 

(x) Intellectual Property Rights. The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade
names, service marks, service mark registrations, service names, patents, patent rights, copyrights, original works, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights and all
applications and registrations therefor (“Intellectual Property Rights”) necessary to conduct their respective businesses as now conducted and as presently proposed to be conducted. None of the Company’s or its
Subsidiaries’ Intellectual Property Rights have expired, terminated or been abandoned, or are expected to expire, terminate or be abandoned, within three years from the date of this Agreement. The Company has no knowledge of any infringement by
the Company or any of its Subsidiaries of Intellectual Property Rights of others. There is no claim, action or proceeding being made or brought, or to the knowledge of the Company or any of its Subsidiaries, being threatened, against the Company or
any of its Subsidiaries regarding their Intellectual Property Rights. The Company is not aware of any facts or circumstances which might give rise to any of the foregoing infringements or claims, actions or proceedings. The Company and each of its
Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their Intellectual Property Rights. 
 (y) Environmental Laws. The Company and its Subsidiaries (i) to the best of the Company’s knowledge, are in compliance with all Environmental Laws (as defined herein), (ii) have received all
permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval where, in each of
the foregoing clauses (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect. The term “Environmental Laws” means all federal, state,
local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to
emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal, 

  

 14 







 
transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder. 
 (z) Subsidiary
Rights. The Company or one of its Subsidiaries has the unrestricted right to vote, and (subject to limitations imposed by applicable law) to receive dividends and distributions on, all capital securities of its Subsidiaries as owned by the
Company or such Subsidiary. 
 (aa) Tax Status. The Company and each of its Subsidiaries (i) has timely made or filed all
foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has timely paid all taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and (iii) has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent
to the periods to which such returns, reports or declarations apply, except in each case where the failure to file, pay or set aside would not have a Material Adverse Effect. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company and its Subsidiaries know of no basis for any such claim. The Company is not operated in such a manner as to qualify as a passive foreign investment company, as defined in
Section 1297 of the U.S. Internal Revenue Code of 1986, as amended. 
 (bb) Internal Accounting and Disclosure Controls. The
Company and each of its Subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset and liability accountability, (iii) access to assets or incurrence
of liabilities is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets and liabilities is compared with the existing assets and liabilities at reasonable intervals
and appropriate action is taken with respect to any difference. The Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-14 under the 1934 Act) that are effective in ensuring that information required to be
disclosed by the Company in the reports that it files or submits under the 1934 Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, including, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the 1934 Act is accumulated and communicated to the Company’s management, including its principal executive
officer or officers and its principal financial officer or officers, as appropriate, to allow timely decisions regarding required disclosure. Neither the Company nor any of its Subsidiaries has received any notice or correspondence from any
accountant relating to any potential material weakness in any part of the system of internal accounting controls of the Company or any of its Subsidiaries. 
 (cc) Off Balance Sheet Arrangements. There is no transaction, arrangement, or other relationship between the Company or any of its Subsidiaries and an unconsolidated or other off balance sheet entity that is
required to be disclosed by the Company in its 1934 Act filings and is not so disclosed or that otherwise could be reasonably likely to have a Material Adverse Effect. 
  


 15 







 (dd) Investment Company Status. The Company is not, and upon consummation of the sale of the
Securities will not be, an “investment company,” an affiliate of an “investment company,” a company controlled by an “investment company” or an “affiliated person” of, or “promoter” or
“principal underwriter” for, an “investment company” as such terms are defined in the Investment Company Act of 1940, as amended. 
 (ee) Acknowledgement Regarding Buyers’ Trading Activity. It is understood and acknowledged by the Company (i) that, other than as contemplated by Section 2(k), following the public disclosure of
the transactions contemplated by the Transaction Documents, in accordance with the terms thereof, none of the Buyers have been asked by the Company or any of its Subsidiaries to agree, nor has any Buyer agreed with the Company or any of its
Subsidiaries, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) that any
Buyer, and counter parties in “derivative” transactions to which any such Buyer is a party, directly or indirectly, presently may have a “short” position in the Common Stock which were established prior to such Buyer’s
knowledge of the transactions contemplated by the Transaction Documents, and (iii) that each Buyer shall not be deemed to have any affiliation with or control over any arm’s length counter party in any “derivative” transaction.
The Company further understands and acknowledges that following the public disclosure of the transactions contemplated by the Transaction Documents pursuant to the Press Release one or more Buyers may engage in hedging and/or trading activities at
various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Warrant Shares deliverable with respect to the Securities are being determined and (b) such hedging
and/or trading activities, if any, can reduce the value of the existing stockholders’ equity interest in the Company both at and after the time the hedging and/or trading activities are being conducted. The Company acknowledges that such
aforementioned hedging and/or trading activities do not constitute a breach of this Agreement or any other Transaction Document or any of the documents executed in connection herewith or therewith. 
 (ff) Manipulation of Price. Neither the Company nor any of its Subsidiaries has, and, to the knowledge of the Company, no Person acting on their
behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company or any of its Subsidiaries to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities (other than the Placement Agent), or (iii) paid or agreed to pay to any person any compensation for soliciting another
to purchase any other securities of the Company or any of its Subsidiaries. 
 (gg) U.S. Real Property Holding Corporation. Neither
the Company nor any of its Subsidiaries is, or has ever been, and so long as any of the Securities are held by any of the Buyers, shall become a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue
Code of 1986, as amended, and the Company and each Subsidiary shall so certify upon Buyer’s request. 
  

 16 







 (hh) Registration Eligibility. The Company is eligible to register the Registrable Securities for
resale by the Buyers using Form S-3 promulgated under the 1933 Act. 
 (ii) Transfer Taxes. On the Closing Date, all stock transfer or
other taxes (other than income or similar taxes) which are required to be paid in connection with the sale and transfer of the Securities to be sold to each Buyer hereunder will be, or will have been, fully paid or provided for by the Company, and
all laws imposing such taxes will be or will have been complied with. 
 (jj) Bank Holding Company Act. Neither the Company nor any of
its Subsidiaries is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor
any of its Subsidiaries or affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any
equity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to
the BHCA and to regulation by the Federal Reserve. 
 (kk) Shell Company Status. The Company is not, and has never been, an issuer
identified in Rule 144(i)(1). 
 (ll) Disclosure. The Company confirms that neither it nor any other Person acting on its behalf has
provided any of the Buyers or their agents or counsel with any information that constitutes or could reasonably be expected to constitute material, nonpublic information concerning the Company or any of its Subsidiaries, other than the existence of
the transactions contemplated by this Agreement and the other Transaction Documents. The Company understands and confirms that each of the Buyers will rely on the foregoing representations in effecting transactions in securities of the Company. All
disclosure provided to the Buyers regarding the Company and its Subsidiaries, their businesses and the transactions contemplated hereby, including the Schedules to this Agreement, furnished by or on behalf of the Company or any of its Subsidiaries
is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.
Each press release issued by the Company or any of its Subsidiaries during the twelve (12) months preceding the date of this Agreement did not at the time of release contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. No event or circumstance has occurred or information exists with respect to the
Company or any of its Subsidiaries or its or their business, properties, liabilities, prospects, operations (including results thereof) or conditions (financial or otherwise), which, under applicable law, rule or regulation, requires public
disclosure at or before the date hereof or announcement by the Company but which has not been so publicly announced or disclosed. The Company acknowledges and agrees that no Buyer makes or has made any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in Section 2. 
  

 17 








	4.	COVENANTS. 

 (a) Best Efforts. Each party
shall use its best efforts timely to satisfy each of the conditions to be satisfied by it as provided in Sections 6 and 7 of this Agreement. 
 (b) Form D and Blue Sky. The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to, qualify the Securities for sale to the Buyers at the Closing pursuant to this Agreement under applicable securities or
“Blue Sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Buyers on or prior to the Closing Date. The Company shall make all
filings and reports relating to the offer and sale of the Securities required under applicable securities or “Blue Sky” laws of the states of the United States following the Closing Date. 
 (c) Reporting Status. Until the date on which the Buyers shall have sold all of the Registrable Securities (as defined below) (the
“Reporting Period”), the Company shall timely file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even
if the 1934 Act or the rules and regulations thereunder would no longer require or otherwise permit such termination. 
 (d) Use of
Proceeds. The Company shall use the proceeds from the sale of the Securities solely for general working capital purposes. 
 (e)
Financial Information. The Company agrees to send the following to each Investor (as defined in the Registration Rights Agreement) during the Reporting Period (i) unless the following are filed with the SEC through EDGAR and are
available to the public through the EDGAR system, within one (1) Business Day after the filing thereof with the SEC, a copy of its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, any interim reports or any consolidated balance
sheets, income statements, stockholders’ equity statements and/or cash flow statements for any period other than annual, any Current Reports on Form 8-K and any registration statements (other than on Form S-8) or amendments filed pursuant to
the 1933 Act, (ii) on the same day as the release thereof, facsimile copies of all press releases issued by the Company or any of its Subsidiaries and (iii) copies of any notices and other information made available or given to the
stockholders of the Company generally, contemporaneously with the making available or giving thereof to the stockholders. 
 (f)
Listing. The Company shall promptly secure the listing of all of the Registrable Securities (as defined in the Registration Rights Agreement) upon each national securities exchange and automated quotation system, if any, upon which the Common
Stock is then listed (subject to official notice of issuance) and shall maintain such listing of all Registrable Securities from time to time issuable under the terms of the Transaction Documents on such national securities exchange or automated
quotation system. The Company shall maintain the Common Stock’s authorization for quotation on the Principal Market, the New York Stock Exchange or the Nasdaq Global Select Market (each, an “Eligible Market”). Neither the
Company nor any 

  

 18 







 
of its Subsidiaries shall take any action which could be reasonably expected to result in the delisting or suspension of the Common Stock on an Eligible
Market. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 4(f). 
 (g)
Fees. The Company shall reimburse Cranshire Capital, L.P. (“Cranshire”) or its designee(s) (in addition to any other expense amounts paid to any Buyer prior to the date of this Agreement) for all reasonable costs and expenses
incurred by it or its affiliates in connection with the transactions contemplated by the Transaction Documents in an amount not to exceed $35,000 (including, without limitation, all reasonable legal fees and disbursements in connection therewith,
documentation and implementation of the transactions contemplated by the Transaction Documents and due diligence in connection therewith), which amount shall be non-accountable and withheld by Cranshire from its Purchase Price at the Closing or paid
by the Company upon termination of this Agreement so long as such termination did not occur as a result of a material breach by Cranshire of any of its obligations hereunder (as the case may be). The Company shall be responsible for the payment of
any placement agent’s fees, financial advisory fees, or broker’s commissions (other than for Persons engaged by any Buyer) relating to or arising out of the transactions contemplated hereby (including, without limitation, any fees payable
to the Placement Agent, who is the Company’s sole placement agent in connection with the transactions contemplated by this Agreement). The Company shall pay, and hold each Buyer harmless against, any liability, loss or expense (including,
without limitation, reasonable attorney’s fees and out-of-pocket expenses) arising in connection with any claim relating to any such payment. Except as otherwise set forth in the Transaction Documents, each party to this Agreement shall bear
its own expenses in connection with the sale of the Securities to the Buyers. 
 (h) Pledge of Securities. Notwithstanding anything to
the contrary contained in Section 2(g), the Company acknowledges and agrees that the Securities may be pledged by a Buyer in connection with a bona fide margin agreement or other loan or financing arrangement that is secured by the Securities.
The pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Buyer effecting a pledge of Securities shall be required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction Document. The Company hereby agrees to execute and deliver such documentation as a pledgee of the Securities may reasonably request in connection with a pledge of the
Securities to such pledgee by a Buyer. 
 (i) Disclosure of Transactions and Other
Material Information. The Company shall, on or before 8:30 a.m., New York time, on the first (1st) Business Day after the date of this
Agreement, issue a press release (the “Press Release”) reasonably acceptable to the Buyers disclosing all the material terms of the transactions contemplated by the Transaction Documents. On or before 8:30 a.m., New York time, on
the second (2nd) Business Day following the date of this Agreement, the Company shall file a Current Report on Form 8-K describing all the
material terms of the transactions contemplated by the Transaction Documents in the form required by the 1934 Act and attaching all the material Transaction Documents (including, without limitation, this Agreement (and all schedules to this
Agreement), and the form of Warrants and the Registration Rights Agreement) (including all attachments, the “8-K Filing”). From and after the issuance of the Press Release, the Company shall have disclosed all material, nonpublic
information delivered to any of the Buyers by the Company or any of its Subsidiaries, or any of 

  

 19 







 
their respective officers, directors, employees or agents (if any) in connection with the transactions contemplated by the Transaction Documents. The Company
shall not, and the Company shall cause each of its Subsidiaries and each of its and their respective officers, directors, employees and agents, not to, provide any Buyer with any material, nonpublic information regarding the Company or any of its
Subsidiaries from and after the issuance of the Press Release without the express prior written consent of such Buyer, except as expressly contemplated by Section 4(o)(viii). In the event of a breach of the foregoing covenant by the Company, or
any of its Subsidiaries, or any of its or their respective officers, directors, employees and agents (as determined in the reasonable good faith judgment of such Buyer), in addition to any other remedy provided herein or in the Transaction
Documents, such Buyer shall have the right to make a public disclosure, in the form of a press release, public advertisement or otherwise, of such material, nonpublic information without the prior approval by the Company, any of its Subsidiaries, or
any of its or their respective officers, directors, employees or agents. No Buyer shall have any liability to the Company, any of its Subsidiaries, or any of its or their respective officers, directors, employees, stockholders or agents, for any
such disclosure. Subject to the foregoing, neither the Company, its Subsidiaries nor any Buyer shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of any Buyer, to make any press release or other public disclosure with respect to such transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith and
(ii) as is required by applicable law and regulations (provided that in the case of clause (i) each Buyer shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release).
Without the prior written consent of the applicable Buyer, the Company shall not (and shall cause each of its Subsidiaries and affiliates to not) disclose the name of such Buyer in any filing (other than the 8-K Filing), announcement, release or
otherwise. 
 (j) Additional Registration Statements. Until the Effective Date (as defined in the Registration Rights Agreement) of
the initial Registration Statement required to be filed by the Company pursuant to Section 2(a) of the Registration Rights Agreement which covers all of the securities required to be covered thereunder and at any time while such Registration
Statement is not effective, the Company shall not file a registration statement under the 1933 Act relating to securities that are not the Registrable Securities. 
 (k) Additional Issuance of Securities. The Company agrees that for the period commencing on the date hereof and ending one hundred twenty (120) days after the Effective Date of the initial Registration
Statement required to be filed by the Company pursuant to Section 2(a) of the Registration Rights Agreement which covers all of the securities required to be covered thereunder (the “Restricted Period”), neither the Company nor
any of its Subsidiaries shall directly or indirectly issue, offer, sell, grant any option to purchase, or otherwise dispose of (or announce any issuance, offer, sale, grant or any option to purchase or other disposition of) any of their respective
equity or equity equivalent securities, including, without limitation, any debt, 

  

 20 







 
preferred stock, rights, options, warrants or other instrument that is at any time and under any circumstances convertible into or exchangeable for, or
otherwise entitles the holder thereof to receive, capital stock and other securities of the Company (including, without limitation, any securities of the Company or any Subsidiary which entitle the holder thereof to acquire Common Stock at any time,
including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock or other securities
that entitle the holder to receive, directly or indirectly, Common Stock) (collectively with such capital stock or other securities of the Company, “Equivalents”) (any such issuance, offer, sale, grant, disposition or announcement
being referred to as a “Subsequent Placement”). Notwithstanding the foregoing, this Section 4(k) shall not apply in respect of the issuance of (A) shares of Common Stock or standard options to purchase Common Stock issued
to directors, officers, employees or consultants of the Company in connection with their service as directors or officers of the Company, their employment by the Company or their retention as consultants by the Company pursuant to an equity
compensation program or other contract or arrangement approved by the board of directors of the Company (or the compensation committee of the board of directors of the Company), provided that all such issuances after the date hereof pursuant
to this clause (A) do not, in the aggregate, exceed more than 5% of the Common Stock issued and outstanding immediately prior to the date hereof, (B) shares of Common Stock issued upon the conversion or exercise of Equivalents issued prior
to the date hereof, provided that such Equivalents have not been amended since the date of this Agreement to increase the number of shares issuable thereunder or to lower the exercise or conversion price thereof or otherwise materially change
the terms or conditions thereof in any manner that adversely affects any of the Buyers, (C) shares of Common Stock and standard warrants to purchase Common Stock as equity kickers in connection with bona fide lending transactions involving only
non-convertible debt, the primary purpose of which is not to raise capital, and which are approved in good faith by the Company’s Board of Directors, provided that all such issuances after the date hereof pursuant to this clause
(C) do not, in the aggregate, exceed 739,726 shares of Common Stock (including, without limitation, shares of Common Stock issuable upon exercise of such standard warrants) (adjusted for stock splits, combinations and the like), (D) the
Warrant Shares, (E) the Placement Agent Warrant (as defined below), provided that such Placement Agent Warrant has not been amended since the Closing Date to increase the number of shares issuable thereunder or to lower the exercise
price thereof or otherwise materially change the terms or conditions thereof in any manner that adversely affects any of the Buyers, and (F) the Placement Agent Warrant Shares (as defined below) (each of the foregoing in clauses
(A) through (F), collectively the “Excluded Securities”). “Placement Agent Warrant” means the warrant to be issued by the Company to the Placement Agent on the Closing Date to purchase up to 32,877 shares of
Common Stock at an initial exercise price of $7.30 per share, in the form provided to the Buyers on the date hereof; and “Placement Agent Warrant Shares” means the shares of Common Stock issuable to the Placement Agent upon exercise
of the Placement Agent Warrant. 
 (l) Reservation of Shares. The Company shall take all action necessary to at all times have
authorized, and reserved for the purpose of issuance, no less than 120% of the maximum number of shares of Common Stock issuable upon exercise of the Warrants (without regard to any limitations on the exercise of the Warrants set forth therein).

 (m) Conduct of Business. The business of the Company and its Subsidiaries shall not be conducted in violation of any law, ordinance
or regulation of any governmental entity, except where such violations would not result, either individually or in the aggregate, in a Material Adverse Effect. 
  

 21 







 (n) Variable Rate Transaction. From the date hereof until 18 months after the Effective Date of
the initial Registration Statement required to be filed by the Company pursuant to Section 2(a) of the Registration Rights Agreement which covers all of the securities required to be covered thereunder, the Company and each Subsidiary shall be
prohibited from effecting or entering into an agreement to effect any Subsequent Placement involving a “Variable Rate Transaction.” The term “Variable Rate Transaction” shall mean a transaction in which the Company
or any Subsidiary (i) issues or sells any Equivalents either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares of Common Stock at any time
after the initial issuance of such Equivalents, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such Equivalents or upon the occurrence of specified or
contingent events directly or indirectly related to the business of the Company or the market for the Common Stock, other than pursuant to a customary “weighted average” anti-dilution provision or (ii) enters into any agreement
(including, but not limited to, an equity line of credit) whereby the Company or any Subsidiary may sell securities at a future determined price (other than standard and customary “preemptive” or “participation” rights). Each
Buyer shall be entitled to obtain injunctive relief against the Company and its Subsidiaries to preclude any such issuance, which remedy shall be in addition to any right to collect damages. 
 (o) Participation Right. From the date hereof until eighteen (18) months after the Effective Date of the initial Registration Statement
required to be filed by the Company pursuant to Section 2(a) of the Registration Rights Agreement which covers all of the securities required to be covered thereunder, neither the Company nor any of its Subsidiaries shall, directly or
indirectly, effect any Subsequent Placement (other than a Direct Participation (as defined below)) unless the Company shall have first complied with this Section 4(o). The Company acknowledges and agrees that the right set forth in this
Section 4(o) is a right granted by the Company, separately, to each Buyer. 
 (i) The Company shall deliver to each Buyer
a written notice (the “Offer Notice”) of any proposed or intended issuance or sale or exchange (the “Offer”) of the securities being offered (the “Offered Securities”) in a Subsequent Placement,
which Offer Notice shall (w) identify and describe the Offered Securities, (x) describe the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the Offered Securities to be issued, sold or
exchanged, (y) identify the Persons (if known) to which or with which the Offered Securities are to be offered, issued, sold or exchanged and (z) offer to issue and sell to or exchange with such Buyer in accordance with the terms of the
Offer (I) 100% of the Offered Securities through the date that is one hundred twenty (120) days after the Effective Date of the initial Registration Statement required to be filed by the Company pursuant to Section 2(a) of the
Registration Rights Agreement which covers all of the securities required to be covered thereunder and (II) thereafter, at least 50% of the Offered Securities, provided that the number of Offered Securities which such Buyer shall have the
right to subscribe for under this Section 4(o) shall be (a) based on such Buyer’s pro rata portion of the aggregate number of Common Shares purchased hereunder by all Buyers (the “Basic Amount”), and (b) with
respect to each Buyer that elects to purchase its Basic Amount, any additional portion of the Offered Securities attributable to the Basic Amounts of other Buyers as such Buyer shall indicate it will purchase or acquire should the other Buyers
subscribe for less than their Basic Amounts (the “Undersubscription Amount”). 
  

 22 







 (ii) To accept an Offer, in whole
or in part, such Buyer must deliver a written notice to the Company prior to the end of the fifth (5th) Business Day after such Buyer’s
receipt of the Offer Notice (the “Offer Period”), setting forth the portion of such Buyer’s Basic Amount that such Buyer elects to purchase and, if such Buyer shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Buyer elects to purchase (in either case, the “Notice of Acceptance”). If the Basic Amounts subscribed for by all Buyers are less than the total of all of the Basic Amounts, then such
Buyer who has set forth an Undersubscription Amount in its Notice of Acceptance shall be entitled to purchase, in addition to the Basic Amounts subscribed for, the Undersubscription Amount it has subscribed for; provided, however, that
if the Undersubscription Amounts subscribed for exceed the difference between the total of all the Basic Amounts and the Basic Amounts subscribed for (the “Available Undersubscription Amount”), such Buyer who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of the Available Undersubscription Amount as the Basic Amount of such Buyer bears to the total Basic Amounts of all Buyers that have subscribed for Undersubscription Amounts,
subject to rounding by the Company to the extent it deems reasonably necessary. Notwithstanding the foregoing, if the Company desires to modify or amend the terms and conditions of the Offer prior to the expiration of the Offer Period, the Company
may deliver to each Buyer a new Offer Notice and the Offer Period shall expire on the fifth (5th) Business Day after such Buyer’s receipt
of such new Offer Notice. 
 (iii) The Company shall have ten (10) Business Days from the expiration of the Offer Period
above (i) to offer, issue, sell or exchange all or any part of such Offered Securities as to which a Notice of Acceptance has not been given by a Buyer (the “Refused Securities”) pursuant to a definitive agreement(s) (the
“Subsequent Placement Agreement”), but only to the offerees described in the Offer Notice (if so described therein) and only upon terms and conditions (including, without limitation, unit prices and interest rates) that are not more
favorable to the acquiring Person or Persons or less favorable to the Company than those set forth in the Offer Notice and (ii) to publicly announce (a) the execution of such Subsequent Placement Agreement, and (b) either (x) the
consummation of the transactions contemplated by such Subsequent Placement Agreement or (y) the termination of such Subsequent Placement Agreement, which shall be filed with the SEC on a Current Report on Form 8-K with such Subsequent Placement
Agreement and any documents contemplated therein filed as exhibits thereto. 
 (iv) In the event the Company shall propose to
sell less than all the Refused Securities (any such sale to be in the manner and on the terms specified in Section 4(o)(iii) above), then such Buyer may, at its sole option and in its sole discretion, reduce the number or amount of the Offered
Securities specified in its Notice of Acceptance to an amount that shall be not less than the number or amount of the Offered Securities that such Buyer elected to purchase pursuant to Section 4(o)(ii) above multiplied by a fraction,
(i) the numerator of which shall be the number or amount of Offered Securities 

  

 23 







 
the Company actually proposes to issue, sell or exchange (including Offered Securities to be issued or sold to Buyers pursuant to this Section 4(o)
prior to such reduction) and (ii) the denominator of which shall be the original amount of the Offered Securities. In the event that any Buyer so elects to reduce the number or amount of Offered Securities specified in its Notice of Acceptance,
the Company may not issue, sell or exchange more than the reduced number or amount of the Offered Securities unless and until such securities have again been offered to the Buyers in accordance with Section 4(o)(i) above. 
 (v) Upon the closing of the issuance, sale or exchange of all or less than all of the Refused Securities, such Buyer shall acquire from
the Company, and the Company 
 shall issue to such Buyer, the number or amount of Offered Securities specified in its Notice
of Acceptance. The purchase by such Buyer of any Offered Securities is subject in all cases to the preparation, execution and delivery by the Company and such Buyer of a separate purchase agreement relating to such Offered Securities reasonably
satisfactory in form and substance to such Buyer and its counsel. 
 (vi) Any Offered Securities not acquired by a Buyer or
other Persons in accordance with this Section 4(o) may not be issued, sold or exchanged until they are again offered to such Buyer under the procedures specified in this Agreement. 
 (vii) The Company and each Buyer agree that if any Buyer elects to participate in the Offer, neither the Subsequent Placement Agreement
with respect to such Offer nor any other transaction documents related thereto (collectively, the “Subsequent Placement Documents”) shall include any term or provision whereby such Buyer shall be required to agree to any
restrictions on trading as to any securities of the Company owned by such Buyer prior to such Subsequent Placement more restrictive in any material respect than the restrictions contained in the Transaction Documents. 
 (viii) Notwithstanding anything to the contrary in this Section 4(o) and
unless otherwise agreed to by such Buyer, the Company shall either confirm in writing to such Buyer that the transaction with respect to the Subsequent Placement has been abandoned or shall publicly disclose its intention to issue the Offered
Securities, in either case in such a manner such that such Buyer will not be in possession of any material, non-public information, by the tenth (10th) day following delivery of the Offer Notice. If by such tenth (10th) day, no public disclosure regarding a transaction with
respect to the Offered Securities has been made, and no notice regarding the abandonment of such transaction has been received by such Buyer, such transaction shall be deemed to have been abandoned and such Buyer shall not be deemed to be in
possession of any material, non-public information with respect to the Company or any of its Subsidiaries. Should the Company decide to pursue such transaction with respect to the Offered Securities, the Company shall provide such Buyer with another
Offer Notice and such Buyer will again have the right of participation set forth in this Section 4(o). The Company shall not be permitted to deliver more than one such Offer Notice to such Buyer in any sixty (60) day period. 
  

 24 







 (ix) The restrictions contained in this Section 4(o) shall not apply in connection
with the issuance of any Excluded Securities. The Company shall not circumvent the provisions of this Section 4(o) by providing terms or conditions to one Buyer that are not provided to all. 
 “Direct Participation” means any working interest, royalty interest or other contractual right with respect to oil and gas well leases in which the
Company may from time to time sell undivided working interests and/or other economic contractual interests, provided that none of the foregoing shall include or involve the sale of any security (as defined under the 1933 Act) or other equity
interest in the Company, any Subsidiary or any other Person. 
 (p) Passive Foreign Investment Company. The Company shall conduct its
business in such a manner as will ensure that the Company will not be deemed to constitute a passive foreign investment company within the meaning of Section 1297 of the U.S. Internal Revenue Code of 1986, as amended. 
  

	5.	REGISTER; TRANSFER AGENT INSTRUCTIONS; LEGEND. 

 (a)
Register. The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to each holder of Securities), a register for the Common Shares and the Warrants in which the
Company shall record the name and address of the Person in whose name the Common Shares and the Warrants have been issued (including the name and address of each transferee), the number of Common Shares held by such Person and the number of Warrant
Shares issuable upon exercise of the Warrants held by such Person. The Company shall keep the register open and available at all times during business hours for inspection of any Buyer or its legal representatives. 
 (b) Transfer Agent Instructions. The Company shall issue irrevocable instructions to its transfer agent and any subsequent transfer agent in the
form acceptable to the Buyers (the “Irrevocable Transfer Agent Instructions”) to issue certificates or credit shares to the applicable balance accounts at The Depository Trust Company (“DTC”), registered in the name
of each Buyer or its respective nominee(s), for the Common Shares and the Warrant Shares in such amounts as specified from time to time by each Buyer to the Company upon delivery of the Common Shares or the exercise of the Warrants (as the case may
be). The Company represents and warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5(b), and stop transfer instructions to give effect to Section 2(g) hereof, will be given by
the Company to its transfer agent with respect to the Securities, and that the Securities shall otherwise be freely transferable on the books and records of the Company, as applicable, to the extent provided in this Agreement and the other
Transaction Documents. If a Buyer effects a sale, assignment or transfer of the Securities in accordance with Section 2(g), the Company shall permit the transfer and shall promptly instruct its transfer agent to issue one or more certificates
or credit shares to the applicable balance accounts at DTC in such name and in such denominations as specified by such Buyer to effect such sale, transfer or assignment. In the event that such sale, assignment or transfer involves Common Shares or
Warrant Shares sold, assigned or transferred pursuant to an effective registration statement or in compliance with Rule 144, the transfer agent shall issue such shares to such Buyer, assignee or transferee (as the case may be) without any
restrictive legend in accordance with Section 5(d) below. The Company 

  

 25 







 
acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to a Buyer. Accordingly, the Company acknowledges that the remedy
at law for a breach of its obligations under this Section 5(b) will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5(b), that a Buyer shall be entitled, in addition
to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. The Company
shall cause its counsel to issue the legal opinion referred to in the Irrevocable Transfer Agent Instructions to the Company’s transfer agent on each Effective Date. Any fees (with respect to the transfer agent, counsel to the Company or
otherwise) associated with the issuance of such opinion or the removal of any legends on any of the Securities shall be borne by the Company. 
 (c) Legends. Each Buyer understands that the certificates or other instruments representing the Common Shares and the Warrants and, until such time as the resale of the Common Shares and the Warrant Shares (as the case may be) have
been registered under the 1933 Act as contemplated by the Registration Rights Agreement or are eligible for sale pursuant to Rule 144, the stock certificates representing the Common Shares and the Warrant Shares (as the case may be), except as set
forth below, shall bear any legend as required by the “blue sky” laws of any state and a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such stock certificates):

 [NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[EXERCISABLE] HAVE BEEN] [THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. 
 (d) Removal of Legends. Certificates
evidencing Securities shall not be required to contain the legend set forth in Section 5(c) above or any other legend (i) while a registration statement (including the Registration Statement) covering the resale of such Securities is
effective under the Securities Act, (ii) following any sale of such Securities pursuant to Rule 144 (assuming the transferor is not an affiliate of the Company), (iii) if such Securities are eligible to be sold, assigned or transferred
under Rule 144 (provided that a Buyer provides the Company with reasonable assurances that such Securities are eligible for sale, assignment or transfer under 

  

 26 







 
Rule 144 which shall not include an opinion of counsel), (iv) in connection with a sale, assignment or other transfer (other than under Rule 144)
provided such Buyer provides the Company with an opinion of counsel to such Buyer, in a generally acceptable form, to the effect that such sale, assignment or transfer of the Securities may be made without registration under the applicable
requirements of the 1933 Act or (v) if such legend is not required under applicable requirements of the 1933 Act (including, without limitation, controlling judicial interpretations and pronouncements issued by the SEC). If a legend is not
required pursuant to the foregoing, the Company shall no later than two (2) Trading Days (as defined below) following the delivery by a Buyer to the Company or the transfer agent (with notice to the Company) of a legended certificate
representing such Securities (endorsed or with stock powers attached, signatures guaranteed, and otherwise in form necessary to affect the reissuance and/or transfer, if applicable), together with any other deliveries from such Buyer as may be
required above in this Section 5(d), as directed by such Buyer, either: (A) deliver (or cause to be delivered to) such Buyer a certificate representing such Securities that is free from all restrictive and other legends or (B) credit
the balance account of such Buyer’s or such Buyer’s nominee with DTC with a number of shares of Common Stock equal to the number of Common Shares or Warrant Shares (as the case may be) represented by the certificate or exercise notice (as
the case may be) so delivered by such Buyer (the date by which such certificate is required to be delivered to such Buyer or such credit is so required to be made to the balance account of such Buyer’s or such Buyer’s nominee with DTC
pursuant to the foregoing is referred to herein as the “Required Delivery Date”). 
 (e) Failure to Timely Deliver;
Buy-In. If the Company fails to (i) issue and deliver (or cause to be delivered) to a Buyer by the Required Delivery Date a certificate representing the Securities so delivered to the Company by such Buyer that is free from all restrictive
and other legends or (ii) credit the balance account of such Buyer’s or such Buyer’s nominee with DTC for such number of shares of Common Shares or Warrant Shares so delivered to the Company, then, in addition to all other remedies
available to such Buyer, the Company shall pay in cash to such Buyer on each day after the Required Delivery Date that the issuance or credit of such shares is not timely effected an amount equal to 1% of the product of (A) the sum of the
number of shares of Common Shares or Warrant Shares (as the case may be) not issued to such Buyer on a timely basis and to which such Buyer is entitled and (B) the VWAP (as defined below) of the shares of Common Stock for the five
(5) Trading Day period immediately preceding the Required Delivery Date. In addition to the foregoing, if the Company fails to so properly deliver such unlegended certificates or so properly credit the balance account of such Buyer’s or
such Buyer’s nominee with DTC by the Required Delivery Date, and if on or after the Required Delivery Date such Buyer purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such
Buyer of shares of Common Stock that such Buyer anticipated receiving from the Company without any restrictive legend (a “Buy-In”), then the Company shall, within three (3) Trading Days after such Buyer’s request and in
such Buyer’s sole discretion, either (i) pay cash to such Buyer in an amount equal to such Buyer’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased (the “Buy-In
Price”), at which point the Company’s obligation to deliver such certificate or credit such Buyer’s balance account shall terminate and such shares shall be cancelled, or (ii) promptly honor its obligation to deliver to such
Buyer a certificate or certificates or credit such Buyer’s DTC account representing such number of shares of Common Stock that would have been issued if the Company timely complied with its obligations hereunder and pay cash to such 

  

 27 







 
Buyer in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Shares or Warrant Shares (as
the case may be) that the Company was required to deliver to such Buyer by the Required Delivery Date times (B) the average VWAP of the Common Stock for the five (5) Trading Day period immediately preceding the Required Delivery Date.

 For purposes of this Section 5(e), “VWAP” means, for any security as of any date, the dollar volume-weighted average price for such
security on the Principal Market (or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded) during the period
beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg Financial Markets (“Bloomberg”) through its “Volume at Price” function or, if the foregoing does not apply, the
dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as
reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If VWAP cannot be calculated for such security on such date on any of the foregoing bases, the VWAP of such security on such date
shall be the fair market value as mutually determined by the Company and the Buyer. If the Company and the Buyer are unable to agree upon the fair market value of such security, then they shall agree in good faith on a reputable investment bank to
make such determination of fair market value, whose determination shall be final and binding and whose fees and expenses shall be borne by the Company. All such determinations shall be appropriately adjusted for any share dividend, share split or
other similar transaction during such period. “Trading Day” means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the Common Stock is then traded; provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5
hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then
during the hour ending at 4:00:00 p.m., New York time). 
  

	6.	CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL. 

 (a) The obligation of the Company hereunder to issue and sell the Common Shares and the related Warrants to each Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions,
provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion by providing each Buyer with prior written notice thereof: 
 (i) Such Buyer shall have executed each of the Transaction Documents to which it is a party and delivered the same to the Company.

  

 28 







 (ii) Such Buyer and each other Buyer shall have delivered to the Company the Purchase
Price (less, in the case of Cranshire, the amount withheld pursuant to Section 4(g)) for the Common Shares and the related Warrants being purchased by such Buyer at the Closing by wire transfer of immediately available funds pursuant to the
wire instructions provided by the Company. 
 (iii) The representations and warranties of such Buyer shall be true and correct
in all material respects as of the date when made and as of the Closing Date as though originally made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such date), and
such Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Buyer at or prior to the Closing Date.

  

	7.	CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE. 

 (a) The obligation of each Buyer hereunder to purchase the Common Shares and the related Warrants at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer’s sole benefit and may be waived by such Buyer at any time in its sole discretion by providing the Company with prior written notice thereof: 
 (i) The Company shall have duly executed and delivered to such Buyer (A) each of the Transaction Documents and (B) the Common
Shares (in such numbers as is set forth across from such Buyer’s name in column (3) of the Schedule of Buyers and the related Warrants (in such numbers as is set forth across from such Buyer’s name in column (4) of the Schedule
of Buyers) being purchased by such Buyer at the Closing pursuant to this Agreement. 
 (ii) Such Buyer shall have received the
opinion of Strasburger & Price, LLP, the Company’s outside counsel, dated as of the Closing Date, in the form acceptable to such Buyer. 
 (iii) The Company shall have delivered to such Buyer a copy of the Irrevocable Transfer Agent Instructions, in the form acceptable to such Buyer, which instructions shall have been delivered to and acknowledged in
writing by the Company’s transfer agent. 
 (iv) The Company shall have delivered to such Buyer a certificate evidencing
the formation and good standing of the Company and each of its Subsidiaries in each such entity’s jurisdiction of formation issued by the Secretary of State (or comparable office) of such jurisdiction of formation as of a date within ten
(10) days of the Closing Date. 
 (v) The Company shall have delivered to such Buyer a certificate evidencing the
Company’s qualification as a foreign corporation and good standing issued by the Secretary of State (or comparable office) of each jurisdiction in which the Company conducts business and is required to so qualify, as of a date within ten
(10) days of the Closing Date. 
  

 29 







 (vi) The Company shall have delivered to such Buyer a certified copy of the Articles of
Incorporation as certified by the California Secretary of State within ten (10) days of the Closing Date. 
 (vii) The
Company shall have delivered to such Buyer a certificate, executed by the Secretary of the Company and dated as of the Closing Date, as to (i) the resolutions consistent with Section 3(b) as adopted by the Company’s board of directors
in a form reasonably acceptable to such Buyer, (ii) the Articles of Incorporation and (iii) the Bylaws, each as in effect at the Closing, in the form acceptable to such Buyer. 
 (viii) Each and every representation and warranty of the Company shall be true and correct as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such date) and the Company shall have performed, satisfied and complied in all respects with the
covenants, agreements and conditions required to be performed, satisfied or complied with by the Company at or prior to the Closing Date. Such Buyer shall have received a certificate, executed by the Chief Executive Officer of the Company, dated as
of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Buyer in the form acceptable to such Buyer. 
 (ix) The Company shall have delivered to such Buyer a letter from the Company’s transfer agent certifying the number of shares of
Common Stock outstanding on the Closing Date immediately prior to the Closing. 
 (x) The Common Stock (I) shall be
designated for quotation or listed on the Principal Market and (II) shall not have been suspended, as of the Closing Date, by the SEC or the Principal Market from trading on the Principal Market nor shall suspension by the SEC or the Principal
Market have been threatened, as of the Closing Date, either (A) in writing by the SEC or the Principal Market or (B) by falling below the minimum maintenance requirements of the Principal Market. 
 (xi) The Company shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the sale of
the Securities, including without limitation, those required by the Principal Market. 
 (xii) No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the
Transaction Documents. 
 (xiii) Since the date of execution of this Agreement, no event or series of events shall have
occurred that reasonably would have or result in a Material Adverse Effect. 
  

 30 







 (xiv) The Company shall have obtained approval of the Principal Market to list the Common
Shares and the Warrant Shares. 
 (xv) The Company shall have delivered to such Buyer such other documents relating to the
transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request. 
  

	8.	TERMINATION. 

 In the event that the Closing shall
not have occurred with respect to a Buyer on or before ten (10) days from the date hereof due to the Company’s or such Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7 above (and a non-breaching party’s
failure to waive such unsatisfied condition(s)), any such non-breaching party at any time shall have the right to terminate its obligations under this Agreement with respect to such breaching party on or after the close of business on such date
without liability of such non-breaching party to any other party; provided, however, that the abandonment of the sale and purchase of the Common Shares and the Warrants shall be applicable only to such non-breaching party providing
such written notice; provided further, notwithstanding any such termination the Company shall remain obligated to reimburse the non-breaching Buyers for the expenses described in Section 4(g) above. Nothing contained in this
Section 8 shall be deemed to release any party from any liability for any breach by such party of the terms and provisions of this Agreement or the other Transaction Documents or to impair the right of any party to compel specific performance
by any other party of its obligations under this Agreement or the other Transaction Documents. 
  

	9.	MISCELLANEOUS. 

 (a) Governing Law; Jurisdiction;
Jury Trial. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL
FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. 
 (b) Counterparts. This Agreement may be executed in two or more identical counterparts, all of which 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. In the event that any signature is delivered by facsimile transmission or by an e-mail which contains a portable document format (.pdf) file of an executed signature page, such signature page 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 signature page were an original thereof. 
  

 31 







 (c) Headings; Gender. The headings of this Agreement are for convenience of reference and shall
not form part of, or affect the interpretation of, this Agreement. Unless the context clearly indicates otherwise, each pronoun herein shall be deemed to include the masculine, feminine, neuter, singular and plural forms thereof. The terms
“including,” “includes,” “include” and words of like import shall be construed broadly as if followed by the words “without limitation.” The terms “herein,”
“hereunder,” “hereof” and words of like import refer to this entire Agreement instead of just the provision in which they are found. 
 (d) Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder
of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. 
 (e)
Entire Agreement; Amendments. This Agreement, the other Transaction Documents and the schedules and exhibits attached hereto and thereto and the instruments referenced herein and therein supersede all other prior oral or written agreements
between the Buyers, the Company, their affiliates and Persons acting on their behalf with respect to the matters contained herein and therein, and this Agreement, the other Transaction Documents, the schedules and exhibits attached hereto and
thereto and the instruments referenced herein and therein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any
Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended or waived other than by an instrument in writing signed by the Company and the holders of at least a
majority of the Common Shares issued and issuable hereunder, and any amendment or to, or waiver of any provision of, this Agreement made in conformity with the provisions of this Section 9(e) shall be binding on all Buyers and holders of
Securities, as applicable, provided that any party may give a waiver in writing as to itself. No such amendment or waiver (unless given pursuant to the foregoing proviso) shall be effective to the extent that it applies to less than all of
the holders of the Common Shares then outstanding. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration also is
offered to all of the parties to the Transaction Documents, holders of Common Shares or holders of the Warrants (as the case may be). The Company has not, directly or indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except as set forth in the Transaction Documents. Without limiting the foregoing, the Company confirms that, except as set forth in this Agreement, no Buyer has made any
commitment or promise or has any other obligation to provide any financing to the Company, any Subsidiary or otherwise. 
 (f)
Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with an


  

 32 







 
overnight courier service with next day delivery specified, in each case, properly addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be: 
  

					
	If to the Company:
		
		  	Royale Energy, Inc.
		  	7676 Hazard Center Drive, Suite 1500
		  	San Diego, California 92108
		  	Telephone:	 	(619) 881-2800
		  	Facsimile:	 	(619) 881-2899
		  	Attention:	 	Stephen M. Hosmer
	
	With a copy (for informational purposes only) to:
		
		  	Strasburger & Price, LLP
		  	600 Congress Avenue, Suite 1600
		  	Austin, Texas 78701
		  	Telephone:	 	(512) 499-3600
		  	Facsimile:	 	(512) 499-3660
		  	Attention:	 	Lee Polson
	
	If to the Transfer Agent:
		
		  	American Stock Transfer
		  	59 Maiden Lane
		  	New York, NY 10038
		  	Telephone:	 	(718) 921-8257
		  	Facsimile:	 	(718) 236-4588
		  	Attention:	 	Joe Alicia

 If to a Buyer, to its address and facsimile number set forth on the Schedule of Buyers, with copies to such
Buyer’s representatives as set forth on the Schedule of Buyers, 
  

					
	
	with a copy (for informational purposes only) to:
		
		  	Greenberg Traurig, LLP
		  	77 W. Wacker Drive, Suite 2400
		  	Chicago, Illinois 60602
		  	Telephone:	 	(312) 456-8400
		  	Facsimile:	 	(312) 456-8435
		  	Attention:	 	Peter H. Lieberman, Esq.
		  		 	Todd A. Mazur, Esq.

  
 or to such other address and/or facsimile
number and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change provided, that Greenberg Traurig, LLP shall only
be provided 

  

 33 







 
copies of notices sent to Cranshire. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication,
(B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by an overnight courier service
shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (i), (ii) or (iii) above, respectively. 
 (g) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of any of the Securities. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the holders of at least a majority of the aggregate number of
Registrable Securities issued and issuable under the Transaction Documents, including, without limitation, by way of a Fundamental Transaction (as defined in the Warrants) (unless the Company is in compliance with the applicable provisions governing
Fundamental Transactions set forth in the Warrants). A Buyer may assign some or all of its rights hereunder in connection with transfer of any of its Securities without the consent of the Company to no more than five (5) Persons (and, with the
consent of the Company (which consent shall not be unreasonably withheld), to more than five (5) Persons), in which event such assignee shall be deemed to be a Buyer hereunder with respect to such assigned rights. 
 (h) No Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, other than the Indemnitees referred to in Section 9(k). 
 (i) Survival. The representations, warranties, agreements and covenants shall survive the Closing. Each Buyer shall be responsible only for its own representations, warranties, agreements and covenants
hereunder. 
 (j) Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and
things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation
of the transactions contemplated hereby. 
 (k) Indemnification. In consideration of each Buyer’s execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to all of the Company’s other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless each Buyer and each holder
of any Securities and all of their stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing Persons’ agents or other representatives (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages,
and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified
Liabilities”), incurred by any Indemnitee as a result of, or 

  

 34 







 
arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in any of the Transaction
Documents, (b) any breach of any covenant, agreement or obligation of the Company contained in any of the Transaction Documents or (c) any cause of action, suit or claim brought or made against such Indemnitee by a third party (including
for these purposes a derivative action brought on behalf of the Company) and arising out of or resulting from (i) the execution, delivery, performance or enforcement of any of the Transaction Documents, (ii) any transaction financed or to
be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, (iii) any disclosure properly made by such Buyer pursuant to Section 4(i), or (iv) the status of such Buyer or holder of the
Securities as an investor in the Company pursuant to the transactions contemplated by the Transaction Documents, except, with respect to (1) clause (a), to the extent such Indemnified Liability arises solely from a Buyer’s material
misrepresentation or material breach of any representation or warranty made by such Buyer in this Agreement and (2) clause (c), to the extent such Indemnified Liability arises from an Indemnitee’s gross negligence, bad faith or willful
misconduct. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible
under applicable law. Except as otherwise set forth herein, the mechanics and procedures with respect to the rights and obligations under this Section 9(k) shall be the same as those set forth in Section 6 of the Registration Rights
Agreement. 
 (l) No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties
to express their mutual intent, and no rules of strict construction will be applied against any party. Notwithstanding anything contained in this Agreement to the contrary, or any references to “Buyers” herein, Cranshire and the Company
acknowledge and agree that Cranshire is the only Buyer party to the transactions contemplated by this Agreement. 
 (m) Remedies. Each
Buyer and each holder of any Securities shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any Person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any
breach of any provision of this Agreement and to exercise all other rights granted by law. Furthermore, the Company recognizes that in the event that it fails to perform, observe, or discharge any or all of its obligations under the Transaction
Documents, any remedy at law may prove to be inadequate relief to the Buyers. The Company therefore agrees that the Buyers shall be entitled to seek specific performance and/or temporary, preliminary and permanent injunctive or other equitable
relief from any court of competent jurisdiction in any such case without the necessity of proving actual damages and without posting a bond or other security. 
 (n) Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Buyer exercises a right, election, demand or
option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Buyer may rescind or withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights 
  

 35 







 (o) Payment Set Aside. To the extent that the Company makes a payment or payments to any Buyer
hereunder or pursuant to any of the other Transaction Documents or any of the Buyers enforce or exercise their rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, foreign, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. 
 (p)
Independent Nature of Buyers’ Obligations and Rights. The obligations of each Buyer under the Transaction Documents are several and not joint with the obligations of any other Buyer, and no Buyer shall be responsible in any way for the
performance of the obligations of any other Buyer under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Buyer pursuant hereto or thereto, shall be deemed to constitute the Buyers
as, and the Company acknowledges that the Buyers do not so constitute, a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption that the Buyers are in any way acting in concert or as a group or
entity with respect to such obligations or the transactions contemplated by the Transaction Documents or any matters, and the Company acknowledges that the Buyers are not acting in concert or as a group, and the Company shall not assert any such
claim, with respect to such obligations or the transactions contemplated by the Transaction Documents. The decision of each Buyer to purchase Securities pursuant to the Transaction Documents has been made by such Buyer independently of any other
Buyer. Each Buyer acknowledges that no other Buyer has acted as agent for such Buyer in connection with such Buyer making its investment hereunder and that no other Buyer will be acting as agent of such Buyer in connection with monitoring such
Buyer’s investment in the Securities or enforcing its rights under the Transaction Documents. The Company and each Buyer confirms that each Buyer has independently participated with the Company in the negotiation of the transaction contemplated
hereby with the advice of its own counsel and advisors. Each Buyer shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of any other Transaction Documents,
and it shall not be necessary for any other Buyer to be joined as an additional party in any proceeding for such purpose. The use of a single agreement to effectuate the purchase and sale of the Securities contemplated hereby was solely in the
control of the Company, not the action or decision of any Buyer, and was done solely for the convenience of the Company and not because it was required or requested to do so by any Buyer. It is expressly understood and agreed that each provision
contained in this Agreement and in each other Transaction Document is between the Company and a Buyer, solely, and not between the Company and the Buyers collectively and not between and among the Buyers. 
  

 36 







 (q) Certain Adjustments. 
 (i) If and whenever on or after the date hereof until the earlier to occur of (i) the five (5) year anniversary of the Closing
Date or (ii) the date on which the Buyers no longer hold any Registrable Securities, the Company issues or sells (or in accordance with the provisions set forth in Section 2 of the Warrants is deemed to have issued or sold) (whether
through a Subsequent Placement or otherwise) any shares of Common Stock or Equivalents (including the issuance or sale of shares of Common Stock or Equivalents owned or held by or for the account of the Company, but excluding any Excluded Securities
issued or sold or deemed to have been issued or sold) for a consideration per share that has a discount greater than 15% from the highest of (i) the Closing Sale Price (as defined below) on the date the term sheet relating to such issuance or
sale (or deemed issuance or sale) is executed, (ii) the Closing Sale Price on the date the purchase agreement relating to such issuance or sale (or deemed issuance or sale) is executed and (iii) the Closing Sale Price on the date such
issuance or sale (or deemed issuance or sale) is consummated (such greatest discount being referred to as the “Applicable Discount”) (the foregoing a “Dilutive Issuance”), then immediately after such Dilutive
Issuance, the Company shall issue without the payment of additional consideration, in connection with such Dilutive Issuance, a number of additional shares of Common Stock to each of the Buyers equal to difference between (1) the aggregate
number of shares of Common Stock that would have been issued to such Buyer at the Closing had such Applicable Discount applied to the Share Price (as defined below), based on such Buyer’s Purchase Price paid at the Closing minus (2) the
aggregate number of shares of Common Stock equal to the sum of the number of shares of Common Stock initially issued to such Buyer at the Closing (adjusted for stock splits, combinations, dividends and the like), plus, to the extent there has been a
previous issuance of Adjustment Shares (as defined below) to such Buyer, the number of Adjustment Shares previously issued to such Buyer (adjusted for stock splits, combinations, dividends and the like). For purposes of this Section 9(q),
(I) “Share Price” means $8.59 per share (as adjusted for stock splits, combinations, dividends and the like); (II) “Adjustment Shares” means shares of Common Stock issued to pursuant to this Section 9(q);
and (III) “Closing Sale Price” means, for any security as of any date, the last closing trade price for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended
hours basis and does not designate the closing trade price, then the last trade price of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last trade price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing does not apply, the last trade price of such
security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no last trade price is reported for such security by Bloomberg, the average of the ask prices of any market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale
Price of such security on such date shall be the fair market value as mutually determined by the Company and the applicable Buyer. If the Company and such Buyer are unable to agree upon the fair market value of such security, then such dispute shall
be resolved in 

  

 37 







 
accordance with the procedures in Section 13 of such Buyer’s Warrants. All such determinations shall appropriately adjusted for any stock dividend,
stock split, stock combination or other similar transaction during such period. For purposes of the foregoing, the consideration per share at which the Company issues or sells (or is deemed to have issued or sold) shares of Common Stock or
Equivalents shall be determined in accordance with the provisions of Section 2(b) of the Warrants issued to the Buyers pursuant to this Agreement. Promptly following the occurrence of each Dilutive Issuance giving rise to the obligation to
issue any Adjustment Shares (but in no event more than three (3) Trading Days thereafter), the Company shall issue irrevocable instructions authorizing and directing its transfer agent to issue (and the Company shall cause its transfer agent to
promptly deliver (but in no event in more than three (3) Trading Days) such Adjustment Shares to each Buyer. The Company represents, warrants and covenants that the issuance of all Adjustment Shares will be duly authorized and upon issuance in
accordance with the terms of the Transaction Documents shall be validly issued, fully paid and non-assessable and free from all taxes, liens, charges and other encumbrances with respect to the issue thereof. 
 (ii) In implementation of the foregoing, to the extent that an issuance of Adjustment Shares would result in a Buyer or any of its
affiliates beneficially owning in excess of 9.99% (the “Maximum Percentage”) of the outstanding shares of Common Stock immediately following such issuance, then the Company shall initially only issue such number of Adjustment Shares
that would result in such Buyer (together with such Buyer’s affiliates) beneficially owning the Maximum Percentage of the outstanding shares of Common Stock, and, except as otherwise provided below, no other Adjustment Shares shall be issuable
under this Section 9(q). After such initial issuance, and until all Adjustment Shares which otherwise would have been issued under this Section 9(q) have been issued, from time to time the Company will issue such number of such unissued
Adjustment Shares so that such Buyer (together such Buyer’s affiliates) will beneficially own only the Maximum Percentage of the outstanding shares of Common Stock. Such Buyer shall make representations and warranties to the Company regarding
its (together with its affiliates’) beneficial ownership to effectuate the foregoing. The Maximum Percentage limitation contained in this paragraph and the limitation on exercise contained in Section 1(f)(i) of the Warrants issued to the
such Buyer pursuant to this Agreement shall be coordinated so that the aggregate beneficial ownership of such Buyer (together with its affiliates) does not exceed the Maximum Percentage limitation. In connection therewith, issuances pursuant to this
Section 9(q) shall take precedence over issuances of any Warrants Shares issuable to such Buyer. The provisions of this paragraph shall be implemented in a manner otherwise than in strict conformity with the terms this paragraph to correct this
paragraph (or any portion hereof) which may be defective or inconsistent with the intended Maximum Percentage beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such
Maximum Percentage limitation. The limitations contained in this paragraph shall apply to assignees of such Buyer hereunder. The holders of Common Stock of the Company shall be third party beneficiaries of this paragraph and the Company may not
waive this paragraph without the consent of holders of a majority of its Common Stock. For the purposes of this paragraph, beneficial ownership and all determinations and calculations (including, without limitation, with respect to calculations of
percentage ownership) shall be determined by such Buyer in accordance with Section 13(d) of the 1934 Act and the rules and regulations promulgated thereunder. 
 [signature pages follow] 
  

 38 







 IN WITNESS WHEREOF, Buyer and the Company have caused their respective signature page to this
Agreement to be duly executed as of the date first written above. 
  

			
	COMPANY:
	
	ROYALE ENERGY, INC.
		
	By:	 	 /s/ Stephen M. Hosmer

	Name:	 	Stephen M. Hosmer
	Title:	 	Executive Vice President & Chief Financial Officer








 IN WITNESS WHEREOF, Buyer and the Company have caused their respective signature page to this
Agreement to be duly executed as of the date first written above. 
  

			
	BUYER:
	
	CRANSHIRE CAPITAL, L.P.
		
	By:	 	Downsview Capital, Inc.
	Its:	 	General Partner
	
	 /s/ Mitch Kopin

	By:	 	Mitch Kopin
	Its:	 	President








 SCHEDULE OF BUYERS 
  

													
	(1)	  	(2)	  	(3)	  	(4)	  	(5)	  	(6)
	 Buyer
	  	 Address and Facsimile Number
	  	Aggregate
Number of
Common
Shares	  	Aggregate
Number of
Warrant
Shares	  	Purchase Price	  	 Legal Representative’s
 Address and Facsimile Number

	 Cranshire Capital, L.P.
	  	 3100 Dundee Road, Suite 703
 Northbrook, Illinois 60062
 Attn: Mitchell P. Kopin
	  	547,945	  	191,781	  	$3,999,998.50	  	 Greenberg Traurig, LLP
 77 W. Wacker Drive, Suite 2400
 Chicago, Illinois 60601

		  	Facsimile: (847) 562-9031	  		  		  		  	Attention:	  	Peter H. Lieberman
		  		  		  		  		  		  	Todd A. Mazur
		  		  		  		  		  	Facsimile:	  	(312) 456-8435
		  		  		  		  		  	Telephone:	  	(312) 456-8400







 EXHIBITS 
  

			
	Exhibit A	 	Form of Warrant
	Exhibit B	 	Form of Registration Rights Agreement

  

			
	Schedule 3(q)	 	Transactions with Affiliates
	Schedule 3(r)	 	Capitalization
	Schedule 3(s)	 	Indebtedness and Other Contracts