Document:

sfg8k100407ex10-1.htm

    
      

      

    

     

    
      EMPLOYMENT
        AGREEMENT

      

      This
        Employment Agreement (“Agreement”) is entered into as of October 4, 2007
        (“Effective Date”) between SFG Financial Corporation (“Company”) and Leonard
        Neuhaus (“Executive”).

      

      RECITALS

      

      Company
        wishes to retain Executive as its Chief Executive Officer and President and
        Executive wishes to accept such employment under the terms and conditions
        set
        forth in this Agreement.

      

      IT
        IS AGREED as follows:

      

      1.         Employment.
        Company hereby offers Executive employment as its Chief Executive Officer
        and
        President. Executive accepts such employment.

      

      2.         Term.
        The term of employment under this Agreement shall commence on the
        Effective Date and shall continue thereafter for a period of three (3) years,
        unless otherwise terminated earlier under Section 9 (the “Term”). The Term shall
        be automatically extended for an additional one (1) year period unless at
        least
        sixty (60) days prior to its expiration, either Company or Executive furnishes
        the other with written notice that the Term not be so extended.

      

      3.         Duties.
        Executive shall devote his full-time efforts to the proper and faithful
        performance of all duties customarily discharged by a Chief Executive Officer
        and President, consistent with Company policies and budgets and directives
        of
        Company’s Board of Directors together with any additional duties assigned to him
        from time to time by the Board of Directors. Executive agrees to use his
        best
        efforts and comply with all fiduciary and professional standards in the
        performance of his duties. Executive shall provide services to any subsidiary
        or
        affiliate of Company without additional compensation and benefits beyond
        those
        set forth in this Agreement.  For so long as he serves as Chief
        Executive Officer and President of the Company, the Executive shall also
        serve
        as a Director of the Company, subject to election by the
        shareholders.

      

      Provided
        that the activities listed
        below do not materially interfere with the duties and responsibilities under
        this Agreement, nothing in this Agreement shall preclude Executive from devoting
        reasonable periods required for:

      

      
        	
                 

              	
                (a)

              	
                Serving
                  as a member of any organization involving no conflict of interest
                  with the
                  Company;

              

      

      

      
        	
                 

              	
                (b)

              	
                Serving
                  as a consultant in his area of expertise to government, commercial
                  and
                  academic panels where it does not conflict with the interests of
                  Executive; and

              

      

      

      
        	
                 

              	
                (c)

              	
                Managing
                  his personal investments or engaging in any other non-competing
                  business
                  activity during his non-business
                  time;

              

      

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      
        	
                 

              	
                (d)

              	
                Serving
                  as a member of the Board of Directors or in an advisory capacity
                  to
                  government, commercial and academic panels where it does not conflict
                  with
                  the interests of Executive.

              

      

      

      4.         Base
        Salary. Executive shall be paid a base salary of Two Hundred Thousand
        Dollars ($200,000.00) per annum for the first year of the Term, Two Hundred
        Fifteen Thousand Dollars ($215,000.00) per annum for the second year of the
        Term
        and Two Hundred Twenty Five Thousand Dollars ($225,000.00) per annum for
        the
        third year of the Term, payable, less applicable withholding, in equal monthly
        payments or more frequently in accordance with Company’s regular practice.
        Notwithstanding the foregoing, the base salary for the period from the Effective
        Date through December 31, 2007 (“Deferred Salary”) shall be accrued but not paid
        to the Executive in accordance with Company’s regular practice and the Deferred
        Salary shall be due and payable to the Executive anytime on or after January
        1,
        2008, upon demand of the Executive. Upon any extension of the Term, Executive’s
        base salary will be set by the Compensation Committee of Company; provided,
        however, that Executive’s base salary shall not be reduced from the base salary
        in effect immediately prior to extension of the Term.

      

      5.         Bonus.
        Executive shall be eligible to receive an
        incentive bonus during each fiscal year of the Term as determined by the
        Compensation Committee of Company.

      

      6.         Restricted
        Stock. The Company shall issue to Executive on each anniversary of the
        date hereof, the following number of shares of restricted common
        stock:  first year – 250,000 shares; second year – 300,000 shares,
        and; third year – 350,000 shares. In the event the Company shall have earnings
        before interest, taxes, depreciation and amortization (“EBITDA”), for the
        following years, the Company shall issue additional restricted shares of
        common
        stock to the Executive, as set forth below:

      

      
        	
                 

              	 	
                Target

              	 	 	
                Bonus

              	 
	
                
                  Year
                    Ended January 31,

                

              	 	
                EBITDA

              	 	 	
                Shares

              	 
	 	 	 	 	 	 	 
	
                2009

              	 	$	
                1

              	 	 	 	
                500,000

              	 
	
                2010

              	 	$	
                2,000,000

              	 	 	 	
                600,000

              	 
	
                2011

              	 	$	
                10,000,000

              	 	 	 	
                1,000,000

              	 

      

      

      In
        the
        event the Company achieves EBITDA of at least 25% of the target EBITDA during
        the second or third years of the Term of this Agreement, the Executive shall
        earn and be issued a pro rata amount of the bonus shares for achievement
        of 25%,
        50% and 75% of the target EBITDA.  In the event the Company changes it
        fiscal year, the year end target date shall be adjusted
        accordingly.

      

      All
        shares amounts referenced herein
        assume completion of a one-for-7.351808 reverse stock split which has been
        authorized by the Board of Directors but not yet effectuated.  In the
        event the restricted shares are issued to the effectuation of such reverse
        stock
        split, all share amounts referenced above shall be multiplied by
        7.351808.

      

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      
        	
                 

              	
                7.

              	
                Benefits.

              

      

      

      
        	
                 

              	
                (a)

              	
                Executive
                  shall be entitled to participate in all Company sponsored retirement
                  plans, 401(k) plans, life insurance plans, medical insurance plans,
                  short-term and long-term disability insurance plans, and such other
                  benefit plans generally available from time to time to executive
                  management of the Company for which he qualifies under the terms
                  of the
                  plans. Executive’s participation in and benefits under any benefit plan
                  shall be on the terms and subject to the conditions specified in
                  such
                  plan.

              

      

      

      
        	
                 

              	
                (b)

              	
                Executive
                  will receive at least four (4) weeks of paid vacation per
                  year,

              

      

      

      
        	
                 

              	
                (c)

              	
                The
                  Company shall maintain directors’ and officers’ insurance for the benefit
                  of Executive.

              

      

      

      
        	
                 

              	
                (d)

              	
                Executive
                  shall be entitled to participate in any stock options enacted,
                  as
                  determined by the compensation committee or Board of
                  Directors.

              

      

      

      8.         Reimbursement
        of Expenses. The Company will reimburse Executive for the ordinary and
        necessary expenses incurred by him in the performance of his duties under
        this
        Agreement, including but not limited to travel and entertainment, automobile
        and
        cellular phone expenses.

      

      
        	
                 

              	
                9.

              	
                Termination
                  of Employment.

              

      

      

      (a)        Executive’s
        employment under this Agreement may be terminated at any time by the Board
        of
        Directors of Company for Cause.

      

      (b)        Executive’s
        employment under this Agreement shall terminate upon expiration of the Term
        without extension as described in Section 2.

      

      (c)        Executive’s
        employment under this Agreement shall terminate upon his retirement, resignation
        or death,

      

      (d)        Executive’s
        employment under this Agreement shall terminate upon written notice by Company
        to Executive of a termination due to Disability.

      

      (e)        If
        Executive’s employment terminates for Cause, Company shall be obligated only to
        continue to pay Executive’s base salary and, to the extent earned, accrued and
        unpaid, annual incentive bonus and furnish the then existing benefits under
        Section 7 up to the date of termination; provided, that if Executive’s
        employment is terminated as a result of Executive’s Disability, Executive shall
        remain eligible for benefits under any long-term disability program of Company,
        as amended from time to time, as long as his Disability continues. Executive
        shall also he entitled to reimbursement of all expenses and payment of any
        Deferred Salary.

      

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      (f)         If
        Executive’s employment is terminated by Company other than for Cause, or upon
        expiration of the Term without extension, or by Executive for Good Reason,
        in
        addition to the amounts payable under Section 9(e), Executive shall be entitled
        to receive all compensation due for the remaining term of the agreement and
        a
        lump sum severance payment equivalent to one week of his then current base
        salary for every month of service, with a minimum of three months equivalent,
        and medical and other insurance benefits under Section 7(a) for a period
        of
        twelve (12) months. Further, any restricted stock earned at the time of
        termination, will be issued to Executive. As a condition to the salary and
        benefit continuation under this Section 9(f), Executive must first execute
        and
        deliver to Company, in a form prepared by Company, a release of all claims
        against Company and other appropriate parties, excluding Company’s performance
        under this Section 9(f) and of Executive’s vested rights under any Company
        sponsored retirement plans, 401(k) plans and stock ownership plans. Executive
        shall also be entitled to reimbursement of all expenses.

      

      (g)        Resignation
        from Board. Upon any termination of the Executive’s employment
        hereunder, the Executive shall be deemed to have resigned as a member of
        the
        Board of the Company or any subsidiaries on which he serves, including any
        committees thereof, effective as of his date of termination.

      

      

      
        	
                10.

              	
                Definitions.
                  The meaning of certain terms in this Agreement are as
                  follows:

              

      

      

      
        	
                (a)

              	
                “Cause”
                  shall consist of any of the
                  following:

              

      

      

      
        	
                 

              	
                (i)

              	
                the
                  Executive is convicted of, or has pleaded guilty or entered a plea
                  of nolo
                  contendere to, a felony (under the laws of the United States or
                  any state
                  there of);

              

      

      

      
        	
                 

              	
                (ii)

              	
                fraudulent
                  conduct by the Executive in connection with the business or other
                  affairs
                  of the Company or any related company or the theft, embezzlement,
                  or other
                  criminal misappropriation of funds by the Executive from the Company
                  or
                  any related company;

              

      

      

      
        	
                 

              	
                (iii)

              	
                the
                  Executive’s failure to perform the duties of the Chief Executive Officer,
                  after reasonable notice has been provided of such non-performance
                  and, if
                  such failure is curable, Executive has not cured such failure within
                  a
                  reasonable period following such notice;
                  or

              

      

      

      
        	
                 

              	
                (iv)

              	
                the
                  Executive’s failure to comply with reasonable directives of the Board
                  which are communicated to him in writing, after reasonable notice
                  has been
                  provided of such non-performance and, if such failure is curable,
                  Executive has not cured such failure within a reasonable period
                  following
                  such notice.

              

      

      

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      
        	
                 

              	
                (b)

              	
                “Disability”
                  means the inability of Executive, due to injury, illness, disease
                  or
                  bodily or mental infirmity, to engage in the performance of his
                  material
                  duties of employment with Company as determined in good faith by
                  Company,
                  for (i) any period of ninety (90) consecutive days or (ii) a period
                  of one
                  hundred eighty days (180) in any continuous twenty-four (24) month
                  period,
                  provided that interim returns to work of less than ten (10) consecutive
                  business days in duration shall not be deemed to interfere with
                  a
                  determination of consecutive absent days if the reason for absence
                  before
                  and after the interim return are the same. Benefits to which Executive
                  is
                  entitled under any disability policy or plan provided by Company
                  shall
                  reduce the base salary paid to Executive during any period of Disability
                  on a dollar-for-dollar basis.

              

      

      

      
        	
                 

              	
                (c)

              	
                “Good
                  Reason” means (A) any material reduction in the Base Salary or duties and
                  responsibilities of Executive or (B) any material breach by the
                  Company of
                  this Agreement or any other agreement between Executive and the
                  Company,
                  or any affiliate of’ the Company, that continues without cure for a period
                  of thirty (30) days after notice of such breach is given by Executive
                  to
                  the Company.

              

      

      

      

      11.       Confidential
        Information. During Executive’s employment with the Company and at all
        times after the termination of such employment, regardless of the reason
        for’
such termination, Executive shall hold all Confidential Information relating
        to
        the Company in strict confidence and shall not use, disclose or otherwise
        communicate the Confidential Information to anyone other than the Company
        without the prior written consent of the Company. “Confidential Information”
includes, without limitation, financial information, trade secrets, business
        plans, business methods or practices, market studies, customer lists, referral
        lists and other proprietary business information of the Company. “Confidential
        Information” shall not include information which is or becomes in the public
        domain through no action by Executive or information which is generally
        disclosed by the Company to third parties without restrictions on such third
        parties. Executive shall return all Confidential Information to the Company
        upon
        termination of employment.

      

      12.       Solicitation
        of Customers. During his employment with the Company and for a period
        after the termination of Executive’s employment, regardless of the reason for
        the termination, equal to the greater of (a)one (1) year or (b) the period
        for
        which Executive receives payment of his base salary under Section 9(f) (the
        “Non-Competition Period”), Executive shall not influence or attempt to
        influence, directly or indirectly, any customer of the Company to divert
        its
        business away from the Company.

      

      13.       Soliciting
        Employees. Executive agrees that during his employment with the Company
        and during the Non-Competition Period, he will not directly or indirectly
        solicit any person who is then, or at any time within six months prior thereto
        was, an employee of the Company to work for any person or entity then in
        competition with the Company.

      

      14.       Non-Competition.
        During his employment with the Company and for a one-year period
        after
        termination of Executive’s employment, Executive shall not, directly or
        indirectly, in any capacity:

      

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      
        	
                 

              	
                (a)

              	
                Engage,
                  own or have any interest in;

              

      

      

      
        	
                 

              	
                (b)

              	
                Manage,
                  operate, join, participate in, accept employment with, render advice
                  to,
                  or become interested in or be connected
                  with;

              

      

      

      
        	
                 

              	
                (c)

              	
                Furnish
                  consultation or advice to; or

              

      

      

      
        	
                 

              	
                (d)

              	
                Permit
                  his name to be used in connection
                  with;

              

      

      

      any
        person or entity that competes with the business of the Company. Notwithstanding
        the foregoing, holding five percent (5%) or less of an interest in the equity,
        stock options or debt of any publicly traded company shall
        not be considered a violation of this Section
        14.

      

      15.       Remedies.
        In the event of a material breach or threatened material breach of Section
        11,
        Section 12, Section 13 or Section 14, Company, in addition to its other remedies
        at law or in equity, shall be entitled to injunctive or other equitable relief
        in order to enforce or prevent any violations of the aforementioned Sections.
        In
        the event of any such material breach, if applicable Company may immediately
        cease payment of Executive’s base salary and the providing to Executive of
        benefits under Section 9(f).

      

      16.       Severability
        and Savings. Each provision in this Agreement is separate. If necessary
        to effectuate the purpose of a particular provision, the Agreement shall
        survive
        the termination of Executive’s employment with the Company. If any provision of
        this Agreement, in whole or in part, is held to he invalid or unenforceable,
        the
        parties agree that any such provision shall be deemed modified to make such
        provision enforceable to the maximum extent permitted by applicable law.
        As to
        any provision held to he invalid or unenforceable, the remaining provisions
        of
        this Agreement shall remain in effect.

      

      17.       Binding
        Effect. This Agreement shall he binding upon and shall inure to the
        benefit of Company and its successors and assigns. This Agreement shall be
        binding upon and inure to the benefit of Executive, his heirs and personal
        representatives. This Agreement is not assignable by Executive.

      

      18.       Indemnification.
        The Company shall defend, indemnify and hold harmless Executive
        (and
        his heirs and personal representatives) in his capacity as an officer and
        director of the Company to the fullest extent permitted by applicable law
        against any losses or damages incurred by Executive in connection with any
        action, suit or proceeding to which Executive may be made a party by reason
        of
        his being or having been an officer or director of the Company, or because
        of
        actions taken by Executive which were believed by Executive to be in the
        best
        interests of the Company and not in violation of applicable law, and Executive
        shall be entitled to be covered by any directors’ and officers’ liability
        insurance policies which the Company maintains for the benefit of its directors
        and officers, subject to the limitations of any such policies. The Company
        shall
        have the right to assume, with legal counsel of its choice, who shall be
        reasonably acceptable to Executive, the defense of Executive in any such
        action,
        suit or proceeding for which the Company is providing indemnification to
        Executive. Should Executive determine to employ separate legal counsel in
        any
        such action, suit or proceeding, any costs and expenses of such separate
        legal
        counsel shall be the sole responsibility of Executive unless the Executive
        shall
        have reasonably concluded, based upon the written of legal counsel to the
        Executive, a copy of which shall be furnished to the Company, that there
        may be
        conflicts in the defenses available to the Executive which are different
        from or
        additional to those available to the Company (if the Company is also a party
        or
        potential party to the claim), in which case the reasonable costs and expenses
        of such separate legal counsel shall he borne by the Company. If the Company
        does not assume the defense of any such action, suit or proceeding, the Company
        shall, upon the request of the Executive, promptly advance or pay any amount
        for
        costs or expenses, including the reasonable fees of counsel retained by
        Executive, incurred by Executive in connection with such action, suit or
        proceeding; provided that Executive agrees in writing to repay any such amounts
        advanced if it is ultimately determined by a court of competent jurisdiction
        that Executive is not entitled to such indemnification. Executive shall be
        entitled to indemnification under this clause regardless of any subsequent
        amendments of the Certificate of Incorporation or By-Laws of the
        Company.

      

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      
        	
                 

              	
                19.

              	
                Miscellaneous.

              

      

      

      
        	
                 

              	
                (a)

              	
                No
                  provision of this Agreement may be modified, waived or discharged
                  unless
                  such waiver, modification or discharge is agreed to in writing
                  and signed
                  by the Company and Executive. The waiver or non-enforcement by
                  the Company
                  of a breach by Executive of any provision of this Agreement shall
                  not be
                  constructed as a waiver of any subsequent breach by
                  Executive.

              

      

      

      
        	
                 

              	
                (b)

              	
                Any
                  notice under this Agreement must be in writing and delivered personally
                  or
                  by overnight courier, sent by facsimile transmission or mailed
                  by
                  registered or certified mail to the parties at their
                  respective addresses.

              

      

      

      
        	
                 

              	
                (c)

              	
                This
                        Agreement shall be governed by the laws of the State of’ New
                  York.

              

      

      

      
        	
                 

              	
                (d)

              	
                This
                  Agreement may be executed in counterparts, which together shall
                  constitute
                  one Agreement.

              

      

      

      
        	
                 

              	
                (e)

              	
                By
                  their signatures below, the parties acknowledge that they have
                  had
                  sufficient opportunity to read and consider, and that they have
                  carefully
                  read and considered, each provision of this Agreement and that
                  they are
                  voluntarily signing this Agreement.

              

      

      

      
        	
                 

              	
                (f)

              	
                All
                  notices and other communications under this Agreement shall be
                  in writing
                  and may be given by personal delivery, registered or certified
                  mail,
                  postage prepaid, return receipt requested or generally recognized
                  overnight delivery service. Notices shall be sent to the appropriate
                  party
                  at the following addresses:

              

      

      

      
        	
                 

              	
                Executive:

              	
                315 East
                  72 Street

              

      

      Apartment
        18 H

      New
        York,
        NY 10021

      

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

      
        	
                 

              	
                Company:

              	
                255
                  Executive Dr.

              

      

      Suite
        408

      Plainview,
        NY 11803

      Attn:  Ralph
        Balzano, Chairman

      

      All
        such
        notices and communications shall be deemed received upon (a) actual receipt
        by
        addressee or (b) actual delivery to the appropriate address.

      

      
        	
                 

              	
                (g)

              	
                This
                  Agreement may he executed in counterparts, both of which shall
                  be
                  considered an original, but both of which together shall constitute
                  the
                  same instrument.

              

      

      

      
        	
                 

              	
                (h)

              	
                This
                  Agreement contains the complete statement of all arrangements between
                  the
                  parties with respect to its subject matter, supersedes all prior
                  agreements between them with respect to that subject matter, and
                  may not
                  be changed or terminated orally. Any amendment or modification
                  must be in
                  writing and signed by the party to be
                  charged.

              

      

      

      

      [Intentionally
        Blank]

      

      

      

      

      

      

      

      

      

      

      

      

      

      

      

      

      

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      IN
        WITNESS WHEREOF the parties have executed this Employment Agreement
        effective as of the day and year first above written.

      

      

      
        	 	
                SFG
                  FINANCIAL CORPORATION

              
	 	 	 
	 	 	 
	 	 	 
	 	
                By:

              	
                /s/
                  RALPH BALZANO

              
	 	 	
                Name:
                  Ralph Balzano

              
	 	 	
                Title:
                  Chairman

              
	 	 	 
	 	 	 
	 	 	 
	 	 	
                /s/
                  LEONARD NEUHAUS

              
	 	 	
                Leonard
                  Neuhaus

              

      

      

      

      

      

      

      

      

      

      

      

      

      

      

      

      

      

      

      

       

       

      
 

      

9Exhibit 4.5

 

THIS WARRANT AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT
AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO GEOPETRO
RESOURCES COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

 

Right to Purchase up to 60,078 Shares of
Common Stock of

 

GEOPETRO RESOURCES COMPANY

 

(subject to adjustment as provided herein)

 

COMMON STOCK PURCHASE WARRANT

 

	
  Certificate No. 0807 11

  	
   

  	
  Issue Date:
  August 13, 2007

  

 

VOID
AFTER 5:00 P.M. LOCAL TIME, August 13, 2010

 

GEOPETRO RESOURCES COMPANY, a corporation
organized under the laws of the State of California (the “Corporation”),
hereby certifies that, for value received, ECS Capital Management, L.P. or
assigns (the “Holder”), is entitled, subject to the terms set forth
below, to purchase from the Corporation (as defined herein) from and after the
Issue Date of this Common Stock Purchase Warrant (“Warrant”) and at any
time or from time to time before 5:00 p.m. local time through the close of
business on August 13, 2010 (the “Expiration Date”), up to 60,078  fully paid and nonassessable shares of
Common Stock (as hereinafter defined), at the applicable Exercise Price (as
defined below) per share. The number and character of such shares of Common
Stock and the applicable Exercise Price per share are subject to adjustment as
provided herein.

 

As used herein the following terms, unless
the context otherwise requires, have the following respective meanings:

 

(a)           The term “Common
Stock” includes (i) the Corporation’s Common Stock; and (ii) any other
securities into which or for which any of the securities described in the
preceding clause (i) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.

 

(b)           The term “Corporation”
includes GeoPetro Resources Company and any corporation which shall succeed, or
assume the obligations of, GeoPetro Resources Company hereunder.

 

(c)           The “Exercise
Price” applicable under this Warrant shall be $3.85 per Common Share
(subject to adjustment pursuant to Section 4).

 

1

 

(d)           The term “Other
Securities” refers to any stock (other than Common Stock) and other securities
of the Corporation or any other person (corporate or otherwise) which the
holder of the Warrant at any time shall be entitled to receive, or shall have
received, on the exercise of the Warrant, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4
or otherwise.

 

(e)           The term “Subscription
Agreement” means the Subscription Agreement between the Corporation and the
Holder, accepted by the Corporation on August 13, 2007.

 

All other defined terms have the meaning
attributed to them in the Subscription Agreement.

 

1.             Exercise of Warrant.

 

1.1           Number of Shares Issuable upon Exercise. From and after the date hereof through and including the Expiration
Date, the Holder shall be entitled to receive, upon exercise of this Warrant in
whole or in part, by delivery to the Corporation of this Warrant Certificate,
an original copy of an exercise notice in the form attached hereto as Exhibit A
(the “Subscription Form”) duly completed and executed and the
satisfaction of the surrender and payment requirements of Section 2,
the number of shares of Common Stock of the Corporation set forth in the
Subscription Form, subject to adjustment pursuant to Section 5.

 

1.2           Corporation Acknowledgment. The Corporation will, at the time of the exercise of the Warrant,
upon the request of the Holder acknowledge in writing its continuing obligation
to afford to such Holder any rights to which such Holder shall continue to be
entitled after such exercise in accordance with the provisions of this Warrant.
If the Holder shall fail to make any such request, such failure shall not
affect the continuing obligation of the Corporation to afford to such Holder
any such rights.

 

1.3           Registration Statement. The Corporation will prepare and file the Registration Statement
(defined in the Subscription Agreement) in accordance with the terms of the
Registration Rights Agreement attached to the Subscription Agreement.

 

1.4           Legends.

 

(a)           Each
certificate for Common Stock issued upon exercise of this Warrant shall bear
the following legend:

 

“THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”). THESE SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY (A) TO GEOPETRO RESOURCES COMPANY (THE “CORPORATION”),
(B) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (C) IN COMPLIANCE WITH
RULE 144 OR 144A THEREUNDER, IF AVAILABLE, AND IN 

 

2

 

ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS, (D) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, OR (E) IN
A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT OR
ANY APPLICABLE STATE SECURITIES LAWS, AND THE HOLDER HAS, PRIOR TO SUCH SALE,
FURNISHED TO THE CORPORATION AN OPINION OF COUNSEL OR OTHER EVIDENCE OF
EXEMPTION, IN EITHER CASE REASONABLY SATISFACTORY TO THE CORPORATION. HEDGING
TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE CONDUCTED UNLESS IN
COMPLIANCE WITH THE U.S. SECURITIES ACT.”

 

2.             Procedure for Exercise.

 

2.1           Delivery of Stock Certificates, Etc., on Exercise. The Corporation agrees that the shares of Common Stock purchased upon
exercise of this Warrant shall be deemed to be issued to the Holder as the
owner of record of such shares as of the close of business on the date on which
the duly completed and executed Subscription Form, this Warrant Certificate and
payment for such shares shall have been received by the Corporation in
accordance herewith. As soon as practicable after the exercise of this Warrant
in full or in part, and in any event within seven (7) business days thereafter,
the Corporation at the Corporation’s expense (including the payment by it of
any applicable issue taxes) will cause to be issued in the name of and
delivered to the Holder, or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct in compliance with applicable securities
laws, a certificate or certificates for the number of duly and validly issued,
fully paid and nonassessable shares of Common Stock (or Other Securities) to
which such Holder shall be entitled on such exercise. By acceptance hereof, the
Holder expressly waives any right to receive fractional Common Shares upon
exercise of this Warrant. If the number of Common Shares to which the Holder
would otherwise be entitled upon the exercise of this Warrant Certificate is
not a whole number, then the number of Common Shares to be issued will be
rounded down to the next whole number. Following a partial exercise of this
Warrant prior to the Expiration Date, the Corporation shall cancel this Warrant
Certificate and, within five business days, execute and deliver to the Holder a
new Warrant Certificate of like tenor covering the remaining balance of the
shares of Common Stock subject to this Warrant Certificate.

 

2.2           Exercise. Payment may be
made by certified or official bank check payable to the order of the
Corporation equal to the applicable aggregate Exercise Price, for the number of
Common Shares specified in such Subscription Form (as such exercise number
shall be adjusted to reflect any adjustment in the total number of shares of
Common Stock issuable to the Holder in accordance with the terms of this
Warrant) and the Holder shall thereupon be entitled to receive the number of
duly authorized, validly issued, fully-paid and non-assessable shares of Common
Stock (or Other Securities) determined as provided herein.

 

2.3           Representation. The
Holder of this Warrant has represented to the Corporation that it is acquiring
this Warrant for its own account and not with a view toward, or for resale in
connection with, the public sale or distribution of this Warrant or the
underlying shares of Common Stock, except pursuant to sales registered or
exempted under the Securities Act of 1933, as amended (the “Securities Act”).
The Holder of this Warrant further represented that as 

 

3

 

of the Issue Date, the Holder was an “accredited
investor” as that term is defined in Rule 501(a)(3) of Regulation D
promulgated by the Securities and Exchange Commission under the Securities Act.
Upon exercise of this Warrant, the Holder shall, if requested by the
Corporation, confirm in writing, in a form satisfactory to the Corporation,
representations concerning the shares of Common Stock underlying this Warrant,
in substantially the form of the first two sentences of this Section 2.3.

 

3.             Effect of Reorganization, Etc.; Adjustment of Exercise
Price.

 

3.1           Reorganization, Consolidation, Merger, Etc. If at any time or from time to time, the Corporation (a) effects a
reorganization, (b) consolidates with or merges into any other person, or (c)
transfers all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Corporation, then, in each such case, as a condition to the consummation of such
a transaction, proper and adequate provision shall be made by the Corporation
whereby the Holder of this Warrant, on the exercise hereof as provided in Section 1
at any time after the consummation of such reorganization, consolidation or
merger or the effective date of such dissolution, as the case may be, shall
receive, in lieu of the Common Stock (or Other Securities) issuable on such
exercise prior to such consummation or such effective date, the stock and other
securities and property (including cash) to which such Holder would have been
entitled upon such consummation or in connection with such dissolution, as the
case may be, if such Holder had so exercised this Warrant, immediately prior
thereto, all subject to further adjustment thereafter as provided in Section 4.

 

3.2           Dissolution. In the event
of any dissolution of the Corporation following the transfer of all or
substantially all of its properties or assets, the Corporation, concurrently
with any distributions made to holders of its Common Stock, shall at its
expense deliver or cause to be delivered to the Holder the stock and other
securities and property (including cash, where applicable) receivable by the
Holder of this Warrant pursuant to Section 3.1, or if the Holder
also instructs the Corporation, to a bank or trust company specified by the
Holder as trustee for the Holder (the “Trustee”).

 

3.3           Continuation of Terms.
Upon any reorganization, consolidation, merger or transfer (and any dissolution
following any transfer) referred to in this Section 3, this Warrant
shall continue in full force and effect and the terms hereof shall be
applicable to the shares of stock and other securities and property receivable
on the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any such
stock or other securities, including, in the case of any such transfer, the
person acquiring all or substantially all of the properties or assets of the
Corporation, whether or not such person shall have expressly assumed the terms
of this Warrant as provided in Section 4. If this Warrant does not
continue in full force and effect after the consummation of the transactions
described in this Section 3, then the Corporation’s securities and
property (including cash, where applicable) receivable by the Holder of this
Warrant will be delivered to the Holder or the Trustee as contemplated by Section 3.2.

 

4.             Extraordinary Events Regarding Common Stock. If the Corporation (a) issues additional shares of the Common Stock
as a dividend or other distribution on outstanding 

 

4

 

Common Stock
or any preferred stock issued by the Corporation, (b) subdivides its
outstanding shares of Common Stock, or (c) combines its outstanding shares of
the Common Stock into a smaller number of shares of the Common Stock, then, in
each such event, the Exercise Price shall, simultaneously with the happening of
such event, be adjusted by multiplying the then Exercise Price by a fraction,
the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such event and the denominator of which shall
be the number of shares of Common Stock outstanding immediately after such
event, and the product so obtained shall thereafter be the Exercise Price then
in effect. The Exercise Price, as so adjusted, shall be readjusted in the same
manner upon the happening of any successive event or events described herein in
this Section 4. The number of shares of Common Stock that the
Holder of this Warrant shall thereafter, on the exercise hereof as provided
herein in Section 1, be entitled to receive shall be adjusted to a
number determined by multiplying the number of shares of Common Stock that
would otherwise (but for the provisions of this Section 4) be
issuable on such exercise by a fraction of which (a) the numerator is the
Exercise Price that would otherwise (but for the provisions of this Section 4)
be in effect, and (b) the denominator is the Exercise Price in effect on the
date of such exercise.

 

5.             Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of
Common Stock (or Other Securities) issuable on the exercise of the Warrant as
provided for in Section 3 or 4 above, the Corporation at its
expense will promptly cause its Chief Financial Officer or other appropriate
designee to compute such adjustment or readjustment in accordance with the
terms of the Warrant and prepare a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (a) the consideration received
or receivable by the Corporation for any additional shares of Common Stock (or
Other Securities) issued or sold or deemed to have been issued or sold, (b) the
number of shares of Common Stock (or Other Securities) outstanding or deemed to
be outstanding, and (c) the Exercise Price and the number of shares of Common
Stock to be received upon exercise of this Warrant, in effect immediately prior
to such adjustment or readjustment and as adjusted or readjusted as provided in
this Warrant. The Corporation will forthwith mail or cause to be mailed a copy
of each such certificate to the Holder of this Warrant.

 

6.             Reservation of Stock, Etc. Issuable on Exercise of
Warrant. The Corporation will at all times reserve
and keep available, solely for issuance and delivery on the exercise of the
Warrant, shares of Common Stock (or Other Securities) from time to time
issuable on the exercise of the Warrant.

 

7.             Assignment; Exchange of Warrant. Subject to compliance with applicable securities laws, this Warrant,
and the rights evidenced hereby, may be transferred by any registered holder
hereof (a “Transferor”) in whole or in part. On the surrender for
exchange of this Warrant, with the Transferor’s endorsement in the form of Exhibit B
(the “Transferor Endorsement Form”), together with evidence reasonably
satisfactory to the Corporation demonstrating compliance with applicable
securities laws (which shall include, without limitation, the provision of a
legal opinion from the Transferor’s counsel that such transfer is exempt from
the registration or equivalent requirements of applicable securities laws) the
Corporation at the Corporation’s expense (but with payment by the Transferor of
any applicable transfer taxes), and written confirmation by the Corporation of
receipt of satisfactory evidence and to proceed with transfer 

 

5

 

with legend
instructions, will issue and deliver to or on the order of the Transferor
thereof a new Warrant of like tenor, in the name of the Transferor and/or the
transferee(s) specified in such Transferor Endorsement Form (each a “Transferee”),
calling in the aggregate on the face or faces thereof for the number of shares
of Common Stock called for on the face or faces of the Warrant so surrendered
by the Transferor.

 

8.             Replacement of Warrant.
On receipt of evidence reasonably satisfactory to the Corporation of the loss,
theft, destruction or mutilation of this Warrant and, in the case of any such
loss, theft or destruction of this Warrant, on delivery of an indemnity agreement
and surety bond reasonably satisfactory in form and amount to the Corporation,
the Corporation at the Holder’s expense and Holder’s payment of charges of the
Corporation, will execute and deliver, in lieu thereof, a new Warrant of like
tenor.

 

9.             Exercise Restrictions.

 

9.1           Beneficial Ownership Limitation. Notwithstanding anything contained herein to
the contrary, the Holder may not exercise this Warrant to the extent such
exercise would result in the Holder, together with any affiliate thereof, beneficially
owning a number of shares of Common Stock in excess of 4.99% of the then issued
and outstanding shares of Common Stock of the Corporation. For the purposes of
the immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934 (the “Exchange
Act”) and Rule 13d-3 thereunder. Since the Holder will not be
obligated to report to the Corporation the number of shares of Common Stock it
may hold at the time of an exercise hereunder, unless the exercise at issue
would result in the issuance of shares of Common Stock in excess of 4.99% of
the then outstanding shares of Common Stock without regard to any other shares
which may be beneficially owned by the Holder or an affiliate thereof, the
Holder shall have the authority and obligation to determine whether the
restriction contained in this Section 9 will limit any particular
exercise hereunder and to the extent that the Holder determines that the
limitation contained in this Section 9 applies, the determination
of the amount of this Warrant that is exercisable shall be the responsibility
and obligation of the Holder. The provisions of this Section 9.1
may be waived by the Holder (but only as to itself and not to any other holder
of Warrants) in whole or in part upon not less than 61 days’ prior notice to
the Corporation. Other holders of Warrants shall be unaffected by any such
waiver.

 

9.2           Limitation on Number of Shares Issuable. Notwithstanding anything contained herein to
the contrary, the rights represented by this Warrant shall not be exercisable
by the Holder, in whole or in part, and the Corporation shall not give effect
to any such exercise, if, after giving effect to such exercise, the Holder,
together with any person or company acting jointly or in concert with the
Holder (the “Joint Actors”) would in the aggregate beneficially own or
exercise control or direction over that number of voting securities of the
Corporation which is 19.99% or greater of the total issued and outstanding
voting securities of the Corporation. For greater certainty, the rights
represented by this Warrant shall not be exercisable by the Holder, in whole or
in part, and the Corporation shall not give effect to any such exercise, if,
after giving effect to such exercise, the Holder, together with its Joint
Actors, would be deemed to hold a number of voting securities sufficient to
materially affect the control of the Corporation.

 

6

 

9.3           Provision of Officer’s Certificate. Prior to exercising the rights represented
by this Warrant, the Holder shall provide the Corporation with an officer’s
certificate stating the number of voting securities of the Corporation held by
the Holder and its Joint Actors as of the date provided for in the exercise
notice (the “Officer’s Certificate”) and the Corporation shall be
entitled to rely on the Officer’s Certificate in making any determinations
regarding the total issued and outstanding voting securities of the Corporation
to be held by the Holder and its Joint Actors after giving effect to the
exercise. The execution of the Subscription Form by the Holder will suffice as
the Holder’s acknowledgement of compliance with such exercise limits as set
forth in this Section 9.

 

10.           Transfer on the Corporation’s Books. Until this Warrant is transferred on the books of the Corporation,
the Corporation may treat the registered Holder hereof as the absolute owner
hereof for all purposes, notwithstanding any notice to the contrary.

 

11.           Notices, Etc. All notices
and other communications from the Corporation to the Holder of this Warrant
shall be delivered by ordinary surface or air mail, postage prepaid, addressed
to the Holder or delivered at their respective address appearing on the register
of Holders.

 

12.           Miscellaneous.
Notwithstanding any provision to the contrary contained in this Warrant, no
Common Stock will be issued pursuant to the exercise of this Warrant if the
issuance of such securities may constitute a violation of the securities laws
of any applicable jurisdiction. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF STATE OF CALIFORNIA WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS. ANY ACTION BROUGHT CONCERNING THE TRANSACTIONS CONTEMPLATED
BY THIS WARRANT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF CALIFORNIA OR IN
THE FEDERAL COURTS LOCATED IN THE STATE OF CALIFORNIA. The Holder and the
Corporation shall submit to the jurisdiction of such courts and waive trial by
jury. The prevailing party shall be entitled to recover from the other party
its reasonable attorney’s fees and costs. If any provision of this Warrant is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision of this
Warrant. The headings in this Warrant are for purposes of reference only, and
shall not limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision hereof.

 

7

 

IN WITNESS WHEREOF, the Corporation has
executed this Warrant as of the date first written above.

 

	
   

  	
  GEOPETRO RESOURCES COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
        /s/
  J. Chris Steinhauser

  	
   

  

 

8

 

EXHIBIT A

 

FORM OF SUBSCRIPTION

(To Be Signed Only On Exercise of Warrant)

 

	
  TO:

  	
  GeoPetro Resources Company

  
	
   

  	
  One Maritime Plaza, Suite 700

  
	
   

  	
  San Francisco, California
  94111

  
	
   

  	
  Attention:             President

  

 

The undersigned, pursuant to the provisions
set forth in the attached Warrant (No.      ),
hereby irrevocably elects to purchase:

 

           
shares of the Common Stock covered by such Warrant

 

The undersigned herewith makes payment of the
full Exercise Price for such shares at the price per share provided for in such
Warrant, which is $3.85. Such payment takes the form of:

 

o   certified
check                                               o   bank draft

 

The undersigned requests that the
certificates for such shares be issued in the name of, and delivered to                                                                           
whose address is                                                                                                                                                                                                                                                                                        .

 

(Please print full name in which share
certificates are to be issued. If any shares are to be issued to a person or
persons other than the Warrantholder, the Warrantholder must pay all applicable
transfer taxes or other government charges.)

 

Terms not defined herein shall have the same
meanings ascribed to them in the Warrant Certificate.

 

The undersigned represents and warrants that
all offers and sales by the undersigned of the securities issuable upon
exercise of the within Warrant shall be made in reliance upon available
exemptions from the prospectus and registration or equivalent requirements of
applicable securities legislation.

 

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
  (Signature must conform to
  name of holder as

  specified on the face of the Warrant)

  

 

A-1

 

	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature Guaranteed By:

  
							

 

The signature of the Holder to this Form must
correspond exactly with the name of the Holder as set forth on the face of this
Warrant Certificate in every particular, without alteration or enlargement or
any change whatsoever and the signature must be guaranteed by a chartered bank
or by a trust company or by a medallion signature guarantee from a member of a
recognized Signature Medallion Guarantee Program.

 

A-2

 

EXHIBIT B

 

FORM OF TRANSFEROR ENDORSEMENT

(To Be Signed Only On Transfer of Warrant)

 

For value received, the undersigned hereby
sells, assigns, and transfers unto the person(s) named below under the heading “Transferees”
the right represented by the within Warrant to purchase shares of Common Stock
of GeoPetro Resources Company into which the within Warrant relates specified
under the headings “Number of Warrants Transferred,” respectively, opposite the
name(s) of such person(s) and appoints                                       the
Attorney to transfer its respective right on the register of warrants
maintained by the Corporation with full power of substitution in the premises.

 

	
  Transferees

  	
   

  	
  Address

  	
   

  	
  Number of Warrants

  Transferred

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
  (Signature must conform to
  name of holder as

  specified on the face of the Warrant)

  
	
   

  	
   

  
	
   

  	
  Address:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature Guarantee

  

 

ACCEPTED AND AGREED:

[TRANSFEREE]

 

	
   

  	
   

  
	
   

  	
  (Name)

  
			

 

A-3

 

The signature of the Holder to this Form must
correspond exactly with the name of the Holder as set forth on the face of this
Warrant Certificate in every particular, without alteration or enlargement or
any change whatsoever and the signature must be guaranteed by a chartered bank
or by a trust company or by a medallion signature guarantee from a member of a
recognized Signature Medallion Guarantee Program.

 

A-4

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