Document:

FIRST
AMENDMENT TO AGREEMENT

     

    This First Amendment to Agreement (the
"Amendment"), dated as of December 8, 2009, by and between Sanders Morris Harris
Group Inc. (the "Company"), and Fletcher International, Ltd. (together with its
successors, the "Purchaser").

     

    RECITALS

     

    WHEREAS, Purchaser and the Company are
parties to an Agreement dated as of November 8, 2009 (the "Original
Agreement");

     

    WHEREAS, Section 20(i) of the Original
Agreement provides that the Original Agreement may be amended, modified or
supplemented in any and all respects only by a written instrument signed by
Purchaser and the Company;

     

    WHEREAS, Purchaser and the Company
desire to amend the Original Agreement as set forth herein;

     

    NOW, THEREFORE, in consideration of the
premises and the mutual covenants of the parties set forth herein and upon the
terms and subject to the conditions set forth herein, the parties hereto,
intending to be legally bound, hereby agree as follows:

     

    1.       
    Amendment.  The
parties agree that this Amendment is intended to amend and modify the Original
Agreement.

     

    1.1           Section
1(a) of the Original Agreement is hereby amended and restated in its entirety to
read as follows:

     

    "(a)(i)
Subject to satisfaction or, if applicable, waiver of the conditions set forth in
Sections 13 and 14 hereof on or before 9:30 a.m. New York time on January 7,
2010, and subject to the provision of notice by the Company of such satisfaction
or waiver as hereinafter provided on or before 9:30 a.m. New York time on
January 7, 2010, and provided such conditions continue to be satisfied or, if
applicable, waived through the Closing Date (as hereinafter defined), Purchaser
agrees to purchase (the "Investment") from the
Company, and the Company agrees to issue and sell to Purchaser in accordance
with Section 3, at 9:30 a.m. New York time on the date (such date, the "Closing Date") that
is selected by Purchaser and that is not more than ten (10) Business Days after
and excluding the date of delivery of a written notice from the Company
certifying that the conditions set forth in Section 13 hereof shall have been
satisfied or waived, One Million Seventy One Thousand Four Hundred Twenty Nine
(1,071,429) shares of Common Stock (as hereinafter defined) at a price per share
equal to $7.00 (the "Investment
Price").  The Company shall deliver the notice described in the
preceding sentence within one (1) Business Day of such conditions being
satisfied or waived.  For the avoidance of doubt, notwithstanding the
foregoing, the Investment shall be subject to the satisfaction or waiver of the
conditions set forth in Sections 13 and 14 hereof on the Closing
Date.

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    (ii)
Regardless of whether the Closing occurs, the Company shall issue to Purchaser
on the date (the "Warrant Issuance
Date") that the Registration Statement (as hereinafter defined) is
available for the issuance of the Warrant (as hereinafter defined), a Warrant in
the form attached hereto as Annex A (the "Warrant") evidencing
rights to purchase from the Company, subject to the terms and conditions set
forth in the Warrant, up to an aggregate amount of shares of Common Stock as set
forth in the Warrant. Purchaser shall have the right to exercise rights under
the Warrant in the manner, and subject to the terms, specified in the Warrant.
If the Warrant has not been issued by the Closing Date, the Warrant shall be
issued on the Closing Date."

     

    1.2
        Section 1(b) of the Original
Agreement is hereby amended and restated in its entirety to read as
follows:

     

    "(b)           If
any of the conditions set forth in Section 13 hereof are not satisfied or waived
on or prior to 9:30 a.m. New York City time on January 7, 2010, then Purchaser
shall not be obligated to purchase and the Company shall not be obligated to
issue and sell the Shares of Common Stock described in Section 1(a)(i)
hereof.  For the avoidance of doubt, other than as set forth in
Section 16(d) hereof, the satisfaction or waiver of, or the failure to satisfy
or waive, the conditions set forth in Section 13 hereof shall in no way limit
the obligation of the Company to issue the Warrant on the Warrant Issuance Date
or, if the Warrant has been issued, the effectiveness of the
Warrant."

     

    1.3.          Section
2 of the Original Agreement is hereby amended and restated in its entirety to
read as follows:

     

    "2.           Warrant
Delivery.  The duly executed Warrant shall be delivered by hand
to Purchaser as Purchaser instructs in writing on the Warrant Issuance Date
(which may or may not occur on the Closing Date).  Unless the Warrant
is delivered on the Closing Date, the delivery of the Warrant shall be separate
and independent from the deliveries on the Closing Date, and the delivery of the
Warrant shall be effective regardless of whether such other deliveries are made,
other than as set forth in Section 16(d) hereof."

     

    1.4          Section
3 of the Original Agreement is hereby amended by deleting the last paragraph
thereof and inserting in lieu thereof the following new paragraph:

     

    "The
deliveries specified in this Section 3 shall be deemed to occur simultaneously
as part of a single transaction, and no delivery shall be deemed to have been
made until all such deliveries have been made.  For the avoidance of
doubt, unless the Warrant is delivered on the Closing Date, the deliveries
specified in this Section 3 shall be separate and independent from the delivery
of the Warrant as described in Section 2 hereof."

    
      
         

      

      
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    1.5.          Section
10 of the Original Agreement is hereby amended by deleting clause (g) thereof
and inserting in lieu thereof the following new clause (g):

     

    "(g)           The
Company shall cause the Common Shares to be eligible for book-entry transfer
through The Depository Trust Company (or any successor thereto) at all times
from and after the Warrant Issuance Date."

     

    1.6.          Section
10 of the Original Agreement is hereby amended by adding the following new
clause (k) at the end thereof:

     

    "(k)           The
Company shall continue to use commercially reasonable efforts to cause the
conditions set forth in Section 13(f) hereof to be satisfied as soon as
practicable."

     

    1.7.          Section
13 of the Original Agreement is hereby amended by amending and restating clause
(f) thereof in its entirety as follows:

     

    "(f)           The
Registration Statement shall be, and have been, effective from and after the
date of this Agreement through and including the Closing Date and the
Registration Statement shall be available on the Closing Date for the issuance
of the Common Shares and shall be available on the Warrant Issuance Date (which
may or may not occur on the Closing Date) for the issuance of the
Warrant."

     

    1.8.          Section
13 of the Original Agreement is hereby amended by deleting clause (i)
thereof.

     

    1.9.          Section
14 of the Original Agreement is hereby amended by deleting clause (d)
thereof.

     

    1.10.        Section
16 of the Agreement is hereby amended by adding a new clause (d) following
clause (c) thereof, which shall read as follows:

     

    "(d)           If
the Closing does not occur on or before 9:30 a.m. New York time on January 21,
2010, and the conditions set forth in Section 13 were satisfied or waived on or
before 9:30 a.m. New York time on January 7, 2010 and shall have continued to be
satisfied or waived during the period starting on and including the date on
which the Company delivers notice to Purchaser that such conditions are
satisfied or waived in accordance with Section 1(a) hereof, through and
including the date that is ten (10) Business Days thereafter, the Warrant shall
be cancelled.  For the avoidance of doubt, if the conditions set forth
in Section 13 are not satisfied or waived on or before 9:30 a.m. New York time
on January 7, 2010, or do not continue to be satisfied or waived during the
period starting on and including the date on which the Company delivers notice
to Purchaser that such conditions are satisfied or waived in accordance with
Section 1(a) hereof, through and including the date that is ten (10) Business
Days thereafter, the Warrant shall not be cancelled and shall continue to be
outstanding and fully effective."

     

    2.           Original Agreement
Continues.  Other than as amended by this Amendment, the
Original Agreement shall continue in full force and effect.

    
      
         

      

      
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    3.           Miscellaneous.  This
Amendment shall be governed by, and construed in accordance with, the internal
laws of the State of New York and each of the parties hereto hereby submits to
the exclusive jurisdiction of any state or federal court in the Southern
District of New York and any court hearing any appeal therefrom, over any suit,
action or proceeding against it arising out of or based upon this
Amendment.  The parties may execute and deliver this Amendment as a
single document or in any number of counterparts, manually, by facsimile or by
other electronic means, including contemporaneous xerographic or electronic
reproduction by each party’s respective attorneys.  Each counterpart
shall be an original, but a single document or all counterparts together shall
constitute one instrument that shall be the agreement.  This
Amendment, taken together with the Original Agreement, contains a final and
complete integration of all prior expressions of the subject matter of the
Amendment and the Original Agreement by the parties, supersedes all prior oral
or written understandings, and shall constitute the entire agreement among the
parties.

     

    [Signature
Page Follows]

    
      
         

      

      
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    IN WITNESS WHEREOF, the
parties hereto have executed this Amendment effective as of the day and year
first written above.

    

    
      	 
      	
              SANDERS
      MORRIS HARRIS GROUP INC.

            
	 
      	 
      
	 
      	
              By:

            	
              /s/ Rick Berry

            
	 
      	
              Name:

            	
              Rick Berry

            
	 
      	
              Title:

            	
              Chief Financial Officer

            
	 
      	 
      	 
      
	 
      	
              FLETCHER
      INTERNATIONAL, LTD.

            
	 
      	 
      	 
      
	 
      	
              By
      its duly authorized Investment Adviser

            
	 
      	
              Fletcher
      Asset Management, Inc.

            
	 
      	 
      	 
      
	 
      	
              By:

            	
              /s/ Stewart Turner

            
	 
      	
              Name:

            	
              Stewart
      Turner

            
	 
      	
              Title:

            	
              Authorized
      Signatory

            
	 
      	 
      	 
      
	 
      	
              By:

            	
              /s/ Peter Zayfert

            
	 
      	
              Name:

            	
              Peter
      Zayfert

            
	 
      	
              Title:

            	
              Authorized
      Signatory

            

    

     

    [Signature
Page to First Amendment to Agreement]

    
      
         

      

      
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    ANNEX
A

    Warrant
Certificate No. [___]

    

    WARRANTS
TO PURCHASE

    SHARES
OF COMMON STOCK

    OF
SANDERS MORRIS HARRIS GROUP INC.

     

    Sanders
Morris Harris Group Inc., a Texas corporation (together with its successors, the
“Company”), for
value received, hereby certifies that Fletcher International, Ltd., a company
domiciled in Bermuda (together with its successors, “Fletcher”), or its
registered assigns, the registered holder (the “Holder”), is entitled
to purchase from the Company up to the Warrant Amount (as defined below),
subject to the adjustments contained in this warrant certificate (this “Certificate”) or the
Agreement between the Company and Fletcher dated as of November 8, 2009 (as it
may be amended from time to time, the “Agreement”), of duly
authorized, validly issued, fully paid and nonassessable shares of the Company’s
common stock, par value $0.01 per share (the “Common Stock”), of
the Company at the then-prevailing Warrant Price (as defined below) at any time
or from time to time during the Warrant Term (as defined below), all subject to
the terms, conditions and adjustments set forth below in this Certificate and in
the Agreement.

     

    
      	
              1.

            	
              Warrants.

            

    

     

    The
warrants represented hereby (the “Warrants”) have been
issued pursuant to the Agreement, and are subject to the terms and conditions
thereof.  Unless otherwise defined herein, capitalized terms used
herein shall have the meanings set forth in the Agreement.  A copy of
the Agreement may be obtained at no cost by the Holder upon written request to
the Secretary of the Company at the principal executive offices of the
Company.

     

    1.1          General; Warrant Price;
Warrant Term.

     

    (a)    The
Warrants entitle the Holder to purchase that number of newly-issued shares of
Common Stock equal to the Warrant Amount then in effect divided by the Warrant
Price then in effect.  The “Warrant Amount” shall
initially equal Seven Million Five Hundred Thousand Dollars ($7,500,000) and
shall be reduced by the aggregate Warrant Price paid (or deemed paid in the case
of Cashless Exercise) at each Warrant Closing.  The “Warrant Price” means
$5.75 subject to adjustment as set forth herein and in the
Agreement.  The Warrants may be exercised (in whole or in part) at any
time or from time to time after December 14, 2009 (the “Commencement Date”)
until 11:59 P.M., New York City time, on the date that is ten (10) years after
the Commencement Date, subject to extension as set forth herein (the period of
time from the Commencement Date to such date, the “Warrant
Term”).

     

    1.2          Manner of
Exercise.

     

    (a)    The
Warrants may be exercised by the Holder, in whole or in part (provided that the
aggregate Warrant Price to be paid (or deemed paid in the case of Cashless
Exercise) is not less than Five Hundred Thousand Dollars ($500,000), or if the
aggregate Warrant Price to be paid (or deemed to be paid in the case of Cashless
Exercise) in connection with any remaining exercise of the Warrant is less than
Five Hundred Thousand Dollars ($500,000), such lesser amount), from time to
time, on any day during the Warrant Term, by delivery of a notice in
substantially the form attached to this Certificate (or a reasonable facsimile
thereof) duly executed by the Holder (a “Warrant Exercise
Notice”).

    
      
         

      

      
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    (b)    The
Warrant Exercise Notice shall designate the number of shares of Common Stock to
be received upon such exercise and the aggregate Warrant Price to be paid (or
deemed paid in the case of Cashless Exercise).  The closing of each
exercise (each a “Warrant Closing”)
shall take place (i) on the third (3rd)
Business Day after and excluding the date of the Warrant Exercise Notice or (ii)
any other date upon which the exercising Holder and the Company mutually agree
(the “Warrant Closing
Date”).

     

    1.3          Conditions to
Closing.

     

    (a)    Conditions Precedent to
Holder’s Obligation to Close.  It shall be a condition to each
Holder’s obligation to close on each Warrant Closing Date that each of the
following is satisfied, unless waived by such Holder(which waiver may be made or
not made in Holder’s sole discretion, and any waiver shall apply solely to the
Warrant Closing or Warrant Closings specified by Holder and shall not obligate
Holder to make or not make any subsequent waiver):

     

    (i)    From
and after the date of the Agreement through and including each Warrant
Closing Date, the representations and warranties made by the Company in the
Agreement shall be, and have been, true and correct, except those
representations and warranties which address matters only as of a particular
date, which shall be true and correct as of such date;

     

    (ii)    From
and after the date of the Agreement through and including each Warrant
Closing Date, the Company shall be, and have been, in full compliance in all
material respects with all of the covenants and agreements in the Agreement and
this Certificate;

     

    (iii)    On
each Warrant Closing Date, the Company shall not possess any negative, material
non-public information other than as shall have been filed with the SEC at least
five (5) Business Days prior to and excluding such Warrant Closing
Date;

     

    (iv)    On
each Warrant Closing Date, Holder shall have received on the date of such
exercise a certificate of the Chief Executive Officer and the Chief Financial
Officer of the Company dated such Warrant Closing Date certifying as to
paragraphs (i), (ii), and (iii) of this Section 1.3(a);

     

    (v)    On
such Warrant Closing Date, provided the aggregate purchase price of shares of
Common Stock purchase on such Closing Date equals or exceeds $1,000,000, the
Company shall have delivered to Holder an opinion of counsel, the form and
substance of which shall be reasonably satisfactory to Holder, dated the date of
delivery; and

    
      
         

      

      
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    (vi)    The
Registration Statement (as defined in the Agreement) shall be, and have
been, effective from and after the date of the Agreement through and
including each Warrant Closing Date.

     

    (b)    Conditions Precedent to
Company’s Obligation to Close.  The obligations of the Company
hereunder are subject to the performance by Holder of its obligations hereunder
and to the satisfaction (unless expressly waived in writing by the Company) of
the additional conditions precedent that: (i) from and after the date of
the Agreement through and including each Warrant Closing Date, the
representations and warranties made by Holder in the Agreement shall be, and
have been, true and correct; (ii) from and after the date of the Agreement
through and including each Warrant Closing Date, Holder shall be, and have been,
in compliance in all material respects with all the covenants and agreements in
the Agreement; and (iii) on each Warrant Closing Date, Holder shall have
delivered to the Company on each such date a certificate of an appropriate
officer of Holder dated such date and to such effect.

     

    (c)    Agreement to Cause
Conditions to be Satisfied.  The Company with respect to
Section 1.3(a) and the Holder with respect to Section 1.3(b) shall each use
commercially reasonable efforts to cause each of the foregoing conditions to be
satisfied at the earliest possible date.

     

    (d)    Withdrawal of
Notice.  If the conditions set forth in Section 1.3(a) are not
satisfied or waived prior to the second (2nd)
Business Day following and excluding the Warrant Exercise Notice Date (except
for those conditions which by their terms can be satisfied only on the Warrant
Closing Date) or if the Company fails to perform its obligations on any Warrant
Closing Date (including but not limited to delivery of all shares of Common
Stock issuable on such date) for any reason other than Holder’s failure to
satisfy the conditions required by Section 1.3(b), then in addition to all
remedies available to Holder at law or in equity, such Holder may, at its sole
option, and at any time, withdraw the Warrant Exercise Notice by written notice
to the Company regardless of whether such condition has been satisfied or waived
as of the withdrawal date and, after such withdrawal, shall have no further
obligations with respect to such Warrant Exercise Notice and may submit an
Warrant Exercise Notice on any future date with respect to such Warrants and the
Warrant Price for such subsequent Warrant Exercise Notice shall be the lesser of
(i) the Warrant Price in the withdrawn Warrant Exercise Notice and (ii) the
Warrant Price in effect as of the subsequent Warrant Exercise Notice
Date.

     

    1.4          When Exercise
Effective.

     

    Each
exercise of any Warrant shall be deemed to have been effected on the Warrant
Closing Date upon receipt of the relevant Warrant Price (or deemed to have been
received in connection with Cashless Exercises), and the Person (as defined in
the Agreement) or Persons in whose name or names any certificate or certificates
representing the Common Stock shall be issuable upon such exercise as provided
in Section 1.5 shall be deemed to have become the holder(s) of record
thereof.

    
      
         

      

      
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    1.5          Delivery of Common Stock and
Payment.

     

    (a)    Subject
to Section 1.3, on the Warrant Closing Date, the Holder shall deliver payment in
the amount designated as the “Designated Aggregate Exercise Price” by the holder
in the Warrant Exercise Notice, and such Holder shall thereupon be entitled to
receive the number of duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock designated in the Warrant Exercise Notice,
delivered as set forth in Section 1.7.

     

    (b)    Notwithstanding
subsection (a) above, the exercising Holder may elect in any Warrant Exercise
Notice to receive or the Company, by written notice to Holder delivered within
24 hours of the delivery by the Holder of a Warrant Exercise Notice, may elect
to issue an amount of Common Stock (the “Settlement Stock”)
equal to “X” where:

     

    X = [(N x
D) – (N x P)] / P

     

    N = the
gross number of shares of Common Stock that would have been issuable on the
relevant Warrant Closing Date if the Holder or the Company had not elected
Cashless Exercise

     

    D = Daily
Market Price (as defined in the Agreement) on the third (3rd)
Business Day before, and excluding, the date of the Warrant Exercise
Notice

     

    P =
Warrant Price with respect to such Warrant Exercise Notice

     

    The
Settlement Stock shall be issued by the Company to Holder upon the Warrant
Closing Date in lieu of the number of shares of Common Stock otherwise issuable
upon exercise of the Warrants covered by such Warrant Exercise Notice, provided, that the
Holder shall not be required to tender the Warrant Price otherwise payable (a
“Cashless
Exercise”).

     

    (c)    Closing of Cashless
Exercise.  The Company shall close each Cashless Exercise on
the relevant Warrant Closing Date.  The Company shall issue and
deliver the Settlement Stock pursuant to Section 1.7 on the relevant Warrant
Closing Date.  Upon receipt of the Settlement Stock in connection with
any Cashless Exercise, (i) that amount of Warrants as specified for exercise in
the Warrant Exercise Notice shall be deemed exercised and (ii) that amount of
cash that would have been paid by the Holder on the relevant Warrant Closing
Date if the Holder or the Company had not elected Cashless Exercise shall be
deemed paid by the Holder and received by the Company.

     

    (d)    Effect on Agreement
Calculations.  In
determining whether the limitations described in Section 7 of the Agreement have
been reached, computation shall be made based on the number of shares of
Settlement Stock actually issued in the case of a Cashless
Exercise.

    
      
         

      

      
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    1.6          Extension of
Term.

     

    (a)    The
Warrant Term shall be extended:  by one (1) Business Days for each
Business Day:

     

    (i)    that
the Registration Statement is not effective and available for the issuance of
all Common Stock issuable under this Certificate; or

     

    (ii)    during
the period (x) commencing on the earliest date that could be chosen by Purchaser
as a Restatement Date (as defined in the Agreement) and (b) ending on the
Restatement Filing Date (as defined in the Agreement).

     

    (b)    To
the extent that (A) there is a Restatement (as defined in the Agreement) or (B)
the Company fails to maintain the effectiveness and availability of the
Registration Statement for the issuance of all Common Stock issuable under this
Certificate, in either case, within sixty-five (65) Business Days preceding the
expiration of the Warrant Term, the Warrant Term shall be extended to a date
that is at least sixty-five (65) Business Days after the later of the
Restatement Filing Date or the remediation of the failure described in clause
(B).

     

    1.7          Delivery of Common Stock and Dividend
Payment.

     

    (a)    On
the Warrant Closing Date, the Company at its expense (including payment by it of
any applicable issue taxes) shall cause to be issued in the name of and
delivered to the exercising Holder or as such Holder may direct, at the election
of such Holder:

     

    (i)     via
the Depository Trust Company’s Deposit and Withdrawal at Custodian (or DWAC)
system the number of duly authorized, validly issued, fully paid and
non-assessable shares of Common Stock to which such Holder shall be entitled
upon such exercise plus, in lieu of any fractional share of Common Stock to
which such Holder would otherwise be entitled, cash in an amount equal to the
same fraction of the Daily Market Price on the Business Day immediately
preceding the relevant Warrant Closing Date, and a certificate from the Company
stating the new Warrant Amount reflecting a reduction in each of the dollar
amounts in the definition of Warrant Amount, on a dollar-for-dollar basis, for
each dollar paid or deemed paid in the event of a Cashless Exercise;
and

    
      
         

      

      
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    (ii)    the
Dividend Amount multiplied by the number of shares of Common Stock required to
be delivered under this Section 1.7 (or, in the case of a Cashless Exercise, the
gross number of shares that would have been deliverable if Holder or the Company
had not elected Cashless Exercise) (the “Dividend
Payment”).  To the extent that the Dividend Payment consists of
cash, the Company may pay such amount (a) by wire transfer of immediately
available funds to such Holder or (b) if the Daily Market Price on the date the
relevant Later Investment Notice is delivered is greater than the Warrant Price,
by delivering shares of Common Stock equal to the cash portion of the Dividend
Payment divided by the Warrant Price.  To the extent that the Dividend
Payment consists of securities or other non-cash property, the Company shall
deliver such securities or other non-cash property to such Holder; provided that if such
securities or other non-cash property would have a reduced value if delivery is
so delayed (for example only and not by way of limitation, a short-term right to
purchase securities), then proper provision shall be made to deliver to Holder
the sum of (i) the fair value of such securities or other non-cash property
measured as of the distribution date and (ii) the appreciation, if any, in value
of such securities through the date of delivery.  For example only and
not by way of limitation, if the Company distributes a short-term right to
purchase securities to other equity holders, it shall deliver to Holder the
value Holder would have received had Holder exercised such right plus the
appreciation, if any, had Holder held the purchased securities through the date
on which such fair value is delivered to Holder.  In the event that
Holder and the Company mutually agree that it would be impractical for the
Company to distribute identical securities or other non-cash property to Holder,
then Holder and the Company shall work together in good faith to determine a
fair and equivalently valued substitute therefor.  “Dividend Amount”
means the aggregate per-share amount of extraordinary dividends and
distributions, whether in cash, securities or otherwise, declared or paid on any
class of equity security of the Company on or after the  date of the
Agreement and on or before the relevant Warrant Closing Date.  A
dividend shall be deemed “extraordinary” if paid in consideration other than
cash or Company Common Stock or if paid in an amount or frequency exceeding
$0.045 per quarter.

     

    
      	
              2.

            	
              Reservation of
      Shares.

            

    

     

    For so
long as the Warrant Amount represented hereby has not been exercised in full,
the Company shall at all times prior to the end of the Warrant Term reserve and
keep available, free from pre-emptive rights, out of its authorized but unissued
capital stock, the number of shares available for exercise
hereunder.  In the event the number of shares of Common Stock or other
securities issuable exceeds the authorized number of shares of Common Stock or
other securities, the Company shall promptly take all actions necessary to
increase the authorized number, including causing its board of directors to call
a special meeting of stockholders and recommend such increase.

     

    
      	
              3.

            	
              Report as to
      Adjustments.

            

    

     

    In each
case of any adjustment or readjustment of the Warrant Amount, the Warrant Term,
the Warrant Price or any other adjustment or readjustment pursuant to the terms
of the Agreement or this Certificate, or upon the written request at any time of
any Holder, the Company at its expense will promptly compute such adjustment or
readjustment (the “Company Calculation”)
in accordance with the terms of this Certificate and the Agreement and cause the
Company’s Chief Financial Officer to verify such computation and prepare a
report setting forth such adjustment or readjustment and showing in reasonable
detail the method of calculation thereof and the facts upon which such
adjustment or readjustment is based, including a statement of (a) the Warrant
Amount, (b) the Warrant Term and (c) the Warrant Price in effect immediately
prior to such adjustment or readjustment (as adjusted and readjusted, as
applicable).  The Company will forthwith deliver a copy of each such
report to each Holder and will also keep copies of all such reports at its
principal office and will cause the same to be available for inspection at such
office during normal business hours by any Holder.  The Holder may
dispute the Company Calculation by providing its computation of such adjustment
or readjustment (the “Holder Calculation”)
and requesting in writing that independent certified public accountants of
recognized national standing (which may be the regular auditors of the Company)
selected by the Company verify the Company Calculation.  The Holder
shall be responsible for the costs and expenses of such accountants if the
difference between the computation of the adjustment or readjustment by such
accountants (the “Accountant
Calculation”) and the Holder Calculation is greater than the difference
between the Accountant Calculation and the Company Calculation, and otherwise
the Company shall bear such costs and expenses.

    
      
         

      

      
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              4.

            	
              Taxes.

            

    

     

    The
Company shall pay all documentary stamp taxes (if any) attributable to the
issuance of Common Stock upon each exercise of the Warrants by the Holder; provided, however, that the
Company shall not be required to pay any tax or taxes which may be payable in
respect of any transfer involved in the registration of any certificates for
Common Stock in a name other than that of a Holder upon each exercise of
Warrants, and the Company shall not be required to issue or deliver a
Certificate evidencing Warrants or certificates for Common Stock unless or until
the person or persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to the reasonable
satisfaction of the Company that such tax has been paid.

     

    
      	
              5.

            	
              Treatment of Company
      Stock Adjustment Events.

            

    

     

    In case
the Company may effect any subdivision or combination of the issued Common
Stock, whether by reason of any dividend or distribution of units, split,
recapitalization, reorganization, spin-off, combination or other similar change
(each a “Company Stock
Adjustment Event”), including a pro rata distribution of Common Stock to
all Holders of Common Stock, or a subdivision or combination of the outstanding
Common Stock, then (a) in the case of any such distribution, immediately after
the close of business on the record date for the determination of Holders of any
class of securities entitled to receive such distribution, or (b) in the
case of any such subdivision or combination, at the close of business on the
Business Day immediately prior to the Business Day upon which such Company
action becomes effective, the Warrant Price and, to the extent applicable, the
Daily Market Price and each other price or quantity in effect immediately prior
to such Company Stock Adjustment Event shall be proportionately
changed.

     

    5.1           Change of
Control.

     

    (a)    If
after the date of the Agreement, a Change of Control (as defined below) or plan
or proposal with respect thereto is publicly announced or occurs, as part of
such Change of Control, proper provision shall be made as follows:

     

    (i)    Between
the date a Change of Control is announced and the effective date of the Change
of Control, each Holder at its sole option shall continue to have the right to
submit to the Company a Warrant Exercise Notice in accordance with the terms and
conditions of this Certificate.  In addition, each Holder at its sole
option may elect to submit to the Company a special notice (a “Contingent Warrant Exercise
Notice”) to exercise all or part of its unexercised Warrants in
connection with such Change of Control; in which case, notwithstanding the
provisions of Section 1.4:

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    (A)    the
effectiveness of such contingent exercise shall be conditional upon the
effectiveness of the Change of Control;

     

    (B)    such
Holder shall have the right to deliver a notice to withdraw such Contingent
Warrant Exercise Notice until the effective date of such Change of Control;
and

     

    (C)    if
such Contingent Warrant Exercise Notice shall not have been withdrawn, then on
the effective date of such Change of Control, the Holder of such Warrants shall
receive, upon payment of the Warrant Price designated in the Warrant Exercise
Notice, the same consideration, in the form of cash, securities or other assets
(the “Acquisition
Consideration”) per share of Common Stock issuable to any other holder of
shares of Common Stock in connection with such Change of Control based upon the
number of shares of Common Stock into which such Holder’s Warrants would be
exercisable if such Holder had exercised each Warrant on the Business Day
immediately preceding the date on which such Change of Control occurs.
 Upon receipt of the Warrant Price, such Holder’s Warrants tendered for
exercise pursuant to a Warrant Exercise Notice or Contingent Warrant Exercise
Notice shall be fully exercised and shall no longer permit such Holder to
exercise such Warrants into Common Stock; provided, that if the
Acquisition Consideration is in the form of cash, the Holder shall not be
required to tender the relevant Warrant Price to exercise its Warrants, but
shall receive an amount in connection with such Change of Control equal to the
Acquisition Consideration applicable to such Holder based on the number of
shares of Common Stock into which such Holder’s Warrants would be exercisable if
such Holder had exercised each Warrant that it owns on the Business Day
immediately preceding the date on which such Change of Control occurs, less such
Warrant Price.

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    (b)    In
the case of any Change of Control, the Company shall not enter into an agreement
with the Acquiring Person resulting in a Change of Control unless (x) the
Company shall pay to the Holder upon consummation of the Change of Control, at
the election of either the Company or the Holder, which election shall be
made at least ten (10) Business Days before the date such Change of Control is
expected to become effective, an amount of cash equal to the fair market
value of the Warrant immediately prior to the Change of Control, to be
determined by a qualified valuation firm selected by the Holder and reasonably
acceptable to the Company, giving due consideration to such factors as the
financial condition and prospects of the Company, the remaining unexpired term
of the Warrant and the highest of the market price of the Common Stock of the
Company immediately prior to (i) the announcement of the Change of Control,
(ii) the date that the Holder delivers a notice to the Company specifying
such date for this purpose, and (iii) the consummation of the Change of Control,
provided no discount shall be considered in connection with any of the foregoing
factors or otherwise as a result of the Company undergoing the Change of
Control, or (y) as a matter of corporate law the Acquiring Person is deemed to
have assumed all of the Company’s obligations under any unexercised
Warrants or such Agreement expressly obligates the Acquiring Person to
assume all of the Company’s obligations under any unexercised
Warrants.  For the avoidance of doubt, in the event that either the
Holder or the Company elects to have the Company pay the fair market value of
the Warrant as determined above, the Warrant will be redeemed upon the Company
making such payment and no additional payment from the Company or the Holder
shall be required in connection with such redemption.  In the event
that neither the Holder nor the Company elects to have the Company pay the fair
market value of the Warrant as determined above, the Holder thereof
shall, following the occurrence of a Change of Control, automatically have
equivalent rights with respect to the Acquiring Person and from and after the
effective date of the Change of Control and regardless of whether the
Acquiring Person expressly assumes the Company’s obligations:

     

    (i)    all
references to the Company in this Certificate shall be references to the
Acquiring Person,

     

    (ii)    all
references to Common Stock in this Certificate shall be references to the
securities for which the Common Stock are exchanged in the Change of Control (or
if none, the most widely-held class of voting securities of the Acquiring
Person), and

     

    (iii)    if
the Acquiring Person is an entity other than the Company, all references to the
Warrant Price in this Certificate shall be references to the Stock Adjustment
Measuring Price (as defined below).

     

    (c)    “Acquiring
Person” means, in connection with any Change of Control (i) the
continuing or surviving Person of a consolidation or merger with the Company (if
other than the Company), (ii) the transferee of all or substantially all of the
properties or assets of the Company, (iii) the corporation consolidating with or
merging into the Company in a consolidation or merger in connection with which
the Common Stock is changed into or exchanged for stock or other securities of
any other Person or cash or any other property, (iv) the entity or group acting
in concert acquiring or possessing the power to cast the majority of the
eligible votes at a meeting of the Company’s stockholders at which directors are
elected, or, (v) in the case of a capital reorganization or reclassification,
the Company, or (vi) at Holder’s election, any Person that (A) controls the
Acquiring Person directly or indirectly through one or more intermediaries, (B)
is required to include the Acquiring Person in the consolidated financial
statements contained in such Person’s Annual Report on Form 10-K (if such Person
is required to file such a report) or would be required to so include the
Acquiring Person in such Person’s consolidated financial statements if they were
prepared in accordance with U.S. generally accepted accounting principles and
(C) is not itself included in the consolidated financial statements of any other
Person (other than its consolidated subsidiaries).

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    (d)    “Change of Control”
means (a) acquisition of the Company by means of merger or other form of
corporate reorganization in which outstanding shares of the Company are
exchanged for securities or other consideration issued, or caused to be issued,
by the Acquiring Person or its Parent, Subsidiary or Affiliate (each as defined
in Rule 12b-2 of the Exchange Act), other than a restructuring by the Company
where outstanding shares of the Company are exchanged for shares of the
Acquiring Person on a one-for-one basis and, immediately following the exchange,
former stockholders of the Company own all of the outstanding shares, (b) a sale
of all or substantially all of the assets of the Company (on a consolidated
basis) in a single transaction or series of related transactions, other
than the sale of assets previously agreed to be sold to Siwanoy Securities LLC
or the previously agreed sale by the Company of Concept Capital, (c) any tender
offer, exchange offer, stock purchase or other transaction or series of related
transactions by the Company in which the power to cast the majority of the
eligible votes at a meeting of the Company’s stockholders at which
directors are elected is transferred to a single entity or group acting in
concert, or (d) a capital reorganization or reclassification of the Common
Stock. Notwithstanding anything contained herein to the contrary, a change in
the state of incorporation of the Company shall not in and of itself constitute
a Change of Control.

     

    (e)    “Stock Adjustment Measuring
Price” means the lower of (i) and (ii) below:

     

    (i)    an
amount equal to the Warrant Price multiplied by a fraction,

     

    (1)    the
numerator of which is the volume-weighted average price, calculated to the
nearest ten thousandth (i.e., four decimal places (.xxxx)), of the securities
for which Common Stock is exchanged in the Change of Control (or if none, the
most widely-held class of voting securities of the Acquiring Person);
and

     

    (2)    the
denominator of which is the Daily Market Price, in the case of (1) and (2)
determined as of the Business Day immediately preceding and excluding the date
on which the Change of Control is consummated; and

     

    (ii)    the
price per share of such Acquiring Person’s securities for which the Common Stock
are exchanged in the Change of Control (or if none, the most widely-held class
of voting securities of the Acquiring Person) equal to the average of the
Daily Market Prices of such securities during the period of ten (10) consecutive
Business Days ending on the date that is three (3) Business Days prior to and
excluding the date of the first Warrant Exercise Notice delivered to the
Acquiring Person minus Forty cents ($0.40).

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

    
      	
              6.

            	
              Lost or Stolen
      Certificate.

            

    

     

    In case
this Certificate shall be mutilated, lost, stolen or destroyed, the Company may
in its discretion issue in exchange and substitution for and upon cancellation
of the mutilated Certificate, or in lieu of and substitution for the Certificate
lost, stolen or destroyed, a new Certificate of like tenor, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft
or destruction of such Certificate and indemnity, if requested, reasonably
satisfactory to the Company.  Applicants for a substitute Certificate
shall also comply with such other reasonable regulations and pay such other
reasonable charges as the Company may prescribe.

     

    
      	
              7.

            	
              Transfer
      Agent.

            

    

     

    (a)    Initially,
the Company (and upon a Change of Control, the Acquiring Person) shall serve as
the transfer agent (the “Transfer Agent”) for
the Warrants.  The Transfer Agent shall at all times maintain a
register (the “Stock
Register”) of the Holders of the Warrants.  The Company may
deem and treat each Holder of Warrants as set forth in the Stock Register as the
true and lawful owner thereof for all purposes, and the Company shall not be
affected by any notice to the contrary.

     

    (b)    The
Company may, at any time and from time to time, appoint another Person to serve
as the Transfer Agent, and shall upon acceptance by such Person, give notice to
each Holder of the change in Transfer Agent.  Such new Transfer Agent
shall be (a) a Person doing business and in good standing under the laws of the
United States or any state thereof or (b) an affiliate of such a
Person.  After acceptance in writing of such appointment by the new
Transfer Agent, it shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Transfer
Agent, without any further assurance, conveyance, act or deed; but if for any
reason it shall be reasonably necessary or expedient to execute and deliver any
further assurance, conveyance, act or deed, the same shall be done at the
expense of the Company and shall be legally and validly executed and delivered
by the Company. Any Person into which any new Transfer Agent may be merged or
any company resulting from any consolidation to which any new Transfer Agent
shall be a party or any company to which any new Transfer Agent transfers
substantially all of its corporate trust or stockholders services business shall
be a successor Transfer Agent under this Certificate without any further act;
provided that
such Person (a) would be eligible for appointment as successor to the Transfer
Agent under the provisions of this Section 7 or (b) is a wholly owned subsidiary
of the Transfer Agent. Any such successor Transfer Agent shall promptly cause
notice of its succession as Transfer Agent to be delivered via reputable
overnight courier to the Holders of the Warrants at such Holder’s last address
as shown on the Stock Register.

     

    
      	
              8.

            	
              Notices.

            

    

     

    (a)    All
notices and other communications under this Certificate shall be in writing and
shall be delivered by either a nationally recognized overnight courier, postage
prepaid, or transmitted by facsimile, in each case to the addresses as provided
below:

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

    (i)    If
to the Company:

     

           Sanders
Morris Harris Group Inc.

           600
Travis, Suite 5800

           Houston,
TX  77002

           Attention:            General
Counsel

           Telephone:           (713)
993-4645

           Facsimile:            (713)
220-5182

     

    (ii)    If
to a Holder, at the address of such Holder as listed in the Stock Register, or
to such other address as the Holder shall have designated by notice similarly
given to the Transfer Agent.

     

    (b)    Any
such notice or communication shall be deemed received (i) when made, if by hand
delivery, and upon confirmation of receipt, if made by facsimile and in each
case if such notice is received on or before 11:59 p.m.  New York City
time, otherwise, such notice shall be deemed to be received the following
Business Day, (ii) one (1) Business Day after being deposited with a next-day
courier, return receipt requested, postage prepaid or (iii) three (3) Business
Days after being sent by certified or registered mail, return receipt requested,
postage prepaid, in each case addressed as above (or to such other addresses as
the Company or a Holder may designate in writing from time to
time).

     

    
      	
              9.

            	
              Construction.

            

    

     

    For
purposes of this Certificate, except as otherwise expressly provided or unless
the context otherwise requires:  (a) the terms defined in this
Certificate have the meanings assigned to them in this Certificate and include
the plural as well as the singular, and the use of any gender herein shall be
deemed to include the other gender and neuter gender of such term; (b)
accounting terms not otherwise defined herein have the meanings assigned to them
in accordance with U.S. generally accepted accounting principles; (c) references
herein to “Articles”, “Sections”, “Subsections”, “Paragraphs” and other
subdivisions without reference to a document are to designated Articles,
Sections, Subsections, Paragraphs and other subdivisions of this Certificate,
unless the context shall otherwise require; (d) a reference to a Subsection
without further reference to a Section is a reference to such Subsection as
contained in the same Section in which the reference appears, and this rule
shall also apply to Paragraphs and other subdivisions; (e) the words “herein”,
“hereunder” and other words of similar import refer to this Certificate as a
whole and not to any particular provision; (f) the term “include” or “including”
shall mean without limitation; (g) the table of contents to this Certificate and
all section titles or captions contained in this Certificate or in any Exhibit
or Schedule hereto or referred to herein are for convenience only and shall not
be deemed a part of this Certificate and shall not affect the meaning or
interpretation of this Certificate; (h) any agreement, instrument or statute
defined or referred to herein means such agreement, instrument or statute as
amended, modified or supplemented from time to time, including (in the case of
agreements or instruments) by waiver or consent and (in the case of statutes) by
succession of comparable successor statutes and references to all attachments
thereto and instruments incorporated therein; and (i) references to a Person are
also to its permitted successors and assigns and, in the case of an individual,
to his or her heirs and estate, as applicable.

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    
      	
              10.

            	
              Severability of
      Provisions.

            

    

     

    If any
right, preference, or limitation of the Warrants set forth in this Certificate
(as such Certificate may be amended from time to time) is invalid, unlawful, or
incapable of being enforced by reason of any rule of law or public policy, all
other rights, preferences, and limitations set forth in this Certificate (as so
amended) which can be given effect without the invalid, unlawful or
unenforceable right, preference, or limitation will, nevertheless, remain in
full force and effect, and no right, preference, or limitation set forth in this
Certificate shall be deemed dependent upon any other such right, preference, or
limitation unless so expressed in this Certificate.

     

    This
Certificate shall not be valid unless signed by the Company.

     

    

    [Remainder
of Page Left Blank Intentionally]

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

    

    IN
WITNESS WHEREOF, Sanders Morris Harris Group Inc. has caused this Warrant to be
signed by its duly authorized officer.

    

    Dated:
December __, 2009

    

    
      
        
          	
                  
                    SANDERS
      MORRIS HARRIS GROUP INC.

                  

                
	 
      	 
      
	
                  By:

                	  
      
	 
      	
                  Name:
      George L. Ball

                
	 
      	
                  Title:
      Chief Executive Officer

                

        

      

    

    

    ATTEST:

    

    
      
        
          	  
      
	
                  Secretary

                

        

      

    

     

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

    

    Exhibit
1

    

    [FORM OF
WARRANT EXERCISE NOTICE]

    

    (To Be
Executed Upon Exercise Of Warrants)

    

    [DATE]

    

    Sanders
Morris Harris Group Inc.

    600
Travis, Suite 5800

    Houston,
TX  77002

    
      	
              Attention: 

            	
              General
      Counsel

            

    

    
      	
              Telephone: 

            	
              (713)
      993-4645

            

    

    
      	
              Facsimile: 

            	
              (713)
      220-5182

            

    

    

    Re:          Exercise of
Warrants

    

    Ladies
and Gentlemen:

    

    Reference
is made to the Agreement (the “Agreement”) dated as
of November 8, 2009 by and between Sanders Morris Harris Group
Inc.  (the “Company”) and
Fletcher International, Ltd. (“Purchaser”).  Capitalized
terms not otherwise defined herein shall have the meanings ascribed thereto in
the Agreement and the warrant certificate issued thereunder (the “Certificate”).

    

    The
undersigned is the registered Holder of a warrant certificate evidencing the
above-referenced warrants (the “Warrants”) issued by
the Company and hereby elects to exercise the Warrants to purchase [_________]
shares of Common Stock at a Warrant Price of $[_________] for an aggregate price
of $[__________].

    

    [Cash exercise:] Subject to
the terms and conditions of the Agreement and Warrants, on the Warrant Closing
Date (as defined in the Warrant), Purchaser shall deliver $[____________] to the
Company and the Company shall deliver the number of shares of Common Stock
specified above to Purchaser via The Depository Deposit/Withdrawal at Custodian
(DWAC) system using the following account information:

    

    [Broker:

    DTC#:

    Account
Name:

    Account
Number:          ]

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

    

    [Cashless Exercise:]
Purchaser hereby elects to exercise a Warrant Amount of [____________] into
[_____________] shares of Settlement Stock via Cashless Exercise (as defined in
the Agreement). Pursuant to the Warrants, delivery of the Warrants shall be the
sole consideration deliverable to the Company in connection with such exercise.
Subject to the terms and conditions of the Agreement and the Certificate, on the
Warrant Closing Date the Company shall deliver the number of shares of Common
Stock specified above to Purchaser via The Depository Deposit/Withdrawal at
Custodian (DWAC) system using the following account information:

    

    [Broker:

    DTC#:

    Account
Name:

    Account
Number:          ]

    

    
      
        
          
            
              	
                      FLETCHER
      INTERNATIONAL, LTD., by its duly authorized investment advisor, FLETCHER
      ASSET MANAGEMENT, INC.

                    
	 
      	 
      
	
                      By:

                    	  
      
	 
      	
                      Name:

                    
	 
      	
                      Title:

                    
	 
      	 
      
	
                      By:

                    	  
      
	 
      	
                      Name:

                    
	 
      	
                      Title:

                    

            

          

        

      

    

    

    
      
        
          
            	
                    AGREED
      AND ACKNOWLEDGED:

                  
	
                    
                      SANDERS
      MORRIS HARRIS GROUP INC.

                    

                  
	 
      	 
      
	
                    By:

                  	  
      
	 
      	
                    Name:

                  
	 
      	
                    Title:

                  

          

        

      

    

     

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

    

    Exhibit
2

    [FORM OF
WARRANT DELIVERY NOTICE]

    

    [DATE]

    

    Fletcher
International, Ltd.]

    c/o
Fletcher Asset Management, Inc.

    48 Wall
Street

    New York,
NY 10005

    Attn:  Peter
Zayfert

    Facsimile:         (212)
284-4801

    

    Ladies
and Gentlemen:

    

    Reference
is made to the Agreement (the “Agreement”) dated as
of November 8, 2009 by and between Sanders Morris Harris Group Inc. (“SMHG”) and Fletcher
International, Ltd. (“Fletcher”).  Capitalized
terms not otherwise defined herein shall have the meanings ascribed thereto in
the Agreement and the warrant certificate issued thereunder (the “Certificate”).

    

    This
notice confirms that Warrants have been exercised by Fletcher with respect to a
Warrant Price (as designated in the Warrant Exercise Notice) of $[__________]
and an aggregate price of $[___________], requiring delivery by SMHG to Fletcher
of  ________ shares of Common Stock.

    

    After
delivery of such shares, the Warrant shall remain exercisable for a number of
shares of Common Stock issuable at the Warrant Price then in effect for an
aggregate purchase price equal to $[_______].

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            	
                                    SANDERS
      MORRIS HARRIS GROUP INC.

                                  	 
	 
      	 
      	 
	
                                    By: 

                                  	  	 
	Name:	 
	Title:	 

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
         

      

      
        22Exhibit
10.1

     

    THIS
NOTE HEREOF HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES
ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS.  THIS NOTE HAS
BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW FOR DISTRIBUTION
OR RESALE, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED UNLESS
IT HAS BEEN SO REGISTERED OR AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.

     

    CONVERTIBLE PROMISSORY
NOTE

     

    
      	
              Principal
      Amount: $176,471.00

            	
              Issue
      Date: December 7, 2009

            

    

     

    FOR VALUE RECEIVED, the
undersigned, Signature
Exploration & Production Corp, a Delaware corporation (the “Borrower”
or the “Company”),
hereby promises to pay to the order of ________________________ (together
with each of their said heirs, personal representatives, successors and assigns,
and any such bearer, being hereinafter referred to collectively
as  the “Holder”),
on or before December 7, 2010 (the “Maturity
Date”), the principal sum of One Hundred Fifty Thousand Dollars
($150,000.00) (this “Note”),
together with interest thereon at the rate set forth herein (the “Loan”).  For
purposes of this Note, “Borrower” shall mean all successors in interest and
assignees, including, without limitation, pursuant to a merger, consolidation,
reorganization, recapitalization or other similar restructuring event
(collectively, a “Reorganization”),
and all endorsers, sureties and guarantors and any other person liable or to
become liable with respect to the Loan.

    

    1. Original Issue
Discount.   This Note is issued with an original issue discount
of 15% upon funding of $150,000 in cash by Holder to Borrower.

     

    2. Payment of Principal and
Interest.   The Borrower shall pay the Holder all accrued
interest shall be paid on the Maturity Date.

     

    3. Conversion.  At
any time while this Note is outstanding, the Holder may convert any portion of
this Note that is outstanding, whether such portion represents principal or
interest, into shares of common stock of the Company (the “Conversion Shares”)
at a price equal to $0.35 (the “Conversion Price”).  The Holder shall
submit a notice of conversion (the “Notice of Conversion”) to the Company
indicating the amount of the Note being converted, the number of shares issuable
upon such conversion, and where the Conversion Shares should be
delivered.  The Company must deliver the Conversion Shares to the
Holder no later than the third (3rd)
business day after the date that Holder submits the Notice of Conversion to the
Company (such third business day is hereinafter referred to as the “Share
Delivery Date”).

     

    4. Holder’s Conversion
Limitations.  The Company shall not effect any conversion of
this Note, and a Holder shall not have the right to convert any portion of this
Note, to the extent that after giving effect to the conversion set forth on the
applicable Notice of Conversion submitted by the Holder, the Holder (together
with the Holder’s affiliates, and any Persons acting as a group together with
the Holder or any of the Holder’s affiliates) would beneficially own in excess
of the Beneficial Ownership Limitation (as defined below).  For
purposes of the foregoing sentence, the number of shares of common stock
beneficially owned by the Holder and its affiliates shall include the number of
shares of common stock issuable upon conversion of this Note with respect to
which such determination is being made, but shall exclude the number of shares
of common stock which are issuable upon (i) conversion of the remaining,
unconverted principal amount of this Note beneficially owned by the Holder or
any of its affiliates and (ii) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company subject to a
limitation on conversion or exercise analogous to the limitation contained
herein (including, without limitation, any other convertible securities or
warrants) beneficially owned by the Holder or any of its 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    affiliates.  Except
as set forth in the preceding sentence, for purposes of this Section 4,
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder.  To
the extent that the limitation contained in this Section 4 applies, the
determination of whether this Note is convertible (in relation to other
securities owned by the Holder together with any affiliates) and of which
principal amount of this Note is convertible shall be in the sole discretion of
the Holder, and the submission of a Notice of Conversion shall be deemed to be
the Holder’s determination of whether this Note may be converted (in relation to
other securities owned by the Holder together with any Affiliates) and which
principal amount of this Note is convertible, in each case subject to the
Beneficial Ownership Limitation. To ensure compliance with this restriction, the
Holder will be deemed to represent to the Company each time it delivers a Notice
of Conversion that such Notice of Conversion has not violated the restrictions
set forth in this paragraph and the Company shall have no obligation to verify
or confirm the accuracy of such determination.  In addition, a
determination as to any group status as contemplated above shall be determined
in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder.   For purposes of this
Section 4, in determining the number of outstanding shares of common stock, the
Holder may rely on the number of outstanding shares of common stock as stated in
the most recent of the following: (i) the Company’s most recent periodic or
annual report filed with the Commission, as the case may be, (ii) a more recent
public announcement by the Company, or (iii) a more recent written notice by the
Company or the Company’s transfer agent setting forth the number of shares of
Common Stock outstanding.  Upon the written or oral request of a
Holder, the Company shall within two Trading Days confirm orally and in writing
to the Holder the number of shares of common stock then
outstanding.  In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the conversion or exercise of
securities of the Company, including this Note, by the Holder or its affiliates
since the date as of which such number of outstanding shares of common stock was
reported. The “Beneficial Ownership Limitation” shall be 9.99% of the number of
shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of common stock issuable upon conversion of this Note held by
the Holder.  The Holder, upon not less than 61 days’ prior notice to
the Company, may waive the Beneficial Ownership Limitation and the Beneficial
Ownership Limitation shall no longer apply as of the 61st day
after such notice is delivered to the Company.  The limitations
contained in this paragraph shall apply to a successor holder of this
Note.

     

    5. Warrant.  Simultaneously
with the issuance of this Note, Borrower shall issue to the Holder a 5-year
warrant (the “Warrant”) to purchase such number of shares of common stock of the
Company equal to the number of Conversion Shares issuable upon full conversion
of the principal amount of this Note, exercisable at a price equal to $0.50 (the
“Exercise Price”), subject to full-ratchet anti-dilution adjustment as more
fully described in the form of Warrant to be provided by Holder and signed by
the Company.

     

    6. Acknowledgement by the
Holder.  The Holder hereby represents and warrants to the
Borrower that the Holder has sufficient knowledge and experience of financial
and business matters so that the Holder is able to evaluate the merits and risks
of purchasing this Note and the Holder has had substantial experience in
previous private and public purchases of securities.  The Holder is an
“accredited investor” as that term is defined in Rule 501 of Regulation D under
the Securities Act.

     

    7. Anti-dilution
Adjustment.  If at any time this Note is outstanding, the
Company issues common stock or securities convertible into or exercisable for
common stock at a price per share that is lower than the Conversion Price (a
“Dilutive Issuance”), or adjusts the price per share at which any of its
outstanding securities can be converted into or exercised for common stock to a
price that is lower than the Conversion Price (a “Dilutive Adjustment”), the
Conversion Price shall automatically be adjusted to equal the lower price
granted in such Dilutive Issuance or Dilutive Adjustment (the “Adjusted
Conversion Price”).  The Company must provide written notice to the
Holder of a Dilutive Issuance or a Dilutive Adjustment (the “Adjustment Notice”)
within three (3) trading days of such occurrence, provided however that the
Adjusted Conversion Price shall be deemed to be in effect automatically upon any
Dilutive Issuance or Dilutive Adjustment regardless of whether the Company
provides the Adjustment Notice. The Company must honor any conversions requested
by the Holder at the Adjusted Conversion Price following any Dilutive Issuance
or Dilutive Adjustment.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    7a. No adjustment to the
Conversion Price will be made (i) upon the exercise of any warrants, options or
convertible securities granted, issued and outstanding on the date of issuance
of this Note; (ii) upon the grant or exercise of any stock or options which may
hereafter be granted to or exercised by any employee or consultant directly or
under any employee benefit plan, stock option plan or restricted stock plan of
the Company now existing or to be implemented in the future, so long as the
issuance of such stock or options is approved the Board of Directors of the
Company; or (iii) upon the exercise of the Warrants.

    

    8. Piggyback Registration
Rights.  If at any time this Note is outstanding, the Company
files a registration statement with the United States Securities and Exchange
Commission (the “Registration Statement”), the Company must include the shares
underlying this Note and the Warrant in such Registration
Statement.  The Company shall notify the Holder of its intent to file
such Registration Statement at least thirty (30) days prior the filing of the
Registration Statement and provide the Holder an opportunity to review and
comment on such Registration Statement.

     

    9. Event of
Default.  Any of the following shall constitute an “Event of
Default” under this Note, and shall give rise to the remedies provided in
Section 10
herein:

     

    
      	
              (a)  

            	
              The
      failure by the Borrower to pay the Indebtedness or otherwise to satisfy
      when due, as contemplated in Section
      2;

            

    

     

    
      	
              (b)  

            	
              The
      failure by the Borrower to deliver the Conversion Shares by the Share
      Delivery Date, as contemplated in Section
      3;

            

    

     

    
      	
              (c)  

            	
              The
      failure by the Borrower to provide the Adjustment Notice or honor
      conversions at the Adjusted Conversion Price following a Dilutive Issuance
      or Dilutive Adjustment, as contemplated in Section
      7;

            

    

     

    
      	
              (d)  

            	
              The
      failure by the Borrower to timely file and keep current periodic reports
      with the SEC;

            

    

     

    
      	
              (e)  

            	
              If
      the Borrower:  (i) makes a general assignment for the
      benefit of creditors; (ii) is adjudicated a bankrupt or insolvent;
      (iii) files a voluntary petition in bankruptcy; (iv) takes advantage,
      as against its creditors, of any bankruptcy law or statute of the United
      States of America or any state or subdivision thereof now or hereafter in
      effect; (v) has a petition or proceeding filed against it under any
      provision of any bankruptcy or insolvency law or statute of the United
      States of America or any state or subdivision thereof, which petition or
      proceeding is not dismissed within 30 days after the date of the
      commencement thereof; (vi) has a receiver, liquidator, trustee,
      custodian, conservator, sequestrator or other such person appointed by any
      court to take charge of its affairs or assets or business and such
      appointment is not vacated or discharged within 30 days thereafter; or
      (vii) takes any action in furtherance of any of the
      foregoing;

            

    

     

    
      	
              (f)  

            	
              Any
      merger, liquidation, dissolution or winding up of the Borrower or its
      business or any sale of all or substantially all of the Borrower’s capital
      stock or assets; provided,
      however,
      the merger or sale of the Borrower with a successor entity that
      acknowledges and expressly assumes in writing the Borrower’s obligations
      hereunder shall not be considered an “Event of Default” for purposes
      hereof; or

            

    

     

    
      	
              (g)  

            	
              The
      Borrower attempts to effectuate or effectuates a reverse stock split of
      its common stock without first obtaining the prior written consent of the
      Holder.

            

    

     

    10. Remedies on
Default.  If any Event of Default shall occur and be continuing
for a period of seven (7) calendar days, the Holder shall, in addition to any
and all other available rights and remedies, have the right, at the Holder’s
option unless such Event of Default shall have been cured or waived in writing
by the Holder (which waiver shall not be deemed to be a waiver of a subsequent
default), to:  (a) declare the entire unpaid principal balance of this
Note, together with all interest accrued thereon and all other sums due by the
Borrower hereunder (the “Default Amount”),; and (b) pursue any and all available
remedies for the collection of such principal and interest to enforce its rights
as described herein; and in such case the Holder may also recover all costs of
suit and other expenses in connection therewith, including reasonable attorney’s
fees for collection and the right to equitable relief (including, but not
limited to, injunctions) to enforce the Holder’s rights as set forth
herein.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    11. Certain
Waivers.  Except as otherwise expressly provided in this Note,
the Borrower hereby waives diligence, demand, presentment for payment, protest,
dishonor, nonpayment and default with respect to the Indebtedness evidenced
hereby.  The Borrower hereby expressly agrees that this Note, or any
payment hereunder, may be extended, modified or subordinated (by forbearance or
otherwise) from time to time, without in any way affecting the liability of the
Borrower.

     

    12. Waivers and Amendments;
Cumulative Remedies.  Neither any provision of this Note nor
any performance hereunder may be waived orally, but only by an agreement in
writing and signed by the party against whom enforcement of any waiver or
discharge is sought.  No right or remedy conferred upon the parties
under this Note is intended to be exclusive of any other right or remedy
contained herein or in any instrument or document delivered in connection
herewith, and every such right or remedy shall be cumulative and shall be in
addition to every other such right or remedy contained herein and/or now or
hereafter existing at law or in equity or otherwise.

     

    13. Governing
Law.  This Note shall be deemed to be a contract made under the
laws of the State of New York and shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to the
principles of conflicts of law.  If either party shall commence an
action or proceeding to enforce any provision of this Note, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for
its attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or
proceeding.

     

    14. Consent to Jurisdiction and
Service of Process.  The Borrower by execution, and the Holder
by acceptance, hereof each consent to the jurisdiction of any federal district
court in the State of New York having competent jurisdiction.  The
Borrower waives personal service of any summons, complaint or other process in
connection with any such action or proceeding and agrees that service thereof
may be made, as the Holder may elect, by certified mail directed to the Borrower
at the location provided for in Section 16 hereof,
or, in the alternative, in any other form or manner permitted by
law.

     

    15. Additional
Documents.  From time to time the Holder will execute and
deliver to the Borrower such additional instruments as the Borrower may
reasonably request to effectuate the purposes of this Note.

     

    16. Notices.  All
notices and other communications required or permitted hereunder shall be in
writing and shall be mailed by United States first-class mail, postage prepaid,
or delivered personally by hand or by nationally recognized overnight courier or
sent via facsimile addressed to:

     

    
      	
              If
      to the Borrower:

            	 
      
	 
      	 
      
	 
      	
              __________________________________________

            
	 
      	
              __________________________________________

            
	 
      	
              __________________________________________

            
	 
      	 
      
	
              If
      to the Holder:

            	 
      
	 
      	
              __________________________________________

            
	 
      	
              __________________________________________

            
	 
      	 
      

    

    

    or at
such other address as shall have been furnished to the other party in
writing.  All such notices and other written communications shall be
effective:  (a) if mailed, five days after mailing; (b) if delivered,
upon delivery; and (c) if sent via facsimile, upon confirmation of
receipt.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    17. Wiring
Instructions.  Any amount wired to the Borrower hereunder shall
be wired in accordance with the following wiring instructions:

     

    Bank
Name:                      __________________

    Account
Name:               __________________

    Account
Number:           __________________

    Routing
number:             __________________

     

    18. Severability.  If
any provision of this Note is prohibited or unenforceable in any jurisdiction,
it shall be ineffective in such jurisdiction only to the extent of such
prohibition or unenforceability, and such prohibition or unenforceability shall
not invalidate the balance of such provision to the extent it is not prohibited
or unenforceable nor the remaining provisions hereof, nor render unenforceable
such provision in any other jurisdiction.

     

    19. Assignment.  This
Note shall inure to the benefit of, and shall be binding upon, the Borrower and
the Holder and their respective successors and permitted
assigns.  Neither party hereto may assign any of its rights or
obligations hereunder without the prior written consent of the other
party.

     

    20. Counterparts.  This
Agreement may be executed in any number of counterparts, each of which shall be
deemed an original, and all of which together shall constitute one and the same
instrument.  A facsimile signature of any party shall be considered to
have the same binding legal effect as an original signature.

     

    21. No Stockholder
Rights.  Nothing contained in this Note shall be construed as
conferring upon the Holder or any other person the right to vote or to consent
or to receive notice as a stockholder in respect of meeting of stockholders for
the election of directors of the Borrower or any other matters or any rights
whatsoever as a stockholder of the Borrower; and no dividends shall be payable
or accrued in respect of this Note.

     

    22. JURY
WAIVER.  THE BORROWER BY EXECUTION, AND THE HOLDER BY
ACCEPTANCE, HEREOF EACH CONSENT THAT IN ANY CIVIL ACTION, COUNTERCLAIM, OR
PROCEEDING, WHETHER AT LAW OR IN EQUITY, WHICH ARISES OUT OF, CONCERNS, OR
RELATES TO THIS NOTE, ANY AND ALL TRANSACTIONS CONTEMPLATED BY THIS NOTE, THE
PERFORMANCE OF THIS NOTE, OR THE RELATIONSHIP CREATED BY THIS NOTE, WHETHER
SOUNDING IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE, TRIAL SHALL BE TO A
COURT OF COMPETENT JURISDICTION AND NOT TO A JURY.  EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY.  ANY
PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS NOTE WITH ANY COURT, AS
WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES TO THIS NOTE OF THE WAIVER OF
THEIR RIGHT TO A TRIAL BY JURY.

     

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    [SIGNATURE PAGE]

     

    

     

    IN WITNESS WHEREOF, the
undersigned has executed and delivered this Note on and as of the date first set
forth above.

     

    

     

     

    Signature
Exploration & Production Corp, a Delaware corporation, as
Borrower

    

    

    By:    _______________________________

    Name:

    Title:

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