Document:

vectra.htm

Exhibit 10.18

 

 

EXPLORATION AGREEMENT

THIS Exploration Agreement (referred to as the “Agreement”) is made and entered into as of this 1st day of March, 2013 between Vecta Oil & Gas, Ltd., a Texas limited partnership, hereinafter called “Vecta”, whose address is 575 Union Blvd., Suite 208, Lakewood, Colorado 80228, and Synergy Resources Corporation, a Colorado corporation, hereinafter called “Synergy”, whose address is 20203 Highway 60, Platteville, Colorado 80651. For purposes of this Agreement, Vecta and Synergy may be alternately referred to as a “Party” and collectively as the “Parties”.

RECITALS

WHEREAS, Vecta owns an interest in those certain oil and gas leases covering lands more particularly described in the Exhibit “A” attached hereto and by this reference made part hereof (hereinafter referred to as the “Vecta Greenhorn Project Leases”) covering a total of 33,021.6581 net acres, more or less, located in Morgan and Weld Counties, Colorado;

AND WHEREAS, Vecta owns an interest in those certain oil and gas leases covering lands more particularly described in Exhibit “B” attached hereto and by this reference made part hereof (hereinafter referred to as the “Vecta Wattenberg Extension Area Leases”) covering a total of 2,022.5821 net acres, more or less, located in Weld County, Colorado;

AND WHEREAS, Synergy owns those certain oil and gas leases covering lands more particularly described in the Exhibit “C” attached hereto and by this reference made  part hereof (hereinafter referred to as the “Synergy Greenhorn Project Leases”) covering a total of 10,735.2927 net acres, more or less, located in Morgan and Weld Counties, Colorado;

AND WHEREAS, Synergy and Vecta have jointly acquired certain leases from the Board of Land Commissioners of the State of Colorado at the May 17, 2012 lease auction as set forth more particularly in the Exhibit “D” attached hereto and by this reference made a part hereof covering a total of 960.00 acres, more or less, located in Weld County, Colorado (hereafter referred to as the “Joint Interest State Leases”);

AND WHEREAS, Vecta has recently acquired additional oil and gas leases covering lands more particularly described in Exhibit “E” attached hereto and by this reference made a part hereof (hereinafter referred to as the “Vecta Greenhorn Project Supplemental Leases”) covering a total of 1,904.4829 net acres, more or less, located in Morgan and Weld Counties, Colorado;

AND WHEREAS, Vecta and Synergy desire to exchange, cross-convey and assign interests in the Vecta Greenhorn Project Leases and the Synergy Greenhorn Project Leases so that each of the Parties owns an equal undivided interest in each of the leases depicted in the attached Exhibits “A” and “C”;

AND WHEREAS, Synergy desires to purchase from Vecta such additional interests in the Vecta Greenhorn Project Leases and the Vecta Greenhorn Project Supplemental Leases to increase its aggregate working interest across the combined leasehold positions of the Parties as depicted in the attached Exhibits “A”, “C” and “E”, and Vecta agrees to sell such interests to Synergy on the terms and conditions set forth in this Agreement;

AND WHEREAS, Synergy also desires to acquire from Vecta, interests in the leases depicted in the attached Exhibits “B” and “D” covering lands located adjacent to certain Wattenberg Field assets owned by Synergy, such adjacent area being hereafter referred to as the “Wattenberg Extension Area”.

AND WHEREAS, Vecta and Synergy each desire to acquire from each other copies of the respective lease, land and title records, and contract files pertaining to the Vecta Leases and the Synergy Leases as well as any proprietary and non-proprietary geological and geophysical data owned or possessed by Vecta or Synergy covering lands within the townships shown in Exhibits “A”, “B”, “C”, “D” or “E” (referred to as the “Records”).  The interest in the Vecta Greenhorn Project Leases, the Vecta Wattenberg Extension Area Leases, the Vecta Vecta Greenhorn Project Supplemental Leases, and the Joint Interest State Leases to be sold or exchanged by Vecta and thereafter acquired by Synergy (whether by purchase or trade), and the interests in the Synergy Greenhorn Project Leases to be exchanged by Synergy with Vecta, and all of the associated Records are collectively referred to as the “Assets”.  Additionally, Synergy and Vecta have agreed to the conduct of an exploration program which shall include the acquisition of new proprietary seismic data and the drilling of one or more wells in and under the Vecta Greenhorn Project Leases, the Vecta Greenhorn Project Supplemental Leases or the Synergy Greenhorn Project Leases or leases hereafter acquired jointly by Vecta and Synergy that are pooled or unitized therewith;

  

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NOW, THEREFORE, for good and valuable consideration, and for the mutual covenants herein contained, Vecta and Synergy agree as follows:

	
1. 

	
EFFECTIVE DATE

           The Effective Date of this Agreement shall be as of 7:00 o’clock A.M., local time, on March 1, 2013.

 

	
2. 

	
TERM

           This Agreement shall commence on the Effective Date and shall thereafter remain in effect for each township in which any Subject Lease covering any of the Subject Lands in such township, or any lease previously or hereafter acquired in such township by Vecta and Synergy pursuant to the Area of Mutual Interest discussed in Section 15 (referred to as the DJ Basin Greenhorn AMI), remains in effect, or a primary term of four (4) years from the Effective Date, whichever is later, unless terminated sooner pursuant to the provisions of Section 3, Section 7.2, or Section 9.2.

 

 

	
3. 

	
CLOSING

           Closing shall mean the date on which the Leasehold Equalization Fee (as defined in Section 5.1) is paid to Vecta and the conveyancing documents (as described in Section 8) are exchanged by Vecta and Synergy.  Closing shall occur on or before March 15, 2013 at such time and place as may be agreed upon in writing by the Parties. If Closing does not occur by such date, this Agreement shall have no further force and effect, and the parties shall have no mutual obligations to each other hereunder.

	
4. 

	
INTERESTS TO BE EXCHANGED/CROSS-CONVEYED

 

Subject to the terms, conditions and reservations contained in this Agreement, Synergy shall assign, transfer and convey to a mutually agreeable third party (the “Qualified Intermediary”) at Closing an assignment of sixty five percent (65.00%) of all of the right, title and interest of Synergy in and to the Synergy Greenhorn Project Leases insofar as they cover the lands set forth in the attached Exhibit “C”, being a total of Six Thousand Nine Hundred Seventy Seven and 94/100ths net acres of leasehold, more or less, and Vecta shall assign, transfer and convey to the Qualified Intermediary at Closing an assignment of an equal number of net acres of leasehold out of all of the right, title and interest of Vecta as to the Vecta Leases insofar as they cover the lands set forth in the attached Exhibit “A”, being an equal undivided 21.131405% interest, more or less, in and to the Vecta Greenhorn Project Leases.

 

The assignments of these leasehold interests at Closing by the Parties shall be treated as a like-kind exchange pursuant to the provisions of Internal Revenue Code Section 1031, and the Parties shall prepare and execute such documents as may be necessary to satisfy the provisions of the Internal Revenue Code so as to effect this transaction. Any and all fees incurred during the exchange process by the Qualified Intermediary, the Section 1031 Exchange Agent or any other parties shall be borne equally by the Parties.

 

As soon as practicable following Closing, the Qualified Intermediary shall convey the interests received from Synergy to Vecta, and shall likewise convey the leasehold interests received from Vecta to Synergy. The Parties agree to execute such additional documents and assurances as may be necessary to complete this portion of the Agreement.

 

The interests in the Vecta Greenhorn Project Leases covering the lands set forth in the attached Exhibit “A” shall be assigned by Vecta to Synergy without warranty of title, express, implied, statutory, or otherwise, except for those transactions occurring by, through or under Vecta.  It is the intent of Vecta to convey to Synergy an equal undivided interest in all of the leases owned by Vecta as to all of the lands covered by said leases. Likewise, the interests in the Synergy Greenhorn Project Leases covering the lands set forth in the attached Exhibit “B” shall be assigned by Synergy to Vecta without warranty of title, express, implied, statutory, or otherwise, except for those transactions occurring by, through or under Synergy.  It is the intent of Synergy to convey to Vecta an equal undivided interest in all of the leases owned by Synergy as to all of the lands covered by said leases.

  

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5. 

	
ADDITIONAL GREENHORN PROJECT INTERESTS TO BE ACQUIRED BY SYNERGY

           Subject to the terms, conditions and reservations contained in this Agreement, Vecta shall sell, assign, transfer and convey to Synergy at Closing, and Synergy shall purchase, pay for and receive at Closing an assignment of the following:

 

	 	
13.868595% of all right, title and interest of Vecta in and to the Vecta Greenhorn Project Leases insofar as they cover the lands set forth on Exhibit “A” thus vesting in Synergy in total an equal undivided 35.00% interest in and to the Vecta Greenhorn Project Leases when combined with the interests acquired pursuant to the exchange discussed in Section 4 of the Agreement

	 

 

The interests in the Vecta Greenhorn Project Leases covering the lands set forth in the attached Exhibit “A” shall be assigned by Vecta to Synergy without warranty of title, express, implied, statutory, or otherwise, except for those transactions occurring by, through or under Vecta.  It is the intent of Vecta to convey to Synergy an equal undivided interest in all of the leases owned by Vecta as to the lands covered by said leases set forth in the attached Exhibit “A”.

 

	
6. 

	
ADDITIONAL INTERESTS TO BE ACQUIRED BY SYNERGY FROM VECTA

At the May 17, 2012 State of Colorado Board of Land Commissioners oil and gas lease auction, Synergy acquired three (3) oil and gas leases covering lands outside the boundary of the Greenhorn Project Area for an aggregate consideration of Four Hundred Forty Four Thousand Sixty Dollars ($444,060.00). At the time of the sale, Synergy and Vecta had agreed to jointly acquire the leasehold, and Vecta reimbursed Synergy for one-half of the aggregate expenditure (or $222,030.00) following the sale. Synergy acknowledges receipt of this prior payment from Vecta for fifty percent (50%) of the total amount paid by Synergy for acquisition of this state leasehold. Synergy has expressed a desire to acquire a larger portion of the leasehold interest owned by Vecta in these State leases more particularly described in the attached Exhibit “D” as well as other leasehold owned by Vecta covering lands outside the boundary of the Greenhorn Project Area, but located within the Wattenberg Extension Area described above covering portions of the following townships, said leases and lands being more particularly described in the attached Exhibit “B”:

Township 1 North, Ranges 63 and 64 West, 6th P. M.

Township 2 North, Range 62 West, 6th P. M.

Township 3 North, Ranges 61 and 62 West, 6th P. M.

Township 4 North, Ranges 61 and 62 West, 6th P. M.

Accordingly, subject to the terms, conditions and reservations contained in this Agreement, Vecta shall sell, assign, transfer and convey to Synergy at Closing, and Synergy shall purchase, pay for and receive at Closing an assignment of the following:

 

	 	
65.00% of all right, title and interest of Vecta in and to the leases set forth in the attached Exhibit “B” (the “Vecta Wattenberg Extension Area Leases”), as well as fifteen percent (15.00%) out of the Vecta fifty percent (50.00%) interest in the three (3) State of Colorado leases acquired at the May 17, 2012 Colorado State Sale as set forth on the attached Exhibit “D” thus vesting in Synergy in total an equal undivided 65.00% interest in and to the May 17, 2012 State Leases

	 

 

As to the leasehold interests set forth in the attached Exhibit “B” being conveyed by Vecta to Synergy, the consideration payable for such assignment shall equal Four Hundred Dollars ($400.00) per net mineral acre. The additional interest being acquired by Synergy in the state leasehold depicted in the attached Exhibit “D” shall equal fifteen percent of the total consideration of $444,060.00 paid by Synergy and Vecta, and Vecta shall be so credited for the sum of $66,609.00 at closing hereunder as part of the aggregate consideration for this transaction.

  

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The interests in the leases covering the lands set forth in the attached Exhibits “B” and “D” shall be assigned by Synergy to Vecta and by Vecta to Synergy without warranty of title, express, implied, statutory, or otherwise, except for those transactions occurring by, through or under the Party in whose name each such lease was acquired and is subsequently named as Assignor hereunder.  It is the intent of each Party to convey to the other Party an equal undivided interest in all of the leases owned by the assigning Party as to all of the lands covered by said leases.

	
7. 

	
CONSIDERATION

           Synergy shall pay to Vecta cash and other considerations for the Assets to be conveyed as set forth in this Section 7.

           7.1           Leasehold Reimbursement Fee

(a)           At Closing, Synergy shall pay to Vecta, via wire transfer or immediately available funds, the sum estimated to be Two Million Eight Hundred Forty One Thousand Eight Hundred Fifty Five and 57/100ths Dollars ($2,841,855.57), calculable as follows:

(i) Greenhorn Project Leasehold – Synergy and Vecta exchange 6,977.9403 net acres out of Exhibits “A” and “C”, and Synergy acquires additional 4,579.6401 net acres out of Exhibit “A” to equal 35% in Exhibit “A” leasehold

4,579.6401 net acres X $600.00/net acre = $2,747,784.06

(ii Wattenberg Extension Leasehold --- Synergy to acquire 65% of Vecta 2,022.5821 net acres

In the Wattenberg Extension Area as depicted in Exhibit “B” at price of $400.00 per net acre

2,022.5821 net acres X 65% = 1,314.6784 X $400.00/net acre = $525,871.36

(iii) Joint Interest State Leasehold --- Synergy to acquire from Vecta an additional 15% (being 30% of Vecta’s 50%) of the State leasehold covering lands in the Wattenberg Extension Area as shown in Exhibit “D” at cost

Total Consideration = $444,060.00 X 15% = $66,609.00

(iv) Supplemental Greenhorn Leasehold --- Synergy to acquire its proportionate 35% of additional leasehold acquired by Vecta in Greenhorn Project Area at cost, being 35% of aggregate lease bonus and brokerage costs (Synergy to acquire 666.5691 net acres at cost of $212.42 per net acre)

Total Consideration = $404,545.70 X 35% = $141,591.00

 

(b)           Synergy Equity Contribution --- the estimated amount due Vecta by adding the consideration for the assignments being made to Synergy under Section 7.1.a (i) through (iv) equals $3,481,855.42; Vecta has agreed to accept a total of one hundred thousand (100,000) shares of restricted common stock of Synergy (hereafter the “Shares”) as a portion of the consideration otherwise due and payable hereunder. The value allocated to each share is equal to the average of the closing share price for a period of twenty (20) trading days preceding the date of this Agreement, as posted on the NYSE:MKT. The specific cash amount due Vecta at closing shall be calculated following completion of the title review and other due diligence conducted by each Party, and shall equal the total amounts due Vecta being the actual sum of Section 7.1.a (i) through (iv), less and except the value of the Shares to be tendered to Vecta. Before close of business the day prior to Closing, Vecta shall provide a summary of the total due (hereafter the “Final Settlement Statement”), and Synergy shall submit such payment (as herein provided) to Vecta at Closing.

 

 

  

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Adjustments to the interests to be acquired by each Party may be made in accordance with the provisions of Section 9.3 below. Should the adjustment result in a net addition to the amount owed to Vecta subject to the right of Synergy to cure any and all such identified defects, Synergy shall place in escrow the additional amount in question through the May 15, 2013 final defect curative date set forth in Section 9.5. Should the adjustment result in a net reduction in the amount owed to Vecta, then Synergy shall reduce the total consideration hereunder.

The shares of Synergy stock will be “restricted securities” as that term is defined in Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”).  Such shares may be resold only in compliance with Rule 144 or some other exemption from registration under the Securities Act.

Vecta and Synergy acknowledge that certain consents and approvals are required to issue the Shares, including approval of the NYSE MKT, and that the Shares will not be delivered to Vecta on the Closing Date.  Synergy shall within five (5) business days after the Closing Date, and in good faith, commence application for all necessary consents and approvals to cause the Shares to be delivered to Seller at the earliest possible date, not to exceed in any event one hundred twenty (120) days, including weekends and holidays, from the Closing Date.

Synergy represents, covenants and warrants that Synergy is an entity subject to the reporting requirements of the Securities Exchange Act of 1934.  Vecta represents and warrants that it is not an affiliate, a director, a large shareholder, or has any relationship with Synergy which constitutes a relationship of control or would permit Vecta in any way to exercise control over Synergy.  Provided Vecta meets the requirements of Rule 144 as heretofore referenced, Synergy shall promptly, upon Vecta’s written request, provide instructions to its stock transfer agent to remove the restrictive legend from the Shares.

Any and all expenses and costs, including attorney fees, associated with Synergy obtaining the requisite consents and approvals to issue the Shares, and subsequent removal of the restrictive legend from the Shares, shall be borne solely by Synergy.

 

           7.2            Work Commitment

           As an additional commitment hereunder, Synergy and Vecta shall use reasonable efforts in good faith (A) to acquire new proprietary seismic data across a portion of the lands covered by the Vecta Greenhorn Project Leases, the Vecta Greenhorn Project Supplemental Leases  and/or the Synergy Greenhorn Project Leases in one or more programs mutually agreeable to the Parties, (B) to drill a horizontal well to evaluate either the Greenhorn Shale or Niobrara Shale as the primary objective within the project area in which Synergy and Vecta own undivided interests in the Vecta Greenhorn Project Leases, the Vecta Greenhorn Project Supplemental Leases  and/or the Synergy Greenhorn Project Leases pursuant to the Agreement, or (C) to conduct such other exploration projects within the project area as may be mutually agreed upon by the Parties pursuant to the Joint Operating Agreement referenced in Section 11 below (hereafter the “Project JOA”).

7.2.a           Seismic Acquisition Program

 

Vecta shall operate and Synergy shall participate in a proprietary seismic acquisition program covering lands in Section 36 of Township 7 North, Range 59 West; and Sections 1 and 12 of Township 6 North, Range 59 West, all in the 6th P. M., Morgan and Weld Counties, Colorado. This program is designed as a hazard program in preparation for the drilling of a horizontal Greenhorn exploratory well tentatively planned to be located in Section 1 of Township 6 North, Range 59 West, 6th P. M., Morgan County, Colorado, but shall also be designed to evaluate multiple formations, including, but not limited to the Niobrara, the Codell, the D-sand and the J-sand formations. Promptly upon completion of data acquisition, Vecta shall thereafter process and interpret such data. Synergy shall pay for its proportionate share of the costs of acquisition and processing of such data, and shall thereafter own a proportionate 35.00% interest in the data set resulting from the completion of this seismic commitment.

7.2.b           Drilling of Test Well

 

Synergy, after consultation with Vecta (and any third party owners to whom Vecta or Synergy may sell, assign, transfer or convey portions of their interests in the Vecta Vecta Greenhorn Project Leases, the Vecta Greenhorn Project Supplemental Leases  and/or the Synergy Greenhorn Project Leases), shall propose the drilling and completion of a new well to evaluate the Greenhorn formation (hereafter the “Test Well Objective Formation”); and may select a drill site or drill sites within the project area to evaluate either the Test Well Objective Formation or other objective specified in the proposal for such well or wells pursuant to the provisions of the Project JOA.

  

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Following interpretation of the data derived from the seismic program referenced in Section 7.2.a above, Synergy shall use reasonable efforts in good faith to spud on or before October 31, 2013, a well (referred to as the “Initial Greenhorn Test Well”) at a legal location in Section 1 of Township 6 North, Range 59 West, 6th P. M., Morgan County, Colorado. The Initial Greenhorn Test Well shall be drilled to a depth sufficient to penetrate and adequately test the D-sand and J-sand formations, and shall thereafter be plugged back to the Greenhorn formation for the express purpose of drilling an extended reach lateral of not less than four thousand feet (4,000’) within said Section 1 of Township 6 North, Range 59 West. Following completion of the lateral, Synergy shall attempt to complete the horizontal leg of the well utilizing a multi-stage frac stimulation mutually designed and agreed upon by the Parties. Vecta shall provide technical assistance to Synergy during the course of operations, including, but not limited to geological oversight and engineering consultation. The costs of drilling the Initial Greenhorn Test Well shall be borne 65.00% by Vecta (and any partners secured by Vecta) and 35.00% by Synergy.  All costs for operations and production after the completion of the Initial Greenhorn Test Well, as well as any costs for acquisition of additional seismic data or leasehold, or for the drilling of additional wells, shall be borne in accordance with the elections of the parties under the Project JOA.  Under the Project JOA, Synergy shall have a 35.00% working interest and Vecta (and any partners of Vecta) shall have a cumulative 65.00% working interest subject to the non-consent and non-participation penalties set forth therein.

7.2.c            Substitute Well(s)

 

Should granite, salt, saltwater flow, heaving shale or other conditions, including, but not limited to, the loss of the hole or mechanical difficulties, be encountered in drilling any of the wells referenced in Section 7.2.b which would render further drilling impracticable and such well has not yet reached the planned length of the lateral in the Test Well Objective Formation, the Parties shall have the right, but not the obligation, to commence the actual drilling of a substitute well at a legal location chosen by mutual agreement of Synergy and Vecta (with concurrence from any partners secured by Vecta) within thirty (30) days after the plugging and abandonment of the Initial Greenhorn Test Well.  Such substitute well shall be drilled to the Test Well Objective Formation and in the same manner as specified by this Agreement for the well for which it is a substitute, and shall, in all respects and for all purposes of this Agreement, be considered as if it were the well for which it is a substitute. The Initial Greenhorn Test Well, or any subsequent test well planned as a horizontal test well, shall not be deemed to have fulfilled the drilling commitment set forth in this Section 7 unless and until the wellbore reaches a lateral displacement of seventy five percent (75%) of the total horizontal displacement planned in such wellbore as evidenced in the proposal for such well under the Project JOA.

 

7.2.d           Force Majeure

 

If Synergy or Vecta exercise reasonable efforts in good faith to timely initiate operations as to any of the commitments set forth in this Section 7, but is prevented from initiating such action by reason of strikes, labor disputes, accidents, action of the elements (or other acts of God), partial or total failure or inability to obtain material or supplies, including a drilling rig, or in the event that the performance of such drilling is prevented by law, directive or regulations from any authorized agency, or the inability to secure the necessary permits or use agreements from the owners of the surface or the minerals of the lands covered by the Vecta Greenhorn Project Leases, the Vecta Greenhorn Project Supplemental Leases  and/or the Synergy Greenhorn Project Leases (or other joint interest leases acquired pursuant to the Project JOA) to fulfill either the seismic commitment or the drilling commitment, the time required for performance of such obligations shall be extended for so long and only so long as the condition causing such force majeure continues to exist. Upon cessation of the condition constituting the force majeure, Synergy or Vecta shall have one hundred eighty (180) days, or for so long thereafter as may be necessary to achieve optimal seismic acquisition or drilling conditions within which to initiate the required operation; however, such period will be reduced to the extent operations must be conducted within a fixed period of time to avoid the loss, termination or forfeiture of leasehold interests or the loss of opportunity to earn additional leasehold interests. The Party responsible for conduct of the applicable operation shall notify all other Parties to the Agreement in writing of the existence of the force majeure condition, and shall use reasonable efforts in good faith to remove or address the force majeure situation as quickly as practicable. If operations are not commenced within the period discussed above, not to exceed in any event one hundred eighty (180) days, after the funds for such operation have been advanced by the Parties, all monies advanced by the Parties for the proposed operation shall be returned immediately.

 

  

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7.2e           Sale of Seismic

 

No Party may sell, transfer or license any of the proprietary seismic data acquired hereunder for a term of five (5) years following the date the final processed data is delivered to the partners.  Thereafter, any Party may market and sell the data, but not the interpretations thereof and shall account to the other Parties for such Party’s pro rata share of the proceeds net of sale costs.  Vecta shall cause the other third party owners of the data to be subject to the same restrictions with respect to the data.

 

7.3           Favored Nations

As an additional commitment hereunder, Synergy and Vecta shall use reasonable efforts in good faith to secure additional participants for exploration activities planned within the lands covered by the Vecta Greenhorn Project Leases, the Vecta Wattenberg Extension Area Leases, the Vecta Greenhorn Project Supplemental Leases, the Joint Interest State Leases,  and/or the Synergy Greenhorn Project Leases. Furthermore, the Parties agree that for a period of one (1) year from the date of execution of this Agreement should Vecta sell or agree to sell any portion of its retained interests in the leasehold set forth in Exhibits “A” or “C” for an amount less than Four Hundred Dollars ($400.00) per net acre or assign such leasehold to a third party with a net revenue interest greater than eighty percent (80.00%), the parties shall make an adjustment to the purchase price hereunder by re-calculating the amount paid or payable to Vecta, and Vecta shall within fifteen (15) days of the closing of such transaction refund to Synergy an amount equal to the difference between Four Hundred Dollars per net acre and the price received by Vecta per acre under the third party transaction multiplied by the affirmative difference between the number of net mineral acres contained in the Vecta assignment to Synergy and the number of net mineral acres contained in the Synergy assignment to Vecta. In the event that the leasehold is conveyed to a third party under a transaction where the deliverable net revenue interest is greater than eighty percent (80.00%), then Vecta shall assign to Synergy an overriding royalty interest in the leasehold equal to the affirmative difference between the net revenue interest delivered to the third party and the eighty percent (80.00%) net revenue interest delivered to Synergy at closing hereunder.

 

	
8. 

	
CONVEYANCING DOCUMENTS

           The interests shown above in the Vecta Greenhorn Project Leases and the Vecta Greenhorn Project Supplemental Leases covering the lands set forth in the attached Exhibits “A” and “E”; the Vecta Wattenberg Extension Area Leases covering the lands set forth in the attached Exhibit “B”; and the portion of the Joint Interest State Leases depicted in the attached Exhibit “D” shall be conveyed at Closing by Vecta to Synergy, and the interests shown above in the Synergy Greenhorn Project Leases covering the lands set forth in the attached Exhibit “C” that are owned by Synergy shall be conveyed at Closing by Synergy to Vecta pursuant to instruments in the form of Exhibit “F” attached hereto, or such other form or forms by the appropriate governmental authority with jurisdiction to transfer properly the Vecta Greenhorn Project Leases; the Vecta Wattenberg Extension Area Leases; the Synergy Greenhorn Project Leases; the Joint Interest State Leases; and the Vecta Greenhorn Project Supplemental Leases according to the requirements of any applicable federal, state or local agency. The assignments of the Vecta Greenhorn Project Leases; the Vecta Wattenberg Extension Area Leases; the Synergy Greenhorn Project Leases; the Joint Interest State Leases; and the Vecta Greenhorn Project Supplemental Leases shall be made specifically subject to the terms and conditions of each of the Vecta Greenhorn Project Leases; the Vecta Wattenberg Extension Area Leases; the Synergy Greenhorn Project Leases; the Joint Interest State Leases; and the Vecta Greenhorn Project Supplemental Leases.

           With respect to each of the Vecta Greenhorn Project Leases and the Vecta Wattenberg Extension Area Leases, Vecta shall convey the interests in the Assets to Synergy subject to the reservation on a lease-by-lease basis of an overriding royalty interest (hereafter the “Project ORRI”) equal to the affirmative difference between burdens of record as of the effective date of this Agreement and twenty percent (20.00%) of eight-eighths of the oil, gas and other hydrocarbons or other substances produced and saved. The Project ORRI shall be proportionately reduced (a) to the extent that the mineral interest in the lands covered by the Vecta Greenhorn Project Lease or the Vecta Wattenberg Extension Area Lease covers less than the entire mineral interest in the subject lands, and (b) also to the extent that the working interest of Vecta in each of the Vecta Greenhorn Project Leases or the Vecta Wattenberg Extension Area Leases is the entire working interest.

  

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With respect to each of the Synergy Greenhorn Project Leases, Synergy shall convey the interests in the Assets to Vecta subject to the reservation on a lease-by-lease basis of an overriding royalty interest (hereafter the “Project ORRI”) equal to the affirmative difference between burdens of record as of the effective date of this Agreement and twenty percent (20.00%) of eight-eighths of the oil, gas and other hydrocarbons or other substances produced and saved. The Project ORRI shall be proportionately reduced (a) to the extent that the mineral interest in the lands covered by the Synergy Greenhorn Project Lease covers less than the entire mineral interest in the subject lands, and (b) also to the extent that the working interest of Synergy in each of the Synergy Greenhorn Project Leases is the entire working interest.

With respect to each of the State and Federal Leases as well as the Vecta Greenhorn Project Supplemental Leases, Synergy and Vecta shall convey the interests in this leasehold to each other without any reserved or retained overriding royalty interest, and each party shall have the same net revenue interest in the leasehold following such assignments.

It is the intent of the Parties that the interest in the Vecta Greenhorn Project Leases and the Vecta Wattenberg Extension Area Leases shall be delivered to Synergy at Closing with an eighty percent (80.00%) net revenue interest, and the interest in the Synergy Greenhorn Project Leases shall be delivered to Vecta at Closing with an eighty percent (80.00%) net revenue interest. The overriding royalty interests shall apply to all oil, gas and/or any other products produced, saved and sold pursuant to the oil and gas leases subject to the override.  The overriding royalty interest shall be calculated and paid based on the proceeds of the sale of such oil, gas and/or any other products.  Each overriding royalty interest owner shall bear and pay his proportionate share (i.e., its 1.00% overriding royalty interest percentage, as proportionately reduced, out of 100.00%) of ad valorem, gross production and other taxes. The reserved overriding royalty interest shall be free and clear of other development, production and processing costs. Notwithstanding anything herein to the contrary, the overriding royalty interest reserved will be calculated on the same pricing basis as the base lessor’s royalties.

	
9. 

	
DUE DILIGENCE PERIOD

           9.1           Asset Review

9.1.a  Review of Records

           Contemporaneously with the execution of this Agreement, each Party shall supply copies of the Records to the other Party for review by such Party and its employees, agents and contractors, or shall make the Records available to such Party for review and copying. Each review shall be conducted by Synergy and Vecta at their sole cost and expense. The Parties shall have until March 8, 2013 for such analysis (the “Review Period”). The Parties recognize and agree that the Records made available to them in connection with the review are made available as an accommodation, and without representation or warranty of any kind as to the accuracy and completeness of the Records, except that each Party represents that such Records are true and correct copies of such documents as they appear in their respective files and each Party has used its reasonable efforts in good faith to provide all documentation from its Records which relate to the subject leases and the lands covered thereby.

           During the Review Period, the copies of the Records which are by their nature confidential supplied by the Parties to each other shall be held confidential and shall not be shown by either Party to any other party without prior written consent of the other Party, except to a third party who is a bona fide potential purchaser of all of or a portion of a Party’s interests in the area, or to a lending institution in connection with a possible loan transaction. Any party to whom Vecta or Synergy are permitted to disclose the Records shall agree in writing to be bound by this requirement for confidentiality. In the event any Party, or a party to whom a Party has disclosed the confidential information, is compelled to disclose any portion of the confidential information by regulations, governmental requirements, subpoena, or civil investigation demands, said Party shall provide the other Party(ies) to this Agreement with prompt written notice of such requirement and said Party shall furnish only that portion of the Confidential Information that is legally required, exercising its reasonable efforts in good faith to obtain confidential treatment of such information.  If Closing occurs, the copies of the Records supplied by a Party to the other Party shall become the property of the other Party.  If this Agreement terminates and Closing does not occur, the copies of the Records supplied by a Party to the other Party, and all spreadsheets, digests, summaries, compilations and notes derived therefrom, maintained in any format, but excluding any data accumulated by the receiving Party at its sole risk and expense, will be promptly returned to the originating Party.

  

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           9.2           Title Defects

           If, as a result of the inspection and review by a Party of the subject leases covering the lands set forth in the attached Exhibits “A”, “B”, “C”, “D” or “E”, the Records, or review of the appropriate county records, one or more matters comes to a Party’s attention which would constitute a Title Defect (as defined below), the Party shall notify the other Party in writing of the Title Defects as soon as they are identified by such Party, but in any event no later than March 11, 2013 (the “Defect Identification Date”).  Such notice shall include information sufficient to advise the Party owning the lease deemed to be defective of the nature of the Title Defect, the lease(s) and land(s) affected, and the actions required to cure the defect.  All Title Defects for which a Party fails to give notice to the other Party by the Defect Identification Date shall be deemed waived for all purposes.

           A Title Defect is a defect which would, in a Party’s reasonable opinion exercised in good faith, prevent the Party owning a lease from conveying an interest in the subject lease, or portion thereof, to the other Party with defensible title. As used herein, the term "defensible title" shall mean such title, deducible of record in (i) the offices of the various county clerks and recorders where the lands covered by each lease are located, (ii) the Colorado State Office of the Bureau of Land Management, or (iii) the offices of the Land Board of the State of Colorado, as appropriate, which:

	
           (a) 

	
entitles a Party to receive not less than its proportionate share of the number of net mineral acres under each of the leases shown in Exhibits "A", “B”, “C”, “D” or “E”;

	
           (b) 

	
is free and clear of encumbrances, claims or liens other than taxes assessed against the leases covering the listed lands which are not yet delinquent; and

	
           (c) 

	
is free of imperfections in title except those normally waived by persons engaged in the oil and gas business (such as, without limitation, defects that have been cured by possession under applicable statutes of limitation, defects in the early chain of title such as failure to recite marital status in documents, omission of heirship or  succession proceedings, and failure to record releases of lien for debts that have been extinguished, production payments or mortgages that have expired of their own terms), to the extent such imperfections represent matters that are not reasonably expected to result in claims that will adversely affect a Party's title to the subject leases.

9.3           Response to Notice of Title Defects.

Upon receipt of the notice of Title Defects from a Party, the other Party shall have the option, either (i) to elect to cure the Title Defect; (ii) make an additional assignment of an interest in one or more of the leases for the number of net acres of leasehold assigned to the other Party to which the Title Defects apply;, or (iii) make an assignment of an interest in a lease covering lands adjacent to the subject lands for the number of net acres of leasehold assigned to such Party to which the Title Defects apply, as more specifically described below:

           (a)           Defect Value. For each Title Defect that is claimed, the allocated value of such defect shall be Six Hundred Dollars ($600.00) per net mineral acre multiplied by the number of net mineral acres of leasehold set forth in the attached Exhibits “A” and “C” to be conveyed hereunder attributable to such defect, and Four Hundred Dollars ($400.00) per net mineral acre multiplied by the number of net mineral acres of leasehold set forth in the attached Exhibit “B” to be conveyed hereunder attributable to such defect.

(b)           Individual Threshold.  There shall be no remedy for any individual Title Defect if the individual Defect Value is less than $1000.

  

9

  

(c)           Title Threshold.  There shall be no remedy for Title Defects if the aggregate Defect Value attributable to all asserted Title Defects, each of which exceeds the Individual Threshold of $1000, does not exceed $25,000 (the “Title Threshold”).

           (d)           Title Defects.  A Party shall provide the other Party with written notice of its election as to each identified defect meeting the individual threshold within three (3) business days after receipt of the written notice of Title Defects from the other Party. The examining Party covenants that it will give notice to the other Party of any Title Defects as they are discovered (i.e., identified in a final ownership report, title opinion or status report) and shall not wait until the end of the Examination Period to inform the Party owning the lease(s) of previously identified Title Defects.

9.4           Election Not to Cure a Title Defect(s).

Once the Title Threshold is met, if a Party is unable or subsequently elects not to cure a Title Defect of which the Party has been timely notified then the affected lease shall, except as may otherwise be provided herein, be sold and conveyed to the other Party with the Party owning such lease having an option to make a refund to the other Party equal to the diminution in value attributable to such Title Defect (the "Defect Adjustment").  The Defect Adjustment shall be determined as follows:

(i)           If the Title Defect is a matter affecting the quantity of interest owned by a Lessor, or the amount of interest owned by a Party under a lease, the amount of the adjustment shall be calculated by multiplying the number of net mineral acres of leasehold for which title does not meet the standard under this Agreement by the Defect Value.

(ii)           If multiple Title Defects affect the interests claimed by a Party under a lease, the aggregate value of the Title Defects shall not exceed the allocated value of the lease based on the number of net mineral acres that the Party claims are attributable to such lease.

(iii)           If the Title Defect is a lien, encumbrance, or other charge upon a Property which is undisputed and liquidated in amount, then the Defect Adjustment shall be the amount necessary to be paid to the obligee to remove the Title Defect from the affected Property; provided, however, that if the Title Defect affects more than a Party's interest in the affected Property, then the amount of the Defect Adjustment will be reduced proportionately to the extent of the Party's interest in the affected Property.

In lieu of a refund of a portion of the Purchase Price equal to the Defect Adjustment, a Party may, at its sole election, and at its sole cost and expense, either assign to the other Party (a) an additional interest in one or more of the leases covering the subject lands equal to the number of net acres for which title is deemed to have failed or for which the Party owning such lease elects not to cure the Title Defect for the purpose of conveying to the other Party the net mineral acres subject to the Title Defect and to equalize the ownership of such other Party across such leases, or (b) an interest in one or more of the oil and gas leases owned by the Party in whole covering lands adjacent to the subject lands an additional interest in one or more of the leases covering such adjacent lands equal to the number of net acres for which title is deemed to have failed or for which the Party elects not to cure the Title Defect.

9.5           Election to Cure Title Defects.

If the Title Threshold has been met and a Party timely asserts a Title Defect and the other Party elects to cure such Title Defect and so provides notice in writing, then the Party receiving the notice shall have a period of sixty (60) days from the date of receipt of the notice within which to cure the defect and furnish evidence of same.  Title Defects asserted by a Party shall be deemed to be cured if such curative is sufficient to render defensible title.  Such evidence shall be presumed to be sufficient unless, within ten (10) days after receipt of evidence of the same, the Party provides notice that the curative is not acceptable.  If a Party notifies the other Party that the curative is unacceptable and such Party disagrees, then the Party providing notice shall have the option of re-assigning the portion of the subject lease with the Title Defect to the other Party, and receiving an assignment of an equal interest in a lease covering lands adjacent to the subject lands as described in Section 9.4 above.

  

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If a Party cures a Title Defect applicable to any lease, then such lease shall be conveyed by the Party to the Other Party. In the event a Party fails to cure any Title Defect, then the Other Party shall elect to either waive the Title Defect or continue to assert the Title Defect.  As to those Subject Leases, if any, for which a Party elects to continue assertion of a Title Defect, the other Party shall assign to the Party providing notice an assignment of an equal number of net acres out of the subject leases or an equal number of net acres out of certain leases owned by said Party covering lands adjacent to the subject lands as described in Section 9.4 above.  As to those subject leases not conveyed by reason of Title Defect in which a Party elects to continue assertion of a Title Defect:

(a)           If the Party receiving notice of a defect cures the Title Defect on or before May 15, 2013, then not later than May 31, 2013, said Party shall execute and deliver to the notifying Party an Assignment, Bill of Sale, and Conveyance of the Property for which the Title Defect was cured in the same form set forth as Exhibit “F” hereto.

           (b)           If Party receiving notice of a defect fails to cure the defect by May 15, 2013, the notifying Party may elect to waive or continue to assert such Title Defect.  If the notifying Party elects to continue to assert such Title Defect, said Party may terminate this Agreement as to the subject lease (or portion thereof) for which the Title Defect was not cured, and neither Party shall have any further obligation respecting the purchase or sale of such subject lease, which title shall remain with the Party receiving notice.

9.6           Post-Closing Curative

           Each Party shall use reasonable efforts in good faith after Closing in curing any and all Title Defects.  Neither Party shall have any liability for any defects identified hereunder as to the leases owned prior to Closing by the other Party, and nothing herein shall be interpreted to make the other Party a potentially liable party for such defect(s).   The costs and expenses for acquisition of any post-closing curative shall be borne one hundred percent (100.00%) by the Party contributing the lease to the Agreement.

 

9.7           Second Closing

 

As to any and all title defect issues asserted by either Synergy or Vecta prior to Closing that result in the withholding of a portion of the cash or equity consideration referenced in Section 7.1, if any, the Parties shall meet as soon as practicable after May 15, 2013 to resolve the remaining capital issues as to the consideration hereunder. Thereafter, should it be necessary, the Parties shall have a second closing (“Second Closing”) not later than May 29, 2013, at which time funds or shares being held in escrow shall be released as necessary to account for any increases or decreases in the amount of leasehold having been  cured and conveyed hereunder.

           9.8           Representations as to Title

           Vecta represents, but does not warrant, that it has reviewed title to the Vecta Greenhorn Project Area Leases, the Vecta Wattenberg Extension Area Leases, and the Vecta Greenhorn Project Area Supplemental Leases as to the lands shown in the attached Exhibits “A”, “B” and “E”, and that, to the best of its knowledge, there are no defects in title which would prevent Synergy from receiving defensible title to the subject leases as to the subject lands.

 

Synergy represents, but does not warrant, that it has reviewed title to the Synergy Leases as to the lands shown in the attached Exhibit “C”, and that, to the best of its knowledge, there are no defects in title which would prevent Synergy from receiving defensible title to the subject leases as to the subject lands.

	
10. 

	
RENTAL AND LEASE MAINTENANCE PAYMENTS

           The Parties (and any partners secured by Vecta) shall bear 35.00% (Synergy) and 65.00% (Vecta) respectively of any and all rental and/or other lease payments necessary to maintain or extend each of the subject leases that becomes due and payable after the Effective Date in accordance with the provisions of the joint operating agreement discussed below in Section 11 as to the leases and lands set forth in the attached Exhibits “A”, “C” and “E”.

  

11

  

As to any and all rental and/or other lease payments necessary to maintain or extend each of the subject leases that becomes due and payable after the Effective Date in accordance with the provisions of the joint operating agreement discussed below in Section 11 as to the leases and lands set forth in the attached Exhibits “B” and “D”, the Parties shall bear 35.00% (Vecta) and 65.00% (Synergy) of such costs and expenses.

 

 

	
11. 

	
PROJECT OPERATING AGREEMENT

           The rights of Vecta and Synergy in and to the Vecta Leases, the Synergy Leases and the State and Federal Leases as well as any leases which Synergy and Vecta may hereafter acquire and jointly own interests within the boundaries of the DJ Basin Greenhorn AMI discussed in Section 15 shall be governed by the AAPL 1989 Model Form Operating Agreement attached to the Agreement as Exhibit "G" and hereby made a part hereof.  The Operating Agreement names Synergy as Operator and has attached to it, among other things, a 2005 COPAS Accounting Procedure and a Gas Balancing Agreement.

	
12. 

	
INDEMNITIES AND WARRANTIES

           EACH PARTY AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS THE OTHER PARTY AND ANY SUBSIDIARY AND AFFILIATE COMPANIES, TOGETHER WITH THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS, FROM AND AGAINST ANY AND ALL CLAIMS, CAUSES OF ACTION, PENALTIES, LIABILITIES, DAMAGES, LOSSES, COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, COURT COSTS AND REASONABLE ATTORNEY’S FEES) IN CONNECTION WITH ANY PERSONAL INJURIES, INCLUDING DEATH, OR PROPERTY DAMAGE OR LOSS OF WHATSOEVER KIND OR NATURE, THAT RELATE TO OR ARE ATTRIBUTABLE TO THE OWNERSHIP OR OPERATION OF THE LEASES OWNED BY THEM COVERING THE LANDS SET FORTH IN THE RESPECTIVE EXHIBIT “A”, EXHIBIT “B”, EXHIBIT “C”, EXHIBIT “D” OR EXHIBIT “E”.

           

	
13. 

	
BUREAU OF LAND MANAGEMENT AND STATE OF COLORADO APPROVALS

           Appropriate and proper notice of such sale, including, but not limited to any and all assignment, change of operator and designation of operator forms, shall be forwarded to the Bureau of Land Management and the Colorado Oil and Gas Conservation Commission at Closing.

	
14. 

	
WAIVERS AND CONSENTS

           This Agreement, and the subsequent Closing hereunder, is subject to any waivers and consents which may be required under any existing contracts including, but not limited to, waivers of preferential rights to purchase and consents to assign.

	
15. 

	
AREA OF MUTUAL INTEREST

           The Parties hereby establish and create an Area of Mutual Interest (referred to as the “DJ Basin Greenhorn AMI”) consisting of the following described lands located in Morgan and Weld Counties, Colorado:

Township 5 North, Ranges 57 through 60 West, 6th PM

Township 6 North, Ranges 57 through 60 West, 6th PM

Township 7 North, Ranges 57 through 60 West, 6th PM

Township 8 North, Ranges 56 through 58 West, 6th PM

The term of the DJ Basin Greenhorn AMI shall coincide with the Term of this Agreement as set forth in Section 2.

  

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           At any time during the Term of this Agreement, any party to this Agreement shall have the right to (a) acquire one or more oil and gas leases covering lands in the DJ Basin Greenhorn AMI, (b) acquire an option, by farmout agreement or otherwise, to acquire an interest in one or more oil and gas leases covering lands in the DJ Basin Greenhorn AMI; or (c) acquire an interest in the royalty or mineral estate underlying lands in the DJ Basin Greenhorn AMI.  Any lease, option, royalty or mineral interest obtained shall be referred to as an "Acquisition".  Within thirty (30) days after an Acquisition is made (the Acquisition of a state or federal lease acquired at auction is made when the lease is issued), the party so acquiring shall notify all other parties to this Agreement of the Acquisition in writing (“Notice of Acquisition”).  The Notice of Acquisition shall contain sufficient information to apprise all non-acquiring parties of the acreage affected by the Acquisition, the costs thereof, the terms and burdens thereon, and shall be accompanied by a copy of the lease, option contract or mineral/royalty deed.

           Any acquisition of an interest within the DJ Basin Greenhorn AMI by an affiliate, subsidiary, or a party related to either Party shall be deemed to be an Acquisition by Vecta or Synergy, and the interest in the Acquisition being offered pursuant to the provisions of the Agreement shall not bear any additional costs or burdens other than those created at the time of the original lease or other contract covering lands within the DJ Basin Greenhorn AMI.

 

Any acquisition of any interest within the DJ Basin Greenhorn AMI being offered pursuant to the provisions of the Agreement shall be extended to the other Party (or Parties) at actual cost, and no such interest being assigned hereunder shall bear any additional direct or indirect costs or burdens.

           Each non-acquiring party shall have thirty (30) days from receipt of the Notice of Acquisition within which to notify the acquiring party of its election to participate or decline participation in the Acquisition. Failure to timely render an election to participate shall constitute an election not to participate in the Acquisition.  If a well is actually drilling in the DJ Basin Greenhorn AMI, or on lands pooled, unitized or communitized therewith, at the time the Acquisition is made, the period for the election shall be reduced to seventy two (72) hours from receipt of the Notice of Acquisition.

           Each party electing to participate in the Acquisition shall be entitled to participate in the Acquisition to the extent of its interest.  As to leases acquired in the DJ Basin Greenhorn AMI, whether by purchase or by farmout, Vecta (and any partners secured by Vecta) shall have the right to participate in an Acquisition to the extent of an 65.00% interest and Synergy shall have the right to participate in an Acquisition to the extent of its 35.00% interest.

           All costs of the Acquisition, including, but not limited to, lease bonuses, broker fees, recording fees, costs of abstracts and title memoranda, costs of title examination and other related costs, shall be borne by the various Parties electing to participate to the extent of their participation in the Acquisition.  Each Party shall reimburse the acquiring Party for its share of the acquisition costs within thirty (30) days of receipt of a duly particularized invoice.  Failure of any Party to timely reimburse the acquiring Party for the invoiced amount shall be deemed to be an election by such Party not to participate in the Acquisition, notwithstanding its prior stated intent with respect to participation in the Acquisition.  The interest in the Acquisition previously allocated to such Party shall then be offered by the acquiring Party to all other Parties who elected to participate in the Acquisition on a pro-rata basis; any interest not assumed by a non-acquiring Party shall be assumed by the participating Parties.  Within thirty (30) days after receipt from all participating Parties of the acquisition costs, the acquiring Party shall execute and deliver an appropriate assignment of the interests so acquired to all other participating Parties.

           If any Acquisition applies to lands which fall partly within and partly outside the DJ Basin Greenhorn AMI, only the portion of the Acquisition covering lands within the DJ Basin Greenhorn AMI shall be made available to all non-acquiring Parties, and a party must elect to participate only as to the portion of the lands affected by the Acquisition which fall within the DJ Basin Greenhorn AMI.

           If less than all Parties to this Agreement elect to participate in an Acquisition, all interests in the DJ Basin Greenhorn AMI lands subject to the Acquisition shall be excluded from the provisions of the Agreement, but shall be made expressly subject to the terms and conditions of a separate Operating Agreement essentially identical to the form attached hereto as Exhibit "G" with the Parties participating in such acquisition as parties to such Operating Agreements. Notwithstanding the other provisions of this Section 15, the DJ Basin Greenhorn AMI shall also then automatically terminate as to the whole section or sections under which the properties comprising the Acquisition are located. Further, the DJ Basin Greenhorn AMI shall also be amended from time to time during the Term of the Agreement to the extent that any sale, transfer, or assignment of a lease or leases set forth in the attached Exhibits “A”, “B”, “C”, “D” or “E” to a third party resulting in the relinquishment of all joint interests in a township or townships within the DJ Basin Greenhorn AMI shall result in the elimination of such township or townships from the DJ Basin Greenhorn AMI as of the effective date of the sale, transfer, or assignment of the leasehold interests.

  

13

  

           Vecta and Synergy acknowledge that the overriding royalty interest referenced in Section 8 shall apply to any and all extensions or renewals of the Vecta Greenhorn Project Leases, the Vecta Wattenberg Extension Area Leases, or the Synergy Greenhorn Project Leases as to all or any part of the lands set forth in the attached Exhibits “A”, “B” and “C”.

	
16. 

	
KNOWLEDGEABLE PARTIES

           Each Party represents that it is a knowledgeable buyer and owner of oil and gas properties, has the ability to and has evaluated the Assets to be acquired pursuant to this Agreement, and is acquiring the Assets for its own account and not with the intent to make any distribution in violation of any securities laws, rules, or regulations. Each Party acknowledges that, except as otherwise set forth herein, neither Vecta nor Synergy makes any warranty or representations, express and implied, statutory, or otherwise, as to the accuracy or completeness of the records or any other materials furnished or made available to the other Party in connection with this Agreement, including, without limitation, the ability or potential of the Vecta Greenhorn Project Leases, the Vecta Wattenberg Extension Area Leases, the Synergy Greenhorn Project Leases, the Joint Interest State Leases, or the Vecta Greenhorn Project Supplemental Leases to produce hydrocarbons, the environmental condition of the subject lands or any other matters contained in the Records or other materials furnished or made available to each other or their respective agents or representatives.  Nothing contained in this Section is intended to limit a Party’s right to raise Title Defects pursuant to Section 9.2.

	
17. 

	
GENERAL PROVISIONS

           17.1           Severability

            In the event any covenant, condition, or provision contained herein is held to be invalid by a court of competent jurisdiction, the invalidity of such covenants, condition or provision shall in no way affect any other covenant, condition, or provision contained herein, provided that any such invalidity does not materially prejudice either Vecta or Synergy in its respective rights and obligations contained in the valid covenants, conditions and provisions of this Agreement.

 

17.2          Construction of Ambiguity

           In the event of any ambiguity in any of the terms or conditions of this Agreement, including any exhibits, whether or not placed of record, such ambiguity shall not be constructed for or against either party hereto on the basis that such party did or did not author the same.

 

17.3          Authorization and Enforceability

           Vecta has the requisite limited partnership power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action on the part of Vecta. This Agreement has been duly and validly executed and delivered by Vecta and (assuming that this Agreement constitutes a valid and binding obligation of Synergy) constitutes a legal, valid and binding obligation of Vecta enforceable against Vecta in accordance with its terms, except as limited by applicable bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance and similar laws affecting creditors’ rights generally and except to the extent that general equitable principles may affect the availability of certain remedies.

           Synergy has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Synergy. This Agreement has been duly and validly executed and delivered by Synergy and (assuming that this Agreement constitutes a valid and binding obligation of Vecta) constitutes a legal, valid and binding obligation of Synergy enforceable against Synergy in accordance with its terms, except as limited by applicable bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance and similar laws affecting creditors’ rights generally and except to the extent that general equitable principles may affect the availability of certain remedies.

  

14

  

17.4         Accredited Investor; Investment Intent

 

Vecta qualifies as an “accredited investor” within the meaning of Rule 501(a) of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”). Vecta is acquiring the Shares included as the Synergy Equity Contribution for its own account for the purpose of investment and not with a view to, or for sale in connection with, the distribution thereof, and it has no present intention of distributing or selling such Shares. Vecta understands that the Shares have not been registered under the Securities Act, or the securities laws of any state or other jurisdiction, and hereby agrees not to make any sale, transfer or other dispositions of such Shares unless either (i) such Shares have been registered under the Securities Act and all applicable state and other securities laws and any such registration remains in effect or (ii) registration is not required under the Securities Act or applicable state securities laws with respect to such sale, transfer or other disposition.

 

           17.5           No Broker Fees

           The Parties each represent that they have incurred no liability, contingent or otherwise, for brokers’ or finders’ fees relating to the transaction contemplated in this Agreement for which the other party shall have any responsibility.

           17.6           Each Party Bears Expenses

           Each party shall bear and pay all expenses (including, without limitation, legal fees and broker’s fees) incurred by it in connection with the transaction contemplated by this Agreement.

           17.7           Entire Agreement

           This Agreement contains the entire understanding of the parties hereto and supersedes all prior agreements, understandings, negotiations, and discussions among the parties with respect to the transaction contemplated by this Agreement.

           17.8           Public Disclosures

            Both Vecta and Synergy agree that neither will issue a press release or make any public statements or disclosures to any third parties with respect to the terms of the sale without the prior written consent of the other, unless required to do so by the terms of any prior agreement or contract, or by rule or provision of any law. To the extent necessary for Synergy to comply with all applicable securities laws, rules or regulations concerning disclosure of material transactions, Synergy shall have the right to make a public disclosure not less than twenty four (24) hours after having provided Vecta with a copy of the statement or disclosure, and having received consent from Vecta as to the content of the statement or disclosure, such consent not to be unreasonably withheld.

           17.9           Time of Performance

           Time is of the essence of this Agreement and each and every provision hereof in which time or performance is a factor.

           17.10         Governing Law

           This Agreement shall be governed by the laws of the State of Colorado without regard to rules regarding conflicts of laws; and the parties agree that proper venue for any disputes arising hereunder shall be in Federal or State courts located in the state of Colorado.

           17.11         Waiver

           The waiver or failure of either party to enforce any provision of this Agreement shall not be construed or considered to be a waiver of any further breach of such provision or of any other provisions of this Agreement.

  

15

  

           17.12         Survival of Agreements

           Except as otherwise specifically provided in this Agreement, all covenants, agreements, representations and warranties shall remain in effect for the Term of this Agreement and shall survive the execution of this Agreement, Closing, and the delivery and the recordation of any conveyancing documents whether from Vecta to Synergy or from Synergy to Vecta.

           17.13         Successors and Assigns

           This Agreement shall bind and inure to the benefit and burden of the successors and assigns of the parties hereto.

           17.14         Notices

           All notices required to be given under this Agreement shall be in writing and shall be given either by personal delivery, overnight courier, certified U.S. Mail (postage prepaid), facsimile, telecopier, or email.  Such notice shall be delivered or addressed to the respective representatives of the Parties as shown below.  Notice shall be deemed given only when received by the Party to whom it is directed.  Each Party shall have the right to change its designated representative and/or address at any time by giving notice thereof to the other parties at least thirty (30) days prior to the effective date of the change.

           17.15         Confidentiality

           Except as required by law, all information acquired by Synergy in any inspection, inventory, test, investigation, study or examination of the property, and the results of any analysis thereof, except information otherwise in the public domain, or as may be required by law to be disclosed to any regulatory agencies, shall be strictly confidential in nature.  In the event any Party is compelled to disclose any portion of the Confidential Information by regulation, governmental requirement, subpoena, or civil investigative demand, said Party shall provide the other Parties to this Agreement with prompt written notice of such requirement, and said Party shall furnish only that portion of the Confidential Information that is legally required, exercising its reasonable efforts to obtain confidential treatment of such information, other than to a consultant, contractor or third party who is a bona fide potential purchaser of all of or a portion of a Party’s interests in the area, or to a lending institution in connection with a possible loan transaction.

           17.16         Further Assurances

           Vecta and Synergy each agree to execute and deliver, from time to time, any additional documents which may be necessary to effect the intent of the parties as stated in this Agreement.

           17.17         Amendment

           This Agreement may be amended, modified, supplemented, restated or discharged only by an instrument in writing signed by the party against whom enforcement of the amendment, modification, supplement, restatement, or discharge is sought.

           17.18         No Partnerships

           Each party to this Agreement shall be liable severally, but not jointly, for its costs and obligations as set forth herein and no party shall be liable for the costs or obligations of any others, unless expressly set forth in writing under the terms of this Agreement.  This Agreement does not create, nor shall this Agreement be considered so as to create, any partnership, joint venture, association, trust or other relationship of any kind giving rise to partnership or fiduciary duties being owed by any party to any other party.

           17.19         Letter of Intent

           This Agreement shall supersede all prior Letters of Intent, including but not limited to  that certain Letter of Intent between Vecta and Synergy dated June 12, 2012. To the extent that the Letter of Intent anticipates the acquisition of certain leases not specifically subject to this Agreement, the acquisition of such leases shall be expressly governed by the AMI provisions set forth in Section 15. The Letter of Intent also discusses certain exploration activities, including one or more seismic programs and the drilling or re-entry of one or more wells, and all such proposals shall be subject to the provisions of the Project JOA. To the extent of any conflict between the Letter of Intent and this Agreement, the provisions, terms and conditions of this Agreement shall control.

           

  

16

  

IN WITNESS WHEREOF, the undersigned parties have executed this Agreement as of the 1st day of March, 2013.

	Vecta Oil & Gas, Ltd.	 	
Synergy Resources Corporation

 

	 
	By:	
/s/ Jim Bob Byrd

	 	By:	
/s/ William E. Scaff, Jr.

	 
	 	
Jim Bob Byrd, Vice President – Land

	 	 	
William E. Scaff, Jr., Vice President

	 
	 	
 

	 	 	
 

	 

                                                                           

List of Exhibits

 

	Exhibit A

Exhibit B

Exhibit C

Exhibit D

Exhibit E

Exhibit F

Exhibit G	List of Vecta Greenhorn Project Area Leases 
List of Vecta Wattenberg Extension Area Leases

List of Synergy Greenhorn Project Area Leases

List of Joint Interest State Leases

List of Vecta Greenhorn Project Area Supplemental Leases

Form of Assignment

Form of JOA --- Synergy Form (prepared by Sue Eich)

 

                                

 

  

17exhibit4-1.htm

Exhibit 4.1

 FORM OF WARRANT

 

 

BSD MEDICAL CORPORATION

 

 

WARRANT TO PURCHASE COMMON STOCK

 

Warrant No.:  ___________

 

Date of Issuance:  April ___, 2013 (“Issuance Date”)

 

BSD Medical Corporation, a Delaware corporation (the “Company”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, _________________, the registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, upon exercise of this Warrant to Purchase Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, the “Warrant”), at any time or times on or after the six (6) month and one (1) day anniversary of the Issuance Date (the “Initial Exercise Date”), but not after 11:59 p.m., New York time, on the Expiration Date (as defined below), ______________ (subject to adjustment as provided herein) fully paid and non-assessable shares of Common Stock (as defined below) (the “Warrant Shares”). Except as otherwise defined herein, capitalized terms in this Warrant shall have the meanings set forth in Section 16. This Warrant is one of the Warrants to Purchase Common Stock (the “SPA Warrants”) issued pursuant to Section 1 of that certain Securities Purchase Agreement, dated as of April 9, 2013, by and among the Company and the investors referred to therein (as may be amended from time to time, the “Securities Purchase Agreement”).

 

1    EXERCISE OF WARRANT.

 

(a)    Mechanics of Exercise.  Subject to the terms and conditions hereof (including, without limitation, the limitations set forth in Section 1(f)), this Warrant may be exercised by the Holder on any day on or after the Initial Exercise Date, in whole or in part, by delivery (whether via facsimile or otherwise) of a written notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this Warrant.  Within one (1) Trading Day following an exercise of this Warrant as aforesaid, the Holder shall deliver payment to the Company of an amount equal to the Exercise Price in effect on the date of such exercise multiplied by the number of Warrant Shares as to which this Warrant was so exercised (the “Aggregate Exercise Price”) in cash or via wire transfer of immediately available funds if the Holder did not notify the Company in such Exercise Notice that such exercise was made pursuant to a Cashless Exercise (as defined in Section 1(d)).  The Holder shall not be required to deliver the original of this Warrant in order to effect an exercise hereunder. Execution and delivery of an Exercise Notice with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original of this Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares. Execution and delivery of an Exercise Notice for all of the then-remaining Warrant Shares shall have the same effect as cancellation of the original of this Warrant after delivery of the Warrant Shares in accordance with the terms hereof.  On or before the first (1st) Trading Day following the date on which the Company has received an Exercise Notice, the Company shall transmit by facsimile an acknowledgment of confirmation of receipt of such Exercise Notice, in the form attached hereto as Exhibit B, to the Holder and the Company’s transfer agent (the “Transfer Agent”).  On or before the third (3rd) Trading Day following the date on which the Company has received such Exercise Notice, the Company shall (X) provided that the Transfer Agent is participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit/ Withdrawal at Custodian system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the Holder or, at the Holder’s instruction pursuant to the Exercise Notice, the Holder’s agent or designee, in each case, sent by reputable overnight courier to the address as specified in the applicable Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee (as indicated in the applicable Exercise Notice), for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise.  Upon delivery of an Exercise Notice, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the Holder’s DTC account or the date of delivery of the certificates evidencing such Warrant Shares (as the case may be).  If this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then, at the request of the Holder, the Company shall as soon as practicable and in no event later than three (3) Business Days after any exercise and at its own expense, issue and deliver to the Holder (or its designee) a new Warrant (in accordance with Section 7(d)) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised.  No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock to be issued shall be rounded up to the nearest whole number.  The Company shall pay any and all taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.

 

  

  

  

(b)    Exercise Price. For purposes of this Warrant, “Exercise Price” means $1.65, subject to adjustment as provided herein.

 

(c)    Company’s Failure to Timely Deliver Securities.  If the Company shall fail, for any reason or for no reason, to issue to the Holder within three (3) Trading Days after receipt of the applicable Exercise Notice, a certificate for the number of shares of Common Stock to which the Holder is entitled and register such shares of Common Stock on the Company’s share register or to credit the Holder’s balance account with DTC for such number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise of this Warrant (as the case may be), then, in addition to all other remedies available to the Holder, the Company shall pay in cash to the Holder on each day after such third (3rd) Trading Day that the issuance of such shares of Common Stock is not timely effected an amount equal to 1% of the product of (A) the aggregate number of shares of Common Stock not issued to the Holder on a timely basis and to which the Holder is entitled and (B) the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the last possible date on which the Company could have issued such shares of Common Stock to the Holder without violating Section 1(a). In addition to the foregoing, if within three (3) Trading Days after the Company’s receipt of the applicable Exercise Notice, the Company shall fail to issue and deliver a certificate to the Holder and register such shares of Common Stock on the Company’s share register or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise hereunder (as the case may be), and if on or after such third (3rd) Trading Day the Holder (or any other Person in respect, or on behalf, of the Holder) purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of all or any portion of the number of shares of Common Stock, or a sale of a number of shares of Common Stock equal to all or any portion of the number of shares of Common Stock, issuable upon such exercise that the Holder so anticipated receiving from the Company, then, in addition to all other remedies available to the Holder, the Company shall, within three (3) Business Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (including, without limitation, by any other Person in respect, or on behalf, of the Holder) (the “Buy-In Price”), at which point the Company’s obligation to so issue and deliver such certificate or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise hereunder (as the case may be) (and to issue such shares of Common Stock) shall terminate, or (ii) promptly honor its obligation to so issue and deliver to the Holder a certificate or certificates representing such shares of Common Stock or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise hereunder (as the case may be) and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock times (B) the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the date of the applicable Exercise Notice.

 

  

  

  

(d)    Cashless Exercise.  Notwithstanding anything contained herein to the contrary (other than Section 1(f) below), if at the time of exercise hereof a registration statement is not effective (or the prospectus contained therein is not available for use) for the issuance by the Company to the Holder of all of the Warrant Shares, then the Holder may, in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the “Net Number” of shares of Common Stock determined according to the following formula (a “Cashless Exercise”):

 

 

	  Net Number =	  (A x B) - (A x C)	 
	 	 B	 

 

For purposes of the foregoing formula:

 

A= the total number of shares with respect to which this Warrant is then being exercised.

 

B= as applicable: (i) the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the date of the applicable Exercise Notice if such Exercise Notice is (1) both executed and delivered pursuant to Section 1(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 1(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(64) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) the Bid Price of the Common Stock as of the time of the Holder’s execution of the applicable Exercise Notice if such Exercise Notice is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter pursuant to Section 1(a) hereof or (iii) the Closing Sale Price of the Common Stock on the date of the applicable Exercise Notice if the date of such Exercise Notice is a Trading Day and such Exercise Notice is both executed and delivered pursuant to Section 1(a) hereof after the close of “regular trading hours” on such Trading Day.

 

C= the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

 

(e)    Disputes.   In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the number of Warrant Shares to be issued pursuant to the terms hereof, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 13.

 

(f)    Limitations on Exercises.  Notwithstanding anything to the contrary contained in this Warrant, this Warrant shall not be exercisable by the Holder hereof to the extent (but only to the extent) that the Holder or any of its affiliates would beneficially own in excess of 4.9% (the “Maximum Percentage”) of the Common Stock.  To the extent the above limitation applies, the determination of whether this Warrant shall be exercisable (vis-à-vis other convertible, exercisable or exchangeable securities owned by the Holder or any of its affiliates) and of which such securities shall be exercisable (as among all such securities owned by the Holder) shall, subject to such Maximum Percentage limitation, be determined on the basis of the first submission to the Company for conversion, exercise or exchange (as the case may be).  No prior inability to exercise this Warrant pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of exercisability.  For the purposes of this paragraph, beneficial ownership and all determinations and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined in accordance with Section 13(d) of the 1934 Act (as defined in the Securities Purchase Agreement) and the rules and regulations promulgated thereunder.  The provisions of this paragraph shall be implemented in a manner otherwise than in strict conformity with the terms of this paragraph to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Maximum Percentage beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such Maximum Percentage limitation.  The limitations contained in this paragraph shall apply to a successor Holder of this Warrant.  The holders of Common Stock shall be third party beneficiaries of this paragraph and the Company may not amend or waive this paragraph without the consent of holders of a majority of its Common Stock.  For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Business Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding, including by virtue of any prior conversion or exercise of convertible or exercisable securities into Common Stock, including, without limitation, pursuant to this Warrant or securities issued pursuant to the Securities Purchase Agreement.

 

  

  

  

(g)   Insufficient Authorized Shares.  The Company shall at all times keep reserved for issuance under this Warrant a number of shares of Common Stock as shall be necessary to satisfy the Company’s obligation to issue shares of Common Stock hereunder (without regard to any limitation otherwise contained herein with respect to the number of shares of Common Stock that may be acquirable upon exercise of this Warrant).  If, notwithstanding the foregoing, and not in limitation thereof, at any time while any of the SPA Warrants remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon exercise of the SPA Warrants at least a number of shares of Common Stock equal to the number of shares of Common Stock as shall from time to time be necessary to effect the exercise of all of the SPA Warrants then outstanding (the “Required Reserve Amount”) (an “Authorized Share Failure”), then the Company shall immediately take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for all the SPA Warrants then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock.  In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal.

 

2    ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.  While this Warrant is outstanding, the Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 2.

 

(a)   Stock Dividends and Splits.  Without limiting any provision of Section 4, if the Company, at any time on or after the date of the Securities Purchase Agreement, (i) pays a stock dividend on one or more classes of its then outstanding shares of Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its then outstanding shares of Common Stock into a larger number of shares or (iii) combines (by combination, reverse stock split or otherwise) one or more classes of its then outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination.  If any event requiring an adjustment under this paragraph occurs during the period that an Exercise Price is calculated hereunder, then the calculation of such Exercise Price shall be adjusted appropriately to reflect such event.

 

  

  

  

(b)    Number of Warrant Shares.  Simultaneously with any adjustment to the Exercise Price pursuant to paragraph (a) of this Section 2, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the adjusted number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment (without regard to any limitations on exercise contained herein).

 

(c)    Calculations.  All calculations under this Section 2 shall be made by rounding to the nearest one-hundred thousandth of a cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.

 

3    RIGHTS UPON DISTRIBUTION OF ASSETS.  While this Warrant is outstanding, in addition to any adjustments pursuant to Section 2 above, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Maximum Percentage) immediately before the date on which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder’s right to participate in any such Distributions would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Distribution to such extent (or the beneficial ownership of any such shares of Common Stock as a result of such Distribution to such extent) and such Distribution to such extent shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Maximum Percentage).

 

4    PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

 

(a)    Purchase Rights.  While this Warrant is outstanding, in addition to any adjustments pursuant to Section 2 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to all or substantially all of the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Maximum Percentage) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Maximum Percentage).

 

  

  

  

(b)    Fundamental Transactions.   While this Warrant is outstanding, the Company shall not enter into or be party to a Fundamental Transaction unless the Successor Entity assumes in writing all of the obligations of the Company under this Warrant and the other Transaction Documents (as defined in the Securities Purchase Agreement) in accordance with the provisions of this Section 4(b) pursuant to written agreements in form and substance satisfactory to the Holder and approved by the Holder prior to such Fundamental Transaction, including (except in the event of a Fundamental Transaction in which neither the Successor Entity nor its Parent Entity has any securities that are publicly traded) agreements to deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant, including, without limitation, which is exercisable for a corresponding number of shares of capital stock equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such adjustments to the number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction).  Upon the consummation of each Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of the applicable Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

(c)    Black Scholes Value.  Notwithstanding the foregoing and the provisions of Section 4(b) above, in the event of a Fundamental Transaction (including, without limitation, a Fundamental Transaction that occurs prior to the Initial Exercise Date), if the Holder has not exercised this Warrant in full prior to the consummation of such Fundamental Transaction, at the request of the Holder delivered before the ninetieth (90th) day after the public disclosure of the consummation of such Fundamental Transaction by the Company pursuant to a Current Report on Form 8-K filed with the SEC (as defined in the Securities Purchase Agreement), the Company or the Successor Entity (as the case may be) shall purchase this Warrant from the Holder on the date of such request by paying to the Holder cash in an amount equal to the Black Scholes Value.

 

(d)    Application.  The provisions of this Section 4 shall apply similarly and equally to successive Fundamental Transactions and shall be applied as if this Warrant (and any such subsequent warrants) were fully exercisable and without regard to any limitations on the exercise of this Warrant (provided that the Holder shall continue to be entitled to the benefit of the Maximum Percentage, applied however with respect to shares of capital stock registered under the 1934 Act and thereafter receivable upon exercise of this Warrant (or any such other warrant)).

 

  

  

  

5    NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its Articles of Incorporation (as defined in the Securities Purchase Agreement), Bylaws (as defined in the Securities Purchase Agreement) or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder.  Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, so long as any of the SPA Warrants are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the exercise of the SPA Warrants, the maximum number of shares of Common Stock as shall from time to time be necessary to effect the exercise of the SPA Warrants then outstanding (without regard to any limitations on exercise).

 

6    WARRANT HOLDER NOT DEEMED A STOCKHOLDER.  Except as otherwise specifically provided herein, the Holder, solely in its capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in its capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which it is then entitled to receive upon the due exercise of this Warrant.   In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.  Notwithstanding this Section 6, the Company shall provide the Holder with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.

 

7    REISSUANCE OF WARRANTS.

 

(a)    Transfer of Warrant.  If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred.

 

  

  

  

(b)    Lost, Stolen or Mutilated Warrant.  Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.

 

(c)    Exchangeable for Multiple Warrants.  This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however, no warrants for fractional shares of Common Stock shall be given.

 

(d)    Issuance of New Warrants.  Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.

 

8    NOTICES.   Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with Section 8(f) of the Securities Purchase Agreement.  The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable detail a description of such action and the reason therefor.  Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon each adjustment of the Exercise Price and the number of Warrant Shares, setting forth in reasonable detail, and certifying, the calculation of such adjustment(s) and (ii) at least fifteen (15) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property to all or substantially all holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder and (iii) at least ten (10) Trading Days prior to the consummation of any Fundamental Transaction.  To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of its Subsidiaries (as defined in the Securities Purchase Agreement), the Company shall simultaneously file such notice with the SEC pursuant to a Current Report on Form 8-K. It is expressly understood and agreed that the time of execution specified by the Holder in each Exercise Notice shall be definitive and may not be disputed or challenged by the Company.

 

  

  

  

9    AMENDMENT AND WAIVER.   Except as otherwise provided herein, the provisions of this Warrant (other than Section 1(f)) may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder.  The Holder shall be entitled, at its option, to the benefit of any amendment to any of the other SPA Warrants.  No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party.

 

10    SEVERABILITY.  If any provision of this Warrant is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Warrant so long as this Warrant as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

 

11    GOVERNING LAW.  This Warrant shall be governed by and construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Warrant shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Nothing contained herein shall (i) be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company’s obligations to the Holder or to enforce a judgment or other court ruling in favor of the Holder or (ii) limit, or be deemed to limit, any provision of Section 13. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

  

  

  

12    CONSTRUCTION; HEADINGS.  This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any Person as the drafter hereof.   The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant.  Terms used in this Warrant but defined in the other Transaction Documents shall have the meanings ascribed to such terms on the Closing Date (as defined in the Securities Purchase Agreement) in such other Transaction Documents unless otherwise consented to in writing by the Holder.

 

13    DISPUTE RESOLUTION.  In the case of a dispute as to the determination of the Exercise Price, the Closing Sale Price, the Bid Price or fair market value or the arithmetic calculation of the Warrant Shares (as the case may be), the Company or the Holder (as the case may be) shall submit the disputed determinations or arithmetic calculations (as the case may be) via facsimile (i) within two (2) Business Days after receipt of the applicable notice giving rise to such dispute to the Company or the Holder (as the case may be) or (ii) if no notice gave rise to such dispute, at any time after the Holder learned of the circumstances giving rise to such dispute.  If the Holder and the Company are unable to agree upon such determination or calculation (as the case may be) of the Exercise Price, the Closing Sale Price, the Bid Price or fair market value or the number of Warrant Shares (as the case may be) within three (3) Business Days of such disputed determination or arithmetic calculation being submitted to the Company or the Holder (as the case may be), then the Company shall, within two (2) Business Days submit via facsimile (a) the disputed determination of the Exercise Price, the Closing Sale Price, the Bid Price or fair market value (as the case may be) to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside accountant.  The Company shall cause at its expense the investment bank or the accountant (as the case may be) to perform the determinations or calculations (as the case may be) and notify the Company and the Holder of the results no later than ten (10) Business Days from the time it receives such disputed determinations or calculations (as the case may be).  Such investment bank’s or accountant’s determination or calculation (as the case may be) shall be binding upon all parties absent demonstrable error.

 

14    REMEDIES, CHARACTERIZATION, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant and the other Transaction Documents, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder to pursue actual damages for any failure by the Company to comply with the terms of this Warrant.  The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein.  Amounts set forth or provided for herein with respect to payments, exercises and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof).  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate.  The Company therefore agrees that, in the event of any such breach or threatened breach, the holder of this Warrant shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.  The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Warrant (including, without limitation, compliance with Section 2 hereof).  The issuance of shares and certificates for shares as contemplated hereby upon the exercise of this Warrant shall be made without charge to the Holder or such shares for any issuance tax or other costs in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than the Holder or its agent on its behalf.

 

  

  

  

15    TRANSFER.  This Warrant may be offered for sale, sold, transferred or assigned without the consent of the Company.

 

16    CERTAIN DEFINITIONS.  For purposes of this Warrant, the following terms shall have the following meanings:

 

(a)    “Bid Price” means, for any security as of the particular time of determination, the bid price for such security on the Principal Market as reported by Bloomberg as of such time of determination, or, if the Principal Market is not the principal securities exchange or trading market for such security, the bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg as of such time of determination, or if the foregoing does not apply, the bid price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg as of such time of determination, or, if no bid price is reported for such security by Bloomberg as of such time of determination, the average of the bid prices of any market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc. as of such time of determination.  If the Bid Price cannot be calculated for a security as of the particular time of determination on any of the foregoing bases, the Bid Price of such security as of such time of determination shall be the fair market value as mutually determined by the Company and the Holder.  If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 13.  All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.

 

(b)    “Black Scholes Value” means the value of the unexercised portion of this Warrant that remained on the date of the Holder’s request pursuant to Section 4(c) calculated using the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg as of the applicable date of determination and for purposes of such calculation utilizing (i) an underlying price per share equal to (1) if the stockholders of the Company do not receive consideration in the applicable Fundamental Transaction, the highest Closing Sale Price of the Common Stock during the period beginning on the Trading Day immediately preceding the announcement of the applicable Fundamental Transaction and ending on the Trading Day immediately following the consummation of the applicable Fundamental Transaction or (2) the sum of the price per share being offered in cash in the applicable Fundamental Transaction (if any) plus the value of the non-cash consideration being offered in the applicable Fundamental Transaction (if any) (as applicable), (ii) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of this Warrant as of the date of consummation of the applicable Fundamental Transaction, (iii) zero for borrow cost and (iv) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction.

 

  

  

  

(c)    “Bloomberg” means Bloomberg, L.P.

 

(d)    “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

 

(e)    “Closing Sale Price” means, for any security as of any date, the last trade price for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing trade price, then the last trade price of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last trade price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing does not apply, the last trade price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no last trade price is reported for such security by Bloomberg, the average of the ask prices of any market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc.  If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder.  If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 13. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.

 

(f)    “Common Stock” means (i) the Company’s shares of common stock, $0.001 par value per share, and (ii) any capital stock into which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.

 

(g)    “Convertible Securities” means any stock, note, debenture or other security (other than Options) that is, or may become, at any time and under any circumstances, directly or indirectly, convertible into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any shares of Common Stock.

 

(h)    “Eligible Market” means The New York Stock Exchange, the NYSE MKT, the Nasdaq Global Select Market, the Nasdaq Capital Market or the Principal Market (including each successor to any of the foregoing).

 

  

  

  

(i)    “Expiration Date” means the date that is the fifth (5th) anniversary of the Initial Exercise Date or, if such date falls on a day other than a Business Day or on which trading does not take place on the Principal Market (a “Holiday”), the next date that is not a Holiday.

 

(j)    “Fundamental Transaction” means that (i) the Company or any of its Subsidiaries shall, directly or indirectly, in one or more related transactions, (1) consolidate or merge with or into (whether or not the Company or any of its Subsidiaries is the surviving corporation) any other Person, or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other Person, or (3) allow any other Person to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (4) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other Person whereby such other Person acquires more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination), or (5) reorganize, recapitalize or reclassify the Common Stock, or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations promulgated thereunder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding Voting Stock of the Company.

 

(k)    “Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

 

(l)    “Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.

 

(m)    “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity or a government or any department or agency thereof.

 

(n)    “Principal Market” means the Nasdaq Global Market (including each successor thereto).

 

(o)    “Successor Entity” means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction shall have been entered into.

 

  

  

  

(p)    “Trading Day” means, as applicable, (x) with respect to all price determinations relating to the Common Stock, any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded, provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the Holder or (y) with respect to all determinations other than price determinations relating to the Common Stock, any day on which The New York Stock Exchange (or any successor thereto) is open for trading of securities.

 

(q)    “Voting Stock” of a Person means capital stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power to elect, or the general power to appoint, at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).

 

(r)    “VWAP” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market (or, if the Principal Market is not the principal trading market for such security, then on the principal securities exchange or securities market on which such security is then traded) during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc. If VWAP cannot be calculated for such security on such date on any of the foregoing bases, the VWAP of such security on such date shall be the fair market value as mutually determined by the Company and the Holder.  If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 13.  All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.

 

[signature page follows]

 

  

  

  

IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock to be duly executed as of the Issuance Date set out above.

 

 

	 	 BSD MEDICAL CORPORATION	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 By: 	                                                              	 
	 	 Name:	 	 
	 	 Title:	 	 

 

 

 

 

  

  

  

EXHIBIT A

 

EXERCISE NOTICE

 

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

 

BSD MEDICAL CORPORATION

 

The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock (“Warrant Shares”) of BSD Medical Corporation, a Delaware corporation (the “Company”), evidenced by Warrant to Purchase Common Stock No. _______ (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

 

1.           Form of Exercise Price.  The Holder intends that payment of the Exercise Price shall be made as:

 

	  	  
	
____________

	
a “Cash Exercise” with respect to _________________ Warrant Shares; and/or

	  	  
	
____________

	
a “Cashless Exercise” with respect to ______________ Warrant Shares.

	  	  

In the event that the Holder has elected a Cashless Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the Holder hereby represents and warrants that (i) this Exercise Notice was executed by the Holder at __________ [a.m.][p.m.] on the date set forth below and (ii) if applicable, the Bid Price as of such time of execution of this Exercise Notice was $________.

 

2.           Payment of Exercise Price.  In the event that the Holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the Holder shall pay the Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.

 

3.           Delivery of Warrant Shares.   The Company shall deliver to Holder, or its designee or agent as specified below, __________ Warrant Shares in accordance with the terms of the Warrant.  Delivery shall be made to Holder, or for its benefit, to the following address:

 

 

	 	                                                         	 	 
	 	                                                       	 	 
	 	                                                        	 	 
	 	                                                         	 	 

 

 

  

  

  

 

Date:  _______________ __, ______

 

                                                                             

Name of Registered Holder

 

 

 

By:                                                                                                                                

 

Name:

 

Title:

 

  

  

  

EXHIBIT B

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges this Exercise Notice and hereby directs ______________ to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated _________, 20__, from the Company and acknowledged and agreed to by _______________.

 

 

 

	 	 	 BSD MEDICAL CORPORATION	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 By: 	                                                                      	 
	 	 	 Name:	 	 
	 	 	 Title:

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