Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of November
18, 2004, by and among Tidelands Oil & Gas Corporation, a corporation organized
under the laws of the State of Nevada (the "Company"), on the one hand, and
MERCATOR MOMENTUM FUND, LP ("Momentum Fund"), MERCATOR MOMENTUM FUND III, LP
("Momentum Fund III") , and MONARCH POINTE FUND, LP, ("Monarch") (collectively,
the "Funds") and MERCATOR ADVISORY GROUP, LLC ("Mercator") on the other hand.
WHEREAS:
A. The Company and the Funds are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Section 4(2) and Regulation D ("Regulation D"), as
promulgated by the United States Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "Securities Act").
B. The Company is issuing (i) 7.0% Convertible Debentures in the form
attached hereto as Exhibit A (the "Debentures") in the aggregate principal
amount of $5,000,000, pursuant to which shares of the Company's common stock
("Common Stock") may be issued upon the conversion of the Debentures (the
"Debenture Shares"); and (ii) warrants in the form attached hereto as Exhibit B
(the "Warrants") to acquire shares of Common Stock ("Warrant Shares").
C. The Funds are purchasing, severally and not jointly, subject to the
terms and conditions in this Agreement, the Debentures. For no additional
consideration, the Warrants are being issued to the Funds and Mercator.
D. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
in the form attached hereto as Exhibit C (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws.
NOW, THEREFORE, the Company and the Funds hereby agree as follows:
1. CERTAIN DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings ascribed to them as provided below:
"Business Day" shall mean any day except Saturday, Sunday and any day
which shall be a federal legal holiday in the United States or a day on which
banking institutions are authorized or required by law or other government
action to close.
"Investment Amount" shall mean the dollar amount of the Debentures
purchased by Momentum Fund, Momentum Fund III or Monarch at the Closing pursuant
to this Agreement, as set forth in Section 2 hereto.
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"Material Adverse Effect" shall mean any material adverse effect on (i)
the Securities, (ii) the ability of the Company to perform its obligations
hereunder (including the issuance of the Debentures and the Warrants), under the
Debentures and Warrants (including the issuance of the Debenture Shares and
Warrant Shares) or under the Registration Rights Agreement or (iii) the
business, operations, properties, prospects or financial condition of the
Company and its subsidiaries taken as a whole.
"Pro Rata Percentage" shall mean, with respect to any Fund, a
percentage computed by dividing such Fund's Investment Amount by the aggregate
Investment Amounts of all Funds.
"Securities" shall mean the Debentures, the Warrants, the Debenture
Shares and the Warrant Shares.
"Shares" means the shares of Common Stock to be issued upon the
conversion of the Debentures or exercise of the Warrants.
2. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.
(a) Generally. Except as otherwise provided in this Section 2 and
subject to the satisfaction (or waiver) of the conditions set forth in Section 6
and Section 7 below, each Fund shall purchase the number of Debentures for the
Investment Amountas provided in this Section 2 and the Company shall issue to
the Funds and Mercator the number of Debentures and Warrants as provided in this
Section 2.
(b) Purchase of Debentures and Warrants; Form of Payment; Closing Date.
(i) On the Closing Date (as defined below), (A) the Company shall sell
and the Funds will purchase Debentures in the aggregate principal amount of
$5,000,000, and (B) the Company shall issue to the Funds and Mercator Warrants
exercisable in the aggregate for Six Million Five Hundred Seventy-Eight Thousand
Nine Hundred Forty-Seven (6,578,947) Shares. The allocation of the Debentures
and Warrants is set forth below. On the Closing Date, each Fund shall pay the
Company an amount equal to sixty-five (65%) percent such Fund's Investment
Amount. The balance of the Investment Amount shall be paid within two (2)
trading days after the Company files the Registration Statement (as that term is
defined in the Registration Rights Agreement).
----------------- ------------ ----------- ------------ ----------- ------------
Momentum Momentum Monarch Mercator Total
Fund Fund III
----------------- ------------ ----------- ------------ ----------- ------------
Debentures $1,270,000 $ 875,000 $2,855,000 $ -- $5,000,000
----------------- ------------ ----------- ------------ ----------- ------------
Warrants @ $0.80 417,763 287,829 939,145 1,644,737 3,289,474
----------------- ------------ ----------- ------------ ----------- ------------
Warrants @ $0.87 417,763 287,829 939,145 1,644,737 3,289,474
----------------- ------------ ----------- ------------ ----------- ------------
(ii) On the Closing Date, each Fund shall pay sixty-five (65%) percent
its Investment Amount to the Company against delivery by the Company of duly
executed Debentures and Warrants being purchased by such Fund, Warrants being
issued to Mercator and all other items required to be delivered as conditions to
the closing under Section 7 below.
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(iii) Subject to the satisfaction (or waiver) of the conditions thereto
set forth in Section 6 and Section 7 below, the date and time of the sale of the
Debentures and the Warrants pursuant to this Agreement (the "Closing") shall be
no later than 5:00 p.m.10:00 a.m. California time on November 18, 2004 or such
other date or time as Mercator and the Company may mutually agree ("Closing
Date"). The Closing shall occur at the Los Angeles offices of Mercator, or at
such other place as Mercator and the Company may otherwise mutually agree.
3. THE FUNDS' REPRESENTATIONS AND WARRANTIES.
Each Fund severally and not jointly represents and warrants to the
Company as follows:
(a) Organization, Good Standing and Qualification. Each of the Momentum
Fund and Momentum Fund III is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of California and has
all the requisite power and authority to carry on its business as now conducted
and as proposed to be conducted. Monarch is a international business company
organized under the laws of the British Virgin Islands and has all the requisite
power and authority to carry on its business as now conducted and as proposed to
be conducted.
(b) Purchase for Own Account. The Fund is purchasing the Securities for
the Fund's own account and not with a present view towards the distribution
thereof. The Fund understands that the Fund must bear the economic risk of this
investment indefinitely, unless the Securities are registered pursuant to the
Securities Act and any applicable state securities or blue sky laws or an
exemption from such registration is available, and that the Company has no
present intention of registering any such Securities other than as contemplated
by the Registration Rights Agreement. Notwithstanding anything in this Section
3(b) to the contrary, by making the foregoing representation, the Fund does not
agree to hold the Securities for any minimum or other specific term and reserves
the right to dispose of the Securities at any time in accordance with or
pursuant to a registration statement or an exemption from registration under the
Securities Act and any applicable state securities laws.
(c) Information. The Fund has been furnished all materials relating to
the business, finances and operations of the Company and its subsidiaries and
materials relating to the offer and sale of the Securities, which have been
requested by the Fund. The Fund has been afforded the opportunity to ask
questions of the Company and has received what the Fund believes to be
satisfactory answers to any such inquiries. The Fund understands that its
investment in the Securities involves a high degree of risk. Neither such
inquiries nor any other due diligence investigation conducted by the Fund or its
counsel or any of its representatives shall modify, amend or affect the Fund's
right to rely on the Company's representations and warranties contained in
Section 4 below.
(d) Governmental Review. The Fund understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
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(e) Accredited Investor Status. The Fund is an "Accredited Investor" as
that term is defined in Rule 501(a) of Regulation D.
(f) Authorization; Enforcement. The Fund has the requisite power and
authority to enter into and perform its obligations under this Agreement and to
purchase the Debentures and the Warrants in accordance with the terms hereof.
This Agreement has been duly and validly authorized, executed and delivered on
behalf of the Fund and is a valid and binding agreement of the Fund enforceable
against the Fund in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and other laws
affecting creditors' rights and remedies generally and to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity).
(g) Restrictions on Transfer. The Funds understand and acknowledge that
neither the Debentures, the Warrants, the Debenture Shares nor the Warrant
Shares have been registered under the Securities Act. Unless and until otherwise
permitted, the Debentures and Warrants and each certificate and other document
evidencing any of the Debenture Shares and Warrant Shares shall be endorsed with
the legend substantially in the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A)
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, (B) IN COMPLIANCE
WITH RULE 144 UNDER SUCH ACT, OR (C) THE COMPANY HAS BEEN FURNISHED WITH AN
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY TO THE EFFECT THAT NO
REGISTRATION IS REQUIRED FOR SUCH TRANSFER."
(h) Covenants of Funds Not to Short Stock; Volume Limitation. The Funds
and Mercator, on behalf of themselves and their affiliates, hereby covenant and
agree not to, directly or indirectly, offer to "short sell", contract to "short
sell" or otherwise "short sell" the securities of the Company, including,
without limitation, shares of Common Stock that will be received as a result of
the conversion of the Debentures. The Funds and Mercator, on behalf of
themselves and their affiliates, hereby covenant and agree not to, directly or
indirectly, sell in the aggregate during any trading day shares of Common Stock
totaling more than 20% of the total shares of Common Stock traded on such day.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY .
The Company represents and warrants to each Fund as follows and except
as set forth in the Company's public filings with the Securities and Exchange
Commission:
(a) Organization and Qualification. The Company is a corporation duly
organized and existing under the laws of the State of Nevada and has the
requisite corporate power to own its properties and to carry on its business as
now being conducted. The Company is duly qualified as a foreign corporation to
do business and is in good standing in every jurisdiction in which the nature of
the business conducted by it makes such qualification necessary and where the
failure so to qualify would have a Material Adverse Effect. Schedule 4(a) sets
forth the name of each subsidiary of the Company and its jurisdiction of
incorporation. The Company is the sole record and beneficial owner of all of the
outstanding equity securities of each such subsidiary.
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(b) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and perform its obligations under this
Agreement, the Debentures, the Warrants and the Registration Rights Agreement;
to issue the Debenture Shares upon conversion of the Debentures in accordance
with the terms of the Debentures; and to issue and sell the Warrant Shares upon
exercise of the Warrants in accordance with the terms of the Warrants, and
receipt of the exercise price. The execution, delivery and performance of this
Agreement, the Debentures, the Warrants and the Registration Rights Agreement by
the Company and the consummation by it of the transactions contemplated hereby
and thereby (including, without limitation, the reservation for issuance and
issuance of the Debenture Shares and the reservation for issuance and issuance
of the Warrant Shares) have been duly authorized by the Company's Board of
Directors and no further consent or authorization of the Company, its Board of
Directors or its shareholders is required. This Agreement has been duly executed
and delivered by the Company. This Agreement constitutes, and, upon execution
and delivery by the Company and the other parties thereto, the Debentures,
Registration Rights Agreement and the Warrants will constitute, valid and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and other laws affecting
creditors' rights and remedies generally and to general principles of equity.
(c) Capitalization. The capitalization of the Company and each of its
subsidiaries as of the date hereof is set forth on Schedule 4(c), including the
authorized capital stock, the number of shares issued and outstanding, the
number of shares issuable and reserved for issuance pursuant to the Company's
stock option plans, the number of shares issuable and reserved for issuance
pursuant to securities exercisable for, or convertible into or exchangeable for
any shares of capital stock. All of such outstanding shares of the capital stock
of the Company have been, or upon issuance will be, validly issued, fully paid
and nonassessable. Except as set forth on Schedule 4(c), no shares of capital
stock of the Company (including the Debenture Shares and the Warrant Shares) or
any of the subsidiaries are subject to preemptive rights or any other similar
rights of the shareholders of the Company or any liens or encumbrances. Except
for the Securities and as disclosed in Schedule 4(c), as of the date of this
Agreement, there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever to which the
Company or any of the subsidiaries is a party relating to the issuance by the
Company or any of its subsidiaries of securities or rights convertible into or
exercisable or exchangeable for, any shares of capital stock of the Company or
any of its subsidiaries, or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or such subsidiaries. Except for piggyback registration rights
granted pursuant to transactions with prior investors (which includes the Form
SB-2 being filed in connection with the Company's February 2004 private
placement), there are no agreements or arrangements under which the Company or
any of its subsidiaries is obligated to register the sale of any of its or their
securities under the Securities Act (except the Registration Rights Agreement).
Except as set forth on Schedule 4(c), there are no securities or instruments
containing antidilution or similar provisions that may be triggered by the
issuance of the Securities in accordance with the terms of this Agreement, the
Debentures, the Warrants or the Registration Rights Agreement. (d) Issuance of
Shares. The Debenture Shares are duly authorized and upon the conversion of the
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Debentures in accordance with the terms thereof, will be validly issued, fully
paid and non-assessable, and free from all taxes, liens, claims and encumbrances
(other than those imposed through acts or omissions of the Funds), and will not
be subject to preemptive rights or other similar rights of shareholders of the
Company and will not impose personal liability upon the holder thereof. The
Warrant Shares are duly authorized and reserved for issuance, and, upon exercise
of the Warrants in accordance with the terms thereof and receipts of the
exercise price, will be validly issued, fully paid and non-assessable and free
from all taxes and liens, claims and encumbrances (other than those imposed
through acts or omissions of the Funds thereof), and will not be subject to
preemptive rights or other similar rights of shareholders of the Company and
will not impose personal liability upon the holder thereof.
(e) No Conflicts. The execution, delivery and performance of this
Agreement, the Debentures, the Registration Rights Agreement and the Warrants by
the Company, and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the reservation
for issuance and issuance of the Debenture Shares and the Warrant Shares and the
issuance of the Warrants) will not (i) conflict with or result in a violation of
the Articles of Incorporation or By-laws or (ii) conflict with, or constitute a
default (or an event which, with notice or lapse of time or both, would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including (assuming the
accuracy of the representations and warranties of the Funds) the United States
federal and state securities laws and regulations) applicable to the Company or
any of its subsidiaries or by which any property or asset of the Company or any
of its subsidiaries is bound or affected (except, with respect to clause (ii),
for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect). Neither the Company nor any of its subsidiaries
is in violation of its Articles of Incorporation, By-laws and other
organizational documents and neither the Company nor any of its subsidiaries is
in default (and no event has occurred which, with notice or lapse of time or
both, would put the Company or any of its subsidiaries in default) under, nor
has there occurred any event giving others (with notice or lapse of time or
both) any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, except for actual or possible violations, defaults or
rights as would not, individually or in the aggregate, have a Material Adverse
Effect. The businesses of the Company and its subsidiaries are not being
conducted in violation of any law, ordinance or regulation of any governmental
entity, except for actual or possible violations, if any, the sanctions for
which either singly or in the aggregate would not have a Material Adverse
Effect. Except as specifically contemplated by this Agreement and as required
under the Securities Act and any applicable state securities laws, the Company
is not required to obtain any consent, approval, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self regulatory agency in order for it to execute, deliver or
perform any of its obligations under this Agreement including without limitation
the issuance and sale of the Debentures and Warrants as provided hereby
(including without limitation the issuance of the Debenture Shares and Warrant
Shares) or the Registration Rights Agreement.
(f) SEC Documents; Financial Statements. Since January 1, 2001, the
Company has timely filed (subject to extensions permissible under Rule 12b-25 of
the Exchange Act) all reports, schedules, forms, statements and other documents
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required to be filed by it with the SEC pursuant to the Securities and Exchange
Act of 1934, as amended ("Exchange Act"), and has filed all registration
statements and other documents required to be filed by it with the SEC pursuant
to the 1933 Act (all of the foregoing filed prior to the date hereof, and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein, being hereinafter referred to
herein as the "SEC Documents"). The Company has made available to each Fund true
and complete copies of the SEC Documents, except for the exhibits and schedules
thereto and the documents incorporated therein. As of their respective dates,
the SEC Documents complied in all material respects with the requirements of the
Exchange Act or the Securities Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Any statements made in any such SEC Documents that are or were
required to be updated or amended under applicable law have been so updated or
amended. As of their respective dates, the financial statements of the Company
included in the SEC Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
applicable with respect thereto. Such financial statements have been prepared in
accordance with United States generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
subsidiaries as of the dates thereof and the results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal and recurring year-end audit adjustments). Except as set
forth in the SEC Documents, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to the date of such SEC Documents and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in such
SEC Documents, which liabilities and obligations referred to in clauses (i) and
(ii), individually or in the aggregate, would not have a Material Adverse
Effect.
(g) Absence of Certain Changes. Except as disclosed in the SEC
Documents, there has been no change or development, which, individually or in
the aggregate, has had or could have a Material Adverse Effect on the Company.
(h) Absence of Litigation. Except as disclosed in the SEC Documents,
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company, threatened against or affecting the
Company, or any of its subsidiaries, or any of their directors or officers in
their capacities as such which would have a Material Adverse Effect.
(i) Intellectual Property. The Company and each of its subsidiaries
owns or is licensed to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, permits, know-how (including trade secrets and other
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unpatented and/or unpatentable proprietary or confidential information, systems
or procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of its business as now being conducted
and as proposed to be conducted. Neither the Company nor any of its subsidiaries
has received written notice that it is infringing upon or in conflict with any
third party Intangibles. Neither the Company nor any of its subsidiaries has
entered into any consent, indemnification, forbearance to xxx or settlement
agreements with respect to the validity of the Company's or such subsidiary's
ownership or right to use its Intangibles. The Intangibles are valid and
enforceable, and no registration relating thereto has lapsed, expired or been
abandoned or canceled or is the subject of cancellation or other adversarial
proceedings, and all applications therefor are pending and in good standing. The
Company and its subsidiaries have complied with their contractual obligations
relating to the protection of the Intangibles used pursuant to licenses. To the
knowledge of the Company, no person is infringing on or violating the
Intangibles owned or used by the Company or any of its subsidiaries.
(j) Environment. Except as disclosed in the SEC Documents (i) there is
no environmental liability, nor factors likely to give rise to any environmental
liability, affecting any of the properties of the Company or any of its
subsidiaries that individually or in the aggregate, would have a Material
Adverse Effect and (ii) neither the Company nor any of the subsidiaries has
violated any environmental law applicable to it now or previously in effect,
other than such violations or infringements that, individually or in the
aggregate, have not had and will not have a Material Adverse Effect.
(k) Title. The Company and each of its subsidiaries has good title in
fee simple to any and all real property that it owns and good title to all
personal property owned by it which is material to its business, free and clear
of all liens, encumbrances and defects except for such defects in title that,
individually or in the aggregate, would not have a Material Adverse Effect. Any
real property and facilities held under lease by the Company or any of its
subsidiaries are held by the Company or such subsidiary under valid, subsisting
and enforceable leases with such exceptions, which have not had and will not
have a Material Adverse Effect.
(l) Insurance. The Company and its subsidiaries maintain such insurance
relating to their business, operations, assets, key-employees and officers and
directors as is appropriate to their business, assets and operations, in such
amounts and against such risks as are customarily carried and insured against by
owners of comparable businesses, assets and operations, and such insurance
coverages will be continued in full force and effect to and including the
Closing Date other than those insurance coverages in respect of which the
failure to continue in full force and effect could not reasonably be expected to
have a Material Adverse Effect.
(m) Acknowledgment Regarding the Fund's Purchase of the Securities. The
Company acknowledges and agrees that neither Fund is acting as a financial
advisor or is acting as a fiduciary of the Company (or in any similar capacity)
with respect to this Agreement or the transactions contemplated hereby, and the
relationship between the Company and the Funds is "arms length" and that any
statement made by any Fund or any of its representatives or agents in connection
with this Agreement and the transactions contemplated hereby is not advice or a
recommendation and is merely incidental to such Fund's purchase of Securities
and has not been relied upon by the Company, its officers or directors in any
way. The Company further represents to the Funds that its decision to enter into
this Agreement has been based solely on an independent evaluation by the
Company.
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(n) Brokers. Except for a broker fee equal to 5.0% of the Investment
Amount and 450,000 Warrants owed to KMR Capital, LLC, and as set forth on
Schedule 4(n), the Company has not engaged any person to which or to whom
brokerage commissions, finder's fees, financial advisory fees or similar
payments are or will become due in connection with this Agreement or the
transactions contemplated hereby except for Mercator, whose administrative fee
will be paid by the Company.
(o) Tax Status. The Company and each of its subsidiaries has made or
filed all material federal, state and local income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company or the applicable subsidiary has
set aside on its books provisions adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provisions adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no material unpaid taxes claimed to be due by the
taxing authority of any jurisdiction. The Company has not executed a waiver with
respect to any statute of limitations relating to the assessment or collection
of any federal, state or local tax. None of the tax returns of the Company have
been or is being audited by any taxing authority.
(p) No General Solicitation. Neither the Company nor any person
participating on its behalf in the transactions contemplated hereby has
conducted any "general solicitation" or "general advertising" as such terms are
used in Regulation D, with respect to any of the Securities being offered
hereby.
(q) Securities Laws. Neither the Company nor any of its affiliates, nor
any person acting on their behalf, has, directly or indirectly, made any offers
or sales of any security or solicited any offers to buy any security under
circumstances that would require registration of the Securities being offered
hereby under the Securities Act or cause this offering of Securities to be
integrated with any prior offering of securities of the Company for purposes of
the Securities Act or any applicable stockholder approval provisions, including,
without limitation, Rule 4350(i) of the National Association of Securities
Dealers ("NASD") or any similar rule. The offer, sale and delivery of shares of
Common Stock upon the conversion of the Debentures or exercise of the Warrants
will be exempt from the registration requirements of Section 5 of the Securities
Act.
(r) SB-2 Eligibility. The Company is currently eligible to register the
resale of its Common Stock on a registration statement on Form SB-2 under the
Securities Act. There exist no facts or circumstances (including without
limitation any required approvals or waivers of any circumstances that may delay
or prevent the obtaining of accountant's consents) that would prohibit or delay
the preparation and filing of a registration statement on Form SB-2 with respect
to the Registrable Securities (as defined in the Registration Rights Agreement).
(s) Disclosure. All information relating to or concerning the Company
and its subsidiaries set forth in this Agreement or otherwise provided to the
Funds in connection with the transactions contemplated hereby is true and
correct in all material respects and the Company and subsidiaries have not
omitted to state any material fact necessary in order to make the statements
made herein or therein, in light of the circumstances under which they were
made, not misleading.
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(t) Except as set forth on Schedule 4(t), none of the officers or
directors of the Company (i) has been convicted of any crime (other than traffic
violations or misdemeanors not involving fraud) or is currently under
investigation or indictment for any such crime, (ii) has been found by a court
or governmental agency to have violated any securities or commodities law or to
have committed fraud or is currently a party to any legal proceeding in which
either is alleged, (iii) has been the subject of a proceeding under the
bankruptcy laws or any similar state laws, or (iv) has been an officer,
director, general partner, or managing member of an entity which has been the
subject of such a proceeding.
5. COVENANTS.
(a) Satisfaction of Conditions. The parties shall use their best
efforts to satisfy in a timely manner each of the conditions set forth in
Section 6 and Section 7 of this Agreement.
(b) Form D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to Mercator promptly after such filing. The Company shall, on or before
the Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for sale to the Funds and Mercator pursuant
to this Agreement under applicable securities or "blue sky" laws of the
applicable states of the United States or obtain exemption therefrom, and shall
provide evidence of any such action so taken to Mercator on or prior to the
Closing Date.
(c) Reporting Status. So long as a Fund beneficially owns any
Securities or has the right to acquire any Securities pursuant to this
Agreement, the Company shall timely file all reports required to be filed with
the SEC pursuant to the Exchange Act, and shall not terminate its status as an
issuer required to file reports under the Exchange Act even if the Exchange Act
or the rules and regulations thereunder would permit such termination.
(d) Use of Proceeds. The Company shall use the net proceeds from the
sale of the Debentures and the Warrants for the purposes set forth on Schedule
5(d); and no portion of the net proceeds shall be used to repay any promissory
notes due to officers or directors of the Company.
(e) Due Diligence Fee and Expenses. At the Closing, the Company shall
(i) pay to Mercator a due diligence fee of $200,000; and (ii) reimburse Mercator
for $15,000 in legal expenses reasonably incurred by Mercator and its affiliates
in connection with the negotiation, preparation, execution and delivery of this
Agreement, the Debenture, the Registration Rights Agreement, the Warrants and
the other agreements to be executed in connection herewith, including, without
limitation, in conducting Mercator's and its affiliates' and advisors'
reasonable due diligence and Mercator's and its affiliates' reasonable
attorneys' fees and expenses (the "Expenses").
(f) Reserved.
(g) Reservation of Shares. The Company has and shall at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the issuance of the Shares as provided in
Section 2 hereof, and the full conversion of the Debentures and the issuance of
the Warrant Shares in connection therewith and as otherwise required hereby and
10
by the Warrants in accordance with the Registration Rights Agreement. The
Company shall not reduce the number of shares of Common Stock reserved for
issuance under this Agreement, the Debentures, the Warrants (except as a result
of the issuance of the Warrant Shares upon the exercise of the Warrants) or the
Registration Rights Agreement without the consent of the Funds and Mercator.
(h) Listing. On the Closing Date, the Company's Common Stock shall
trade on the NASD Over-the-Counter Bulletin Board ("OTC"). The Company shall use
its best efforts to continue trading of its Common Stock on the OTC, or
alternatively, the Nasdaq National Market System, Nasdaq Small Cap Market, the
New York Stock Exchange ("NYSE") or the American Stock Exchange ("AMEX") (each a
"Subsequent Market") and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the OTC or
a Subsequent Market, as applicable.
(i) Additional Financing. Within one hundred twenty (120) days
following the Closing Date, the investment committee for the Funds and Mercator
will consider making an additional equity or debt investment in the Company. For
one hundred twenty (120) day following the Closing Date, the Funds and Mercator
shall have a right of first refusal on any financing in which the Company is the
issuer of debt or equity securities.
(j) No Integrated Offerings. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
Securities Act under the Registration Statement being filed with respect to the
transaction contemplated hereby or cause this offering of Securities to be
integrated with any other offering of securities by the Company under the
Registration Statement being filed with respect to the transaction contemplated
hereby.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell Shares and
Warrants to a Fund at the Closing hereunder is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions thereto;
provided, however, that these conditions are for the Company's sole benefit and
may be waived by the Company at any time in its sole discretion.
(a) The applicable Fund shall have executed the signature page to this
Agreement and the Registration Rights Agreement, and delivered the same to the
Company.
(b) The applicable Fund shall have delivered sixty-five (65%) percent
of such Fund's Investment Amount in accordance with Section 2(b) above. Within
two (2) trading days after the Registration Statement is filed with the SEC, the
Funds shall deliver to the Company the balance of the Investment Amount.
(c) The representations and warranties of the applicable Fund shall be
true and correct as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true and correct as
of such date), and the applicable Fund shall have performed, satisfied and
11
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
applicable Fund at or prior to the Closing Date.
(d) No statute, rule, regulation, executive order, decree, ruling,
injunction; action, proceeding or interpretation shall have been enacted,
entered, promulgated, endorsed or adopted by any court or governmental authority
of competent jurisdiction or any self-regulatory organization, or the staff of
any thereof, having authority over the matters contemplated hereby which
questions the validity of, or challenges or prohibits the consummation of, any
of the transactions contemplated by this Agreement.
7. CONDITIONS TO EACH FUND'S OBLIGATION TO PURCHASE DEBENTURES AND
WARRANTS.
The obligation of each Fund hereunder to purchase Debentures and
Warrants to be purchased by it hereunder is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided that
these conditions are for such Fund's sole benefit and may be waived by such Fund
at any time in such Fund's sole discretion:
(a) The Company shall have executed the signature pages to this
Agreement, the Debentures, and delivered the same to Mercator on its own behalf
and on behalf of the Funds.
(b) The Company shall have executed the signature pages of the Warrants
and the Registration Rights Agreement, and delivered the same to Mercator on its
own behalf and on behalf of the Funds.
(c) The Shares shall be quoted on the OTC or authorized for quotation
or trading on a Subsequent Exchange and shall not have been suspended or be
under threat of suspension by the SEC or the NASD.
(d) The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date, which representations and warranties shall be true and correct as of such
date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Closing Date. Mercator shall have received a certificate executed on
behalf of the Company by its Chief Financial Officer, dated as of the Closing
Date, to the foregoing effect and attaching true and correct copies of the
resolutions adopted by the Board of Directors of the Company authorizing the
execution, delivery and performance by the Company of its obligations under this
Agreement, the Debentures, the Warrants and the Registration Rights Agreement.
(e) No statute, rule, regulation, executive order, decree, ruling,
injunction, action, proceeding or interpretation shall have been enacted,
entered, promulgated, endorsed or adopted by any court or governmental authority
of competent jurisdiction or any self-regulatory organization, or the staff of
any thereof, having authority over the matters contemplated hereby which
questions the validity of, or challenges or prohibits the consummation of, any
of the transactions contemplated by this Agreement.
12
(f) From the date of this Agreement through the Closing Date, there
shall not have occurred any Material Adverse Effect.
8. GOVERNING LAW MISCELLANEOUS.
(a) Governing Law; Jurisdiction. This Agreement shall be governed by
and construed in accordance with the laws of the State of California applicable
to contracts made and to be performed in the State of California. Each of the
parties irrevocably consents to the jurisdiction of the United States federal
courts and the state courts located in the State of California in any suit or
proceeding based on or arising under this Agreement and irrevocably agrees that
all claims in respect of such suit or proceeding may be determined in such
courts. Each of the parties irrevocably waives the defense of an inconvenient
forum to the maintenance of such suit or proceeding. Each of the parties further
agrees that service of process upon such party mailed by first class mail to the
address set forth in Section 8(f) shall be deemed in every respect effective
service of process upon such party in any such suit or proceeding. Nothing
herein shall affect the right of a Fund or Mercator to serve process in any
other manner permitted by law. Each of the parties agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
(b) Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
In the event any signature is delivered by facsimile transmission, the party
using such means of delivery shall cause the manually executed Execution Page(s)
hereof to be physically delivered to the other party within five (5) days of the
execution hereof.
(c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement or
the validity or enforceability of this Agreement in any other jurisdiction.
(e) Entire Agreement; Amendments; Waiver. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Funds make
any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the Company and by the Funds. Any waiver by
the Funds, on the one hand, or the Company, on the other hand, of a breach of
any provision of this Agreement shall not operate as or be construed to be a
waiver of any other breach of such provision of or any breach of any other
provision of this Agreement. The failure of the Funds, on the one hand, or the
Company, on the other hand to insist upon strict adherence to any term of this
Agreement on one or more occasions shall not be considered a waiver or deprive
that party of the right thereafter to insist upon strict adherence to that term
or any other term of this Agreement.
13
(f) Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier or confirmed telecopy, in each case addressed to a party. The addresses
for such communications shall be:
If to the Company
Tidlands Oil & Gas Corporation
0000 Xxxx Xxxxxxx, Xxxxxxxx #0
Xxx Xxxxxxx, Xxxxx 00000
Attention: President
Telephone: (000) 000-0000
Fax: 000-000-0000
With a copy to
Xxxx Xxxxxx
00000 Xxxx 00xx Xxx.
Xxxxxxxxxx, Xxxxxxxxxx 00000
Telephone: 000-000-0000
Fax: _________________
If to a Fund or Mercator
Mercator Advisory Group, LLC
000 Xxxxx Xxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxx, XX 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
Attention: Xxxxx Xxxxxxxxx
With a copy to
Xxxxxxxx Xxxxxx Xxxxxxx & Xxxxxxx LLP
000 Xxxxx Xxxx Xxxxxx
00xx Xxxxx
Xxx Xxxxxxx, XX 00000-0000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
Attention: Xxxxx X. Xxxxx
Each party hereto may from time to time change its address or facsimile number
for notices under this Section 8 by giving at least ten (10) days' prior written
notice of such changed address or facsimile number, in the case of the Funds to
the Company, and in the case of the Company to all of the Funds and Mercator.
14
(g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each of the Funds.
(h) Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of nor may any provision hereof be enforced
by any other person.
(i) Survival. The representations and warranties of the Company and the
agreements and covenants of the Company shall survive the Closing
notwithstanding any due diligence investigation conducted by or on behalf of the
Funds and Mercator. Moreover, none of the representations and warranties made by
the Company herein shall act as a waiver of any rights or remedies a Fund or
Mercator may have under applicable federal or state securities laws. The Company
agrees to indemnify and hold harmless each Fund and Mercator and each of their
managers, officers, directors, employees, partners, members, agents and
affiliates for loss or damage relating to the Securities purchased hereunder
arising as a result of or related to any breach by the Company or any of its
representations or covenants set forth herein, including advancement of expenses
as they are incurred.
(j) Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(k) Termination. In the event that the Closing Date shall not have
occurred on or before November 29, 2004, unless the parties agree otherwise,
this Agreement shall terminate at the close of business on such date.
Notwithstanding any termination of this Agreement, any party not in breach of
this Agreement shall preserve all rights and remedies it may have against
another party hereto for a breach of this Agreement prior to or relating to the
termination hereof.
(l) Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement, the Debentures,
the Registration Rights Agreement, and the Warrants. As such, the language used
herein and therein shall be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict construction will
be applied against any party to this Agreement, the Debentures, the Registration
Rights Agreement, or the Warrants.
(m) Equitable Relief. Each party acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the other parties by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, each party acknowledges that the remedy at law for a breach of its
obligations hereunder will be inadequate and agrees, in the event of a breach or
threatened breach by such party of the provisions of this Agreement, that the
other parties shall be entitled, in addition to all other available remedies, to
an injunction restraining any breach and requiring immediate issuance and
transfer, without the necessity of showing economic loss and without any bond or
other security being required.
15
(n) Determinations. Except as otherwise expressly provided herein, all
consents, approvals and other determinations to be made by the Funds pursuant to
this Agreement and all waivers and amendments to or of any provisions in this
Agreement prior to the Closing Date to be binding upon a Fund shall be made by
such Fund and except as otherwise expressly provided herein, all consents,
approvals and other determinations (other than amendments to the terms and
provisions of this Agreement) to be made by the Funds pursuant to this Agreement
and all waivers and amendments to or of any provisions in this Agreement after
the Closing Date shall be made by the Funds.
(o) Costs and Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the Registration
Rights Agreement or any of the Debentures or Warrants, the prevailing party or
parties shall be entitled to receive from the other party or parties reasonable
attorneys' fees, costs and necessary disbursements in addition to any other
relief to which the prevailing party or parties may be entitled.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
16
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
Company:
Tidelands Oil & Gas Corporation
By:
Name:
Title:
The Funds: Mercator:
Mercator Momentum Fund LP Momentum Advisory Group, LLC
Mercator Advisory Group, LLC,
General Partner:
By: By:
----------------------------- ----------------------------
Name: Xxxxx Xxxxxxxxx Name: Xxxxx Xxxxxxxxx
Title: Managing Member Title: Managing Member
Mercator Momentum Fund III Monarch Pointe Fund, Ltd.
Mercator Advisory Group, LLC,
General Partner:
By: By:
----------------------------- ----------------------------
Name: Xxxxx Xxxxxxxxx Name: Xxxxx Xxxxxxxxx
Title: Managing Member Title: President
17
DISCLOSURE SCHEDULES
