THIS STOCK PURCHASE WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT AND APPLICALBE STATE SECURITIES
LAWS OR PURSUANT TO APPLICABLE EXEMPTIONS FROM SUCH LAWS.
STOCK PURCHASE WARRANT
THIS STOCK PURCHASE WARRANT ("Warrant") CERTIFIES THAT, for the agreed
upon value of $1.00 and for other good and valuable consideration, Impact
International, L.L.C., an Oklahoma limited liability company ("Impact" or
"Holder") is entitled to purchase the number of fully paid and nonassessable
shares (the "Shares") of common stock ("Common Stock") of Tidelands Oil & Gas
Corporation (the "Company") at the Exercise Price per Share (the "Warrant
Price") as defined below, all as set forth herein and as adjusted pursuant to
Article 2 of this Warrant, subject to the provisions and upon the terms and
conditions set forth in this Warrant. This Warrant is issued pursuant to the
terms of the Purchase and Sale Agreement (the "Purchase Agreement"), dated as of
the date hereof, between the Company and Impact. The amount and kind of
securities receivable pursuant to the rights granted hereunder are subject to
adjustment pursuant to the provisions contained in this Warrant.
This Warrant is subject to the following provisions:
ARTICLE 1.
EXERCISE
--------
1.1 Method of Exercise. Holder may exercise this Warrant in whole or in
part at any time and from time to time after the date hereof up to and including
April ____, 2005(the "Expiration Date"). Holder may exercise this Warrant by
delivering a duly executed Notice of Exercise in substantially the form attached
as Appendix 1 to the principal office of the Company. Holder shall pay, in
consideration for exercise of the Warrants an amount equal to the Warrant Price
in effect on the date of such exercise multiplied by the number of Shares with
respect to which the Warrant is being exercised payable by certified funds or as
permitted in Section 1.2.
1.2 Net Issue Exercise. Notwithstanding any provisions herein to the
contrary, if the Market Value of one share of Common Stock is greater than the
Warrant Price (at the date of calculation as set forth below), in lieu of
exercising this Warrant for cash, the Holder may elect to receive shares equal
to the value (as determined below) of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with the properly endorsed Notice of Exercise and notice of such
election in which event the Company shall issue to the Holder a number of shares
of Common Stock computed using the following formula:
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X = Y (A - B)
---------
A
Where X = the net number of shares of Common Stock to be
issued to the Holder.
Y = the number of shares of Common Stock purchasable
under the Warrant or, if only a portion of the
Warrant is being exercised, the portion of the
Warrant being canceled (at the date of such
calculation)
A = the Market Value of one share of the Company's
Common Stock (at the date of such calculation)
B = Warrant Price (as adjusted to the date of such
calculation)
1.3 Share Coverage and Exercise Price. The number of Shares for which
this Warrant may be exercised, subject to adjustment herein, initially shall be
6,830,000, representing 19% of the issued and outstanding Common Stock of the
Company on the date hereof. The initial Warrant Price shall be equal to the
average of the closing price of the Common Stock on the over the counter market,
averaged over a period of the ten (10) business days following the date of the
execution of this Warrant; provided that for any date on which no trading
occurred, the closing price shall be deemed to be the closing price for the most
recent previous date on which trading occurred, and further provided that the
purchase price shall not exceed $0.35 per share.
1.4 Market Value. The Market Value of any security shall mean the
average of the closing prices of such security's sales on all securities
exchanges on which such security may at the time be listed, or, if there have
been no sales on any such exchange on any day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day, or, if on
any day such security is not so listed, the average of the representative bid
and asked prices quoted in the NASDAQ System as of 4:00 p.m., New York time, or,
if on any day such security is not quoted in the NASDAQ System, the average of
the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which "Market Value" is
being determined and the 20 consecutive business days prior to such day. If at
any time such security is not listed on any securities exchange or quoted in the
NASDAQ System or the over-the-counter market, the "Market Price" will be the
fair market value thereof determined by an experienced and qualified independent
appraiser, selected by the Company with the approval of the Holder.
1.5 Delivery of Certificate and New Warrant. Promptly after Holder
exercises this Warrant, the Company shall deliver to Holder certificates for the
Shares acquired and, if this Warrant has not been fully exercised and has not
expired, a new Warrant representing the Shares not so acquired.
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1.6 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver in lieu of this Warrant, a
new warrant of like tenor.
1.7 Repurchase on Sale, Merger, or Consolidation of the Company.
1.7.1 Acquisition. For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2 Assumption of Warrant. Upon the closing of any
Acquisition, the successor entity shall assume the obligations of this Warrant,
and this Warrant shall be exercisable for the same securities, cash, and
property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing. The Warrant Price shall
be adjusted accordingly.
1.7.3 Purchase Right. Notwithstanding the foregoing, at the
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.
1.8 Reservation of Shares. The Company shall reserve, for so long as
any Warrant remains outstanding, a number of authorized and unissued shares of
Common Stock sufficient to provide for the exercise in full of any and all such
Warrants, and the transfer agent for the Common Stock (the "Transfer Agent"), is
hereby irrevocable authorized and directed at all times until all such Warrants
have been exercised in full or otherwise surrendered for cancellation to reserve
such number of authorized and unissued shares as necessary for such purpose. The
Company covenants and agrees that upon exercise of the Warrants and payment of
the Warrant Price therefor, all shares issuable upon such exercise shall be duly
and validly issued, fully paid and non-assessable, not subject to the preemptive
rights of any shareholder, and free from all taxes, liens, security interests,
charges, and other encumbrances with respect to the issuance thereof.
ARTICLE 2.
ADJUSTMENT TO THE SHARES
------------------------
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2.1 Stock Dividends, Splits, etc. If the Company declares or pays
dividend on its Common Stock (or the Shares if the Shares are securities other
than common stock) payable in Common Stock, or other securities, or subdivides
the outstanding Common Stock into a greater amount of Common Stock, then upon
exercise of this Warrant, for each Share acquired, Holder shall receive, without
cost to Holder, the total number and kind of securities to which Holder would
have been entitled had Holder owned the Shares of record as of the date the
dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise of
this Warrant, Holder shall be entitled to receive, upon exercise of this
Warrant, the number and kind of securities and property that Holder would have
received for the Shares if this Warrant had been exercised immediately before
such reclassification, exchange, substitution, or other event. The Company or
its successor shall promptly issue to Holder a new Warrant for such new
securities or other property. The new Warrant shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Article 2 including, without limitation, adjustments to the
Warrant Price and to the number of securities or property issuable upon exercise
of the new Warrant. The provisions of this Section 2.2 shall similarly apply to
successive reclassifications, exchanges, substitutions, or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Common Stock
is combined or consolidated, by reclassification or otherwise, into a lesser
number of shares, the Warrant Price shall be proportionately increased.
2.4 Stock Issued For Debt. If, after the date hereof, the Company
should issue any shares of Common Stock in payment or satisfaction of
indebtedness existing on the date hereof, the number of shares of Common Stock
issuable hereunder shall be increased so that the number of shares issuable
hereunder is equal to nineteen percent (19%) of the outstanding Common Stock
after giving effect to such issuances, and the Warrant Price per share shall be
decreased to an amount such that the aggregate consideration payable if the
Warrant were fully exercised (after giving effect to the increased number of
shares) would equal the aggregate consideration which would have been payable if
the Warrant were fully exercised prior to such adjustments.
2.5 Common Stock Issued at Less Than Warrant Price. If and whenever, on
or after the date of this Warrant, the Company issues or sells, or is deemed to
have issued or sold, any shares of its Common Stock or Options or Warrants for
Shares of Common Stock or rights of conversion for Shares of Common Stock (other
than Excluded Stock and other than as described in Section 2.4) for
consideration per share less than the Warrant Price in effect immediately prior
to the time of such issue or sale, then immediately upon such issue or sale, the
Warrant Price shall be reduced to the price determined by multiplying the
Warrant Price in effect immediately prior to such time by a fraction:
(1) the numerator of which shall be (x) the number of shares
of Common Stock outstanding immediately prior to such issue or sale
(assuming the exercise of all Options (as defined below) that are then
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exercisable and the conversion of all Convertible Securities (as
defined below) that are then convertible), plus (y) the number of
shares of Common Stock which the aggregate consideration received by
the Company for the total number of additional shares of Common Stock
so issued or sold would purchase at the Warrant Price in effect
immediately prior to such issuance; and
(2) the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such issue or sale (assuming
the exercise of all Options that are then exercisable and the
conversion of all Convertible Securities that are then convertible).
For purposes of this Section 2.4 "Excluded Stock" means shares of
Common Stock (in each case as adjusted for any stock splits, stock dividends,
recapitalizations, combinations or similar transactions) issued under existing
stock option plans approved by the shareholders of the Company.
2.6 No Impairment. The Company shall not, by amendment of its
Certificate of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, 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 to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out all of the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment. If the Company
takes any action affecting the Shares or its Common Stock other than as
described above that adversely affects Holder's rights under this Warrant, the
Warrant Price shall be adjusted downward and the number of Shares issuable upon
exercise of this Warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of this Warrant is unchanged.
2.7 Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder an amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.8 Certificate as to Adjustments. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
2.9 Certain Events. If any event occurs of the type contemplated by the
provisions of this Article 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
board of directors shall make an appropriate adjustment in the number of Shares
obtainable upon exercise of this Warrant and in the Warrant Price so as to
protect the rights of the holders of the Warrants; provided that no such
adjustment shall decrease the number of Shares obtainable as otherwise
determined pursuant to this Section 2.
5
2.10 Purchase Rights. If at any time the Company grants, issues or
sells any rights to purchase stock, warrants, securities or other property pro
rata to the record holders of any class of Stock (the "Purchase Rights") then
the Holder of this Warrant shall be entitled to obtain, upon the same terms on
which holders of Common stock are to receive such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of Shares of acquirable upon complete exercise of this Warrant
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 Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
ARTICLE 3.
REPRESENTATIONS AND COVENANTS OF THE COMPANY
--------------------------------------------
3.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder that all Shares which may be issued upon the exercise of
the purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance be duly authorized,
validly issued, fully paid and nonassessable, and free of any liens and
encumbrances except for restrictions on transfer provided for herein or under
applicable federal and state securities laws.
3.2 Notice of Certain Events. If the Company proposes at any time to
(a) declare any dividend or distribution upon its Common Stock, whether in cash,
property, stock or other securities and whether or not a regular cash dividend;
(b) offer for subscription pro rata to the holders of any class or series of
stock any additional shares of stock of any class or series or other rights; (c)
effect any reclassification or recapitalization of Common Stock; (d) merge or
consolidate with or into any other corporation, or sell, lease, license, or
convey all or substantially all of its assets, or to liquidate, dissolve or wind
up; or (e) offer holders of registration rights the opportunity to participate
in an underwritten public offering of the Company's securities for cash, then,
in connection with each such event, the Company shall give Holder (1) at least
20 days prior written notice of the date on which a record will be taken for
such dividend, distribution, or subscription rights (and specifying the date on
which the holders of Common Stock will be entitled thereto) or for determining
rights to vote, if any, in respect of the matters referred to in (c) and (d)
above; (2) in the case of the matters referred to in (c) and (d) above at least
20 days prior written notice of the date when the same will take place (and
specifying the date on which the holders of Common Stock will be entitled to
exchange their Common Stock for securities or other property deliverable upon
the occurrence of such event; and (3) in the case of the matter referred to in
(e) above, the same notice as is given to the holders of such registration
rights.
3.3 Registration Under Securities Act of 1933, as amended. The Company
agrees that the Shares shall be entitled to the registration rights granted in
the Registration Agreement dated the same date as this Warrant. In the event
that the shares are unable to be registered in response to a request made
6
pursuant to the Registration Agreement, the Company shall notify the Holder of
such inability in writing and, without any further action, the Expiration Date
of the Warrant will be extended to the fifth (5th) anniversary of the date of
original issuance of this Warrant (or the Company shall have the right to
repurchase the Warrant for an amount equal to the excess of Fair Market Value
over the Warrant Price, which right shall be exercisable for a period of thirty
(30) days following such notice given by the Company in which to give notice of
its intention).
ARTICLE 4.
MISCELLANEOUS.
--------------
4.1 Term; Notice of Expiration. This Warrant is exercisable, in whole
or in part, at any time and from time to time on or before the Expiration Date
set forth above. The Company shall give Holder written notice of Holder's right
to exercise this Warrant not more than 90 days and not less than 30 days before
the Expiration Date. If the notice is not so given, the Expiration Date shall
automatically be extended until 30 days after the date the Company delivers the
notice to Holder.
4.2 Legends. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER
SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and the
Shares issuable upon exercise of this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company).
4.4 Transfer Procedure. Subject to the provisions of Section 4.3,
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any).
4.5 Notices. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address set forth in the LOI or as may have been furnished to
the Company or the Holder, as the case may be, in writing by the Company or such
holder from time to time.
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4.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 Attorneys Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorney's fees.
4.8 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of Oklahoma, without giving effect to its
principles regarding conflicts of law.
DATED April _____, 2003.
"COMPANY"
TIDELANDS OIL & GAS CORPORATION
By:__________________________________
NAME:_______________________
TITLE:______________________
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APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase ____________ shares of the
Common/Preferred Series _________ [Strike one] Stock of TIDELANDS OIL & GAS
CORPORATION. pursuant to the terms of the attached Warrant, and tenders herewith
payment of the purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to ________________ of the Shares covered by the
Warrant.
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
___________________________________
(Name)
___________________________________
___________________________________
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
___________________________________
(Signature)
___________________________________
(Date)
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APPENDIX 2
NOTICE THAT WARRANT IS ABOUT TO EXPIRE
_________________, _______
(Name of Holder)
(Address of Holder)
Attn: Chief Financial Officer
Dear ____________________:
This is to advise you that the Warrant issued to you described below
will expire on _______________________, 20____.
Issuer:
Issue Date:
Class of Security Issuable:
Exercise Price per Share:
Number of Shares Issuable:
Procedure for Exercise:
Please contact [name of contact person at (phone number) with any
questions you may have concerning exercise of the Warrant. This is your only
notice of pending expiration.
_______________________________________
(Name of Issuer)
By:____________________________________
Its:___________________________________
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