Exhibit 10.5
EXHIBIT E
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
SERIES B COMMON STOCK PURCHASE WARRANT
To Purchase __________ Shares of Common Stock of
TIDELANDS OIL & GAS CORPORATION
THIS SERIES B COMMON STOCK PURCHASE WARRANT (the "Warrant") certifies that,
for value received, _____________ (the "Holder"), is entitled, upon the terms
and subject to the limitations on exercise and the conditions hereinafter set
forth, at any time on or after the date hereof (the "Initial Exercise Date") and
on or prior to the close of business on the 13 month anniversary of the Initial
Exercise Date (the "Termination Date") but not thereafter, to subscribe for and
purchase from Tidelands Oil & Gas Corporation, a Nevada corporation (the
"Company"), up to ______ shares (the "Warrant Shares") of Common Stock, par
value $.001 per share, of the Company (the "Common Stock"). The purchase price
of one share of Common Stock under this Warrant shall be equal to the Exercise
Price, as defined in Section 2(b).
Section 1. Definitions. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in that certain Securities Purchase
Agreement (the "Purchase Agreement"), dated January 20, 2006, among the Company
and the purchasers signatory thereto.
Section 2. Exercise.
a) Exercise of Warrant.
i. Exercise of the purchase rights represented by this Warrant
may be made by the Holder, in whole or in part, at any time
or times on or after the 12 month anniversary of the Initial
Exercise Date and on or before the Termination Date by
delivery to the Company of a duly executed facsimile copy of
the Notice of Exercise Form annexed hereto (or such other
office or agency of the Company as it may designate by
notice in writing to the registered Holder at the address of
1
such Holder appearing on the books of the Company);
provided, however, within 5 Trading Days of the date said
Notice of Exercise is delivered to the Company, if this
Warrant is exercised in full, the Holder shall have
surrendered this Warrant to the Company and the Company
shall have received payment of the aggregate Exercise Price
of the shares thereby purchased by wire transfer or
cashier's check drawn on a United States bank.
Notwithstanding anything herein to the contrary, the Holder
shall not be required to physically surrender this Warrant
to the Company until the Holder has purchased all of the
Warrant Shares available hereunder and the Warrant has been
exercised in full. Partial exercises of this Warrant
resulting in purchases of a portion of the total number of
Warrant Shares available hereunder shall have the effect of
lowering the outstanding number of Warrant Shares
purchasable hereunder in an amount equal to the applicable
number of Warrant Shares purchased. The Holder and the
Company shall maintain records showing the number of Warrant
Shares purchased and the date of such purchases. The Company
shall deliver any objection to any Notice of Exercise Form
within 1 Business Day of receipt of such notice. In the
event of any dispute or discrepancy, the records of the
Holder shall be controlling and determinative in the absence
of manifest error. The Holder and any assignee, by
acceptance of this Warrant, acknowledge and agree that, by
reason of the provisions of this paragraph, following the
purchase of a portion of the Warrant Shares hereunder, the
number of Warrant Shares available for purchase hereunder at
any given time may be less than the amount stated on the
face hereof.
ii. Notwithstanding anything herein to the contrary, if after
the Effective Date, (i) each of the VWAPs for any 20
consecutive Trading Days (such period commencing only after
the Effective Date, such period the "Threshold Period")
exceeds 150% of the then effective Exercise Price (subject
to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions
of the Common Stock that occur after the Initial Exercise
Date) and (ii) the average daily volume for the last ten
Trading Days of such Threshold Period, which Threshold
Period shall have commenced only after the Effective Date,
equals exceeds 353,370 shares of Common Stock per Trading
Day (subject to adjustment for forward and reverse stock
splits, recapitalizations, stock dividends and the like
after the Initial Exercise Date), the Company may, within 1
Trading Day of the end of any such period, deliver a notice
to the Holder (a "Forced Exercise Notice" and the date such
notice is received by the Holder, the "Forced Exercise
Notice Date") to cause the Holder to exercise all (but not
less than all) of this Warrant, it being understood that the
"Warrant Share Delivery Date" for purposes of Section 2(e)
shall be deemed to occur on the third Trading Day following
the Forced Exercise Notice Date (such third Trading Day
being referred to as the "Forced Exercise Date"). The Holder
shall deliver the aggregate Exercise Price of the shares
thereby purchased by pursuant to a Forced Exercise Notice by
wire transfer or cashier's check drawn on a United States
2
bank within five Trading Days following receipt of a Forced
Exercise Notice. Notwithstanding anything herein to the
contrary, the Company may only deliver a Forced Exercise
Notice if (i) no Material Adverse Effect has occurred during
the period from the Initial Exercise Date to the Forced
Exercise Date and (ii) all of the Equity Conditions (as
defined in the Debentures) are met on each Trading Day
occurring during the applicable Threshold Period through and
including the later of the Forced Exercise Date and the
Trading Day after the date such Warrant Shares pursuant to
such exercise are delivered to the Holder. Any Forced
Exercise shall be applied ratably to all Holders based on
their initial purchases of Warrants pursuant to the Purchase
Agreement. For purposes of clarification, a Forced Exercise
shall be subject to all of the provisions of Section 2,
including, without limitation, the provision requiring
payment of liquidated damages and limitations on exercise.
b) Exercise Price. The exercise price of the Common Stock under this
Warrant shall be $1.275, subject to adjustment hereunder (the "Exercise
Price").
c) Cashless Exercise. If at any time after one year from the date of
issuance of this Warrant there is no effective Registration Statement
registering, or no current prospectus available for, the resale of the
Warrant Shares by the Holder, then this Warrant may also be exercised at
such time by means of a "cashless exercise" in which the Holder shall be
entitled to receive a certificate for the number of Warrant Shares equal to
the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = the VWAP on the Trading Day immediately preceding the date
of such election;
(B) = the Exercise Price of this Warrant, as adjusted; and
(X) = the number of Warrant Shares issuable upon exercise of this
Warrant in accordance with the terms of this Warrant by
means of a cash exercise rather than a cashless exercise.
Notwithstanding anything herein to the contrary, on the Termination
Date, this Warrant shall be automatically exercised via cashless exercise
pursuant to this Section 2(c).
d) Exercise Limitations.
(i) Xxxxxx's Restrictions. The Company shall not effect any
exercise of this Warrant, and a Holder shall not have the
right to exercise any portion of this Warrant, pursuant to
Section 2(c) or otherwise, to the extent that after giving
effect to such issuance after exercise, such Holder
(together with such Holder's affiliates, and any other
person or entity acting as a group together with such Holder
3
or any of such Holder's affiliates), as set forth on the
applicable Notice of Exercise, would beneficially own in
excess of the Beneficial Ownership Limitation (as defined
below). For purposes of the foregoing sentence, the number
of shares of Common Stock beneficially owned by such Holder
and its affiliates shall include the number of shares of
Common Stock issuable upon exercise of this Warrant with
respect to which the determination of such sentence is being
made, but shall exclude the number of shares of Common Stock
which would be issuable upon (A) exercise of the remaining,
nonexercised portion of this Warrant beneficially owned by
such Holder or any of its affiliates and (B) exercise or
conversion of the unexercised or nonconverted portion of any
other securities of the Company (including, without
limitation, any other Debentures or Warrants) subject to a
limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by such
Holder or any of its affiliates. Except as set forth in the
preceding sentence, for purposes of this Section 2(d),
beneficial ownership shall be calculated in accordance with
Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder, it being acknowledged by
a Holder that the Company is not representing to such Holder
that such calculation is in compliance with Section 13(d) of
the Exchange Act and such Holder is solely responsible for
any schedules required to be filed in accordance therewith.
To the extent that the limitation contained in this Section
2(d) applies, the determination of whether this Warrant is
exercisable (in relation to other securities owned by such
Holder) and of which a portion of this Warrant is
exercisable shall be in the sole discretion of a Holder, and
the submission of a Notice of Exercise shall be deemed to be
each Holder's determination of whether this Warrant is
exercisable (in relation to other securities owned by such
Holder) and of which portion of this Warrant is exercisable,
in each case subject to such aggregate percentage
limitation, and the Company shall have no obligation to
verify or confirm the accuracy of such determination. In
addition, a determination as to any group status as
contemplated above shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. For purposes of this
Section 2(d), in determining the number of outstanding
shares of Common Stock, a Holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the
Company's most recent Form 10-QSB or Form 10-KSB, as the
case may be, (y) a more recent public announcement by the
Company or (z) any other notice by the Company or the
Company's Transfer Agent setting forth the number of shares
4
of Common Stock outstanding. Upon the written or oral
request of a Holder, the Company shall within two Trading
Days confirm orally and in writing to such Holder the number
of shares of Common Stock then outstanding. In any case, the
number of outstanding shares of Common Stock shall be
determined after giving effect to the conversion or exercise
of securities of the Company, including this Warrant, by
such Holder or its affiliates since the date as of which
such number of outstanding shares of Common Stock was
reported. The "Beneficial Ownership Limitation" shall be
4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance
of shares of Common Stock issuable upon exercise of this
Warrant. The Beneficial Ownership Limitation provisions of
this Section 2(d) may be waived by such Holder, at the
election of such Holder, upon not less than 61 days' prior
notice to the Company to change the Beneficial Ownership
Limitation to 9.99% of the number of shares of the Common
Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock upon exercise of this
Warrant, and the provisions of this Section 2(d) shall
continue to apply. Upon such a change by a Holder of the
Beneficial Ownership Limitation from such 4.99% limitation
to such 9.99% limitation, the Beneficial Ownership
Limitation may not be waived by such Holder. The provisions
of this paragraph shall be implemented in a manner otherwise
than in strict conformity with the terms of this Section
2(d) to correct this paragraph (or any portion hereof) which
may be defective or inconsistent with the intended
Beneficial Ownership Limitation herein contained or to make
changes or supplements necessary or desirable to properly
give effect to such limitation. The limitations contained in
this paragraph shall apply to a successor holder of this
Warrant.
(ii) Authorized Share Limitations. Notwithstanding anything
herein to the contrary, this Series B Warrant shall not be
exercisable until and unless Authorized Share Approval has
been obtained.
e) Mechanics of Exercise.
i. Authorization of Warrant Shares. The Company covenants
that all Warrant Shares which may be issued upon the exercise of
the purchase rights represented by this Warrant will, upon
exercise of the purchase rights represented by this Warrant, be
duly authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges in respect of the issue
thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).
5
ii. Delivery of Certificates Upon Exercise. Certificates for
shares purchased hereunder shall be transmitted by the transfer
agent of the Company to the Holder by crediting the account of
the Holder's prime broker with the Depository Trust Company
through its Deposit Withdrawal Agent Commission ("DWAC") system
if the Company is a participant in such system, and otherwise by
physical delivery to the address specified by the Holder in the
Notice of Exercise within 3 Trading Days from the delivery to the
Company of the Notice of Exercise Form, surrender of this Warrant
(if required) and payment of the aggregate Exercise Price as set
forth above ("Warrant Share Delivery Date"). This Warrant shall
be deemed to have been exercised on the date the Exercise Price
is received by the Company. The Warrant Shares shall be deemed to
have been issued, and Holder or any other person so designated to
be named therein shall be deemed to have become a holder of
record of such shares for all purposes, as of the date the
Warrant has been exercised by payment to the Company of the
Exercise Price and all taxes required to be paid by the Holder,
if any, pursuant to Section 2(e)(vii) prior to the issuance of
such shares, have been paid.
iii. Delivery of New Warrants Upon Exercise. If this Warrant
shall have been exercised in part, the Company shall, at the
request of a Holder and upon surrender of this Warrant
certificate, at the time of delivery of the certificate or
certificates representing Warrant Shares, deliver to Holder a new
Warrant evidencing the rights of Holder to purchase the
unpurchased Warrant Shares called for by this Warrant, which new
Warrant shall in all other respects be identical with this
Warrant.
iv. Rescission Rights. If the Company fails to cause its
transfer agent to transmit to the Holder a certificate or
certificates representing the Warrant Shares pursuant to this
Section 2(e)(iv) by the Warrant Share Delivery Date, then the
Holder will have the right to rescind such exercise.
v. Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Exercise. In addition to any other rights
available to the Holder, if the Company fails to cause its
transfer agent to transmit to the Holder a certificate or
certificates representing the Warrant Shares pursuant to an
exercise on or before the Warrant Share Delivery Date, and if
after such date the Holder is required by its broker to purchase
(in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by the Holder of the
Warrant Shares which the Holder anticipated receiving upon such
exercise (a "Buy-In"), then the Company shall (1) pay in cash to
the Holder the amount by which (x) the Holder's total purchase
price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of Warrant Shares that the Company was
required to deliver to the Holder in connection with the exercise
6
at issue times (B) the price at which the sell order giving rise
to such purchase obligation was executed, and (2) at the option
of the Holder, either reinstate the portion of the Warrant and
equivalent number of Warrant Shares for which such exercise was
not honored or deliver to the Holder the number of shares of
Common Stock that would have been issued had the Company timely
complied with its exercise and delivery obligations hereunder.
For example, if the Holder purchases Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an
attempted exercise of shares of Common Stock with an aggregate
sale price giving rise to such purchase obligation of $10,000,
under clause (1) of the immediately preceding sentence the
Company shall be required to pay the Holder $1,000. The Holder
shall provide the Company written notice indicating the amounts
payable to the Holder in respect of the Buy-In, together with
applicable confirmations and other evidence reasonably requested
by the Company. Nothing herein shall limit a Holder's right to
pursue any other remedies available to it hereunder, at law or in
equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the
Company's failure to timely deliver certificates representing
shares of Common Stock upon exercise of the Warrant as required
pursuant to the terms hereof.
vi. No Fractional Shares or Scrip. No fractional shares or
scrip representing fractional shares shall be issued upon the
exercise of this Warrant. As to any fraction of a share which
Holder would otherwise be entitled to purchase upon such
exercise, the Company shall pay a cash adjustment in respect of
such final fraction in an amount equal to such fraction
multiplied by the Exercise Price.
vii. Charges, Taxes and Expenses. Issuance of certificates
for Warrant Shares shall be made without charge to the Holder for
any issue or transfer tax or other incidental expense in respect
of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or
names as may be directed by the Holder; provided, however, that
in the event certificates for Warrant Shares are to be issued in
a name other than the name of the Holder, this Warrant when
surrendered for exercise shall be accompanied by the Assignment
Form attached hereto duly executed by the Holder; and the Company
may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental
thereto.
viii. Closing of Books. The Company will not close its
stockholder books or records in any manner which prevents the
timely exercise of this Warrant, pursuant to the terms hereof.
7
f) Call Provision. Subject to the provisions of Section 2(d) and this
Section 2(f), after the 12 month anniversary of the Initial Exercise Date,
the Company may, at any time thereafter, call for cancellation of all or
any portion of this Warrant for which a Notice of Exercise has not yet been
delivered (such right, a "Call"). To exercise this right, the Company must
deliver to the Holder an irrevocable written notice (a "Call Notice"),
indicating therein the portion of unexercised portion of this Warrant to
which such notice applies. If the conditions set forth below for such Call
are satisfied from the period from the date of the Call Notice through and
including the Call Date (as defined below), then any portion of this
Warrant subject to such Call Notice for which a Notice of Exercise shall
not have been received by the Call Date will be cancelled at 6:30 p.m. (New
York City time) on the fifth calendar day after the date the Call Notice is
received by the Holder (such date, the "Call Date"). Any unexercised
portion of this Warrant to which the Call Notice does not pertain will be
unaffected by such Call Notice. In furtherance thereof, the Company
covenants and agrees that it will honor all Notices of Exercise with
respect to Warrant Shares subject to a Call Notice that are tendered
through 6:30 p.m. (New York City time) on the Call Date. The parties agree
that any Notice of Exercise delivered following a Call Notice shall first
reduce to zero the number of Warrant Shares subject to such Call Notice
prior to reducing the remaining Warrant Shares available for purchase under
this Warrant. For example, if (x) this Warrant then permits the Holder to
acquire 100 Warrant Shares, (y) a Call Notice pertains to 75 Warrant
Shares, and (z) prior to 6:30 p.m. (New York City time) on the Call Date
the Holder tenders a Notice of Exercise in respect of 50 Warrant Shares,
then (1) on the Call Date the right under this Warrant to acquire 25
Warrant Shares will be automatically cancelled, (2) the Company, in the
time and manner required under this Warrant, will have issued and delivered
to the Holder 50 Warrant Shares in respect of the exercises following
receipt of the Call Notice, and (3) the Holder may, until the Termination
Date, exercise this Warrant for 25 Warrant Shares (subject to adjustment as
herein provided and subject to subsequent Call Notices). Subject again to
the provisions of this Section 2(f), the Company may deliver subsequent
Call Notices for any portion of this Warrant for which the Holder shall not
have delivered a Notice of Exercise. Notwithstanding anything to the
contrary set forth in this Warrant, the Company may not deliver a Call
Notice or require the cancellation of this Warrant (and any Call Notice
will be void), unless, from the beginning of the 20th consecutive Trading
Days used to determine whether the Common Stock has achieved the Threshold
Price through the Call Date, (i) the Company shall have honored in
accordance with the terms of this Warrant all Notices of Exercise delivered
by 6:30 p.m. (New York City time) on the Call Date, (ii) the Registration
Statement shall be effective as to all Warrant Shares and the prospectus
thereunder available for use by the Holder for the resale of all such
Warrant Shares and (iii) the Common Stock shall be listed or quoted for
trading on the Trading Market, and (iv) there is a sufficient number of
authorized shares of Common Stock for issuance of all Securities under the
Transaction Documents, and (v) the issuance of the shares shall be in
accordance with Section 2(d) herein. The Company's right to Call the
Warrant shall be exercised ratably among the Holders based on each Holder's
initial purchase of Common Stock.
Section 3. Certain Adjustments.
8
a) Stock Dividends and Splits. If the Company, at any time while this
Warrant is outstanding: (A) pays a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any other
equity or equity equivalent securities payable in shares of Common Stock
(which, for avoidance of doubt, shall not include any shares of Common
Stock issued by the Company pursuant to this Warrant), (B) subdivides
outstanding shares of Common Stock into a larger number of shares, (C)
combines (including by way of reverse stock split) outstanding shares of
Common Stock into a smaller number of shares, or (D) issues by
reclassification of shares of the Common Stock any shares of capital stock
of the Company, then in each case the Exercise Price shall be multiplied by
a fraction of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding immediately before
such event and of which the denominator shall be the number of shares of
Common Stock outstanding immediately after such event and the number of
shares issuable upon exercise of this Warrant shall be proportionately
adjusted. Any adjustment made pursuant to this Section 3(a) shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
b) [RESERVED].
c) Pro Rata Distributions. If the Company, at any time prior to the
Termination Date, shall distribute to all holders of Common Stock (and not
to Holders of the Warrants) evidences of its indebtedness or assets
(including cash and cash dividends) or rights or warrants to subscribe for
or purchase any security other than the Common Stock (which shall be
subject to Section 3(b)), then in each such case the Exercise Price shall
be adjusted by multiplying the Exercise Price in effect immediately prior
to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be
the VWAP determined as of the record date mentioned above, and of which the
numerator shall be such VWAP on such record date less the then per share
fair market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one outstanding share
of the Common Stock as determined by the Board of Directors in good faith.
In either case the adjustments shall be described in a statement provided
to the Holder of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common
Stock. Such adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date mentioned
above.
d) Fundamental Transaction. If, at any time while this Warrant is
outstanding, (A) the Company effects any merger or consolidation of the
Company with or into another Person, (B) the Company effects any sale of
all or substantially all of its assets in one or a series of related
transactions, (C) any tender offer or exchange offer (whether by the
Company or another Person) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other
securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange
pursuant to which the Common Stock is effectively converted into or
9
exchanged for other securities, cash or property (in any such case, a
"Fundamental Transaction"), then, upon any subsequent exercise of this
Warrant, the Holder shall have the right to receive, for each Warrant Share
that would have been issuable upon such exercise immediately prior to the
occurrence of such Fundamental Transaction, at the option of the Holder,
(a) upon exercise of this Warrant, the number of shares of Common Stock of
the successor or acquiring corporation or of the Company, if it is the
surviving corporation, and any additional consideration (the "Alternate
Consideration") receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a
Holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event or (b) if the Company is
acquired in an all cash transaction, cash equal to the value of this
Warrant as determined in accordance with the Black-Scholes option pricing
formula. For purposes of any such exercise, the determination of the
Exercise Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in
respect of one share of Common Stock in such Fundamental Transaction, and
the Company shall apportion the Exercise Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any
different components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the
same choice as to the Alternate Consideration it receives upon any exercise
of this Warrant following such Fundamental Transaction. To the extent
necessary to effectuate the foregoing provisions, any successor to the
Company or surviving entity in such Fundamental Transaction shall issue to
the Holder a new warrant consistent with the foregoing provisions and
evidencing the Holder's right to exercise such warrant into Alternate
Consideration. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or
surviving entity to comply with the provisions of this Section 3(d) and
insuring that this Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction.
e) Calculations. All calculations under this Section 3 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 3, the number of shares of Common Stock deemed
to be issued and outstanding as of a given date shall be the sum of the
number of shares of Common Stock (excluding treasury shares, if any) issued
and outstanding.
f) Voluntary Adjustment By Company. The Company may at any time during
the term of this Warrant reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
g) Notice to Holders.
i. Adjustment to Exercise Price. Whenever the Exercise Price
is adjusted pursuant to this Section 3, the Company shall
promptly mail to each Holder a notice setting forth the Exercise
Price after such adjustment and setting forth a brief statement
of the facts requiring such adjustment. If the Company issues a
variable rate security, despite the prohibition thereon in the
10
Purchase Agreement, the Company shall be deemed to have issued
Common Stock or Common Stock Equivalents at the lowest possible
conversion or exercise price at which such securities may be
converted or exercised in the case of a Variable Rate Transaction
(as defined in the Purchase Agreement).
ii. Notice to Allow Exercise by Xxxxxx. If (A) the Company
shall declare a dividend (or any other distribution) on the
Common Stock; (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common
Stock; (C) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any class or of any
rights; (D) the approval of any stockholders of the Company shall
be required in connection with any reclassification of the Common
Stock, any consolidation or merger to which the Company is a
party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or
property; (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs
of the Company; then, in each case, the Company shall cause to be
mailed to the Holder at its last address as it shall appear upon
the Warrant Register of the Company, at least 20 calendar days
prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to
be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be
taken, the date as of which the holders of the Common Stock of
record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the
date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of
the Common Stock of record shall be entitled to exchange their
shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided that the failure to
mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to
be specified in such notice. The Holder is entitled to exercise
this Warrant during the 20-day period commencing on the date of
such notice to the effective date of the event triggering such
notice.
Section 4. Transfer of Warrant.
a) Transferability. Subject to compliance with any applicable
securities laws and the conditions set forth in Sections 5(a) and 4(d)
hereof and to the provisions of Section 4.1 of the Purchase Agreement, this
Warrant and all rights hereunder are transferable, in whole or in part,
upon surrender of this Warrant at the principal office of the Company,
together with a written assignment of this Warrant substantially in the
form attached hereto duly executed by the Holder or its agent or attorney
and funds sufficient to pay any transfer taxes payable upon the making of
11
such transfer. Upon such surrender and, if required, such payment, the
Company shall execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees and in the denomination or denominations
specified in such instrument of assignment, and shall issue to the assignor
a new Warrant evidencing the portion of this Warrant not so assigned, and
this Warrant shall promptly be cancelled. A Warrant, if properly assigned,
may be exercised by a new holder for the purchase of Warrant Shares without
having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in
which new Warrants are to be issued, signed by the Holder or its agent or
attorney. Subject to compliance with Section 4(a), as to any transfer which
may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or
Warrants to be divided or combined in accordance with such notice.
c) Warrant Register. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Holder, and for all other purposes, absent actual
notice to the contrary.
d) Transfer Restrictions. If, at the time of the surrender of this
Warrant in connection with any transfer of this Warrant, the transfer of
this Warrant shall not be registered pursuant to an effective registration
statement under the Securities Act and under applicable state securities or
blue sky laws, the Company may require, as a condition of allowing such
transfer (i) that the Holder or transferee of this Warrant, as the case may
be, furnish to the Company a written opinion of counsel (which opinion
shall be in form, substance and scope customary for opinions of counsel in
comparable transactions) to the effect that such transfer may be made
without registration under the Securities Act and under applicable state
securities or blue sky laws, (ii) that the holder or transferee execute and
deliver to the Company an investment letter in form and substance
acceptable to the Company and (iii) that the transferee be an "accredited
investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8)
promulgated under the Securities Act or a qualified institutional buyer as
defined in Rule 144A(a) under the Securities Act.
Section 5. Miscellaneous.
a) Title to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws and Section 4 of this Warrant, this Warrant
and all rights hereunder are transferable, in whole or in part, at the
office or agency of the Company by the Holder in person or by duly
authorized attorney, upon surrender of this Warrant together with the
Assignment Form annexed hereto properly endorsed. The transferee shall sign
an investment letter in form and substance reasonably satisfactory to the
Company.
12
b) No Rights as Shareholder Until Exercise. This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder of
the Company prior to the exercise hereof. Upon the surrender of this
Warrant and the payment of the aggregate Exercise Price (or by means of a
cashless exercise), the Warrant Shares so purchased shall be and be deemed
to be issued to such Holder as the record owner of such shares as of the
close of business on the later of the date of such surrender or payment.
c) Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant or any stock certificate relating to the Warrant Shares, and in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it (which, in the case of the Warrant, shall not include
the posting of any bond), and upon surrender and cancellation of such
Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of
such cancellation, in lieu of such Warrant or stock certificate.
d) Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may
be taken or such right may be exercised on the next succeeding day not a
Saturday, Sunday or legal holiday.
e) Authorized Shares.
The Company covenants that during the period the Warrant is
outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this
Warrant. The Company further covenants that its issuance of this
Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and
issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant. The Company will
take all such reasonable action as may be necessary to assure that
such Warrant Shares may be issued as provided herein without violation
of any applicable law or regulation, or of any requirements of the
Trading Market upon which the Common Stock may be listed.
Except and to the extent as waived or consented to by the Holder,
the Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any
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 of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of
Holder as set forth in this Warrant against impairment. Without
limiting the generality of the foregoing, the Company will (a) not
increase the par value of any Warrant Shares above the amount payable
13
therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares upon the exercise of this Warrant, and
(c) use commercially reasonable efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company
to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in
the number of Warrant Shares for which this Warrant is exercisable or
in the Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having
jurisdiction thereof.
f) Jurisdiction. All questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be determined in
accordance with the provisions of the Purchase Agreement.
g) Restrictions. The Holder acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.
h) Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice Xxxxxx's rights, powers or
remedies, notwithstanding the fact that all rights hereunder terminate on
the Termination Date. If the Company willfully and knowingly fails to
comply with any provision of this Warrant, which results in any material
damages to the Holder, the Company shall pay to Holder such amounts as
shall be sufficient to cover any costs and expenses including, but not
limited to, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant
hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
i) Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder by the Company shall be
delivered in accordance with the notice provisions of the Purchase
Agreement.
j) Limitation of Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant or purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder,
shall give rise to any liability of Holder for the purchase price of any
Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
k) Remedies. Holder, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any loss
14
incurred by reason of a breach by it of the provisions of this Warrant and
xxxxxx agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate.
l) Successors and Assigns. Subject to applicable securities laws, this
Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the
successors and permitted assigns of Holder. The provisions of this Warrant
are intended to be for the benefit of all Holders from time to time of this
Warrant and shall be enforceable by any such Holder or holder of Warrant
Shares.
m) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Holder.
n) Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the
remainder of such provisions or the remaining provisions of this Warrant.
o) Headings. The headings used in this Warrant are for the convenience
of reference only and shall not, for any purpose, be deemed a part of this
Warrant.
********************
15
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officer thereunto duly authorized.
Dated: January __, 2006
TIDELANDS OIL & GAS CORPORATION
By:__________________________________________
Name:
Title:
16
NOTICE OF EXERCISE
TO: TIDELANDS OIL & GAS CORPORATION
(1) The undersigned hereby elects to purchase ________ Warrant Shares of
the Company pursuant to the terms of the attached Warrant (only if exercised in
full), and tenders herewith payment of the exercise price in full, together with
all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] the cancellation of such number of Warrant Shares as is necessary,
in accordance with the formula set forth in subsection 2(c), to
exercise this Warrant with respect to the maximum number of Warrant
Shares purchasable pursuant to the cashless exercise procedure set
forth in subsection 2(c).
(3) Please issue a certificate or certificates representing said Warrant
Shares in the name of the undersigned or in such other name as is specified
below:
___________________________________________
The Warrant Shares shall be delivered to the following:
___________________________________________
___________________________________________
___________________________________________
(4) Accredited Investor. The undersigned is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity: ______________________________________________________
Signature of Authorized Signatory of Investing Entity: _________________________
Name of Authorized Signatory: __________________________________________________
Title of Authorized Signatory: _________________________________________________
Date: __________________________________________________________________________
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
_______________________________________________ whose address is
________________________________________________________________
________________________________________________________________
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ____________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
