THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH
SECURITIES, OR DELIVERY OF AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
REASONABLY SATISFACTORY TO THE ISSUER OF THESE SECURITIES THAT SUCH OFFER, SALE
OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH THE SECURITIES ACT,
OR UNLESS SOLD IN FULL COMPLIANCE WITH RULE 144 UNDER THE SECURITIES ACT.
BASELINE OIL & GAS CORP.
COMMON STOCK WARRANT
No: __
Date of Issuance: February 1, 2006
FOR VALUE RECEIVED, Baseline Oil & Gas Corp., a Nevada corporation (the
"Company"), hereby grants to _____________ ("Holder"), as of the Date of
Issuance indicated above. The amount and kind of securities obtainable pursuant
to the rights granted hereunder and the exercise price for such securities are
subject to adjustment pursuant to the provisions contained in this Warrant.
This Warrant is subject to the following provisions:
1. Exercise of Warrant.
1.1 Purchase of Shares. Subject to the terms and conditions
hereinafter set forth, Holder is entitled, upon surrender of this Warrant at the
principal office of the Company (or at such other place as the Company shall
notify Holder in writing), to purchase from the Company up to __________ shares
of the Company's Common Stock (the "Warrant Shares") for $1.32 per share (the
"Exercise Price").
1.2 Exercise Period. Holder may exercise this Warrant for a period
("Exercise Period") commencing on the date hereof and terminating on the third
anniversary of the Date of Issuance. Notwithstanding anything herein to the
contrary, in the event Holder has not exercised this Warrant in full prior to
the expiration of the exercise period, this Warrant shall be deemed
automatically exercised pursuant to Section 1.4 on the date immediately
preceding such expiration date without any further action on behalf of the
Holder.
1.3 Exercise Procedure.
(a) This Warrant shall be deemed to have been exercised at
such time when the Company has received all of the following items (the
"Exercise Time"):
(i) a completed Exercise Notice, as described in Section
1.5, executed by Holder exercising all or part of the purchase rights
represented by this Warrant;
(ii) this Warrant; and
(iii) payment to the Company of an amount equal to the
Exercise Price multiplied by the number of Warrant Shares being purchased, at
the election of Holder, by wire transfer or certified check payable to the order
of the Company, except in cases where the Holder indicates in the Exercise
Notice that it intends to exercise this Warrant in the manner specified in
Section 1.4. The person or persons in whose name(s) any certificate(s)
representing Warrant Shares shall be issuable, upon exercise of this Warrant,
shall be deemed to have become the holders(s) of record of, and shall be treated
for all purposes as the record holder(s) of, the Warrant Shares represented.
(b) Certificates for Warrant Shares purchased upon exercise of
this Warrant shall be delivered by the Company to Holder as soon as practicable
after the date of the Exercise Time. Unless this Warrant has expired or all of
the purchase rights represented hereby have been exercised, the Company shall
prepare a new Warrant, substantially identical hereto, representing the rights
formerly represented by this Warrant which have not expired or been exercised
and shall as soon as practicable deliver such new Warrant to the person
designated for delivery in the Exercise Notice.
(c) The Warrant Shares issuable upon the exercise of this
Warrant shall be deemed to have been issued to Holder at the Exercise Time, and
Holder shall be deemed for all purposes to have become the record holder of such
Common Stock at the Exercise Time.
(d) The issuance of certificates for Warrant Shares upon
exercise of this Warrant shall be made without charge to Holder for any issuance
tax in respect thereof or other cost incurred by the Company in connection with
such exercise and the related issuance of Warrant Shares (other than any
transfer taxes resulting from the issuance of Warrant Shares to any person other
than Holder).
(e) The Company shall not close its books against the transfer
of this Warrant or of any Warrant Shares issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant.
(f) During the Exercise Period, the Company shall reserve and
keep available out of its authorized but unissued Common Stock such number of
Warrant Shares issuable upon the full exercise of this Warrant. All Warrant
Shares which are so issuable shall, when issued and upon the payment of the
applicable Exercise Price, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges and not subject to the
pre-emptive rights of any holder of Common Stock or any other class or series of
stock of the Company. During the Exercise Period, the Company shall not take any
action which would cause the number of authorized but unissued Common Stock to
be less than the number of such shares required to be reserved hereunder for
issuance upon exercise of this Warrant.
1.4 Cashless Exercise. Notwithstanding the provisions of Section
1.3(a)(iii) requiring payment by wire transfer or check, the Company agrees
that, unless otherwise prohibited by law, Holder shall have the right at any
time and from time to time to exercise this Warrant in full or in part on a
cashless basis, computed using the following formula:
X = Y (A - B)
---------
A
2
Where:
X = The number of Warrant Shares to be issued to the Holder pursuant to this
cashless exercise;
Y = The number of Warrant Shares in respect of which the net issue election is
made;
A = The Fair Market Value (as defined below) of one Warrant Share at the time
the cashless exercise election is made; and
B = The Exercise Price (as adjusted to the date of the cashless exercise).
The term "Fair Market Value" shall mean (A) if the class of Warrant Shares is
exchange-traded, the closing sale or last sale price per share of the class of
Warrant Shares, (B) if the class of Warrant Shares is regularly traded in any
over-the-counter market, the average of the bid and asked prices per share of
the class of Warrant Shares, and (C) if the class of Warrant Shares is not
traded as described in clause (A) or (B), the per share fair market value of the
class of Warrant Shares as determined in good faith by the Company's Board of
Directors. Fair Market Value as of a given date with respect to clauses (A) and
(B) shall be determined as of the close of business on the day prior to the date
of determination, or if no trading in the class of Warrant Shares takes place on
such date, on the next preceding trading day on which there has been such
trading.
1.5 "Easy Sale" Exercise. In lieu of the payment methods set forth
above, when permitted by law and applicable regulations, the Holder may pay the
Exercise Price through a "same day sale" commitment from the Holder (and if
applicable a broker-dealer that is a member of the National Association of
Securities Dealers (a "NASD Dealer")), whereby the Holder irrevocably elects to
exercise this Warrant and to sell at least that number of Warrant Shares so
purchased to pay for the Exercise Price (and up to all of the Warrant Shares so
purchased) and the Holder (or, if applicable, the NASD Dealer) commits upon sale
(or, in the case of the NASD Dealer, upon receipt) of such Warrant Shares to
forward the Exercise Price directly to the Company, with any sale proceeds in
excess of the Exercise Price being for the benefit of the Holder.
1.6 Exercise Notice. Upon any exercise of this Warrant, Holder shall
deliver to the Company an Exercise Notice in substantially the form set forth in
Exhibit A hereto.
1.7 No Fractional Shares. If a fractional share of Warrant Shares
would, but for the provisions of this Section 1.7, be issuable upon exercise of
the rights represented by this Warrant, the Company shall round up the number of
shares delivered to Holder to the nearest whole share.
2. Adjustments to Warrant Shares.
2.1 Capital Reorganizations and Other Reclassifications. In case of
any capital reorganization of the Company, or of any reclassification of the
Common Stock, or in case of the consolidation of the Company with, or the merger
of the Company with, or merger of the Company into, any other corporation (other
than a consolidation or merger which does not result in any reclassification or
change of the outstanding Common Stock) or of the sale of the properties and
assets of the Company as, or substantially as, an entirety to any other
corporation or entity, this Warrant shall, after such capital reorganization,
reclassification of the Common Stock, consolidation, merger, or sale, be
3
exercisable, upon the terms and conditions specified in this Warrant, for the
kind, amount and number of shares or other securities, assets, or cash to which
a holder of the number of Common Stock purchasable (at the time of such capital
reorganization, reclassification of the Common Stock, consolidation, merger or
sale) upon exercise of such Warrant would have been entitled to receive upon
such capital reorganization, reclassification of the Common Stock,
consolidation, merger, or sale; and in any such case, if necessary, the
provisions set forth in this Section 2 with respect to the rights and interests
thereafter of Holder shall be appropriately adjusted so as to be applicable, as
nearly equivalent as possible, to any shares or other securities, assets, or
cash thereafter deliverable on the exercise of this Warrant. The Company shall
not effect any such consolidation, merger, or sale, unless prior to or
simultaneously with the consummation thereof the successor corporation or entity
(if other than the Company) resulting from such consolidation or merger or the
corporation or entity purchasing such assets or other appropriate corporation or
entity shall assume, by written instrument, the obligation to deliver to Holder
such shares, securities, assets, or cash as, in accordance with the foregoing
provisions, such holders may be entitled to purchase and other obligations
hereunder.
2.2 Notice of Record Date, etc. In the event the Company shall
propose to take any action of the types requiring an adjustment pursuant to this
Section 2 or a dissolution, liquidation or winding up of the Company shall be
proposed, the Company shall give notice to Holder as provided in Section 8,
which notice shall specify the record date, if any, with respect to any such
action and the date on which such action is to take place. Such notice shall
also set forth such facts with respect thereto as shall be reasonably necessary
to indicate the effect of such action (to the extent such effect may be known at
the date of such notice) on the Exercise Price and the number, kind or class of
shares or other securities or property which shall be deliverable or purchasable
upon the occurrence of such action or deliverable upon the exercise of the
Warrants. In the case of any action which will require the fixing of a record
date, unless otherwise provided in this Warrant, such notice shall be given at
least twenty (20) days prior to the date so fixed, and in case of all other
action, such notice shall be given at least thirty (30) days prior to the taking
of such proposed action.
3. No Voting Rights. This Warrant shall not entitle Holder to any voting
rights or other rights as a stockholder of the Company.
4. Transfer of Warrant. The securities represented hereby and the Warrant
Shares issuable upon exercise hereof have not been registered under the
Securities Act and may not be offered, sold or otherwise transferred, pledged or
hypothecated in the absence of a registration statement in effect with respect
to such securities, or delivery of an opinion of counsel in form and substance
satisfactory to the Company that such offer or sale or transfer, pledge or
hypothecation is in compliance with the Securities Act, or unless sold in full
compliance with Rule 144 under the Securities Act.
5. Representations and Warranties of the Company. The Company represents
and warrants to Holder as follows:
(a) This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms; and
(b) The Warrant Shares, when issued in accordance with the
terms hereof, will be validly issued, fully paid and nonassessable.
4
6. Representations and Warranties by Holder. Holder represents and
warrants to the Company as follows:
(a) This Warrant is being acquired for its own account, for
investment and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities
Act. Upon exercise of this Warrant, Holder shall, if so requested by the
Company, confirm in writing, in a form reasonably satisfactory to the Company,
that the Warrant Shares issuable upon exercise of this Warrant are being
acquired for investment and not with a view toward distribution or resale;
(b) Holder understands that this Warrant and the Warrant
Shares have not been registered under the Securities Act by reason of their
issuance in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act pursuant to Section 4(2) thereof and that
this Warrant and the Warrant Shares may be resold without registration under the
Securities Act only in certain limited circumstances;
(c) Holder has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of the
purchase of this Warrant and the Warrant Shares purchasable pursuant to the
terms of this Warrant and of protecting its interest in connection therewith;
(d) Holder is able to bear the economic risk of the purchase
of the Warrant Shares pursuant to the terms of this Warrant; and
(e) Holder is an accredited investor within the meaning of
Regulation D promulgated under the Securities Act.
7. Replacement. Upon receipt of evidence reasonably satisfactory to the
Company (an affidavit of Holder shall be satisfactory) of the ownership and the
loss, theft, destruction or mutilation of this Warrant, and in the case of any
such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Company or, in the case of any such mutilation upon
surrender of such Warrant, the Company shall execute and deliver in lieu of such
Warrant a new Warrant of like kind representing the same rights represented by
such lost, stolen, destroyed or mutilated certificate and dated the date of such
lost, stolen, destroyed or mutilated certificate.
8. Notices. Except as otherwise expressly provided herein, all notices and
deliveries referred to in this Warrant shall be in writing and shall be
delivered personally, sent by reputable overnight courier service (charges
prepaid) or sent by registered or certified mail, return receipt requested,
postage prepaid and shall be deemed to have been given when so delivered (or
when received, if delivered by any other method) if sent (i) to the Company, at
its principal executive offices and (ii) to Holder, at Holder's address as it
appears in the records of the Company.
9. Amendment and Waiver. The provisions of this Warrant contain the entire
understanding between the parties hereto with respect to the subject matter
hereof and may be amended and waived only if such amendment or waiver is set
forth in writing executed by the Company and the Holder.
5
10. Descriptive Headings; Governing Law. The descriptive headings of the
several Sections of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. This Warrant shall be governed by the laws of
the State of California.
11. Benefits of Agreement; Successors. This Warrant shall be binding and
inure to the benefit of the parties and their respective successors and assigns
hereunder; provided that this Warrant may be assigned by Holder only in
compliance with the conditions specified in and in accordance with all of the
terms of this Warrant. This Warrant does not create and shall not be construed
as creating any rights enforceable by any other person or corporation.
12. Severability. If any provision of this Warrant shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provisions of this Warrant.
13. Counterparts. This Warrant may be executed in any number of
counterparts and each such counterpart shall for all purposes be deemed an
original, and such counterparts shall together constitute but one and the same
instrument.
6
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers and to be dated the Date of Issuance
hereof.
BASELINE OIL & GAS CORP.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
[Placement Agent]
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
7
EXHIBIT A
EXERCISE NOTICE
Baseline Oil & Gas Corp.
Attention: Chief Financial Officer
The undersigned hereby elects to purchase, pursuant to the provisions of
the Common Stock Warrant issued by Baseline Oil & Gas Corp. and held by the
undersigned, the original of which is attached hereto, and (check the applicable
box):
|_| Tenders herewith payment of the exercise price in full in the form of cash
or check in the amount of $____________ for _________ such securities.
|_| Elects the Net Issue Exercise option pursuant to Section 1.4 of the
Warrant, and accordingly requests delivery of a net of ______________ of
such securities, according to the following calculation:
X = Y (A-B) ( ) = (____) [(_____) - (_____)]
------- ------------------------
A (_____)
Where X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock purchasable under the amount of
the Warrant being exchanged (as adjusted to the date of such
calculation).
A = the Fair Market Value of one share of the Company's Common Stock.
B = Exercise Price (as adjusted to the date of such calculation).
|_| Elects the Easy Sale Exercise option pursuant to Section 1.5 of the
Warrant, and accordingly requests delivery of a net of ______________ of
such securities.
The undersigned hereby represents and warrants that the undersigned is acquiring
such shares for its own account for investment purposes only, and not for resale
or with a view to distribution of such shares or any part thereof.
HOLDER:
--------------------------------------------
Name:
Title:
Date:
--------------------------------------
Address:
--------------------------------------------
--------------------------------------------
Name in which shares should be registered:
--------------------------------------------
|_| If this box is checked, as long as the Company's transfer agent
participates in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program ("FAST"), and except as otherwise provided in
the next following sentence, the Company shall effect delivery of the
shares of Common Stock to the Holder by crediting to the account of the
Holder or its nominee at DTC (as specified in this Exercise Notice) with
the number of shares of Common Stock required to be delivered. In the
event that the Company's transfer agent is not a participant in FAST, or
if the shares of Common Stock are not otherwise eligible for delivery
through FAST, the Company shall effect delivery of the shares of Common
Stock by delivering to Holder or its nominee physical certificates
representing such shares.
A-1
