Exhibit 10.17
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON
STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO CARNEROS ENERGY, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.
Right to Purchase Shares of Common Stock of
Carneros Energy, Inc.
(subject to adjustment as provided herein)
COMMON STOCK PURCHASE WARRANT
No. 1 Issue Date: June 29, 2006
CARNEROS ENERGY, INC., a corporation organized under the laws of the
State of Delaware (the "Company"), hereby certifies that, for value received,
LAURUS MASTER FUND, LTD., or assigns (the "Holder"), is entitled, subject to the
terms set forth below, to purchase from the Company at any time or from time to
time following payment in full of all monetary obligations and liabilities owing
by the Company to the Holder in connection with the transactions contemplated by
the Securities Purchase Agreement dated as of the date hereof by and among the
Company, Gotland Oil, Inc., a Texas corporation, Carneros Acquisition Corp., a
Delaware corporation, and the Holder (as amended, modified and supplemented from
time to time, the "Securities Purchase Agreement") and the Related Agreements
(as defined in the Securities Purchase Agreement) (the "Debt Repayment Date"),
up to the Specified Number (as hereinafter defined) of fully paid and
nonassessable shares of Common Stock (as hereinafter defined), $0.01 par value
per share, at the applicable Exercise Price per share (as defined below). The
number and character of such shares of Common Stock and the applicable Exercise
Price per share are subject to adjustment as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include Carneros Energy, Inc. and
any person or entity which shall succeed, or assume the obligations of,
Carneros Energy, Inc. hereunder.
(b) The term "Common Stock" includes (i) the Company's Common
Stock, par value $0.01 per share; and (ii) any other securities into
which or for which any of the securities described in the preceding
clause (i) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Exercise Price" means a price of $0.01 per share
of Common Stock.
(d) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other
person (corporate or otherwise) which the holder of the Warrant at any
time shall be entitled to receive, or shall have received, on the
exercise of the Warrant, in lieu of or in addition to Common Stock, or
which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities
pursuant to Section 4 or otherwise.
(e) The term "Specified Number" means (i) subject to the
following clause "(ii)", 22,425.144 shares of Common Stock and (ii)
27,521.766 shares of Common Stock in the event on or prior to August 1,
2006 Pacific Energy Resource Ltd., a Delaware corporation and the
ultimate parent of the Company ("Parent"), shall have failed to make a
mandatory prepayment of not less than Three Million Dollars
($3,000,000) to the Holder in respect of the Parent's obligations to
the Holder under the Secured Term Note dated as of December 23, 2005 in
the original principal amount of Eight Million Dollars ($8,000,000)
made by Parent in favor of Holder.
1. EXERCISE OF WARRANT.
1.1 NUMBER OF SHARES ISSUABLE UPON EXERCISE. From and after
the Debt Repayment Date, the Holder shall be entitled to receive, upon exercise
of this Warrant in whole or in part, by delivery of an original or fax copy of
an exercise notice in the form attached hereto as Exhibit A (the "Exercise
Notice"), shares of Common Stock of the Company, subject to adjustment pursuant
to Section 4.
1.2 COMPANY ACKNOWLEDGMENT. The Company will, at the time of
the exercise of this Warrant, upon the request of the Holder hereof acknowledge
in writing its continuing obligation to afford to such Holder any rights to
which such Holder shall continue to be entitled after such exercise in
accordance with the provisions of this Warrant. If the Holder shall fail to make
any such request, such failure shall not affect the continuing obligation of the
Company to afford to such Holder any such rights.
1.3 TRUSTEE FOR WARRANT HOLDERS. In the event that a bank or
trust company shall have been appointed as trustee for the Holders of this
Warrant pursuant to Subsection 3.2, such bank or trust company shall have all
the powers and duties of a warrant agent (as hereinafter described) and shall
accept, in its own name for the account of the Company or such successor person
as may be entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.
2. PROCEDURE FOR EXERCISE.
2.1 DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. The
Company agrees that the shares of Common Stock purchased upon exercise of this
Warrant shall be deemed to be issued to the Holder as the record owner of such
shares as of the close of business on the date on which this Warrant shall have
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been surrendered and payment made for such shares in accordance herewith. As
soon as practicable after the exercise of this Warrant in full or in part, and
in any event within three (3) business days thereafter, the Company at its
expense (including the payment by it of any applicable issue taxes) will cause
to be issued in the name of and delivered to the Holder, or as such Holder (upon
payment by such Holder of any applicable transfer taxes) may direct in
compliance with applicable securities laws, a certificate or certificates for
the number of duly and validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such Holder shall be entitled on
such exercise, together with any other stock or other securities and property
(including cash, where applicable) to which such Holder is entitled upon such
exercise pursuant to Section 1 or otherwise.
2.2 EXERCISE. Payment shall be made either in cash or by
certified or official bank check payable to the order of the Company equal to
the applicable aggregate Exercise Price for the number of Common Shares
specified in such Exercise Notice (as such exercise number shall be adjusted to
reflect any adjustment in the total number of shares of Common Stock issuable to
the Holder in accordance with the terms of this Warrant) and the Holder shall
thereupon be entitled to receive the number of duly authorized, validly issued,
fully-paid and non-assessable shares of Common Stock (or Other Securities)
determined as provided herein.
3. EFFECT OF REORGANIZATION, ETC.; ADJUSTMENT OF EXERCISE PRICE.
3.1 REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case at any
time or from time to time the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the Holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such Holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
Holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
3.2 DISSOLUTION. In the event of any dissolution of the
Company following the transfer of all or substantially all of its properties or
assets, the Company, concurrently with any distributions made to holders of its
Common Stock, shall at its expense deliver or cause to be delivered to the
Holder the stock and other securities and property (including cash, where
applicable) receivable by the Holder of this Warrant pursuant to Section 3.1,
or, if the Holder shall so instruct the Company, to a bank or trust company
specified by the Holder and having its principal office in New York, NY as
trustee for the Holder (the "Trustee").
3.3 CONTINUATION OF TERMS. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 3, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the shares of stock and other
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securities and property receivable on the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such stock or other securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does not continue in full force and effect after the
consummation of the transactions described in this Section 3, then the Company's
securities and property (including cash, where applicable) receivable by the
Holder of this Warrant will be delivered to the Holder or the Trustee as
contemplated by Section 3.2.
4. EXTRAORDINARY EVENTS REGARDING COMMON STOCK. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock or any preferred stock issued by
the Company, (b) subdivide its outstanding shares of Common Stock, or (c)
combine its outstanding shares of the Common Stock into a smaller number of
shares of the Common Stock, then, in each such event, the Exercise Price shall,
simultaneously with the happening of such event, be adjusted by multiplying the
then Exercise Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such event and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such event, and the product so obtained shall thereafter be
the Exercise Price then in effect. The Exercise Price, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive event or
events described herein in this Section 4. The number of shares of Common Stock
that the Holder of this Warrant shall thereafter, on the exercise hereof as
provided in Section 1, be entitled to receive shall be adjusted to a number
determined by multiplying the number of shares of Common Stock that would
otherwise (but for the provisions of this Section 4) be issuable on such
exercise by a fraction of which (a) the numerator is the Exercise Price that
would otherwise (but for the provisions of this Section 4) be in effect, and (b)
the denominator is the Exercise Price in effect on the date of such exercise
(taking into account the provisions of this Section 4).
5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of this Warrant, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder of this Warrant and any
Warrant agent of the Company (appointed pursuant to Section 11 hereof).
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6. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANT. The
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of this Warrant, shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of this Warrant.
7. DESIGNATED ACTIONS. Gotland Oil, Inc. ("Gotland"), a wholly owned
subsidiary of the Company, by its signature below, agrees that it shall not (and
the Company agrees that it shall not cause Gotland to) implement or effect (or
otherwise resolve or agree to implement or effect) any of the following actions
without the prior written approval of the Holder:
(a) (i) declare or pay any dividends or make any other
distribution in respect of any of its securities or (ii) make any
distribution of any nature (including repayment of loans) to any
person, except, (1) the repayment of loans to the Holder and (2) the
payment of dividends in accordance with the terms of the Agreement
dated as of the date hereof among the Company, Carneros Acquisition
Corp. and the Holder (as the same may be amended, modified and
supplemented from time to time);
(b) sell or dispose of any assets or property, other than in
the ordinary course of business consistent with past practice;
(c) establish, acquire or otherwise become an equity holder
(including, for greater certainty, a holder of securities convertible
into equity) in any corporate entity or any partnership, equity joint
venture or similar arrangements;
(d) enter into any transactions outside the ordinary course
with officers, directors or employees or members of their families or
other persons with whom they do not act at arm's length;
(e) enter into (other than in the ordinary course to fund
working capital needs) or materially modify any credit facility;
(f) create any mortgage, lien, charge or other form of
encumbrance with respect to any of its assets (other than in favor of
the Holder);
(g) materially alter the fundamental nature of its business or
otherwise engage in other businesses or activities that are not
incidental to the businesses or activities presently undertaken by it;
(h) enter into any agreement with any third party;
(i) issue or sell any capital stock of, or any rights,
warrants or securities convertible into or exercisable or exchangeable
for any capital stock of, Gotland, including by way of initial public
offering;
(j) wind up, dissolve or liquidate;
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(k) continue under the laws of a jurisdiction other than the
jurisdiction under which it was formed;
(l) change its fiscal year;
(m) amend its articles or by-laws;
(n) merge with or into any other company (other than a merger
with and into the Company, with the Company as the same surviving
entity);
(o) take any action which would make it impossible to carry on
its ordinary business;
(p) take any action which would place it into bankruptcy; or
(q) appoint or replace any outside accountants and/or
auditors.
8. ASSIGNMENT; EXCHANGE OF WARRANT. Subject to compliance with
applicable securities laws, this Warrant, and the rights evidenced hereby, may
be transferred by any registered holder hereof (a "Transferor") in whole or in
part. On the surrender for exchange of this Warrant, with the Transferor's
endorsement in the form of Exhibit B attached hereto (the "Transferor
Endorsement Form") and together with evidence reasonably satisfactory to the
Company demonstrating compliance with applicable securities laws, which shall
include, without limitation, the provision of a legal opinion from the
Transferor's counsel (at the Company's expense) that such transfer is exempt
from the registration or equivalent requirements of applicable securities laws,
the Company at its expense (but with payment by the Transferor of any applicable
transfer taxes) will issue and deliver to or on the order of the Transferor
thereof a new Warrant of like tenor, in the name of the Transferor and/or the
transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
so surrendered by the Transferor.
9. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
10. WARRANT AGENT. The Company may, by written notice to the each
Holder of the Warrant, appoint an agent for the purpose of issuing Common Stock
(or Other Securities) on the exercise of this Warrant pursuant to Section 1,
exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
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11. TRANSFER ON THE COMPANY'S BOOKS. Until this Warrant is transferred
on the books of the Company, the Company may treat the registered holder hereof
as the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
12. NOTICES, ETC. All notices and other communications from the Company
to the Holder shall be mailed by first class registered or certified mail,
postage prepaid, at such address as may have been furnished to the Company in
writing by such Holder or, until any such Holder furnishes to the Company an
address, then to, and at the address of, the last Holder who has so furnished an
address to the Company.
13. MISCELLANEOUS. 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. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS. ANY ACTION BROUGHT CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS
WARRANT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL
COURTS LOCATED IN THE STATE OF NEW YORK; PROVIDED, HOWEVER, THAT THE HOLDER MAY
CHOOSE TO WAIVE THIS PROVISION AND BRING AN ACTION OUTSIDE THE STATE OF NEW
YORK. The individuals executing this Warrant on behalf of the Company agree to
submit to the jurisdiction of such courts and waive trial by jury. The
prevailing party shall be entitled to recover from the other party its
reasonable attorneys' fees and costs. In the event that any provision of this
Warrant is invalid or unenforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
of this Warrant. The headings in this Warrant are for purposes of reference
only, and shall not limit or otherwise affect any of the terms hereof. The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision hereof. The Company
acknowledges that legal counsel participated in the preparation of this Warrant
and, therefore, stipulates that the rule of construction that ambiguities are to
be resolved against the drafting party shall not be applied in the
interpretation of this Warrant to favor any party against the other party.
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SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has executed this Warrant as of the
date first written above.
CARNEROS ENERGY, INC.
WITNESS:
By:________________________
Name:______________________
Title:_____________________
__________________________
ACCEPTED AND AGREED TO:
GOTLAND OIL, INC.
By:_______________________
Name:_____________________
Title:____________________
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