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Exhibit 4.1
NEITHER THE ISSUANCE AND SALE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO
WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF
COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM
REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING
THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT
SECURED BY THE SECURITIES.
ROYALE ENERGY,
INC.
W ARRANT T
O P URCHASE C OMMON S
TOCK
Warrant No.: 0001
Number of Shares of Common Stock:
191,781
Date of Issuance: June 10, 2008
(“ Issuance Date ”)
Royale Energy, Inc., a
California corporation (the “ Company ”), hereby
certifies that, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, CRANSHIRE
CAPITAL, L.P., the registered holder hereof or its permitted
assigns (the “ Holder ”), is entitled, subject
to the terms set forth below, to purchase from the Company, at the
Exercise Price (as defined below) then in effect, upon exercise of
this Warrant to Purchase Common Stock (including any Warrants to
Purchase Common Stock issued in exchange, transfer or replacement
hereof, the “ Warrant ”), at any time or times
on or after the Issuance Date, but not after 11:59 p.m., New York
time, on the Expiration Date (as defined below), One Hundred Ninety
One Thousand Seven Hundred Eighty One (191,781) fully paid and
nonassessable shares of Common Stock (as defined below) (the
“ Warrant Shares ”). Except as otherwise defined
herein, capitalized terms in this Warrant shall have the meanings
set forth in Section 16. This Warrant is one of the Warrants
to purchase Common Stock (the “ SPA Warrants ”)
issued pursuant to Section 1 of that certain Securities
Purchase Agreement, dated as of June 7, 2008, by and among the
Company and the investors (the “ Buyers ”)
referred to therein (the “ Securities Purchase
Agreement ”).
1. EXERCISE OF WARRANT
.
(a) Mechanics of
Exercise . Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in
Section 1(f), this Warrant may be exercised by the
Holder on any day on or after
the Issuance Date, in whole or in part, by (i) delivery of a
written notice, in the form attached hereto as Exhibit A
(the “ Exercise Notice ”), of the Holder’s
election to exercise this Warrant and (ii) (A) payment to the
Company of an amount equal to the then-applicable Exercise Price
multiplied by the number of Warrant Shares as to which this Warrant
is being exercised (the “ Aggregate Exercise Price
”) in cash or wire transfer of immediately available funds or
(B) by notifying the Company that this Warrant is being
exercised pursuant to a Cashless Exercise (as defined in
Section 1(d)). The Holder shall not be required to deliver the
original of this Warrant in order to effect an exercise hereunder.
Execution and delivery of the Exercise Notice with respect to less
than all of the Warrant Shares shall have the same effect as
cancellation of the original of this Warrant and issuance of a new
Warrant evidencing the right to purchase the remaining number of
Warrant Shares. Execution and delivery of the Exercise Notice for
all of the Warrant Shares shall have the same effect as
cancellation of the original of this Warrant after delivery of the
Warrant Shares in accordance with the terms hereof. On or before
the first (1 st ) Trading Day following the date on which the Company has
received each of the Exercise Notice and the Aggregate Exercise
Price (or notice of a Cashless Exercise) (the “ Exercise
Delivery Documents ”), the Company shall transmit by
facsimile an acknowledgment of confirmation of receipt of the
Exercise Delivery Documents to the Holder and the Company’s
transfer agent (the “ Transfer Agent ”). On or
before the third (3 rd ) Trading Day following the date on which the Company has
received all of the Exercise Delivery Documents (the “
Share Delivery Date ”), the Company shall
(X) provided that the Transfer Agent is participating in The
Depository Trust Company (“ DTC ”) Fast
Automated Securities Transfer Program, upon the request of the
Holder, credit such aggregate number of shares of Common Stock to
which the Holder is entitled pursuant to such exercise to the
Holder’s or its designee’s balance account with DTC
through its Deposit Withdrawal Agent Commission system, or
(Y) if the Transfer Agent is not participating in the DTC Fast
Automated Securities Transfer Program, issue and deliver to the
Holder or, at Holder’s instruction pursuant to the Exercise
Notice, Holder’s agent or designee, in each case, sent by
reputable overnight courier to the address as specified in the
Exercise Notice, a certificate, registered in the Company’s
share register in the name of the Holder or its designee (as
indicated in the Exercise Notice), for the number of shares of
Common Stock to which the Holder is entitled pursuant to such
exercise. Upon delivery of the Exercise Delivery Documents, the
Holder shall be deemed for all corporate purposes to have become
the holder of record of the Warrant Shares with respect to which
this Warrant has been exercised, irrespective of the date such
Warrant Shares are credited to the Holder’s DTC account or
the date of delivery of the certificates evidencing such Warrant
Shares (as the case may be). If this Warrant is submitted in
connection with any exercise pursuant to this Section 1(a) and
the number of Warrant Shares represented by this Warrant submitted
for exercise is greater than the number of Warrant Shares being
acquired upon an exercise, then the Company shall as soon as
practicable and in no event later than three (3) Business Days
after any exercise and at its own expense, issue and deliver to the
Holder (or its designee) a new Warrant (in accordance with
Section 7(d)) representing the right to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under
this Warrant, less the number of Warrant Shares with respect to
which this Warrant is exercised. No fractional shares of Common
Stock are to be issued upon the exercise of this Warrant, but
rather the number of shares of Common Stock to be issued shall be
rounded up to the nearest whole number. The Company shall pay any
and all taxes which may be payable with respect to the issuance and
delivery of Warrant Shares upon exercise of this
Warrant.
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(b) |
Exercise Price . For purposes of this Warrant, “
Exercise Price ” means $7.30, subject to adjustment as
provided herein. |
(c) Company’s
Failure to Timely Deliver Securities . If the Company shall
fail, for any reason or for no reason, to issue to the Holder
within three (3) Trading Days of receipt of the Exercise
Delivery Documents, a certificate for the number of shares of
Common Stock to which the Holder is entitled and register such
shares of Common Stock on the Company’s share register or to
credit the Holder’s balance account with DTC for such number
of shares of Common Stock to which the Holder is entitled upon the
Holder’s exercise of this Warrant (as the case may be), then,
in addition to all other remedies available to the Holder, the
Company shall pay in cash to the Holder on each day after such
third (3 rd ) Trading Day that the issuance of such shares of Common
Stock is not timely effected an amount equal to 1% of the product
of (A) the sum of the number of shares of Common Stock not
issued to the Holder on a timely basis and to which the Holder is
entitled and (B) the Closing Sale Price of the Common Stock on
the Trading Day immediately preceding the last possible date which
the Company could have issued such shares of Common Stock to the
Holder without violating Section 1(a). In addition to the
foregoing, if within three (3) Trading Days after the
Company’s receipt of the facsimile copy of an Exercise
Notice, the Company shall fail to issue and deliver a certificate
to the Holder and register such shares of Common Stock on the
Company’s share register or credit the Holder’s balance
account with DTC for the number of shares of Common Stock to which
the Holder is entitled upon such Holder’s exercise hereunder
(as the case may be), and if on or after such third (3
rd
) Trading Day the Holder
purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of
shares of Common Stock issuable upon such exercise that the Holder
anticipated receiving from the Company (a “ Buy-In
”), then the Company shall, within three (3) Business
Days after the Holder’s request and in the Holder’s
discretion, either (i) pay cash to the Holder in an amount
equal to the Holder’s total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so
purchased (the “ Buy-In Price ”), at which point
the Company’s obligation to deliver such certificate (and to
issue such shares of Common Stock) shall terminate, or
(ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such shares of Common
Stock or credit the Holder’s balance account with DTC for the
number of shares of Common Stock to which the Holder is entitled
upon such Holder’s exercise hereunder (as the case may be)
and pay cash to the Holder in an amount equal to the excess (if
any) of the Buy-In Price over the product of (A) such number
of shares of Common Stock times (B) the Closing Sale Price of
the Common Stock on the Trading Day immediately preceding the date
of the Exercise Notice.
(d) Cashless Exercise
. Notwithstanding anything contained herein to the contrary (other
than Section 1(f) below), if at any time after the six
(6) month anniversary of the Closing Date all of the Warrant
Shares are not registered for resale on an effective Registration
Statement (or the prospectus contained therein is not available for
use), then the Holder may, in its sole discretion, exercise this
Warrant in whole or in part and, in lieu of making the cash payment
otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to
receive upon such exercise the “Net Number” of shares
of Common Stock determined according to the following formula (a
“ Cashless Exercise ”):
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| Net Number = (A x B) - (A x
C) |
| B |
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For purposes of the foregoing
formula:
A= the total number of shares
with respect to which this Warrant is then being
exercised.
B= the Closing Sale Price of
the Common Stock on the Trading Day immediately preceding the date
of the Exercise Notice.
C= the Exercise Price then in
effect for the applicable Warrant Shares at the time of such
exercise.
(e) Disputes . In the
case of a dispute as to the determination of the Exercise Price or
the arithmetic calculation of the number of Warrant Shares to be
issued pursuant to the terms hereof, the Company shall promptly
issue to the Holder the number of Warrant Shares that are not
disputed and resolve such dispute in accordance with
Section 13.
(f) Limitations on
Exercises .
(i) Beneficial
Ownership . Notwithstanding anything to the contrary contained
in this Warrant, this Warrant shall not be exercisable by the
Holder hereof to the extent (but only to the extent) that, if
exercisable by the Holder, the Holder or any of its affiliates
would beneficially own in excess of 9.99% (the “
Maximum Percentage ”) of the outstanding shares
of Common Stock. To the extent the above limitation
applies, the determination of whether this Warrant shall be
exercisable (vis-à-vis other convertible, exercisable or
exchangeable securities owned by the Holder) and of which warrants
shall be exercisable (as among all warrants owned by the Holder)
shall, subject to such Maximum Percentage limitation, be determined
on the basis of the first submission to the Company for conversion,
exercise or exchange (as the case may be). No prior inability to
exercise this Warrant pursuant to this paragraph shall have any
effect on the applicability of the provisions of this
paragraph with respect to any subsequent determination of
exercisability. For the purposes of this paragraph, beneficial
ownership and all determinations and calculations (including,
without limitation, with respect to calculations of percentage
ownership) shall be determined by the Holder in accordance with
Section 13(d) of the 1934 Act (as defined in the Securities
Purchase Agreement) and the rules and regulations promulgated
thereunder. The provisions of this paragraph shall be implemented
in a manner otherwise than in strict conformity with the terms of
this paragraph to correct this paragraph (or any portion hereof)
which may be defective or inconsistent with the intended Maximum
Percentage beneficial ownership limitation herein contained or to
make changes or supplements necessary or desirable to properly give
effect to such Maximum Percentage limitation. The limitations
contained in this paragraph shall apply to a successor Holder of
this Warrant. The holders of Common Stock shall be third party
beneficiaries of this paragraph and the Company may not waive this
paragraph without the consent of holders of a majority of its
Common Stock. For any reason at any time, upon the written or oral
request of the Holder, the Company shall within one
(1) Business Day confirm orally and in writing to the Holder
the number of
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shares of Common Stock then
outstanding, including by virtue of any prior conversion or
exercise of convertible or exercisable securities into Common
Stock, including, without limitation, pursuant to this Warrant or
securities issued pursuant to the Securities Purchase
Agreement.
(ii) Principal Market
Regulation . The Company shall not issue any shares of Common
Stock upon exercise of this Warrant if the issuance of such shares
of Common Stock would exceed the aggregate number of shares of
Common Stock which the Company may issue upon exercise of the SPA
Warrants without breaching the Company’s obligations under
the rules or regulations of the Principal Market (the number of
shares which may be issued without violating such rules and
regulations, the “ Exchange Cap ”), except that
such limitation shall not apply in the event that the Company
(A) obtains the approval of its shareholders as required by
the applicable rules of the Principal Market for issuances of
shares of Common Stock in excess of such amount or (B) obtains
a written opinion from outside counsel to the Company that such
approval is not required, which opinion shall be reasonably
satisfactory to the Holder. Until such shareholder approval or such
written opinion is obtained, no Buyer shall be issued in the
aggregate, upon exercise of any SPA Warrants, shares of Common
Stock in an amount greater than the product of the Exchange Cap
multiplied by a fraction, the numerator of which is the number of
Common Shares issued to such Buyer pursuant to the Securities
Purchase Agreement on the Closing Date and the denominator of which
is the aggregate number of Common Shares issued to the Buyers
pursuant to the Securities Purchase Agreement on the Closing Date
(with respect to each Buyer, the “ Exchange Cap
Allocation ”). In the event that any Buyer shall sell or
otherwise transfer any of such Buyer’s SPA Warrants, the
transferee shall be allocated a pro rata portion of such
Buyer’s Exchange Cap Allocation, and the restrictions of the
prior sentence shall apply to such transferee with respect to the
portion of the Exchange Cap Allocation allocated to such
transferee. In the event that any holder of SPA Warrants shall
exercise all of such holder’s SPA Warrants into a number of
shares of Common Stock which, in the aggregate, is less than such
holder’s Exchange Cap Allocation, then the difference between
such holder’s Exchange Cap Allocation and the number of
shares of Common Stock actually issued to such holder shall be
allocated to the respective Exchange Cap Allocations of the
remaining holders of SPA Warrants on a pro rata basis in proportion
to the shares of Common Stock underlying the SPA Warrants then held
by each such holder.
(g) Insufficient
Authorized Shares . The Company shall at all times keep
reserved for issuance under this Warrant a number of shares of
Common Stock as shall be necessary to satisfy the Company’s
obligation to issue shares of Common Stock hereunder (without
regard to any limitation otherwise contained herein with respect to
the number of shares of Common Stock that may be acquirable upon
exercise of this Warrant). If, notwithstanding the foregoing, and
not in limitation thereof, at any time while any of the SPA
Warrants remain outstanding the Company does not have a sufficient
number of authorized and unreserved shares of Common Stock to
satisfy its obligation to reserve for issuance upon exercise of the
SPA Warrants at least a number of shares of Common Stock equal to
the number of shares of Common Stock as shall from time to time be
necessary to effect the exercise of all of the SPA Warrants then
outstanding (the “ Required Reserve Amount ”)
(an “ Authorized Share Failure ”), then the
Company shall immediately take all action necessary to increase the
Company’s authorized shares of Common
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Stock to an amount sufficient to allow
the Company to reserve the Required Reserve Amount for all the SPA
Warrants then outstanding. Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the
occurrence of an Authorized Share Failure, but in no event later
than sixty (60) days after the occurrence of such Authorized
Share Failure, the Company shall hold a meeting of its stockholders
for the approval of an increase in the number of authorized shares
of Common Stock. In connection with such meeting, the Company shall
provide each stockholder with a proxy statement and shall use its
best efforts to solicit its stockholders’ approval of such
increase in authorized shares of Common Stock and to cause its
board of directors to recommend to the stockholders that they
approve such proposal.
2. ADJUSTMENT OF EXERCISE PRICE AND
NUMBER OF WARRANT SHARES . The Exercise Price and number of
Warrant Shares issuable upon exercise of this Warrant are subject
to adjustment from time to time as set forth in this
Section 2.
(a) Stock Dividends and
Splits . If the Company, at any time on or after the date of
the Securities Purchase Agreement, (i) pays a stock dividend
on one or more classes of its then outstanding shares of Common
Stock or otherwise makes a distribution on any class of capital
stock that is payable in shares of Common Stock,
(ii) subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its then
outstanding shares of Common Stock into a larger number of shares
or (iii) combines (by combination, reverse stock split or
otherwise) one or more classes of its then outstanding shares of
Common Stock into a smaller number of shares, then in each such
case the Exercise Price shall be multiplied by a fraction of which
the numerator shall be the number of shares of Common Stock
outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock
outstanding immediately after such event. Any adjustment made
pursuant to clause (i) of this paragraph shall become
effective immediately after the record date for the determination
of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clause (ii) or (iii) of
this paragraph shall become effective immediately after the
effective date of such subdivision or combination. If any event
requiring an adjustment under this paragraph occurs during the
period that an Exercise Price is calculated hereunder, then the
calculation of such Exercise Price shall be adjusted appropriately
to reflect such event.
(b) Adjustment Upon
Issuance of Shares of Common Stock . If and whenever on or
after the date of the Securities Purchase Agreement, the Company
issues or sells, or in accordance with this Section 2 is
deemed to have issued or sold, any shares of Common Stock
(including the issuance or sale of shares of Common Stock owned or
held by or for the account of the Company, but excluding any
Excluded Securities (as defined in the Securities Purchase
Agreement) issued or sold or deemed to have been issued or sold)
for a consideration per share (the “ New Issuance
Price ”) less than a price equal to the Exercise Price in
effect immediately prior to such issue or sale or deemed issuance
or sale (such lesser price being referred to as the “
Applicable Price ”) (the foregoing a “
Dilutive Issuance ”), then immediately after such
Dilutive Issuance, the Exercise Price then in effect shall be
reduced to an amount equal to the New Issuance Price. For purposes
of determining the adjusted Exercise Price under this
Section 2(b), the following shall be applicable:
(i) Issuance of
Options . If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of
Common Stock is issuable
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upon the exercise of any such
Option or upon conversion, exercise or exchange of any Convertible
Securities issuable upon exercise of any such Option is less than
the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the
Company at the time of the granting or sale of such Option for such
price per share. For purposes of this Section 2(b)(i), the
“lowest price per share for which one share of Common Stock
is issuable upon the exercise of any such Options or upon
conversion, exercise or exchange of any Convertible Securities
issuable upon exercise of any such Option” shall be equal to
the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common
Stock upon the granting or sale of the Option, upon exercise of the
Option and upon conversion, exercise or exchange of any Convertible
Security issuable upon exercise of such Option. Except as
contemplated below, no further adjustment of the Exercise Price
shall be made upon the actual issuance of such shares of Common
Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such shares of Common Stock
upon conversion, exercise or exchange of such Convertible
Securities.
(ii) Issuance of
Convertible Securities . If the Company in any manner issues or
sells any Convertible Securities and the lowest price per share for
which one share of Common Stock is issuable upon the conversion,
exercise or exchange thereof is less than the Applicable Price,
then such share of Common Stock shall be deemed to be outstanding
and to have been issued and sold by the Company at the time of the
issuance or sale of such Convertible Securities for such price per
share. For the purposes of this Section 2(b)(ii), the
“lowest price per share for which one share of Common Stock
is issuable upon the conversion, exercise or exchange
thereof” shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with
respect to one share of Common Stock upon the issuance or sale of
the Convertible Security and upon conversion, exercise or exchange
of such Convertible Security. Except as contemplated below, no
further adjustment of the Exercise Price shall be made upon the
actual issuance of such shares of Common Stock upon conversion,
exercise or exchange of such Convertible Securities, and if any
such issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustment of this Warrant has
been or is to be made pursuant to other provisions of this
Section 2(b), except as contemplated below, no further
adjustment of the Exercise Price shall be made by reason of such
issue or sale.
(iii) Change in Option
Price or Rate of Conversion . If the purchase or exercise price
provided for in any Options, the additional consideration, if any,
payable upon the issue, conversion, exercise or exchange of any
Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exercisable or exchangeable for
shares of Common Stock increases or decreases at any time, the
Exercise Price in effect at the time of such increase or decrease
shall be adjusted to the Exercise Price which would have been in
effect at such time had such Options or Convertible Securities
provided for such increased or decreased purchase price, additional
consideration or increased or decreased conversion rate, as the
case may be, at the time initially granted, issued or sold. For
purposes of this Section 2(b)(iii), if the terms of any Option
or Convertible Security that was outstanding as of the date of
issuance of this Warrant are increased or decreased in
the
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manner described in the
immediately preceding sentence, then such Option or Convertible
Security and the shares of Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 2(b) shall be made if such
adjustment would result in an incre
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