Exhibit 4.1


 


WARRANT
TO PURCHASE COMMON STOCK


 


THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT
WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT OR SUCH LAWS.  THIS
INSTRUMENT IS ISSUED SUBJECT TO THE RESTRICTIONS ON TRANSFER AND OTHER
PROVISIONS OF A SECURITIES PURCHASE AGREEMENT BETWEEN THE ISSUER OF THESE
SECURITIES AND THE INVESTOR REFERRED TO THEREIN, A COPY OF WHICH IS ON FILE
WITH THE ISSUER. THE SECURITIES REPRESENTED BY THIS INSTRUMENT MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH SAID AGREEMENT.  ANY SALE OR OTHER TRANSFER NOT IN COMPLIANCE
WITH SAID AGREEMENT WILL BE VOID.


 


WARRANT


to
purchase


571,821


Shares
of Common Stock


of
Tidelands Bancshares, Inc.


 


Issue Date: December 19,
2008


 


1.                                       Definitions.
Unless the context otherwise requires, when used herein the following terms
shall have the meanings indicated.


 


“Affiliate”
has the meaning ascribed to it in the Purchase Agreement.


 


“Appraisal Procedure”
means a procedure whereby two independent appraisers, one chosen by the Company
and one by the Original Warrantholder, shall mutually agree upon the
determinations then the subject of appraisal. 
Each party shall deliver a notice to the other appointing its appraiser
within 15 days after the Appraisal Procedure is invoked.  If within 30 days after appointment of the
two appraisers they are unable to agree upon the amount in question, a third
independent appraiser shall be chosen within 10 days thereafter by the mutual
consent of such first two appraisers. 
The decision of the third appraiser so appointed and chosen shall be
given within 30 days after the selection of such third appraiser.  If three appraisers shall be appointed and
the determination of one appraiser is disparate from the middle determination
by more than twice the amount by which the other determination is


 

















 


disparate from the middle determination, then the determination of such
appraiser shall be excluded, the remaining two determinations shall be averaged
and such average shall be binding and conclusive upon the Company and the
Original Warrantholder; otherwise, the average of all three determinations
shall be binding upon the Company and the Original Warrantholder.  The costs of conducting any Appraisal
Procedure shall be borne by the Company.


 


“Board of
Directors” means the board of directors of the Company, including
any duly authorized committee thereof.


 


“Business Combination” means a merger,
consolidation, statutory share exchange or similar transaction that requires
the approval of the Company’s stockholders.


 


“business
day” means any day except Saturday, Sunday and any day on which
banking institutions in the State of New York generally are authorized or
required by law or other governmental actions to close.


 


“Capital Stock”
means (A) with respect to any Person that is a corporation or company, any
and all shares, interests, participations or other equivalents (however
designated) of capital or capital stock of such Person and (B) with
respect to any Person that is not a corporation or company, any and all
partnership or other equity interests of such Person.


 


“Charter”
means, with respect to any Person, its certificate or articles of
incorporation, articles of association, or similar organizational document.


 


“Common
Stock” has the meaning ascribed to it in the Purchase Agreement.


 


“Company”
means the Person whose name, corporate or other organizational form and
jurisdiction of organization is set forth in Item 1 of Schedule A hereto.


 


“conversion”
has the meaning set forth in Section 13(B).


 


“convertible
securities” has the meaning set forth in Section 13(B).


 


“CPP”
has the meaning ascribed to it in the Purchase Agreement.


 


“Exchange Act” means the Securities
Exchange Act of 1934, as amended, or any successor statute, and the rules and
regulations promulgated thereunder.


 


“Exercise
Price” means the amount set forth in Item 2 of Schedule A hereto.


 


“Expiration
Time” has the meaning set forth in Section 3.


 


“Fair
Market Value” means, with respect to any security or other property,
the fair market value of such security or other property as determined by the
Board of Directors, acting in good faith or, with respect to Section 14,
as determined by the Original Warrantholder acting in good faith. For so long
as the Original Warrantholder holds this Warrant or any portion thereof, it may
object in writing to the Board of Director’s calculation of fair market value
within 10 days of receipt of written notice thereof.  If the Original Warrantholder and the Company
are 


 


2

















 


unable to agree on fair market value during the 10-day period following
the delivery of the Original Warrantholder’s objection, the Appraisal Procedure
may be invoked by either party to determine Fair Market Value by delivering
written notification thereof not later than the 30th day after delivery of the
Original Warrantholder’s objection.


 


“Governmental
Entities” has the meaning ascribed to it in the Purchase Agreement.


 


“Initial
Number” has the meaning set forth in Section 13(B).


 


“Issue Date”
means the date set forth in Item 3 of Schedule A hereto.


 


“Market
Price” means, with respect to a particular security, on any given
day, the last reported sale price regular way or, in case no such reported sale
takes place on such day, the average of the last closing bid and ask prices
regular way, in either case on the principal national securities exchange on
which the applicable securities are listed or admitted to trading, or if not
listed or admitted to trading on any national securities exchange, the average
of the closing bid and ask prices as furnished by two members of the Financial
Industry Regulatory Authority, Inc. selected from time to time by the
Company for that purpose.  “Market Price”
shall be determined without reference to after hours or extended hours trading.
If such security is not listed and traded in a manner that the quotations
referred to above are available for the period required hereunder, the Market
Price per share of Common Stock shall be deemed to be (i) in the event
that any portion of the Warrant is held by the Original Warrantholder, the fair
market value per share of such security as determined in good faith by the
Original Warrantholder or (ii) in all other circumstances, the fair market
value per share of such security as determined in good faith by the Board of
Directors in reliance on an opinion of a nationally recognized independent
investment banking corporation retained by the Company for this purpose and
certified in a resolution to the Warrantholder. 
For the purposes of determining the Market Price of the Common Stock on
the “trading day” preceding, on or following the occurrence of an event, (i) that
trading day shall be deemed to commence immediately after the regular scheduled
closing time of trading on the New York Stock Exchange or, if trading is closed
at an earlier time, such earlier time and (ii) that trading day shall end
at the next regular scheduled closing time, or if trading is closed at an
earlier time, such earlier time (for the avoidance of doubt, and as an example,
if the Market Price is to be determined as of the last trading day preceding a
specified event and the closing time of trading on a particular day is 4:00 p.m.
and the specified event occurs at 5:00 p.m. on that day, the Market Price
would be determined by reference to such 4:00 p.m. closing price).


 


“Ordinary
Cash Dividends” means a regular quarterly cash dividend on shares of
Common Stock out of surplus or net profits legally available therefor
(determined in accordance with generally accepted accounting principles in
effect from time to time), provided
that Ordinary Cash Dividends shall not include any cash dividends paid
subsequent to the Issue Date to the extent the aggregate per share dividends
paid on the outstanding Common Stock in any quarter exceed the amount set forth
in Item 4 of Schedule A hereto, as adjusted for any stock split, stock
dividend, reverse stock split, reclassification or similar transaction.


 


“Original
Warrantholder” means the United States Department of the
Treasury.  Any actions specified to be
taken by the Original Warrantholder hereunder may only be taken by such 


 


3

















 


Person and not by any other Warrantholder.


 


“Permitted
Transactions” has the meaning set forth in Section 13(B).


 


“Person” has the
meaning given to it in Section 3(a)(9) of the Exchange Act and as
used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act.


 


“Per Share Fair Market
Value” has the meaning set forth in Section 13(C).


 


“Preferred Shares” means the perpetual
preferred stock issued to the Original Warrantholder on the Issue Date pursuant
to the Purchase Agreement.


 


“Pro Rata Repurchases” means any purchase of
shares of Common Stock by the Company or any Affiliate thereof pursuant to (A) any
tender offer or exchange offer subject to Section 13(e) or 14(e) of
the Exchange Act or Regulation 14E promulgated thereunder or (B) any other
offer available to substantially all holders of Common Stock, in the case of
both (A) or (B), whether for cash, shares of Capital Stock of the Company,
other securities of the Company, evidences of indebtedness of the Company or
any other Person or any other property (including, without limitation, shares
of Capital Stock, other securities or evidences of indebtedness of a
subsidiary), or any combination thereof, effected while this Warrant is
outstanding.  The “Effective Date” of a Pro Rata Repurchase
shall mean the date of acceptance of shares for purchase or exchange by the
Company under any tender or exchange offer which is a Pro Rata Repurchase or
the date of purchase with respect to any Pro Rata Repurchase that is not a
tender or exchange offer.


 


“Purchase
Agreement” means the Securities Purchase Agreement – Standard Terms
incorporated into the Letter Agreement, dated as of the date set forth in Item
5 of Schedule A hereto, as amended from time to time, between the Company and
the United States Department of the Treasury (the “Letter Agreement”), including all annexes and schedules thereto.


 


“Qualified
Equity Offering” has the meaning ascribed to it in the Purchase
Agreement.


 


“Regulatory Approvals” with respect to the
Warrantholder, means, to the extent applicable and required to permit the
Warrantholder to exercise this Warrant for shares of Common Stock and to own
such Common Stock without the Warrantholder being in violation of applicable
law, rule or regulation, the receipt of any necessary approvals and
authorizations of, filings and registrations with, notifications to, or expiration
or termination of any applicable waiting period under, the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and
regulations thereunder.


 


“SEC”
means the U.S. Securities and Exchange Commission.


 


“Securities
Act” means the Securities Act of 1933, as amended, or any successor
statute, and the rules and regulations promulgated thereunder.


 


“Shares”
has the meaning set forth in Section 2.


 


“trading day”
means (A) if the shares of Common Stock are not traded on any national 


 


4

















 


or regional securities exchange or association or over-the-counter
market, a business day or (B) if the shares of Common Stock are traded on
any national or regional securities exchange or association or over-the-counter
market, a business day on which such relevant exchange or quotation system is
scheduled to be open for business and on which the shares of Common Stock (i) are
not suspended from trading on any national or regional securities exchange or
association or over-the-counter market for any period or periods aggregating
one half hour or longer; and (ii) have traded at least once on the
national or regional securities exchange or association or over-the-counter
market that is the primary market for the trading of the shares of Common
Stock.


 


“U.S. GAAP”
means United States generally accepted accounting principles.


 


“Warrantholder”
has the meaning set forth in Section 2.


 


“Warrant”
means this Warrant, issued pursuant to the Purchase Agreement.


 


2.                                       Number of
Shares; Exercise Price. This certifies that, for value received, the United
States Department of the Treasury or its permitted assigns (the “Warrantholder”) is entitled, upon the
terms and subject to the conditions hereinafter set forth, to acquire from the
Company, in whole or in part, after the receipt of all applicable Regulatory
Approvals, if any, up to an aggregate of the number of fully paid and
nonassessable shares of Common Stock set forth in Item 6 of Schedule A hereto,
at a purchase price per share of Common Stock equal to the Exercise Price.  The number of shares of Common Stock (the “Shares”) and the Exercise Price are
subject to adjustment as provided herein, and all references to “Common Stock,”
“Shares” and “Exercise Price” herein shall be deemed to include any such
adjustment or series of adjustments.


 


3.                                       Exercise of
Warrant; Term. Subject to Section 2, to the extent permitted by
applicable laws and regulations, the right to purchase the Shares represented
by this Warrant is exercisable, in whole or in part by the Warrantholder, at
any time or from time to time after the execution and delivery of this Warrant
by the Company on the date hereof, but in no event later than 5:00 p.m.,
New York City time on the tenth anniversary of the Issue Date (the “Expiration Time”), by (A) the
surrender of this Warrant and Notice of Exercise annexed hereto, duly completed
and executed on behalf of the Warrantholder, at the principal executive office
of the Company located at the address set forth in Item 7 of Schedule A hereto
(or such other office or agency of the Company in the United States as it may
designate by notice in writing to the Warrantholder at the address of the
Warrantholder appearing on the books of the Company), and (B) payment of
the Exercise Price for the Shares thereby purchased:


 


(i)                                     by having the
Company withhold, from the shares of Common Stock that would otherwise be
delivered to the Warrantholder upon such exercise, shares of Common stock
issuable upon exercise of the Warrant equal in value to the aggregate Exercise
Price as to which this Warrant is so exercised based on the Market Price of the
Common Stock on the trading day on which this Warrant is exercised and the
Notice of Exercise is delivered to the Company pursuant to this Section 3,
or


 


(ii)                                  with the consent of
both the Company and the Warrantholder, by tendering in cash, by certified or
cashier’s check payable to the order of the Company, or by wire 


 


5

















 


transfer of immediately available funds to an account designated by the
Company.


 


If the Warrantholder does not exercise this
Warrant in its entirety, the Warrantholder will be entitled to receive from the
Company within a reasonable time, and in any event not exceeding three business
days, a new warrant in substantially identical form for the purchase of that
number of Shares equal to the difference between the number of Shares subject
to this Warrant and the number of Shares as to which this Warrant is so
exercised.  Notwithstanding anything in
this Warrant to the contrary, the Warrantholder hereby acknowledges and agrees
that its exercise of this Warrant for Shares is subject to the condition that
the Warrantholder will have first received any applicable Regulatory Approvals.


 


4.                                       Issuance
of Shares; Authorization; Listing. 
Certificates for Shares issued upon exercise of this Warrant will be
issued in such name or names as the Warrantholder may designate and will be
delivered to such named Person or Persons within a reasonable time, not to
exceed three business days after the date on which this Warrant has been duly
exercised in accordance with the terms of this Warrant.  The Company hereby represents and warrants
that any Shares issued upon the exercise of this Warrant in accordance with the
provisions of Section 3 will be duly and validly authorized and issued,
fully paid and nonassessable and free from all taxes, liens and charges (other
than liens or charges created by the Warrantholder, income and franchise taxes
incurred in connection with the exercise of the Warrant or taxes in respect of
any transfer occurring contemporaneously therewith). The Company agrees that
the Shares so issued will be deemed to have been issued to the Warrantholder as
of the close of business on the date on which this Warrant and payment of the
Exercise Price are delivered to the Company in accordance with the terms of
this Warrant, notwithstanding that the stock transfer books of the Company may
then be closed or certificates representing such Shares may not be actually
delivered on such date.  The Company will
at all times reserve and keep available, out of its authorized but unissued
Common Stock, solely for the purpose of providing for the exercise of this Warrant,
the aggregate number of shares of Common Stock then issuable upon exercise of
this Warrant at any time.  The Company
will (A) procure, at its sole expense, the listing of the Shares issuable
upon exercise of this Warrant at any time, subject to issuance or notice of
issuance, on all principal stock exchanges on which the Common Stock is then
listed or traded and (B) maintain such listings of such Shares at all
times after issuance.  The Company will
use reasonable best efforts to ensure that the Shares may be issued without
violation of any applicable law or regulation or of any requirement of any
securities exchange on which the Shares are listed or traded.


 


5.                                       No
Fractional Shares or Scrip. No fractional Shares or scrip representing
fractional Shares shall be issued upon any exercise of this Warrant.  In lieu of any fractional Share to which the
Warrantholder would otherwise be entitled, the Warrantholder shall be entitled
to receive a cash payment equal to the Market Price of the Common Stock on the last
trading day preceding the date of exercise less the pro-rated Exercise Price
for such fractional share.


 


6.                                       No
Rights as Stockholders; Transfer Books. This Warrant does not entitle the
Warrantholder to any voting rights or other rights as a stockholder of the
Company prior to the date of exercise hereof. The Company will at no time close
its transfer books against transfer of this Warrant in any manner which
interferes with the timely exercise of this Warrant.


 


6

















 


7.                                       Charges,
Taxes and Expenses. Issuance of certificates for Shares to the
Warrantholder upon the exercise of this Warrant shall be made without charge to
the Warrantholder for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificates, all of which taxes and expenses
shall be paid by the Company.


 


8.                                       Transfer/Assignment.


 


(A)                              Subject
to compliance with clause (B) of this Section 8, this Warrant and all
rights hereunder are transferable, in whole or in part, upon the books of the
Company by the registered holder hereof in person or by duly authorized
attorney, and a new warrant shall be made and delivered by the Company, of the
same tenor and date as this Warrant but registered in the name of one or more
transferees, upon surrender of this Warrant, duly endorsed, to the office or
agency of the Company described in Section 3.  All expenses (other than stock transfer
taxes) and other charges payable in connection with the preparation, execution
and delivery of the new warrants pursuant to this Section 8 shall be paid
by the Company.


 


(B)                                The
transfer of the Warrant and the Shares issued upon exercise of the Warrant are
subject to the restrictions set forth in Section 4.4 of the Purchase
Agreement.  If and for so long as
required by the Purchase Agreement, this Warrant shall contain the legends as
set forth in Sections 4.2(a) and 4.2(b) of the Purchase Agreement.


 


9.                                       Exchange
and Registry of Warrant. This Warrant is exchangeable, upon the surrender
hereof by the Warrantholder to the Company, for a new warrant or warrants of
like tenor and representing the right to purchase the same aggregate number of
Shares.  The Company shall maintain a
registry showing the name and address of the Warrantholder as the registered
holder of this Warrant. This Warrant may be surrendered for exchange or
exercise in accordance with its terms, at the office of the Company, and the
Company shall be entitled to rely in all respects, prior to written notice to
the contrary, upon such registry.


 


10.                                 Loss,
Theft, Destruction or Mutilation of Warrant. Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and in the case of any such loss, theft or
destruction, upon receipt of a bond, indemnity or security reasonably
satisfactory to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company shall make and deliver,
in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of
like tenor and representing the right to purchase the same aggregate number of
Shares as provided for in such lost, stolen, destroyed or mutilated Warrant.


 


11.                                 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 not be a
business day, then such action may be taken or such right may be exercised on
the next succeeding day that is a business day.


 


12.                                 Rule 144
Information. The Company covenants that it will use its reasonable best
efforts to timely file all reports and other documents required to be filed by
it under the Securities Act and the Exchange Act and the rules and
regulations promulgated by the SEC thereunder (or, if the Company is not
required to file such reports, it will, upon the request of any 


 


7

















 


Warrantholder, make publicly available such information as necessary to
permit sales pursuant to Rule 144 under the Securities Act), and it will
use reasonable best efforts to take such further action as any Warrantholder
may reasonably request, in each case to the extent required from time to time
to enable such holder to, if permitted by the terms of this Warrant and the
Purchase Agreement, sell this Warrant without registration under the Securities
Act within the limitation of the exemptions provided by (A) Rule 144
under the Securities Act, as such rule may be amended from time to time,
or (B) any successor rule or regulation hereafter adopted by the SEC.
Upon the written request of any Warrantholder, the Company will deliver to such
Warrantholder a written statement that it has complied with such requirements.


 


13.                                 Adjustments
and Other Rights. The Exercise Price and the number of Shares issuable upon
exercise of this Warrant shall be subject to adjustment from time to time as
follows; provided, that if more
than one subsection of this Section 13 is applicable to a single event,
the subsection shall be applied that produces the largest adjustment and no
single event shall cause an adjustment under more than one subsection of this Section 13
so as to result in duplication:


 


(A)                              Stock
Splits, Subdivisions, Reclassifications or Combinations. If the Company
shall (i) declare and pay a dividend or make a distribution on its Common
Stock in shares of Common Stock, (ii) subdivide or reclassify the
outstanding shares of Common Stock into a greater number of shares, or (iii) combine
or reclassify the outstanding shares of Common Stock into a smaller number of
shares, the number of Shares issuable upon exercise of this Warrant at the time
of the record date for such dividend or distribution or the effective date of
such subdivision, combination or reclassification shall be proportionately
adjusted so that the Warrantholder after such date shall be entitled to
purchase the number of shares of Common Stock which such holder would have
owned or been entitled to receive in respect of the shares of Common Stock
subject to this Warrant after such date had this Warrant been exercised
immediately prior to such date.  In such
event, the Exercise Price in effect at the time of the record date for such
dividend or distribution or the effective date of such subdivision, combination
or reclassification shall be adjusted to the number obtained by dividing (x) the
product of (1) the number of Shares issuable upon the exercise of this
Warrant before such adjustment and (2) the Exercise Price in effect
immediately prior to the record or effective date, as the case may be, for the
dividend, distribution, subdivision, combination or reclassification giving
rise to this adjustment by (y) the new number of Shares issuable upon
exercise of the Warrant determined pursuant to the immediately preceding
sentence.


 


(B)                                Certain
Issuances of Common Shares or Convertible Securities. Until the earlier of (i) the
date on which the Original Warrantholder no longer holds this Warrant or any
portion thereof and (ii) the third anniversary of the Issue Date, if the
Company shall issue shares of Common Stock (or rights or warrants or other
securities exercisable or convertible into or exchangeable (collectively, a “conversion”) for shares of Common Stock)
(collectively, “convertible securities”)
(other than in Permitted Transactions (as defined below) or a transaction to
which subsection (A) of this Section 13 is applicable) without
consideration or at a consideration per share (or having a conversion price per
share) that is less than 90% of the Market Price on the last trading day
preceding the date of the agreement on pricing such shares (or such convertible
securities) then, in such event:


 


8
















 


(A) the number of Shares issuable upon the exercise of this
Warrant immediately prior to the date of the agreement on pricing of such
shares (or of such convertible securities) (the “Initial Number”) shall be increased to the number obtained
by multiplying the Initial Number by a fraction (A) the numerator of which
shall be the sum of (x) the number of shares of Common Stock of the
Company outstanding on such date and (y) the number of additional shares
of Common Stock issued (or into which convertible securities may be exercised
or convert) and (B) the denominator of which shall be the sum of (I) the
number of shares of Common Stock outstanding on such date and (II) the
number of shares of Common Stock which the aggregate consideration receivable
by the Company for the total number of shares of Common Stock so issued (or
into which convertible securities may be exercised or convert) would purchase
at the Market Price on the last trading day preceding the date of the agreement
on pricing such shares (or such convertible securities); and


 


(B) the Exercise Price payable upon exercise of the Warrant shall
be adjusted by multiplying such Exercise Price in effect immediately prior to
the date of the agreement on pricing of such shares (or of such convertible
securities) by a fraction, the numerator of which shall be the number of shares
of Common Stock issuable upon exercise of this Warrant prior to such date and
the denominator of which shall be the number of shares of Common Stock issuable
upon exercise of this Warrant immediately after the adjustment described in
clause (A) above.


 


For purposes of the foregoing, the aggregate
consideration receivable by the Company in connection with the issuance of such
shares of Common Stock or convertible securities shall be deemed to be equal to
the sum of the net offering price (including the Fair Market Value of any
non-cash consideration and after deduction of any related expenses payable to
third parties) of all such securities plus the minimum aggregate amount, if
any, payable upon exercise or conversion of any such convertible securities
into shares of Common Stock; and “Permitted
Transactions” shall mean issuances (i) as consideration for or
to fund the acquisition of businesses and/or related assets, (ii) in
connection with employee benefit plans and compensation related arrangements in
the ordinary course and consistent with past practice approved by the Board of
Directors, (iii) in connection with a public or broadly marketed offering
and sale of Common Stock or convertible securities for cash conducted by the
Company or its affiliates pursuant to registration under the Securities Act or Rule 144A
thereunder on a basis consistent with capital raising transactions by
comparable financial institutions and (iv) in connection with the exercise
of preemptive rights on terms existing as of the Issue Date.  Any adjustment made pursuant to this Section 13(B) shall
become effective immediately upon the date of such issuance.


 


(C)           Other
Distributions. In case the Company shall fix a record date for the making
of a distribution to all holders of shares of its Common Stock of securities,
evidences of indebtedness, assets, cash, rights or warrants (excluding Ordinary
Cash Dividends, dividends of its Common Stock and other dividends or
distributions referred to in Section 13(A)), in each such case, the
Exercise Price in effect prior to such record date shall be reduced immediately
thereafter to the price determined by multiplying the Exercise Price in effect
immediately prior to the reduction by the quotient of (x) the Market Price
of the Common Stock on the last trading day preceding the first date on which
the Common Stock trades regular way on the principal 


 


9

















 


national securities exchange on which the Common Stock is listed or
admitted to trading without the right to receive such distribution, minus the
amount of cash and/or the Fair Market Value of the securities, evidences of
indebtedness, assets, rights or warrants to be so distributed in respect of one
share of Common Stock (such amount and/or Fair Market Value, the “Per Share Fair Market Value”) divided by (y) such
Market Price on such date specified in clause (x); such adjustment shall be
made successively whenever such a record date is fixed.  In such event, the number of Shares issuable
upon the exercise of this Warrant shall be increased to the number obtained by
dividing (x) the product of (1) the number of Shares issuable upon
the exercise of this Warrant before such adjustment, and (2) the Exercise
Price in effect immediately prior to the distribution giving rise to this
adjustment by (y) the new Exercise Price determined in accordance with the
immediately preceding sentence.  In the
case of adjustment for a cash dividend that is, or is coincident with, a
regular quarterly cash dividend, the Per Share Fair Market Value would be
reduced by the per share amount of the portion of the cash dividend that would
constitute an Ordinary Cash Dividend. In the event that such distribution is
not so made, the Exercise Price and the number of Shares issuable upon exercise
of this Warrant then in effect shall be readjusted, effective as of the date
when the Board of Directors determines not to distribute such shares, evidences
of indebtedness, assets, rights, cash or warrants, as the case may be, to the
Exercise Price that would then be in effect and the number of Shares that would
then be issuable upon exercise of this Warrant if such record date had not been
fixed.


 


(D)          Certain
Repurchases of Common Stock. In case the Company effects a Pro Rata
Repurchase of Common Stock, then the Exercise Price shall be reduced to the
price determined by multiplying the Exercise Price in effect immediately prior
to the Effective Date of such Pro Rata Repurchase by a fraction of which the
numerator shall be (i) the product of (x) the number of shares of
Common Stock outstanding immediately before such Pro Rata Repurchase and (y) the
Market Price of a share of Common Stock on the trading day immediately preceding
the first public announcement by the Company or any of its Affiliates of the
intent to effect such Pro Rata Repurchase, minus (ii) the aggregate
purchase price of the Pro Rata Repurchase, and of which the denominator shall
be the product of (i) the number of shares of Common Stock outstanding
immediately prior to such Pro Rata Repurchase minus the number of shares of
Common Stock so repurchased and (ii) the Market Price per share of Common
Stock on the trading day immediately preceding the first public announcement by
the Company or any of its Affiliates of the intent to effect such Pro Rata
Repurchase.  In such event, the number of
shares of Common Stock issuable upon the exercise of this Warrant shall be
increased to the number obtained by dividing (x) the product of (1) the
number of Shares issuable upon the exercise of this Warrant before such
adjustment, and (2) the Exercise Price in effect immediately prior to the
Pro Rata Repurchase giving rise to this adjustment by (y) the new Exercise
Price determined in accordance with the immediately preceding sentence.  For the avoidance of doubt, no increase to
the Exercise Price or decrease in the number of Shares issuable upon exercise
of this Warrant shall be made pursuant to this Section 13(D).


 


(E)           Business
Combinations. In case of any Business Combination or reclassification of
Common Stock (other than a reclassification of Common Stock referred to in Section 13(A)),
the Warrantholder’s right to receive Shares upon exercise of this Warrant shall
be converted into the right to exercise this Warrant to acquire the number of
shares of stock or other securities or property (including cash) which the
Common Stock issuable (at the time of such Business Combination or
reclassification) upon exercise of this Warrant immediately prior to such 


 


10

















 


Business Combination or reclassification would have been entitled to
receive upon consummation of such Business Combination or reclassification; and
in any such case, if necessary, the provisions set forth herein with respect to
the rights and interests thereafter of the Warrantholder shall be appropriately
adjusted so as to be applicable, as nearly as may reasonably be, to the
Warrantholder’s right to exercise this Warrant in exchange for any shares of
stock or other securities or property pursuant to this paragraph.  In determining the kind and amount of stock,
securities or the property receivable upon exercise of this Warrant following
the consummation of such Business Combination, if the holders of Common Stock
have the right to elect the kind or amount of consideration receivable upon
consummation of such Business Combination, then the consideration that the
Warrantholder shall be entitled to receive upon exercise shall be deemed to be
the types and amounts of consideration received by the majority of all holders
of the shares of common stock that affirmatively make an election (or of all
such holders if none make an election).


 


(F)           Rounding
of Calculations; Minimum Adjustments. All calculations under this Section 13
shall be made to the nearest one-tenth (1/10th) of a cent or to the nearest
one-hundredth (1/100th) of a share, as the case may be.  Any provision of this Section 13 to the
contrary notwithstanding, no adjustment in the Exercise Price or the number of
Shares into which this Warrant is exercisable shall be made if the amount of
such adjustment would be less than $0.01 or one-tenth (1/10th) of a share of
Common Stock, but any such amount shall be carried forward and an adjustment
with respect thereto shall be made at the time of and together with any
subsequent adjustment which, together with such amount and any other amount or
amounts so carried forward, shall aggregate $0.01 or 1/10th of a share of
Common Stock, or more.


 


(G)           Timing
of Issuance of Additional Common Stock Upon Certain Adjustments. In any
case in which the provisions of this Section 13 shall require that an
adjustment shall become effective immediately after a record date for an event,
the Company may defer until the occurrence of such event (i) issuing to
the Warrantholder of this Warrant exercised after such record date and before
the occurrence of such event the additional shares of Common Stock issuable
upon such exercise by reason of the adjustment required by such event over and
above the shares of Common Stock issuable upon such exercise before giving
effect to such adjustment and (ii) paying to such Warrantholder any amount
of cash in lieu of a fractional share of Common Stock; provided, however,
that the Company upon request shall deliver to such Warrantholder a due bill or
other appropriate instrument evidencing such Warrantholder’s right to receive
such additional shares, and such cash, upon the occurrence of the event
requiring such adjustment.


 


(H)          Completion of
Qualified Equity Offering. In the event the Company (or any successor by
Business Combination) completes one or more Qualified Equity Offerings on or
prior to December 31, 2009 that result in the Company (or any such
successor ) receiving aggregate gross proceeds of not less than 100% of the
aggregate liquidation preference of the Preferred Shares (and any preferred
stock issued by any such successor to the Original Warrantholder under the
CPP), the number of shares of Common Stock underlying the portion of this
Warrant then held by the Original Warrantholder shall be thereafter reduced by
a number of shares of Common Stock equal to the product of (i) 0.5 and (ii) the
number of shares underlying 


 


11

















 


the Warrant on the Issue Date (adjusted to take into account all other
theretofore made adjustments pursuant to this Section 13).


 


(I)            Other
Events. For so long as the Original Warrantholder holds this Warrant or any
portion thereof, if any event occurs as to which the provisions of this Section 13
are not strictly applicable or, if strictly applicable, would not, in the good
faith judgment of the Board of Directors of the Company, fairly and adequately
protect the purchase rights of the Warrants in accordance with the essential
intent and principles of such provisions, then the Board of Directors shall
make such adjustments in the application of such provisions, in accordance with
such essential intent and principles, as shall be reasonably necessary, in the
good faith opinion of the Board of Directors, to protect such purchase rights
as aforesaid.  The Exercise Price or the
number of Shares into which this Warrant is exercisable shall not be adjusted in
the event of a change in the par value of the Common Stock or a change in the
jurisdiction of incorporation of the Company.


 


(J)            Statement
Regarding Adjustments. Whenever the Exercise Price or the number of Shares
into which this Warrant is exercisable shall be adjusted as provided in Section 13,
the Company shall forthwith file at the principal office of the Company a
statement showing in reasonable detail the facts requiring such adjustment and
the Exercise Price that shall be in effect and the number of Shares into which
this Warrant shall be exercisable after such adjustment, and the Company shall
also cause a copy of such statement to be sent by mail, first class postage
prepaid, to each Warrantholder at the address appearing in the Company’s
records.


 


(K)          Notice of
Adjustment Event. In the event that the Company shall propose to take any
action of the type described in this Section 13 (but only if the action of
the type described in this Section 13 would result in an adjustment in the
Exercise Price or the number of Shares into which this Warrant is exercisable
or a change in the type of securities or property to be delivered upon exercise
of this Warrant), the Company shall give notice to the Warrantholder, in the
manner set forth in Section 13(J), which notice shall specify the record
date, if any, with respect to any such action and the approximate date on which
such action is to take place.  Such
notice shall also set forth the facts with respect thereto as shall be
reasonably necessary to indicate the effect on the Exercise Price and the
number, kind or class of shares or other securities or property which shall be
deliverable upon exercise of this Warrant. 
In the case of any action which would require the fixing of a record
date, such notice shall be given at least 10 days prior to the date so fixed,
and in case of all other action, such notice shall be given at least 15 days
prior to the taking of such proposed action. Failure to give such notice, or
any defect therein, shall not affect the legality or validity of any such
action.


 


(L)           Proceedings
Prior to Any Action Requiring Adjustment. As a condition precedent to the
taking of any action which would require an adjustment pursuant to this Section 13,
the Company shall take any action which may be necessary, including obtaining
regulatory, New York Stock Exchange, NASDAQ Stock Market or other applicable
national securities exchange or stockholder approvals or exemptions, in order
that the Company may thereafter validly and legally issue as fully paid and
nonassessable all shares of Common Stock that the Warrantholder is entitled to
receive upon exercise of this Warrant pursuant to this Section 13.


 


12

















 


(M)         Adjustment Rules.
Any adjustments pursuant to this Section 13 shall be made successively
whenever an event referred to herein shall occur.  If an adjustment in Exercise Price made
hereunder would reduce the Exercise Price to an amount below par value of the
Common Stock, then such adjustment in Exercise Price made hereunder shall
reduce the Exercise Price to the par value of the Common Stock.


 


14.           Exchange.
At any time following the date on which the shares of Common Stock of the
Company are no longer listed or admitted to trading on a national securities
exchange (other than in connection with any Business Combination), the Original
Warrantholder may cause the Company to exchange all or a portion of this
Warrant for an economic interest (to be determined by the Original
Warrantholder after consultation with the Company) of the Company classified as
permanent equity under U.S. GAAP having a value equal to the Fair Market Value
of the portion of the Warrant so exchanged. 
The Original Warrantholder shall calculate any Fair Market Value
required to be calculated pursuant to this Section 14, which shall not be
subject to the Appraisal Procedure.


 


15.           No
Impairment. The Company will not, by amendment of its Charter 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 to be observed or
performed hereunder by the Company, but will at all times in good faith assist
in the carrying out of all the provisions of this Warrant and in taking of all
such action as may be necessary or appropriate in order to protect the rights
of the Warrantholder.


 


16.           Governing
Law. This Warrant will be governed by and
construed in accordance with the federal law of the United States if and to the
extent such law is applicable, and otherwise in accordance with the laws of the
State of New York applicable to contracts made and to be performed entirely
within such State. Each of the Company and the Warrantholder agrees (a) to
submit to the exclusive jurisdiction and venue of the United States District
Court for the District of Columbia for any civil action, suit or proceeding
arising out of or relating to this Warrant or the transactions contemplated
hereby, and (b) that notice may be served upon the Company at the address
in Section 20 below and upon the Warrantholder at the address for the
Warrantholder set forth in the registry maintained by the Company pursuant to Section 9
hereof.  To the extent permitted by
applicable law, each of the Company and the Warrantholder hereby
unconditionally waives trial by jury in any civil legal action or proceeding
relating to the Warrant or the transactions contemplated hereby or thereby.


 


17.           Binding
Effect. This Warrant shall be binding upon any successors or assigns of the
Company.


 


18.           Amendments.
This Warrant may be amended and the observance of any term of this Warrant may
be waived only with the written consent of the Company and the Warrantholder.


 


19.           Prohibited
Actions. The Company agrees that it will not take any action which would
entitle the Warrantholder to an adjustment of the Exercise Price if the total
number of shares of Common Stock issuable after such action upon exercise of
this Warrant, together with 


 


13

















 


all shares of Common Stock then outstanding and all shares of Common
Stock then issuable upon the exercise of all outstanding options, warrants,
conversion and other rights, would exceed the total number of shares of Common
Stock then authorized by its Charter.


 


20.           Notices.
Any notice, request, instruction or other document to be given hereunder by any
party to the other will be in writing and will be deemed to have been duly
given (a) on the date of delivery if delivered personally, or by
facsimile, upon confirmation of receipt, or (b) on the second business day
following the date of dispatch if delivered by a recognized next day courier
service. All notices hereunder shall be delivered as set forth in Item 8 of
Schedule A hereto, or pursuant to such other instructions as may be designated
in writing by the party to receive such notice.


 


21.           Entire
Agreement. This Warrant, the forms attached hereto and Schedule A hereto
(the terms of which are incorporated by reference herein), and the Letter
Agreement (including all documents incorporated therein), contain the entire
agreement between the parties with respect to the subject matter hereof and
supersede all prior and contemporaneous arrangements or undertakings with
respect thereto.


 


[Remainder of page intentionally left blank]


 


14

















 


[Form of
Notice of Exercise]


	
   

  	
  Date:

  	
   

  	
   

  



 


TO:         Tidelands Bancshares, Inc.


 


RE:          Election to Purchase
Common Stock


 


The undersigned, pursuant to the provisions
set forth in the attached Warrant, hereby agrees to subscribe for and purchase
the number of shares of the Common Stock set forth below covered by such
Warrant.  The undersigned, in accordance
with Section 3 of the Warrant, hereby agrees to pay the aggregate Exercise
Price for such shares of Common Stock in the manner set forth below. A new
warrant evidencing the remaining shares of Common Stock covered by such
Warrant, but not yet subscribed for and purchased, if any, should be issued in
the name set forth below.


 


	
  Number of Shares of Common Stock

  	
   

  	
   

  



 


	
  Method of Payment of Exercise Price (note
  if cashless exercise pursuant to Section 3(i) of the Warrant or
  cash exercise pursuant to 

  
	
  Section 3(ii) of the Warrant,
  with consent of the Company and the Warrantholder)

  	
   

  	
   

  



 


	
  Aggregate Exercise Price:

  	
   

  	
   

  



 


	
   

  	
  Holder:

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
						



 


15

















 


IN WITNESS WHEREOF, the Company has caused
this Warrant to be duly executed by a duly authorized officer.


 


Dated: December 19, 2008


 


	
   

  	
  TIDELANDS BANCSHARES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert
  E. Coffee, Jr.

  
	
   

  	
  Name:

  	
  Robert E. Coffee, Jr.

  
	
   

  	
  Title:

  	
  President and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Attest:

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Thomas
  H. Lyles

  
	
   

  	
  Name:

  	
  Thomas H. Lyles

  
	
   

  	
  Title:

  	
  Chief Administrative Officer and Executive
  Vice

  
	
   

  	
   

  	
  President

  
				



 


[Signature
Page to Warrant]


 


16

















 


SCHEDULE
A


 


Item 1


Name: Tidelands Bancshares, Inc.


Corporate or other organizational form: Corporation


Jurisdiction of organization: South Carolina


 


Item 2


Exercise Price: $3.79


 


Item 3


Issue Date: December 19, 2008


 


Item 4


Amount of last dividend declared prior to the Issue Date:  $0.00


 


Item 5


Date of Letter Agreement between the Company and the United States
Department of the Treasury: December 19, 2008


 


Item 6


Number of shares of Common Stock: 571,821


 


Item 7


	
  Company’s address:

  	
   

  	
  875 Lowcountry Blvd.

  
	
   

  	
   

  	
  Mount Pleasant, South Carolina 29464

  
	
   

  	
   

  	
   

  
	
  Item 8

  	
   

  	
   

  
	
  Notice information:

  	
   

  	
  Robert E. Coffee, Jr.

  
	
   

  	
   

  	
  President and Chief Executive Officer

  
	
   

  	
   

  	
  Tidelands Bancshares, Inc.

  
	
   

  	
   

  	
  857 Lowcountry Blvd.

  
	
   

  	
   

  	
  Mount Pleasant, South Carolina 29464

  
	
   

  	
   

  	
  (843) 388-8433

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  With a Copy to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  J. Brennan Ryan

  
	
   

  	
   

  	
  Nelson Mullins Riley & Scarborough
  LLP

  
	
   

  	
   

  	
  Atlantic Station

  
	
   

  	
   

  	
  201 17th Street NW,
  Suite 1700

  
	
   

  	
   

  	
  Atlanta, Georgia 30363

  
	
   

  	
   

  	
  (404) 322-6218

  



 


17