FORM OF WARRANT
ANNEX
V
TO
<PROTOTYPE
FOR EACH ISSUANCE>
FORM
OF WARRANT
THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR
AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
AMERICAN
SECURITY RESOURCES CORPORATION
COMMON
STOCK PURCHASE WARRANT
CLASS
08-__3
1. Issuance. In
consideration of good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged by AMERICAN SECURITY RESOURCES
CORPORATION, a Nevada corporation (the “Company”), _____________________________
or registered assigns (the “Holder”) is hereby granted the right to
purchase at any time, on or after the Commencement Date (as defined below) until
5:00 P.M., New York City time, on the Expiration Date (as defined below),
_________________ Thousand __________ (____________)4 fully paid and nonassessable shares of the
Company’s Common Stock, $0.001 par value per share (the “Common Stock”), at an
initial exercise price per share (the “Exercise Price”) of $____5 per share, subject to further adjustment as
set forth herein. This Warrant is being issued pursuant to the terms
of that certain Securities Purchase Agreement, dated as of February __, 2008
(the “Securities Purchase Agreement”), to which the Company and Holder (or
Holder’s predecessor in interest) are parties. Capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Securities Purchase Agreement. This Warrant was originally issued to
the Holder or the Holder’s predecessor in interest on _____________, 20__6 (the “Issue Date”).
2. Exercise of
Warrants.
2.1 General.
(a) This Warrant is
exercisable in whole or in part at any time and from time to time commencing on
the Issue Date. Such exercise shall be effectuated by submitting to
the Company (either by delivery to the Company or by facsimile transmission as
provided in Section 8 hereof) a completed and duly executed Notice of Exercise
(substantially in the form attached to this Warrant Certificate) as provided in
the Notice of Exercise (or revised by notice given by the Company as
contemplated by the Section headed “NOTICES” in the Securities Purchase
Agreement). The date such Notice of Exercise is faxed to the Company
shall be the “Exercise Date,” provided that, if such exercise represents the
full exercise of the outstanding balance of the Warrant, the Holder of this
Warrant tenders this Warrant Certificate to the Company within five (5) Trading
Days thereafter. The Notice of Exercise shall be executed by the
Holder of this Warrant and shall indicate (i) the number of shares then being
purchased pursuant to such exercise and (ii) if applicable (as provided below),
whether the exercise is a cashless exercise.
(b) The provisions of this
Section 2.1(b) shall only be applicable (i) (x) on or after the six (6) month
anniversary of the Issue Date, and (y) if, and only if, for any reason on the
Exercise Date there is no effective registration statement naming the Holder as
selling stockholder pursuant to which the Holder would be entitled to sell the
Warrant Shares on such date, and (ii) on the Automatic Exercise Date (as defined
below), even if there is an effective Registration Statement covering the
Warrant Shares on such date. If the Notice of Exercise form elects a
“cashless” exercise, the Holder shall thereby be entitled to receive a number of
shares of Common Stock equal to (w) the excess of the Current Market Value (as
defined below) over the total cash exercise price of the portion of the Warrant
then being exercised, divided by (x) the Market Price of the Common
Stock. For the purposes of this Warrant, the terms (y) “Current
Market Value” shall mean an amount equal to the Market Price of the Common
Stock, multiplied by the number of shares of Common Stock specified in the
applicable Notice of Exercise, and (z) “Market Price of the Common Stock” shall
mean the VWAP for the Trading Day immediately prior to the Exercise
Date.
(c) If the Holder provides
on the Notice of Exercise form that the Holder has elected a “cash” exercise (or
if the cashless exercise referred to in the immediately preceding paragraph (b)
is not available in accordance with its terms), the Exercise Price per share of
Common Stock for the shares then being exercised shall be payable, at the
election of the Holder, in cash or by certified or official bank check or by
wire transfer in accordance with instructions provided by the Company at the
request of the Holder.
(d) Upon the appropriate
payment, if any, of the Exercise Price for the shares of Common Stock purchased,
together with the surrender of this Warrant Certificate (if required), the
Holder shall be entitled to receive a certificate or certificates for the shares
of Common Stock so purchased. The Company shall deliver such
certificates representing the Warrant Shares in accordance with the instructions
of the Holder as provided in the Notice of Exercise (the certificates delivered
in such manner, the “Warrant Share Certificates”) within three (3) Trading Days
(such third Trading Day, a “Delivery Date”) of (i) with respect to a “cashless
exercise,” the Exercise Date or the Automatic Exercise Date, as the case may be,
or, (ii) with respect to a “cash” exercise, the later of the Exercise Date or
the date the payment of the Exercise Price for the relevant Warrant Shares is
received by the Company.
(e) The Holder shall be
deemed to be the holder of the shares issuable to it in accordance with the
provisions of this Section 2.1 on the Exercise Date.
2.2 Limitation on
Exercise. Notwithstanding the provisions of this Warrant, the Securities
Purchase Agreement or of the other Transaction Agreements, in no event (except
(i) as specifically provided in this Warrant as an exception to this provision,
or (ii) while there is outstanding a tender offer for any or all of the shares
of the Company’s Common Stock) shall the Holder be entitled to exercise this
Warrant, or shall the Company have the obligation to issue shares upon such
exercise of all or any portion of this Warrant to the extent that, after such
exercise the sum of (1) the number of shares of Common Stock beneficially owned
by the Holder and its affiliates (other than shares of Common Stock which may be
deemed beneficially owned through the ownership of the unexercised portion of
the Warrants or other rights to purchase Common Stock or through the ownership
of the unconverted portion of convertible securities), and (2) the number of
shares of Common Stock issuable upon the exercise of the Warrants with respect
to which the determination of this proviso is being made, would result in
beneficial ownership by the Holder and its affiliates of more than 4.99% of the
outstanding shares of Common Stock (after taking into account the shares to be
issued to the Holder upon such exercise). For purposes of the proviso
to the immediately preceding sentence, beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, except as otherwise provided in clause (1) of such
sentence. Nothing herein shall preclude the Holder from disposing of
a sufficient number of other shares of Common Stock beneficially owned by the
Holder so as to thereafter permit the continued exercise of this
Warrant.
2.3 Automatic
Exercise. If any portion of this Warrant remains unexercised
as of the Expiration Date and the Market Price of the Common Stock as of the
Expiration Date is greater than the applicable Exercise Price as of the
Expiration Date, then, without further action by the Holder, this Warrant shall
be deemed to have been exercised automatically on the date (the
“Automatic Exercise Date”) which is the day immediately prior to the close of
business on the Expiration Date (or, in the event that the Expiration Date is
not a Trading Day, the immediately preceding Trading Day) as if the Holder had
duly given a Notice of Exercise for a “cashless” exercise as contemplated by
Section 2.1(b) hereof, and the Holder (or such other person or persons as
directed by the Holder) shall be treated for all purposes as the holder of
record of such Warrant Shares as of the close of business on such Automatic
Exercise Date. This Warrant shall be deemed to be surrendered to the Company on
the Automatic Exercise Date by virtue of this Section 2.3 without any action by
the Holder.
2.4 Certain
Definitions. As used herein, each of the following terms has
the meaning set forth below, unless the context otherwise requires:
(a) “Commencement
Date” means the date the Specific Purchase Note has been paid or otherwise
satisfied in full.
(b) “Expiration
Date” means the earlier of (i) the Scheduled Expiration Date or (ii) the
Accelerated Expiration Date (as defined below).
(c) “Scheduled
Expiration Date” means the date which is the last calendar day of the month in
which the seventh anniversary of the Issue Date occurs.
(d) “Specific
Purchase Note” means the Purchase Note issued by the Holder (or the Holder’s
predecessor in interest) on the Issue Date specifically designated as payment of
the balance of the purchase price for this specific Warrant.
2.5 Accelerated Expiration
Date.
(a) At
any time after the Commencement Date, if all, but not less than all, of the
Acceleration Conditions (as defined below) are satisfied, during the Accelerated
Period (as defined below), the Company, in its sole discretion, may give a
written notice (the “Accelerated Expiration Notice”) to the Holder specifying
that the rights to exercise all or a specified part of this Warrant will expire
on a date (the “Accelerated Expiration Date”) specified in the Accelerated
Expiration Notice, provided that the date so specified shall be at least twenty
(20) Trading Days after the date (the “Accelerated Expiration Notice Date”) on
which the Company gives of the Accelerated Expiration Notice (but provided
that the Holder actually receives such Accelerated Expiration Notice
no later than the Trading Day immediately after such notice is given by the
Company). Notwithstanding the foregoing, if the Acceleration
Period Conditions (as defined below) are not satisfied during the period (the
“Accelerated Period”) commencing on the Accelerated Expiration Notice Date
through and including the Accelerated Expiration Date, the Accelerated
Expiration Notice shall be deemed cancelled.
(b) The
Holder will continue to have the right to exercise this Warrant through and
including the Accelerated Expiration Date, as determined in accordance with the
provisions, but not thereafter. If the Accelerated Expiration Notice
provides that less than all of the outstanding Warrant is subject to such
acceleration, any exercise of the Warrant by the Holder on or after the
Accelerated Expiration Notice Date shall be applied against such
acceleration.7
(c) The
term “Acceleration Determination Period” means the consecutive twenty (20)
Trading Days ending on the Trading Day immediately before the Accelerated
Expiration Notice Date.
(d) The
term “Acceleration Conditions” means that, as of the Accelerated Expiration
Notice Date, each of (and not less than all of) the following conditions has
been satisfied:
(i) there
is no Event of Default (as that term is defined in the Debenture, but the
existence of such Event of Default shall be determined without regard to the
passage of time or the giving of notice or both as may be provided in the
Debenture);
(ii) the
VWAP is at least one hundred fifty percent (150%) of the Exercise Price as in
effect on the Issue Date (as the same may be adjusted for adjusted pursuant to
the provisions of Section 6 hereof other than pursuant to Section 6.4 hereof);
and
(iii) the
Company shall have duly issued, and the Holder shall have timely received, the
Accelerated Expiration Notice.
(e) The
term “Acceleration Period Conditions” means that, at all times during the
Acceleration Period, each of (and not less than all of) the following conditions
has been satisfied:
(i) there
is no Event of Default (as that term is defined in the Debenture, but the
existence of such Event of Default shall be determined without regard to the
passage of time or the giving of notice or both as may be provided in the
Debenture); and
(ii) the
Company has issued all Warrant Shares for all Warrant exercises by the Holder
within two (2) Trading Days after the relevant Delivery Date.
3. Reservation of
Shares. The Company hereby agrees that, at all
times during the term of this Warrant, there shall be reserved for issuance upon
exercise of this Warrant, one hundred percent (100%) of the number of shares of
its Common Stock as shall be required for issuance of the Warrant Shares for the
then unexercised portion of this Warrant. For the purposes of such
calculations, the Company should assume that the outstanding portion of this
Warrants was exercisable in full at any time, without regard to any restrictions
which might limit the Holder’s right to exercise all or any portion of this
Warrant held by the Holder.
4. Mutilation or Loss of
Warrant. Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant, and (in the
case of loss, theft or destruction) receipt of reasonably satisfactory
indemnification, and (in the case of mutilation) upon surrender and cancellation
of this Warrant, the Company will execute and deliver a new Warrant of like
tenor and date and any such lost, stolen, destroyed or mutilated Warrant shall
thereupon become void.
5. Rights of the
Holder. The Holder shall not, by virtue hereof, be entitled to
any rights of a stockholder in the Company, either at law or equity, and the
rights of the Holder are limited to those expressed in this Warrant and are not
enforceable against the Company except to the extent set forth
herein.
6. Protection Against Dilution
and Other Adjustments.
6.1 Adjustment
Mechanism. If an adjustment of the Exercise Price is required
pursuant to this Section 6 (other than pursuant to Section 6.4), the Holder
shall be entitled to purchase such number of shares of Common Stock as will
cause (i) (x) the total number of shares of Common Stock Holder is entitled to
purchase pursuant to this Warrant following such adjustment, multiplied by (y)
the adjusted Exercise Price per share, to equal the result of (ii) (x) the
dollar amount of the total number of shares of Common Stock Holder is entitled
to purchase before adjustment, multiplied by (y) the total Exercise Price before
adjustment.
6.2 Capital
Adjustments. In case of any stock split or reverse stock
split, stock dividend, reclassification of the Common Stock, recapitalization,
merger or consolidation (where the Company is not the surviving entity), the
provisions of this Section 6 shall be applied as if such capital adjustment
event had occurred immediately prior to the date of this Warrant and the
original Exercise Price had been fairly allocated to the stock resulting from
such capital adjustment; and in other respects the provisions of this Section
shall be applied in a fair, equitable and reasonable manner so as to give
effect, as nearly as may be, to the purposes hereof. A rights
offering to stockholders shall be deemed a stock dividend to the extent of the
bargain purchase element of the rights. The Company will not effect
any consolidation or merger, unless prior to the
consummation thereof, the successor or acquiring entity (if other than the
Company) and, if an entity different from the successor or acquiring entity, the
entity whose capital stock or assets the holders of the Common Stock of the
Company are entitled to receive as a result of such consolidation
or merger assumes by written instrument the obligations under this
Warrant (including under this Section 6) and the obligations to deliver to the
holder of this Warrant such shares of stock, securities or assets as, in
accordance with the foregoing provisions, the holder may be entitled to
acquire.
6.3 Adjustment for Spin
Off. If, for any reason, prior to the exercise of this Warrant
in full, the Company spins off or otherwise divests itself of a part of its
business or operations or disposes all or of a part of its assets in a
transaction (the “Spin Off”) in which the Company does not receive compensation
for such business, operations or assets, but causes securities of another entity
(the “Spin Off Securities”) to be issued to security holders of the Company,
then the Company shall cause (i) to be reserved Spin Off Securities equal to the
number thereof which would have been issued to the Holder had all of the
Holder’s unexercised Warrants outstanding on the record date (the “Record Date”)
for determining the amount and number of Spin Off Securities to be issued to
security holders of the Company (the “Outstanding Warrants”) been exercised as
of the close of business on the Trading Day immediately before the Record Date
(the “Reserved Spin Off Shares”), and (ii) to be issued to the Holder on the
exercise of all or any of the Outstanding Warrants, such amount of the Reserved
Spin Off Shares equal to (x) the Reserved Spin Off Shares, multiplied by (y) a
fraction, of which (I) the numerator is the amount of the Outstanding Warrants
then being exercised, and (II) the denominator is the amount of the Outstanding
Warrants.
6.4 Adjustment for Certain
Transactions. Reference is made to the provisions of Section
4(g) of the Securities Purchase Agreement, the terms of which are incorporated
herein by reference. The Exercise Price shall be adjusted as provided
in the applicable provisions of said Section 4(g) of the Securities Purchase
Agreement. In addition, if applicable, the Company will issue Added
Warrant Shares as provided in said Section 4(g) of the Securities Purchase
Agreement.
7. Transfer to Comply with the
Securities Act. This Warrant has not been registered under the
Securities Act of 1933, as amended, (the “1933 Act”) and has been issued to the
Holder for investment and not with a view to the distribution of either the
Warrant or the Warrant Shares. Neither this Warrant nor any of the
Warrant Shares or any other security issued or issuable upon exercise of this
Warrant may be sold, transferred, pledged or hypothecated in the absence of an
effective registration statement under the 1933 Act relating to such security or
an opinion of counsel satisfactory to the Company that registration is not
required under the 1933 Act. Each certificate for the Warrant, the
Warrant Shares and any other security issued or issuable upon exercise of this
Warrant shall contain a legend on the face thereof, in form and substance
satisfactory to counsel for the Company, setting forth the restrictions on
transfer contained in this Section.
8. Late Delivery of Warrant
Shares. Reference is made to Section 5(b) of the
Securities Purchase Agreement, the terms of which are incorporated herein by
reference.
9. Notices. Any
notice required or permitted hereunder shall be given in manner provided in the
Section headed “NOTICES” in the Securities Purchase Agreement, the terms of
which are incorporated herein by reference.
10. Supplements and Amendments;
Whole Agreement. This Warrant may be amended or supplemented
only by an instrument in writing signed by the parties hereto. This
Warrant contains the full understanding of the parties hereto with respect to
the subject matter hereof and thereof and there are no representations,
warranties, agreements or understandings other than expressly contained herein
and therein.
11. Governing
Law. This Warrant shall be deemed to be a contract made under
the laws of the State of Illinois for contracts to be wholly performed in such
state and without giving effect to the principles thereof regarding the conflict
of laws. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the City of Chicago or the
state courts of the State of Illinois sitting in the City of Chicago in
connection with any dispute arising under this Warrant and hereby waives, to the
maximum extent permitted by law, any objection, including any objection based
on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions.
To the extent determined by such court, the Company shall reimburse the Holder
for any reasonable legal fees and disbursements incurred by the Holder in
enforcement of or protection of any of its rights under any of the Transaction
Agreements.
12. JURY
TRIAL WAIVER.
The Company and the Holder hereby waive a trial by jury in
any action, proceeding or counterclaim brought by either of the Parties hereto
against the other in respect of any matter arising out or in connection with
this Warrant.
13. Remedies. The
Company stipulates that the remedies at law of the Holder of this Warrant in the
event of any default or threatened default by the Company in the performance of
or compliance with any of the terms of this Warrant are not and will not be
adequate and that, to the fullest extent permitted by law, such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
14. Counterparts. This
Warrant may be executed in any number of counterparts and each of such
counterparts shall for all purposes be deemed to be an original, and all such
counterparts shall together constitute but one and the same
instrument.
15. Descriptive
Headings. Descriptive headings of the several Sections of this
Warrant are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof.
[Balance
of page intentionally left blank]
4For each
Warrant, insert number equal to Closing Date Warrant Amount, multiplied by (x) a
fraction, of which (1) the numerator is the principal amount of the Related
Debenture having the same No. as this Warrant and (2) the denominator is the
Purchase Price for all Debentures issued on the relevant Closing
Date.
5Insert
amount equal to (x) the VWAP on the Trading Day immediately before the relevant
Closing Date, multiplied by (y) 110%.
7By way of
example: As of the Accelerated Expiration Notice Date, this Warrant could be
exercised for 1,000,000 shares. The Accelerated Expiration Notice
refers to the accelerated Expiration Date for 400,000 shares. If,
during the period from the Accelerated Expiration Notice Date through the
Accelerated Expiration Date, (i) the Holder does not exercise this Warrant,
then after the Accelerated Expiration Date, this Warrant could be
exercised for 600,000 shares; (ii) the Holder exercises this Warrant for an
aggregate of 300,000 shares (which the Company issues to the Holder), then after
the Accelerated Expiration Date, this Warrant could be exercised for 600,000
shares, or (iii) the Holder exercises this Warrant for 400,000 or more shares,
then after the Accelerated Expiration Date, this Warrant could be exercised for
the result of 1,000,000 less the actual number of shares exercised during that
period.
IN WITNESS
WHEREOF, the Company has caused this instrument to be duly executed by an
officer thereunto duly authorized.
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AMERICAN
SECURITY RESOURCES CORPORATION
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Dated:
_________________, 20___
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By:_______________________________________
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__________________________________________
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(Print
Name)
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__________________________________________
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(Title)
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NOTICE OF
EXERCISE OF WARRANT
TO: American
Security Resources
Corporation
VIA FAX: (____) ___-____
0000 Xxxx Xxxxxxx, Xxxxx
000
Xxxxxxx, XX 00000
Attn: President
The undersigned hereby irrevocably
elects to exercise the right, represented by the Common Stock Purchase Warrant
Class 2008-___, No. 08-__-__, dated as of _____________________, 20___, to
purchase ___________ shares of the Common Stock, $0.001 par value (“Common
Stock”), of AMERICAN SECURITY
RESOURCES CORPORATION and tenders herewith payment in accordance with
Section 2 of said Common Stock Purchase Warrant, as follows:
9 CASH: $
=
(Exercise Price x Exercise Shares)
Payment is being made by:
9 enclosed
check
9 wire
transfer
9 other
9 CASHLESS
EXERCISE [if available pursuant to Section 2.1(b)]:
Net number of Warrant Shares to be
issued to Holder
: _________*
* based
on: Current Market
Value - (Exercise Price x Exercise Shares)
Market
Price of Common Stock
where:
Market Price of Common Stock
[“MP”] = $_______________
Current Market Value [MP x Exercise
Shares] = $_______________
It is the intention of the Holder to
comply with the provisions of Section 2.2 of the Warrant regarding certain
limits on the Holder's right to exercise thereunder. The Holder
believes this exercise complies with the provisions of said Section
2.2. Nonetheless, to the extent that, pursuant to the exercise
effected hereby, the Holder would have more shares than permitted under said
Section, this notice should be amended and revised, ab initio, to refer to the
exercise which would result in the issuance of shares consistent with such
provision. Any exercise above such amount is hereby deemed void and
revoked.
As contemplated by the Warrant, this
Notice of Conversion is being sent by facsimile to the telecopier number and
officer indicated above.
If this Notice of Exercise represents
the full exercise of the outstanding balance of the Warrant, the Holder either
(1) has previously surrendered the Warrant to the Company or (2) will surrender
(or cause to be surrendered) the Warrant to the Company at the address indicated
above by express courier within five (5) Trading Days after delivery or
facsimile transmission of this Notice of Exercise.
The certificates representing the
Warrant Shares should be transmitted by the Company to the Holder
9 via
express courier, or
9 by
electronic transfer
after
receipt of this Notice of Exercise (by facsimile transmission or otherwise)
to:
_____________________________________
_____________________________________
_____________________________________
Dated:
______________________
____________________________
[Name of
Holder]
By:
_________________________
