EXHIBIT 4.1
WARRANT TO PURCHASE COMMON STOCK
(CONVERSION WARRANTS)
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT FOR DISTRIBUTION, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED NEITHER THE WARRANT NOR THE SHARES MAY BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. THIS WARRANT
MUST BE SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION
PRECEDENT TO THE SALE, PLEDGE OR OTHER TRANSFER OF ANY INTEREST IN THIS WARRANT
OR THE SHARES ISSUABLE HEREUNDER.
Issuer: American Ammunition, Inc.
Class of Stock: Common Stock
Issue Date: October ___, 2002
Expiration Date: October ___, 2004
THIS WARRANT TO PURCHASE COMMON STOCK is being issued pursuant to that
certain Securities Purchase Agreement dated as of the date hereof (the "Purchase
Agreement") between American Ammunition, Inc., a California corporation (the
"Company") and La Jolla Cove Investors, Inc. ("Holder").
The Company hereby grants to Holder the right to purchase that number of
shares of the Company's Common Stock (the "Shares" or "Warrant Shares") equal to
ten (10) times the number of shares of Common Stock issued to Holder from time
to time pursuant to the conversion of the Debenture (as such term is defined in
the Purchase Agreement). For avoidance of doubt, this Warrant shall be exercised
concurrently with the issuance of a Conversion Notice under the Debenture. The
date that the Holder issues a Conversion Notice is hereafter referred to as the
"Conversion Date." Defined terms not defined herein shall have the meanings
ascribed to them in the Debenture or the Purchase Agreement.
This Warrant shall expire and Holder shall no longer be able to purchase
the Warrant Shares on October ___, 2004.
ARTICLE 1
EXERCISE
1.1 Method of Exercise. Holder may exercise this Warrant by delivering a duly
executed Warrant Notice of Exercise in substantially the form attached as
Appendix 1 to the principal office of the Company, along with a check payable to
the Company for the aggregate Exercise Price for the Shares being purchased.
1.2 Delivery of Certificate and New Warrant. As promptly as practicable after
the receipt of the Warrant Notice of Exercise, but in any event not more than
three (3) Business Days after the Company's receipt of the Warrant Notice of
Exercise, the Company shall issue the Shares and cause to be mailed for delivery
by overnight courier, or if a Registration Statement covering the Shares has
been declared effective by the SEC cause to be electronically transferred, to
Holder a certificate representing the Shares acquired and, if this Warrant has
not been fully exercised and has not expired, a new Warrant substantially in the
form of this Warrant representing the right to acquire the portion of the Shares
not so acquired.
1.3 Replacement of Warrants. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant and,
in the case of loss, theft or destruction, on delivery of an indemnity agreement
reasonably satisfactory in form and amount to the Company or, in the case of
mutilation, or surrender and cancellation of this Warrant, the Company at its
expense shall execute and deliver, in lieu of this Warrant, a new warrant of
like tenor.
1.4 Exercise Price. The Exercise Price of this Warrant shall be the lesser of
(a) $1.00; or (b) eighty percent (80%) of the average of the 5 lowest Volume
Weighted Average Price days during the twenty (20) Trading Days prior to
Holder's election to exercise ("Discount Multiplier"), provided, that in the
event that the Registration Statement has not been declared effective by the SEC
by the Deadline, then the Discount Multiplier shall decrease by three percent
(3%) for each month or partial month occurring after the Deadline that the
Registration Statement has not been declared effective by the SEC; or (c) the
price paid to convert the corresponding portion of the Debenture.
ARTICLE 2
ADJUSTMENT TO THE SHARES
The number of Shares purchasable upon the exercise of this Warrant and the
Exercise Price shall be subject to adjustment form time to time upon the
occurrence of certain events, as follows: 2.1 Reclassification. In case of any
reclassification or change of outstanding securities of the class issuable upon
exercise of this Warrant then, and in any such case, the Holder, upon the
exercise hereof at any time after the consummation of such reclassification or
change, shall be entitled to receive in lieu of each Share theretofore issuable
upon exercise of this Warrant, the kind and amount of shares of stock, other
securities, money and/or property received upon such reclassification or change
by a holder of one Share. The provisions of this Section 2.1 shall similarly
apply to successive reclassifications or changes.
2.2 Subdivision or Combination of Shares. If the Company at any time while this
Warrant remains outstanding and unexpired shall subdivide or combine its Shares,
the Exercise Price shall be proportionately decreased in the case of a
subdivision or increased in the case of a combination. For example, in the case
of a reverse stock split, the Exercise Price would increase proportionately and
the number of Shares to be issued upon exercise would decrease proportionately.
Likewise, in the case of a forward stock split, the Exercise Price would
decrease proportionately and the number of Shares to be issued upon exercise
would increase proportionately.
2.3 Stock Dividends. If the Company, at any time while this Warrant is
outstanding shall pay a dividend with respect to its Shares payable in Shares,
or make any other distribution of Shares with respect to Shares (except any
distribution specifically provided for in Section 2.1 and Section 2.2 above),
then the Exercise Price shall be adjusted, effective from and after the date of
determination of shareholders entitled to received such dividend or
distribution, to that price determined by multiplying the Exercise Price in
effect immediately prior to such date of determination by a fraction, (a) the
numerator of which shall be the total number of Shares outstanding immediately
prior to such dividend or distribution, and (b) the denominator of which shall
be the total number of Shares outstanding immediately after such dividend or
distribution.
2.4 Non-Cash Dividends. If the Company at any time while this Warrant is
outstanding shall pay a dividend with respect to Shares payable in securities
other than Shares or other non-cash property, or make any other distribution of
such securities or property with respect to Shares (except any distribution
specifically provided for in Section 2.1 and Section 2.2 above), then this
Warrant shall represent the right to acquire upon exercise of this Warrant such
securities or property which a holder of Shares would have been entitled to
receive upon such dividend or distribution, without the payment by the Holder of
any additional consideration for such securities or property.
2.5 Effect of Reorganization and Asset Sales. If any (i) reorganization or
reclassification of the Common Stock (ii) consolidation or merger of the Company
with or into another corporation, or (iii) sale or all or substantially all of
the Company's operating assets to another corporation followed by a liquidation
of the Company (any such transaction shall be followed by a liquidation of the
Company (any such transaction shall be referred to herein as an "Event", is
effected in such a way that holders of common Stock are of Common Stock are
entitled to receive securities and/or assets as a result of their Common Stock
ownership, the Holder, upon exercise of this Warrant, shall be entitled to
receive such shares of stock securities or assets which the Holder would have
received had it fully exercised this Warrant on or prior the record date for
such Event. The Company shall not merge into or consolidate with another
corporation or sell all of its assets to another corporation for a consideration
consisting primarily of securities or such corporation, unless the successor or
acquiring corporation, as the case may be, shall expressly assume the due and
punctual observance and performance of each and every covenant and condition of
this Warrant to be performed or observed by the Company and all of the
obligations and liabilities hereunder, subject to such modification as shall be
necessary to provide for adjustments which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 2. The foregoing
provisions shall similarly apply to successive mergers, consolidations or sales
of assets.
2.6 Adjustment of Number of Shares. Upon each adjustment in the Exercise Price,
the number of Shares shall be adjusted, to the nearest whole share, to the
product obtained by multiplying the number of Shares, purchasable immediately
prior to such adjustment and the denominator of which shall be the Exercise
Price immediately thereafter.
2.7 No Impairment. The Company shall not, by amendment of its articles of
incorporation or through a 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 under this Warrant by the Company, but shall at all times
in good faith assist in carrying out all of the provisions of this Warrant and
in taking all such action as may be reasonably necessary or appropriate to
protect Xxxxxx's rights hereunder against impairment. If the Company takes any
action affecting its Common Stock other than as described above that adversely
affects Holder's rights under this Warrant, the Exercise Price shall be adjusted
downward and the number of Shares issuable upon exercise of this Warrant shall
be adjusted upward in such a manner that the aggregate Exercise Price of this
Warrant is unchanged.
2.8 Fractional Shares. No fractional Shares shall be issuable upon the exercise
of this Warrant, and the number of Shares to be issued shall be rounded down to
the nearest whole Share.
2.9 Certificate as to Adjustments. Upon any adjustment of the Exercise Price,
the Company, at its expense, shall compute such adjustment and furnish Holder
with a certificate of its Chief Financial Officer setting forth such adjustment
and the facts upon which such adjustment is based. The Company shall, upon
written request, furnish Holder a certificate setting forth the Exercise Price
in effect upon the date thereof and the series of adjustments leading to such
Exercise Price.
2.10 No Rights of Shareholders. This Warrant does not entitle Holder to any
voting rights or any other rights as a shareholder of the Company prior to the
exercise of Xxxxxx's right to purchase Shares as provided herein.
ARTICLE 3
REPRESENTATIONS AND COVENANTS OF THE COMPANY
3.1 Representations and Warranties. The Company hereby represents and warrants
to Holder that all Shares which may be issued upon the exercise of the purchase
right represented by this Warrant, shall, upon issuance, be duly authorized,
validly issued, fully paid and nonasessable, and free of any liens and
encumbrances.
3.2 Notice of Certain Events. If the company proposes at any time (a) to declare
any dividend or distribution upon its Common Stock, whether in cash, property,
stock, or other securities and whether or not a regular cash dividend; (b) to
offer for subscription pro rata to the holders of any class or series of its
stock any additional shares of stock of any class or series or other fights; (c)
to effect any reclassification or recapitalization of Common Stock; (d) to merge
or consolidate with or into any other corporation, or sell, lease, license, or
convey all or substantially all of its assets, or to liquidate, dissolve or wind
up; or (e) offer holders of registration rights the opportunity to participate
in an underwritten public offering of the Company's securities for cash, then,
in connection with each such event, the Company shall give Holder (1) at least
20 days prior written notice of the date on which a record will be taken for
such dividend, distribution, or subscription rights (and specifying the date on
which the holders of Common Stock will be entitled thereto) or for determining
rights to vote, if any, in respect of the matters referred to in (c) and (d)
above; (2) in the case of the matters referred to in (c) and (d) above at least
20 days prior written notice of the date when the same will take place (and
specifying the date on which the holders of Common Stock will be entitled to
exchange their Common Stock for securities or other property deliverable upon
the occurrence of such event); and (3) in the case of the matter referred to in
(e) above, the same notice as is given to the holders of such registration
rights.
3.3 Information Rights. So long as Holder holds this Warrant and/or any of the
Shares, the company shall deliver to Holder (a) promptly after mailing, copies
of all notices or other written communications to the shareholders of the
Company, (b) within ninety (90) days of their availability, the annual audited
financial statements of the Company certified by independent public accountants
of recognized standing, and (c) within forty-five (45) days after the end of
each fiscal quarter or each fiscal year, the Company's quarterly, unaudited
financial statements.
3.4 Reservation of Warrant Shares. The Company has reserved and will keep
available, out of the authorized and unissued shares of Common Stock, the full
number of shares sufficient to provide for the exercise of the rights of
purchase represented by this Warrant.
3.5 Registration Rights. If Holder exercises this Warrant and purchases some or
all of the Shares, Holder shall have the Registration Rights set forth in that
certain Registration Rights Agreement executed concurrently therewith.
ARTICLE 4
REPRESENTATIONS AND COVENANTS OF THE HOLDER
4.1 Investment Purpose. Xxxxxx's right to acquire Shares is being acquired for
investment and not with a view to the sale or distribution of any part thereof,
and Holder has no present intention of selling or engaging in any public
distribution of the same except pursuant to a registration or exemption.
4.2 Private Issue. Holder understands (i) that the Shares issuable upon exercise
of Xxxxxx's rights contained in the Warrant are not registered under the Act or
qualified under applicable state securities laws on the ground that the issuance
contemplated by the Warrant will be exempt from the registration and
qualifications requirements thereof, and (ii) that the Company's reliance on
such exemption is predicated on Holder's representations set forth in this
Article 4.
4.3 Financial Risk. Holder has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of its
investment and has the ability to bear the economic risks of its investment.
4.4 Risk of No Registration. Holder understands that if the Company does not
register with the Securities and Exchange Commission pursuant to Section 12 of
the Act, or file reports pursuant to Section 15(d), of the Securities Exchange
Act of 1934 (the "1934 Act"), or if a registration statement covering the
securities under the Act is not in effect when it desires to sell (i) the right
to purchase Shares pursuant to the Warrant, or (ii) the Shares issuable upon
exercise of the right to purchase, it may be required to hold such securities
for an indefinite period.
4.5 Accredited Investor. Holder is an "accredited investor," as such term is
defined in Regulation D promulgated pursuant to the Act.
ARTICLE 5
MISCELLANEOUS
5.1 Term. This Warrant is exercisable, in whole or in part, at any time and from
time to time on or after the Conversion Date and on or before the Expiration
Date set forth above.
5.2 Compliance with Securities Laws on Transfer. This Warrant may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal pinions reasonably satisfactory to the Company, as reasonably
requested by the Company) and without the prior written consent of Company,
which consent shall not be unreasonably withheld, provided that Holder shall
have the right without the consent of the Company to transfer or assign in whole
or in part this Warrant and the Shares issuable upon exercise this Warrant to
any of Holder's affiliates, successors, assigns or the United States Federal
Reserve Board. The Company shall not require Holder to provide an opinion of
counsel if the transfer is to an affiliate of Holder.
5.3 Transfer Procedure. Xxxxxx agrees that unless there is in effect a
registration statement under the Act covering the proposed transfer of all or
part of this Warrant, prior to any such proposed transfer the Holder shall give
written notice thereof to the Company (a "Transfer Notice"). Each Transfer
Notice shall describe the manner and circumstances of the proposed transfer in
reasonable detail and, if the company so requests, shall be accompanied by an
opinion of legal counsel, in a form reasonably satisfactory to the Company, to
the effect that the proposed transfer may be effected without registration under
the Act; provided that the Company will not require opinions of counsel for
transactions involving transfers to affiliates or pursuant to Rule 144
promulgated by the Securities and Exchange Commission under the act, except in
unusual circumstances. 5.4 Notices, etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be delivered
personally, or sent by telecopier machine or by a nationally recognized
overnight courier service, and shall be deemed given when so delivered
personally, or by telecopier machine or overnight courier service as follows:
if to the Company, to:
American Ammunition, Inc.
0000 XX 00xx Xx.
Xxxxx, Xxxxxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
if to the Holder, to:
La Jolla Cove Investors, Inc.
0000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xx Xxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
or at such other address as the Company shall have furnished to the Holder. Each
such notice or other communication shall for all purposes of this agreement be
treated as effective or having been given when delivered if delivered
personally, or, if sent by mail, at the earlier of its receipt or five days
after the same has been deposited in a regularly maintained receptacle for the
deposit of the United States mail, addressed and mailed as aforesaid.
5.5 Counterparts. This agreement may be executed in any number of counterparts,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
Facsimile execution shall be deemed originals.
5.6 Waiver. This Warrant and any term hereof may be changed, waived, discharged
or terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought.
5.7 Attorneys Fees. In the event of any dispute between the parties concerning
the terms and provisions of this Warrant, the party prevailing in such dispute
shall be entitled to collect from the other party all costs incurred in such
dispute, including reasonable attorneys fees.
5.8 Governing Law; Jurisdiction. This Warrant shall be governed by and construed
in accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law. Each of the parties hereto consents
to the jurisdiction of the federal courts whose districts encompass any part of
the City of San Diego or the state courts of the State of California sitting in
the City of San Diego 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.
IN WITNESS WHEREOF, the parties hereto have duly caused this Warrant to
Purchase Common Stock to be executed and delivered on the date first above
written.
American Ammunition, Inc. La Jolla Cove Investors, Inc.
By: ___________________________ By: __________________________
Title: __________________________ Title:_________________________
APPENDIX 1
WARRANT NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase _____ shares of the Common
Stock of American Ammunition, Inc. pursuant to the terms of the Warrant to
Purchase Common Stock issued by American Ammunition, Inc. on October ___, 2002
and tenders herewith payment of the purchase price of such shares in full.
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
---------------------
(Name and Address)
3. The undersigned makes the representations and covenants set forth in
Article 4 of the Warrant to Purchase Common Stock.
--------------------------------
(Signature)
---------------------------
(Date)
