Document:

Exhibit
4.8

 

THIS WARRANT AND THE
SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT 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 CORPORATION AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.

 

WARRANT
TO PURCHASE STOCK

 

Issuer: Tri-S Security
Corporation, a Georgia corporation (the “Company”)

 

Number of Shares: 150,000
shares

 

Class of Stock: Common
(the “Shares”)

 

Exercise Price:  $4.80 per share, as the same may be from time
to time adjusted pursuant to Article 2 hereof.

 

Issue Date: April 26,
2006

 

Expiration Date: April
26, 2009

 

THIS WARRANT CERTIFIES
THAT, for the agreed upon value of $1.00 and for other good and valuable
consideration, BRE LLC (“Holder”) is entitled to
purchase the number of fully paid and nonassessable Shares of the Company at
the Exercise Price per Share set forth, subject to the provisions and upon the
terms and conditions set forth in this Warrant.

 

ARTICLE 1                                   EXERCISE.

 

1.1                                 Method
of Exercise. Subject to Section 1.6 below, this Warrant is exercisable, in
whole or in part, at any time and from time to time on or before the Expiration
Date set forth above. Holder may exercise this Warrant by delivering a duly
executed Notice of Exercise, in substantially the form attached as
Appendix 1, to the principal office of Company together with a check for
the aggregate Exercise Price for Shares being purchased.

 

1.2                                 Fair
Market Value. If the Shares are traded in a public market, the fair market
value of the Shares shall be the closing price of the Shares (or the closing
price of the Company’s stock into which the Shares are convertible) reported
for the business day immediately before Holder delivers its Notice of Exercise
to the Company. If the Shares are not traded in a public market, the Board of
Directors of Company shall determine fair market value in its reasonable good
faith judgment. The foregoing notwithstanding, if Holder advises the Board of
Directors in writing that Holder disagrees with such determination, then
Company and Holder shall promptly agree upon a reputable investment banking
firm to undertake such valuation. If the valuation of such investment banking
firm is greater than that determined by the Board of Directors, then all fees
and expenses of such investment banking firm shall be paid by Company. In all
other circumstances, such fees and expenses shall be paid by Holder.

 

1.3                                 Delivery
of Certificate and New Warrant. Promptly after Holder exercises this
Warrant, Company shall deliver to Holder certificates for Shares acquired and,
if this Warrant has not been fully exercised and has not expired, a new Warrant
representing Shares not so acquired.

 

1.4                                 Replacement
of Warrants. On receipt of evidence reasonably satisfactory to 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 Company or, in the case of mutilation, on
surrender and cancellation of this Warrant, Company at its expense shall
execute and deliver, in lieu of this Warrant, a new warrant of like tenor.

 

1.5                                 Repurchase
on Sale, Merger, or Consolidation of Company. For the purpose of this
Warrant, “Acquisition” means any sale, license, or other disposition of all or
substantially all of the assets of Company, or any reorganization,
consolidation, or merger of Company where the holders of Company’s securities
before the transaction beneficially own less than 50% of the outstanding voting
securities of the surviving entity after the transaction. Upon the closing of
any Acquisition, the successor entity shall assume the obligations of this
Warrant, and this Warrant shall be exercisable for the same securities, cash,
and property as would be payable for Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were

 

 

outstanding on the record date for the Acquisition and subsequent
closing, and the Exercise Price shall be adjusted accordingly; provided
that if pursuant to such Acquisition the entire outstanding class of Shares
issuable upon exercise of the unexercised portion of this Warrant are cancelled
and the total consideration payable to the holders of such class of Shares
consists entirely of cash, then, upon payment to the holder of this Warrant of
an amount equal to the amount such holder would receive if such holder held
Shares issuable upon exercise of the unexercised portion of this Warrant and
such Shares were outstanding on the record date for the Acquisition less
the aggregate Exercise Price of such Shares, this Warrant shall be cancelled.

 

1.6                                 Limitations
on Exercise.

 

1.6.1                        Shareholder Approval. In no event shall the Holder of this
Warrant be permitted to exercise this Warrant or any portion hereof pursuant to
Article 1 hereof until the Company has obtained Shareholder Approval. No later
than thirty (30) days after the termination of the Offering, the Company shall
file with the Securities and Exchange Commission a preliminary proxy statement
pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
in connection with a Shareholder Meeting and shall seek to convene such meeting
as promptly thereafter as practicable.

 

1.6.2                        Beneficial Ownership. In no event shall the Holder of this
Warrant be permitted to exercise this Warrant or any portion hereof pursuant to
Article 1 hereof if, upon such exercise, the number of shares of Common Stock
to be issued pursuant to such exercise plus the number of shares of
Common Stock beneficially owned by the Holder would exceed 9.99% of the number
of shares of Common Stock then issued and outstanding, it being the intent of
the Company and the Holder that the Holder not be deemed at any time to have
the power to vote or dispose of greater than 9.99% of the number of shares of
Common Stock issued and outstanding at any time. Nothing contained herein shall
be deemed to restrict the right of the Holder to exercise this Warrant or any
portion thereof at such time as such exercise will not violate the provisions
of this Section 1.6.2. As used herein, beneficial ownership shall be determined
in accordance with Section 13(d) of the Exchange Act. To the extent that the
limitation contained in this Section 1.6.2 applies (and without limiting any
rights the Company may otherwise have), the Company may rely on the Holder’s
determination of whether this Warrant is exercisable pursuant to the terms hereof,
the Company shall have no obligation whatsoever to verify or confirm the
accuracy of such determination, and the submission of a Notice of Exercise by
the Holder shall be deemed to be the Holder’s representation that this Warrant
is exercisable pursuant to the terms hereof.

 

1.6.3                        Certain Definitions. The following terms used in this
Section 1.6 have the following respective meanings:

 

“Memorandum” means
the Company’s Confidential Private Offering Memorandum dated July 26, 2005, as
the same may be amended or supplemented from time to time.

 

“Offering” means
the offer and sale of the Company’s securities as contemplated by the
Memorandum.

 

“Shareholder Approval”
means the affirmative vote of at least a majority of the votes cast at a
Shareholder Meeting at which a quorum is present to approve the potential
issuance in connection with the Offering of more than 20% of the outstanding
shares of Common Stock for purpose of complying with the rules governing The
Nasdaq Stock Market, Inc.

 

“Shareholder
Meeting” means a meeting of the Company’s shareholders.

 

ARTICLE 2                                   ADJUSTMENTS.

 

2.1                                 Stock
Dividends, Splits, Etc. If Company declares or pays a dividend on its
common stock (or Shares if Shares are securities other than common stock)
payable in common stock or other securities,

 

 

subdivides the outstanding common stock into a greater amount of common
stock, or, if Shares are securities other than common stock, subdivides Shares
in a transaction that increases the amount of common stock into which Shares
are convertible, then upon exercise of this Warrant, for each Share acquired,
Holder shall receive, without cost to Holder, the total number and kind of
securities to which Holder would have been entitled had Holder owned Shares of
record as of the date the dividend or subdivision occurred.

 

2.2                                 Reclassification,
Exchange or Substitution. Except in the case of an Acquisition to which
Section 1.5 is applicable, upon any reclassification, exchange, substitution,
or other event that results in a change of the number and/or class of the
securities issuable upon exercise of this Warrant, Holder shall be entitled to
receive, upon exercise of this Warrant, the number and kind of securities and
property that Holder would have received for Shares if this Warrant had been exercised
immediately before such reclassification, exchange, substitution, or other
event. Company or its successor shall promptly issue to Holder a new Warrant
for such new securities or other property. The new Warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Exercise Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this
Section 2.2 shall similarly apply to successive reclassifications,
exchanges, substitutions, or other events.

 

2.3                                 Adjustments
for Combinations, Etc. If the outstanding Shares are combined or
consolidated, by reclassification or otherwise, into a lesser number of shares,
the Exercise Price shall be proportionately increased and the number of Shares
as to which this warrant is exercisable shall be proportionately decreased.

 

2.4                                 Adjustments
for Diluting Issuances. The Exercise Price and the number of Shares
issuable upon exercise of this Warrant shall be subject to adjustment, from
time to time in the manner set forth on Exhibit A in the event of Diluting
Issuances (as defined on Exhibit A).

 

2.5                                 No
Impairment. 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 Company, but shall at all
times in good faith assist in carrying out of all the provisions of this
Article 2 and in taking all such action as may be necessary or appropriate to
protect Holder’s rights under this Article against impairment. If Company takes
any dilutive action affecting Shares or 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
such dilutive action is offset and the aggregate Exercise Price of this Warrant
is unchanged.

 

2.6                                 Fractional
Shares. No fractional Shares shall be issuable upon exercise of the Warrant
and the number of Shares to be issued shall be rounded down to the nearest
whole Share. If a fractional share interest arises upon any exercise of the
Warrant, Company shall eliminate such fractional share interest by paying Holder
an amount computed by multiplying the fractional interest by the fair market
value of a full Share.

 

2.7                                 Certificate
as to Adjustments. Upon each adjustment of the Exercise Price, Company at
its expense shall promptly 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. 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.

 

ARTICLE 3                                   COVENANTS OF COMPANY.

 

3.1                                 Valid
Issuance. Company shall take all steps necessary to insure that all Shares
which may be issued upon the exercise of this Warrant shall, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable, and free of any
liens and encumbrances except for restrictions on transfer provided for herein
or under applicable federal and state securities laws.

 

3.2                                 Notice
of Certain Events. If 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 rights; (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, Company shall give Holder (1) in the case
of the matters referred to in (a) and (b) above 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.
So long as the Holder holds this Warrant and/or any of the Shares, Company shall
deliver to Holder (a) promptly, copies of all notices or other written
communications to which Holder would be entitled if it held Shares as to which
this Warrant was then exercisable and (b) such other financial statements
required under and in accordance with any loan documents between Holder and
Company, or if there are no such requirements [or if the subject loan(s)
are no longer are outstanding, then within 45 days after the end of each of the
first three quarters of each fiscal year, Company’s quarterly, unaudited
financial statements and within 120 days after the end of each fiscal year,
Company’s annual, audited financial statements.

 

3.4                                 Notice
of Expiration. Company shall give Holder written notice of Holder’s right
to exercise this Warrant in the form attached as Appendix 2 not more than
90 days and not less than 15 days before the Expiration Date and, in
the case of an Acquisition to which the proviso of Section 1.5 shall be
applicable, 15 days notice of such Acquisition. If the notice is not so given,
the Expiration Date shall automatically be extended until 15 days after
the date Company delivers the notice to Holder.

 

3.5                                 Registration
Rights. The common stock issuable upon exercise of the Warrant shall have
the same registration rights as are set forth in the Registration Rights
Agreement, dated as of October 11, 2005, between Company and its investors, as
from time to time in effect (the “Registration Rights Agreement” — a true copy
of which as in effect on the date hereof has been furnished by Company to
Holder), and by accepting this Warrant, Holder agrees to be subject to
corresponding obligations of the Investors set forth in the Registration Rights
Agreement as though Holder were named an Investor therein. Company agrees that
no amendments will be made to the Investor Rights Agreement which would have an
adverse impact on Holder’s registration rights thereunder.

 

ARTICLE 4                                   MISCELLANEOUS.

 

4.1                                 Legends.
This Warrant and the Shares shall be imprinted with a legend in substantially
the following form:

 

THIS SECURITY HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT 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 COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.

 

4.2                                 Compliance
with Securities Laws on Transfer. This Warrant and the Shares issuable upon
exercise of 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 opinions reasonably satisfactory to
Company, as reasonably requested by Company). Company shall not require Holder
to provide an opinion of counsel if the transfer is to an affiliate of Holder
or, if current information, as referenced in Rule 144(c), is available, Holder
represents that it has complied with Rule 144(d) and (e) in reasonable
detail, the selling broker represents that it has complied with
Rule 144(f) and the Company is provided with a copy of Holder’s notice of
proposed sale.

 

4.3                                 Transfer
Procedure. Subject to the provisions of Section 4.3 Holder may
transfer all or part of this Warrant or the Shares issuable upon exercise of
this Warrant at any time to                                         ,
or to any other transferee acceptable to Company (which acceptance shall not be
unreasonably withheld or delayed) by giving Company notice of the portion of
the Warrant being transferred setting forth the name,

 

 

address and taxpayer identification number of the transferee and
surrendering this Warrant to Company for reissuance to the transferee(s) (and Holder
if applicable). Company shall have the right to refuse to transfer any portion
of this Warrant to any person who directly competes with Company.

 

4.4         Notices.
All notices and other communications from Company to Holder, or vice versa,
shall be in writing and shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, or by overnight courier, at such address as may have been furnished to
Company or Holder, as the case may be, in writing by Company or such Holder
from time to time.

 

4.5         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.

 

4.6         Governing
Law. This Warrant shall be governed by and construed in accordance with the
laws of the State of Georgia, without giving effect to its principles regarding
conflicts of law.

 

IN WITNESS WHEREOF,
Company has caused this Warrant to be duly executed by its authorized officers,
all as of the day and year first above written.

 

	
   

  	
   

  	
  COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  TRI-S SECURITY CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
  /s/ Ronald G. Farrell

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Ronald G. Farrell

  	
   

  
	
   

  	
   

  	
  Title:

  	
  CEO

  	
   

  
	
   

  	
   

  	
   

  
	
  The undersigned Holder acknowledges and accepts the
  terms of this Warrant and represents that it is an “accredited investor,” as
  that term is defined in Rule 501 under the Securities Act of 1933, as
  amended:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  BRE, LLC

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Max Eliscu

  	
   

  	
   

  	
   

  
	
  Name:

  	
  Max Eliscu

  	
   

  	
   

  	
   

  
	
  Title:

  	
  Manager

  	
   

  	
   

  	
   

  
											

 

 

APPENDIX 1

 

Notice of Exercise

 

1.                                       The
undersigned hereby elects to purchase               shares of the Common Stock of Tri-S
Security Corporation pursuant to the terms of the attached Warrant, 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:                                                                                      

 

Address:                                                                                    

 

                                                                                                  

 

3.                                       The
undersigned represents it is an “accredited investor” within the meaning of
Rule 501 of the Securities Act of 1933, as amended, and it is acquiring the
shares solely for its own account and not as a nominee for any other party and
not with a view toward the resale or distribution thereof except in compliance
with applicable securities laws.

 

	
   

  	
   

  	
   

  
	
   

  	
  (Signature)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Date)

  

 

 

APPENDIX 2

 

Notice that
Warrant Is About to Expire

 

[Insert Date of
Notice]

 

To:                                                        

Attn:                     

                                

                                

 

The Warrant issued to you
described below will expire on October     , 2008.

 

Issuer:  Tri-S Security Corporation

 

Issue Date:  October     , 2005

 

Class of Security
Issuable:  Common Stock

 

Exercise Price per Share:  $4.80

 

Number of Shares
Issuable:                   

 

Procedure for Exercise:

 

Please contact                     
at (      )        -       
with any questions you may have concerning exercise of the Warrant. This is
your only notice of pending expiration.

 

	
   

  	
  TRI-S SECURITY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Its:

  	
   

  	
   

  

 

 

EXHIBIT A

 

Anti-Dilution
Provisions

 

In the event of the
issuance (a “Diluting Issuance”) by Company, after the Issue Date of the
Warrant, of Common Stock (or options or other rights to subscribe thereto or
securities convertible into or exchangeable for Common Stock) at a price per
share less than the Exercise Price, then the number of Shares issuable upon
exercise of the Warrant and the Exercise Price, shall be adjusted as a result
of Diluting Issuances in accordance with the following (provided that
under no circumstances shall the aggregate Exercise Price payable by Holder
upon exercise of the Warrant increase as a result of any adjustment arising
from a Diluting Issuance):

 

1.               Definitions.
As used in these Antidilution Provisions, the following terms have the
following respective meanings:

 

(a)          “Option”
means any right, option, or warrant to subscribe for, purchase, or otherwise
acquire common stock or Convertible Securities.

 

(b)         “Convertible
Securities” means any evidences of indebtedness, shares of stock, or other
securities directly or indirectly convertible into or exchangeable for common
stock.

 

(c)          “Issue”,
means to grant, issue, sell, assume, or fix a record date for determining
persons entitled to receive, any security (including Options), whichever of the
foregoing is the first to occur. Any variation of the term “Issue” including,
without limitation, “Issuable”, “Issuance” or “Issued” shall have the same
meaning as set forth in this section 1(c).

 

(d)         “Additional
Common Shares” means all common stock (including reissued shares) issued (or
deemed to be issued pursuant to Section 2) after the date of the Warrant. Additional
Common Shares does not include, however, any common stock issued in a
transaction described in Sections 2.1 and 2.2 of the Warrant; any common
stock Issued upon conversion of preferred stock outstanding on the date of the
Warrant; the Shares; or common stock Issued as incentive or in a nonfinancing
transaction to employees, officers, directors, or consultants to Company.

 

(e)          The
shares of common stock ultimately Issuable upon exercise of an Option
(including the shares of common stock ultimately Issuable upon conversion or
exercise of a Convertible Security Issuable pursuant to an Option) are deemed
to be Issued when the Option is Issued. The shares of common stock ultimately
Issuable upon conversion or exercise of a Convertible Security (other than a Convertible
Security Issued pursuant to an Option) shall be deemed Issued upon Issuance of
the Convertible Security.

 

2.               Deemed
Issuance of Additional Common Shares. The shares of common stock ultimately
Issuable upon exercise of an Option (including the shares of common stock
ultimately Issuable upon conversion or exercise of a Convertible Security
Issuable pursuant to an Option) are deemed to be Issued when the Option is
Issued. The shares of common stock ultimately Issuable upon conversion or
exercise of a Convertible Security (other than a Convertible Security Issued
pursuant to an Option) shall be deemed Issued upon Issuance of the Convertible
Security. The maximum amount of common stock Issuable is determined without
regard to any future adjustments permitted under the instrument creating the
Options or Convertible Securities.

 

3.               Adjustment
of Exercise Price for Diluting Issuances

 

3.1         Weighted
Average Adjustment. If Company issues Additional Common Shares after the
date of the Warrant and the consideration per Additional Common Share
(determined pursuant to Section 9) is less than the Exercise Price in
effect immediately before such Issue, the Exercise Price shall be reduced,
concurrently with such Issue, to a price (calculated to the nearest hundredth of
a cent) determined by multiplying the Exercise Price by a fraction:

 

(a)                                  the
numerator of which is the amount of such common stock outstanding immediately
before such Issue plus the amount of common stock that the aggregate
consideration received by Company for the Additional Common Shares would
purchase at the Exercise Price in effect immediately before such Issue, and

 

(b)                                 the
denominator of which is the amount of common stock outstanding immediately
before such Issue plus the number of such Additional Common Shares.

 

 

3.2         Adjustment
of Number of Shares. Upon each adjustment of the Exercise Price, the number
of Shares issuable upon exercise of the Warrant shall be increased to equal the
quotient obtained by dividing (a) the product resulting from multiplying (i)
the number of Shares issuable upon exercise of the Warrant and (ii) the
Exercise Price, in each case as in effect immediately before such adjustment,
by (b) the adjusted Exercise Price.

 

3.3         Securities
Deemed Outstanding. For the purpose of this Section 3, all securities
issuable upon exercise of any outstanding Convertible Securities or Options,
warrants, or other rights to acquire securities of Company shall be deemed to
be outstanding.

 

4.               No
Adjustment for Issuances Following Deemed Issuances. No adjustment to the
Exercise Price shall be made upon the exercise of Options or conversion of
Convertible Securities.

 

5.               Adjustment
Following Changes in Terms of Options or Convertible Securities. If the
consideration payable to, or the amount of common stock Issuable by, Company
increases or decreases, respectively, pursuant to the terms of any outstanding
Options or Convertible Securities, the Exercise Price shall be recomputed to
reflect such increase or decrease. The recomputation shall be made as of the
time of the Issuance of the Options or Convertible Securities. Any changes in
the Exercise Price that occurred after such Issuance because other Additional
Common Shares were Issued or deemed Issued shall also be recomputed.

 

6.               Recomputation
Upon Expiration of Options or Convertible Securities. The Exercise Price
computed upon the original Issue of any Options or Convertible Securities, and
any subsequent adjustments based thereon, shall be recomputed when any Options
or rights of conversion under Convertible Securities expire without having been
exercised. In the case of Convertible Securities or Options for common stock,
the Exercise Price shall be recomputed as if the only Additional Common Shares
Issued were the shares of common stock actually Issued upon the exercise of
such securities, if any, and as if the only consideration received therefor was
the consideration actually received upon the Issue, exercise or conversion of
the Options or Convertible Securities. In the case of Options for Convertible
Securities, the Exercise Price shall be recomputed as if the only Convertible
Securities Issued were the Convertible Securities actually Issued upon the
exercise thereof, if any, and as if the only consideration received therefor
was the consideration actually received by Company (determined pursuant to
Section 9), if any, upon the Issue of the Options for the Convertible
Securities.

 

7.               Limit
on Readjustments. No readjustment of the Exercise Price pursuant to
Sections 5 or 6 shall increase the Exercise Price more than the amount of
any decrease made in respect of the Issue of any Options or Convertible
Securities.

 

8.               30
Day Options. In the case of any Options that expire by their terms not more
than 30 days after the date of Issue thereof, no adjustment of the Exercise
Price shall be made until the expiration or exercise of all such Options.

 

9.               Computation
of Consideration. The consideration received by Company for the Issue of
any Additional Common Shares shall be computed as follows:

 

(a)                                  Cash
shall be valued at the amount of cash received by Company, excluding amounts
paid or payable for accrued interest or accrued dividends.

 

(b)                                 Property.
Property other than cash shall be computed at the fair market value thereof at
the time of the Issue as determined in good faith by the Board of Directors of
Company.

 

(c)                                  Mixed
Consideration. The consideration for Additional Common Shares Issued
together with other property of Company for consideration that covers both
shall be determined in good faith by the Board of Directors of Company.

 

(d)                                 Options
and Convertible Securities. The consideration per Additional Common Share
for Options and Convertible Securities shall be determined by dividing:

 

(i)             the
total amount, if any, received or receivable by Company for the Issue of the
Options or Convertible Securities, plus the minimum amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to Company upon exercise of the Options or conversion of
the Convertible Securities, by

 

 

(ii)          the
maximum amount of common stock (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment of such number) ultimately Issuable upon the exercise of such
Options or the conversion of such Convertible Securities.Exhibit
4.9

 

THIS WARRANT AND THE
SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT 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 CORPORATION AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.

 

WARRANT
TO PURCHASE STOCK

 

Issuer: Tri-S Security
Corporation, a Georgia corporation (the “Company”)

 

Number of Shares: 25,000
shares

 

Class of Stock: Common
(the “Shares”)

 

Exercise Price:  $4.80 per share, as the same may be from time
to time adjusted pursuant to Article 2 hereof.

 

Issue Date: April 26,
2006

 

Expiration Date: April
26, 2009

 

THIS WARRANT CERTIFIES
THAT, for the agreed upon value of $1.00 and for other good and valuable
consideration, LSQ Funding Group, L.C. (“Holder”)
is entitled to purchase the number of fully paid and nonassessable Shares of
the Company at the Exercise Price per Share set forth, subject to the
provisions and upon the terms and conditions set forth in this Warrant.

 

ARTICLE 1                                   EXERCISE.

 

1.1                                 Method
of Exercise. Subject to Section 1.6 below, this Warrant is exercisable, in
whole or in part, at any time and from time to time on or before the Expiration
Date set forth above. Holder may exercise this Warrant by delivering a duly
executed Notice of Exercise, in substantially the form attached as
Appendix 1, to the principal office of Company together with a check for
the aggregate Exercise Price for Shares being purchased.

 

1.2                                 Fair
Market Value. If the Shares are traded in a public market, the fair market
value of the Shares shall be the closing price of the Shares (or the closing
price of the Company’s stock into which the Shares are convertible) reported
for the business day immediately before Holder delivers its Notice of Exercise
to the Company. If the Shares are not traded in a public market, the Board of
Directors of Company shall determine fair market value in its reasonable good
faith judgment. The foregoing notwithstanding, if Holder advises the Board of
Directors in writing that Holder disagrees with such determination, then
Company and Holder shall promptly agree upon a reputable investment banking
firm to undertake such valuation. If the valuation of such investment banking
firm is greater than that determined by the Board of Directors, then all fees
and expenses of such investment banking firm shall be paid by Company. In all
other circumstances, such fees and expenses shall be paid by Holder.

 

1.3                                 Delivery
of Certificate and New Warrant. Promptly after Holder exercises this
Warrant, Company shall deliver to Holder certificates for Shares acquired and,
if this Warrant has not been fully exercised and has not expired, a new Warrant
representing Shares not so acquired.

 

1.4                                 Replacement
of Warrants. On receipt of evidence reasonably satisfactory to 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 Company or, in the case of mutilation, on
surrender and cancellation of this Warrant, Company at its expense shall
execute and deliver, in lieu of this Warrant, a new warrant of like tenor.

 

1.5                                 Repurchase
on Sale, Merger, or Consolidation of Company. For the purpose of this
Warrant, “Acquisition” means any sale, license, or other disposition of all or
substantially all of the assets of Company, or any reorganization,
consolidation, or merger of Company where the holders of Company’s securities
before the transaction beneficially own less than 50% of the outstanding voting
securities of the surviving entity after the transaction. Upon the closing of
any Acquisition, the successor entity shall assume the obligations of this
Warrant, and this Warrant shall be exercisable for the same securities, cash,
and property as would be payable for Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were

 

 

outstanding on the record date for the Acquisition and subsequent
closing, and the Exercise Price shall be adjusted accordingly; provided
that if pursuant to such Acquisition the entire outstanding class of Shares
issuable upon exercise of the unexercised portion of this Warrant are cancelled
and the total consideration payable to the holders of such class of Shares
consists entirely of cash, then, upon payment to the holder of this Warrant of
an amount equal to the amount such holder would receive if such holder held
Shares issuable upon exercise of the unexercised portion of this Warrant and
such Shares were outstanding on the record date for the Acquisition less
the aggregate Exercise Price of such Shares, this Warrant shall be cancelled.

 

1.6                                 Limitations
on Exercise.

 

1.6.1                        Shareholder Approval. In no event shall the Holder of this
Warrant be permitted to exercise this Warrant or any portion hereof pursuant to
Article 1 hereof until the Company has obtained Shareholder Approval. No later
than thirty (30) days after the termination of the Offering, the Company shall
file with the Securities and Exchange Commission a preliminary proxy statement
pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
in connection with a Shareholder Meeting and shall seek to convene such meeting
as promptly thereafter as practicable.

 

1.6.2                        Beneficial Ownership. In no event shall the Holder of this
Warrant be permitted to exercise this Warrant or any portion hereof pursuant to
Article 1 hereof if, upon such exercise, the number of shares of Common Stock
to be issued pursuant to such exercise plus the number of shares of
Common Stock beneficially owned by the Holder would exceed 9.99% of the number
of shares of Common Stock then issued and outstanding, it being the intent of
the Company and the Holder that the Holder not be deemed at any time to have
the power to vote or dispose of greater than 9.99% of the number of shares of
Common Stock issued and outstanding at any time. Nothing contained herein shall
be deemed to restrict the right of the Holder to exercise this Warrant or any
portion thereof at such time as such exercise will not violate the provisions
of this Section 1.6.2. As used herein, beneficial ownership shall be determined
in accordance with Section 13(d) of the Exchange Act. To the extent that the
limitation contained in this Section 1.6.2 applies (and without limiting any
rights the Company may otherwise have), the Company may rely on the Holder’s
determination of whether this Warrant is exercisable pursuant to the terms
hereof, the Company shall have no obligation whatsoever to verify or confirm
the accuracy of such determination, and the submission of a Notice of Exercise
by the Holder shall be deemed to be the Holder’s representation that this
Warrant is exercisable pursuant to the terms hereof.

 

1.6.3                        Certain Definitions. The following terms used in this
Section 1.6 have the following respective meanings:

 

“Memorandum” means
the Company’s Confidential Private Offering Memorandum dated July 26, 2005, as
the same may be amended or supplemented from time to time.

 

“Offering” means
the offer and sale of the Company’s securities as contemplated by the
Memorandum.

 

“Shareholder Approval”
means the affirmative vote of at least a majority of the votes cast at a Shareholder
Meeting at which a quorum is present to approve the potential issuance in
connection with the Offering of more than 20% of the outstanding shares of
Common Stock for purpose of complying with the rules governing The Nasdaq Stock
Market, Inc.

 

“Shareholder
Meeting” means a meeting of the Company’s shareholders.

 

ARTICLE 2                                   ADJUSTMENTS.

 

2.1                                 Stock
Dividends, Splits, Etc. If Company declares or pays a dividend on its
common stock (or Shares if Shares are securities other than common stock)
payable in common stock or other securities,

 

 

subdivides the outstanding common stock into a greater amount of common
stock, or, if Shares are securities other than common stock, subdivides Shares
in a transaction that increases the amount of common stock into which Shares
are convertible, then upon exercise of this Warrant, for each Share acquired,
Holder shall receive, without cost to Holder, the total number and kind of
securities to which Holder would have been entitled had Holder owned Shares of
record as of the date the dividend or subdivision occurred.

 

2.2                                 Reclassification,
Exchange or Substitution. Except in the case of an Acquisition to which
Section 1.5 is applicable, upon any reclassification, exchange, substitution,
or other event that results in a change of the number and/or class of the
securities issuable upon exercise of this Warrant, Holder shall be entitled to
receive, upon exercise of this Warrant, the number and kind of securities and
property that Holder would have received for Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 2 including,
without limitation, adjustments to the Exercise Price and to the number of
securities or property issuable upon exercise of the new Warrant. The
provisions of this Section 2.2 shall similarly apply to successive
reclassifications, exchanges, substitutions, or other events.

 

2.3                                 Adjustments
for Combinations, Etc. If the outstanding Shares are combined or
consolidated, by reclassification or otherwise, into a lesser number of shares,
the Exercise Price shall be proportionately increased and the number of Shares
as to which this warrant is exercisable shall be proportionately decreased.

 

2.4                                 Adjustments
for Diluting Issuances. The Exercise Price and the number of Shares
issuable upon exercise of this Warrant shall be subject to adjustment, from
time to time in the manner set forth on Exhibit A in the event of Diluting
Issuances (as defined on Exhibit A).

 

2.5                                 No
Impairment. 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 Company, but shall at
all times in good faith assist in carrying out of all the provisions of this
Article 2 and in taking all such action as may be necessary or appropriate to
protect Holder’s rights under this Article against impairment. If Company takes
any dilutive action affecting Shares or 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
such dilutive action is offset and the aggregate Exercise Price of this Warrant
is unchanged.

 

2.6                                 Fractional
Shares. No fractional Shares shall be issuable upon exercise of the Warrant
and the number of Shares to be issued shall be rounded down to the nearest
whole Share. If a fractional share interest arises upon any exercise of the
Warrant, Company shall eliminate such fractional share interest by paying
Holder an amount computed by multiplying the fractional interest by the fair
market value of a full Share.

 

2.7                                 Certificate
as to Adjustments. Upon each adjustment of the Exercise Price, Company at
its expense shall promptly 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. 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.

 

ARTICLE 3                                   COVENANTS OF COMPANY.

 

3.1                                 Valid
Issuance. Company shall take all steps necessary to insure that all Shares
which may be issued upon the exercise of this Warrant shall, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable, and free of any
liens and encumbrances except for restrictions on transfer provided for herein
or under applicable federal and state securities laws.

 

3.2                                 Notice
of Certain Events. If 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 rights; (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, Company shall give Holder (1) in the case
of the matters referred to in (a) and (b) above 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.
So long as the Holder holds this Warrant and/or any of the Shares, Company
shall deliver to Holder (a) promptly, copies of all notices or other written
communications to which Holder would be entitled if it held Shares as to which
this Warrant was then exercisable and (b) such other financial statements
required under and in accordance with any loan documents between Holder and
Company, or if there are no such requirements [or if the subject loan(s)
are no longer are outstanding, then within 45 days after the end of each of the
first three quarters of each fiscal year, Company’s quarterly, unaudited
financial statements and within 120 days after the end of each fiscal year,
Company’s annual, audited financial statements.

 

3.4                                 Notice
of Expiration. Company shall give Holder written notice of Holder’s right
to exercise this Warrant in the form attached as Appendix 2 not more than
90 days and not less than 15 days before the Expiration Date and, in
the case of an Acquisition to which the proviso of Section 1.5 shall be
applicable, 15 days notice of such Acquisition. If the notice is not so given,
the Expiration Date shall automatically be extended until 15 days after
the date Company delivers the notice to Holder.

 

3.5                                 Registration
Rights. The common stock issuable upon exercise of the Warrant shall have
the same registration rights as are set forth in the Registration Rights
Agreement, dated as of October 11, 2005, between Company and its investors, as
from time to time in effect (the “Registration Rights Agreement” — a true copy
of which as in effect on the date hereof has been furnished by Company to
Holder), and by accepting this Warrant, Holder agrees to be subject to
corresponding obligations of the Investors set forth in the Registration Rights
Agreement as though Holder were named an Investor therein. Company agrees that
no amendments will be made to the Investor Rights Agreement which would have an
adverse impact on Holder’s registration rights thereunder.

 

ARTICLE 4                                   MISCELLANEOUS.

 

4.1                                 Legends.
This Warrant and the Shares shall be imprinted with a legend in substantially
the following form:

 

THIS SECURITY HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT 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 COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS
NOT REQUIRED.

 

4.2                                 Compliance
with Securities Laws on Transfer. This Warrant and the Shares issuable upon
exercise of 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 opinions reasonably satisfactory to
Company, as reasonably requested by Company). Company shall not require Holder
to provide an opinion of counsel if the transfer is to an affiliate of Holder
or, if current information, as referenced in Rule 144(c), is available, Holder
represents that it has complied with Rule 144(d) and (e) in reasonable
detail, the selling broker represents that it has complied with
Rule 144(f) and the Company is provided with a copy of Holder’s notice of
proposed sale.

 

4.3                                 Transfer
Procedure. Subject to the provisions of Section 4.3 Holder may
transfer all or part of this Warrant or the Shares issuable upon exercise of
this Warrant at any time to                                        ,
or to any other transferee acceptable to Company (which acceptance shall not be
unreasonably withheld or delayed) by giving Company notice of the portion of
the Warrant being transferred setting forth the name,

 

 

address and taxpayer identification number of the transferee and
surrendering this Warrant to Company for reissuance to the transferee(s) (and
Holder if applicable). Company shall have the right to refuse to transfer any
portion of this Warrant to any person who directly competes with Company.

 

4.4                                 Notices.
All notices and other communications from Company to Holder, or vice versa, shall
be in writing and shall be deemed delivered and effective when given personally
or mailed by first-class registered or certified mail, postage prepaid, or by
overnight courier, at such address as may have been furnished to Company or
Holder, as the case may be, in writing by Company or such Holder from time to
time.

 

4.5                                 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.

 

4.6                                 Governing
Law. This Warrant shall be governed by and construed in accordance with the
laws of the State of Georgia, without giving effect to its principles regarding
conflicts of law.

 

IN WITNESS WHEREOF,
Company has caused this Warrant to be duly executed by its authorized officers,
all as of the day and year first above written.

 

	
   

  	
   

  	
  COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  TRI-S SECURITY CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
  /s/ Ronald G. Farrell

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Ronald G. Farrell

  	
   

  
	
   

  	
   

  	
  Title:

  	
  CEO

  	
   

  
	
   

  	
   

  	
   

  
	
  The undersigned Holder acknowledges and accepts the
  terms of this Warrant and represents that it is an “accredited investor,” as
  that term is defined in Rule 501 under the Securities Act of 1933, as amended:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  LSQ Funding Group, L.C.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Max Eliscu

  	
   

  	
   

  	
   

  
	
  Name:

  	
  Max Eliscu

  	
   

  	
   

  	
   

  
	
  Title:

  	
  Manager

  	
   

  	
   

  	
   

  
											

 

 

APPENDIX 1

 

Notice of Exercise

 

1.                                       The
undersigned hereby elects to purchase               shares of the Common Stock of Tri-S
Security Corporation pursuant to the terms of the attached Warrant, 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:                                                                                      

 

Address:                                                                                    

 

                                                                                                  

 

3.                                       The
undersigned represents it is an “accredited investor” within the meaning of
Rule 501 of the Securities Act of 1933, as amended, and it is acquiring the
shares solely for its own account and not as a nominee for any other party and
not with a view toward the resale or distribution thereof except in compliance
with applicable securities laws.

 

	
   

  	
   

  	
   

  
	
   

  	
  (Signature)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Date)

  

 

 

APPENDIX 2

 

Notice that
Warrant Is About to Expire

 

[Insert Date of Notice]

 

To:                                                        

 

Attn:                     

                                

                                

 

The Warrant issued to you
described below will expire on October     , 2008.

 

Issuer:  Tri-S Security Corporation

 

Issue Date:  October     , 2005

 

Class of Security
Issuable:  Common Stock

 

Exercise Price per Share:  $4.80

 

Number of Shares
Issuable:                   

 

Procedure for Exercise:

 

Please contact                     
at (      )       -        
with any questions you may have concerning exercise of the Warrant. This is
your only notice of pending expiration.

 

	
   

  	
  TRI-S SECURITY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Its:

  	
   

  	
   

  

 

 

EXHIBIT A

 

Anti-Dilution
Provisions

 

In the event of the
issuance (a “Diluting Issuance”) by Company, after the Issue Date of the
Warrant, of Common Stock (or options or other rights to subscribe thereto or
securities convertible into or exchangeable for Common Stock) at a price per
share less than the Exercise Price, then the number of Shares issuable upon
exercise of the Warrant and the Exercise Price, shall be adjusted as a result
of Diluting Issuances in accordance with the following (provided that
under no circumstances shall the aggregate Exercise Price payable by Holder
upon exercise of the Warrant increase as a result of any adjustment arising
from a Diluting Issuance):

 

1.               Definitions.
As used in these Antidilution Provisions, the following terms have the
following respective meanings:

 

(a)          “Option”
means any right, option, or warrant to subscribe for, purchase, or otherwise
acquire common stock or Convertible Securities.

 

(b)         “Convertible
Securities” means any evidences of indebtedness, shares of stock, or other
securities directly or indirectly convertible into or exchangeable for common
stock.

 

(c)          “Issue”,
means to grant, issue, sell, assume, or fix a record date for determining
persons entitled to receive, any security (including Options), whichever of the
foregoing is the first to occur. Any variation of the term “Issue” including,
without limitation, “Issuable”, “Issuance” or “Issued” shall have the same
meaning as set forth in this section 1(c).

 

(d)         “Additional
Common Shares” means all common stock (including reissued shares) issued (or
deemed to be issued pursuant to Section 2) after the date of the Warrant. Additional
Common Shares does not include, however, any common stock issued in a
transaction described in Sections 2.1 and 2.2 of the Warrant; any common
stock Issued upon conversion of preferred stock outstanding on the date of the Warrant;
the Shares; or common stock Issued as incentive or in a nonfinancing
transaction to employees, officers, directors, or consultants to Company.

 

(e)          The
shares of common stock ultimately Issuable upon exercise of an Option
(including the shares of common stock ultimately Issuable upon conversion or
exercise of a Convertible Security Issuable pursuant to an Option) are deemed
to be Issued when the Option is Issued. The shares of common stock ultimately
Issuable upon conversion or exercise of a Convertible Security (other than a
Convertible Security Issued pursuant to an Option) shall be deemed Issued upon
Issuance of the Convertible Security.

 

2.               Deemed
Issuance of Additional Common Shares. The shares of common stock ultimately
Issuable upon exercise of an Option (including the shares of common stock
ultimately Issuable upon conversion or exercise of a Convertible Security
Issuable pursuant to an Option) are deemed to be Issued when the Option is
Issued. The shares of common stock ultimately Issuable upon conversion or
exercise of a Convertible Security (other than a Convertible Security Issued
pursuant to an Option) shall be deemed Issued upon Issuance of the Convertible
Security. The maximum amount of common stock Issuable is determined without
regard to any future adjustments permitted under the instrument creating the
Options or Convertible Securities.

 

3.               Adjustment
of Exercise Price for Diluting Issuances

 

3.1         Weighted
Average Adjustment. If Company issues Additional Common Shares after the
date of the Warrant and the consideration per Additional Common Share
(determined pursuant to Section 9) is less than the Exercise Price in
effect immediately before such Issue, the Exercise Price shall be reduced,
concurrently with such Issue, to a price (calculated to the nearest hundredth
of a cent) determined by multiplying the Exercise Price by a fraction:

 

(a)                                  the
numerator of which is the amount of such common stock outstanding immediately
before such Issue plus the amount of common stock that the aggregate
consideration received by Company for the Additional Common Shares would
purchase at the Exercise Price in effect immediately before such Issue, and

 

(b)                                 the
denominator of which is the amount of common stock outstanding immediately
before such Issue plus the number of such Additional Common Shares.

 

 

3.2         Adjustment
of Number of Shares. Upon each adjustment of the Exercise Price, the number
of Shares issuable upon exercise of the Warrant shall be increased to equal the
quotient obtained by dividing (a) the product resulting from multiplying (i)
the number of Shares issuable upon exercise of the Warrant and (ii) the
Exercise Price, in each case as in effect immediately before such adjustment,
by (b) the adjusted Exercise Price.

 

3.3         Securities
Deemed Outstanding. For the purpose of this Section 3, all securities
issuable upon exercise of any outstanding Convertible Securities or Options,
warrants, or other rights to acquire securities of Company shall be deemed to
be outstanding.

 

4.               No
Adjustment for Issuances Following Deemed Issuances. No adjustment to the
Exercise Price shall be made upon the exercise of Options or conversion of
Convertible Securities.

 

5.               Adjustment
Following Changes in Terms of Options or Convertible Securities. If the
consideration payable to, or the amount of common stock Issuable by, Company
increases or decreases, respectively, pursuant to the terms of any outstanding
Options or Convertible Securities, the Exercise Price shall be recomputed to
reflect such increase or decrease. The recomputation shall be made as of the
time of the Issuance of the Options or Convertible Securities. Any changes in
the Exercise Price that occurred after such Issuance because other Additional
Common Shares were Issued or deemed Issued shall also be recomputed.

 

6.               Recomputation
Upon Expiration of Options or Convertible Securities. The Exercise Price
computed upon the original Issue of any Options or Convertible Securities, and
any subsequent adjustments based thereon, shall be recomputed when any Options or
rights of conversion under Convertible Securities expire without having been
exercised. In the case of Convertible Securities or Options for common stock,
the Exercise Price shall be recomputed as if the only Additional Common Shares
Issued were the shares of common stock actually Issued upon the exercise of
such securities, if any, and as if the only consideration received therefor was
the consideration actually received upon the Issue, exercise or conversion of
the Options or Convertible Securities. In the case of Options for Convertible
Securities, the Exercise Price shall be recomputed as if the only Convertible
Securities Issued were the Convertible Securities actually Issued upon the
exercise thereof, if any, and as if the only consideration received therefor
was the consideration actually received by Company (determined pursuant to
Section 9), if any, upon the Issue of the Options for the Convertible
Securities.

 

7.               Limit
on Readjustments. No readjustment of the Exercise Price pursuant to
Sections 5 or 6 shall increase the Exercise Price more than the amount of
any decrease made in respect of the Issue of any Options or Convertible
Securities.

 

8.               30
Day Options. In the case of any Options that expire by their terms not more
than 30 days after the date of Issue thereof, no adjustment of the Exercise
Price shall be made until the expiration or exercise of all such Options.

 

9.               Computation
of Consideration. The consideration received by Company for the Issue of
any Additional Common Shares shall be computed as follows:

 

(a)                                  Cash
shall be valued at the amount of cash received by Company, excluding amounts
paid or payable for accrued interest or accrued dividends.

 

(b)                                 Property.
Property other than cash shall be computed at the fair market value thereof at
the time of the Issue as determined in good faith by the Board of Directors of
Company.

 

(c)                                  Mixed
Consideration. The consideration for Additional Common Shares Issued
together with other property of Company for consideration that covers both
shall be determined in good faith by the Board of Directors of Company.

 

(d)                                 Options
and Convertible Securities. The consideration per Additional Common Share
for Options and Convertible Securities shall be determined by dividing:

 

(i)             the
total amount, if any, received or receivable by Company for the Issue of the
Options or Convertible Securities, plus the minimum amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to Company upon exercise of the Options or conversion of
the Convertible Securities, by

 

 

(ii)          the
maximum amount of common stock (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment of such number) ultimately Issuable upon the exercise of such
Options or the conversion of such Convertible Securities.

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