WARRANT TO PURCHASE COMMON STOCK
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
Security Resources Corporation
Class of
Stock: Common Stock
Issue
Date: July 28, 2006
Expiration
Date: July 28, 2009
THIS WARRANT TO PURCHASE COMMON
STOCK is issued by American Security Resources Corporation, a Nevada
corporation (the “Company”) to Golden Gate Investors, Inc., a California
corporation (“Holder”). On the Issue Date, $300,000 shall be wired to
the Company by Holder, representing the premium to be paid for the warrants (the
“Premium”).
ARTICLE
1
DESCRIPTION OF
WARRANTS
1.1 Warrants. The
Company hereby grants to Holder the right to purchase 50,000,000 shares of the
Company’s Common Stock (the “Shares”) or “Warrant Shares) at a price per share
equal to the Exercise price set forth in section 2.4 below.
1.2 Expiration of
Warrants. This Warrant shall expire and Holder shall no longer
be able to purchase the Warrant Shares on the Expiration Date.
ARTICLE
2
EXERCISE
2.1 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, together with the Exercise Price, to the principal office of the
Company.
2.2 Minimum Exercise
Requirement. Holder agrees that, beginning in the first full
calendar month after the Registration Statement is declared effective, Holder
will exercise that number of Warrants such that the Company receives at least
$250,000 per calendar month from the Exercise Price, provided the Shares are
available, registered and freely tradable. If Holder exercises more
than the minimum amount of the Warrants in any calendar month, the excess shall
be credited against the next month’s minimum exercise amount. In the
event Holder does not exercise the minimum amount of the Warrants in any
calendar month, the Company shall have the right to increase the Exercise Price
by 5% for the following calendar month.
2.3 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 two (2) Business
Days after the Company’s receipt of the Warrant Notice of Exercise, the Company
shall issue the Warrant Shares being purchased 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.
2.4 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.
2.5 Exercise
Price. The Exercise Price of this Warrant shall be $0.04 per
Share; provided, however, in no event shall the Exercise Price be lower than 80%
of the average of the three lowest volume weighted average prices during the
twenty trading days prior to Holder’s election to exercise. Upon the
exercise of the Warrant Shares, the Exercise Price shall be reduced pro rata to
permit the Holder to recapture the Premium.
2.5 Certain Exercise
Limits. If and to the extent that, on any date, the holding by
the Holder of this Warrant would result in the Holder’s being deemed the
beneficial owner of more than 9.9% of the then outstanding shares of Common
Stock, then the Holder shall not have the right, and the Company shall not have
the obligation, to exercise any portion of this Warrant as shall cause Holder to
be deemed the beneficial owner of more than 9.9% of the then outstanding shares
of Common Stock.
ARTICLE
3
ADJUSTMENT TO THE
SHARES
The number of Shares purchasable upon
the exercise of this Warrant and the Exercise Price shall be subject to
adjustment from time to time upon the occurrence of certain events, as
follows:
3.1 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 3.1 shall similarly apply to successive reclassifications or
changes.
3.2 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.
3.3 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 3.1 and Section 3.2 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.
3.4 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 3.1 and Section 3.2 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.
3.5 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 referred to herein as an “Event”), is effected in
such a way that holders 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 of 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.
3.6 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 by a fraction, the numerator of which shall be the Exercise Price
immediately prior to such adjustment and the denominator of which shall be the
Exercise Price immediately thereafter.
3.7 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 Holder’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.
3.8 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.
3.9 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.
3.10 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 Holder’s right to purchase Shares as provided herein.
ARTICLE
4
REPRESENTATIONS AND
COVENANTS OF THE COMPANY
4.1 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.
4.2 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 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, 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.
4.3 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.
4.4 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.
ARTICLE
5
REGISTRATION
RIGHTS
5.1 Definitions.
(a) As
used in this Agreement, the following terms shall have the
meanings:
(i) “Affiliate” of any specified
Person means any other Person who directly, or indirectly through one or more
intermediaries, is in control of, is controlled by, or is under common control
with, such specified Person. For purposes of this definition, control
of a Person means the power, directly or indirectly, to direct or cause the
direction of the management and policies of such Person whether by contract,
securities, ownership or otherwise; and the terms “controlling” and “controlled” have the
respective meanings correlative to the foregoing.
(ii) “Commission” means the
Securities and Exchange Commission.
(3) “Person” means any individual,
partnership, corporation, limited liability company, joint stock company,
association, trust, unincorporated organization, or a government or agency or
political subdivision thereof.
(iii) “Prospectus” means the
prospectus (including, without limitation, any preliminary prospectus and any
final prospectus filed pursuant to Rule 424(b) under the Securities Act,
including any prospectus that discloses information previously omitted from a
prospectus filed as part of an effective registration statement in reliance on
Rule 430A under the Securities Act) included in the Registration Statement, as
amended or supplemented by any prospectus supplement with respect to the terms
of the offering of any portion of the Registrable Securities covered by the
Registration Statement and by all other amendments and supplements to such
prospectus, including all material incorporated by reference in such prospectus
and all documents filed after the date of such prospectus by the Company under
the Exchange Act and incorporated by reference therein.
(iv) “Public Offering” means an
offer registered with the Commission and the appropriate state securities
commissions by the Company of its Common Stock and made pursuant to the
Securities Act.
(v) “Registrable Securities” means
the Common Stock issued (i) upon exercise of the Warrants, and (ii) in
connection with any distribution, recapitalization, stock-split, stock
adjustment or reorganization of the Company; provided, however, a share of
Common Stock shall cease to be a Registrable Security for purposes of this
Agreement when it no longer is a Restricted Security.
(vi) “Registration Statement” means
a registration statement of the Company filed on an appropriate form under the
Securities Act providing for the registration of, and the sale on a continuous
or delayed basis by the holders of all of the Registrable Securities pursuant to
Rule 415 under the Securities Act, including the Prospectus contained therein
and forming a part thereof, any amendments to such registration statement and
supplements to such Prospectus, and all exhibits to and other material
incorporated by reference in such registration statement and
Prospectus.
(vii) “Restricted Security” means
any share of Common Stock issued upon exercise of warrants except any such share
that (i) has been registered pursuant to an effective registration statement
under the Securities Act and sold in a manner contemplated by the prospectus
included in such registration statement, (ii) has been transferred in compliance
with the resale provisions of Rule 144 under the Securities Act (or any
successor provision thereto) or is transferable pursuant to paragraph (k) of
Rule 144 under the Securities Act (or any successor provision thereto) or (iii)
otherwise has been transferred and a new share of Common Stock not subject to
transfer restrictions under the Securities Act has been delivered by or on
behalf of the Company.
(viii) “Securities Act” means the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder, or any similar successor statute.
5.2 Registration.
(a) Filing
and Effectiveness of Registration Statement. The Company shall
prepare and file with the Commission as soon as practicable a Registration
Statement relating to the offer and sale of the Registrable Securities and shall
use its best efforts to cause the Commission to declare such Registration
Statement effective under the Securities Act as promptly as practicable but in
no event later than ninety (90) days from the date hereof (the
“Deadline”). The Company shall promptly (and, in any event, no more
than 24 hours after it receives comments from the Commission), notify the Holder
when and if it receives any comments from the Commission on the Registration
Statement and promptly forward a copy of such comments, if they are in writing,
to Holder. The Company shall notify Holder by written notice that
such Registration Statement has been declared effective by the Commission within
24 hours of such declaration by the Commission. In the event that the
Registration Statement is not declared effective by the Deadline, or if after
the Registration Statement is declared effective such Registration Statement is
thereafter no longer effective, then the Company shall pay to Holder, in
addition to any damages incurred by the Holder as a result thereof, $10,000 for
each 30 day period or portion thereof for the first 60 days during which the
Registration Statement has not been declared effective and $15,000 for each 30
day period or portion thereof after the 60th day it
has not been declared effective.
5.3 Obligations of the
Company.
In connection with the registration of
the Registrable Securities, the Company shall:
(a) Promptly
(i) prepare and file with the Commission such amendments to the Registration
Statement and supplements to the Prospectus as may be necessary to keep the
Registration Statement continuously effective and in compliance with the
provisions of the Securities Act applicable thereto so as to permit the
Prospectus forming part thereof to be current and useable by Holder for resale
of the Registrable Securities for a period of five (5) years from the date on
which the Registration Statement is first declared effective by the Commission
(the “Effective Time”)
or such shorter period that will terminate when all the Registrable Securities
covered by the Registration Statement have been sold pursuant thereto in
accordance with the plan of distribution provided in the Prospectus, transferred
pursuant to Rule 144 under the Securities Act or otherwise transferred in a
manner that results in the delivery of new securities not subject to transfer
restrictions under the Securities Act (the “Registration Period”) and
(ii) take all lawful action such that each of (A) the Registration Statement and
any amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, not misleading and
(B) the Prospectus forming part of the Registration Statement, and any amendment
or supplement thereto, does not at any time during the Registration Period
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading;
(b) (i)
Prior to the filing with the Commission of any Registration Statement (including
any amendments thereto) and the distribution or delivery of any Prospectus
(including any supplements thereto), provide draft copies thereof to Holder and
reflect in such documents all such comments as Holder (and its counsel)
reasonably may propose and (ii) furnish to Holder whose Registrable Securities
are included in the Registration Statement and its legal counsel identified to
the Company, (A) promptly after the same is prepared and publicly distributed,
filed with the Commission, or received by the Company, one copy of the
Registration Statement, each Prospectus, and each amendment or supplement
thereto and (B) such number of copies of the Prospectus and all amendments and
supplements thereto and such other documents, as Holder may reasonably request
in order to facilitate the disposition of the Registrable Securities owned by
Holder;
(c) (i)
Register or qualify the Registrable Securities covered by the Registration
Statement under such securities or “blue sky” laws of such jurisdictions as
Holder reasonably requests, (ii) prepare and file in such jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof at all times during the Registration Period, (iii) take
all such other lawful actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration Period and
(iv) take all such other lawful actions reasonably necessary or advisable to
qualify the Registrable Securities for sale in such jurisdictions.
(d) As
promptly as practicable after becoming aware of such event, notify Holder of the
occurrence of any event, as a result of which the Prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and promptly prepare an amendment to the
Registration Statement and supplement to the Prospectus to correct such untrue
statement or omission, and deliver a number of copies of such supplement and
amendment to Holder may reasonably request;
(e) As
promptly as practicable after becoming aware of such event, notify Holder of the
issuance by the Commission of any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time and
take all lawful action to effect the withdrawal, recession or removal of such
stop order or other suspension;
(f) Cause
all the Registrable Securities covered by the Registration Statement to be
listed on the principal national securities exchange, and included in an
inter-dealer quotation system of a registered national securities association,
on or in which securities of the same class or series issued by the Company are
then listed or included;
(g) Cooperate
with Holder who holds Registrable Securities being offered to facilitate the
timely preparation and delivery of certificates for the Registrable Securities
to be offered pursuant to the registration statement and enable such
certificates for the Registrable Securities to be in such denominations or
amounts, as the case may be, as Holder reasonably may request and registered in
such names as Holder may request; and, within three (3) business days after a
registration statement which includes Registrable Securities is declared
effective by the Commission, deliver and cause legal counsel selected by the
Company to deliver to the transfer agent for the Registrable Securities (with
copies to the Investors whose Registrable Securities are included in such
registration statement) an appropriate instruction and, to the extent necessary,
an opinion of such counsel;
(h) Take
all such other lawful actions reasonably necessary to expedite and facilitate
the disposition by Holder of its Registrable Securities in accordance with the
intended methods therefore provided in the Prospectus which are customary under
the circumstances; and
(i) (i)
Make reasonably available for inspection by Holder, any underwriter
participating in any disposition pursuant to the Registration Statement, and any
attorney, accountant or other agent retained by such Investors or any such
underwriter all relevant financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and (ii) cause the
Company's officers, directors and employees to supply all information reasonably
requested by Holder or any such underwriter, attorney, accountant or agent in
connection with the Registration Statement, in each case, as is customary for
similar due diligence examinations; provided, however, that all
records, information and documents that are designated in writing by the
Company, in good faith, as confidential, proprietary or containing any material
nonpublic information shall be kept confidential by such Investors and any such
underwriter, attorney, accountant or agent (pursuant to an appropriate
confidentiality agreement in the case of any such holder or agent), unless such
disclosure is made pursuant to judicial process in a court proceeding (after
first giving the Company an opportunity promptly to seek a protective order or
otherwise limit the scope of the information sought to be disclosed) or is
required by law, or such records, information or documents become available to
the public generally or through a third party not in violation of an
accompanying obligation of confidentiality; and provided, further, that, if the
foregoing inspection and information gathering would otherwise disrupt the
Company’s conduct of its business, such inspection and information gathering
shall, to the maximum extent possible, be coordinated on behalf of the investors
and the other parties entitled thereto by one firm of counsel designed by and on
behalf of the majority in interest of Investors and other parties.
5.4 Obligations of
Holder.
In connection with the registration of
the Registrable Securities, Holder shall furnish to the Company such information
regarding itself, the Registrable Securities held by it and the intended method
of disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request.
5.5 Expenses of
Registration.
All expenses, other than underwriting
discounts and commissions, incurred in connection with registrations, filings or
qualifications pursuant to Section 5, but including, without limitation, all
registration, listing, and qualifications fees, printing and engraving fees,
accounting fees, and the fees and disbursements of counsel for the Company, and
the reasonable fees of one firm of counsel to the holders of a majority in
interest of the Registrable Securities shall be borne by the
Company.
5.6 Indemnification and
Contribution.
(a) Indemnification by the
Company. The Company shall indemnify and hold harmless Holder
and each underwriter, if any, which facilitates the disposition of Registrable
Securities, and each of their respective officers and directors and each person
who controls Holder or underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act (each such person being
sometimes hereinafter referred to as an “Indemnified Person”) from and
against any losses, claims, damages or liabilities, joint or several, to which
such Indemnified Person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement of a
material fact contained in any Registration Statement or an omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, not misleading, or arise out of or are based upon an untrue
statement of a material fact contained in any Prospectus or an omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and the Company hereby agrees to reimburse such
Indemnified Person for all reasonable legal and other expenses incurred by them
in connection with investigating or defending any such action or claim as and
when such expenses are incurred; provided, however, that the
Company shall not be liable to any such Indemnified Person in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement made in, or an omission from, such
Registration Statement or Prospectus in reliance upon and in conformity with
written information furnished to the Company by such Indemnified Person
expressly for use therein or (ii) the use by the Indemnified Person of an
outdated or defective Prospectus after the Company has provided to such
Indemnified Person an updated Prospectus correcting the untrue statement or
omission giving rise to such loss, claim, damage or liability.
(b) Notice of Claims,
etc. Promptly after receipt by a party seeking indemnification
pursuant to this Section 5.6 (an “Indemnified Party”) of
written notice of any investigation, claim, proceeding or other action in
respect of which indemnification is being sought (each, a “Claim”), the Indemnified
Party promptly shall notify the party against whom indemnification pursuant to
this Section 5.6 is being sought (the “Indemnifying Party”) of the
commencement thereof; but the omission to so notify the Indemnifying Party shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is materially prejudiced
and forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees, costs
and expenses, (y) the Indemnified Party and the Indemnifying Party shall
reasonably have concluded that representation of the Indemnified Party by the
Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party or (z) the Indemnifying Party shall have failed to employ
legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such
Claim. If the Indemnified Party employs separate legal counsel in
circumstances other than as described in clauses (x), (y) or (z) above, the
fees, costs and expenses of such legal counsel shall be borne exclusively by the
Indemnified Party. Except as provided above, the Indemnifying Party
shall not, in connection with any Claim in the same jurisdiction, be liable for
the fees and expenses of more than one firm of counsel for the Indemnified Party
(together with appropriate local counsel). The Indemnified Party
shall not, without the prior written consent of the Indemnifying Party (which
consent shall not unreasonably be withheld), settle or compromise any Claim or
consent to the entry of any judgment that does not include an unconditional
release of the Indemnifying Party from all liabilities with respect to such
Claim or judgment.
(c) Contribution. If
the indemnification provided for in this Section 5.6 is unavailable to or
insufficient to hold harmless an Indemnified Person under subsection (A) or (B)
above in respect of any losses, claims, damages or liabilities (or actions in
respect thereof) referred to therein, then each Indemnifying Party shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and the Indemnified Party in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations.
(d) Notwithstanding
any other provision of this Section 5.6, in no event shall any (i) Holder be
required to undertake liability to any person under this Section 5.6 for any
amounts in excess of the dollar amount of the proceeds to be received by Holder
from the sale of Holder's Registrable Securities (after deducting any fees,
discounts and commissions applicable thereto) pursuant to any Registration
Statement under which such Registrable Securities are to be registered under the
Securities Act and (ii) underwriter be required to undertake liability to any
Person hereunder for any amounts in excess of the aggregate discount, commission
or other compensation payable to such underwriter with respect to the
Registrable Securities underwritten by it and distributed pursuant to the
Registration Statement.
(e) The
obligations of the Company under this Section 5.6 shall be in addition to any
liability which the Company may otherwise have to any Indemnified Person and the
obligations of any Indemnified Person under this Section 5 shall be in addition
to any liability which such Indemnified Person may otherwise have to the
Company. The remedies provided in this Section 5.6 are not exclusive and shall
not limit any rights or remedies which may otherwise be available to an
indemnified party at law or in equity.
5.7 Assignment.
The rights to have the Company register
Registrable Securities pursuant to this Agreement shall be automatically
assigned by Holder to any transferee of all or any portion of such Registrable
Securities (or all or any portion of the Warrants only if (a) Holder agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (b) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (i) the name and address of such
transferee or assignee and (ii) the securities with respect to which such
registration rights arc being transferred or assigned, (c) immediately following
such transfer or assignment, the securities so transferred or assigned to the
transferee or assignee constitute Restricted Securities and (d) at or before the
time the Company received the written notice contemplated by clause (b) of this
sentence the transferee or assignee agrees in writing with the Company to be
bound by all of the provisions contained herein.
ARTICLE
6
REPRESENTATIONS AND
COVENANTS OF THE HOLDER
6.1 Private Issue.
Holde
exercise
of Holder'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 6.
6.2 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.
6.3 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 (1) 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.
6.4 Accredited
Investor. Holder is an “accredited investor,” as such term is
defined in Regulation D promulgated pursuant to the Act.
6.5 Short
Selling. So long as this Warrant is outstanding, Holder agrees
and covenants on its behalf and on behalf of its affiliates that neither Holder
nor its affiliates shall at any time engage in any short sales with respect to
the Company’s Common Stock, or sell put options or similar instruments with
respect to the Company's Common Stock. The parties acknowledge that Holder shall
be entitled to sell the Shares from each Warrant exercise immediately upon
submission of the applicable Warrant Notice of Exercise, and payment of the
Exercise Price, to the Company, for such Shares.
ARTICLE
7
MISCELLANEOUS
7.1 Term. This
Warrant is exercisable, in whole or in part, at any time and from time to time
on or after the Issue Date and on or before the Expiration Date set forth
above.
7.2 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 opinions
reasonably satisfactory to the Company, as reasonably requested by the Company).
The Company shall not require Holder to provide an opinion of counsel if the
transfer is to an affiliate of Holder.
7.3 Transfer
Procedure. 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 of this Warrant. Holder 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.
7.4 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 Security Resources
Corporation
0000 Xxxx Xxxxxxx, Xxxxx
000
Xxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to the Holder, to:
Golden Gate 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.
7.5 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.
7.6 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 changes waiver, discharge or termination is sought.
7.7 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.
7.8 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.
7.9 Remedies. The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder, by vitiating the intent and purpose of the
transactions hereby. Accordingly, the Company acknowledges that the remedy at
law for a breach of its obligations under this Warrant will be inadequate and
agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Warrant, that the Holder shall be entitled, in addition to
all other available remedies at law or in equity, and in addition to the
penalties assessable herein, to an injunction or injunctions restraining,
preventing or curing any breach of this Warrant and to enforce specifically the
terms and provisions hereof, without the necessity of showing economic loss and
without any bond or other security being required.
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
SECURITY RESOURCES CORPORATION
|
GOLDEN
GATE INVESTORS, INC.
|
| By: |
By:
|
| Name: Xxxxx Xxxxxxx |
Name:
|
| Its: CEO |
Its:
|
|
|
APPENDIX
1
WARRANT NOTICE OF
EXERCISE
1. The
undersigned hereby elects to purchase _____ shares of the Common Stock of
American Security Resources Corporation pursuant to the terms of the Warrant to
Purchase Common Stock issued on July ___, 2006.
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 5 of
the Warrant to Purchase Common Stock.
_______________________________
(Signature)
______________________________
(Date)
ADDENDUM
TO WARRANT TO PURCHASE COMMON STOCK
This
Addendum to Warrant to Purchase Common Stock is entered into as of the ___ day
of August 2006 by and between American Security Resources Corporation, a Nevada
corporation (the “Company”) and Golden Gate Investors, Inc., a California
corporation (“Holder”).
WHEREAS,
the Company and Holder are parties to that certain Warrant to Purchase Common
Stock dated as of July___, 2006 (“Warrant Agreement”); and
WHEREAS,
the parties desire to amend the Warrant Agreement in certain
respects.
NOW,
THEREFORE, in consideration of the mutual promises and covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Holder agree as
follows:
1. All
terms used herein shall have the definitions set forth in the Warrant
Agreement.
|
2.
|
The
Premium shall be $150,000. If the Registration Statement is not
declared effective by the Commission within six months of the Issue Date,
Holder shall have the right to demand the return of the Premium, in which
case the Premium shall be immediately due and payable in
full.
|
3. The
fixed portion of the Exercise Price shall be $0.01, rather than
$0.04.
|
4.
|
Except
as specifically amended herein, all other terms and conditions of the
Warrant Agreement shall remain in full force and
effect.
|
IN
WITNESS WHEREOF, the Company and Holder have caused this Addendum to Warrant to
Purchase Common Stock to be signed by its duly authorized officers on the date
first set forth above.
| AMERICAN
SECURITY RESOURCES CORPORATION
|
GOLDEN
GATE INVESTORS, INC.
|
| By: |
By:
|
| Name: Xxxxx Xxxxxxx |
Name:
|
| Its: CEO |
Its:
|
|
|
|
|
|
