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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
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