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MORTGAGE, SECURITY AGREEMENT

AND FINANCING STATEMENT

This Mortgage, Security Agreement and Financing Statement (this “Mortgage”) dated November 8, 2011, between NATIVE AMERICAN ENERGY GROUP, INC., a Delaware corporation, 108-18 Queens Blvd., Suite 901, Forest Hills, New York 11375 (“Mortgagor”) and HIGH CAPITAL FUNDING, LLC, a Delaware limited liability company, 333 Sandy Springs Circle, Suite 230, Atlanta, Georgia 30328 (“Mortgagee”).

Recitals

 

Mortgagor and Mortgagee are parties to that certain “LOAN TERMS AGREEMENT” dated  November 8, 2011 (the “Loan Agreement”), the terms of which are incorporated herein by reference, and pursuant to which Investors, including Mortgagee, have agreed to provide Secured Loans to Mortgagor subject to the various terms and conditions in the Loan Agreement, this Mortgage and all other documents executed in connection with the Loan Agreement or the transactions contemplated thereby, as the same may be amended, modified, supplemented or extended from time to time, are sometimes referred to herein collectively as the “Loan Documents”;

Mortgagor owns real and personal property interests in the State of Montana as more specifically set forth and described on Schedule “A” attached hereto and by this reference incorporated herein;

Mortgagors will receive substantial direct and indirect benefit from the extension of credit from Mortgagee to Mortgagor pursuant to the Loan Agreement; and

In order to secure and enforce payment and performance of Mortgagor’s obligations under the Loan Documents, including any and all renewals and extensions, in whole or in part, amendments, modifications and rearrangements thereof (herein the “Indebtedness”), Mortgagor has agreed to execute and deliver this Mortgage.

 

NOW, THEREFORE, in consideration of the foregoing, as well as other good and valuable consideration, receipt acknowledged, Mortgagee and Mortgagor hereby agree as follows:

 

	 
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ARTICLE I

GRANT

 

1.1           Grant.  Mortgagor, for good and valuable consideration, receipt acknowledged, does hereby mortgage, grant, bargain, sell, assign, transfer, convey and warrant, together with power of sale, to Mortgagee, the rights, titles and interests in and to the real and personal property interests (herein sometimes called the “Leases”) and the oil, gas and/or mineral rights and interests therein, of any nature or kind including mineral interests and royalty interests (herein sometimes called the “Mineral Interests”) as more specifically described on Schedule A attached hereto (Collectively the “Mortgaged Properties”) and by this reference incorporated herein, subject, however, to the provisions of Section 1.4.

 

TO HAVE AND TO HOLD the Mortgaged Properties unto Mortgagee, and Mortgagee’s successors and assigns, forever, in accordance with the terms and provisions hereof, subject, however, to the provisions of Section 1.4.

 

1.2     Disclaimer of Warranties.  This Mortgage is made without warranty of title, expressed, implied or statutory.  WITHOUT LIMITATION OF THE GENERALITY OF THE IMMEDIATELY PRECEDING SENTENCE, MORTGAGOR HEREBY EXPRESSLY DISCLAIMS AND NEGATES ANY REPRESENTATION OR WARRANTY, EXPRESSED, IMPLIED, AT COMMON LAW, BY CODE, BY STATUTE, OR OTHERWISE RELATING TO THE CONDITION OF THE MORTGAGED PROPERTIES (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED OR EXPRESSED WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE), IT BEING THE INTENTION OF MORTGAGOR AND MORTGAGEE THAT THE MORTGAGED ASSETS ARE TO BE MORTGAGED “AS IS, WHERE IS” AND IN THEIR PRESENT CONDITION AND STATE OF REPAIR.

 

1.3           Avoidance Laws.  Notwithstanding any provision of this Mortgage to the contrary, Mortgagor’s liability for the Indebtedness shall be limited to an amount not to exceed as of any date of determination the amount which could be claimed by Mortgagee from Mortgagor under this Mortgage without rendering such claim voidable or avoidable under Section 548 of Title 11 of the United States Code or under the Montana Uniform Fraudulent Transfer Act or similar statute or at common law (the “Avoidance Laws”) after taking into account, inter alia, Mortgagor’s right of contribution from any other person. To the end set forth above, but only to the extent that the Indebtedness would otherwise be subject to avoidance under the Avoidance Laws, if Mortgagor is not deemed to have received valuable consideration, fair value, fair consideration or reasonably equivalent value for the Indebtedness, or if the Indebtedness would render Mortgagor insolvent, or leave Mortgagor with unreasonably small capital to conduct its business, or cause Mortgagor to have incurred debts (or to have intended to have incurred debts) beyond its ability to pay such debts as they mature, in each case as of the time any of the Indebtedness is deemed to have been incurred for the purposes of the Avoidance Laws, the maximum Indebtedness for which Mortgagor shall be liable under this Mortgage shall be reduced to that amount which, after giving effect thereto, would not cause the Indebtedness as so reduced, to be subject to avoidance under the Avoidance Laws; provided, however, that the limitations contained in this Section 1.3 shall apply only in the event a valid claim is made by a third party creditor that this Mortgage constitutes a fraudulent transfer or a fraudulent obligation and then only to the extent necessary to avoid such claim.

 

1.4           Defeasance.  If all Indebtedness be irrevocably paid as the same becomes due and payable and if the covenants, warranties, undertakings and agreements made in this instrument are kept and performed, then and in that case only, this Mortgage shall have no force and effect, this conveyance shall become null and void, the Mortgaged Properties hereby conveyed shall become wholly clear of the liens, conveyances, assignments and security interests evidenced hereby, and all such liens, conveyances, assignments and security interests shall be released in due form at Mortgagor’s cost. Mortgagee shall, within 30 calendar days after receiving, by certified or registered mail, a request in writing for the discharge or release of this Mortgage, execute, acknowledge and deliver a certificate of discharge and/or release if there has been full and irrevocable performance of this Mortgage.

 

	 
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1.5           Warranty of Title to Leases.  With the exception of that well or pipeline lien filed in the records of McCone County, Montana as document #85262 by Wellpro, Inc., as claimant, against Mortgagor, in the amount of $1,170.33, Mortgagor has not alienated or encumbered the Mortgaged Properties and the Mortgaged Properties are now free and clear of all liens, encumbrances, and other claims of third parties, created by, through or under Mortgagor but not otherwise.

 

1.6           Subordination.  The Secured Loans made by Mortgagee to Mortgagor pursuant to the Loan Agreement and secured by this Mortgage, Security Agreement and Financing Statement shall be subordinate in payment to the Bridge Notes in an aggregate principal amount not to exceed $750,000 made pursuant to that certain Financing Agreement referenced in the Mortgage, Security Agreement and Financing Statement between the Mortgagee and the Mortgagor dated July 25, 2011.

 

ARTICLE II

COVENANTS

 

2.1           Covenants.  In consideration of the Indebtedness, Mortgagor covenants and agrees with Mortgagee, so long as the Indebtedness or any part thereof remains unpaid, as follows:

 

	
  

	
a.

	
At any time and from time to time, upon Mortgagee’s reasonable request, Mortgagor shall make, execute and deliver or cause to be made, executed and delivered to Mortgagee and, where appropriate, shall cause to be recorded or filed and from time to time thereafter to be re-recorded or refiled at such time and in such offices and places as shall be deemed desirable by Mortgagee any and all such further mortgages, instruments of further assurance, certificates and other documents as Mortgagee reasonably may consider necessary or desirable in order to effectuate, complete or perfect, or to continue and preserve the obligations of Mortgagor under the Loan Commitment and the lien of this Mortgage.

 

	
  

	
b.

	
Mortgagor shall promptly notify the Mortgagee in the event of institution of any suit for the cancellation of or in any manner materially and adversely affecting any of the Leases or any land covered or purported to be covered thereby or the title of Mortgagor thereto.

 

	
  

	
c.

	
Mortgagor shall not place nor suffer to be placed any lien against, or any security interest in, any of the Mortgaged Properties or encumber or allow to be encumbered any of the Mortgaged Properties, whether for indebtedness owed or asserted to be owed by Mortgagor or by any other party, except for any encumbrances permitted by the Loan Commitment.

 

	
  

	
d.

	
Mortgagor shall pay and discharge promptly all taxes, assessments, and governmental charges or levies imposed upon any of the Mortgaged Properties as well as all claims of any kind (including without limitation claims for labor, materials, supplies and rent) which, if unpaid, would become a lien upon any or all of the Mortgaged Properties or Mineral Interests; provided, however, that Mortgagor shall not be required to pay any such tax, assessment, charge, levy or claim if the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings diligently conducted and if Mortgagor shall have set up reserves therefore adequate under generally accepted accounting principles, and provided such contest does not jeopardize or adversely affect Mortgagee’s rights or interests in the Mortgaged Properties or any portion thereof.

 

	 
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e.

	
Mortgagor shall operate or cause to be operated the Mortgaged Properties in a good and workmanlike manner in accordance with industry practices and in compliance with all applicable laws, rules and regulations, and, in the case of the Leases and Mineral Interests, in compliance with all applicable proration and conservation laws of the State of Montana and all applicable laws, rules and regulations of every other agency and authority from time to time constituted to regulate the development and operation of the Leases and Mineral Interests and the production and sale of oil, gas, casinghead gas, coalbed methane, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all products refined therefrom and all other minerals (herein collectively called the “Hydrocarbons”) therefrom; provided, however, Mortgagor shall have the right to contest in good faith by appropriate proceedings, the applicability or lawfulness of any such law, rule or regulation and, pending such contest, may defer compliance therewith, so long as such deferment shall not subject the Mortgaged Properties or any part thereof to foreclosure or loss.

 

	
  

	
f.

	
Mortgagor shall keep and maintain or cause to be kept and maintained all buildings, improvements, equipment and personal property constituting part of the Mortgaged Properties in good and workable condition at all times, ordinary wear and tear excepted, and Mortgagor shall make all repairs, replacements, additions, betterments and improvements to the Mortgaged Properties as are needed and proper so that the business carried on in connection therewith may be conducted properly and efficiently at all times.

 

	
  

	
g.

	
Mortgagor shall obtain and maintain continuously in effect with respect to the Mortgaged Properties policies of insurance against such risks, in such amounts and with such companies as is prudent in the oil and gas industry.

 

	
  

	
h.

	
Mortgagor shall permit any officer, employee, agent or contractor of Mortgagee to visit and inspect any of the Mortgaged Properties at such reasonable times and upon reasonable notice.

 

	
  

	
i.

	
Mortgagor shall cure promptly any defects in the execution and delivery of this Mortgage. Mortgagor, at Mortgagee’s expense, will promptly execute and deliver to Mortgagee upon reasonable request all such other and further documents, agreements and instruments in compliance with or accomplishment of the covenants and agreements of Mortgagor herein or to further evidence and more fully describe the Mortgaged Properties, or to correct any omissions in this instrument, or more fully to state the secured obligations set out herein, or to perfect, protect and/or preserve any lien or security interest created hereby, or to make any recordings, or to file any notices, or obtain any consents, all as may be necessary or appropriate in connection with any thereof.

 

	
  

	
j.

	
Mortgagor will advise Mortgagee promptly of any event which would have a material adverse effect on the aggregate value of the Mortgaged Properties or on the lien and security interest created hereunder, and the amount of the effect on the Mortgaged Properties.

 

	 
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k.

	
Mortgagor will promptly notify Mortgagee of any event causing material loss or depreciation in value of the Mortgaged Properties and Mortgagor’s estimate of the amount of such loss or depreciation.

 

	
  

	
l.

	
Mortgagor may not sell, transfer, assign or otherwise convey all or any part of the Mortgaged Properties or create any lien or encumbrance subordinate to this Mortgage or grant any easement, right-of-way or any other right whatsoever materially affecting the value of the collateral with respect to the Mortgaged Properties without the prior written consent of Mortgagee, which consent may not be unreasonably withheld..

 

	
  

	
m.

	
If Mortgagor fails to perform any act which it is required to perform hereunder or to pay any money which it is required to pay hereunder, Mortgagee, following an occurrence of an Event of Default (as defined hereafter), may perform or cause to be performed such act or pay such money. Mortgagor shall, upon request, promptly reimburse Mortgagee for all amounts expended, advanced or incurred by Mortgagee to satisfy any obligation of Mortgagor under this instrument or to protect the Mortgaged Properties or to enforce the rights of Mortgagee under this instrument, which amounts will include all court costs, attorneys’ fees, fees of auditors and accountants, and investigation expenses reasonably incurred by Mortgagee in connection with any such matters, together with interest on each such amount from the date that the same is expended, advanced or incurred by Mortgagee until the date of written demand or request by Mortgagee for the reimbursement of same, at a rate of interest equal to the maximum lawful rate of interest permitted by Montana law.

 

ARTICLE III

DEFAULT

 

3.1           Remedies in the Event of Default.

 

	
  

	
a.

	
The terms “Default” and “Event of Default” as used in this instrument shall each mean the Mortgagee’s declaration of a default upon the occurrence of any of the following:

 

(i)           default in the punctual payment of the Indebtedness as and when due and payable, and Mortgagor shall fail to cure such default in accordance with the terms of the Loan Documents:  or

 

(ii)           Mortgagor or any obligor, guarantor or surety of any Indebtedness secured hereby, shall file a voluntary petition in bankruptcy proceeding, shall consent to voluntary or involuntary adjudication to bankruptcy or to reorganization (and 90 calendar days expire without dismissal thereof), or shall be adjudged bankrupt or insolvent under any applicable law or laws, or admits, in writing to having become insolvent, or becomes unable to pay debts as they mature, or suspends doing business, or makes an assignment for the benefit of creditors, or shall apply for, or consents to, the appointment of a trustee or receiver for a substantial portion of its assets (and 90 calendar days expire without dismissal of such appointment).

 

	 
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b.

	
Upon the occurrence and during the continuance of any Event of Default, Mortgagee may at its option declare the Indebtedness to be forthwith due and payable, whereupon the same shall become due and payable without any presentment, demand, protest, notice of protest, notice of intent to accelerate, notice of acceleration or notice of any kind, all of which are all hereby waived.  Mortgagee shall notify Mortgagor of its exercise of such option within five business days thereof.

 

	
  

	
c.

	
Upon the occurrence of any Event of Default, and in every such case, Mortgagee may, subject to the rights of any superior lien holder:

 

(i)           Proceed to protect and enforce its rights by a suit or suits in equity or at law, either for the specific performance of any covenant or agreement contained herein, or in aid of the execution of any power herein granted, or for the foreclosure of this Mortgage or for the enforcement of any other appropriate legal or equitable remedies.

 

(ii)           Pursuant to the power of sale hereby granted, cause the Mortgaged Properties to be sold by power of sale to satisfy the Indebtedness. Mortgagee shall give such notice as the law then requires as a condition precedent to foreclosure by power of sale. When the minimum period of time required by law after such notice has elapsed, Mortgagee or at Mortgagee’s discretion, any other person qualified by law, without notice to or demand upon Mortgagor except as required by law, shall sell the Mortgaged Properties at the time and place of sale affixed by it in the notice of sale, at one or several sales, either as a whole or in separate parcels and in such manner and order, all as Mortgagee in its sole discretion may determine, at public auction to the highest bidder for cash, and lawful money of the United States, payable at time of sale. Neither Mortgagor nor any other person or entity other than Mortgagee shall have the right to direct the order in which the Mortgaged Properties are sold, except as required by law. Subject to requirements and limits imposed by law, Mortgagee may, from time to time, postpone the sale of all or any portion of the Mortgaged Properties by inserting a notice of such postponement in the newspaper in which the original advertisement was published and continuing such publication until the time to which the sale shall be postponed. A sale of less than the whole of the Mortgaged Properties or any defective or irregular sale made hereunder shall not exhaust the power of sale provided for herein. Proceeds from the sale of the Mortgaged Properties shall be applied according to applicable law.

 

(iii)           To the extent permitted by law, resort to and realize upon the security hereunder and any other security now or later held by Mortgagee concurrently or successively in one or several consolidated or independent judicial actions or lawfully taken non-judicial proceedings, or both, and to apply the proceeds received upon the Indebtedness all in such order and manner as Mortgagee determines in its sole discretion and to the extent provided by law.

 

(iv)           In any action to foreclose, appoint a receiver of the rents, issues and profits of the Mortgaged Properties as a matter of right and without notice, with power to collect the rents, issues, proceeds, income and profits, without regard to the value of the Mortgaged Properties or the solvency of any person or persons liable for the payment of the Indebtedness involved in the action. Mortgagor, for itself and any subsequent owner or owners, hereby waives any and all defenses to the application for a receiver as provided above and hereby specifically consents to such appointment without notice; but nothing contained herein is to be construed to deprive Mortgagee of any other right, remedy or privilege it may now have under the law to have a receiver appointed. The provisions for the appointment of a receiver are made an express condition upon which the loans contemplated by the Agreement are made.

 

	 
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d.

	
Mortgagor shall surrender possession of the Mortgaged Properties to the purchaser at foreclosure sale immediately following the sale in the event such possession has not previously been delivered by Mortgagor.

 

	
  

	
e.

	
In connection with any sale or sales hereunder, Mortgagee may elect to treat any of the Mortgaged Properties which consists of a right in action or which is property that can be severed from the Mortgaged Properties (including, without limitation, any improvements forming a part thereof) without causing damage thereto as if the same were personal property or a fixture, as the case may be, and dispose of the same in accordance with applicable law, separate and apart from the sale of the Mortgaged Properties. Any sale of Collateral (as hereinafter defined) hereunder shall be conducted in any manner permitted by the Uniform Commercial Code.

 

	
  

	
f.

	
The recitals in any deed, assignment or other conveyance given by Mortgagee or public officer of a default, publication of notice of sale, demand that a sale should be made, postponement of sale, terms of sale, sale, name of purchaser, payment of purchase money and any other facts affecting the regularity or validity of the sale shall be prima facie evidence of the truthfulness thereof, and such deed, assignment or other conveyance shall be conclusive against all persons as to all matters or facts therein recited.

 

	
  

	
g.

	
In addition to all other remedies granted Mortgagee herein, after the occurrence and during the continuance of an Event of Default, Mortgagor, upon demand by Mortgagee, shall permit such third parties as Mortgagee may designate to inspect the Mortgaged Properties and Mortgagor’s operations thereon.

 

	
  

	
h.

	
All remedies herein expressly provided for are cumulative of any and all other remedies now existing at law or in equity, and Mortgagee shall, in addition to the remedies provided for above, be entitled to avail itself of all such other remedies as may now or hereafter exist at law or in equity for the collection of the Indebtedness and the enforcement of the covenants herein and foreclosure of the liens evidenced hereby. The resort to any remedy provided for by law shall not prevent the concurrent or subsequent employment of any other appropriate remedy.

 

	
  

	
i.

	
To the extent permitted by law, Mortgagee shall have the right to become the purchaser at any sale held by Mortgagee or any public officer. If Mortgagee becomes the purchaser at any such sale, Mortgagee shall have the right to credit the Indebtedness, or a portion thereof, upon the amount of the bid made therefor.

 

	
  

	
j.

	
Mortgagee may resort to any security given by this instrument or to any other security now existing or hereafter given to secure the payment of the Indebtedness, in whole or in part, and in such portions and in such order as may seem best to Mortgagee in its sole and uncontrolled discretion. Any such action shall not in anywise be considered as a waiver of any of the rights, benefits or liens evidenced by this instrument.

 

	 
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k.

	
In the Event of Default but subject to the rights of any superior lien holder, if any, Mortgagor hereby absolutely and unconditionally bargains, sells, transfers, assigns, sets over and conveys to Mortgagee, Mortgagor’s interest in the Hydrocarbons, together with its share of the proceeds derived from the sale thereof (such proceeds being hereinafter called “proceeds of production”). In the Event of Default but subject to the rights of any superior lien holder, Mortgagor directs and instructs each purchaser of the Hydrocarbons to pay to Mortgagee all of the proceeds of production until such time as such purchaser has been furnished evidence that all Indebtedness has been paid and that the lien evidenced hereby has been released. Mortgagor authorizes Mortgagee to receive and collect all sums of money derived from the proceeds of production, and no purchaser of the Hydrocarbons shall have the responsibility for the application of any funds paid to Mortgagee. Mortgagor shall execute and deliver any and all transfer orders, division orders and other instruments that may be requested by Mortgagee or that may be required by the purchaser of the Hydrocarbons for the purpose of effectuating payment of proceeds of production to Mortgagee. Mortgagor hereby appoints Mortgagee as its attorney-in-fact to pursue any and all rights to collect proceeds of production and to execute and deliver any and all transfer orders, division orders and other instruments that may be required by the purchaser of Hydrocarbons. This power of attorney is coupled with an interest and therefore irrevocable in the Event of Default.

 

ARTICLE IV

SECURITY AGREEMENT

 

4.1           Security Agreement.  To further secure the Indebtedness, Mortgagor hereby grants to Mortgagee a security interest in all of Mortgagor’s rights, titles and interests in and to the Mortgaged Properties insofar as such Mortgaged Properties consist of goods, equipment, accounts, contract rights, general intangibles, inventory, Hydrocarbons, goods that are or are to become fixtures, as-extracted collateral and any and all other personal property of any kind or character defined in and subject to the provisions of the Uniform Commercial Code, including the proceeds and products from any and all of such personal property, including without limitation the personal property listed on Schedule A attached hereto (all of the foregoing being collectively called the “Collateral”), BUT EXPRESSLY EXCEPTING that certain 1979 Wilson Cardwell Double-Triple Workover Rig, Model #38, VIN#042388 owned by Mortgagor. Upon the occurrence of any Event of Default, Mortgagee is and shall be entitled to all of the rights, powers and remedies afforded a secured party by the Uniform Commercial Code with reference to the personal property and fixtures in which Mortgagee has been granted a security interest herein, or the Mortgagee may proceed as to both the real and personal property covered hereby in accordance with the rights and remedies granted under this instrument with respect to the real property covered hereby. Such rights, powers and remedies shall be cumulative and in addition to those granted Mortgagee under any other provision of this instrument or under any other instrument executed in connection with or as security for the Indebtedness. Mortgagor, as debtor (sometimes herein called “Debtor”) covenants and agrees with Mortgagee, as secured party (sometimes herein called “Secured Party”) that:

 

	
  

	
a.

	
To the extent permitted by law, Debtor expressly waives any notice of sale or other disposition of the Collateral and any other right or remedies of a debtor or formalities prescribed by law relative to sale or disposition of the Collateral or exercise of any other right or remedy of Secured Party existing after default hereunder; and to the extent any such notice is required and cannot be waived, Debtor agrees that if such notice is mailed, postage prepaid, to Debtor at Debtor’s addresses set out herein at least ten calendar days before the time of the sale or disposition, such notice shall be deemed reasonable and shall fully satisfy any requirement for giving of the notice.

 

	 
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b.

	
Following an Event of Default, Secured Party is expressly granted the right at its option, to transfer at any time to itself or to its nominee the Collateral, or any part thereof, and to receive the monies, income, proceeds, or benefits attributable or accruing thereto and to hold the same as security for the Indebtedness or to apply it on the principal and interest or other amounts owing on any of the Indebtedness, whether or not then due, in such order or manner as Secured Party may elect. All rights to marshalling of assets of Debtor, including any such right with respect to the Collateral are waived.

 

	
  

	
c.

	
All recitals in any instrument of assignment or any other instrument executed by Secured Party incident to sale, transfer, assignment or other disposition or utilization of the Collateral or any part thereof hereunder shall, in the absence of manifest error, be prima facie evidence of the matter stated therein, no other proof shall be required to establish full legal propriety of the sale or other action or of any fact, condition or thing incident thereto, and all prerequisites of such sale or other action and of any fact, condition or thing incident thereto shall be presumed conclusively to have been performed or to have occurred.

 

	
  

	
d.

	
All expenses of preparing for sale, or other use or disposition, selling or otherwise using or disposing of the Collateral and the like which are incurred or paid by Secured Party as authorized or permitted hereunder, including also all reasonable attorneys’ fees, legal expenses and costs, shall be added to the Indebtedness and the Debtor shall be liable therefore.

 

	
  

	
e.

	
Should Secured Party elect to exercise its rights under the Uniform Commercial Code as to part of the Collateral, this election shall not preclude Secured Party from exercising any other rights and remedies granted by this instrument as to the remainder of the Collateral.

 

	
  

	
f.

	
Any copy of this instrument may also serve as a financing statement under the Uniform Commercial Code between the Debtor, whose present mailing addresses is Mortgagor’s addresses listed on the first page of this Mortgage, and Secured Party, whose present mailing address is the Mortgagee’s address listed on the first page of this Mortgage.

 

	
  

	
g.

	
Secured Party is authorized to file, in any jurisdiction where Secured Party deems it necessary, a financing statement or statements covering the Collateral, and at the reasonable request of Secured Party, Debtor shall join Secured Party in executing one or more such financing statements pursuant to the Uniform Commercial Code in form satisfactory to Secured Party, and will pay the cost of filing or recording a financing statement or statements or this instrument, as a financing statement, in all public offices at any time and from time to time whenever filing or recording of any financing statement or of this instrument is reasonably deemed by Secured Party to be necessary or desirable.

 

	
  

	
h.

	
The office where Debtor keeps Debtor’s accounting records concerning the Collateral covered by this Security Agreement is at Mortgagor’s office at 108-18 Queens Blvd., Suite 901, Forest Hills, New York11375.

 

	 
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i.

	
Portions of the Collateral consist of (i) oil, gas and other minerals (as-extracted collateral) produced or to be produced from the lands described in the Leases or covered by the Mineral Interests and to the accounts resulting from the sale thereof at the wellhead, or (ii) goods which are or will become fixtures attached to the real estate constituting a portion of the Mortgaged Properties, and Debtor hereby agrees that this instrument shall be filed for record in the real property records and the Uniform Commercial Code records of the county in which the Mortgaged Properties are located as a financing statement to perfect the security interest of Secured Party in the portions of the Collateral. The oil, gas and other minerals and accounts will be financed at the wellhead of the oil and gas wells located on the lands described in the Leases or covered by the Mineral Interests. The name of the record owner of the Mortgaged Properties is the party named herein as Mortgagor and Debtor. If allowed by applicable law, this Mortgage when filed for record shall constitute a financing statement for fixtures and as-extracted collateral, as those terms are defined in the Uniform Commercial Code. Nothing contained herein shall impair or limit the effectiveness of this document as a security agreement or financing statement for other purposes.

 

	
  

	
j.

	
Upon default hereunder, Debtor hereby irrevocably appoints Secured Party as Debtor’s attorney-in-fact (such agency being coupled with an interest), and as such attorney-in-fact, Secured Party may, without the obligation to do so, in Debtor’s name or in the name of Secured Party, prepare, execute, file and record financing statements, continuation statements, applications for registration and like papers necessary to create, perfect or preserve any of Secured Party’s security interests and rights in or to any of the Mortgaged Properties, and upon a default hereunder, take any other action required of Debtor.

 

ARTICLE V

MISCELLANEOUS

 

5.1           Miscellaneous Provisions

 

	
  

	
a.

	
All options and rights of election herein provided for the benefit of Mortgagee are continuing and the failure to exercise any such option or right of election upon a particular Default or breach or upon any subsequent Default or breach shall not be construed as waiving the right to exercise such option or election at any later date. By the acceptance of payment of any sum secured hereby after its due date, Mortgagee shall not be deemed to have waived the right either to require prompt payment when due of all other sums so secured or to regard as an Event of Default the failure to pay any other sums due which are secured hereby. No exercise of the rights and powers granted herein and no delay or omission in the exercise of such rights and powers shall be held to exhaust the same or be construed as a waiver thereof and every such right and power may be exercised at any time and from time to time.

 

	
  

	
b.

	
The terms and provisions of this Mortgage are subject to the terms and provisions of the Loan Agreement.

 

	
  

	
c.

	
All Indebtedness shall be payable at the office of Mortgagee listed on page one of this Mortgage or at such place as Mortgagee may from time to time designate in writing.

 

	
  

	
d.

	
The terms, provisions, covenants and conditions contained herein shall be binding upon Mortgagor and its successors and assigns, and shall inure to the benefit of Mortgagee and its successors and assigns, subject to the restrictions on Transfers set forth herein.

 

	 
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e.

	
If any provision hereof is invalid or unenforceable in any jurisdiction, the other provisions hereof shall remain in full force and effect in such jurisdiction, and the remaining provisions hereof shall be liberally construed in favor of the Mortgagee in order to effectuate the provisions hereof and the invalidity or unenforceability of any provision hereof any jurisdiction shall not affect the validity or enforceability of any such provision in any other jurisdiction.

 

	
  

	
f.

	
It is the intention of the parties hereto to comply with the applicable usury laws; accordingly, it is agreed that notwithstanding any provisions to the contrary in the Note or this Mortgage, in no event shall the Note or this Mortgage require or allow the payment, taking, receiving or charging or permit the collection of interest in excess of the maximum amount permitted by applicable usury law, and all such documents shall be subject to interest reduction to the amount allowed under such applicable laws. If any such excess of interest is contracted for, taken, charged, reserved or received, under the Loan Documents , or in the event the maturity of any of the Indebtedness is accelerated in whole or in part, or in the event that all or part of the principal or interest of the Indebtedness shall be prepaid, so that under any of such circumstances, the amount of interest contracted for, taken, charged or received, under the Loan Documents and the amount of principal actually outstanding from time to time under the instruments evidencing the Indebtedness, shall exceed the maximum amount of interest permitted by the applicable usury laws, now or hereafter enacted, then in any such event (a) the provisions of this section shall govern and control, (b) neither Mortgagor nor any other person or entity now or hereafter liable for the payment of the Indebtedness shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by the applicable usury laws, now or hereafter enacted, (c) any such excess shall be cancelled automatically, (d) any such excess that may have been collected shall be either applied as a credit against the then unpaid principal amount or refunded to Mortgagor, at Mortgagee’s option, and (e) the effective rate of interest shall be automatically reduced to the maximum lawful contract rate allowed under the applicable usury laws, now or hereafter enacted. It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, taken, charged or received under the Note or this Mortgage that are made for the purpose of determining whether such rate exceeds the maximum lawful contract rate, shall be made, to the extent permitted by the applicable usury laws, now or hereafter enacted, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the loans evidenced by the instruments evidencing the Indebtedness, all interest at any time contracted for, taken, charged or received from Mortgagor or otherwise by Mortgagee in connection with such loans.

 

	
  

	
g.

	
This Mortgage may be executed in any number of counterparts, each of which shall for all purposes be deemed to be an original, and all of which are identical except that, to facilitate recordation or filing in any particular county, counterpart portions of Schedule “A” attached hereto which describe properties situated in counties other than the county in which such counterpart is to be recorded may have been omitted.

 

	
  

	
h.

	
Where the context requires, the use of the singular form herein shall include the plural, the use of the plural shall include the singular, and the use of any gender shall include any and all genders.  If applicable, the debts, liabilities and obligations on the part of the Mortgagor hereunder shall be joint and several debts, liabilities and obligations of each of the parties comprising the Mortgagor.

 

	 
Mortgage, Security Agreement and Financing Statement

	
Page 11 of 14

 

  

  

  

 

	
  

	
i.

	
If any legal action, suit or proceeding is commenced between Mortgagee and Mortgagor regarding their respective rights and obligations under this Mortgage, the prevailing party shall be entitled to recover, in addition to damages or other relief, costs and expenses, reasonable attorney fees and court costs (including, without limitation, expert witness fees). As used herein, the term “prevailing party” shall mean the party which obtains the principal relief it has sought, whether by compromise settlement, judgment, or foreclosure. If the party which commenced or instituted the action, suit, proceeding or counterclaim shall dismiss or discontinue it without the concurrence of the other party, such other party shall be deemed the prevailing party.

 

	
  

	
j.

	
THIS MORTGAGE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY MONTANA LAW AND THE LAWS OF THE UNITED STATES. MORTGAGOR AND MORTGAGEE HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY CLAIM TO ASSERT THAT THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF MONTANA GOVERNS THIS MORTGAGE AND THE INDEBTEDNESS.

 

	
  

	
k.

	
This Mortgage and the other Loan Documents together constitute a written mortgage which represents the complete and final agreement between the parties, supersedes all prior negotiations, understandings and agreements and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties relating to this transaction. This Mortgage may be amended, modified, or supplemented only by an instrument in writing duly executed by the parties hereto.

 

(Signature Pages to Follow)

 

	 
Mortgage, Security Agreement and Financing Statement

	
Page 12 of 14

 

  

  

  

	  	
NATIVE AMERICAN ENERGY GROUP, INC.

	  	  
	  	
By:

	
/s/ Joseph G. D’Arrigo

	  	  	
Joseph G. D’Arrigo, Chairman and CEO

	  	  

	
STATE OF NEW YORK

	
)

	  	
.ss.

	
County of __________________

	
)

This instrument was acknowledged before me on November 8, 2011, by Joseph G. D’Arrigo, Chairman and CEO of Native American Energy Group, Inc.

	  	
 

	  	
(Signature of Notary)

	  	
Notary Public for the State of New York

(Signature Page of Mortgagee to Follow)

 

	 
Mortgage, Security Agreement and Financing Statement

	
Page 13 of 14

 

  

  

  

	  	
HIGH CAPITAL FUNDING, LLC

	  	  
	  	
By:

	
/s/ David A. Rapaport

	  	  	
David A. Rapaport, Executive Vice-President and General Counsel

	
STATE OF GEORGIA

	
)

	  	
.ss.

	
County of FULTON

	
)

This instrument was acknowledged before me on November 8, 2011, by David A. Rappaport, Executive Vice-President and General Counsel of High Capital Funding, LLC.

	  	
 

	  	
(Signature of Notary)

	  	
Notary Public for the State of Georgia

 

	 
Mortgage, Security Agreement and Financing Statement

	
Page 14 of 14Exhibit 4.2

THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.

CLEARSIGN COMBUSTION CORPORATION

WARRANT TO PURCHASE SHARES OF COMMON STOCK

Warrant No.: ____

________________, 2011

This WARRANT TO PURCHASE SHARES OF COMMON STOCK certifies that MDB Capital Group LLC, having an address at 401 Wilshire Boulevard, Suite 1020, Santa Monica, California 90401, or permitted assignees is the registered holder (the “Holder”) of this Warrant to Purchase Shares of Common Stock (the “Warrant”) to purchase shares of the common stock, par value $.0001 per share (the “Common Stock”), of ClearSign Combustion Corporation, a Washington corporation (the “Company”).  This Warrant has been issued to the Holder in connection with the closing of the private placement of up to $3,000,000 of Common Stock offered by the Company on or about the date hereof (the “Offering”).

FOR VALUE RECEIVED, the Company hereby certifies that the Holder is entitled to purchase from the Company ____________________1 duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (the “Warrant Shares”) at a purchase price per share set forth in Section 3 below, and otherwise subject to the terms, conditions and adjustments set forth below in this Warrant.  The Holder is the person or entity in whose name this Warrant is registered on the records of the Company regarding registration and transfers of this Warrant (the “Warrant Register”) and is the owner and holder thereof for all purposes, except as described in Section 10 hereof.

1.           Exercise of Warrant.  This Warrant will be exercisable at any time, in the sole discretion of the Holder, commencing on the date hereof (the “Commencement Date”).

2.           Expiration of Warrant.  This Warrant shall expire on _______, 2016 (the “Expiration Date”).

3.           Warrant Price.  At any time through the Expiration Date, all or any portion of this Warrant may be exercised for Warrant Shares, in the Holder’s sole discretion, at a price equal to $2.75 per share, subject to adjustment as provided herein (the “Warrant Price”).

	
1

	
Equal to 10% of the securities issued in the Offering.

  

  

  

 

4.           Exercise of Warrant.  This Warrant shall be exercisable as follows:

4.1         Manner of Exercise.  This Warrant may be exercised into shares of Common Stock by the Holder hereof, in accordance with the terms and conditions hereof, in whole or in part with respect to any portion of this Warrant and in the discretion of the Holder, during the period beginning on the Commencement Date and ending on the Expiration Date.  Any exercise shall be undertaken during normal business hours on any day other than a Saturday or a Sunday or a day on which commercial banking institutions in New York, New York, or Los Angeles, California are authorized by law to be closed (a “Business Day”) on or prior to the Expiration Date with respect to such portion of this Warrant, by surrender of this Warrant to the Company at its office maintained pursuant to Section 10.2(a) hereof, accompanied by an exercise notice in substantially the form attached to this Warrant as Exhibit A duly executed by or on behalf of the Holder together with the payment of the Warrant Price in cash by bank check or wire transfer of immediately available funds.

4.2         When Exercise Effective.  Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the Business Day on which this Warrant shall have been surrendered to the Company as provided in Section 4.1 hereof (“Exercise Date”), and, at such time, the corporation, association, partnership, organization, business, individual, government or political subdivision thereof or a governmental agency (a “Person” or the “Persons”) in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon exercise as provided herein shall be deemed to have become the holder or holders of record thereof.

4.3         Delivery of Stock Certificates.  As soon as practicable after each exercise of this Warrant, in whole or in part, and in any event within ten (10) Business Days thereafter, the Company, at its expense (including the payment by it of any applicable issue taxes), will cause to be issued in the name of and delivered to the Holder hereof or, subject to Section 10 hereof, as the Holder (upon payment by the Holder of any applicable transfer taxes) may direct:

(a)         a certificate or certificates (with appropriate restrictive legends, as applicable) for the number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock to which the Holder shall be entitled upon exercise plus, in lieu of any fractional share to which the Holder would otherwise be entitled, all issuances of Common Stock shall be rounded up to the nearest whole share.

(b)         in case exercise is in part only, a new Warrant of like tenor, dated the date hereof and stating on the face thereof for the number of shares of Common Stock equal to the number of shares called for on the face of this Warrant minus the number of shares designated by the Holder upon exercise as provided in Section 4.1 hereof (without giving effect to any adjustment thereof).

4.4         Shares to be Fully Paid.  The Company covenants and agrees that all shares of Common Stock which may be issued upon the exercise of rights presented by this Warrant will, upon issuance by the Company, be validly issued, fully paid and nonassessable, and free from preemptive rights and free from all taxes, liens and charges with respect thereto.

4.5         Company to Reaffirm Obligations.  The Company will, at the time of each exercise of this Warrant, upon the written request of the Holder hereof, acknowledge in writing its continuing obligation to afford to the Holder all rights (including without limitation any rights to registration of the shares of Common Stock issued upon exercise) to which the Holder shall continue to be entitled after exercise in accordance with the terms of this Warrant; provided, however, that if the Holder shall fail to make a request, the failure shall not affect the continuing obligation of the Company to afford the rights to such Holder.

  

2

  

4.6         Cashless Exercise.  Notwithstanding anything in this Article 4 to the contrary, this Warrant may be exercised at any time by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of shares of Common Stock equal to the quotient obtained by dividing [(A-B)(X)] by (A), where:

 

(A) = the Current Market Price;

 

(B) = the Warrant Price of this Warrant, as adjusted pursuant to Section 5 hereof; and

 

(X) = the number of shares of Common Stock then issuable upon exercise of this Warrant in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.

The term “Current Market Price” means the average 4:00 p.m. (Eastern time) (i) closing bid price over the five (5) trading days immediately preceding the date of such election, as such closing price is reported on the Bloomberg system or, if such system is not available, a similar quotation system reasonably acceptable to the Holder, or (ii), if there is no reported closing bid price for the day(s) in question, then the Current Market Price shall be determined based on the latest such dates for which  closing bid price information is available, unless such securities have not been traded on an exchange or in the over-the-counter market for at least five (5) trading days during the 30 day period immediately prior to the date of such election, in which case the Current Market Price shall be determined in good faith by, and reflected in a formal resolution of, the Board of Directors of the Company.

5.           Adjustments.

5.1         Anti-Dilution Protection.  The Warrant Price shall be subject to adjustment from time to time, as follows:

(a)         Except for any Exempt Issuances (as defined below), if the Company at any time prior to the Expiration Date issues, sells, transfers, or otherwise conveys any Common Stock or other equity securities of the Company or indebtedness or other securities convertible into other equity securities of the Company (the “Issued Securities”) at a price per share equivalent, assuming conversion into Common Stock (the “Issuance Price”), of less than the Warrant Price (as adjusted pursuant to this Section 5), on the date of issuance of the Issued Securities (the “Issuance Date”), then the Warrant Price shall be adjusted downward to a price determined by dividing:

(i)          the sum of (w) the Warrant Price in effect before the issuance of such Issued Securities multiplied by the sum of (I) the number of shares of the Company’s Common Stock then issued and outstanding plus (II) the number of shares of Company preferred stock then issued as converted into shares of Common Stock immediately prior to the issuance of such Issued Securities and (x) the consideration, if any, received by or deemed to have been received by the Company on the issue of such Issued Securities by:

 

(ii)         the sum of (y) the number of shares of the Company’s Common Stock then issued and outstanding plus the number of shares of the Company’s preferred stock then issued as converted into shares of Common Stock  immediately prior to the issuance of such Issued Securities and (z) the number of additional shares of Common Stock issued or deemed to have been issued in the issuance of such Issued Securities.

  

3

  

In no event shall the Warrant Price after giving effect to the issuance of such Issued Securities be greater than the Warrant Price immediately prior to the issuance of such Issued Securities.  “Exempt Issuances” shall mean the following:  (i) stock options issued to persons providing goods or services to the Company pursuant to a equity incentive plan approved by the Board of Directors of the Company, and shares of Common Stock issued pursuant to the exercise of such stock options; (ii) any stock options, warrants or shares of Common Stock issued pursuant to the exercise of such options and warrants and shares of Common Stock issued with respect to a transaction which the Board of Directors of the Company determines in good faith to be in the best interest of the Company and relating to strategic investments (i.e., investors who may provide benefits to the Company in addition to capital), strategic alliances or venture leasing, provided the purpose of the transaction is not to circumvent the provisions hereof that are intended to provide for an equitable adjustment to the Warrant Price; (iii) the issuance of shares of Common Stock in connection with any conversion of any equity securities, indebtedness or other securities of the Company existing as of the date hereof; (iv) the issuance by the Company of shares of Common Stock or other securities of the Company in connection with the purchase of the securities or purchase or leasing of certain of the assets of any other business entity, a merger, consolidation, business combination or similar transaction, the performance of services or a borrowing of money approved by the Board of Directors of the Company, provided the purpose of the transaction is not to circumvent the provisions hereof that are intended to provide for an equitable adjustment to the Warrant Price; and (v) issuances pursuant to Sections 5.2 and 5.3 of this Warrant.

 

(b)         In the event that the Issued Securities are not shares of Common Stock, then for purposes of determining the price at which such Issued Securities have been issued, the aggregate consideration paid for the Issued Securities shall be divided by the maximum number of shares of Common Stock issuable upon conversion of the Issued Securities into shares of Common Stock, all as determined as of the Issuance Date.

(c)         In the case of the issuance of Issued Securities for cash, the consideration shall be deemed to be the amount of cash paid.  In the case of the issuance of Issued Securities for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as reasonably determined by the Company’s Board of Directors consistent with its fiduciary duties irrespective of any accounting treatment.

5.2         Splits, Subdivisions, etc.  In the event that the Company should at any time or from time to time, after the date first referenced above, fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock, or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly additional shares of Common Stock (hereinafter referred to as “Common Stock Equivalents”) without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), the Warrant Price shall be appropriately decreased so that the number of shares of Common Stock issuable on exercise of this Warrant shall be increased in proportion to such increase in the aggregate number of shares of the Common Stock outstanding.

5.3         Combinations.  If the number of shares of Common Stock outstanding at any time after the date first referenced above is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Warrant Price shall be appropriately increased so that the number of shares of Common Stock issuable upon exercise of this Warrant shall be decreased in proportion to such decrease in outstanding shares.

5.4         Notice of Adjustments.  Upon any adjustment of the terms of this Warrant pursuant to this Section 5, then and in each such case the Company shall promptly deliver a notice to the registered Holder of this Warrant, which notice shall state the Warrant Price resulting from such adjustment and the changes, if any, in the number of Warrant Shares or kind of securities or other property purchasable at such price upon the exercise hereof, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.

  

4

  

5.5         Adjustment in Number of Securities.  Upon each adjustment of the Warrant Price pursuant to the provisions of this Section 5, the number of securities issuable upon the exercise of each Warrant shall be adjusted to the nearest full amount by multiplying a number equal to the Warrant Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Warrant Price.

5.6         No Fractional Shares.  No fractional shares shall be issuable upon exercise of this Warrant and the number of Warrant Shares to be issued shall be rounded down to the nearest whole share.

 

6.           Reservation of Shares.  The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, free from all taxes, liens and charges with respect to the issue thereof, and not subject to preemptive rights or other similar rights of stockholders of the Company, solely for the purpose of issuing the shares of Common Stock underlying this Warrant, such number of its shares of Common Stock as shall from time to time be sufficient to effect the issuance or exercise thereof, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to issue the Common Stock and effect the exercise of this Warrant, in addition to such other remedies as shall be available to Holder, the Company shall take such corporate action as may, in the opinion of its counsel, be necessary to increase the number of authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including without limitation, using its best efforts to obtain the requisite stockholder approval necessary to increase the number of authorized shares of the Company’s Common Stock.  All shares of Common Stock issuable upon exercise of this Warrant shall be duly authorized and, when issued upon exercise, shall be validly issued and, in the case of shares, fully paid and nonassessable and free from preemptive rights and free from taxes, liens and charges with respect thereto.

7.           No Impairment.  The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant but will at all times carry out all such terms and take all such action as may be reasonably necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment.

8.           Restrictions on Transfer.

8.1         Restrictive Legends.  This Warrant and each Warrant issued upon transfer or in substitution for this Warrant pursuant to Section 10, each certificate for Common Stock issued upon the exercise of any Warrant and each certificate issued upon the transfer of any such Common Stock shall be transferable only upon satisfaction of the conditions specified in this Section 8.  Each of the foregoing securities shall be stamped or otherwise imprinted with a legend reflecting the restrictions on transfer set forth in this Section 8 and any restrictions required under the Securities Act of 1933, as amended (the “Securities Act”).

  

5

  

8.2         Notice of Proposed Transfer; Opinion of Counsel.  Prior to any transfer of any securities which are not registered under an effective registration statement under the Securities Act (“Restricted Securities”), the Holder will give written notice to the Company of the Holder's intention to affect a transfer and to comply in all other respects with this Section 8.2.  Each notice: shall describe the manner and circumstances of the proposed transfer   If in the opinion of counsel the proposed transfer may be effected without registration of Restricted Securities under the Securities Act (which opinion shall state the basis of the legal conclusions reached therein), the Holder shall thereupon be entitled to transfer the Restricted Securities in accordance with the terms of the notice delivered by the Holder to the Company.  The opinion of counsel referenced in this Section 8.2 shall be provided by counsel to the Company within three (3) business days of the foregoing notice, at the Company’s expense, or, may, at the Holder’s option, be provided by counsel to the Holder and the Company shall reimburse Holder for such expense, subject to such legal opinion being reasonably satisfactory to the Company.  Each certificate representing the Restricted Securities issued upon or in connection with any transfer shall bear the restrictive legends required by Section 8.1 hereof.

8.3         Termination of Restrictions.  The restrictions imposed by this Section 8 upon the transferability of Restricted Securities shall cease and terminate as to any particular Restricted Securities: (a) which Restricted Securities shall have been effectively registered under the Securities Act, or (b) when, in the opinions of both counsel for the Holder thereof and counsel for the Company, such restrictions are no longer required in order to insure compliance with the Act or Section 8 hereof.  Whenever such restrictions shall cease and terminate as to any Restricted Securities, the Holder thereof shall be entitled to receive from the Company, without expense (other than applicable transfer taxes, if any), new securities of like tenor not bearing the applicable legends required by Section 8.1 hereof.

9.            Registration of Common Stock and Warrant Shares.

(a)         Demand Registration.  If the Company shall receive at any time prior to the Expiration Date, a written request from the Holder that the Company file a Registration Statement under the Securities Act covering the registration of Registrable Securities (as hereinafter defined), then the Company shall, within twenty (20) days of the receipt thereof, use reasonable best efforts to file the registration under the Securities Act of all Registrable Securities of the Holder subject to such written request and shall cause such Registration Statement to become effective within forty-five (45) days of such filing date or ninety (90) days of such filing date if the SEC commences a full review of such Registration Statement.  The term “Registrable Securities” means (i) all shares of Common Stock issued to the Holder in connection with the Offering or any subsequent offerings pursuant to that certain Engagement Letter by and between the Company and the Holder dated February __, 2011, (ii) all shares of Common Stock issued to the Holder pursuant to that certain Consulting Agreement by and between the Company and the Holder dated February __, 2011, (iii) the Warrant Shares issuable upon exercise or otherwise pursuant to this Warrant and (iv) any shares of capital stock issued or issuable in exchange for or otherwise with respect to the foregoing, and the term “Registration Statement” means a registration statement of the Company under the Securities Act which the Company may or is obligated to file hereunder.  The Company’s obligations under this Section 9(a) shall be limited to [one] Registration Statement that has been declared effective.  Notwithstanding the foregoing, the Company shall not be required to effect a registration pursuant to this Section 9(a) either (i) prior to [__________ __, 20__] or (ii) during the period starting with the date sixty (60) days prior to the Company’s good faith estimate of the date of the filing of and ending on a date ninety (90) days following the effective date of a Company-initiated registration subject to Section 9(b) below for which the Company will provide for participation by the Holder; provided that, in the case of clause (ii), the Company is actively employing in good faith reasonable best efforts to cause such Registration Statement to become effective; or

  

6

  

(b)         Piggy-Back Registrations.  In the event that all Registrable Securities are not  registered for resale, should the Company at any time prior to the Expiration Date, determine to file with the Securities and Exchange Commission (“SEC”) a Registration Statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities (other than on Form S-4 or Form S-8 or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other bona fide employee benefit plans), the Company shall send to the Holder written notice of such determination and, if within twenty (20) days after the effective date of such notice in accordance with Section 13 hereof, the Holder shall so request in writing, the Company shall include in such Registration Statement all or any part of the Registrable Securities the Holder requests to be registered.  Notwithstanding any other provision of this Agreement, the Company may withdraw any Registration Statement referred to in this Section 9(b) without incurring any liability to the Holder provided that upon such withdrawal, the Company’s obligations under this Section 9(b) shall remain in effect.  The Company’s obligations under this Section 9(b) shall be limited to two Registration Statements that have been declared effective.

 

(c)         Obligations of the Company.  In connection with the registration of the Registrable Securities in accordance with this Section 9, the Company shall have the following obligations:

(i)          The Company shall use its reasonable best efforts to prepare and file with the SEC a Registration Statement, providing for the registration of the offer and sale of the Registrable Securities by the Holder.  For purposes of this Section 9, the terms “register,” “registered,” and “registration” refer to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous basis (“Rule 415”), and the declaration or ordering of effectiveness of such Registration Statement by the SEC; provided, however, if the Holder in good faith determines that under applicable SEC interpretations, rules or policies a Rule 415 registration would not, in light of the circumstances of the Company or the proposed offering, permit the resale of all of the Registrable Securities immediately after effectiveness, or material limitations would be imposed on any such resale, then the registration shall be on Form S-1 or such other form that permits the maximum ability of holders of Registrable Securities to effectuate an unrestricted resale of such securities.  Upon effectiveness, the Company shall use its reasonable best efforts to keep such Registration Statement effective pursuant to Rule 415 at all times until such date as is the earlier of:  (i) the date on which all of the Registrable Securities covered by the Registration Statement have been sold and (ii) the one (1) year anniversary of the date such Registration Statement became effective under the Securities Act (the “Registration Period”).

 

(ii)         The Company shall use reasonable best efforts to prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statements and the prospectus used in connection with the Registration Statements as may be necessary to keep the Registration Statements effective at all times during the Registration Period, and, during such period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statements.  In the event the number of shares available under a Registration Statement filed pursuant to this Agreement is insufficient to cover all of the Registrable Securities issued or issuable upon exercise of the Warrants, the Company shall use reasonable best efforts to amend the Registration Statement, or file a new Registration Statement (on the short form available therefor, if applicable), or both, so as to cover all of the Registrable Securities, in each case, as soon as practicable, but in any event within twenty (20) days after the necessity therefor arises (based on the market price of the Common Stock and other relevant factors on which the Company reasonably elects to rely).  The Company shall use its reasonable best efforts to cause such amendment and/or new Registration Statement to become effective as soon as reasonably practicable following the filing thereof.

  

7

  

(iii)         If requested by the Holder, the Company shall furnish to the Holder:  (i) promptly (but in no event more than two (2) business days) after the same is prepared and publicly distributed, filed with the SEC, or received by the Company, one copy of each Registration Statement and any amendment thereto, each preliminary prospectus and prospectus and each amendment or supplement thereto, and each letter written by or on behalf of the Company to the SEC or the staff of the SEC, and each item of correspondence from the SEC or the staff of the SEC, in each case relating to the Holder as a “Selling Stockholder” (but not any portion of such letters and correspondence that the Company believes would constitute material and non-public information of the Company or any portion that contains information for which the Company has sought confidential treatment), and (ii) promptly (but in no event more than two (2) business days) after the Registration Statement is declared effective by the SEC, such number of copies of a final prospectus and all amendments and supplements thereto and such other documents as the Holder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by the Holder.  The Company will promptly notify the Holder by facsimile of the effectiveness of each Registration Statement or any post-effective amendment.  The Company will, as promptly as reasonably practical, respond to any and all comments received from the SEC (which comments relating to such Registration Statement that pertain to the Holder as a “Selling Stockholder” shall promptly be made available to the Holder upon request; provided that, the Company shall not be obligated to make available any comments that would result in the disclosure to the Holder of material and non-public information concerning the Company or that contain information for which the Company has sought confidential treatment), with a view towards causing each Registration Statement or any amendment thereto to be declared effective by the SEC as soon as practicable, shall promptly file an acceleration request as soon as practicable following the resolution or clearance of all SEC comments or, if applicable, following notification by the SEC that any such Registration Statement or any amendment thereto will not be subject to review and, if required by law, shall promptly file with the SEC a final prospectus as soon as practicable following receipt by the Company from the SEC of an order declaring the Registration Statement effective.

 

(iv)        The Company shall use reasonable best efforts to:  (i) register and qualify the Registrable Securities covered by the Registration Statements under such other securities or “blue sky” laws of such jurisdictions in the United States as the Holder reasonably requests, (ii) prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to:  (a) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 9(c)(iv), (b) subject itself to general taxation in any such jurisdiction, (c) file a general consent to service of process in any such jurisdiction, (d) provide any undertakings that cause the Company undue expense or burden, or (e) make any change in its charter or bylaws, which in each case the Board of Directors of the Company determines to be contrary to the best interests of the Company and its stockholders.

 

(v)         As promptly as reasonably practicable after becoming aware of such event, the Company shall notify the Holder of the happening of any event, of which the Company has knowledge, as a result of which the prospectus included in any Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading.  Following the occurrence of such event, as promptly as reasonably practicable under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, the Company shall use its reasonable best efforts to prepare a supplement or amendment to any Registration Statement to correct such untrue statement or omission, and deliver such number of copies of such supplement or amendment to the Holder as the Holder may reasonably request; provided, that the Company shall promptly:  (i) notify the Holder in writing of the existence of (but in no event, without the prior written consent of the Holder, shall the Company disclose to such investor any of the facts or circumstances regarding) material non-public information and (ii) advise the Holder in writing to cease all sales under such Registration Statement until such time as the Company elects to disclose such material non-public information.

  

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(vi)        The Company shall use its reasonable best efforts to prevent the issuance of any stop order or other suspension of effectiveness of any Registration Statement, and, if such an order is issued, to obtain the withdrawal of such order at the earliest possible moment and to notify the Holder who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance of such order and the resolution thereof.

 

(vii)       The Company shall permit a single firm of legal counsel designated by the Holder to review such Registration Statement and all amendments and supplements thereto (as well as all requests for acceleration or effectiveness thereof), a reasonable period of time prior to  filing with the SEC, and not file any document in a form to which such counsel reasonably objects and will not request acceleration of such Registration Statement without prior notice to such counsel.  The fees of counsel for such review shall not exceed $5,000.  The sections of such Registration Statement covering information with respect to the Holder, the Holder’s beneficial ownership of securities of the Company or the Holder’s intended method of disposition of Registrable Securities shall conform to the information provided to the Company by the Holder.

 

(viii)      In connection with an underwritten offering only, the Company shall furnish, on the date that Registrable Securities are delivered to an underwriter for sale in connection with any Registration Statement:  (i) an opinion, dated as of such date, from counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the underwriters, if any, and the Holder and (ii) a letter, dated such date, from the Company’s independent registered public accounting firm in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and the Holder.

 

(ix)         The Company shall make available for inspection during reasonable business hours by:  (i) the Holder, (ii) any underwriter participating in any disposition pursuant to a Registration Statement, (iii) one firm of attorneys and one firm of accountants or other agents retained by the Holder and (iv) one firm of attorneys retained by all such underwriters (if any) (collectively, the “Inspectors”) all pertinent financial and other records, and pertinent corporate documents and properties of the Company, including without limitation, records of conversions by other holders of convertible securities issued by the Company and the issuance of stock to such holders pursuant to the conversions (collectively, the “Records”), as shall be reasonably deemed necessary by each Inspector to enable each Inspector to exercise its due diligence responsibility, and cause the Company’s officers, directors and employees to supply all information which any Inspector may reasonably request for purposes of such due diligence; provided, however, that each Inspector shall hold in confidence and shall not make any disclosure (except to the Holder and the other Inspectors) of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless:  (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement, (b) the release of such Records is ordered pursuant to a subpoena or other order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement.  The Company shall not be required to comply with this Section 9(c)(ix) or otherwise disclose any confidential information in such Records to any Inspector until and unless such Inspector shall have entered into confidentiality agreements (in form and substance satisfactory to the Company) with the Company with respect thereto, substantially in the form of this Section 9(c)(ix).  The Holder agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential.  Nothing herein (or in any other confidentiality agreement between the Company and the Holder) shall be deemed to limit the Holder’s ability to sell Registrable Securities in a manner which is otherwise consistent with applicable laws and regulations.

  

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(x)          The Company shall hold in confidence and not make any disclosure of information concerning the Holder provided to the Company unless:  (i) disclosure of such information is necessary to comply with federal or state securities laws or the Company’s obligations under this Agreement, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this or any other agreement.  The Company agrees that it shall, upon learning that disclosure of such information concerning the Holder is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Holder prior to making such disclosure, and allow the Holder, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information.

 

(xi)         The Company shall take all reasonable efforts to cause all the Registrable Securities covered by the Registration Statement to be listed on the OTC bulletin board or a NASDAQ exchange.

 

(xii)        The Company shall provide a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than the effective date of the Registration Statement.

 

(xiii)       The Company shall cooperate with the Holder and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the managing underwriter or underwriters, if any, or the Holder may reasonably request and registered in such names as the managing underwriter or underwriters, if any, or the Holder may request.  Within three (3) business days after a Registration Statement which includes Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel selected by the Company to deliver, to the transfer agent for the Registrable Securities (with copies to the Holder) a customary instruction letter and opinion of such counsel to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Registrable Securities.

 

(xiv)      At the request of the Holder, the Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and any prospectus used in connection with the Registration Statement as may be necessary in order to change the plan of distribution set forth in such Registration Statement.

 

(xv)       From and after the date of this Agreement, the Company shall not, and shall not agree to, allow the holders of any securities of the Company, other than the Holder, to include any of their securities in any Registration Statement under Section 9(a) hereof or any amendment or supplement thereto under Section 9(c)(ii) hereof without the consent of the Holder.

  

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(xvi)      The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Holder of Registrable Securities pursuant to a Registration Statement.

 

(d)         Obligations of the Holder.  In connection with the registration of the Registrable Securities in accordance with this Section 9, the Holder shall have the following obligations:

(i)          It shall be a condition precedent to the obligations of the Company to include any Holder’s Registrable Securities in any Registration Statement that Holder shall timely furnish to the Company such information regarding itself, the Registrable Securities held by it, the intended method of disposition of the Registrable Securities held by it and any other information as shall be reasonably required to effect the registration of such Registrable Securities and shall provide such information and execute such documents in connection with such registration as the Company may reasonably request.  At least five (5) business days prior to the first anticipated filing date of the Registration Statement, the Company shall notify the Holder of the information the Company requires from the Holder.

 

(ii)         The Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 9(c)(v) or 9(c)(vi), the Holder will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until the Holder’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 9(c)(v) or 9(c)(vi) and, if so directed by the Company, the Holder shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in the Holder’s possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice.

 

(iii)        The Holder may not participate in any underwritten registration in connection with a registration pursuant to Section 9(b) hereof unless the Holder:  (i) agrees to sell their Registrable Securities on the basis provided in any underwriting arrangements in usual and customary form entered into by the Company, (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, and (iii) agrees to pay its pro rata share of all underwriting discounts and commissions and any expenses in excess of those payable by the Company pursuant to Section 9(d) below.

 

(iv)        The Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it or an exemption therefrom in connection with the offer and sale of Registrable Securities pursuant to any Registration Statement.

 

(d)         Expenses of Registration.  All reasonable expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 9(a), 9(b) and 9(c), including, without limitation, all registration, listing and qualification fees, printers and accounting fees, the fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of counsel selected by the Holder pursuant to Section 9(c)(vii) hereof shall be borne by the Company.

(e)         Indemnification. In the event any Registrable Securities are included in a Registration Statement under this Agreement:

  

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(i)          To the extent permitted by law, the Company will indemnify, hold harmless and defend:  (i) the Holder, (ii) the directors, officers, partners, employees, agents and each person who controls the Holder within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), if any, (iii) any underwriter (as defined in the Securities Act) for the Holder, and (iv) the directors, officers, partners, employees and each person who controls any such underwriter within the meaning of the Securities Act or the Exchange Act, if any (each, an “Indemnified Person”), against any joint or several losses, claims, damages, liabilities or expenses (collectively, together with actions, proceedings or inquiries by any regulatory or self-regulatory organization, whether commenced or threatened, in respect thereof, “Claims”) to which any of them may become subject insofar as such Claims arise out of or are based upon:  (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement under which the Registrable Securities were registered or the omission or alleged omission to state therein a material fact required to be stated or necessary to make the statements therein not misleading; (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading; or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act any state securities law, or any rule or regulation thereunder relating to the registration or qualification under the Securities Act, the Exchange Act or state securities laws (the matters in the foregoing clauses (i) through (iii) being, collectively, “Violations”).  Subject to the restrictions set forth in Section 9(c)(iii) with respect to the number of legal counsel, the Company shall reimburse the Indemnified Person, promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim.  Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 9(e)(i):  (i) shall not apply to, and the Company shall not be liable to any Indemnified Person for, a Claim arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by any Indemnified Person or underwriter for such Indemnified Person expressly for use in connection with the preparation of such Registration Statement or any such amendment thereof or supplement thereto; (ii) shall not apply to, and the Company shall not be liable to any Indemnified Person for, amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld; and (iii) with respect to any preliminary prospectus, shall not inure to the benefit of any Indemnified Person if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented.  Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Holder pursuant to Section 9(h).

 

(ii)         In connection with any Registration Statement in which the Holder is participating, the Holder agrees severally and not jointly to indemnify, hold harmless and defend, to the same extent and in the same manner set forth in Section 9(e)(i), the Company, each of its directors, each of its officers who signs the Registration Statement, each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act, legal counsel and accountants for the Company, any underwriter and any other stockholder selling securities pursuant to the Registration Statement or any of its directors or officers or any person who controls such stockholder or underwriter within the meaning of the Securities Act or the Exchange Act (collectively and together with an Indemnified Person, an “Indemnified Party”), against any Claim to which any of them may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is based upon any Violation by the Holder, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Holder expressly for use in connection with such Registration Statement (or any amendment or supplement thereto); and subject to Section 9(e)(iii) the Holder will reimburse any legal or other expenses (promptly as such expenses are incurred and are due and payable) reasonably incurred by such Indemnified Parties in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 9(e)(ii) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Holder, which consent shall not be unreasonably withheld; provided, further, however, that the Holder shall be liable under this Agreement (including this Section 9(e)(ii) and Section 9(f)) for only that amount as does not exceed the net proceeds to the Holder as a result of the sale of Registrable Securities pursuant to such Registration Statement, except in the case of gross negligence, fraud or willful misconduct by the Holder.  Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Holder pursuant to Section 9. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 9(e)(ii) with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented.

  

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(iii)        Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 9(e) of notice of the commencement of any action (including any governmental action), such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 9(e), deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding.  The indemnifying party shall pay for only one separate legal counsel for the Indemnified Persons or the Indemnified Parties, as applicable, and if the Indemnified Parties is the Holder under Section 9(e)(i) above, such legal counsel shall be selected by the Holder to which the Claim relates, if the Holder is entitled to indemnification hereunder, or the Company, if the Company is entitled to indemnification hereunder, as applicable.  The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 9(e), except to the extent that the indemnifying party is actually prejudiced in its ability to defend such action.  The indemnification required by this Section 9(e) shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable.

 

(f)          Contribution. To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 9(e) to the fullest extent permitted by law; provided, however, that:  (i) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 9(e), (ii) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of such fraudulent misrepresentation, and (iii) contribution (together with any indemnification or other obligations under this Agreement) by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities, except in the case of gross negligence, willful misconduct or fraud by such seller.

  

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(g)         Reports Under the Exchange Act. With a view to making available to the Holder the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the SEC that may at any time permit the investors to sell securities of the Company to the public without registration (“Rule 144”), the Company agrees to:

 

(i)          make and keep adequate public information available, as those terms are understood and defined in Rule 144, at all times after the effective date of any Registration Statement filed by the Company hereunder;

 

(ii)         use its reasonable best efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act so long as the Company remains subject to such requirements (it being understood that nothing herein shall limit the Company’s obligations under Section 4(a) of the Securities Purchase Agreement) and the filing of such reports and other documents is required for the applicable provisions of Rule 144 at any time after the Company has become subject to such reporting requirements; and

 

(iii)        furnish to the Holder so long as the Holder owns Registrable Securities, promptly upon request:  (i) to the extent accurate, a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act (at any time after the Company has become subject to such reporting requirements) and (ii) such other information as may be reasonably requested to permit the Holder to sell such securities pursuant to Rule 144 without registration (at any time after the Company has become subject to the reporting requirements under the Exchange Act).

 

(h)         Assignment of Registration Rights; Survival Following Exercise.

(i)          The registration rights under this Warrant shall be automatically assignable by the Holder to any transferee of all or any portion of Registrable Securities if: (i) the Holder agrees in writing with the transferee or assignee to assign such rights with respect to such transferred Registrable Securities (which shall not affect the Holder’s registration rights with respect to any Registrable Securities not so transferred), and a copy of such agreement is furnished to the Company promptly after such assignment, (ii) the Company is, promptly after such transfer or assignment furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned, (iii) following such transfer or assignment, the further disposition of such securities by the transferee or assignee is restricted under the Securities Act and applicable state securities laws, (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained in this Section 9, and (v) such transferee shall be an “accredited investor” as that term defined in Rule 501 of Regulation D promulgated under the Securities Act.  In the event the Holder transfers this Warrant in whole or in part in accordance with Section 10.2(c), the rights of the Holder and all other holders of warrants received in exchange for Warrant No: [______]2 or in exchange for any successor warrants thereto (each a “Rights Holder” and collectively, “Rights Holders”), to request a registration pursuant to Sections 9(a) or 9(b) or to take the actions set forth in Sections 9(c)(vii), (xiv) or (xv), may be taken on behalf of all Rights Holders by Rights Holders representing a majority of the Registrable Securities (determined by reference to each Rights Holder’s pro rata share of the aggregate  number of shares of Common Stock held or exercisable by all Rights Holders at such time).

	
2

	
Insert here the Warrant number for this original warrant.

  

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(ii)           For the avoidance of any doubt, the registration rights under this Warrant shall survive and continue to apply with respect to all Registrable Securities following the exercise of this Warrant, whether such exercise occurs in whole or in part.

10.          Ownership, Transfer and Substitution of Warrant.

10.1       Ownership of Warrant.  The Company may treat the person in whose name this Warrant is registered in the Warrant Register maintained pursuant to Section 10.2(b) hereof as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, except that, if and when any Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer thereof as the owner of such Warrant for all purposes, notwithstanding any notice to the contrary.  Subject to Section 8 hereof, this Warrant, if properly assigned, may be exercised by a new holder without a new Warrant first having been issued.

10.2       Office; Transfer and Exchange of Warrant.

(a)         The Company will maintain its principal offices as the office where notices, presentations and demands in respect of this Warrant may be made upon it until the Company notifies the holder of this Warrant of any change of location of the office.

(b)         The Company shall cause to be kept at its office maintained pursuant to Section 10.2(a) hereof a Warrant Register for the registration and transfer of this Warrant.  The names and addresses of holders of this Warrant, the transfers thereof and the names and addresses of transferees of this Warrant shall be registered in such Warrant Register.  The Person in whose name any Warrant shall be so registered shall be deemed and treated as the owner and holder thereof for all purposes of this Warrant, and the Company shall not be affected by any notice or knowledge to the contrary.

(c)         Subject to compliance with Sections 8 and 9(h) hereof, this Warrant and  the rights evidenced hereby, may be transferred by the Holder in full or in part.  Upon the surrender of this Warrant, properly endorsed, for registration of transfer or for exchange at the office of the Company maintained pursuant to Section 10.2(a) hereof, the Company at its expense will (subject to compliance with Section 8 hereof, if applicable) execute and deliver to or upon the order of the Holder thereof a new Warrant or Warrants of like tenor, in the name of such holder or as such holder (upon payment by such holder of any applicable transfer taxes) may direct, calling in the aggregate on the face thereof for the number of shares of Common Stock called for on the face of this Warrant so surrendered.

10.3       Replacement of Warrant.  Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, upon delivery of indemnity reasonably satisfactory to the Company in form and amount or, in the case of any mutilation, upon surrender of this Warrant for cancellation at the office of the Company maintained pursuant to Section 10.2(a) hereof, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor and dated the date hereof.

11.         No Rights or Liabilities as Stockholder.  No Holder shall be entitled to vote or receive dividends or be deemed the holder of any shares of Common Stock or any other securities of the Company which may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the Holder, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value, consolidation, merger, conveyance, or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the shares of Common Stock purchasable upon the exercise hereof shall have become deliverable, as provided herein.  The Holder will not be entitled to share in the assets of the Company in the event of a liquidation, dissolution or the winding up of the Company.

  

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12.          Notices of Record Date, etc.  In case the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right; or of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company (any such event, a “Merger or Consolidation”); or of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to the registered holder of this Warrant a notice specifying, as the case may be: (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up.  Such notice shall be mailed at least ten (10) days prior to the record date or effective date for the event specified in such notice unless such prior notice is waived by the registered holder of this Warrant.

13.          Notices.  Any notice or other communication in connection with this Warrant shall be deemed to be given if in writing (or in the form of a facsimile) addressed as hereinafter provided and actually delivered at said address: (a) if to any Holder, at the registered address of such holder as set forth in the Warrant Register kept at the office of the Company maintained pursuant to Section 10.2(b) hereof, or (b) if to the Company, to the attention of its Chief Executive Officer at its office maintained pursuant to Section 10.2(a) hereof; provided, however, that the exercise of any Warrant shall be effective in the manner provided in Section 4 hereof.

14.          Payment of Taxes.  The Company will pay all documentary stamp taxes attributable to the issuance of shares of Common Stock underlying this Warrant upon exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificate for shares of Common Stock underlying this Warrant in a name other that of the Holder.  The Holder is responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving shares of Common Stock underlying this Warrant upon exercise hereof.

 

15.          Governing Law; Jurisdiction; Waiver of Jury Trial.  This Warrant shall be enforced, governed by and construed in accordance with the laws of the State of Washington applicable to agreements made and to be performed entirely within such state, without regard to the principles of conflicts of law.

16.          Representations and Warranties of the Company.  The Company hereby makes, and the Holder is entitled to rely upon, the same representations and warranties made by the Company under the subscription agreements entered into in connection with the Offering, which representations and warranties are incorporated herein by reference; provided, however, that the term “Transaction Documents” used in the subscription agreements shall be deemed to include this Warrant.

  

16

  

17.         Miscellaneous.  Subject to Section 9(h)(i) with respect to actions permitted by Rights Holders representing a majority of the Registrable Securities, any provision of this Warrant and the observance of any term hereof may be amended, waived or modified (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holder.  If one or more provisions of this Warrant are held to be unenforceable under applicable law, such provisions shall be excluded from this Warrant, and the balance of this Warrant shall be interpreted as if such provisions were so excluded and shall be enforceable in accordance with its terms.  The section headings in this Warrant are for purposes of convenience only and shall not constitute a part hereof.  Nothing in this Warrant shall limit the rights of MDB Capital Group LLC contained in that certain letter agreement, dated as of June 9, 2010, between MDB Capital Group LLC and the Company.

[ remainder of page intentionally left blank ]

  

17

  

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of the date first above written.

	
CLEARSIGN COMBUSTION CORPORATION

	  
	
By:

	  	  
	  	
Name:

	  
	  	
Title:

	  

  

18

  

EXHIBIT A

PURCHASE FORM

To: ClearSign Combustion Corporation

Dated:____________

The undersigned, pursuant to the provisions set forth in the attached Warrant (No. ___), hereby elects to[check applicable subsection]:

	
________

	
(a)

	
Purchase ____________ shares of ________________ of ClearSign Combustion Corporation pursuant to the terms of the attached Warrant and payment of the Warrant Price per share required under such Warrant accompanies this notice;

	 	 	 
	  	
OR

	  
	 	 	 
	
________

	
(b)

	
Exercise the attached Warrant for [all of the shares] [______ of the shares] [cross out inapplicable phrase] purchasable under the Warrant pursuant to the cashless exercise provisions of Section 4.6 of such Warrant.

Please issue a certificate or certificates representing said shares of ClearSign Combustion Corporation the name of the undersigned or in such other name as is specified below:

	  	  	  
	  	
Print or Type Name

	  
	  	  	  
	  	  	  
	  (Signature must conform in all respects to name of holder as specified on the face of Warrant)
	  	  	  
	  	  	  
	  	
(Street Address)

	  
	  	  	  
	  	  	  
	  	
(City)                       (State)        (Zip Code)

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00196-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00196-of-00352.parquet"}]]