Document:

Exhibit 10.1

 

SETTLEMENT AGREEMENT,
WAIVER AND AMENDMENT

 

This
SETTLEMENT AGREEMENT, WAIVER AND AMENDMENT (this
“Agreement”), dated as of May 22,
2009 (the “Effective Date”), is entered into
by and among American Defense Systems, Inc., a Delaware corporation (the “Company”), and the stockholders of the Company parties
hereto (individually, a “Holder” and
collectively, the “Holders”).  Unless otherwise specified herein,
capitalized terms used and not otherwise defined herein shall have the meanings
assigned to such terms in the Certificate of Designations (as defined below).

 

RECITALS

 

A.            The Company and the Holders are
parties to the Securities Purchase Agreement, dated as of March 7, 2008
(as may be amended, modified, restated or supplemented from time to time, the “Securities Purchase Agreement”), pursuant to which the
Holders purchased from the Company shares of the Company’s Series A
Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”), the terms of which are set
forth in the certificate of designation for such series of preferred stock
filed by the Company with the Secretary of State of the State of Delaware on March 7,
2008 (the “Certificate of Designations”).

 

B.            The Holders and the Company entered
into a Consent and Agreement of Series A Convertible Preferred
Stockholders, dated May 23, 2008 (the “Consent and
Agreement”), pursuant to which, among other things, the Company
agreed to certain financial covenants with respect to the Company’s fiscal year
ended December 31, 2008, which the Company failed to satisfy.

 

C.            On April 14, 2009, one of the
Holders delivered to the Company a notice of Triggering Event redemption
purportedly pursuant to a redemption option provided under the Certificate of
Designations (the “Notice of Triggering Event
Redemption”), demanding that the Company (i) immediately redeem
the 14,025 shares of Series A Preferred Stock owned by such Holder
for an aggregate price of $15,427,500.00, (ii) pay $470,317.81 as
dividends allegedly accrued from January 1, 2009 through April 13,
2009 on such shares of Series A Preferred Stock at the cash dividend rate
of 12%, and (iii) pay $70,000.00 in legal fees and expenses such Holder
incurred in connection with the negotiations relating to the breach of the
financial covenants contained in the Consent and Agreement.

 

D.            The Company and the Holders desire
to, among other things, settle certain claims by the Holders against the
Company, waive the breach of the financial covenants contained in the Consent
and Agreement and make certain amendments to the Warrants (as such term is
defined in the Securities Purchase Agreement), all as more fully set forth
herein.

 

TERMS OF AGREEMENT

 

In
consideration of the premises and further valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

 

 

1.                                       Amendment
to Warrants.  On the
Effective Date, each of the Warrants issued to the Holders pursuant to the
Securities Purchase Agreement (which Warrants are numbered A-1, A-2, A-3 and
A-4) is hereby amended by deleting paragraph (b) of Section 1 of such
Warrant in its entirety and replacing it with the following new paragraph (b):

 

“(b)  Exercise Price.  For purposes of this Warrant, “Exercise Price” means $0.01.”

 

2.                                       Waivers.          As of the
Effective Date, subject to the Company’s performance of its obligations
hereunder, the Holders hereby waive (i) any breach by the Company of any
of the covenants or agreements contained in Section 6 of the Consent and
Agreement, (ii) any breach by the Company of its obligation to timely pay
Dividends under the Certificate of Designation 
for any period through September 30, 2009, (iii) any breach by
the Company of its obligation (including under Section 4(f) of the
Securities Purchase Agreement) to cause the listing with an Eligible Market of
any Listed Securities in excess of 7,858,358 shares of Common Stock (the “Excess Shares”), and (iv) any Equity Conditions Failure
and any Triggering Event otherwise arising under the Certificate of Designation
as a result of any of the foregoing breaches (and, for the avoidance of doubt,
the Holders acknowledge that, for purposes of Section 3(c) of the
Certificate of Designations, the Equity Conditions shall be deemed to have been
satisfied on December 31, 2008).

 

3.                                       Covenants and Agreements of the
Company.

 

(a)                                  On the Effective Date, in full satisfaction of the Company’s
obligation to pay Dividends under the Certificate of Designations on March 31,
2009, June 30, 2009 and September 30, 2009, the Company shall (i) issue
to the Holders the number of shares of Common Stock payable as Dividends under
the Certificate of Designations as of March 31, 2009,  June 30, 2009 (in advance) and September 30,
2009 (in advance) (collectively, the “Settlement Shares”);
provided that, notwithstanding anything to the contrary contained in the
Certificate of Designations, solely for purposes of such calculation, the
Dividend Rate applicable to the Dividend Shares otherwise issuable on March 31,
2009 shall be 12%, the Dividend Rate applicable to the Dividend Shares
otherwise issuable on June 30, 2009 and September 30, 2009 shall be
10%, and the Dividend Conversion Price for each such period shall be $0.60, and
(B) cause its transfer agent to deliver to the Holders, within five (5) business
days following the Effective Date of this Agreement, share certificates
evidencing such Settlement Shares.  The
number of shares of Common Stock to be issued to each Holder pursuant to this Section 3(a) is
set forth on Schedule 1 attached hereto.

 

(b)                                 On the Effective Date, the Company shall execute and deliver to the Holders a
Registration Rights Agreement with respect to the Settlement Shares in the
form of Exhibit A attached hereto (the “Registration
Rights Agreement”).

 

(c)                                  On or before June 30,
2009, the Company shall pay (i) to
Shulte Roth & Zabel LLP, all unpaid legal fees and disbursements
incurred by the Holders in connection with the Transaction Documents (as such
term is defined in the Securities Purchase Agreement), the Notice of Triggering
Event Redemption and related matters, in the amount of $70,000, and (ii) to

 

2

 

Reicker, Pfau, Pyle & McRoy LLP, all
reasonable legal fees and disbursements incurred by the Holders in connection
with the negotiation and execution of this Agreement and the transactions
contemplated hereby, not to exceed $10,000 in the aggregate.

 

(d)                                 On the Effective Date, each of the Company’s
executive officers and directors shall execute and deliver to the Company a Lock-Up Agreement in the
form of Exhibit B attached hereto (collectively, the “Lock-Up Agreements”).

 

(e)                                  The Company shall use best efforts to cause
TD Bank, or any successor bank or other provider of bank financing to the
Company (the “Senior Lender”), prior to December 31,
2009, to enter into an intercreditor agreement with the Holders, in form and
substance reasonably satisfactory to the Holders, setting forth the respective
rights and obligations of the Senior Lender and the Holders upon the occurrence
of an event of default under the loan documents between the Company and the
Senior Lender.

 

(f)                                    Within 30 days following the Effective Date,
the Company shall file all applications and pay all fees necessary to list the
Excess Shares on an Eligible Market.

 

(g)                                 If
any Preferred Shares remain outstanding on December 31, 2009, the Company
shall, on such date, redeem for an amount in cash per Preferred Share equal to
the Stated Value (the “Interim Redemption
Price”) by wire transfer of immediately available funds to an
account designated in writing by each Holder, such number of Preferred Shares
as can be purchased at the Interim Redemption Price for an aggregate purchase
price of $7,500,000 (or such lesser purchase price as may be sufficient to purchase
all of the Preferred Shares then outstanding at the Interim Redemption Price).

 

(i)                                     If
less than all of the Preferred Shares then outstanding are redeemed pursuant to
this Section 3(g), the Company shall redeem a pro rata amount from each
Holder of such Holder’s Allocation Percentage multiplied by the total number of
Preferred Shares to be redeemed from all Holders.

 

(ii)                                  (A)          If the Company for any reason fails to
redeem all of the Preferred Shares required to be purchased pursuant to this Section 3(g) by
payment of the Interim Redemption Price for each such Preferred Share by December 31,
2009, then, in lieu of any other remedies or damages available to any Holder
under any Transaction Document (other than any remedies or damages available in
the event of fraud by the Company), (i) the applicable Interim Redemption
Price payable in respect of such unredeemed Preferred Shares shall be increased
by an amount equal to 10% of the Stated Value, (ii) the Company shall use
its best efforts to obtain the approval of the Stockholders of the Company to
reduce the Conversion Price to $0.50, and (iii) the Company shall (A) on
or before January 10, 2010, expand the size of the Board of Directors by
two (2) positions, and fill such positions with persons designated in writing
by the Required Holders, and (B) thereafter exercise its best efforts to
amend the Company’s Certificate of Incorporation to grant to the holders of
Preferred Shares, voting as a separate class, the right to elect two persons to
serve as members of the Company’s Board of Directors (the “Director
Designees”), and (C) for so long as any Preferred Shares remain
outstanding, take all actions within its control to allow the Director
Designees to serve on the Company’s Board of Directors (provided that each such
Director Designee satisfies any 

 

3

 

applicable
laws and the rules of any stock exchange or over-the-counter market on
which the Common Stock then trades). 
Commencing December 1, 2009, the Company shall take the actions
required to seek to obtain approval from the stockholders of the Company for
such amendments to the Company’s certificate of incorporation as may be
necessary or convenient for reducing the Conversion Price to $0.50 and granting
to the holders of the Preferred Shares, voting as a separate class, the right
to elect the Designated Directors, in each instance as contemplated by the
foregoing provisions of this Section 3(g)(2)(A)) (including but not
limited to (i) calling a meeting of the Company’s stockholders to consider
such an amendment to the Company’s certificate of incorporation, (ii) submitting
to the United States Securities and Exchange Commission a preliminary proxy
statement for the contemplated stockholder meeting, (iii) mailing notice
of a stockholders’ meeting to the Company’s stockholders, and (iv) subject
to receipt of the requisite stockholder approval, filing the amendment to the
certificate of incorporation to effect such changes) if, as of December 1,
2009, the Company does not reasonably believe that the Company will be able to
redeem at least $7.5 million of the Preferred Shares at the Interim Redemption
Price on or before December 31, 2009.

 

(B)           The Holders agree that (i) any
Common Stock issued or issuable or deemed to be issued in accordance with Section 2(f) of
the Certificate of Designations by the Company in connection with any financing
by the Company to raise capital for the purpose of allowing the Company to
fulfill its obligations under this Section 3(g) shall be deemed to be
Excluded Securities for all purposes under the Transaction Documents, to the
extent that, concurrently with the closing of such financing, the proceeds of
such financing are used solely to effect the complete redemption of all
Preferred Shares then held by Holders and to pay all accrued but unpaid
Dividends thereon; and (ii) notwithstanding anything to the contrary in
the Transaction Documents, the
Company may (A) pay cash dividends at a rate not to exceed the Dividend
Rate, and/or pay stock dividends, on any preferred stock, at least the first
$7,500,000 of the proceeds of which are used to finance the Company’s
redemption of Preferred Shares under this Section 3(g) or under Section 4
of the Certificate of Designations, and which is junior in rank to the
Preferred Shares in respect of the preferences as to dividends and other
distributions, amortization and redemption payments, and (B) make payments
on account of any such preferred stock upon the liquidation, dissolution and
winding up of the Company, subject to the rights of the Preferred Shares (and,
to the extent required under Section 12(e) of the Certificate of
Designations, the Holders hereby consent to the payments described in this
clause (ii)).

 

(h)           The Company shall not, for so long as any of the Preferred
Shares remain outstanding, without the prior written consent of the Required
Holders, (i) subordinate
or agree to subordinate the Preferred Shares to any new or existing
indebtedness of the Company, other than traditional bank financing (for the
avoidance of doubt, indebtedness to any private fund or other non-traditional
bank shall not be permitted without the prior written consent of the Required
Holders, if the Preferred Shares would be subordinate to or pari passu with such indebtedness) for working capital
purposes; or (ii) pay interest on any indebtedness of the Company, other
than traditional bank financing (for the avoidance of doubt, indebtedness to
any private fund or other non-traditional bank shall not be permitted without the
prior written consent of the Required Holders, if the Preferred Shares would be
subordinate to or pari passu with such
indebtedness), except that the Company may pay interest at a rate not to exceed
the Dividend 

 

4

 

Rate on any such indebtedness incurred to fulfill the
Company’s obligations under Section 3(g) hereof.

 

4.                                       Closing Deliveries.  On the Effective Date:

 

(a)           Each of the
executive officers and directors of the Company shall execute and deliver to
counsel for the Holders the Lock-Up Agreement;

 

(b)           Anthony Piscitelli executes and delivers to the Holders an
Irrevocable Proxy and Voting Agreement in the form attached hereto as Exhibit C,
agreeing to vote in favor of (i) a reduction in the Conversion Price
pursuant to clause (ii) of Section 3(g)(ii)(A), above, and (ii)an
amendment of the Company’s Certificate of Incorporation to confer upon the
holders of Preferred Shares the right to elect the Director Designees pursuant
to clause “(iii)” of Section 3(g)(ii)(A), above; and

 

(c)           The Company shall deliver to the Holders (i) a
certificate evidencing the good standing of the Company in the State of
Delaware as of a date within ten days of the Effective Date and (ii) a
certificate, dated as of the Effective Date and signed by the Secretary of the
Company, attaching (A) a copy of resolutions adopted by the Board
approving the transactions contemplated by this Agreement, and (B) a list
of the names of the executive officers and directors of the Company as of the
Effective Date.

 

By executing this
Agreement, each party to whom an item is required to be delivered under this Section 4
hereby confirms receipt of each such item.

 

5.                                       Reference to and Effect on
Transaction Documents.  From and after the Effective Date, any
reference in any of the Transaction Documents to the Warrants shall be deemed
to be a reference to the Warrants, as amended hereby.  Except as specifically modified pursuant
hereto, the Transaction Documents shall remain in full force and effect.

 

5

 

6.                                       Representations and Warranties.

 

(a)           By
the Company.  The Company hereby
represents and warrants to the Holders that (i) the Company is duly incorporated and in good
standing under the laws of the State of Delaware, and (ii) this Agreement
and the Registration Rights Agreement (A) have been duly approved by the
Company by all necessary corporate action, (B) do not violate the Company’s
charter, bylaws or material agreements, and (C) shall be binding on the
Company in accordance with their terms (except as may be limited by bankruptcy
laws and the availability of equitable remedies).

 

(b)           By the Holders. 
Each Holder hereby represents and warrants to the Company that this
Agreement (i) has been duly approved by such Holder by all necessary
corporate (or similar) action, (ii) does not violate such Holder’s
charter, bylaws (or equivalent organizational documents) or material
agreements, and (iii) shall be binding on such Holder in accordance with
its terms (except as may be limited by bankruptcy laws and the availability of
equitable remedies)

 

7.                                       Miscellaneous.

 

(a)           Governing
Law; Jurisdiction; Jury Trial.  All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of
Delaware, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Delaware or any other
jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of Delaware. 
Each party hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in Wilmington, Delaware, for the
adjudication of any dispute under or in connection with this Agreement or the
other documents or agreements contemplated hereby (including the Securities
Purchase Agreement and the documents and agreements executed in connection
therewith, notwithstanding any provision therein to the contrary) or with any
transaction contemplated hereby or thereby or discussed herein or therein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper.  Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner
permitted by law.  Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE,
AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.

 

(b)           Counterparts.  This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; 

 

6

 

provided
that a facsimile signature and a signature delivered electronically (including
by delivery via electronic mail of a signature page in “pdf” format) shall
be considered due execution and shall be binding upon the signatory thereto
with the same force and effect as if the signature were an original, not a
facsimile or electronic signature.

 

(c)           Headings.  The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.

 

(d)           Severability.  If any provision of this Agreement is
prohibited by law or otherwise determined to be invalid or unenforceable by a
court of competent jurisdiction, the provision that would otherwise be
prohibited, invalid or unenforceable shall be deemed amended to apply to the
broadest extent that it would be valid and enforceable, and the invalidity or
unenforceability of such provision shall not affect the validity of the
remaining provisions of this Agreement so long as this Agreement as so modified
continues to express, without material change, the original intentions of the
parties as to the subject matter hereof and the prohibited nature, invalidity
or unenforceability of the provision(s) in question does not substantially
impair the respective expectations or reciprocal obligations of the parties or
the practical realization of the benefits that would otherwise be conferred
upon the parties.  The parties will
endeavor in good faith negotiations to replace the prohibited, invalid or
unenforceable provision(s) with a valid provision(s), the effect of which
comes as close as possible to that of the prohibited, invalid or unenforceable
provision(s).

 

(e)           Entire
Agreement; Amendments.  This
Agreement and the other Transaction Documents (as amended pursuant hereto)
supersede all other prior oral or written agreements between the Holders, the
Company, their affiliates and Persons acting on their behalf with respect to
the matters discussed herein, and this Agreement, the other Transaction
Documents (as amended pursuant hereto) and the instruments referenced herein
and therein contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor any Holder makes any representation,
warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be amended
other than by an instrument in writing signed by the Company and the Required
Holders, and any amendment to this Agreement made in conformity with the
provisions of this Section 7(e) shall be binding on all Holders and
holders of Securities (as such term is defined in the Securities Purchase
Agreement), as applicable.  No provision
hereof may be waived other than by an instrument in writing signed by the party
against whom enforcement is sought.  No
such amendment shall be effective to the extent that it applies to less than
all of the holders of the applicable Securities then outstanding.

 

(f)            Notices.  Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation
of transmission is mechanically or electronically generated and kept on file by
the sending party); or (iii) one Business Day after deposit with an
overnight courier service, in each case properly addressed to the party to
receive the same.  The addresses and
facsimile numbers for such communications shall be:

 

7

 

If to the
Company:

	
   

  	
  American
  Defense Systems, Inc.

  
	
   

  	
  230 Duffy Avenue, Unit C

  
	
   

  	
  Hicksville, NY 11801

  
	
   

  	
  Telephone:

  	
  (516) 390-5300

  
	
   

  	
  Facsimile:

  	
  (516) 390-5308

  
	
   

  	
  Attention:

  	
  Chief
  Financial Officer

  

 

With a copy
(for informational purposes only) to:

 

	
   

  	
  Greenberg
  Traurig, LLP

  
	
   

  	
  1750
  Tysons Boulevard

  
	
   

  	
  Suite 1200

  
	
   

  	
  McLean,
  Virginia 22102

  
	
   

  	
  Telephone:

  	
  (703) 749-1336

  
	
   

  	
  Facsimile:

  	
  (703) 749-1301

  
	
   

  	
  Attention:

  	
  Jeffrey
  R. Houle, Esq.

  

 

If to a Holder, to its address and facsimile number set forth on the
Schedule of Buyers attached to the Securities Purchase Agreement, with copies
to such Holder’s representatives as set forth on such Schedule of Buyers,

 

with a copy
(for informational purposes only) to:

 

	
   

  	
  Reicker,
  Pfau, Pyle & McRoy LLP

  
	
   

  	
  1421
  State Street, Suite B

  
	
   

  	
  Santa
  Barbara, CA 93101

  
	
   

  	
  Telephone:

  	
  (805)
  966-2440

  
	
   

  	
  Facsimile:

  	
  (805)
  966-3320

  
	
   

  	
  Attention:

  	
  Michael
  E. Pfau, Esq.

  

 

or to such
other address and/or facsimile number and/or to the attention of such other
Person as the recipient party has specified by written notice given to each
other party five (5) days prior to the effectiveness of such change.  Written confirmation of receipt (A) given
by the recipient of such notice, consent, waiver or other communication, (B) mechanically
or electronically generated by the sender’s facsimile machine containing the
time, date, recipient facsimile number and an image of the first page of
such transmission or (C) provided by an overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from
an overnight courier service in accordance with clause (i), (ii) or (iii) above,
respectively.

 

(g)           Successors
and Assigns.  This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Preferred Shares or the
Warrants.  The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Required Holders.  A
Holder may assign some or all of its rights hereunder without the consent 

 

8

 

of the
Company, in which event such assignee shall be deemed to be a Holder hereunder
with respect to such assigned rights.

 

(h)           No
Third Party Beneficiaries.  This
Agreement is intended for the benefit of the parties hereto and their
respective permitted successors and assigns, and is not for the benefit of, nor
may any provision hereof be enforced by, any other Person.

 

(i)            Further
Assurances.  Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as any other party may reasonably request in order
to carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.

 

(j)            No
Strict Construction.  The language
used in this Agreement will be deemed to be the language chosen by the parties
to express their mutual intent, and no rules of strict construction will
be applied against any party.

 

(k)           Independent
Nature of Holders’ Obligations and Rights. 
The obligations of each Holder under this Agreement are several and not
joint with the obligations of any other Holder, and no Holder shall be
responsible in any way for the performance of the obligations of any other
Holder under this Agreement.  Nothing
contained herein, and no action taken by any Holder pursuant hereto, shall be
deemed to constitute the Holders as, and the Company acknowledges that the
Holders do not so constitute, a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Holders are in any
way acting in concert or as a group, and the Company will not assert any such
claim with respect to such obligations or the transactions contemplated by this
Agreement and the Company acknowledges that the Holders are not acting in
concert or as a group with respect to such obligations or the transactions
contemplated hereby.  The Company
acknowledges and each Holder confirms that it has independently participated in
the negotiation of the transaction contemplated hereby with the advice of its
own counsel and advisors.  Each Holder
shall be entitled to independently protect and enforce its rights, including,
without limitation, the rights arising out of this Agreement, and it shall not
be necessary for any other Holder to be joined as an additional party in any
proceeding for such purpose.

 

[Signature
Pages Follow]

 

9

 

IN WITNESS WHEREOF,
each Holder and the Company have caused their respective signature page to
this Settlement Agreement, Waiver and Amendment to be duly executed as of the
date first written above.

 

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  AMERICAN DEFENSE SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gary Sidorsky

  
	
   

  	
   

  	
  Name: Gary Sidorsky

  
	
   

  	
   

  	
  Title: Chief Financial
  Officer

  

 

 

IN WITNESS WHEREOF,
each Holder and the Company have caused their respective signature page to
this Settlement Agreement, Waiver and Amendment to be duly executed as of the
date first written above.

 

 

	
   

  	
  HOLDERS:

  
	
   

  	
   

  
	
   

  	
  WEST
  COAST OPPORTUNITY FUND, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Atticus Lowe

  
	
   

  	
   

  	
  Name: Atticus Lowe

  
	
   

  	
   

  	
  Title: CIO of Managing
  Member

  

 

 

IN WITNESS WHEREOF,
each Holder and the Company have caused their respective signature page to
this Settlement Agreement, Waiver and Amendment to be duly executed as of the
date first written above.

 

 

	
   

  	
  HOLDERS:

  
	
   

  	
   

  
	
   

  	
  CENTAUR VALUE FUND, LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Zeke Ashton

  
	
   

  	
   

  	
  Name: Zeke Ashton

  
	
   

  	
   

  	
  Title: Managing Partner

  

 

 

IN WITNESS WHEREOF,
each Holder and the Company have caused their respective signature page to
this Settlement Agreement, Waiver and Amendment to be duly executed as of the
date first written above.

 

 

	
   

  	
  HOLDERS:

  
	
   

  	
   

  
	
   

  	
  UNITED
  CENTAUR MASTER FUND

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Zeke Ashton

  
	
   

  	
   

  	
  Name: Zeke Ashton

  
	
   

  	
   

  	
  Title: Managing Partner

  

 

 

Schedule A

 

Settlement Shares

 

	
  Holder

  	
   

  	
  No. of Settlement Shares

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  West Coast Opportunity Fund, LLC

  	
   

  	
  1,870,000

  	
   

  
	
  Centaur Value Fund, LP

  	
   

  	
  70,933

  	
   

  
	
  United Centaur Master Fund

  	
   

  	
  59,067

  	
   

  
	
  TOTAL

  	
   

  	
  2,000,000

  	
   

  

 

 

Exhibit A

 

Registration Rights Agreement

 

 

Exhibit B

 

Form of Lock-Up Agreement

 

 

Exhibit C

 

Form of Irrevocable Proxy and Voting
AgreementExhibit 10.2

 

REGISTRATION RIGHTS AGREEMENT

 

This REGISTRATION RIGHTS AGREEMENT (this “Agreement”)
is made and entered into as of May 22, 2009 by and among American Defense
Systems, Inc., a Delaware corporation (the “Company”),
and the Holders named in that certain Settlement Agreement, Waiver and
Amendment of even date herewith by and among the Company and the Holders (the “Settlement Agreement”). Capitalized terms used herein have
the respective meanings ascribed thereto in the Settlement Agreement unless
otherwise defined herein.

 

The parties
hereby agree as follows:

 

1.                                       Certain
Definitions.

 

As used in
this Agreement, the following terms shall have the following meanings:

 

“Common Stock” shall mean the Company’s common stock, par
value $0.001 per share, and any securities into which such shares may
hereinafter be reclassified.

 

“Investors” shall mean the Holders identified in the
Settlement Agreement and any permitted transferee of any Investor who is a
subsequent holder of any Registrable Securities.

 

“Prospectus” shall mean (i) the prospectus included in
any Registration Statement, as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of the
Registrable Securities covered by such Registration Statement and by all other
amendments and supplements to the prospectus, including post-effective
amendments and all material incorporated by reference in such prospectus, and (ii) any
“free writing prospectus” as defined in Rule 405 under the 1933 Act.

 

“Register,” “registered” and
“registration” refer to a registration
made by preparing and filing a Registration Statement or similar document in
compliance with the 1933 Act (as defined below), and the declaration or
ordering of effectiveness of such Registration Statement or document.

 

“Registrable Securities” shall mean (i) the Settlement
Shares and (ii) any other securities issued or issuable with respect to or
in exchange for Registrable Securities; provided, that, a security shall cease
to be a Registrable Security upon (A) sale pursuant to a Registration
Statement or Rule 144 under the 1933 Act, or (B) such security
becoming eligible for sale by the Investors pursuant to Rule 144.

 

“Registration Statement” shall mean any registration
statement of the Company filed under the 1933 Act that covers the resale of any
of the Registrable Securities pursuant to the provisions of this Agreement,
amendments and supplements to such Registration Statement, including
post-effective amendments, and all exhibits and all material incorporated by
reference in such Registration Statement.

 

 

“Required Investors” means the Investors holding a majority
of the Registrable Securities.

 

“SEC” means the U.S. Securities and Exchange Commission.

 

“1933 Act” means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.

 

“1934 Act” means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.

 

2.                                       Registration.

 

(a)                                  Registration
Statement.  Within ten days following
the Effective Date, the Company shall prepare and file with the SEC one
Registration Statement on Form S-3 (or, if Form S-3 is not then
available to the Company, on such form of registration statement as is then
available to effect a registration for resale of the Registrable Securities),
covering the resale of the Registrable Securities.  Subject to any SEC comments, such
Registration Statement shall include the plan of distribution attached hereto
as Exhibit A; provided, however, that no Investor shall be named as
an “underwriter” in the Registration Statement without the Investor’s prior
written consent. Such Registration Statement also shall cover, to the extent
allowable under the 1933 Act and the rules promulgated thereunder
(including Rule 416), such indeterminate number of additional shares of
Common Stock resulting from stock splits, stock dividends or similar
transactions with respect to the Registrable Securities.  The Registration Statement (and each
amendment or supplement thereto, and each request for acceleration of
effectiveness thereof) shall be provided in accordance with Section 3(c) to
the Investors and one counsel to the Investors prior to its filing or other
submission.

 

(b)                                 Expenses.
The Company will pay all expenses associated with the registration pursuant
hereto, including filing and printing fees, the Company’s counsel and
accounting fees and expenses, costs associated with clearing the Registrable
Securities for sale under applicable state securities laws and listing fees,
and fees and expenses of one counsel to the Investors (up to a maximum of
$10,000), but excluding any other fees or expenses incurred by the Investors
and any discounts, commissions, fees of underwriters, selling brokers, dealer
managers or similar securities industry professionals with respect to the
Registrable Securities being sold.

 

(c)                                  Effectiveness.

 

(i)                                     The
Company shall use best efforts to have the Registration Statement declared
effective as soon as practicable after the filing thereof. The Company shall
notify the Investors by facsimile or e-mail as promptly as practicable, and in
any event within 24 hours, after the Registration Statement is declared
effective and shall simultaneously provide the Investors with copies of any
related Prospectus to be used in connection with the sale or other disposition
of the securities covered thereby.

 

2

 

(ii)                                  For
not more than 20 consecutive days or for a total of not more than 60 days in
any 12 month period, the Company may suspend the use of any Prospectus included
in any Registration Statement in the event that the Company determines in good
faith that such suspension is necessary to (A) delay the disclosure of
material non-public information concerning the Company, the disclosure of which
at the time is not, in the good faith opinion of the Company, in the best
interests of the Company or (B) amend or supplement the affected
Registration Statement or the related Prospectus so that such Registration
Statement or Prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the case of the Prospectus in
light of the circumstances under which they were made, not misleading (an “Allowed Delay”); provided, however, that the Company shall
promptly (a) notify each Investor in writing of the commencement of and
the reasons for an Allowed Delay, but shall not (without the prior written
consent of an Investor) disclose to such Investor any material non-public
information giving rise to an Allowed Delay and (b) advise the Investors
in writing to cease all sales under the Registration Statement until the end of
the Allowed Delay.

 

(d)                                 Rule 415;
Cutbacks. If at any time the SEC takes the position that the offering of
some or all of the Registrable Securities in a Registration Statement is not
eligible to be made on a delayed or continuous basis under the provisions of Rule 415
under the 1933 Act or requires any Investor to be named as an “underwriter”,
the Company shall use its best efforts to persuade the SEC that the offering
contemplated by the Registration Statement is a valid secondary offering and
not an offering “by or on behalf of the issuer” as defined in Rule 415 and
that none of the Investors is an “underwriter”. The Investors shall have the
right to participate or have their counsel participate in any meetings or
discussions with the SEC regarding the SEC’s position and to comment or have
their counsel comment on any written submission made to the SEC with respect
thereto. No such written submission shall be made to the SEC to which the
Investors’ counsel reasonably objects. In the event that, despite the Company’s
best efforts and compliance with the terms of this Section 2(d), the SEC
refuses to alter its position, the Company shall (i) remove from the
Registration Statement such portion of the Registrable Securities (the “Cut Back Shares”) and/or (ii) agree to such
restrictions and limitations on the registration and resale of the Registrable
Securities as the SEC may require to assure the Company’s compliance with the
requirements of Rule 415; provided, however, that the Company shall not
agree to name any Investor as an “underwriter” in such Registration Statement
without the prior written consent of such Investor (collectively, the “SEC Restrictions”). Any cut-back imposed on the Investors
pursuant to this Section 2(d) shall be allocated among the Investors
on a pro rata basis, unless the SEC Restrictions otherwise require or provide.

 

3.                                       Company
Obligations. The Company will use best efforts to effect the registration
of the Registrable Securities in accordance with the terms hereof, and pursuant
thereto the Company will, as expeditiously as possible:

 

(a)                                  use
best efforts to cause such Registration Statement to remain continuously
effective for a period commencing on the date on which the Registration
Statement is declared effective pursuant to Section 2(c)(i), and
terminating upon the earlier of (i) the date on which all Registrable
Securities covered by such Registration Statement as amended from

 

3

 

time to time,
have been sold, and (ii) the date on which all Registrable Securities
covered by such Registration Statement may be sold pursuant to Rule 144
(the “Effectiveness Period”);

 

(b)                                 prepare
and file with the SEC such amendments and post-effective amendments to the
Registration Statement and the Prospectus as may be necessary to keep the
Registration Statement effective for the Effectiveness Period and to comply
with the provisions of the 1933 Act and the 1934 Act with respect to the
distribution of all of the Registrable Securities covered thereby;

 

(c)                                  provide
copies to and permit counsel designated by the Investors to review each
Registration Statement and all amendments and supplements thereto no fewer than
two days prior to their filing with the SEC and not file any document to which
such counsel reasonably objects;

 

(d)                                 furnish
to the Investors and their legal counsel (i) promptly after the same is
prepared and publicly distributed, filed with the SEC, or received by the
Company (but not later than two Business Days after the filing date, receipt
date or sending date, as the case may be) one copy of any 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 such
Registration Statement (other than any portion of any thereof which contains
information for which the Company has sought confidential treatment), and (ii) such
number of copies of a Prospectus, including a preliminary prospectus, and all
amendments and supplements thereto and such other documents as each Investor
may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Investor that are covered by the related
Registration Statement;

 

(e)                                  (i) promptly
notify the Investors of the issuance of any stop order or other suspension of
the effectiveness of any Registration Statement and (ii) use best efforts
to (A) prevent the issuance of any stop order or other suspension of
effectiveness and, (B) if such order is issued, obtain the withdrawal of
any such order at the earliest possible moment;

 

(f)                                    use
best efforts to register or qualify or cooperate with the Investors and their
counsel in connection with the registration or qualification of such
Registrable Securities for offer and sale under the securities or blue sky laws
of such jurisdictions requested by the Investors and do any and all other
commercially reasonable acts or things necessary or advisable to enable the
distribution in such jurisdictions of the Registrable Securities covered by the
Registration Statement; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (i) qualify
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 3(f), (ii) subject itself to general
taxation in any jurisdiction where it would not otherwise be so subject but for
this Section 3(f), or (iii) file a general consent to service of
process in any such jurisdiction;

 

(g)                                 use
best efforts to cause all Registrable Securities covered by a Registration
Statement to be listed on each securities exchange, interdealer quotation
system or other market on which similar securities issued by the Company are
then listed;

 

4

 

(h)                                 immediately
notify the Investors, at any time prior to the end of the Effectiveness Period,
upon discovery that the Prospectus includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, and promptly prepare, file with the SEC and furnish
to such holder a supplement to or an amendment of such Prospectus as may be
necessary so that such Prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing; and

 

(i)                                     otherwise
use best efforts during the Effectiveness Period to comply with all applicable rules and
regulations of the SEC under the 1933 Act and the 1934 Act with respect to the
Registration Statement, including, without limitation, Rule 172 under the
1933 Act, file any final Prospectus, including any supplement or amendment
thereof, with the SEC pursuant to Rule 424 under the 1933 Act, promptly
inform the Investors in writing if, at any time during the Effectiveness
Period, the Company does not satisfy the conditions specified in Rule 172
and, as a result thereof, the Investors are required to deliver a Prospectus in
connection with any disposition of Registrable Securities and take such other
actions as may be reasonably necessary to facilitate the registration of the
Registrable Securities hereunder; and make available to its security holders,
as soon as reasonably practicable, but not later than the Availability Date (as
defined below), an earnings statement covering a period of at least twelve (12)
months, beginning after the effective date of each Registration Statement,
which earnings statement shall satisfy the provisions of Section 11(a) of
the 1933 Act, including Rule 158 promulgated thereunder (for the purpose
of this subsection 3(i), “Availability Date”
means the 45th day following the end of the fourth fiscal quarter that includes
the effective date of such Registration Statement, except that, if such fourth
fiscal quarter is the last quarter of the Company’s fiscal year, “Availability Date” means the 90th day after the end of such
fourth fiscal quarter).

 

4.                                       Obligations
of the Investors.

 

(a)                                  Each
Investor shall furnish in writing to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it, as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request. At least five Business Days prior to the first anticipated
filing date of any Registration Statement, the Company shall notify each
Investor of the information the Company requires from such Investor if such
Investor elects to have any of the Registrable Securities included in the
Registration Statement. An Investor shall provide such information to the
Company at least two Business Days prior to the first anticipated filing date
of such Registration Statement if such Investor elects to have any of the
Registrable Securities included in the Registration Statement.

 

(b)                                 Each
Investor, by its acceptance of the Registrable Securities agrees to cooperate
with the Company as reasonably requested by the Company in connection with the
preparation and filing of a Registration Statement hereunder, unless such
Investor has notified the Company in writing of its election to exclude all of
its Registrable Securities from such Registration Statement.

 

5

 

(c)                                  Each
Investor agrees that, upon receipt of any notice from the Company of either (i) the
commencement of an Allowed Delay pursuant to Section 2(c)(ii) or (ii) the
happening of an event pursuant to Section 3(h) hereof, such Investor
will immediately discontinue disposition of Registrable Securities pursuant to
the Registration Statement covering such Registrable Securities, until the
Investor is advised by the Company that such dispositions may again be made.

 

5.                                       Indemnification.

 

(a)                                  Indemnification
by the Company. The Company will indemnify and hold harmless each Investor
and its officers, directors, members, employees and agents, successors and
assigns, and each other person, if any, who controls such Investor within the
meaning of the 1933 Act, against any losses, claims, damages, liabilities and
expense (including reasonable attorney fees) resulting from (i) any untrue
statement or alleged untrue statement of any material fact contained in any
Registration Statement, any preliminary Prospectus or final Prospectus, or any
amendment or supplement thereof or (ii) any violation by the Company or
its agents of any rule or regulation promulgated under the 1933 Act
applicable to the Company or its agents and relating to action or inaction
required of the Company in connection with such registration; provided,
however, that the Company will not be liable in any such case if and to the
extent that any such loss, claim, damage or liability arises out of or is based
upon (1) an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by such
Investor or any such controlling person in writing specifically for use in such
Registration Statement or Prospectus,  (2) the
use by such Investor of an outdated or defective Prospectus after the Company
has notified such Investor in writing that the Prospectus is outdated or
defective, or (3) the failure of such Investor to deliver a Prospectus as
amended or supplemented prior to the confirmation of a sale.

 

(b)                                 Indemnification
by the Investors. Each Investor agrees, severally but not jointly, to
indemnify and hold harmless, to the fullest extent permitted by law, the
Company, its directors, officers, employees, stockholders and each person who
controls the Company (within the meaning of the 1933 Act) against any losses,
claims, damages, liabilities and expense (including reasonable attorney fees)
resulting from (i) any untrue statement of a material fact or any omission
of a material fact required to be stated in the Registration Statement or
Prospectus or preliminary Prospectus or amendment or supplement thereto or
necessary to make the statements therein not misleading, to the extent, but only
to the extent that such untrue statement or omission is contained in any
information furnished in writing by such Investor to the Company specifically
for inclusion in such Registration Statement or Prospectus or amendment or
supplement thereto, (ii) the use by such Investor of an outdated or
defective Prospectus after the Company has notified such Investor in writing
that the Prospectus is outdated or defective or (iii) the failure of such
Investor to deliver a Prospectus as amended or supplemented prior to the
confirmation of a sale.

 

(c)                                  Conduct
of Indemnification Proceedings. Any person entitled to indemnification
hereunder shall (i) give prompt notice to the indemnifying party of any
claim with respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided

 

6

 

that any
person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such person unless (a) the
indemnifying party has agreed to pay such fees or expenses, or (b) the
indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such person or (c) in the
reasonable judgment of any such person, based upon written advice of its
counsel, a conflict of interest exists between such person and the indemnifying
party with respect to such claims (in which case, if the person notifies the
indemnifying party in writing that such person elects to employ separate
counsel at the expense of the indemnifying party, the indemnifying party shall
not have the right to assume the defense of such claim on behalf of such
person); and provided, further, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of its
obligations hereunder, except to the extent that such failure to give notice
shall materially adversely affect the indemnifying party in the defense of any
such claim or litigation. It is understood that the indemnifying party shall
not, in connection with any proceeding in the same jurisdiction, be liable for
fees or expenses of more than one separate firm of attorneys at any time for
all such indemnified parties. No indemnifying party will, except with the
consent of the indemnified party, consent to entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect of such claim or litigation.

 

(d)                                 Contribution.
If for any reason the indemnification provided for in the preceding paragraphs (a) and
(b) is unavailable to an indemnified party or insufficient to hold it
harmless, other than as expressly specified therein, then the indemnifying
party shall contribute to the amount paid or payable by the indemnified party
as a result of such loss, claim, damage or liability in such proportion as is
appropriate to reflect the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable considerations. No
person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of
the 1933 Act shall be entitled to contribution from any person not guilty of
such fraudulent misrepresentation. In no event shall the contribution
obligation of a holder of Registrable Securities be greater in amount than the
dollar amount of the proceeds (net of all expenses paid by such holder in
connection with any claim relating to this Section 6 and the amount of any
damages such holder has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission) received by it
upon the sale of the Registrable Securities giving rise to such contribution
obligation.

 

7.                                       Miscellaneous.

 

(a)                                  Amendments
and Waivers. This Agreement may be amended only by a writing signed by the
Company and the Required Investors. The Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company shall have obtained the written consent to such amendment,
action or omission to act, of the Required Investors.

 

(b)                                 Notices.
All notices and other communications provided for or permitted hereunder shall
be made as set forth in Section 7(f) of the Settlement Agreement.

 

7

 

(c)                                  Assignments
and Transfers by Investors. The provisions of this Agreement shall be
binding upon and inure to the benefit of the Investors and their respective
successors and assigns. An Investor may transfer or assign, in whole or from
time to time in part, to one or more persons its rights hereunder in connection
with the transfer of Registrable Securities by such Investor to such person,
provided that such Investor complies with all laws applicable thereto and
provides written notice of assignment to the Company promptly after such
assignment is effected.

 

(d)                                 Assignments
and Transfers by the Company. This Agreement may not be assigned by the
Company (whether by operation of law or otherwise) without the prior written
consent of the Required Investors, provided, however, that the Company may
assign its rights and delegate its duties hereunder to any surviving or
successor corporation in connection with a merger or consolidation of the
Company with another corporation, or a sale, transfer or other disposition of
all or substantially all of the Company’s assets to another corporation,
without the prior written consent of the Required Investors, after notice duly
given by the Company to each Investor.

 

(e)                                  Benefits
of the Agreement. The terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the respective permitted successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.

 

(f)                                    Counterparts.
This Agreement may be executed in two or more identical counterparts, all of
which shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the other
party; provided that a facsimile signature and a signature delivered
electronically (including by delivery via electronic mail of a signature page in
“pdf” format) shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were an
original, not a facsimile or electronic signature.

 

(g)                                 Titles
and Subtitles. The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting
this Agreement.

 

(h)                                 Severability.
Any provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof but shall be interpreted as if it were written so as to be
enforceable to the maximum extent permitted by applicable law, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law
which renders any provisions hereof prohibited or unenforceable in any respect.

 

8

 

(i)                                     Further
Assurances. The parties shall execute and deliver all such further
instruments and documents and take all such other actions as may reasonably be
required to carry out the transactions contemplated hereby and to evidence the
fulfillment of the agreements herein contained.

 

(j)                                     Entire
Agreement. This Agreement is intended by the parties as a final expression
of their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.

 

(k)                                  Governing
Law; Consent to Jurisdiction; Waiver of Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of Delaware,
without giving effect to any choice of law or conflict of law provision or rule (whether
of the State of Delaware or any other jurisdictions) that would cause the
application of the laws of any jurisdictions other than the State of
Delaware.  Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting
in the City of Wilmington, Delaware, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper.  Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
to such party at the address for such notices to it under this Agreement and
agrees that such service shall constitute good and sufficient service of
process and notice thereof.  Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.  Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE,
AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.

 

[Signature
Pages Follow]

 

9

 

IN WITNESS WHEREOF,
each Investor and the Company have caused their respective signature page to
this Registration Rights Agreement to be duly executed as of the date first
written above.

 

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  AMERICAN DEFENSE SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gary Sidorsky

  
	
   

  	
   

  	
  Name:  Gary Sidorsky

  
	
   

  	
   

  	
  Title:   Chief Financial
  Officer

  

 

 

IN WITNESS WHEREOF,
each Investor and the Company have caused their respective signature page to
this Registration Rights Agreement to be duly executed as of the date first
written above.

 

 

	
   

  	
  INVESTORS:

  
	
   

  	
   

  
	
   

  	
  WEST COAST OPPORTUNITY FUND, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Atticus Lowe

  
	
   

  	
   

  	
  Name:  Atticus Lowe

  
	
   

  	
   

  	
  Title:  CIO of Managing Member 

  

 

 

IN WITNESS WHEREOF,
each Investor and the Company have caused their respective signature page to
this Registration Rights Agreement to be duly executed as of the date first
written above.

 

 

	
   

  	
  INVESTORS:

  
	
   

  	
   

  
	
   

  	
  CENTAUR VALUE FUND, LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Zeke Ashton

  
	
   

  	
   

  	
  Name:  Zeke Ashton

  
	
   

  	
   

  	
  Title:   Managing Partner

  

 

 

IN WITNESS WHEREOF,
each Investor and the Company have caused their respective signature page to
this Registration Rights Agreement to be duly executed as of the date first
written above.

 

 

	
   

  	
  INVESTORS:

  
	
   

  	
   

  
	
   

  	
  UNITED
  CENTAUR MASTER FUND

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Zeke Ashton

  
	
   

  	
   

  	
  Name:  Zeke Ashton

  
	
   

  	
   

  	
  Title:   Managing Partner

  

 

 

Exhibit A

 

Plan of Distribution

 

The selling
stockholders, which as used herein includes donees, pledgees, transferees or
other successors-in-interest selling shares of common stock or interests in
shares of common stock received after the date of this prospectus from a
selling stockholder as a gift, pledge, partnership distribution or other
transfer, may, from time to time, sell, transfer or otherwise dispose of any or
all of their shares of common stock or interests in shares of common stock on
any stock exchange, market or trading facility on which the shares are traded
or in private transactions. These dispositions may be at fixed prices, at
prevailing market prices at the time of sale, at prices related to the
prevailing market price, at varying prices determined at the time of sale, or
at negotiated prices.

 

The selling
stockholders may use any one or more of the following methods when disposing of
shares or interests therein:

 

·              ordinary brokerage transactions
and transactions in which the broker-dealer solicits purchasers;

 

·              block trades in which the
broker-dealer will attempt to sell the shares as agent, but may position and
resell a portion of the block as principal to facilitate the transaction;

 

·              purchases by a broker-dealer as principal
and resale by the broker-dealer for its account;

 

·              an exchange distribution in
accordance with the rules of the applicable exchange;

 

·              privately negotiated transactions;

 

·              short sales effected after the
date the registration statement of which this Prospectus is a part is declared
effective by the SEC;

 

·              through the writing or settlement
of options or other hedging transactions, whether through an options exchange
or otherwise;

 

·              broker-dealers may agree with the
selling stockholders to sell a specified number of such shares at a stipulated
price per share; and

 

·              a combination of any such methods
of sale.

 

The selling
stockholders may, from time to time, pledge or grant a security interest in
some or all of the shares of common stock owned by them and, if they default in
the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock, from time to time, under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the 

 

 

list of
selling stockholders to include the pledgee, transferee or other successors in
interest as selling stockholders under this prospectus. The selling
stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus.

 

In connection
with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling stockholders
may also sell shares of our common stock short and deliver these securities to
close out their short positions, or loan or pledge the common stock to
broker-dealers that in turn may sell these securities. The selling stockholders
may also enter into option or other transactions with broker-dealers or other
financial institutions or the creation of one or more derivative securities
which require the delivery to such broker-dealer or other financial institution
of shares offered by this prospectus, which shares such broker-dealer or other
financial institution may resell pursuant to this prospectus (as supplemented
or amended to reflect such transaction).

 

The aggregate
proceeds to the selling stockholders from the sale of the common stock offered
by them will be the purchase price of the common stock less discounts or
commissions, if any. Each of the selling stockholders reserves the right to
accept and, together with their agents from time to time, to reject, in whole
or in part, any proposed purchase of common stock to be made directly or
through agents. We will not receive any of the proceeds from this offering.

 

The selling
stockholders also may resell all or a portion of the shares in open market
transactions in reliance upon Rule 144 under the Securities Act of 1933,
provided that they meet the criteria and conform to the requirements of that
rule.

 

The selling
stockholders and any underwriters, broker-dealers or agents that participate in
the sale of the common stock or interests therein may be “underwriters” within
the meaning of Section 2(11) of the Securities Act. Any discounts,
commissions, concessions or profit they earn on any resale of the shares may be
underwriting discounts and commissions under the Securities Act. Selling
stockholders who are “underwriters” within the meaning of Section 2(11) of
the Securities Act will be subject to the prospectus delivery requirements of
the Securities Act.

 

To the extent
required, the shares of our common stock to be sold, the names of the selling
stockholders, the respective purchase prices and public offering prices, the
names of any agents, dealer or underwriter, any applicable commissions or
discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.

 

In order to
comply with the securities laws of some states, if applicable, the common stock
may be sold in these jurisdictions only through registered or licensed brokers
or dealers. In addition, in some states the common stock may not be sold unless
it has been registered or qualified for sale or an exemption from registration
or qualification requirements is available and is complied with.

 

 

We have advised
the selling stockholders that the anti-manipulation rules of Regulation M
under the Exchange Act may apply to sales of shares in the market and to the
activities of the selling stockholders and their affiliates. In addition, to
the extent applicable we will make copies of this prospectus (as it may be
supplemented or amended from time to time) available to the selling
stockholders for the purpose of satisfying the prospectus delivery requirements
of the Securities Act. The selling stockholders may indemnify any broker-dealer
that participates in transactions involving the sale of the shares against
certain liabilities, including liabilities arising under the Securities Act.

 

We have agreed
to indemnify the selling stockholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to the
registration of the shares offered by this prospectus.

 

We have agreed
with the selling stockholders to keep the registration statement of which this
prospectus constitutes a part effective until the earlier of (1) such time
as all of the shares covered by this prospectus have been disposed of pursuant
to and in accordance with the registration statement or (2) the date on
which the shares may be sold pursuant to Rule 144 of the Securities Act.

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