Exhibit 4.1
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EXECUTION COPY
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of September 29,
2005, by and among Arotech Corporation, a Delaware corporation, with
headquarters located at ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ (the
"Company"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company and each Buyer is executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 Act"), and Rule 506 of
Regulation D ("Regulation D") as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the 1933 Act.
B. The Company has authorized a new series of senior secured convertible
notes of the Company, which Notes shall be convertible into the Company's common
stock, par value $0.01 per share (the "Common Stock"), in accordance with the
terms of the Notes.
C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the
terms and conditions stated in this Agreement, (i) that aggregate principal
amount of Notes, in substantially the form attached hereto as Exhibit A (the
"Notes"), set forth opposite such Buyer's name in column (3) on the Schedule of
Buyers (which aggregate principal amount for all Buyers shall be $17,500,000)
(as converted, collectively, the "Conversion Shares") and (ii) a warrant, in
substantially the form attached hereto as Exhibit B (collectively, the
"Warrants"), to acquire that number of shares of Common Stock set forth opposite
such Buyer's name in column (4) on the Schedule of Buyers (as exercised,
collectively, the "Warrant Shares").
D. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
substantially in the form attached hereto as Exhibit C (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to provide certain
registration rights with respect to the Conversion Shares and the Warrant Shares
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
E. The Notes, Warrants, Warrant Shares and the Conversion Shares,
collectively are referred to herein as the "Securities".
F. The Notes will be (i) subordinated to the Senior Indebtedness (as
hereinafter defined), but will rank senior to all other outstanding and future
indebtedness of the Company and its Subsidiaries other than as permitted
hereunder, (ii) secured by a security interest in all of the assets of the
Company and in all of the shares of capital stock and all assets of all of the
Company's Subsidiaries (as hereinafter defined) identified on Schedule 3(a) as
guarantors and all future Subsidiaries, as evidenced by the Security Agreement,
in the form attached hereto as Exhibit D (as amended or modified from time to
time, the "Security Agreement") in favor of Smithfield Fiduciary LLC, in its
capacity as collateral agent (in such capacity, the "Senior Agent") for the
Buyers hereto and for the holders of the Securities, which security interest
shall be senior to all other security interests therein, except those security
interests securing the Senior Indebtedness, and (iii) guaranteed by the
Guarantee of all of the Company's Subsidiaries identified on Schedule 3(a) as
guarantors and future Subsidiaries, other than those Subsidiaries which remain
inactive and have no assets, income or operations, in the form attached hereto
as Exhibit E (such Guaranty, together with the Security Agreement, as each may
amended or modified from time to time, collectively, the "Security Documents").
The Company will also be obtaining a letter of credit (the "Letter of Credit"),
in the amount of $2,625,000 (the "Letter of Credit Amount") issued in favor of
the Senior Agent by a bank acceptable to such Senior Agent (the "Letter of
Credit Bank"), which may be drawn upon the Company's failure to timely pay
interest or other obligations due under the Note.
NOW, THEREFORE, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
(a) Purchase of Notes and Warrants.
(i) Notes and Warrants. Subject to the satisfaction (or
waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall
issue and sell to each Buyer, and each Buyer severally, but not jointly, agrees
to purchase from the Company on the Closing Date (as defined below), (A) a
principal amount of Notes as is set forth opposite such Buyer's name in column
(3) on the Schedule of Buyers and (B) a warrant to acquire that number of shares
of Common Stock set forth opposite such Buyer's name in column (4) on the
Schedule of Buyers (the "Closing").
(1) Closing. The date and time of the Closing (the "Closing
Date") shall be 10:00 a.m., New York City time, on September 29, 2005 (or
such later date as is mutually agreed to by the Company and each Buyer)
after notification of satisfaction (or waiver) of the conditions to the
Closing set forth in Sections 6 and 7 below at the offices of ▇▇▇▇▇▇▇ ▇▇▇▇
& ▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, subject to
notification of satisfaction (or waiver) of the conditions to the Closing
set forth in Sections 6 and 7 below.
(2) Purchase Price. The aggregate purchase price for the Notes
and the Warrants to be purchased by each Buyer at the Closing (the
"Purchase Price") shall be the amount set forth opposite such Buyer's name
in column (5) of the Schedule of Buyers. Each Buyer shall pay $1.00 for
each $1.00 of principal amount of Notes and related Warrants to be
purchased by such Buyer at the Closing.
(ii) Form of Payment. On the Closing Date, (i) each Buyer
shall pay its Purchase Price to the Company for the Notes and the Warrants to be
issued and sold to such Buyer at the Closing, by wire transfer of immediately
available funds in accordance with the Company's written wire instructions, and
(ii) the Company shall deliver to each Buyer (A) the Notes (in the principal
amounts as such Buyer shall request) which such Buyer is then purchasing and (B)
the Warrants (in the amounts as such Buyer shall request) such Buyer is
purchasing, in each case duly executed on behalf of the Company and registered
in the name of such Buyer or its designee.
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2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
(a) Organization; Authority. Such Buyer is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite power and authority to enter into and to
consummate the transactions contemplated by this Agreement and otherwise to
carry out its obligations hereunder. The execution, delivery and performance by
such Buyer of the transactions contemplated by this Agreement, the Registration
Rights Agreement and the Security Documents to which such Buyer is a party have
been duly authorized by all necessary action on the part of such Buyer and no
further action is required by such Buyer or any of its composite entities (such
as a board of directors, management committee, partners or stockholders) in
connection herewith. Each of this Agreement, the Registration Rights Agreement
and the Security Documents to which such Buyer is a party has been duly executed
by such Buyer, and when delivered by such Buyer in accordance with the terms
hereof, will constitute the valid and legally binding obligation of such Buyer,
enforceable against it in accordance with its terms, except (a) as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally, (b) as enforceability of any
indemnification and contribution provisions may be limited under the federal and
state securities laws and public policy, and (c) that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(b) No Public Sale or Distribution. Such Buyer is (i) acquiring the
Notes and Warrants, (ii) upon conversion of the Notes will acquire the
Conversion Shares issuable upon conversion of the Notes, and (iii) upon exercise
of the Warrants (other than pursuant to a Cashless Exercise (as defined in the
Warrants)) will acquire the Warrant Shares issuable upon exercise of the
Warrants, as principal for its own account and not with a view towards, or for
resale in connection with, the public sale or distribution thereof, except
pursuant to sales registered or exempted under the 1933 Act; provided, however,
that by making the representations herein, such Buyer does not agree to hold any
of the Securities for any minimum or other specific term and reserves the right
to dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under applicable federal and state
securities laws. Such Buyer is acquiring the Securities hereunder in the
ordinary course of its business. Such Buyer is not a broker-dealer registered
with the SEC under the 34 Act or entity engaged in a business that would require
it to be so registered. Such Buyer does not presently have any agreement or
understanding, directly or indirectly, with any Person to distribute any of the
Securities.
(c) Accredited Investor Status; General Solicitation. Such Buyer is
an "accredited investor" as that term is defined in Rule 501(a) of Regulation D.
Such Buyer, either alone or together with its representatives, has such
knowledge, sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of the prospective investment
in the Securities, and has so evaluated the merits and risks of such investment.
Such Buyer is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.
Such Buyer is not purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities published in any
newspaper, magazine or similar media or broadcast over television or radio or
presented at any seminar.
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(d) Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.
(e) Information. Such Buyer and its advisors, if any, have been
furnished with or has otherwise had access to all materials relating to the
business, finances and operations of the Company and materials relating to the
offer and sale of the Securities which have been requested by such Buyer. Such
Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on the
Company's representations and warranties contained herein. Such Buyer
understands that its investment in the Securities involves a high degree of
risk. Such Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its
acquisition of the Securities.
(f) No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(g) Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
Buyer provides the Company with reasonable assurance that such Securities can be
sold, assigned or transferred pursuant to Rule 144 or Rule 144A promulgated
under the 1933 Act, as amended (or a successor rule thereto) (collectively,
"Rule 144"); (ii) any sale of the Securities made in reliance on Rule 144 may be
made only in accordance with the terms of Rule 144 and further, if Rule 144 is
not applicable, any resale of the Securities under circumstances in which the
seller (or the Person (as defined in Section 3(e)) through whom the sale is
made) may be deemed to be an underwriter (as that term is defined in the ▇▇▇▇
▇▇▇) may require compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC thereunder; and (iii) neither the Company nor
any other Person is under any obligation to register the Securities under the
1933 Act or any state securities laws or to comply with the terms and conditions
of any exemption thereunder.
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(h) Legends. Such Buyer understands that the certificates or other
instruments representing the Notes and the Warrants and, until such time as the
resale of the Conversion Shares and the Warrant Shares have been registered
under the 1933 Act as contemplated by the Registration Rights Agreement, the
stock certificates representing the Conversion Shares and the Warrant Shares,
except as set forth below, shall bear any legend as required by the "blue sky"
laws of any state and a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of such stock
certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[CONVERTIBLE][EXERCISABLE] HAVE BEEN][THE SECURITIES REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II)
UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act and are thereafter sold
in compliance with said Act, (ii) in connection with a sale, assignment or other
transfer, such holder provides the Company with an opinion of counsel, in a
generally acceptable form, to the effect that such sale, assignment or transfer
of the Securities may be made without registration under the applicable
requirements of the 1933 Act, or (iii) such holder provides the Company with
reasonable assurance, reasonably acceptable to the Company's registrar and
transfer agent, that the Securities can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A.
(i) No Conflicts. The execution, delivery and performance by such
Buyer of this Agreement, the Registration Rights Agreement and the Security
Documents to which such Buyer is a party and the consummation by such Buyer of
the transactions contemplated hereby and thereby do not and will not (i)
conflict with or violate the organizational documents of such Buyer or (ii)
except as set forth on Schedule 3(d), conflict with, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which such Buyer is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws) applicable to
such Buyer, except in the case of clauses (ii) and (iii) above, for such
conflicts, defaults, rights or violations which would not, individually or in
the aggregate, reasonably be expected to have a material adverse effect on the
ability of such Buyer to perform its obligations hereunder.
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(j) Residency. Such Buyer is a resident of that jurisdiction
specified below its address on the Schedule of Buyers.
(k) Agent Fees. That no fees, commissions, or other payments are or
will be payable to any broker, finder, placement agent, or intermediary acting
on behalf of such Buyer for actions relating to or arising out of the
transactions contemplated by this Agreement, including, without limitation, any
fees or commissions payable to such Buyer's agents.
(l) Certain Trading Activities. Neither such Buyer nor its
affiliates has directly or indirectly engaged in any Short Sales involving the
Company's securities since the time that such Buyer was first contacted by the
Company with respect to the transactions contemplated hereby. "Short Sales"
include, without limitation, all "short sales" as defined in Rule 200
promulgated under Regulation SHO under the 1934 Act and all types of direct and
indirect stock pledges, forward sale contracts, options, puts, calls, short
sales, swaps and similar arrangements (including on a total return basis), and
sales and other transactions through non-US broker dealers or foreign regulated
brokers. Notwithstanding the foregoing, in the case of a Buyer that is or is
part of a multi-managed investment vehicle (a "Fund") whereby separate portfolio
managers manage separate portions of such Fund's assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of such Fund's assets, the
representation set forth above shall solely apply with respect to the portion of
assets of such Buyer or its affiliates, as applicable, managed by the portfolio
manager that made the investment decision to purchase the Securities covered by
this Agreement.
The Company acknowledges and agrees that each Buyer does not make or has
not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 2.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby makes the following representations and warranties to
each Buyer:
(a) Subsidiaries. There is no entity in which the Company, directly
or indirectly, owns capital stock or holds an equity or similar interest other
than those listed in Schedule 3(a) ("Subsidiaries"). Except as disclosed in
Schedule 3(a), the Company owns, directly or indirectly, all of the capital
stock of each Subsidiary free and clear of any and all liens, charges,
encumbrances, security interests, rights of first refusal or other restrictions
of any kind ("Liens"), and all the issued and outstanding shares of capital
stock of each Subsidiary are validly issued and are fully paid, non-assessable
and free of preemptive and similar rights. As of the Closing Date, none of
Arotech Security Corp., a Delaware corporation, I.E.S. Defense Services, Inc., a
Delaware corporation, Summit Training International, Inc., a Delaware
corporation and Electric Fuel Transportation Corp., a Delaware corporation (each
an "Inactive Subsidiary") owns or possesses any material property or assets.
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(b) Organization and Qualification. Except as set forth on Schedule
3(b) hereto, (1) each of the Company and each Subsidiary is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own and use its properties and assets and to
carry on its business as currently conducted, (2) neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents, and (3) each of the Company and each Subsidiary is duly
qualified to conduct business and is in good standing as a foreign corporation
or other entity in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, have or reasonably be expected to
result in (i) an adverse effect on the legality, validity or enforceability of
any Transaction Document (as hereinafter defined), (ii) a material and adverse
effect on the results of operations, assets, business or financial condition of
the Company and the Subsidiaries, taken as a whole, or (iii) an adverse
impairment to the Company's ability to perform on a timely basis its obligations
under any Transaction Document (any of (i), (ii) or (iii), a "Material Adverse
Effect").
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of this Agreement, the Notes, the Warrants, the
Registration Rights Agreement, the Security Documents, the Letter of Credit, the
Irrevocable Transfer Agent Instructions (as defined in Section 5(b)), and any
other documents or agreements executed in connection with the transactions
contemplated hereunder (collectively, the "Transaction Documents") and otherwise
to carry out its obligations hereunder and thereunder and to issue the
Securities in accordance with the terms hereof and thereof. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Notes and Warrants, the
reservation for issuance and the issuance of the Conversion Shares issuable upon
conversion of the Notes and the Warrant Shares issuable upon exercise of the
Warrants, and the granting of a security interest in the Collateral (as defined
in the Security Documents), have been duly authorized by all necessary action on
the part of the Company and no further action is required by the Company, its
Board of Directors or its stockholders in connection herewith and therewith
(other than (i) the filing of appropriate UCC financing statements with the
appropriate states and other authorities pursuant to the Security Agreement,
(ii) the filing with the SEC of one or more Registration Statements in
accordance with the requirements of the Registration Rights Agreement), (iii)
the Company obtaining Stockholder Approval (as hereinafter defined) and (iv)
filings that have been made pursuant to applicable state securities laws and
post-sale filings pursuant to applicable state and federal securities laws
and/or any other notices required thereby and (v) the filing of an application
with a Trading Market (as hereinafter defined) for the inclusion of the
Conversion Shares and the Warrant Shares for trading in such Trading Market with
respect to the offering contemplated by the Transaction Documents. Each
Transaction Document has been (or upon delivery will have been) duly executed by
the Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except (a) as such enforceability may
be limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally, (b) as enforceability of any indemnification and
contribution provisions may be limited under the federal and state securities
laws and public policy, and (c) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
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(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby including, without limitation, the
issuance of the Notes and the Warrants, the granting of a security interest in
the Collateral and reservation for issuance and issuance of the Conversion
Shares and the Warrant Shares) do not and will not (i) conflict with or violate
any provision of the Company's or any Subsidiary's certificate or articles of
incorporation, any certificate of designations, preferences and rights of any
outstanding series of preferred stock, bylaws or other organizational or charter
documents, or (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation (with or
without notice, lapse of time or both) of, any agreement, credit facility, debt
or other instrument (evidencing a Company or Subsidiary debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) subject to the Company obtaining Stockholder Approval, result
in a violation of any law, rule, regulation, order, judgment, injunction, decree
or other restriction of any court or governmental authority to which the Company
or a Subsidiary is subject (including federal and state securities laws and
regulations of whichever of the New York Stock Exchange, Inc., the American
Stock Exchange, the Nasdaq National Market (the "Principal Market") or The
Nasdaq SmallCap Market or the OTC Bulletin Board that the Common Stock is listed
or quoted for trading on the date in question (any of the foregoing, a "Trading
Market"), or by which any property or asset of the Company or a Subsidiary is
bound or affected; except in the case of each of clauses (ii) and (iii), such as
could not, individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration (collectively,
"Consents") with, any court or other federal, state, local or other governmental
authority or any regulatory or self-regulatory agency or other individual or
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind (a "Person") in
connection with the execution, delivery and performance by the Company of the
Transaction Documents other than (i) filing appropriate UCC financing statements
with the appropriate states and other authorities pursuant to the Security
Agreement, (ii) filing a Current Report on Form 8-K with the SEC, (iii) filing
with the SEC of one ore more registration statements in accordance with the
Registration Rights Agreement, (iv) filing applications for the listing of
additional shares with a Trading Market, (v) obtaining those Consents set forth
in Schedule 3(e), which Consents have been obtained prior to the date hereof and
(vi) filings that have been or will be made pursuant to applicable state
securities laws and post-sale filings pursuant to applicable state and federal
securities laws and/or any other notices required thereby.
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(f) Issuance of Securities. The issuance of the Notes and the
Warrants have been duly authorized and, upon issuance in accordance with the
terms hereof and payment therefor, will be duly and validly issued, fully paid
and nonassessable, free from all taxes, Liens and charges with respect to the
issue thereof. As of the Closing, the Company shall have reserved from its duly
authorized capital stock not less than (i) 130% of the maximum number of shares
of Common Stock issuable upon conversion of the Notes issuable at the Closing
(assuming for purposes hereof, that the Notes are convertible at the initial
Conversion Price and without taking into account any limitations on the
conversion of the Notes set forth in the Notes) and (ii) 100% of the maximum
number of shares of Common Stock issuable upon exercise of the Warrants. Upon
conversion in accordance with the Notes, the Conversion Shares, and upon
exercise and payment in accordance with the Warrants, the Warrant Shares, will
be validly issued, fully paid and nonassessable and free from all preemptive or
similar rights, taxes, Liens and charges with respect to the issue thereof, with
the holders being entitled to all rights accorded to a holder of Common Stock.
Assuming the accuracy of the representations and warranties contained in
Sections 2(b) through 2(f), inclusive, above as they relate to all of the Buyers
in the aggregate, the offer and issuance by the Company of the Securities is
exempt from registration under the 1933 Act.
(g) Capitalization. The number of shares and type of all authorized,
issued and outstanding capital stock of the Company is set forth in Schedule
3(g). Except as set forth in Schedule 3(g), no securities of the Company are
entitled to preemptive or similar rights, and no Person has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents.
Except as a result of the purchase and sale of the Securities and except as
disclosed in Schedule 3(g), there are no outstanding options, warrants, scrip
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. Except as set forth in Schedule 3(g),
the issue and sale of the Securities will not, immediately or with the passage
of time, obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Buyers) and will not result in a right
of any holder of Company securities to adjust the exercise, conversion, exchange
or reset price under such securities. The Company has furnished or made
available to the Buyer true, correct and complete copies of the Company's
Certificate of Incorporation, as amended and as in effect on the date hereof
(the "Certificate of Incorporation"), and the Company's Bylaws, as amended and
as in effect on the date hereof (the "Bylaws").
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(h) SEC Reports; Financial Statements. The Company has filed all
reports permitted or required to be filed by it under the 1933 Act and the
Securities Exchange Act of 1934, as amended (the "1934 Act"), including pursuant
to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof
(or such shorter period as the Company was required by law to file such reports)
(the foregoing materials, including any amendments thereto filed with the SEC
prior to the date hereof, being collectively referred to herein as the "SEC
Reports" and, together with the Schedules to this Agreement, the "Disclosure
Materials") on a timely basis or has received a valid extension of such time of
filing and has filed any such SEC Reports prior to the expiration of any such
extension. The Company has delivered to the Buyers a copy of all SEC Reports not
available on the ▇▇▇▇▇ system. Except as set forth on Schedule 3(h), as of their
respective dates, the SEC Reports complied in all material respects with the
requirements of the 1933 Act and the 1934 Act applicable thereto and the rules
and regulations of the SEC promulgated thereunder, and none of the SEC Reports,
when filed, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. Except as set forth in Schedule 3(h), the Company is
in compliance with the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002, and the rules and regulations
promulgated thereunder by all government and regulatory authorities and
agencies. The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the SEC with respect thereto as in effect at the time
of filing. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved ("GAAP"), except as may be otherwise specified in such
financial statements or the notes thereto, and fairly present in all material
respects the financial position of the Company and its consolidated Subsidiaries
as of and for the dates thereof and the results of operations and cash flows for
the periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.
(i) Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in
the SEC Reports and except as set forth on Schedule 3(i) hereto, (i) there has
been no event, occurrence or development that has had or that could reasonably
be expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade payables
and accrued expenses incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in the Company's
financial statements pursuant to GAAP or required to be disclosed in filings
made with the SEC, (iii) the Company has not altered its method of accounting or
the identity of its auditors, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock, (v) the Company has not issued any equity securities to any
officer, director or any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144 promulgated under
the 1933 Act, as amended (or a successor rule thereto) ("Rule 144") (an
"Affiliate"), except pursuant to existing stock option plans of the Company,
(vi) the Company has not sold any assets, individually or in the aggregate, in
excess of $250,000 outside of the ordinary course of business or (vii) the
Company has not had capital expenditures, individually or in the aggregate, in
excess of $250,000. The Company does not have pending before the SEC any request
for confidential treatment of information.
-10-
(j) Litigation. Except as set forth in Schedule 3(j), there is no
action, suit, proceeding, inquiry or investigation which (i) adversely affects
or challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) could, if there were an unfavorable
decision, individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor
any director or officer thereof, is or has been the subject of any claim, action
or proceeding involving a claim of violation of or liability under federal or
state securities laws or a claim of breach of fiduciary duty. There has not
been, and to the knowledge of the Company, there is not pending or contemplated,
any investigation by the SEC involving the Company or any current or former
director or officer of the Company.
(k) Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company.
(l) Compliance. Except as set forth in Schedule 3(l), neither the
Company nor any Subsidiary (i) is in default under or in violation of (and no
event has occurred that has not been waived that, with notice or lapse of time
or both, would result in a default by the Company or any Subsidiary under), nor
has the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any court,
arbitrator, governmental body, or regulatory or self-regulatory authority or
(iii) is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws relating to taxes, environmental protection, occupational health
and safety, product quality and safety and employment and labor matters, except
in each case as could not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits would not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect ("Material
Permits"), and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material Permit.
(n) Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to their respective businesses and good and marketable title in all
personal property owned by them that is material to their respective businesses,
in each case free and clear of all Liens, except as set forth in Schedule 3(n)
and except for Liens as do not materially affect the value of such property and
do not materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries. Any real property and facilities
held under lease by the Company and the Subsidiaries are held by them under
valid, subsisting and enforceable leases of which the Company and the
Subsidiaries are in compliance in all material respects.
-11-
(o) Patents and Trademarks. The Company and the Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other similar
rights that are necessary or material for use in connection with their
respective businesses as described in the SEC Reports and which the failure to
so have could, individually or in the aggregate, have or reasonably be expected
to result in a Material Adverse Effect (collectively, the "Intellectual Property
Rights"). The Company does not have any knowledge of any infringement by the
Company or its Subsidiaries of Intellectual Property Rights of others. There is
no claim, action or proceeding being made or brought, or to the knowledge of the
Company, being threatened, against the Company or its Subsidiaries regarding its
Intellectual Property Rights.
(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which the
Company and the Subsidiaries are engaged. The Company has no reason to believe
that it or its Subsidiaries will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost, other than anticipated increases in the market
price of officers' and directors' liability insurance generally.
(q) Foreign Corrupt Practices. Neither the Company nor any direct
director, officer or employee acting on behalf of the Company or any of its
Subsidiaries has, in the course of its actions for, or on behalf of, the Company
(i) used any corporate funds for any unlawful contribution, gift, entertainment
or other unlawful expenses relating to political activity; (ii) made any direct
or indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.
(r) Transactions With Affiliates and Employees. Except as set forth
in the SEC Reports, none of the officers or directors of the Company and, to the
knowledge of the Company, none of the employees of the Company is presently a
party to any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
(s) Tax Status. The Company and each of its Subsidiaries (i) has
made or filed all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject, (ii) has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set aside
on its books provision reasonably adequate for the payment of all material taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
-12-
(t) Internal Accounting Controls. Except as set forth on Schedule
3(h), the Company and the Subsidiaries maintain a system of internal accounting
controls which the audit committee of the board of directors reasonably believes
is sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(u) Solvency. Based on the financial condition of the Company as of
the date hereof and as of the Closing Date, (i) the Company's fair saleable
value of its assets exceeds the amount that will be required to be paid on or in
respect of the Company's existing debts and other liabilities (including known
contingent liabilities) as they mature; (ii) the Company's assets do not
constitute unreasonably small capital to carry on its business for the current
fiscal year as now conducted and as proposed to be conducted including its
capital needs taking into account the particular capital requirements of the
business conducted by the Company, and projected capital requirements and
capital availability thereof; and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to liquidate all
of its assets, after taking into account all anticipated uses of the cash, would
be sufficient to pay all amounts on or in respect of its debt when such amounts
are required to be paid. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt).
(v) Reserved.
(w) Application of Takeover Protections; Rights Agreement. The
Company and its board of directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Certificate of Incorporation
or the laws of the jurisdiction of its formation which is or could become
applicable to any Buyer as a result of the transactions contemplated by this
Agreement, including, without limitation, the Company's issuance of the
Securities and any Buyer's ownership of the Securities. The Company has not
adopted a stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control of
the Company.
(x) No General Solicitation; Placement Agent's Fees. Neither the
Company, nor any of its affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of the
Securities. The Company shall be responsible for the payment of any placement
agent's fees, financial advisory or consultancy fees, brokers' commissions or
finder's fee (other than for persons engaged by any Buyer or its investment
advisor) relating to or arising out of the transactions contemplated hereby,
which fees are set forth in Section 4(f). The Company shall pay, and hold each
Buyer harmless against, any liability, loss or expense (including, without
limitation, attorney's fees and out-of-pocket expenses) arising in connection
with any such claim; provided, that the Company shall not be responsible for the
payment of any amounts under this Agreement resulting from a breach of the
representation by any Buyer set forth in Section 2(k).
-13-
(y) No Integrated Offering. None of the Company, its Subsidiaries,
any of their Affiliates, and any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated. None of the
Company, its Subsidiaries, their Affiliates and any Person acting on their
behalf will take any action or steps referred to in the preceding sentence that
would cause the offering of the Securities to be integrated with other
offerings.
(z) Ranking of Notes. Except as set forth on Schedule 3(z) (the
"Senior Indebtedness"), no Indebtedness of the Company is senior to or ranks
pari passu with the Notes in right of payment, whether with respect of payment
of redemptions, interest, damages or upon liquidation or dissolution or
otherwise.
(aa) Certain Registration Matters. The Company is eligible to
register the sale of its Common Stock under Form S-3 promulgated under the 1933
Act. Except as described in Schedule 3(aa) and securities that have been
previously registered for resale by the Company, the Company has not granted or
agreed to grant to any Person any rights (including "piggy-back" registration
rights) to have any securities of the Company registered with the SEC or any
other governmental authority that have not been satisfied.
(bb) Listing and Maintenance Requirements. Except as set forth in
the SEC Reports or as set forth in Schedule 3(bb), the Company has not, in the
two years preceding the date hereof, received notice (written or oral) from any
Trading Market on which the Common Stock is or has been listed or quoted to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. Except for the maintenance of the $1.00
minimum bid price (pursuant to the rules and regulations of the Principal
Market), the Company is currently in compliance with all such listing and
maintenance requirements. Subject to obtaining the Stockholder Approval to the
extent required by the Principal Market, the issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Principal Market
and no approval of the stockholders of the Company is required for the Company
to issue and deliver to the Buyers up to (i) 130% of the maximum number of
shares of Common Stock issuable upon conversion of the Notes issuable at the
Closing (assuming for purposes hereof, that the Notes are convertible at the
initial Conversion Price (including any shares issuable as amortization
payments) and without taking into account any limitations on the conversion of
the Notes set forth in the Notes) and (ii) 100% of the maximum number of shares
of Common Stock issuable upon exercise of the Warrants.
-14-
(cc) Investment Company. The Company is not, and is not an Affiliate
of, an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
(dd) Disclosure. Other than information regarding the offering
contemplated by the Transaction Documents, the Company confirms that neither it
nor any other Person acting on its behalf has provided any of the Buyers or
their agents or counsel with any information that constitutes material,
nonpublic information. The Company understands and confirms that each of the
Buyers will rely on the foregoing representations in effecting transactions in
securities of the Company. All disclosure provided to the Buyers regarding the
Company, its business and the transactions contemplated hereby, furnished by or
on behalf of the Company, including the Schedules to this Agreement, is true and
correct in all material respects and does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, in all material respects not misleading. No event or circumstance has
occurred or information exists with respect to the Company or any of its
Subsidiaries or its or their business, properties, operations or financial
conditions, which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so publicly
announced or disclosed.
(ee) Acknowledgment Regarding Buyer's Purchase of Securities. The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby, and that no Buyer is an officer or
director of the Company. The Company further acknowledges that no Buyer is
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to the Transaction Documents and the transactions
contemplated hereby and thereby, and any advice given by a Buyer or any of its
representatives or agents in connection with the Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to such
Buyer's purchase of the Securities. The Company further represents to each Buyer
that the Company's decision to enter into the Transaction Documents has been
based solely on the independent evaluation by the Company and its
representatives.
4. COVENANTS.
(a) Reasonable Best Efforts. Each party shall use its reasonable
best efforts timely to satisfy each of the covenants and the conditions to be
satisfied by it as provided in this Section 4 and Sections 6 and 7 of this
Agreement.
(b) Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States (or to obtain an exemption from such qualification), and shall provide
evidence of any such action so taken to the Buyers on or prior to the Closing
Date. The Company shall make all filings and reports relating to the offer and
sale of the Securities required under applicable securities or "Blue Sky" laws
of the states of the United States following the Closing Date.
-15-
(c) Reporting Status. Until the date on which the Investors (as
defined in the Registration Rights Agreement) shall have sold all the Conversion
Shares and Warrant Shares and none of the Notes or Warrants are outstanding (the
"Reporting Period"), the Company shall file all reports required to be filed
with the SEC pursuant to the 1934 Act, and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would otherwise permit such
termination.
(d) Financial Information. The Company agrees to send the following
to each Investor (as defined in the Registration Rights Agreement) during the
Reporting Period (i) unless the following are filed with the SEC through ▇▇▇▇▇
and are available to the public through the ▇▇▇▇▇ system, within one (1)
Business Day after the filing thereof with the SEC, a copy of its Annual Reports
on Form 10-K, any interim reports or any consolidated balance sheets, income
statements, stockholders' equity statements and/or cash flow statements for any
period other than annual, any Current Reports on Form 8-K and any registration
statements (other than on Form S-8) or amendments filed pursuant to the 1933
Act, (ii) on the same day as the release thereof, facsimile or e-mailed copies
of all material financial press releases issued by the Company, and (iii) unless
the following are filed with the SEC through ▇▇▇▇▇ and are available to the
public through the ▇▇▇▇▇ system, copies of any notices and other information
made available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.
(e) Listing. The Company shall, when and as required under the
Registration Rights Agreement, secure the listing of all of the Registrable
Securities (as defined in the Registration Rights Agreement) upon each national
securities exchange and automated quotation system, if any, upon which the
Common Stock is then listed (subject to official notice of issuance) and shall
maintain such listing of all Registrable Securities from time to time issuable
under the terms of the Transaction Documents. The Company shall maintain the
Common Stock's authorization for listing on a Trading Market. Neither the
Company nor any of its Subsidiaries shall take any action which would be
reasonably expected to result in the delisting or suspension of the Common Stock
on all Trading Markets. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 4(e).
(f) Fees. At the Closing, the Company shall pay an expense allowance
of $100,000 to Smithfield Fiduciary LLC (a Buyer) or its designee(s), which
amount shall be withheld by such Buyer from its aggregate Purchase Price at the
Closing. The Company shall be responsible for the payment of any placement
agent's fees, financial advisory fees, or broker's commissions (other than for
Persons engaged by any Buyer) relating to or arising out of the transactions
contemplated hereby. The Company shall pay, and hold each Buyer harmless
against, any liability, loss or expense (including, without limitation,
reasonable attorney's fees and out-of-pocket expenses) arising in connection
with any claim relating to any such payment. Except as otherwise set forth in
this Agreement or in the Transaction Documents, each party to this Agreement
shall bear its own expenses in connection with the sale of the Securities to the
Buyers; provided, that the Company shall not be responsible for the payment of
any amounts under this Agreement resulting from a breach of the representation
by any Buyer as set forth in Section 2(k).
-16-
(g) Pledge of Securities. The Company acknowledges and agrees that
the Securities may, to the extent permitted by the 1933 Act, be pledged by an
Investor (as defined in the Registration Rights Agreement) in connection with a
bona fide margin agreement or other loan or financing arrangement that is
secured by the Securities. The pledge of Securities shall not be deemed to be a
transfer, sale or assignment of the Securities hereunder, and no Investor
effecting a pledge of Securities shall be required to provide the Company with
any notice thereof or otherwise make any delivery to the Company pursuant to
this Agreement or any other Transaction Document, including, without limitation,
Section 2(h) hereof; provided that an Investor and its pledgee shall be required
to comply with the provisions of Section 2(h) hereof in order to effect a sale,
transfer or assignment of Securities to such pledgee. The Company hereby agrees
to execute and deliver such documentation as a pledgee of the Securities may
reasonably request in connection with a pledge of the Securities to such pledgee
by an Investor.
(h) Disclosure of Transactions and Other Material Information. The
Company shall, on or before 8:30 a.m., New York City Time, on September 30,
2005, issue a press release reasonably acceptable to the Buyers disclosing all
material terms of the transactions contemplated hereby (the "Press Release"). On
or before 8:30 a.m., New York Time, on the second Business Day following the
execution and delivery of this Agreement, the Company shall file a Current
Report on Form 8-K describing the terms of the transactions contemplated by the
Transaction Documents in the form required by the 1934 Act, and attaching the
material Transaction Documents (including, without limitation, this Agreement,
the form of each of the Notes, the Warrants, the Letter of Credit, the
Registration Rights Agreement and the Security Documents) as exhibits to such
filing (including all attachments, the "8-K Filing"). From and after the filing
of the 8-K Filing, no Buyer shall be in possession of any material, nonpublic
information provided to them by the Company, any of its Subsidiaries or any of
its respective officers, directors, employees or agents, that is not disclosed
in such 8-K Filing. The Company shall not, and shall cause each of its
Subsidiaries and its and each of their respective officers, directors, employees
and agents, not to, provide any Buyer with any material nonpublic information
regarding the Company or any of its Subsidiaries from and after the filing of
the press release referred to in the first sentence of this Section without the
express written consent of such Buyer. Subject to the foregoing, neither the
Company nor any Buyer shall issue any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of any
Buyer, to make any press release or other public disclosure with respect to such
transactions (i) in substantial conformity with the 8-K Filing and
contemporaneously therewith and (ii) as is required by applicable law and
regulations, including the applicable rules and regulations of the Principal
Market (provided that in the case of clause (i) each Buyer shall be consulted by
the Company in connection with any such press release or other public disclosure
prior to its release). Without the prior written consent of any applicable
Buyer, the Company shall not disclose the name of any Buyer in any filing,
announcement, release or otherwise.
(i) Use of Proceeds. The Company will use the proceeds from the sale
of the Securities to pay all amounts currently owing to ▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇
▇. ▇▇▇▇ under the Stock Purchase/Sale Agreement dated January 7, 2004 among the
Company, FAAC Incorporated, ▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇ ▇. ▇▇▇▇, as amended by the
letter dated April 10, 2005 (the "FAAC Agreement"), which amounts shall not
exceed $5.4 million in the aggregate (the "FAAC Stockholders' Repayment"), with
any remaining proceeds used for general corporate purposes other than the (A)
repayment of any other outstanding Indebtedness of the Company prior to the
final due date thereof or (B) redemption or repurchase of any of its equity or
equity-linked Securities.
-17-
(j) Restriction on Redemption and Cash Dividends. So long as any
Notes are outstanding, without the prior express written consent of the holders
of Notes representing not less than a majority of the aggregate principal amount
of the then outstanding Notes, the Company shall not, directly or indirectly,
redeem, or declare or pay any cash dividend or distribution on, the Common
Stock.
(k) Additional Notes and Warrants; Variable Securities; Dilutive
Issuances. So long as any Notes remain outstanding, the Company will not issue
any Notes (other than to the Buyers as contemplated hereby) and the Company
shall not issue any other securities that would cause a breach or default under
the Notes. For long as any Notes remain outstanding, the Company shall not, in
any manner, issue or sell any rights, warrants or options to subscribe for or
purchase Common Stock or directly or indirectly convertible into or exchangeable
or exercisable for Common Stock at a price which varies or may vary, from time
to time, with the market price of the Common Stock, including by way of one or
more reset(s) to any fixed price unless the conversion, exchange or exercise
price of any such security cannot be less than the then applicable Conversion
Price (as defined in the Notes) with respect to the Common Stock into which any
Note is convertible or the then applicable Exercise Price (as defined in the
Warrants) with respect to the Common Stock into which any Warrant is
exercisable. Until the Stockholder Approval has been obtained, the Company shall
not, in any manner, enter into or affect any Dilutive Issuance (as defined in
the Notes) and, thereafter, for long as any Notes or Warrants remain
outstanding, the Company shall not, in any manner, enter into or affect any
Dilutive Issuance (as defined in the Notes) if the effect of such Dilutive
Issuance is to cause the Company to be required to issue upon conversion of any
Note any shares of Common Stock or exercise of any Warrant any shares of Common
Stock in excess of that number of shares of Common Stock which the Company may
issue upon conversion of the Notes or exercise of the Warrants without breaching
the Company's obligations under the rules or regulations of the Eligible Market
(as defined in the Note).
(l) Corporate Existence. So long as any Notes remain outstanding,
the Company shall not be party to any Fundamental Transaction (as defined in the
Notes) unless the Company is in compliance with the applicable provisions
governing Fundamental Transactions set forth in the Notes.
(m) Reservation of Shares. So long as any Notes or Warrants, as the
case may be, remain outstanding, the Company shall take all action necessary to
at all times have authorized, and reserved for the purpose of issuance, no less
than the sum of (i) 130% of the maximum number of shares of Common Stock
issuable upon conversion of the Notes issuable at the Closing (assuming for
purposes hereof, that the Notes are convertible at the initial Conversion Price
and without taking into account any limitations on the conversion of the Notes
set forth in the Notes) and (ii) 100% of the maximum number of shares of Common
Stock issuable upon exercise of the Warrants (without taking into account any
limitations on the exercise of the Warrants set forth in the Warrants).
-18-
(n) Conduct of Business. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.
(o) Additional Issuances of Securities. Except as set forth on
Schedule 4(o) hereto, from the Original Date until the date that is 90 Trading
Days (as defined in the Notes) following the Effective Date (as defined in the
Registration Rights Agreement), the Company will not, directly or indirectly,
offer, sell, grant any option to purchase, or otherwise dispose of (or announce
any offer, sale, grant or any option to purchase or other disposition of) any of
its or its Subsidiaries' equity or equity equivalent securities, including
without limitation any debt, preferred stock or other instrument or security
that is, at any time during its life and under any circumstances, convertible
into or exchangeable or exercisable for shares of Common Stock or any stock or
securities convertible into or exercisable or exchangeable for shares of Common
Stock. The foregoing shall not apply to Excluded Securities (as defined in the
Notes).
(p) Letter of Credit. On or prior to the Closing Date, the Company
shall obtain the Letter of Credit, in the Letter of Credit Amount issued in
favor of the Senior Agent by the Letter of Credit Bank and in form and substance
reasonably acceptable to such Senior Agent. The Letter of Credit shall have an
expiration date that is the earlier to occur of (A) 100 days after the Maturity
Date (as defined in the Notes), (B) such date the Letter of Credit Amount is
reduced to zero in accordance with Section 2(d) of the Note and (C) such date
whereafter no Notes remain outstanding.
(q) Stockholder Approval. The Company shall provide each stockholder
entitled to vote at a special or annual meeting of stockholders of the Company
(the "Stockholder Meeting"), which shall be promptly called and held not later
than December 15, 2005 (the "Stockholder Meeting Deadline"), a proxy statement,
substantially in the form which has been previously reviewed by the Buyers and a
counsel of their choice (which review shall be completed within five (5)
Business Days of such counsel's receipt of the proxy statement and such review
requirement shall be waived if such counsel has not completed its review within
such five (5) Business Day period), soliciting each such stockholder's
affirmative vote at the Stockholder Meeting for approval of resolutions
providing for the Company's issuance of all of the Securities as described in
the Transaction Documents in accordance with applicable law and the rules and
regulations of the Principal Market (such affirmative approval being referred to
herein as the "Stockholder Approval"), and the Company shall use its reasonable
best efforts to solicit its stockholders' approval of such resolutions and to
cause the Board of Directors of the Company to recommend to the stockholders
that they approve such resolutions. The Company shall be obligated to use its
reasonable best efforts to obtain the Stockholder Approval by the Stockholder
Meeting Deadline. If, despite the Company's reasonable best efforts the
Stockholder Approval is not obtained on or prior to the Stockholder Meeting
Deadline, the Company shall cause an additional Stockholder Meeting to be held
every six (6) months thereafter until such Stockholder Approval is obtained or
the Notes are no longer outstanding.
-19-
(r) Securities Issuance. Until the one (1) year anniversary of the
effective date of the Registration Statement, the Company shall not issue or
sell, or be deemed to have issued or sold, any shares of Common Stock (including
the issuance or sale of shares of Common Stock owned or held by or for the
account of the Company, but excluding shares of Common Stock deemed to have been
issued or sold by the Company in connection with any Excluded Security (as
defined in the Note)) for a consideration per share less than a price equal to
the Conversion Price (as defined in the Note) in effect immediately prior to
such issue or sale.
(s) Inactive Subsidiaries. The Company agrees that each Inactive
Subsidiary shall remain a dormant company until such time as each such Inactive
Subsidiary is dissolved in accordance with the laws of its jurisdiction of
incorporation. The Company shall not, and shall cause its Subsidiaries not to,
transfer any property or asset to any Inactive Subsidiary.
(t) Post Closing Covenant. Within 5 Business Days after the Closing
Date (as such period may from time to time be extended with the consent of the
Buyers), the Company shall deliver to the Buyers a completed schedule to the IP
Security Agreement, together with any other documentation reasonably requested
by Senior Agent and take all actions reasonably necessary to permit the Buyers
to file the IP Security Agreement with the U.S. Patent and Trademark Office. The
Company agrees that a breach of this Section 4(t) shall not require that any
notice of such by the holders of the Notes pursuant to Section 4(a)(xi) of the
Notes or that any cure period be provided pursuant to such Section 4(a)(xi) of
the Notes.
(u) FAAC Agreement. The Company confirms that after the FAAC
Stockholders' Repayment (as defined in Section 4(i)) neither it nor any of its
Subsidiaries has any further obligations under the FAAC Agreement other than the
payment of the 2005 Earnout Consideration (as defined in the FAAC Agreement) and
the Pro-Safe Earnout Consideration (as defined in the FAAC Agreement). The
Company agrees that the aggregate of the 2005 Earnout Consideration and the
Pro-Safe Earnout Consideration will not exceed $1.5 million.
5. REGISTER; TRANSFER AGENT INSTRUCTIONS.
(a) Register. The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to each holder of Securities), a register for the Notes and the Warrants
in which the Company shall record the name and address of the Person in whose
name the Notes and the Warrants have been issued (including the name and address
of each transferee), the principal amount of Notes and the number of Warrants
held by such Person, the number of Conversion Shares issuable upon conversion of
the Notes and the number of Warrant Shares issuable upon exercise of the
Warrants held by such Person. The Company shall keep the register open and
available at all times during business hours for inspection of any Buyer or its
legal representatives.
(b) Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent (the
"Transfer Agent"), to issue certificates or credit shares to the applicable
balance accounts at The Depository Trust Company ("DTC"), registered in the name
of each Buyer or its respective nominee(s), for the Conversion Shares issued
upon conversion of the Notes and the Warrant Shares issued upon exercise of the
Warrants in such amounts as specified from time to time by each Buyer to the
Company upon conversion of the Notes and Exercise of the Warrants in the form of
Exhibit G attached hereto (the "Irrevocable Transfer Agent Instructions"). The
Company warrants that no instruction in respect of the Securities other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5(b), and
stop transfer instructions to give effect to Section 2(g) hereof, will be given
by the Company to the Transfer Agent, and that the Securities shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the other Transaction Documents. If a Buyer
effects a sale, assignment or transfer of the Securities in accordance with
Section 2(g), the Company shall permit the transfer and shall promptly instruct
the Transfer Agent to issue one or more certificates or credit shares to the
applicable balance accounts at DTC in such name and in such denominations as
specified by such Buyer to effect such sale, transfer or assignment. In the
event that such sale, assignment or transfer involves Conversion Shares sold,
assigned or transferred pursuant to an effective registration statement or
pursuant to Rule 144, the Company will, or will use its reasonable efforts to
cause the Transfer Agent to issue such Securities to the Buyer, assignee or
transferee, as the case may be, without any restrictive legend. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to a Buyer. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5(b) will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5(b), that a Buyer shall be entitled,
in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required. Nothing in the foregoing shall be interpreted to require the
Company or the Transfer Agent to effect any transfer or take any other action in
violation of applicable federal or state securities laws.
-20-
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
(a) Closing Date. The obligation of the Company hereunder to issue
and sell the Notes to each Buyer at the Closing is subject to the satisfaction,
at or before the Closing Date, of each of the following conditions, provided
that these conditions are for the Company's sole benefit and may be waived by
the Company at any time in its sole discretion by providing each Buyer with
prior written notice thereof:
(i) Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Company.
(ii) Such Buyer and each other Buyer shall have delivered to
the Company the Purchase Price (less, in the case of Smithfield Fiduciary LLC,
the amounts withheld pursuant to Section 4(f)) for the Notes being purchased by
such Buyer at the Closing by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.
(iii) The representations and warranties of such Buyer shall
be true and correct in all material respects as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Closing Date.
-21-
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
(a) Closing Date. The obligation of each Buyer hereunder to purchase
the Notes and Warrants at the Closing is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided that
these conditions are for each Buyer's sole benefit and may be waived by such
Buyer at any time in its sole discretion by providing the Company with prior
written notice thereof:
(i) The Company shall have executed and delivered to such
Buyer (i) each of the Transaction Documents, (ii) the Notes (in such principal
amounts as such Buyer shall request), and (iii) the related Warrants (in such
amounts as such Buyer shall request), which are being purchased by such Buyer at
the Closing pursuant to this Agreement.
(ii) Such Buyer shall have received the opinions of the
Company's in-house counsel, dated as of the Closing Date, in substantially the
form of Exhibit H-1 attached hereto.
(iii) Such Buyer shall have received the opinions of
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ PC, the Company's outside counsel, dated as of the Closing
Date, in substantially the form of Exhibit H-2 attached hereto.
(iv) The Company shall have delivered to such Buyer a copy of
the Irrevocable Transfer Agent Instructions, in the form of Exhibit G attached
hereto, which instructions shall have been delivered to and acknowledged in
writing by the Company's transfer agent.
(v) The Company shall have delivered to such Buyer a
certificate evidencing the organization and good standing of the Company in the
State of Delaware issued by the Secretary of State of the State of Delaware, as
of a date within 10 days of the Closing Date.
(vi) The Company shall have delivered to such Buyer a
certificate evidencing the Company's qualification as a foreign corporation and
good standing issued by the Secretary of State (or comparable office) of each
jurisdiction in which the Company conducts business, as of a date within 10 days
of the Closing Date.
(vii) The Company shall have delivered to such Buyer a
certified copy of the Certificate of Incorporation as certified by the Secretary
of State of the State of Delaware within ten (10) days of the Closing Date.
(viii) The Company shall have delivered to such Buyer a
certificate, executed by the Secretary of the Company and dated as of the
Closing Date, as to (i) the resolutions consistent with this transaction as
adopted by the Company's Board of Directors in a form reasonably acceptable to
such Buyer, (ii) the Certificate of Incorporation and (iii) the Bylaws of the
Company, each as in effect at the Closing, in the form attached hereto as
Exhibit I.
-22-
(ix) The representations and warranties of the Company shall
be true and correct in all material respects (other than representations and
warranties that are already qualified by materiality or Material Adverse Effect
which shall be true and correct in all respects) as of the date when made and as
of the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all respects with the covenants, agreements
and conditions required by the Transaction Documents to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. Such Buyer
shall have received a certificate, executed by the Chief Executive Officer of
the Company, dated as of the Closing Date, to the foregoing effect and as to
such other matters as may be reasonably requested by such Buyer in the form
attached hereto as Exhibit J.
(x) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five days of the Closing Date.
(xi) The Common Stock (I) shall be listed on a Trading Market
and (II) shall not have been suspended, as of the Closing Date, by the SEC or a
Trading Market from trading on a Trading Market nor shall suspension by the SEC
or a Trading Market have been threatened, as of the Closing Date, either (A) in
writing by the SEC or a Trading Market or (B) by falling below the minimum
listing maintenance requirements of a Trading Market. The Buyers acknowledge
that the Common Stock has been trading at a price below $1.00 since August 15,
2005, and that the Company has received a notification from the Principal Market
to the effect that the Common Stock does not satisfy Nasdaq Marketplace Rule
4310(c)(4) (the "Minimum Bid Price Rule"), and that in accordance with the rules
of the Principal Market, the Company will be provided 180 calendar days to
regain compliance with the Minimum Bid Price Rule.
(xii) The Company shall have obtained all governmental,
regulatory or third party consents and approvals, if any, necessary for the sale
of the Securities.
(xiii) Within five (5) Business Days prior to the Closing, the
Company shall have delivered or caused to be delivered to each Buyer certified
copies of UCC search results, listing all effective financing statements which
name as debtor the Company filed in the prior five years to perfect an interest
in any assets thereof, together with copies of such financing statements, none
of which, except as otherwise agreed in writing by the Buyers, shall cover any
of the Collateral (as defined in the Security Documents), other than Collateral
securing the Senior Indebtedness, and the results of searches for any tax lien
and judgment lien filed against such Person or its property, which results,
except as otherwise agreed to in writing by the Buyers shall not show any such
Liens (as defined in the Security Documents).
(xiv) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this Agreement as
such Buyer or its counsel may reasonably request.
8. TERMINATION. In the event that the Closing shall not have occurred with
respect to a Buyer on or before five (5) Business Days from the date hereof due
to the Company's or such Buyer's failure to satisfy the conditions set forth in
Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party;
provided, however, that if this Agreement is terminated pursuant to this Section
8, the Company shall remain obligated to reimburse the non-breaching Buyers for
the expenses described in Section 4(f) above.
-23-
9. 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 New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of New
York. Each party hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in The City of New York, Borough of Manhattan,
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. 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; provided that a facsimile signature
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 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 shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
-24-
(e) Entire Agreement; Amendments. This Agreement and the other
Transaction Documents supersede all other prior oral or written agreements
between the Buyers, the Company, their Affiliates and Persons acting on their
behalf with respect to the matters discussed herein, and this Agreement, the
other Transaction Documents 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 Buyer 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 holders of at least a majority of the aggregate number of
Securities such Buyers are obligated to purchase (on an as converted or
exercised basis), or, if prior to the Closing Date, the Company and the Buyers
listed on the Schedule of Buyers as being obligated to purchase at least a
majority of the aggregate number of Securities outstanding on such date (on an
as converted or exercised basis), and any amendment to this Agreement made in
conformity with the provisions of this Section 9(e) shall be binding on all
Buyers and holders of Securities, 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. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration also is offered to all of the parties to
the Transaction Documents, holders of Notes and Warrants. The Company has not,
directly or indirectly, made any agreements with any Buyers relating to the
terms or conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents. Without limiting the
foregoing, the Company confirms that, except as set forth in this Agreement, no
Buyer has made any commitment or promise or has any other obligation to provide
any financing to the Company or otherwise.
(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:
If to the Company:
Arotech Corporation
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Chief Executive Officer
-25-
With a copy to:
Electric Fuel (E.F.L.) Ltd.
One HaSolela Street, POB ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇
Facsimile No.: 011-972-2-990-6688
Telephone No.: ▇▇▇-▇▇▇-▇-▇▇▇-▇▇▇▇
Attention: General Counsel
With a copy (for informational purposes only) to:
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ PC
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
If to the Transfer Agent:
American Stock Transfer and Trust Company
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., Vice President
If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers,
with a copy (for informational purposes only) to:
▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, 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.
-26-
(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 Notes or Warrants. The Company shall not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the holders of at least a majority of the aggregate number of
Securities outstanding on such date (on an as converted or exercised basis),
including by way of a Fundamental Transaction (unless the Company is in
compliance with the applicable provisions governing Fundamental Transactions set
forth in the Notes). A Buyer may assign some or all of its rights hereunder
without the consent of the Company, in which event such assignee shall be deemed
to be a Buyer 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) Survival. Unless this Agreement is terminated under Section 8,
the representations and warranties of the Company and the Buyers contained in
Sections 2 and 3 and the agreements and covenants set forth in Sections 4, 5 and
9 shall survive the Closing. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
(j) 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.
(k) Indemnification. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of the Securities and all of their stockholders,
partners, members, officers, directors, employees and direct or indirect
investors and any of the foregoing Persons' agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Indemnitees")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by
any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, or (iii) the
status of such Buyer or holder of the Securities as an investor in the Company
pursuant to the transactions contemplated by the Transaction Documents. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 9(k)
shall be the same as those set forth in Section 6 of the Registration Rights
Agreement.
-27-
(l) 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.
(m) Remedies. Each Buyer and each holder of the Securities shall
have all rights and remedies set forth in the Transaction Documents and all
rights and remedies which such holders have been granted at any time under any
other agreement or contract and all of the rights which such holders have under
any law. Any Person having any rights under any provision of this Agreement
shall be entitled to enforce such rights specifically (without posting a bond or
other security), to recover damages by reason of any breach of any provision of
this Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, any
remedy at law may prove to be inadequate relief to the Buyers. The Company
therefore agrees that the Buyers shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security.
(n) Payment Set Aside. To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to any of the other
Transaction Documents or the Buyers enforce or exercise their rights hereunder
or thereunder, and such payment or payments or the proceeds of such enforcement
or exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.
(o) Independent Nature of Buyers' Obligations and Rights. The
obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Buyers are
in any way acting in concert or as a group with respect to such obligations or
the transactions contemplated by the Transaction Documents. Each Buyer confirms
that it has independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors. Each Buyer
shall be entitled to independently protect and enforce its rights, including,
without limitation, the rights arising out of this Agreement or out of any other
Transaction Documents, and it shall not be necessary for any other Buyer to be
joined as an additional party in any proceeding for such purpose.
-28-
(p) Senior Agent. Each Buyer hereby appoints Smithfield Fiduciary
LLC as the Senior Agent, and authorizes the Senior Agent to act on behalf of
such Buyer in connection with the Letter of Credit to exercise such powers
hereunder and thereunder as are specifically delegated to or required of the
Senior Agent by the terms hereof and thereof, together with such powers as may
be reasonably incidental thereto. Each Buyer hereby indemnifies (which indemnity
shall survive any termination of this Agreement) the Senior Agent from and
against any and all liabilities, obligations, losses, damages, claims, costs or
expenses of any kind or nature whatsoever which may at any time be imposed on,
incurred by, or asserted against, the Senior Agent in any way relating to or
arising out of this Agreement, the Notes and any other Transaction Document,
including reasonable attorneys' fees, and as to which the Senior Agent is not
reimbursed by the Company; provided, however, that no Buyer shall be liable for
the payment of any portion of such liabilities, obligations, losses, damages,
claims, costs or expenses which are determined by a court of competent
jurisdiction in a final proceeding to have resulted solely from the Senior
Agent's gross negligence or willful misconduct. The Senior Agent shall not be
required to take any action hereunder, under the Notes or under any other
Transaction Document, or to prosecute or defend any suit in respect of this
Agreement, the Notes or any other Transaction Document, unless it is indemnified
hereunder to its satisfaction. If any indemnity in favor of the Senior Agent
shall be or become, in the Senior Agent's determination, inadequate, the Senior
Agent may call for additional indemnification from the Buyers and cease to do
the acts indemnified against hereunder until such additional indemnity is given.
(q) Exculpation of Senior Agent. Neither the Senior Agent nor any of
its directors, officers, employees or agents shall be liable to any Buyer for
any action taken or omitted to be taken by it under this Agreement or any other
Transaction Document, or in connection herewith or therewith, except for its own
willful misconduct or gross negligence, nor responsible for any warranties
herein or therein, nor for the effectiveness, enforceability, validity or due
execution of this Agreement or any other Transaction Document, nor for the
creation, perfection or priority of any liens purported to be created by any of
the Transaction Documents, or the validity, genuineness, enforceability,
existence, value or sufficiency of any collateral security, nor to make any
inquiry respecting the performance by the Company of its obligations hereunder
or under any other Transaction Document. Any such inquiry which may be made by
the Senior Agent shall not obligate it to make any further inquiry or to take
any action. The Senior Agent shall be entitled to rely upon advice of counsel
concerning legal matters and upon any notice, consent, certificate, statement or
writing which the Senior Agent believes to be genuine and to have been presented
by a proper Person.
-29-
(r) Successor Senior Agent. The Senior Agent may resign as such at
any time upon at least ten business days' prior notice to the Company and all
the Buyers. If the Senior Agent at any time shall resign, the Buyers may, with
the prior consent of the Company (which consent shall not be unreasonably
withheld), appoint another Person as a successor Senior Agent which shall
thereupon become the Senior Agent hereunder. If no successor Senior Agent shall
have been so appointed by the Buyers, and shall have accepted such appointment,
within ten business days after the retiring Senior Agent's giving notice of
resignation, then the retiring Senior Agent may, on behalf of the Buyers,
appoint a successor Senior Agent, which shall be one of the Buyers or a
commercial banking institution organized under the laws of the U.S. (or any
State thereof) or a U.S. branch or agency of a commercial banking institution.
Upon the acceptance of any appointment as Senior Agent hereunder by a successor
Senior Agent, such successor Senior Agent shall be entitled to receive from the
retiring Senior Agent such documents of transfer and assignment as such
successor Senior Agent may reasonably request, and shall thereupon succeed to
and become vested with all rights, powers, privileges and duties of the retiring
Senior Agent, and the retiring Senior Agent shall be discharged from its duties
and obligations under this Agreement. After any retiring Senior Agent's
resignation hereunder as the applicable Senior Agent, the provisions of (i) this
Agreement shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was the Senior Agent under this Agreement; and (ii)
Sections 9(p), (q) and (r) shall continue to inure to its benefit.
[Signature Page Follows]
-30-
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
COMPANY:
AROTECH CORPORATION
By:
---------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chairman, President and Chief
Executive Officer
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
BUYERS:
SMITHFIELD FIDUCIARY LLC
By:
---------------------------------------
Name: ▇▇▇▇ ▇. Chill
Title: Authorized Signatory
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
OTHER BUYERS:
PORTSIDE GROWTH AND
OPPORTUNITY FUND
By:
---------------------------------------
Name:
Title:
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
OTHER BUYERS:
OMICRON MASTER TRUST
By:
---------------------------------------
Name:
Title:
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
OTHER BUYERS:
CRANSHIRE CAPITAL L.P.
By:
---------------------------------------
Name:
Title:
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
OTHER BUYERS:
IROQUOIS MASTER FUND LTD.
By:
---------------------------------------
Name:
Title:
EXHIBITS
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Exhibit A Form of Notes
Exhibit B Form of Warrant
Exhibit C Registration Rights Agreement
Exhibit D Form of Security Agreement
Exhibit E Form of Guarantee
Exhibit F Form of Letter of Credit
Exhibit G Irrevocable Transfer Agent Instructions
Exhibit H-1 Form of In-House Company Counsel Opinion
Exhibit H-2 Form of Outside Company Counsel Opinion
Exhibit I Form of Secretary's Certificate
Exhibit J Form of Officer's Certificate