EXHIBIT 10.3
EXHIBIT F
to Securities Purchase
Agreement
ESCROW AGREEMENT
ESCROW AGREEMENT dated as of June 15, 2005, Defense Industries
International, Inc., a corporation organized under the laws of the State of
Nevada, USA with its principal executive offices at 8 Brussels St. Sderot, X.X.
Xxx 000, Xxxxxxxx 00000, Xxxxxx (the "COMPANY"), and the buyers listed in
Exhibit A of the Securities Purchase Agreement dated as of June 15, 2005, (the
"BUYERS") and Xxxxxx Xxxxxxx & Xxxxxxx LLP, as escrow agent (the "ESCROW
AGENT").
WHEREAS, the Company and the Buyers have entered into a Securities Purchase
Agreement dated as of June 15, 2005 (the "PURCHASE AGREEMENT"); and
WHEREAS, the Purchase Agreement provides, among other things, for the
issuance to the Buyers of (i) 1,833,334 shares of common stock of the Company,
$0.0001 par value each (the "COMMON STOCK") (the "PURCHASED SHARES"); (ii)
1,368,191 shares of Common Stock (the "MAXIMUM PROTECTION SHARES", as defined in
the Purchase Agreement); and (iii) 82,133 shares of Common Stock (the
"Transaction Shares", as defined in the Purchase Agreement); and
WHEREAS, the Purchase Agreement provides for the payment, at the Execution
Date (as defined in the Purchase Agreement), by the Buyers, of $1,100,000, or
the Purchase Price (as defined in the Purchase Agreement), to the Escrow Agent,
to be held by the Escrow Agent in accordance with the terms and conditions of
this Agreement; and
WHEREAS, the Purchase Agreement provides for the issuance, at the Execution
Date, by the Company of: (a) 3,283,658 shares of Common Stock of the Company
(the "SHARES"); and (b) the Warrants and the Transaction Warrants (as defined in
the Purchase Agreement), to the Escrow Agent, to be held by the Escrow Agent in
accordance with the terms and conditions of this Agreement; and
WHEREAS, the Escrow Agent is willing to hold such funds, Shares, Warrants
and Transaction Warrants in accordance with the terms and conditions of this
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties agree as follows:
1. APPOINTMENT OF ESCROW AGENT. The Company and the Buyers hereby appoints
Xxxxxx Xxxxxxx & Xxxxxxx LLP as escrow agent in accordance with the terms and
conditions set forth herein, and the Escrow Agent hereby accepts such
appointment.
1
2. RECEIPT OF ESCROW FUND, SHARES, WARRANTS AND TRANSACTION WARRANTS.
2.1 The Escrow Agent hereby acknowledges receipt of cash in the amount
of $1,100,000 (the "ESCROW FUND"), the Shares, Warrants and Transaction
Warrants and agrees to hold the Escrow Fund, the Shares the Warrants and
the Transaction Warrants in accordance with the terms and conditions of
this Agreement.
2.2 The Escrow Agent will hold the Escrow Fund in a special account
established for the benefit of the Company and the Buyers.
3. DISTRIBUTION OF ESCROW FUND, SHARES AND WARRANTS.
3.1 If on the 180th day from the Execution Date, the Escrow Agent has
not received from the Company and the Buyers a notice confirming the
registration of the Shares and the Warrant Shares (as defined in the
Purchase Agreement), (collectively, the "REGISTRABLE SECURITIES"), then, on
the seventh business day thereafter, the remainder of the Purchase Price
will be returned by the Escrow Agent to the Buyers, and the Shares, the
Warrants, the Transaction Warrants and any interest yield with regards to
the Purchase Price held by the Escrow Agent will be transferred to the
Company.
3.2 Notwithstanding the above, in the event that the Escrow Agent has
not received from the Company and the Buyers a written notice confirming
the registration of the Registrable Securities within 180 days from the
Execution Date, within 5 business days from the end of such 180-day period
(the "Buyers' Option"), the Buyers may notify the Escrow Agent in writing
(with a copy to the Company) that they wish to acquire the Purchased Shares
and the Warrants. In such event the Escrow Agent shall transfer the
remainder of the Purchase Price and any interest yield with regards to the
Purchase Price to the Company and shall transfer the Purchased Shares, the
Warrants the Transaction Shares and the Transaction Warrants to the Buyers.
3.3 In the event that before the elapse of 180 days from the Execution
Date the Escrow Agent receives from the Company and the Buyers a written
notice confirming the effectiveness of the registration statement
registering the Registrable Securities, the Escrow Agent will forward,
within 3 business days, the Purchased Shares, the Warrants the Transaction
Shares and the Transaction Warrants from Escrow to the Buyers and the
Purchase Price and any interest yield with regards to the Purchase Price,
will be delivered to the Company. In such event the Maximum Protection
Shares will remain in Escrow for the purpose of the Price Protection, as
specified in Section 3.4 below and in the Purchase Agreement.
3.4 In the event that on the one year anniversary of the Execution
Date (the "First Anniversary") the Share Price will have declined below
$0.60, the Escrow Agent will transfer to each of the Buyers from the shares
of Common Stock held in escrow additional shares of Common Stock (the
"PROTECTION SHARES") which number shall be equal to:
2
($0.60 less the Share Price (which shall not be less than $0.35))
times the remaining number of Shares held by each of the Buyers at the
First Anniversary), divided by the Share's Price.
For the purposes of this Agreement, the "Share Price" shall mean the
average last price of the Common Stock of the Company on the Over the
Counter Bulletin Board (the "OTCBB") as reported by the OTCBB at the
end of each such trading day during the 30 trading days prior to the
First Anniversary.
On the same date, the Escrow Agent shall return to the Company all the
remaining Shares held by it, if any.
3.5 During the 180 days period from the Execution Date, the Company
may draw up to $550,000 from the Escrow Fund for the purpose of purchasing
fixed assets as set forth in EXHIBIT H of the Purchase Agreement, according
to the sole discretion of the Board of Directors of the Company (the "MONEY
FOR THE M&A PURPOSE"). Upon written notice from the Company to the Escrow
Agent with a copy to the Buyers, the Escrow Agent shall deliver to the
Company an amount specified in such notice, provided that prior to the
transfer of any of such funds the M&A Condition (as defined below) was
fulfilled. In the event that the Company will draw funds from the Escrow,
the following shall apply:
(a) As a condition to the delivery of the Money for the M&A
Purpose by the Escrow Agent to the Company (the "M&A CONDITION"), the
Company shall execute a first-ranking fixed pledge agreement and all
pledge registration documents (as needed) in favor of the Buyers (to
be registered by the Company in the US and, to the extent possible, in
Israel as soon as possible after the purchase of the assets) with
respect to all assets purchased by the Company in consideration for
the Money for the M&A Purpose, provided that such assets will be free
and clear from of all mortgage, pledge, hypothecation, assignment,
encumbrance, lien (statutory or other) or preference, option, proxies,
rights or other security interest of any kind or nature whatsoever
(the "PLEDGE" and the "PLEDGED ASSETS"). The creation and registration
of the Pledge will be made pursuant to a pledge agreement, to be
executed by the parties as a condition of the release of the Money for
the M&A Purpose, in such form that is satisfactory to the parties (the
"PLEDGE AGREEMENT"). If the Purchase Price, including interest, shall
be returned to the Buyers in accordance with sub-section 1(c) above,
then within 7 business days from the end of 180 days from the
Execution Date, the Company shall return the Money for the M&A Purpose
to the Buyers.
4. EXCULPATION AND INDEMNIFICATION OF ESCROW AGENT.
4.1 The Escrow Agent shall have no duties or responsibilities other
than those expressly set forth herein. The Escrow Agent shall have no duty
to enforce any obligation of any person to make any payment or delivery, or
to direct or cause any payment or delivery to be made, or to enforce any
obligation of any person To perform any other act. The Escrow Agent shall
be under no liability to the Company or to the Buyers or to anyone else by
reason of any failure on the part of any party hereto or any maker,
guarantor, endorser or other signatory of any document or any other person
to perform such person's obligations under any such document. The Escrow
Agent shall have no duty to invest any of the funds received by it pursuant
to this Escrow Agreement.
3
4.2 The Escrow Agent shall not be liable to the Company or to the
Buyers or to anyone else for any action taken or omitted by it, or any
action suffered by it to be taken or omitted, in good faith and in the
exercise of its own best judgment. The Escrow Agent may rely conclusively
and shall be protected in acting upon any order, notice, demand,
certificate, opinion or advice of counsel (including counsel chosen by the
Escrow Agent), statement, instrument, report or other paper or document
(not only as to its due execution and the validity and effectiveness of its
provisions, but also as to the truth and acceptability of any information
therein contained), which is believed by the Escrow Agent to be genuine and
to be signed or presented by the proper person or persons. The Escrow Agent
shall not be bound by any notice or demand, or any waiver, modification,
termination or rescission of this Agreement or the Purchase Agreement or
any of the terms thereof, unless evidenced by a writing executed by each of
the parties hereto.
4.3 The Escrow Agent shall not be responsible for the sufficiency or
accuracy of the form of, or the execution, validity, value or genuineness
of, any document or property received, held or delivered by it hereunder,
or of any signature or endorsement thereon, or for any lack of endorsement
thereon, or for any description therein; nor shall the Escrow Agent be
responsible or liable to the Company or to the Buyers or to anyone else in
any respect on account of the identity, authority or rights of the persons
executing or delivering or purporting to execute or deliver any document or
property or this Agreement. The Escrow Agent shall have no responsibility
with respect to the use or application of any funds or other property paid
or delivered by the Escrow Agent pursuant to the provisions hereof.
4.4 The Escrow Agent shall have the right to assume in the absence of
written notice to the contrary from the proper person or persons that a
fact or an event by reason of which an action would or might be taken by
the Escrow Agent does not exist or has not occurred, without incurring
liability to the other parties hereto or to anyone else for any action
taken or omitted, or any action suffered by it to be taken or omitted, in
good faith and in the exercise of its own best judgment, in reliance upon
such assumption.
4.5 To the extent that the Escrow Agent becomes liable for the payment
of taxes, including withholding taxes, for any payment made hereunder, the
Escrow Agent shall so notify to the Company and the Buyers and may
thereafter pay such taxes. The Escrow Agent may withhold from any payment
of monies held by it hereunder such amount as the Escrow Agent estimates to
be sufficient to provide for the payment of such taxes not yet paid, and
may use the sum withheld for that purpose. The Escrow Agent shall be
indemnified and held harmless against any liability for taxes and for any
penalties or interest in respect of taxes, in the manner provided in
Section 4.6.
4
4.6 Without prejudice from Section 7 below, the Escrow Agent will be
indemnified and held harmless by the Company and the Buyers, jointly and
severally, from and against any and all expenses, including reasonable
counsel fees and disbursements, or loss suffered by the Escrow Agent in
connection with any action, suit or other proceeding involving any claim,
or in connection with any claim or demand, which in any way, directly or
indirectly, arises out of or relates to this Agreement, the Purchase
Agreement, the services of the Escrow Agent hereunder and the monies or
other property held by it hereunder, EXCEPT AS SET FORTH IN SECTION 4.2
ABOVE. The Escrow Agent shall have a lien for the amount of any such
expenses or loss on the monies and other property held by it hereunder and
shall be entitled to reimburse itself from such monies or property for the
amount of any such expense or loss. Promptly after the receipt by the
Escrow Agent or notice of any demand or claim or the commencement of any
action, suit or proceeding, the Escrow Agent shall, if a claim in respect
thereof is to be made against the Company or the Buyers, notify the Company
and the Buyers, thereof in writing, but the failure by the Escrow Agent to
give such notice shall not relieve the Company or the Buyers, jointly and
severally, as the case may be, from any liability which the Company or the
Buyers, jointly and severally, may have to the Escrow Agent hereunder.
Notwithstanding any obligation to make payments and deliveries hereunder
and subject to Section 7 below, the Escrow Agent may retain and hold for
such time as it deems necessary such amount of monies or property as it
shall, from time to time, in its REASONABLE discretion, deem sufficient to
indemnify itself for any such loss or expense and for any amounts due it
under Section 7, provided however that prior to the effect of any such
action the Escrow Agent shall so notify the Company and the Buyers in
writing.
4.8 For the purposes hereof, the term "expense or loss" shall include
all amounts paid or payable to satisfy any claim, demand or liability, or
in settlement of any claim, demand, action, suit or proceeding settled with
the express written consent of the Agent, and all costs and expenses,
including, but not limited to, reasonable counsel fees and disbursements,
paid or incurred in investigating or defending against any such claim,
demand, action, suit or proceeding.
5. TERMINATION OF AGREEMENT AND RESIGNATION OF ESCROW AGENT.
5.1 This Escrow Agreement shall terminate on the final disposition of
the monies and property held in escrow hereunder (the "ESCROW PERIOD"),
provided that the rights of the Escrow Agent and the obligations of the
Company and the Buyers under Sections 4 and 7 shall survive the termination
hereof.
5.2 The Escrow Agent may resign at any time and be discharged from its
duties as Escrow Agent hereunder by giving the Company and the Buyers at
least 30 days' notice thereof. As soon as practicable after its
resignation, the Escrow Agent shall turn over to a successor escrow agent
appointed by the Company and the Buyers all monies and property held
hereunder (less such amount as the Escrow Agent is entitled to retain
pursuant to Section 7) upon presentation of the document appointing the new
escrow agent and its acceptance thereof. If no new Escrow Agent is so
appointed within the 60-day period following such notice of resignation,
the Escrow Agent may deposit the aforesaid monies and property with any
court of competent jurisdiction that the Escrow Agent deems appropriate.
The Escrow Agent shall promptly give the Company and the Buyers notice of
any such deposit and court.
5
6. FORM OF PAYMENTS BY ESCROW AGENT.
6.1 Any payments by the Escrow Agent to the Company or the Buyers or
to persons other than the Company or the Buyers pursuant to the terms of
this Agreement shall be made by check or wire transfer to the bank accounts
of the Company and the Buyers, as the case may be, the details of which are
provided in Exhibit A, attached hereto, payable to the order of each
respective person.
6.2 All amounts referred to herein are expressed in United States
Dollars and all payments by the Escrow Agent shall be made in such dollars.
7. COMPENSATION OF ESCROW AGENT. Notwithstanding anything else to the
contrary herein, for services rendered, the Escrow Agent shall be compensated by
the Company on an hourly basis for the number of hours spent by the Escrow Agent
in performing its duties pursuant to this Escrow Agreement at its standard
hourly rates. The Escrow Agent shall also be entitled to reimbursement from the
Company for all expenses paid or incurred by it in the administration of its
duties hereunder, including, but not limited to, all counsel, advisors' and
Escrow's Agents' fees and disbursements and all reasonable taxes or other
governmental charges. In the event that the Buyers shall assume any payments or
expenses to the Escrow Agent, the Company shall indemnify the Buyers immediately
for all such payments and expenses.
8. NOTICES. All notices, provided for herein shall be in writing, shall be
delivered by hand or by first-class mail, shall be deemed given when received
and shall be addressed to the parties hereto at their respective addresses
listed below or to such other persons or addresses as the relevant party shall
designate as to itself from time to time in writing delivered in like manner.
If to the Company: Defense Industries International Inc.
Attn: Xx. Xxxxx Xxxxxxxxxx
0 Xxxxxxxx Xx. Xxxxxx, Xxxxxx
Copy to: Efrati, Galili & Co.
Attn: Xxxxx Xxxxxxx, Adv.
0 Xxxxxxxxx Xx., Xxx Xxxx, Xxxxxx
If to Buyers: As specified in Exhibit A.
Copy to: Xxxxx Xxxxx & Co.
Attn: Xxxxxx Xxxxxxxx, Adv.
0 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxxxxx
6
If to the Agent: Xxxxxx, Xxxxxxx & Xxxxxxx
0 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Tel. # (000) 000-0000
Fax # (000) 000-0000
9. FURTHER ASSURANCES: From time to time on and after the date hereof, the
Company and the Buyers shall deliver or cause to be delivered to the Escrow
Agent such further documents and instruments and shall do and cause to be done
such further acts as the Escrow Agent shall reasonably request (it being
understood that the Escrow Agent shall have no obligation to make any such
request) to carry out more effectively the provisions and purposes of this
Agreement, to evidence compliance herewith or to assure itself that it is
protected in acting hereunder.
10. CONSENT TO SERVICE OF PROCESS. The Company, the Buyers and the Escrow
Agent hereby irrevocably consents to the jurisdiction of the courts of the State
of New York and of any federal court located in such State in connection with
any action, suit or other proceeding arising out of or relating to this
Agreement or the Purchase Agreement or any action taken or omitted hereunder,
and waives personal service of any summons, complaint or other process and
agrees that the service thereof may be made by certified mail, registered mail
or by overnight courier providing evidence of delivery, directed to the Company
or the Buyers OR THE ESCROW AGENT at its address for purposes of notices
hereunder.
11. MISCELLANEOUS.
11.1 If for any reason the escrow deposit is not received by the
Escrow Agent as contemplated herein, the Company shall reimburse the Escrow
Agent for all expenses, including reasonable counsel fees and
disbursements, paid or incurred by it in making preparations for providing
the services contemplated hereby.
11.2 This Agreement shall be construed without regard to any
presumption or other rule requiring construction against the party causing
such instrument to be drafted. The terms "hereby", "hereof", "hereto",
"hereunder" and any similar terms, as used in this Agreement, refer to the
Agreement in its entirety and not only to the particular portion of this
Agreement where the term is used. The word "person" shall mean any natural
person, partnership, company, corporation, limited liability company,
limited partnership, government and any other form of business or legal
entity. All words or terms used in this Agreement, regardless of the number
or gender in which they are used, shall be deemed to include any other
number and any other gender as the context may require. This Agreement
shall not be admissible in evidence to construe the provisions of any prior
agreement.
7
11.3 This Agreement and the rights and obligations hereunder of the
Company and the Buyers, may be assigned by the Company and the Buyers only
to a successor to the Company's or the Buyers entire business. This
Agreement and the rights and obligations hereunder of the Escrow Agent may
be assigned by the Escrow Agent only to a successor to its entire business.
This Agreement shall be binding upon and inure to the benefit of each
party's respective successors, heirs and permitted assigns. No other person
shall acquire or have any rights under or by virtue of this Agreement. This
Agreement may not be changed orally or modified, amended or supplemented
without an express written agreement executed by the Escrow Agent, the
Company and the Buyers. This Agreement is intended to be for the sole
benefit of the parties hereto, and (subject to the provisions of this
Section 11.3) their respective successors, heirs and assigns, and none of
the provisions of this Agreement are intended to be, nor shall they be
construed to be, for the benefit of any third person.
11.4 This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York. The parties hereto agree
and consent that the state and federal courts located in New York County,
New York shall have exclusive jurisdiction over any dispute, claim, action,
suit or proceeding relating to this Agreement and over the parties in
connection with such dispute, claim, action, suit or proceeding. The
representations and warranties contained in this Agreement shall survive
the execution and delivery hereof and any investigations made by any party.
The headings in this Agreement are for purposes of reference only and shall
not limit or otherwise affect any of the terms hereof.
12. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This Agreement shall become binding when
one or more counterparts hereof, individually or taken together, shall bear the
signature of all of the parties reflected hereon as the signatures.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
on the day and year first above written.
XXXXXX XXXXXXX & XXXXXXX LLP
By: /S/ Xxxxxx X. Xxxxxxxx
--------------------------
Name: /S/ Xxxxxx X. Xxxxxxxx
Title: Partner
DEFENSE INDUSTRIES INTERNATIONAL, INC.
By: S/ Xxxxxx Xxxxxxxxxx
------------------------
Name:
Title:
THE BUYERS
Gov Financial Holdings Ltd.
By: /S/ Avshalom Hershcovich
----------------------------
By: /s/ Xxxxxx Xxxxxxx
----------------------------
Multi Concept (Consultants), Ltd.
By: /S/ Xxxxxx Even
-------------------
8
Xxxx Creative Business Ltd
By:/S/ Xxxx Xxx Rush
--------------------
Avshalom Hershcovich
/S/ Avshalom Hershcovich
------------------------
9
EXHIBIT A
NAME ADDRESS
Gov Financial Holdings Ltd., Company 00 Xxxx Xx. Xxx-Xxxx, 00000, Xxxxxx
No. 513663310
00 Xxxxx Xx., Xxx Xxxx, Xxxxxx
Avshalom Hershcovich
Multi Concept (Consultants), Ltd. 00 Xxxx Xx. Xxxxxx 00000, Xxxxxx.
Company No.
512835000
10
