CONVERSION AGREEMENT
CONVERSION
AGREEMENT
(the
“Agreement”),
dated
as of April 7, 2006, by and between Arotech Corporation, a Delaware corporation
(the “Company”),
and
[________________________] (the “Investor”).
WHEREAS:
A.
The
Company, the Investor and certain other investors (the “Other
Investors”
and,
collectively with the Investor, the “Investors”),
have
entered into that certain Securities Purchase Agreement, dated as of September
29, 2005 (the “Securities
Purchase Agreement”),
pursuant to which, among other things, the Investors purchased from the Company
(i) an aggregate of $17,500,000 principal amount of senior secured convertible
notes of the Company (the “Notes”),
convertible into shares of the Company’s Common Stock, par value $0.01 per share
(the “Common
Stock”),
at a
conversion price of $1.00 per share, in accordance with the terms of the Notes
and (ii) the warrant (the “Warrants”)
to
acquire Common Stock set forth opposite the Investors’ names on the Schedule of
Buyers to the Securities Purchase Agreement.
B.
Contemporaneously
with the execution and delivery of the Securities Purchase Agreement, the
Company and the Investors entered into a Registration Rights Agreement, dated
as
of September 29, 2005 (the “Registration
Rights Agreement”),
pursuant to which the Company agreed to provide certain registration rights
with
respect to the Registrable Securities (as defined in the Registration Rights
Agreement) under the Securities Act of 1933, as amended (the “1933
Act”),
and
the rules and regulations promulgated thereunder, and applicable state
securities laws.
C.
The
Company and the Investor desire to enter into this Agreement, pursuant to which
upon satisfaction of certain conditions, among other things, (i) the Investor
will convert $[___________] outstanding principal amount (the 6 days of accrued
and unpaid interest on such principal amount shall be paid on June 30, 2006
(such amount, the “Interest
Amount”))
on
such principal amount through the date of conversion (the “Conversion
Amount”)
of the
Investor’s Notes pursuant to Section 3(a) of the Note at a conversion price of
$0.40 per share and (ii) the Investor agrees to defer (x) the Installment Amount
(as such term is defined in the Notes) due on May 31, 2006 to July 31, 2006
(the
“May
Deferral”),
and
(y) if there is a full review of the Registration Statement (as defined in
Section 3(b)) by the SEC and the Registration Statement is not declared
effective by July 31, 2006, the Installment Amount due on July 31, 2006 (not
including the May Deferral) to September 30, 2006.
D.
Capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings ascribed to them in the Securities Purchase Agreement.
NOW,
THEREFORE,
the
Company and the Investor hereby agree as follows:
| 1. |
CONVERSION
OF NOTES.
|
(a)
Conversion
of Notes.
Subject
to satisfaction (or waiver) of the conditions set forth in Sections 4 and 5,
the
Investor shall at the Closing (as defined below), convert the Conversion Amount
at a conversion price of $0.40 per share and the Company shall issue to such
Investor [__________] shares of Common Stock (“Conversion
Common Stock”)
in
accordance with the terms of the Notes (the “Closing”).
Such
Conversion Amount shall eliminate or reduce the Installment Amounts beginning
with the last Installment amount due under Section 8 of the Notes.
(b)
Closing
Date.
The
date and time of the Closing (the “Closing
Date”)
shall
be 10:00 a.m., New York Time, on the date of satisfaction (or waiver) of the
conditions to the Closing set forth in Sections 4 and 5 below (or such later
date as is mutually agreed to by the Company and the Investor). The Closing
shall occur on the Closing Date at the offices of Xxxxxxx Xxxx & Xxxxx LLP,
000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
| 2. |
REPRESENTATIONS
AND WARRANTIES
|
(a)
Company
Bring Down.
The
Company represents and warrants to the Investor:
(i)
as set
forth in Section 3 (other than Section 3(z) thereto) of the Securities Purchase
Agreement dated September 29, 2005, by and among the Company and certain
investors thereto (the “Securities
Purchase Agreement”)
as if
such representations and warranties were made as of the date hereof and set
forth in their entirety in this Agreement, including without limitation the
schedules referenced therein; and
(ii) that
the
shares of the
Conversion Common Stock are covered by the existing registration
statement (File No. 333-129713), which is effective for resale of the shares
of
Conversion Common Stock.
(b)
Investor
Bring Down.
The
Investor hereby represents and warrants, as to itself only, as set forth in
Section 2 (other than Section 2(l) thereto) of the Securities Purchase Agreement
as if such representations and warranties were made as of the date hereof and
set forth in their entirety in this Agreement.
| 3. |
CERTAIN
COVENANTS AND AGREEMENTS
|
(a)
Deferral
of Installment Amount.
The
Investor agrees to (x) the May Deferral and (y) if there is a full review of
the
Registration Statement by the SEC and the Registration Statement is not declared
effective prior to July 31, 2006, defer the Installment Amount due on July
31,
2006 (not including the May Deferral) to September 30, 2006. Such deferral
of
the Installment Amount due on July 31, 2006 to September 30, 2006, if any,
shall
not constitute a deferral of the Installment Amount due on September 30, 2006
to
a later Installment Date, and the Investor agrees that the deferrals of
Installment Amounts under this Section 3(a) shall not be deemed an Event of
Default (as such term is defined in the Notes).
(b)
Registration
Rights.
Promptly after the Closing Date, the Company shall file a new registration
statement (the “Registration
Statement”),
with
the Conversion Shares and Warrant Shares that are issued or issuable under
the
Notes and the Warrants and not otherwise covered by the existing registration
statement (File No. 333-129713) or the Amendment Agreements entered into between
the Company and the Buyers in February and March of 2006 being treated as
“Registrable Securities” in accordance with, and being governed by, identical
terms to the Registration Rights Agreement, which provisions and terms should
be
applicable hereto mutatis
mutandis,
as if
the Company and the Investor had executed such Registration Rights Agreement,
and as if the Investors were party thereto, as of the Closing Date; provided,
however,
that
“Filing
Date”
means
with respect to the Registration Statement required to be filed hereunder
relating to the Registrable Securities, the 15th
day
following the Closing Date and “Effectiveness
Date”
means
with respect to the Registration Statement required to be filed hereunder
relating to the Registrable Securities, the earlier of (i) August 31, 2006,
and
(ii) the third Trading Day following the date on which the Company is notified
by the SEC that the Registration Statement will not be reviewed or is no longer
subject to further review and comments.
-2-
(c)
Disclosure
of Transactions and Other Material Information.
Between
4:00 p.m. and 5:30 p.m., New York Time, on the
date
hereof, the Company shall file a Current Report on Form 8-K describing this
Agreement and by any documents relating to the issuance of Conversion Common
Stock in the form required by the 1934 Act, and attaching the material
transaction documents (including, without limitation, this Agreement) as
exhibits to such filing (including all attachments, the “8-K
Filing”,
and
the description and attachments, the “8-K
Materials”).
The
Company shall otherwise release to the public any other material non-public
information of which the Company is aware that the Investor has knowledge by
9:30 am, New York Time, April 10, 2006. From
and
after the filing of the 8-K Filing with the SEC, the Investors shall not be
in
possession of any material, nonpublic information received from the Company,
any
of its Subsidiaries or any of its respective officers, directors, employees
or
agents, that is not disclosed in the 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
the
Investor with any material nonpublic information regarding the Company or any
of
its Subsidiaries from and after the filing of the 8-K Filing with the SEC
without the express written consent of such Investor. Subject to the foregoing,
neither the Company nor the Investor 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 the Investor,
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 Trading
Market (provided that in the case of clause (i) the Investor shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release).
(d)
Payment
of Interest Amount.
The
Company agrees to pay the Interest Amount on June 30, 2006.
(e)
Trading.
The
Investor covenants that neither it nor any of its affiliates or any Person
acting on its or its affiliates’ behalf or pursuant to any understanding with
such Investor or its affiliates will engage, directly or indirectly, in any
transactions in the securities of the Company prior to the date the transactions
contemplated by this Agreement are publicly disclosed.
(f)
Reduction
of Letter of Credit.
On or
after the payment of the Installment Amounts due on May 31, 2006 and July 31,
2006 and the effectiveness of the Registration Statement required to be filed
under Section 3(b) of this Agreement, the Investor agrees to reasonably
cooperate with the Company, at the Company’s expense, to allow the face amount
of Letter of Credit to be reduced by an amount equal to $1,130,000.
-3-
(g)
Fees
and Expenses.
[At the
Closing, the Company shall reimburse the Investor for its reasonable legal
and
due diligence fees and expenses in connection with the preparation and
negotiation of this Agreement and the related documents by paying such amount
to
Xxxxxxx Xxxx & Xxxxx LLP; provided, that such amount shall not exceed
$15,000 (the “Investor
Counsel Expense”).
]
Except as otherwise set forth in this Agreement or pursuant to the registration
rights pursuant to Section 3(c) hereof, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement.
| 4. |
COMPANY’S
CLOSING DELIVERIES.
|
(a) At
the
Closing, the Company shall deliver or cause to be delivered to the Investor
the
following:
(i) The
Conversion Common Stock registered in the name of the Investor.
(ii) A
certificate, executed by the Chief Executive Officer of the Company, dated
as of
the Closing Date, to the effect that the Company shall have taken all corporate
action and obtained all governmental, regulatory or third party consents and
approvals, if any, necessary for the issuance of the Conversion Common
Stock.
(iii) An
amount
in United States dollars and in immediately available funds, by wire transfer
to
an account designated in writing by the Investor for such purpose, equal to
the
Investor Counsel Expense.
(iv) Such
other documents relating to the transactions contemplated by this Agreement
as
the Investor or its counsel may reasonably request.
(b)
At
the
Closing, All of the Equity Conditions (as such term is defined under the Notes)
other than clause (i)(x) and (i)(y) thereof shall have been
satisfied.
| 5. |
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 non-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.
-4-
(b)
Counterparts.
This
Agreement may be executed in one 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.
(e)
Entire
Agreement; Effect on Prior Agreements; Amendments.
This
Agreement, the documents referenced herein and any agreements entered into
on
the date hereof in connection with the transactions contemplated by this
Agreement supersede all other prior oral or written agreements between the
Investors, the Company, their affiliates and Persons acting on their behalf
with
respect to the matters discussed herein, and this Agreement and the instruments
referenced herein 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 Investor makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be amended or waived other than by an
instrument in writing signed by the party against whom enforcement is sought.
The Company has not, directly or indirectly, made any agreements with any of
the
Investors relating to the terms or conditions of the transactions contemplated
hereby except as set forth or referenced herein as amended or cancelled by
this
Agreement.
(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:
-5-
If
to the
Company:
| Arotech Corporation | ||
| 0000 Xxx Xxxxxx Xxxxx | ||
| Xxx Xxxxx, Xxxxxxxx 00000 | ||
| Facsimile No.: (000) 000-0000 | ||
| Telephone No.: (000) 000-0000 | ||
| Attention: Chief Executive Officer |
with
a
copy to:
| Electric Fuel (E.F.L.) Ltd. | ||
| One HaSolela Street, POB 000 | ||
| Xxxxxxx Xxxxxxxxxx Xxxx | ||
| Xxxx Xxxxxxx 00000, Xxxxxx | ||
|
Telephone:
|
000-000-0-000-0000
|
|
|
Facsimile:
|
011-972-2-990-6688
|
|
| Attention: |
General
Counsel
|
|
If
to the
Investor:
| [ ] | ||
| [ ] | ||
| [ ] | ||
|
Attention:
|
[ ]
|
|
|
Facsimile
No.:
|
[ ]
|
|
| Telephone No.: |
[ ]
|
|
With
a
copy to:
| Xxxxxxx Xxxx & Xxxxx LLP | ||
| 000 Xxxxx Xxxxxx | ||
| Xxx Xxxx, Xxx Xxxx 00000 | ||
|
Attention:
|
(000)
000-0000
|
|
|
Facsimile
No.:
|
(000)
000-0000
|
|
| Attention: |
Xxxxxxx
Xxxxx, 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 at least five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender’s facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (i), (ii) or (iii) above,
respectively.
(g)
Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns.
-6-
(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.
The
representations and warranties of the Company and the Investors contained
herein, and the agreements and covenants set forth herein, shall survive the
Closing.
(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 the 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)
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.
(l)
Remedies.
The
Investors shall have 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 this Agreement, any remedy at law may prove to be inadequate
relief to the Investor. The Company therefore agrees that the Investor 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.
-7-
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.
| AROTECH CORPORATION | ||
| |
|
|
| By: | ||
|
Name: |
||
| Title: | ||
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGE OF INVESTOR FOLLOWS]
-8-
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.
| [____________________________________] | ||
| |
|
|
| By: | ||
|
Name: |
||
| Title: | ||
-9-
