EXHIBIT 10.2
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT (the "AGREEMENT"), dated as of June 15, 2005, (the
"EXECUTION DATE") by and among Defense Industries International, Inc., a
corporation organized under the laws of the State of Nevada, USA with its
principal executive offices at 0 Xxxxxxxx Xxxxxx Sderot, X.X. Xxx 000, Xxxxxxxx
00000, Xxxxxx (the "COMPANY"), Xxxxxx Xxxxxxxxxx ("POSTBINDER"), and the
Company's stockholders listed on EXHIBIT A attached hereto (each a "BUYER" and
collectively the "BUYERS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"), the
Company has agreed, upon the terms and subject to the conditions set forth in
the Securities Purchase Agreement, to issue to the Buyers up to 3,283,658 but no
less than 1,915,467 shares of common stock, each with a par value of $0.0001 per
share, of the Company (the "COMMON STOCK") and Warrants (the "WARRANTS") for the
purchase of 425,000 and 202,500 shares of Common Stock, each with a par value of
$0.0001 per share, of the Company; and.
B. The Company has agreed to provide the Buyers with certain rights
including registration rights under the Securities Act of 1933, as amended, and
the rules and regulations thereunder, (collectively, the "1933 ACT"), and
applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Buyers hereby
agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
a. "BUSINESS DAY" means any day other than Saturday, Sunday or any other
day on which commercial banks in the City of Tel Aviv and / or New York are
authorized or required by law to remain closed.
b. "INVESTOR" means any one of the Buyers or any transferee or assignee
thereof to whom any of the Buyers assigns his/its rights under this Agreement
and who agrees to become bound by the provisions of this Agreement in accordance
with Section 9 and any transferee or assignee thereof to whom a transferee or
assignee assigns its rights under this Agreement and who agrees to become bound
by the provisions of this Agreement in accordance with Section 9.
c. "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
d. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing one or more Registration Statements (as defined
below) in compliance with the 1933 Act and pursuant to Rule 415 and the
declaration or ordering of effectiveness of such Registration Statement(s) by
the SEC.
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e. "REGISTRABLE SECURITIES" means any Shares and any other securities
issued by the Company to the Buyers in respect of the Shares by means of
exchange, reclassification, dividend, distribution, split-up, combination,
subdivision, recapitalization, merger, spin-off, reorganization, or otherwise.
f. "REGISTRATION STATEMENT" means a registration statement or registration
statements of the Company filed under the 1933 Act covering the Registrable
Securities.
g. "RULE 415" means Rule 415 under the 1933 Act or any successor rule
providing for offering securities on a continuous or delayed basis.
h. "SEC" means the United States Securities and Exchange Commission.
i. "SHARES" means the Common Stock issued to the Buyers under the
Securities Purchase Agreement and any Warrant Shares acquired by any Investor
under the terms of the Warrants.
j. "WARRANT SHARES" means shares of Common Stock acquired by the Investors
pursuant to the exercise of the Warrants.
Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
a. DEMAND REGISTRATION. Within 90 days of the Execution Date (the
"Filing DEADLINE"), the Company shall prepare and file with the SEC a
Registration Statement on Form S-3 covering the resale of all of the
Registrable Securities. In the event that Form S-3 is unavailable for such
a registration, the Company shall use such other form as is available for
such a registration, subject to the provisions of Section 2(c). The
Registration Statement prepared pursuant hereto shall register for resale
the number of shares of Common Stock equal to the number of Registrable
Securities. The Company shall use its best efforts to have the Registration
Statement declared effective by the SEC as soon as practicable, but in no
event later than the date which is 180 days after the Execution Date (the
"EFFECTIVENESS DEADLINE").
b. LEGAL COUNSEL. Subject to Section 5 hereof, the Buyers shall have
the right to select one legal counsel to review and comment on such
Registration Statement or any registration pursuant to this Section 2
("LEGAL COUNSEL"), which shall be Xxxxx Xxxxx & Co. or such other counsel
as thereafter designated by the holders of at least a majority of the
Registrable Securities. The Company and Legal Counsel shall reasonably
cooperate with each other in performing the Company's obligations under
this Agreement.
c. ELIGIBILITY/INELIGIBILITY FOR FORM S-3. The Company represents and
warrants that it is eligible to register the resale of Registrable
Securities on a registration statement on Form S-3 under the 1933 Act, and
that the Company is not aware of any fact or circumstances (including
without limitation any required approvals or waivers or any circumstances
that may delay or prevent the obtaining of accountant's consents) that
would prohibit or delay the preparation and filing of a registration
statement on Form S-3 with respect to the Registrable Securities. The
Company shall file all reports required to be filed by the Company with the
SEC in a timely manner so as to maintain or, if applicable, regain its
eligibility for the use of Form S-3. In the event that Form S-3 is not
available for the registration of the resale of Registrable Securities
hereunder, the Company shall (i) register the resale of the Registrable
Securities on another appropriate form reasonably acceptable to the holders
of at least a majority of the Registrable Securities and (ii) undertake to
register the Registrable Securities on Form S-3 as soon as such form is
available, provided that the Company shall maintain the effectiveness of
the Registration Statement then in effect until such time as a Registration
Statement on Form S-3 covering the Registrable Securities has been declared
effective by the SEC.
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d. SUFFICIENT NUMBER OF SHARES REGISTERED. In the event that the
number of shares available under a Registration Statement filed pursuant to
Section 2(a) is insufficient to cover all of the Registrable Securities
required to be covered by such Registration Statement, the Company shall
amend the applicable Registration Statement, or file a new Registration
Statement (on the short form available therefor, if applicable), or both,
so as to cover at least the total number of Registrable Securities as of
the trading day immediately preceding the date of the filing of such
amendment or new Registration Statement. The Company shall use its best
efforts to cause such amendment and/or new Registration Statement to become
effective as soon as practicable following the filing thereof.
e. EFFECT OF FAILURE TO MAINTAIN EFFECTIVENESS OF REGISTRATION
STATEMENT. If on any day after such Registration Statement has been
declared effective by the SEC, sales of all of the Registrable Securities
required to be included on such Registration Statement cannot be made
(other than during an Allowable Grace Period (as defined in Section 3(m))
pursuant to such Registration Statement (including, without limitation,
because of a failure to keep such Registration Statement effective, to
disclose such information as is necessary for sales to be made pursuant to
such Registration Statement or to register a sufficient number of Common
Stock) then, as sole and exclusive relief for the damages to any holder by
reason of any such delay in or reduction of its ability to sell the
underlying Common Stock, the Company shall pay to each holder of
Registrable Securities relating to such Registration Statement an amount in
cash as liquidated damages and not as a penalty, equal to 5% (five percent)
per calendar month or portion thereof of the aggregate purchase price paid
by the Investor for the Shares. The payments to which a holder shall be
entitled pursuant to this Section 2(e) are referred to herein as
"REGISTRATION FAILURE PAYMENTS". Registration Failure Payments shall be
paid on the earlier of (I) the last day of the calendar month during which
such Registration Failure Payments are incurred and (II) the third Business
Day after the event or failure giving rise to the Registration Failure
Payments is cured. The maximum amount of cash Registration Failure Payments
payable hereunder shall be $300,000. In the event the Company fails to make
Registration Failure Payments in a timely manner, such Registration Failure
Payments shall bear interest at the rate of 1.5% per month (prorated for
partial months) until paid in full.
3. RELATED OBLIGATIONS.
At such time as the Company is obligated to file a Registration Statement
with the SEC pursuant to Section 2(a), 2(c) or 2(d), the Company will use best
efforts to effect the registration of the Registrable Securities in accordance
with the intended method of disposition thereof and, pursuant thereto, the
parties shall have the following obligations:
a. The Company shall submit to the SEC, within ten (10) Business Days
after the Company learns that no review of a particular Registration
Statement will be made by the staff of the SEC or that the staff has no
further comments on a particular Registration Statement, as the case may
be, a request for acceleration of effectiveness of such Registration
Statement to a time and date not later than 48 hours after the submission
of such request. The Company shall take all reasonable measures to keep
each Registration Statement effective pursuant to Rule 415 at all times
until the earlier of (i) the date as of which the Investors may sell all of
the Registrable Securities covered by such Registration Statement without
restriction pursuant to Rule 144(k) (or any successor thereto) promulgated
under the 1933 Act or (ii) the date on which the Investors shall have sold
all of the Registrable Securities covered by such Registration Statement
(the "REGISTRATION PERIOD"). If the initial Registration Statement is not
filed on Form S-3, the Company shall, as soon as it is eligible to do so,
file a new Registration Statement on Form S-3 to permit sales of the
Registrable Securities pursuant to Rule 429 under the 1933 Act; and the
Company shall use its best efforts to cause such Registration Statement to
become effective as soon as possible. The Company shall ensure that each
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) (i) shall comply in all material respects
with the requirements of the 1933 Act and the rules and regulations of the
SEC promulgated thereunder and (ii) shall not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein, or necessary to make the statements therein (in the case of
prospectuses, in the light of the circumstances in which they were made)
not misleading.
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b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
under the 1933 Act, as may be necessary to keep such Registration Statement
effective at all times during the Registration Period, and, during such
period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable
Securities shall have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set forth in
such Registration Statement. In the case of amendments and supplements to a
Registration Statement which are required to be filed pursuant to this
Agreement (including pursuant to this Section 3(b)) by reason of the
Company filing a report on Form 8-K, Form 10-KSB or any analogous report
under the Securities Exchange Act of 1934, as amended (the "1934 Act"), the
Company shall have incorporated such report by reference into such
Registration Statement, if applicable, or shall file such amendments or
supplements with the SEC on the same day on which the 1934 Act report is
filed which created the requirement for the Company to amend or supplement
such Registration Statement.
c. The Company shall permit Legal Counsel to review and comment upon
(i) a Registration Statement prior to its filing with the SEC and (ii) all
amendments and supplements to all Registration Statements (except for
Annual Reports on Form 10-KSB, and Reports on Form 8-K or 10-KSB and any
similar or successor reports) within a reasonable number of days prior to
their filing with the SEC. The Company shall furnish to Legal Counsel,
without charge, (i) upon Legal Counsel's request, copies of any
correspondence from the SEC or the staff of the SEC to the Company or its
representatives relating to any Registration Statement, and (ii) upon the
effectiveness of any Registration Statement, one copy of the prospectus
included in such Registration Statement and all amendments and supplements
thereto. The Company shall reasonably cooperate with Legal Counsel in
performing the Company's obligations pursuant to this Section 3.
d. The Company shall furnish to each holder of Registrable Securities
whose Registrable Securities are included in any Registration Statement,
without charge, upon the effectiveness of any Registration Statement, one
copy of the prospectus included in such Registration Statement and all
amendments and supplements thereto and such other documents, including
copies of any preliminary or final prospectus, as such holder may
reasonably request from time to time in order to facilitate the disposition
of the Registrable Securities owned by such Investor.
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e. The Company shall use its best efforts to (i) register and qualify
the Registrable Securities covered by any Registration Statement under such
other securities or "blue sky" laws of all applicable jurisdictions in the
United States, including but not limited to such jurisdictions in the
United States as each Investor who holds Registrable Securities being
offered reasonably requests unless there is an exemption from registration
and qualification, (ii) prepare and file in those jurisdictions, such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and
(iv) take all other actions reasonably necessary or advisable to qualify
the Registrable Securities for resale in such jurisdictions, PROVIDED,
HOWEVER, that the Company shall not be required in connection therewith or
as a condition thereto to (A) qualify to do business in any jurisdiction
where it would not otherwise be required to qualify but for this Section
3(e), (B) subject itself to general taxation in any such jurisdiction, (C)
file a general consent to service of process in any such jurisdiction, or
(D) make any change in its certificate of incorporation or bylaws, which in
each case the Board of Directors of the Company determines to be contrary
to the best interests of the Company and its stockholders.
f. The Company shall notify Legal Counsel and each Investor in writing
of the happening of any event, as promptly as practicable after becoming
aware of such event, as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of
a material fact or omission to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (provided that in
no event shall such notice contain any material, nonpublic information),
and, subject to Section 3(r), promptly prepare a supplement or amendment to
such Registration Statement to correct such untrue statement or omission,
and deliver a copy of such supplement or amendment to Legal Counsel and
each Investor. The Company shall also promptly notify Legal Counsel and
each Investor in writing (i) when a prospectus or any prospectus supplement
or post-effective amendment has been filed, and when a Registration
Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Legal Counsel and
each Investor by facsimile on the same day of such effectiveness and by
overnight mail), (ii) of any request by the SEC for amendments or
supplements to a Registration Statement or related prospectus or related
information, and (iii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
g. The Company shall use best efforts to prevent the issuance of any
stop order or other suspension of effectiveness of a Registration
Statement, or the suspension of the qualification of any of the Registrable
Securities for sale in any jurisdiction and, if such an order or suspension
is issued, to obtain the withdrawal of such order or suspension at the
earliest possible moment and to notify Legal Counsel and each Investor who
holds Registrable Securities being sold of the issuance of such order and
the resolution thereof or its receipt of actual notice of the initiation or
threat of any proceeding for such purpose.
h. Each party shall hold in confidence and not make any disclosure of
information concerning the other party provided by the other party unless
(i) disclosure of such information is necessary to comply with federal or
state securities laws, (ii) the disclosure of such information is necessary
to avoid or correct a misstatement or omission in any Registration
Statement, (iii) the release of such information is ordered pursuant to a
subpoena or other final, non-appealable order from a court or governmental
body of competent jurisdiction, or (iv) such information has been made
generally available to the public other than by disclosure in violation of
this Agreement or any other agreement. Each party agrees that it shall,
upon learning that disclosure of such information concerning another party
is sought in or by a court or governmental body of competent jurisdiction
or through other means, give prompt written notice to such other party and
allow such other party, at its expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, such
information.
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i. The Company shall use commercially reasonable efforts either to (i)
cause all of the Registrable Securities covered by a Registration Statement
to be listed on each securities exchange on which securities of the same
class or series issued by the Company are then listed, if any, if the
listing of such Registrable Securities is then permitted under the rules of
such exchange, or (ii) secure designation and quotation of all of the
Registrable Securities covered by a Registration Statement on the Nasdaq
National Market if securities of the same class or series issued by the
Company are then listed on the Nasdaq National Market if the listing of
such Registrable Securities is then permitted under the rules of the Nasdaq
National Market, or (iii) if the preceding clauses (i) and (ii) are
inapplicable, to secure the inclusion for quotation on The Nasdaq SmallCap
Market or Over The Counter quotation system for such Registrable Securities
and, without limiting the generality of the foregoing, to use its
commercially reasonable efforts to arrange for at least one market maker to
register with the National Association of Securities Dealers, Inc. ("NASD")
as such with respect to such Registrable Securities. The Company shall pay
all fees and expenses in connection with satisfying its obligation under
this Section 3(i) to the extent permitted by the rules of the exchange or
market involved.
j. The Company shall cooperate with the Investors who hold Registrable
Securities being offered and, to the extent applicable, facilitate the
timely preparation and delivery of certificates representing the
Registrable Securities to be offered pursuant to a Registration Statement
and enable such certificates to be in such denominations or amounts, as the
case may be, as the Investors may reasonably request and registered in such
names as the Investors may request.
k. The Company shall use its best efforts to cause the Registrable
Securities covered by a Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to consummate the disposition of such Registrable Securities.
l. The Company shall make generally available to its security holders
as soon as practical, but not later than as required under applicable
securities laws, an earnings statement (in form complying with, and in the
manner provided by, the provisions of Rule 158 under the 0000 Xxx) covering
a twelve-month period beginning not later than the first day of the
Company's fiscal quarter next following the effective date of a
Registration Statement. The financial statements of the Company included in
a Registration Statement or incorporated by reference therein will comply
as to form in all material respects with applicable accounting requirements
and the published rules and regulations of the SEC applicable with respect
thereto.
m. The Company shall otherwise use its best efforts to comply with all
applicable federal and state securities laws and all applicable rules and
regulations of the SEC in connection with any registration hereunder. The
Company shall use its best efforts to provide a transfer agent and
registrar for all such Registrable Securities not later than the effective
date of such Registration Statement.
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n. Notwithstanding anything to the contrary herein, at any time after
the Registration Statement has been declared effective by the SEC and for
as long as the Investors own in the aggregate at least 5% of the
outstanding shares of Common Stock of the Company, the Company may delay
the disclosure of material, non-public information concerning the Company
the disclosure of which at the time is not, in the good faith opinion of
the Board of Directors of the Company and its counsel, in the best interest
of the Company and, in the opinion of counsel to the Company, otherwise
required (a "GRACE PERIOD"); provided, that the Company shall promptly (i)
notify the Investors in writing of the existence of material, non-public
information giving rise to a Grace Period (provided that in each notice the
Company will not disclose the content of such material, non-public
information to the Investors) and the date on which the Grace Period will
begin, and (ii) notify the Investors in writing of the date on which the
Grace Period ends; and, provided further, that no Grace Period shall exceed
five (5) consecutive days and during any three hundred sixty five (365) day
period such Grace Periods shall not exceed an aggregate of twenty (20) days
and the first day of any Grace Period must be at least two (2) trading days
after the last day of any prior Grace Period (each, an "ALLOWABLE GRACE
PERIOD"). For purposes of determining the length of a Grace Period above,
the Grace Period shall begin on and include the date the Investors receive
the notice referred to in clause (i) and shall end on and include the later
of the date the Investors receive the notice referred to in clause (ii) and
the date referred to in such notice. The provisions of Section 3(g) hereof
shall not be applicable during the period of any Allowable Grace Period.
Upon expiration of the Grace Period, the Company shall again be bound by
the first sentence of Section 3(f) with respect to the information giving
rise thereto unless such material, non-public information is no longer
applicable. Notwithstanding anything to the contrary, the Company shall
cause its transfer agent to deliver unlegended Ordinary Shares to a
transferee of an Investor in accordance with the terms of the Securities
Purchase Agreement in connection with any sale of Registrable Securities
with respect to which an Investor has entered into a contract for sale, and
delivered a copy of the prospectus included as part of the applicable
Registration Statement, prior to the Investor's receipt of the notice of a
Grace Period and for which the Investor has not yet settled.
4. OBLIGATIONS OF THE INVESTORS.
a. At least five (5) Business Days prior to the first anticipated
filing date of a Registration Statement, the Company shall notify each
Investor in writing of the information the Company requires from each such
Investor if such Investor elects to have any of such Investor's Registrable
Securities included in such Registration Statement. It shall be a condition
precedent to the obligations of the Company to complete the registration
pursuant to this Agreement with respect to the Registrable Securities of a
particular Investor that such Investor shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it as
shall be reasonably required to effect the effectiveness of the
registration of such Registrable Securities and shall execute such
documents in connection with such registration as the Company may
reasonably request.
b. Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by
the Company in connection with the preparation and filing of any
Registration Statement hereunder, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such
Investor's Registrable Securities from such Registration Statement.
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c. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(g)
or the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration
Statement(s) covering such Registrable Securities until such Investor's
receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3(g) or the first sentence of 3(f) or receipt of
notice that no supplement or amendment is required. Notwithstanding
anything to the contrary, the Company shall cause its transfer agent to
deliver unlegended Ordinary Shares to a transferee of an Investor in
accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor's
receipt of a notice from the Company of the happening of any event of the
kind described in Section 3(g) or the first sentence of 3(f) and for which
the Investor has not yet settled, provided that the Investor has confirmed
in writing to the Company that it has delivered the prospectus included in
the Registration Statement, as the same may have been supplemented by the
Company, to any Person to whom such Buyer is transferring any of the
Registrable Securities.
d. Without derogating from Section 1(f)(i) to the Securities Purchase
Agreement, for a period of 12 calendar months (the "RESTRICTED PERIOD")
from the date that a Registration Statement on Form S-3 covering the
Registrable Securities has been declared effective by the SEC (the
"EFFECTIVE DATE"), the Investors hereby agrees not to sell or otherwise
dispose of in any way in the public markets pursuant to the Prospectus
which is a part of the S-3 or in accordance with Rule 144 under the
Securities Act (a "PUBLIC SALE"), all or any part of or any interest in the
Registrable Securities in excess of 900,000 (nine hundred thousand) shares
of Common Stock, SUBJECT to the following additional restriction: during
the first two calendar months from the Effective Date, the Investors acting
collectively hereby agree not to sell in Public Sales more than 70,000
(seventy thousand) shares of Common Stock of the Company per months.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, and fees and disbursements of
counsel for the Company shall be paid by the Company.
6. INDEMNIFICATION.
Subject to the provisions of sub-section (f) below, in the event any
Registrable Securities are included in a Registration Statement under this
Agreement:
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a. The Company will, and hereby does, indemnify, hold harmless and
defend each Investor, the directors, officers, members, partners, and
employees thereof (each, an "INDEMNIFIED Person"), against any losses,
claims, damages, liabilities, judgments, fines, penalties, charges, costs,
reasonable attorneys' fees, amounts paid in settlement or expenses, joint
or several (collectively, "CLAIMS") incurred in investigating, preparing or
defending any action, claim, suit, inquiry, proceeding, investigation or
appeal taken from the foregoing by or before any court or governmental,
administrative or other regulatory agency, body or the SEC, whether pending
or threatened, whether or not an indemnified party is or may be a party
thereto ("INDEMNIFIED DAMAGES"), to which any of them may become subject
insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any
untrue statement or alleged untrue statement of a material fact in a
Registration Statement or any post-effective amendment thereto or in any
filing made in connection with the qualification of the offering under the
securities or other "blue sky" laws of any jurisdiction in which the Common
Stock are offered, or the omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if
used prior to the effective date of such Registration Statement, or
contained in the final prospectus (as amended or supplemented, if the
Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact
necessary to make the statements made therein, in the light of the
circumstances under which the statements therein were made, not misleading,
(iii) any violation or alleged violation by the Company of the 1933 Act,
the 1934 Act, any other law, including, without limitation, any state
securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities pursuant to a Registration Statement
or (iv) any material violation of this Agreement (the matters in the
foregoing clauses (i) through (iv) being, collectively, "VIOLATIONS").
Subject to Section 6(c), the Company shall reimburse the Indemnified
Persons, promptly as such expenses are incurred and are due and payable,
for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a): (i) shall not apply to a Claim by an
Indemnified Person arising out of or based solely upon a Violation which
occurs in reliance upon and in conformity with information furnished to the
Company in writing by such Indemnified Person for such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto, if such
prospectus was timely made available by the Company pursuant to Section
3(d); (ii) with respect to any preliminary prospectus, shall not inure to
the benefit of any such Person from whom the Person asserting any such
Claim purchased the Registrable Securities that are the subject thereof (or
to the benefit of any Person controlling such Person) if the untrue
statement or omission of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the Company
pursuant to Section 3(d), and the Indemnified Person was promptly advised
in writing not to use the incorrect prospectus prior to the use giving rise
to a violation and such Indemnified Person, notwithstanding such advice,
used it or failed to deliver the correct prospectus as required by the 1933
Act and such correct prospectus was timely made available pursuant to
Section 3(d); (iii) shall not be available to the extent such Claim is
based on a failure of the Investor to deliver or to cause to be delivered
the prospectus made available by the Company, including a corrected
prospectus, if such prospectus or corrected prospectus was timely made
available by the Company pursuant to Section 3(d); and (iv) shall not apply
to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not
be unreasonably withheld or delayed. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an Investor
is participating, each such Investor agrees to severally and not jointly
indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors,
employees and each of its officers and each Person, if any, who controls
the Company within the meaning of the 1933 Act or the 1934 Act (each, an
"INDEMNIFIED PARTY"), against any Claim or Indemnified Damages to which any
of them may become subject, under the 1933 Act, the 1934 Act or otherwise,
insofar as such Claim or Indemnified Damages arise out of or are based upon
any Violation, in each case to the extent, and only to the extent, that
such Violation occurs in reliance upon and in conformity with information
furnished to the Company in writing by such Investor expressly for use in
connection with such Registration Statement; and, subject to Section 6(c),
such Investor will reimburse any legal or other expenses reasonably
incurred by an Indemnified Party in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to
contribution contained in Section 7 shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld or delayed. In no event will the aggregate liability of any
Investor exceed the amount of the net proceeds received by such Investor
upon the sale of the Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of such Indemnified Party and
shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented.
9
c. If any Proceeding shall be brought or asserted against any Person
entitled to indemnity hereunder (an "INDEMNIFIED PARTY"), such Indemnified
Party shall promptly notify the Person from whom indemnity is sought (the
"INDEMNIFYING PARTY") in writing, and the Indemnifying Party shall have the
right to assume the defense thereof, including the employment of counsel
reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided,
that the failure of any Indemnified Party to give such notice shall not
relieve the Indemnifying Party of its obligations or liabilities pursuant
to this Agreement, except (and only) to the extent that such failure shall
have materially prejudiced the Indemnifying Party's ability to defend such
action.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed
in writing to pay such fees and expenses; (2) the Indemnifying Party shall
have failed promptly to assume the defense of such Proceeding and to employ
counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (3) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and such Indemnified Party shall reasonably believe that a material
conflict of interest is likely to exist if the same counsel were to
represent such Indemnified Party and the Indemnifying Party (in which case,
if such Indemnified Party notifies the Indemnifying Party in writing that
it elects to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to assume the
defense thereof and the reasonable fees and expenses of one (1) separate
counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such
Proceeding affected without its written consent, which consent shall not be
unreasonably withheld. No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party,
unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter
of such Proceeding.
d. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified
Damages are incurred.
e. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
10
f. Notwithstanding the abovementioned:
A. The Company shall not be required to indemnify the Indemnified
Person with respect to any losses, liabilities, obligations and
damages unless and only to the extent that the aggregate amount of all
such losses, liabilities, obligations and damages incurred by all
Indemnitees exceeds $60,000.
B. The Company shall not, under any circumstances, be liable to
the Indemnified Person (as a whole) for losses, liabilities,
obligations and damages pursuant to this Section to the extent that
such losses, liabilities, obligations and damages exceed, the
aggregate purchase price for the Purchased Shares paid by the Buyers
together with interest of 10% per annum, compounded annually, plus any
reasonable expenses (including reasonable legal expenses) incurred by
the Indemnified Person.
PROVIDED, HOWEVER, that the limitations specified in subsections A and B above
shall not apply in any and all events for fraud, gross negligence, intentional
conductor willful misconduct.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; provided, however, that no Person
involved in the sale of Registrable Securities which Person is guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 0000
Xxx) in connection with such sale shall be entitled to contribution from any
Person involved in such sale of Registrable Securities who was not guilty of
fraudulent misrepresentation.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the Investors to sell securities of the Company
to the public without registration ("RULE 144"), the Company agrees to:
a. provide each Investor, with a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the 1933 Act
and the 1934 Act.;
b. make and keep public information available, as those terms are
understood and defined in Rule 144;
c. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1934 Act so long as the Company
remains subject to such requirements and the filing of such reports and
other documents is required for compliance with the public information
provisions of Rule 144(c); and
11
d. furnish or make available to each Investor so long as such
Investors as a group own at least 2.5% of the outstanding common shares of
the Company, promptly upon request, (i) a copy of the most recent annual
report of the Company and such other reports and documents so filed by the
Company, and (ii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of such Investor's Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment; (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned; (iii) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act and applicable state securities laws; (iv) at or
before the time the Company receives the written notice contemplated by clause
(ii) of this sentence the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein; and (v) such
transfer shall have been made in accordance with the applicable requirements of
the Securities Purchase Agreement and applicable securities laws.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of the Company and the
Investors who then hold the majority of the Registrable Securities.
Notwithstanding the above, the provisions of this Agreement may be amended by
the Company (without the Investors consent) after the lapse of 5 (five) years
from the Execution Date. Any amendment or waiver effected in accordance with
this Section 10 shall be binding upon each Investor and the Company. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the Registrable Securities. 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 this Agreement unless the same consideration also is offered
to all of the parties to this Agreement.
11. FINANCIAL REPORTING. For as long as the Investors holds together at
least 2.5% of the issued and outstanding Common Stock of the Company, the
Company will furnish to the Investors the following reports:
a. Copies of all filings made by the Company under the Securities Act
or the Exchange Act with the U.S. Securities and Exchange Commission.
b. An annual operating plan and budget (for the years 2006 and on) of
the Company, by no later than March 31st of the year covered by such plan.
c. A detailed monthly financial projections for the immediately
ensuing year, by no later than March 31st of that year.
12
12. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the record owner of such Registrable Securities.
b. 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 a nationally recognized overnight delivery 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:
Defense Industries International, Inc.
Atten: Xx. Xxxxx Xxxxxxxxxx
0 Xxxxxxxx Xx. Xxxxxx
Xxxxxx
Telephone: +972-[______________]
Facsimile: +972-[______________]
Copy to:
Efrati, Galili & Co.
Atten: Xxxxx Xxxxxxx
0 Xxxxxxxxx Xx., Xxx Xxxx
Xxxxxx
If to Buyers: As specified in Exhibit A attached hereto.
Copy to:
Xxxxx Xxxxx & Xx
0 Xxxxxxx Xxxxxx
Atten: Xxxxxx Xxxxxxxx
Xxx Xxxx 00000
Xxxxxx
Telephone: x000 0 000 0000
Fax: x000 0 000 0000
Attention: Xxxxxx Xxxxxxxx, Adv.
If to the Buyers, to their address and facsimile number set forth on the EXHIBIT
A to this Agreement, 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 a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
13
Any document shall be deemed to have been duly served if marked for the
attention of the agent at its address (as set out above) or such other address
in the United States as may be notified to the party wishing to serve the
document and delivered in accordance with the notice provisions set forth in
this Section 11(b).
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. All questions concerning the construction, validity, enforcement
and interpretation of this Agreement shall be governed by the internal laws
of the New York, without giving effect to any choice of law or conflict of
law provision or rule 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 courts of the City
of New York, 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. 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. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY
HAVE, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
e. Subject to the requirements of Section 8, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.
f. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
g. This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this
Agreement.
14
h. 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.
i. 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.
15
IN WITNESS WHEREOF, the parties hereto have caused this Stockholders Rights
Agreement to be duly executed as of the date first written above.
COMPANY:
DEFENSE INDUSTRIES INTERNATIONAL, INC.
By: /s/ Xxxxxx Xxxxxxxxxx
--------------------------
Name: /s/ Xxxxxx Xxxxxxxxxx
Title: Chief Executive Officer
XX. XXXXXX XXXXXXXXXX
By: /s/ Xxxxxx Xxxxxxxxxx
BUYERS:
_______________________________
Gov Financial Holdings Ltd.
By: /s/ Avshalom Hershcovich
----------------------------
By: /s/ Xxxxxx Xxxxxxx
----------------------------
_______________________________
Multi Concept (Consultants) Ltd.
By: /s/ Xxxxxx Even
-------------------
_______________________________
Xxxx Creative Business Ltd
By: /s/ Xxxx Xxx Rush
---------------------
/s/ Avshalom Hershcovich
------------------------
Avshalom Hershcovich
16
