EXHIBIT 4.2
FORM OF DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION OF THESE
SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
ORIGINAL ISSUE DATE: SEPTEMBER 30, 2003
No. [ ] $[ ]
AROTECH CORPORATION
8% SECURED CONVERTIBLE DEBENTURE DUE SEPTEMBER 30, 2006
THIS DEBENTURE is one of a series of duly authorized and issued
debentures of AROTECH CORPORATION, a corporation organized under the laws of
Delaware (the "COMPANY"), designated as its 8% Secured Convertible Debentures
due September 30, 2006 in the aggregate principal amount of up to Eleven Million
Dollars ($11,000,000) (collectively, the "DEBENTURES").
FOR VALUE RECEIVED, the Company promises to pay to the order of
[SMITHFIELD FIDUCIARY LLC] or its registered assigns (the "HOLDER") the
principal sum of [ ] Dollars ($[ ]) and any additional sums due pursuant to the
terms hereof, on September 30, 2006, or such earlier date as the Debentures are
required or permitted to be repaid as provided hereunder (the "MATURITY DATE"),
and to pay interest to the Holder on the principal amount of this Debenture in
accordance with the provisions hereof. This Debenture is subject to the
following additional provisions.
1. Definitions. In addition to the terms defined elsewhere in this
Debenture, capitalized terms that are not otherwise defined herein shall have
the meanings given to such terms in the Securities Purchase Agreement dated as
of September 30, 2003 to which the Company and the original Holder are parties
(the "PURCHASE Agreement").
"AFFILIATE" means any Person that, directly or indirectly through one
or more intermediaries, controls or is controlled by or is under common control
with a Person, as such terms are used in and construed under Rule 144 under the
Securities Act.
"BANKRUPTCY EVENT" means any of the following events: (a) the Company
or any subsidiary thereof commences a case or other proceeding under any
bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or Liquidation or similar law of any jurisdiction
relating to the Company or any subsidiary thereof; (b) there is commenced
against the Company or any subsidiary thereof any such case or proceeding that
is not dismissed within 60 days after commencement; (c) the Company or any
subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief
or other order approving any such case or proceeding is entered; (d) the Company
or any subsidiary thereof suffers any appointment of any custodian or the like
for it or any substantial part of its property that is not discharged or stayed
within 60 days; (e) the Company or any subsidiary thereof makes a general
assignment for the benefit of creditors; (f) the Company or any subsidiary
thereof fails to pay, or states that it is unable to pay or is unable to pay,
its debts generally as they become due; (g) the Company or any subsidiary
thereof calls a meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or (h) the Company or any subsidiary
thereof, by any act or failure to act, expressly indicates its consent to,
approval of or acquiescence in any of the foregoing or takes any corporate or
other action for the purpose of effecting any of the foregoing.
"BLOOMBERG" means Bloomberg Financial L.P. (or its successor to
reporting stock prices).
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
New York are authorized or required by law or other governmental action to
close.
"CLOSING PRICE" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then listed or
quoted on an Trading Market, the closing bid price per share of the Common Stock
for such date (or the nearest preceding date if there is no such price on such
date) on the Trading Market on which the Common Stock is then listed or quoted;
(b) if the Common Stock is not then listed or quoted on an Trading Market and if
prices for the Common Stock are then quoted on the OTC Bulletin Board, the
closing bid price per share of the Common Stock for such date (or the nearest
preceding date if there is no such price on such date) on the OTC Bulletin
Board; (c) if the Common Stock is not then listed or quoted on an Trading Market
or the OTC Bulletin Board and if prices for the Common Stock are then reported
in the "Pink Sheets" published by the Pink Sheets LLC (formerly the National
Quotation Bureau Incorporated) (or a similar organization or agency succeeding
to its functions of reporting prices), the most recent bid price per share of
the Common Stock so reported; or (d) in all other cases, the fair market value
of a share of Common Stock as determined by an independent appraiser selected in
good faith by the Holder.
"COMMISSION" means the Securities and Exchange Commission.
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"COMMON STOCK" means the Company's Common Stock, $.01 par value per
share, and stock of any other class into which such shares may be reclassified.
"COMPANY REDEMPTION PRICE" means the sum of (i) the outstanding
principal amount of this Debenture plus (ii) all other amounts, interest and
liquidated damages due in respect of this Debentures.
"CONVERSION DATE" is the date specified in a Conversion Notice to
effect conversions of Debentures under Section 5(a), which date may not be prior
to (i) January 1, 2004 and (ii) the date the Holder delivers such Conversion
Notice. If no Conversion Date is specified in a Conversion Notice, then the
Conversion Date for such notice shall be the date that such notice is deemed
delivered hereunder.
"CONVERSION PRICE" means [INSERT IN INITIAL DEBENTURES ONLY: $1.15
(subject to adjustment in accordance with Section 5(d))][INSERT IN ADDITIONAL
DEBENTURES ONLY: $1.45 (subject to adjustment in accordance with Section 5(d))].
"DISTRIBUTION" means, with respect to any Person, the declaration or
payment of any dividends by such Person, or the purchase, redemption, retirement
or other acquisition for value of any of its capital stock or other equity now
or hereafter outstanding, or the making of any distribution of assets to its
stockholders as such whether in cash, assets or in obligations of such Person,
or the allocation or other setting apart of any sum for the payment of any
dividend or distribution on, or for the purchase, redemption, retirement or
other acquisition of any shares of its capital stock, or the making of any other
distribution by reduction of capital or otherwise in respect of any shares of
its capital stock.
"EFFECTIVE DATE" means the date that the Registration Statement is
first declared effective by the Securities and Exchange Commission.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EQUITY CONDITIONS" means, with respect to a specified issuance of
Common Stock, that each of the following conditions is satisfied: (i) the number
of authorized but unissued and otherwise unreserved shares of Common Stock is
sufficient for such issuance; (ii) such shares of Common Stock are registered
for resale by the Holder pursuant to an effective registration statement, and
the prospectus thereunder is available for use by the Holder to sell such
shares, or all such shares may be sold by the Holder without volume restrictions
pursuant to Rule 144(k) under the Securities Act; (iii) the Common Stock is
listed or quoted (and is not suspended from trading) on a Trading Market and
such shares of Common Stock are approved for listing on such Trading Market upon
issuance; (iv) such issuance would be permitted in full without violating the
rules or regulations of the Trading Market on which such shares are listed or
quoted; (v) no Bankruptcy Event has occurred; (vii) the Company is not in
default with respect to any obligation hereunder or under any other Transaction
Document; or (ix) no Event of Default nor any event that with the passage of
time and without being cured would constitute an Event of Default which has
occurred and not been cured.
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"EVENT OF DEFAULT" means the occurrence of any one or more of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(i) any default in the payment of principal or liquidated
damages in respect of any Debentures, as and when the same becomes due and
payable (whether by acceleration or otherwise) or any default in the payment of
interest in respect of any Debentures, within five Trading Days of when the same
becomes due and payable;
(ii) the Company or any Subsidiary defaults in any of its
obligations under any other debenture or any mortgage, credit agreement or other
facility, indenture agreement, factoring agreement or other instrument under
which there may be issued, or by which there may be secured or evidenced, any
Indebtedness, whether such Indebtedness now exists or is hereafter created, and
such default results in such Indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and payable;
(iii) a Bankruptcy Event;
(iv) the Company shall fail for any reason to deliver
certificates representing Underlying Shares issuable upon a conversion hereunder
that comply with the provisions hereof prior to the fifth Trading Day after the
Conversion Date or the Company shall provide notice to any Holder, including by
way of public announcement, at any time, of its intention not to comply with
requests for conversion of Debentures in accordance with the terms hereof;
(v) the Company shall fail for any reason to pay in full the
amount of cash due pursuant to a Buy-In within seven days after notice therefor
is delivered hereunder or shall fail to pay any liquidated damages due pursuant
to the Transaction Documents within seven days of the date of the request for
such payment;
(vi) the Company shall fail to have available a sufficient
number of authorized and unreserved shares of Common Stock to issue to such
Holder upon a conversion hereunder;
(vii) a Fundamental Transaction with respect to the Company or
its subsidiaries;
(viii) the Registration Statement shall not have been declared
effective by the Commission on or prior to the 120th day after the Original
Issue Date;
(ix) during the Effectiveness Period (as defined in the
Registration Rights Agreement), the effectiveness of the Registration Statement
lapses for any reason or the Holder shall not be permitted to resell Registrable
Securities (as defined in the Registration Rights Agreement) under the
Registration Statement, in either case, for more than five consecutive Trading
Days or an aggregate of eight Trading Days (which need not be consecutive
Trading Days);
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(x) an Event (as defined in the Registration Rights Agreement)
shall not have been cured to the satisfaction of the Holder prior to the
expiration of ten days from the Event Date (as defined in the Registration
Rights Agreement) relating thereto (other than an Event resulting from a failure
of a Registration Statement to be declared effective by the Commission on or
prior to the 120th day after the Original Issue Date, which shall be covered by
clause (viii) above);
(xi) the Company defaults in the timely performance of any
other obligation under the Transaction Documents (including, without limitation,
any of the Security Agreements and pursuant to Sections 2.2(c) and 2.2(d) of the
Purchase Agreement) and such default continues uncured for a period of five
Trading Days after the date on which written notice of such default is first
given to the Company by the Holder (it being understood that no prior notice
need be given in the case of a default that cannot reasonably be cured within
five Trading Days or for defaults pursuant to Section 2.2(c) of the Purchase
Agreement); and
(xii) the Company or any Subsidiary takes (or agrees to take)
any Restricted Action in violation of this Debenture.
"FUNDAMENTAL TRANSACTION" means any (i) merger or consolidation of the
Company with or into another Person, (ii) any sale of more than one-half of the
assets of the Company (on an as valued basis) in one or a series of related
transactions, (iii) any tender offer or exchange offer (whether by the Company
or another Person) pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or (iv)
any reclassification of the Common Stock or any compulsory share exchange
pursuant to which the Common Stock is effectively converted into or exchanged
for other securities, cash or property.
"INDEBTEDNESS" shall mean the principal amount of, premium, if any,
profit participation, if any, and accrued and unpaid interest on and all other
amounts and costs payable in respect of (a) indebtedness for money borrowed from
others; (b) indebtedness guaranteed, directly or indirectly, in any manner, or
in effect guaranteed, directly or indirectly, in any manner through an
agreement, contingent or otherwise, to supply funds to, or in any other manner
invest in the debtor, or to purchase indebtedness, or to purchase and pay for
property if not delivered or pay for services if not performed, primarily for
the purpose of enabling the debtor to make payment of the indebtedness or to
assure the owners of the indebtedness against loss; (c) all indebtedness secured
by any mortgage, lien, pledge, charge or other encumbrance upon property owned
by the Company; (d) all indebtedness of such person created or arising under any
conditional sale, lease (intended primarily as a financing device) or other
title retention or security agreement with respect to property acquired by the
Company even though the rights and remedies of the seller, lessor or lender
under such agreement or lease in the event of a default may be limited to
repossession or sale of such property; and (e) renewals, extensions and
refundings of any such indebtedness.
"INITIAL ISSUANCE DATE" means September 30, 2003.
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"INTEREST PAYMENT DATE" means each of March 31, June 30, September 30
and December 31, except if such date is not a Trading Day, in which case such
Interest Payment Date shall be the next succeeding Trading Day.
"INTEREST SHARES" means shares of Common Stock issued or issuable in
payment of accrued interest under Section 2.
"LIEN" means any lien (statutory or otherwise), security interest,
mortgage, deed of trust, priority, pledge, charge, conditional sale, title
retention agreement, financing lease or other encumbrance or similar right of
others, or any agreement to give any of the foregoing.
"LIQUIDATION" means for any Person, any liquidation, dissolution or
winding-up of such Person, whether voluntary or involuntary, by operation or law
or otherwise.
"MANDATORY PREPAYMENT AMOUNT" for any Debentures shall equal the sum
of: (i) the greater of (A) the principal amount of Debentures to be prepaid and,
if applicable, the Reinstated Principal (to the extent the Holder returns the
Underlying Shares subject to such Reinstated Principal), plus all accrued and
unpaid interest thereon, and (B) the principal amount of Debentures to be
prepaid and, if applicable, the Reinstated Principal (to the extent the Holder
returns the Underlying Shares subject to such Reinstated Principal), plus all
accrued and unpaid interest thereon, divided by the Conversion Price on the
Trading Day immediately preceding (x) the date of the Event of Default or (y)
the date the Mandatory Prepayment Amount is paid in full, whichever is less,
multiplied by the Closing Price on (x) the date of the Event of Default or (y)
the date the Mandatory Prepayment Amount is paid in full, whichever is greater,
and (ii) all other amounts, costs, expenses and liquidated damages due in
respect of such Debentures.
"ORIGINAL ISSUE DATE" means the date of the first issuance of this
Debenture regardless of the number of transfers of any particular Debenture and
regardless of the number of certificates which may be issued to evidence such
Debenture.
"OUTSTANDING DEBENTURES" means the Company's outstanding 9% Secured
Convertible Debentures due June 30, 2005.
"PERSON" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
"PROCEEDING" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened concerning the interpretation,
enforcement or defense of any transaction contemplated by any Transaction
Document (whether brought against a party hereto or such parties affiliates,
directors, officers, employees or agents).
"PROPERTY" means any interest in any kind of property or asset, whether
real, personal or mixed, and whether tangible or intangible, of the Company or
any of its subsidiaries, now or hereinafter acquired.
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"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the Initial Issuance Date, to which the Company and the
original Holders are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
"REGISTRATION STATEMENT" means a registration statement meeting the
requirements of the Registration Rights Agreement and covering the resale of,
among other things, all Underlying Shares by the Holders, who shall be named as
"selling stockholders" thereunder.
"REINSTATED PRINCIPAL" means the principal amount of Debentures
converted during the ten Trading Days preceding the delivery of an Event of
Default Notice, for which the Company issued or was obligated to issue
Underlying Shares to the Holder.
"RESTRICTED ACTIONS" means the taking by Company or any of its
subsidiaries of any of the following actions:
(i) create, incur, assume or suffer to exist any Indebtedness,
other than Indebtedness reflected in the Company's most recent quarterly
financial statement that has been filed with the Commission prior to the Initial
Issuance Date or Indebtedness incurred in the ordinary course of business
consistent with past practice and not in excess of $100,000; provided, however,
that EF Battery Corporation, a Subsidiary of the Company, may incur Indebtedness
in an amount not to exceed $1,000,000 in the aggregate to be used solely in
connection with the operation of the zinc air battery business, which amount
will be only secured by the assets of EF Battery Corporation;
(ii) create, incur, assume or suffer to exist any guaranty,
provided, that the Company may suffer to exist any existing guaranties for
obligations of Subsidiaries that it had entered into in the ordinary course of
business consistent with past practice;
(iii) create, incur, assume or suffer to exist any Lien, upon
or with respect to any interest in Property, except for Liens disclosed in the
Purchase Agreement or for Liens pursuant to the Debentures, or the Outstanding
Debentures or for Liens incurred in connection with the settlement with Yehuda
Harats regarding assets of Electric Fuel (E.F.L.) Ltd.;
(iv) create, incur, assume or suffer to exist any obligation
as lessee for the rental or hire of any Property, except leases existing on the
Initial Issuance Date, and any extensions, supplements or renewals thereof;
(v) make any loan or advance to any Person or any purchase or
other acquisition of any capital stock, assets, obligations or other securities
of any Person, or any capital contribution to, investment in, or other
acquisition of any interest in, any Person;
(vi) make any Distribution, except that any Subsidiary may
make Distributions to the Company;
(vii) make any capital expenditures, in any single or a series
of related transactions, during any year, exceeding $150,000;
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(viii) sell, lease, assign, transfer or otherwise dispose of
any of its now owned or hereafter acquired Property (including, without
limitation, shares of stock and Indebtedness, receivables and leasehold
interests), except in the ordinary course of business consistent with past
practices;
(ix) sell, lease, assign or otherwise dispose of any Property
to any Affiliate; (a) merge into or consolidate with or purchase or acquire
Property from any Affiliate; or (b) enter into any other transaction directly or
indirectly with or for the benefit of any Affiliate (including, without
limitation, guaranties and assumption of obligations of any Affiliate); provided
that; any Affiliate who is an individual may serve as a director, officer or
employee of the Company or any subsidiary thereof and receive reasonable
compensation for his or her services in such capacity;
(x) merge or consolidate with, or sell, assign, lease or
otherwise dispose of (whether in one transaction or in a series of related
transactions) all or substantially all of its assets (whether now owned or
hereafter acquired) to, any Person, or acquire all or substantially all of the
assets or the business of any Person (or enter into any agreement to do any of
the foregoing);
(xi) take any action that would permit the sale, lease,
assignment, transfer or other disposition by MDT Armor Corporation of any of its
assets other than in the ordinary course of business;
(xii) take any action or otherwise allow EF Battery
Corporation to conduct Acquisitions (as defined in the Security Agreement) for
an amount in excess of $1,000,000 in the aggregate; or
(xiii) enter into any agreement with respect to any of the
foregoing provisions (i) through (xii).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY AGREEMENTS" means (i) the Security Agreement (as defined in
the Purchase Agreement) and (ii) the Intellectual Property Security Agreement
(as defined in the Purchase Agreement).
"TRADING DAY" means (i) a day on which the Common Stock is traded on an
Trading Market, or (ii) if the Common Stock is not listed on an Trading Market,
a day on which the Common Stock is traded in the over the counter market, as
reported by the OTC Bulletin Board, or (iii) if the Common Stock is not quoted
on the OTC Bulletin Board, a day on which the Common Stock is quoted in the over
the counter market as reported by the National Quotation Bureau Incorporated (or
any similar organization or agency succeeding its functions of reporting
prices); provided, that in the event that the Common Stock is not listed or
quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a
Business Day.
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"TRADING MARKET" means whichever of the New York Stock Exchange, the
American Stock Exchange, the Nasdaq National Market or The Nasdaq SmallCap
Market on which the Common Stock is then listed or quoted on the date in
question.
"TRANSACTION DOCUMENTS" shall have the meaning set forth in the
Purchase Agreement.
"UNDERLYING SHARES" means, collectively, the Common Stock issuable upon
conversion of this Debenture and the Interest Shares in accordance with the
terms hereof.
"VWAP" means, with respect to any date of determination, the daily
volume weighted average price (as reported by Bloomberg using the VAP function)
of the Common Stock on such date of determination, or if there is no such price
on such date of determination, then the daily volume weighted average price on
the date nearest preceding such date.
2. Interest.
(a) The Company shall pay interest to the Holder on the
aggregate unconverted and then outstanding principal amount of this Debenture
(including any interest added to such principal in accordance with this Section
2) at the rate of 8% per annum, payable in arrears on each Interest Payment Date
and on the Maturity Date. Interest shall be payable on each Interest Payment
Date, to the Holder, in cash or, at the option of the Company, in shares of
Common Stock (the "INTEREST SHARES") provided that the interest which accrued
during any period shall be payable in Interest Shares if, and only if, the
Company delivers written notice of such election ("INTEREST ELECTION NOTICE") to
the Holder at least 10 Trading Days prior to the Interest Payment Date (each, an
"INTEREST ELECTION DATE"). Interest to be paid on an Interest Payment Date in
Interest Shares shall be paid in a number of Interest Shares equal to the
quotient obtained by dividing the amount of such interest by 90% of the
arithmetic average of the VWAP for each of the five (5) Trading Days immediately
preceding (but not including) the Interest Payment Date. Interest shall be
calculated on the basis of a 360 day year and shall accrue daily commencing on
the Original Issue Date (regardless of the number of transfers of the
Debentures). If any Interest Shares are to be paid on an Interest Payment Date,
then the Company shall (X) issue and deliver on the applicable Interest Payment
Date, to such address as specified by the Holder in writing to the Company at
least two Business Days prior to the applicable Interest Payment Date, a
certificate, registered in the name of the Holder or its designee, for the
number of Interest Shares to which the Holder shall be entitled, or (Y) provided
that the Company's transfer agent (the "TRANSFER AGENT") is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer Program and
such Interest Shares do not require the placement of any legends restricting
transfer of such Interest Shares, upon the request of the Holder, credit such
aggregate number of Interest Shares to which the Holder shall be entitled to the
Holder's or its designee's balance account with DTC through its Deposit
Withdrawal Agent Commission System. Notwithstanding the foregoing, the Company
shall not be entitled to pay interest in Interest Shares and shall be required
to pay such interest in cash on the applicable Interest Payment Date if (w) the
Equity Conditions are not satisfied with respect to the Interest Shares on each
day during the period beginning on the applicable Interest Election Date and
ending on and including the applicable Interest Payment Date, or (y) the Company
has not obtained the Stockholder Approval (as defined in the Purchase Agreement)
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prior to the Interest Election Date. The Company shall pay any and all taxes
that may be payable with respect to the issuance and delivery of Interest
Shares.
(b) If the Company fails for any reason to pay interest on the
Interest Payment Date, the Holder may (but shall not be required to) treat such
interest as if it had been added to the principal amount of this Debenture as of
such Interest Payment Date.
(c) Any interest to be paid hereunder that is not paid on the
Interest Payment Date and not added to the principal amount of the Debenture
shall continue to accrue and shall entail a late fee, which must be paid in
cash, at the rate of 12% per annum or the lesser rate permitted by applicable
law (such fees to accrue daily, from the date such interest is due hereunder
through and including the date of payment).
3. Registration of Debentures. The Company shall register the
Debentures upon records to be maintained by the Company for that purpose (the
"DEBENTURE REGISTER") in the name of each record holder thereof from time to
time. The Company may deem and treat the registered Holder of this Debenture as
the absolute owner hereof for the purpose of any conversion hereof or any
payment of interest hereon, and for all other purposes, absent actual notice to
the contrary.
4. Registration of Transfers and Exchanges. The Company shall register
the transfer of any portion of this Debenture in the Debenture Register upon
surrender of this Debenture to the Company at its address for notice set forth
herein. Upon any such registration or transfer, a new debenture, in
substantially the form of this Debenture (any such new debenture, a "NEW
DEBENTURE"), evidencing the portion of this Debenture so transferred shall be
issued to the transferee and a New Debenture evidencing the remaining portion of
this Debenture not so transferred, if any, shall be issued to the transferring
Holder. The acceptance of the New Debenture by the transferee thereof shall be
deemed the acceptance by such transferee of all of the rights and obligations of
a holder of a Debenture. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same. No service charge or other fee
will be imposed in connection with any such registration of transfer or
exchange. Transfers of this Debenture and the Underlying Shares are governed by
Section 4.1 of the Purchase Agreement.
5. Conversion.
(a) At the Option of the Holder. All or any portion of the
principal amount of this Debenture then outstanding (together with all accrued
but unpaid interest thereon) shall be convertible into Common Stock (subject to
the limitations set forth in Section 5(b)), at the option of the Holder, at any
time and from time to time from and after the January 1, 2004. Holders shall
effect conversions under this Section 5(a) by delivering the Company with a
written notice in the form attached hereto as Exhibit A (a "CONVERSION NOTICE")
together with a schedule in the form of Schedule 1 attached hereto (the
"CONVERSION SCHEDULE"). The number of Underlying Shares issuable upon any
conversion hereunder shall (subject to the limitations of Section 5(b)) equal
the outstanding principal amount of this Debenture (plus all accrued but unpaid
interest thereon) to be converted divided by the Conversion Price.
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(b) Certain Conversion Restrictions.
(i) Notwithstanding anything to the contrary contained
herein, the number of shares of Common Stock that may be acquired by a Holder
upon any conversion of Debentures (or otherwise in respect hereof) shall be
limited to the extent necessary to insure that, following such conversion (or
other issuance), the total number of shares of Common Stock then beneficially
owned by such Holder and its affiliates and any other Persons whose beneficial
ownership of shares of Common Stock would be aggregated with such Holder's for
purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% of the
total number of issued and outstanding shares of Common Stock (including for
such purpose the shares of Common Stock issuable upon such conversion). For
purposes of the foregoing sentence, the aggregate number of shares of Common
Stock beneficially owned by such Holder and its affiliates shall exclude shares
of Common Stock which would be issuable upon (i) conversion of the remaining,
unconverted portion of the principal amount of this Debenture beneficially owned
by such Holder and its affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
beneficially owned by such Holder and its affiliates (including, without
limitation, any convertible notes, convertible preferred stock or warrants)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein. Except as set forth in the preceding sentence, for purposes of
this paragraph, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. This provision shall not restrict the number of shares of Common
Stock which a Holder may receive or beneficially own in order to determine the
amount of securities or other consideration that such Holder may receive in the
event of a merger, sale or other business combination or reclassification
involving the Company as contemplated herein.
(ii) Principal Market Regulation. The Company shall not be
obligated to issue any shares of Common Stock upon conversion of this Debenture
if the issuance of such shares of Common Stock would exceed that number of
shares of Common Stock which the Company may issue upon conversion of the
Debentures without breaching the Company's obligations under the rules or
regulations of the Trading Market (the "EXCHANGE CAP"), except that such
limitation shall not apply in the event that the Company (A) obtains the
approval of its stockholders as required by the applicable rules of the Trading
Market for issuances of Common Stock in excess of such amount or (B) obtains a
written opinion from outside counsel to the Company that such approval is not
required, which opinion shall be reasonably satisfactory to the Holder. Until
such approval or written opinion is obtained, no purchaser of the Debentures
pursuant to the Purchase Agreement (the "PURCHASERS") shall be issued, upon
conversion of Debentures, shares of Common Stock in an amount greater than the
product of the Exchange Cap multiplied by a fraction, the numerator of which is
the principal amount of Debentures issued to such Purchaser pursuant to the
Purchase Agreement on the Initial Issuance Date and the denominator of which is
the aggregate principal amount of all Debentures issued to the Purchasers
pursuant to the Purchase Agreement on the Initial Issuance Date (with respect to
each Purchaser, the "EXCHANGE CAP ALLOCATION"). In the event that any Purchaser
shall sell or otherwise transfer any of such Purchaser's Debentures, the
transferee shall be allocated a pro rata portion of such Purchaser's Exchange
Cap Allocation, and the restrictions of the prior sentence shall apply to such
transferee with respect to the portion of the Exchange Cap Allocation allocated
- 11 -
to such transferee. In the event that any holder of Debentures shall convert all
of such holder's Debentures into a number of shares of Common Stock which, in
the aggregate, is less than such holder's Exchange Cap Allocation, then the
difference between such holder's Exchange Cap Allocation and the number of
shares of Common Stock actually issued to such holder shall be allocated to the
respective Exchange Cap Allocations of the remaining holders of Debentures on a
pro rata basis in proportion to the aggregate principal amount of the Debentures
then held by each such holder.
(c) Mechanics of Conversion.
(i) By the third Trading Day after each Conversion Date,
the Company shall issue or cause to be issued and cause to be delivered to or
upon the written order of the Holder and in such name or names as the Holder may
designate a certificate for the Underlying Shares issuable upon such conversion
which, unless required by the Purchase Agreement, shall be free of all
restrictive legends. The Holder, or any Person so designated by the Holder to
receive Underlying Shares, shall be deemed to have become the holder of record
of such Underlying Shares as of the Conversion Date. If the Company's transfer
agent is eligible to participate in The Depositary Trust Company DWAC system and
no legends are required to be included on the certificates representing
Underlying Shares pursuant to the Purchase Agreement, the Company shall, upon
request of the Holder, use its best efforts to deliver Underlying Shares
hereunder electronically through The Depository Trust Company or another
established clearing corporation performing similar functions.
(ii) To effect conversions hereunder, the Holder shall not
be required to physically surrender this Debenture unless the aggregate
principal amount represented by such Debenture is being converted, in which
event, the Holder shall deliver such Debenture promptly to the Company (it being
understood that such delivery is not a condition precedent to the Company's
obligations to deliver Underlying Shares upon such conversion). Conversions
hereunder shall have the effect of lowering the outstanding principal amount
represented by such Debenture in an amount equal to the applicable conversion,
which shall be evidenced by entries set forth in the Conversion Schedule
attached as Schedule I, which will be maintained by the Company and the Holder.
(iii) The Company's obligations to issue and deliver
Underlying Shares upon conversion of this Debenture in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by
the Holder to enforce the same, any waiver or consent with respect to any
provision hereof, the recovery of any judgment against any Person or any action
to enforce the same, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder or any other Person
of any obligation to the Company or any violation or alleged violation of law by
the Holder or any other Person, and irrespective of any other circumstance which
might otherwise limit such obligation of the Company to the Holder in connection
with the issuance of such Underlying Shares.
(iv) If by the third Trading Day after a Conversion Date
the Company fails to deliver to the Holder such Underlying Shares in such
amounts and in the manner required pursuant to Section 5(a), then the Holder
will have the right to rescind such conversion.
- 12 -
(v) If by the third Trading Day after a Conversion Date
the Company fails to deliver to the Holder such Underlying Shares in such
amounts and in the manner required pursuant to this Section 5(c), and if after
such third Trading Day the Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by such
Holder of the Underlying Shares which the Holder anticipated receiving upon such
conversion (a "BUY-IN"), then the Company shall: (A) pay in cash to the Holder
(in addition to any remedies available to or elected by the Holder) the amount
by which (x) the Holder's total purchase price (including brokerage commissions,
if any) for the shares of Common Stock so purchased exceeds (y) the amount
obtained by multiplying (1) the aggregate number of Underlying Shares that the
Company was required to deliver to the Holder in connection with the conversion
at issue by (2) the Closing Price at the time of the obligation giving rise to
such purchase obligation and (B) at the option of the Holder, either reinstate
the principal amount of Debentures and equivalent number of Underlying Shares
for which such conversion was not timely honored or deliver to the Holder the
number of shares of Common Stock that would have been issued had the Company
timely complied with its conversion and delivery obligations hereunder. For
example, if the Holder purchases shares of Common Stock having a total purchase
price of $11,000 to cover a Buy-In with respect to an attempted conversion of
Debentures with a market price on the date of conversion totaling $10,000, under
clause (A) of the immediately preceding sentence, the Company shall be required
to pay the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
(d) Adjustments to Conversion Price. The Conversion Price in
effect from time to time shall be subject to adjustment in accordance with this
Section 5(d):
(i) Stock Dividends and Splits. If the Company, at any
time while any Debentures are outstanding, (i) pays a stock dividend on its
shares of Common Stock or otherwise makes a distribution on any class of capital
stock that is payable in shares of Common Stock, (ii) subdivides outstanding
shares of Common Stock into a larger number of shares, or (iii) combines
outstanding shares of Common Stock into a smaller number of shares, then in each
such case the Conversion Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding immediately
before such event and of which the denominator shall be the number of shares of
Common Stock outstanding immediately after such event. Any adjustment made
pursuant to clause (i) of this paragraph shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution, and any adjustment pursuant to clause (ii) or
(iii) of this paragraph shall become effective immediately after the effective
date of such subdivision or combination.
(ii) Additional Distributions. If the Company, at any time
while any Debentures are outstanding, shall distribute to all holders of shares
of Common Stock (and not to Holders) evidences of its indebtedness or assets or
rights or warrants to subscribe for or purchase any security, then in each such
case the Conversion Price at which the principal amount of Debentures shall
thereafter be convertible shall be determined by multiplying the Conversion
Price in effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the Closing Price determined as of the record date
mentioned above, and of which the numerator shall be such Closing Price on such
- 13 -
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness so distributed applicable to one
outstanding share of Common Stock as determined by the Board of Directors in
good faith. In either case the adjustments shall be described in a statement
provided to the Holders of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
(iii) Calculations. All calculations under this Section 5
shall be made to the nearest cent or the nearest 1/100th of a share, as the case
may be. The number of shares of Common Stock outstanding at any given time shall
not include shares owned or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or sale of Common
Stock.
(iv) Notice of Adjustments. Whenever the Conversion Price
is adjusted pursuant to the terms hereof the Company shall promptly mail to each
Holder, a notice setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
(e) Certain Fundamental Transactions. In case of any
Fundamental Transaction, a Holder shall have the right to do any of the
following: (1) convert its Debentures into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
shares of Common Stock following such Fundamental Transaction and such Holder
shall be entitled upon such Fundamental Transaction to receive such amount of
securities, cash and property as the shares of Common Stock into which such
Debentures could have been converted immediately prior to such Fundamental
Transaction would have been entitled, or (2)(x) require the surviving entity to
issue debentures in such principal amount equal to the principal amount of the
Debentures held by such Holder prior to such Fundamental Transaction, plus all
other amounts owing thereon, which newly issued debentures shall have identical
terms to the terms of the Debentures and shall be entitled to all of the rights
and privileges of a Holder set forth herein and the agreements pursuant to which
the prepayment was issued, and (y) simultaneously with the issuance of such
convertible debentures shall have the right to convert such shares only into
shares of stock and other securities, cash and property receivable upon or
deemed to be held by holders of shares of Common Stock following such
Fundamental Transaction (the conversion price applicable for the newly issued
convertible debentures shall be based upon the amount of securities, cash and
property that each share of Common Stock would receive in such Fundamental
Transaction and the Conversion Price stated herein) or (3) at the Holder's
option and request, any successor to the Company or surviving entity in such
Fundamental Transaction shall either pay to the Holder the greater of (A) the
outstanding principal amount of the Debentures held by such Holder plus all
accrued and unpaid interest thereon, and (B) the principal amount of the
Debenture held by such Holder, plus all accrued and unpaid interest thereon,
divided by the Conversion Price on the Trading Day immediately preceding (x) the
date of prior to such Fundamental Transaction or (y) the date the amount set
forth in this section is paid in full, whichever is less, multiplied by the
Closing Price on (x) the date of the Fundamental Transaction or (y) the date the
amount set forth in this section is paid in full, whichever is greater. Any
Fundamental Transaction shall include such terms so as continue to give the
Holders the right to receive the securities, cash and
- 14 -
property set forth in this Section upon any conversion or redemption following
such event. This provision shall similarly apply to successive such Fundamental
Transactions. The rights set forth herein shall not alter the rights of a Holder
set forth elsewhere in this Debenture; provided, that a Holder may only exercise
the rights set forth herein with respect to a single event giving rise to such
rights.
(f) Reclassifications; Share Exchanges. In case of any
reclassification of the shares of Common Stock, or any compulsory share exchange
pursuant to which the shares of Common Stock are converted into other
securities, cash or property, the Holders of the Debentures then outstanding
shall have the right thereafter to convert such shares only into the shares of
stock and other securities, cash and property receivable upon or deemed to be
held by holders of shares of Common Stock following such reclassification or
share exchange, and the Holders shall be entitled upon such event to receive
such amount of securities, cash or property as a holder of the number of shares
of Common Stock of the Company into which such shares of Debentures could have
been converted immediately prior to such reclassification or share exchange
would have been entitled. This provision shall similarly apply to successive
reclassifications or share exchanges.
(g) Notice of Corporate Events. If (a) the Company shall
declare a dividend (or any other distribution) on the Common Stock, (b) the
Company shall declare a special nonrecurring cash dividend on or a redemption of
the Common Stock, (c) the Company shall authorize the granting to all holders of
Common Stock rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights, (d) the approval of any
stockholders of the Company shall be required in connection with any Fundamental
Transaction, or (e) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company, then the
Company shall file a press release or Current Report on Form 8-K to disclose
such occurrence and notify the Holders at their last addresses as they shall
appear upon the stock books of the Company, at least 20 calendar days prior to
the applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which any such Fundamental Transaction is expected
to become effective or close, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their Common
Stock for securities, cash or other property deliverable upon any such
Fundamental Transaction.
(h) Reservation of Common Stock. The Company covenants that it
will at all times reserve and keep available out of its authorized and unissued
shares of Common Stock solely for the purpose of issuance upon conversion of
Debentures, each as herein provided, free from preemptive rights or any other
actual contingent purchase rights of persons other than the Holders, not less
than such number of shares of Common Stock as shall be issuable upon the
conversion of all outstanding principal amount of Debentures. The Company
covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly and validly authorized and issued and fully paid and
nonassessable.
- 15 -
(i) Fractional Shares. Upon a conversion hereunder the Company
shall not be required to issue stock certificates representing fractions of
shares of Common Stock, but may if otherwise permitted, make a cash payment in
respect of any final fraction of a share based on the Closing Price on the
applicable Conversion Date. If any fraction of an Underlying Share would, except
for the provisions of this Section, be issuable upon a conversion hereunder, the
Company shall pay an amount in cash equal to the Conversion Price multiplied by
such fraction.
(j) Stamp Taxes. The issuance of certificates for Common Stock
on conversion of principal amount of this Debenture shall be made without charge
to the Holders thereof for any documentary stamp or similar taxes that may be
payable in respect of the issue or delivery of such certificate, provided that
the Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any such certificate
upon conversion in a name other than that of the Holder of such Debentures so
converted.
(k) Notices. Any and all notices or other communications or
deliveries to be provided by the Holders, including, without limitation, any
Holder Conversion Notice, shall be in writing and delivered personally, by
facsimile or sent by a nationally recognized overnight courier service,
addressed to the attention of the Chief Executive Officer of the Company
addressed to Arotech Corporation, 632 Broadway, Suite 1200, New York, NY 10012,
fax: (646) 654-2187, with a copy to Electric Fuel (E.F.L.) Ltd., One HaSolela
Street, POB 641, Western Industrial Park, Beit Shemesh 99000, Israel, Facsimile
No.: 011-972-2-990-6688, Attn.: General Counsel, or to such other address or
facsimile number as shall be specified in writing by the Company for such
purpose. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally,
by facsimile or sent by a nationally recognized overnight courier service,
addressed to each Holder at the facsimile telephone number or address of such
Holder appearing on the books of the Company, or if no such facsimile telephone
number or address appears, at the principal place of business of the Holder. Any
notice or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 6:30 p.m. (New York City time)(with
confirmation of transmission), (ii) the date after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 6:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date
(with confirmation of transmission), (iii) upon receipt, if sent by a nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given.
[INSERT IN ADDITIONAL DEBENTURES ONLY: (l) This Debenture Deemed
Outstanding. If during the period beginning on and including the Initial
Issuance Date and ending on the date immediately preceding the Original Issue
Date, the Company entered into, or in accordance with this Section 5 would have
been deemed to have entered into (had this Debenture been outstanding at such
time), any of the events set forth in this Section 5, then solely for purposes
of determining any adjustment or rights under this Section 5 as a result of such
event or deemed event, this Debenture shall be deemed to have been outstanding
at the time of each such event or deemed event.]
- 16 -
6. Prepayment.
(a) Upon Event of Default. Upon the occurrence of a Event of
Default, each Holder shall (in addition to all other rights it may have
hereunder or under applicable law), have the right, exercisable at the sole
option of such Holder, and by delivery of a written notice to the Company to
require the Company (an "EVENT OF DEFAULT NOTICE") to prepay all or a portion of
the Debentures then held by such Holder and, at the option of the Holder, all or
a portion of the Reinstated Principal, for an amount, in cash, equal to the
Mandatory Prepayment Amount. The Mandatory Prepayment Amount shall be due and
payable within five Trading Days of the date of the Event of Default Notice. For
purposes of this Section, any principal amount of Debentures shall be deemed to
be outstanding until such date as the Holder shall have received Underlying
Shares upon a conversion (or attempted conversion) thereof that meets the
requirements hereof. Notwithstanding anything herein to the contrary, upon the
occurrence of a Bankruptcy Event, all outstanding principal and accrued but
unpaid interest on this Debenture shall immediately become due and payable in
full in cash, without any further action by the Holder, and the Company shall
immediately be obligated to pay the Mandatory Prepayment Amount pursuant to this
paragraph as if the Holder had delivered a Event of Default Notice immediately
prior to the occurrence of any such Event of Default. The Holder need not
provide and the Company hereby waives any presentment, demand, protest or other
notice of any kind, and the Holder may immediately and without expiration of any
grace period enforce any and all of its rights and remedies hereunder and all
other remedies available to it under applicable law. Such declaration may be
rescinded and annulled by Holder at any time prior to payment hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon.
(b) At Company's Option. At any time after the date which is
15 months after the applicable Effective Date, the Company may deliver a notice
to the Holder (an "OPTIONAL PREPAYMENT NOTICE" and the date such notice is
received by the Holder, the "OPTIONAL PREPAYMENT NOTICE DATE") of its
irrevocable election to prepay all, or any portion, of the then aggregate amount
outstanding under this Debenture (such elected prepayment amount, the
"PREPAYMENT AMOUNT"), for an amount, in cash, equal to the Company Redemption
Price. The Company Redemption Price payable pursuant to this Section 6(b) is due
in full on the tenth Trading Day following the Optional Prepayment Notice Date
(the "OPTIONAL PREPAYMENT DATE"). The Company may only deliver an Optional
Prepayment Notice, and the optional prepayment thereunder may only occur on the
Optional Prepayment Date, if each of the following shall be true: (i) the
Company shall have duly honored all conversions and redemptions scheduled to
occur or occurring by virtue of one or more Conversion Notices prior to the
Optional Prepayment Notice Date and the Optional Prepayment Date, (ii) the
Equity Conditions shall have been satisfied at all times from the Optional
Prepayment Notice Date to the Optional Prepayment Date, and (iii) prior to the
Optional Prepayment Notice Date (A) the VWAP shall equal or exceed $1.75/1/
(subject to adjustment for any stock dividend, stock split, stock combination or
other similar transaction which occur after the Initial Issuance Date) for
twenty (20) trading days in any thirty (30) consecutive trading period occurring
after the fifteen month anniversary of the applicable Effective Date, (B) the
- --------
/1/ In the case of Additional Debentures, $1.95.
- 17 -
volume in number of shares traded on fifteen (15) trading days out of such
twenty (20) trading period referred to in Clause (A) is greater than 250,000
(excluding block trades of 20,000 shares or more), and (C) during such twenty
(20) days the applicable Registration Statement shall have been effective at all
times and there shall not have been any Event of Defaults. If any of the
foregoing conditions shall cease to be satisfied at any time during the required
period, or if the Company shall fail to pay the Company Redemption Price in full
on the Optional Prepayment Date, then the Optional Prepayment Notice shall be
null and void, ab initio, and the Company may not deliver any subsequent
Optional Prepayment Notices. The Holder may convert any portion of this
Debenture prior to the Optional Prepayment Date. The Company covenants and
agrees that it will honor all Conversion Notices tendered from the time of
delivery of the Optional Prepayment Notice through the Optional Prepayment Date.
(c) Pro Rata Prepayment Requirement. If the Company elects to
cause a prepayment of all or any portion of this Debenture pursuant to Section
6(b), then it must simultaneously take the similar action with respect to all
Debentures and the Prepayment Amount for each holder of Debentures must be equal
to such holder's Prepayment Allocation Percentage multiplied by the aggregate of
all Prepayment Amounts which the Company elects to prepay pursuant to Section
6(b) of all Debentures. The "PREPAYMENT ALLOCATION PERCENTAGE" for any holder of
Debentures shall mean a fraction, the numerator of which is the principal amount
of the Debentures initially purchased by such holder on the Initial Issuance
Date and the denominator of which is the sum of the aggregate principal amount
of all Debentures purchased by all holders on the Initial Issuance Date. In the
event that the initial holder of any Debentures shall sell or otherwise transfer
any of such holder's Debentures, the transferee shall be allocated a pro rata
portion of such holder's Prepayment Allocation Percentage. The Optional
Prepayment Notice shall state (I) the aggregate Prepayment Amounts of all
Debentures which the Company has elected to prepay from all of the holders of
the Debentures pursuant to Section 6(b) and (II) each holder's Prepayment Amount
that the Company has elected to prepay pursuant to Section 6(b).
7. Ranking. This Debenture ranks junior to the Outstanding Debentures
and pari passu to all other Debentures now or hereafter issued pursuant to the
Transaction Documents. Other than as set forth in Section 8, no Indebtedness of
the Company is senior to this Debenture in right of payment, whether with
respect of interest, damages or upon Liquidation or dissolution or otherwise.
8. Secured Obligations. The payment obligations under this Debenture
are secured pursuant to the Security Agreements. This Debenture will be secured
by (i) a first priority, perfected security interest in the stock of MDT Armor
Corporation and any future assets acquired by or on behalf of the Company in an
Acquisition (as defined in the Security Agreements), (ii) a second priority
security interest in the assets of IES Interactive Training, Inc. and stock of
other subsidiaries directly or indirectly owned by the Company (other than that
of IES Interactive Training, Inc. and M.D.T. Protective Industries Ltd.),
subordinate only to the security interest in favor of the holders of Outstanding
Debentures and (iii) a third priority security interest in the stock of M.D.T.
Protective Industries Ltd., IES Interactive Training, Inc. and I.E.S. Defense
Services, Inc., subordinate only to the security interest in favor of the
- 18 -
holders of Outstanding Debentures and the security interest in favor IES
Electronics pursuant to the IES Security Agreement.
9. Restricted Actions. The Company shall not and shall not permit any
of its Subsidiaries to take any Restricted Action without the prior written
consent of the holders of the Debentures.
10. Miscellaneous.
(a) This Debenture shall be binding on the Company and its
successors and assigns and inure to the benefit of the Holder hereto and its
respective successors and assigns. This Debenture may be amended only in writing
signed by the Company and the Holder and their successors and assigns.
(b) Nothing in this Debenture shall be construed to give to
any Person other than the Company and the Holder any legal or equitable right,
remedy or cause under this Debenture.
(c) All questions concerning the construction, validity,
enforcement and interpretation of this Debenture shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflict of laws thereof. Each party
agrees that all Proceedings shall be commenced exclusively in the state and
federal courts sitting in The City of New York, Borough of Manhattan (the "NEW
YORK COURTS"). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for any proceeding, and hereby irrevocably
waives, and agrees not to assert in any Proceeding, any claim that it is not
personally subject to the jurisdiction of any New York Court or that a New York
Court is an inconvenient forum for such Proceeding. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Debenture 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 hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal Proceeding. If either party shall
commence a Proceeding, then the prevailing party in such Proceeding shall be
reimbursed by the other party for its attorney's fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
Proceeding.
(d) The headings herein are for convenience only, do not
constitute a part of this Debenture and shall not be deemed to limit or affect
any of the provisions hereof.
(e) In case any one or more of the provisions of this
Debenture shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Debenture shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
- 19 -
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Debenture.
(f) No provision of this Debenture may be waived or amended
except in a written instrument signed, in the case of an amendment, by the
Company and the Holder or, or, in the case of a waiver, by the Holder. No waiver
of any default with respect to any provision, condition or requirement of this
Debenture shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.
(g) If it shall be found that any interest due hereunder shall
violate applicable laws governing usury, the applicable rate of interest due
hereunder shall be reduced to the maximum permitted rate of interest under such
law.
(h) Except pursuant to the terms of this Debenture, the
outstanding principal amount and interest under this Debenture may not be
prepaid by the Company without the prior written consent of the Holder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
- 20 -
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the Original Issue Date.
AROTECH CORPORATION
By:
--------------------------------
Name:
Title:
- 21 -
EXHIBIT A
AROTECH CORPORATION
CONVERSION NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO CONVERT THIS NOTE INTO COMMON STOCK
Reference is made to the 8% Secured Convertible Debenture (the
"DEBENTURE") issued to the undersigned by Arotech Corporation (the "COMPANY").
In accordance with and pursuant to the Debenture, the undersigned hereby elects
to convert the principal of the Debenture indicated below into shares of common
stock, par value $.01 per share, of the Company (the "COMPANY COMMON STOCK") as
of the date specified below.
Date of Conversion:
----------------------------------------------------
Aggregate Principal Amount to be converted:
Please confirm the following information:
Conversion Price:
------------------------------------------------------
Number of shares of Company Common Stock to be issued:
Please issue the Company Common Stock into which the Note is being converted in
the following name and to the following address:
Issue to:
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
Facsimile Number:
------------------------------------------------------
Authorization:
---------------------------------------------------------
By:
---------------------------------------------------------
Title:
----------
Dated:
--------------------------------------------------------------------------
Account Number:
--------------------------------------------------------
(if electronic book entry transfer)
Transaction Code Number:
-----------------------------------------------
(if electronic book entry transfer)
SCHEDULE 1
CONVERSION SCHEDULE
8% Secured Convertible Debenture, due September 30, 2006, in the
aggregate principal amount of $_______ issued by Arotech Corporation.
This Conversion Schedule reflects conversions made under the above
referenced Debenture.
Dated: September 30, 2003
- ---------------------------- ---------------------------- --------------------- ---------------------- --------------------
Date of Conversion Amount of Conversion Aggregate Principal Applicable Mandatory
Amount Remaining Conversion Price Prepayment Amount
Subsequent to
Conversion
- ---------------------------- ---------------------------- --------------------- ---------------------- --------------------
- ---------------------------- ---------------------------- --------------------- ---------------------- --------------------
- ---------------------------- ---------------------------- --------------------- ---------------------- --------------------
- ---------------------------- ---------------------------- --------------------- ---------------------- --------------------
- ---------------------------- ---------------------------- --------------------- ---------------------- --------------------
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