PROXY AGREEMENT WITH RESPECT TO CAPITAL STOCK OF API DEFENSE USA, INC
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PROXY AGREEMENT WITH RESPECT TO CAPITAL STOCK OF API DEFENSE USA, INC
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WITH RESPECT TO CAPITAL STOCK
API DEFENSE USA, INC.
WITH RESPECT TO CAPITAL STOCK
API DEFENSE USA, INC.
Table of Contents
WITH RESPECT TO CAPITAL STOCK
API DEFENSE USA, INC.
345 Pomroys Drive
Windber, PA 15963
This Proxy Agreement (“Agreement”) is made this day of , 2010, by and among API Defense USA, Inc., a Delaware corporation (“Corporation”); API Technologies Corp., a Delaware corporation (“Shareholder”); Messrs. Phillip DeZwirek and Jason DeZwirek (“Ultimate Shareholders”); Robert T. Conway, Jr., Kenneth L. Fisher, and Richard D. Hearney, and their successors appointed as provided in this Agreement (each individually a “Proxy Holder” and collectively the “Proxy Holders”); and the United States Department of Defense (“DoD”); all of the above collectively the “Parties.”
WHEREAS , the Corporation is duly organized and existing under the laws of the State of Delaware and has an authorized capital of 1,000 shares, all of which are common voting shares with par value $0.001 per share, and 100 shares issued and outstanding with no par value; and
WHEREAS , the Ultimate Shareholders, directly or indirectly, own or control 19.19 percent of the outstanding voting shares of the Shareholder; and
WHEREAS , the Shareholder owns all the outstanding voting shares of the Corporation; and
WHEREAS , the Corporation and its subsidiaries perform * * * for various User Agencies of the United States (“U.S.”) Government, 1 including, without limitation, the DoD; and
WHEREAS , the offices and plants of the Corporation and certain of its subsidiaries require facility security clearances 2 issued under the National Industrial Security Program (“NISP”) to conduct its business and the NISP requires that a corporation maintaining a facility security clearance be effectively insulated from foreign ownership, control or influence (“FOCI”); and
WHEREAS , the Under Secretary of Defense for Intelligence (“USD (I)”) has determined that the provisions of this Agreement are necessary to enable the United States to protect itself against the unauthorized disclosure of information relating to the National Security; and
WHEREAS , the DoD will not grant or continue the facility clearances of the Corporation or its subsidiaries without, at a minimum and without limitation, the Parties’ execution and compliance with the provisions of this Agreement, the purpose of which is to reasonably and effectively deny the Affiliates, as defined below, from unauthorized access to classified information 3 and controlled unclassified information 4 and influence over the Corporation’s business or management in a manner that could result in the compromise of classified information or could adversely affect the performance of classified contracts. As used herein, the term “Affiliates” means: (i) the Shareholder; (ii) the Ultimate Shareholders; and (iii) except for the Corporation itself and its subsidiaries, each entity that, whether directly or indirectly, controls, is controlled, or is under common control with the Shareholder or the Ultimate Shareholders, which shall include without limitation, Icarus Investment Corporation, a Delaware corporation, Icarus Investment Corporation, a corporation organized and existing under the laws of Canada, and New Dimension Resources Ltd., a company organized and existing under the laws of Canada; and
WHEREAS , a schedule listing each Affiliate is attached hereto as Attachment A; and
WHEREAS , certain investors have sufficient holdings in the Shareholder to require them to file Forms 13D and 13G with the U.S. Securities & Exchange Commission (“SEC”), and a schedule listing each such Investor is attached hereto as Attachment B; and
WHEREAS , the Defense Security Service (“DSS”) has oversight responsibilities of the NISP on behalf of the DoD; and the NISP requires that a corporation maintaining such a facility clearance be effectively insulated from FOCI, this Agreement is entered into between the Parties in order to negate such FOCI, and to be submitted to DSS for approval as required by applicable DoD regulation and policy; and
WHEREAS , in order to comply fully with the National Industrial Security Program Operating Manual (“NISPOM”), DoD 5220.22-M, the parties hereto have agreed that the control of the voting shares (“Shares”) of the Corporation should be vested in citizens of the United States.
NOW THEREFORE , in consideration of the premises and of the mutual undertakings of the Parties hereinafter set forth, a Proxy Agreement in respect of the shares of the Corporation is hereby created and established, subject to the following terms and conditions, to each of which the Parties expressly assent and agree:
Article I - Establishment of Proxy Agreement
1.01. Independence of Corporation . The establishment of this Agreement shall involve the selection of no less than three Proxy Holders with the qualifications set forth below in Section 2.01. Pursuant to Article XIII below, the Shareholder shall grant proxies to the Proxy Holders in accordance with this Agreement. DoD shall determine whether all of the requirements set forth in this Agreement have been satisfied, including the necessary independence, separation of operation, and lack of interdependence between the Affiliates on the one hand, and the Corporation and/or its subsidiaries on the other hand, and the financial self-reliance and business viability of the Corporation. * * *
1.02. * * *
Article II - Appointment of Proxy Holders
2.01. Initial Proxy Holder nominees will be chosen by the Shareholder. The initial and successor Proxy Holders shall: (i) be resident citizens of the United States; (ii) have had no prior contractual, financial, or employment relationships with the Affiliates or the Corporation; (iii) certify their willingness to accept their security responsibilities; and (iv) be eligible for the requisite personnel security clearance. 5 The appointment of initial and successor Proxy Holders shall not become effective until approved by DSS.
2.02. The Shareholder may not remove a Proxy Holder except for acts of gross negligence or willful misconduct while in office or as authorized by Section 2.03 below. The Shareholder may remove a Proxy Holder for such acts by an instrument signed by or on behalf of the Shareholder and filed with the Corporation at its principal office in Windber, Pennsylvania. The Shareholder must notify DSS pursuant to Section 15.01 below at least twenty (20) days prior to filing such instrument. Such an instrument of removal shall not be effective until a successor Proxy Holder who is qualified to serve hereunder has accepted appointment. However, if such removal would result in only one remaining Proxy Holder, then such an instrument of removal shall not be effective until a successor Proxy Holder who is qualified to serve hereunder has accepted appointment.
2.03. With the approval of DSS, the Shareholder may also remove a Proxy Holder for acts in violation of this Agreement, including the inability to protect the legitimate economic interests of the Shareholder pursuant to Section 6.05 below. The Shareholder must petition DSS for permission to remove a Proxy Holder for acts in violation of this Agreement. However, DSS has the right to determine, in its sole discretion, whether to grant such petition.
2.04. A Proxy Holder may at any time resign by submitting to the Corporation at its principal office in Windber, Pennsylvania, a resignation in writing, with notice to the Shareholder and DSS pursuant to Section 15.01 below. Such resignation shall be effective on the date of resignation stated by the Proxy Holder. No formal acceptance of resignation by the Corporation is necessary to make the resignation effective. Upon resignation, a Proxy Holder’s obligations and responsibilities under this Agreement are completed.
2.05. Nomination and appointment of successor Proxy Holders shall be accomplished as follows:
a. In the event of the death, resignation, removal or inability to act of any Proxy Holder, the Corporation shall give prompt written notice to DSS and the Shareholder. The remaining Proxy Holders shall nominate a successor Proxy Holder using their best efforts 6 and diligence, and shall notify the Shareholder and DSS of the nominee. In the event that a nominee is vetoed by the Shareholder pursuant to Section 2.05.b below, the remaining Proxy Holders shall use their best efforts and diligence to nominate an alternate successor Proxy Holder.
b. The Shareholder shall not have the right to nominate or suggest any person for the position of a successor Proxy Holder. The Shareholder shall have the right to veto without cause a nominee for the position of successor Proxy Holder. Absent a veto by the Shareholder of a nominee, and upon approval by DSS, the nominee may be appointed by the remaining Proxy Holders. The Shareholder shall notify the remaining Proxy Holders and DSS of acceptance or veto within twenty (20) days of receipt of the nomination of a successor Proxy Holder. Failure by the Shareholder to notify the Proxy Holders within twenty (20) days of notification of nomination shall be deemed to constitute acceptance.
c. If the Shareholder vetoes three successive nominees proposed by the remaining Proxy Holders, the third nominee, upon approval by DSS, shall be accepted absent an appeal submitted by the Shareholder to DSS for reasonable cause.
d. Any nomination and appointment of a successor Proxy Holder shall be made by an instrument in writing signed by the remaining Proxy Holders. Counterparts of such instrument shall be delivered to the Corporation, DSS and the Shareholder as provided in Section 15.01 below.
2.06. Acceptance of appointment for all initial or successor Proxy Holders as provided above may only be accomplished by their agreement to be bound by the terms of this Agreement, as evidenced by their signature on the counterpart of this Agreement on file at the Corporation’s principal office in Windber, Pennsylvania, with copies to the incumbent Proxy Holders, the Shareholder and DSS. Upon acceptance of appointment by the nominee and approval by DSS, the initial or successor Proxy Holders shall be vested with all the rights, powers, authority and immunities herein conferred upon the Proxy Holders by this Agreement.
2.07. Upon the death, resignation, removal or disability of a Proxy Holder, the remaining Proxy Holders may exercise all of the rights, powers and privileges of the Proxy Holders as set forth in this Agreement until a successor accepts appointment. If no Proxy Holders remain, the Chairman or Acting Chairman of the Board of Directors of the Corporation shall, upon written notice to DSS, be automatically vested with all rights, powers, authorities and immunities of the Proxy Holders for an interim period not to exceed thirty (30) days, except that the Shareholder shall, under such circumstances, have the right to appoint two new Proxy Holders pursuant to Section 2.01 above. The two new Proxy Holders shall nominate the third Proxy Holder pursuant to Section 2.05 above.
Article III - Acknowledgment of Obligations
3.01. All Proxy Holders shall become Directors of the Corporation. The Proxy Holders may appoint or remove other Directors in their sole discretion. The Board of Directors of the Corporation shall elect a Chairman, who may be one of the Proxy Holders.
3.02. The terms of compensation including any and all benefits for the Proxy Holders shall be negotiated between the Proxy Holders and the Shareholder, and shall be paid by the Corporation. Said terms, which may include provisions agreed upon in advance * * *, shall not be changed during the Proxy Holders’ tenure as Proxy Holders, and shall be provided to DSS.
3.03. The Proxy Holders agree to perform the duties set forth in, and be bound by, all provisions of this Agreement. The Proxy Holders shall exercise the powers bestowed upon them by, and perform the duties set forth in, this Agreement according to their best efforts.
3.04. Each Proxy Holder agrees as follows:
a. that, in order to be qualified under this Agreement, he must have had no prior or existing contractual, financial or employment relationships with either the Corporation or the Affiliates prior to his appointment;
b. that, in order to maintain his qualification as a Proxy Holder, he shall not establish any relationship of any kind with the Shareholder, the Affiliates or the Corporation except as may be required or permitted by this Agreement; and
c. that, in order to be processed for and remain eligible for a U.S. Government personnel security clearance, he must reside in the United States during his term of service as a Proxy Holder under this Agreement.
3.05. In recognition of their obligations under this Agreement, the Proxy Holders individually and collectively acknowledge and agree as follows:
a. that the Shares are being placed under proxy in accordance with this Agreement as a security measure designed to insulate the Corporation from any foreign control or influence that may arise from the Shareholder’s ownership of the Shares;
b. that the U.S. Government is placing its reliance upon them as U.S. citizens to exercise independently all the prerogatives of ownership of the Corporation;
c. that, one year from the effective date of this Agreement and annually thereafter, they shall ensure that a report is submitted to DSS in accordance with Section 9.02 below;
d. that, upon the acceptance of his appointment, each Proxy Holder shall be briefed by a representative of DSS on his responsibilities under the NISPOM and this Agreement;
e. that, one year from the effective date of this Agreement and annually thereafter, they shall meet with representatives of DSS in accordance with Section 9.01 below;
f. that, upon the acceptance of his appointment and annually thereafter, each Proxy Holder shall execute for delivery to DSS a certificate affirming his agreement to be bound by, and the acceptance of, his responsibilities under this Agreement;
g. that they shall not accept direction from the Shareholder on any matter before them or the Board of Directors of the Corporation, and they shall not permit the Shareholder to exercise any control or influence over the business or management of the Corporation except as provided in this Agreement;
h. that they shall ensure that the management appointed by them fully understands their responsibility to exercise all the prerogatives of management with complete independence from any foreign influence or control;
i. that they shall ensure that each principal officer of the Corporation is furnished with a policy statement on FOCI stating that management has complete independence from the Shareholder, management and the principal officers are barred from taking any action that would countermand this Agreement, and that any suspected violation of this Agreement shall be reported immediately to the Chairman of the Government Security Committee (see Article VIII below); and
j. that they shall ensure that records, journals and minutes of meetings and copies of all communications sent or received by them in the execution of their duties as Proxy Holders are properly maintained. Such data and copies of all information furnished to the Shareholder by the Corporation or the Proxy Holders shall be made available upon request for review by DSS at the offices of the Proxy Holders or the Corporation.
3.06. The Proxy Holders shall appoint an independent financial auditor to conduct an annual audit of the Corporation’s books and records. * * * The Proxy Holders shall advise DSS and the Shareholder of their action. Upon completion of the audit and review by the Proxy Holders, and subject to the removal of any information not releasable under this Agreement, the audit report shall be forwarded to the Shareholder.
Article IV - Indemnification and Compensation of Proxy Holders
4.01. In voting the Shares and in their capacity as Directors of the Corporation, the Proxy Holders shall vote and act on all matters in accordance with their best efforts.
4.02. The Corporation and the Shareholder jointly and severally shall indemnify and hold each Proxy Holder harmless from any and all claims arising from or in any way connected to his performance as a Proxy Holder, which includes services as a Director of the Corporation, under this Agreement except for his own individual gross negligence or willful misconduct. The Corporation and the Shareholder shall advance fees and costs incurred by any Proxy Holder in connection with the defense of any such claim to the maximum extent permitted by Delaware law.
4.03. The compensation of the Proxy Holders, as well as any reasonable and necessary travel or other expense paid or incurred by the Proxy Holders in the administration of their duties under this Agreement, shall be borne and promptly paid by the Corporation upon submission of reasonably detailed documentation to the Corporation by or on behalf of the Proxy Holders.
Article V - Restrictions Binding on Subsidiaries of the Corporation
5.01. The Parties agree that the provisions of this Agreement shall apply to, and shall be made binding upon, all present and future subsidiaries and business lines or divisions of the Corporation. The Corporation hereby agrees to undertake any and all measures, and to provide such authorizations, as may be necessary to effectuate this requirement. The sale of, or termination of the Corporation’s control over, any such subsidiary shall terminate the applicability of this Agreement to it.
5.02. If the Corporation proposes to form a subsidiary, or to acquire ownership or control of another company, it shall give notice of such proposed action to DSS and shall advise DSS immediately upon consummation of such formation or acquisition. * * *
Article VI - Actions by the Proxy Holders
6.01. The Proxy Holders shall adopt written standard operating procedures (“Operating Procedures”) which shall be followed by the Proxy Holders in discharging their responsibilities under this Agreement. The Operating Procedures shall be maintained by the Proxy Holders for review by DSS. The Shareholder may review the Operating Procedures only with the advance written approval of DSS. Shareholder appeals of any provision of the Operating Procedures shall be forwarded to DSS. DSS reserves the right to determine, in its sole discretion, whether such appeal should be favorably considered.
6.02. The Proxy Holders shall hold regularly scheduled meetings. These official meetings may be held at such time and at such place within the United States as shall be decided, from time to time, by a majority of the Proxy Holders. At least four (4) meetings shall be held each year. Minutes of such meetings shall be prepared and retained by the Proxy Holders for review by DSS.
6.03. For the purpose of conducting the Corporation’s business, a majority of the Proxy Holders shall be required to be present, either in person or by written proxy, at an official meeting. Each Proxy Holder who is present either in person or by written proxy, shall have the right to cast one vote on each question. In lieu of a meeting, action may also be taken on the business of the Corporation by a writing signed by all the Proxy Holders. Each Proxy Holder agrees to attend, except for good cause shown, not less than fifty percent (50%) of all official meetings held in one year’s time at which his attendance is formally requested pursuant to the Operating Procedures.
6.04. No proxy to vote the Shares may be given to, or voted by, any person other than one of the Proxy Holders.
6.05. Subject at all times to the responsibility to ensure compliance by the Corporation with NISPOM’s requirements and this Agreement, the Proxy Holders shall act in good faith as reasonably prudent persons to protect the legitimate economic interests of the Shareholder in the Corporation as an ongoing business concern.
Article VII - Voting Discretion
7.01. Except as otherwise provided in this Agreement, the Proxy Holders shall possess and shall be entitled to exercise in their sole and absolute discretion, with respect to any and all of the Shares at any time covered by this Agreement, the right to vote the same or to consent to any and every act of the Corporation in the same manner and to the same extent as if they were the absolute owners of such Shares in their own right. All decisions and actions by the Proxy Holders pursuant to this Agreement shall be based on their independent judgment and shall be free from any control or influence from the Shareholder in any manner whatsoever except as specifically permitted in this Agreement. Any communication of any nature and by any means from the Shareholder that is deemed by the Proxy Holders to be an attempt to assert any influence or control precluded by this Agreement shall be reported immediately by the Proxy Holders to DSS.
7.02. In addition to the general authorities conferred by Section 7.01 above, the Proxy Holders are specifically authorized in the exercise of their sole and absolute discretion with respect to any and all of the Shares to vote for or consent to:
a. the election of Directors of the Corporation;
b. any changes or amendments to the Articles of Incorporation or Bylaws of the Corporation 7 other than those necessary pursuant to Section 7.04 below, and except as described in Section 7.03 below;
c. the sale, transfer or disposal of the property or assets of the Corporation, except as prohibited in Section 7.03 below;
d. the pledging, mortgaging or encumbering of any assets of the Corporation, which any shareholder might otherwise lawfully exercise, except as described in Section 7.03 below;
e. except as prohibited in Section 7.03 below, * * *;
f. * * *;g. * * *;
h. the appointment or dismissal of officers and senior managers, provided that: (i) the Shareholder reserves the authority to require that the Proxy Holders remove the CEO of the Corporation, and the Proxy Holders shall so remove the CEO of the Corporation, in the event that: (a) the CEO is the subject of a criminal conviction; or (b) the CEO is determined by the Proxy Holders to have materially violated the Corporation’s Code of Ethics; * * *; and (ii) under no other circumstances may the Shareholder require the Proxy Holders remove the CEO of the Corporation, but if the Corporation and its subsidiaries fail to meet the targets; * * *, the Shareholder may request that the Proxy Holders remove the CEO of the Corporation, and the Proxy Holders shall do so if: (a) in the exercise of their business judgment such removal is warranted; and (b) the Proxy Holders provide the Shareholder with a rationale for their decision* * *;
i. the appointment or dismissal of employees with access to classified information or sensitive technology or data; and
j. any action with respect to the foregoing, or any other matter affecting the Corporation, and not specifically described in Section 7.03 below, which any shareholder might otherwise lawfully exercise.
7.03. The Proxy Holders are not authorized to take any of the following actions without the express written approval of the Shareholder:
a. sell or dispose of, in any manner, the capital assets (tangible or intangible) or business