PURCHASE
AGREEMENT
THIS PURCHASE AGREEMENT (the
“Agreement”) is made as of December 12,
2006, by and among The Allied Defense Group, Inc., a Delaware
corporation with headquarters located at 8000 Towers Crescent
Drive, Suite 260, Vienna, Virginia 72182 (the
“Company”), and the investors listed on the Schedule of
Investors attached hereto as Exhibit A (individually,
an “Investor” and collectively, the
“Investors”).
BACKGROUND
A. The Company and each Investor
are executing and delivering this Agreement in reliance upon the
exemption from registration afforded by Section 4(2) of the
Securities Act of 1933, as amended (the “ 1933 Act
”), and Rule 506 of Regulation D
(“Regulation D”) as promulgated by the
United States Securities and Exchange Commission (the “
SEC ”) under the 1933 Act.
B. Each Investor, severally and
not jointly, wishes to purchase, and the Company wishes to sell,
upon the terms and conditions stated in this Agreement
(i) that aggregate number of shares of the Common Stock, par
value $.10 per share, of the Company (the “Common
Stock”), set forth opposite such Investor’s name in
column two (2) on the Schedule of Investors in
Exhibit A (which aggregate amount for all Investors
together shall be 400,000 shares of Common Stock and shall
collectively be referred to herein as the “Common
Shares”).
NOW, THEREFORE, IN CONSIDERATION of
the mutual covenants contained in this Agreement, and for other
good and valuable consideration the receipt and adequacy of which
are hereby acknowledged, the Company and the Investors agree as
follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. In addition
to the terms defined elsewhere in this Agreement, the following
terms have the meanings indicated:
" 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 1933 Act.
" Agreement
” has the meaning set forth in the Preamble.
" AMEX
” means the American Stock Exchange.
“Best Efforts”
means the efforts that a prudent person desirous of achieving a
result would use in similar circumstances to ensure that such
result is achieved as expeditiously as practical; provided,
however, that an obligation to use Best Efforts under this
Agreement does not require the Company to dispose of or make any
change to its business, expend any material funds or incur any
other material burden.
" Business Day ” means
any day other than Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized or required
by law to remain closed.
" Closing ” means the
closing of the purchase and sale of the Common Shares pursuant to
Section 2.1.
" Closing Date ” means
the date and time of the Closing.
“Company” has the
meaning set forth in the Preamble.
“Common Shares”
means an aggregate of 400,000 shares of Common Stock, which are
being issued and sold by the Company to the Investors at the
Closing.
“Common Stock ”
means the common stock of the Company, par value $0.10 per
share.
“Convert
Investors” means the purchasers of the Company’s
outstanding convertible notes.
“Effective Date”
means the date that the Registration Statement is first declared
effective by the SEC.
“Effectiveness Period” has the meaning set forth
in Section 6.1(b) .
" 8-K Filing ” has the meaning set forth in
Section 4.5 .
“Eligible Market”
means any of the New York Stock Exchange, the AMEX, The Nasdaq
Global Select Market or The Nasdaq Capital Market.
“Exchange Act” means the Securities Exchange Act
of 1934, as amended.
“Filing Date” means 45 days after the
Closing Date.
“GAAP” has the
meaning set forth in Section 3.1(f) .
“Indemnified
Party” has the meaning set forth in
Section 6.4(c) .
" Indemnifying Party ”
has the meaning set forth in Section 6.4(c) .
“Investor” has
the meaning set forth in the Preamble.
" Lien ” means any lien,
charge, claim, security interest, encumbrance, right of first
refusal or other restriction.
“Losses” means any
and all losses, claims, damages, liabilities, settlement costs and
expenses, including, without limitation, reasonable attorneys
‘ fees.
“Material Adverse
Effect” means (i) a material adverse effect on the
results of operations, assets, business or financial condition of
the Company, or (ii) materially and adversely impair the
Company’s ability to perform its obligations under any of the
Transaction Documents, provided, that none of the following alone
shall be deemed, in and of itself, to constitute a Material Adverse
Effect: (a) a change in the market price or trading volume of
the Common Stock or (b) changes in general economic conditions
or changes affecting the industry in which the Company operates
generally (as opposed to Company-specific changes) so long as such
changes do not have a disproportionate effect on the Company.
“Options” means
any outstanding rights, warrants or options to subscribe for or
purchase Common Stock.
“Person” means any
individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability
company, or joint stock company.
“Proceeding” means
an action, claim, suit, investigation or proceeding (including,
without limitation, or a partial proceeding, such as a deposition),
whether commenced or threatened in writing.
“Prospectus” means
the prospectus included in the Registration Statement (including,
without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated
under the 1933 Act), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any
portion of the Common Shares covered by the Registration Statement,
and all other amendments and supplements to the Prospectus
including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such
Prospectus.
“Registration
Statement” means the registration statement required to
be filed under Article VI, including the Prospectus, amendments and
supplements to such registration statement or Prospectus, including
pre- and post-effective amendments, all exhibits thereto, and all
material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
“Regulation D” has the meaning set forth in
the Preamble.
“Rule 144,”
“Rule 415,” and “Rule 424”
means Rule 144, Rule 415 and Rule 424, respectively,
promulgated by the SEC pursuant to the 1933 Act, as such Rules may
be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC having substantially the same effect
as such Rule.
" SEC ” means the
Securities and Exchange Commission.
“SEC Reports” has the meaning set forth in
Section 3.1(f) .
“Shares” means
shares of the Company’s Common Stock.
“Short Sales” has
the meaning set forth in Section 3.2(h) .
“Trading Day”
means any day on which the Common Stock is listed or quoted and
traded on its primary Trading Market.
“Trading Market”
means the American Stock Exchange or any other Eligible Market, or
any national securities exchange, market or trading or quotation
facility on which the Common Stock is then listed or quoted.
“Transaction
Documents” means this Agreement, the schedules and
exhibits attached hereto, and the Transfer Agent Instructions.
“Transfer Agent”
means Mellon Investor Services, LLC, or any successor transfer
agent for the Company.
“Transfer Agent
Instructions” means, with respect to the Company,
irrevocable transfer agent instructions for issuance of the Common
Shares, executed by the Company and delivered to and acknowledged
in writing by the Transfer Agent.
ARTICLE II
PURCHASE AND SALE
2.1 Closing . Subject to the
terms and conditions set forth in this Agreement, at the Closing
the Company shall issue and sell to each Investor, and each
Investor shall, severally and not jointly, purchase from the
Company, such number of Common Shares for the price set forth
opposite such Investor’s name on Exhibit A hereto
under the headings “Common Shares.” The date and time
of the Closing and shall be 11:00 a.m., Vienna, Virginia time,
on the Closing Date. The Closing shall take place at the offices of
the Company.
2.2 First Refusal . It is
understood that pursuant to a prior contractual obligation, the
Company must provide the Convert Investors the opportunity to
purchase up to thirty percent (30%) of the Common Shares. The
Company will provide the Convert Investors an executed copy of this
Agreement and offer the Convert Investors the opportunity to
purchase up to thirty percent (30%) of the Common Shares on the
same terms and conditions as set forth herein. In the event any of
the Convert Investors elect to purchase Common Shares, the number
of Common Shares to be purchased by each Investor hereunder will be
proportionally reduced.
2.3 Closing Deliveries .
(a) At the
Closing, the Company shall deliver or cause to be delivered to each
Investor the following:
(i) duly executed Transfer
Agent Instructions acknowledged by the Transfer Agent; and
(ii) evidence of approval by
AMEX of an additional shares listing application covering all of
the Common Shares.
(b) At the
Closing, each Investor shall deliver or cause to be delivered to
the Company the purchase price set forth opposite such
Investor’s name on Exhibit A hereto under the
heading “Purchase Price” in United States dollars and
in immediately available funds, by wire transfer to an account
designated in writing to such Investor by the Company for such
purpose.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties
of the Company . The Company hereby represents and warrants to
the Investors as follows:
(a)
Organization and Qualification . The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, with the requisite legal
authority to own and use its properties and assets and to carry on
its business as currently conducted.
(b)
Authorization; Enforcement . The Company has the requisite
corporate authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents to
which it is a party and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of each of the
Transaction Documents to which it is a party by the Company and the
consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary action on the
part of the Company and no further consent or action is required by
the Company, its Board of Directors or its stockholders. Each of
the Transaction Documents to which it is a party has been (or upon
delivery will be) duly executed by the Company and is, or when
delivered in accordance with the terms hereof, will constitute, the
valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as may be limited by
(i) applicable bankruptcy, insolvency, reorganization or other
laws of general application relating to or affecting the
enforcement of creditors rights generally, and (ii) the effect
of rules of law governing the availability of specific performance
and other equitable remedies.
(c) No
Conflicts . The execution, delivery and performance of the
Transaction Documents to which it is a party by the Company and the
consummation by the Company of the transactions contemplated hereby
and thereby do not, and will not, (i) conflict with or violate
any provision of the Company’s certificate of incorporation
or bylaws, (ii) conflict with, or constitute a default (or an
event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice,
lapse of time or both) of, any agreement, credit facility, debt or
other instrument (evidencing a Company debt or otherwise) or other
understanding to which the Company is a party or by which any
property or asset of the Company is bound, or affected, except to
the extent that such conflict, default, termination, amendment,
acceleration or cancellation right would not reasonably be expected
to have a Material Adverse Effect, or (iii) result in a
violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or
governmental authority to which the Company is subject, or by which
any property or asset of the Company is bound or affected, except
to the extent that such violation would not reasonably be expected
to have a Material Adverse Effect.
(d) The Common
Shares . The Common Shares are duly authorized and, when issued
and paid for in accordance with the Transaction Documents, will be
duly and validly issued, fully paid and nonassessable, free and
clear of all Liens and will not be subject to preemptive or similar
rights of stockholders (other than those imposed by the Investors).
The offer, issuance and sale of the Common Shares to the Investors
pursuant to the Agreement, are exempt from the registration
requirements of the 1933 Act.
(e)
Capitalization . The aggregate number of shares and type of
all authorized, issued and outstanding classes of capital stock,
options and other Common Shares of the Company (whether or not
presently convertible into or exercisable or exchangeable for
shares of capital stock of the Company) is set forth in
Schedule 3.1(e) hereto. All outstanding shares of
capital stock are duly authorized, validly issued, fully paid and
nonassessable and have been issued in compliance in all material
respects with all applicable securities laws. Except as disclosed
in Schedule 3.1(e) hereto, the Company did not have
outstanding at November 30, 2006 any other options, warrants,
script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable or exchangeable for, or
entered into any agreement giving any Person any right to subscribe
for or acquire, any shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock.
(f) SEC Reports
. , Financial Statements . Except as set forth on
Schedule 3.1(f), the Company has filed all reports
required to be filed by it under the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, for
the 12 months preceding the date hereof. Such reports required to
be filed by the Company under the Exchange Act, including pursuant
to Section 13(a) or 15(d) thereof, together with any materials
filed or furnished by the Company under the Exchange Act, whether
or not any such reports were required being collectively referred
to herein as the “SEC Reports”. As of their
respective dates, the SEC Reports filed by the Company complied in
all material respects with the requirements of the 1933 Act and the
Exchange Act and the rules and regulations of the SEC promulgated
thereunder, and none of the SEC Reports, when filed by the Company,
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting
requirements and the rules and regulations of the SEC with respect
thereto as in effect at the time of filing. Such financial
statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent
basis during the periods involved (“ GAAP ”),
except as may be otherwise specified in such financial statements,
the notes thereto and except that unaudited financial statements
may not contain all footnotes required by GAAP or may be condensed
or summary statements, and fairly present in all material respects
the consolidated financial position of the Company and its
consolidated subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, year-end
audit adjustments.
(g)
Form S-1 Eligibility . The Company is eligible to
register the Common Shares for resale by the Investors using Form
S-1 promulgated under the 1933 Act.
3.2 Representations and Warranties
of the Investors . Each Investor hereby, as to itself only and
for no other Investor, represents and warrants to the Company as
follows:
(a)
Organization; Authority . Such Investor is an entity duly
organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with the requisite corporate,
partnership or other power and authority to enter into and to
consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations hereunder and
thereunder. The purchase by such Investor of the Common Shares
hereunder has been duly authorized by all necessary action on the
part of such Investor. This Agreement has been duly executed and
delivered by such Investor and constitutes the valid and binding
obligation of such Investor, enforceable against it in accordance
with its terms, except as may be limited by (i) applicable
bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting the enforcement of creditors
rights generally, and (ii) the effect of rules of law
governing the availability of specific performance and other
equitable remedies.
(b) No
Conflicts . The execution, delivery and performance by such
Investor of this Agreement and the consummation by such Investor of
the transactions contemplated hereby will not (i) result in a
violation of the organizational documents of such Investor or
(ii) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or
instrument to which such Investor is a party, or (iii) result
in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws) applicable to
such Investor, except in the case of clauses (ii) and
(iii) above, for such that are not material and do not
otherwise affect the ability of such Investor to consummate the
transactions contemplated hereby.
(c) No Public
Sale or Distribution . Such investor is (i) acquiring the
Common Shares, in the ordinary course of business for its own
account and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to
sales registered under the 1933 Act or under an exemption from such
registration and in compliance with applicable federal and state
securities laws, and such Investor does not have a present
arrangement to effect any distribution of the Common Shares to or
through any person or entity; provided, however, that
by making the representations herein, such Investor does not agree
to hold any of the Common Shares for any minimum or other specific
term and reserves the right to dispose of the Common Shares at any
time in accordance with or pursuant to a registration statement or
an exemption under the 1933 Act.
(d) Investor
Status . At the time such Investor was offered the Common
Shares, it was, and at the date hereof it is, an “accredited
investor” as defined in Rule 501(a) under the 1933 Act or a
“qualified institutional buyer” as defined in
Rule 144A(a) under the 1933 Act. Such Investor is not a
registered broker dealer registered under Section 15(a) of the
Exchange Act, or a member of the NASD, Inc. or an entity engaged in
the business of being a broker dealer.
(e) Experience
of Such Investor . Such Investor, either alone or together with
its representatives has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in
the Common Shares, and has so evaluated the merits and risks of
such investment. Such Investor understands that it must bear the
economic risk of this investment in the Common Shares indefinitely,
and is able to bear such risk and is able to afford a complete loss
of such investment.
(f) Access to
Information . Such Investor acknowledges that it has reviewed
the SEC Reports and has been afforded: (i) the opportunity to
ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms
and conditions of the offering of the Common Shares and the merits
and risks of investing in the Common Shares; (ii) access to
information (other than material non-public information) about the
Company and its respective financial condition, results of
operations, business, properties, management and prospects
sufficient to enable it to evaluate its investment; and
(iii) the opportunity to obtain such additional information
that the Company possesses or can acquire without unreasonable
effort or expense that is necessary to make an informed investment
decision with respect to the investment. Such Investor acknowledges
receipt of copies of the SEC Reports.
(g) No
Governmental Review . Such Investor understands that no United
States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or
endorsement of the Common Shares or the fairness or suitability of
the investment in the Common Shares nor have such authorities
passed upon or endorsed the merits of the offering of the Common
Shares.
(h) Illegal
Transactions . No Investor, directly or indirectly, and no
Person acting on behalf of or pursuant to any understanding with
any Investor, has engaged in any transactions in the Common Shares
of the Company (including, without limitation, any Short Sales
involving any of the Company’s Common Shares) since the time
that such Investor was first contacted by the Company regarding an
investment in the Company. Such Investor covenants that neither it
nor any Person acting on its behalf or pursuant to any
understanding with such Investor will engage, directly or
indirectly, in any transactions in the Common Shares of the Company
(including Short Sales) prior to the time the transactions
contemplated by this Agreement are publicly disclosed. “
Short Sales ” include, without limitation, all
“short sales” as defined in Rule 200 promulgated
under Regulation SHO under the Exchange Act and all types of
direct and indirect stock pledges, forward sale contracts, options,
puts, calls, short sales, swaps, derivatives and similar
arrangements (including on a total return basis), and sales and
other transactions through non-U.S. broker-dealers or foreign
regulated brokers.
(i) Restricted
Common Shares . The Investors understand that the Common Shares
are characterized as “restricted Common Shares” under
the U.S. federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public
offering and that under such laws and applicable regulations such
Common Shares may be resold without registration under the 1933 Act
only in certain limited circumstances.
(j) Legends
. It is understood that, except as provided in Section 4.1(b)
of this Agreement, certificates evidencing such Common Shares may
bear the legend set forth in Section 4.1(b)
(k) No Legal,
Tax or Investment Advice . Such Investor understands that
nothing in this Agreement or any other materials presented by or on
behalf of the Company to the Investor in connection with the
purchase of the Common Shares constitutes legal, tax or investment
advice. Such Investor has consulted such legal, tax and investment
advisors as it, in its sole discretion, has deemed necessary or
appropriate in connection with its purchase of the Common
Shares.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions
.
(a) The
Investors covenant that the Common Shares will only be disposed of
pursuant to an effective registration statement under, and in
compliance with the requirements of, the 1933 Act or pursuant to an
available exemption from the registration requirements of the 1933
Act, and in compliance with any applicable state securities laws.
In connection with any transfer of Common Shares other than
pursuant to an effective registration statement or to the Company,
or pursuant to Rule 144(k), the Company may require the
transferor to provide to the Company an opinion of counsel selected
by the transferor, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such
transfer does not require registration under the 1933 Act.
Notwithstanding the foregoing, the Company hereby consents to and
agrees to register on the books of the Company and with its
transfer agent, without any such legal opinion, except to the
extent that the transfer agent requests such legal opinion, any
transfer of Common Shares by an Investor to an Affiliate of such
Investor, provided that the transferee certifies to the Company
that it is an “accredited investor” as defined in Rule
501(a) under the 1933 Act and provided that such Affiliate does not
request any removal of any existing legends on any certificate
evidencing the Common Shares.
(b) The
Investors agree to the imprinting, so long as is required by this
Section 4.1(b), of the following legend on any certificate
evidencing any of the Common Shares:
THESE COMMON SHARES HAVE NOT BEEN REGISTERED W1TII THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURTIES
ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR ANY
APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE 1933 ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT AND IN COMPLIANCE WITH APPLICABLE
STATE SECURITIES LAWS OR BLUE SKY LAWS.
Certificates evidencing Common Shares
shall not be required to contain such legend or any other legend
(i) while a registration statement (including the Registration
Statement) covering the resale of the Common Shares is effective
under the 1933 Act, (ii) following any sale of such Common
Shares pursuant to Rule 144 if the holder provides the Company
with a legal opinion (and the documents upon which the legal
opinion is based) reasonable acceptance to the Company to the
effect that the Common Shares can be sold under Rule 144,
(iii) if the holder provides the Company with a legal opinion
(and the documents upon which the legal opinion is based)
reasonably acceptable to the Company to the effect that the Common
Shares are eligible for sale under Rule 144(k), or (iv) if the
holder provides the Company with a legal opinion (and the documents
upon which the legal opinion is based) reasonably acceptable to the
Company to the effect that the legend is not required under
applicable requirements of the 1933 Act (including controlling
judicial interpretations and pronouncements issued by the Staff of
the SEC). The Company shall cause its counsel to issue the legal
opinion included in the Transfer Agent Instructions to the Transfer
Agent on the Effective Date. Following the Effective Date or at
such earlier time as a legend is no longer required for certain
Common Shares, the Company will no later than three Trading Days
following the delivery by an Investor to the Company or the
Transfer Agent of (i) a legended c
