Exhibit 10.1
SETTLEMENT AGREEMENT, WAIVER AND
AMENDMENT
This SETTLEMENT AGREEMENT, WAIVER
AND AMENDMENT (this “ Agreement ”), dated as
of May 22, 2009 (the “ Effective Date ”),
is entered into by and among American Defense Systems, Inc., a
Delaware corporation (the “ Company ”), and the
stockholders of the Company parties hereto (individually, a “
Holder ” and collectively, the “ Holders
”). Unless otherwise specified herein, capitalized
terms used and not otherwise defined herein shall have the meanings
assigned to such terms in the Certificate of Designations (as
defined below).
RECITALS
A.
The Company and the Holders are parties to the Securities Purchase
Agreement, dated as of March 7, 2008 (as may be amended,
modified, restated or supplemented from time to time, the “
Securities Purchase Agreement ”), pursuant to which
the Holders purchased from the Company shares of the
Company’s Series A Convertible Preferred Stock, par
value $0.001 per share (the “ Series A Preferred
Stock ”), the terms of which are set forth in the
certificate of designation for such series of preferred stock filed
by the Company with the Secretary of State of the State of Delaware
on March 7, 2008 (the “ Certificate of
Designations ”).
B.
The Holders and the Company entered into a Consent and Agreement of
Series A Convertible Preferred Stockholders, dated
May 23, 2008 (the “ Consent and Agreement
”), pursuant to which, among other things, the Company agreed
to certain financial covenants with respect to the Company’s
fiscal year ended December 31, 2008, which the Company failed
to satisfy.
C.
On April 14, 2009, one of the Holders delivered to the Company
a notice of Triggering Event redemption purportedly pursuant to a
redemption option provided under the Certificate of Designations
(the “ Notice of Triggering Event Redemption ”),
demanding that the Company (i) immediately redeem the
14,025 shares of Series A Preferred Stock owned by such
Holder for an aggregate price of $15,427,500.00, (ii) pay
$470,317.81 as dividends allegedly accrued from January 1,
2009 through April 13, 2009 on such shares of Series A
Preferred Stock at the cash dividend rate of 12%, and
(iii) pay $70,000.00 in legal fees and expenses such Holder
incurred in connection with the negotiations relating to the breach
of the financial covenants contained in the Consent and
Agreement.
D.
The Company and the Holders desire to, among other things, settle
certain claims by the Holders against the Company, waive the breach
of the financial covenants contained in the Consent and Agreement
and make certain amendments to the Warrants (as such term is
defined in the Securities Purchase Agreement), all as more fully
set forth herein.
TERMS OF
AGREEMENT
In consideration of the premises and
further valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as
follows:
1.
Amendment to
Warrants . On the Effective Date, each of the
Warrants issued to the Holders pursuant to the Securities Purchase
Agreement (which Warrants are numbered A-1, A-2, A-3 and A-4) is
hereby amended by deleting paragraph (b) of Section 1 of
such Warrant in its entirety and replacing it with the following
new paragraph (b):
“(b) Exercise
Price . For purposes of this Warrant, “ Exercise
Price ” means $0.01.”
2.
Waivers
. As
of the Effective Date, subject to the Company’s performance
of its obligations hereunder, the Holders hereby waive (i) any
breach by the Company of any of the covenants or agreements
contained in Section 6 of the Consent and Agreement,
(ii) any breach by the Company of its obligation to timely pay
Dividends under the Certificate of Designation for any period
through September 30, 2009, (iii) any breach by the
Company of its obligation (including under
Section 4(f) of the Securities Purchase Agreement) to
cause the listing with an Eligible Market of any Listed Securities
in excess of 7,858,358 shares of Common Stock (the “
Excess Shares ”), and (iv) any Equity Conditions
Failure and any Triggering Event otherwise arising under the
Certificate of Designation as a result of any of the foregoing
breaches (and, for the avoidance of doubt, the Holders acknowledge
that, for purposes of Section 3(c) of the Certificate of
Designations, the Equity Conditions shall be deemed to have been
satisfied on December 31, 2008).
3.
Covenants and Agreements of
the Company .
(a)
On the Effective Date, in full
satisfaction of the Company’s obligation to pay Dividends
under the Certificate of Designations on March 31, 2009,
June 30, 2009 and September 30, 2009, the Company shall
(i) issue to the Holders the number of shares of Common Stock
payable as Dividends under the Certificate of Designations as of
March 31, 2009, June 30, 2009 (in advance) and
September 30, 2009 (in advance) (collectively, the “
Settlement Shares ”); provided that,
notwithstanding anything to the contrary contained in the
Certificate of Designations, solely for purposes of such
calculation, the Dividend Rate applicable to the Dividend Shares
otherwise issuable on March 31, 2009 shall be 12%, the
Dividend Rate applicable to the Dividend Shares otherwise issuable
on June 30, 2009 and September 30, 2009 shall be 10%, and
the Dividend Conversion Price for each such period shall be $0.60,
and (B) cause its transfer agent to deliver to the Holders,
within five (5) business days following the Effective Date of
this Agreement, share certificates evidencing such Settlement
Shares. The number of shares of Common Stock to be issued to
each Holder pursuant to this Section 3(a) is set forth on
Schedule 1 attached hereto.
(b)
On the Effective Date, the Company
shall execute and deliver to the Holders a Registration Rights
Agreement with respect to the Settlement Shares in the form of
Exhibit A attached hereto (the “ Registration
Rights Agreement ”).
(c)
On or before June 30, 2009, the
Company shall pay (i) to Shulte Roth & Zabel LLP, all
unpaid legal fees and disbursements incurred by the Holders in
connection with the Transaction Documents (as such term is defined
in the Securities Purchase Agreement), the Notice of Triggering
Event Redemption and related matters, in the amount of $70,000, and
(ii) to
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Reicker, Pfau, Pyle & McRoy LLP, all
reasonable legal fees and disbursements incurred by the Holders in
connection with the negotiation and execution of this Agreement and
the transactions contemplated hereby, not to exceed $10,000 in the
aggregate.
(d)
On the Effective Date, each of the
Company’s executive officers and directors shall execute and
deliver to the Company a Lock-Up Agreement in the form of
Exhibit B attached hereto (collectively, the “
Lock-Up Agreements ”).
(e)
The Company shall use best efforts
to cause TD Bank, or any successor bank or other provider of bank
financing to the Company (the “ Senior Lender
”), prior to December 31, 2009, to enter into an
intercreditor agreement with the Holders, in form and substance
reasonably satisfactory to the Holders, setting forth the
respective rights and obligations of the Senior Lender and the
Holders upon the occurrence of an event of default under the loan
documents between the Company and the Senior Lender.
(f)
Within 30 days following the
Effective Date, the Company shall file all applications and pay all
fees necessary to list the Excess Shares on an Eligible
Market.
(g)
If any Preferred Shares remain
outstanding on December 31, 2009, the Company shall, on such
date, redeem for an amount in cash per Preferred Share equal to the
Stated Value (the “ Interim Redemption Price ”)
by wire transfer of immediately available funds to an account
designated in writing by each Holder, such number of Preferred
Shares as can be purchased at the Interim Redemption Price for an
aggregate purchase price of $7,500,000 (or such lesser purchase
price as may be sufficient to purchase all of the Preferred Shares
then outstanding at the Interim Redemption Price).
(i)
If less than all of the Preferred
Shares then outstanding are redeemed pursuant to this
Section 3(g), the Company shall redeem a pro rata amount from
each Holder of such Holder’s Allocation Percentage multiplied
by the total number of Preferred Shares to be redeemed from all
Holders.
(ii)
(A)
If the Company for any reason fails to redeem all of the Preferred
Shares required to be purchased pursuant to this
Section 3(g) by payment of the Interim Redemption Price
for each such Preferred Share by December 31, 2009, then, in
lieu of any other remedies or damages available to any Holder under
any Transaction Document (other than any remedies or damages
available in the event of fraud by the Company), (i) the
applicable Interim Redemption Price payable in respect of such
unredeemed Preferred Shares shall be increased by an amount equal
to 10% of the Stated Value, (ii) the Company shall use its
best efforts to obtain the approval of the Stockholders of the
Company to reduce the Conversion Price to $0.50, and (iii) the
Company shall (A) on or before January 10, 2010, expand
the size of the Board of Directors by two (2) positions, and
fill such positions with persons designated in writing by the
Required Holders, and (B) thereafter exercise its best efforts
to amend the Company’s Certificate of Incorporation to grant
to the holders of Preferred Shares, voting as a separate class, the
right to elect two persons to serve as members of the
Company’s Board of Directors (the “ Director
Designees ”), and (C) for so long as any Preferred
Shares remain outstanding, take all actions within its control to
allow the Director Designees to serve on the Company’s Board
of Directors (provided that each such Director Designee satisfies
any
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applicable laws and the rules of any stock
exchange or over-the-counter market on which the Common Stock then
trades). Commencing December 1, 2009, the Company shall
take the actions required to seek to obtain approval from the
stockholders of the Company for such amendments to the
Company’s certificate of incorporation as may be necessary or
convenient for reducing the Conversion Price to $0.50 and granting
to the holders of the Preferred Shares, voting as a separate class,
the right to elect the Designated Directors, in each instance as
contemplated by the foregoing provisions of this
Section 3(g)(2)(A)) (including but not limited to
(i) calling a meeting of the Company’s stockholders to
consider such an amendment to the Company’s certificate of
incorporation, (ii) submitting to the United States Securities
and Exchange Commission a preliminary proxy statement for the
contemplated stockholder meeting, (iii) mailing notice of a
stockholders’ meeting to the Company’s stockholders,
and (iv) subject to receipt of the requisite stockholder
approval, filing the amendment to the certificate of incorporation
to effect such changes) if, as of December 1, 2009, the
Company does not reasonably believe that the Company will be able
to redeem at least $7.5 million of the Preferred Shares at the
Interim Redemption Price on or before December 31,
2009.
(B)
The Holders agree that (i) any Common Stock issued or issuable
or deemed to be issued in accordance with Section 2(f) of
the Certificate of Designations by the Company in connection with
any financing by the Company to raise capital for the purpose of
allowing the Company to fulfill its obligations under this
Section 3(g) shall be deemed to be Excluded Securities
for
