Exhibit 10.1

 

Term Sheet

 

The following outlines the terms of a proposed exchange of the Series A
Convertible Preferred Stock and Warrants originally issued on March 7, 2008 and
March 31, 2008 by American Defense Systems, Inc. (the “Company”) to West Coast
Opportunity Fund, LLC or its affiliates (“West Coast”, or “Investor”) and the
amendment of certain other related transaction documents. Until definitive
documentation is executed by all parties, there shall not exist any binding
obligation, other than as described in the section entitled “Reimbursement” on
the part of any party to consummate the transaction described herein. Other than
as set forth above, this term sheet does not constitute a contractual commitment
of the Company or West Coast but merely represents proposed terms for the
proposed transaction.

 

Exchange: The Company will exchange with West Coast, in a private transaction,
$14,025,000 of stated value of the Issuer’s Series A Convertible Preferred Stock
(the “Existing Preferred Stock”) beneficially owned by West Coast for
(i) $9,025,000 of stated value of the Series B Convertible Preferred Stock (as
defined below), (ii) $3,000,000 in principal amount of the Secured Notes (as
defined below) and (iii) $2,000,000 in cash.

 

Amendment of Series A Holder Consent: Simultaneously with the consummation of
the transactions contemplated hereby, West Coast will consent to amend that
certain Consent and Agreement of Series A Convertible Preferred Stockholders,
dated as of May 23, 2008, to delete Section 6.

 

Series B Convertible Preferred Stock: The Company will authorize a new series of
convertible preferred stock of the Company designated as Series B Convertible
Preferred Stock (“Series B Convertible Preferred Stock”) the terms of which
shall be substantially identical to the Existing Preferred Stock except that:

(i) the conversion price shall equal $1.25; and

(ii) the maturity date will remain December 31, 2010, provided that $5,000,000
of stated value of the Series B Convertible Preferred Stock shall be then
payable and the remaining $4,025,000 of stated value of the Series B Convertible
Preferred Stock, together with accrued and unpaid interest thereon, will be paid
in twelve (12) monthly installments beginning on January 31, 2011 and ending on
December 31, 2011.

 

Secured Notes: The Company will authorize a new series of 10% secured notes of
the Company, due December 31, 2009. The Secured Notes will be secured
obligations of the Company and will be secured by a first priority (subject to
the next sentence) perfected security interest in all of Company’s assets and
capital stock. The Secured Notes will be senior to all existing and future
indebtedness of the Company other than the Company’s credit facility under that
certain Loan Agreement, dated as of May 2, 2007, with Commerce Bank, N.A., to
which the Senior Notes will be subordinated pursuant to a subordination
agreement in form and substance reasonably acceptable to West Coast. Interest on
the Secured Notes will be payable monthly in cash. Beginning on April 1, 2009,
$250,000 of principal will be paid monthly.

 

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Warrant: The exercise price of the existing warrants to purchase 3,506,250
shares of common stock of the Company beneficially owned by West Coast will be
amended to $1.10.

 

Executive Lock-Up: The Company and the Company’s current executive officers and
directors shall amend those certain Lock-Up Agreements, dated as of March 7,
2008, (the “Lock-Up Agreements”) to extend the Lock Up-Period (as defined in the
Lock-Up Agreements) to the date that the Series B Convertible Preferred Stock
and Secured Notes are longer outstanding.

 

Closing: On or before February 27, 2009.

 

Reimbursement: The Company shall pay West Coast for its legal expenses
reasonably incurred in relation to the documentation of the transactions
contemplated hereby, which documentation will be drafted by West Coast’s legal
counsel. The Company shall be responsible for such expenses regardless of
whether the transaction is consummated or not.

 

[Signature page follows]

 

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Agreed and accepted this                  day of February, 2009.

 

 

American Defense Systems, Inc.

 

West Coast Opportunity Fund, LLC:

 

 

 

 

 

 

 

 

By:

 

 

By:

 

Name:

 

 

Name:

 

Title:

 

 

Title:

 

 

 

[Signature page to Term Sheet]

 

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