Exhibit 10.1


 


CONSENT AND AGREEMENT


OF


SERIES A CONVERTIBLE PREFERRED STOCKHOLDERS


 


AMERICAN DEFENSE SYSTEMS, INC.


 


May 23, 2008


 


Reference is made to (i) that
certain Securities Purchase Agreement, dated March 7, 2008 (“Purchase Agreement”), by and among American Defense Systems, Inc.
(the “Company”) and West Coast Opportunity
Fund, LLC, Centaur Value Fund, LP and United Centaur Master Fund (collectively,
the “Holders”), pursuant to which the
Holders acquired shares of the Company’s Series A Convertible Preferred
Stock (“Preferred Shares”) and related warrants
(“Warrants”), and (ii) that certain
Certificate of Designations, Preferences and Rights of such Preferred Shares (“Certificate of Designations”).


 


The Company has applied (the
“Application”) to list its common stock
(“Common Stock”) on the American Stock
Exchange (“Amex”).  In order to comply with the rules of the
Amex, including, without limitation, Sections 101, 122 and 713 of the Amex
Company Guide, and for the Application to be approved, it is necessary, among
other things, that this Consent and Agreement be agreed to by the Holders.


 


The undersigned, being the
holders of the outstanding Preferred Shares of the Company, hereby consent and
agree as follows:


 


1.                                       Minimum
Conversion Price Regarding Voting. Notwithstanding any
contrary or inconsistent provision in the Certificate of Designations or
Purchase Agreement other than the limits regarding the Maximum Percentage as
set forth (and defined) in the Certificate of Designations, for the purpose
only of determining the number of votes each Preferred Share shall be entitled
to vote pursuant to the Certificate of Designations, the Conversion Price (as
defined in the Certificate of Designations) on the record date for the taking
of any vote (or, if no such record date is established, at the date such vote
is taken or any written consent of stockholders is solicited) shall not in any
case be deemed less than an amount equal to $2.00 (as adjusted for any stock
splits, stock dividends, recapitalizations, combinations, reverse stock splits
or other similar events after the Subscription Date (as defined in the
Certificate of Designations)).


 


2.                                       Limitations on
Certain Conversions. Notwithstanding any contrary or inconsistent
provision of the Certificate of Designations or Purchase Agreement, in no event
shall (i) any Preferred Share be converted into shares of Common Stock
pursuant to the Certificate of Designations, (ii) any Dividend Share (as
defined in the Certificate of Designations) be issued pursuant to the Certificate
of Designations, or (iii) any Warrant Share be issued upon exercise of the
Warrants, if such conversion, issuance or exercise would cause the Company to
have issued in the aggregate more than 7,858,358 shares of Common Stock (as
adjusted for any stock splits, stock dividends, recapitalizations,
combinations, reverse stock splits or other similar events after the
Subscription Date) (which amount equals approximately 19.99% of the total
shares of Common Stock outstanding on the initial closing date under the
Purchase Agreement) (the “Exchange Cap”),
without approval of the holders of the Common Stock or the agreement, 


 

















 


waiver of consent of the
Amex with respect to such stockholder approval. Any then outstanding Preferred
Shares and Warrant Shares or fraction thereof that cannot be converted or
exercised, as applicable, as a result of the preceding sentence shall remain
outstanding in accordance with, and subject to, the Certificate of
Designations, the Warrants and Purchase Agreement, other than the right of
conversion or exercise as applicable, until such stockholder approval or Amex
consent is obtained.   Until such
approval or waiver is obtained, no Holder shall be issued, upon exercise or
conversion, as applicable, of any Warrants or Preferred Shares, 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 aggregate stated value
amount of the number of Preferred Shares issued to such Holder pursuant to the
Securities Purchase Agreement on the Closing Date and the denominator of which
is the aggregate stated value of all the Preferred Shares issued to the Holders
pursuant to the Securities Purchase Agreement on the Closing Date (with respect
to each holder, the “Exchange Cap Allocation”).  In the event that any Holder shall sell or
otherwise transfer any of such Holder’s Warrants or Preferred Shares, the
transferee shall be allocated a pro rata portion of such Holder’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
to such transferee.  In the event that
any Holder of Preferred Shares shall convert or exercise all of such Holder’s
Preferred Shares and Warrants, as applicable, 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 Preferred Shares and Warrants on a pro rata basis in proportion to
the shares of Common Stock underlying the Preferred Shares and Warrants then
held by each such Holder.


 


3.                                       Listing.  Notwithstanding any contrary or inconsistent
provision of the Certificate of Designations or Purchase Agreement, including,
without limitation, Section 4(f) (Listing) of the Purchase Agreement,
the Holders agree that the extent to which the Company is required to secure or
maintain the listing of the Conversion Shares, Warrant Shares, Dividend Shares
and other Listed Securities (each term as defined in the Purchase Agreement)
shall be subject to any limitations imposed, or otherwise required, by the Amex
pursuant to the Amex Company Guide or their discretionary authority.


 


4.                                       Stockholder
Approval.  The Company
shall provide each stockholder entitled to vote at a special or annual meeting
of stockholders of the Company (the “Stockholder
Meeting”), which shall be promptly called and held not later than December 31,
2008 (the “Stockholder Meeting Deadline”),
a proxy statement, substantially in the form which has been previously reviewed
by Schulte Roth & Zabel LLP, at the expense of the Company, not to
exceed $10,000 (which review shall be completed within five (5) Business
Days (as defined in the Purchase Agreement) of such counsel’s receipt of the
proxy statement and such review requirement shall be waived if such counsel has
not completed its review within such five (5) Business Day period),
soliciting each such stockholder’s affirmative vote at the Stockholder Meeting
for approval of resolutions providing for the Company’s issuance of all of the
Securities (as defined in the Purchase Agreement) as described in the
Transaction Documents (as defined in the Purchase Agreement) in accordance with
applicable law and the rules and regulations of Amex (such affirmative
approval being referred to herein as the “Stockholder
Approval”), and the Company shall use its reasonable best efforts to
solicit its stockholders’ approval of such 


 


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resolutions  and to cause the board of directors of the
Company to recommend to the stockholders that they approve such
resolutions.  The Company shall be
obligated to use its reasonable best efforts to obtain the Stockholder Approval
by the Stockholder Meeting Deadline.  If,
despite the Company’s reasonable best efforts the Stockholder Approval is not
obtained on or prior to the Stockholder Meeting Deadline, the Company shall
cause an additional Stockholder Meeting to be held every six (6) months
thereafter until such Stockholder Approval is obtained or the Preferred Shares
are no longer outstanding.


 


5.                                       Equity
Conditions.  The parties
hereby agree that unless and until the Stockholder Approval is obtained, the
Equity Conditions (as defined in Certificate of Designations) shall not have
been satisfied.


 


6.                                       Financial
Covenants and Operating Results.


 


(a)                                  For purposes of this Section 6, the following
definitions shall apply.


 


(i)                                     “Affiliate” means, with respect to any Person, any other
Person that directly or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such Person.  For purposes of this definition, “control” of
a Person means the power, directly or indirectly, to direct or cause the
direction of the management and policies of such Person whether through holding
beneficial ownership interests in such other Person, by contract or
otherwise.  Notwithstanding anything
herein to the contrary, in no event shall any holder of Preferred Stock be
considered an “Affiliate” of the Company hereunder.


 


(ii)                                  “Consolidated EBITDA” means, with respect to the Company for
any period, the Consolidated Net Income of the Company and its Subsidiaries for
such period, plus (i) without duplication, the sum of the
following amounts of the Company and its Subsidiaries for such period and to
the extent deducted in determining Consolidated Net Income of the Company for
such period:  (A) Consolidated Net
Interest Expense, (B) income tax expense, (C) depreciation expense,
and (D) amortization expense.


 


(iii)                               “Consolidated Net Income” means, with respect to the Company
for any period, the net income (loss) of the Company and its Subsidiaries for
such period, determined on a consolidated basis and in accordance with GAAP,
but excluding from the determination of Consolidated Net Income (without
duplication) (a) any extraordinary or non recurring gains or losses or
gains or losses from Dispositions, (b) restructuring charges, (c) any
tax refunds, net operating losses or other net tax benefits, (d) effects
of discontinued operations and (e) interest income (including interest paid-in-kind).


 


(iv)                              “Consolidated Net Interest Expense” means, with respect to
any Person for any period, gross interest expense of the Company and its
Subsidiaries for such period determined on a consolidated basis and in
accordance with GAAP (including, without limitation, interest expense paid to
Affiliates of the Company), less (i) the sum of (A) interest
income for such period and (B) gains for such period on Hedging Agreements
(to the extent not included in interest income above and to the extent not
deducted in the calculation of gross interest expense), plus (ii) the
sum of (A) losses for such period on Hedging Agreements (to the extent not
included in gross interest expense) and (B) the upfront costs or fees for
such period associated with 


 


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Hedging Agreements (to the extent not
included in gross interest expense), in each case, determined on a consolidated
basis and in accordance with GAAP.


 


(v)                                 “Fiscal Year” means the Company’s fiscal year that ends on December 31,
or such other fiscal year adopted by the Company for the financial reporting
purposes in accordance with GAAP.


 


(vi)                              “Hedging Agreement” means any interest rate, foreign
currency, commodity or equity swap, collar, cap, floor or forward rate
agreement, or other agreement or arrangement designed to protect against
fluctuations in interest rates or currency, commodity or equity values
(including, without limitation, any option with respect to any of the foregoing
and any combination of the foregoing agreements or arrangements), and any
confirmation executed in connection with any such agreement or arrangement.


 


(viii)                        “Revenues” means the amount set forth in the
line item entitled “Total Net Revenues” in the Company’s publicly available
consolidated financial statements, as prepared in accordance with GAAP.


 


(b)                                 Financial Covenants.  For the Fiscal Year ended December 31,
2008, the Company shall achieve (a) Revenues equal to or exceeding
$50,000,000 for such period and (b) Consolidated EBITDA equal to or
exceeding $13,500,000 for such period (the “Financial
Covenants”).  For purposes of
determining whether Revenues and EBITDA satisfy the foregoing Financial
Covenants, the financial impact of any acquisitions (whether stock or asset
transactions), mergers, business combinations, tender or exchange offers or
similar transactions consummated by the Company and its Subsidiaries after the
Effective Date shall not be included.


 


(c)                                  Operating Results Announcement.  No later than February 15,
2009 (the “Operating Results Announcement
Deadline”), the Company shall publicly disclose and disseminate (the
date of such disclosure, the “Operating
Results Announcement Date”) its operating results (the “Operating Results”) for the Fiscal Year
ended December 31, 2008.  The
announcement of the Operating Results shall state (A) the amount of the
Consolidated EBITDA and Revenues for Fiscal Year ended December 31, 2008
and (B) whether the Company has achieved the Financial Covenants;
provided, however, that in the event that the Company shall not have announced
the Operating Results for the Fiscal Year ended December 31, 2008 by the
Operating Results Announcement Deadline, the Company shall be deemed to have
failed to achieve the Financial Covenants. 
On the Operating Results Announcement Date, the Company shall also
provide to the Holders a certification, executed on behalf of the Company by
the Chief Financial Officer of the Company, certifying that the Company has
either achieved or failed to achieve each Financial Covenant.


 


7.                                       Transaction
Documents.  The parties
hereby agree that this Consent and Agreement shall be deemed to be a
Transaction Document (as defined in the Securities Purchase Agreement).  For the avoidance of doubt, any covenant
herein which is breached shall be deemed a Triggering Event under Section 3(a)(vii) the
Certificate of Designations for which there shall be no cure period.


 


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8.                                       Dilutive
Issuances.  The Company
shall not, in any manner, enter into or effect any Dilutive Issuance (as
defined in the Certificate of Designations) until the Stockholder Approval is
obtained.


 


9.                                       Effective Time.  This Consent and Agreement shall be effective
upon the delivery to each of the Holders of a Voting Agreement in the form of Exhibit A
attached hereto duly executed by the Company and each of Anthony Piscitelli,
Gary Sidorsky and Curtis Taufman (the “Voting Agreements”)
(the date of such delivery, the “Effective Date”).  Prior to obtaining the Stockholder Approval,
the Company shall not amend, waive or modify any provision of any of the Voting
Agreements.


 


10.                                 Disclosure.  On or before 8:30 a.m., New York City
time, on  the first (1st)
Business Day following the Effective Date, the Company shall file a Current
Report on Form 8-K describing the terms of this Consent and Agreement and
attaching a copy of the form of this Consent and Agreement.


 


11.                                 Expenses.  The Company shall pay the reasonable legal
fees and expenses of Schulte Roth & Zabel LLP, incurred by the Holders
in connection with the negotiation of this Consent and Agreement and the Voting
Agreements.


 


12.                                 Transferees.  Notwithstanding any contrary of inconsistent
provision of the Certificate of Designations or Purchase Agreement, the
transfer of any Preferred Shares shall be subject to the transferee’s written
agreement to be bound by the terms of this Consent and Agreement as a Holder.


 


This Consent and Agreement (i) may
be executed and delivered in counterparts and by PDF or facsimile, and (ii) shall
be governed by the laws of the State of Delaware (without giving effect to
principles of conflicts of laws).


 


[Signatures
follow]


 


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IN
WITNESS WHEREOF, the undersigned have executed this Consent and Agreement as of
the date first set forth above.


 


 


	
  WEST COAST OPPORTUNITY
  FUND, LLC

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  CENTAUR VALUE FUND, LP

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  UNITED CENTAUR MASTER FUND

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ACCEPTED AND AGREED:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  AMERICAN DEFENSE SYSTEMS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:

  



 


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