ex10_1.htm


  


    EXHIBIT
10.1

     

    


     

    


     

    -
DATED 27 October 2010 -

     

    ______________________________________________________

     

    INVESTMENT
AGREEMENT

     

    FOR

     

    THE
SUBSCRIPTION TO AND SALE OF SHARES

     

    OF

     

    MAYO-BEN
INVESTMENTS AND DEVELOPMENT LTD.

     

    ______________________________________________________

     

     

    by
and between

     

    Mayotex
Ltd.

     

    and

     

    Mayo-Ben
Investments and Development Ltd.

     

    


     

    


     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    THIS AGREEMENT is made on
the __day of October 2010,

     

    Between

     

    
      	
              (1)

            	
              Mayotex Ltd., a company
      incorporated and existing under the laws of the State of Israel, company
      no. 511461360, whose registered
      office is at 8 Brisel Street, Sderot, Israel (the
      Investor); and

            


    

     

    
      	
              (2)

            	
              Mayo-Ben Investments and
      Development Ltd., (the Company),
      a company incorporated and existing under the laws of the State of
      Israel, company no.
      511653040, whose
      registered office is 36 Shderot Hazionut, Ashkleon,
  Israel

            


    

     

    (hereinafter
each of the Company and the Investor a Party and
collectively the Parties).

     

    Whereas

     

    
      	
              (A)  

            	
              The
      Company is the owner, or has the right to be registered as the owner, of
      or has interest in certain real estate properties as set out in Schedule 3
      (the Assets).

            


    

     

    
      	
              (B)  

            	
              The
      Investor is a wholly owned subsidiary (indirectly) of Defense Industries
      International, Inc. (DFNS)
      whose shares are quoted and traded on the OTC Bulletin Board under the
      symbol DFNS.

            


    

     

    
      	
              (C)  

            	
              The
      Assets are all leased to members of the DFNS Group as set out as in
      Schedule 3 of this Agreement.

            


    

     

    
      	
              (D)  

            	
              Within
      the framework of a recent amendment to the Disengagement Law, members of
      the DFNS Group are eligible to apply for additional compensation under
      such law.

            


    

     

    
      	
              (E)  

            	
              The
      grant and amount of such additional compensation is subject to the
      eligible party meeting certain requirements and qualifications, which
      include, inter alia, investing in factories and properties to which they
      moved their activities and businesses within the framework of the
      execution of the Disengagement Law, such as the Assets, by way of
      improving and renovating them.

            


    

     

    
      	
              (F)  

            	
              The
      members of the DFNS Group wish to use such additional compensation to,
      inter alia, improve and renovate the
Assets.

            


    

     

    
      	
              (G)  

            	
              The
      Company has the know-how and abilities to execute such improvements and
      renovations to the Assets and will obtain the required funds to effect the
      improvements and renovations by way of the Investor granting a loan to the
      Company.   

            


    

     

    
      	
              (H)  

            	
              Immediately
      prior to the First Closing Date (as defined below), the Company's
      authorized share capital is NIS 17,000 divided into 170,000 ordinary
      shares, each having a nominal value of NIS 0.1 (each an Ordinary
      Share), of which 1,300 Ordinary Shares are issued and outstanding.
      The holdings in the Company per the date of this Agreement and immediately
      prior to the First Closing Date, on a fully diluted basis, are as set out
      in the capitalization table attached hereto as Schedule 2, which also
      provides full details of the persons and entities being shareholders of
      the Company on the date of this Agreement (the Current
      Shareholders).

            


    

     

    
      	
              (I)  

            	
              The
      Board of Directors of the Company (the Board)
      has determined that it is in the best interest of the Company to raise
      capital by means of the issuance of new Ordinary Shares and to borrow
      additional funds subject to and upon the terms of this
      Agreement.

            


    

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    
      	
              (J)  

            	
              The
      Investor desires to: (i) invest in the Company an amount of up to
      US$1,500,000 (the Investment
      Amount) and to subscribe for and purchase up to 325 Ordinary
      Shares, constituting, immediately following the Second Closing,
      approximately 20 per cent of the share capital of the Company on a fully
      diluted basis (the Investment
      Shares) as set out in the capitalization table attached hereto as
      Schedule 2; and (ii) lend the Company US$1,000,000, which funds will be
      utilized by the Company in its entirety to improve and renovate the Assets
      (the Loan),
      subject to and upon the terms of this
Agreement.

            


    

     

     

    It is agreed as
follows:

     

     

    
      	
              1.  

            	
              Interpretation

            


    

     

     

    
      	
              1.1.  

            	
              Words
      and expressions used in this Agreement shall have the meanings set out in
      Schedule 1, unless the context requires otherwise and/or unless otherwise
      defined in this Agreement.

            


    

     

     

    
      	
              1.2.  

            	
              The
      schedules to this Agreement (each a Schedule)
      form part of this Agreement.

            


    

     

     

    
      	
              1.3.  

            	
              In
      this Agreement, unless the context otherwise
  requires:

            


    

     

     

    
      	
              1.3.1.  

            	
              the
      headings are inserted for convenience only and shall not affect the
      construction of this Agreement; and

            


    

     

     

    
      	
              1.3.2.  

            	
              references
      to one gender include all genders.

            


    

     

     

    
      	
              2.  

            	
              Investment
      and Issue of Shares

            


    

     

     

    
      	
              2.1.  

            	
              Subject
      to the fulfillment or waiver of all Conditions, at the Second Closing Date
      the Company shall issue and sell, and the Investor shall subscribe to and
      purchase the Investment Shares subject to and upon the terms and
      conditions of this Agreement.

            


    

     

     

    
      	
              2.2.  

            	
              Subject
      to the Adjustment (as such term is defined below) and the other terms and
      conditions set out in this Agreement, the total price payable by the
      Investor to the Company for the Investment Shares shall be up to
      US$1,500,000, therefore, a price per Investment Share of up to US$4,615.38
      (the Price
      Per
      Share).

            


    

     

     

    
      	
              3.  

            	
              The
      Loan

            


    

     

     

    
      	
              3.1.  

            	
              Subject
      to the fulfillment or waiver of all Conditions, the Company shall draw
      down the Loan and the Investor shall lend and transfer the Proceeds of the
      Loan to the Company on the First Closing Date (the Drawdown
      Date).

            


    

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

    
      	
              3.2.  

            	
              The
      Loan was granted and shall be used by the Company for the sole purpose of
      financing the renovations and improvements to the Assets, as shall be
      agreed to by the Parties from time to time (the Renovation
      Plan).

            


    

     

     

    
      	
              3.3.  

            	
              The
      maturity date of the Loan shall be the 10th
      anniversary of the First Closing
Date.

            


    

     

     

    
      	
              3.4.  

            	
              The
      Loan shall bear annual interest at the rate of LIBOR + 2.5 per
      cent.

            


    

     

     

    
      	
              3.5.  

            	
              It
      is hereby agreed and acknowledged by the Parties that the Loan shall be
      deemed repaid in the event that: (i) the Company has invested at least an
      amount of US$1,000,000 (the Renovation
      Amount) in the renovation and improvement of the Assets in
      accordance with the Renovation Plan to the complete satisfaction of the
      Investor (to be determined by the Investor in  to its sole
      discretion) not later than at the expiration of a 3-year period commencing
      on the First Closing Date (the Deemed
      Repayment Date); and (ii) the Company shall invest in the
      renovation and improvement of the Assets in accordance with the Renovation
      Plan at least US$200,000 from the Renovation Amount prior to 30 August
      2011 (the First
      Milestone Date), unless the Parties have mutually agreed in
      writing, from time to time, to delay the Deemed Repayment Date and the
      First Milestone Date in accordance with the progress of the Renovation
      Plan.

            


    

     

     

    
      	
              3.6.  

            	
              The
      Parties shall enter into a detailed agreement which will set out the terms
      and conditions for the grant and repayment of the Loan prior to the Second
      Closing Date.

            


    

     

     

    
      	
              4.  

            	
              Adjustment
      to the Price Per Share (the Adjustment)

            


    

     

     

    
      	
              4.1.  

            	
              The
      Price Per Share shall be adjusted (the Adjusted
      Price Per Share) to reflect the actual value of the Company to be
      determined in accordance with the stipulations set out
    below.

            


    

     

    The
Fairness Opinion

     

     

    
      	
              4.2.  

            	
              Not
      later than 45 days following the date of this Agreement, the Investor
      shall deliver a fairness opinion (the Fairness
      Opinion) to be prepared by a major accounting firm to be determined
      by the Investor (the Assessor)
      which will set out the Company's Value as determined by the Assessor. The
      Company hereby undertakes that it shall take all necessary actions at its
      sole cost and expense in order to assist the Assessor to determine the
      Company's Value and prepare the Fairness Opinion. The Assessor shall
      further confirm whether the terms and conditions under which the Assets
      are being leased to the members of the Group are in line with common
      market practice and against a fair market
value.

            


    

     

     

    
      	
              4.3.  

            	
              In
      the event that the Investor shall not deliver the Fairness Opinion within
      the timeframe set out above, other than for reasons not within its
      control, it shall be deemed that the Company's Value is equal to
      US$4,000,000.

            


    

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    Objecting
Fairness Opinion

     

     

    
      	
              4.4.  

            	
              In
      the event that it shall be determined in the Fairness Opinion that the
      Company's value is between US$5,500,000 and US$6,500,000, no Adjustment
      shall be made to the Price Per Share and the Investor shall acquire the
      Investment Shares in consideration for the payment of the Investment
      Amount, i.e., US$1,500,000.

            


    

     

     

    
      	
              4.5.  

            	
              It
      is agreed by the Parties that the Fairness Opinion shall be final and
      shall bind the Parties in all respects, provided, however, that in the
      event that the Company's Value determined in the Fairness Opinion shall be
      lower than US$5,500,000, the Company shall have the right, not later than
      three  (3) Business Days as of the date on which the Investor
      provided the Company with the Fairness Opinion, to approach the Institute
      of Certified Public Accountants in Israel to appoint an arbitrator (the
      Arbitrator),
      which will independently determine the Company's Value.  Such
      determination shall be dispositive.

            


    

     

    The
Adjustment

     

     

    
      	
              4.6.  

            	
              The
      Adjusted Price Per Share shall be determined using the formula set out
      below:

            


    

     

    Adjusted
Price Per Share = A/US$6,000,000 X B

     

                          Where:

     

    
      	
               
      

            	
              A
      =

            	
              the
      Company's Value as determined in accordance with the provisions set out in
      Clause 4.2;
and

            


    

     

    
      	
               
      

            	
               B
      =

            	
              the
      Price Per Share.

            


    

     

     

    
      	
              4.7.  

            	
              The
      Adjustment Shares

            


    

     

    In the
event that the Adjusted Price Per Share shall be lower than the Price Per Share,
the Company shall issue to the Investor such additional number of Shares, for no
consideration other than such Shares' par value, to be determined as
follows:

     

    Adjustment
Shares = US$1,500,000/C -
325

     

    Where C
is the Adjusted Price Per Share as determined in accordance with the provisions
set out in Clause 4.6.

     

     

    
      	
              5.  

            	
                     Closings

            


    

     

     

    
      	
              5.1.  

            	
              Subject
      to the waiver or fulfillment of the First Closing Conditions, the first
      closing shall take place at the offices of the Parties' legal counsel on
      28 October 2010 or, if Clause 6.1.1 applies,
      on such other date as the Company or the Investor may specify pursuant to
      that Clause (the First
      Closing Date).

            


    

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

    


     

     

    
      	
              5.2.  

            	
              Subject
      to the waiver or fulfillment of the Second Closing Conditions the Second
      Closing shall take place at the offices of the Parties' legal counsel on
      such date which shall be not later than 45 days as of the First Closing
      Date or, if Clause 6.1.1 applies, on such
      other date as the Company or the Investor may specify pursuant to that
      Clause (the Second
      Closing Date).

            


    

     

     

    Actions
to be taken on Closing Dates

     

     

    
      	
              5.3.  

            	
              The
      Company shall, upon fulfillment of all obligations set out in Schedule 4,
      the Conditions and covenants, and in satisfaction of its obligations under
      this Agreement, issue on the First Closing Date a total of 325 Investment
      Shares, amounting to approximately 20 per cent of the Company's
      outstanding and issued share capital as of the First Closing Date (the
      Escrow
      Shares), to the Escrow Agent, who will hold and release the Escrow
      Shares in accordance with the terms and conditions set out in the Escrow
      Agreement (as defined below).

            


    

     

     

    
      	
              5.4.  

            	
              The
      Company shall, upon fulfillment of all obligations set out in Schedule 4,
      the Conditions and covenants, and in satisfaction of its obligations under
      this Agreement, issue the Adjustment Shares on the Second Closing
      Date.

            


    

     

     

    
      	
              5.5.  

            	
              Prior
      to or on each of the Closing Dates, each of the Company and the Investor
      shall deliver or perform all those documents, items and actions
      respectively listed in relation to that Party and applicable to the
      relevant Closing Date, as set out in Schedule
4.

            


    

     

     

    
      	
              5.6.  

            	
              The
      Company shall adopt the relevant resolutions of its Board applicable to
      the relevant Closing Date as set out in Schedule 5 immediately prior to
      the applicable Closing.

            


    

     

     

    
      	
              5.7.  

            	
              The
      Investor shall, upon fulfillment of all applicable obligations to the
      relevant Closing Date set out in Schedules 4-1 4-2, the fulfillment of the
      Conditions relevant to the applicable Closing and in satisfaction of its
      applicable obligations under Clause
4:

            


    

     

     

    
      	
              5.7.1.  

            	
              on
      the First Closing Date:

            


    

     

     

    
      	
              5.7.1.1.  

            	
              Provide
      the Company with the Loan of US$1,000,000 in furtherance of Claus 3 hereunder;
and

            


    

     

     

    
      	
              5.7.1.2.  

            	
              make
      a payment of US$250,000 as the first payment of the Investment
      Amount.

            


    

     

     

    
      	
              5.7.2.  

            	
              on
      the Second Closing Date, make payment of US$1,250,000 as the second and
      final payment of the Investment Amount, to be paid by electronic funds
      transfer to the Company's bank account at Bank Leumi LeIsrael, Account No:
      ___________.

            


    

     

     

    Any
evidence of funds transfer made in accordance with this Clause 5.7 shall constitute a good discharge for the Investor
of its applicable obligations under Clauses 5.7.1 or 5.7.2 and the Investor
shall not be concerned to see that the funds are applied in payment to the
Company.

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    
      	
              6.  

            	
              Postponement
      of a Closing Date

            


    

     

     

    
      	
              6.1.  

            	
              If
      the Company or the Investor fails or is/are unable to perform any of
      its/their obligations (Closing
      Obligations) set out in Schedules 4-1 and 4-2, which are required
      to be performed by it/them on or before the relevant Closing Date (as
      applicable) (and whichever of the Company or the Investor is the defaulter
      being referred to as the Defaulting
      Party and the other, the Non-Defaulting
      Party), the
      Non-Defaulting Party shall not be obliged to complete the issue and sale
      or subscription and purchase of the Ordinary Shares under the relevant
      Closing and may, in its absolute discretion, by written notice to the
      Defaulting Party at the time of the relevant Closing Date would otherwise
      be due to take place:

            


    

     

     

    
      	
              6.1.1.  

            	
              elect
      to defer the relevant Closing by not more than 30 Business Days after the
      original applicable date for the relevant Closing Date to such other date
      as it may specify in such notice (in which event the provisions of this
      Clause 6.1.1 shall apply, mutatis mutandis, if
      the Company or the Investor fails or is unable to perform any of its
      Closing Obligations on such other date);
or

            


    

     

     

    
      	
              6.1.2.  

            	
              elect
      to effect the relevant Closing on that date and: (i) specify a further
      date (not being more than 30 Business Days after the original date for the
      relevant Closing) on which the Defaulting Party shall be obliged to
      complete its outstanding Closing Obligations; and/or (ii) waive all or
      some of the Closing Obligations set out in Schedules 4-1 through 4-4 (as
      applicable) at its discretion.

            


    

     

    
      	
                

            	
                    
                If
      any outstanding Closing Obligations have not been performed by the
      Defaulting Party by the relevant Closing Date (as applicable) (or, if
      later, the date specified under Clause 6.1.1), the Non-Defaulting Party may
      by written notice terminate its obligations applicable to that relevant
      Closing.

              

            


    

     

     

    
      	
              7.  

            	
              The
      Escrow

            


    

     

     

    
      	
              7.1.  

            	
              The
      Escrow Shares shall, when issued, be registered in the name of the
      Investor and be held in escrow by the Escrow Agent for the benefit of the
      Company and the Investor in accordance with and subject to the provisions
      set out in this respect in the Escrow Agreement. The Escrow Shares shall
      be released from escrow against the actual payment by the Investor of the
      Second Closing Payment, in accordance with the provisions set out in the
      Escrow Agreement and subject the adjustment, if
  any.

            


    

     

     

    
      	
              7.2.  

            	
              For
      the avoidance of doubt, unless the Escrow Shares have been released from
      escrow due to the Investor committing an Entitling Breach (as such term is
      defined in the Escrow Agreement), all of the rights in the Escrow Shares,
      including, inter alia, voting rights, right to dividends and/or any other
      right, shall become vested and remain with the Investor, provided,
      however, that any sums, assets, or securities, including dividends to be
      received in respect of the Escrow Shares shall be held in escrow by the
      Escrow Agent until the Escrow Shares are released and shall be released
      together with the Escrow Shares.

            


    

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

    
      	
              8.  

            	
              Conditions
      Precedent

            


    

     

     

    
      	
              8.1.  

            	
              Each
      of the relevant Closings shall be conditional on the following Conditions
      having been fulfilled or waived in accordance with this
      Agreement:

            


    

     

     

    
      	
              8.1.1.  

            	
              there
      shall not be any injunction, judgment, order, decree or ruling of any
      governmental authority in effect preventing consummation of the
      transactions contemplated by this Agreement;
and

            


    

     

     

    
      	
              8.1.2.  

            	
              the
      Parties shall have received all authorizations, consents and approvals of
      any governmental authorities and third parties (if any) necessary for the
      consummation of the transactions contemplated by this
      Agreement.

            


    

     

     

    
      	
              8.2.  

            	
              In
      addition to the Conditions set out in Clause 8.1 above, the Closing to be held on the First
      Closing Date shall be conditional on the Conditions having been fulfilled
      or waived in accordance with this
Agreement:

            


    

     

     

    
      	
              8.2.1.  

            	
              the
      passing of a resolution by the shareholders of the Company to: (i) approve
      the terms of this Agreement and the transactions contemplated thereunder;
      (ii) appoint Mr. Uri Nissani to the board of directors of the Company;
      (iii) amend the Articles as set out in Schedule
  6;

            


    

     

     

    
      	
              8.2.2.  

            	
              the
      passing of a resolution by the shareholders of the Company waving their
      participation right;

            


    

     

     

    
      	
              8.2.3.  

            	
              the
      passing of a resolution by the board of directors of the Company approving
      the terms of this Agreement and the transactions contemplated
      thereunder;

            


    

     

     

    
      	
              8.2.4.  

            	
              the
      passing of a resolution by the board of directors of the Investor
      approving the terms of this Agreement and the transactions contemplated
      thereunder;

            


    

     

     

    
      	
              8.2.5.  

            	
              the
      provision by the Company to the Investor of a duly executed written
      undertaking by the registered holder of any Asset not registered in the
      name of the Company that the Company: (i) has the rights to be registered
      as the owner of such Asset; and (ii) is the holder of all of the rights in
      such Asset;

            


    

     

     

    
      	
              8.2.6.  

            	
              the
      provision by the Company to the Investor of a written undertaking by the
      Current Shareholders that will bear all costs and expenses incurred as a
      result of the registration of any of the Asset in the name of the Company,
      to the extent applicable, including, inter alia, all Taxes incurred within
      the framework of the above;

            


    

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

    


     

     

    
      	
              8.2.7.  

            	
              the
      closing of the Loan Agreement; and

            


    

     

     

    
      	
              8.2.8.  

            	
              the
      shareholders of the Company providing the written undertaking in the To Be
      Agreed Form according to which they will not sale, assign and cause that
      the Company shall not make any action which will result in the change of
      control in the Company.

            


    

     

     

    
      	
              8.3.  

            	
              In
      addition to the Conditions set out in Clause 8.1 above, the Second Closing shall be
      conditional on the following Conditions (the Second
      Closing Conditions) having been fulfilled or waived in accordance
      with this Agreement:

            


    

     

     

    
      	
              8.3.1.  

            	
              the
      Adjustment set out under Clause 3 has been
      completed and the Company's Value has become final and undisputed;
      and

            


    

     

     

    
      	
              8.3.2.  

            	
              the
      closing of the Escrow Agreement in the To Be Agreed
  Form.

            


    

     

     

    
      	
              9.  

            	
               Covenants

            


    

     

     

    
      	
              9.1.  

            	
              During
      the period from the date of this Agreement to the First Closing Date, the
      Company shall perform the obligations set out in Schedule
    4.

            


    

     

     

    
      	
              9.2.  

            	
              The
      Company shall or cause its Subsidiaries, as applicable
  to:

            


    

     

     

    
      	
              9.2.1.  

            	
              maintain
      adequate insurance policies for the Assets for the entire period during
      which the Assets are leased to any member of the DFNS
    Group;

            


    

     

     

    
      	
              9.2.2.  

            	
              continue
      the effect of the Lease Agreements for a period of 6 months following the
      First Closing Date on the existing terms of such Lease Agreements,
      regardless of the term of each such Lease Agreement. During such 6-month
      period, the applicable Member of the DFNS Group shall have the right to
      terminate any such Lease Agreement upon 3 months' advance written notice;
      and

            


    

     

     

    
      	
              9.2.3.  

            	
              grant
      DFNS or the DFNS Group, the right to extend any such Lease Agreement for
      an additional period of 60 months (on top of the original 6 months) on the
      existing terms.

            


    

     

     

    
      	
              9.3.  

            	
              The
      Company undertakes that, where any of the Assets is not registered in the
      name of the Company, it will complete the registration of such Asset in
      its name as soon a practically possible following the First Closing Date,
      provided, however, that the registration of all Assets shall not be
      completed later than 1 March 2011.

            


    

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    
      	
              10.  

            	
              Warranties

            


    

     

    
      	
              10.1.  

            	
              Each
      Party represents and warrants to the other Party as at the date of this
      Agreement its respective Warranties and acknowledges that such other Party
      has entered into this Agreement in reliance upon the
      Warranties.

            


    

     

    
      	
              10.2.  

            	
              The
      Warranties shall be deemed to be repeated immediately before each Closing
      by reference to the facts and circumstances then existing as if references
      in the Warranties to the date of this Agreement were references to the
      date of the applicable Closing; however, subject to each Warranty being
      materially true, materially complete and not materially misleading.
      Notwithstanding the above, the occurrence of a Closing shall not cause the
      provisions of this Clause to derogate, reduce or set aside the Parties'
      right to invoke any right associated with and/or rely on the provisions of
      the Warranties in their applicable form as per the date of this Agreement,
      which shall exclude the qualifications set out above with respect to the
      Warranties being materially true, materially complete and not materially
      misleading, however shall include all relevant qualifications applicable
      thereto applicable per the date hereof, as set out in relevant Schedules
      in which the Warranties appear.

            


    

     

    
      	
              10.3.  

            	
              Each
      Warranty shall be construed as a separate Warranty and (save as expressly
      provided to the contrary) shall not be limited or restricted by reference
      to or inference from the terms of any other Warranty or any other term of
      this Agreement.

            


    

     

     

    
      	
              11.  

            	
              Indemnification
      and Limitations on Claims

            


    

     

    
      	
              11.1.  

            	
              Subject
      to the Closings taking place, the Investor shall be entitled, subject to
      the terms of this Agreement and the limitations set forth herein, to
      indemnification from the Company for any Costs that are suffered or
      incurred by the Investor and which arise directly from or as a result of:
      (i) any inaccuracy in or breach of any of the Warranties made by the
      Company; and/or (ii) any breach of any covenant or obligation of the
      Company under this Agreement.

            


    

     

    
      	
              11.2.  

            	
              Notwithstanding
      anything contained herein to the contrary, the Company shall not be liable
      for any Claim:

            


    

     

     

    
      	
              11.2.1.  

            	
              unless
      it receives from the Investor written notice of the Claim, specifying in
      reasonable detail the acts and circumstances upon which the asserted Claim
      for indemnification is based and the individual items of the Costs
      claimed, on or before the expiration of a 3 (three) year period commencing
      on the Second Closing Date; and

            


    

     

     

    
      	
              11.2.2.  

            	
              unless
      the aggregate amount of the liability of the Company for all Claims under
      this Agreement exceeds US$30,000 (the Basket),
      in which event the Investor shall be entitled to claim the whole of the
      amount thereof and not merely the amount in excess of the
      Basket.

            


    

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

    Notwithstanding
anything to the contrary in this Agreement; however, subject to Clause 11.3, the maximum aggregate liability of the Company
under this Agreement with respect to Claims, shall not exceed in any event the
Investment Amount.

     

    
      	
              11.3.  

            	
              None
      of the limitations contained in Clause 11.2
      shall apply to any breach of any Warranty which (or the delay in discovery
      of which) is the consequence of deliberate, fraud and/or wilful
      misrepresentation by the Company.

            


    

     

    
      	
              11.4.  

            	
              Notwithstanding
      anything contained herein to the contrary, the Company shall not be liable
      for any Claim in the case of a Claim in respect of breach of Warranties,
      if and to the extent that the fact, matter, event or circumstance giving
      rise to such Claim was fairly and reasonably disclosed in writing to the
      Investor.

            


    

     

    
      	
              11.5.  

            	
              The
      amount of any indemnity hereunder on account of a Claim shall be reduced
      by: (a) the insurance proceeds unconditionally received by the Investor in
      connection with such Claim; (b) the proceeds and/or indemnification
      unconditionally received by the Investor from any third party in
      connection with such Claim; and (c) the amount of Tax savings
      unconditionally received by the Investor as a result of the facts or
      circumstances giving rise to the Company’s liability under such Claim,
      (together, the Third Party
      Indemnification). If any Third Party Indemnification is
      unconditionally received by the Investor, after the Investor shall have
      been indemnified with respect thereto by the Company under a Claim, the
      Investor shall promptly repay or return the Company such
      amounts.

            


    

     

    
      	
              11.6.  

            	
              Other
      than in respect of deliberate, fraud or willful misrepresentation, the
      indemnification provided by the Company pursuant to this Clause 11.6 and the enforcement of such indemnification
      shall be the exclusive remedies available to the Investor against the
      Company, in connection with any Claims under this
    Agreement.

            


    

     

     

    
      	
              12.  

            	
              Termination
      of this Agreement prior to a Closing
Date

            


    

     

     

    If at any
time before a Closing:

     

     

    
      	
              12.1.  

            	
              any
      Material Adverse Change occurs;

            


    

     

     

    
      	
              12.2.  

            	
              there
      is a breach or non-fulfillment by the Company of any of its material
      obligations under this Agreement,

            


    

     

    then the
Investor may, by written notice given to the Company at any time before the
relevant Closing Date, terminate this Agreement, in which case no Party shall
have any claim of any nature whatsoever against the other Party under this
Agreement and all rights, liabilities and obligations of a Party under this
Agreement shall terminate, have no force and effect, save in respect of any
rights and liabilities which have accrued prior to termination of this Agreement
in accordance with the provisions of this Clause. Notwithstanding termination of
this Agreement, Clauses 16 and 20 shall remain in full force and effect and
survive termination of this Agreement.

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

    
      	
              13.  

            	
              Entire Agreement

            


    

     

     

    This
Agreement and the Transaction Documents set out the entire agreement and
understanding between the Parties in respect of the transactions contemplated
under this Agreement and the Transaction Documents. This Agreement supersedes
all prior agreements, understandings or arrangements (whether oral or written)
relating to the matters set out herein, which shall cease to have any further
force or effect.

     

     

    
      	
              14.  

            	
              Variation

            


    

     

     

    
      	
              14.1.  

            	
              No
      variation of this Agreement shall be valid unless it is in writing and
      signed by or on behalf of each of the Parties to it. The expression variation
      shall include any variation, supplement, deletion or replacement however
      effected.

            


    

     

     

    
      	
              14.2.  

            	
              Unless
      expressly agreed, no variation shall constitute a general waiver of any
      provisions of this Agreement, nor shall it affect any rights, obligations
      or liabilities under or pursuant to this Agreement which have already
      accrued up to the date of variation, and the rights and obligations of the
      Parties under or pursuant to this Agreement shall remain in full force and
      effect, except and only to the extent that they are so
    varied.

            


    

     

     

    
      	
              15.  

            	
              Assignment

            


    

     

     

    
      	
              15.1.  

            	
              It
      is acknowledged and agreed by the Company that the Investor may at any
      time following the date of this Agreement transfer and novate any rights
      under this Agreement to any of the Investor’s Affiliates. Accordingly, the
      Company agrees that the benefit of any provision of this Agreement may be
      assigned (in whole or in part) by the Investor to an Investor's Affiliate
      without the consent of the Company.

            


    

     

     

    
      	
              15.2.  

            	
              The
      Investor may assign its rights under this Agreement by way of security to
      any bank(s) and/or financial institution(s) lending money or making other
      banking facilities available to the
Investor.

            


    

     

     

    
      	
              16.  

            	
              Announcements

            


    

     

     

    No
announcement or circular in connection with the existence or the subject matter
of this Agreement and the Transaction Documents shall be made or issued by or on
behalf of the Company or the Investor without the prior written approval of the
other, (such approval not to be unreasonably withheld or delayed). The above
shall not affect any announcement or circular required by law or the rules of
any stock exchange, in case of which each Party shall consult the other Party
and any such announcement or circular required by law or the rules of any stock
exchange shall be drafted by the Parties in mutual consent.

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

     

    
      	
              17.  

            	
              Costs

            


    

     

     

    Each of
the Parties shall pay its own costs and expenses incurred in connection with the
negotiation, preparation and implementation of this Agreement and the
Transaction Documents.

     

     

    
      	
              18.  

            	
              Severability

            


    

     

     

    If any
provision of this Agreement is held to be invalid or unenforceable, then such
provision shall (so far as it is invalid or unenforceable) be given no effect
and shall be deemed not to be included in this Agreement, but without
invalidating any of the remaining provisions of this Agreement.

     

     

    
      	
              19.  

            	
              Further
      Assurance

            


    

     

     

    Each
Party agrees to perform (or procure the performance of) all further acts and
things, and execute and deliver (or procure the execution and delivery of) such
further documents, as may be required by law or as the other Party may
reasonably require, whether on or after a Closing, to implement and/or give
effect to this Agreement and the transactions contemplated by it or the other
Transaction Documents and for the purpose of vesting in a Party the full benefit
of the assets, rights and benefits to be transferred under this
Agreement.

     

     

    
      	
              20.  

            	
              Representation
      by the law firm of Prof. Yuval Levy &
Co.

            


    

     

     

    As per
the Parties' request and for the sake of efficiency, the Company's legal
counsel, the law firm of Prof. Yuval Levy & Co. (the Legal
Counsel), has agreed to act as legal counsel for the Parties to this
Agreement, provided that each of the Parties shall provide its written
consent to such joint representation, in accordance with the
provisions set out in Rule 14 of the Rules by Israeli Bar Rules
(Professional Ethics), 5745 – 1986. Therefore, the Parties hereby agree,
acknowledge and confirm that the Legal Counsel shall be appointed
as legal counsel for all Parties to this Agreement and that Legal
Counsel shall represent all of the Parties to this Agreement in respect of this
Agreement and the Transaction Documents. The Company and the Investor
further confirm their knowledge of the fact that Legal Counsel previously
provided, currently provides and will continue to provide, legal services
to the Company, to the Investor and the to other members of the DFNS
Group.

     

     

    
      	
              21.  

            	
              Notices

            


    

     

     

    
      	
              21.1.  

            	
              Any
      notice or other communication to be given by one Party to the other under,
      or in connection with, this Agreement and/or the Transaction Documents
      shall be in writing and signed by or on behalf of the Party giving it. It
      shall be served by sending it by fax to the number set out in
      Clause 21.2, or e-mail to the address
      set out in Clause 21.2, or delivering it
      by hand, or sending it by pre-paid recorded delivery, special delivery or
      registered post, to the address set out in Clause 21.2 and in each case marked for the attention
      of the relevant Party set out in Clause 21.2 (or as otherwise notified from time to time
      in accordance with the provisions of this Clause 16). Any notice so
      served by hand, fax, e-mail or post shall be deemed to have been duly
      given:

            


    

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

    
      	
              21.1.1.  

            	
              in
      the case of delivery by hand, when
delivered;

            


    

     

     

    
      	
              21.1.2.  

            	
              in
      the case of fax, at the time of
transmission;

            


    

     

     

    
      	
              21.1.3.  

            	
              in
      the case of prepaid recorded delivery, special delivery or registered
      post, at 10am on the third Business Day following the date of posting;
      and

            


    

     

     

    
      	
              21.1.4.  

            	
              in
      the case of e-mail, at the time of
transmission,

            


    

     

    
      	
               

            	
              provided that in each case where delivery by hand, fax or e-mail
      occurs after 6pm on a Business Day or on a day which is not a Business
      Day, service shall be deemed to occur at 10:00 am on the next following
      Business Day.

               

              References
      to time in this Clause are to local time in the country of the
      addressee.

            


    

     

     

     

    
      	
              21.2.  

            	
              The
      addresses and fax numbers of the parties for the purpose of Clause 21.1 are as
follows:

            


    

     

     

    The
Company

     

     

    Address:
36 Shderot Hatzionot Ashkelon, Israel

     

     

    E-mail:
__________

     

     

    Fax:
_______

     

     

    For the
attention of: Gil Fostbinder

     

     

    With a
copy to:

     

     

    With a
copy to: Prof. Yuval Levy & Co.

     

     

    Address:
Address: 8 Nes Ziona Street, Tel Aviv, Israel

     

     

    E-mail:
aklinemintz@yuvalaw.co.il

     

     

    Fax:
03-5164185

     

     

    For the
attention of: Ayal Klinemintz

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

     

    The
Investor

     

     

    Address:
12 Hamefalsim St., Petach Tikva, Israel

     

     

    E-mail:
uri@dfns-group.com

     

     

    Fax:
03-7168484

     

     

    For the
attention of: Uri Nissani

     

     

    With a
copy to: Prof. Yuval Levy & Co.

     

     

    Address:
Address: 8 Nes Ziona Street, Tel Aviv, Israel

     

     

    E-mail:
aklinemintz@yuvalaw.co.il

     

     

    Fax:
03-5164185

     

     

    For the
attention of: Ayal Klinemintz

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

    
      	
              22.  

            	
              Waivers,
      Rights and Remedies

            


    

     

     

    
      	
              22.1.  

            	
              No
      failure or delay by a Party in exercising any right or remedy provided by
      law under or pursuant to this Agreement shall impair such right or remedy
      or operate or be construed as a waiver or variation of it or preclude its
      exercise at any subsequent time and no single or partial exercise of any
      such right or remedy shall preclude any other or further exercise of it or
      the exercise of any other right or
remedy.

            


    

     

     

    
      	
              22.2.  

            	
              The
      rights and remedies of a Party under or pursuant to this Agreement are
      cumulative, may be exercised as often as such Party considers appropriate
      and are in addition to its rights and remedies under general
      law.

            


    

     

     

    
      	
              22.3.  

            	
              The
      rights and remedies of a Party under this Agreement shall not be affected,
      and a Party's liabilities under this Agreement, shall not be released,
      discharged or impaired, by: (i) a Closing; or (ii) any event or matter
      whatsoever, other than a specific and duly authorised written waiver or
      release by a Party.

            


    

     

     

    
      	
              23.  

            	
              Payments

            


    

     

     

    Any
payment to be made pursuant to this Agreement by the Investor shall be made in
US dollar on the due date for payment.

     

     

    
      	
              24.  

            	
              Tax
      Withholding

            


    

     

     

    The
provisions of Schedule 7 shall apply in respect of withholding from any payment
payable pursuant to this Agreement by the Investor.

     

     

    
      	
              25.  

            	
              Governing Law

            


    

     

     

    This
Agreement and the relationship between the Parties shall be governed by, and
interpreted in accordance with the law of the State of Israel. Each of the
Parties agrees that the courts of Tel-Aviv, Israel are to have exclusive
jurisdiction to settle any disputes which may arise in connection with the
creation, validity, effect, interpretation or performance of, or the legal
relationships established by, this Agreement or otherwise arising in connection
with this Agreement, and for such purposes irrevocably submit to the
jurisdiction of the Israeli courts.

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

    As witness this Agreement has
been signed on behalf of the Parties the day and year first before
written.

     

    
      	
              Mayotex
      Ltd.:

            	 
      	
              Mayo-Ben
      Investments and Development Ltd.:

            
	
              By:_________________

            	 
      	
              By:
      ______________________

            
	
              Name:_______________

            	 
      	
              Name:
      ____________________

            
	
              Title:
      _________________

            	 
      	
              Title:
      ____________________

            


    

     

    


     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

    SCHEDULE 1

     

     

    INTERPRETATION

     

     

    In this
Agreement the following expressions shall have the following
meanings:

     

     

    Accounts means the audited
balance sheet of the Company as at the Accounts Date and the audited profit and
loss account of the Company in respect of the financial year ended on the
Accounts Date, together with any notes, reports, statements or documents
included in or annexed to them;

     

     

    Accounts
Date means
31 December of the financial year preceding a Closing Date Affiliate
means in relation to any Party, any subsidiary undertaking or parent undertaking
of that Party and any subsidiary undertaking of any such parent undertaking, in
each case from time to time;

     

     

    Agreed Form
means, in relation to a document, the form of that document which has
been initialed on the date of this Agreement for the purpose of identification
by or on behalf of the Company and the Investor and/or attached as a Schedule to
this Agreement;

     

     

    Business
Day means a
day (excluding Fridays, Saturdays and Sundays) on which banks generally are open
in Tel Aviv for the transaction of normal banking business;

     

    Cash
means, in relation to each Group member, the aggregate of its cash in
hand including, inter
alia, cash credited to any bank account of such member, but, for the
avoidance of doubt, excluding any Intra-Group Receivables (and any interest
thereon); Note: this term
will appear in the Schedules Claim means any claim for
breach of an obligation and/or an undertaking under this Agreement;

     

     

    Closing means completion and
consummation of transactions under this Agreement;

     

     

    Closing Date means the date on which
a Closing is effected;

     

     

    Conditions
means the conditions to the applicable Closing set out in Clause 8;

     

     

    Convertible Loan
Agreement means the convertible loan agreement in the To Be Agreed Form
to be entered into by the Parties;

     

     

    Costs means obligations,
liabilities, losses, damages, costs (including reasonable legal costs) and
expenses (including taxation), actions, proceedings, claims and demands, in each
case of any nature whatsoever;

     

     

    DFNS Group
means Defense Industries International, Inc. and each of its subsidiaries
from time to time;     

     

     

    Disengagement
Law means Disengagement Plan Law,
5765 – 2005;

     

     

    Encumbrances
means any interest, claim or equity of any person of any nature whatsoever
(including any right to acquire, option or right of pre-emption or conversion)
or any mortgage, charge, pledge, lien, assignment, hypothecation, security
interest, title retention, any other third party right or any other security
agreement or arrangement, or any agreement to create any of the
above;

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

    Escrow
Agent means Prof. Yuval Levy & Co. Trusts, of 8 Nes Ziona Street, Tel
Aviv Israel;

     

     

    Escrow
Agreement means the escrow agreement in the to be Agreed Form to be
entered into by the Parties;

     

     

    Exchange
Rate means with respect to a particular currency for a particular day,
the rate of exchange for that currency into US dollar last published by the Bank
of Israel prior to or on that particular date;

     

     

    Financial
year shall
be a calendar year;

     

     

    Fully Diluted
Basis means the issued and outstanding share capital of the Company and
any securities of the Company which may be issued under: any warrant instrument,
option agreement and/or scheme, any convertible loan agreement or instrument
and/or any agreement or instrument of any nature whatsoever granting any party
the right to acquire, subscribe for and/or be issued with securities of the
Company;

     

     

    Material Adverse
Change means any event, circumstance, effect, occurrence or state of
affairs or any combination thereof (whether existing or occurring on or before
the date of this Agreement or arising or occurring afterwards) which is, or is
reasonably likely to be, materially adverse to the business, operations, assets,
liabilities (including contingent liabilities), position (financial, trading or
otherwise) and/or profits of the Company;

     

     

    Properties means the properties
owned and/or leased by the Company, particulars of which are set out in Schedule
8;

     

     

    security
interest means any security
interest of any nature whatsoever including, without limitation, any mortgage,
charge, pledge, lien, assignment by way of security or other encumbrance; Note: this term
will appear in the Schedules

     

     

    Tax or
Taxation
means all forms of taxation, duties, levies, imposts and social security
charges, including, without limitation, corporate income tax, withholding tax,
national social security contributions and employee social security
contributions, value added tax, customs, capital gains tax, and other legal
transaction taxes, dividend withholding tax, real estate taxes, municipal taxes
and duties, environmental taxes and duties and any other type of taxes or duties
in any relevant jurisdiction; together with any interest, penalties, fines
relating thereto, due, payable, levied, imposed upon or claimed to be owed in
any relevant jurisdiction; Note: this term
will appear in the Schedules

     

     

    Transaction
Documents means this Agreement, the Escrow Agreement and the Loan
Agreement.