Unassociated Document


    Exhibit
      10.2


    EMPLOYMENT
      AGREEMENT

     

    EMPLOYMENT
      AGREEMENT
      dated as
      of the 30th
      day of
      December, 2005, by and between Arotech
      Corporation,
      a
      Delaware corporation with offices at 354 Industry Drive, Auburn, Alabama 36830
      (the “Company”), and Thomas
      J. Paup,
      an
      individual residing at 4716 Lohr Road, Ann Arbor, Michigan 46108 (the
“Employee”).

     

    W
      I T N E S S E T H :

     

    WHEREAS,
      the
      Company desires to employ the Employee, and the Employee desires to enter into
      such employment, on and subject to the terms and conditions set forth
      below:

     

    NOW,
      THEREFORE,
      the
      parties hereto do hereby agree as follows:

     

    1. Title
      and Duties.
      

     

    (a) Beginning
      December 31, 2005, the Employee will serve as Vice President - Finance of the
      Company, except that the Company may, from time to time, change the title and/or
      duties of the Employee in such manner as shall not unduly prejudice the rights
      of the Employee hereunder. The Employee will assume the function of principal
      financial officer of the Company immediately upon request by the Chief Operating
      Officer of the Company, and in any event by February 28, 2006, whereupon the
      Employee’s title shall become Vice President - Finance and Chief Financial
      Officer. The Employee will report to the President and Chief Operating Officer
      of the Company or to such other person as shall be designated, from time to
      time, by the Board of Directors of the Company.

     

    (b) The
      Employee shall not during the term hereof undertake or accept any other
      employment or occupation, whether paid or unpaid
      provided,
      however,
      that
      the Employee may continue to work up to eight (8) evenings per month as
a
      Finance Instructor at Eastern Michigan University.
      The
      Employee acknowledges and agrees that, although ordinary working hours are
      expected to be Monday through Friday, 8 a.m. to 5 p.m., under certain
      circumstances the performance of his duties hereunder may require additional
      time and/or domestic and international travel. The Employee acknowledges that
      this is a managerial position, and that accordingly overtime hours will be
      worked as needed, without additional compensation. 

     

    (c) The
      Employee’s place of work will be in Ann Arbor, Michigan, or at such other place
      as the Company may from time to time specify, provided that the employment
      of
      the Employee on a permanent basis at a place which is located more that fifty
      (50) miles from Ann Arbor, Michigan shall be done only with the Employee’s prior
      consent. 

     

    2. Compensation
      and Benefits.

     

    (a) The
      Company shall pay the Employee, as compensation for all of the employment
      services provided by him hereunder during the term of this Agreement, an
      annualized gross salary of one hundred thirty-five thousand dollars ($135,000)
      (the “Gross Salary”). The Gross Salary will be paid semi-monthly in arrears on
      the fifteenth and final day of each month. The Gross Salary may be increased
      from time to time, effective March 31 of each year beginning March 31, 2006,
      in
      accordance with the Company’s procedures, and in the Company’s sole discretion,
      based on the Employee’s performance during the prior year.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (b) The
      Company agrees to pay or cause to be paid to the Employee on each March 31
      following the first anniversary of this Agreement, or as soon thereafter as
      may
      be possible in order to determine the relevant results of the Company, an annual
      bonus, as follows:

     

    (i) If,
      as of
      such anniversary, the Company shall have attained 90% of the Company’s Budgeted
      Number (as defined below) for the year preceding such anniversary, then
      Employee’s bonus shall be equal to 20% of Employee’s gross annual Base Salary as
      then in effect for the year preceding such anniversary; 

     

    (ii) If,
      as of
      such anniversary, the Company shall have attained 120% of the Company’s Budgeted
      Number (as defined below) for the year preceding such anniversary, then
      Employee’s bonus shall be equal to 50% of Employee’s gross annual Base Salary as
      then in effect for the year preceding such anniversary;

     

    (iii) If,
      as of
      such anniversary, the Company shall have attained more than 90% but less than
      120% of the Company’s Budgeted Number (as defined below), then Employee’s bonus
      shall be calculated as follows:

    
       

      
        	 	
                B
                  =
                  

              	
                (S
                  x 20%) + (N-90)/30 x (S x
                  30%)

              


      

    

     

    Where:

     

    
      	 	
              B
                =
                

            	
              The
                amount of Employee’s annual bonus;
                and

            


    

     

     

    
      	 	
              N
                =

            	
              The
                percentage of the Budgeted Number (as defined below) that was attained
                by
                the Company in the immediately preceding fiscal year; provided,
                however,
                that N is more than 90 and less than
                120;

            


    

     

     

    
      	 	
              S
                =

            	
              Employee’s
                gross annual Base Salary.

            


    

     

    For
      the
      purposes of this Section 2(b), the Budgeted Number shall be the budgeted results
      of the Company as agreed by the Board prior to the end of each fiscal year
      for
      the fiscal year designated in such budget, and may include targets for any
      or
      all of the following factors: (i) revenues; (ii) cash flow, and (iii) EBITDA.
      In
      the event that some but not all targets are reached, the Compensation Committee
      shall made a determination as to what percentage of the Budgeted Number was
      attained. 

     

    (c) The
      Employee will receive 50,000 stock options for shares of the common stock of
      the
      Company at an exercise price equal to the closing price of the Company’s stock
      on the Nasdaq Stock Market on the date hereof, vesting immediately, and having
      a
      term of five years. Such options shall be issued pursuant to the Company’s
      employee stock option plan, on such other terms and conditions as specified
      in
      such plan.

     

    
      
        
        

      

      
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    (d) The
      Employee shall be entitled to a paid annual vacation of ten (10) business days
      with respect to, and during, each twelve (12) month period of his employment
      hereunder, provided that the unused portion of any such vacation, in respect
      to
      any year, may be carried forward only to the next two-year period. Upon
      termination Employee shall be paid for all accrued but unused vacation. Any
      vacation days taken by Employee in advance of their actual accrual shall be
      considered an advance on wages and deducted from any wages owing at termination.
      Timing of vacations will be cleared in advance with the Company.

     

    (e) The
      Employee shall be entitled to paid sick leave of five (5) days with respect
      to,
      and during, each twelve (12) month period of his employment
      hereunder.

     

    (f) The
      Company shall provide the Employee and his family with medical insurance and
      related insurance benefits in accordance with its policies from time to time
      for
      all employees generally.

     

    (g) The
      Company shall reimburse the Employee’s work-related expenses, against proper
      receipts, subject to and in accordance with policies adopted, from time to
      time,
      by the Company. 

     

    3. Confidential
      Information; Return of Materials; Inventions;
      on-Solicitation.

     

    (a) In
      the
      course of his employment by the Company hereunder, the Employee will have access
      to, and become familiar with, “Confidential Information” (as hereinafter
      defined) of the Company. The Employee shall at all times hereinafter maintain
      in
      the strictest confidence all such Confidential Information and shall not divulge
      any Confidential Information to any person, firm or corporation without the
      prior written consent of the Company. For purposes hereof, “Confidential
      Information” shall mean all information in any and all media which is
      confidential by its nature including, without limitation, data, technology,
      know-how, inventions, discoveries, designs, processes, formulations, models,
      customer lists and contact people, prices and any other trade and business
      secrets relating to any line of business in which the Company’s marketing and
      business plans relating to current, planned or nascent products.

     

    (b) The
      Employee shall not use Confidential Information for, or in connection with,
      the
      development, manufacture or use of any product or for any other purpose
      whatsoever except as and to the extent necessary for him to perform his
      obligations under this Agreement.

     

    (c) Notwithstanding
      the foregoing, Confidential Information shall not include information which
      the
      Employee can evidence to the Company by appropriate documentation is in, or
      enters, the public domain otherwise than by reason of breach hereof by the
      Employee.

     

    (d) All
      Confidential Information made available to, or received by, the Employee shall
      remain the property of the Company, and no license or other rights in or to
      the
      Confidential Information is granted hereby.

     

    (e) All
      files, records, documents, drawings, specifications, equipment, and similar
      items relating to the business of the Company, whether prepared by the Employee
      or otherwise coming into his possession, and whether classified as Confidential
      Information or not, shall remain the exclusive property of the Company. Upon
      termination or expiration of this Agreement, or upon request by the Company
      at
      any time, the Employee shall promptly turn over to the Company all such files,
      records, reports, analyses, documents, and other material of any kind and in
      any
      medium concerning the Company which the Employee obtained, received or prepared
      pursuant to this Agreement without retaining any copies thereof in any
      medium.

     

    
      
        
        

      

      
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    (f) Commencing
      on the date hereof and ending two (2) years after the termination of this
      Agreement (irrespective of the reason for such termination), the Employee shall
      not solicit nor in any manner encourage other employees of the Company to leave
      its employ. The Employee further agrees that during that two (2) year period
      he
      will not offer, or cause to be offered, employment to any person who was
      employed by the Company at any time during the three months prior to the
      termination of this Agreement.

     

    (g) The
      Employee acknowledges that the provisions set forth in Section 3 of this
      Agreement are fair and reasonable. The Employee further acknowledges that the
      Company will be irreparably harmed if the Employee’s obligations under this
      Section 3 are not specifically enforced and that the Company would not have
      an
      adequate remedy at law in the event of an actual or threatened violation by
      the
      Employee of the Employee’s obligations. Therefore, and in addition to any and
      all other remedies to which it may be entitled, the Company shall be entitled
      to
      an injunction or any appropriate decree of specific performance for any actual
      or threatened violations or breach by the Employee without the necessity of
      the
      Company showing actual damages or that monetary damages would not afford an
      adequate remedy, and without posting a bond. 

     

    (h) The
      provisions of this Section 3 shall survive the expiration or termination of
      this
      Agreement regardless of the reasons therefor. Furthermore, the period of time
      during which the restrictions set forth in subsection (f) above shall be in
      effect shall be extended by the length of time during which the Employee is
      in
      breach of any of the terms of such subsection.

     

    4. Prohibition
      on Trading While in Possession of Material Non-Public
      Information.

     

    (a) The
      Employee acknowledges that the Company is a publicly-listed company, and that
      the Employee is a “person having a duty of trust or confidence” as defined in
      Rule 10b5-2 promulgated under the United States Securities Exchange Act of
      1934,
      as amended, and that the Employee is accordingly prohibited from trading in
      shares of the Company on the basis of material non-public information. The
      Employee covenants and agrees that the Employee will not trade in, or, without
      the express consent of the Company, exercise any option to purchase securities
      of the Company (the “Arotech Shares”) (1) until at least two Trading Days (a
“Trading Day” being a day on which the U.S. Financial markets are open for
      trading) have passed since such material information was released to the public,
      and (2) during the period beginning on the eleventh calendar day of the third
      month of each fiscal quarter and ending at the close of the second Trading
      Day
      following the release of quarterly or annual financial results. The Employee
      understands and acknowledges that the most appropriate time to trade in Arotech
      Shares is the period beginning on the third Trading Day and ending on the
      twelfth Trading Day following the release of quarterly or financial information,
      provided that during such period the Employee possesses no other material
      non-public information which is not disclosed in such release.

     

    
      
        
        

      

      
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    (b) If
      at any
      time the Employee is working on securities matters regarding the Company, or
      is
      aware that the Company is offering or selling its own securities or is involved
      in a tender offer situation, the Employee shall consult with the General Counsel
      of the Company before trading in Arotech Shares.

     

    (c) The
      provisions of this Section 4 shall survive the expiration or termination of
      this
      Agreement regardless of the reasons therefor.

     

    5. Term
      and Termination.
      This
      Agreement shall be for a period of two years (the “Initial Term”). This
      Agreement may be terminated at any time, as follows:

     

    (a) This
      Agreement shall terminate upon the death or incapacitation of the Employee.
      For
      purposes hereof, the Employee shall be deemed to be incapacitated if he is
      unable to perform his duties hereunder, as evidenced by a certificate(s) to
      that
      effect, signed by a doctor reasonably satisfactory to the Company, for a
      continuous period of one hundred fifty (150) days or for shorter periods
      aggregating more than two hundred (200) days in any period of twelve (12)
      consecutive months.

     

    (b) The
      Company shall have the right to terminate this Agreement and the employment
      relationship hereunder for cause, at any time, by informing the Employee that
      such termination is for and cause and by further informing the Employee of
      the
      acts or omissions constituting cause. In such event, this Agreement and the
      employment relationship between the Company and the Employee shall be terminated
      as of the time Employee is informed that such termination is for cause. For
      purposes hereof, “cause” shall mean: (1) a breach of trust by the Employee,
      including, for example, but without limitation, commission of an act of moral
      turpitude, theft, embezzlement, self-dealing or insider trading; (2) the
      disclosure by the Employee of confidential information of or relating to the
      Company; (3) a material breach by the Employee of this Agreement; or (4) any
      act
      of, or omission by, the Employee which, in the reasonable judgment of the
      Company, amounts to a serious failure by the Employee to perform his
      responsibilities or functions or in the exercise of his authority, which
      failure, in the reasonable judgment of the Company, rises to a level of gross
      nonfeasance, misfeasance or malfeasance.

     

    (c) Anything
      herein to the contrary notwithstanding, this Agreement, and the employment
      relationship hereunder, may be terminated, at any time, without cause, by the
      Employee or by the Company, in each case upon sixty (60) days prior written
      notice to the other. During such 60-day period, all the rights and obligations
      of the parties shall remain in full force and effect.

     

    
      
        
        

      

      
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    6. Miscellaneous.

     

    (a) All
      notices and other communications required or permitted under this Agreement
      shall be in writing and shall be sent by facsimile transmission to the other
      party at the fax number set forth below, with a copy sent by first class mail
      or
      express courier to said party at the address set forth below, or to such other
      fax number and/or address as a party may hereinafter designate by notice to
      the
      other. Notices shall be effective on the date they are sent by facsimile
      transmission if the facsimile transmission report confirms receipt by the
      receiving fax.

     

    (b) This
      Agreement shall be subject to, governed by and construed in accordance with,
      the
      laws of the State of New York without regard to conflicts of law provisions
      and
      principles of that State, and the courts located in Manhattan, New York shall
      have exclusive jurisdiction and venue of any dispute hereunder.

     

    (c) This
      Agreement contains the entire agreement between the Employee and the Company
      with respect to all matters relating to the Employee’s employment with the
      Company and will supersede and replace all prior agreements and understandings,
      written or oral, between the parties relating to the subject matter hereof.
      This
      Agreement may be amended, modified, or supplemented only by a written instrument
      signed by both of the parties hereto. No waiver or failure to act by either
      party with respect to any breach or default hereunder, whether or not the other
      party has notice thereof, shall be deemed to be a waiver with respect to any
      subsequent breach or default, whether of similar or different
      nature.

     

    (d) If
      any
      provision of this Agreement, under all the then relevant circumstances, is
      held
      to be invalid, illegal or unenforceable, the other provisions shall remain
      in
      full force and effect, and the relevant provision shall automatically be
      modified by substituting for the unenforceable provision an enforceable
      provision which most closely approximates the intent and economic effect of
      the
      invalid provision.

     

    (e) This
      Agreement shall inure to the benefit of the Company and its successors and
      assigns.

     

    (f) The
      headings contained in this Agreement are intended solely for ease of reference
      and shall be given no effect in the construction or interpretation of this
      Agreement.

     

    IN
      WITNESS WHEREOF,
      the
      parties hereto have duly executed this Agreement as of the date set forth
      above:

     

    
       

      
        	
              	 	Arotech
                Corporation 
	 	 	 	 	 
	 	 	 	 	 
	 	 	By:	 
	
                 Thomas
                  J. Paup

              	 	 	Name:
Title:
	 	 	 	 	 


      

       

      
         

      

    

    
      
        
        

      

      
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