Exhibit 10.1


 


Term Sheet


 


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


 


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


 


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


 


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


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


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


 


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


 


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


 


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


 


Closing: On or
before February 27, 2009.


 


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


 


[Signature page follows]


 


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Agreed and accepted this
                
day of February, 2009.


 


 


	
  American Defense Systems, Inc.

  	
   

  	
  West Coast Opportunity Fund, LLC:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  



 


 


[Signature page to Term Sheet]


 


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