Exhibit 10.2


 


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 Centaur Value Fund, LP (“Centaur Value”) and United Centaur Master Fund (“United Centaur”, together with Centaur Value, “Centaur” 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 Centaur but merely represents proposed terms for
the proposed transaction.


 


Exchange: The
Company will exchange with Centaur, in a private transaction, $975,000 of
stated value of the Issuer’s Series A Convertible Preferred Stock (the “Existing Preferred Stock”) beneficially
owned by Centaur for an aggregate of (i) $627,406 of stated value of the Series B
Convertible Preferred Stock (as defined below), (ii) $208,556 in principal
amount of the Secured Notes (as defined below) and (iii) $139,038 in cash.


 


Amendment of Series A Holder Consent: Simultaneously
with the consummation of the transactions contemplated hereby, Centaur 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 an aggregate of $347,593 of stated value of the Series B
Convertible Preferred Stock issued to Centaur shall be then payable and the
remaining $279,813 of aggregate 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 Centaur. Interest on the Secured Notes will be payable monthly in cash.
Beginning on April 1, 2009, an aggregate of $17,379 of principal will be
paid monthly.


 


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Warrant: The
exercise price of the existing warrants to purchase an aggregate of 243,750
shares of common stock of the Company beneficially owned by Centaur 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 Centaur for its legal expenses reasonably incurred in
relation to the documentation of the transactions contemplated hereby, which
documentation will be drafted by legal counsel to West Coast Opportunity Fund,
LLC. 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.

  	
  Centaur Value Fund, LP

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Name:

  	
  Name:

  
	
  Title:

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  United Centaur Master Fund

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
					



 


[Signature page to Term Sheet]


 


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