Document:

ex10-3.htm

Exhibit 10.3

 

	
 

	
Arotech Corporation

 

1229 Oak Valley Drive

Ann Arbor, Michigan 48108

Tel:  (800) 281-0356   Fax:  (734) 761-5368

http://www.arotech.com

Nasdaq National Market: ARTX

Writer’s direct dial: +972-2-990-6612

Writer’s direct fax: +972-2-990-6688

Writer’s e-mail: ehrlich@arotech.com

	
Robert S. Ehrlich

Chairman and Chief Executive Officer

 

May 13, 2013

Sampen Corporation

1133 East 22nd Street

Brooklyn, New York 11210

 

Re:           Amended and Restated Consulting Agreement

 

Gentlemen:

 

The following confirms our understanding with regard to the terms and conditions of the retention by Arotech Corporation (the “Company”) of Sampen Corporation (“Sampen”). This letter replaces and supersedes the agreement between us dated March 30, 2005.

 

1.           Retention of Consultant; Scope of Duties and Services.

 

(a)           Effective May 1, 2013, the Company hereby engages Sampen, and Sampen hereby accepts such engagement and agrees to provide the Company with the services set forth herein.

 

(b)           Sampen shall provide to the Company the services of one of its employees, subject to the Company’s approval of such employee (which the Company may withhold for any reason or for no reason), for such employee to serve as (i) until September 30, 2014, President of the Company, and (ii) from October 1, 2014, President and Chief Executive Officer of the Company. Sampen shall give written notice to the Company in advance if it wishes to provide a different employee to the Company, and such change shall be subject to the Company’s approval (which the Company may withhold for any reason or for no reason). The individual provided by Sampen, as such individual may change from time to time, shall be referred to herein as the “Executive.” The Executive shall perform the duties, undertake the responsibilities and exercise the authority customarily performed, undertaken and exercised by persons situated in a similar executive capacity in publicly-held United States corporations. The Executive shall exercise his authority in a reasonable manner and shall report to the Chairman of the Board of Directors of the Company (the “Chairman”).

 

(c)           While Sampen is providing services to the Company hereunder, the Company shall use its best efforts to cause the Executive to be elected to the Board of Directors of the Company (the “Board”) and on the board of directors of such of the Company’s subsidiaries as the Chairman shall determine, as a member of such Board(s). The Company will use its reasonable best efforts to obtain, and to keep in place at all times that the Executive is a director or officer of the Company, a directors and officers liability policy covering the Executive in an amount and otherwise containing terms and conditions consistent with past practices.

 

  

  

  

 

 

 

(d)           The parties hereto agree that the services to be provided by Sampen hereunder shall be as an independent consultant, and not as employee or agent. The parties further agree that any personnel of, or retained by, Sampen who perform services hereunder are not and shall not be deemed to employees, agents or representatives of the Company. This Agreement shall not be construed to create the relationship of principal or agent, joint venturers, co-partners or any relationship other than that of independent Consultant and client, and the existence of any such other relationship is hereby expressly denied by the Company and Sampen.

 

(e)           Sampen acknowledges and agrees that it has the sole responsibility to pay any and all taxes due on fees received by it from the Company and to pay or withhold (as appropriate) all applicable social security, income withholding and other payroll or related taxes with respect to its employees (including without limitation the Executive), agents and other personnel who may perform services hereunder, and Sampen shall file or cause to be filed all tax returns and all reports and keep all records which may be required by any law or regulation of the country or countries to whose laws it is subject or any state or municipality or governmental subdivision with respect to its activities and the activities of any of personnel working for it.

 

(f)           Sampen shall allow the Company to use Sampen’s offices as an ancillary New York office for the Company, for meetings, mail and package deliveries, fax receptions, etc., the expenses of which shall be covered by the payment referred to in Section 3(b)(i) below. Additionally, Sampen shall be entitled to receive prompt reimbursement of all other expenses reasonably incurred by it or by the Executive in connection with the performance of its duties hereunder. Without limiting the generality of the foregoing, the Company shall pay all expenses in the use of telephones by Sampen and its employees for the Company’s businesses. Sampen shall be entitled to reimbursement of the Executive’s expenses and to receive room, board and travel reimbursement in connection with the performance by the Executive of Sampen’s duties other than at the principal executive office of the Company, as is customary for senior executives in publicly-held United States companies. All expense reimbursements made under this Section shall be tax-effected such that the amount of reimbursement received by Sampen net of any taxes and withholdings (including such amounts in respect of payments pursuant to this sentence) equals the expense incurred. Except as otherwise specifically set forth above or elsewhere in this Agreement, Sampen shall bear and be responsible for all costs and expenses incurred by it or its employees (including the Executive) in performing its duties hereunder.

 

(g)           Sampen's employees, including the Executive, shall be required to travel on a periodic basis. Air travel shall be business class.

 

2.           Term.

 

(a)           The term of this Agreement shall commence on and as of May 1, 2013 and shall continue until December 31, 2015, unless sooner terminated as hereinafter provided (the “Initial Term”). Notwithstanding the foregoing, all of the rights and remedies of the parties hereto under the terms of this Agreement and in law and in equity shall be preserved even after the termination or expiration of this Agreement.

 

  

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(b)           The Initial Term shall be automatically extended for additional two-year periods (each, an “Additional Term”) unless either party provides written notice to the other of its desire to terminate the Agreement which notice shall be given at least ninety (90) days prior to the expiration date of the Initial Term or Additional Term of this Agreement.

 

(c)           This Agreement may be terminated by the Company prior to the end of the Initial Term or any Additional Term under the following circumstances:

 

	
  

	
(i)

	
Upon the death of the Executive, unless Sampen provides a new individual who is acceptable to the Company to serve in that position.

 

	
  

	
(ii)

	
Upon the Disability of the Executive, unless Sampen provides a new individual who is acceptable to the Company to serve in that position. For purposes of this Agreement, “Disability” means a physical or mental infirmity which impairs the Executive’s ability to substantially perform Sampen’s duties under this Agreement which continues for a period of at least one hundred and eighty (180) consecutive days.

 

	
  

	
(iii)

	
For “Cause,” which shall mean and include: (i) conviction for fraud, crimes of moral turpitude or other conduct which reflects on the Company in a material and adverse manner; (ii) a willful failure to carry out a material directive of the Board, provided that such directive concerned matters within the scope of Sampen’s duties, was in conformity with Section 1(b) hereof, would not give Sampen Good Reason to terminate this Agreement and was capable of being reasonably and lawfully performed; (iii) conviction in a court of competent jurisdiction for embezzlement of funds of the Company; and (iv) reckless or willful misconduct that is materially harmful to the Company; provided, however, that the Company may not terminate Sampen for Cause unless it has given Sampen written notice of the basis for the proposed termination (“Company’s Notice of Termination”).

 

(d)           This Agreement may be terminated by Sampen prior to the end of the Initial Term or any Additional Term under the following circumstances:

 

	
  

	
(i)

	
For “Good Reason,” which shall mean and include:

 

	
  

	
(A)

	
a change (1) in the Executive’s status, title, position or respon­sibilities which, in Sampen’s reasonable judgment, represents a reduction or demotion in the Executive’s status, title, position or responsibilities as in effect immediately prior thereto, or (2) in the primary location from which Sampen shall have conducted its business activities under this Agreement during the 60 days prior to such change;

 

	
  

	
(B)

	
a reduction in Sampen’s Base Payment (as hereinafter defined);

 

  

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(C)

	
the insolvency or the filing (by any party, including the Company) of a petition for the winding-up of the Company;

 

	
  

	
(D)

	
any material breach by the Company of any provision of this Agreement; and

 

	
  

	
(E)

	
any purported termination of this Agreement for Cause by the Company which does not comply with the terms of Section 2(c)(iii) of this Agreement;

 

provided, however, that Sampen may not terminate this Agreement for Good Reason unless it has given the Company (i) written notice of the basis for the proposed termination not more than thirty (30) days after Sampen has obtained knowledge of such basis (“Sampen’s Notice of Termination”) and (ii) a period of at least thirty (30) days after the Company’s receipt of such notice in which to cure such basis.

 

	
  

	
(ii)

	
if there is a “Change in Control” in Arotech. For purposes of this Agreement, a “Change in Control” shall mean any of the following events:

 

	
(A)  

	
The dissolution or liquidation of the Company;

 

	
(B)  

	
A merger, consolidation, reorganization or similar transaction involving the Company (a) in which the Company is not the surviving corporation or other surviving entity, or (b) that results in the Company becoming a subsidiary of another corporation (a “Transaction”);

 

	
(C)  

	
A sale or other disposition of all or substantially all of the assets of the Company to another corporation or other entity, as determined in accordance with the applicable law of the State of Delaware;

 

	
(D)  

	
Any other transaction (including a merger, consolidation, reorganization or similar transaction) that results in any corporation or other entity beneficially owning (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) immediately following the consummation of such transaction (a) in the case of voting securities acquired other than directly from the Company, more than 20% of the voting securities of the Company, or (b) in the case of voting securities acquired directly from the Company, more than 50% of the voting securities of the Company; or

 

  

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(E)  

	
The members of the Board of Directors of the Company on the date of this letter (the “Incumbent Board Members”) ceasing for any reason to constitute (a) at any time prior to the consummation of a Transaction, a majority of the Board, or (b) at any time following the consummation of a Transaction, a majority of the board of directors or other governing body of the corporation or other entity whose voting securities are issued to existing stockholders of the Company in such Transaction; provided, however, that any individual becoming a member of the Board or of such board of directors or other governing body, as the case may be, subsequent to the date of this Agreement whose appointment or nomination for election was approved by a vote of at least a majority of the Incumbent Board Members shall be deemed to be an Incumbent Board Member for purposes of this clause (v), but excluding, for such purposes, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors (or other members of any such governing body) or other actual or threatened solicitation of proxies or contests by or on behalf of a person other than the Board or such board of directors or other governing body, as the case may be.

 

Sampen shall give to the Company a Sampen’s Notice of Termination if Sampen desires to terminate this Agreement because there has been a Change in Control, such notice to specify the date of such termination which shall be not less than thirty (30) days after such notice is received by the Company. Any such notice, to be effective with respect to any Change in Control, must be sent no later than six (6) months after such Change in Control.

 

	
  

	
(iii)

	
if there is a “Change of Location.” For purposes of this Agreement, a “Change of Location” shall mean a change of more than 100 kilometers in the primary location from which the business activities of the Executive shall have been conducted during the 60 days prior to such change.

 

(e)           “Termination Date” shall mean in the case of the Executive’s death (or the death of any other Executive Sampen offers as a successor), the date of such death, or in all other cases, the date specified in the Notice of Termination subject to the following:

 

	
  

	
(i)

	
If this Agreement is terminated by the Company for Cause or due to Disability, the date specified in the Company’s Notice of Termination shall be at least thirty (30) days from the date the Notice of Termination is given to Sampen, provided that in the case of Disability the Executive shall not have returned to the full-time performance of its duties during such period of at least thirty (30) days assuming Sampen cannot provide a substitute Executive acceptable to the Company; and

 

	
  

	
(ii)

	
If this Agreement is terminated for Good Reason, or because there has been a Change in Control, the Termination Date specified in Sampen’s Notice of Termination shall not be more than sixty (60) days from the date the Notice of Termination is given to the Company.

 

  

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(f)           Upon Termination, the Company shall pay Sampen all amounts of Base Payment and the benefits specified in clauses 3(b)(i), (ii) and (iii) of this Agreement earned or accrued hereunder through the Termination Date but not paid as of the Termination Date.

 

3.           Compensation; Benefits.

 

(a)           For the services rendered by Sampen under this Agreement, the Company shall compensate Sampen as follows:

 

	
  

	
(i)

	
A base payment at the rate of US $8,960 per month, or such larger amount as the Compensation Committee of the Board (the “Compensation Committee) may in its sole discretion determine following a review which shall be conducted by the Board and the Compensation Committee by not later than March 31 of each year, such larger amount to take effect retroactively to the January 1 immediately preceding such review (hereinafter referred to as the “Base Payment”). Such Base Payment shall be payable in equal monthly installments.

 

	
  

	
(ii)

	
On each anniversary of this Agreement or as soon thereafter as may be possible in order to determine the relevant results of the Company, (but in no event later than May 31 of each year), in a single lump-sum payment in cash, an annual bonus (if and to the extent earned according to the criteria below), as follows:

 

	
  

	
(A)

	
If, as of such anniversary, Arotech shall have attained 100% of Arotech’s Budgeted Number (as defined below) for the year preceding such anniversary, then Sampen’s bonus shall be equal to 25% of Sampen’s gross annual Base Payment as then in effect for the year preceding such anniversary;

 

	
  

	
(B)

	
If, as of such anniversary, Arotech shall have attained 120% of Arotech’s Budgeted Number (as defined below) for the year preceding such anniversary, then Sampen’s bonus shall be equal to 75% of Sampen’s gross annual Base Payment as then in effect for the year preceding such anniversary;

 

	
  

	
(C)

	
If, as of such anniversary, Arotech shall have attained more than 100% but less than 120% of Arotech’s Budgeted Number (as defined below), then Sampen’s bonus shall be calculated as follows:

 

B  =           (S x 25%) + (N-100)/20 x (S x 50%)

 

Where:

 

  

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B  =           The amount of Sampen’s annual bonus, as a percentage of Sampen’s gross annual Base Payment; and

 

N  =           The percentage of the Budgeted Number (as defined below) that was attained by Arotech in the immediately preceding fiscal year; provided, however, that N is more than 100 and less than 120;

 

S  =           Sampen’s gross annual Base Payment.

 

For the purposes of this Section 3(a)(ii), the Budgeted Number shall be the budgeted results of Arotech as agreed by the Board of Arotech 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.

 

(b)           It being in the Company’s interest that the Company have an additional office in the New York area and that the Executive be provided with certain benefits, including without limitation vacation and sick leave, the Company and Sampen agree that the Executive will be provided with the following benefits:

 

	
  

	
(i)

	
The Company will pay Sampen, to cover the cost of the Company’s use of Sampen’s office as an ancillary Company office and insurance, an amount equal to 16% of each monthly payment of the Base Payment.

 

	
  

	
(ii)

	
The Company agrees that Sampen shall provide the Executive with an annual vacation at full pay equal to 24 work days. Vacation days may be accumulated and may, at the Executive’s option or automatically upon termination, be converted into cash payments in an amount equal to the proportionate part of the Base Payment for such days; provided, however, that if the Executive accumulates more than two (2) times its then current annual entitlement of vacation days, such excess shall be automatically converted into the right to receive such a cash payment in respect of such excess. Payments to which Sampen is entitled pursuant to this Section 3(b)(ii) shall be made promptly after Sampen’s request therefore.

 

	
  

	
(iii)

	
Sampen shall provide the Executive with a maximum aggregate of 30 days of fully paid sick leave, accruing at the rate of 2.5 days per month. Sick leave may be accumulated and may, at Sampen’s option, be converted into cash payments in an amount equal to the proportionate part of the Base Payment for such days. Payments to which Sampen is entitled pursuant to this Section 3(b)(iii) shall be made promptly after Sampen’s request therefor.

 

  

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4.           Warranties.

 

(a)           Sampen warrants that all services provided by him hereunder will be rendered in a competent and professional manner and that such services will conform in all respects to (i) generally-accepted industry and professional standards then applicable to such services and products, (ii) all applicable laws, rules, regulations and professional codes, and (iii) any specifications and requirements applicable to the services and any products contracted for hereunder (including a delivery timetable) which may be set forth in an agreement between the Company and a third party or parties. The Company shall have the right to extend Sampen’s warranties herein to third parties and Sampen shall be liable thereon to the same extent as if such warranties were originally made to such third parties.

 

(b)           The warranties contained herein shall survive the termination and expiration of this Agreement regardless of the reasons therefor.

 

5.           Confidential Information; Return of Materials; Inventions.

 

(a)           In the course of his retention by the Company hereunder, Sampen will have access to, and become familiar with, “Confidential Information” (as hereinafter defined) of the Company. Sampen 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 medium which is confidential by its nature including, without limitation, data, technology, know-how, inventions, discoveries, designs, processes, formulations, models and/or 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)           Sampen 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. Sampen shall assure that none of its employees uses such Confidential Information other than as permitted in this Agreement.

 

(c)           Notwithstanding the foregoing, Confidential Information shall not include information which Sampen can evidence to the Company by appropriate documentation: (i) is in, or enters the public domain otherwise than by reason of breach hereof by Sampen; (ii) is known by Sampen at the time of disclosure thereof by the Company; or (iii) is rightfully transmitted or disclosed to Sampen by a third party which owes no obligation of confidentiality with respect to such information.

 

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

 

  

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(e)           All files, records, documents, drawings, specifications, equipment, and similar items relating to the business of the Company, whether prepared by Sampen 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, Sampen shall promptly turn over to the Company all such files, records, reports, analyses, documents, and other material of any kind concerning the Company which Sampen obtained, received or prepared pursuant to this Agreement.

 

(f)           Confidential Information shall not include information brought to the Company by Sampen, where the Company does not subsequently utilize such information in the ordinary course of its business (including as a result of changes to its business).

 

(g)           Sampen undertakes not, directly or indirectly (whether as owner, partner, consultant, employee or otherwise) at any time, during and for twelve (12) months following termination of this Agreement, to engage in or contribute its knowledge to any work or activity that involves a product, process, service or development which is then directly (in any material manner) competitive with any business that the Company has conducted during the term of this Agreement or any extension hereof on which Sampen worked or with respect to which Sampen had access to Proprietary Information while with the Company. Notwithstanding the foregoing, Sampen shall be permitted to engage in the aforementioned proposed work or activity if the Company furnishes it with written consent to that effect signed by an authorized officer of the Company.

 

(h)           During the period specified in 5(g) hereof, Sampen will not solicit or encourage any customer or supplier of the Company or of any group, division or subsidiary of the Company, to terminate its relationship with the Company or any such group, division or subsidiary, and Sampen will not, directly or indirectly, recruit or otherwise seek to induce any employee of the Company or any such group, division or subsidiary to terminate his or her employment or violate any agreement with or duty to the Company or any such group, division or subsidiary.

 

(i)           Sampen agrees that violations of the material covenants in this Section 5 will cause the Company irreparable injuries and agrees that the Company may enforce said covenants by seeking injunctive or other equitable relief (in addition to any other remedies the Company may have at law for damages or otherwise) from a court of competent jurisdiction. In the event such court declares these covenants to be too broad to be specifically enforced, the covenants shall be enforced to the largest extent as may be allowed by such court for the Company’s protection. Sampen further agrees that no breach by the Company of, or other failure by the Company under this Agreement shall relieve Sampen of any obligations under Sections 5(g) and 5(h) hereof.

 

(j)           The provisions of this Section shall survive the termination of this Agreement. Sampen acknowledges that the provisions set forth in this Section of this Agreement are fair and reasonable, and Sampen agrees to cause its employees to comply with the above provisions.

 

6.           Miscellaneous.

 

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

 

  

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

 

(c)           No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Sampen and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement.

 

(d)           Neither Sampen nor the Company will be deemed to have made any representation, warranty, covenant or agreement except for those expressly set forth herein.

 

(e)           This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns and the Company shall require any successor or assign to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. The term the “Company” as used herein shall include such successors and assigns. The term “successors and assigns” as used herein shall mean a corporation or other entity acquiring all or substantially all the assets and business of the Company (including this Agreement) whether by operations of law or otherwise.

 

(f)           Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by Sampen or its legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Sampen’s legal representative.

 

(g)           Nothing to the contrary in the foregoing notwithstanding, Sampen may assign this Agreement to any company of which it is a “control person” within the meaning of the Securities Exchange Act of 1934, provided, that Sampen shall continue to be obligated to fulfill the duties set forth in Section 1 above, and provided, further, that Sampen shall continue to be bound by the terms and provisions of Section 5 of this Agreement notwithstanding any such assignment.

 

If the foregoing satisfactorily reflects the mutual understanding between you and the Company, kindly sign and return to the Company the enclosed copy of this letter. On behalf of the Company, I want to take this opportunity to state that we look forward to our working relationship with you.

 

Very truly yours,

 

  

 

AROTECH CORPORATION

 

 

By:   /s/ Robert S. Ehrlich                                                               

Robert S. Ehrlich

Chairman and Chief Executive Officer

ACCEPTED AND AGREED:

 

SAMPEN CORPORATION

 

By:    /s/ Morris Esses                                                       

Morris Esses

President

 

  

-10-ex10-4.htm

Exhibit 10.4

 

THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT

 

THIS AGREEMENT is signed on the 13th day of May, 2013, effective as of the 1st day of May, 2013, by and between Arotech Corporation, a Delaware corporation with offices at 1229 Oak Valley Drive, Ann Arbor, Michigan 48108 (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 and the Employee entered into an Employment Agreement dated as of December 30, 2005, as amended and restated effective as of January 1, 2008 and January 1, 2012  (the “Original Agreement”); and

 

WHEREAS, the Company and the Employee now wish to further extend the Employee’s employment and to amend and restate the Original Agreement in its entirety in accordance with the terms of this Agreement;

 

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

 

1.          Title and Duties.

 

(a)           The Employee will serve as Senior Vice President – Finance and Chief Financial Officer 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 report to the President 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 than 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 base salary of two hundred one thousand four hundred dollars ($201,400) (the “Base Salary”). The Base Salary will be paid semi-monthly in arrears on the fifteenth and final day of each month. The Base Salary will, effective March 31 of each year beginning March 31, 2014, be adjusted annually, retroactive to January 1 of that year, in accordance with the change in the Consumer Price Index for Urban Wage Earners and Clerical Workers in Detroit-Ann Arbor-Flint, Michigan (All Items), as reported by the Bureau of Labor Statistics of the United States Department of Labor, during the previous year (the “CPI Adjustment”). For the avoidance of doubt, it is understood by the parties that, as soon as practicable, the Base Salary stated above shall be adjusted for 2014, retroactive to January 1, 2014, in respect of the CPI Adjustment for inflation during 2013. Additionally, the Base Salary may be increased from time to time, effective January 1 of each year beginning January 1, 2015, 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, in a single lump-sum payment in cash 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 (but in no event later than May 31 of each year), an annual bonus (if and to the extent earned according to the criteria below), as follows:

 

(i)           If, as of such anniversary, the Company shall have attained 100% of the Company’s Budgeted Number (as defined below) for the year preceding such anniversary, then Employee’s bonus shall be equal to 16.5% 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 100% 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 16.5%) + (N-100)/20 x (S x 33.5%)

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 100 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.

 

  

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(c)           The Employee shall be entitled to a paid annual vacation of twenty (20) business days with respect to, and during, each twelve (12) month period of his employment hereunder, provided that up to five days of the unused portion of any such vacation, in respect to any year, may be carried forward only to the next year, with the remainder being redeemed by the Company for cash. 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.

 

(d)           The Employee shall be entitled to paid sick leave of ten (10) days with respect to, and during, each twelve (12) month period of his employment hereunder.

 

(e)           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.

 

(f)           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.

 

  

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(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.

 

(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 from May 1, 2013 until December 31, 2015 (the “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 unauthorized 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)           Upon termination of this Agreement other than for the reasons set forth in subsection (b) above, including without limitation by this Agreement coming to the end of the Term and not being extended or immediately succeeded by a new substantially similar employment agreement (“Non-Renewal”), the Company shall pay the Employee as severance pay an amount equal to twelve (12) times the monthly Base Salary at the highest rate in effect at any time within the ninety (90) day period ending on the Termination Date.

 

  

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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 Michigan without regard to conflicts of law provisions and principles of that State, and the courts located in Washtenaw County, Michigan 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 effective date set forth above:

 

 

	
 

 

 

 

/s/ Thomas J. Paup                                                       

                 Thomas J. Paup

	
Arotech Corporation

 

 

By:      /s/ Robert S. Ehrlich                                                                                   

Name: Robert S. Ehrlich

Title:   Chairman and CEO

 

 

  

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