Document:

Exhibit
10.22

 

 

ASSET
PURCHASE AGREEMENT

 

by and among

 

AMERICAN DEFENSE
SYSTEMS, INC.,

 

TACTICAL
APPLICATIONS GROUP

 

and

 

LISA SUE QUINLAN

 

 

 

TABLE OF
CONTENTS

 

	
  ARTICLE I DEFINITIONS AND
  INTERPRETATION

  	
  1

  
	
   

  	
   

  
	
  1.1          Definitions

  	
  1

  
	
  1.2          Other
  Defined Terms

  	
  4

  
	
  1.3          Interpretation

  	
  5

  
	
   

  	
   

  
	
  ARTICLE II PURCHASE AND SALE OF
  ASSETS

  	
  6

  
	
   

  	
   

  
	
  2.1          Acquired
  Assets; Excluded Assets

  	
  6

  
	
  2.2          Acquired
  Liabilities; Excluded Liabilities

  	
  7

  
	
  2.3          Purchase
  Price

  	
  7

  
	
  2.4          Purchase
  Price Adjustment

  	
  8

  
	
  2.5          Allocation
  of Purchase Price

  	
  9

  
	
   

  	
   

  
	
  ARTICLE III THE CLOSING;
  CONDITIONS TO CLOSING

  	
  9

  
	
   

  	
   

  
	
  3.1          Closing

  	
   

  
	
  3.2          Conditions
  to Obligations of the Buyer

  	
  9

  
	
  3.3          Conditions
  to Obligations of the Company

  	
  11

  
	
   

  	
   

  
	
  ARTICLE IV REPRESENTATIONS OF
  THE COMPANY AND THE OWNER

  	
  12

  
	
   

  	
   

  
	
  4.1          Organization,
  Qualification and Corporate Power

  	
  12

  
	
  4.2          Authorization

  	
  12

  
	
  4.3          Financial
  Statements

  	
  13

  
	
  4.4          Absence
  of Certain Changes

  	
  13

  
	
  4.5          Undisclosed
  Liabilities

  	
  13

  
	
  4.6          Tax
  Matters

  	
  14

  
	
  4.7          Assets

  	
  15

  
	
  4.8          Intellectual
  Property

  	
  15

  
	
  4.9          Real
  Property

  	
  16

  
	
  4.10        Contracts

  	
  17

  
	
  4.11        Government
  Contracts and Bids

  	
  18

  
	
  4.12        Accounts
  Receivable

  	
  21

  
	
  4.13        Insurance

  	
  21

  
	
  4.14        Litigation

  	
  21

  
	
  4.15        Employees

  	
  21

  
	
  4.16        Employee
  Benefits

  	
  22

  
	
  4.17        Environmental
  Matters

  	
  23

  
	
  4.18        Legal
  Compliance

  	
  23

  
	
  4.19        Permits

  	
  23

  
	
  4.20        Certain
  Business Relationships With Affiliates

  	
  23

  
	
  4.21        Broker’s
  Fees

  	
  23

  
	
  4.22        Books
  and Records

  	
  24

  
	
  4.23        Customers
  and Suppliers

  	
  24

  
	
  4.24        Disclosure

  	
  24

  
	
  4.25        Investment
  Intent

  	
  24

  

 

 

 

	
  ARTICLE V REPRESENTATIONS OF THE
  BUYER

  	
  26

  
	
   

  	
   

  
	
  5.1          Organization,
  Qualification and Corporate Power

  	
  26

  
	
  5.2          Authorization

  	
  26

  
	
  5.3          Broker’s
  Fees

  	
  26

  
	
   

  	
   

  
	
  ARTICLE VI COVENANTS

  	
  27

  
	
   

  	
   

  
	
  6.1          Best
  Efforts

  	
  27

  
	
  6.2          Consents

  	
  27

  
	
  6.3          Further
  Assurances

  	
  27

  
	
  6.4          Employment
  and Employee Benefits

  	
  27

  
	
  6.5          Non-Competition;
  Non-Solicitation

  	
  28

  
	
  6.6          Confidentiality

  	
  29

  
	
   

  	
   

  
	
  ARTICLE VII INDEMNIFICATION

  	
  29

  
	
   

  	
   

  
	
  7.1          Indemnification
  by the Company and the Owner

  	
  29

  
	
  7.2          Indemnification
  by the Buyer

  	
  30

  
	
  7.3          Method
  of Asserting Claims

  	
  30

  
	
  7.4          Set-Off

  	
  32

  
	
  7.5          No
  Bar; Waiver

  	
  32

  
	
  7.6          Effect
  of Investigation

  	
  32

  
	
  7.7          Survival

  	
  33

  
	
   

  	
   

  
	
  ARTICLE VIII TERMINATION

  	
  33

  
	
   

  	
   

  
	
  ARTICLE IX MISCELLANEOUS

  	
  34

  
	
   

  	
   

  
	
  9.1          Notices

  	
  34

  
	
  9.2          Successor
  and Assigns

  	
  34

  
	
  9.3          Entire
  Agreement; Amendments; Attachments

  	
  35

  
	
  9.4          Severability

  	
  35

  
	
  9.5          Expenses

  	
  35

  
	
  9.6          Governing
  Law

  	
  35

  
	
  9.7          Section Headings

  	
  35

  
	
  9.8          Counterparts

  	
  35

  
	
  9.9          Construction

  	
   

  
	
  9.10        No
  Third Party Beneficiaries

  	
  36

  
	
  9.11        Specific
  Performance

  	
  36

  
	
  9.12        Submission
  to Jurisdiction

  	
  36

  

 

LIST OF EXHIBITS

 

Exhibit A - Form of
Bill of Sale

Exhibit B - Form of
Owner Employment Agreement

 

 

ii

 

ASSET PURCHASE AGREEMENT

 

This Asset Purchase Agreement (the “Agreement”) is made as of November 15,
2007, by and among American Defense Systems, Inc., a Delaware corporation
(the “Buyer”), Tactical Applications Group, a sole proprietorship (the “Company”),
and Lisa Sue Quinlan, the sole proprietor of the Company (the “Owner”).  The Buyer, the Company and the Owner are
sometimes referred to herein individually as a “Party” and collectively
as the “Parties.”

 

Whereas, the Company, through its Retail Operations division (the “Division”),
is the owner of certain assets, properties, rights and interests used in or
related to the Business (as defined below);

 

Whereas, the Owner is the President and sole proprietor of the Company;
and

 

Whereas, the Owner desires to sell, and Buyer desires to purchase,
substantially all of the assets, properties, right and interests used in or
related to the Business in consideration of certain payments by Buyer on the
terms and conditions set forth herein.

 

Now, Therefore, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the Parties hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS AND INTERPRETATION

 

1.1           Definitions.  For purposes of this Agreement, the following
terms have the respective meanings set forth below:

 

“Affiliate” means (i) in
the case of an individual, the members of the immediate family (including the
individual’s spouse and the parents, siblings and children of the individual
and/or the individual’s spouse) and any Business Entity that directly or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with, any of the foregoing individuals, or (ii) in
the case of a Business Entity, another Business Entity or a person that
directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Business Entity.

 

“Books and Records”
means the books and records of the Company relating to the Business or the
Division, including (i) books and records relating to the purchase of
materials and supplies, the creation or processing of products, sales or
licenses of products and/or services, dealings with customers, customer
financial data and information, invoices, customer lists, inventories, supplier
lists, personnel records and Taxes, and (ii) computer software and data in
computer readable and human readable form used to maintain such books and
records together with the media on which such software and data are stored and
all documentation relating thereto.

 

 

 

“Business” means
the provision of products to any branch of the military and/or any law
enforcement agency.

 

“Business Entity”
means any corporation, partnership, limited liability company, trust or other
domestic or foreign form of business association or organization.

 

“Contracts” means
contracts, agreements, licenses, leases, obligations, commitments,
undertakings, sales, orders (including delivery orders, purchase orders and
change orders), and blanket purchase agreements (whether written or oral,
express or implied).

 

“Equipment” means
equipment, furniture, fixtures, computer equipment and other tangible personal
property used or held for use in the conduct of the Business.

 

“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended.

 

“Existing Customer”
means any Person (or an Affiliate thereof) to which the Company provided
services or products related to the Business at any time during the two years
immediately preceding the Closing Date.

 

“GAAP” means
generally accepted accounting principles in effect in the United States of
America from time to time.

 

“Geographic Area”
means the United State of America.

 

“Independent
Accountants” means an independent accounting firm of national or regional
reputation which has not performed services for the Buyer or the Company, or
any of their respective Affiliates, during the preceding three year period,
which is selected by the Buyer and the Company (or if they cannot agree, by the
Buyer’s and the Company’s respective independent accounting firms).

 

“Intellectual Property” means all (i) patents and patent
applications, whether utility, design or other, including continuation,
continuation-in-part, divisional, reissue, reexamination, invention
disclosures, certificates of invention and registrations and applications for
registrations, (ii) trademarks, service marks, trade dress, logos, trade
names and corporate names and registrations and applications for registration
thereof, (iii) copyrights and registrations and applications for
registration thereof, (iv) domain names, computer software, data and
documentation, (v) trade secrets and confidential business information,
whether patentable or unpatentable and whether or not reduced to practice,
know-how, manufacturing and production processes and techniques, research and
development information, copyrightable works, financial, marketing and business
data, pricing and cost information, business and marketing plans and customer
and supplier lists and information, (vi) other proprietary rights and (vii) copies
and tangible embodiments thereof.

 

“IRS”
means the Internal Revenue Service.

 

“knowledge of the Company” or “Company’s knowledge” means
any fact, circumstance, event or other matter that (i) the Owner or any
other officer or director of the Company or employee of the Business actually
knows, or (ii) any of the individuals referred to in the 

 

 

2

 

preceding clause (i) should know or would
reasonably be expected to know in the normal discharge of his or her assigned
duties and responsibilities.

 

“Law” means, in relation to any jurisdiction, any national,
federal, state, municipal or local or other statute, law, treaty, ordinance,
regulation, rule, code, order, other requirement or rule of law.

 

“Lien” means any lien, encumbrance, pledge, mortgage, deed of
trust, security interest, claim, lease, charge, option, right of first refusal,
assessment, easement, servitude, covenant, reservation, defect in title,
license, ownership interest of another Person, encroachment or other burden or
restriction.

 

“Material Adverse Change” or “Material Adverse Effect”
means any event, change, effect or occurrence that, individually or together
with any other event, change, effect or occurrence, (i) is, or could
reasonably be expected to be, materially adverse to the business, assets,
capitalization, properties, operations, prospects, condition (financial or
otherwise), actual or anticipated results of operations or liabilities
(contingent or otherwise) of the Division or the Business, (ii) prevents
or materially delays the performance by the Company of its obligations under
this Agreement or (iii) has, or could reasonably be expected to have, a
material adverse effect on the ability of the Buyer to operate the Business
immediately after the Closing Date.

 

“Order” means any order, award, decision, injunction, judgment,
decree, ruling, subpoena, writ, assessment, verdict or arbitration award
entered, issued, made or rendered by any Governmental Entity.

 

“Permitted Exceptions” means Liens for current Taxes,
assessments or other governmental charges not yet delinquent.

 

“Person” means any individual, corporation, partnership, firm,
joint venture, limited liability company, association, joint-stock company,
trust, unincorporated organization, Governmental Entity or other entity.

 

“Security Interest” means any mortgage, pledge, security
interest, encumbrance, charge or other Lien (whether arising by contract or by
operation of law).

 

“Tax Returns” means all reports, returns, declarations,
statements or other information supplied or required to be supplied to a taxing
authority in connection with Taxes.

 

“Taxes” means all taxes, including any re-assessment thereof,
charges, fees, levies or other similar assessments or liabilities, including
without limitation income, gross receipts, estimated, ad valorem, premium,
value-added, excise, real property, personal property, sales, use, transfer,
withholding, employment, payroll and franchise taxes imposed by the United
States of America or any state, local or foreign government, or any agency
thereof, or other political subdivision of the United States or any such government,
and any interest, fines, penalties, assessments or additions to tax resulting
from, attributable to or incurred in connection with any tax or any contest or
dispute thereof or any failure to file returns or reports with respect thereto.

 

 

3

 

“Working Capital” means current assets of the Business minus
current liabilities of the Business, determined in accordance with GAAP, and
otherwise prepared on a basis consistent with the Current Balance Sheet.

 

1.2           Other
Defined Terms.  For purposes of this
Agreement, the following terms have the respective meanings set forth in the
section opposite each such term:

 

	
  TERM

  	
   

  	
   

  	
  SECTION

  	
   

  
	
  Acquired
  Assets

  	
   

  	
  Section 2.1(a)

  
	
  Actual Purchase Price

  	
   

  	
  Section 2.4(c)

  
	
  Agreed
  Amount

  	
   

  	
  Section 7.3(b)

  
	
  Agreement

  	
   

  	
  Preamble

  
	
  Allocation
  Schedule

  	
   

  	
  Section 2.5

  
	
  Annual
  Financial Statements

  	
   

  	
  Section 4.3(a)

  
	
  Assumed
  Liabilities

  	
   

  	
  Section 2.2(a)

  
	
  Bill
  of Sale

  	
   

  	
  Section 3.2(c)

  
	
  Business
  Intellectual Property

  	
   

  	
  Section 2.1(a)

  
	
  Buyer

  	
   

  	
  Preamble

  
	
  Buyer
  Indemnified Persons

  	
   

  	
  Section 7.1

  
	
  Buyer
  Plans

  	
   

  	
  Section 6.8(b)

  
	
  Claim
  Notice

  	
   

  	
  Section 7.3(a)

  
	
  Cap
  Amount

  	
   

  	
  Section 7.7(a)

  
	
  Claimed
  Amount

  	
   

  	
  Section 7.3(a)

  
	
  Closing

  	
   

  	
  Section 2.1(a)

  
	
  Closing
  Date

  	
   

  	
  Section 3.1

  
	
  Closing Date Balance
  Sheet

  	
   

  	
  Section 2.4(c)

  
	
  Closing Date Payment
  Certificate

  	
   

  	
  Section 2.4(c)

  
	
  Closing Purchase Price

  	
   

  	
  Section 2.3

  
	
  Code

  	
   

  	
  Section 4.6(d)

  
	
  Company

  	
   

  	
  Preamble

  
	
  Company
  Plans

  	
   

  	
  Section 4.16(a)

  
	
  Confidential
  Information

  	
   

  	
  Section 6.10

  
	
  Contested
  Amount

  	
   

  	
  Section 7.3(c)

  
	
  Current
  Balance Sheet

  	
   

  	
  Section 4.3(a)

  
	
  Current
  Financial Statements

  	
   

  	
  Section 4.3(a)

  
	
  Damages

  	
   

  	
  Section 7.1

  
	
  Disclosure
  Schedule

  	
   

  	
  Article iv

  
	
  DOL

  	
   

  	
  Section 4.15(b)

  
	
  EAD

  	
   

  	
  Section 4.15(b)

  
	
  Estimated
  Purchase Price

  	
   

  	
  Section 2.3

  
	
  Excluded
  Assets

  	
   

  	
  Section 2.1(b)

  
	
  Excluded
  Liabilities

  	
   

  	
  Section 2.2(b)

  
	
  FAR

  	
   

  	
  Section 4.11(e)

  
	
  Financial
  Statements

  	
   

  	
  Section 4.4(a)

  
	
  Government
  Contract

  	
   

  	
  Section 4.11(a)

  
	
  Governmental
  Entity

  	
   

  	
  Section 4.2

  

 

 

4

 

	
  Indemnified
  Persons

  	
   

  	
  Section 7.2

  
	
  Indemnifying
  Party

  	
   

  	
  Section 7.3(a)

  
	
  Insurance
  Policies

  	
   

  	
  Section 4.13

  
	
  Inventory

  	
   

  	
  Section 2.1(a)

  
	
  INS

  	
   

  	
  Section 4.15(b)

  
	
  NSA
  Contracts

  	
   

  	
  Section 6.11

  
	
  Noncompete
  Agreement

  	
   

  	
  Section 3.2(c)

  
	
  Offered
  Employees

  	
   

  	
  Section 6.8(a)

  
	
  Party(ies)

  	
   

  	
  Preamble

  
	
  Permits

  	
   

  	
  Section 4.19

  
	
  Prime
  Government Contract

  	
   

  	
  Section 4.11(a)

  
	
  Protected
  Employee

  	
   

  	
  Section 6.9(a)

  
	
  Purchase
  Price

  	
   

  	
  Section 2.3

  
	
  Related
  Party Transactions

  	
   

  	
  Section 4.20

  
	
  Response
  Notice

  	
   

  	
  Section 7.3(b)

  
	
  Seller
  Indemnified Person

  	
   

  	
  Section 7.2

  
	
  Surviving
  Representations

  	
   

  	
  Section 7.5(b)

  
	
  Transferred
  Employees

  	
   

  	
  Section 6.8(a)

  
	
  Transition
  Services Agreement

  	
   

  	
  Section 3.2(c)

  
	
  Termination
  Date

  	
   

  	
  Section 7.5(c)

  
	
  Threshold
  Amount

  	
   

  	
  Section 7.6(a)

  
	
  U.s.
  Government

  	
   

  	
  Section 4.11(a)

  
	
  Work
  Permit

  	
   

  	
  Section 4.15(b)

  
	
  Working
  Capital Adjustment

  	
   

  	
  Section 2.4(a)

  

 

1.3           Interpretation.  In this Agreement, unless clear contrary
intention appears:

 

(a)           A reference herein to days shall mean
calendar days unless otherwise specified, and any day or deadline or end of a
time period hereunder which falls on a day other than a business day shall be
deemed to refer to the first business day following such day or deadline or end
of the time period, as the case may be;

 

(b)           A reference in this Agreement to an
article, section, exhibit or schedule shall mean an article or section of, or
exhibit or schedule attached to, this Agreement, as the case may be;

 

(c)           The word “including” shall be deemed
to be followed by the words “without limitation”; the word “or” is not
exclusive and is used in the inclusive sense of “and/or,” and the words “herein,”
“hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement as a
whole;

 

(d)           A reference to document, instrument
or agreement shall be deemed to refer as well to all addenda, exhibits,
schedules or amendments thereto; and

 

(e)           All words used in this Agreement will
be construed to be of such gender or number as the circumstances require.

 

 

5

 

ARTICLE II 

PURCHASE AND SALE OF ASSETS

 

2.1           Acquired Assets; Excluded Assets.

 

(a)           Acquired
Assets.  At the closing of the
transactions contemplated by this Agreement (the “Closing”), the Owner
and the Company will sell, assign, transfer and deliver to the Buyer, and the
Buyer will purchase and acquire from the Owner and the Company, all right, title
and interest in and to the Acquired Assets, free and clear of all Liens, on the
terms and subject to the conditions set forth in this Agreement.  For purposes of this Agreement, “Acquired
Assets” shall mean all of the assets of the Division or used or held for
use in or related to the conduct of the Business, as of the Closing Date,
including the following assets:

 

(i)            all
cash, marketable securities and other cash equivalents of the Business as of
the Closing Date;

 

(ii)           any
Equipment used in the operation of the Business, and all third party warranties
and guarantees and other similar contractual rights, if any, as to third
parties with respect to any such Equipment;

 

(iii)          all
inventories of raw materials, work in process, backlog, contract deliverables
or product inventories attributable to the Business (the “Inventory”);

 

(iv)          all
accounts and notes receivable and such other claims for money due, and any
unpaid interest or fees accrued on any such accounts and notes receivable
attributable to the Business;

 

(v)           all
Contracts related to the operation of the Business (the “Acquired Contracts”);

 

(vi)          all
Permits associated with the Business if and to the extent transferable or
assignable to the Company;

 

(vii)         all
Intellectual Property used in connection with the operation of the Business,
together with all rights associated therewith, including the right to sue and
collect for any past, present or future infringement, misappropriation or
unauthorized use thereof, and any goodwill associated with any trademarks
included therein and all Company know-how and trade secrets directly related to
such Intellectual Property (collectively, the “Business Intellectual
Property”);

 

(viii)        all
rights under or pursuant to warranties and guarantees made by suppliers, manufacturers
or contractors in connection with products or services provided to the Business
and all other claims and rights against third parties relating to the Acquired
Assets or Assumed Liabilities;

 

 

6

 

(ix)           the
Books and Records; provided, however, that the Company shall be
entitled to retain copies of any materials reasonably necessary for its human
resources, accounting, tax or legal purposes;

 

(x)            any
and all of the Company’s claims, causes of action, choses in action, rights of
recovery, rights of setoff, rights of recoupment and other rights of any kind
against third parties used or held for use in or related to the conduct of the
Business, the Acquired Assets or the Assumed Liabilities; and

 

(xi)           all
prepaid expense items relating exclusively to the Business.

 

(b)           Excluded
Assets.  Notwithstanding the
provisions of Section 2.1(a), the following properties, assets and
rights (“Excluded Assets”) shall not be transferred to the Buyer and
therefore are not a part of the Acquired Assets:

 

(i)            all rights of the Company to Tax
refunds, however arising, relating to the Acquired Assets and the Business for
taxable periods prior to and including the Closing Date;

 

(ii)           all rights of the Company under this
Agreement; and

 

(iii)          the Company’s contract with Protective
Products International.

 

2.2           Acquired Liabilities; Excluded
Liabilities.

 

(a)           Assumed Liabilities.  On the terms and subject to the conditions
contained in this Agreement and except as otherwise provided in Section 2.2(b),
at the Closing, Buyer will assume and thereafter pay, perform or otherwise
discharge the following liabilities and obligations of the Company related
exclusively to the Business (the “Assumed Liabilities”):

 

(i)            the obligations of the Company or
the Business under the lease set forth on Section 4.9 of the
Disclosure Schedule, to the extent arising after the Closing; and

 

(ii)           operating expenses of the Business
incurred in the ordinary course of business and taken into account in determining
the Working Capital Adjustment.

 

(b)           Excluded Liabilities.  Notwithstanding any other provision of this
Agreement, the Company shall retain, and Buyer shall not assume or be
responsible or liable with respect to any, liabilities and obligations of the
Company other than the Assumed Liabilities (collectively, the “Excluded
Liabilities”).

 

2.3           Purchase Price.  The purchase price to be paid by the Buyer
for the Acquired Assets shall be Two Million Dollars ($2,000,000) (the “Estimated
Purchase Price”), as adjusted pursuant to Section 2.4,
consisting of and payable as follows:

 

 

7

 

(a)           Five Hundred Thousand Dollars
($500,000) in cash at the Closing (the “Closing Purchase Price”) to the
Owner by wire transfer or delivery of other immediately available funds;

 

(b)           250,000 shares of the common stock,
with a deemed value of $2.00 per share (the “Buyer Shares”), to be
issued to the Owner on the Closing Date; and

 

(c)           One Million Dollars ($1,000,000) in
cash on January 15, 2008 (the “Deferred Purchase Price”) to the
Owner;

 

provided, however, that (i) Two
Hundred and Fifty Thousand Dollars ($250,000) of the Deferred Purchase Price
shall be held back and retained by the Buyer in accordance with Article VII
and (ii) the One Hundred and Fifty Thousand Dollars ($150,000) balance due
to the Buyer by the Company as of the date of this Agreement on account of
Humvee sales shall be deducted from, and offset against, the Deferred Purchase
Price, such that a total of Six Hundred Thousand Dollars ($600,000) shall be
paid to the Owner by the Buyer by wire transfer or delivery of other
immediately available funds on January 15, 2008.

 

2.4           Purchase Price Adjustment.

 

(a)           The Estimated Purchase Price shall be
adjusted upward or downward, as applicable, on a dollar-for-dollar basis, by
the amount (if any) by which Working Capital as of the Closing Date is greater
or less than $775,000 (the “Working Capital Adjustment”).

 

(b)           Within 90 days following the Closing,
the Buyer shall prepare or cause to be prepared a balance sheet of the Division
as of the Closing, prepared in accordance with GAAP (the “Closing Date
Balance Sheet”).  Promptly
thereafter, the Buyer shall prepare and deliver to the Company a certificate,
verified as to accuracy by the Buyer’s Chief Executive Officer or Chief
Financial Officer (the “Closing Date Payment Certificate”) (i) attaching
a copy of the Closing Date Balance Sheet and (ii) setting forth the actual
amount of the purchase price (which actual amount is referred to as the “Actual
Purchase Price”), taking into account the Working Capital Adjustment.  If within ten business days after the Closing
Date Payment Certificate is delivered to the Company, the Company shall not
have given written notice to the Buyer setting forth in detail any objection to
the Actual Purchase Price, then such determination of the Actual Purchase Price
shall be final and binding on the Parties. 
If the Company, within such ten business day period following delivery
of the Closing Date Payment Certificate, shall give written notice to the Buyer
setting forth in detail any objection to such determination of the Actual
Purchase Price, the Buyer and the Company shall endeavor to reach agreement
within the ten business day period following the receipt by the Buyer or the
Company of any notice of objection.  If
the Parties are unable to reach agreement within such ten business day period,
then the matter shall be submitted to the Independent Accountants for
determination of the Actual Purchase Price, which determination shall be final
and binding on the Parties.  In
connection with the resolution of any dispute, each Party shall pay its own
fees and expenses, including, without limitation, its own legal, accounting and
consulting fees and expenses.  If the
Actual Purchase Price (as determined by the Independent Accountants) is greater
than the Actual Purchase Price as set forth in the Closing Date Payment
Certificate by five percent  or
more, then the cost and expense of the Independent Accountants shall be paid 

 

 

8

 

by the Buyer. 
If the Actual Purchase Price as determined by the Independent
Accountants is less than the Actual Purchase Price as set forth in the Closing
Date Payment Certificate, or exceeds the Actual Purchase Price as set forth in
the Closing Date Payment Certificate by less than five percent,  then the cost and expense of the
Independent Accountants shall be paid by the Company.  If the Estimated Purchase Price is greater
than the Actual Purchase Price, then the Owner shall repay to the Buyer within
ten business days following receipt of the Closing Date Payment Certificate or, if  disputed,
within ten business days following the earlier of the date on which the parties
resolve the dispute or the date of determination of the Actual  Purchase
Price by the Independent Accountants, the difference between the Estimated
Purchase Price and the Actual Purchase Price. 
If the Owner shall fail to pay such amount when due, then the Buyer
shall have the right (but not the obligation), in addition to any other
remedies which it may have, to deem such amount to be Damages in accordance with  Article VII.  If the Actual Purchase Price is greater than
the Estimated Purchase Price, then the Buyer shall pay to the Owner, within ten
business days following receipt of the Closing Date Payment Certificate or, if
disputed, within ten business
days following the earlier of the date on which the parties resolve their
dispute or the date of determination
of the Actual Purchase Price by the Independent Accountants, the difference
between the Actual Purchase Price and the Estimated Purchase Price.

 

2.5           Allocation of Purchase Price.  Following the Closing Date, the Buyer and the
Owner shall in good faith agree on an allocation schedule for the Purchase
Price (the “Allocation Schedule”) prepared by the Buyer  allocating the Purchase Price among the
Acquired Assets in accordance with the Code (together with all rules and
regulations promulgated thereunder).  The
Buyer and the Company agree to resolve any disagreement with respect to the
Allocation Schedule in good faith.  The
Buyer and the Owner hereby undertake and agree to timely file any information
that may be required to be filed pursuant to regulations promulgated under the
Code, and shall use the Allocation Schedule in connection with the preparation
of any form relating to the transactions contemplated by this Agreement.  The Buyer and the Owner agree to promptly
provide the other party with any additional information and reasonable
assistance required to complete all forms or compute Taxes arising in
connection with (or otherwise affected by) the transactions contemplated
hereunder.

 

ARTICLE III 

THE CLOSING; CONDITIONS TO CLOSING

 

3.1           Closing.  The Closing shall take place at the offices
of Greenberg Traurig, LLP, 1750 Tysons Boulevard, Suite 1200, McLean,
Virginia 22102 at 11:00 a.m., Eastern Time, on the date hereof (the “Closing
Date”).  The documents to be
delivered at the Closing may, at the election of the Parties, be exchanged by
telecopier or email delivery of “pdf” files upon a written undertaking to
provide original executed copies within one business day following the Closing.

 

3.2           Conditions to Obligations of the
Buyer.  The obligations of the Buyer
under this Agreement are subject to the fulfillment, at or before the Closing,
of the following conditions precedent, each of which may be waived in writing
in the sole discretion of the Buyer:

 

 

9

 

(a)           Continued Truth of Representations
and Warranties of the Company; Compliance with Covenants and Obligations.

 

(i)            The Company and the Owner shall have
obtained all of the waivers, permits, consents, approvals or other
authorizations (including such waivers, permits, consents, approvals or other
authorizations relating to the Agreements Requiring Consent), and effected all
of the registrations, filings and notices, which are necessary for the
consummation of the transactions contemplated by the Agreement or are material
to the conduct of the Business;

 

(ii)           The representations and warranties of
the Company and the Owner set forth in Article IV shall be true and
correct when made on the date hereof and shall be true and correct as of the
Closing Date as if made as of the Closing Date, except for representations and
warranties made as of a specific date, which shall be true and correct as of such
date;

 

(iii)          The Company and the Owner shall have
performed or complied with its agreements and covenants required to be
performed or complied with under this Agreement as of or prior to the Closing
Date; and

 

(iv)          No action, suit or proceeding shall be
pending or threatened in writing by or before any Governmental Entity wherein
an unfavorable judgment, order, decree, stipulation or injunction would (A) prevent
consummation of any of the transactions contemplated by this Agreement, (B) cause
any of the transactions contemplated by this Agreement to be rescinded
following consummation or (C) affect adversely the right of the Buyer to
own, operate or control any of the assets or operations of the Business, and no
such judgment, order, decree, stipulation or injunction shall be in effect.

 

(b)           Performance by the Company.  The Company and the Owner shall have
delivered to the Buyer a certificate (without qualification as to knowledge or
materiality or otherwise), signed by the Chief Executive Officer of the Company
and the Owner to the effect that each of the conditions specified in Section 3.2(a) have
been satisfied.

 

(c)           Closing Deliveries of the Company.  The Buyer shall have received at or prior to
the Closing such documents, instruments or certificates as the Buyer may
reasonably request, including without limitation:

 

(i)            a counterpart to the bill of sale
and assignment and assumption agreement, in substantially the form attached
hereto as Exhibit A (the “Bill of Sale”), executed by the
Company and the Owner;

 

(ii)           a counterpart of an employment
agreement with the Owner, in substantially the form attached hereto as Exhibit B
(the “Quinlan Employment Agreement”), executed by the Owner;

 

(iii)          the certificate required pursuant to Section 3.2(b) above;

 

(iv)          a cross receipt executed by the
Company and the Owner; and

 

 

10

 

(v)           such other certificates, deeds, bills
of sale, endorsements, assignments, affidavits and other good and sufficient
instruments of sale, assignment, conveyance and transfer, as are reasonably
requested by Buyer to effectively convey good and marketable right, title and
interest in and to all of the Acquired Assets, free and clear of all Liens of
every kind and nature.

 

(d)           Acceptance of Employment.  On or prior to the Closing Date, each of the
Offered Employees shall have accepted Buyer’s offer of employment.

 

(e)           Reasonable Satisfaction of the
Buyer.  All actions to be taken by
the Company in connection with the consummation of the transactions
contemplated hereby and all certificates, instruments and other documents
required to effect the transactions contemplated hereby shall be reasonably
satisfactory in form and substance to the Buyer.

 

3.3           Conditions to Obligations of the
Company.  The obligations of the
Company and the Owner under this Agreement are subject to the fulfillment, at
or before the Closing Date, of the following conditions precedent, each of
which may be waived in writing in the sole discretion of the Company:

 

(a)           Continued Truth of Representations
and Warranties of the Buyer; Compliance with Covenants and Obligations.

 

(i)            The representations and warranties
of the Buyer set forth in Article V shall be true and correct when
made on the date hereof and shall be true and correct as of the Closing Date as
if made as of the Closing Date, except for representations and warranties made
as of a specific date, which shall be true and correct as of such date; and

 

(ii)           The Buyer shall have performed or
complied with its agreements and covenants required to be performed or complied
with under this Agreement as of or prior to the Closing Date.

 

(b)           Performance by the Buyer.  The Buyer shall have delivered to the Company
a certificate (without qualification as to knowledge or materiality or
otherwise), signed by an officer of the Buyer, to the effect that each of the
conditions specified in Section 3.3(a) have been satisfied.

 

(c)           Closing Deliveries of the Buyer.  The Company shall have received at or prior
to the Closing such documents, instruments or certificates as the Company
reasonably request, including without limitation:

 

(i)            payment of the Closing Purchase
Price;

 

(ii)           the Buyer Shares;

 

(iii)          a counterpart of the Bill of Sale
executed by the Buyer;

 

(iv)          a counterpart of the Quinlan
Employment Agreement executed by the Buyer;

 

 

11

 

(v)           the certificate required pursuant to Section 3.2(b) above;
and

 

(vi)          a cross receipt executed by the Buyer.

 

(d)           Reasonable Satisfaction of the
Company.  All actions to be taken by
the Buyer in connection with the consummation of the transactions contemplated
hereby and all certificates, instruments and other documents required to effect
the transactions contemplated hereby shall be reasonably satisfactory in form
and substance to the Company.

 

ARTICLE IV 

REPRESENTATIONS OF THE COMPANY AND THE OWNER

 

The Company and the Owner, jointly and severally, represent and warrant
to the Buyer that the statements contained in this Article IV are
true and correct as of the date hereof, except as set forth in the Disclosure
Schedule attached hereto (the “Disclosure Schedule”).  The Disclosure Schedule shall be arranged in
sections and paragraphs corresponding to the numbered and lettered sections and
paragraphs contained in this Article IV, and the disclosures in any
paragraph of the Disclosure Schedule shall qualify only the corresponding
section or paragraph in this Article IV.

 

4.1           Organization, Qualification and
Corporate Power.  The Company is a
sole proprietorship validly existing and in good standing under the laws of the
State of North Carolina.  The Company is
duly qualified to conduct business and is in good standing under the laws of
each jurisdiction in which the nature of its properties and/or the conduct of
its business requires such qualification. 
The Company has all requisite power and authority (corporate and other)
to carry on the business in which it is engaged and to own and use the
properties owned and used by it.

 

4.2           Authorization.  The Company and the Owner has all requisite
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder.  The execution and
delivery by the Company of this Agreement and the agreements provided for
herein, and the consummation by the Company of the transactions contemplated
hereby and thereby, have been duly authorized by all requisite corporate
action.  This Agreement has been duly
executed and delivered by the Company and the Owner.  This Agreement constitutes, and all other
agreements and obligations to be entered into and undertaken in connection with
the transactions contemplated hereby to which the Company or the Owner is or
shall be a party constitutes, or upon execution and delivery will constitute,
the valid and binding obligations of the Company and/or the Owner, as
applicable, enforceable against the Company and/or the Owner, as applicable, in
accordance with their respective terms. 
Neither the execution, delivery or performance by the Company or the
Owner of this Agreement or any of the agreements provided for herein, nor the
consummation by the Company or the Owner of the transactions contemplated
hereby or thereby, will, with or without the giving of notice or the passage of
time or both, (a) conflict with or violate any provision of the
organizational documents of the Company, (b) require any filing with, or
any permit, authorization, consent or approval of, any domestic or foreign
court, arbitration tribunal, administrative agency or commission or other
domestic or foreign governmental or regulatory authority or agency (a “Governmental
Entity”), (c) conflict 

 

 

12

 

with, result in a breach
of, constitute (with or without due notice or lapse of time or both) a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice, consent or
waiver under, any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest or other arrangement to which the Company is a
party or by which the Company is bound or to which any of its assets is
subject, (d) result in the imposition of any Security Interest on the
Acquired Assets or (e) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Company or any of its
properties or assets.

 

4.3           Financial Statements.

 

(a)           The Company has previously delivered
to the Buyer (i) the audited balance sheets of the Company and the
Division as of December 31, 2006 and 2005, and the related statements of
income, shareholders’ equity and cash flows of the Company for the fiscal years
then ended (the “Annual Financial Statements”), and (ii) the unaudited
balance sheets of the Company and the Division as of October 31, 2007 (the
“Current Balance Sheets”), and the related statements of income and cash
flow of the Company and the Division for the ten-month period then ended
(collectively, the “Current Financial Statements”).  The Annual Financial Statements and the
Current Financial Statements (collectively, the “Financial Statements”)
have been prepared in accordance with GAAP applied consistently with past
practices, except that the Current Financial Statements exclude all footnotes
and are subject to normal year-end adjustments (which, individually and in the
aggregate, shall not be material in amount).

 

(b)           Each of the Financial Statements
fairly presents in all material respects the assets, liabilities, business,
financial condition, results of operations and cash flows of the Company or the
Division, as applicable, as of the date thereof and for the period referred to
therein, and is consistent with the Books and Records.  The Company’s s accruals for sales and bonus
plans, vacation, sickness and disability expenses with respect to the Business
are accounted for on the Current Balance Sheet and are, to the Company’s
knowledge, adequate and properly reflect the expenses associated therewith in
accordance with GAAP.

 

4.4           Absence of Certain Changes.  Since December 31, 2006, (a) there
has not been any Material Adverse Change, nor has there occurred any event or
development (not including events, circumstances or developments generally
affecting the industry in which the Business does business or generally
affecting the economy or business climate in the United States or elsewhere)
which could reasonably be foreseen to result in such a Material Adverse Change,
and (b) the Company has not taken any action that would, pursuant to the
terms of Section 6.2, require the consent of Buyer if taken after
the date hereof.

 

4.5           Undisclosed Liabilities.  The Business has no liabilities (whether
known or unknown, whether absolute or contingent, whether liquidated or unliquidated
and whether due or to become due), except for liabilities shown on the Current
Balance Sheet.

 

 

13

 

4.6           Tax Matters.

 

(a)           The Company and the Owner have timely
filed all required Tax Returns related to the Business and the Acquired Assets
and all such Tax Returns were correct and complete.  The Company and the Owner have timely paid
all Taxes due on or before the Closing Date related to the Business and the Acquired
Assets whether or not shown on any such Tax Returns.  The accrued but unpaid Taxes of the Company
related to the Business and the Acquired Assets for tax periods or portions
thereof through the date of the Current Balance Sheet do not exceed the accruals
and reserves for Taxes set forth on the Current Balance Sheet.  All Taxes that the Company or the Owner is or
was required by Law to withhold or collect with respect to the Business and the
Acquired Assets have been duly withheld or collected and, to the extent
required, have been timely paid to the proper Governmental Entity.

 

(b)           The Company has made available to the
Buyer correct and complete copies of all foreign, federal and state income and
state sales Tax Returns related to the Business and the Acquired Assets,
current extensions, examination reports and statements of deficiencies assessed
against or agreed to by the Company since January 1, 2000.  The U.S. federal income Tax Returns of the
Company are closed by the applicable statute of limitations for all taxable
years through December 31, 1999.  No
examination or audit of any Tax Returns of the Company by any Governmental
Entity is currently in progress or, to the knowledge of the Company, threatened
or contemplated.  The Company has not
waived any statute of limitations with respect to Taxes or agreed to an
extension of time with respect to a Tax assessment or deficiency.

 

(c)           The Company and the Owner has no
actual or potential liability for any Taxes of any person or Business Entity
(other than the Company) under Treasury Regulation Section 1.1502-6 (or
any similar provision of U.S. federal, foreign, state or local law), or as a
transferee or successor, by contract or otherwise.

 

(d)           The Company is not  a “consenting corporation” within the meaning
of Section 341(f) of the Internal Revenue Code of 1986, as amended
(the “Code”), and none of the assets of the Company are subject to an
election under Section 341(f) of the Code.

 

(e)           The Company has not been a United
States real property holding corporation within the meaning of Section 897(c)(2) of
the Code during the applicable period specified in Section 897(c)(l)(A)(ii) of
the Code.

 

(f)            The Company is not a party to any
Tax allocation or sharing agreement.

 

(g)           To the knowledge of the Company, no
claim exists by a taxing authority in any jurisdiction that the Company is, or
may be, subject to Taxes assessed by such jurisdiction for any period for which
it did not file a Tax Return in such jurisdiction.

 

(h)           The Company has not made any
payments, is not obligated to make any payments, and is not a party to any
agreement that could obligate it to make any payments, that may be treated as
an “excess parachute payment” under Section 280G of the Code (without
regard to Section 280G(b)(4));

 

(i)            The Company is not and has never
been a member of an “affiliated group” of corporations (within the meaning of Section 1504
of the Code).

 

 

14

 

(j)            None of the Acquired Assets is “tax-exempt
use property” within the meaning of Section 168(h) of the Code.

 

(k)           None of the Acquired Assets directly
or indirectly secures any debt the interest on which is tax exempt under Section 103(a) of
the Code.

 

(l)            The Company has not undergone or
will undergo as a result of the transactions contemplated by this Agreement a
change in its method of accounting resulting in an adjustment to its taxable
income pursuant to Section 481(a) of the Code.

 

(m)          No state or federal “net operating
loss” of the Company determined as of the Closing Date is subject to limitation
on its use pursuant to Treasury Regulation Section 1.1502-21(c) or Section 382
of the Code or comparable provisions of state law, except for such limitation
resulting from the transactions contemplated by this Agreement.

 

(n)           The Company has not distributed to its
security holders stock or securities of a controlled corporation, nor has stock
or securities of the Company been distributed, in a transaction to which Section 355
of the Code applies (i) in the two years prior to the date of this
Agreement or (ii) in a distribution that could otherwise constitute part
of a “plan” or “series of related transactions” (within the meaning of Section 355(e) of
the Code) in conjunction with the transactions contemplated by this Agreement.

 

(o)           The Company has no items of income or
gain the recognition of which has been deferred pursuant to Treasury Regulation
1.1502-13 and which may be taken into account pursuant to the “acceleration
rule” of Treasury Regulation Section 1.1502-13(d).

 

4.7           Assets.  The Company has good, valid and marketable
title to, or valid leasehold interest in, the Acquired Assets free and clear of
all Liens, except for the Permitted Exceptions. 
The Acquired Assets include all material assets necessary or desirable
for the conduct of its Business as presently conducted and as presently
proposed to be conducted.  Each Acquired
Asset has been maintained in accordance with normal industry practice, is in
good operating condition and repair in all material respects (subject to normal
wear and tear) and is suitable for the purposes for which it presently is used.

 

4.8           Intellectual Property.

 

(a)           The Company currently owns, and the
Buyer will own immediately after the Closing, all right, title and interest in
and to each owned item of the Business Intellectual Property used in the
operation of the Business, free and clear of all Liens; provided, however, that
Buyer is not acquiring ownership of either of the two patent applications used
in the operation of the Business, referred to as “MMP” and “releasable
ballistic armored vest,” each of which is owned or co-owned by C.J. Quinlan
(the “Patent Applications”).  The
Company shall be granted, promptly after the Closing, a non-exclusive,
perpetual, royalty-free, worldwide license to fully use and exploit the Patent
Applications (and any patents issued as a result thereof, and/or continuations,
continuations-in-part, divisional patents, or reissues relating thereto) in
connection with its business.   The
Company is entitled to use, and the Buyer will be entitled to use immediately
after the Closing, each licensed item of the Business Intellectual Property
used in the operation of the Business.

 

 

15

 

(b)           No Legal Proceeding has been made, is
pending, has been asserted or, to the knowledge of the Company, is threatened
by any Person that the current or intended use by the Business of the Business
Intellectual Property, or that the operation of the Business infringes,
misappropriates or violates the Intellectual Property of any Person.  The operation of the Business as presently
conducted does not and will not, and the Business’s assets do not and will not,
infringe, misappropriate or otherwise violate any Intellectual Property of any
Person.  The Company has not assigned or
agreed to assign to any other Person any Intellectual Property related to the
Business as presently conducted.  There
are no pending claims asserted or threatened by the Company alleging an
infringement or misappropriation or violation by any Person of any Business
Intellectual Property and, to the knowledge of the Company, no Person is
engaging in any activity that infringes or misappropriates or violates any
Business Intellectual Property.

 

(c)           The Company has taken reasonable
steps to maintain and protect all of the Business Intellectual Property so as
not to adversely affect the validity or enforceability thereof, and no loss or
expiration of any of the Business Intellectual Property is threatened, pending
or reasonably foreseeable (and not as a result of any act or omission by Seller
including the failure to pay any required maintenance fees).  All employees of the Company included in the
operation of, and with access to the Books and Records of, the Business have
executed an employee invention assignment and nondisclosure agreement.  Each person or Business Entity who has or has
had any rights in or to any Business Intellectual Property that was developed
by such person or Business Entity on behalf of the Company has executed an
agreement pursuant to which his, her or its entire right, title and interest in
and to such Business Intellectual Property has been assigned to the Company.

 

4.9           Real Property.  The Company does not own any real
property.  Section 4.9 of the
Disclosure Schedule lists and describes briefly (or attaches a copy of) all
real property leased or subleased to the Company related to the Business and
lists the term of such lease, any extension and expansion options, and the rent
payable thereunder.  The Company has made
available to the Buyer correct and complete copies of the leases and subleases
(as amended to date) listed in Section 4.9 of the Disclosure
Schedule.  With respect to each lease and
sublease listed (or required to be listed) in Section 4.9 of the
Disclosure Schedule:

 

(a)           the lease or sublease is in full
force and effect and has not been amended;

 

(b)           the lease or sublease will continue
to be in full force and effect immediately following the Closing in accordance
with the terms thereof as in effect prior to the Closing;

 

(c)           neither the Company nor, to the
knowledge of the Company, any other party to the lease or sublease is in
material breach or default, and no event has occurred which, with notice or
lapse of time or both, would constitute a material breach or default or permit termination,
modification or acceleration thereunder;

 

(d)           there are no disputes, oral
agreements, forfeiture proceedings or forbearance programs in effect as to the
lease or sublease;

 

 

16

 

(e)           the Company has not assigned,
transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in
the leasehold or subleasehold;

 

(f)            all facilities leased or subleased
thereunder are supplied with utilities and other services necessary for the
operation of said facilities as conducted during the periods covered by the
Financial Statements;

 

(g)           to the knowledge of the Company, the
owner of the facility leased or subleased by the Company has good and clear
record and marketable title to the parcel of real property, free and clear of
any Security Interest, easement, covenant or other restriction, except for
recorded easements, covenants and other restrictions;

 

(h)           no construction, alteration or other
leasehold improvement work with respect to the lease or sublease remains to be
paid for or performed by the Company;

 

(i)            the Company is not obligated to pay
any leasing or brokerage commission relating to such lease and will not have
any obligation to pay any leasing or brokerage commission upon the renewal of
any lease; and

 

(j)            the Financial Statements contain
adequate reserves in the Company’s reasonable opinion to provide for the
restoration of the property subject to the leases at the end of the respective
lease terms, to the extent required by the leases.

 

4.10         Contracts.

 

(a)           Each Acquired Contract (i) may
be transferred to the Buyer pursuant to the terms of this Agreement, (ii) is
in full force and effect, (iii) to the knowledge of the Company, is legal,
valid, binding and enforceable against the other party thereto, (iii) will
continue to be in full force and effect immediately following the Closing in
accordance with the terms thereof as in effect prior to the Closing, and (iv) no
party is in breach or default, and no event has occurred which with notice or lapse
of time or both would constitute a breach or default or permit termination,
modification or acceleration, under the Acquired Contract.

 

(b)           The Company is not a party to any
written or oral arrangement related to the Business (i) to perform
services or sell products which was expected at the time of entering into the
arrangement to be performed at, or to result in, a loss, (ii) which
requires the performance of services or the delivery of products by the
Business at a fixed price (which shall include, for purposes of this Agreement,
an agreement for the provision of services on a “time and materials not to
exceed” basis), or (iii) for which the customer has already been billed or
paid that have not been fully accounted for on the Current Balance Sheet.  The Company is not restricted by any written
or oral arrangement from carrying on business anywhere in the world.

 

(c)           None of the Acquired Contracts
requires the Company or Owner to obtain consent, permission, approval,
novation, authorization or waiver from any person or entity for the
consummation of the transactions contemplated hereby or any related agreement,
including, but not limited to, under any Government Contract.

 

 

17

 

4.11         Government Contracts and Bids.

 

(a)           For purposes of this Section 4.11,
the following terms have the following meanings:

 

(i)            The term “U.S. Government”
includes any agency, department, division, subdivision or office of the U.S.
Government, including the officials, employees and agents thereof.

 

(ii)           The term “Government Contract”
means any prime contract with the U.S. Government and any subcontract with a
prime contractor or higher-tier subcontractor under a prime contract with the
U.S. Government, in each case, related to the operation of the Business.

 

(iii)          The term “Prime Government Contract”
means any prime Contract with the U.S. Government related to the operation of
the Business.

 

(b)           None of the Company’s Government
Contracts are currently or are likely to experience cost, schedule, technical
or quality problems that could result in claims against Company (or its
successors in interest) by the U.S. Government, a prime contractor or a
higher-tier subcontractor.

 

(c)           The Company has delivered to Buyer
true and complete copies of all of its Government Contracts, and all
quotations, bids and proposals therefor.

 

(d)           All of the Company’s Government
Contracts were legally awarded, are binding on the parties thereto, and are in
full force and effect.  Such Government
Contracts (or, where applicable, the Prime Government Contracts under which
such Government Contracts were awarded) are not currently the subject of bid or
award protest proceedings, and the Company has no knowledge that such
Government Contracts (or, where applicable, the Prime Government Contracts
under which such Government Contracts were awarded) are reasonably likely to
become the subject of bid or award protest proceedings.

 

(e)           The Company has complied with all
statutory and regulatory requirements, including the Armed Services Procurement
Act, the Federal Procurement and Administrative Services Act, the Federal
Acquisition Regulation (“FAR”), the FAR cost principles and the cost
accounting standards, where and as applicable to each of the Government
Contracts and each of the quotations, bids and proposals for Government
Contracts.

 

(f)            The Company has complied with all
terms and conditions, including (but not limited to) all clauses, provisions,
specifications, and quality assurance, testing and inspection requirements of
the Government Contracts, whether incorporated expressly, by reference or by
operation of law.

 

(g)           All facts set forth in or
acknowledged by any representations, certifications or disclosure statements
made or submitted by or on behalf of the Company in connection with each of the
Government Contracts and each of the Business’s quotations, bids 

 

 

18

 

and proposals for Government Contracts were current,
accurate and complete as of the date of submission.

 

(h)           The Company has complied with all
applicable representations, certifications and disclosure requirements under
each of the Government Contracts and each of the quotations, bids and proposals
for Government Contracts.

 

(i)            The Company has developed and implemented a government
contracts compliance program which includes corporate policies and procedures
to ensure compliance with applicable government procurement statutes,
regulations and contract requirements. 
The Company has delivered to Buyer a true and complete copy of such
compliance program.

 

(j)            In
connection with its Government Contracts, the Company is aware of no adverse or
negative past performance evaluations or ratings by the U.S. Government, or of
any facts that could result in any adverse or negative past performance
evaluation or rating by the U.S. Government, and that could affect the
evaluation of the Company’s (or its successor’s) bids or proposals for future
Government Contracts.

 

(k)           With respect to the Government
Contracts, neither the U.S. Government nor any prime contractor or higher-tier
subcontractor under a Government Contract nor any other person has notified the
Company, either orally or in writing, of any actual or alleged violation or breach
of any statute, regulation, representation, certification, disclosure
obligation, contract term, condition, clause, provision or specification.

 

(l)            No facts exist which could give rise
to liability under the False Claims Act.

 

(m)          No facts exist which could give rise
to a claim for price adjustment under the Truth in Negotiations Act or to any
other request for a reduction in the price of any of the Government Contracts.

 

(n)           The Company is aware of and has received no show
cause, cure, deficiency, default or similar notice relating to any of the
Government Contracts.

 

(o)           None of the Government Contracts has been terminated
for default.

 

(p)           The
Company has received no notice, written or otherwise, terminating any of the
Government Contracts for convenience or indicating an intent to terminate any
of the Government Contracts for convenience.

 

(q)           There are no outstanding claims or
disputes relating to the Government Contracts and involving either the U.S.
Government, any prime contractor, any higher-tier subcontractor or any third
party and, to the knowledge of the Company, no facts or allegations exist that
could give rise to such a claim or dispute in the future.

 

(r)            There are no outstanding claims or
disputes relating to the Company’s Government Contracts which, if resolved
unfavorably to the Company, would increase the Company’s cost to complete
performance of such Government Contract above the amounts set 

 

 

19

 

forth in the estimates to complete prepared by the
Company and delivered to Buyer for each Government Contract.  In addition, there are no known or reasonably
foreseeable expenditures which would increase the cost to complete performance
of the Government Contracts above the amounts set forth in the estimates to
complete.

 

(s)           Neither the Company nor any
shareholder, partner, retained consultant or other individual associated with
the Business, has been or is now suspended, debarred or proposed for suspension
or debarment from government contracting. 
No facts exist which could cause or give rise to such suspension or
debarment, or proposed suspension or debarment.

 

(t)            No determination of
non-responsibility has ever been issued against the Company with respect to any
quotation, bid or proposal for a Government Contract.

 

(u)           The Company has not undergone and is
not undergoing any audit, review, inspection, investigation, survey or
examination of records relating to the Government Contracts and, to the
knowledge of the Company, there is no basis for any such audit, review,
inspection, investigation, survey or examination of records.  No audit, review, inspection, investigation,
survey or examination of records has revealed any fact, occurrence or practice
which could affect the assets, business or financial statements of the Business
or the Company’s continued eligibility to receive and perform Government
Contracts.

 

(v)           The Company has not been and is not
now under any administrative, civil or criminal investigation or indictment
involving alleged false statements, false claims or other improprieties
relating to the Government Contracts or quotations, bids and proposals for
Government Contracts.  To the knowledge
of the Company, there is no basis for any such investigation or indictment.

 

(w)          The Company has not been and is not
now a party to any administrative or civil litigation involving alleged false
statements, false claims or other improprieties relating to the Government
Contracts or quotations, bids and proposals for Government Contracts.  The Company neither knows nor has reason to
know of any basis for any such proceeding.

 

(x)            The Company has made no payment,
directly or indirectly, to any person in violation of applicable U.S.
Government procurement laws, including (but not limited to) laws relating to
bribes, gratuities, kickbacks, lobbying expenditures, political contributions
and contingent fee payments.

 

(y)           Neither the U.S. Government nor any
prime contractor or higher-tier subcontractor under a Government Contract has
withheld or set off, or attempted to withhold or set off, monies due to the
Company under any of the Government Contracts.

 

(z)            The Company’s cost accounting,
purchasing, inventory and quality control systems are in compliance with all
applicable government procurement statutes and regulations and with the
requirements of all of the Government Contracts.

 

(aa)         Neither the U.S. Government nor any
prime contractor or higher-tier subcontractor under a Government Contract has
questioned or disallowed any costs claimed by 

 

 

20

 

the Company under the outstanding Government Contracts.  To the knowledge of the Company, no fact or
occurrence exists that could be a basis for disallowing any such costs.

 

(bb)         The Company has made no assignments of
the Government Contracts or of any interests in the Government Contracts.  The Company has entered into no financing
arrangements with respect to the performance of any outstanding Government
Contract.

 

(cc)         No U.S. Government property has been provided
to the Company pursuant to the Government Contracts.

 

(dd)         The
Company has complied with all applicable requirements under each of the
Government Contracts relating to the safeguarding of and access to classified
information.

 

4.12         Accounts Receivable.  All accounts receivable of the Company with
respect to the Business reflected on the Current Balance Sheet, or that have
arisen since the date of the Current Balance Sheet, are valid receivables
subject to no setoffs or counterclaims and are current and collectible, and
have been or will be collected in full in accordance with the terms of such
accounts receivable (and in any event within 120 days after the date on which
such receivables were first invoiced).

 

4.13         Insurance.  The Company maintains policies of fire and
casualty, liability and the other forms of insurance with respect to the
Business (the “Insurance Policies”), and has had no claims under such
Insurance Policies since January 1, 2004. 
All Insurance Policies are in full force and effect, all premiums due
and payable thereon have been paid (other than retroactive or retrospective
premium adjustments that are not yet, but may be required to be paid with
respect to any period ending prior to the Closing Date) and the Company is
otherwise in compliance with the material terms of such Insurance
Policies.  The Company has not received
any notice, and to the knowledge of the Company is not otherwise aware, of any
threatened termination of, or premium increase with respect to any such
Insurance Policies.

 

4.14         Litigation.  Neither the Company nor Owner is subject to (a) any
unsatisfied judgment, order, decree, stipulation or injunction, and (b) any
claim, complaint, action, suit, proceeding, hearing or investigation of or in
any Governmental Entity or by a private party or before any arbitrator related
to the Business to which the Company or the Owner is a party or, to the
knowledge of the Company, is threatened to be made a party.

 

4.15         Employees.

 

(a)           Section 4.15(a) of
the Disclosure Schedule contains a list of all employees of the Company whose
responsibilities or duties relate, in whole or in part, to the Business, or who
are otherwise performing services related to the Business (each a “Business
Employee”), along with the position, date of hire, the annual rate of
compensation (or with respect to employees compensated on an hourly or per diem
basis, the hourly or per diem rate of compensation), estimated or target annual
incentive compensation of each such person, and all sales and bonus plans in
which such employee participates.  None
of such employees is a party to an employment agreement or contract with the
Company.

 

 

21

 

(b)           No Business Employee holds a
temporary work authorization (“Work Permit”), including H-1B, TN, E-1,
E-2, L-1, F-1 or J-1 visa status or Employment Authorization Document (“EAD”)
work authorizations.

 

(c)           The Company has obtained the
necessary prevailing wage documentation for each H-1B worker and has paid and
continues to pay each H-1B worker the prevailing wage according to the
regulations of the DOL.  The Company has
complied with all material terms of the Labor Condition Applications for all
H-1B workers and has maintained all documentation required by the DOL
regulations.  The Company has provided
the Buyer with a written statement which summarizes the compliance of the
Company with the DOL regulations governing labor condition applications.

 

(d)           The Company is not a party to or
bound by any collective bargaining agreement, nor has it experienced any
strikes, grievances, claims of unfair labor practices or other collective
bargaining disputes.  To the knowledge of
the Company, no organizational effort has been made or threatened, either
currently or within the past two years, by or on behalf of any labor union with
respect to the Business Employees.

 

(e)           Neither the Company or any director,
officer, trustee or other key employee of the Company, or any Affiliate
thereof, owns, directly or indirectly, individually or collectively, any
interest in any Business Entity which is in a business similar or competitive
to the Business or which has any existing undisclosed contractual relationship
with the Company relating to the Business.

 

4.16         Employee Benefits.

 

(a)           The Company has made available to
Buyer true and complete copies of each plan, program, policy or Contract
providing for compensation, bonuses, pension, retirement, profit sharing,
health, dental, vision, life, disability, severance, termination pay,
performance awards, equity or “profits interested” awards, fringe benefits or
other employee benefits of any kind, if any, including any “employee benefit
plan” within the meaning of Section 3(3) of ERISA, which is
sponsored, maintained, or contributed to by the Company or any Affiliate in
which any current or former employee, officer, consultant, independent
contractor, agent or manager of the Company participates (collectively, the “Company
Plans”), and any related funding mechanism associated with such Company
Plan.  The Company has no policy,
arrangement or agreement that provides incentive compensation, performance
awards, equity or “profit interested” awards or any other bonus payments.

 

(b)           Each Company Plan has been
established and maintained in accordance with its terms and in compliance with
all applicable Laws, including, if applicable, ERISA and the Code.  Each Company Plan intended to qualify under Section 401
of the Code has received a favorable determination letter as to its
qualification, and nothing has occurred that has or could reasonably be
expected to materially adversely affect such qualification.  The Company has made available to Buyer a
true and complete copy of such determination letters.

 

 

22

 

(c)           There is no legal proceeding pending,
or, to the knowledge of the Company, threatened (other than routine claims for
benefits) with respect to any Company Plan.

 

(d)           No Company Plan is under audit or, to
the knowledge of the Company, investigation by, or is the subject of a
proceeding with respect to, the IRS, the Department of Labor or the Pension
Benefit Guaranty Corporation.

 

(e)           The execution of, and performance of
the transactions contemplated in, this Agreement will not constitute an event
under any Company Plan that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness,
vesting, distribution, increase in benefits or obligation to fund benefits with
respect to any officers or managers of Seller.

 

4.17         Environmental Matters.  The Company has complied with all applicable
Laws relating to the environment or occupational health and safety.  To the knowledge of the Company, there have
not been, at any parcel of real property or any facility formerly or currently
owned, leased, operated or controlled by the Company related to the Business,
any releases of any chemicals, pollutants or contaminants, hazardous substances
(as such term is defined under the federal Comprehensive Environmental
Compensation, Liability and Response Act of 1980), solid wastes and hazardous
wastes (as such terms are defined under the federal Resources Conservation and
Recovery Act), toxic materials, oil or petroleum and petroleum products, or any
other material subject to regulation under any environmental Law.

 

4.18         Legal Compliance.  The Company’s operation of the Business is
and has been in compliance with each Law (including rules and regulations
thereunder) of any U.S. federal, foreign, state, regional, provincial or local
government, or any Governmental Entity, which (a) affects or relates to
this Agreement or the transactions contemplated hereby and which, if not
complied with, would impair the ability of the Parties to consummate the
transactions contemplated hereby or (b) is applicable to the Company or
the Business.

 

4.19         Permits.  There are no material permits, licenses,
registrations, certificates, orders or approvals from any Governmental Entity
applicable to the ownership or operation of the Business (including without limitation
those issued or required under Environmental Laws and those relating to the
occupancy or use of owned or leased real property) (“Permits”) required
for the Company to conduct the Business as presently conducted or as proposed
to be conducted.

 

4.20         Certain Business Relationships With
Affiliates.  Neither the Company or
any Affiliate of the Company (a) owns any property or right, tangible or
intangible, which is used in the Business, (b) has any claim or cause of
action against the Business, (c) owes any money to the Business or (d) is
a party to any contract or other arrangement (written or oral) with the
Business (the agreements, arrangements and relationships described in this
sentence are hereinafter referred to as “Related Party Transactions”).

 

4.21         Broker’s Fees.  The Company has no liability or obligation to
pay any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.

 

 

23

 

4.22         Books and Records.  The Books and Records of the Business
accurately reflect in reasonable detail all material transactions relating to
the Business.

 

4.23         Customers and Suppliers.  Except as provided in the written contracts
applicable to such customers, none of the customers of the Business has
indicated in writing to the Company that it will stop buying services or
products from the Business.  No material
supplier or exclusive supplier of the Business has indicated in writing to the
Company within the past year that it will stop supplying materials, products or
services to it.

 

4.24         Disclosure.  No representation or warranty by the Company
contained in this Agreement (including the Disclosure Schedule) or any
agreement to be entered into in connection herewith and no certificate
furnished in connection herewith or therewith or pursuant hereto or thereto
contains any untrue statement of a material fact, or omits to state any
material fact required to make the statements herein or therein contained not
misleading or necessary in order to provide a prospective purchaser of the
Business with adequate information as to the Business and its properties,
assets, liabilities, business, condition and prospects.

 

4.25         Investment Intent.

 

(a)           In evaluating the suitability of an
investment in Buyer by means of the acquisition of the Buyer Shares, the Owner
has not relied upon any representations or other information (whether written
or oral) from Buyer, except as expressly set forth herein.  Owner also acknowledges that she has relied
solely upon the information contained herein and upon investigations made by
her in making the decision to invest in Buyer.

 

(b)           The Owner recognizes that any
information furnished by Buyer does not constitute investment, accounting, tax
or legal advice.  Moreover, Owner is not
relying upon Buyer with respect to her tax and/or other economic circumstances
in connection with her investment in Buyer. 
In regard to the tax and other economic considerations related to such
investment, the Owner has relied on the advice of, or has consulted with, only
her own professional advisors.

 

(c)           The Owner is aware that the Buyer
Shares are being offered and sold by means of an exemption under the Securities
Act of 1933, as amended (the “Securities Act”), as well as exemptions
under certain state securities laws for nonpublic offerings, and that she makes
the representations, declarations and warranties as contained in this Section 4.25
with the intent that the same shall be relied upon in determining her suitability
as a purchaser of such capital stock.

 

(d)           The Owner is an “Accredited Investor”
as defined in Rule 501 of Regulation D promulgated under the Securities
Act, and has such knowledge and experience in financial and business matters
that she is capable of evaluating the merits and risks of an investment in
Buyer and of making an informed investment decision.

 

(e)           The Owner is aware that she cannot
sell or otherwise transfer the Buyer Shares without registration under
applicable securities laws or without an exemption therefrom, and is aware that
she will be required to bear the financial risks of its purchase for an
indefinite period of time because, among other reasons, the capital stock of
Buyer has not been registered 

 

 

24

 

with any regulatory authority of any state and,
therefore, cannot be transferred or resold unless subsequently registered under
applicable securities laws or an exemption from such registration is
available.  The Owner also understands that
the Buyer is under no obligation to register the capital stock of Buyer on the
Owner’s behalf or to assist the Owner in complying with any exemption from
registration under applicable securities laws.

 

(f)            The Owner recognizes that no federal
or state agency has recommended or endorsed the purchase of the capital stock
of Buyer or passed upon the adequacy or accuracy of the information set forth
herein, and that Buyer is relying on the truth and accuracy of the
representations, declarations and warranties made by the Owner as contained
herein in selling the Buyer Shares.

 

(g)           The Owner has at all times been given
the opportunity to obtain reasonably requested additional information, to
verify the accuracy of the information received and to ask questions of and
receive answers from certain representatives of Buyer concerning the terms and
conditions of her investment in Buyer and the nature and prospects of Buyer’s
business.

 

(h)           The Owner recognizes that (i) there
is currently no public market for the capital stock of Buyer, and that it is
extremely unlikely that there will be such a market in the future, and (ii) the
transferability of the capital stock of Buyer will also be restricted by state
and/or federal law.  Thus, the Owner
realizes that she cannot expect to be able to liquidate her investment in Buyer
readily or at all in case of an emergency.

 

(i)            The Owner is acquiring the Buyer
Shares for investment for her own account and not with a view to or for sale in
connection with any distribution of the capital stock of Buyer to or for the
accounts of others.  The Owner agrees
that, without limiting any other restrictions on transfer applicable to the
Buyer Shares, she will not dispose of the capital stock of Buyer, or any
portion thereof or interest therein, unless and until counsel for Buyer shall
have determined that the intended disposition is permissible and does not
violate the Securities Act or the rules and regulations promulgated
thereunder, or the provisions of any applicable state securities laws, or any rules or
regulations thereunder.

 

(j)            The Owner recognizes that the
acquisition of the Buyer Shares is a speculative investment and any financial
forecasts or other estimates which may have been made by Buyer merely represent
predictions of future events which may or may not occur and are based on
assumptions which may or may not occur. 
As a consequence, such financial forecasts or other estimates may not be
relied upon to indicate the actual results which might be attained.

 

(k)           The Owner understands and agrees that
a legend in substantially the following form may be placed on all certificates
evidencing the Buyer Shares:

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”)
NOR ANY APPLICABLE STATE SECURITIES LAWS. 
THESE SECURITIES CANNOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF TO
ANY PERSON OR ENTITY UNLESS 

 

 

25

 

SUBSEQUENTLY REGISTERED UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
FILED UNDER THE ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS, OR
IN ACCORDANCE WITH AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.”

 

ARTICLE V 

REPRESENTATIONS OF THE BUYER

 

The Buyer represents and warrants to the Company and the Owner as
follows:

 

5.1           Organization, Qualification and
Corporate Power.  The Buyer is a
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the State of Delaware.  The Buyer has all requisite power and
authority (corporate and other) to carry on the business in which it is engaged
and to own and use the properties owned and used by it.

 

5.2           Authorization.  The Buyer has all requisite power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder.  The execution and delivery by
the Buyer of this Agreement and the agreements provided for herein, and the
consummation by the Buyer of the transactions contemplated hereby and thereby,
have been duly authorized by all requisite corporate action.  This Agreement has been duly executed and
delivered by the Buyer.  This Agreement
constitutes, and all other agreements and obligations to be entered into and
undertaken in connection with the transactions contemplated hereby to which the
Buyer is a party will constitute, the valid and binding obligations of the
Buyer enforceable against the Buyer in accordance with their respective
terms.  The execution, delivery and
performance by the Buyer of this Agreement and the agreements provided for
herein, and the consummation by the Buyer of the transactions contemplated
hereby and thereby, will not, with or without the giving of notice or the
passage of time or both, (a) conflict with or violate any provision of the
Certificate of Incorporation or Bylaws of the Buyer, (b) require on the
part of the Buyer any filing with, or permit, authorization, consent or
approval of, any Governmental Entity, except as may be required under
applicable securities laws, (c) conflict with, result in breach of,
constitute (with or without due notice or lapse of time or both) a default
under, result in the acceleration of, create in any party any right to
accelerate, terminate, modify or cancel, or require any notice, consent or
waiver under, any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest or other arrangement to which the Buyer is a
party or by which the Buyer is bound or to which any of its assets are subject
or (d) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Buyer or any of its properties or assets.

 

5.3           Broker’s Fees.  The Buyer has no liability or obligation to
pay any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.

 

 

26

 

ARTICLE VI 

COVENANTS

 

6.1           Best Efforts.  Each Party shall use its best efforts to take
all actions and to do all things necessary, proper or advisable to satisfy the
conditions set forth in Sections 3.2 and 3.3 and to consummate
the transactions contemplated by this Agreement.  Notwithstanding anything in this agreement to
the contrary, no Party shall be required to commence any litigation,
arbitration or other proceeding or otherwise expend or allocate funds or other
resources in greater than commercially reasonable amounts in order to
consummate the Closing.

 

6.2           Consents.  The Company and the Owner, at their own cost
and expense, will give all required notices to any third parties and will use
commercially reasonable efforts to obtain all third party consents, approvals
and other authorizations of any third parties that are required or appropriate
in connection with the consummation of the transactions contemplated by this
Agreement.

 

6.3           Further Assurances.  At any time and from time to time after the
Closing, at the Buyer’s request and without further consideration, the Company
and the Owner shall promptly execute and deliver such instruments of sale,
transfer, conveyance, assignment and confirmation as the Buyer may reasonably
request, and take all such other action as the Buyer may reasonably request, to
comply with the terms of this Agreement and consummate the transactions
contemplated hereby, including to put the Buyer in actual possession and
operating control of the Acquired Assets and the Business and/or to assist the
Buyer in exercising all rights with respect thereto.

 

6.4           Employment and Employee Benefits.

 

(a)           Buyer will offer to employ,
commencing as of the Closing Date, such employees of the Company as it may deem
desirable (the “Offered Employees”). 
The employees who accept Buyer’s offer of employment and commence
employment as of the Closing Date are collectively referred to herein as the “Transferred
Employees.”

 

(b)           Effective as of the Closing Date,
Transferred Employees shall cease participation in any and all Company Plans
and shall be eligible to participate in employee benefit and fringe benefit
plans maintained by Buyer or one of its Affiliates (the “Buyer Plans”).   With respect to any vacation accruals for
Transferred Employees, as soon as practicable after the Closing Date but within
the time period as may be required by law, the Company shall pay to each
Transferred Employee a single lump sum payment equal to his or her accrued
vacation.

 

(c)           The Company shall retain, assume,
bear and discharge all liabilities for any and all claims incurred or made by
Transferred Employees (as well as any other employee of the Company) and their
dependents and beneficiaries under any Company Plan.

 

 

27

 

6.5           Non-Competition; Non-Solicitation.

 

(a)           Beginning on the Closing Date and
continuing until five years thereafter or, in the case of the Owner, until one
year following the termination for any reason of her employment with the Buyer
or any of its Affiliates, whichever is later, neither the Company or any of its
Affiliates or the Owner will (whether directly or indirectly, through any
Affiliate or other Person, or in the name or on behalf of Affiliate or other
Person, whether acting as an officer, director, shareholder, owner, partner,
member, trustee, beneficiary, employee, promoter, consultant, technical
adviser, agent, lender, manager or otherwise or as the assign of any such
Person):

 

(i)            compete with the Buyer or its
Affiliates in, or otherwise engage in, any aspect of the Business, or any
business similar to the Business, at locations in the Geographic Area, or from
outside of the Geographic Area into the Geographic Area;

 

(ii)           divert or attempt to divert, solicit
or attempt to solicit, interfere with or attempt to interfere with, take away
or attempt to take away, or accept work or activities relating or similar to
the work or activities conducted by the Business from any Existing Customer
within the Geographic Area, or from outside the Geographic Area into the
Geographic Area; or

 

(iii)          solicit for employment, or induce to
leave the employ of the Buyer, any Person who is, or within the six months
prior thereto was, an employee of the Buyer working in the Business (including
any Transferred Employee) (a “Protected Employee”), or hire any Person
who is known by the Company or any Affiliate of the Company to be, or within
the six months prior thereto to have been, a Protected Employee.

 

In the event of a breach
by the Company or any of its Affiliates or by the Owner of any covenant set
forth in this Section 6.9, the term of such covenant will be
extended for the Company and all of its Affiliates and for the Owner by the
period of the duration of such breach.

 

(b)           The Company and the Owner acknowledge
that the periods of restriction, the geographical areas of restriction and the
restraints imposed by the provisions of this Section 6.9 are fair
and reasonably required for the protection of the Buyer and the Business.  If a final Order declares that any term or
provision of this Section 6.9 is invalid or unenforceable, the
Parties agree that the Governmental Entity 
making the determination of invalidity or unenforceability will have the
power to reduce the scope, duration or area of the term or provision, to delete
specific words or phrases or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision, and this Agreement will be enforceable against the parties as so
modified.  The Company and the Owner
agree that any violation of the covenants contained in this Section 6.9
will cause irreparable damage to the Buyer; therefore, in addition to any other
remedies the Buyer may have under this Agreement or otherwise, the Buyer will
be entitled to an injunction from any court of competent jurisdiction
restraining the Company and its Affiliates and/or the Owner, as applicable,
from committing or continuing any violation of this Section 6.9,
without the requirement of posting any bond or other indemnity.

 

 

28

 

6.6           Confidentiality.  At all times from and after the Closing Date,
the Company and the Owner will, and will cause their respective Affiliates to,
keep secret and retain in the strictest confidence, and not disclose or use for
the benefit of themselves or others, any information with respect to the
Business, the Acquired Assets or the Assumed Liabilities including the Business
Intellectual Property and other know-how, trade secrets, customer lists,
details of customer or consultant contracts, pricing policies, operational
methods, marketing plans or strategies, product development techniques, plans
or processes of the Business, that remains in or comes into its or her
possession in any form after the Closing, other than any of the foregoing which
are in the public domain (except through the conduct of the Company, the Owner
or any of their respective Affiliates that violates this Section 6.10)
(collectively, “Confidential Information”).  In the event the Company, the Owner or any of
their Affiliates are requested or required (by oral request or written request
for information or documents in any legal proceeding, interrogatory, subpoena,
civil investigative demand or similar process) to disclose any Confidential
Information, then the Company or the Owner, as applicable, will notify the
Buyer promptly in writing of the request or requirement so that the Buyer may seek
an appropriate protective Order or waive compliance with this Section 6.10.  If, in the absence of a protective Order or
receipt of a waiver hereunder, the Company, the Owner or any of their
respective Affiliates are, on the written advice of counsel, compelled by Law
to disclose any Confidential Information, then the Company, the Owner or such
Affiliate, as applicable, may disclose such Confidential Information, provided
that the Company, the Owner or such Affiliate (a) has given the notice to
the Buyer referenced within and (b) cooperates, at the Buyer’s request and
expense, with the Buyer’s efforts to obtain an Order or other assurance that
confidential treatment will be accorded to such Confidential Information.

 

ARTICLE VII 

INDEMNIFICATION

 

7.1           Indemnification by the Company and
the Owner.  The Company and the
Owner, jointly and severally, shall indemnify the Buyer and its Affiliates, and
their respective directors, officers, employees, agents and representatives
(the “Buyer Indemnified Persons”) in respect of, and hold the Buyer
Indemnified Persons harmless against, any and all claims, debts, obligations
and other liabilities (whether absolute, accrued, contingent, fixed or
otherwise, and whether known or unknown, or due or to become due or otherwise),
monetary damages, fines, fees, penalties, interest obligations, deficiencies,
losses and expenses (including without limitation amounts paid in settlement,
interest, court costs, costs of investigators, reasonable fees and expenses of
attorneys, accountants, financial advisors and other experts, and other
expenses of litigation) (collectively, “Damages”) incurred or suffered
by the Buyer Indemnified Persons resulting from or arising out of (a) any
breach of any representation or warranty (in each case, disregarding any
Material Adverse Change, Material Adverse Effect, materiality or similar
qualification or exception contained therein) of the Company or the Owner
pursuant to Article IV, (b) any failure to perform any
covenant or agreement of the Company or the Owner contained in this Agreement
or in any other agreement, certificate or other document delivered pursuant to
this Agreement, (c) any acts or omissions of the Company before or after
the Closing Date, including the operation of the Business before the Closing
Date, (d) the Excluded Liabilities, (e) the pre-Closing portion of
any taxable period which begins before, and ends after, the Closing, to the
extent the liability for such Taxes exceeds the accrual for Taxes contained on 

 

 

29

 

the Closing Date Balance
Sheet, or (f) any claim by any person or Business Entity for brokerage or
finder’s fees or commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such person or Business Entity
with the Company (or any Business Entity acting on behalf of the Company) in
connection with the transactions contemplated hereby.

 

7.2           Indemnification by the Buyer.  The Buyer shall indemnify the Company and the
Owner (the “Seller Indemnified Persons” and together with the Buyer
Indemnified Persons, the “Indemnified Persons”) in respect of, and hold
the Seller Indemnified Persons harmless against, any and all Damages incurred
or suffered by the Seller Indemnified Person resulting from or arising out of (a) any
breach of any representation or warranty of the Buyer pursuant to Article V
or (b) any failure to perform any covenant or agreement of the Buyer
contained in this Agreement or in any other agreement, certificate or other
document delivered pursuant to this Agreement.

 

7.3           Method of Asserting Claims.

 

(a)           If an Indemnified Person has incurred
or suffered Damages for which it is entitled to indemnification under this Article VII,
such Indemnified Person shall, prior to the expiration of the representation,
warranty, covenant or agreement to which such claim relates, give written
notice of such claim (a “Claim Notice”) to the Party or Parties
responsible for indemnification with respect thereto (collectively, the “Indemnifying
Party”).  Each Claim Notice shall
state the amount of claimed Damages (the “Claimed Amount”), if known,
and the basis for such claim.

 

(b)           Within 20 days after delivery of a
Claim Notice, the Indemnifying Party shall provide to the Indemnified Person a written
response (the “Response Notice”) in which the indemnifying Party
shall:  (i) agree that all of the
Claimed Amount is owed to the Indemnified Person, (ii) agree that part,
but not all, of the Claimed Amount (the “Agreed Amount”) is owed to the
Indemnified Person, or (iii) contest that any of the Claimed Amount is
owed to the Indemnified Person.  The
Indemnifying Party may contest the payment of all or a portion of the Claimed
Amount only based upon a good faith belief that all or such portion of the Claimed
Amount does not constitute Damages for which the Indemnified Person is entitled
to indemnification under this Article VII.  If no Response Notice is delivered by the
Indemnifying Party within such 20-day period, the Indemnifying Party shall be
deemed to have agreed that all of the Claimed Amount is owed to the Indemnified
Person.

 

(c)           If the Indemnifying Party in the
Response Notice agree (or is deemed to have agreed) that all of the Claimed
Amount is owed to the Indemnified Person, the Indemnifying Party shall promptly
pay to the Indemnified Person an amount equal to the Claimed Amount.  If the Indemnifying Party in the Response
Notice agrees that part, but not all, of the Claimed Amount is owed to the
Indemnified Person, the Indemnifying Party shall promptly pay to the
Indemnified Person an amount equal to the Agreed Amount set forth in such
Response Notice.  Acceptance by the
Indemnified Person of part payment of any Claimed Amount shall be without
prejudice to that Indemnified Person’s right to claim the balance of any such
Claimed Amount.  If the Indemnifying
Party in the Response Notice contests all or part of the Claimed Amount (the “Contested
Amount”), the Indemnifying Party and the 

 

 

30

 

Indemnified Person shall proceed in good faith to
negotiate a resolution of such dispute and, if not resolved through
negotiations, either may commence a lawsuit or other appropriate proceeding in
a court of competent jurisdiction.

 

(d)           The Indemnified Person shall give
prompt written notification to the Indemnifying Party of the commencement of
any action, suit or proceeding relating to a third party claim for which
indemnification pursuant to this Article VII may be sought; provided,
however, that no delay on the part of the Indemnified Person in
notifying the Indemnifying Party shall relieve the Indemnifying Party of any
liability for Damages hereunder except to the extent of any Damage or material
prejudice caused by or arising out of such delay.  Within 20 days after delivery of such
notification, the Indemnifying Party may, upon written notice thereof to the
Indemnified Person, assume control of the defense of such action, suit or
proceeding with counsel reasonably satisfactory to the Indemnified Person, provided
(i) the Indemnifying Party acknowledges in writing to the Indemnified
Person that any damages, fines, costs or other liabilities that may be assessed
against the Indemnified Person in connection with such action, suit or
proceeding constitute Damages for which the Indemnified Person shall be
entitled to indemnification pursuant to this Article VII, (ii) the
third party seeks monetary damages only and (iii) an adverse resolution of
the third party’s claim would not have a material adverse effect on the goodwill
or the reputation of the Indemnified Person or the business, operations or
future conduct of the Indemnified Person. 
If the Indemnifying Party does not so assume control of such defense,
the Indemnified Person shall control such defense.  The party not controlling such defense may
participate therein at its own expense; provided that if the
Indemnifying Party assumes control of such defense and the Indemnified Person
reasonably concludes that the Indemnifying Party and the Indemnified Person
have conflicting interests or different defenses available with respect to such
action, suit or proceeding, the reasonable fees and expenses of counsel to the
Indemnified Person shall be considered “Damages” for purposes of this
Agreement.  The party controlling such
defense shall keep the other party advised of the status of such action, suit
or proceeding and the defense thereof and shall consider in good faith
recommendations made by the other party with respect thereto.  Except as provided in Section 7.3(e) below,
the Indemnified Person shall not agree to any settlement of such action, suit
or proceeding without the prior written consent of the Indemnifying Party,
which shall not be unreasonably withheld, conditioned or delayed.  The Indemnifying Party shall not agree to any
settlement of or the entry of a judgment in any action, suit or proceeding
without the prior written consent of the Indemnified Person, which shall not be
unreasonably withheld, conditioned or delayed (it being understood that it is
reasonable to withhold, condition or delay such consent if, among other things,
the settlement or the entry of a judgment (A) lacks a complete release of
the Indemnified Person for all liability with respect thereto or (B) imposes
any liability or obligation on the Indemnified Person).

 

(e)           If a third party asserts that an
Indemnified Person is liable to such third party for a monetary or other
obligation which may constitute or result in Damages for which such Indemnified
Person may be entitled to indemnification pursuant to this Article VII,
and such Indemnified Person reasonably determines that it has a valid business
reason to fulfill such obligation, then (i) such Indemnified Person shall
be entitled to satisfy such obligation, without prior notice to or consent from
the Indemnifying Party, (ii) such Indemnified Person may make a claim for
indemnification pursuant to this Article VII, and (iii) such
Indemnified 

 

 

31

 

Person shall be reimbursed for any such Damages for
which it is entitled to indemnification pursuant to this Article VII
(subject to the right of the Indemnifying Party to dispute the Indemnified
Person’s entitlement to indemnification under the terms of this Article VII).

 

7.4           Set-Off

 

(a)           The Buyer may (but shall not be
obligated to) set off against and recoup from any amounts payable to Owner or
the Company hereunder (including the Held Back Amount) any Damages for which
the Company or the Owner may be responsible pursuant to this Article VII,
subject to the remaining provisions of this Section 7.4.

 

(b)           The Buyer shall give written notice
to the Owner of any claim for Damages or any other damages hereunder, which
notice shall set forth (i) the amount of Damages or other loss, damage,
cost or expense which Buyer claims to have sustained by reason thereof, and (ii) the
basis of the claim therefor.

 

(c)           Such set off and recoupment shall be
effected on the later to occur of the expiration of ten (10) days from the
date of such notice (the “Notice of Contest Period”) or, if such claim
is contested, the date the dispute is resolved.

 

(d)           If, prior to the expiration of the
Notice of Contest Period, the Owner shall notify the Buyer in writing of an
intention to dispute the claim and if such dispute is not resolved within
thirty (30) days after expiration of such period (the “Resolution Period”),
then the Buyer may elect that such dispute shall be resolved by a committee of
three (3) arbitrators (one appointed by the Buyer, one appointed by Owner
and one appointed by the two arbitrators so appointed), which shall be
appointed within sixty (60) days after the expiration of the Resolution
Period.  The arbitrators shall abide by
the rules of the American Arbitration Association and their decision shall
be made within forty-five (45) days of being appointed and shall be final and
binding on all Parties.

 

(e)           All set offs, recoupments and
payments of Damages pursuant to this Section shall be treated as
adjustments to the purchase price hereunder.

 

(f)            The Buyer shall deliver to the Owner
by no later than July 15, 2008 any portion of the Held Back Amount then
held by it unless there then remains unresolved any claim for Damages or other
damages hereunder as to which notice has been given, in which event any Held
Back Amount remaining on deposit after such claim shall have been satisfied
shall be delivered to the Owner promptly after the time of satisfaction.

 

7.5           No
Bar; Waiver.  If the Held Back Amount
is insufficient to set off any claims for Damages hereunder (or has been paid
to the Company prior to the making or resolution of such claim), or if the
Buyer does not elect to set off any Damages from the Held Back Amount, then the
Buyer may take any action or exercise any remedy available to it by appropriate
legal proceedings to collect the Damages.

 

7.6           Effect of Investigation.  The right to indemnification or other
remedies based on any representation, warranty, covenant or obligation of the
Company or the Owner contained in or made pursuant to this Agreement or any other
document executed in connection with the 

 

 

32

 

transactions contemplated hereby shall not be affected
by any investigation conducted with respect to, or any knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date occurs, with respect to the
accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant or obligation.

 

7.7           Survival.

 

(a)           Unless otherwise specified in this Section 7.5
or elsewhere in this Agreement, all provisions of this Agreement shall survive
the Closing and the consummation of the transactions contemplated hereby and
shall continue forever in full force and effect in accordance with their terms.

 

(b)           Except for claims based on fraud or
knowing misrepresentation, the representations and warranties of the Company
set forth in Article IV or in any other location in this Agreement,
including the certificate delivered by the Company pursuant to Section 3.2,
and the related indemnification obligations set forth in Section 7.1(a) shall
survive the Closing and the consummation of the transactions contemplated
hereby and continue for three years following the Closing Date; provided,
however, that (i) the representations and warranties contained in Section 4.1
(Organization, Qualification and Corporate Power), Section 4.2
(Authorization) and Section 4.7 (Assets) shall survive indefinitely
following the Closing and (ii) the representations and warranties
contained in Section 4.6 (Tax Matters), Section 4.16
(Employee Benefits) and Section 4.17 (Environmental Matters) (the “Surviving
Representations”) shall survive the Closing and the consummation of the
transactions contemplated hereby and continue until 30 days following the
expiration of the applicable statute of limitations relating to the matters
covered thereby.

 

(c)           The date on which any particular
representation, warranty or indemnification obligation of the Company
terminates shall be referred to herein as the “Termination Date.”  If a notice of a claim is given in accordance
with the notice provisions of this Agreement before the Termination Date, then
(notwithstanding the occurrence of the Termination Date) the representation,
warranty or indemnification obligation applicable to such claim shall survive
until, but only for purposes of, the resolution of such claim.

 

(d)           Except for claims based on fraud or
knowing misrepresentation, the representations and warranties of the Buyer set
forth in Article V or in any other location in this Agreement,
including the certificate delivered by the Buyer pursuant to Section 3.3,
and the related indemnification obligations set forth in Section 7.2(a) shall
survive the Closing and the consummation of the transactions contemplated
hereby and continue for three years following the Closing.

 

ARTICLE VIII 

TERMINATION

 

[RESERVED]

 

 

33

 

ARTICLE IX 

MISCELLANEOUS

 

9.1           Notices.  Any notices or other communications required
or permitted hereunder shall be sufficiently given if delivered personally or
sent by telecopy, overnight courier or registered or certified mail, postage
prepaid, addressed as follows or to such other address of which the parties may
have given notice:

 

To the Buyer:

 

American Defense Systems, Inc.

230 Duffy Avenue

Unit C

Hicksville, NY  11801

Fax:  (516) 390-5308

Attention:  Anthony Piscitelli

 

with a
copy to:

 

Greenberg Traurig, LLP

1750 Tysons Blvd.

Suite 1200

McLean, Virginia 22102

Fax: (703) 749-1301

Attn: Jeffrey Houle, Esq.

 

To the
Company or the Owner:

 

Tactical Applications Group, LLC

1941 Lejeune Blvd.

Jacksonville, NC

Fax: (      )
      -

Attn: Lisa Sue Quinlan

 

Unless otherwise specified herein, such notices or other communications
shall be deemed received (a) on the date delivered, if delivered
personally, (b) upon verification of receipt, if delivered by telecopy
during regular business hours, or the next business day, if delivered by
telecopy after regular business hours, (c) one business day after it is
sent via a reputable nationwide overnight courier service or (d) three
business days after being sent, if sent by registered or certified mail.

 

9.2           Successor
and Assigns.  This Agreement shall be
binding upon and inure to the benefit of the Parties and their respective
successors and assigns, except that the Buyer, on the one hand, and the Company
and its subsidiaries, on the other hand, may not assign their respective
obligations hereunder without the prior written consent of the other Parties;
provided, that the Buyer may assign its rights, interest and obligations
hereunder to (a) an Affiliate of the Buyer or (b) to a person who
acquires (whether by stock or asset purchase, merger or otherwise) 

 

 

34

 

all or substantially all
of the business or assets of the Buyer, the Company or the business of the
Company.  Any assignment in contravention
of this provision shall be void.  No
assignment shall release the Company from any obligation or liability under
this Agreement.

 

9.3           Entire
Agreement; Amendments; Attachments.

 

(a)           This Agreement, all Schedules and
Exhibits hereto, and all agreements and instruments to be delivered by the
Parties pursuant hereto represent the entire understanding and agreement among
the Parties hereto with respect to the subject matter hereof and supersede all
prior oral and written and all contemporaneous oral negotiations, commitments
and understandings between such parties (including, without limitation, the
letter of intent among the Parties dated October 22, 2007).  The Parties may amend or modify this
Agreement, in such manner as may be agreed upon, by a written instrument
executed by the Buyer and the Company.

 

(b)           If the provisions of any Schedule or Exhibit to
this Agreement are inconsistent with the provisions of this Agreement, the
provisions of the Agreement shall prevail. 
The Exhibits and Schedules attached hereto or to be attached hereafter
are hereby incorporated as integral parts of this Agreement.

 

9.4           Severability.  Any provision of this Agreement which is
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining provisions hereof
in such jurisdiction or rendering that or any other provision of this Agreement
invalid, illegal or unenforceable in any other jurisdiction.

 

9.5           Expenses.  Except as otherwise expressly provided
herein, the Buyer will pay all fees and expenses (including, without
limitation, legal and accounting fees and expenses) incurred by it in
connection with the transactions contemplated hereby and the Company will pay
all fees and expenses incurred by the Company in connection with the
transactions contemplated hereby.  The
Company shall be responsible for payment of all sales or transfer Taxes
(including, without limitation, real property transfer Taxes) arising out of
the conveyance of the Acquired Assets.

 

9.6           Governing
Law.  This Agreement shall be
governed by and construed in accordance with the internal laws (and not the
laws of conflicts) of the State of New York.

 

9.7           Section Headings.  The section headings in this Agreement are
for the convenience of the parties and in no way alter, modify, amend, limit or
restrict the contractual obligations of the Parties.

 

9.8           Counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall be one and the same document. 
This Agreement may be executed and delivered by facsimile transmission,
and any counterpart so delivered shall be treated as an original for all
purposes binding and enforceable against the person so executing and delivering.

 

 

35

 

9.9           Construction.  The language used in this Agreement shall be
deemed to be the language chosen by the Parties to express their mutual intent,
and no rule of strict construction shall be applied against any
Party.  Any reference to any U.S.
federal, foreign, state, regional, provincial or local statute or Law shall be
deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise.

 

9.10         No
Third Party Beneficiaries.  This
Agreement shall not confer any rights or remedies upon any person other than (a) the
Parties and their respective successors and permitted assigns and (b) the
Indemnified Persons pursuant to Article VII.

 

9.11         Specific
Performance.  Each of the Parties
acknowledges and agrees that one or more of the other Parties would be damaged
irreparably in the event any of the provisions of this Agreement are not
performed in accordance with their specific terms or otherwise are breached.  Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter (subject to the provisions of Section 9.12),
in addition to any other remedy to which it may be entitled, at law or in
equity.

 

9.12         Submission
to Jurisdiction.  Each of the Parties
(a) submits to the non-exclusive jurisdiction of any state or federal
court sitting in the Nassau County, New York in any action or proceeding
arising out of or relating to this Agreement and (b) agrees that all claims
in respect of the action or proceeding shall be heard and determined in any
such court.  Each of the Parties waives
any defense of inconvenient forum to the maintenance of any action or
proceeding so brought and waives any bond, surety or other security that might
be required of any other Party with respect thereto.  Any Party may make service on another Party
by sending or delivering a copy of the process to the Party to be served at the
address and in the manner provided for the giving of notices in Section 9.1.  Nothing in this Section 9.12,
however, shall affect the right of any Party to serve legal process in any
other manner permitted by law.

 

[SIGNATURE PAGE FOLLOWS]

 

 

36

 

IN WITNESS WHEREOF, this Agreement has been duly executed by the
Parties as of and on the date first above written.

 

	
   

  	
  BUYER:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  AMERICAN
  DEFENSE SYSTEMS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  TACTICAL
  APPLICATIONS GROUP

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  OWNER:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Lisa
  Sue Quinlan

  	
   

  
									

 

 

37Exhibit 10.23

 

West Coast Opportunity Fund, LLC

c/o
West Coast Asset Management, Inc.

2151 Alessandro Drive, Suite 100

Ventura, CA 93001

 

 

March  28, 2008

 

American Defense Systems, Inc.

230
Duffy Avenue, Unit C

Hicksville,
NY 11801

Attention:
Gary Sidorsky, CFO

 

 

Reference is made to the
Securities Purchase Agreement, dated as of March 7, 2008, by and among
American Defense Systems, Inc., a Delaware corporation (the “Company”) and the investors listed on the Schedule of Buyers
attached thereto (the “Buyers”) (the “Securities Purchase Agreement”).  Any capitalized term used herein and not
defined shall have the meaning assigned to it in the Securities Purchase
Agreement.

 

The Company and West Coast Opportunity Fund, LLC, a
Buyer, (“West Coast”) hereby agree
that the obligations in the Securities Purchase Agreement for West Coast to
fund $4,025,000 of its Initial Purchase Price on March 31, 2008 and for
the Company to deliver to West
Coast 4,025 Preferred Shares and Warrants to acquire up to 1,006,294 Warrant
Shares on March 31, 2008, shall each be waived until April 4, 2008,
on which date West Coast and the Company shall consummate such obligations to
fund and issue securities.

 

This
letter agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule that
would cause the application of the law of any jurisdiction other than the State
of New York.

 

 

	
   

  	
   

  	
   

  	
  Very truly yours,

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  WEST
  COAST OPPORTUNITY FUND, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Agreed
  to and Accepted by:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AMERICAN
  DEFENSE SYSTEMS, INC.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  	
   

  
	
   

  	
  Title:

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