UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the
Registrant ☒ Filed by a Party other than the
Registrant ☐
Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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AROTECH CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
Common stock, $0.01 par value, of Arotech Corporation (the common stock)
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(2)
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Aggregate number of securities to which transaction applies:
26,819,240 shares of Arotech common stock, consisting of (i) 26,665,240 shares of common stock outstanding as of
October 23, 2019 (which includes the 118,196 shares of outstanding restricted stock described in clause (iii) below), (ii) 154,000 shares of common stock underlying outstanding restricted stock units as of October 23, 2019 entitled to
receive the per share merger consideration of $3.00, and (iii) 118,196 shares of common stock underlying outstanding restricted stock awards as of October 23, 2019 entitled to receive the per share merger consideration of $3.00.
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(3)
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11
(set forth the amount on which the filing fee is calculated and state how it was determined):
The filing fee was determined by multiplying 0.0001298 by the product of 26,819,240 outstanding shares of Arotech common stock
and the merger consideration of $3.00 per share in cash.
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(4)
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Proposed maximum aggregate value of transaction:
$80,457,720
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(5)
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Total fee paid:
$10,450.00
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Fee paid previously with preliminary materials:
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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(3)
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Filing Party:
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(4)
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Date Filed:
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Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.
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PRELIMINARY PROXY STATEMENTSUBJECT TO COMPLETION
DATED OCTOBER 23, 2019
AROTECH CORPORATION
1229 Oak Valley Drive
Ann Arbor, Michigan 48108
[_], 2019
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of Arotech Corporation (the Company or Arotech), which will be
held at [_] on [_], 2019, beginning at [_], local time (the special meeting).
At the special meeting, you will be asked to
consider and vote upon the adoption of the Agreement and Plan of Merger, dated September 22, 2019 (as it may be amended, supplemented or otherwise modified from time to time, the merger agreement), by and among the Company, Argonaut
Intermediate, Inc., a Delaware corporation (Parent), and Argonaut Merger Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of Parent (Merger Sub), which provides for the merger of Merger Sub with and
into the Company, with the Company surviving as a wholly-owned subsidiary of Parent (the merger), on the terms in the merger agreement. Parent and Merger Sub are each controlled by investment funds affiliated with Greenbriar Equity
Group, L.P., a private equity firm. If the merger is completed, Arotech will become a wholly-owned subsidiary of Parent, and you will be entitled to receive $3.00 in cash, net of applicable tax withholding, without interest, for each share of
Arotech common stock that you own on the effective date of the merger. A copy of the merger agreement is attached as Annex A to the accompanying proxy statement, and you are encouraged to read it in its entirety.
After careful consideration, the Companys board of directors (the board) acting upon the unanimous recommendation of a special committee of
disinterested and independent directors (the special committee), unanimously (i) determined that the terms and provisions of the merger agreement and the transactions contemplated thereby, including the merger, are fair to,
advisable and in the best interests of the Company and its stockholders, (ii) approved and declared advisable the merger agreement and the transactions contemplated thereby, including the merger, (iii) determined that it is advisable and
in the best interests of the Company and its stockholders to enter into the merger agreement and to consummate the transactions contemplated thereby, including the merger, and (iv) resolved to recommend the adoption of the merger agreement by
our stockholders. Accordingly, the board recommends a vote FOR the proposal to adopt the merger agreement and FOR each of the other proposals to be voted on at the special meeting.
The proxy statement attached to this letter provides you with information about the proposed merger and the special meeting. I encourage you to read the
entire proxy statement carefully. You may also obtain additional information about Arotech from documents filed with the U.S. Securities and Exchange Commission (the SEC), including Arotechs financial statements for the year ended
December 31, 2018, and the quarters ended March 31, 2019 and June 30, 2019. See Incorporation by Reference beginning on page 77 of this proxy statement.
Only stockholders of record at the close of business on [_], 2019, the record date for determining the stockholders entitled to notice of and to vote
at the special meeting, are entitled to notice of and to vote at the special meeting and any adjournment thereof.
Your vote is very important. The
merger cannot be completed unless the merger agreement is adopted by the affirmative vote of a majority of the shares of outstanding stock of Arotech entitled to vote thereon. Failing to vote on the merger agreement or to instruct your broker or
other nominee on how to vote, will have the same effect as a vote AGAINST the adoption of the merger agreement.
On September 22, 2019, Jon B. Kutler, the chairman of our board, in his capacity as the beneficial
owner of 1,887,897 shares of Arotech common stock, representing approximately 7.1% of the shares outstanding as of that date, agreed pursuant to a voting agreement with Parent and the Company to vote to adopt the merger agreement.
Whether or not you are able to attend the special meeting in person, please complete, sign and date the enclosed proxy card and return it in the envelope
provided as soon as possible, or follow the instructions provided for submitting a proxy by telephone or the Internet. If you hold shares through a broker or other nominee, you should follow the procedures provided by your broker or other nominee.
These actions will not limit your right to vote in person if you wish to attend the special meeting and vote in person.
Thank you for your
cooperation and your continued support of Arotech.
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Sincerely,
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Dean M. Krutty, President and Chief Executive Officer
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This proxy statement is dated [_], 2019 and is first being mailed
to stockholders on or about [_], 2019.
PRELIMINARY PROXY STATEMENTSUBJECT TO COMPLETION
DATED OCTOBER 23, 2019
AROTECH CORPORATION
1229 Oak Valley Drive
Ann Arbor, MI 48108
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [_], 2019
To the
Stockholders of Arotech Corporation:
A special meeting of stockholders of Arotech Corporation, a Delaware corporation (Arotech or the
Company), will be held at [_] on [_], 2019, beginning at [_] local time (the special meeting), for the following purposes:
(1) to consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of September 22, 2019, by and among Argonaut Intermediate,
Inc., a Delaware corporation (Parent), Argonaut Merger Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of Parent, and Arotech, and as such agreement may be further amended from time to time (the merger
agreement);
(2) to consider and vote on a nonbinding, advisory proposal to approve the compensation that may be paid or may become payable to the
Companys named executive officers in connection with, or following the consummation of, the merger (the nonbinding compensation proposal); and
(3) to consider and vote on a proposal to adjourn the special meeting, if there are insufficient votes to adopt the merger agreement at the time of the
special meeting (the adjournment proposal).
Accordingly, the Companys board of directors (the board) recommends a vote
FOR the proposal to adopt the merger agreement and FOR each of the other proposals to be voted on at the special meeting.
Only stockholders of record of our common stock as of the close of business on [_], 2019 are entitled to notice of, and to vote at, the special meeting
and any adjournment of the special meeting. If you hold shares through a broker or other nominee, you must follow the procedures provided by your broker or other nominee in order to vote your shares at the special meeting.
You are cordially invited to attend the meeting in person.
Your vote is important, regardless of the number of shares of our common stock you own. The merger cannot be completed unless the merger agreement is adopted
by the affirmative vote of a majority of the outstanding stock of Arotech entitled to vote thereon.
The approval of the nonbinding compensation proposal
and the adjournment proposal requires the affirmative vote of the holders of a majority of the votes properly cast for the nonbinding compensation proposal and the adjournment proposal, respectively, in each case, assuming a quorum is present.
Failing to vote your shares, or to instruct your broker or other nominee on how to vote, will have the same effect as a vote AGAINST the adoption
of the merger agreement, but will have no effect on the outcome of any vote on the nonbinding compensation proposal or the adjournment proposal, assuming a quorum is present.
Even if you plan to attend the meeting in person, we request that you complete, sign, date and return the enclosed proxy, or follow the instructions provided
for submitting a proxy by telephone or the Internet, and thus ensure that your shares will be represented at the meeting if you are unable to attend. If you are a stockholder of record and attend the meeting and wish to vote in person, you may
revoke your proxy and vote in person. If you hold shares through a broker or other nominee, you should follow the procedures provided by your broker or other nominee.
If you sign, date and mail your proxy card without indicating how you wish to vote, your vote will be
counted as a vote in favor of the adoption of the merger agreement, the nonbinding compensation proposal and the adjournment proposal.
You may submit a
proxy for your shares electronically on the Internet, by telephone or by signing, dating and returning the enclosed proxy card. If your shares are held of record by a broker or other nominee, and you wish to vote at the special meeting, you must
follow the procedures provided by that record holder.
YOUR VOTE IS IMPORTANT.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED, OR
SUBMIT YOUR PROXY PROMPTLY VIA THE INTERNET OR BY TELEPHONE AS INSTRUCTED IN THESE MATERIALS. GIVING YOUR PROXY NOW WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING. IF YOUR SHARES ARE HELD OF RECORD BY A BROKER OR OTHER
NOMINEE, YOU MUST FOLLOW THE PROCEDURES PROVIDED BY THAT RECORD HOLDER.
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By Order of the Board of Directors
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Yaakov Har-Oz, Secretary of the Board of Directors
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Ann Arbor, Michigan
[_], 2019
SUMMARY
This summary highlights selected information from this proxy statement. It does not contain all of the information that is important to you. Accordingly,
we urge you to read carefully this entire proxy statement and the annexes attached to this proxy statement.
The
Companies
AROTECH CORPORATION
1229 Oak Valley Drive
Ann Arbor, Michigan 48108
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(800) 281-0356
Arotech Corporation, a corporation organized under the laws of the State of Delaware, and its
subsidiaries provide defense and security products for the military, law enforcement, emergency services and homeland security markets, including multimedia interactive simulators/trainers, and lithium batteries and chargers. We operate primarily
through our wholly-owned subsidiaries FAAC Incorporated, a Michigan corporation located in Ann Arbor, Michigan (Training and Simulation Division) and in Orlando, Florida; Epsilor-Electric Fuel Ltd., an Israeli corporation located in Beit Shemesh,
Israel (between Jerusalem and Tel-Aviv) and in Dimona, Israel (in Israels Negev desert area) (Power Systems Division); and UEC Electronics, LLC a South Carolina limited liability company located in
Hanahan, South Carolina (Power Systems Division). Our common stock is listed on the Nasdaq Global Market (NASDAQ) under the symbol ARTX.
GREENBRIAR EQUITY GROUP, L.P.
555 Theodore Fremd Avenue
Suite A201
Rye, NY 10580
Founded in 1999, Greenbriar Equity Group is a private equity firm with over $3.5 billion of committed capital focused on investing in market-leading
manufacturing and services businesses in partnership with proven management teams.
ARGONAUT INTERMEDIATE, INC.
c/o Greenbriar Equity Group, L.P.
555 Theodore Fremd Avenue
Suite A201
Rye, NY 10580
Parent was formed by entities affiliated with Greenbriar Equity Group, L.P. solely for the purpose of engaging in the transactions contemplated by the merger
agreement and has not engaged in any business activities other than in connection with the transactions contemplated by the merger agreement and arranging of the equity financing in connection with the merger. Upon completion of the merger, we will
be a direct, wholly-owned subsidiary of Parent.
ARGONAUT MERGER SUB, INC.
c/o Greenbriar Equity Group, L.P.
555 Theodore Fremd Avenue
Suite A201
Rye, NY 10580
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Merger Sub is a wholly-owned subsidiary of Parent and was formed by Parent solely for the purpose of
engaging in the transactions contemplated by the merger agreement and has not engaged in any business activities other than in connection with the transactions contemplated by the merger agreement and arranging of the equity financing in connection
with the merger. Upon completion of the merger, Merger Sub will cease to exist.
The Merger
Upon the terms and subject to the conditions of the merger agreement, Merger Sub will be merged with and into us, and each share of our common stock will be
canceled and will represent the right to receive, upon surrender by the holder of such stock certificate(s), $3.00 in cash, net of applicable tax withholding, without interest, for each share of our common stock held immediately prior to the
merger. As a result of the merger, we will cease to be a publicly traded company and will become a wholly-owned subsidiary of Parent.
The merger
agreement is attached as Annex A to this proxy statement and is incorporated by reference herein in its entirety. Please read it carefully.
Date, Time, Place and Purpose of the Special Meeting
The special meeting will be held on [_], 2019, starting at [_], local time, at [_]. At the
special meeting, you will consider and vote upon proposals to (i) adopt the merger agreement, (ii) approve the nonbinding compensation proposal and (iii) approve the adjournment proposal.
Record Date; Stock Entitled to Vote; Quorum
If you owned shares of our common stock at the close of business on [_], 2019, the record date for the special meeting (the record date), you are
entitled to notice of and to vote at the special meeting. You have one vote for each share of our common stock that you own on the record date. As of the close of business on [_], 2019, there were [_] shares of our common stock outstanding and
entitled to be voted at the special meeting. The holders of a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at the special meeting. Abstentions (but not broker
non-votes) will be counted as present for purposes of determining the existence of a quorum.
Vote Required
For the proposal to vote to adopt the merger agreement, under Delaware law and as a condition to the completion of the merger, the
adoption of the merger agreement requires the affirmative vote of a majority of our outstanding stock entitled to vote thereon. Failing to vote or to instruct your broker or other nominee on how to vote will have the same effect as a vote
AGAINST the adoption of the merger agreement.
For the nonbinding compensation proposal and the adjournment proposal, approval requires the
affirmative vote of the holders of a majority of the votes properly cast for the nonbinding compensation proposal and the adjournment proposal, respectively, in each case, assuming a quorum is present. Failing to vote or to instruct your broker or
other nominee on how to vote will have no effect on the outcome of the voting with respect to the nonbinding compensation proposal or the adjournment proposal.
Voting
You may grant a proxy
by completing and returning the enclosed proxy card. If you hold your shares through a broker or other nominee, you should follow the procedures provided by your broker or nominee. See THE SPECIAL MEETING beginning on page 17 of this
proxy statement for additional information on the special meeting, including how to vote your shares of common stock.
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Submitting Proxies via the Internet or by Telephone
Stockholders of record and many stockholders who hold their shares through a broker or bank will have the option to submit their proxies or voting instructions
via the Internet or by telephone.
Revocability of Proxies
You may revoke your proxy at any time before it is voted. If you have not submitted a proxy through your broker or nominee, you may revoke your proxy by:
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giving written notice of revocation to Yaakov Har-Oz, Senior Vice
President, General Counsel and Secretary of Arotech;
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submitting another properly completed proxy by telephone, the Internet or mail bearing a later date; or
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voting in person at the special meeting.
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Simply attending the special meeting will not constitute revocation of your proxy. If your shares are held in street name you should follow the
instructions of your broker or nominee regarding revocation of proxies.
Voting Agreement
In connection with the execution of the merger agreement, on September 22, 2019, Jon B. Kutler, the chairman of our board, in his capacity as the
beneficial owner of 1,887,897 shares of Arotech common stock, representing approximately 7.1% of the shares outstanding as of September 22, 2019, has entered into a voting agreement with Parent and us pursuant to which he agreed to vote shares
beneficially owned by him in favor of the adoption of the merger agreement and against any alternative acquisition proposal other than the merger, and not to transfer his shares during the pendency of the merger. The voting agreement terminates upon
the termination of the merger agreement.
The voting agreement is attached as Annex B to this proxy statement and is incorporated by reference
herein in its entirety. Please read it carefully.
Recommendation of the Special Committee and Our Board
After careful consideration, our board has determined that the merger agreement and the merger are fair to, advisable and in the best interests of, us and our
stockholders. For a description of the factors considered by our board in reaching its decision to adopt and approve the merger agreement and recommend its adoption, see THE MERGERReasons for the Merger and Recommendation of the Special
Committee and Our Board beginning on page 25 of this proxy statement. Accordingly, our board, acting upon the unanimous recommendation of a special committee of disinterested and independent directors (the special committee),
has unanimously adopted and approved the merger agreement and unanimously recommends that you vote (i) FOR the adoption of the merger agreement and (ii) FOR the approval of the nonbinding compensation proposal and
the adjournment proposal.
Opinion of Financial Advisor
In connection with the merger, B. Riley FBR, Inc. (B. Riley), our financial advisor, delivered to the special committee a written
opinion, dated September 22, 2019, as to the fairness, from a financial point of view and as of the date of the opinion, of the merger consideration to be received by our stockholders. The full text of the written opinion, dated
September 22, 2019, of B. Riley, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached
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as Annex C to this proxy statement and is incorporated by reference herein in its entirety. B. Riley delivered its opinion to the special
committee for the benefit and use of the special committee and our board (in their capacity as such) in connection with and for purposes of their evaluation of the merger consideration from a financial point of view.
B. Rileys opinion does not address any other aspect of the merger or the underlying business decision of Arotech to effect the merger, and no opinion or view was expressed as to the relative merits of the
merger in comparison to other strategies or transactions that might be available to Arotech or in which Arotech might engage. B. Rileys opinion does not constitute a recommendation to any stockholder as
to how to vote or act in connection with the proposed merger or any related matter.
See THE MERGEROpinion of Financial Advisor
beginning on page 28 of this proxy statement.
Conditions to the Merger
Our and Parents and Merger Subs obligations to effect the merger are subject to the satisfaction (or waiver, if permissible under applicable law)
of the following conditions:
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our stockholders adoption of the merger agreement; and
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the absence of any law by a governmental entity prohibiting the consummation of the merger or the other
transactions contemplated by the merger agreement.
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In addition, the obligations of Parent and Merger Sub to effect the merger are
subject to the satisfaction or waiver of the following conditions:
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the truth and correctness, subject to certain materiality exceptions, of our representations and warranties in
the merger agreement;
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our performance of our obligations under the merger agreement that are required to be performed by us prior to
the consummation of the merger;
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there not having occurred a Material Adverse Effect (as defined in THE MERGER
AGREEMENTRepresentations and Warranties beginning on page 50 of this proxy statement);
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receipt of an officers certificate certifying as to the satisfaction of the three conditions described
immediately above; and
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the receipt of payoff letters regarding the prepayment of our principal credit facilities, and the release of all
related liens, in connection with the consummation of the merger.
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In addition, our obligation to effect the merger is subject to the
satisfaction or waiver of the following conditions:
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the truth and correctness, subject to certain materiality exceptions, of the representations and warranties of
Parent and Merger Sub in the merger agreement;
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the performance by Parent and Merger Sub of their respective obligations under the merger agreement that are
required to be performed by them prior to the consummation of the merger;
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receipt of an officers certificate certifying as to the satisfaction of the two conditions described
immediately above; and
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payment by Parent of the amounts set forth in the payoff letters.
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See THE MERGER AGREEMENTConditions to the Merger beginning on page 59 of this proxy statement.
Payment Procedures
Concurrently with the effective time of the merger, Parent will deposit with a paying agent sufficient funds to pay the aggregate merger consideration to be
paid by Parent at the closing of the merger. No later than three
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business days after the effective time of the merger, the paying agent will send, to each holder of record of shares of our common stock as of the effective time of the merger, a letter of
transmittal and instructions for use in the exchange of such shares for the merger consideration. Each holder will be entitled to receive the merger consideration specified in the merger agreement, upon surrender to the paying agent of the stock
certificates representing such shares together with a valid letter of transmittal or, in the case of book-entry shares, upon receipt by the paying agent of an agents message with respect to such shares. See THE MERGER
AGREEMENTPayment Procedures beginning on page 49 of this proxy statement.
Financing
The consummation of the merger is not subject to any financing condition. Concurrently with the execution of the Merger Agreement, Greenbriar Equity Fund IV,
L.P., and certain of its affiliated investment funds provided an equity financing commitment letter to Parent (the Equity Commitment Letter), pursuant to which they have committed to provide to Parent, on the terms and subject to the
conditions set forth in the Equity Commitment Letter, at or immediately prior to the closing of the merger, an equity contribution of an aggregate amount up to $84,500,000. We are a third party beneficiary to the Equity Commitment Letter.
Termination
The merger
agreement provides that such agreement may be terminated at any time prior to the effective time of the merger. The situations in which the agreement may be terminated include, but are not limited to, the following:
By the mutual written consent of us and Parent.
By either us or
Parent upon written notice to the other party if:
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the merger has not been consummated by March 13, 2020, provided that such right to terminate shall not be
available to either party if that partys breach of the merger agreement has been the cause of, or resulted in, the failure of the merger agreement to be consummated on such date;
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an order by a governmental entity of competent jurisdiction has been issued permanently restraining, enjoining or
otherwise prohibiting the consummation of the merger; or
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the required vote of stockholders to adopt the merger agreement is not obtained at the meeting of our
stockholders where such vote is taken.
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By Parent:
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prior to the adoption of the merger agreement by our stockholders, if our board or the special committee shall
have made an Adverse Company Board Recommendation Change (as defined below) or if we shall have committed a Willful Breach (as defined in the merger agreement) of any of our obligations under the
non-solicitation provisions of the merger agreement; or
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if we breach any representation, warranty, covenant or agreement in the merger agreement such that the conditions
to the obligations of Parent and Merger Sub to effect the merger described under THE MERGER AGREEMENTConditions to the Merger beginning on page 59 of this proxy statement, would not be satisfied by March 13, 2020, and Parent
has given us at least 30 days written notice and the opportunity to cure such breach prior to March 13, 2020.
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By us:
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prior to the adoption of the merger agreement by our stockholders, if our board or the special committee
authorizes us, in compliance in all material respects with the no solicitation provisions of
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the merger agreement, to make an Adverse Company Board Recommendation Change in connection with another acquisition proposal or recommends another acquisition proposal, provided that we pay to
Parent the termination fee described below; or
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if Parent or Merger Sub breaches any representation, warranty, covenant or agreement in the merger agreement such
that the conditions to our obligations to effect the merger described under Conditions to the Merger above would not be satisfied by March 13, 2020, and we have given Parent at least 30 days written notice and the opportunity to
cure such breach prior to March 13, 2020.
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See THE MERGER AGREEMENTTermination beginning on page 60 of this
proxy statement.
Termination Fee
In general, all fees and expenses incurred by a party to the merger agreement will be paid by the party incurring such fees and expenses, provided that, if the
merger agreement is terminated in certain circumstances described below, we will be required to pay to Parent a termination fee.
The merger agreement
obligates us to pay a termination fee to Parent as follows:
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upon termination of the merger agreement in accordance with its terms (i) by us to accept a superior
proposal, (ii) by Parent upon an Adverse Company Board Recommendation Change or because we commit a Willful Breach (as defined in the merger agreement) of any of our obligations under the non-solicitation
provisions of the merger agreement, or (iii) in certain other specified circumstances where we enter into an alternative acquisition within twelve months after termination of the merger agreement, we are required to pay Parent a fee of
$2,400,000 (the Company Termination Fee); and
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in the event the merger agreement is terminated by Parent (i) in response to an Adverse Company Board
Recommendation Change or (ii) because we commit a Willful Breach (as defined in the merger agreement) of any of our obligations under the non-solicitation provisions of the merger agreement, in addition
to the Company Termination Fee, we are required to pay Parent an amount equal to that required to reimburse Parent, Merger Sub, and their respective affiliates for all reasonable and documented out-of-pocket fees and expenses incurred in connection with the merger agreement, up to $800,000.
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The merger agreement also provides that Parent will pay us a fee of $3,200,000 if we terminate the merger agreement because (i) Parent or Merger Sub has
breached or failed to perform any of its representations, warranties, covenants, or agreements under the merger agreement such that a closing condition is not satisfied or (ii) Parent fails to close the merger when required to do so under the
merger agreement.
See THE MERGER AGREEMENTTermination Fee beginning on page 61 of this proxy statement.
Go Shop Period
During the
period (the Go Shop Period) beginning on the date of the merger agreement and continuing until 12:01 a.m. New York City time on October 22, 2019 (the Solicitation Period End Time), we and our
representatives had the right to actively solicit acquisition proposals (as further discussed in THE MERGER AGREEMENTGo Shop Period), provide non-public information relating to us
and our subsidiaries to third parties in connection with soliciting acquisition proposals (subject to entering into an acceptable confidentiality agreement) and participate and engage in discussions or negotiations regarding acquisition proposals.
For more information regarding the results of the Go Shop Period, see THE MERGERBackground of the Merger beginning on page 20 of this proxy statement.
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From and after the Solicitation Period End Time, the merger agreement generally restricts our ability
to solicit acquisition proposals from third parties (including by furnishing non-public information), or to participate in discussions or negotiations with third parties regarding any acquisition
proposals.
However, between the Solicitation Period End Time and the adoption of the merger agreement by our stockholders, if we or any of our
representatives receives an unsolicited acquisition proposal that the special committee determines in good faith (after consultation with its independent financial advisor and outside legal counsel) either constitutes or would reasonably be expected
to result in a superior proposal (as defined in THE MERGER AGREEMENTGo Shop PeriodSuperior Proposal beginning on page 55 of this proxy statement), then we and our board may, under certain conditions, furnish non-public information to, and participate in discussions or negotiations with, the party that made the acquisition proposal.
In addition, our board generally is not permitted under the merger agreement to change its recommendation in favor of the adoption of the merger agreement.
However, in certain circumstances, our board is permitted to make an Adverse Company Board Recommendation Change (as defined in THE MERGER AGREEMENTGo Shop PeriodSuperior Proposal beginning on page 55 of this proxy statement)
in response to certain unforeseen, intervening events or to accept a superior proposal if, in either case, the special committee determines in good faith that the failure to do so would be inconsistent with its fiduciary duties and negotiates in
good faith with Parent (to the extent Parent desires to do so) to make adjustment to the merger agreement so that the boards fiduciary duties no longer require it to make an Adverse Company Board Recommendation Change in response to the
intervening event or so that the acquisition proposal no longer constitutes a superior proposal.
See THE MERGER AGREEMENTGo Shop
Period, THE MERGER AGREEMENTGo Shop PeriodGo Shop End Time, THE MERGER AGREEMENTGo Shop PeriodNo Shop, THE MERGER AGREEMENTGo Shop PeriodSuperior Proposal and THE
MERGER AGREEMENTGo Shop PeriodIntervening Events beginning on pages 54, 54, 55, 55 and 57, respectively, of this proxy statement.
Regulatory Matters
Except for the filing of a certificate of merger with the Secretary of State of the State of Delaware on or before the
effective date of the merger, we are unaware of any material federal, state or foreign regulatory requirements or approvals required for the execution of the merger agreement or completion of the merger.
Material U.S. Federal Income Tax Consequences
If you are a U.S. holder (as defined in MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES beginning on page 45 of this proxy statement) of our
common stock, the merger will be a taxable transaction to you. For U.S. federal income tax purposes, your receipt of cash in exchange for your shares of our common stock generally will cause you to recognize a gain or loss measured by the
difference, if any, between the cash you receive pursuant to the merger and your adjusted tax basis in your shares. If you are a non-U.S. holder (as defined in MATERIAL U.S. FEDERAL INCOME TAX
CONSEQUENCES beginning on page 45 of this proxy statement) of our common stock, the merger will generally not be a taxable transaction to you under U.S. federal income tax laws, unless you have certain connections to the United States.
See MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES beginning on page 45 of this proxy statement for a more detailed explanation of the tax consequences of this merger. You should consult your own tax advisor on how specific tax
consequences of the merger, including the federal, state, local and/or non-U.S. tax consequences apply to you.
Restricted Stock Awards and RSUs
At the effective time of the merger, all restrictions and vesting requirements with respect to each share of our restricted stock that is outstanding
immediately prior to the effective time of the merger shall lapse
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and all such shares of restricted stock shall be vested in full, and entitled to receive $3.00 in cash, net of applicable tax withholding, without interest, for each share of the underlying
common stock.
At the effective time of the merger, each restricted stock unit (RSU) award in respect of shares of our common stock that is
outstanding immediately prior to the effective time of the merger shall fully vest (including RSUs subject to performance-based vesting) and shall be cancelled and converted automatically into the right to receive, as soon as reasonably practicable
after the effective time of the merger (but no later than the first regularly scheduled payroll date that is at least five business days after the effective time), an amount in cash, without interest, equal to the product of (i) $3.00 and
(ii) the total number of shares of common stock underlying such RSU, net of applicable tax withholding.
Interests of
Certain Persons in the Merger
Our directors and executive officers may have interests in the merger that may be in addition to, or different from, the
interests of our stockholders.
The merger agreement provides that each holder of shares of our common stock, including our directors and executive
officers, will be entitled to receive $3.00 in cash, without interest, for each share of our common stock held immediately prior to the merger. The merger agreement also provides that at the effective time of the merger, all restrictions and vesting
requirements with respect to each share of our restricted stock that is outstanding immediately prior to the effective time of the merger, including those restricted stock awards held by our directors, shall lapse and all such shares of restricted
stock shall be vested in full, and entitled to receive $3.00 per share in cash, without interest and subject to withholding for applicable taxes, for each share of the underlying common stock. The merger agreement also provides that, each RSU in
respect of shares of our common stock that is outstanding immediately prior to the effective time of the merger, including RSUs held by our executive officers, shall fully vest (including RSUs subject to performance-based vesting) and shall be
cancelled and converted automatically into the right to receive, as soon as reasonably practicable after the effective time of the merger (but no later than the first regularly scheduled payroll date that is at least five business days after the
effective time) an amount in cash, without interest equal to the product of (i) $3.00 and (ii) the total number of shares of common stock underlying such RSU, net of applicable tax withholding. Our directors and executive officers will continue
to be indemnified for acts or omissions occurring at or prior to the effective time of the merger and will have the benefit of liability insurance for a period of not less than six years after completion of the merger.
Jon B. Kutler, the chairman of our board, is a limited partner, and has a less than 1% passive interest, in certain funds controlled by Greenbriar.
See THE MERGERInterests of Certain Persons in the Merger beginning on page 39 of this proxy statement.
Appraisal Rights
Under the
General Corporation Law of the State of Delaware (the DGCL), our stockholders who do not vote for the adoption of the merger agreement will have the right to seek appraisal of the fair value of their shares as determined by the Delaware
Court of Chancery, but only if they fully comply with all of the applicable requirements of Section 262 of the DGCL (Section 262), which are summarized in this proxy statement. Any appraisal amount determined by the court could
be more than, the same as, or less than the value of the merger consideration. Any stockholder intending to exercise appraisal rights must, among other things, submit a written demand for appraisal to Arotech Corporation, 1229 Oak Valley Drive, Ann
Arbor, MI, 48108, Attn: Yaakov Har-Oz, Senior Vice President, General Counsel and Secretary, before the vote on the adoption of the merger agreement is taken and must not vote or otherwise submit a proxy in
favor of the adoption of the merger
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agreement. Failure to follow the procedures specified under the DGCL exactly will result in the loss of appraisal rights. Because of the complexity of the DGCL relating to appraisal rights, if
you are considering exercising your appraisal rights, we encourage you to seek the advice of your own legal counsel. The discussion of appraisal rights contained in this proxy statement is not a full summary of the law pertaining to appraisal rights
under the DGCL and is qualified in its entirety by the full text of Section 262 that is attached as Annex D to this proxy statement and is incorporated by reference herein in its entirety. See APPRAISAL
RIGHTS beginning on page 60 of this proxy statement.
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
The following questions and answers are provided for your convenience, and briefly address some commonly asked questions about the proposed merger
and the special meeting. You should still carefully read this entire proxy statement, including each of the annexes. In this proxy statement, the terms Arotech, Company, we, our, ours, and
us refer to Arotech Corporation and its subsidiaries, the term Parent refers to Argonaut Intermediate, Inc., and the term Merger Sub refers to Argonaut Merger Sub, Inc.
The Special Meeting
Q.
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Why am I receiving this proxy statement?
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A.
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On September 22, 2019, we entered into the merger agreement with Parent and Merger Sub. Pursuant to
the merger agreement, Merger Sub will be merged with and into us, with us surviving the merger as a wholly-owned subsidiary of Parent.
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You are receiving this proxy statement in connection with the solicitation of proxies by the board in favor of the proposal to vote to adopt
the merger agreement and the other matters to be voted on at the special meeting.
Q.
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When and where is the special meeting?
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A.
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The special meeting will be held on [_], 2019 at [_].
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Q.
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Who is soliciting my proxy?
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A.
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This proxy is being solicited by our board.
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Q.
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What matters will be voted on at the special meeting?
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A.
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You will be asked to vote on the following proposals:
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to adopt the merger agreement;
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to approve the nonbinding compensation proposal; and
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to approve the adjournment proposal.
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Q.
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Who is entitled to vote at the special meeting?
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A.
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Holders of record of our common stock as of the close of business on [_], 2019, the record date for the special
meeting, are entitled to receive notice of and to vote at the special meeting. On the record date, [_] shares of our common stock, held by approximately [_] holders of record, were outstanding and entitled to vote. You may vote all shares you owned
as of the record date. You are entitled to one vote per share.
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Q.
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How is a quorum calculated?
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A.
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The holders of a majority of our outstanding shares of common stock on [_], 2019, the record date for the
special meeting, shall constitute a quorum at the special meeting.
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Q.
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What is a broker non-vote?
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A.
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If a beneficial owner of shares of common stock held in street name by a bank, broker or
other nominee does not provide the organization that holds its shares with specific voting instructions, then, under
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applicable rules, the organization that holds its shares may generally vote on routine matters but cannot vote on non- routine matters. All of the proposals to be
voted on at the special meeting are non-routine matters. If the organization that holds the beneficial owners shares does not receive instructions from such stockholder on how to
vote its shares on any proposal to be voted on at the special meeting, that bank, broker or other nominee will inform the inspector of election at the special meeting that it does not have authority to vote on any proposal at the special meeting
with respect to such shares, and, furthermore, such shares will not be deemed to be in attendance at the meeting. However, if the bank, broker or other nominee receives instructions from such stockholder on how to vote its shares as to at least one
proposal but not all of the proposals, the shares will be voted as instructed on the proposal as to which voting instructions have been given but will not be voted on the other, uninstructed proposal(s). This is generally referred to as a broker non-vote.
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Q.
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How does our board recommend that I vote on the proposals?
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A.
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Our board recommends that you vote in favor of the proposal to adopt the merger agreement, the nonbinding
compensation proposal and the adjournment proposal. See THE MERGERReasons for the Merger and Recommendation of the Special Committee and Our Board beginning on page 25 of this proxy statement.
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Q.
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What vote is required for Arotechs stockholders to adopt the merger agreement?
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A.
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In order to adopt the merger agreement, the agreement must be adopted by the affirmative vote of a majority of
the outstanding stock of Arotech entitled to vote thereon. On the record date, there were [_] shares of our common stock outstanding and entitled to vote at the special meeting.
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On September 22, 2019, Jon B. Kutler, the chairman of our board, in his capacity as the beneficial owner of 1,887,897 shares of Arotech
common stock representing approximately 7.1% of the shares outstanding as of that date, agreed pursuant to a voting agreement with Parent and us to vote to adopt the merger agreement. In addition, our other directors and executive officers own
approximately 8.7% of the outstanding shares of our common stock. We currently expect that each of these individuals will vote all of his or her shares of common stock in favor of each of the proposals to be presented at the special meeting.
Q.
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What vote is required for Arotechs stockholders to approve the nonbinding compensation proposal and
the adjournment proposal?
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A.
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The approval of the nonbinding compensation proposal and the adjournment proposal requires the affirmative vote
of the holders of a majority of the votes properly cast for the nonbinding compensation proposal and the adjournment proposal, respectively, in each case, assuming a quorum is present.
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A.
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After carefully reading and considering the information contained in this proxy statement, including the
annexes hereto, please submit a proxy for your shares by returning the enclosed proxy card. Alternatively, you may follow the instructions on the proxy card to submit your proxy by telephone or via the Internet. You may also attend the special
meeting and vote in person. Please do NOT enclose or return your stock certificate(s) with your proxy. See THE SPECIAL MEETINGVoting beginning on page 18 of this proxy statement.
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Q.
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If my shares are held in street name by my broker, will my broker vote my shares for me?
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A.
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Your broker will only be permitted to vote your shares on the adoption of the merger agreement, the nonbinding
compensation proposal and the adjournment proposal if you instruct your broker how to vote.
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You should follow the procedures provided by your broker regarding the voting of your shares. If you do not instruct your broker to vote your shares, your shares will not be voted, and your
shares will not be counted as present for purposes of determining the presence or absence of a quorum at the special meeting.
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Q.
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How are votes for the proposal to adopt the merger agreement counted?
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A.
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For the proposal to approve the adoption of the merger agreement, under Delaware law and as a condition to the
completion of the merger, approval requires the affirmative vote of a majority of our outstanding stock entitled to vote thereon. Accordingly, (1) an abstention from voting, (2) a stockholders failure to submit a proxy card or to
vote in person at the special meeting or (3) a broker non-vote will have the same effect as a vote AGAINST the adoption of the merger agreement.
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Q.
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How are votes for the nonbinding compensation proposal and the adjournment proposal counted?
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A.
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For the nonbinding compensation proposal and the adjournment proposal, approval requires the affirmative vote
of the holders of a majority of the votes properly cast for the nonbinding compensation proposal and the adjournment proposal, respectively, in each case, assuming a quorum is present. Accordingly, assuming a quorum is present, (1) an
abstention from voting, (2) a stockholders failure to submit a proxy card or to vote in person at the special meeting or (3) a broker non-vote will have no effect on the outcome of the voting
with respect to the nonbinding compensation proposal or the adjournment proposal.
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Q.
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What happens if I return my proxy card but I do not indicate how to vote?
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A.
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If you return a signed proxy card without indicating your vote, your shares will be voted FOR the
adoption of the merger agreement, the nonbinding compensation proposal and the adjournment proposal.
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Q.
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When should I send in my proxy card?
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A.
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You should send in your proxy card as soon as possible so that your shares will be voted at the special
meeting. Alternatively, you may follow the instructions on the proxy card to submit your proxy by telephone or via the Internet.
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Q.
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What does it mean if I get more than one proxy or vote instruction card?
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A.
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If your shares are registered differently and are in more than one account, you will receive more than one
proxy or (if your shares are held in street name by your broker or by another nominee) vote instruction card. Please complete and return all of the proxy and vote instruction cards you receive, or submit your proxy by telephone or the
Internet, to ensure that all of your shares are voted.
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Q.
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May I change my vote after I have mailed my signed proxy card or submitted my proxy by telephone or the
Internet?
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A.
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Yes. You may revoke your proxy and change your vote at any time before your shares are voted at the special
meeting. You may do this in one of three ways. First, you may send a written, dated notice to Arotech Corporation, 1229 Oak Valley Drive, Ann Arbor, MI 48108, Attn: Yaakov Har-Oz, Senior Vice President,
General Counsel and Secretary, stating that you would like to revoke your proxy. Second, you may complete, date and submit a new proxy card, or submit a later dated proxy by telephone or via the Internet. Third, you may attend the meeting and vote
in person. Your attendance alone will not revoke your proxy. If you hold your shares in street name and have instructed a broker to vote your shares, you must follow directions received from your broker to change those instructions.
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A.
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Yes. You may attend the special meeting and vote your shares of common stock in person. If you hold shares in
street name, however, you must provide a legal proxy executed by your broker or other nominee in order to vote your shares at the special meeting. For security reasons, you must comply with our
pre-registration requirements, you must present a form of government issued photograph identification on the day of the special meeting, and you must arrive at least thirty minutes prior to the meeting in
order to attend the special meeting. If you are a stockholder of record and plan to attend the special meeting, please contact Yaakov Har-Oz by email at yaakovh@arotech.com or by phone at +972-2-990-6623 to register to attend the special meeting. If you hold shares through an intermediary, such as a bank or broker, and
you plan to attend, you must send a written request to attend either by regular mail or email, along with proof of share ownership, such as a bank or brokerage firm account statement, confirming ownership to Arotech Corporation, 1229 Oak Valley
Drive, Ann Arbor, MI 48108, Attn: Yaakov Har-Oz, Senior Vice President, General Counsel and Secretary or yaakovh@arotech.com. Attendance at the special meeting will be limited to persons who pre-registered on or before [_], who present a form of government-issued photograph identification on the day of the special meeting and who arrive by [_] local time.
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Q.
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What happens if I sell my shares before the special meeting?
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A.
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The record date of the special meeting is earlier than the special meeting and the date that the merger is
expected to be completed. If you transfer your shares of common stock after the record date but before the special meeting, you will retain your right to vote at the special meeting, but you will have transferred the right to receive the merger
consideration. In order to receive the merger consideration, you must hold your shares of our common stock through completion of the merger.
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The Merger
Q.
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What is the proposed transaction?
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A.
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The proposed transaction is the acquisition of us by Parent, pursuant to the merger agreement. At the effective
time of the merger, Merger Sub will merge with and into us, and we will be the surviving corporation. When the merger is completed, we will cease to be a publicly traded company and will instead become a wholly-owned subsidiary of Parent.
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Q.
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If the merger is completed, what will I be entitled to receive for my shares of Arotech common stock and
when will I receive it?
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A.
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Upon completion of the merger, you will be entitled to receive $3.00 in cash, without interest, for each share
of our common stock that you own. For example, if you own 100 shares of our common stock, you will be entitled to receive $300 in cash, without interest, in exchange for your Arotech shares.
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Parent will arrange for a customary letter of transmittal to be sent by the paying agent, no later than three business days after the effective
time of the merger, to each of our stockholders of record as of the effective time of the merger. The merger consideration will be paid to each stockholder entitled to receive the merger consideration once such stockholder submits the letter of
transmittal, properly endorsed stock certificates and any other required documentation identified in the letter of transmittal to the paying agent. Each stockholder will receive detailed instructions on how to exchange such stockholders
certificates in exchange for the merger consideration if the merger is approved.
Q.
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If the merger is completed, what will happen to Arotech restricted stock awards and RSUs?
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A.
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At the effective time of the merger, all restrictions and vesting requirements with respect to each share of
restricted stock of Arotech that is outstanding immediately prior to the effective time of the merger shall lapse and all such shares of restricted stock shall be vested in full, and entitled to receive $3.00 in cash, net of applicable tax
withholding, without interest, for each share of the underlying common stock.
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At the effective of the merger, each RSU in respect of shares of our common stock that is
outstanding immediately prior to the effective time of the merger shall fully vest (including RSUs subject to performance-based vesting) and shall be cancelled and converted automatically into the right to receive, as soon as reasonably practicable
after the effective time of the merger (but no later than the first regularly scheduled payroll date that is at least five business days after the effective time), an amount in cash, without interest, equal to the product of (i) $3.00 and
(ii) the total number of shares of common stock underlying such RSU, net of applicable tax withholding.
Q.
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How does the per share price compare to the recent trading price of Arotech common stock?
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A.
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The per share price of $3.00 represents a premium of approximately 32.7% over our closing stock price on
September 20, 2019, the last full trading day prior to the date of the merger agreement. On October [_], 2019, the latest practicable date before the filing of this proxy statement, the closing price of our common stock was $[_] per share.
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Q.
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Am I entitled to appraisal rights?
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A.
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If the merger is adopted by our stockholders, stockholders who do not vote (whether in person or by proxy) in
favor of the adoption of the merger agreement and who properly exercise and perfect their demand for appraisal of their shares will be entitled to appraisal rights in connection with the merger under Section 262 of the DGCL.
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This means that holders of our common stock are entitled to have their shares appraised by the Delaware Court of
Chancery and to receive payment in cash of the fair value of the shares, exclusive of any elements of value arising from the accomplishment or expectation of the merger, together with interest to be paid upon the amount determined to be
fair value, if any, as determined by the court. Stockholders who wish to seek appraisal of their shares are in any case encouraged to seek the advice of legal counsel with respect to the exercise of appraisal rights due to the complexity of the
appraisal process.
The DGCL requirements for exercising appraisal rights are described in further detail in this proxy statement, and the
relevant section of the DGCL regarding appraisal rights is reproduced and attached as Annex D to this proxy statement. See APPRAISAL RIGHTS beginning on page 66 of this proxy statement
Q.
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Why is our board recommending the merger?
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A.
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Our board believes that the merger and the merger agreement are fair to, advisable and in the best interests
of, us and our stockholders. Our board unanimously recommends that you vote FOR the adoption of the merger agreement. To review our boards reasons for recommending the merger, see THE MERGERReasons for the Merger and
Recommendation of the Special Committee and Our Board beginning on page 25 of this proxy statement.
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Q.
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Will the merger be a taxable transaction to me?
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A.
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If you are a U.S. holder (as defined in MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES beginning on
page 45 of this proxy statement) of our common stock, the merger will be a taxable transaction to you. For U.S. federal income tax purposes, your receipt of cash in exchange for your shares of our common stock generally will cause you to recognize a
gain or loss measured by the difference, if any, between the cash you receive pursuant to the merger and your adjusted tax basis in your shares. If you are a non-U.S. holder (as defined in MATERIAL U.S.
FEDERAL INCOME TAX CONSEQUENCES beginning on page 45 of this proxy statement) of our common stock, the merger will generally not be a taxable transaction to you under U.S. federal income tax laws, unless you have certain connections to the
United States. See MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES beginning on page
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45 of this proxy statement for a more detailed explanation of the tax consequences of the merger. You should consult your own tax advisor on how specific tax consequences of the merger, including
the federal, state, local and/or non-U.S. tax consequences, apply to you.
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Q.
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When is the merger expected to be completed?
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A.
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We are working towards completing the merger as soon as possible. We currently expect to complete the merger as
soon as all of the conditions to the merger are satisfied or waived, including stockholder adoption of the merger agreement at the special meeting.
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Q.
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Should I send in my Arotech stock certificates now?
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A.
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No. Shortly after the merger is completed, you will receive a customary letter of transmittal from the paying
agent with written instructions for exchanging your Arotech stock certificates for the merger consideration. You must return your Arotech stock certificates as described in the instructions. You will receive your cash payment as soon as practicable
after the paying agent receives your Arotech stock certificates and any completed documents required in the instructions. Please do NOT send your Arotech stock certificates now.
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Q.
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What will happen to our directors if the merger agreement is adopted?
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A.
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If the merger agreement is adopted by our stockholders and the merger is completed, our directors will no
longer be directors of the surviving corporation after the consummation of the merger. Our current directors will serve only until the merger is completed.
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Q.
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What happens if the merger is not completed?
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A.
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If the merger agreement is not adopted by our stockholders, or if the merger is not completed for any other
reason, the holders of common stock will not receive any payment for their shares of common stock in connection with the merger. Instead, we will remain an independent public company and our stockholders will continue to own their shares of common
stock. The common stock will continue to be registered under the Securities Exchange Act of 1934 (the Exchange Act) and listed and traded on NASDAQ. Under certain circumstances, if the merger is not completed, we may be obligated to pay
to Parent a termination fee.
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See
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THE MERGER AGREEMENTTermination Fee beginning on page 61 of this proxy statement.
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Q.
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What should I do if I have questions?
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A.
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If you have more questions about the special meeting, the merger or this proxy statement, or would like
additional copies of this proxy statement or the proxy card, you should contact our proxy solicitor at:
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Alliance Advisors
LLC
200 Broadacres Drive, 3rd Floor
Bloomfield, NJ 07003
Telephone: (855) 973-0093
-15-
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement, and the documents to which we refer you in this proxy statement, contain forward-looking statements about our plans, objectives,
expectations and intentions. Forward-looking statements include information concerning possible or assumed future results of operations of our Company, the expected completion and timing of the merger and other information relating to the merger.
You can identify these statements by words such as expect, anticipate, intend, plan, believe, seek, estimate, may, and continue or similar
words. You should read statements that contain these words carefully. They discuss our future expectations or state other forward-looking information, and may involve known and unknown risks over which we have no control, including, without
limitation,
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the satisfaction of the conditions to consummate the merger, including the adoption of the merger agreement by
our stockholders;
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the occurrence of any event, change or other circumstance that could give rise to the termination of the merger
agreement;
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the possibility that competing offers will be made;
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the fact that under the terms of the merger agreement, we may be unable to solicit other acquisition proposals
following the Solicitation Period End Time;
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the fact that receipt of the all-cash merger consideration
would be taxable to stockholders that are treated as U.S. holders (as defined in MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES beginning on page 45 of this proxy statement) for U.S. federal income tax purposes;
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the outcome of any legal proceedings that have been or any additional legal proceedings that may be instituted
against us and others following the announcement of the merger agreement;
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the amount of the costs, fees, expenses and charges related to the merger;
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the effect of the announcement of the merger on our customer relationships, operating results and business
generally, including the ability to retain key employees;
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risks related to diverting managements attention from our ongoing business operations;
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risks that our stock price may decline significantly if the merger is not completed;
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and other risks detailed in our current filings with the SEC, including our most recent filings on Forms 10-Q and 10-K. See WHERE YOU CAN FIND MORE INFORMATION beginning on page 76 of this proxy statement. You should not place undue reliance on forward-looking statements. We cannot guarantee any future results,
levels of activity, performance or achievements. The statements made in this proxy statement represent our views as of the date of this proxy statement, and you should not assume that the statements made herein remain accurate as of any future date.
Moreover, we assume no obligation to update forward-looking statements or update the reasons actual results could differ materially from those anticipated in forward-looking statements, except as required by law.
-16-
THE SPECIAL MEETING
We are furnishing this proxy statement to you, as a stockholder of Arotech, as part of the solicitation of proxies by our board for use at the special meeting
of stockholders.
Date, Time, Place and Purpose of the Special Meeting
The special meeting will be held at [_], on [_], 2019, beginning at [_], local time. The purpose of the special meeting is:
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to consider and vote on a proposal to adopt the merger agreement; and
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to consider and vote on the nonbinding compensation proposal; and
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to consider and vote on the adjournment proposal.
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Recommendation of the Special Committee and Our Board
After careful consideration, our board has, acting upon the unanimous recommendation of the special committee, by unanimous vote, determined that the merger
agreement and the merger are fair to, advisable and in the best interests of, Arotech and its stockholders. Accordingly, our board has unanimously adopted and approved the merger agreement and unanimously recommends that our stockholders vote
(i) FOR the adoption of the merger agreement, (ii) FOR the approval of the nonbinding compensation proposal and (iii) FOR the approval of the adjournment of the special meeting to solicit additional
proxies if there are insufficient votes to adopt the merger agreement at the time of the special meeting. See THE MERGERReasons for the Merger and Recommendation of the Special Committee and Our Board beginning on page 25 of this
proxy statement.
Record Date; Stock Entitled to Vote; Quorum
The holders of record of shares of our common stock as of the close of business on [_], 2019, which is the record date for the special meeting, are
entitled to receive notice of and to vote at the special meeting.
On the record date, there were [_] shares of our common stock outstanding held by
approximately [_] stockholders of record. Holders of a majority of the shares of our common stock issued and outstanding as of the record date and entitled to vote at the special meeting must be present in person or represented by proxy at the
special meeting to constitute a quorum to transact business at the special meeting. Abstentions (but not broker non-votes) will be counted as present for purposes of determining the existence of a quorum.
Vote Required
Under Delaware
law, the proposal to adopt the merger agreement requires the affirmative vote of a majority of our outstanding stock entitled to vote thereon. For the nonbinding compensation proposal and the adjournment proposal, approval requires the affirmative
vote of the holders of a majority of the votes properly cast for the nonbinding compensation proposal and the adjournment proposal, respectively, in each case, assuming a quorum is present. Failing to vote or to instruct your broker or other nominee
on how to vote will have no effect on the outcome of the voting with respect to the nonbinding compensation proposal or the adjournment proposal.
Each
holder of a share of our common stock is entitled to one vote per share.
Brokers or other nominees who hold shares of our common stock in street
name for customers who are the beneficial owners of such shares may not give a proxy to vote those customers shares in the absence of specific instructions from those customers. These non-voted
shares of our common stock, referred to as broker non-votes,
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will not be counted as shares entitled to vote on the matter that are present in person or represented by proxy. Broker non-votes will have the same effect
as a vote AGAINST the adoption of the merger agreement, but will have no effect on the outcome of any vote on the nonbinding compensation proposal or the adjournment proposal assuming a quorum is present.
Voting Agreement
In
connection with the execution of the merger agreement, on September 22, 2019, Jon B. Kutler, the chairman of our board, in his capacity as the beneficial owner of 1,887,897 shares of our common stock representing approximately 7.1% of the
shares outstanding as of September 22, 2019, entered into a voting agreement with Parent and us pursuant to which he agreed to vote shares beneficially owned by him in favor of the adoption of the merger agreement and against any alternative
acquisition proposal other than the merger, and not to transfer his shares during the pendency of the merger. The voting agreement terminates upon the termination of the merger agreement.
See VOTING AGREEMENT beginning on page 63 of this proxy statement.
Voting
Stockholders may vote
their shares by attending the special meeting and voting their shares of our common stock in person, or cause their share to be voted by completing the enclosed proxy card, signing and dating it and mailing it in the enclosed postage-prepaid
envelope or by submitting proxies by means of the Internet or telephone as described below. All shares of our common stock represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in the
manner specified by the holder.
If a written proxy card is signed by a stockholder and returned without instructions, the shares of our common stock
represented by the proxy will be voted (i) FOR the adoption of the merger agreement, (ii) FOR the approval of the nonbinding compensation proposal and (iii) FOR the approval of the adjournment proposal.
Stockholders who have questions or requests for assistance in completing and submitting proxy cards should contact our proxy solicitor at:
Alliance Advisors LLC
200
Broadacres Drive, 3rd Floor
Bloomfield, NJ 07003
Telephone: (855) 973-0093
Stockholders who hold their shares of our common stock in street name, meaning in the name of a bank, broker or other person who is the record
holder, must either direct the record holder of their shares of our common stock how to vote their shares or obtain a legal proxy from the record holder to vote their shares at the special meeting.
Submitting Proxies via the Internet or by Telephone
Stockholders of record and any stockholders who hold their shares through a broker or bank will have the option to submit their proxies or voting instructions
via the Internet or by telephone. There are separate arrangements for using the Internet and telephone to submit your proxy depending on whether you are a stockholder of record or your shares are held in street name by your broker. If
your shares are held in street name, you should check the voting instruction card provided by your broker to see which options are available and the procedures to be followed.
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In addition to submitting the enclosed proxy card by mail, our stockholders of record may submit their
proxies:
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via the Internet, by visiting a website established for that purpose at www.proxyvote.com and following the
instructions on the website; or
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by telephone, by calling the toll-free number 1-800-690-6903 and following the recorded instructions.
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Revocability of Proxies
You
can revoke your proxy at any time before it is voted at the special meeting by:
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giving written notice of revocation to Yaakov Har-Oz, Senior Vice
President, General Counsel and Secretary of Arotech;
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submitting another properly completed proxy by telephone, the Internet or mail bearing a later date; or
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voting in person at the special meeting.
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If your shares of our common stock are held in the name of a bank, broker, trustee or other holder of record, you must follow the instructions of your broker
or other holder of record to revoke a previously given proxy.
Solicitation of Proxies
In addition to solicitation by mail, our directors, officers and employees may solicit proxies by telephone, other electronic means or in person. These people
will not receive any additional compensation for their services, but we will reimburse them for their out-of-pocket expenses. We will reimburse banks, brokers, nominees,
custodians and fiduciaries for their reasonable expenses in forwarding copies of this proxy statement to the beneficial owners of shares of our common stock and in obtaining voting instructions from those owners. We will pay the costs of this proxy
solicitation, including all expenses of filing, printing and mailing this proxy statement.
We have retained Alliance Advisors LLC to assist in the
solicitation of proxies by mail, telephone or other electronic means, or in person, for a fee of $8,500, plus approved and reasonable out-of-pocket expenses relating to
the solicitation. We have also agreed to indemnify Alliance Advisors LLC against certain claims.
Other Business
We are not currently aware of any business to be acted upon at the special meeting other than the matters discussed in this proxy statement. Business
transacted at the special meeting is limited to matters specifically designated in the notice of special meeting, which is provided at the beginning of this proxy statement.
In addition, the grant of a proxy will confer discretionary authority on the persons named as proxies on the proxy card to vote in accordance with their best
judgment on procedural matters incident to the conduct of the special meeting. Any adjournment may be made without notice by an announcement of the time and place thereof made at the special meeting unless the adjournment is for more than 30 days or
a new record date for stockholders entitled to vote at the special meeting is set.
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PROPOSAL 1THE MERGER
This discussion of the merger is qualified in its entirety by reference to the merger agreement, which is attached as Annex A to this
proxy statement. You should read the entire merger agreement carefully as it is the legal document that governs the merger.
Background of the Merger
The following chronology summarizes certain meetings and other events between representatives of Arotech and
representatives of Greenbriar, during the period preceding the signing of the merger agreement. The following chronology does not purport to catalogue every conversation among Greenbriar, Arotech, and their respective representatives.
In the ordinary course of its business, our board, with the assistance of our senior management and our advisors, regularly reviews the near-term and
long-term strategy, performance, positioning, and operating prospects of Arotech with a view toward enhancing stockholder value. These reviews have included, from time to time, discussions as to whether the continued execution of Arotechs
strategy as a public company, a possible business combination with a third party or a possible sale of Arotech to a third party, offered the best opportunity to enhance stockholder value, as well as a review of the potential benefits and risks
associated with each such course of action.
During 2017, with the assistance of a financial advisor (not B. Riley), we engaged in a process to explore
strategic alternatives. The process did not lead to any transactions and the engagement of the financial advisor was terminated in March 2018.
In
May 2019, at a regularly scheduled meeting, our board discussed our potential cash flow difficulties and discussed various potential options, including seeking private equity and investment banking assistance. At that meeting, Jon B. Kutler, the
chairman of our board, informed the board that he is a passive investor (with a less than one percent interest), in certain private equity funds controlled by Greenbriar. Mr. Kutler suggested that he could make an introduction to Greenbriar to
discuss Arotechs interest in exploring a minority financial investment to support a strategic acquisition by Arotech, or a buyer for our company. The board confirmed that Mr. Kutler should reach out to Greenbriar to assess
Greenbriars interest in a potential transaction with us. Following that meeting, Mr. Kutler, as directed by the board, discussed with a managing partner at Greenbriar, Arotechs potential interest in exploring a minority financial
investment to support a strategic acquisition by Arotech, or a buyer for our company. Mr. Kutler received feedback that Greenbriar was not interested in a minority investment, but was interested in learning more about our company to consider an
acquisition.
In mid May 2019, we entered a customary non-disclosure agreement (the NDA) with a term
of one year with Greenbriar that included a customary standstill in favor of us. The NDA did not contain a dont ask, dont waive provision.
Although Mr. Kutlers financial position in the Greenbriar fund was approximately 0.6%, out of an abundance of caution, Mr. Kutler recused
himself from further discussions with Greenbriar and asked Larry Hagenbuch, an independent member of our board, to continue discussions with Greenbriar. On May 30, 2019, Mr. Hagenbuch, had a telephonic meeting with representatives of
Greenbriar. The Greenbriar representatives expressed interest in learning more about Arotech and told Mr. Hagenbuch that Greenbriar would be interested in a meeting with our management team.
On June 11, 2019, members of our management team held an introductory meeting and discussed certain business diligence items with representatives of
Greenbriar and one of Greenbriars consultants with specific knowledge and expertise in our industry.
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On June 24, 2019, a representative of Greenbriar spoke with Mr. Hagenbuch and informed him that
Greenbriar would not be pursuing a transaction with us at that time, but noted that Greenbriar would continue to follow us and industry trends. Greenbriar followed this conversation with an email to Arotechs management informing them of the
same.
On July 15, 2019, a representative of Greenbriar called Mr. Hagenbuch and informed him that Greenbriar had completed a revised analysis
and investment hypothesis regarding Arotech, and was interested in reopening discussions about a potential transaction with Arotech. On July 16, 2019, a Greenbriar representative requested additional information about Arotech and requested a
call with members of our management team to discuss certain business diligence items. On July 19, 2019, Mr. Hagenbuch, Dean Krutty, our President and Chief Executive Officer, and Kelli Kellar, our Chief Financial Officer, held the
requested business diligence call with representatives of Greenbriar. After the call, Mr. Hagenbuch provided an email update to the board about the call.
On July 22, 2019, Mr. Krutty and our board held a regularly scheduled business update related to Arotechs operations. After the regular
business update, although the board understood that Mr. Kutler was a passive investor in certain funds controlled by Greenbriar, Mr. Kutler proposed, and the board agreed, that Mr. Kutler would recuse himself for the remaining portion
of the meeting. Mr. Hagenbuch then provided the board with an update regarding the status of conversations with Greenbriar.
On July 23, 2019, a
Greenbriar representative called Mr. Hagenbuch and informed him of Greenbriars continued interest in Arotech and discussed the timing of a potential offer from Greenbriar. Mr. Hagenbuch relayed this information to the board and our
management team.
On July 29, 2019, members of Arotechs management team, including Yaakov Har-Oz, our
General Counsel, and representatives of Greenbriar, along with representatives from Kirkland & Ellis LLP (Kirkland), legal counsel to Greenbriar, held a legal due diligence call.
On August 2, 2019, a representative from Greenbriar called Mr. Hagenbuch and discussed Greenbriars continued interest in a transaction with
Arotech. The Greenbriar representative discussed various valuation methods Greenbriar had performed related to Arotech, which analyses included an offer price per share of $2.50 to acquire all of the outstanding capital stock of Arotech. Greenbriar
provided those analyses to Mr. Hagenbuch in an email the same day and Mr. Hagenbuch shared this email with the other members of the board, including Mr. Kutler. Mr. Hagenbuch informed the Greenbriar representative that he would
discuss these updates with the board at the boards next regularly scheduled meeting in a few days.
On August 5, 2019, our board held a
regularly scheduled quarterly meeting. All of the members of the board were in attendance, except for Mr. Kutler who was unable to attend for certain logistical reasons. Mr. Krutty provided the board with a regular business update.
Mr. Hagenbuch then provided the board with an update regarding his recent discussions with Greenbriar. The board then discussed Greenbriars analysis included in the August 2, 2019 email from Greenbriar. After discussion, the board
concluded that the potential offer price of $2.50 per share discussed by Greenbriar was too low.
On August 6, 2019, Mr. Hagenbuch received an
offer letter (the August 6 Offer) from Greenbriar for an acquisition of all of the outstanding capital stock of Arotech, and on August 7, 2019, Mr. Hagenbuch shared that letter with the other members of our board,
Mr. Krutty, Ms. Kellar, Mr. Har-Oz and representatives of Lowenstein Sandler LLP (Lowenstein Sandler), our outside legal counsel. The August 6 Offer indicated that Greenbriar
was interested in acquiring 100% of our outstanding capital stock at an offer price of $2.50 per share, and requested exclusivity for Greenbriar for a period of 30 days.
On August 9, 2019, our board held a telephonic meeting to discuss the August 6 Offer. Mr. Krutty,
Mr. Har-Oz and representatives from Lowenstein Sandler participated in the meeting. The board discussed the terms of the August 6 Offer, and during the meeting, Lowenstein Sandler provided an
overview of the boards fiduciary
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duties in evaluating a potential acquisition transaction for Arotech. Mr. Kutler and the board also again discussed Mr. Kutlers passive interest in certain funds controlled by
Greenbriar. After that discussion, Mr. Krutty and Mr. Har-Oz exited the meeting and the board held an executive session with representatives of Lowenstein Sandler present. During the executive
session, the board continued the discussion related to Mr. Kutlers passive interest and determined that they would reconvene and consider whether they should form a special committee of disinterested and independent directors to evaluate
the potential Greenbriar transaction. The board also discussed engaging a financial advisor for purposes of evaluating the potential Greenbriar transaction, and authorized Mr. Hagenbuch to reach out to financial advisors to discuss a potential
engagement.
On August 11, 2019, members of our board, excluding Mr. Kutler who had recused himself from the meeting, held a telephonic meeting
to discuss the August 6 Offer and Mr. Kutlers passive interest in certain funds controlled by Greenbriar. Mr. Har-Oz and representatives from Lowenstein Sandler participated in the
meeting. The board determined that Mr. Kutlers interest in the Greenbriar funds was immaterial but they also discussed the possibility that, because of such interests, Mr. Kutler may indirectly maintain some ownership in us if, and after, the
potential Greenbriar transaction would be consummated. Although the board determined that Mr. Kutlers passive interest in certain funds controlled by Greenbriar was immaterial, given the possibility of Mr. Kutlers ongoing
indirect equity ownership in the Company as a result of such interest if, and after, the potential Greenbriar transaction would be consummated, the board discussed the possibility and merits of forming a special committee of independent
and disinterested directors to continue evaluating the potential Greenbriar transaction. Representatives of Lowenstein Sandler again discussed with the board their fiduciary duties and certain provisions that the board should consider in light of
these duties, including go-shop and fiduciary out provisions in any definitive merger agreement. Also on August 11, 2019, the board authorized Mr. Hagenbuch to request formal proposals from two financial advisors to serve as financial
advisor in connection with the potential Greenbriar transaction. The board received proposals from the two potential advisors on August 13, 2019 and August 15, 2019.
On August 16, 2019, our board held a telephonic meeting with Mr. Krutty, Mr. Har-Oz and representatives
of Lowenstein Sandler participating. The board determined that it was in the best interest of the Company and its stockholders to form a special committee, composed entirely of independent and disinterested directors for purposes of evaluating the
potential transaction with Greenbriar. The formation of the special committee, consisting of Mr. Hagenbuch, Kenneth W. Cappell and Adm. James J. Quinn, was approved during the meeting. Following the formation of the special committee, the board
adjourned its meeting and the special committee held a meeting and invited Mr. Kutler to participate as an observer given his substantial investment banking expertise. The special committee discussed the proposals received from the two
financial advisors and determined to engage B. Riley as its financial advisor for purposes of evaluating the potential Greenbriar transaction. The special committee selected B. Riley based on B. Rileys competitive pricing, reputation in the
industry and because the special committee believed B. Riley had relevant company and industry knowledge and expertise and the requisite experience to assist the special committee in evaluating the potential Greenbriar transaction.
On August 18, 2019, the special committee held a telephonic meeting. Mr. Kutler was invited to participate as an observer given his substantial
investment banking expertise, and representatives from B. Riley and Lowenstein Sandler participated in the meeting. Representatives from B. Riley discussed the August 6 Offer and elements of the Companys financial performance with the
special committee. B. Riley also discussed a purchase price analysis with the special committee, including, among other things, an overview of various purchase prices as compared to the Companys trailing stock price over the last twelve months
and compared to the volume weighted average purchase price of the Companys stock over the trailing 30, 60 and 90 day periods. The special committee posed questions to B. Riley and Lowenstein Sandler related to various acquisition processes,
and B. Riley and Lowenstein Sandler provided an overview of alternatives, including a go shop process and the possibility to seek a reverse termination fee in favor of the Company. The special committee discussed whether they should
enter exclusivity with Greenbriar or seek a counter proposal from Greenbriar. The special committee
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then authorized B. Riley to reach out to Greenbriar and request a revised offer at a higher price per share to the Companys stockholders.
On August 19, 2019, B. Riley contacted Greenbriar and informed Greenbriar that the special committee did not believe the $2.50 offer price to be a fair
price. On August 20, 2019, Greenbriar called B. Riley and gave a verbal indication that they would consider increasing their offer price to $3.00 per share, but not higher than $3.00 per share. Greenbriar also indicated that the increased offer
would be conditioned on a customary 30 day exclusivity period, and that they would be seeking a customary break-up fee, reimbursement for certain of their expenses, and that they would be willing to allow the
Company to conduct a customary go shop process for up to 30 days. Greenbriar also indicated that they would not be seeking any third party financing in connection with the transaction and intended to finance the transaction exclusively
through an equity contribution from certain affiliated funds controlled by Greenbriar pursuant to a customary equity commitment letter.
On
August 20, 2019, the special committee held a telephonic meeting. Representatives from B. Riley and Lowenstein Sandler participated. B. Riley provided an overview to the special committee of its conversations with Greenbriar earlier that day.
The special committee then authorized B. Riley to go back to Greenbriar and discuss a longer go shop period and a two-tier breakup fee, with a lower break-up
fee payable to Greenbriar during the go shop period. On August 21, 2019, B. Riley held a call with Greenbriar and discussed the special committees requests.
On August 21, 2019, Greenbriar sent a revised offer letter (the August 21 Offer). The August 21 Offer included an increased offer price
of $3.00 per share, provided for a go shop period of up to 30 days, and a breakup fee for Greenbriar in an amount of $2.4 million and reimbursement of expenses for Greenbriar up to $800,000. The August 21 Offer included the
same financing elements as were discussed on the August 20, 2019 call and provided for a 30 day exclusivity period for Greenbriar.
On
August 22, 2019, the special committee held a telephonic meeting to discuss the August 21 Offer. Mr. Krutty, Mr. Har-Oz and representatives from B. Riley and Lowenstein Sandler participated
at the meeting. The special committee discussed the terms of the August 21 Offer and Lowenstein Sandler and B. Riley described Greenbriars requested break-up fee and discussed how a go
shop process would proceed with the special committee. B. Riley also discussed with the special committee our recent financial performance. The special committee discussed how to respond to the August 21 Offer and determined that they
would send a revised letter to Greenbriar. Later that day, B. Riley sent a revised draft of the August 21 Offer letter to Greenbriar. The revised letter included edits that confirmed the 30 day go shop period, requested a two tier break-up fee, with a lower break-up fee payable to Greenbriar during the go shop period, and a break-up fee payable to us
in an amount of $3.2 million.
On August 22, 2019, Greenbriar sent a further revised offer letter (the August 22 Offer) in response
to the special committees revised letter. The August 22 Offer was similar in all material respects to the August 21 Offer, except that it confirmed the 30 day go shop period and agreed to the break-up fee of $3.2 million payable to the Company. On August 23, 2019, the special committee held a meeting to discuss the August 22 Offer, with
Mr. Har-Oz, representatives from B. Riley and representatives from Lowenstein Sandler participating. The special committee discussed the August 22 Offer and determined to accept the August 22
Offer. On August 23, 2019, we countersigned the August 22 Offer letter, granting Greenbriar exclusivity for a period of 30 calendar days. During the 30 day period commencing on August 23, 2019, we agreed that we would not
(i) solicit, initiate, seek or knowingly encourage any inquiry, proposal or offer from, (ii) furnish any non-public information regarding us to, or (iii) participate in any discussions or
negotiations with, any third parties regarding an acquisition of us. According to the terms of the August 22 Offer, the 30 day exclusivity would terminate if Greenbriar determined not to proceed with the transaction at a price of $3.00 per
share.
In the evening on August 23, 2019, representatives from Lowenstein Sandler and Kirkland held a call and confirmed that a draft of the merger
agreement would be prepared by Lowenstein Sandler consistent with the
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terms of the August 22 Offer. On August 30, 2019, Lowenstein Sandler circulated an initial draft of the merger agreement to Kirkland. On September 5, 2019, Kirkland circulated a
revised draft of the merger agreement to Lowenstein Sandler. The revised draft indicated that Greenbriar would be requesting a customary voting agreement from Mr. Kutler and contained certain changes related to our representations and
warranties and other legal items of the merger agreement. Representatives from Lowenstein Sandler discussed the request for a customary voting agreement with Mr. Kutler and Mr. Kutler indicated that he was amenable to such an agreement.
On September 6, 2019, representatives of Kirkland held a diligence call with our management team and representatives of Lowenstein Sandler to
address certain legal diligence items. From September 6, 2019 through September 22, 2019, Kirkland continued to send, and we continued to respond to, various legal diligence requests. From September 8, 2019, through September 18,
2019, Lowenstein Sandler and Kirkland exchanged drafts of the merger agreement, voting agreement for Mr. Kutler and equity commitment letter and had numerous discussions to address certain legal aspects of the documents, including the status of
our credit facility, the definition of a material adverse event and certain representations, warranties and operating covenants of the Company. During this period, representatives of Lowenstein Sandler had several conversations with
members of the special committee to keep them apprised of the status of the drafts of the transaction documents.
On September 18, 2019, Lowenstein
Sandler circulated a draft of the merger agreement to the board, including Mr. Kutler, and on September 19, 2019, Lowenstein Sandler circulated drafts of the equity commitment letter and voting agreement to the board, including
Mr. Kutler, along with an executive summary that contained a detailed description of the provisions of the merger agreement, equity commitment letter and voting agreement. On the morning of September 21, 2019, the special committee
received a draft of the fairness opinion and accompanying presentation from B. Riley.
On September 22, 2019, the special committee held a telephonic
meeting, with Mr. Krutty, Ms. Kellar and Mr. Har-Oz present, as well as representatives of Lowenstein Sandler and B. Riley. Mr. Kutler also participated in the meeting by invitation of the
special committee. Representatives of Lowenstein Sandler made a presentation regarding the directors fiduciary duties in connection with the proposed Greenbriar transaction. Lowenstein Sandler then provided an overview of the negotiations that
had transpired related to the merger agreement, equity commitment letter and voting agreement. Lowenstein Sandler then reviewed the final terms of the merger agreement, equity commitment letter and voting agreement, which had not changed materially
from the drafts circulated on September 18, 2019 and September 19, 2019, including those provisions that afforded benefits to our executive officers and directors. Mr. Krutty then discussed the process undertaken in preparing the
disclosure schedules that accompanied the merger agreement. Representatives from B. Riley then reviewed and discussed their financial analyses with respect to us and the proposed merger. Thereafter, at the request of the special committee, B. Riley
rendered its oral opinion to the special committee (which was subsequently confirmed in writing by delivery of B. Rileys written opinion addressed to the special committee dated of the same date) as to, as of September 22, 2019 and
subject to the factors, limitations, qualifications and other matters set forth in its written opinion, the fairness, from a financial point of view, to the holders of Arotech common stock, of the merger consideration of $3.00 per share to be
received by such holders in the merger pursuant to the terms of the merger agreement. Mr. Kutler, Mr. Krutty, Ms. Kellar and Mr. Har-Oz then exited the meeting. After considering the
foregoing, and taking into consideration the factors described under THE MERGERReasons for the Merger and Recommendation of the Special Committee and Our Board beginning on page 25 of this proxy statement, the special committee
unanimously approved the merger agreement and the transactions contemplated thereby and determined the merger agreement and the transactions contemplated thereby to be fair to and in the best interests of Arotech and its stockholders and recommended
that our board: (i) determine that the terms and provisions of the merger agreement and the transactions contemplated thereby, including the merger, are fair to, advisable and in the best interests of us and our stockholders, (ii) approve
and declare advisable the merger agreement and the transactions contemplated thereby, including the merger, (iii) determine that it is advisable and in the best interests of us and our stockholders to enter into the merger agreement and to
consummate the transactions contemplated thereby, including the merger, and (iv) resolve to recommend the adoption of the
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merger agreement by our stockholders. Mr. Kutler then re-joined the meeting, and, upon recommendation by the special committee, and in consideration
of the factors described under THE MERGERReasons for the Merger and Recommendation of the Special Committee and Our Board beginning on page 25 of this proxy statement, our board unanimously: (i) determined that the terms and
provisions of the merger agreement and the transactions contemplated thereby, including the merger, are fair to, advisable and in the best interests of us and our stockholders, (ii) approved and declared advisable the merger agreement and the
transactions contemplated thereby, including the merger, (iii) determined that it is advisable and in the best interests of us and our stockholders to enter into the merger agreement and to consummate the transactions contemplated thereby,
including the merger, and (iv) resolved to recommend the adoption of the merger agreement by our stockholders.
During the evening of
September 22, 2019, following the meeting of the special committee and our board, we and Greenbriar executed the merger agreement. On the morning of September 23, 2019, prior to market open on NASDAQ, we issued a press release announcing
entry into the merger agreement and announcing the commencement of the go shop period.
Pursuant to the terms of the merger agreement, during
the period beginning on the date of the merger agreement and continuing until 12:01 a.m. (New York City time) on October 22, 2019, we and our representatives had the right to, directly or indirectly: (i) initiate, solicit, facilitate,
whether publicly or otherwise, and encourage any acquisition, (ii) provide access to non-public information to any person pursuant to an acceptable confidentiality agreement, and
(iii) engage or enter into, continue or otherwise participate in any discussions or negotiations with any persons with respect to any acquisition proposal or otherwise cooperate with, or assist or participate in, or facilitate, any such
discussions or negotiations or any effort or attempt to make any acquisition proposal. Promptly after execution of the merger agreement, at the request of management of the Company, representatives of B. Riley contacted approximately 39 strategic
parties and approximately 12 financial parties about a potential transaction with us.
During the Go Shop Period, which expired at 12:01 a.m. Eastern Time
on October 22, 2019, two potential bidders entered into an acceptable confidentiality agreement with us that included a six month standstill provision that allowed the counterparty to make confidential proposals to the board (or a committee thereof)
at any time and were provided the opportunity to have access to our management team. One of the potential bidders was provided access to an online data room containing nonpublic information about us. As of the expiration of the Go Shop Period, we
had not received any alternative acquisition proposals, including from either of the two potential bidders that were subject to acceptable confidentiality agreements, each of whom subsequently indicated they were not interested in pursuing an
acquisition of us. Upon the expiration of the Go Shop Period and in accordance with the terms of the merger agreement, we ceased all activities and became subject to no-shop restrictions on our ability to solicit acquisition proposals
from third parties (including by furnishing non-public information), or to participate in discussions or negotiations with third parties regarding any acquisition proposals, subject to certain exceptions to permit our board to comply with its
fiduciary duties.
Reasons for the Merger and Recommendation of the Special Committee and Our Board
In the course of reaching its decision to recommend that our board approve and adopt the merger agreement and recommend that our stockholders adopt the merger
agreement, the special committee consulted with senior management and our financial and legal advisors, and reviewed a significant amount of information and considered a number of factors, including the following:
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the fact that despite managements and the boards efforts, we have not succeeded in significantly
growing our business through internal growth and/or acquisition, and continue to see operating performance below the targets that our management team and board have set for us;
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the fact that, in the ordinary course of our consideration of strategic opportunities in the market
and prior attempts to seek strategic alternatives, no independent strategic parties had made a proposal for the Company, and the special committees belief in the low likelihood that another counterparty with sufficient financial capability and
an interest in acquiring us would emerge;
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the course and history of competitive negotiations between Greenbriar and us, as described in THE
MERGERBackground of the Merger beginning on page 20 of this proxy statement and the special committees belief that it had obtained Parents best and final offer and that it was unlikely that any other party would be willing to
acquire us at a higher price;
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the value of the consideration to be received by our stockholders pursuant to the merger agreement, as well as
the fact that our stockholders will receive the consideration in cash, which provides certainty of value to our stockholders;
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the fact that the $3.00 per share to be paid as the consideration in the merger represents an approximately 32.7%
premium over our closing stock price on the last full trading day prior to the date of the merger agreement;
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the absence of a financing condition and the commitment of affiliates of Greenbriar, pursuant to the Equity
Commitment Letter, to provide to Parent an equity contribution of an aggregate amount up to $84,500,000, which amount is sufficient to pay the merger consideration payable under the merger agreement and, as required, to pay the termination fee
payable to Arotech;
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the fact that the merger agreement contains a go shop provision, which gave us the
opportunity to actively solicit higher and better offers over the course of a 30-day period (see THE MERGER AGREEMENTGo Shop Period beginning on page 54 of this proxy statement);
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our management teams and the special committees assessment of the challenges facing Arotech remaining
a stand-alone, public company, including the costs of remaining a public company and the prospects of competing with other companies with greater resources, better global distribution capabilities and broader product offerings, thereby positioning,
in the opinion of our management team and the special committee, such competitors to be better able to capitalize on growth opportunities;
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historical and current information concerning our business, financial performance and condition, operations,
technology, management and competitive position, and current industry, economic and market conditions;
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the internal estimates of our future financial performance, as well as the potential impact on such future
financial performance if the challenges and risks to our business that we had identified were in fact realized;
|
|
|
|
the then-current financial market conditions, volatility and trading information with respect to our common
stock, including the possibility that if we remained as a publicly owned corporation, in the event of a decline in the market price of our common stock or the stock market in general, the price that might be received by our stockholders in the open
market or in a future transaction might be less than the $3.00 per share cash price to be paid pursuant to the merger agreement;
|
|
|
|
the terms and conditions of the merger agreement, including, in addition to the go shop provision
referenced above:
|
|
○
|
|
the ability of the special committee, under certain circumstances, to furnish information to and conduct
negotiations with a third party and, upon the payment to Parent of a termination fee, to terminate the merger agreement to accept a superior proposal;
|
|
○
|
|
the special committees belief that the termination fee payable to Parent was reasonable in the context of
termination fees that were payable in other comparable transactions and would not be likely to preclude another party from making a competing proposal;
|
|
○
|
|
the conditions to closing contained in the merger agreement, which the special committee believes are reasonable
and customary in number and scope, and which, in the case of the condition related to the accuracy of the Companys representations and warranties, are generally subject to a Material Adverse Effect qualification (see THE
MERGER AGREEMENTRepresentations and Warranties beginning on page 50 of this proxy statement); and
|
-26-
|
○
|
|
the Companys entitlement, under certain conditions, to seek specific performance of Parents
obligations under the merger agreement, including Parents and Merger Subs obligation to close the merger when required;
|
|
|
|
support from a substantial stockholder, as evidenced by the terms and conditions of the voting agreement with Mr.
Kutler;
|
|
|
|
the financial presentation of B. Riley, including its written opinion, dated September 22, 2019, to the
special committee as to the fairness to the Companys stockholders, from a financial point of view and as of the date of its opinion, of the merger consideration, as more fully described in THE MERGEROpinion of Financial
Advisor beginning on page 28 of this proxy statement;
|
|
|
|
the positive business reputation of Greenbriar, its history of successful acquisitions, its substantial financial
resources and its strong strategic interest in the Company and familiarity with the Company and the Companys products; and
|
|
|
|
the availability of appraisal rights to our stockholders under the DGCL.
|
In the course of its deliberations, the special committee also considered a variety of risks and other countervailing factors, including:
|
|
|
the risks and costs to us if the merger does not close, including costs incurred related to the negotiation of
the merger and seeking stockholder approval, the diversion of management and employee attention, potential employee attrition and the potential effect on customer and vendor relationships;
|
|
|
|
the restrictions that the merger agreement imposes, after the Go Shop Period, on our ability to solicit or
participate in discussions or negotiations regarding alternative acquisition proposals, subject to certain exceptions, and that restrict the Company from entering into alternative acquisition agreements, and the fact that we would be obligated to
pay a termination fee to Parent under certain circumstances;
|
|
|
|
the fact that we will no longer exist as an independent, publicly traded company and our stockholders will no
longer participate in our potential future earnings or growth, if any, and will not benefit from appreciation in the value of our Company, if any;
|
|
|
|
the fact that gains from an all-cash transaction would be taxable to our
stockholders for U.S. federal income tax purposes;
|
|
|
|
the restrictions on the conduct of our business prior to the completion of the merger, requiring us to conduct
our business only in the ordinary course, subject to specific limitations and exceptions, which may delay or prevent us from undertaking business opportunities that may arise pending completion of the merger; and
|
|
|
|
the interests of our officers and directors in the merger that may be different from or in addition to the
interests of our stockholders generally, which are described in THE MERGERInterests of Certain Persons in the Merger beginning on page 39 of this proxy statement.
|
In the course of reaching its decision to approve and adopt the merger agreement and recommend that our stockholders adopt the merger agreement, our board
consulted with senior management and our financial and legal advisors, and reviewed a significant amount of information and considered a number of factors, including the following:
|
|
|
the independence and disinterestedness of the special committee;
|
|
|
|
the factors considered by the special committee, including the benefits, risks and countervailing factors
referenced above; and
|
|
|
|
the unanimous recommendation of the special committee.
|
The foregoing discussion of the factors considered by the special committee and our board is not intended to be exhaustive, but does set forth all of the
material factors considered by the special committee and our board. In
-27-
light of the various factors described above and other factors that each director felt were appropriate, the special committee unanimously reached the conclusion to recommend that our board
approve and adopt the merger agreement and that our board recommend that our stockholders adopt the merger agreement. Upon recommendation of the special committee, and in light of the various factors described above and other factors that each
director felt were appropriate, our board also unanimously reached the conclusion to approve and adopt the merger agreement and recommend that our stockholders adopt the merger agreement. In view of the wide variety of factors considered in
connection with the evaluation of the merger and the complexity of these matters, our directors did not consider it practical, and did not attempt to quantify, rank or otherwise assign relative weights to the specific factors it considered in
reaching its decision and did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to the ultimate determinations made by the special committee and
the board. Rather, the special committee and our board made their respective recommendations based on the totality of information presented to our directors and the investigation conducted by them. In considering the factors discussed above,
individual directors may have given different weights to different factors.
After evaluating these factors and consulting with its legal counsel and its
financial advisors, acting upon the unanimous recommendation of the special committee, our board unanimously (i) determined that the terms and provisions of the merger agreement and the transactions contemplated thereby, including the merger,
are fair to, advisable and in the best interests of Arotech and its stockholders, (ii) approved and declared advisable the merger agreement and the transactions contemplated thereby, including the merger, (iii) declared that it is
advisable and in the best interests of Arotech and its stockholders to enter into the merger agreement and to consummate the transactions contemplated thereby, including the merger, and (iv) recommended the adoption of the merger agreement by
our stockholders . Accordingly, our board unanimously adopted and approved the merger agreement. Our board unanimously recommends that you vote FOR the adoption of the merger agreement.
Opinion of Financial Advisor
Arotech has retained B. Riley to act as Arotechs financial advisor in connection with the transaction. B. Riley is an
internationally recognized financial advisory firm that has substantial experience in the industry in which Arotech operates.
On
September 22, 2019, at a meeting of our board held to evaluate the merger, B. Riley delivered to the special committee an oral opinion, which was confirmed by delivery of a written opinion dated September 22, 2019, to the effect that,
as of the date of the opinion and based on and subject to various assumptions and limitations described in its opinion, the merger consideration in connection with the merger was fair to Arotechs stockholders from a financial point of view.
The full text of B. Rileys written opinion to the special committee, which describes, among other things, the assumptions
made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex C to this proxy statement and is incorporated by reference herein in its entirety. The following summary of B. Rileys
opinion is qualified in its entirety by reference to the full text of the opinion. B. Riley delivered its opinion to the special committee for the benefit and use of the special committee and our board (in their capacity as such) in connection
with and for purposes of their evaluation of the merger consideration from a financial point of view. B. Rileys opinion did not address any other aspect of the merger or the underlying business decision of Arotech to effect the merger,
and no opinion or view was expressed as to the relative merits of the merger in comparison to other strategies or transactions that might be available to Arotech or in which Arotech might engage. B. Rileys opinion does not constitute a
recommendation to any stockholder as to how to vote or act in connection with the proposed merger or any related matter.
In
connection with rendering its opinion, B. Riley, among other things:
|
|
|
reviewed the financial terms of the final draft merger agreement;
|
-28-
|
|
|
reviewed certain information internal to Arotech concerning its business, financial condition and operations,
prepared and furnished to B. Riley by Arotechs management;
|
|
|
|
reviewed the financial forecasts of Arotech as furnished to B. Riley by Arotechs management;
|
|
|
|
reviewed certain internal financial analyses, estimates and forecasts, prepared and furnished to B. Riley by
Arotechs management;
|
|
|
|
reviewed certain publicly available financial data, stock market performance data and trading multiples of
Arotech;
|
|
|
|
held discussion with members of senior management of Arotech concerning their evaluations of the merger, the
business, financial condition, and strategic objectives of Arotech, as well as such other matters as B. Riley deemed necessary or appropriate for purposes of rendering its opinion;
|
|
|
|
reviewed certain publicly available financial data, stock market performance data and trading multiples of
companies which B. Riley deemed to be generally comparable to Arotech;
|
|
|
|
reviewed the publicly available financial terms of certain other business combinations that B. Riley deemed
to be relevant in industries similar to those in which Arotech participates and the consideration received for such companies that B. Riley believed to be generally relevant;
|
|
|
|
performed a discounted cash flow analysis of Arotech utilizing financial information prepared by and furnished to
B. Riley by Arotechs management; and
|
|
|
|
performed such other financial studies, analyses and investigations, and considered such other matters, as
B. Riley deemed necessary or appropriate for purposes of rendering its opinion.
|
For purposes of its analysis and
opinion, B. Riley assumed and relied upon, without undertaking responsibility for independently verifying, and did not independently verify, the accuracy and completeness of the information reviewed by B. Riley, nor was B. Riley
furnished with any such verification and B. Riley did not assume any responsibility or liability for the accuracy or completeness thereof. B. Riley did not make an independent evaluation or appraisal of the assets or the liabilities
(contingent or otherwise) of Arotech including those that may arise from the merger, nor has B. Riley evaluated the solvency of Arotech under any state or federal laws. In addition, B. Riley did not undertake an independent analysis of any
pending or threatened litigation, possible unasserted claims or other contingent liabilities to which Arotech is a party or may be subject, and B. Rileys opinion does not make an assumption concerning, and therefore does not consider, the
possible assertion of claims, outcomes or damages arising out of any such matters. B. Riley also relied, without assuming responsibility or liability for independent verification, upon the accuracy and completeness of all financial and other
information available from public sources and all information provided to B. Riley or otherwise discussed with or reviewed by B. Riley.
With respect to the financial and other projections prepared by Arotech and the assumptions underlying those projections, including the
amounts and the timing of all financial and other performance data, Arotech management advised B. Riley, and B. Riley assumed, that such items were reasonably prepared by Arotech in accordance with industry practice and reflected Arotech
managements best estimates and judgments as of their date of preparation. B. Riley expressed no view as to any such analyses or forecasts or the assumptions on which they were based. Further, B. Riley assumed that there had been no
material change in the assets, financial condition, results of operations, business or prospects of Arotech since the respective dates of the most recent financial statements made available to B. Riley, and B. Riley relied upon the
assurances of Arotech management that they were not aware of any facts that would make the information and projections provided by Arotech management materially inaccurate, incomplete or misleading.
For purposes of rendering its opinion, B. Riley assumed, with the consent of the special committee, that the executed form of the merger
agreement would not differ in any material respect from the last draft provided to B. Riley, and that the consummation of the merger would be effected in accordance with the terms and
-29-
conditions of the merger agreement, without waiver, modification or amendment of any material term, condition or agreement, and that, in the course of obtaining the necessary regulatory or third
party consents and approvals (contractual or otherwise) for the merger, no delay, limitation, restriction or condition will be imposed that would have an adverse effect on Arotech or the contemplated benefits of the merger. In addition, events
occurring after September 22, 2019 could materially affect the assumptions used in preparing B. Rileys opinion, but B. Riley has no obligation to reaffirm its opinion. B. Riley is not a legal, tax or regulatory advisor and
relied upon, without independent verification, the assessment of Arotech and Arotechs legal, tax and regulatory advisors with respect to such matters.
B. Rileys opinion did not address the underlying business decision of Arotech to effect the merger and it is not a recommendation
as to any action the special committee or our board should take with respect to the merger or any aspect thereof. B. Rileys opinion is necessarily based on economic, market, monetary, regulatory and other conditions as they existed on and
could be evaluated, and on the information made available to B. Riley, as of September 22, 2019. Subsequent developments may affect B. Rileys opinion, and B. Riley has no obligation to update or revise its opinion after
September 22, 2019.
B. Riley was not asked to opine upon, and expressed no opinion with respect to, any matter other than the
fairness from a financial point of view, as of September 22, 2019, to the holders of Arotech common stock of the merger consideration to be received by such holders of Arotech common stock in the proposed merger. B. Riley did not express
any view on, and its opinion does not address, any other aspect or implication of the merger agreement or merger or any aspect or implication of any other agreement or understanding entered into in connection with the merger or otherwise.
B. Rileys opinion is limited to the fairness, from a financial point of view, to the Arotech stockholders of the merger consideration in connection with the merger, and B. Riley expresses no opinion as to the fairness of (i) the
merger to the holders of any other class of securities or options, creditors, or other constituencies of Arotech nor (ii) the amount or nature of the compensation to any of the officers, directors or employees of Arotech, or other class of such
persons, relative to the merger consideration. B. Rileys opinion does not address the prices or trading ranges at which the Arotech common stock will trade at any time prior to the consummation of the merger or the impact of the merger on
the solvency or viability of Arotech or the ability of Arotech to pay its obligations when they become due before consummation of the merger.
The following is a summary of the material financial analyses presented by B. Riley to the special committee and our board in connection
with rendering its opinion. The following summary, however, does not purport to be a complete description of the financial analyses performed by B. Riley. The order of the analyses described and the results of these analyses do not represent
relative importance or weight given to these analyses by B. Riley. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before
September 20, 2019, and is not necessarily indicative of current market conditions.
The following summary of financial analyses
includes information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of B. Rileys financial analyses.
-30-
Selected Precedent Transactions Analysis
B. Riley reviewed publicly available information relating to the following selected transactions within the aerospace, defense and power
industries announced since the beginning of 2011. For each target company, B. Riley calculated the implied enterprise value, which we refer to as EV, as a multiple of EBITDA for the trailing twelve-month, which we refer to as LTM, period prior
to the close of the respective transaction, which we refer to below as EV/LTM EBITDA, and then calculated the mean and median for the transactions.
|
|
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|
|
|
|
|
|
|
|
Date
|
|
Buyer
|
|
Target
|
|
EV
($mm)
|
|
|
EV/
LTM
EBITDA
|
|
March 2019
|
|
ELTA Systems Ltg.
|
|
Eltel Technologistics Ltd.
|
|
$
|
11.6
|
|
|
|
NA
|
|
March 2019
|
|
Cubic Corp.
|
|
Nuvotronics, Inc.
|
|
|
64.0
|
|
|
|
10.5x
|
|
February 2019
|
|
Tesla, Inc.
|
|
Maxwell Technologies, Inc.
|
|
|
339.1
|
|
|
|
NA
|
|
January 2019
|
|
Mercury Systems
|
|
GECO Avionics
|
|
|
36.5
|
|
|
|
10.4x
|
|
December 2018
|
|
Cerberus Capital Management, L.P.
|
|
Sparton Corporation
|
|
|
255.3
|
|
|
|
9.0x
|
|
November 2018
|
|
Hexcel Corporation
|
|
ARC Technologies, Inc.
|
|
|
160.0
|
|
|
|
11.9x
|
|
November 2018
|
|
CAE
|
|
Bombardier Business Aircraft Training
|
|
|
645.0
|
|
|
|
10.0x
|
|
October 2018
|
|
QinetiQ Group plc
|
|
Inzpire Group Ltd.
|
|
|
30.5
|
|
|
|
11.7x
|
|
March 2018
|
|
Yageo Corporation
|
|
Pulse Electronics Corporation
|
|
|
740
|
|
|
|
NA
|
|
April 2018
|
|
FAM AB
|
|
Saab AB
|
|
|
42.0
|
|
|
|
16.6x
|
|
February 2018
|
|
Laserline S.p.A.
|
|
TXT e-solutions S.p.A.
|
|
|
43.0
|
|
|
|
11.3x
|
|
February 2018
|
|
Exchange Income Corporation/PAL Aerospace
|
|
CANlink Aviation
|
|
|
43.4
|
|
|
|
7.2x
|
|
February 2018
|
|
First Israel Mezzanine Investors Ltd.
|
|
Aitech Defense Systems, Inc.
|
|
|
30.0
|
|
|
|
NA
|
|
January 2017
|
|
Veritas Capital Fund Mgmt, LLC
|
|
Peraton CorporationGovt IT Services Business
|
|
|
690.0
|
|
|
|
NA
|
|
December 2016
|
|
QinetiQ Group plc
|
|
QinetiQ Target Systems Ltd.
|
|
|
74.5
|
|
|
|
11.7x
|
|
November 2016
|
|
Huntington Ingalls Industries, Inc.
|
|
HII Mission Driven Innovative Solutions, Inc.
|
|
|
372.0
|
|
|
|
8.6x
|
|
May 2016
|
|
Henan Wodafeng Investment Co., Ltd
|
|
Suntrot Technology Co., Ltd.
|
|
|
16.0
|
|
|
|
8.1x
|
|
February 2016
|
|
J.F. Lehman & Co.
|
|
API Technologies Corp.
|
|
|
311.2
|
|
|
|
15.2x
|
|
October 2015
|
|
Standex International
|
|
Northlake Engineering, Inc.
|
|
|
13.5
|
|
|
|
NA
|
|
July 2015
|
|
KYOCERY Corp
|
|
Nihon Inter Electronics
|
|
|
100.8
|
|
|
|
11.1
|
|
June 2015
|
|
Ultra Defense, Inc.
|
|
Herley Industries, Inc.
|
|
|
260.0
|
|
|
|
11.8x
|
|
April 2014
|
|
Arotech Corp
|
|
UEC Electronics LLC
|
|
|
32.8
|
|
|
|
NA
|
|
February 2011
|
|
SPX Corporation
|
|
Teradyne Diagnostics Solutions
|
|
|
39.1
|
|
|
|
NA
|
|
February 2011
|
|
Kratos Defense & Security Solutions
|
|
Herley Industries, Inc.
|
|
|
270.0
|
|
|
|
15.8x
|
|
|
|
|
|
|
|
|
|
|
EV/LTM EBITDA Multiples
|
|
|
|
|
|
|
|
|
|
|
|
|
Low
|
|
|
|
|
|
|
7.2x
|
|
|
|
|
|
Median
|
|
|
|
|
|
|
11.2x
|
|
|
|
|
|
Mean
|
|
|
|
|
|
|
11.3x
|
|
|
|
|
|
High
|
|
|
|
|
|
|
16.6x
|
|
|
|
|
|
|
|
|
|
|
For Comparison:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arotech Implied EV / LTM 6/30/19 Adj. EBITDA Multiple in Greenbriar Transaction
|
|
|
|
|
|
|
15.7x
|
|
B. Riley chose the selected transactions for purposes of this analysis based on its professional judgment
and experience, taking into account comparability to Arotech with respect to the industry of operation, business model, and geographic footprint. No transaction reviewed was directly comparable to the proposed merger.
-31-
Accordingly, this analysis involved complex considerations and judgments concerning differences in financial and operating characteristics of Arotech relative to the targets in the selected
transactions and other factors that would affect the acquisition values in the selected precedent transactions. B. Riley excluded certain potentially comparable transactions due to lack of transparency in transaction details (such as price,
corresponding multiples paid and financial characteristics of the target company).
Based on B. Rileys professional judgment
taking into account the mean and median EV/LTM EBITDA multiples referenced above, B. Riley noted that, per the selected precedent transaction analysis, the merger consideration exceeded the implied equity value per share calculated by applying
the mean and median valuation multiples to Arotechs Adjusted EBITDA for the LTM period ended June 30, 2019. From this analysis, and using an Adjusted EBITDA multiple range of 9.0x to 12.0x (based on B. Rileys professional judgment
and informed by the mean and median multiples from relevant data sets used) and net debt of $15.8 million, B. Riley derived a range of implied equity value per share of Arotech common stock of $1.46 to $2.15.
For a discussion of Adjusted EBITDA, see Summary of the Companys Projections beginning on page 36 of this proxy
statement.
Selected Public Company Trading Comparables Analysis
B. Riley reviewed and compared certain financial information for Arotech to corresponding financial information for the following publicly
traded companies, which, in the exercise of its professional judgment, B. Riley determined to be relevant to its analysis. In selecting comparable public companies, B. Riley focused on businesses with a similar business model, end-market exposure and gross margin profile. The selected companies were as follows:
|
|
|
Astronics Corporation (ATRO)
|
|
|
|
CPI Aerostructures, Inc. (CVU)
|
|
|
|
Cubic Corporation (CUB)
|
|
|
|
Curtiss-Wright Corporation (CW)
|
|
|
|
Ducommun Incorporated (DCO)
|
|
|
|
Elbit Systems Ltd. (ESLT)
|
|
|
|
IEC Electronics Corporation (IEC)
|
|
|
|
Kaman Corporation (KAMN)
|
|
|
|
TTM Technologies (TTMI)
|
B. Riley obtained financial metrics and projections for the selected companies from documents filed by such companies with the SEC and from
S&P Capital IQ. In its public company trading comparables analysis, B. Riley conducted an EV analysis and derived and compared multiples for Arotech and the selected companies, calculated as follows:
|
|
|
the EV as a multiple of Adjusted EBITDA for the LTM period ended June 30, 2019, which is referred to below
as EV/LTM 6/30/19 Adj. EBITDA;
|
|
|
|
the EV as a multiple of estimated Adjusted EBITDA for 2019, which is referred to below as EV 2019E Adj.
EBITDA; and
|
-32-
|
|
|
the EV as a multiple of estimated Adjusted EBITDA for 2020, which is referred to below as EV 2020E Adj.
EBITDA.
|
B. Riley then compared Arotechs EV as a multiple of Adjusted EBITDA for the LTM period ended
June 30, 2019, as a multiple of estimated Adjusted EBITDA for 2019, and as a multiple of estimated Adjusted EBITDA for 2020. A summary of this comparison is shown in the table below.
This EV analysis yielded the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EV/LTM
6/30/19
Adj. EBITDA
|
|
|
EV 2019E
Adj. EBITDA
|
|
|
EV 2020E
Adj. EBITDA
|
|
ATRO
|
|
|
11.8x
|
|
|
|
12.2x
|
|
|
|
9.7x
|
|
CAE
|
|
|
12.4x
|
|
|
|
10.8x
|
|
|
|
9.6x
|
|
CVU
|
|
|
10.4s
|
|
|
|
8.9x
|
|
|
|
7.6x
|
|
CUB
|
|
|
23.1x
|
|
|
|
17.5x
|
|
|
|
14.2x
|
|
CW
|
|
|
14.2x
|
|
|
|
13.5x
|
|
|
|
12.8x
|
|
DCO
|
|
|
9.2x
|
|
|
|
8.7x
|
|
|
|
8.3x
|
|
ESLT
|
|
|
14.7x
|
|
|
|
14.2x
|
|
|
|
13.0x
|
|
FNS
|
|
|
11.3x
|
|
|
|
9.2x
|
|
|
|
8.5x
|
|
IEC
|
|
|
11.4x
|
|
|
|
9.5x
|
|
|
|
7.0x
|
|
KAMN
|
|
|
12.1x
|
|
|
|
20.3x
|
|
|
|
16.9x
|
|
TXT
|
|
|
9.7x
|
|
|
|
9.1x
|
|
|
|
8.7x
|
|
TTMI
|
|
|
6.3x
|
|
|
|
6.8x
|
|
|
|
6.2x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Median
|
|
|
11.6x
|
|
|
|
10.2x
|
|
|
|
9.6x
|
|
Mean
|
|
|
12.2x
|
|
|
|
11.7x
|
|
|
|
10.2x
|
|
|
|
|
|
For Comparison
|
|
|
|
|
|
|
|
|
|
|
|
|
Arotech (stand alone as of market close on 6/30/19)
|
|
|
12.5x
|
|
|
|
10.9x
|
|
|
|
8.4x
|
|
Arotech Implied EV Multiples in Greenbriar Transaction
|
|
|
15.7x
|
|
|
|
13.7x
|
|
|
|
10.5x
|
|
No selected company is identical to Arotech. Accordingly, B. Rileys comparison of selected
companies to Arotech and analysis of the results of such comparisons were not purely quantitative, but instead necessarily involved qualitative considerations and professional judgments concerning differences in financial and operating
characteristics and other factors that could affect the relative value of Arotech. From this analysis and using a range of multiples from 10.0x to 13.0x applied to Arotechs LTM 6/30/19 Adjusted EBITDA, B. Riley derived a range of implied
equity value per share of Arotech common stock of $1.69 to $2.37. Similarly, from this analysis and using a range of multiples from 9.0x to 12.0x applied to Arotechs estimated Adjusted EBITDA for 2019, B. Riley derived a range of implied
equity value per share of Arotech common stock of $1.77 to $2.56. Similarly, from this analysis and using a range of multiples from 6.0x to 9.0x applied to Arotechs estimated Adjusted EBITDA for 2020, B. Riley derived a range of implied equity
value per share of Arotech common stock of $1.46 to $2.49. For each analysis, B. Riley used its professional judgment, informed by the mean and median multiples from relevant data sets used.
Discounted Cash Flow Analysis
B. Riley
conducted an illustrative discounted cash flow analysis for Arotech on a stand-alone basis. B. Riley calculated a range of implied values of Arotech based on forecasts for calendar years 2019 through 2024 provided by Arotech management.
B. Riley first calculated unlevered free cash flows (calculated as net profit after taxes, plus depreciation and amortization, less the amount of any increase or plus the amount of any decrease in net working capital and less capital
expenditures) of Arotech for calendar years 2020 through 2024. Net profit after taxes was calculated as Adjusted EBITDA less depreciation and amortization, stock-based compensation and taxes. B. Riley also calculated terminal values for Arotech
by applying exit multiples ranging
-33-
from 9.5x-10.5x (which were selected based on B. Rileys professional judgment, taking into account acquisition multiples paid in the selected
precedent transactions referenced above, which were completed in differing phases of the macroeconomic cycle) to Arotechs estimated 2024 calendar year Adjusted EBITDA. The unlevered free cash flows and terminal values were then discounted to
present values using a weighted average cost of capital range of 14.0% to 16.0% (which range was selected based on B. Rileys professional judgment and derived from an analysis of the estimated weighted average cost of capital using
Arotech data, based on a capital asset pricing model, taking into account Arotechs size, Arotechs exposure to market risk and overall historical equity market returns) to calculate a range of implied values for Arotech. From this
analysis, B. Riley derived a range of implied equity value per share of Arotech common stock of $2.32 to $2.83.
Premiums Paid Analysis
B. Riley also reviewed and analyzed the premiums paid in recent acquisitions of a group of publicly held companies, with data sourced from
S&P Capital IQ and B. Riley investment banking analyses. The analysis examined the ratio between the acquisition price and the target companys price per share one day, one week and one month prior to the announcement of the
transaction. In selecting comparable transactions for the premiums paid analysis, B. Riley only included change-in-control transactions involving U.S. public
company targets for the five-year period ending September 20, 2019. A total of 1,553 transactions were analyzed, 723 of which involved small-cap transactions (defined as transactions with a deal value of
less than $500 million). The total transactions had a mean and median transaction size of $3,836.6 million and $432.9 million, respectively. The small-cap transactions had a mean and median
transaction size of $119.4 million and $61.4 million, respectively. For these transactions, the median transaction premium paid: (i) based on the target companys price per share one day prior to the announcement, ranged from
25.9% to 33.2%; (ii) based on the target companys price per share one week prior to the announcement, ranged from 27.4% to 33.5%; and (iii) based on the target companys price per share one month prior to the announcement,
ranged from 30.8% to 33.5% (in each case where the low end of the range represented all transactions in aggregate and the high end of the range represented small-cap transactions). B. Riley noted that
applying these metrics to Arotechs closing stock prices generates implied per share price ranges for Arotech common stock of $2.84 to $3.01 (for one day prior comparison), $3.06 to $3.20 (for one week prior comparison) and $3.07 to $3.14 (for
one month prior comparison). B. Riley further noted that the $3.00 per share cash consideration to be received by Arotech stockholders represented a 32.7% premium to the Arotech closing stock price of $2.26 on September 20, 2019.
Additional Information Provided to Special Committee and Board
B. Riley presented historical trading prices of Arotech common stock over the 52-week period ending
September 20, 2019, calculated the volume-weighted average daily closing prices for Arotech common stock over various time periods and noted the closing stock price on selected dates prior to and including September 20, 2019, including the
52-week high and low closing stock prices. Arotechs common stock price per share ranged from $1.61 to $3.66 over the 52-week period ended on September 20,
2019. This analysis indicated that the $3.00 per share cash consideration to be received by Arotech stockholders represented a premium of:
|
|
|
32.7% based on the closing price per share of $2.26 on September 20, 2019, the last full trading day before
B. Riley delivered the fairness opinion to the special committee;
|
|
|
|
29.9% based on the volume-weighted average closing price per share of $2.31 over the 30-day period ending September 20, 2019;
|
|
|
|
42.9% based on the volume-weighted average closing price per share of $2.10 over the 60-day period ending September 20, 2019;
|
|
|
|
42.2% based on the volume-weighted average closing price per share of $2.44 over the 90-day period ending September 20, 2019;
|
|
|
|
(18.0)% based on the 52-week high closing price per share of $3.66; and
|
|
|
|
86.3% based on the 52-week low closing price per share of $1.61.
|
-34-
General
The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analysis and
the application of such methods to the particular circumstances and, therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete view of the processes underlying B. Rileys opinion. In arriving at its fairness opinion, B. Riley considered the results of all of its analyses and, except as expressly
stated above, did not attribute any particular weight to any factor or analysis considered by it. Rather, B. Riley made its determination as to fairness on the basis of its experience and professional judgment after considering the results of
all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to Arotech or the merger. B. Riley prepared these analyses for purposes of providing its opinion to the special committee as to the
fairness from a financial point of view, to the holders of shares of Arotech common stock of the merger consideration to be received by such holders in the merger. These analyses do not purport to be appraisals nor do they necessarily reflect the
prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these
analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Arotech, Greenbriar, Merger Sub, B. Riley or any other
person assumes responsibility if future results are materially different from those forecast.
The merger consideration was determined
through arms-length negotiations between Arotech and Greenbriar and was approved by our board by unanimous vote upon recommendation of the special committee following a presentation to our board.
B. Riley, however, did not recommend any specific amount of consideration to the special committee or the board or that any specific amount of consideration constituted the only appropriate consideration for the merger. As described above,
B. Rileys opinion to the special committee was one of many factors taken into consideration by the special committee and our board in making its determination to approve the merger. The foregoing summary does not purport to be a complete
description of the analyses performed by B. Riley in connection with the fairness opinion delivered to the special committee and is qualified in its entirety by reference to the written opinion of B. Riley, which is included as
Annex C to this proxy statement and is incorporated by reference herein in its entirety.
B. Rileys
fairness opinion that was delivered to the special committee was approved by a fairness opinion committee of B. Riley professionals in accordance with established procedures.
During the past two years, Arotech has not engaged B. Riley to provide, and B. Riley has not provided, investment banking, financial
advisory or other financial services to Arotech unrelated to the merger for which Arotech has paid or expects to pay fees to B. Riley. During the past two years, Greenbriar has not engaged B. Riley to provide, and B. Riley has not
provided, investment banking, financial advisory or other financial services to Greenbriar for which Greenbriar has paid or expects to pay fees to B. Riley.
B. Riley and its affiliates are engaged in a broad range of securities activities and financial advisory services. B. Riley and its
affiliates carry on a range of businesses for their own account and for their customers, including providing stock brokerage, investment advisory, investment management, proprietary financings and custodial services. In the ordinary course of
business, B. Riley or its affiliates may actively trade or hold (for their own accounts or for the accounts of their customers) equity or debt securities, bank debt and/or other financial instruments, of (i) Arotech and affiliates of
Arotech, (ii) Greenbriar and affiliates of Greenbriar, and (iii) any other company that may be involved in the merger as well as derivatives thereof, and, accordingly, may at any time hold long or short positions in such securities, bank
debt, financial instruments and derivatives.
B. Riley has acted as exclusive financial advisor to the Arotech for purposes of issuing an
opinion as to the fairness, from a financial point of view, of the merger consideration, to the special committee and, further, for
-35-
purposes of providing advisory services in connection with a possible sale, transfer or other disposition, directly or indirectly, of all or a material portion of the equity securities, assets or
business of Arotech or its subsidiaries, including assisting in the evaluation of Arotechs strategic alternatives. The special committee selected B. Riley as its exclusive financial advisor because it is an internationally recognized
financial advisory firm that has substantial experience in the industries in which Arotech operates.
B. Riley received an upfront
retainer fee of $100,000 upon execution of its engagement agreement with Arotech. Additionally, B. Riley received a fee of $300,000 as a result of the delivery of its fairness opinion. No portion of the upfront retainer fee or fairness opinion fee
was contingent upon the conclusions reached in the opinion or the closing of the merger. Additionally, if a sale transaction, including the merger, is consummated during the term of B. Rileys engagement or within six months following the
termination thereof, or if Arotech receives a proposal or enters into an agreement with respect to a potential sale transaction within six months after the termination of B. Rileys engagement and such sale transaction is subsequently
consummated at the same $3.00 per share acquisition price, then B. Riley will receive an advisory fee of $350,000. A sale transaction consummated at a higher price than $3.00 per share will generate an incentive fee payable to B. Riley equal to
4.0% of the incremental amount paid above $3.00 per share. Arotech has also agreed to reimburse B. Riley for certain expenses and to indemnify B. Riley, its controlling persons, representatives and agents against certain liabilities
associated with the issuance of its opinion.
Summary of the Companys Projections
We do not as a matter of course publicly disclose long-term forecasts or internal projections of our future performance, revenues, earnings, financial
condition or other results due to, among other reasons, the uncertainty of the underlying assumptions and estimates. However, as part of the preparation for the boards strategic review process, our management developed certain non-public, unaudited, stand-alone financial projections of the Company that were made available to the special committee, our board and to B. Riley in connection with its analyses described in THE
MERGEROpinion of Financial Advisor beginning on page 28 of this proxy statement.
A summary of the projections is provided below. The
projections were not prepared with a view toward public disclosure. The projections are included in this proxy statement because they were, among other items, relied upon by B. Riley in its analyses described in THE MERGEROpinion of
Financial Advisor beginning on page 28 of this proxy statement. The projections are not an indication that the Company, the special committee, our board, or any advisor (including B. Riley) to or representative of any of the foregoing, or any
other recipient of this information considered the projections to be material or necessarily predictive of actual future results, and the projections should not be relied upon as such.
Managements internal financial forecasts and the assumptions upon which the projections were based are subjective in many respects and thus subject to
interpretation. Although presented with numerical specificity in the summary below, the projections are based upon a significant number of estimates and assumptions made by management with respect to, among other matters, industry performance,
general business, market and financial conditions, matters specific to the Companys business and other matters, many of which are difficult to predict, are subject to significant economic and competitive uncertainties, and are beyond the
Companys control. In addition, since the projections cover multiple years, such information by its nature becomes less reliable with each successive year. As a result, there can be no assurance that the estimates and assumptions made in
preparing the projections will prove accurate, that the projected results will be realized or that actual results will not materially vary from the projections.
The projections were not meant to comply with U.S. Generally Accepted Accounting Principles (GAAP), the published guidelines of the SEC regarding
financial projections and the use of non-GAAP measures or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial projections and
forecasts. The projections include financial metrics that were not prepared in
-36-
accordance with GAAP. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in
compliance with GAAP and non-GAAP financial measures as used by the Company may not be comparable to similarly titled GAAP measures in the Companys historical financial statements or similarly titled
amounts used by other companies.
Neither our independent registered public accounting firm nor any other independent registered public accounting firm
has examined, compiled or performed any procedures with respect to the projections, and, accordingly, neither our independent registered public accounting firm nor any other public accounting firm expresses an opinion or any other form of assurance
with respect to the projections. Reports of our independent registered public accounting firm that are incorporated by reference into this proxy statement relate solely to our historical financial information. They do not extend to the prospective
financial information and should not be read to do so.
The projections are forward-looking statements and were based on numerous variables and
assumptions that are inherently uncertain. You are encouraged to review our most recent SEC filings for a description of our reported results of operations and financial condition during the fiscal year ended December 31, 2018 and for the first
and second quarters of 2019. See SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS and WHERE YOU CAN FIND MORE INFORMATION beginning on pages 16 and 76, respectively, of this proxy statement. The projections reflect
assumptions that are difficult to predict and subject to change and may not reflect current prospects for our business, changes in general business or economic conditions including recessions or expansions, or any other transaction or event that has
occurred or that may occur and that was not anticipated when the projections were prepared. There can be no assurance that the projections will be realized or that our future financial results will not materially vary from the projections.
No one has made or makes any representation regarding the information included in the projections. Readers of this proxy statement are advised not to rely
unduly, if at all, on the projections. Some or all of the assumptions that have been made regarding, among other things, the timing or occurrence of certain occurrences or effects, may have changed since the date the projections were prepared. We
have not updated and do not intend to update or otherwise revise or reconcile the projections to reflect circumstances existing after the date when made or to reflect the occurrence or non-occurrence of future
events, even if any or all of the assumptions on which the projections were based are shown to be in error. Except as may be required by applicable securities laws, we do not intend to make publicly available any update or other revision to these
management projections, even in the event that any or all of the assumptions are shown to be in error. We have made no representation to Parent or Merger Sub in the merger agreement or otherwise concerning the projections.
A summary of the projections are set forth below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
FULL YR
|
|
|
2020
FULL YR
|
|
|
2021
FULL YR
|
|
|
2022
FULL YR
|
|
|
2023
FULL YR
|
|
|
2024
FULL YR
|
|
Total revenues
|
|
$
|
97,200
|
|
|
$
|
102,747
|
|
|
$
|
111,190
|
|
|
$
|
119,137
|
|
|
$
|
126,427
|
|
|
$
|
132,688
|
|
Cost of revenues
|
|
$
|
66,250
|
|
|
$
|
71,419
|
|
|
$
|
77,930
|
|
|
$
|
84,063
|
|
|
$
|
89,560
|
|
|
$
|
94,192
|
|
Total operating costs and expenses
|
|
$
|
27,276
|
|
|
$
|
25,762
|
|
|
$
|
25,741
|
|
|
$
|
26,490
|
|
|
$
|
27,309
|
|
|
$
|
27,583
|
|
Operating income
|
|
$
|
3,674
|
|
|
$
|
5,566
|
|
|
$
|
7,519
|
|
|
$
|
8,584
|
|
|
$
|
9,558
|
|
|
$
|
10,912
|
|
Adjusted EBITDA(1)
|
|
$
|
7,057
|
|
|
$
|
9,162
|
|
|
$
|
10,832
|
|
|
$
|
11,780
|
|
|
$
|
12,865
|
|
|
$
|
13,979
|
|
(1)
|
Includes stock compensation expense.
|
In preparing the projections, management analyzed industry data and made assumptions regarding future results that management believed to be common in
assessing risks in our industry. The projections take into account certain financial, operating and commercial assumptions solely using the information available to our management at the time that the projections were prepared.
The projections were based on actual results through July, 2019 and estimated results for the remainder of the current calendar year and for each of the years
ending December 31, 2020, 2021, 2022, 2023 and 2024.
-37-
Certain Effects of the Merger
If the merger agreement is approved by our stockholders and the other conditions to the closing of the merger are either satisfied or waived, Merger Sub will
be merged with and into us, and we will be the surviving corporation. When the merger is completed, we will cease to be a publicly traded company and will instead become a wholly-owned subsidiary of Parent.
Upon completion of the merger, each share of our common stock issued and outstanding immediately prior to the effective time of the merger (other than shares
owned by Parent, Merger Sub or any wholly-owned subsidiary of Parent or Arotech) will be cancelled and converted into the right to receive the merger consideration of $3.00 per share in cash, net of applicable tax withholding, without interest. Our
current stockholders will cease to have ownership interests in Arotech or rights as our stockholders. Therefore, our current stockholders will not participate in any of our future earnings or growth and will not benefit from any appreciation in our
value.
Our common stock is currently registered under the Exchange Act, and is listed on NASDAQ under the symbol ARTX. As a result of the
merger, we will no longer be a publicly traded company, and there will be no public market for our common stock. After the merger, our common stock will cease to be listed on NASDAQ, and price quotations with respect to sales of shares of common
stock in the public market will no longer be available. In addition, registration of our common stock under the Exchange Act will be terminated. This termination will make certain provisions of the Exchange Act, such as the requirement of furnishing
a proxy or information statement in connection with stockholders meetings, no longer applicable to us. After the effective time of the merger, we will also no longer be required to file periodic reports with the SEC on account of our common
stock.
The directors of Merger Sub immediately prior to the effective time of the merger shall be the initial directors of the surviving corporation.
At the effective time of the merger, our certificate of incorporation and our bylaws will be amended in their entirety to be as set forth in the exhibits
to the merger agreement.
Effects on Arotech if the Merger is Not Completed
In the event that the merger agreement is not adopted by our stockholders or if the merger is not completed for any other reason, our stockholders will not
receive any payment for their shares in connection with the merger. Instead, we will remain an independent public company and our common stock will continue to be listed on NASDAQ.
In addition, if the merger is not completed, we expect that our business will be operated by our management in a manner similar to the manner in which it is
being operated today and that our stockholders will continue to be subject to the same risks and opportunities as they currently are, including, among other things, general industry, economic and market conditions. Accordingly, if the merger is not
consummated, there can be no assurance as to the effect of these risks and opportunities on the future value of your shares of our common stock.
In the
event the merger is not completed, our board will continue to evaluate and review our business operations, properties, dividend policy and capitalization, among other things, make such changes as are deemed appropriate and continue to evaluate
strategic alternatives to maximize stockholder value. If the merger agreement is not approved by our stockholders or if the merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to us will be
offered or that our business, prospects or results of operations will not be materially and adversely impacted.
If the merger agreement is terminated
under certain circumstances described in THE MERGER AGREEMENTTermination Fee beginning on page 61 of this proxy statement, we may be obligated to pay a termination fee, including legal expenses, of up to $3,200,000 to
Parent.
-38-
Delisting and Deregistration of Arotech Common Stock
If the merger is consummated, our common stock will be delisted from NASDAQ and deregistered under the Exchange Act, and we will no longer file periodic
reports with the SEC. There will be no further public market for shares of our common stock.
Interests of Certain Persons
in the Merger
In considering the recommendation of our board with respect to the merger agreement, holders of shares of our common stock should be
aware that our executive officers and directors may have interests in the merger that may be different from, or in addition to, those of our stockholders generally. These interests may create potential conflicts of interest. The special committee
and our board were each aware of these potential conflicts of interest and considered them, among other matters, in reaching its decision to approve the merger agreement and to recommend that our stockholders vote in favor of adopting the merger
agreement.
Such interests include the following:
|
|
|
The merger agreement provides that each holder of shares of our common stock, including our directors and
executive officers, will be entitled to receive $3.00 in cash, net of applicable tax withholding, without interest, for each share of our common stock held immediately prior to the effective time of the merger.
|
|
|
|
Pursuant to the merger agreement, at the effective time of the merger, each RSU in respect of shares or our
common stock granted that is outstanding immediately prior to the effective time of the merger will fully vest (including RSUs subject to performance-based vesting) and be cancelled, and the holders thereof, including our executive officers who hold
RSUs, will have the right to receive, as soon as reasonably practicable after the effective time of the merger (but no later than the first regularly scheduled payroll date that is at least five business days after the effective time) an amount in
cash, without interest, equal to the product of (i) $3.00 and (ii) the total number of shares of common stock underlying such RSU, net of applicable tax withholding.
|
|
|
|
The merger agreement also provides that each outstanding restricted stock award granted, all of which are held by
our non-employee directors, will be accelerated and that each holder thereof will be entitled to receive $3.00 in cash, net of applicable tax withholding, without interest, for each share of the underlying
common stock.
|
Mr. Kutler, the chairman of our board, is a limited partner, and has a less than 1% passive interest, in certain
funds controlled by Greenbriar.
See THE MERGER AGREEMENTStockholdings and Stock Awards beginning on page 39 of this proxy statement for
information detailing the shares of common stock, restricted stock awards and RSUs held by our executive officers and non-employee directors.
Stockholdings and Stock Awards
The following table shows the aggregate number of shares of our common stock held by each person who served as a director or executive officer of us at any
time since the beginning of our last fiscal year, the aggregate number of shares of restricted stock awarded to such persons that will be vested in full at the effective time of the merger, and the aggregate number of shares of common stock
underlying RSUs awarded to such persons.
Our current executive officers are Dean M. Krutty, President and Chief Executive Officer, and Kelli L. Kellar,
Vice PresidentFinance and Chief Financial Officer. Both such executive officers are our named executive officers in our most recent annual report on Form 10-K for the fiscal year ended December 31,
2018, filed with the SEC on March 7, 2019.
-39-
No equity awards, other than restricted stock awards and RSUs, are held by any person who served as a
director or officer of the Company at any time since the beginning of our last fiscal year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
of
Common
Stock (#)
|
|
|
Number
of
Unvested
Shares of
Restricted
Stock
(#)(1)
|
|
|
Number of
Shares of
Common
Stock
Underlying
RSUs
(#)(2)
|
|
|
Dollar Value
of
All Equity
Awards and
Shares of
Common
Stock
($)(3)
|
|
Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dean M. Krutty
|
|
|
172,305
|
|
|
|
|
|
|
|
65,000
|
|
|
$
|
711,915
|
|
Kelli L. Kellar
|
|
|
20,041
|
|
|
|
|
|
|
|
36,000
|
|
|
$
|
168,123
|
|
|
|
|
|
|
Non-Employee Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jon B. Kutler
|
|
|
1,864,348
|
(4)
|
|
|
23,549
|
|
|
|
|
|
|
$
|
5,663,691
|
|
Kenneth W. Cappell
|
|
|
114,098
|
|
|
|
23,549
|
|
|
|
|
|
|
$
|
412,941
|
|
Lawrence F. Hagenbuch
|
|
|
40,198
|
|
|
|
23,549
|
|
|
|
|
|
|
$
|
191,241
|
|
Adm. (Ret.) James J. Quinn
|
|
|
18,384
|
|
|
|
23,549
|
|
|
|
|
|
|
$
|
125,799
|
|
(1)
|
Pursuant to the terms of the merger agreement, all restrictions and vesting requirements with respect to
restricted stock awards will lapse and all such shares of restricted stock shall be vested in full. Holders of shares of restricted stock will receive $3.00 for each such share.
|
(2)
|
Pursuant to the terms of the merger agreement, each RSU awarded that is outstanding immediately prior to the
effective time of the merger will fully vest (including RSUs subject to performance-based vesting) and be cancelled and the holder thereof will have the right to receive, as soon as reasonably practicable after the effective time of the merger (but
no later than the first regularly scheduled payroll date that is at least five business days after the effective time), an amount in cash, without interest, equal to the product of (i) $3.00 and (ii) the total number of shares of common
stock underlying such RSU, net of applicable tax withholding.
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(3)
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Based on the merger consideration price of $3.00.
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(4)
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Jon B. Kutler and his wife are directors of Admiralty Partners, Inc., which owns 1,579,984 shares of our common
stock. Mr. and Mrs. Kutler are also settlors and trustees of two trusts that between them own an additional 224,879 shares of our common stock. Mr. Kutler also holds 59,485 shares of our common stock directly.
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Employment Agreements
Dean M.
Krutty, our President and Chief Executive Officer, and Kelli L. Kellar, our Vice PresidentFinance and Chief Financial Officer, are entitled to certain severance benefits pursuant to the terms of their existing employment agreements with us,
the terms of which are described below.
Dean M. Krutty Employment Agreement
The employment agreement entered into between us and Mr. Krutty (the Krutty Agreement) provides that if Mr. Kruttys employment is
terminated by us (other than for cause as defined in the Krutty Agreement), or if Mr. Krutty terminates his employment by reason of his death or disability or within 60 days following a reduction in his salary, any material uncured breach by us
of any material provision of the Krutty Agreement, or the change in control of the Company (as defined in the Krutty Agreement), then Mr. Krutty will be entitled to (i) severance equal to one years base salary, (ii) a bonus for
the year of termination equal to the annual bonus he would have been entitled to under the Krutty Agreement for the year of termination based on the assumption that the Companys budgeted results for the year would be equal to an annualized
version of budgeted results attained through the termination (but in no event may annualized budgeted results be less than 100% of the budgeted figure for the year), and pro rated based on the number of days he is employed during the year of
termination,
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and (iii) continued health insurance coverage for a period of twelve months following the date of termination. The merger, if and when consummated, will constitute a change of control for
purposes of the Krutty Agreement.
Kelli L. Kellar Employment Agreement
The employment agreement entered into between us and Ms. Kellar (the Kellar Agreement) provides that if Ms. Kellars employment is
terminated by us (other than for cause as defined in the Kellar Agreement), including due to non-renewal of the employment term, then Ms. Kellar will be entitled to severance equal to six months
base salary (based on the highest rate of base salary in effect during the 90-day period preceding termination) and any unpaid bonus earned for the year preceding her date of termination.
Indemnification of Officers and Directors
The merger agreement requires that, for six years from and after the effective time of the merger, the surviving corporation will, and Parent will cause the
surviving corporation to, indemnify and hold harmless all of our and our subsidiaries past and present directors and officers (the Covered Persons) to the same extent such persons were indemnified as of the date of the merger
agreement by us pursuant to our certificate of incorporation and bylaws (the Existing Indemnification Arrangements) arising out of acts or omissions in their capacity as directors, officers or agents of us or any of our subsidiaries
occurring at or prior to the effective time of the merger. Additionally, from and after the effective time of the merger, the merger agreement provides that the surviving corporation will, and that Parent will cause the surviving corporation to
(i) indemnify and hold harmless the Covered Persons to the fullest extent permitted by law for acts or omissions occurring in connection with the process resulting in and the adoption of merger agreement and the consummation of the transactions
contemplated by the merger agreement and (ii) advance expenses (including reasonable legal fees and expenses) incurred in the defense of any actual or threatened proceeding or investigation with respect to the matters subject to indemnification
pursuant to the applicable indemnification provisions of the merger agreement in accordance with the procedures (if any) set forth in the Existing Indemnification Arrangements. The merger agreement also provides that if any proceeding or
investigation (whether arising before, at or after the effective time of the merger) is made or threatened against such persons with respect to matters subject to indemnification or advancement pursuant to the applicable indemnification provisions
of the merger agreement on or prior to the sixth anniversary of the effective time of the merger, the applicable indemnification provisions of the merger agreement shall continue in effect until the final disposition of such proceeding or
investigation.
In addition, the merger agreement provides that, for not less than seven years from and after the effective time of the merger, the
certificate of incorporation and bylaws of the surviving corporation and the organizational documents of each subsidiary of the Company will contain provisions no less favorable with respect to exculpation, indemnification of and advancement of
expenses to Covered Persons for periods at or prior to the effective time than are set forth in the amended and restated certificate of incorporation and amended and restated bylaws to be adopted as the certificate of incorporation and bylaws of the
surviving corporation at the effective time of the merger, pursuant to the merger agreement. To the extent permitted by applicable law, indemnification agreements, if any, in existence on the date of the merger agreement with any directors, officers
and employees that have been made available to Parent are required to continue in full force and effect in accordance with their terms following the effective time of the merger.
The merger agreement also requires that, for a period of six years from the effective time of the merger, the surviving corporation shall maintain in effect
policies of directors and officers liability insurance and fiduciary liability insurance that collectively provide coverage for matters arising on or before the effective time of the merger (the D&O Insurance) that is
substantially equivalent to and not less favorable in the aggregate than our existing policies and our subsidiaries or, if substantially equivalent insurance coverage is unavailable, the best available coverage; provided, however, that after the
effective time of the merger, the surviving corporation shall not be required to pay annual premiums for the D&O Insurance in excess of 300% of the last annual premium paid by the Company prior to the date of the merger agreement, but in such
case shall purchase as much coverage
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as reasonably practicable for such amount. The merger agreement provides that, in lieu of the foregoing, we may purchase, prior to the effective time of the merger, at prevailing market rates, a
six year prepaid tail policy on terms and conditions providing substantially equivalent benefits as the current policies of directors and officers liability insurance and fiduciary liability insurance maintained by us with
respect to matters arising on or before the effective time of the merger, covering without limitation the transactions contemplated by the merger agreement and full prior acts coverage for all acts or omissions taking place before the tail policy
becomes effective.
Finally, the merger agreement provides that, in the event that Parent or the surviving corporation (i) consolidates with or
merges into any other person or entity and shall not be the continuing or surviving corporation or (ii) transfers all or substantially all of its properties and assets to any person or entity, then proper provision shall be made so that such
continuing or surviving corporation or entity or transferee of such assets shall assume all of the obligations set forth in the applicable indemnification provisions of the merger agreement.
Golden Parachute CompensationQuantification of Potential Payments to the Companys Named Executive Officers in
Connection with the Transactions
This section sets forth the information required by Item 402(t) of
Regulation S-K, which requires disclosure of information regarding the compensation for each of our named executive officers whose compensation was disclosed in the Definitive Proxy Statement
on Schedule 14A filed by us on March 22, 2019, that is based on or otherwise relates to the merger. This compensation is referred to as golden parachute compensation by the applicable SEC disclosure rules, and in this section
we use such term to describe the merger-related compensation payable to our named executive officers.
To the extent that any of our named executive
officers compensation arrangements are described in THE MERGEREmployment Agreements beginning on page 40 of this proxy statement, the descriptions of such arrangements are incorporated herein by reference. The amounts set
forth in the table below, which represent an estimate of each named executive officers golden parachute compensation as of October 22, 2019, calculated in accordance with the SECs rules on disclosing golden parachute compensation,
assume the following:
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consummation of the merger constitutes a change in control for purpose of the applicable compensation plan or
agreement;
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the change in control was consummated on October 22, 2019, the latest practicable date prior to the filing
of this proxy statement;
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in the case of Mr. Krutty and Ms. Kellar (the Active NEOs), that his or her employment is
terminated effective October 22, 2019 without cause or, in the case of Mr. Krutty, by his resignation within 60 days following the change in control; and
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the value of the accelerated vesting of the Active NEOs equity awards is calculated using the merger
consideration price of $3.00 per share.
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The amounts in the table below do not include any value received in respect of equity awards
held by the named executive officer that are vested prior to the consummation of the merger.
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Name(1)
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Cash
($)(2)
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Equity
($)(3)
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Perquisites/
Benefits
($)(4)
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Total
($)
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Named Executive Officers
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Dean M. Krutty
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413,608
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195,000
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8,675
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617,283
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Kelli L. Kellar
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117,500
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108,000
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225,500
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Thomas J. Paup
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(1)
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Mr. Paup retired on March 31, 2018 and is not entitled to any golden parachute
compensation as a result of the merger.
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(2)
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Represents, with respect to the Active NEOs, the cumulative severance amounts payable pursuant to his or her
employment agreement, as described in THE MERGEREmployment Agreements beginning on page 40 of this proxy statement. The severance amounts in this column with respect to the Active NEOs are all double trigger in nature,
which means that payment of these amounts is conditioned upon a termination without cause or, in the case of Mr. Krutty, resignation within 60 days following certain events, including a change in control of the Company (as described
in THE MERGEREmployment Agreements beginning on page 40 of this proxy statement). The amounts included in the column above for each Active NEO were calculated based on his or her base salary as in effect on October 22, 2019
($275,739 for Mr. Krutty and $235,000 for Ms. Kellar), and in the case of Mr. Krutty, a prorated bonus amount for 2019 in the amount of $137,869, based on the terms of the Krutty Agreement (as described in THE
MERGEREmployment Agreements beginning on page 40 of this proxy statement).
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(3)
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Represents the aggregate payments to be made in respect of unvested RSUs. The amounts in this column with
respect to Active NEOs are all single trigger in nature, which means that they are being fully vested and cashed out as part of the merger. Treatment of all such awards in the merger is described in greater detail in THE
MERGEREmployment Agreements beginning on page 40 of this proxy statement. The amounts included in this column are based on Mr. Krutty and Ms. Kellar having, respectively, 65,000 and 36,000 RSUs and the merger consideration
price of $3.00 per share. None of our named executive officers have outstanding stock options.
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(4)
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Represents the estimated value of continued health coverage for up to 12 months that Mr. Krutty would be
entitled to under the Krutty Agreement if his employment is terminated by us without cause.
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Other
Employee Benefits
Pursuant to the merger agreement, during the one-year period immediately following the
effective time of the merger (or until the termination of the relevant employee, if sooner), the surviving corporation shall provide, to each of our, or our subsidiaries, employees who continue to be employed (collectively, the Company
Employees), (i) base salary or base hourly wage rate, if applicable, and annual cash incentive compensation opportunities (excluding long-term or equity-based awards, deferred compensation, severance or any change in control or retention
bonuses) that, in each case, are substantially similar to those that were provided to the Company Employees immediately before the effective time of the merger, and (ii) employee benefits (other than long-term or equity-based awards, deferred
compensation, severance change in control or retention bonuses, and defined benefit, non-qualified or post-termination or retiree health or welfare arrangements) that are substantially comparable to those that
were provided to the Company Employees immediately before September 22, 2019.
Pursuant to the merger agreement, following the effective time of the
merger, subject to applicable laws and tax qualification requirements, the surviving corporation shall cause any employee benefit or health or welfare plans (other than any plans providing for equity or equity-based, nonqualified deferred
compensation, defined benefit pension, or post-termination or retiree health or welfare benefits) sponsored or maintained by Parent or the surviving corporation or their subsidiaries in which the Company Employees are eligible to participate
following the effective time of the merger (collectively, the Post-Closing Plans) to recognize the service of each Company Employee with us or our subsidiaries (and any predecessor thereto) prior to the effective time of the merger that
is reflected in our books and records, for purposes of eligibility, vesting and (for vacation/paid-time off and severance benefits only) level of benefits under such Post-Closing Plans to the same extent and for the same purpose as such service was
credited under our analogous benefit plan, except to the extent that recognizing such service would result in a duplication of benefits or compensation and provided that such recognition of service will not apply for purposes of benefit accrual
under any Post-Closing Plan that is a defined benefit retirement plan. With respect to any Post-Closing Plan that provides medical, dental or vision insurance benefits, for the plan year in which the effective time of the merger occurs, to the
extent permitted by applicable law and any insurer or service provider under the applicable Post-Closing Plan, Parent is required to (i) cause any preexisting condition limitations or eligibility waiting periods under such plan to be waived
with respect to such Company Employee to the extent such limitation would have been waived or satisfied under our benefit plan in which such Company Employee participated immediately prior to the effective time of the merger and (ii) credit
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each Company Employee for any co-payments or deductibles incurred by such Company Employee in such plan year for purposes of any applicable deductible and
annual out-of-pocket expense requirements under any such Post-Closing Plan. Such credited expenses will also count toward any annual or lifetime limits, treatment or
visit limits or similar limitations that apply under the terms of the applicable plan.
The provisions of the merger agreement described under this
heading will not confer upon any Company Employee or other service provider any right to continue in the employ or service (or to any term or condition of employment or service) of Parent, the surviving corporation, or any affiliate of Parent, nor
will the provisions of the merger agreement described under this heading create any third-party beneficiary rights in any Company Employee or any of our, or any of our subsidiaries, current or former service providers (or any beneficiaries or
dependents thereof). The merger agreement provides that it is not intended to limit the ability of Parent or the surviving corporation or any of their affiliates to modify or terminate any benefit or compensation arrangement, or their right to
terminate the employment or service of any Company Employee or other person.
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REGULATORY MATTERS
Except for the filing of a certificate of merger with the Secretary of State of the State of Delaware on or before the effective date of the merger, we are
unaware of any material federal, state or foreign regulatory requirements or approvals required for the execution of the merger agreement or completion of the merger.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material U.S. federal income tax consequences of the merger to holders of our common stock. This discussion is based
upon the provisions of the U.S. Internal Revenue Code of 1986, as amended (the Code), the Treasury Regulations promulgated under the Code, and judicial and administrative rulings in effect as of the date of this proxy statement, all of
which are subject to change or varying interpretation, possibly with retroactive effect. Any such changes could affect the accuracy of the statements and conclusions set forth herein.
This discussion does not address all aspects of U.S. federal income taxation that may be relevant to a holder of our common stock in light of the
stockholders particular circumstances, nor does it discuss the special considerations applicable to those holders of our common stock subject to special rules, such as stockholders whose functional currency is not the U.S. dollar, stockholders
subject to the alternative minimum tax, stockholders who are financial institutions or broker-dealers, mutual funds and other regulated investment companies, partnerships or other pass-through entities for U.S. federal income tax purposes, real
estate investment trusts, S corporations, tax-exempt organizations, insurance companies, dealers in securities or foreign currencies, traders in securities who elect the mark-to-market method of accounting, individual retirement or other tax-deferred accounts, controlled foreign corporations, passive foreign investment companies,
expatriates, stockholders subject to the anti-inversion rules of the Code, stockholders who acquired their common stock through the exercise of options or similar derivative securities or stockholders who hold their common stock as part of a hedge,
straddle, constructive sale or conversion transaction. This discussion also does not address the U.S. federal income tax consequences to holders of our common stock who acquired their shares through stock option or stock purchase plan programs or
through other compensatory arrangements or who do not vote in favor of the proposal to adopt the merger agreement and who properly exercise and perfect their demand for appraisal of their shares in accordance with Section 262. This discussion
assumes that holders of our common stock hold their shares as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment). No party to the merger will seek an opinion of counsel or a ruling from the
Internal Revenue Service with respect to the U.S. federal income tax consequences discussed herein and accordingly there can be no assurance that the Internal Revenue Service will agree with the positions described in this proxy statement.
We intend this discussion to provide only a general summary of the material U.S. federal income tax consequences of the merger. We do not intend it to be a
complete analysis or description of all potential U.S. federal income tax consequences of the merger. This summary does not address non-U.S., state or local tax consequences of the merger or any U.S. tax
consequences (e.g., estate or gift tax) other than U.S. federal income tax consequences of the merger; nor does it address any consequences under the unearned income Medicare contribution tax on net investment income. We urge you to consult your
own tax advisor to determine the particular tax consequences to you (including the application and effect of any state, local or non-U.S. income and other tax laws) of the receipt of cash in exchange for
shares of our common stock pursuant to the merger, in light of your individual circumstances.
If a partnership (including any entity or arrangement
treated as a partnership for U.S. federal income tax purposes) holds our common stock, the tax treatment of a partner will generally depend on the status of the partner and activities of the partner and partnership. If you are a partner of a
partnership holding our common stock, you should consult your own tax advisor.
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For purposes of this discussion, we use the term U.S. holder to mean a beneficial owner of our
common stock that is:
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a citizen or individual resident of the United States for U.S. federal income tax purposes;
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a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or
organized in or under the laws of the United States, any state thereof or the District of Columbia;
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an estate which is subject to U.S. federal income tax on all of its income regardless of source; or
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a trust if it (i) is subject to the primary supervision of a court within the United States and one or more
U.S. persons have the authority to control all substantial decisions of the trust or (ii) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.
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A non-U.S. holder is a beneficial owner (other than a partnership) of our common stock that is not a
U.S. holder.
U.S. Holders
The receipt of cash in exchange for shares of our common stock pursuant to the merger will be a taxable transaction to U.S. holders for U.S. federal income tax
purposes. A U.S. holder will generally recognize gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount of cash received and the U.S. holders adjusted tax basis for the shares surrendered.
Generally, such gain or loss will be capital gain or loss. Gain or loss will be determined separately for each block of shares (i.e., shares acquired at the same cost in a single transaction) that is surrendered for cash pursuant to, or in
connection with, the merger.
Capital gain recognized from the disposition of our common stock held for more than one year will be long-term capital gain
and may be subject in the case of certain non-corporate U.S. holders, including individuals, to preferential rates. The deductibility of capital losses is subject to limitations.
Under the Code, a U.S. holder of our common stock may be subject, under certain circumstances, to information reporting on the cash received pursuant to the
merger unless such U.S. holder is a corporation or other exempt recipient. In addition, the exchange agent generally is required to and will withhold (currently at a rate of 24%) on all payments to which a stockholder or other payee is entitled,
unless the stockholder or other payee (i) is a corporation or comes within other exempt categories and demonstrates this fact or (ii) provides its correct tax identification number (social security number, in the case of an individual, or
employer identification number, in the case of other stockholders), certifies under penalties of perjury that the number is correct (or properly certifies that it is awaiting a taxpayer identification number), certifies as to no loss of exemption
from backup withholding and otherwise complies with the applicable requirements of the backup withholding rules. Each of our U.S. holders and, if applicable, each other payee, should complete, sign and return to the exchange agent for the merger the
Internal Revenue Service Form W-9 that each stockholder will receive with the letter of transmittal following completion of the merger to provide the information and certification necessary to avoid backup
withholding, unless an applicable exemption exists and is proved in a manner satisfactory to the exchange agent. Backup withholding is not an additional tax. Generally, any amounts withheld under the backup withholding rules described above can be
refunded or credited against a payees U.S. federal income tax liability, if any, provided that the required information is furnished to the Internal Revenue Service in a timely manner. You should consult your own tax advisor as to the
qualifications for exemption from backup withholding and the procedures for obtaining such exemption.
Non-U.S. Holders
Any gain realized on the receipt of cash pursuant to the merger by a
non-U.S. holder generally will not be subject to U.S. federal income tax unless:
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the gain is effectively connected with a U.S. trade or business of such
non-U.S. holder (and, if an applicable income tax treaty so provides, is also attributable to a permanent establishment or a fixed
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base in the United States maintained by such non-U.S. holder), in which case the non-U.S. holder generally will be
taxed at the U.S. federal income tax rates applicable to United States persons (as defined under the Code) and, if the non-U.S. holder is a foreign corporation, the additional branch profits tax (at a 30%
rate, or as reduced by an applicable income tax treaty) may also apply;
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the non-U.S. holder is a nonresident alien individual who is present in
the United States for a period or periods aggregating 183 days or more in the taxable year of the merger and certain other conditions are met, in which case the non-U.S. holder may be subject to a flat 30% tax
on the non-U.S. holders net gain realized in the merger, which gain may be offset by U.S. source capital losses of the non-U.S. holder, if any, or which tax may be
reduced or eliminated by an applicable income tax treaty; or
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we are or have been a United States real property holding corporation for U.S. federal income tax
purposes and the non-U.S. holder owned more than 5% of our common stock at any time during the five years preceding the merger, in which case the non-U.S. holder
generally will be taxed on the holders net gain realized in the merger at the U.S. federal income tax rates applicable to United States persons (as defined under the Code). We do not believe that we are or have been a United States real
property holding corporation for U.S. federal income tax purposes.
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Information reporting and, depending on the circumstances,
backup withholding (currently at a rate of 24%) will apply to the cash received pursuant to the merger, unless the non-U.S. holder certifies under penalties of perjury that it is a non-U.S. holder (and the payor does not have actual knowledge or reason to know that the holder is a United States person as defined under the Code) or such holder otherwise establishes an exemption. Each non-U.S. holder should complete, sign and return to the exchange agent a certification of foreign status on the applicable Internal Revenue Service Form W-8 (including all
attachments) to provide the information and certification necessary to avoid backup withholding, unless an applicable exemption exists and is proved in a manner satisfactory to the exchange agent. Backup withholding is not an additional tax and any
amounts withheld under the backup withholding rules may be refunded or credited against a non-U.S. holders U.S. federal income tax liability, if any, provided that such
non-U.S. holder furnishes the required information to the Internal Revenue Service in a timely manner. You should consult your own tax advisor as to the qualifications for exemption from backup withholding and
the procedures for obtaining such exemption.
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THE MERGER AGREEMENT
This section of the proxy statement describes the material provisions of the merger agreement but does not purport to describe all the provisions of the
merger agreement. The following summary is qualified in its entirety by reference to the complete text of the merger agreement, which is included as Annex A to this proxy statement and is incorporated by reference herein in its
entirety. We urge you to read the full text of the merger agreement because it is the legal document that governs the merger. The merger agreement has been included to provide you with information regarding its terms. It is not intended to provide
you with any other factual information about us. Such information can be found elsewhere in this proxy statement and in the other public filings we make with the SEC, which are available without charge at www.sec.gov.
Structure of the Merger
On
September 22, 2019, we entered into the merger agreement with Parent and Merger Sub, providing for the acquisition of us by Parent. If all of the conditions to the merger are satisfied or waived in accordance with the merger agreement, Merger
Sub will merge with and into us. Upon consummation of the merger, the separate corporate existence of Merger Sub will cease, and we will continue as the surviving corporation and become a wholly-owned subsidiary of Parent.
Effective Time of the Merger
The merger will become effective upon the filing of a certificate of merger with the Secretary of State of the State of Delaware or such later time as agreed
upon by Parent and us and specified in the certificate of merger. The closing of the merger will occur on a date specified by us and Parent, which will be no later than the third business day after the conditions to effect the merger set forth in
the merger agreement have been satisfied or waived, or such other date as Parent and we may select. Although we expect to complete the merger within the first calendar quarter of 2020, and in any event, before March 13, 2020, we cannot specify
when, or assure you that, we, Parent and Merger Sub will satisfy or waive all conditions to the merger.
Certificate of
Incorporation and Bylaws
At the effective time of the merger, our certificate of incorporation and bylaws will be amended in their entirety to be as
set forth in the exhibits to the merger agreement.
Board and Officers of the Surviving Corporation
The directors of Merger Sub immediately prior to the effective time of the merger will be the initial directors of the surviving corporation. Our
currently-serving directors will cease to serve as directors of the surviving corporation as of the effective time of the merger. Our officers will be the initial officers of the surviving corporation.
Consideration to Be Received in the Merger
At the effective time of the merger, each share of our common stock issued and outstanding immediately prior to the effective time of the merger will
automatically be cancelled and converted into the right to receive $3.00 in cash, net of applicable tax withholding, without interest, other than (a) shares of common stock owned by us (as treasury stock or otherwise), Parent or Merger Sub, or
any of our or their respective direct or indirect wholly-owned subsidiaries, immediately prior to the effective time of the merger, all of which will be cancelled without any payment and (b) shares held by our stockholders who have properly
exercised their statutory rights of appraisal in accordance with Section 262. See APPRAISAL RIGHTS beginning on page 66 of this proxy statement.
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Parent and the surviving corporation will be entitled to deduct and withhold from the consideration
otherwise payable to any holder of shares of our common stock such amounts as may be required to be deducted and withheld with respect to making such payment under the Code and the applicable Treasury Regulations issued pursuant thereto, or any
other applicable state, local or foreign tax law. Any consideration payable with respect to certain securities issued to employees of our Israeli subsidiaries will be delivered to an Israeli trustee to be held or released in accordance with Israeli
tax law.
Payment Procedures
Parent will deposit, or cause to be deposited, with a paying agent reasonably acceptable to us concurrently with the effective time of the merger to which this
proxy statement relates, such funds which, when taken together with a portion of the cash available on our balance sheet (after taking into account our outstanding expenses and subject to approval of our lenders) is sufficient to pay the aggregate
merger consideration to be paid by Parent at the closing of the merger.
As promptly as reasonably practicable after the effective time of the merger, but
in no event later than the third business day after the effective time of the merger, Parent shall cause the paying agent to send, to each holder of record of shares of our common stock as of the effective time of the merger, a letter of transmittal
and instructions for use in the exchange of such shares for the merger consideration. Each holder will be entitled to receive the merger consideration specified in the merger agreement, upon surrender to the paying agent of the stock certificates
representing such shares together with a valid letter of transmittal or, in the case of book-entry shares, upon receipt by the paying agent of an agents message with respect to such shares. No interest will be paid or will accrue
on the cash payable upon the surrender or transfer of any stock certificate or book-entry share to the paying agent. Any portion of such funds that remains unclaimed by the holders of shares of our Common Stock twelve months after the effective time
of the merger will be returned to Parent upon demand.
You should not send your Arotech stock certificates to the paying agent until you have received
transmittal materials from the paying agent. Please do not return your Arotech stock certificates with the enclosed proxy, and please do not forward your stock certificates to the paying agent without a letter of transmittal.
If any of your certificates which immediately prior to the effective time represented outstanding shares of our common stock have been lost, stolen or
destroyed, you will be entitled to obtain the merger consideration after you make an affidavit of that fact and, if required by Parent or the paying agent, post a bond.
If you hold shares of our common stock through a broker or other nominee, you must follow the procedures provided by your broker or other nominee in order to
receive the merger consideration in respect of such shares.
Restricted Stock Awards and RSUs
At the effective time of the merger, all restrictions and vesting requirements with respect to each share of restricted stock granted that is outstanding
immediately prior to the effective time, including those held by our directors, shall at the effective time, lapse and all such shares of restricted stock shall be vested in full. Each holder of shares of our restricted stock will be treated as a
holder of shares of our common stock and receive the merger consideration, or $3.00 in cash, for such shares, net of applicable tax withholding, without interest, for each share of the underlying common stock.
At the effective of the merger, each RSU in respect of shares that is outstanding immediately prior to the effective time, including those held by our
executive officers, shall fully vest (including RSUs subject to performance-based vesting) and shall be cancelled and converted automatically into the right to receive, as soon as reasonably practicable after the effective time of the merger (but no
later than the first regularly scheduled payroll date that is at least five business days after the effective time), an amount in cash without interest, equal to the product of (i) the merger consideration, or $3.00, and (ii) the total
number of our shares underlying such RSU, net of applicable tax withholding.
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The paying agent will deliver any consideration payable with respect to certain securities issued to
employees of our Israeli subsidiaries to a trustee to be held or released in accordance with Israeli tax law.
Representations and Warranties
The merger agreement contains representations and warranties that we made to Parent and Merger Sub regarding, among other things:
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corporate matters, including due organization, power and qualification;
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our capitalization and indebtedness;
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authorization, execution, delivery and performance and the enforceability of the merger agreement;
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the absence of conflicts with our or our subsidiaries organizational documents, with applicable law and
with certain contracts, and the absence of creation of certain liens on our or our subsidiaries property or assets, in each case as a result of the delivery and performance of the merger agreement and the consummation of the transactions
contemplated thereby;
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the accuracy of information contained in registration statements, reports, forms, and other documents that we
have filed with the SEC since January 1, 2017, and the compliance of our filings with applicable requirements of the Securities Act of 1933, as amended, and the Exchange Act, and, with respect to financial statements contained therein,
preparation in accordance with GAAP applied on a consistent basis;
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maintenance and effectiveness of disclosure controls and procedures and internal control over financial
reporting;
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the absence of material liabilities, except for liabilities set forth on our June 30, 2019 balance sheet,
liabilities incurred after June 30, 2019 in the ordinary course of business, or liabilities incurred in connection with the transactions contemplated by the merger agreement;
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compliance with laws and orders;
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our employee benefits plans, employment law and labor matters;
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the absence of certain changes and events since December 31, 2018, including the absence of changes that
have had or would reasonably be expected to have a Material Adverse Effect (as defined below) on us;
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litigation, governmental investigations or other legal proceedings since January 1, 2017;
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the filing of tax returns, status of unpaid taxes and other tax matters;
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our owned and leased real property and personal property;
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our intellectual property;
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our material contracts and government contracts and grants;
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the special committees receipt of an opinion from B. Riley, which, as of the date of the merger agreement,
had not been withdrawn, revoked or modified;
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the absence of undisclosed brokers fees;
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the absence of undisclosed related-party transactions;
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the absence of any stockholder rights plans; and
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our customers and vendors.
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In addition, Parent and Merger Sub made representations and warranties to us regarding, among other things:
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corporate matters, including due organization, power and qualification;
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authorization, execution, delivery and performance and the enforceability of the merger agreement;
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the absence of conflicts with organizational documents, with applicable law and with certain contracts, and of
creation of certain liens on the property or assets of Parent or Merger Sub, in each case as a result of the delivery and performance of the merger agreement and the consummation of the transactions contemplated thereby;
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litigation or other legal proceedings;
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the absence of undisclosed brokers fees;
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Parents ability to finance the merger and its rights under the Equity Commitment Letter;
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operation and ownership of Merger Sub;
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absence of ownership of Arotech common stock;
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the solvency of Parent and the surviving corporation in the merger, after giving effect to the merger and the
other transactions contemplated by the merger agreement;
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the absence of any required governmental antitrust filings and consents;
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lack of foreign ownership; and
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certain disclaimers relating to the due diligence investigation of Parent and Merger Sub in connection with the
merger and the other transactions contemplated by the merger agreement.
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Many of our representations and warranties are qualified by a
Material Adverse Effect standard. Pursuant to the merger agreement, a Material Adverse Effect means, with respect to us, any change, effect, event, occurrence, circumstance, condition or development that, individually or in the
aggregate, (x) has or would reasonably be expected to prevent or materially impair or delay our ability to consummate the transactions contemplated by the merger agreement or (y) has or would reasonably be expected to have a Material
Adverse Effect on the business, assets, properties, liabilities, results of operations or financial condition of the Company and its Subsidiaries taken as a whole, except that, for the purposes of clause (y), a Material Adverse Effect will not be
deemed to include changes, effects, events, occurrences, circumstances, conditions or developments arising out of, relating to or resulting from:
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changes affecting the equity, credit or financial markets, changes affecting interest or exchange rates, or any
suspension of trading in securities;
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changes in domestic, foreign or global economic conditions generally;
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changes in generally accepted accounting principles or any change in any applicable law;
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changes in geopolitical conditions, including any outbreak or escalation of war or any act of terrorism;
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general conditions in the industry in which we or our subsidiaries operate;
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the announcement of the transactions contemplated by the merger agreement;
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any decline in the market price or trading volume of Arotech common stock;
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weather conditions or other acts of God;
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Parents public announcement of its plans with respect to our business;
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the availability or cost of any financing to Parent or Merger Sub;
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the existence or threat of any litigation, in and of itself (but, for the avoidance of doubt, not the facts or
circumstances underlying such litigation), brought by any current or former stockholders arising from
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allegations of a breach of fiduciary duty or other violation of applicable law relating to the merger agreement or the transactions contemplated thereby; and
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any action taken by us or any of our subsidiaries by the terms of the merger agreement.
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This description of the representations and warranties is included to provide investors with information regarding the terms of the merger agreement. It is
not intended to provide any other factual information about us. The assertions embodied in the representations and warranties are qualified by information in a confidential disclosure letter that we provided to Parent in connection with signing the
merger agreement. The disclosure letter contains information that modifies, qualifies and creates exceptions to the representations and warranties. Accordingly, you should not rely on the representations and warranties as characterizations of the
actual state of facts at the time they were made or otherwise.
Covenants Relating to the Conduct of Our Business
From September 22, 2019, until the effective time of the merger, except as expressly contemplated by the merger agreement or as required by applicable
law, or with the prior written consent of Parent (which Parent has agreed to not unreasonably withhold, condition or delay), we have agreed, and have agreed to cause our subsidiaries, to use commercially reasonable effects to conduct our business in
the ordinary course of business consistent with past practice in all material respects and to comply in all material respects with applicable law.
We
have also agreed that, subject to certain exceptions, from September 22, 2019, until the effective time of the merger, we will not, and will not permit any of our subsidiaries to, do any of the following without the prior written consent of
Parent (which Parent has agreed to not unreasonably withhold, condition or delay):
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amend our or our subsidiaries certificates of incorporation or bylaws or other organizational documents;
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issue, sell, pledge, encumber, dispose of, grants, transfer, or reclassify, split, combine or reclassify our or
our subsidiaries securities;
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make, declare, set aside or pay any dividend or distribution in respect of, or enter into any contract with
respect to the voting of, any shares of our or our subsidiaries capital stock, other than dividends from a wholly-owned subsidiary;
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grant or announce any grants of any options, RSUs, restricted stock or other equity-based awards or interests;
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issue, sell, or otherwise permit to become outstanding any additional shares of our securities, other than
issuances relating to the exercise or conversion our equity awards outstanding as of September 22, 2019;
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incur, create, guarantee or otherwise become liable for any indebtedness for borrowed money or issue any options,
warrants, or rights to acquire any debt securities (except short-term debt incurred to fund our operations);
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forgive any indebtedness owed to us;
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sell, lease or otherwise dispose of any of our assets having a fair market value in excess of $250,000
individually or $500,000 in the aggregate;
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disclose any trade secrets;
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acquire any assets or business or make any investment in excess of $100,000 individually or $250,000 in the
aggregate;
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establish, adopt, waive, amend or terminate any employee benefit plans, except as required by applicable law, in
effect as of September 22, 2019 or hire any new employee earning more than $150,000 annually or terminate any employee other than employees with a title junior to the vice president;
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adopt, modify or enter into any collective bargaining agreement;
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waive or release any noncompetition, non-solicitation or other
restrictive covenant obligation;
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increase the compensation (including severance, deferred compensation, change-in-control and retention compensation) or benefits of any current or former employee, director, officer or other services provider, except as required by applicable law or the terms of a benefit plan
or contract in effect on the date hereof, or make, announce or grant any bonus or adopt, amend, modify, terminate or enter into any new employment, retention or severance agreement with, any current or former employee, director, officer or other
service provider whose annual base compensation is in excess of $300,000;
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make, change, or rescind any material election relating to taxes except in the ordinary course of business,
settle or compromise any material proceeding relating to taxes or surrender any right to obtain a material tax refund or credit, offset or other reduction in tax liability, enter into any closing agreement with respect to any material taxes, change
any method of reporting material income or deductions for federal income tax purposes from those employed in the preparation of its U.S. federal income tax returns for the taxable year ended December 31, 2017, except, in each case, as is
required by applicable law or GAAP, or request any tax rulings from any governmental entity;
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make any change in financial accounting policies or procedures;
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announce, implement or effectuate any plant closing or mass layoff;
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commence, pay, discharge, settle, compromise or satisfy any pending or threatened proceedings outside of the
ordinary course of business if such settlement would (i) require payment by us in excess of $50,000 in any individual case or series of related cases or $100,000 in the aggregate with all other proceedings, other than claims specifically
reserved against in our financial statements, (ii) involve injunctive or equitable relief or (iii) impose any material restrictions or changes on our business or operations;
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adopt a plan of merger, consolidation, reorganization, complete or partial liquidation, dissolution,
restructuring, recapitalization or other reorganization (except as permitted in the merger agreement) or file a petition in bankruptcy under any provisions of federal or state bankruptcy law or consent to the filing of any bankruptcy petition
against us;
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adopt or implement any stockholder rights agreement, poison pill or similar anti-takeover agreement
or plan;
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enter into any new line of business or abandon any existing line of business;
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make any commitment for capital expenditures in excess of $150,000 in the aggregate that would obligate us to pay
amounts after closing, except in a manner consistent with our budget;
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in any material respect, amend, modify, extend, renew or terminate any lease or enter into any new lease,
sublease, license or other agreement for the use or occupancy of any real property, except in the ordinary course of business consistent in all material respects with past practices;
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enter into, amend, modify, waive any material right under or terminate any material contracts or reduce or waive
any material payment right thereunder;
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enter into any related party transaction;
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cancel, terminate or allow to lapse without a commercially reasonable substitute policy therefor, or amend in any
material respect or enter into, any insurance policy, other than the renewal of an existing insurance policy or a commercially reasonable substitute therefor or as contemplated in the merger agreement;
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fail to maintain our real property, ordinary wear and tear excepted; or
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agree, authorize or commit in writing to do any of the foregoing.
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Go Shop Period
Between the date of the merger agreement and continuing until 12:01 a.m. New York City time on October 22, 2019 (the Solicitation Period End
Time), we had the right to, directly or indirectly:
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initiate, solicit, facilitate, whether publicly or otherwise, and encourage any acquisition proposal (as defined
below) or any inquiry, discussion, offer or request that constitutes, or could reasonably be expected to lead to an acquisition proposal;
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provide access to non-public information to any person pursuant to an
acceptable confidentiality agreement executed by the person receiving such non-public information; provided that we promptly provide or make available to Parent any
non-public information concerning us that is provided or made available to any such person and that was not previously provided or made available to Parent; and
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engage or enter into, continue or otherwise participate in any discussions or negotiations with any persons with
respect to any acquisition proposal or otherwise cooperate with, or assist or participate in, or facilitate, any such discussions or negotiations or any effort or attempt to make any acquisition proposal.
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Pursuant to the merger agreement, Parent was required not to, and was required to cause its respective affiliates not to, intentionally or materially
interfere with or prevent such negotiations and discussions.
Pursuant to the merger agreement, an acquisition proposal means any inquiry,
proposal or offer from any person or group of persons (other than Parent, Merger Sub or their respective affiliates) relating to, in a single transaction or series of related transactions:
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any direct or indirect acquisition, purchase or license of the assets or our business or any of our subsidiaries
that constitute 20% or more of the consolidated net revenues, consolidated net income or consolidated assets of the Company and our subsidiaries, taken as a whole;
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any direct or indirect acquisition, purchase or issuance (whether by merger, consolidation, spin-off, share exchange (including a split-off), business combination or similar transaction involving an acquisition of the Company) of 20% or more of any class or series of
our securities;
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any tender offer or exchange offer that if consummated would result in any person or group of persons
beneficially owning 20% or more of any class or series of our capital stock;
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any merger, reorganization, consolidation, share exchange, business combination, recapitalization, liquidation,
dissolution or similar transaction involving the Company (or any subsidiary or subsidiaries of the Company whose business constitutes 20% or more of the net revenues, net income or assets of the Company and its subsidiaries, taken as a whole); or
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any other transaction having a similar effect to those described immediately above.
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Go Shop End Time. At the Solicitation Period End Time (or, with respect to any Excluded Party (as defined below), until 12:01 A.M. New York City time
on November 6, 2019 (the Cut-Off Time)),
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we will, and will cause each of our directors, officers, representatives and affiliates to, immediately cease and
cause to be terminated any existing solicitation of, or discussions or negotiations with, any person (other than Parent and its affiliates) relating to any acquisition proposal or any inquiry, discussion, offer or request that could reasonably be
expected to lead to an acquisition proposal;
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we will as promptly as possible (and in any event within forty-eight (48) hours) send written notice of such
termination to any and all persons with whom we are terminating solicitations, discussions or negotiations; and
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we will as promptly as possible (and in any event within twenty-four (24) hours) terminate dataroom access
from any such person.
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No later than 24 hours after the Solicitation Period End Time, we are required to provide Parent with a
written summary of all material terms of any then-pending acquisition proposals that were made in writing by any Excluded Party. An Excluded Party is any person from which we receive, prior to the Solicitation Period End Time, a written
acquisition proposal that remains pending as of the Solicitation Period End Time, provided, that the special committee determines in good faith such acquisition proposal constitutes a superior proposal or that such acquisition proposal is
reasonably likely to lead to a superior proposal.
No Shop. From the Solicitation Period End Time (or, in the case of an Excluded Party, the Cut-Off Time) until the earlier of the effective time of the merger or the valid termination of the merger agreement, except as expressly permitted by the merger agreement, we are required not to (and will not
publicly announce any intention to), directly or indirectly:
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initiate, solicit, knowingly facilitate or knowingly encourage any inquiry, discussion negotiation, or request
with respect to, or the making of, any proposal or offer that could reasonably be expected to lead to, or that constitutes, any acquisition proposal (provided, that the foregoing shall not prohibit us from contacting any person who has made
an acquisition proposal solely for the purpose of clarifying such acquisition proposal and any material terms thereof);
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engage or enter into, continue or otherwise participate in any negotiations or discussions concerning, or
otherwise cooperate with, knowingly assist or participate in, knowingly facilitate or provide access to any non-public information or data or to our properties, books, records or personnel to any person
relating to an acquisition proposal;
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approve, endorse, enter into or recommend, or propose publicly to approve, endorse, enter into or recommend, any
acquisition proposal; or
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resolve or agree to take any of the foregoing actions.
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From the date of the merger agreement until the earlier of the effective time of the merger and the valid termination of the merger agreement, except as
expressly permitted by the merger agreement, we are required not to (and may not publicly announce any intention to), directly or indirectly, (x) execute or enter into any letter of intent, agreement in principle, merger agreement, acquisition
agreement or other agreement, understanding or arrangement relating to any acquisition proposal or any contract requiring us to abandon, terminate or fail to consummate the merger or the other transactions contemplated by the merger agreement, or
(y) resolve or agree to take any of the foregoing actions.
Superior Proposal. The merger agreement further provides that if, after the
Solicitation Period End Time (or, in the case of an Excluded Party, the Cut-Off Time), but prior to obtaining stockholder approval of the merger, we or our board receive a bona fide written acquisition
proposal that did not result from a material breach of the terms of our non-solicitation obligations under the merger agreement and the special committee determines in good faith, after consultation with its
financial advisors and outside legal counsel, that (i) such acquisition proposal constitutes a superior proposal (as defined below) or would reasonably be expected to lead to a superior proposal and (ii) the failure to take the actions
described in the list immediately below would be inconsistent with our special committees fiduciary duties to our stockholders, the merger agreement will not prevent us or our board from:
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providing access to our properties, books and records and providing information or data in response to a request
therefor by a person who has made such acquisition proposal; provided that (i) we have received from such person so requesting such information an acceptable confidentiality agreement and (ii) we have promptly provided or made
available to Parent any non-public information concerning us that is provided or made available to any such person and that was not previously provided or made available to Parent; or
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contacting and engaging in any negotiations or discussions with any person who has made such acquisition
proposal.
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Pursuant to the merger agreement, a superior proposal means any written acquisition proposal
(with all of the percentages included in the definition of acquisition proposal increased from 20% to 50%) that our board or special committee in good faith determines would, if consummated on its terms, result in a transaction that is more
favorable to our stockholders than the transactions contemplated in the merger agreement (taking into account any changes to the terms of the merger and the merger agreement proposed by Parent) and that is reasonably likely to be consummated in
accordance with its terms, taking into account all financial, legal, regulatory and other aspects and contingencies of the proposal that our board or special committee determines to be relevant.
From and after the Solicitation Period End Time (or, in the case of any Excluded Party, the Cut-Off Time) until
effective time of the merger, we are required to, within 24 hours after receiving an acquisition proposal or any inquiry or request that could reasonably be expected to lead to an acquisition proposal, (i) notify Parent in writing of such
acquisition proposal or such inquiry or request, including the material terms and conditions of the acquisition proposal and (ii) deliver to Parent copies of all written proposals, letters of interest, term sheets, commitment letters, proposed
definitive documents or similar documents relating to any acquisition proposal received by us from any such offeror. From and after the Solicitation Period End Time (or, in the case of any Excluded Party, the
Cut-Off Time) until effective time of the merger, we are required to keep Parent reasonably informed in all material respects of any material developments with respect to any such acquisition proposal (and any
subsequent amendments or modifications thereto) and deliver copies of revised or newly received documents received by us from any such offeror to Parent within 24 hours of receipt. We are required to, within 24 hours following a determination by the
special committee that an acquisition proposal is a superior proposal, notify Parent of such determination.
Except as set forth in the merger agreement,
prior to obtaining stockholder approval of the merger, neither our board nor the special committee thereof is permitted to make an Adverse Company Board Recommendation Change, meaning that they shall not do any of the following:
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withdraw, change, amend, modify or qualify or publicly propose to withdraw, change, amend, modify or qualify (in
a manner adverse to Parent or Merger Sub) the boards recommendation;
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fail to include the recommendation of the board that our stockholders vote to adopt the merger agreement in our
proxy statement;
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recommend the approval or adoption of, or approve or adopt, or publicly propose to recommend, approve or adopt,
any acquisition proposal;
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fail to recommend, in a Solicitation/Recommendation Statement on Schedule
14D-9, against any acquisition proposal subject to Regulation 14D under the Exchange Act within ten business days after commencement of such acquisition proposal;
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after the Solicitation Period End Time (or, in the case of an Excluded Party, the
Cut-Off Time), fail to recommend against any acquisition proposal that has been publicly made, proposed or communicated (and not publicly withdrawn) within ten business days of receipt of a written request
from Parent to do so; or
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after the Solicitation Period End Time (or, in the case of an Excluded Party, the
Cut-Off Time), fail to reaffirm the boards recommendation that our stockholders vote to adopt the merger agreement following an acquisition proposal having been publicly made, proposed or communicated
(and not publicly withdrawn) within ten business days of receipt of a written request from Parent to do so (provided that our board or the special committee shall not be required to make such reaffirmation more than one time with respect to any
given acquisition proposal unless there shall have been a publicly disclosed change regarding such acquisition proposal, and, provided, further, that such reaffirmation may include such additional disclosures as the Company reasonably determines to
be required under applicable securities laws).
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Notwithstanding the foregoing restrictions, if we receive any bona fide written
acquisition proposal at any time prior to stockholder approval of the merger, that does not result from a material breach of our non-solicitation
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obligations under the merger agreement and that the special committee has determined in good faith, after consultation with its financial advisors and outside legal counsel, if accepted, is a
superior proposal and that its failure to recommend that the board effect an Adverse Company Board Recommendation Change with respect to such acquisition proposal or terminate the merger agreement in order to enter into a definitive agreement with
respect to such acquisition proposal, would reasonably be expected to be inconsistent with its fiduciary duties to our stockholders, our board may, at any time prior to stockholder approval of the merger, make an Adverse Company Board Recommendation
Change with respect to such acquisition proposal or recommend any such acquisition proposal and terminate the merger agreement to enter into a definitive agreement with respect to such acquisition proposal, if all of the following conditions are
met:
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we have provided to Parent three business days prior written notice (the Superior Proposal Notice
Period), of our intention to make an Adverse Company Board Recommendation Change or termination with respect to such superior proposal, which specifies the material terms and conditions of such superior proposal; and
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if requested by Parent, we have been available to engage in good faith negotiations with Parent during the
Superior Proposal Notice Period, and caused our representatives to engage in good faith negotiations with Parents representatives during such notice period to enable revisions to the terms of the merger agreement in such a manner that would
eliminate the need for taking such action (and would cause such superior proposal to no longer constitute a superior proposal); and
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following the Superior Proposal Notice Period and after considering the results of any negotiations and giving
effect to any amendments or modifications made or agreed to in writing by Parent, if any, the special committee (after consultation with its financial advisor and outside legal counsel) shall have determined in good faith, that such superior
proposal continues to constitute a superior proposal; and
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if our board or the special committee determines to terminate the merger agreement pursuant to the foregoing, we
pay the applicable Company Termination Fee (as defined below) to Parent prior to or concurrently with such termination.
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Intervening
Events. In addition, notwithstanding the foregoing restrictions, upon the occurrence of any intervening event (as defined below), our board (at the recommendation of the special committee) may, at any time prior to stockholder approval of the
merger, make an Adverse Company Board Recommendation Change with respect to the intervening event, if all of the following conditions are met:
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we have provided to Parent three business days prior written notice (the Intervening Event Notice
Period), describing the material details of the intervening event and our intention to effect an Adverse Company Board Recommendation Change;
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if requested by Parent, we have been available to engage in good faith negotiations, and caused our
representatives to engage in good faith negotiations with Parents representatives, with Parent during the Intervening Event Notice Period in order to enable revisions to the terms of the merger agreement so that the failure to make an Adverse
Company Board Recommendation Change would no longer be inconsistent with our directors exercise of their fiduciary duties under applicable law; and
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the special committee has determined in good faith, after consultation with our financial advisors and outside
legal counsel, that the failure to make an Adverse Company Board Recommendation Change would be inconsistent with our directors fiduciary duties under applicable law.
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Pursuant to the merger agreement, intervening event means any positive material event or development or material change in circumstances with
respect to the Company, that (i) was not actually known or reasonably foreseeable to the special committee or our board as of, or prior to, the date of the merger agreement and (ii) does not relate to any acquisition proposal or superior
proposal; in each case other than (A) an effect resulting from a breach of the merger agreement by us; (B) changes in the market price or trading volume of shares of our common stock, in and of itself; or (C) the fact that we meet or
exceed any internal or published projections,
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forecasts, budgets, plans for any period, in and of itself; provided, that in no event shall the receipt, existence or terms of an acquisition proposal be taken into account in determining
whether an intervening event has occurred.
Stockholders Meeting
Subject to the provisions described under Go Shop Period above, the merger agreement requires us, as soon as reasonably practicable, to take all
action necessary to duly call, give notice of, convene and hold a meeting of our stockholders to vote to adopt the merger agreement.
Nothing prevents us
from postponing or adjourning the special meeting if (i) there are holders of an insufficient number of shares present or represented by proxy at the special meeting to constitute a quorum at the special meeting or to adopt this Agreement or
(ii) the special committee has determined in good faith after consultation with its outside legal counsel that it is required to postpone or adjourn the special meeting by applicable law, order or a request from the SEC; provided, that,
without the prior written consent of Parent (such consent not to be unreasonably withheld, conditioned or delayed), the special meeting will not be postponed or adjourned by more than ten days unless a lengthier period is required by applicable law,
order or a request from the SEC.
Publicity
Neither we nor Parent will issue or cause the publication of any press release or other public announcement with respect to the merger agreement or the
transactions contemplated by the merger agreement without the prior consent of the other party, unless (i) such statements are (A) required by applicable law or stock exchange rules, (B) not inconsistent with previously made joint
statements, or (C) ordinary course communications made by Parent, Merger Sub or their affiliates regarding the merger agreement and the transactions contemplated thereby to their existing or prospective partners, equity holders, members,
managers or investors of any affiliates thereof who are subject to confidentiality restrictions, or (ii) the press release or other public announcement (A) relates to an acquisition proposal, a superior proposal, an Adverse Company Board
Recommendation Change or an intervening event, or (B) relates to a dispute between the parties regarding the merger agreement or the transactions contemplated thereby.
Indemnification and Insurance
The merger agreement provides that, for six years from and after the effective time of the merger, all rights to indemnification, advancement and exculpation
existing as of September 22, 2019, in favor of our current and former directors and officers, as provided in our charter documents or certain specified contracts, will be assumed by the surviving corporation and will remain in full force and
effect in accordance with their terms. Additionally, from and after the effective time of the merger, Parent and the surviving corporation will indemnify, to the fullest extent permitted under applicable law, our current and former directors and
officers with respect to all acts or omissions by them in their capacities as our directors or officers in connection with the process resulting in and the adoption of the merger agreement and the consummation of the transactions contemplated
thereby, and will advance, subject to certain conditions, and reimburse to such persons certain costs and expenses incurred in connection with the investigation and defense of certain legal claims.
In addition, with respect to claims for wrongful acts which occurred before or at the effective time of the merger (including in connection with the
transactions contemplated by the merger agreement), Parent has agreed to cause the surviving corporation to maintain in effect, for no less than six years after the merger, our current directors and officers liability insurance policy (provided that
the surviving corporation may substitute policies containing materially the same coverage, amounts and key terms and conditions that are not less advantageous to our directors and officers than our current policy). However, if the total premiums of
such insurance coverage exceed 300% of the last annual premium, Parent and the surviving corporation will not be required to pay the excess, and will be obligated to obtain a policy with the greatest coverage available for a cost not exceeding such
amount. In lieu thereof, we may purchase, prior to the effective time of the merger, a six-year prepaid run-off
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or tail policy with a claims period of six years from the effective time of the merger, with at least the same coverage and amounts and containing terms and conditions that are not
less advantageous to our directors and officers than our current policy with respect to similar claims and full prior acts coverage for all acts and omissions taking place before the tail becomes effective.
Conditions to the Merger
Our
and Parents and Merger Subs obligations to effect the merger are subject to the satisfaction (or waiver, if permissible under applicable law) of the following conditions:
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our stockholders must have adopted the merger agreement; and
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the absence of any law (whether temporary, preliminary or permanent) by a governmental entity which prohibits,
restrains or otherwise enjoins the consummation of the merger.
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In addition, the obligations of Parent and Merger Sub to effect the
merger are subject to the satisfaction or waiver of the following conditions:
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our representations and warranties in the merger agreement must be true and correct in all respects when made and
as of immediately prior to the effective time of the merger or as of a particular date, in the case of representations and warranties that are made as of a particular date, except (other than for certain fundamental representations and warranties)
where the failure to be true and correct, without giving effect to any materiality qualifications, would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;
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certain fundamental representations and warranties made by us in the merger agreement must be true and correct in
all respects when made and as of immediately prior to the effective time of the merger or as of a particular date, in the case of representations and warranties made as of a particular date, except, in certain cases, for de minimis
inaccuracies and except that representations and warranties not qualified by materiality concepts must be true and correct in all material respects when made and as of immediately prior to the effective time of the merger or as of a particular date,
in the case of representations and warranties made as of a particular date;
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certain of our representations and warranties in the merger agreement regarding absence of certain changes or
events that are qualified by a Material Adverse Effect standard must be true and correct as of the date specified therein;
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our representations and warranties in the merger agreement regarding capitalization and indebtedness must be true
and correct in all respects when made and as of immediately prior to the effective time of the merger or as of a particular date, in the case of representations and warranties made as of a particular date, except for such failures to be true and
correct that, individually or in the aggregate, would not reasonably be expected to cause more than a de minimis increase in the aggregate amounts payable by Merger Sub or Parent in the transactions contemplated by the merger agreement;
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we must have performed in all material respects all covenants, required to be performed by or complied with by us
under the merger agreement;
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there shall not have occurred a Material Adverse Effect;
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Parent must receive an officers certificate certifying as to the satisfaction of the six conditions
described immediately above; and
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we must have received payoff letters relating to the repayment and release of liens with respect to certain
specified loans in connection with the consummation of the merger.
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In addition, our obligation to effect the merger is subject to the
satisfaction or waiver of the following conditions:
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certain fundamental representations and warranties of Parent and Merger Sub in the merger agreement to the extent
qualified by materiality, Material Adverse Effect on Parents or Merger Subs ability to consummate
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the transactions contemplated by the merger agreement or other qualifications based on the word material or similar phrases therein shall be true and correct in all respects when made
and as of immediately prior to the effective time of the merger, and certain fundamental representations and warranties of Parent and Merger Sub in the merger agreement to the extent not so qualified must be true and correct in all material respects
when made and as of immediately prior to the effective time of the merger, and all other representations and warranties of Parent and Merger Sub in the merger agreement must be true and correct in all respects (without giving effect to any
materiality qualifications) when made and as of immediately prior to the effective time of the merger (or as of a particular date, in the case of representations and warranties that are made as of a particular date) except where the failure to be
true and correct would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Parents or Merger Subs ability to consummate the transactions contemplated by the merger agreement;
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Parent and Merger Sub must have performed in all material respects all obligations, and complied in all material
respects with the agreements and covenants, required to be performed by or complied with by them under the merger agreement;
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we must receive an officers certificate certifying as to the satisfaction of the two conditions described
immediately above; and
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Parent must, immediately prior to the effective time of the merger, pay the payoff amount in accordance with the
terms of the payoff letters delivered to Parent.
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Neither we, Parent nor Merger Sub can provide assurance that all of the conditions of
the merger will be satisfied or waived by the party permitted to do so.
Financing
The consummation of the merger is not subject to any financing condition. Concurrently with the execution of the merger agreement, Greenbriar Equity Fund IV,
L.P., and certain of its affiliated investment funds provided an Equity Commitment Letter to Parent, pursuant to which they have committed to provide to Parent, on the terms and subject to the conditions set forth in the Equity Commitment Letter, at
or immediately prior to the closing of the merger, an equity contribution of an aggregate amount up to $84,500,000. We are a third party beneficiary to the Equity Commitment Letter.
Termination
The merger
agreement may be terminated at any time prior to the effective time of the merger:
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by the mutual written consent of us and Parent;
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by either us or Parent upon written notice to the other party if:
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the merger has not been consummated by 5:00 p.m. Eastern Time on March 13, 2020 (the End Date),
provided that such right to terminate shall not be available to either party if that partys breach of the merger agreement has been the cause of, or resulted in, the failure of the merger agreement to be consummated on or before such date;
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any order by a governmental entity of competent jurisdiction has been issued permanently restraining, enjoining
or otherwise prohibiting the consummation of the merger, provided that the party seeking to terminate the merger agreement shall use such efforts as are required under the merger agreement to prevent, oppose or remove such restraint, injunction or
other prohibition; or
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the required vote of our stockholders to adopt the merger agreement is not obtained at the meeting of our
stockholders where such vote is taken;
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prior to the adoption of the merger agreement by our stockholders, if our board or the special committee shall
have made an Adverse Company Board Recommendation Change or if we shall have
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committed a Willful Breach (as defined in the merger agreement) of any of our obligations under the non-solicitation provisions of the merger agreement;
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if we breach any representation, warranty, covenant or agreement in the merger agreement such that the conditions
to the obligations of Parent and Merger Sub to effect the merger described in THE MERGER AGREEMENTConditions to the Merger beginning on page 59 of this proxy statement would not be satisfied by the End Date, and Parent has
given us at least 30 days written notice and the opportunity to cure such breach prior to the End Date; or
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prior to the adoption of the merger agreement by our stockholders, if our board or the special committee
authorizes us, in accordance with the no solicitation provisions of the merger agreement, to make an Adverse Company Board Recommendation Change in connection with another acquisition proposal or recommend another acquisition proposal,
provided that we pay to Parent the termination fee described below; or
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if Parent or Merger Sub breaches any representation, warranty, covenant or agreement in the merger agreement such
that the conditions to our obligations to effect the merger described in THE MERGER AGREEMENTConditions to the Merger beginning on page 59 of this proxy statement, would not be satisfied by the End Date, and we have given
Parent at least 30 days written notice and the opportunity to cure such breach prior to the End Date.
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Termination Fee
In general,
all fees and expenses incurred by a party to the merger agreement will be paid by the party incurring such fees and expenses, provided that, if the merger agreement is terminated in certain circumstances described below, we will be required to pay
to Parent a termination fee as follows:
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upon termination of the merger agreement in accordance with its terms (i) by us to accept a superior
proposal, (ii) by Parent upon an Adverse Company Board Recommendation Change or if we shall have committed a Willful Breach (as defined in the merger agreement) of any of our obligations under the
non-solicitation provisions of the merger agreement, or (iii) in certain other specified circumstances where we enter into an alternative acquisition within twelve months after termination of the merger
agreement, we are required to pay Parent the Company Termination Fee;
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in the event the merger agreement is terminated by Parent (i) in response to an Adverse Company Board
Recommendation Change or (ii) because we commit a Willful Breach (as defined in the merger agreement) of any of our obligations under the non-solicitation provisions of the merger agreement, we are
required to pay Parent an amount equal to that required to reimburse Parent, Merger Sub, and their respective affiliates for all reasonable and documented out-of-pocket
fees and expenses incurred in connection with the merger agreement, up to $800,000.
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The merger agreement also provides that Parent will
pay us a fee of $3,200,000 if we terminate the merger agreement because (i) Parent or Merger Sub has breached or failed to perform any of its representations, warranties, covenants, or agreements under the merger agreement such that a closing
condition is not satisfied or (ii) Parent fails to close the merger when required to do so under the merger agreement.
Amendment and Waiver
The
parties may amend the merger agreement at any time before or after our stockholders vote to adopt the merger agreement. However, after our stockholder approval has been obtained, the parties may not amend the merger agreement without obtaining
further approval by our stockholders if, by law or NASDAQ regulation, such amendment would require further stockholder approval.
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Specific Performance
The parties to the merger agreement agreed that they will be entitled to an injunction, specific performance and other equitable relief to prevent breaches of
the merger agreement and to enforce and specifically the terms and provisions of the merger agreement, this being in addition to any other remedy to which they are entitled at law or in equity.
Governing Law
The merger
agreement is governed by the laws of the State of Delaware.
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VOTING AGREEMENT
The following is a summary of the material terms of a voting agreement entered into in connection with the execution of the merger agreement. The following
summary is qualified in its entirety by reference to the complete text of such agreement, a copy of which is included as Annex B to this proxy statement. You should carefully read the complete text of the voting agreement.
In connection with the execution of the merger agreement, on September 22, 2019, Jon B. Kutler, the chairman of our board, in his capacity as
the beneficial owner of 1,887,897 shares of Arotech common stock representing approximately 7.1% of the shares outstanding as of September 22, 2019, entered into a voting agreement with Parent and us pursuant to which he agreed to vote shares
beneficially owned by him in favor of the adoption of the merger agreement and against any alternative acquisition proposal other than the merger, and not to transfer his shares during the pendency of the merger. The voting agreement terminates upon
the termination of the merger agreement.
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PROPOSAL 2NONBINDING COMPENSATION PROPOSAL
In accordance with Section 14A of the Exchange Act and the applicable SEC rules issued thereunder, we are providing holders of our common stock with the
opportunity to cast a nonbinding, advisory vote on the compensation that may be payable to certain of our named executive officers in connection with the merger, which we refer to as the nonbinding compensation proposal. As required by
those rules, we are asking holders of common stock to vote on the adoption of the following resolution:
RESOLVED, that the compensation that may be
paid or become payable to the Companys named executive officers in connection with the merger, as disclosed in the table in the section titled Golden Parachute CompensationQuantification of Potential Payments to the Companys
Named Executive Officers in Connection with the Transaction beginning on page 42 of this proxy statement, including the associated narrative discussion, and the agreements or understandings pursuant to which such compensation may be paid or
become payable, is hereby APPROVED.
Vote Required and Board Recommendation
The vote on executive compensation payable in connection with the merger is a vote separate and apart from the vote to adopt the merger agreement. Because the
vote is advisory in nature only, it will not be binding on us or the board. Accordingly, because we are contractually obligated to pay the compensation, such compensation will be paid or become payable, subject only to the conditions applicable
thereto, if the merger is consummated and regardless of the outcome of the advisory vote.
The approval of the nonbinding compensation proposal requires
the affirmative vote of the holders of a majority of the votes properly cast for the nonbinding compensation proposal, assuming a quorum is present. Accordingly, (1) an abstention from voting, (2) a stockholders failure to submit a
proxy card or to vote in person at the special meeting, or (3) a broker non-vote will have no effect on the outcome of the voting with respect to the nonbinding compensation proposal.
Our board unanimously recommends that you vote FOR this proposal.
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PROPOSAL 3ADJOURNMENT OF THE SPECIAL MEETING
In the event that the number of shares of Arotech common stock present in person and represented by proxy on the adjournment proposal at the special meeting
and voting FOR the adoption of the merger agreement is insufficient to adopt the merger agreement, we may move to adjourn the special meeting in order to enable our board to solicit additional proxies in favor of the adoption of the
merger agreement. In that event, we will ask our stockholders to vote only upon the adjournment proposal and not on the other proposals discussed in this proxy statement. If the adjournment is for more than 30 days, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the meeting.
Vote Required and Board Recommendation
Approval of the proposal to adjourn the special meeting to a later date and to solicit additional proxies if there are not sufficient votes in favor of the
adoption of the merger agreement at the time of the special meeting requires the affirmative vote of the holders of a majority of the votes properly cast for the adjournment proposal, assuming a quorum is present. Accordingly, (1) an abstention
from voting, (2) a stockholders failure to submit a proxy card or to vote in person at the special meeting, or (3) a broker non-vote will have no effect on the outcome of the voting with
respect to the adjournment proposal.
Our board unanimously recommends that you vote FOR this proposal.
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APPRAISAL RIGHTS
If the merger agreement is adopted by Arotech stockholders, stockholders who do not vote in favor of the proposal to adopt the merger agreement and who
properly exercise and perfect their demand for appraisal of their shares in accordance with Section 262 will be entitled to appraisal rights in connection with the merger.
The following discussion is not a complete statement of the law pertaining to appraisal rights under the DGCL and is qualified in its entirety by the full
text of Section 262, which is attached as Annex D to this proxy statement. The following summary does not constitute any legal or other advice nor does it constitute a recommendation that stockholders
exercise their appraisal rights under Section 262. Only a holder of record of shares of Arotech common stock is entitled to demand appraisal for the shares registered in that holders name. A person having a beneficial interest in shares
of Arotech common stock held of record in the name of another person, such as a broker, bank or other nominee, must act promptly to cause the record holder to follow the steps summarized below properly and in a timely manner to perfect appraisal
rights. If you hold your shares of Arotech common stock through a broker, bank or other nominee and you wish to exercise appraisal rights, you should consult with your broker, bank or other nominee.
Under Section 262, holders of shares of Arotech common stock who do not vote in favor of the proposal to adopt the merger agreement, who continuously are
the record holders of such shares through the effective time, and who otherwise follow the procedures set forth in Section 262 will be entitled to the appraisal by the Delaware Court of Chancery of the fair value of their shares of Arotech
common stock, exclusive of any element of value arising from the accomplishment or expectation of the merger, together with interest, if any, to be paid upon the amount determined to be the fair value of the shares by the Delaware Court of Chancery.
At any time before the entry of judgment in the proceedings, the surviving company may pay to each stockholder entitled to appraisal an amount in cash, in which case interest will accrue thereafter as provided herein only upon the sum of
(1) the difference, if any, between the amount so paid and the fair value of the shares as determined by the Delaware Court of Chancery, and (2) interest theretofore accrued, unless paid at that time.
Under Section 262, where a merger agreement is to be submitted for adoption at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, must notify each of its stockholders entitled to appraisal rights that appraisal rights are available and include in the notice a copy of Section 262. This proxy statement constitutes Arotechs notice to its
stockholders that appraisal rights are available in connection with the merger, and the full text of Section 262 is attached as Annex D to this proxy statement. In connection with the merger, any holder of Arotech
common stock who wishes to exercise appraisal rights, or who wishes to preserve such holders right to do so, should review Annex D carefully. Failure to strictly comply with the requirements of
Section 262 in a timely and proper manner will result in the loss of appraisal rights under the DGCL. A stockholder who loses his, her or its appraisal rights will be entitled to receive the merger consideration described in
the merger agreement. Moreover, because of the complexity of the procedures for exercising the right to seek appraisal of shares of Arotech common stock, if a stockholder considers exercising such rights, Arotech urges such stockholder to seek the
advice of legal counsel.
Stockholders wishing to exercise the right to seek an appraisal of their shares of Arotech common stock must do
ALL of the following:
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the stockholder must NOT vote (in person or by proxy) in favor of the proposal to adopt the merger
agreement. Because a proxy that is signed and submitted but does not otherwise contain voting instructions will, unless revoked, be voted in favor of the proposal to adopt the merger agreement, a stockholder who submits a proxy and who wishes to
exercise appraisal rights must submit a proxy with instructions to vote against the proposal to adopt the merger agreement or to abstain;
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the stockholder must deliver to Arotech a written demand for appraisal to Arotech Corporation, 1229 Oak Valley
Drive, Ann Arbor, MI 48108, Attn: Yaakov Har-Oz, Senior Vice President, General Counsel and Secretary, before the vote on the proposal to adopt the merger agreement at the Special Meeting is taken;
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the stockholder must continuously hold the shares of Arotech common stock from the date of making the demand
through the effective time. A stockholder will lose appraisal rights if the stockholder transfers the shares before the effective time; and
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the stockholder or the surviving company must file a petition in the Delaware Court of Chancery requesting a
determination of the fair value of the shares within 120 days after the effective time. The surviving company is under no obligation to file any such petition in the Delaware Court of Chancery and has no intention of doing so. Accordingly, it is the
obligation of Arotech stockholders to take all necessary action to perfect their appraisal rights in respect of shares of Arotech common stock within the time prescribed in Section 262.
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Delivering a Demand for Appraisal
Any holder of shares of Arotech common stock wishing to exercise appraisal rights must deliver to Arotech, before the vote on the adoption of the merger
agreement at the Special Meeting is taken at which the proposal to adopt the merger agreement will be submitted to the stockholders, a written demand for the appraisal of the stockholders shares, and that stockholder must not submit a blank
proxy or vote (in person or by proxy) in favor of the proposal to adopt the merger agreement. A holder of shares of Arotech common stock wishing to exercise appraisal rights must hold of record the shares on the date the written demand for appraisal
is made and must continue to hold the shares of record through the effective time. A proxy that is submitted and does not contain voting instructions will, unless revoked, be voted in favor of the proposal to adopt the merger agreement, and it will
constitute a waiver of the stockholders right of appraisal and will nullify any previously delivered written demand for appraisal. Therefore, a stockholder who submits a proxy and who wishes to exercise appraisal rights must submit a proxy
containing instructions to vote against the proposal to adopt the merger agreement or to abstain from voting on the proposal to adopt the merger agreement. Neither voting (in person or by proxy) against the proposal to adopt the merger agreement nor
abstaining from voting or failing to vote on the proposal to adopt the merger agreement will, in and of itself, constitute a written demand for appraisal satisfying the requirements of Section 262. The written demand for appraisal must be in
addition to and separate from any proxy or vote on the proposal to adopt the merger agreement. A proxy or vote against the proposal to adopt the merger agreement will not constitute a demand. A stockholders failure to make the written demand
prior to the taking of the vote on the proposal to adopt the merger agreement at the Special Meeting of Arotech stockholders will constitute a waiver of appraisal rights.
Only a holder of record of shares of Arotech common stock is entitled to demand appraisal for the shares registered in that holders name. A demand for
appraisal in respect of shares of Arotech common stock should be executed by or on behalf of the holder of record, and must reasonably inform Arotech of the identity of the holder and state that the person intends thereby to demand appraisal of the
holders shares in connection with the merger. If the shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, such demand must be executed by or on behalf of the record owner in such capacity, and if the
shares are owned of record by more than one person, as in a joint tenancy and tenancy in common, the demand must be executed by or on behalf of all joint owners. An authorized agent, including an authorized agent for 2 or more joint owners, may
execute a demand for appraisal on behalf of a holder of record; however, the agent must identify the record owner or owners and expressly disclose that, in executing the demand, the agent is acting as agent for the record owner or owners. A record
owner, such as a broker, bank or other nominee, who holds shares of our common stock as a nominee for others, may exercise his, her or its right of appraisal with respect to shares of Arotech common stock held for one or more beneficial owners,
while not exercising this right for other beneficial owners. In that case, the written demand should state the number of shares of Arotech common stock as to which appraisal is sought. Where no number of shares of Arotech common stock is expressly
mentioned, the demand will be presumed to cover all shares of Arotech common stock held in the name of the record owner. If a stockholder holds shares of Arotech common stock through a broker who in turn holds the shares through a central securities
depository nominee such as Cede & Co., a demand for appraisal of such shares must be made by or on behalf of the depository nominee and must identify the depository nominee as record owner.
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STOCKHOLDERS WHO HOLD THEIR SHARES IN BROKERAGE OR BANK ACCOUNTS OR OTHER NOMINEE FORMS, AND WHO WISH TO
EXERCISE APPRAISAL RIGHTS, SHOULD CONSULT WITH THEIR BROKERS, BANKS AND NOMINEES, AS APPLICABLE, TO DETERMINE THE APPROPRIATE PROCEDURES FOR THE BROKER, BANK OR OTHER NOMINEE HOLDER TO MAKE A DEMAND FOR APPRAISAL OF THOSE SHARES. A PERSON HAVING A
BENEFICIAL INTEREST IN SHARES HELD OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A BROKER, BANK OR OTHER NOMINEE, MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO FOLLOW PROPERLY AND IN A TIMELY MANNER THE STEPS NECESSARY TO PERFECT APPRAISAL
RIGHTS.
All written demands for appraisal pursuant to Section 262 should be mailed or delivered to Arotech Corporation, 1229 Oak Valley Drive, Ann
Arbor, Michigan 48108, Attn: Yaakov Har-Oz, Senior Vice President, General Counsel and Secretary, and must be delivered before the vote on the merger agreement is taken at the Special Meeting and should be
executed by, or on behalf of, the record holder of the shares of Arotech common stock.
Any holder of Arotech common stock who has not commenced an
appraisal proceeding or joined that proceeding as a named party shall have the right to withdraw his, her or its demand for appraisal and to accept the consideration offered pursuant to the merger agreement within 60 days after the effective
date of the merger. However, any such attempt to withdraw the demand made more than 60 days after the effective time will require written approval of the surviving company. No appraisal proceeding in the Delaware Court of Chancery will be
dismissed without the approval of the Delaware Court of Chancery, and such approval may be conditioned upon such terms as the Delaware Court of Chancery deems just; provided, however, that the foregoing shall not affect the right of any stockholder
who has not commenced an appraisal proceeding or joined that proceeding as a named party to withdraw such stockholders demand for appraisal and to accept the terms offered upon the merger within 60 days after the effective date of the
merger. If the surviving company does not approve a request to withdraw a demand for appraisal, or if the Delaware Court of Chancery does not approve the dismissal of an appraisal proceeding, in each case when that approval is required, the
stockholder will be entitled to receive only the appraised value of his, her or its shares of Arotech common stock determined in any such appraisal proceeding, which value may be less than, equal to or more than the merger consideration offered
pursuant to the merger agreement.
Notice by the Surviving Company
If the merger is completed, within 10 days after the effective time, the surviving company will notify each holder of Arotech common stock who has
complied with Section 262, and who has not voted in favor of the proposal to adopt the merger agreement, that the merger has become effective and the effective date thereof.
Filing a Petition for Appraisal
Within 120 days after the effective time, but not thereafter, the surviving company or any holder of Arotech common stock who has complied with
Section 262 and is entitled to appraisal rights under Section 262 may commence an appraisal proceeding by filing a petition in the Delaware Court of Chancery, with a copy served on the surviving company in the case of a petition filed by a
stockholder, demanding a determination of the fair value of the shares held by all stockholders entitled to appraisal. The surviving company is under no obligation to and has no present intention to file a petition, and holders should not
assume that the surviving company will file a petition or initiate any negotiations with respect to the fair value of shares of Arotech common stock. Accordingly, any holders of Arotech common stock who desire to have their shares appraised
should initiate all necessary action to perfect their appraisal rights in respect of shares of Arotech common stock within the time and in the manner prescribed in Section 262. The failure of a holder of Arotech common stock to file such a
petition within the period specified in Section 262 could nullify the stockholders previous written demand for appraisal.
Within 120 days
after the effective time, any holder of Arotech common stock who has complied with the requirements for exercise of appraisal rights will be entitled, upon written request, to receive from the surviving
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company a statement setting forth the aggregate number of shares not voted in favor of the proposal to adopt the merger agreement and with respect to which Arotech has received demands for
appraisal and the aggregate number of holders of such shares. The surviving company must give this statement to the requesting stockholder within 10 days after receipt of the written request for such a statement or within 10 days after the
expiration of the period for delivery of demands for appraisal, whichever is later. A beneficial owner of shares held either in a voting trust or by a nominee on behalf of such person may, in such persons own name, file a petition seeking
appraisal or request from the surviving company the foregoing statements. As noted above, however, the demand for appraisal can only be made by a stockholder of record.
If a petition for an appraisal is duly filed by a holder of shares of Arotech common stock and a copy thereof is served upon the surviving company, the
surviving company will then be obligated within 20 days to file with the Delaware Register in Chancery a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom
agreements as to the value of their shares have not been reached. After notice to the stockholders as required by the court, the Delaware Court of Chancery is empowered to conduct a hearing on the petition to determine those stockholders who have
complied with Section 262 and who have become entitled to appraisal thereunder. The Delaware Court of Chancery may require the stockholders who demanded payment for their shares to submit their stock certificates to the Delaware Register in
Chancery for notation thereon of the pendency of the appraisal proceedings, and if any stockholder fails to comply with the direction, the Delaware Court of Chancery may dismiss the proceedings as to such stockholder. Additionally, because Arotech
common stock will have been publicly listed on the NASDAQ immediately prior to the effective time of the merger, the Delaware Court of Chancery is required under Section 262 to dismiss the proceedings as to all holders of such shares who are
otherwise entitled to appraisal rights unless (1) the total number of shares entitled to appraisal exceeds 1% of the outstanding shares of Arotech common stock or (2) the value of the consideration provided in the merger for such total
number of shares of common stock exceeds $1 million.
Determination of Fair Value
After determining the holders of Arotech common stock entitled to appraisal, the Delaware Court of Chancery will appraise the fair value of the shares of
Arotech common stock, exclusive of any element of value arising from the accomplishment or expectation of the merger, together with interest, if any, to be paid upon the amount determined to be the fair value. The appraisal proceeding is conducted
in accordance with the rules of the Delaware Court of Chancery, including any rules specifically governing appraisal proceedings. In determining fair value, the Delaware Court of Chancery will take into account all relevant factors. Unless the court
in its discretion determines otherwise for good cause shown, interest from the effective date of the merger through the date of payment of the judgment will be compounded quarterly and will accrue at 5% over the Federal Reserve discount rate
(including any surcharge) as established from time to time during the period between the effective date of the merger and the date of payment of the judgment. At any time before the entry of judgment in the proceedings, the surviving company may pay
to each stockholder entitled to appraisal an amount in cash, in which case interest will accrue thereafter as provided herein only upon the sum of (1) the difference, if any, between the amount so paid and the fair value of the shares as
determined by the Delaware Court of Chancery, and (2) interest theretofore accrued, unless paid at that time. In Weinberger v. UOP, Inc. (which we refer to as Weinberger) the Delaware Supreme Court
discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise
admissible in court should be considered, and that [f]air price obviously requires consideration of all relevant factors involving the value of a company. The Delaware Supreme Court stated that, in making this
determination of fair value, the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts that could be ascertained as of the date of the merger that throw any light on future
prospects of the merged corporation. Section 262 provides that fair value is to be exclusive of any element of value arising from the accomplishment or expectation of the merger. In
Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that such exclusion is a narrow exclusion [that] does not encompass known elements of
value, but which rather applies
-69-
only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Delaware Supreme Court also stated that elements of future value,
including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.
Upon application by the surviving company or by any holder of Arotech common stock entitled to participate in the appraisal proceeding, the Delaware Court of
Chancery may, in its discretion, proceed to trial upon the appraisal prior to the final determination of the stockholders entitled to an appraisal. Any holder of shares of Arotech common stock whose name appears on the verified list and who has
submitted such stockholders stock certificates, if any, to the Delaware Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that such stockholder is not entitled to appraisal
rights. The Delaware Court of Chancery will direct the payment of the fair value of shares of Arotech common stock, together with interest, if any, by the surviving company to the stockholders entitled thereto. Payment will be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and in the case of holders of shares of Arotech common stock represented by certificates upon the surrender to the surviving company of such stockholders certificates.
Stockholders considering seeking appraisal should be aware that the fair value of their shares as so determined by the Delaware Court of Chancery could be
more than, the same as or less than the consideration they would receive pursuant to the merger if they did not seek appraisal of their shares and that an opinion of an investment banking firm as to the fairness from a financial point of view of the
consideration payable in a merger is not an opinion as to, and does not in any manner address, fair value under Section 262. Although Arotech believes that the merger consideration is fair, no representation is made as to the outcome of the
appraisal of fair value as determined by the Delaware Court of Chancery, and stockholders should recognize that such an appraisal could result in a determination of a value higher or lower than, or the same as, the merger consideration. Neither
Arotech nor Parent anticipates offering more than the merger consideration to any stockholder of Arotech exercising appraisal rights, and each of Arotech and Parent reserves the right to assert, in any appraisal proceeding that, for purposes of
Section 262, the fair value of a share of Arotech common stock is less than the merger consideration. If a petition for appraisal is not timely filed, then the right to an appraisal will cease. The costs of the appraisal proceedings (which do
not include attorneys fees or the fees and expenses of experts) may be determined by the Delaware Court of Chancery and taxed upon the parties as the Delaware Court of Chancery deems equitable under the circumstances. Upon application of a
stockholder, the Delaware Court of Chancery may also order that all or a portion of the expenses incurred by a stockholder in connection with an appraisal, including, without limitation, reasonable attorneys fees and the fees and expenses of
experts, be charged pro rata against the value of all the shares entitled to be appraised.
If any stockholder who demands appraisal of shares of Arotech
common stock under Section 262 fails to perfect, or loses his or her appraisal rights, or successfully withdraws such demand for appraisal, the stockholders shares of Arotech common stock will be deemed to have been converted at the
effective time into the right to receive the merger consideration applicable to the shares, net of applicable tax withholding, without interest. A stockholder will fail to perfect, or lose, his or her appraisal rights, or effectively withdraw a
demand for appraisal, if no petition for appraisal is filed within 120 days after the effective time or if the stockholder delivers to the surviving company a written withdrawal of the holders demand for appraisal and an acceptance of the
merger consideration in accordance with Section 262.
From and after the effective time, no stockholder who has demanded appraisal rights will be
entitled to vote Arotech common stock for any purpose, or to receive payment of dividends or other distributions on the stock, except dividends or other distributions on the holders shares of Arotech common stock, if any, payable to
stockholders of Arotech of record as of a time prior to the effective time. As noted above, if no petition for an appraisal is filed, or if the stockholder delivers to the surviving company a written withdrawal of the demand for an appraisal and an
acceptance of the merger consideration, either within 60 days after the effective time or thereafter with the written approval of the surviving company, then the right of such stockholder to an appraisal
-70-
will cease. Once a petition for appraisal is filed with the Delaware Court of Chancery, however, the appraisal proceeding may not be dismissed as to any stockholder of Arotech without the
approval of the Delaware Court of Chancery, and such approval may be conditioned upon such terms as the Delaware Court of Chancery deems just; provided, however, that the foregoing shall not affect the right of any stockholder who has not commenced
an appraisal proceeding or joined that proceeding as a named party to withdraw such stockholders demand for appraisal and to accept the terms offered upon the merger within 60 days after the effective date of the merger.
Failure to comply strictly with all of the procedures set forth in Section 262 will result in the loss of a stockholders statutory appraisal
rights. Consequently, any stockholder of Arotech wishing to exercise appraisal rights is encouraged to consult legal counsel before attempting to exercise those rights.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial ownership of shares of Arotech common stock as of October 23, 2019 for
(i) each person known by us to beneficially own more than 5.0% of Arotech common stock, (ii) each of our directors and each of our named executive officers listed in the Summary Compensation Table under the caption Executive
Compensation of our Form 10-K for the fiscal year ended December 31, 2018, and (iii) all of our directors and executive officers as a group.
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|
|
|
|
|
|
|
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Name and Address of Beneficial Owner(1)
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Shares
Beneficially
Owned(2)(3)
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Percentage of
Total Shares
Outstanding(3)
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Named Executive Officers and Directors
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Jon B. Kutler
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1,887,897
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(4)
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7.1
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%
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Kenneth W. Cappell
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137,647
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(5)
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*
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Lawrence F. Hagenbuch
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63,747
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(6)
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*
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James J. Quinn
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41,933
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(7)
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|
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*
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Dean M. Krutty
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172,305
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(8)
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|
|
*
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Kelli L. Kellar
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20,041
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(9)
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*
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|
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|
|
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All of our directors and executive officers as a group (6 persons)
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2,323,570
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(10)
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8.7
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%
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|
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|
|
|
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5% Stockholders
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Cannell Capital LLC
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1,650,587
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(11)
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6.2
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%
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Dimensional Fund Advisors LP
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1,952,736
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(12)
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7.4
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%
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(1)
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Unless otherwise indicated in these footnotes, the address of each named beneficial owner is in care of Arotech
Corporation, 1229 Oak Valley Drive, Ann Arbor, Michigan 48108.
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(2)
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Unless otherwise indicated in these footnotes, each of the persons or entities named in the table has sole
voting and sole investment power with respect to all shares shown as beneficially owned by that person, subject to applicable community property laws.
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(3)
|
Based on 26,665,240 shares of common stock outstanding as of October 23, 2019. For purposes of determining
beneficial ownership of our common stock, owners of options exercisable or restricted stock units that vest within 60 days of October 23, 2019 are considered to be the beneficial owners of the shares of common stock for which such securities
are exercisable. The percentage ownership of the outstanding common stock reported herein is based on the assumption (expressly required by the applicable rules of the SEC) that only the person whose ownership is being reported has exercised his
options for shares of common stock.
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(4)
|
Jon B. Kutler and his wife are directors of Admiralty Partners, Inc. (API), which owns 1,579,984
shares. The principal place of business for API is 68-1052 Honokaope Way, Kamuela, Hawaii 96743. Mr. and Mrs. Kutler are also settlors and trustees of two trusts that between them own an
additional 224,879 shares. Accordingly, Mr. and Ms. Kutler have shared voting and dispositive power with respect to 1,804,863 shares. Mr. and Mrs. Kutler disclaim beneficial ownership of these shares except to the extent of their
respective voting and/or dispositive power. Mr. Kutler also holds 59,485 shares directly and 23,549 unvested restricted shares. All information in this footnote and in the text to which this footnote relates other than information relating
directly to Mr. Kutler is based on a Schedule 13D filed by API and certain of its related entities and persons, including Mr. Kutler, with the SEC on February 3, 2016, as amended on February 26, 2016 and February 13,
2019, and Forms 3, 4, and 5 filed by Mr. Kutler.
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(5)
|
Consists of 114,098 shares owned directly by Mr. Cappell and 23,549 unvested restricted shares.
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(6)
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Consists of 40,198 shares owned directly by Mr. Hagenbuch and 23,549 unvested restricted shares.
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(7)
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Consists of 18,384 shares owned directly by Adm. Quinn and 23,549 unvested restricted shares.
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(8)
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Consists of 172,305 shares owned directly by Mr. Krutty. Does not include 65,000 RSUs granted in 2019, the
vesting of which is subject to future tenure and performance criteria.
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-72-
(9)
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Consists of 20,041 shares owned directly by Ms. Kellar. Does not include 36,000 RSUs granted in 2019, the
vesting of which is subject to future tenure and performance criteria.
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(10)
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Includes 94,196 shares of unvested restricted stock. Does not include 101,000 RSUs, the vesting of which is
subject to future tenure and performance criteria.
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(11)
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Based on information set forth in a Schedule 13G/A filed February 14, 2019. The stockholders address
is 245 Meriwether Circle, Alta, WY 83414.
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(12)
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Based on information set forth in a Schedule 13G filed February 8, 2019. The stockholders address is
Building One, 6300 Bee Cave Road, Austin, TX 78746.
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-73-
FUTURE STOCKHOLDER PROPOSALS
If the merger is consummated, we do not expect to hold an annual meeting of stockholders in 2020. If the merger is not consummated, you will continue to be
entitled to attend and participate in our annual meetings of stockholders, and we will hold a 2020 annual meeting of stockholders, in which case we will provide notice of or otherwise publicly disclose the date on which the 2020 annual meeting will
be held. If the 2020 annual meeting of stockholders is held, stockholder proposals will be eligible for consideration for inclusion in the proxy statement and form of proxy for the Companys 2020 annual meeting of stockholders in accordance with Rule 14a-8 under the Exchange Act, as described below.
If the 2020 annual meeting of
stockholders is held, stockholders who wish to present proposals pursuant to Rule 14a-8 promulgated under the Exchange Act for consideration at our 2020 annual meeting of stockholders are
required to submit proposals to the Company that are received by us on or before the close of business on November 23, 2019 and such stockholders must follow the other procedures required
by Rule 14a-8 of the Exchange Act.
Any proposals should be mailed to:
Arotech Corporation
1229 Oak Valley Drive
Ann Arbor, MI 48108
-74-
HOUSEHOLDING
The SECs rules permit us to deliver a single proxy statement to one address shared by two or more of our stockholders. This delivery method is referred
to as householding and can result in significant cost savings. We would deliver only one proxy statement to multiple stockholders who share an address unless we received contrary instructions from the impacted stockholders prior to the
mailing date. We agree to deliver promptly, upon written request, a separate copy of the proxy statement, to any stockholders at the shared address to which a single copy of those documents was delivered. If you prefer to receive separate copies of
the proxy statement and Annual Report, contact Arotech Corporation, 1229 Oak Valley Drive, Ann Arbor, MI, 48108, Attn: Yaakov Har-Oz, Senior Vice President, General Counsel and Secretary. If you and other
residents at your mailing address are registered stockholders and you received more than one copy of this proxy statement, but you wish to receive only one copy of our annual report and proxy statement or notice of Internet availability of proxy,
you may request, in writing, that we eliminate these duplicate mailings. To request the elimination of duplicate copies, please contact Arotech Corporation, 1229 Oak Valley Drive, Ann Arbor, MI, 48108, Attn: Yaakov
Har-Oz, Senior Vice President, General Counsel and Secretary.
-75-
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC under the Exchange Act.
Our filings with the U.S. Securities and Exchange Commission are also available to the public from commercial document retrieval services and at the web site
maintained by the SEC at www.sec.gov and our wesbite, www.arotech.com.
If you have any questions about this proxy statement, the special meeting or the
merger or need assistance with the voting procedures, you should contact our proxy solicitor at:
Alliance Advisors LLC
200 Broadacres Drive, 3rd Floor
Bloomfield, NJ 07003
Telephone: (855) 973-0093
-76-
INCORPORATION BY REFERENCE
The SEC allows us to incorporate by reference into this Proxy Statement documents we file with the SEC. This means that we can disclose important
information to you by referring you to those documents. The information incorporated by reference is considered to be a part of this Proxy Statement, and later information that we filed with the SEC as specified below will update and supersede that
information. Except to the extent that information is deemed furnished and not filed pursuant to securities laws and regulations, we incorporate by reference the following filings:
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The Companys 2018 Annual Report on Form 10-K, filed on
March 7, 2019;
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The Companys Quarterly Reports on Form 10-Q for the quarters ended
March 31, 2019 and June 30, 2019, filed on May 9, 2019 and August 8, 2019, respectively; and
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The Companys Current Reports on Form 8-K as filed on March 6,
2019, April 19, 2019, April 25, 2019, May 7, 2019, May 8, 2019, August 7, 2019 and September 23, 2019.
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Statements contained in this proxy statement regarding the contents of any contract or other document, are not necessarily complete and each such statement is
qualified in its entirety by reference to that contract or other document filed as an exhibit with the SEC.
The information contained in this proxy
statement speaks only as of the date indicated on the cover of this proxy statement unless the information specifically indicates that another date applies.
We have not authorized anyone to give you any information or to make any representation about the proposed merger or us that is different from or adds to
the information contained in this proxy statement or in the documents we have publicly filed with the SEC. Therefore, if anyone does give you any different or additional information, you should not rely on it.
-77-
Annex A
AGREEMENT AND PLAN OF MERGER
by and among
AROTECH
CORPORATION,
ARGONAUT INTERMEDIATE, INC.
and
ARGONAUT MERGER
SUB, INC.
Dated as of September 22, 2019
TABLE OF CONTENTS
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Page
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Article I. THE MERGER
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A-2
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Section 1.1
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The Merger
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A-2
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Section 1.2
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Closing
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A-2
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Section 1.3
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Effective Time
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A-2
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Section 1.4
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Organizational Documents of the Surviving Corporation
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A-2
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Section 1.5
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Directors
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A-2
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Section 1.6
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Officers
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A-3
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Article II. CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES
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A-3
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Section 2.1
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Effect on Capital Stock
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A-3
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Section 2.2
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Treatment of Company Equity Awards
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A-4
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Section 2.3
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Certain Adjustments
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A-5
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Section 2.4
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Exchange of Certificates
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A-5
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Section 2.5
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Further Action
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A-8
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Article III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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A-8
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Section 3.1
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Organization
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A-8
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Section 3.2
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Capital Stock and Indebtedness
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A-9
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Section 3.3
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Corporate Authority Relative to this Agreement; Consents and Approvals; No Violation
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A-10
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Section 3.4
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SEC Filings; Reports and Financial Statements
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A-11
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Section 3.5
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Internal Controls and Procedures
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A-12
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Section 3.6
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No Undisclosed Liabilities
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A-13
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Section 3.7
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Compliance with Law; Permits
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A-13
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Section 3.8
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Environmental Matters
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A-14
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Section 3.9
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Employee Benefit Plans
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A-15
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Section 3.10
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Absence of Certain Changes or Events
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A-16
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Section 3.11
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Litigation
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A-17
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Section 3.12
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Tax Matters
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A-17
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Section 3.13
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Employment and Labor Matters
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A-19
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Section 3.14
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Real Property
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A-20
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Section 3.15
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Intellectual Property
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A-21
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Section 3.16
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Material Contracts
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A-23
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Section 3.17
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Government Contracts
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A-25
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Section 3.18
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Government Grants
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A-25
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Section 3.19
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Opinion
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A-25
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Section 3.20
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Finders or Brokers
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A-26
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Section 3.21
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Related Person Transactions
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A-26
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Section 3.22
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Insurance Policies
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A-26
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Section 3.23
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No Rights Agreement
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A-26
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Section 3.24
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Customers and Vendors
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A-26
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Section 3.25
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Independent Investigation
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A-27
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Article IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
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A-27
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Section 4.1
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Organization
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A-27
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Section 4.2
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Corporate Authority Relative to this Agreement; Consents and Approvals; No Violation
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A-27
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Section 4.3
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Litigation
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A-28
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A-i
TABLE OF CONTENTS
(contd)
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Page
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Section 4.4
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Finders or Brokers
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A-28
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Section 4.5
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Funding
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A-28
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Section 4.6
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Operations and Ownership of Merger Sub
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A-29
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Section 4.7
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Ownership of Shares
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A-29
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Section 4.8
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Certain Agreements
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A-29
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Section 4.9
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Equity Commitment Letter
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A-29
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Section 4.10
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Solvency
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A-30
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Section 4.11
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Antitrust
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A-30
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Section 4.12
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No Foreign Ownership or Control
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A-30
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Section 4.13
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No Other Information; Non-Reliance
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A-31
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Article V. COVENANTS AND AGREEMENTS
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A-31
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Section 5.1
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Conduct of Business
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A-31
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Section 5.2
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No Control of Other Partys Business
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A-34
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Section 5.3
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Operations and Ownership of Parent and Merger Sub
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A-34
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Section 5.4
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Access
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A-35
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Section 5.5
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No Solicitation
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A-35
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Section 5.6
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Stockholders Meeting
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A-40
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Section 5.7
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Securities Filings
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A-41
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Section 5.8
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Employee Matters
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A-42
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Section 5.9
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Regulatory Approvals; Efforts
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A-42
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Section 5.10
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102 Tax Ruling
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A-44
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Section 5.11
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Takeover Statutes
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A-44
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Section 5.12
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Public Announcements
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A-45
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Section 5.13
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Indemnification and Insurance
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A-45
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Section 5.14
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Transaction Litigation
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A-46
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Section 5.15
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Stock Exchange Delisting; Deregistration
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A-47
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Section 5.16
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Section 16 Matters
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A-47
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|
Article VI. CONDITIONS TO THE MERGER
|
|
|
A-47
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Section 6.1
|
|
Conditions to Each Partys Obligation to Effect the Merger
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|
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A-47
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|
Section 6.2
|
|
Conditions to Obligation of the Company to Effect the Merger
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|
|
A-47
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|
Section 6.3
|
|
Conditions to Obligation of Parent to Effect the Merger
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|
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A-48
|
|
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|
Article VII. TERMINATION
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Section 7.1
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Termination or Abandonment
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Section 7.2
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Effect of Termination
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Section 7.3
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Termination Fee
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Article VIII. MISCELLANEOUS
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Section 8.1
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No Survival
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Section 8.2
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Expenses; Transfer Taxes
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Section 8.3
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Counterparts; Effectiveness
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Section 8.4
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Governing Law; Jurisdiction
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Section 8.5
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Remedies
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Section 8.6
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WAIVER OF JURY TRIAL
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Section 8.7
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Notices
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Section 8.8
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Assignment; Binding Effect
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Section 8.9
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Severability
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TABLE OF CONTENTS
(contd)
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Page
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Section 8.10
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Entire Agreement
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Section 8.11
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Amendments; Waivers
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Section 8.12
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Headings
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Section 8.13
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No Third-Party Beneficiaries
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Section 8.14
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Interpretation
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Section 8.15
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Non-Recourse
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Section 8.16
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Definitions
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EXHIBITS:
Exhibit A
Support Agreement
Exhibit B Amended and Restated Certificate of Incorporation
Exhibit C Amended and Restated Bylaws
Exhibit D
Employee Matters
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this Agreement), dated as of September 22, 2019, is by and among Arotech Corporation, a
Delaware corporation (the Company), Argonaut Intermediate, Inc., a Delaware corporation (Parent), and Argonaut Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Parent
(Merger Sub).
WITNESSETH:
WHEREAS, Parent desires to acquire the Company, on the terms and subject to the conditions set forth in this Agreement;
WHEREAS, in furtherance of such acquisition of the Company by Parent, and on the terms and subject to the conditions set forth in this
Agreement and in accordance with the Delaware General Corporation Law (the DGCL), Merger Sub shall be merged with and into the Company (the Merger), with the Company surviving the Merger as a direct, wholly
owned Subsidiary of Parent;
WHEREAS, the Board of Directors of the Company (the Company Board) (upon the
recommendation of a special committee consisting of independent members of the Company Board not affiliated with Parent (the Special Committee)) has unanimously (i) determined that it is advisable and in the best interests of
the Company and its stockholders to enter into this Agreement and to consummate the Merger and the other transactions contemplated hereby, (ii) approved and declared advisable this Agreement, the Merger and the other transactions contemplated
hereby, in each case, in accordance with the DGCL and (iii) resolved to recommend the adoption of this Agreement by the stockholders of the Company (such recommendation by the Company Board, the Company Board Recommendation);
WHEREAS, the boards of directors of Parent and Merger Sub have each unanimously approved this Agreement and declared it advisable, and
have authorized Parent and Merger Sub, respectively, to enter into this Agreement and to consummate the transactions contemplated hereby, including the Merger;
WHEREAS, concurrently with the execution of this Agreement, and as a condition and inducement to the Companys willingness to enter into
this Agreement, Greenbriar Equity Fund IV, L.P., Greenbriar Equity Fund IV-A, L.P., and Greenbriar Co-Investment Partners IV, L.P. (collectively, the Equity
Investors) have duly executed and delivered to the Company an equity commitment letter, dated as of the date hereof, in favor of the Company with respect to certain obligations of Parent and Merger Sub arising under, or in connection with,
this Agreement (the Equity Commitment Letter);
WHEREAS, concurrently with the execution of this Agreement, and as a
condition and inducement to Parents and Merger Subs willingness to enter into this Agreement, Parent, Merger Sub and a certain stockholder of the Company are entering into a voting agreement in the form attached hereto as Exhibit
A (the Support Agreement) pursuant to which such stockholder is agreeing, among other things, subject to the terms and conditions of the Support Agreement, to vote its Shares (as defined herein) in favor of the adoption of
this Agreement, and to take certain other actions in furtherance of the transactions contemplated by this Agreement; and
WHEREAS, the
sole stockholder of Merger Sub has duly executed a written consent, effective immediately following execution of this Agreement, adopting this Agreement and approving the transactions contemplated hereby, including the Merger.
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NOW, THEREFORE, in consideration of the foregoing and the representations, warranties,
covenants and agreements contained herein, and intending to be legally bound hereby, Parent, Merger Sub and the Company agree as follows:
ARTICLE I.
THE MERGER
Section 1.1 The Merger. At the Effective Time, upon the terms and subject to the conditions set forth in this Agreement and in accordance with the DGCL, Merger Sub shall be merged with and into the Company,
whereupon the separate corporate existence of Merger Sub shall cease, and the Company shall continue as the surviving corporation in the Merger (the Surviving Corporation) and as a direct, wholly owned Subsidiary of Parent. The
effects of the Merger shall be as provided in the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the properties, rights, privileges, powers and franchises of the Company and Merger Sub shall
vest in the Surviving Corporation, and all debts, Liabilities and duties of the Company and Merger Sub shall become the debts, Liabilities and duties of the Surviving Corporation.
Section 1.2 Closing. The closing of the Merger (the Closing)
shall take place, (i) at 10:00 a.m. local time at the offices of Lowenstein Sandler LLP, 1251 Avenue of the Americas, New York, New York 10020 (or remotely via the electronic exchange of documents) as soon as practicable after, but no later
than the third (3rd) Business Day after, the satisfaction or waiver (to the extent permitted hereunder) of the conditions set forth in Article VI (other than those conditions that by their terms are to be satisfied at the Closing, but subject
to the satisfaction or waiver (to the extent permitted hereunder) of those conditions at the Closing) or (ii) at such other place, date and time as the Company and Parent may agree in writing. The date on which the Closing actually occurs is
referred to herein as the Closing Date.
Section 1.3 Effective Time. At the Closing, the Company shall file with the
Secretary of State of the State of Delaware a certificate of merger (the Certificate of Merger) in form and substance reasonably satisfactory to both the Company and Parent, executed in accordance with, and containing such
information as is required by, the relevant provisions of the DGCL in order to effect the Merger. The Merger shall become effective at such time as the Certificate of Merger has been duly filed with the Secretary of State of the State of Delaware or
at such later time as may be agreed between the parties and specified in the Certificate of Merger (such time is hereinafter referred to herein as the Effective Time).
Section 1.4 Organizational Documents of the Surviving Corporation.
(a) At the Effective Time, by virtue of the Merger and without any further action on the part of Merger Sub or the
Company, the certificate of incorporation of the Company shall be amended and restated in its entirety as set forth on Exhibit B hereto, and as so amended and restated shall be the certificate of incorporation of the
Surviving Corporation, until and if thereafter amended in accordance with the provisions thereof and applicable Law (subject to Section 5.13).
(b) At the Effective Time, by virtue of the Merger and without any further action on the part of Merger Sub or the
Company, the bylaws of Company shall be amended and restated in their entirety to read as set forth on Exhibit C hereto, and as so amended and restated shall be the bylaws of the Surviving Corporation, until and if thereafter amended in
accordance with the provisions thereof, the provisions of the amended and restated certificate of incorporation of the Surviving Corporation and applicable Law (subject to Section 5.13).
Section 1.5 Directors. Prior to the Effective Time, the Company shall use its
reasonable best efforts to deliver to Parent the resignation of each member of the Company Board, and such resignation shall be effective as of the Effective Time, and contingent upon the occurrence of the Closing. The directors of Merger Sub
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immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation and shall hold office until their respective successors are duly elected or appointed and
qualified, or their earlier death, resignation or removal, in accordance with the certificate of incorporation and bylaws of the Surviving Corporation or as otherwise provided by Law.
Section 1.6 Officers. The officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation and shall hold office until their respective successors are duly elected or appointed and qualified, or their earlier death, resignation or removal, in accordance with the
certificate of incorporation and by-laws of the Surviving Corporation or as otherwise provided by Law.
ARTICLE II.
CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES
Section 2.1 Effect on Capital Stock.
(a) At the Effective Time, by virtue of the Merger and without any further action on the part of Parent, the Company,
Merger Sub or the holders of any of the following securities:
(i) Conversion of Shares. Each
share of common stock of the Company, par value $0.01 per share (each, a Share), that is issued and outstanding immediately prior to the Effective Time, other than Cancelled Shares and Dissenting Shares, shall be automatically
converted into the right to receive $3.00 in cash (the Merger Consideration), net of applicable tax withholding, without interest, payable to the holder thereof upon surrender of such Shares in the manner provided in this
Article II. All of the Shares converted into the right to receive the Merger Consideration pursuant to this Article II shall, by virtue of the Merger and without any action on the part of the holder thereof, cease to be outstanding, be
cancelled and cease to exist, cease to have any rights with respect thereto and each holder of Shares outstanding immediately prior to the Effective Time that are represented by a valid certificate (a Certificate) or Shares
represented by book-entry immediately prior to the Effective Time (Book-Entry Shares), shall thereafter cease to have any rights with respect to such Shares except the right to receive the Merger Consideration into which the
Shares have been converted; provided, that any Section 102 Shares Consideration shall be paid to the 102 Trustee for distribution to the holders of the Section 102 Shares.
(ii) Cancellation of Parent, Merger Sub and Company Owned Shares. Each Share that is issued
immediately prior to the Effective Time and that is held in treasury by the Company and each Share that is issued and outstanding immediately prior to the Effective Time and that is owned, directly or indirectly, by the Company, Parent, Merger Sub
or any of their respective Subsidiaries (collectively, the Cancelled Shares) shall, by virtue of the Merger and without any action on the part of the holder thereof, be cancelled and shall cease to exist, cease to have any rights
with respect thereto and no consideration shall be delivered in exchange for such cancellation.
(iii) Conversion of Common Stock of Merger Sub. Each share of common stock, par value $0.01 per
share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be, without any action on the part of the holder of any capital stock of the Company, Parent or Merger Sub, automatically converted into and become one validly
issued, fully paid and nonassessable share of common stock, par value $0.01 per share, of the Surviving Corporation. From and after the Effective Time, all certificates representing the shares of common stock of Merger Sub shall evidence the number
of shares of common stock of the Surviving Corporation into which such shares have been so converted, until the same are surrendered for cancellation and exchange.
(b) Shares of Dissenting Stockholders.
(i) Notwithstanding anything in this Agreement to the contrary (but subject to
Section 2.1(b)(ii)), Shares issued and outstanding immediately prior to the Effective Time that are held
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by a holder who is entitled to demand and has properly demanded appraisal for such Shares in accordance with, and who complies in all respects with, Section 262 of the DGCL (such Shares, the
Dissenting Shares) shall not be converted into or represent the right to receive the Merger Consideration as described in Section 2.1(a)(i), but instead, at the Effective Time, by virtue of the Merger and
without any further action on the part of Parent, the Company, Merger Sub or the holders of any of the Dissenting Shares, shall cease to be outstanding, be cancelled and cease to exist and shall be converted into the right to receive only payment of
the fair value of such Dissenting Shares in accordance with and to the extent provided by Section 262 of the DGCL.
(ii) Notwithstanding the provisions of Section 2.1(b)(i), if any holder of
Dissenting Shares timely withdraws its demand for appraisal or fails to perfect or otherwise waives or loses its right of appraisal pursuant to the DGCL, then the right of such holder to be paid the fair value of such Dissenting Shares under the
DGCL shall cease, and such Dissenting Shares shall be deemed to have automatically been converted into, as of the Effective Time, and represent only, the right to receive the Merger Consideration, net of applicable tax withholding, without interest,
as set forth in Section 2.1(a)(i).
(iii) At the Effective Time, subject
to the provisions of Section 2.1(b)(ii), any holder of Dissenting Shares shall cease to have any rights with respect to such Dissenting Shares, except the right to receive only payment of the fair value of such Dissenting
Shares in accordance with and to the extent provided by Section 262 of the DGCL. The Company shall give Parent prompt written notice of any demands or actual or, to the extent that the Company has Knowledge, attempted withdrawals of such
demands for appraisal of Shares received by the Company, and any other instruments served on the Company pursuant to Section 262 of the DGCL and shall give Parent the opportunity to participate in and direct all negotiations and proceedings
with respect thereto. Prior to the Effective Time, the Company shall not, except with the prior written consent of Parent, make any payment with respect to, or settle or compromise or offer to settle or compromise, any such demands or waive any
failure to timely deliver a written demand for appraisal or otherwise comply with the provisions under Section 262 of the DGCL, or agree or commit to do any of the foregoing. Parent shall have the right to direct the Paying Agent to return to
Parent upon Parents demand any portion of the aggregate Merger Consideration made available to the Paying Agent to pay for Shares that have become Dissenting Shares.
Section 2.2 Treatment of Company Equity Awards.
(a) Treatment of Restricted Stock Units. At the Effective Time, by virtue of the Merger and without any further
action on the part of Parent, the Company, Merger Sub or the holders of any Company RSU, each restricted stock unit award in respect of Shares granted under each Company Equity Award Plan that is outstanding immediately prior to the Effective Time
(a Company RSU) shall fully vest (including Company RSUs subject to performance-based vesting) and shall be cancelled and converted automatically into the right to receive, as soon as reasonably practicable after the Effective
Time (but no later than the first regularly scheduled payroll date that is at least five (5) Business Days after the Effective Time), from or on behalf of the Surviving Corporation, an amount in cash, without interest, equal to the product of
(i) the amount of the Merger Consideration and (ii) the total number of Shares underlying such Company RSU, net of applicable tax withholding. Following the Effective Time, each Company RSU shall cease to be outstanding, be cancelled and
cease to exist and the holder of any such Company RSU shall not be entitled to any payment other than those pursuant to this Section 2.2(a) in respect thereof.
(b) Treatment of Options. At the Effective Time, by virtue of the Merger and without any further action on the
part of Parent, the Company, Merger Sub or the holders of any Company Option, each option award in respect of Shares granted under each Company Equity Award Plan that is unexercised and outstanding immediately prior to the Effective Time (a
Company Option), if any, whether vested or unvested, and that has an exercise price per Share that is less than the amount of the Merger Consideration, shall fully vest and shall be
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cancelled and converted automatically into the right to receive, as soon as reasonably practicable after the Effective Time (but no later than the first regularly scheduled payroll date that is
at least five (5) Business Days after the Effective Time), from or on behalf of the Surviving Corporation, an amount in cash, without interest, equal to the product of (i) the amount by which the amount of the Merger Consideration exceeds
the exercise price per Share of such Company Option and (ii) the total number of Shares subject to such Company Option, net of applicable tax withholding. At the Effective Time, each Company Option, if any, that has an exercise price per Share
that is greater than or equal to the Merger Consideration shall cease to be outstanding, be cancelled and cease to exist and the holder of any such Company Option shall not be entitled to payment of any consideration therefor. Following the
Effective Time, each Company Option shall cease to be outstanding, be cancelled and cease to exist and the holder of any such Company Option shall not be entitled to any payment other than those pursuant to this
Section 2.2(b) in respect thereof.
(c) Treatment of Restricted Stock. At the
Effective Time, by virtue of the Merger and without any further action on the part of the Company, Parent, Merger Sub or the holders of any Company Restricted Stock, all restrictions and vesting requirements with respect to each share of restricted
stock granted under each Company Equity Award Plan that is outstanding immediately prior to the Effective Time (a Company Restricted Stock) shall at the Effective Time, lapse and all such shares of Company Restricted Stock shall
be vested in full. Holders of shares of Company Restricted Stock shall be treated as a holder of Shares for all purposes of this Agreement and receive Merger Consideration for such shares in accordance with Section 2.1(a)(i) of this
Agreement.
(d) Corporate Actions. As soon as reasonably practicable following the date of this Agreement,
and in any event prior to the Effective Time, the Company, the Company Board and the compensation committee of the Company Board, as applicable, shall adopt any resolutions and take any and all actions that are necessary to effectuate the provisions
of Section 2.2(a), Section 2.2(b) and Section 2.2(c) (including the satisfaction of the requirements of Rule 16b-3(e) promulgated
under the Exchange Act and the treatment of the Company RSUs, Company Options and Company Restricted Stock specified therein). As of the Effective Time, the Company Equity Award Plans and any related awards issued thereunder shall be terminated.
Prior to the Closing, the Company shall take all actions necessary to ensure that, from and after the Effective Time, neither Parent nor the Surviving Corporation will be required to deliver Shares or other capital stock or other Equity Interests
(including phantom stock) of the Company or any other Person to any Person pursuant to or in settlement of Company RSUs, Company Options, if any, Company Restricted Stock or any other awards under any Company Equity Award Plan. If and as required by
Parent or Merger Sub, the Company will take all action necessary to terminate all Company Equity Award Plans effective as of the Effective Time.
Section 2.3 Certain Adjustments. If, between the date hereof and the Effective
Time, the outstanding Shares shall have been changed into a different number of shares or a different class of shares, in each case, by reason of any stock dividend, subdivision, reorganization, reclassification, recapitalization, stock split,
reverse stock split, combination or exchange of shares, or any similar event shall have occurred, then the Merger Consideration shall be equitably adjusted, without duplication and without any increase in aggregate amounts payable by Parent
hereunder, to the extent appropriate to provide the same economic effect as contemplated by this Agreement prior to such change.
Section 2.4 Exchange of Certificates.
(a) Appointment of Paying
Agent. Prior to the Closing, Parent shall appoint a bank or trust company reasonably acceptable to the Company to act as paying agent (the Paying Agent) for the payment of the Merger Consideration pursuant to
Section 2.1(a)(i) and Parent or Merger Sub shall enter into a paying agent agreement reasonably acceptable to the Company relating to the Paying Agents responsibilities under this Agreement.
(b) Deposit of Merger Consideration. At or substantially concurrent with the Effective Time, Parent shall
deposit, or cause to be deposited, with the Paying Agent, for the benefit of the holders of Shares, cash that
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when taken together with a portion of the cash available on the Companys balance sheet (after taking into account the Companys and its Subsidiaries outstanding expenses as
determined by the Company and subject to approval by the Companys and its Subsidiaries lenders under the Credit Facilities, if required) that is deposited with the Paying Agent at the Effective Time is sufficient to pay the aggregate
Merger Consideration payable pursuant to Section 2.1(a)(i) (such aggregate Merger Consideration and any proceeds thereon, the Payment Fund).
(c) Section 102. Notwithstanding anything to the contrary set forth in this Agreement, the Paying Agent shall
deliver any consideration payable or otherwise deliverable pursuant to this Agreement to holders of Section 102 Shares directly to the 102 Trustee to be held and released in accordance with the provisions of Section 102 of the Ordinance
and the 102 Tax Ruling; provided, however, that in the event that the 102 Tax Ruling or the Interim Tax Ruling is not obtained prior to Closing, then the 102 Trustee will withhold tax at source from the consideration payable to holders
of Section 102 Shares in accordance with the Income Tax Regulations (withholding from salary and wages), 5753-1993.
(d) Exchange Procedures. As promptly as practicable (and no later than the third (3rd) Business Day) after the
Effective Time, Parent or the Surviving Corporation shall cause the Paying Agent to mail to each holder of record of Shares whose Shares were converted pursuant to Section 2.1(a)(i) into the right to receive the Merger
Consideration (i) a letter of transmittal, in form and substance reasonably acceptable to Parent and the Company, which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery
of the Certificates to the Paying Agent, or in the case of Book-Entry Shares, upon adherence to the procedures set forth in the letter of transmittal (the Letter of Transmittal) and (ii) instructions for use in effecting the
surrender of Certificates or Book-Entry Shares in exchange for the Merger Consideration.
(e) Surrender of
Certificates or Book-Entry Shares. Upon surrender of Certificates or Book-Entry Shares to the Paying Agent for cancellation, together with the Letter of Transmittal, duly completed and validly executed in accordance with the instructions
thereto, and such other documents as may reasonably be required by the Paying Agent, the holder of such Certificates or Book-Entry Shares shall be entitled to receive in exchange therefor the Merger Consideration into which each Share formerly
represented by such Certificates or Book-Entry Shares has been converted pursuant to this Agreement. Any Certificates so surrendered shall forthwith be cancelled. In the event of a transfer of ownership of Shares that is not registered in the
transfer or stock records of the Company or if for any other reason payment of the Merger Consideration is to be made to a Person other than the Person in whose name any surrendered Certificate or Book-Entry Share is registered, any cash to be paid
upon due surrender of the Certificate or Book-Entry Share formerly representing such Shares shall be paid to any such transferee only if such Certificate or Book-Entry Share is presented to the Paying Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock transfer or other similar Taxes required by reason of the payment of the Merger Consideration to a Person other than the registered holder of the Certificate or Book-Entry
Share so surrendered have been paid or are not applicable (and any such applicable Taxes actually have been paid). No interest shall be paid or shall accrue on the Merger Consideration payable upon surrender of any Certificate or Book-Entry Share.
Until surrendered as contemplated hereby, each Certificate or Book-Entry Share shall be deemed at any time after the Effective Time to represent only the right to receive the Merger Consideration as contemplated by this Agreement.
(f) Lost Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit (in form and substance reasonably acceptable to Parent) of that fact by the Person claiming such Certificate to be lost, stolen or destroyed, reasonably acceptable to the Paying Agent, together with the Letter of Transmittal, duly
completed and validly executed in accordance with the instructions thereto, and such other documents as may be reasonably required by the Paying Agent or the Surviving Corporation, and, if required by the Surviving Corporation or the Paying Agent,
the posting by such Person of a bond in a customary amount as indemnity against any claim that may be made against it or the Surviving Corporation with respect to such Certificate, the Paying Agent (or, if subsequent to the termination of the
Payment Fund and subject to Section 2.4(j), Parent or the Surviving Corporation) shall deliver, in exchange for such lost, stolen or destroyed Certificate, the Merger Consideration in accordance with the terms of this
Agreement.
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(g) No Further Ownership Rights in Shares. At the Effective
Time, all Shares outstanding immediately prior to the Effective Time shall automatically be cancelled and shall cease to exist in exchange for the consideration issued pursuant to Section 2.1, and all holders of Shares that
were outstanding immediately prior to the Effective Time shall cease to have any rights as stockholders of the Company except as provided for in Section 2.1. The Merger Consideration paid in accordance with the terms of
this Article II shall be deemed payment in full satisfaction of all rights pertaining to the Shares previously represented by such Certificates or Book-Entry Shares, subject, however, to the Surviving Corporations obligation to pay any
dividends or make any other distributions with a record date prior to the Effective Time which remain unpaid at the Effective Time.
(h) Closing of Transfer Books. At the Effective Time, the stock transfer books of the Company shall be closed,
and there shall be no further registration of transfers on the transfer books of the Surviving Corporation of the Shares which were outstanding immediately prior to the Effective Time. If, from and after the Effective Time, Certificates or
Book-Entry Shares are presented to the Surviving Corporation, Parent or the Paying Agent for transfer or any other reason, they shall be cancelled and exchanged as provided in this Article II.
(i) Investment of Payment Fund. Until disbursed in accordance with the terms and conditions of this Agreement,
the Payment Fund shall be invested by the Paying Agent as directed by Merger Sub or, from and after the Closing, the Surviving Corporation in (i) obligations of or fully guaranteed by the United States or any agency or instrumentality thereof
and backed by the full faith and credit of the United States with a maturity of no more than thirty (30) days; (ii) commercial paper obligations rated A-I or P-I or
better by Moodys Investors Service, Inc. or Standard & Poors Corporation, respectively, (iii) certificates of deposit, bank repurchase agreements or bankers acceptances of commercial banks with capital exceeding
$1,000,000,000 (based on the most recent financial statements of such bank that are then publicly available), (iv) in mutual funds investing in one or more of any such assets or (v) such other manner as is set forth in the paying agent
agreement contemplated by Section 2.4(a) and approved by the Company prior to the Effective Time. To the extent that (A) there are any losses with respect to any investments of the Payment Fund or (B) the Payment
Fund diminishes for any reason below the level required for the Paying Agent to promptly pay the cash amounts contemplated by Section 2.1, Parent will, or will cause the Surviving Corporation or another Person to, promptly
replace or restore the amount of cash in the Payment Fund so as to ensure that the Payment Fund is at all times fully available for distribution and maintained at a level sufficient for the Paying Agent to make the payments contemplated by
Section 2.1. Any interest or income produced by such investments will be payable to the Surviving Corporation or Parent, as Parent directs.
(j) Termination of Payment Fund. Any portion of the Payment Fund (including any interest or other amounts
received with respect thereto) that remains unclaimed by, or otherwise undistributed to, the holders of Certificates and Book-Entry Shares on the one (1) year anniversary of the Effective Time shall be delivered to Parent, upon demand, and any
holder of Certificates or Book-Entry Shares that has not theretofore complied with this Article II shall thereafter look only to Parent or the Surviving Corporation (subject to abandoned property, escheat or other similar Laws), as general creditors
thereof, for satisfaction of its claim for Merger Consideration. Any amounts remaining unclaimed by such holders at such time at which such amounts would otherwise escheat to or become property of any Governmental Entity shall become, to the extent
permitted by applicable Law, the property of Parent or its designee, free and clear of all claims or interest of any person previously entitled thereto.
(k) No Liability. Subject to applicable Law, none of Parent, the Company, Merger Sub or the Paying Agent shall
be liable to any Person in respect of any portion of the Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law.
(l) Withholding. Each of the Paying Agent, Parent, Merger Sub, the 102 Trustee, the Company and the Surviving
Corporation, as applicable, shall be entitled to deduct and withhold from any amounts payable or otherwise deliverable pursuant to this Agreement such amounts as may be required to be deducted or withheld under the Code or any provision of state,
local or non-U.S. Tax Law or under any other applicable Law or the 102 Tax Ruling; provided that, Paying Agent, Parent, and Merger Sub, as applicable, shall use commercially
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reasonable efforts to (i) promptly notify (in reasonable detail) the Company in advance of any such withholding and (ii) cooperate with the Company to reduce such withholding, in each
case, other than such withholding in respect of compensatory payments or as a result of any failure to deliver any certificates claiming an exemption from such withholding and required to be so delivered pursuant to the terms of this Agreement or
any Letter of Transmittal. To the extent such amounts are so deducted or withheld and paid over to the appropriate Governmental Entity, such amounts shall be treated for all purposes under this Agreement as having been paid to or for the benefit of
the Person to whom such amounts would otherwise have been paid.
Section 2.5 Further Action. If, at any time after the Effective Time, any
further action is determined by Parent or the Surviving Corporation to be necessary or desirable to carry out the purposes of this Agreement or to vest the Surviving Corporation with full right, title and possession of and to all rights and property
of Merger Sub and the Company, the officers and directors of the Surviving Corporation and Parent shall be fully authorized (in the name of Merger Sub, in the name of the Company and otherwise) to take such action.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except (a) as disclosed in any form, document or report publicly filed with or furnished to the U.S. Securities and Exchange Commission
(the SEC) by the Company on or after January 1, 2017, and prior to the date of this Agreement (excluding (i) any disclosures contained under the heading Risk Factors or (ii) any other disclosures
included in any forward-looking statements disclaimer or any other general statement regarding risks or uncertainties that are similarly cautionary, predictive or forward-looking in nature) to the extent it is reasonably apparent on the
face of such disclosure that any such disclosure would qualify the representations and warranties contained herein (other than the representations and warranties set forth in Section 3.1,
Section 3.2, Section 3.3, Section 3.20 and Section 3.23) or (b) as disclosed in the corresponding sections or subsections of the letter
delivered by the Company to Parent and Merger Sub immediately prior to the execution of this Agreement, subject to the last sentence of Section 8.14 (the Company Disclosure Letter), the Company represents
and warrants to Parent as follows:
Section 3.1 Organization.
(a) Each of the Company and each of its Subsidiaries is duly organized, validly existing and in good standing (with
respect to jurisdictions that recognize the concept of good standing) under the Laws of the jurisdiction of its organization. Each of the Company and its Subsidiaries has all requisite corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as presently conducted, except where the failure to have such power or authority would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Each of the
Company and its Subsidiaries is duly qualified or licensed, and has all necessary governmental approvals, to do business and (where such concept is recognized) is in good standing in each jurisdiction in which the property owned, leased or operated
by it or the nature of the business conducted by it makes such approvals, qualification or licensing necessary, except where the failure to be so duly approved, qualified or licensed and in good standing would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. With respect to the Israeli Subs, each of the Israeli Subs is a corporation duly organized and validly existing and is not a breaching company (as defined in the Companies Law
5759-1999 of the State of Israel (together with the rules and regulations promulgated thereunder, the ICL)).
(b) The Company has made available to Parent true and complete copies of the Company Organizational Documents, in each
case in full force and effect as of entry into of this Agreement. The Company is not in violation of the Company Organizational Documents in any material respect.
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Section 3.2 Capital Stock and
Indebtedness.
(a) The authorized capital stock of the Company consists of 50,000,000 Shares and 1,000,000
shares of preferred stock, par value $0.01 per share. As of the close of business on September 20, 2019 (the Capitalization Date), (i) 26,665,240 Shares were issued and outstanding (not including shares held in treasury),
(ii) 738,611 Shares were held in treasury, (iii) zero Shares were underlying outstanding Company Options, (iv) 154,000 Shares were underlying outstanding Company RSUs (assuming achievement of any applicable performance metrics at the maximum
level), (v) 118,196 Shares were underlying outstanding Company Restricted Stock and included in the number of Shares issued and outstanding under clause (i) above, (vi) 3,045,792 Shares were reserved for issuance pursuant to future
grants under the Company Equity Award Plans, and (vii) no other shares of capital stock, Company Securities or other voting securities of the Company were issued, reserved for issuance or outstanding. Since the close of business on the
Capitalization Date, the Company has not issued any Shares, Company Options, Company RSUs or other Company Securities, except for Shares issued upon the exercise of Company Options, if any, or settlement of Company RSUs, in each case, that were
outstanding as of the close of business on the Capitalization Date, in accordance with their terms. All issued and outstanding Shares are, and all Shares reserved for issuance as noted in clause (vi) above shall be (when issued in
accordance with the terms of the Company Equity Award Plans and the respective grants thereunder), duly authorized, validly issued, fully paid and nonassessable, and are not subject to and were not issued in violation of any preemptive or similar
right, purchase option, call or right of first refusal or similar right. No Subsidiary of the Company owns any Shares or has any option or warrant to purchase any Shares or any other Company Securities. Section 3.2(a) of
the Company Disclosure Letter sets forth, as of the close of business on the Capitalization Date, an accurate and complete list of each outstanding Company Option (setting forth the date of grant, expiration date and vesting schedule, criteria or
similar requirements and the exercise price thereof), if any, and each outstanding Company RSU and Company Restricted Stock (setting forth the respective date of grant, expiration date and vesting schedule, criteria or similar requirements, the name
of the holder thereof, the country of residence of the holder thereof, the number of Shares issuable thereunder, whether the holder of the Company Equity Award is an employee or a non-employee and whether each
such Company Equity Award was granted pursuant to Section 102(b) of the Ordinance). All grants of Company Options, Company RSUs and Company Restricted Stock were made in accordance with the terms of the Company Equity Award Plans, and true,
correct and complete copies of each such option award agreement, restricted stock unit award agreement and restricted stock award agreement (with respect to outstanding awards) have been made available to Parent, and all grants of Company Options,
Company RSUs and Company Restricted Stock Awards, as applicable, are in compliance in all material respects with all applicable Laws.
(b) Except as set forth in Section 3.2(a), as of the Capitalization Date, there were no
outstanding or authorized (i) shares of capital stock, other voting securities or other Equity Interests of the Company, (ii) securities of the Company convertible into or exchangeable for shares of capital stock or voting securities of
the Company or (iii) options or other rights to acquire from the Company, and no obligation of the Company to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of
the Company (collectively, Company Securities). Except as set forth in Section 3.2(a), there are (i) no outstanding obligations of the Company (A) to repurchase, redeem or otherwise acquire any
Company Securities of or (B) to provide any funds to or make any investment (in the form of a loan, capital contribution, guarantee, credit enhancement or otherwise) in or assume any Liability of (x) any Subsidiary of the Company that is
not wholly owned by the Company or (y) any other Person that is not a wholly owned Subsidiary of the Company and (ii) no other options, subscriptions, rights, profits interest, stock appreciation rights, phantom stock, convertible
securities, calls, warrants or other similar rights, agreements, arrangements, undertakings or commitments of any character relating to the issued or unissued capital stock of the Company or any of its Subsidiaries to which the Company or any of its
Subsidiaries is a party. Neither the Company nor any of its Subsidiaries is a party to any Contract with respect to the voting of any Company Securities.
(c) Section 3.2(c) of the Company Disclosure Letter sets forth a true and complete list of each of (A) the
Companys Subsidiaries, together with (i) its name, (ii) its jurisdiction of organization or formation,
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(iii) its form of organization, (iv) its authorized equity interests, (v) its issued and outstanding equity interests, including the number thereof, and (vi) ownership of each
Subsidiary. The Company or a Subsidiary of the Company owns, directly or indirectly, all of the issued and outstanding shares of capital stock, other voting securities or other Equity Interests of each Subsidiary of the Company, free and clear of
all Liens other than Permitted Liens, and all of such shares of capital stock or other Equity Interests are duly authorized, validly issued, fully paid and nonassessable and are not subject to and were not issued in violation of any preemptive or
similar right, purchase option, call or right of first refusal or similar right in favor of any Person other than the Company or a Subsidiary of the Company. There are no other securities of any Subsidiary of the Company convertible into or
exchangeable for shares of capital stock or voting securities of such Subsidiary or options or other rights to acquire from such Subsidiary, and no obligation of such Subsidiary to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of the such Subsidiary. The Company has made available to Parent true and complete copies of the organizational documents of each of the Companys Subsidiaries, in each
case in full force and effect as of entry into of this Agreement. No Subsidiary is in violation of its certificate of incorporation or bylaws (or comparable organizational documents) in any material respect.
(d) Except for Equity Interests in the Companys Subsidiaries, neither the Company nor any of its Subsidiaries
owns, directly or indirectly, any capital stock of, equity interest, voting interest, membership interest, partnership interest, joint venture interest, or other equity or voting interest of any nature in any Person (or any security or other right,
agreement or commitment convertible or exercisable into, or exchangeable for, any equity interest in any Person) (such interests collectively, Equity Interests).
(e) There are no voting agreements, voting trusts, stockholders agreements, proxies or other agreements or
understandings to which the Company or any of its Subsidiaries is a party with respect to the voting of the capital stock or other Equity Interest of, restricting the transfer of or providing for registration rights with respect to, the Company or
any of its Subsidiaries.
Section 3.3 Corporate Authority Relative to this
Agreement; Consents and Approvals; No Violation.
(a) The Company has the requisite corporate power and
authority to execute and deliver this Agreement and, subject to the Company Stockholder Approval having been obtained, to consummate the transactions contemplated hereby, including the Merger. The execution, delivery and performance by the Company
of this Agreement and the consummation of the transactions contemplated hereby, including the Merger, have been duly and validly authorized by the Company Board and, except for the Company Stockholder Approval having been obtained and the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware, no other corporate action or proceedings on the part of the Company or its stockholders are necessary to authorize the execution and delivery by the Company of this
Agreement or the consummation of the transactions contemplated hereby, including the Merger. This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery thereof by Parent
and Merger Sub, constitutes a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms, subject to the effects of bankruptcy, reorganization, fraudulent conveyance, insolvency, moratorium or
other similar Laws affecting creditors rights generally or equitable principles (whether considered in a Proceeding in equity or at law) (the Enforceability Exceptions). The Company Board at a meeting duly called and held
has adopted resolutions (upon the recommendation of the Special Committee) that: (i) determined that the transactions contemplated hereby (including the Merger) are fair to and in the best interests of the Company and its stockholders,
(ii) approved this Agreement and the transactions contemplated hereby (including the execution, delivery and performance thereof) and declared it advisable that the Company enter into this Agreement and consummate the transactions contemplated
hereby in accordance with the DGCL and (iii) recommended that the Companys stockholders adopt this Agreement.
(b) The execution, delivery and performance of this Agreement by the Company, including the consummation of the Merger,
do not and will not require any authorization, consent, order license, permit,
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expiration of waiting periods, or approval of, or registration, declaration, notice or filing with, any Governmental Entity, except for (i) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware, (ii) the requirements of the applicable U.S. federal securities Laws, including the rules and regulations of the SEC thereunder, including the filing of the Proxy Statement pursuant to the Securities
Exchange Act of 1934, as amended (the Exchange Act), regarding the Merger and the other transactions contemplated hereby, (iii) the rules and regulations of The Nasdaq Stock Market LLC (Nasdaq), (iv) the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the HSR Act) or similar requirements in non-U.S. countries under
applicable antitrust laws, including the Israeli Economic Competition Law, 5748-1988 and the rules and regulations promulgated thereunder (the Israeli Economic Competition Law), (v) requirements under applicable state securities
Laws or blue sky Laws and the securities Laws of any foreign country, (vi) the applicable requirements of jurisdictions other than the United States designed to govern competition or trade regulation or investment Laws relating to
foreign ownership, each as set forth on Section 3.3(b) of the Company Disclosure Letter, (vii) the applicable requirements of the National Industrial Security Program Operating Manual (NISPOM) and Department of Defense
Directive 5200.20-M, (viii) the applicable requirements of the Export Administration Regulations, 15 C.F.R §§ 730 et seq. or the International Traffic In Arms Regulations, 22 C.F.R
§§ 120 -130, and the Israeli Defense Export Control Agency (DECA) of the Israeli Ministry of Defense, (ix) the IIA Notice, to the extent required (clauses (i) (ix), collectively, the
Transaction Approvals), and (x) such authorizations, consents, Orders, licenses, permits, approvals, registrations, declarations, notices and filings the failure of which to make or obtain would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.
(c) The execution, delivery and performance by
the Company of this Agreement does not and, assuming the Transaction Approvals are obtained, will not, (i) require any consent, notice or approval under, violate, conflict with, constitute a default under, result in any breach of or any loss of
any benefit under, or give rise to any right of termination, vesting, amendment, acceleration or cancellation of, any Contract to which the Company or any of its Subsidiaries is a party or by which it or any of its respective properties or assets is
bound, (ii) conflict with or result in any violation of any provision of the Company Organizational Documents or (iii) conflict with or violate any applicable Laws except, in the cases of clauses (i) and (iii) above for
any such conflict, violation, breach or other occurrence, as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
Section 3.4 SEC Filings; Reports and Financial Statements.
(a) The Company has filed, on a timely basis, all registration statements, prospectuses, proxy statements, schedules,
forms, documents and reports (including exhibits) required to be filed or furnished (as applicable) by it under the U.S. Securities Act of 1933, as amended, (the Securities Act) or the Exchange Act, as the case may be, since
January 1, 2017, together with all certifications required pursuant to the U.S. Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) (such documents filed by the Company with the SEC since January 1, 2017 through the date
hereof, collectively the Company SEC Documents). As of their respective dates and, if amended or superseded by a subsequent filing filed or furnished prior to the date hereof, as of the date of such amendment or superseding
filing, the Company SEC Documents complied in all material respects and all documents required to be filed by the Company with the SEC on or after the date hereof and prior to the Effective Time (the Subsequent Company SEC
Documents) will comply in all material respects with the applicable requirements of the Securities Act and the Exchange Act, as the case may be, the Sarbanes-Oxley Act and the applicable rules and regulations promulgated thereunder. As of
their respective dates (and, if amended, as of the date of such amendment), the Company SEC Documents did not, and any Subsequent Company SEC Documents will not, contain any untrue statement of a material fact or omit to state a material fact
required to be stated or incorporated by reference therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. None of the Subsidiaries of the Company is currently or has, since
becoming a Subsidiary of the Company been, required to file any forms, reports or other documents with the SEC.
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(b) As of the date hereof, none of the Company SEC Documents is the
subject of any unresolved or outstanding SEC comment and, to the Knowledge of the Company, is the subject of ongoing SEC review. There has been no material correspondence between the SEC and the Company since January 1, 2017 that is not set
forth in the Company SEC Documents or that has not otherwise been disclosed to Parent prior to the date hereof.
(c) The consolidated financial statements (including all related notes and schedules) of the Company included or
incorporated by reference in the Company SEC Documents (collectively, the Financial Statements), and the consolidated financial statements (including all related notes and schedules thereto) included in the Subsequent Company SEC
Documents will, (i) fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries, as of the respective dates thereof, and the consolidated results of their operations and their
consolidated cash flows for the respective periods then ended (subject, in the case of unaudited interim statements, to normal year-end audit adjustments that are not or will not be material in amount or
effect), (ii) as of their respective filing dates with the SEC (if amended, as of the date of the last such amendment, with respect to the consolidated financial statements that are amended or restated therein), complied in all material respects
with applicable accounting requirements and the rules and regulations of the SEC and (iii) were prepared in all material respects in conformity with U.S. generally accepted accounting principles (GAAP) (except, in the case of
the unaudited interim statements, as permitted by the SEC) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto as permitted by Regulation S-X
promulgated by the SEC).
(d) Except as have been described in the Company SEC Documents, there are no
unconsolidated Subsidiaries of the Company and neither the Company nor any of its Subsidiaries is a party to, or has any commitment to become a party to, any off-balance sheet arrangements of the type required
to be disclosed pursuant to Item 303(a)(4) of Regulation S-K promulgated by the SEC.
(e) Since January 1, 2017, there has been no material change in the Companys accounting methods or
principles that would be required to be disclosed in the Companys financial statements in accordance with GAAP, except as described in the notes thereto.
(f) The reserves set forth in the Financial Statements which have been set aside to cover severance payments to the
Israeli Employees constitute, together with any funds deposited since the date of the Financial Statements until the date of this Agreement in any pension fund, provident fund, managers insurance and similar funds, in the aggregate, a
sufficient reserve, as of the date of this Agreement, to enable each of the Israeli Subs to discharge all of its obligations towards its Israeli Employees under Israeli Law and applicable employment agreements as of the date of this Agreement.
Section 3.5 Internal Controls and Procedures. The Company has established and
maintains a system of internal control over financial reporting as required by Rule 13a-15 or Rule 15d-15 under the Exchange Act. Such internal control over financial
reporting is effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes
policies and procedures that (a) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company, (b) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations
of management and directors of the Company and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a material effect on its
financial statements. The Company maintains disclosure controls and procedures as required by Rule 13a-15 or Rule 15d-15 under the Exchange Act. Such disclosure controls
and procedures are reasonably effective to ensure that all material information relating to the Company and its Subsidiaries required to be disclosed in the Companys periodic reports under the Exchange Act and within the time periods specified
in the SECs rules is made known to the Companys principal executive officer and its principal financial officer by others within the
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Company or any of its Subsidiaries, and such disclosure controls and procedures are effective in timely alerting the Companys principal executive officer and its principal financial officer
to such information required to be included in the Companys periodic reports required under the Exchange Act. With respect to the consolidated financial statements filed by the Company with the SEC since January 1, 2017, neither the Audit
Committee of the Company Board or, to the Knowledge of the Company, the Companys auditors has identified: (x) any significant deficiencies or material weaknesses in the design or operation of internal control over financial reporting that
are reasonably likely to adversely affect in any material respect the Companys or any of its Subsidiaries ability to record, process, summarize and report financial information or (y) any fraud or allegation of fraud, whether or not
material, that involves (or involved) management or other employees who have (or had) a significant role in the Companys internal control over financial reporting. The Company is, and has been since January 1, 2017, in compliance in all
material respects with the applicable provisions of the Sarbanes-Oxley Act and the applicable listing and corporate governance rules and regulations of Nasdaq. The Companys management has completed an
assessment of the effectiveness of the Companys internal control over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act for the fiscal year ended
December 31, 2018, and such assessment concluded that such system was effective. Neither the Company nor any of its Subsidiaries has outstanding, or has arranged any outstanding, extension of credit to directors or executive
officers of the Company prohibited by Section 402 of the Sarbanes-Oxley Act. No executive officer of the Company has failed, in the last two (2) years, to make the certifications required of him or
her under Section 302 or 906 of the Sarbanes-Oxley Act with respect to any Company SEC Documents, except as disclosed in certifications filed with such Company SEC Documents. Neither the Company nor, to the Knowledge of the Company, any of its
executive officers has, in the last two (2) years, received written notice from any Governmental Entity challenging or questioning the accuracy, completeness, form or manner of filing of such certifications.
Section 3.6 No Undisclosed Liabilities. There are no Liabilities (of any
nature, whether or not accrued, contingent or otherwise) of the Company or any of its Subsidiaries, except for (a) Liabilities that are specifically reflected and adequately reserved against on the consolidated balance sheet of the Company and
its Subsidiaries included in its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2019 (including any notes thereto), (b) Liabilities arising in connection with the transactions
contemplated hereby, (c) Liabilities incurred in the ordinary course of business since June 30, 2019 (other than Liabilities with respect to the breach of any Contract, breach of warranty, tort, infringement, misappropriation or violation
of Law by the Company or its Subsidiaries) and (d) Liabilities that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
Section 3.7 Compliance with Law; Permits.
(a) Except as would not reasonably be expected to be materially adverse to the Company, the Company and each of its
Subsidiaries are, and since January 1, 2017 have been, in compliance in all material respects with and not in conflict in any material respect with, or in material default or material violation of, all applicable federal, state, local,
transnational and foreign laws, acts, codes, statutes, ordinances, common law, rules, regulations, standards, judgments, Orders, writs, injunctions, decrees, arbitration awards, agency requirements, licenses or permits of Governmental Entities
(collectively, Laws and each, a Law). Since January 1, 2017, neither the Company nor any of its Subsidiaries has received, to the Knowledge of the Company, any notice or other communication from any
Governmental Entity regarding any actual or alleged failure to comply with any Law, except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(b) The Company and its Subsidiaries hold all authorizations, licenses, permits, certificates, variances, exemptions,
approvals, Orders, registrations and clearances of any Governmental Entity necessary for the Company and its Subsidiaries to own, lease and operate their properties and assets (Company Permit), and to carry on and operate their
businesses as currently conducted, except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Since January 1, 2017, the Company has not
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received any written notice from any Governmental Entity regarding (i) any actual or possible material violation of any Company Permit, or any failure to comply in any respect with any term
or requirement of any Company Permit or (ii) any actual or possible revocation, withdrawal, suspension, cancellation, termination or adverse modification of any Company Permit, in each case other than as would not , individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Each Company Permit is in full force and effect and has not been suspended, revoked, cancelled or adversely modified, except as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Except as would not be materially adverse to the Company, to the Knowledge of the Company, the licensee of each Company Permit is, and since January 1, 2017, has been, in compliance with
such Company Permit and has fulfilled and performed all of its obligations in all respects with respect thereto, no event has occurred which, with or without notice or the lapse of time or both, would constitute a default or violation of any Company
Permit. To the Knowledge of the Company, there has not been any event, condition or circumstance that would preclude any Company Permit from being renewed in the ordinary course (to the extent that such Company Permit is renewable by its terms),
except where the failure thereof to be renewed has not had and would not reasonably be expected to have a Material Adverse Effect.
(c) During the last five (5) years, the Company and each of its Subsidiaries have been in compliance with
applicable Bribery Legislation. None of the Company or its Subsidiaries, or any of their respective directors or officers or, to the Companys Knowledge, any employee, agent, or third-party representative of the Company or any of its
Subsidiaries, in each case, acting on behalf of the Company or any of its Subsidiaries, has in the last five (5) years, directly or indirectly, (i) used any funds of the Company or any of its Subsidiaries for unlawful contributions,
unlawful gifts, unlawful entertainment or other unlawful expenses relating to political activity or Persons or (ii) made any payment to Governmental Entities, officials or employees of Governmental Entities, or any other Person in violation of
applicable Bribery Legislation. The Company and its Subsidiaries maintain and, in the last five (5) years, have maintained books and records that are accurate in all material respects, and adhere and, in the last five (5) years, have
adhered to a system of commercially reasonable policies, procedures, and internal controls, as may be required by, and in any event that are reasonably designed to prevent, deter, and detect violations of, applicable Bribery Legislation. To the
Knowledge of the Company, none of the Company nor any Subsidiary is, or in the last five (5) years has been, the subject of any internal or external allegation, voluntary disclosure, investigation, prosecution or other enforcement action
related to any Bribery Legislation.
(d) During the last five (5) years, neither the Company nor any of its
Subsidiaries nor any of their respective directors, or officers, nor to the Companys Knowledge, any employee, agent or third-party representative of the Company or any of its Subsidiaries, in each case acting on behalf of the Company or any of
its Subsidiaries, has (i) been a Sanctioned Person, (ii) transacted any business directly or knowingly indirectly with any Sanctioned Person in violation of Sanctions nor (iii) taken any action that would cause the Company or any
Subsidiary to violate any Sanctions, Ex-Im Laws, or U.S. anti-boycott requirements (collectively, Trade Control Laws). To the Knowledge of the Company, none of the Company nor any Subsidiary
is, or in the last five (5) years has been, the subject of any internal or external allegation, voluntary disclosure, investigation, prosecution or other enforcement action related to any Trade Control Laws.
Section 3.8 Environmental Matters. Except as has not been and would not
reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (a) the Company and each of its Subsidiaries are, and since January 1, 2014, have been, in compliance with applicable Environmental Laws, and each
has applied for and maintained, and is, and since January 1, 2014, has been, in compliance with all Environmental Permits necessary for the conduct and operation of their respective businesses or occupancy of any real property, (b) since
January 1, 2017, none of the Company or any of its Subsidiaries has received any written notice, demand, letter or claim alleging that the Company or such Subsidiary is in violation of, or has Liability under, any Environmental Law,
(c) none of the Company or any of its Subsidiaries is subject to any pending, or to the Companys Knowledge threatened in writing, Proceeding or Order relating to compliance with, or Liability under, Environmental Laws, Environmental
Permits or the investigation, sampling, monitoring, treatment, remediation, removal or cleanup of Hazardous Materials, (d) none of the Company or its Subsidiaries (or any
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other Person to the extent giving rise to the Company or its Subsidiaries) has treated, stored, disposed or arranged for disposal of, transported, handled, released, or exposed any Person to, or
owned or operated any property or facility contaminated by, any Hazardous Materials, in each case so as to give rise to any Liability pursuant to any Environmental Laws and (e) the Company and its Subsidiaries have made available to Parent all
material environmental assessments, audits and reports relating to the current or former facilities or operations of the Company and its Subsidiaries, in each case which are in their possession or under their reasonable control. The representations
and warranties contained in this Section 3.8 and Sections 3.3, 3.4, 3.6, 3.10, and 3.22 are the sole and exclusive representations of the Company with respect to Environmental Laws,
Environmental Permits, Hazardous Materials or any other matter related to the environment or the protection of human health and worker safety (regarding Hazardous Materials).
Section 3.9 Employee Benefit Plans.
(a) Section 3.9(a) of the Company Disclosure Letter sets forth a correct and complete list of each material
Company Benefit Plan. With respect to each Company Benefit Plan, to the extent applicable, correct and complete copies of the following have been delivered or made available to Parent by the Company: (i) the most recent plan document;
(ii) the most recent related trust agreement; (iii) the most recent annual report (Form 5500) filed with the Internal Revenue Service (the IRS); (iv) the most recent determination, opinion or advisory letter from the IRS
for any Company Benefit Plan that is intended to qualify under Section 401(a) of the Code and the most recent nondiscrimination tests performed under the Code; (v) the most recent summary plan description (and any summaries of material
modifications thereto); and (vi) any non-routine correspondence with any Governmental Entity with respect to any Proceeding.
(b) Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect,
(x) each Company Benefit Plan has been established, operated, funded and administered in accordance with its terms and the requirements of all applicable Laws, including ERISA and the Code, and all contributions required to be made to any
Company Benefit Plan, and all premiums due or payable with respect to insurance policies funding any Company Benefit Plan have been timely made (to the extent due) or properly accrued (to the extent not yet due) and (y) there have been no
prohibited transactions within the meaning of Section 4975 of the Code or Sections 406 or 407 of ERISA and not otherwise exempt under Section 408 of ERISA and no breaches of fiduciary duty (as determined under ERISA) with
respect to any Company Benefit Plan. There are no pending or, to the Knowledge of the Company, threatened claims (other than claims for benefits in the ordinary course of business) or Proceedings, in each case with respect to any Company Benefit
Plan. Each Company Benefit Plan that is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the IRS or is the subject of a favorable opinion letter from the IRS on the form of such
Company Benefit Plan and there are no facts or circumstances that could be reasonably expected to adversely affect the qualification of any such Company Benefit Plan.
(c) No Company Benefit Plan is, and none of the Company, its Subsidiaries or any of their respective ERISA Affiliates
sponsor, maintain, or contribute to (or are required to contribute to) or have any current or contingent liability or obligation under or with respect to: (i) any defined benefit plan (as defined in Section 3(35) of ERISA) or
any other plan that is or was subject to Title IV of ERISA or Section 412 or 430 of the Code, (ii) a multiple employer plan within the meaning of Sections 4063 or 4064 of ERISA, (iii) a multiemployer plan as
defined in Section 4001(a)(3) of ERISA (a Multiemployer Plan), or (iv) a multiple employer welfare arrangement (as such term is defined in Section 3(40) of ERISA). Neither the Company nor any of its
Subsidiaries have, by reason of at any time being treated as a single employer under Section 414 of the Code with any other Person, any current or contingent liability or obligation with respect to a plan referenced in clauses (i) through
(iv) above, or as a result of such Persons failure to comply with Section 4980B of the Code or Section 601 et seq of ERISA.
(d) Neither the execution of this Agreement nor the completion of the transactions contemplated hereby (either alone or
in conjunction with any other event) will result in (x) any compensation payment
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becoming due to any current or former employee or service provider of the Company or any of its Subsidiaries, (y) the acceleration of vesting or payment or provision of any other rights or
benefits (including funding of compensation or benefits through a trust or otherwise) to any current or former employee or service provider of the Company or any of its Subsidiaries, or (z) any increase to the compensation or benefits otherwise
payable under any Company Benefit Plan or otherwise.
(e) Each Company Benefit Plan that provides health or welfare
benefits is fully insured and any incurred but not reported claims under any such Company Benefit Plan has been properly accrued in accordance with GAAP. No Company Benefit Plan provides and neither the Company, its Subsidiaries, nor its ERISA
Affiliates have any current or contingent liability or obligation in respect of, post-termination or retiree medical, life or other welfare benefits to any Person, other than through the last day of the month in which an employees employment
ceases (to the extent permitted under the terms of the applicable Company Benefit Plan) or as required by Section 4980B of the Code for which the covered Person pays the full cost of coverage. The Company and its Subsidiaries have complied and
are in compliance in all material respects with the requirements of Section 4980B of the Code and any similar state Law as well as the Patient Protection and Affordable Care Act, including the Health Care and Education Reconciliation Act of
2010, as amended and including any guidance issued thereunder (PPACA). Neither the Company nor any of its Subsidiaries has incurred (whether or not assessed), or is reasonably expected to incur, any Tax or penalty that may be
imposed under PPACA.
(f) Neither the Company nor its Subsidiaries has any indemnity or gross-up obligation for any excise taxes or penalties or interest imposed or accelerated under Sections 409A or 4999 of the Code (or any corresponding provisions of foreign, state or local Law relating to Tax).
(g) No amount or benefit that would reasonably be, or has been, received (whether in cash or property or the vesting of
property or the cancellation of Indebtedness) by a disqualified individual within the meaning of Section 280G of the Code, pursuant to Contracts in existence at the Closing, would reasonably be characterized as an excess
parachute payment (as defined in Section 280G(b)(1) of the Code) as a result of the consummation of the transactions contemplated hereby.
(h) Each Company Benefit Plan that is subject to Section 409A of the Code has been maintained and administered in
material compliance with the operational and documentary requirements of Section 409A of the Code and all applicable regulatory guidance (including proposed and final regulations, notices and rulings) thereunder.
(i) Without limiting the generality of the other provisions of this Section 3.9, with respect
to each Company Benefit Plan maintained outside the jurisdiction of the United States, whether or not United States Law also applies, or that covers any employee residing or working outside the United States (such Company Benefit Plans,
Foreign Plans): (i) each Foreign Plan which is required to be registered or approved by any Governmental Entity, has been so registered and approved, except where failure to register or gain approval will not result in material
liability; (ii) except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, each Foreign Plan has been maintained in good standing with the applicable requirements of the relevant
Governmental Entity; (iii) no Foreign Plan is a defined benefit plan (as defined in ERISA, whether or not subject to ERISA); and (iv) there are no unfunded or underfunded liabilities with respect to any Foreign Plan.
Section 3.10 Absence of Certain Changes or Events. Since December 31,
2018 through the date hereof, (a) the business of the Company and its Subsidiaries has been conducted in all material respects in the ordinary course of business consistent with past practice in all material respects, (b) the Company and
its Subsidiaries have not taken any action that, if taken or proposed to be taken after the date hereof, would be prohibited by Section 5.1(b), except as would not reasonably be expected to be materially adverse to the
Company, and (c) there has not been any change, event, development or occurrence which, individually or in the aggregate, has had a Material Adverse Effect.
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Section 3.11 Litigation.
(a) There is, and since January 1, 2017 there has been, no Proceeding to which the Company, any of its Subsidiaries, to the Knowledge of the Company, any of its or their officers or employees, acting in his or her capacity as such, nor any
of their respective properties or assets is a party pending or, to the Knowledge of the Company, threatened and (b) neither the Company, any of its Subsidiaries, nor any of their respective properties or assets is or since January 1, 2017
has been subject to any outstanding Order, in each case, that would be materially adverse to the Company. There are no inquiries, investigations or reviews by the SEC or any other Governmental Entity pending or, to the Knowledge of the Company,
threatened, with respect to the Company or any of its Subsidiaries or any of their respective Company assets, except for those that would not be materially adverse to the Company. There are no settlements of any Proceedings to which the Company or
any of its Subsidiaries is a party or by which any of their respective properties or assets is bound that are material to the Company and its Subsidiaries, taken as a whole, and under which the Company or any of its Subsidiaries have material
continuing obligations.
Section 3.12 Tax Matters.
(a) Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect:
(i) (A) The Company and its Subsidiaries have timely filed (taking into account any extension
of time within which to file) all Tax Returns required to be filed by any of them and all such filed Tax Returns are true, complete and accurate and (B) the Company and each of its Subsidiaries have paid all Taxes that are required to be paid
by any of them.
(ii) There are no Liens for Taxes on any property of the Company or any of its
Subsidiaries other than Taxes which are not yet due and payable.
(iii) The Company and its
Subsidiaries have provided adequate reserves in their consolidated financial statements for any Taxes that have not been paid.
(iv) Neither the Company nor any of its Subsidiaries is a party to or bound by or has any obligation
under any Tax indemnification, separation, sharing or similar agreement or arrangement (other than exclusively among the Company and its Subsidiaries), and neither the Company nor any of its Subsidiaries (A) is or has been a member of any
consolidated, combined, unitary or similar group for purposes of filing Tax Returns or paying Taxes (other than a group of which the Company is the common parent corporation) or (B) has any liability for the payment of Taxes of any person as a
successor or transferee.
(v) The Company and each of its Subsidiaries has duly and timely withheld
all amounts required by applicable Laws to be withheld by it and has duly and timely remitted to the appropriate Governmental Entities such amounts required by applicable Laws to be remitted by it.
(vi) Neither the Company nor any of its Subsidiaries will be required to include in any taxable period
ending after the Closing Date taxable income attributable to income that accrued in a taxable period prior to the Closing Date but was not recognized for Tax purposes in such prior taxable period (or to exclude from taxable income in a taxable
period ending after the Closing Date any deduction the recognition of which was accelerated from such taxable period to a taxable period prior to the Closing Date) as a result of (A) the installment method of accounting, the completed contract
method of accounting, the long-term contract method of accounting, the cash method of accounting, Section 481 of the Code or Section 108(i) of the Code (or, in each case, comparable provisions of state, local or non-U.S. Tax Law), (B) any deferred intercompany transaction or any excess loss account described in Treasury Regulations under Section 1502 of the Code (or any comparable provision of state, local or non-U.S. Tax Law) resulting from a transaction or event occurring on or prior to the Closing Date, or (C) any prepaid amount received on or prior to the Closing Date outside of the ordinary course of business.
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(vii) The Company and each of its Subsidiaries has
duly and timely collected, in all respects, all amounts on account of sales or transfer Taxes, including goods and services, value added and U.S. federal, state, local or non-U.S. sales Taxes, required by
applicable Laws to be collected by it and has duly and timely remitted to the appropriate Governmental Entities such amounts required by applicable Laws to be remitted by it.
(viii) There is no Proceeding currently pending or, to the Knowledge of the Company, threatened against
or with respect to the Company or any of its Subsidiaries in respect of any Taxes or Tax Returns. No deficiencies for any Taxes have been proposed, asserted, assessed or threatened in writing against the Company or any of its Subsidiaries which have
not been settled and paid.
(ix) No written agreement or other written document waiving or
extending, or having the effect of waiving or extending, the statute of limitations or the period of assessment or collection of any Taxes relating to the Company or any of its Subsidiaries has been filed or entered into with any Taxing Authority,
and no power of attorney with respect to any such Taxes has been granted to any person, in each case, that remains in effect.
(x) Neither the Company nor any of its Subsidiaries has 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)(1)(A)(ii) of the Code or a real property corporation (Igud Mekarkein) within the meaning of such term
under Section 1 of the Israeli Land Taxation Law (Appreciation and Acquisition), 5723-1963.
(xi) Neither the Company nor its Subsidiaries have made any election under Section 965 of the Code.
(xii) The Israeli Subs are not subject to any restrictions or limitations pursuant to Part E2 of
the Ordinance or pursuant to any Tax ruling made with reference to the provisions of such Part E2 or otherwise.
(xiii) The Israeli Subs have not performed any Business Restructuring as such term is
defined in the ITA Tax Circular no. 15-2018.
(xiv) The
Israeli Subs are duly registered for the purposes of Israeli value added tax and have complied in all material respects with all requirements concerning value added taxes.
(xv) Each of the Company and Israeli Subs are in compliance, and in the past have always complied, with
all relevant requirements of Section 102 of the Ordinance and the regulations promulgated thereunder, with respect to any Company Equity Awards granted pursuant to Section 102 of the Ordinance, including with respect to the due deposit of
such Company Equity Awards with the 102 Trustee, pursuant to the terms of Section 102 of the Ordinance and any regulation or publication issued by the ITA. Each Section 102 Share intended to qualify for the capital gains route under
Section 102 of the Ordinance so qualifies. No Company Equity Award has been granted pursuant to Section 3(i) of the Ordinance.
(xvi) Each of the Israeli Subs has operated and is operating to comply in all material respects with all
applicable transfer pricing Laws and regulations, including Section 85A of the Ordinance and the regulations promulgated thereunder and the execution and maintenance of contemporaneous documentation substantiating transfer pricing practices and
methodology.
(xvii) None of the Israeli Subs owns any Approved Enterprise,
Benefitted Enterprise, Preferred Enterprise, or Preferred Technology Enterprise as each such terms are defined in the Israeli Law for the Encouragement of Capital Investment of 1959 and none of the Israeli Subs
has never claimed any tax benefits under such law.
(xviii) Since its incorporation, neither of the
Israeli Subs has received any taxation ruling or decision (Hachlatat Misui) from, or entered into any agreements with, the ITA.
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(xix) Neither the Company nor any of its Subsidiaries
has a permanent establishment (within the meaning of an applicable Tax treaty) or otherwise has an office or fixed place of business in a country other than the country in which it is organized.
(b) The Company has not been a controlled corporation or a distributing corporation (in each
case, within the meaning of Section 355(a)(1)(A) of the Code) in any distribution that was purported or intended to be governed by Section 355 of the Code occurring during the two (2)-year period ending on the date hereof.
(c) None of the Company or any of its Subsidiaries has participated in any listed transaction within the
meaning of Treasury Regulation Section 1.6011-4(b) or a reportable transaction under Section 131(g) of the Ordinance and the regulations promulgated thereunder. None of the Israeli Subs
is subject to any reporting obligations under Sections 131D and 131E of the Ordinance.
Section 3.13 Employment and Labor Matters.
(a) Neither the Company nor any of its Subsidiaries is a party to or bound by any collective bargaining agreement or
other Contract with any labor union, labor organization, works council, employee representative or group of employees (each, a Collective Bargaining Agreement) and no employees of the Company or any of its Subsidiaries are
represented by any labor union, works council, or other labor organization with respect to their employment with the Company or any of its Subsidiaries. To the Companys Knowledge, in the past five (5) years, there have been no labor
organizing activities with respect to any employees of the Company or any of its Subsidiaries. With respect to the Israeli Subs (i) there are no representation proceedings or petitions seeking a representation proceeding pending or filed with
any of the labor court or other applicable judicial authority and no labor organization has made a demand for recognition as a representative organization during the five (5) years prior to the date of this Agreement, and (ii) the Israeli
Subs have not paid, been required to pay or been requested to make any payment (including membership fee, professional organizational handling charges) to any employers association or organization.
(b) Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect,
since January 1, 2017: (i) there has been no strike, lockout, slowdown, work stoppage, material labor grievance, material labor arbitration, unfair labor practice charge or other material labor dispute against or affecting the Company or any of
its Subsidiaries pending or, to the Companys Knowledge, threatened; (ii) there has been no pending Proceeding against the Company or any of its Subsidiaries by the National Labor Relations Board or any comparable Governmental Entity; and
(iii) the Company and its Subsidiaries have complied with all Laws in all material respects regarding labor, employment and employment practices, including anti-discrimination, harassment, retaliation, restrictive covenants, terms and
conditions of employment, wages and hours (including the Fair Labor Standards Act of 1938 (FLSA), classification of employees and equitable pay practices), health and safety, immigration (including the completion of I-9s for all employees and the proper confirmation of employee visas), disability rights or benefits, equal opportunity (including compliance with any affirmative action plan obligations), workers
compensation, labor relations, employee leave issues, unemployment insurance, plant closures and layoffs and other Laws in respect of any reduction in force (including the Worker Adjustment and Retraining Notification Act of 1988 and any similar
state, local or foreign Law (collectively, WARN), notice, information and consultation requirements), and no Proceedings relating to labor- or employment-related matters or non-compliance
with the foregoing are pending or, to the Companys Knowledge, threatened; and (iv) neither the Company nor any of its Subsidiaries has any direct or indirect material Liability with respect to misclassification of any person as
(x) an independent contractor rather than as an employee, (y) an exempt employee rather than as a non-exempt employee with respect to FLSA (or similar state Law), or (z) a leased employee from
another employer rather than an employee of the Company.
(c) To the Companys Knowledge, no allegations of
sexual harassment, or other discrimination, retaliation or employee conduct policy violations have been made against officers, directors, employees, contractors, or agents of the Company or its Subsidiaries, that, would reasonably be expected to
result in material Liability.
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(d) To the Companys Knowledge, no current employee with
annualized salary at or above $150,000 has as of the date of this Agreement any definitive plans to terminate his or her employment prior to the Closing.
(e) There has been no mass layoff or plant closing (as defined by WARN and the regulations
promulgated thereunder) with respect to the Company or any of its Subsidiaries within the last six (6) months, and neither the Company nor any of its Subsidiaries has incurred any Liability under WARN that remains unsatisfied.
(f) To the Companys Knowledge, no current or former employee or independent contractor of the Company or its
Subsidiaries is in any material respect in violation of any term of any employment agreement, nondisclosure agreement, common law nondisclosure obligation, fiduciary duty, noncompetition agreement, restrictive covenant or other obligation:
(i) owed to the Company or its Subsidiaries; or (ii) owed to any third party with respect to such persons right to be employed or engaged by the Company or its Subsidiaries.
(g) With respect to employees who reside or work in Israel or to whom Israeli Law applies (Israeli
Employees): (i) neither the Company nor any of its Subsidiaries is subject to, and no Israeli Employee of the Company or any its Subsidiaries benefits from, any extension order (tzavei harchava) (other than extension orders
applicable to all employees in Israel); (ii) the Companys or any if its Subsidiarys obligations to provide statutory severance pay to its Israeli Employees pursuant to the Severance Pay Law-1963,
vacation pursuant to the Israeli Annual Leave Law-1951, and contributions to any funds, including all pension arrangements and any personal employment agreement, have been satisfied in all material respects or
have been fully funded by contributions to appropriate funds or if not required to be fully funded are fully accrued on the relevant consolidated financial statements in accordance with GAAP; and (iii) the Company and its Subsidiaries are in
compliance in all material respects with all applicable Laws, regulations, permits and Contracts relating to employment, wages and other compensation matters and terms and conditions of employment related to their Israeli Employees, including,
without limitation, The Advance Notice of Discharge and Resignation Law, (5761-2001), The Notice to Employee (Terms of Employment) Law (5762-2002), The Prevention of Sexual Harassment Law (5758-1998), the Hours of Work and Rest Law, 1951, the Annual
Leave Law, 1951, the Salary Protection Law, 1958, Law for Increased Enforcement of Labor Laws, 2011, Foreign Employees Law-1991, and The Employment of Employee by Manpower Contractors Law (5756-1996). Neither
the Company nor any of its Subsidiaries has engaged any Israeli Employees and service providers whose employment or engagement, as applicable would require special licenses, permits or approvals from any Governmental Entity. All amounts that the
Company and its Subsidiaries are legally or contractually required either (x) to deduct from their Israeli Employees salaries or to transfer to such Israeli Employees pension or provident, life insurance, incapacity insurance,
continuing education fund or other similar funds or (y) to withhold from their Israeli Employees salaries and benefits and to pay to any Governmental Entity as required by the Israeli National Insurance Law, 1953, or otherwise have, in
each case, been duly deducted, transferred, withheld and paid (other than routine payments, deductions or withholdings to be timely made in the normal course of business and consistent with past practice), and the Company and its Subsidiaries do not
have any outstanding obligations to make any such deduction, transfer, withholding or payment (other than such that has not yet become due) with respect to any of the Israeli Employees.
(h) All Israeli Employees are lawfully entitled to work for the Company or the applicable Company Subsidiary without
any visa or permit. Neither the Company nor any of the Company Subsidiaries engage minors, unpaid interns, unpaid volunteers or foreign employees in Israel in violation of any applicable Israeli law.
Section 3.14 Real Property.
(a) Section 3.14(a) of the Company Disclosure Letter sets forth the address of each parcel of land, together
with all buildings, structures, improvements and fixtures located thereon, and all easements and other rights and interests appurtenant thereto, owned by the Company or any of its Subsidiaries (the Owned Real Property).
Except as would not, individually or in the aggregate, reasonably be expected to have a Material
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Adverse Effect, with respect to the Owned Real Property, (i) the Company or one of its Subsidiaries, as applicable, has good and marketable title to the Owned Real Property, free and clear
of any Liens (other than Permitted Liens), (ii) the Company or any of its Subsidiaries have not leased or otherwise granted to any Person any right to use or occupy such Owned Real Property or any material portion thereof; and (iii) there are
no outstanding options, rights of first offer, or rights of first refusal to purchase the Owned Real Property, or any portion thereof or interest therein. Neither the Company nor any Subsidiary is party to any agreement or option to purchase any
material real property or interest therein.
(b) Section 3.14(b) of the Company Disclosure Letter sets forth
a complete and correct list of the addresses of all real property leased, subleased, licensed or otherwise occupied by the Company or any of its Subsidiaries (collectively, including the improvements thereon, the Leased Real
Property), and all leases, subleases, licenses, concessions and other agreements under which the Company or its Subsidiaries lease, sublease, use or occupy the Leased Real Property, including all amendments, modifications, extensions and
guaranties relating thereto (each a Company Lease and collectively, the Company Leases). The Company has delivered to Parent a true and complete copy of each such Company Lease document. Except as would not,
individually or in the aggregate, reasonably be expected to have a Material Adverse Effect: (i) each Company Lease is valid and binding on the Company and each of its Subsidiaries party thereto and, to the Knowledge of the Company, each other
party thereto and is in full force and effect; (ii) there is no breach or default under any Company Lease by the Company or any of its Subsidiaries or, to the Knowledge of the Company, any other party thereto; (iii) no event has occurred
that with or without the lapse of time or the giving of notice or both would constitute a breach or default under any Company Lease by the Company or any of its Subsidiaries or, to the Knowledge of the Company, any other party thereto; (iv) the
Company or one of its Subsidiaries that is either the tenant or licensee named under the Company Lease has a good and valid leasehold interest in the Leased Real Property, free and clear of any Liens (other than Permitted Liens) and is in possession
of the Leased Real Property purported to be leased or licensed thereunder; (v) the Company or Subsidiary has not subleased, licensed or otherwise granted any Person the right to use or occupy any Leased Real Property or any portion thereof; and
(vi) the Company or Subsidiary has not collaterally assigned or granted any other security interest in any Company Lease or any interest therein.
(c) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect,
there is no pending or, to the Knowledge of the Company, threatened appropriation, condemnation or like Proceeding, or sale or other disposition in lieu of condemnation, affecting the Owned Real Property or any portion thereof or, to the Knowledge
of the Company, the Leased Real Property or any portion thereof.
(d) The Leased Real Property and the Owned Real
Property (collectively, the Real Property) constitute all of the real property used or occupied by the Company and any of its Subsidiaries.
(e) All buildings, structures, improvements, fixtures, building systems and equipment, and all components thereof,
included in the Real Property (the Improvements) are in good condition and repair and sufficient for the operation of the Companys or any Subsidiarys business in all material respects.
Section 3.15 Intellectual Property.
(a) Section 3.15(a) of the Company Disclosure Letter sets forth a list of all (i) Patents, Marks,
Copyrights, and Internet domain names registered to or applied for and owned by the Company or any of its Subsidiaries (collectively, the Registered Intellectual Property) and (ii) all material unregistered Marks owned by the
Company or any of its Subsidiaries (together with the Registered Intellectual Property and all other Intellectual Property owned or purported to be owned by the Company or any of its Subsidiaries, the Owned Intellectual Property).
The Company and its Subsidiaries have taken all commercially reasonable actions to maintain and protect the Owned Intellectual Property and all of the Owned Intellectual Property is valid, in full
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force and effect and all of the Registered Intellectual Property has not expired or been cancelled, abandoned or otherwise terminated.
(b) The Company and its Subsidiaries exclusively own all right, title, and interest, free and clear of all Liens
(except for Permitted Liens), in and to all Owned Intellectual Property and exclusively own all right, title and interest, free and clear of all Liens (except for Permitted Liens), in and to, or have valid and enforceable rights to use, all material
Company Intellectual Property.
(c) (i) The Company, its Subsidiaries and the conduct of their respective
businesses do not infringe upon, violate or constitute misappropriation of, and have not infringed upon, misappropriated or otherwise violated, any Intellectual Property of any third Person, (ii) to the Companys Knowledge, as of the date
hereof, no third Person is infringing, violating, or misappropriating any Owned Intellectual Property, (iii) as of the date hereof, there is no pending Proceeding against the Company or any of its Subsidiaries with respect to any of the
foregoing, and (iv) the Company and its Subsidiaries have not received any written charge, complaint, claim, demand or notice or other communication (including any cease and desist letters and invitations to license any Intellectual
Property) asserting that the Company or any Subsidiary has infringed, violated or misappropriated, or is infringing, violating or misappropriating any Intellectual Property rights of any third Person.
(d) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect,
(i) the Company and its Subsidiaries have taken all actions reasonably necessary to maintain and protect all Company Intellectual Property (including the confidentiality of all Trade Secrets), and (ii) all Persons who have participated in
or contributed to the conception, authorship, creation, or development of any Owned Intellectual Property, or any other Intellectual Property for or under the supervision or direction of any member of the Company, have executed and delivered to the
Company or any of its Subsidiaries, as applicable, a valid and enforceable written Contract (A) providing for the non-disclosure by such Person of such confidential information, and (B) providing for
the assignment (by way of a present grant of assignment) by such Person to the Company or any of its Subsidiaries, as applicable, of all Intellectual Property conceived of, authored, created, or developed by such Person in connection with his or her
employment by, engagement by, or agreement with the Company or any of its Subsidiaries, as applicable, and, to the Companys Knowledge, no such Contracts have been breached.
(e) The Systems are adequate in all material respects for the operations of the Company and its Subsidiaries as
currently conducted and currently contemplated to be conducted. Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, the Company and its Subsidiaries have taken all commercially reasonable
measures to (A) protect the integrity of the Systems, including any data stored or contained therein or transmitted thereby, and (B) maintain industry standard data security, disaster recovery and business continuity plans, procedures and
facilities. There has not been since January 1, 2017, (1) any material failure, outage, or other adverse event with respect to the Systems that has not been remedied in all material respects or (2) any material breach of, or other
unauthorized access to, any Systems, including all data stored or contained therein, or any material breach, loss, destruction or damage of data in the Company or any of its Subsidiarys possession or under the Company or any of its
Subsidiarys control. All Company Products and all Software material to the business of the Company and its Subsidiaries (i) performs in conformance with its documentation, (ii) is free from software defects and (iii) does not
contain any virus, bug, malware, or software routine or hardware component designed to permit unauthorized access or to disable or otherwise harm any computer, Systems or Software.
(f) Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect,
(i) no Company Products or other Software used in the business of the Company and its Subsidiaries contains, uses or requires use of any open source code, shareware or other software that is made generally available to the public
without requiring payment of fees or royalties or that does or may require disclosure or licensing of any such software or any other Owned Intellectual Property and (ii) none of the Software used in the business of the Company and its
Subsidiaries is covered by or subject to the requirements of
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any license, including any version of the GNU General Public License or the GNU Affero General Public License, that would require the Company or any of its Subsidiaries to distribute, disclose,
license, release, escrow or otherwise make available any source code used or included in the Owned Intellectual Property to any third party.
(g) The Company, its Subsidiaries and the operation of their respective businesses, are, and since January 1,
2017, have been, in material compliance with all applicable Data Security Requirements, and the Company has in place adequate internal policies and procedures to comply in all material respects with the applicable Data Security Requirements. The
Company and its Subsidiaries have not received, or been subject to, any written notice, complaint, investigation, inquiry or enforcement proceedings from any Person, alleging non-compliance with the applicable
Data Security Requirements or claiming compensation in respect of non-compliance with the applicable Data Security Requirements, and no such investigation, inquiry or proceedings are pending or to the
Companys knowledge, threatened, and, to the Companys Knowledge there are no circumstances likely to give rise to any such complaint, investigation, inquiry or proceedings.
Section 3.16 Material Contracts.
(a) Section 3.16 of the Company Disclosure Letter sets forth a true, correct, and complete list of all Company
Material Contracts as of the date of this Agreement. For purposes of this Agreement, Company Material Contracts means any of the following Contracts to which the Company or any of its Subsidiaries is a party or by which the
Company, any of its Subsidiaries or any of their respective properties or assets is bound (other than, except as set forth in clause (xiii) below, a Company Benefit Plan):
(i) any material contract (as such term is defined in Item 601(b)(10) of Regulation S-K promulgated by the SEC);
(ii) any Contract with any Material
Customer or Material Vendor;
(iii) any Contract that expressly imposes any material restriction on
the right or ability of the Company or any of its Subsidiaries to compete in a line of business, against any other Person or in any geographic area, solicit any client or customer or hire any Person;
(iv) any Contract with a customer or supplier that (A) expressly obligates the Company or its
Subsidiaries (or following the Closing, Parent or its Subsidiaries) to conduct business with any third party on a preferential or exclusive basis, (B) requires that the Company or its Subsidiaries purchase its or their requirements or any
product or services from any Person or that contains a take or pay provision or (C) that contains most favored nation or similar covenants;
(v) any Contract relating to the creation, incurrence, grant, assumption or guarantee of any
Indebtedness (other than intercompany Indebtedness owed by the Company or any wholly owned Subsidiary to any other wholly owned Subsidiary, or by any wholly owned Subsidiary to the Company) of the Company or any of its Subsidiaries having an
outstanding principal amount in excess of $250,000;
(vi) any Contract that is a lease or similar
Contract with any Person under which (A) the Company is lessee of, or holds or uses, any material machinery, equipment, vehicle or other tangible personal property that is material to the Company or (B) the Company is a lessor or sublessor
of, or makes available for use by any Person, any tangible personal property that is material to the Company;
(vii) any Contract that relates to material Intellectual Property (including any licensing of
Intellectual Property by the Company or any of its Subsidiaries to any Person or by any Person to the Company or any of its Subsidiaries) and any other Contracts affecting the Company or any of its Subsidiaries ability to own, use, transfer,
license, disclose, or enforce any material Intellectual Property (or any assignment, license, royalty, development (and co development), concurrent use, settlement, consent to use, covenant not to sue, software escrow, and indemnification agreements
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relating to such material Intellectual Property, in each case other than (a) any shrink-wrap, click-wrap, or other mass-market,
non-negotiated licenses for unmodified, commercially available, off-the-shelf software used by the Company or its Subsidiaries
for their internal business purposes, in each case with aggregate license, maintenance or support fees of less than $100,000 per year), (b) written confidentiality Contracts entered into in the ordinary course of business, or (c) non-exclusive licenses granted to customers in the ordinary course of business;
(viii) any Contract that grants any right of first refusal, right of first offer or similar right or
option with respect to any material equity interests or assets, services, rights or properties of the Company or its Subsidiaries;
(ix) any Contract that provides for the pending or completed material acquisition or disposition of any
assets (other than acquisitions or dispositions in the ordinary course of business) or business (whether by merger, sale of stock, sale of assets, consolidation or otherwise) or capital stock or other equity interests of any Person, with outstanding
obligations as of the date hereof, in each case with a value in excess of $250,000;
(x) any
Contract relating to the formation, creation, operation, management or control of any joint venture, partnership, minority equity investment, limited liability company or similar Contracts involving the sharing of profits, revenues, losses, costs or
liabilities with any Person, other than any such Contract solely between the Company and its wholly owned Subsidiaries or among the Companys wholly owned Subsidiaries;
(xi) any Contract with an Affiliate or other Person that would be required to be disclosed under Item
404(a) of Regulation S-K promulgated under the Exchange Act;
(xii) any Contract under which the Company or any Subsidiary of the Company, directly or indirectly, has
agreed to make any advance, loan, extension of credit or capital contribution to, or other investment in, any Person (other than the Company or any of its wholly owned Subsidiaries), in any such case which, individually, is in excess of $250,000;
(xiii) any contract for employment or consulting services (other than any agreement for at-will employment terminable without incurring any liability of the Company or any Subsidiary of the Company) providing for annual compensation to any Person in any calendar year in excess of $100,000;
(xiv) any Contract involving any resolution or settlement of any Proceeding involving the Company
or any Subsidiary of the Company that imposes material obligations upon the Company or any Subsidiary of the Company after the date of this Agreement;
(xv) any Contract which provides for the future sale of products or services by the Company and under
which the undelivered balance of such products or services has a sale price in excess of $750,000;
(xvi) any Contract that grants a power of attorney or similar agency rights;
(xvii) any Contract requiring any capital commitment or capital expenditures (including any series of
related expenditures) by the Company or its Subsidiaries following the date hereof in excess of $100,000;
(xviii) any Collective Bargaining Agreement; and
(xix) any Government Contract.
(b) There is no default under any Company Material Contract by the Company or any of its Subsidiaries and no event has
occurred that with the lapse of time or the giving of notice or both would constitute a default thereunder by the Company or any of its Subsidiaries or that would permit termination, modification or acceleration thereof, in each case, except as
would not, individually or in the aggregate, reasonably be expected
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to have a Material Adverse Effect. Each Company Material Contract (i) is a valid and binding obligation of the Company or the Subsidiary of the Company that is party thereto and, to the
Knowledge of the Company, of each other party thereto, and is in full force and effect, except to the extent the term has previously expired and (ii) is enforceable against the Company or its applicable Subsidiary and, to the Knowledge of the
Company, each other party thereto in accordance with its terms, subject to the Enforceability Exceptions, in each case except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The Company has
made available to Parent true, complete and correct copies of all written Company Material Contracts.
Section 3.17 Government Contracts. In the past three (3) years, neither
the Company nor its Subsidiaries has (a) breached or violated any material Law, certification, representation, clause, provision or requirement pertaining to any Government Contract; (b) been suspended or debarred from bidding on
government contracts by a Governmental Entity; (c) been audited or investigated by any Governmental Entity with respect to any Government Contract (except with respect to audits performed by the Defense Contract Audit Agency in the regular
course of business); (d) conducted or initiated any internal investigation or made any disclosure under Federal Acquisition Regulation (FAR) Subpart 3.1003 with respect to any alleged or potential irregularity, misstatement or
omission arising under or relating to a Government Contract; (e) received from any Governmental Entity or any other Person any written notice of material breach, cure, show cause or default with respect to any Government Contract; (f) had
any Government Contract terminated by any Governmental Entity or any other Person for default or failure to perform; or (g) received any small business set-aside contract, any other set aside contract or
other contract requiring small business or other preferred bidder status. The Company and its Subsidiaries have established and maintained adequate internal controls for compliance with their respective Government Contracts in accordance with FAR
Subpart 3.1002. All pricing discounts required by the Government Contracts have been properly reported to and credited to the customer and all invoices and claims for payment, reimbursement or adjustment submitted by the Companies and the
Subsidiaries were current, accurate and complete in all material respects as of their respective submission dates. There are no material outstanding claims or disputes in connection with any of the Companys or any of its Subsidiaries
Government Contracts. To the Knowledge of the Company, there are no outstanding or unsettled allegations of fraud, false claims or overpayments nor any investigations or audits by any Governmental Entity with regard to any of the Companys or
its Subsidiaries Government Contracts. The Company and each of its Subsidiaries, as applicable, have complied in all material respects with all applicable U.S. National Security obligations, including, without limitation, those specified in
the National Industrial Security Program Operating Manual, DOD 5220.22-M (February 28, 2006) (Change 2 May 18, 2016).
Section 3.18 Government Grants. Section 3.18 of the
Company Disclosure Letter contains a complete list of each pending or outstanding material Government Grant granted to the Company or any of its Subsidiary which subject the Company or any Company Subsidiary to any restrictions with respect to their
operations or to any liability to make payments to any Governmental Entity, that are in effect as of the Effective Time. The Company and its Subsidiaries are in compliance in all material respects with the terms and conditions of the Government
Grants and the requirements applicable thereto, and have duly fulfilled all of their obligations and undertakings relating thereto, including reporting obligations, restrictions on the transfer of know-how out
of the State of Israel, and royalty payment obligations, in each case, except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The consummation of the Merger is not expected to lead to the
revocation or material modification or material reduction of any of the Government Grants.
Section 3.19 Opinion. The Special Committee has received the written opinion
of B. Riley FBR, Inc. (the Financial Advisor) that, as of the date of such opinion and based upon and subject to the various assumptions made, procedure followed, matters considered, and qualifications and limitations set forth
therein, the Merger Consideration is fair, from a financial point of view, to the holders of Shares. Such opinion has not been amended or rescinded as of the date of this Agreement. A signed, true, correct and complete copy of such opinion will be
made available to Parent for informational purposes only on a non-reliance basis promptly following receipt by the Special Committee.
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Section 3.20 Finders or
Brokers. Other than the Financial Advisor, no broker, finder or investment banker or similar Person is entitled to any fee or commission in connection with the negotiation, execution or delivery of this Agreement or the consummation of any of
the transactions contemplated hereby based upon arrangements made by or on behalf of the Company, any of its Subsidiaries, the Special Committee or the Company Board. The Company has made available to Parent a true, correct and complete copy of all
Contracts pursuant to which the Financial Advisor is entitled to any fee, commission or expenses in connection with the transactions contemplated hereby.
Section 3.21 Related Person Transactions. Except for compensation or other
employment arrangements in the ordinary course of business or as otherwise disclosed in the Company SEC Documents, none of the Companys former or current direct or indirect equity holders, controlling Persons, stockholders, directors,
officers, employees, agents, Affiliates, members, managers, general or limited partners, and such Persons affiliates or immediate family members (a) is a party to or has any right, title, license or interest in any material contract or
transaction with the Company or any of its Subsidiaries, or (b) has any material interest in any asset or property held, owned or used by the Company or any of its Subsidiaries (each a, Company Related Party Transaction). To
the Companys Knowledge, no counterparty to a Company Related Party Transaction owns, directly or indirectly, on an individual or joint basis, any interest in, or serves as an officer, manager, general partner, officer, employee or director or
in another similar capacity of, any vendor or other independent contractor of the Company or any of its Subsidiaries, or any Person that has a Contract with the Company or any of its Subsidiaries.
Section 3.22 Insurance Policies. Section 3.22 of the
Company Disclosure Letter sets forth a true, correct and complete summary (including the name of the insurer and policy number) of the Companys material insurance policies and fidelity bonds covering the assets, business, equipment,
properties, operations and employees of the Company and its Subsidiaries (collectively, the Insurance Policies). Except as would not reasonably be expected to have a Material Adverse Effect, each of the Insurance Policies or
renewals thereof are in full force and effect, all premiums on the Insurance Policies that are due and payable have been timely paid and the Company and its Subsidiaries are in compliance with the terms of such Insurance Policies. As of the date
hereof and during the past twelve (12) months, there is and has been no claim by the Company or any Subsidiary of the Company pending under any Insurance Policies that has been denied or disputed by the insurer or in respect of which such
insurer has reserved its rights. During the past twelve (12) months, no policy limits for any Insurance Policy has been exhausted or materially reduced. To the Knowledge of the Company, (a) the termination of any Insurance Policy has not
been threatened within the past twelve (12) months and (b)
no insurer intends not to renew any Insurance Policy.
Section 3.23 No Rights
Agreement. The Company is not a party to a stockholder rights agreement, poison pill or similar antitakeover agreement or plan and the Company Board has not adopted or authorized the adoption of such an agreement or plan. No
fair price, moratorium, control share acquisition or other similar anti-takeover statute or regulation or any anti-takeover provision in the Company Organizational Documents is applicable to the Company, the
Shares, the Merger, this Agreement or the other transactions contemplated by this Agreement.
Section 3.24 Customers and Vendors. Section 3.24 of the Company
Disclosure Letter sets forth a list of the (a) top 10 largest customers of the Company and its Subsidiaries, taken as a whole, as determined by dollar volume for the twelve (12) month period ended as of June 30, 2019 (each a
Material Customer) and (b) top 10 largest suppliers, vendors and service providers of the Company and its Subsidiaries, taken as a whole, as determined by aggregate expenses for the twelve (12) month period ended as of
June 30, 2019 (each a Material Vendor). Since January 1, 2019, no Material Customer or Material Vendor (i) has terminated or, to the Knowledge of the Company, threatened to terminate its relationship with the
Company or its Subsidiaries, (ii) has materially decreased or limited materially or, to the Knowledge of the Company, threatened to materially decrease or limit materially, the services, supplies or materials supplied to or purchased from the
Company or its Subsidiaries, or (iii) materially changed or, to the Knowledge of the Company, threatened to change materially
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its business relationship with the Company or its Subsidiaries. To the Knowledge of the Company, there are no unresolved material disputes with any Material Customer or Material Vendor.
Section 3.25 Independent Investigation. In entering into this Agreement, the
Company acknowledges that it has relied solely upon its own investigation, review and analysis of Parent and Merger Sub and not on any factual representations or opinions of Parent or Merger Sub or their respective representatives (except the
representations and warranties contained in Article IV). Except for the representations and warranties contained in Article IV, the Company acknowledges and agrees that none of the Parent and its Affiliates and no other Person makes,
nor is the Company relying on, any other express, implied or statutory representation or warranty with respect to or on behalf of, Parent, Merger Sub or their respective Affiliates or their respective businesses or with respect to any other
information provided or made available to the Company or Company representatives in connection with the Merger or the other transactions contemplated hereby, including the accuracy or completeness thereof.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as disclosed in the disclosure schedule delivered by Parent to the Company concurrently with the execution of this Agreement (the
Parent Disclosure Schedule), Parent and Merger Sub jointly and severally represent and warrant to the Company as follows:
Section 4.1 Organization. Parent is a corporation duly incorporated, validly
existing and in good standing under the Laws of the State of Delaware. Merger Sub is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of Delaware. Each of Parent and Merger Sub has all requisite
corporate power and authority to own, lease and operate its properties and assets and to carry on its business as presently conducted, except where the failure to have such power or authority would not reasonably be expected to have, individually or
in the aggregate, a Parent Material Adverse Effect. Each of Parent and Merger Sub is duly qualified or licensed, and has all necessary governmental approvals, to do business and (where such concept is recognized) is in good standing in each
jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such approvals, qualification or licensing necessary, except where the failure to be so duly approved, qualified or licensed and
in good standing would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect.
Section 4.2 Corporate Authority Relative to this Agreement; Consents and Approvals; No Violation.
(a) Each of Parent and Merger Sub has the requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby, including the Merger. The execution, delivery and performance by Parent and Merger Sub of this Agreement and the consummation by each of them of the transactions contemplated hereby, including
the Merger, have been or will be, as the case may be, duly and validly authorized by the Board of Directors of Parent and the Board of Directors of Merger Sub and, except for the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware, no other corporate action or proceedings on the part of either Parent or Merger Sub are necessary to authorize the execution and delivery by Parent and Merger Sub of this Agreement and the consummation of the transactions
contemplated hereby, including the Merger. The Board of Directors of Parent has approved the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, including the Merger. The Board of
Directors of Merger Sub has (i) determined that the transactions contemplated by this Agreement, including the Merger, are advisable, fair to and in the best interests of Merger Sub and its sole stockholder, (ii) approved the execution,
delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, including the Merger and (iii) resolved to recommend that the sole stockholder of Merger Sub adopt this Agreement. The sole stockholder of
Merger Sub has duly
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executed a written consent, effective immediately following execution of this Agreement, adopting this Agreement and approving the transactions contemplated hereby, including the Merger. This
Agreement has been duly and validly executed and delivered by Parent and Merger Sub and, assuming the due authorization, execution and delivery thereof by the Company, constitutes a legal, valid and binding agreement of Parent and Merger Sub
enforceable against Parent and Merger Sub in accordance with its terms, subject to the effects of the Enforceability Exceptions.
(b) The execution, delivery and performance of this Agreement by Parent and Merger Sub, including the consummation of
the Merger, do not and will not require any authorization, consent, order license, permit or approval of, or registration, declaration, notice or filing with, any Governmental Entity except for the Transaction Approvals and such authorizations,
consents, Orders, licenses, permits, approvals, registrations, declarations, notices and filings the failure of which to make or obtain would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect.
(c) The execution, delivery and performance by Parent and Merger Sub of this Agreement do not, and assuming the
Transaction Approvals are obtained, will not (i) require any consent or approval under, violate, conflict with, result in any breach of or any loss of any benefit under, or give rise to any right of termination, vesting, amendment, acceleration
or cancellation of, any Contract to which Parent, Merger Sub or any their Subsidiaries is a party or by which they or any of their respective properties or assets is bound, (ii) conflict with or result in any violation of any provision of the
charter or bylaws or other equivalent organizational document, of Parent or Merger Sub or (iii) conflict with or violate any applicable Laws except, in the cases of clauses (i) and (iii) above for any such conflict,
violation, breach or other occurrence, as would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect.
Section 4.3 Litigation. As of the date hereof, there is no Proceeding to which
Parent or any of its Subsidiaries is a party pending or, to the Knowledge of Parent, threatened that would reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. As of the date hereof, neither Parent nor
Merger Sub is subject to any outstanding Order that would reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect.
Section 4.4 Finders or Brokers. Neither Parent nor any of Parents
Subsidiaries has employed any investment banker, broker or finder in connection with the transactions contemplated by this Agreement who would be entitled to any fee or any commission in connection with or upon consummation of the Merger.
Section 4.5 Funding.
(a) Parent will have at the time contemplated hereunder for Closing, sufficient cash on hand or available under any
binding credit facilities to (i) pay an amount in cash equal to the aggregate amounts required to be paid pursuant to Article I, (ii) pay any and all fees and expenses required to be paid by Parent or Merger Sub and the Surviving
Corporation in connection with the transactions contemplated by this Agreement and the Equity Commitment Letter, (iii) satisfy all other obligations of Parent or Merger Sub and the Surviving Corporation contemplated hereunder and thereunder,
including payment of the aggregate Merger Consideration, any payments made in respect of equity compensation obligations to be paid in connection with the transactions contemplated hereby, the payment of any debt required to be repaid, redeemed,
retired, cancelled, terminated or otherwise satisfied or discharged in connection with the Merger (including all Indebtedness of the Company and its Subsidiaries required to be repaid, redeemed, retired, cancelled, terminated or otherwise satisfied
or discharged in connection with the Merger and the other transactions contemplated hereby) and all premiums and fees required to be paid in connection therewith and all other amounts to be paid pursuant to this Agreement and all associated costs
and expenses of the Merger, and (iv) consummate the transactions contemplated by this Agreement and the Equity Commitment Letter. Neither Parent nor Merger Sub has incurred any obligation, commitment, restriction or liability of any kind, and
neither of them is contemplating or aware of any obligation, commitment, restriction or liability of any kind, in either case, which would or would reasonably be expected to impair or adversely affect such resources.
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(b) Parent has ensured that no financing is directly or indirectly
attributable to a source that is prohibited by Sanctions issued by the United States or any other applicable jurisdiction.
(c) Notwithstanding anything in this Agreement to the contrary, in no event shall the receipt or availability of any
funds or financing by or to Parent or any of its Affiliates or any other financing transaction be a condition to any of the obligations of Parent or Merger Sub hereunder.
Section 4.6 Operations and Ownership of Merger Sub.
(a) Merger Sub has been formed solely for the purpose of engaging in the transactions contemplated hereby and prior to
the Effective Time will have engaged in no other business activities and will have incurred no Liabilities or obligations other than those incident to its formation or incurred in connection with this Agreement and the Merger and the other
transactions contemplated hereby. None of Parent, Merger Sub or their respective Affiliates is a Foreign Person.
(b) As of the date of this Agreement, the authorized capital stock of Merger Sub consists of 1,000 shares of common
stock, par value $0.01 per share, all of which are validly issued and outstanding. All of the issued and outstanding capital stock of Merger Sub is, and immediately prior to the Effective Time will be, owned by Parent. There is no outstanding
option, warrant, right or any other agreement pursuant to which any Person other than Parent may acquire any equity securities of Merger Sub.
Section 4.7 Ownership of Shares. None of Parent, Merger Sub or their
respective Affiliates (a) beneficially owns, or has beneficially owned at any time within the last three (3) years, any Shares and none of Parent, Merger Sub or their respective Affiliates holds any rights to acquire or vote any Shares
except pursuant to this Agreement, or (b) is or has been at any time within the last three (3) years, an Interested Stockholder (as defined in Section 203 of the DGCL) of the Company. For purposes of this
Section 4.7, beneficial ownership shall be determined in accordance with Rule 13d-3 under the Exchange Act.
Section 4.8 Certain Agreements. Other than this Agreement and the Support
Agreement, none of Parent, Merger Sub or any of their respective Affiliates is a party to any Contract, or has authorized, made or entered into, or committed or agreed to enter into, any formal or informal agreements, arrangements or other
understandings (whether or not binding or oral or written) with any stockholder (other than any existing limited partner of the Equity Investors or any of its Affiliates), director, officer, employee or other Affiliate of the Company or any of its
Subsidiaries: (a) relating to (i) this Agreement or the Merger or (ii) the Surviving Corporation or any of its Subsidiaries businesses or operations (including as to continuing employment) from and after the Effective Time; or
(b) pursuant to which any (i) such holder of Shares would be entitled to receive consideration of a different amount or nature than the Merger Consideration in respect of such holders Shares, (ii) such holder of Shares has
agreed to approve this Agreement or vote against any Superior Proposal or (iii) such stockholder, director, officer, employee or other Affiliate of the Company other than the Equity Investors has agreed to provide, directly or indirectly, any
equity investment to Parent, Merger Sub or the Company to finance any portion of the Merger.
Section 4.9 Equity Commitment Letter. Parent has delivered to the Company a
true, complete and correct copy of the fully executed Equity Commitment Letter, dated as of the date hereof, by and among the Equity Investors, pursuant to which, upon the terms and subject to the conditions set forth therein, the Equity Investors
have agreed to invest in Parent the amount set forth therein. The Equity Commitment Letter is in full force and effect and constitutes the valid, binding and enforceable obligation of the Equity Investors. The Equity Commitment Letter provides that
the Company is an express, intended third-party beneficiary of the Equity Commitment Letter and is entitled to enforce the Equity Commitment Letter in accordance with its terms (subject to the Enforceability Exceptions). No event has occurred that,
with or without notice, lapse of time or both, would, or would reasonably be expected to, constitute a default or breach on the part of the Equity Investors pursuant to the Equity Commitment Letter. As of the date hereof, there are no conditions
precedent or subsequent
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related to the funding of the full amount of the financing other than those contemplated by the Equity Commitment Letter. As of the date hereof, the Equity Commitment Letter has not been amended,
waived, supplemented or modified in any manner, and the respective commitments contained therein have not been terminated, reduced, withdrawn or rescinded in any respect by Parent or, to the knowledge of Parent, any other party thereto, and no such
termination, reduction, withdrawal or rescission is contemplated by Parent or, to the knowledge of Parent, any other party thereto. As of the date hereof, Parent has no reason to believe that, the financing contemplated by the Equity Commitment
Letter will not be available to Parent on the Closing Date. Parent is not in default or breach under the terms and conditions of the Equity Commitment Letter and no event has occurred that, with or without notice, lapse of time or both, would or
would reasonably be expected to constitute a default or breach or a failure to satisfy a condition under the terms and conditions of the Equity Commitment Letter by Parent or, to the knowledge of Parent, any other party thereto. There are no side
letters, understandings or other agreements or arrangements relating to the financing contemplated by the Equity Commitment Letter to which Parent or any of its Affiliates is a party, in addition to the Equity Commitment Letter, that could adversely
affect such financing in any respect, other than those set forth in the Equity Commitment Letter.
Section 4.10 Solvency. Assuming that the conditions to the obligation of
Parent and Merger Sub to consummate the Merger set forth in Section 6.1 and Section 6.3 have been satisfied or waived, then immediately following the Effective Time and after giving effect to all
transactions contemplated by this Agreement (including the payment of all amounts payable pursuant to Article II in connection with or as a result of the Merger and all related fees and expenses of Parent, Merger Sub, the Company and their
respective Subsidiaries in connection therewith): (a) the amount of the fair saleable value of the assets of the Surviving Corporation and its Subsidiaries, taken as a whole, will exceed (i) the value of all Liabilities of the
Surviving Corporation and such Subsidiaries, taken as a whole, including contingent and other Liabilities, and (ii) the amount that will be required to pay the probable Liabilities of the Surviving Corporation and its Subsidiaries, taken as a
whole, on their existing debts (including contingent Liabilities) as such debts become absolute and matured; (b) the Surviving Corporation and its Subsidiaries, taken as a whole, will not have an unreasonably small amount of capital for the
operation of the businesses in which it is engaged or proposed to be engaged; and (c) the Surviving Corporation and its Subsidiaries, taken as a whole, will be able to pay its Liabilities, including contingent and other Liabilities, as they
mature. For purposes of the foregoing, not have an unreasonably small amount of capital for the operation of the businesses in which it is engaged or proposed to be engaged and able to pay its Liabilities, including contingent and
other Liabilities, as they mature means that the applicable Person will be able to generate enough cash from operations, asset dispositions or refinancing, or a combination thereof, to meet its obligations as they become due in the next twelve
(12) months. The representations in this Section 4.10 are given subject to the following assumptions: (i) the representations and warranties of the Company in this Agreement are true and correct in all material respects, (ii) the
Company has complied with its obligations under this Agreement in all respects and (iii) any estimates, projections or forecasts of the Company or its Subsidiaries made available to Parent prior to the date of this Agreement have been prepared
in good faith based on assumptions that were and continue to be reasonable (it being understood that the Company is not making any representation or warranty with respect thereto as a result of such assumption in this clause (iii)).
Section 4.11 Antitrust. As of the date of this Agreement, no fact or
circumstance exists, including any current holding and any transaction under consideration by Parent or any of its Affiliates, that would reasonably be expected to prevent or delay any filings or approvals required under the HSR Act, Israeli
Economic Competition Law or the applicable requirements of jurisdictions other than the United States or Israel designed to govern competition.
Section 4.12 No Foreign Ownership or Control. Neither Parent nor Merger Sub
qualifies as a foreign person as defined under 31 C.F.R. Section 800.216 or foreign interest as defined in Appendix to NISPOM, and the transactions contemplated under this Agreement do not require pre-closing notification to the U.S. Department of State, Directorate of Defense Trade Controls pursuant to 22 C.F.R. § 122.4(b), Parent or Merger
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Sub expect the Company to provide notice to or the Defense Counterintelligence and Security Agency on or about the date hereof in accordance with NISPOM §
1-302(g).
Section 4.13 No Other
Information; Non-Reliance.
(a) Each of Parent and Merger Sub, on
behalf of itself and its Subsidiaries and Affiliates, acknowledge that (i) the Company makes no representations or warranties as to any matter whatsoever in connection with this Agreement and the transactions contemplated hereby except as
expressly set forth in Article III or contained in any of the agreements contemplated hereby, (ii) the representations and warranties set forth in Article III are made solely by the Company and (iii) no Representative of the
Company (other than the Company) shall have any responsibility or Liability related thereto.
(b) Each of Parent
and Merger Sub, on behalf of itself and its Subsidiaries and Affiliates, acknowledges and agrees that it has relied solely upon its own investigation, review and analysis of the Company and its Affiliates and, except for the representations and
warranties expressly set forth in Article III or contained in any of the agreements contemplated hereby, it is not acting (including, as applicable, by entering into this Agreement or consummating the transactions contemplated hereby,
including the Merger) in reliance on:
(i) any estimate, projection, prediction, data, financial
information, memorandum, presentation or other materials or information provided or addressed to Parent, Merger Sub or any of their respective Affiliates or Representatives, including any materials or information made available in the electronic
data room hosted by or on behalf of the Company in connection with the Merger, in connection with presentations by the Companys management or in any other forum or setting; or
(ii) the accuracy or completeness of any other representation, warranty, estimate, projection,
prediction, data, financial information, memorandum, presentation or other materials or information.
ARTICLE V.
COVENANTS AND AGREEMENTS
Section 5.1 Conduct of Business.
(a) During the period from the date hereof until the earlier of the valid termination of this Agreement in accordance
with its terms and the Effective Time, except (i) as may be required by applicable Law, (ii) with the prior written consent of Parent (which shall not be unreasonably withheld, conditioned or delayed), (iii) as expressly required by this
Agreement or (iv) as set forth on Section 5.1(a) of the Company Disclosure Letter, the Company shall and shall cause each of its Subsidiaries to use commercially reasonable efforts to conduct its business in all
material respects in the ordinary course of business consistent with past practice, and to comply in all material respects with applicable Law.
(b) In addition to and without limiting the generality of Section 5.1(a), during the period
from the date hereof until the earlier of the valid termination of this Agreement in accordance with its terms and the Effective Time, except (i) as may be required by applicable Law, (ii) with the prior written consent of Parent (which
shall not be unreasonably withheld, conditioned or delayed), (iii) as expressly permitted, contemplated or required by this Agreement, or (iv) as set forth on Section 5.1(b) of the Company Disclosure Letter, the
Company shall not, and shall cause its Subsidiaries not to, directly or indirectly:
(A) amend,
waive or otherwise change (whether by merger, consolidation or otherwise) any provision of the Company Organizational Documents or any organizational documents of any Subsidiary of the Company;
(B) except as permitted by Section 5.1(b)(E), issue, deliver, sell, pledge,
encumber, dispose of, grant, transfer, split, combine, reclassify or authorize the issuance, delivery, sale, pledge, encumbrance,
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disposition or grant of any capital stock, voting securities or other Equity Interests of the Company or any of its Subsidiaries, or enter into any agreements to modify the rights of any Equity
Interests in the Company or any of its Subsidiaries, or authorize the issuance or sale of any Equity Interests or debt securities in the Company or any of its Subsidiaries;
(C) make, declare, set aside or pay any dividend, or make any other distribution (whether in cash or in
kind) on, redeem, purchase, repurchase or otherwise acquire, any shares of its capital stock, or any other securities or obligations convertible (whether currently convertible or convertible only after the passage of time or the occurrence of
certain events) into or exchangeable for any shares of its capital stock, except for (1) any such transactions solely among the Company and its wholly owned Subsidiaries or among the Companys wholly owned Subsidiaries, (2) the
acceptance of Shares as payment for the exercise price of Company Options outstanding as of the date hereof, if any, (3) the acceptance of Shares, or withholding of Shares otherwise deliverable, to satisfy withholding Taxes incurred in
connection with the exercise, vesting and/or settlement of Company Options, if any, Company RSUs or Company Restricted Stock outstanding as of the date hereof or (4) purchases, redemptions, or other acquisitions of any shares of its capital
stock or any other securities required by the terms of any Company Benefit Plan set forth on Section 5.1(b)(C) of the Company Disclosure Letter;
(D) grant or announce any grants of any Company Options, Company RSUs, Company Restricted Stock or other
equity-based awards or interests, or grant any individual, corporation or other entity any right to acquire any shares of its capital stock, other than in the ordinary course of business;
(E) issue, sell or otherwise permit to become outstanding any additional shares of its capital stock or
securities convertible or exchangeable into, or exercisable for, any shares of its capital stock or any options, warrants, or other rights of any kind to acquire any shares of its capital stock, except pursuant to the due exercise, vesting and/or
settlement of Company Options, if any, or Company RSUs outstanding as of the date hereof, or permitted to be issued pursuant to this Agreement, in accordance with their terms, or in transactions solely among the Company and its Subsidiaries or among
the Companys Subsidiaries;
(F) incur, create, issue, syndicate, refinance, assume, endorse,
guarantee or otherwise become liable for (whether directly, contingently or otherwise) or modify in any material respect the terms of any Indebtedness for borrowed money or issue or sell any options, warrants, calls, debt securities or any rights to
acquire any debt securities, except for (1) short-term debt incurred to fund the operation of the business of the Company and its Subsidiaries in the ordinary course of business and in a manner consistent in all material respects with past
practices, (2) Indebtedness for borrowed money among the Company and/or its wholly owned Subsidiaries or among wholly owned Subsidiaries of the Company, (3) guarantees by the Company of Indebtedness for borrowed money of wholly owned
Subsidiaries of the Company or guarantees by Subsidiaries of the Company of Indebtedness for borrowed money of the Company or any of its wholly owned Subsidiaries, which Indebtedness is incurred in compliance with this clause (F) or is
outstanding on the date hereof, (4) Indebtedness incurred in the ordinary course and in a manner consistent in all material respects with past practices pursuant to the Credit Facilities or any other amendment or modification to, or waiver
under, the Credit Facilities, (5) reasonable travel advances to employees in the ordinary course of business and in a manner consistent in all material respects with past practices or (6) additional Indebtedness for borrowed money incurred
by the Company or any of its Subsidiaries not to exceed $100,000 in aggregate principal amount outstanding;
(G) forgive, discharge or cancel any Indebtedness owed to or claims held by the Company or any of its
Subsidiaries;
(H) sell, lease, license, transfer, abandon, let lapse or otherwise dispose of any of
its properties, assets or rights or any portion thereof having a fair market value in excess of $250,000 individually or $500,000 in the aggregate (other than to the Company or a wholly owned Subsidiary of the Company);
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(I) disclose any Trade Secrets (other than pursuant
to a written confidentiality Contract entered into in the ordinary course of business with reasonable protections of, and preserving all rights of the Company and its Subsidiaries in, such Trade Secrets);
(J) acquire the assets of any other Person or business of any other Person (whether by merger or
consolidation, acquisition of stock or assets or by formation of a joint venture or otherwise) or make any investment in any Person (in each case other than a wholly owned Subsidiary of the Company) in excess of $100,000 individually or $250,000 in
the aggregate;
(K) (1) adopt, waive the performance of, modify, amend or terminate any Company
Benefit Plan or create or enter into any plan, agreement, program, policy, trust, fund or other arrangement that would be a Company Benefit Plan if it were in existence as of the date hereof, except as required by applicable Law, (2) accelerate
any rights or benefits under any Company Benefit Plan, (3) accelerate the time of vesting, funding or payment of any award under any Company Benefit Plan, in each case except as required by the terms of this Agreement or as required by
applicable Law or the terms of a Company Benefit Plan or Contract or agreement in effect on the date hereof set forth on Section 5.1(b)(K) of the Company Disclosure Letter, (4) hire any new employee or service provider
of the Company or its Subsidiaries, except employees or service providers eligible to earn less than $150,000 in total annual compensation and with a title more junior than director in the ordinary course of business or (5) terminate the
employment of any employee or service provider of the Company or its Subsidiaries, other than terminations for cause or terminations of employees with a title junior to vice president in the ordinary course of business;
(L) adopt, modify, extend, or enter into any new Collective Bargaining Agreement, or recognize or
certify any labor union, labor organization, works council, or group of employees as the bargaining representative for any employees of the Company or any of its Subsidiaries;
(M) waive or release any noncompetition, nonsolicitation, nondisclosure, or other restrictive covenant
obligation of any current or former employee or independent contractor of the Company or any of its Subsidiaries;
(N) (1) increase the compensation (including severance, deferred compensation, change-in-control and retention compensation) or benefits of any current or former employee, director, officer or other service provider of the Company or its Subsidiaries,
except as required by applicable Law or the terms of a Company Benefit Plan or Contract in effect on the date hereof and set forth on Section 5.1(b)(N) of the Company Disclosure Letter or (2) make, announce or grant any bonus or
adopt, amend, modify, terminate or enter into any new employment, retention or severance agreement with, any current or former employee, director, officer or other service provider of the Company or its Subsidiaries whose annual base compensation is
in excess of $300,000;
(O) (i) make, change or rescind any material election relating to Taxes
except in the ordinary course of business, (ii) settle or compromise any material Proceeding relating to Taxes or surrender any right to obtain a material Tax refund or credit, offset or other reduction in Tax Liability, (iii) enter into
any closing agreement with respect to any material Taxes, (iv) change any method of reporting material income or deductions for federal income tax purposes from those employed in the preparation of its U.S. federal income Tax Returns for the
taxable year ended December 31, 2017; except, in each case, as is required by applicable Law or GAAP, or (v) request any Tax rulings from any Governmental Entity;
(P) make any material change in financial accounting policies, practices, principles, methods or
procedures, other than as required by GAAP or Regulation S-X promulgated under the Exchange Act or other applicable rules and regulations of the SEC or Law;
(Q) announce, implement, or effectuate any plant closing or mass layoff that would incur any Liability
or obligation under WARN;
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(R) commence, pay, discharge, settle, compromise or
satisfy any pending or threatened Proceedings (whether or not commenced prior to the date of this Agreement) outside of the ordinary course of business if such settlement would (i) require payment by the Company in excess of $50,000 in any
individual case or series of related cases or $100,000 in the aggregate with all other Proceedings, other than claims specifically reserved against in the Company Financial Statements (for amounts not in excess of such reserves), (ii) involve
injunctive or equitable relief or (iii) impose any material restrictions or changes on the business or operations of the Company or any of its Subsidiaries;
(S) adopt a plan of merger, consolidation, reorganization, complete or partial liquidation, dissolution,
restructuring, recapitalization or other reorganization of the Company or any of its Subsidiary (other than the Merger or notwithstanding Section 5.5) or file a petition in bankruptcy under any provisions of federal or
state bankruptcy law or consent to the filing of any bankruptcy petition against it or any of its Subsidiaries under any similar law;
(T) adopt or implement any stockholder rights agreement, poison pill or similar antitakeover
agreement or plan;
(U) enter into any new line of business or abandon any existing line of
business;
(V) make any commitment for capital expenditures in excess of $150,000 in the aggregate
that would obligate the Company or any of its Subsidiaries to pay amounts after Closing, except in a manner consistent with the Companys budget for capital expenditures (a copy of which has been made available to Purchaser), or fail to make
any budgeted capital expenditures;
(W) (i) in any material respect, amend, modify, extend, renew
or terminate any lease or enter into any new lease, sublease, license or other agreement for the use or occupancy of any real property or (ii) except in the ordinary course of business consistent in all material respects with past practices,
enter into, amend, modify, waive any material right under or terminate any Company Material Contracts (or any contract that would be a Company Material Contracts if such contract were in effect as of the date hereof) or reduce or waive any material
payment right thereunder;
(X) enter into any Related Party Transaction;
(Y) cancel, terminate or allow to lapse without a commercially reasonable substitute policy therefor, or
amend in any material respect or enter into, any insurance policy, other than the renewal of an existing insurance policy or a commercially reasonable substitute therefor;
(Z) fail to maintain the Real Property in substantially the same condition as of the date of this
Agreement, ordinary wear and tear excepted; or
(AA) agree, authorize, or commit in writing or
otherwise to take any of the actions described in Section 5.1(b)(A) through Section 5.1(b)(Y)(AA) above.
Section 5.2 No Control of Other Partys Business. Nothing
contained in this Agreement shall give Parent, directly or indirectly, the right to control or direct the Companys or its Subsidiaries operations prior to the Effective Time, and nothing contained in this Agreement shall give the
Company, directly or indirectly, the right to control or direct Parents or its Subsidiaries operations prior to the Effective Time. Prior to the Effective Time, each of the Company and Parent shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision over its and its Subsidiaries respective operations.
Section 5.3 Operations and Ownership of Parent and Merger Sub. Prior to the Effective Time, Merger Sub shall not carry on any business or conduct any operations other than as necessary, advisable or convenient
to the execution of this Agreement and consummation of the transactions contemplated hereby, the performance of its obligations hereunder and matters ancillary thereto and will have no assets, Liabilities or obligations of any nature other than
those incident to its formation or incurred in connection with this Agreement and the Merger and the other transactions contemplated hereby.
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Section 5.4 Access.
(a) For purposes of furthering the transactions contemplated hereby, the Company shall afford Parent and its
Representatives reasonable access during normal business hours upon reasonable advance notice to the Company, throughout the period from the date hereof until the earlier of the valid termination of this Agreement and the Effective Time, to its and
its Subsidiaries personnel, properties, Contracts, commitments, books and records and such other information concerning its business, properties and personnel as Parent may reasonably request; provided, that the Company shall not be
obligated to provide or give access to any minutes of meetings or resolutions of the Company Board (or any committees or subcommittees thereof, including the Special Committee) or any other business records or reports of or communication with any of
its advisors relating to the evaluation or negotiation of this Agreement or the transactions contemplated hereby or any alternatives thereto. Notwithstanding anything to the contrary contained in this Section 5.4(a), any
document, correspondence or information or other access provided pursuant to this Section 5.4(a) may be redacted or otherwise limited to prevent disclosure of information concerning the valuation of the Company and the
Merger. All access pursuant to this Section 5.4(a) shall be (i) conducted in such a manner as not to interfere unreasonably with the normal operations of the Company or any of its Subsidiaries and (ii) coordinated
exclusively through the designated Representatives of the Company.
(b) Notwithstanding anything to the contrary
contained in this Section 5.4, neither the Company nor any of its Subsidiaries shall be required to provide any access, or make available any document, correspondence or information, if doing so would, in the reasonable
judgment of the Companys legal counsel, (i) jeopardize the attorney-client privilege of the Company or any of its Subsidiaries or Affiliates or (ii) violate any (A) Law applicable to the Company or any of its Subsidiaries or the
assets, or operation of the business, of the Company or any of its Subsidiaries or (B) Contract to which the Company or any of its Subsidiaries is a party or by which any of their assets or properties are bound; provided, that in such
instances the Company shall inform Parent of the general nature of the information being withheld, upon Parents request, reasonably cooperate with the Company to provide such information, in whole or in part, in a manner that would not result
in any of the outcomes described in the foregoing clauses (i) and (ii).
(c) The parties
hereto hereby agree that all information provided to them or their respective Representatives in connection with this Agreement and the consummation of the transactions contemplated hereby shall be governed in accordance with the Confidentiality
Agreement, dated as of May 21, 2019, between the Company and an Affiliate of Parent (the Confidentiality Agreement), which shall continue in full force and effect in accordance with its terms.
Section 5.5 No Solicitation.
(a) (i) During the period beginning on the date hereof and continuing until 12:01 a.m. New York City time on October
22, 2019 (the Solicitation Period End Time), the Company and the Companys Subsidiaries and their respective Representatives shall have the right to, directly or indirectly: (x) initiate, solicit, facilitate, whether
publicly or otherwise, and encourage any Acquisition Proposal or any inquiry, discussion, offer or request that constitutes, or could reasonably be expected to lead to, an Acquisition Proposal; (y) provide access to non-public information to any Person pursuant to an Acceptable Confidentiality Agreement executed by the Person receiving such non-public information; provided that the
Company promptly provides or makes available to Parent any non-public information concerning the Company or any of its Subsidiaries that is provided or made available to any such Person and that was not
previously provided or made available to Parent; and (z) engage or enter into, continue or otherwise participate in any discussions or negotiations with any Persons or groups of Persons with respect to any Acquisition Proposal or otherwise
cooperate with, or assist or participate in, or facilitate, any such discussions or negotiations or any effort or attempt to make any Acquisition Proposal. Parent shall not, and shall cause each of Merger Sub and each of their respective Affiliates
not to, intentionally and materially interfere with or prevent the participation of any Person, including any officer or director of the Company or any of the Company Subsidiaries and any bank, investment
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bank or potential provider of debt or equity financing, in negotiations and discussions permitted by this Section 5.5.
(ii) At the Solicitation Period End Time (or, with respect to any Excluded Party, at 12:01 a.m. New York
City time on the fifteenth (15th) day after the date on which the Solicitation Period End Time occurs (the Cut-Off Time)): (A) the Company shall, and shall cause each of its Subsidiaries and
each of their directors, officers, Representatives and Affiliates to, immediately cease and cause to be terminated any existing solicitation of, or discussions or negotiations with, any Person (other than Parent, its Affiliates and its and their
respective Representatives) relating to any Acquisition Proposal or any inquiry, discussion, offer or request that could reasonably be expected to lead to an Acquisition Proposal; (B) the Company shall as promptly as possible (and in any event
within forty-eight (48) hours) send written notice of such termination to any and all Persons with whom it is terminating solicitations, discussions or negotiations under the foregoing clause (A); and (C) the Company shall as
promptly as possible (and in any event within twenty-four (24) hours) terminate dataroom access from any such Person and its Representatives. Notwithstanding anything in this Section 5.5 to the contrary, the Company
shall not, and shall cause its Affiliates not to, reimburse or agree to reimburse the expenses of any Person (other than the Companys Representatives or Parent, its Affiliates or its or their respective Representatives) in connection with an
Acquisition Proposal or any inquiry, discussion, offer or request that could reasonably be expected to lead to an Acquisition Proposal.
(iii) No later than twenty-four (24) hours after the Solicitation Period End Time, the Company
shall provide Parent with a written summary of all material terms of any then pending Acquisition Proposals that were made in writing by any Excluded Party.
(b) From the Solicitation Period End Time (or, in the case of an Excluded Party, the
Cut-Off Time) until the earlier of the Effective Time and the valid termination of this Agreement, except as expressly permitted by this Section 5.5, the Company shall not (and shall
not publicly announce any intention to), directly or indirectly, and the Company shall cause each of its Subsidiaries and their respective Representatives not to, (i) initiate, solicit, knowingly facilitate or knowingly encourage any inquiry,
discussion negotiation, or request with respect to, or the making of, any proposal or offer that could reasonably be expected to lead to, or that constitutes, any Acquisition Proposal (provided, that the foregoing shall not prohibit the
Company or any of its Representatives from contacting any Person who has made an Acquisition Proposal (or such Persons Representatives) solely for the purpose of clarifying such Acquisition Proposal and any material terms thereof), (ii) engage
or enter into, continue or otherwise participate in any negotiations or discussions concerning, or otherwise cooperate with, knowingly assist or participate in, knowingly facilitate or provide access to any
non-public information or data or to its properties, books, records or personnel to any Person relating to an Acquisition Proposal, (iii) approve, endorse, enter into or recommend, or propose publicly to
approve, endorse, enter into or recommend, any Acquisition Proposal, or (iv) resolve or agree to take any of the foregoing actions. From the date of this Agreement until the earlier of the Effective Time and the valid termination of this
Agreement, except as expressly permitted by this Section 5.5, the Company shall not (and shall not publicly announce any intention to), directly or indirectly, and the Company shall cause each of its Subsidiaries and their
respective Representatives not to, (A) execute or enter into any letter of intent, agreement in principle, merger agreement, acquisition agreement or other agreement, understanding or arrangement relating to any Acquisition Proposal (an
Alternative Acquisition Agreement) or any Contract requiring the Company to abandon, terminate or fail to consummate the Merger or the other transactions contemplated hereby, or (B) resolve or agree to take any of the
foregoing actions. Any violation or breach of the restrictions or obligations set forth in this Section 5.5 by any Subsidiary of the Company or any Representative of the Company or any of its Subsidiaries acting on behalf
of or at the direction of the Company or any of its Subsidiaries shall be deemed to be a breach of this Section 5.5 by the Company.
(c) Notwithstanding anything to the contrary in Section 5.5(b) of this Agreement, nothing
contained in this Agreement shall prevent the Company or the Company Board (at the recommendation of the Special Committee) from taking and disclosing to the stockholders of the Company a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act, complying with Rule 14d-9 promulgated under the Exchange
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Act, including a stop, look and listen communication by the Company Board to the stockholders of the Company pursuant to Rule 14d-9(f)
promulgated under the Exchange Act (or any substantially similar communication), complying with Item 1012(a) of Regulation M-A promulgated under the Exchange Act or from making any legally required disclosure
to the Companys stockholders with regard to an Acquisition Proposal (provided, that neither the Company nor the Company Board may recommend any Acquisition Proposal unless permitted by Section 5.5(f) and the
Company may not fail to make, or withdraw, modify or change in a manner materially adverse to Parent all or any portion of, the Company Board Recommendati |