arotech8k-20071227.htm

0000916529-08-000004.txt : 20080103 0000916529-08-000004.hdr.sgml : 20080103 20080103160609 ACCESSION NUMBER: 0000916529-08-000004 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20071227 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20080103 DATE AS OF CHANGE: 20080103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AROTECH CORP CENTRAL INDEX KEY: 0000916529 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 954302784 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-23336 FILM NUMBER: 08506544 BUSINESS ADDRESS: STREET 1: 632 BROADWAY STREET 2: STE 1200 CITY: NEW YORK STATE: NY ZIP: 10012 BUSINESS PHONE: 6466542107 MAIL ADDRESS: STREET 1: 632 BROADWAY STREET 2: SUITE 1200 CITY: NEW YORK STATE: NY ZIP: 10012 FORMER COMPANY: FORMER CONFORMED NAME: ELECTRIC FUEL CORP DATE OF NAME CHANGE: 19931223 8-K 1 arotech8k-20071227.htm FAAC LINE OF CREDIT INCREASE arotech8k-20071227.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):

December 27, 2007

AROTECH CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	0-23336	95-4302784
(State or other jurisdiction	(Commission	(IRS Employer
of incorporation)	File Number)	Identification No.)

1229 Oak Valley Drive, Ann Arbor, Michigan		48108
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code:

(800) 281-0356

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Potential 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.

Item 1.01

Entry into a Material Definitive Agreement.

FAAC Incorporated (“FAAC”), a wholly-owned subsidiary of Arotech Corporation (the “Registrant”), has a $6.0 million line of credit (the “Line of Credit”) with KeyBank N.A. (the “Bank”) secured by the assets and receivables of FAAC and by the receivables of the Registrant’s subsidiary MDT Armor Corporation (“MDT”) related to MDT’s David order with the U.S. Army. As of December 23, 2007, $5.5 million of this line of credit was outstanding and owed to the Bank. On December 27, 2007, FAAC and the Bank agreed to increase this line of credit to $7.5 million in order to provide FAAC and MDT with additional working capital should the need arise. A copy of the Loan Agreement between FAAC and the Bank is filed as Exhibit 4.1 to this Current Report on Form 8-K, and the foregoing description of the Loan Agreement is qualified in its entirety by reference to such exhibit.

In connection with this increase, the Registrant and certain of its subsidiaries provided the Bank with security for and guaranties of FAAC’s obligations under the Line of Credit. Copies of the Security Agreement and the Guaranty entered into by the Registrant are filed as Exhibits 4.2 and 4.3, respectively, to this Current Report on Form 8-K, and the foregoing description of such documents is qualified in its entirety by reference to such exhibits.

Item 2.03

Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

Item 1.01 above is hereby incorporated by reference into this Item 2.03.

Item 9.01

Financial Statements and Exhibits.

As described above, the following Exhibits are furnished as part of this Current Report on Form 8-K:

Exhibit Number		Description
4.1		Loan Agreement between FAAC and the Bank dated December 27, 2007
4.2		Security Agreement between the Registrant and the Bank dated December 27, 2007
4.3		Guaranty from the Registrant to the Bank dated December 27, 2007

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: January 3, 2008	AROTECH CORPORATION
	(Registrant)
		/s/ Robert S. Ehrlich
		Name:	Robert S. Ehrlich
		Title:	Chairman and CEO

EX-4.1 2 ex4-1.htm FAAC LOAN AGREEMENT ex4-1.htm

Exhibit 4.1

LOAN AGREEMENT

This Loan Agreement is made and entered into as of the ____day of December , 2007, by and between FAAC INCORPORATED, a Michigan corporation (the “Borrower”), and KEYBANK NATIONAL ASSOCIATION, a national banking association (hereafter the “Bank”).

W I T N E S S E T H:

WHEREAS, the Borrower has requested and the Bank has agreed to provide a credit facility to Borrower; and

WHEREAS, the Bank and the Borrower desire to evidence the credit facility in accordance with the terms, conditions and covenants as hereinafter set forth;

NOW, THEREFORE, in consideration for the mutual promises and covenants described below, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

1.	Definitions. As used in this Agreement, the terms listed below are defined as follows:

1.1 The term “Adjusted Tangible Capital” means Tangible Capital less investments in, advances to, promissory notes and any receivables from any affiliate or other Related Party of Borrower.

1.2 The term “Bank Affiliate” means any entity which is a subsidiary or affiliate

of the Bank, including without limitation Key Equipment Finance.

1.3 The term "Borrower" means FAAC Incorporated, a Michigan corporation.

1.4 The term “Borrowing Base Formula” means the lesser of the note amount of $7,500,000 or the formula used to calculate the amount of available credit for Borrower under the Loan. The available credit under the Borrowing Base Formula shall be calculated as follows: 85% of Eligible Accounts Receivable plus 50% of Unbilled Accounts Receivable up to $1,500,000, plus 40% of Eligible Inventory, less Borrower’s obligations under outstanding Letters of Credit. The collateral and credit used to calculate the Borrowing Base Formula are described in the Borrowing Base & Compliance Certificate which attached as Exhibit 1.

1.5 The term “Collateral” means all of the personal property and interests now or hereafter pledged as security for the Indebtedness.

1.6 The term “C.P.A.” means a firm of independent certified public accountants selected by Borrower and reasonably acceptable to the Bank.

1.7 The term “Domestic U.S. Assets” means all tangible personal property physically located within the United States and any of its territories as well as all intangible personal property interests, wherever located, payable or to be performed within the United States or otherwise subject to the laws and the jurisdiction of the United States.

1.8 The term “Domestic Related Party” means each Related Party which is an entity organized and existing under the laws of the United States.

1.9 The term “EBITDA” means the net earnings of Borrower plus the aggregate amounts deducted in determining such net income in respect of interest expenses, taxes, depreciation and amortization; but not, however, giving effect to extraordinary losses or gains in calculating net income.

1.10 The term “Eligible Accounts Receivable” shall mean all accounts receivable of Borrower outstanding less than 90 days, but not including any accounts receivable from any Related Parties or from any foreign companies or entities.

1.11 The term “Eligible Inventory” shall mean the cost of Borrower’s inventory (but not including work in process).

1.12 The term “Environmental Laws” means any federal, state or local law or ordinance regulating or in any way relating to Hazardous Materials, including without limitation, the Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”).

1.13 The term “Event of Default” means the occurrence and continuance of any one or more of the events set forth in Section 7 of this Loan Agreement.

1.14 The term “GAAP” means generally accepted accounting principles.

1.15 The term “Guarantor” means any person or entity, now or hereafter providing an unlimited or limited guaranty of all or a portion of the Indebtedness.

1.16 The term “Hazardous Materials” means any hazardous substance, pollutant, contaminant or chemical of any kind or nature as defined under or included in any federal, state or local environmental law or ordinance including but not limited to the Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”).

1.17 The term “Indebtedness” means: (A) all repayment and other obligations of the Borrower under the credit facility included in this Loan Agreement and any modifications, amendments, renewals, or extensions thereof; and (B) all other obligations of the Borrower to the Bank in connection with any other loans or agreements whatsoever between or including both the Borrower and the Bank, whether now existing or hereafter arising; and (C) all obligations of the Borrower to any Bank Affiliate.

1.18 The term “Junior Liens” means liens on the assets of any Domestic Related Party, which lien is expressly subordinated to any liens in favor of the Bank and which secures only Subordinated Debt.

1.19 The term “Letters of Credit” means any Letter of Credit issued by the Bank on behalf of Borrower or any Related Party. Borrower acknowledges that during the term of this Loan, the aggregate amount outstanding for letters of credit shall not exceed $800,000.

1.20 The term “Permitted Liens” means purchase money security interests in equipment or other capital assets purchased by Borrower where the total aggregate indebtedness to vendors secured by such liens does not exceed Five Hundred Thousand Dollars ($500,000) at any time outstanding.

1.21 The term “Prime Rate” means the “prime rate” of the Bank as announced at its offices in Cleveland, Ohio.

1.22 The term “Related Loan Documents” means all documents, including this Loan Agreement, evidencing, securing, or in any way related to any of the Indebtedness, whether such documents have been, are now or are hereafter executed and/or delivered together with any renewals, amendments or modifications thereof, including without limitation all such documents executed and delivered in accordance with the terms and conditions of or in any way related to this Loan Agreement.

1.23 The term “Related Party” means any person (including corporations, limited liability companies and partnerships), that is an owner of Borrower, or affiliate of Borrower, including without limitation those companies identified in attached Exhibit 2.

1.24 The term “Subordinated Debt” means indebtedness and liabilities of Borrower, which have been subordinated by written agreement to indebtedness owed by Borrower to the Bank in form and substance reasonably acceptable to the Bank.

1.25 The term “Tangible Capital” means Tangible Net Worth plus Subordinated Debt.

1.26 The term “Tangible Net Worth” means Borrower’s total assets excluding all intangible assets (i.e. goodwill, trademarks, patents, copyrights, organizational expenses and other similar intangible items, but including leaseholds and leasehold improvements) less Total Debt.

1.27 The term “Total Debt” means all of Borrower’s liabilities including Subordinated Debt.

1.28 The term “Total Funded Debt” means the sum without duplication for Borrower and/or any of its subsidiaries of (i) all indebtedness for borrowed money, whether maturing in less than or more than one year plus (ii) all bonds, notes, debentures, or similar debt instruments plus (iii) all capitalized lease obligations plus (iv) the present value of all basic rental obligations under any synthetic lease.

1.29 The term “Total Senior Liabilities” means total liabilities less Subordinated Debt.

1.30 The term “Unbilled Accounts Receivable” means Borrower’s cost of all work in process of Borrower.

2. Loans. Upon the terms and conditions set forth herein, the Bank has extended to the Borrower the following credit facilities:

2.1 Revolving Line of Credit Loan.

2.1.1 Purpose. In order to provide funds for the Borrower’s working capital needs, the Bank has agreed to make available a revolving line of credit loan to Borrower in the original principal amount of up to Seven Million Five Hundred Thousand Dollars ($7,500,000) (the “Revolving Line of Credit Loan”). Borrower and the Bank expressly acknowledge and agree that the Revolving Line of Credit Loan incorporates the currently outstanding balances under the existing revolving credit facility of up to Five Million Dollars ($5,000,000) together with the Working Capital Line of Credit Loan of up to One Million Dollars ($1,000,000), and that both such facilities are herewith extinguished.

2.1.2 Repayment of Advances. The Revolving Line of Credit Loan shall be evidenced by a promissory note of even date herewith in the original principal amount of up to Seven Million Five Hundred Thousand Dollars ($7,500,000) (the “Revolving Line of Credit Note”). Interest shall accrue on the Revolving Line of Credit Note at one-quarter of one percent (0.25%) in excess of the Prime Rate. Commencing on the 31st day of January, 2008, and on the same day of each quarter thereafter, Borrower shall make payments of interest only; provided, however, that the entire unpaid principal balance together with all accrued interest shall be due and payable in full on December 31, 2009.

2.1.3

Disbursements. The obligation of the Bank to disburse any advances under the Revolving Line of Credit Note shall be subject to each of the following conditions as determined by the Bank in its sole and absolute discretion:

As of the date of the making of such advance, no Event of Default shall then exist;

The Borrower and any Guarantor shall have performed or be in compliance with all agreements and conditions contained in this Agreement and any other Related Loan Documents.

The representations and warranties contained in Section 4 and covenants in Section 5 of this Agreement shall be true in all material respects as of the date of making such advance;

Immediately after the advance, all outstanding balances under the Revolving Line of Credit Note shall not exceed the amount authorized under the Borrowing Base Formula, and in any event, the outstanding balance shall not be greater than the note amount.

E. No material adverse change shall have occurred and be continuing in the condition of the Borrower or Borrower’s financial affairs or business.

F. The proposed purpose of the advance is reasonably acceptable to the Bank;

G. The Borrower has the ability to repay the advance and all other Indebtedness of the Borrower to the Bank.

2.1.4

Fees. Commencing on December 31, 2008 and on the same day of each year thereafter, Borrower shall pay the Bank a fee for the unused portion of the credit facility in the amount of 37 basis points (0.37%) of the amount of such unused portion.

3. Security and Support for Indebtedness. As security and support for all of the Indebtedness, the Borrower has provided and will continue to provide the Bank with a security interest in all of the following assets of Borrower:

3.1 Borrower’s Business Assets. A first priority security interest in all personal property of Borrower, whether now owned or hereafter acquired, and wherever located including, without limitation: all inventory, machinery, fixtures and equipment accounts, accounts receivable, contract rights, documents, chattel paper, instruments, and general intangibles, together with all replacements thereof, attachments, accessories, parts, equipment, tools and proceeds of any and all of the foregoing property (including without limitation all insurance proceeds). The foregoing security interest will be evidenced by a security agreement given by Borrower to the Bank dated as of even date herewith.

3.2 Guaranties. As further support for the Indebtedness, the joint and several unlimited guaranties of Arotech and all of the other Related Parties. The guaranty of each Domestic Related Party shall be secured by a first priority security interest in all Domestic U.S. Assets of such Domestic Related Party.

4. Representations and Warranties of Borrower. The Borrower hereby represents and warrants to the Bank as follows:

4.1	Organization and Good Standing. Borrower is duly organized, validly existing and in good standing under the laws of the State of Michigan, and has all requisite power and authority to own properties and conduct business in the manner which such business is presently conducting.

4.2	Capacity Authorization, Enforceability.

4.2.1 Borrower has full power and authority to execute and deliver the Related Loan Documents, and to perform all of the terms and provisions thereof. The execution and delivery and performance by the Borrower of the Related Loan Documents has been duly authorized by all necessary organizational or other action and does not and will not: (a) violate its Articles of Incorporation or any provision of any agreement to which it is a party or is subject; or (b) result in a breach of or constitute a default under, any indenture, loan, credit agreement or other instrument to which it is a party or by which it is bound. Borrower is not in default in the payment, performance, observance or fulfillment of any other material obligation, covenant or condition of any loan, credit agreement or other contract or agreement.

4.2.2 The persons who execute the Related Loan Documents for Borrower are duly and properly in office and are fully authorized to execute the same.

4.2.3 The Related Loan Documents have been duly executed and delivered by the Borrower and each Guarantor, where indicated, and constitute legal, valid and binding obligations of the Borrower and Guarantor, fully enforceable against the Borrower and each Guarantor in accordance with their respective terms except (a) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally, (b) as such enforceability may be limited by the application of general principles of equity and similar principles, including, without limitation, concepts of materiality, reasonableness, unconscionability, good faith and fair dealing, (c) that waivers of jury trial may be limited under public policy, and (d) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.

4.2.4 The borrowings hereunder by the Borrower, the assignments and grant of security given by the Borrower, and the execution, delivery and performance by the Borrower of the Related Loan Documents is given for full and valuable consideration to Borrower and serves a lawful purpose.

4.3	Financial Statements and Business Condition. The Borrower represents and warrants to the Bank that all of the financial statements heretofore provided to the Bank fairly and accurately represent the financial condition of the Borrower as of the date thereof.

4.4

Tax Returns. The Borrower has filed all tax returns required to have been filed (or extensions permitted by law have been obtained). The Borrower has paid all material taxes, including interest and penalties, known to be due and payable by it, and has no knowledge of any proposed material tax assessments or tax liabilities which have not been adequately provided for. No material income tax liability has been asserted by the Internal Revenue Service against the Borrower for taxes in excess of those already paid.

4.5

Outstanding Indebtedness. Except as identified in the financial statements provided to the Bank, the Borrower has no material outstanding indebtedness for money borrowed or any obligations incurred as a lessee of goods or services under leases that, in accordance with SFAS 13 or GAAP, should be reflected on Borrower's balance sheet.

4.6	Litigation. There are no actions, suits or proceedings pending or, to the best of the knowledge of Borrower, threatened against the Borrower, and the Borrower is not in default with respect to any order, writ, injunction or decrees applicable to the Borrower.

4.7

Full Disclosure. To the best of Borrower's knowledge after due investigation, no information, financial statement, exhibit or written report furnished to the Bank by or on behalf of the Borrower in connection with the negotiation with this Agreement and the transactions contemplated hereby contains any material misrepresentation of fact or omits to state a material fact necessary to make the statements contained therein not misleading. There is no fact or circumstance known to the Borrower which has, or as to which the Borrower knows will have, in the presently foreseeable future, a material adverse effect on the earnings, affairs, or financial condition of the Borrower, or of the material properties of the Borrower, which fact or circumstance has not been set forth herein or in any financial statements, certificate, report, opinion or other statement heretofore made or furnished by or on behalf of the Borrower to the Bank in connection with the transactions described herein.

4.8	Sole Ownership of Collateral. The Borrower is the sole owner of the Collateral pledged by Borrower pursuant to this Loan Agreement and except for the Permitted Liens, no other persons have any interest whatsoever in the Collateral.

4.9 ERISA. To the best of Borrower's knowledge after due investigation, the Borrower has not incurred any "accumulated funding deficiency" within the meaning of the Employment Retirement Income Security Act of 1974 as amended ("ERISA") with respect to any employment benefit plan or other plan maintained by the Borrower which is covered by Title IV of ERISA. The Borrower has not incurred any material liability to the Pension Benefit Guaranty Corporation, and no reportable event (as defined in Title IV of ERISA) has occurred (or which with notice or lapse of time or both will occur) with respect to any such plan.

5. Covenants.

5.1 Affirmative Covenants. So long as any portion of the Indebtedness remains unpaid or the Bank is committed to make loans to the Borrower hereunder, and unless the Bank otherwise consents in writing in advance, the Borrower shall abide by each of the following covenants and agreements:

5.1.1 Access to Records/Inspection. The Borrower shall keep accurate records and books of account reflecting all of its financial transactions, in which complete entries shall be made in accordance with GAAP consistently applied. Such books and records shall be available to the Bank for its inspection during regular business hours and upon reasonable advance notice. Borrower shall permit

employees or agents of the Bank at any reasonable time to inspect any and all Collateral. If Borrower now or at any time hereafter maintains any records, including without limitation computer generated records and computer software programs for the generation of such records, in the possession of the third party, upon request of the Bank, Borrower shall notify such party to permit the Bank free access to such records at reasonable times and upon reasonable advance notice, and to provide the Bank with copies of any records it may request, all at Borrower’s expense.

5.1.2 Change in Name or Location. The Borrower shall notify the Bank in writing at least thirty (30) days in advance of any changes in location of the principal place of business or of any proposed change of the corporate name by Borrower.

5.1.3 Compliance with Laws and Regulations. The Borrower shall at all times promptly comply with any and all federal, state and local laws, ordinances, regulations, rules or requirements of any kind or nature, and shall keep the Collateral free of any lien imposed pursuant to such laws; provided, however, that the foregoing covenant shall be deemed in compliance when the Borrower shall in good faith contest the interpretation or enforcement of any of the foregoing, and the Bank believes in its sole and absolute discretion that compliance with such enforcement will not have a material adverse affect on the financial condition of the Borrower. If requested by the Bank, Borrower shall provide the Bank with additional collateral security reasonably acceptable to the Bank pending resolution to the dispute.

5.1.4 Deposit Accounts. The Borrower shall maintain all primary deposit accounts with the Bank.

5.1.5 Fees and Expenses. The Borrower hereby agrees to promptly pay all reasonable costs and expenses of the Bank’s counsel in connection with the negotiation, preparation and execution of all Related Loan Documents, and to promptly pay all other reasonable costs and expenses incurred in connection with perfection of all security instruments evidenced thereby, all appraisals, recording fees and any other reasonable out-of-pocket costs and expenses now and hereafter incurred by the Bank in connection with these credit facilities together with any amendments thereto.

5.1.6 First Lien on Collateral. The Borrower warrants and represents that except for the Permitted Liens, the liens on the Collateral granted to the Bank as provided in this Agreement constitute a first lien on all of the Collateral, and Borrower shall at any time requested, immediately execute and deliver to the Bank for the benefit of the Bank all security agreements, financing statements, assignments and other documents or instruments, and all supplements and amendments thereto, and continuation statements thereof, and take such other actions as the Bank deems reasonably necessary in order to maintain the same priority liens on all of the Collateral given by the Borrower as security.

5.1.7 Maintenance of Existence and Qualification. Borrower shall at all times maintain its legal standing within the State of Michigan, and its qualification to

transact business in good standing in all jurisdictions where the nature of its assets owned or leased or the conduct of its business operations requires such qualification.

5.1.8 Maintenance of Insurance. The Borrower shall at all times maintain insurance covering such risks as is customarily carried by businesses similarly situated and in such amounts, and with such companies and including such cancellation notice provisions as are commercially reasonable and customary and otherwise reasonably acceptable to the Bank. All insurance coverages with respect to property of the Borrower which constitutes Collateral for the loans evidenced hereunder shall name the Bank, as loss payee, as its interest appears or as the Bank shall otherwise designate. The Borrower shall promptly provide the Bank with such evidence of insurance coverage as the Bank shall request from time to time.

5.1.9 Notice of Default. The Borrower shall promptly, upon becoming aware, notify the Bank in writing of the occurrence of any Event of Default, specifying in connection with such notification all actions proposed to be taken to remedy such circumstance.

5.1.10 Notice of Material Litigation. The Borrower shall promptly, upon becoming aware of the existence thereof, notify the Bank in writing of the institution of any material litigation or legal proceeding involving the Borrower. For purposes of this Section 5.1.10 only, the term "material" shall mean an amount greater than Fifty Thousand Dollars ($50,000).

5.1.11 Notice of Loss of Property by Fire, Theft or Other Destruction. The Borrower shall promptly, upon becoming aware of the existence thereof, notify the Bank in writing of any loss to the Collateral by fire or any other manner of destruction.

5.1.12 Payment of Taxes, Charges and Lien. Borrower shall pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies, and liens, of every kind or nature, imposed upon Borrower or its properties, income or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower’s properties, income or profits; provided, however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as:

(a) the legality of the same shall be contested in good faith by appropriate proceedings; and

(b) Borrower shall have established on its books adequate reserve with respect to such contested assessment, tax, charge, levy, lien or claim in accordance with GAAP. Borrower, upon demand of the Bank, will furnish to the Bank evidence of payment of the assessments, taxes, charges, levies, liens, and

claims and will authorize the appropriate governmental official to deliver to the Bank at any time a written statement regarding same; and

(c) If deemed necessary or desirable by the Bank in its sole and absolute discretion, Borrower has provided a bond or other security deemed reasonably acceptable by the Bank to satisfy such contested matter.

5.1.13 Use of Loan Proceeds. The Borrower has used and shall continue to use all proceeds from the credit facility described in this Loan Agreement solely for the specific purposes relating to the facility as described in Section 2 above.

5.1.14 Total Senior Liabilities to Adjusted Tangible Capital Ratio. Borrower shall maintain a ratio of Total Senior Liabilities to Adjusted Tangible Capital of not more than 2.50:1.00, tested at the end of each fiscal quarter.

5.1.15 Total Funded Debt to EBITDA Ratio. Borrower shall maintain a ratio of Total Funded Debt to EBITDA of not greater than 1.75:1.00 tested for the period of the previous four fiscal quarters as of the end of each fiscal quarter.

Unless otherwise specifically defined above, all of the terms set forth relating to financial information and financial covenants of the Borrower shall have their customary meaning and application in accordance with GAAP, consistently applied.

5.2 Negative Covenants. So long as any portion of the Indebtedness remains unpaid or the Bank is committed to make loans hereunder, and unless the Bank otherwise consents in writing in advance, the Borrower shall not violate any of the following covenants:

5.2.1 Limitation on Indebtedness. The Borrower shall not borrow or otherwise incur indebtedness except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, sell, transfer, mortgage, assign, pledge, lease, grant as security interest in, or encumber any of Borrower’s assets (except as allowed as Permitted Liens) or sell with any recourse any of Borrower’s accounts, except to Bank. In addition, Borrower shall not endorse, guaranty, or become surety for the obligations of any person, corporation or other entity, except that the Borrower may endorse checks or other instruments for deposit or collection in the ordinary course of business.

5.2.2 Mergers, Sales, Transfers or Other Disposition of Assets. Borrower shall not: (A) dissolve or otherwise dispose of all or substantially all of its assets, or acquire all or substantially all of the assets or outstanding capital stock of any other business entity; or (B) consolidate with or merge into another legal entity or permit one or more such entities to consolidate with or merge with it unless Borrower is the surviving entity; or (C) effectuate any change in its capitalization; or (D) sell or

otherwise dispose of any material assets except when done so in the ordinary course of business.

5.2.3 No Liens. Except for the Permitted Liens, Borrower shall not hereafter create, incur or permit to exist any lien with respect to any part or portion of the Collateral except for the liens of the Bank created in accordance with this Agreement and any liens for taxes not yet due and payable.

5.2.4 No Loans, Guarantees or Investment. The Borrower shall not make loans or advances to or endorse, guarantee or become surety for obligations of any person, corporation or other entity, except that Borrower may endorse checks or other instruments for deposit or collection in the ordinary course of business. In addition, Borrower is prohibited from investing in any outside businesses or affiliates.

5.2.5 Limitation on Distributions. Any distributions from Borrower to any person shall not exceed the amount required to satisfy such person’s federal income tax liability and inter-company transfers between the Borrower and related entities for services rendered and consistent with prior practice.

6. Financial Reporting and Review Requirements. So long as any portion of the Indebtedness remains unpaid or the Bank is committed to lend under the Loan Agreement, and unless the Bank otherwise consents in writing, the Borrower shall furnish (for which purpose the filing by the Borrower’s parent corporation of financial and other reports on the Securities and Exchange Commissions’ EDGAR system shall be deemed compliance with this obligation to furnish) to the Bank the following:

6.1 Annual Internal Financial Statements. Within 120 days after the end of each fiscal year, Borrower shall furnish to the Bank company prepared financial statements of Borrower for the preceding period, certified by an officer of Borrower prepared in accordance with GAAP and otherwise in a form and including such information as is reasonably acceptable to the Bank.

6.2 Annual Audited Financial Statements. Within 120 days after the end of each fiscal year, Borrower shall furnish to the Bank financial statements of Arotech Corporation (“Arotech”) (including Borrower and all Related Parties) for the preceding period audited by the CPA prepared in accordance with GAAP and otherwise in a form and including such information as is reasonably acceptable to the Bank. The audited financial statements shall be made on a consolidating and consolidated basis.

6.3 Quarterly Internal Financial Statements. Within 50 days after the end of each calendar quarter, Borrower shall furnish to the Bank company prepared financial statements of Borrower for the preceding period, certified by an officer of the Borrower prepared in accordance with GAAP and otherwise in a form and including such information as is reasonably acceptable to the Bank.

6.4 Quarterly Guarantor Financial Statements. Within 50 days after the end of each calendar quarter, Borrower shall furnish to the Bank company prepared financial statements of Arotech for the preceding period, certified by an officer of Arotech, prepared in accordance with GAAP and otherwise in a form and including such information as is reasonably acceptable to the Bank. Such financial statements shall be made on a consolidating and consolidated basis.

6.5 Borrowing Base Certificate. Within 15 days after the end of each month, Borrower shall provide the Bank with a completed Borrowing Base Certificate certified by an officer of Borrower in the form attached as Exhibit 1 or other form approved by the Bank.

6.6 Monthly Accounts Receivable Aging. Within 15 days after the end of each month, Borrower shall furnish to the Bank an accounts receivable aging report for Borrower in a form and containing such information as the Bank may reasonably request.

6.7 Annual Business Plan. Within 90 days after the end of each fiscal year, Borrower shall provide the Bank with a business plan in a form and including such information as is reasonably acceptable to the Bank.

6.8 Other Reports. The Borrower shall promptly deliver or cause to be delivered to the Bank such information which is not otherwise required to be furnished under the Related Loan Documents respecting business, affairs, assets and liabilities of the Borrower, and such lists of properties and accounts, reports, opinions and certifications and documents, as the Bank from time to time may reasonably request. Unless otherwise designated in writing by the Bank, all of the foregoing financial information shall be delivered to the Bank at the address set forth in Section 8 below.

7. Event of Default.

7.1 Nature of Default. An Event of Default shall exist when any one or more of

the following shall occur and be continuing:

7.1.1 Obligations to Bank. The Borrower or any Guarantor shall: (a) fail to make any payment when due of principal, interest, fees or other amounts required under any of the Indebtedness; or (b) be in default under or otherwise fail to perform or observe any other covenant, agreement or provision contained in this Loan Agreement or any of the other Related Loan Documents; or (c) be in default under or otherwise fail to perform or observe any covenant, obligation, term or provision contained in any material agreement or other document between or including both the Bank and the Borrower or any Guarantor, whether now existing or hereafter arising.

7.1.2 Obligations to Other Persons. If the Borrower or any Guarantor shall be in default or otherwise shall fail to perform or observe any covenant, obligation, agreement or provision contained in any material agreement to which the Borrower or any Guarantor is a party, which default shall continue beyond any applicable grace period.

7.1.3 Warranties and Representations. Any warranty, representation or any other statement made by or on behalf of or with respect to the Borrower including but not limited to those set forth in this Loan Agreement and any of the other Related Loan Documents shall prove to be false, misleading or incorrect in any material respect, or shall fail to state a fact necessary in order to make the statements made not misleading.

7.1.4 Enforceability of Liens. Any lien granted to the Bank by the Borrower in accordance with this Loan Agreement shall become or purport to be invalid or unenforceable or shall not or purport not to be a lien against any material portion of the Collateral in the priority required under this Loan Agreement.

7.1.5 Dissolution, Bankruptcy, Etc. In addition to and not exclusive of any of the default language contained in any of the other Related Loan Documents, if the Borrower or any Guarantor shall make an assignment for the benefit of creditors or file a petition in bankruptcy, have an order for relief entered, petition or apply to any tribunal for the appointment of a receiver or a trustee or a substantial part of any of the Borrower's or Guarantor’s assets, or if the Borrower or any Guarantor shall be insolvent (insolvency being hereby defined as Borrower's or Guarantor’s inability to pay Borrower's or Guarantor’s debts as they become due) or commence any proceeding under any insolvency, reorganization or similar law for the relief of debtors, whether now or hereafter in effect; or if there shall have been filed any such petition or application, or any such proceeding shall have been commenced against the Borrower or any Guarantor which has not been dismissed within 45 days after commencement; or the Borrower or any Guarantor by any act or omission shall indicate consent to, approval or acquiescence in any such petition, application or proceeding or the appointment of a receiver or trustee, or shall suffer any such receivership or trusteeship; or upon entry of a judgment against the Borrower or any Guarantor in the amount of One Hundred Thousand Dollars ($100,000.00) or more and for which judgment there has been no timely appeal filed together with an appeal bond; or the placement or issuance of any levy, writ of attachment, writ of garnishment, writ of execution or similar process against the Borrower or any Guarantor, or any of the property of the Borrower or any Guarantor.

7.2 Remedies upon Default.

7.2.1 Acceleration and Exercise of Remedies. Upon the occurrence and continuation for a period of seven (7) business days after notice of any Event of Default, then the unpaid balances of all Indebtedness, shall become immediately due and payable in full, without demand or notice of any kind, the same being hereby expressly waived by the Borrower, and the Bank may thereafter pursue any and all available rights and remedies as provided under applicable law including but not limited to the right to enforce any and all rights and remedies contained in each and every one of the Related Loan Documents and/or any other agreements between or including the Bank and the Borrower. The Borrower and the Bank expressly agree and acknowledge that upon default, the rights and remedies of the Bank, whether

existing under any of the Related Loan Documents and/or any other agreements between or including the Bank and the Borrower, shall be deemed cumulative and not exclusive, and the exercise of any right or remedy by the Bank shall not constitute a cure or waiver of the default or invalidate any act done by the Bank, nor prejudice the Bank in the exercise of any of its other rights and remedies whatsoever. Borrower expressly acknowledges and agrees to pay all costs and expenses of collection or enforcement of the Borrower's obligations under the Related Loan Documents, including but not limited to reasonable attorneys' fees.

7.2.2 Waivers. The acceptance by the Bank at any time and from time to time of partial payment of any of the obligations of the Borrower hereunder shall not be deemed to be a waiver of any Event of Default then existing. No waiver by the Bank of any Event of Default shall be deemed to be a waiver of any other then existing or subsequent Event of Default. No delay or omission by the Bank in exercising any right under the Related Loan Documents shall impair such right or be construed as a waiver thereof or an acquiescence therein, nor shall any single or partial exercise of any right preclude other or further exercise thereof, or the exercise of any other right under the Related Loan Documents or otherwise. Any waiver, consent or approval of any kind or character on the part of the Bank of any provision of this Agreement or of any of the other Related Loan Documents shall be in writing and shall be effective only to the extent specifically set forth in such writing.

7.2.3 Indemnification of Bank. The Borrower hereby agrees to indemnify the Bank and hold it harmless from and against any and all liabilities, obligations, losses, damages, judgments, suits, claims, costs and expenses of any kind or nature whatsoever, which may be imposed upon, incurred by, or asserted against the Bank in any way relating to or arising out of the Related Loan Documents or any of the transactions contemplated therein to the extent that any such indemnified liability results, directly or indirectly, from any claim made or actions, suits or proceedings commenced by or on behalf of any person other than the Bank; provided, that the Bank shall not have the right to be indemnified hereunder for its own gross negligence or willful misconduct or that of any of its authorized representatives, agents or employees.

7.3 WAIVER OF JURY. THE BORROWER AND EACH GUARANTOR AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, THE RELATED LOAN DOCUMENTS OR ANY OTHER AGREEMENT BETWEEN OR INCLUDING THE BANK AND THE BORROWER, AFTER BEING PROVIDED THE OPPORTUNITY TO CONSULT WITH COUNSEL OF CHOICE, BORROWER AND EACH GUARANTOR HEREBY KNOWINGLY AND VOLUNTARILY WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION AS TO ANY AND ALL ISSUES ARISING FROM OR OUT OF THIS AGREEMENT, THE OTHER RELATED LOAN DOCUMENTS AND/OR ANY OTHER AGREEMENTS BETWEEN OR INCLUDING BOTH THE BANK AND THE BORROWER AND EACH GUARANTOR,

INCLUDING WITHOUT LIMITATION ANY ISSUE RELATED TO THE PERFORMANCE OR ENFORCEMENT OF ANY OR ALL OF THE SAME.

8. Miscellaneous.

8.1 Notices. All notices and other communications with respect to this Agreement shall be in writing and shall be delivered by hand, sent by telex or telecopy, or mailed by first class mail, postage prepaid, addressed as indicated below:

If to the Borrower: FAAC INCORPORATED

1229 Oak Valley Drive

Ann Arbor, Michigan 48108

Attn. Tom Paup

FAX No: (734) 761-5368

If to the Bank: KeyBank National Association

17199 North Laurel Park Drive, Suite 105

Livonia, Michigan 48152

ATTN: Jason Graves

FAX No:

With a copy to: Arotech Corporation

1229 Oak Valley Drive

Ann Arbor, Michigan 48108

Attn. Yaakov Har-Oz

FAX No: 011-932-2-990-6688

With a copy to: Bruce N. Elliott

Conlin, McKenney & Philbrick, P.C.

350 S. Main Street, Suite 400

Ann Arbor, Michigan 48104

FAX No. (734) 761-9001

The address of the Borrower or the Bank for any purpose of any notice may be changed at any time and from time to time in the manner provided for herein. A notice shall be deemed to have been given when dispatched, if by telex or telecopy, or if by mail on the day it is deposited in the United States mail, postage prepaid, and properly addressed.

8.2 Survival. All representations, warranties, covenants and agreements with respect to the Borrower in the Loan Agreement or in any Related Loan Documents or in any certificate or other instrument delivered by the Borrower to the Bank shall be considered to have been relied upon by the Bank and shall survive the delivery to the Bank of the Related Loan Documents.

8.3 Governing Law. This Agreement, and the Related Loan Documents, have been negotiated and delivered in, and shall be governed by and construed in accordance with the material laws of the State of Michigan.

8.4 Conflict in Document Terms. In the event there is any conflict between any of the terms, conditions, representations, warranties or any other matters in the other Related Loan Documents and this Agreement, such conflict shall be resolved in favor of the language set forth in this Agreement; provided, however, that, (i) such resolution shall in no way act to reduce, diminish or negate any of the liabilities or obligations of the Borrower or any Guarantor under any of the terms, conditions and covenants contained in any of the Related Loan Documents; and (ii) such resolution shall in no way act to reduce, diminish or impair any of the security interests, rights, or remedies granted to the Bank under any of the Related Loan Documents.

8.5 Amendment. This Agreement may not be amended or modified except by written instrument signed by the parties hereto.

8.6 Entire Agreement and Severability. This Loan Agreement together with the other Related Loan Documents constitutes the entire agreement of the parties as to the subject matter contained herein. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, and should any portion of this Agreement be declared invalid for any reason, such declaration shall have no effect on the remaining portions of this Agreement.

8.7 Headings. Section headings in this Agreement are included for convenience of reference only and should not constitute a part of this Agreement for any other purpose.

8.8 Signature in Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.

8.9 Binding Agreement. The terms, conditions and covenants contained in this Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Borrower and the Bank.

8.10 Additional Documents/Actions. At the request of the Bank, the Borrower and/or any Guarantor shall promptly execute and deliver any additional documents or take such other actions deemed reasonably necessary or desirable by the Bank and its counsel relating to the credit facilities described in this Agreement, including without limitation, documents or actions relating to authentication of the signatures of all Guarantors on this Agreement or any other Related Loan Documents.

IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year first above written.

KEYBANK NATIONAL ASSOCIATION FAAC INCORPORATED

a national banking association a Michigan corporation

By:_______________________________

By: _______________________________

Its:__________________________Its: ___________________________

GUARANTORS: GUARANTORS:

Arotech Corporation Electric Fuel Battery Corporation

By:______________________________ By:_______________________________

Its:___________________________ Its:___________________________

Armour of America, Incorporated MDT Armor Corporation

By:______________________________ By:______________________________

Its:___________________________ Its:___________________________

Electric Fuel (E.F.L.) Ltd. Epsilor Electronic Industries, Ltd.

By:_____________________________ By:_____________________________

Its:__________________________ Its:___________________________

EXHIBIT 2

Arotech Corporation

Electric Fuel Battery Corporation

Armour of America, Incorporated

MDT Armor Corporation

Electric Fuel (E.F.L.) Ltd.

Epsilor Electronic Industries, Ltd.

EX-4.2 3 ex4-2.htm AROTECH SECURITY AGREEMENT ex4-2.htm

Exhibit 4.2

SECURITY AGREEMENT

(AROTECH CORPORATION)

THIS AGREEMENT made and entered into as of the day of December, 2007, by and between AROTECH CORPORATION, a Delaware corporation, (hereinafter called "Grantor") and KEYBANK NATIONAL ASSOCIATION, a national banking association, (hereinafter called "the Secured Party").

W I T N E S S E T H:

WHEREAS, the Secured Party and FAAC Incorporated (“Borrower”) along with Related Parties have entered into a Loan Agreement of even date herewith (the "Loan Agreement"); and

WHEREAS, pursuant to the provisions of the Loan Agreement, the Grantor has guaranteed the obligations of Borrower to Secured Party and has agreed to give the Secured Party a first security interest in and to all domestic U.S. assets of the Grantor as hereinafter set forth;

NOW THEREFORE, in consideration of the covenants hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

1. Granting of Security Interest.

A. The Grantor hereby grants to the Secured Party a security interest in all Domestic U.S. Assets (as defined in the Loan Agreement) of Grantor, whether now owned or hereafter acquired, now existing or hereafter arising, and wherever located, including without limitation all of the following:

All domestic U.S. inventory, machinery, fixtures and equipment, accounts, accounts receivable (including but not limited to all health care insurance receivables), contract rights, documents, chattel paper, instruments, deposit accounts and general intangibles (including but not limited to all software and all payment intangibles, all goodwill, trade names, trademarks, patents, copyrights, trade secrets, formulae, designs, customer lists, licenses and permits), beneficial interests in trusts, minute books, records and data and embedded software relating to all of the foregoing and all equipment, inventory and software to utilize, create, maintain and process any such records and data on electronic media and all supporting obligations relating to the foregoing property, together with all replacements thereof, attachments, accessories, parts, equipment, tools and proceeds of any and all of the foregoing property (including without limitation all insurance proceeds).

All of the foregoing property is hereafter collectively referred to as the "Collateral". The security interest granted hereby shall secure the payment when due of all Indebtedness, including without limitation all indebtedness and obligations of Borrower and Grantor to Secured Party, whether now existing or hereafter arising, and all renewals, modifications and extensions thereof (hereafter collectively called the "Indebtedness"). The Grantor expressly acknowledges and agrees that the security interest given hereby is in addition to and not the exclusion of any and all other security interests at any time given by the Grantor to the Secured Party.

B. As a part of granting the above-referenced security interest and as a part of the above described Collateral, the Grantor does hereby assign, transfer and set over to the Secured Party as to Grantor all monies and claims for money due or to become due to Grantor under all of the foregoing accounts, contract

rights, chattel paper, instruments and general intangibles, and choses in action of Grantor (hereafter collectively the "Accounts Receivable"). Until the Secured Party shall give notice to the Grantor to the contrary, the Grantor will, in the usual course of Grantor’s business and at the Grantor’s own cost and expense, but as the agent of the Secured Party, demand and receive and use its best efforts to collect all monies due or to become due on such Accounts Receivable. The Grantor agrees and covenants that upon the occurrence and continuance of an Event of Default any and all sums of money that shall be received by the Grantor on account of or in payment or settlement of such Accounts Receivable shall be held by the Grantor as trustee for the Secured Party. Upon the occurrence and continuance of an Event of Default, all such monies received shall be segregated and not commingled with any of Grantor’s other funds, and shall be forthwith delivered to the Secured Party with endorsement to the Secured Party's order of any checks or similar instruments. It is agreed that, upon the occurrence and continuance of an Event of Default, the Secured Party shall be entitled at any time, in its own name or in the name of the Grantor or otherwise, but at the expense and cost of the Grantor, to collect, demand, receive, sue for or compromise any and all such Accounts Receivable, and to give good and sufficient releases therefore, to endorse any checks, drafts or other orders for the payment of money payable to the Grantor in payment thereof and, in its discretion, to file any claims or take any action or proceeding, either in its own name or in the name of the Grantor or otherwise, which the Secured Party may deem necessary or advisable. It is expressly understood and agreed, however, that the Secured Party shall not be required or obligated in any manner to make any demand or make any inquiry as to the nature or sufficiency of any payment received by it or to present or file any claim or take any other action to collect or enforce the payment of any amounts which may have been assigned to it or to which it may be entitled hereunder at any time.

C. Unless otherwise expressly provided in this Agreement, all capitalized terms shall have the same meaning as defined in the Loan Agreement.

2. Warranties and Covenants.

A. The Grantor hereby warrants and covenants that:

(i) Except for the Junior Liens (as such term is defined in the Loan Agreement), the Grantor is the owner of the Collateral free from any adverse liens, security interest or encumbrance; and that the Grantor will defend the Collateral against all claims and demands of all other persons at any time claiming the same or any interest therein.

(ii) Except for any financing statement of the Secured Party and any Permitted Lien, no financing statement covering the Collateral is on file in any public office. Grantor expressly agrees to promptly deliver to Secured Party at such place or places as Secured Party shall designate from time to time all documents, instruments and writings of any kind and Grantor expressly authorizes Secured Party to execute, file and record all financing statements deemed reasonably necessary or desirable by Secured Party or its counsel to evidence and perfect the security interest in all of the Grantor’s assets. The Grantor acknowledges, warrants and covenants that the financing statement(s) on file are sufficient to perfect the security interest given hereby. Nevertheless, if requested by Secured Party, the Grantor hereby agrees to immediately execute and/or deliver if requested such other documents in form reasonably satisfactory to counsel for the Secured Party in order to perfect the security interest given hereby, and for filing any financing statements in all public offices where filing is deemed necessary or desirable.

(iii) The Grantor will not sell or offer to sell or otherwise transfer, dispose of or convey any interest in the Collateral or any interest therein without securing the prior written consent

(iv) of the Secured Party except for inventory and farm products sold in the ordinary course of Grantor’s business.

(v) At all times the Grantor will have and maintain insurance with respect to that portion of the Collateral that is insurable against risk of loss by fire (including so-called extended coverage), theft and other risk of loss as the Secured Party may require, containing such terms, in such form, for such periods and written by such companies as are commercially reasonable and customary and otherwise reasonably satisfactory to the Secured Party, such insurance to be payable to the Secured Party as “Loss Payee” or as the Secured Party shall otherwise designate; that all policies of insurance shall provide for thirty (30) days minimum written cancellation notice to the Secured Party and, at the request of the Secured Party, shall be delivered to and held by it. The Secured Party is hereby appointed attorney in fact for the Grantor, and shall have the right, but not the obligation, to settle and compromise any and all claims under any of the policies required to be maintained by Borrower hereunder; to demand, receive and receipt for all monies payable thereunder; and to execute in the name of Borrower or Secured Party or both any proof of loss, notice, or any other instruments in connection with such policies or any loss thereunder. The Grantor acknowledges that the foregoing power of attorney is coupled with an interest and may not be revoked until the Indebtedness is satisfied in full.

(vi) Except for any Permitted Lien, the Grantor will keep the Collateral free from any adverse lien, security interest or encumbrance, and in good order and repair, and will not waste or destroy the Collateral or any part thereof; and the Grantor will not use the Collateral in violation of any statute or ordinance; and the Secured Party may examine and inspect the Collateral or any portion thereof at any reasonable time.

(vii) The Grantor will pay promptly when due any and all taxes and assessments upon the Collateral. At its option, if the Grantor is in default hereunder, the Secured Party may discharge any taxes, liens or security interests or any other encumbrances at any time levied or placed on the Collateral, may pay any insurance on the Collateral and may pay for any maintenance and preservation of the Collateral all of which shall be added to the Indebtedness and shall accrue interest at the highest lawful rate. The Grantor agrees to reimburse the Secured Party on demand for any payments made, or any expense incurred by the Secured Party pursuant to the foregoing authorization.

(viii) The Grantor will perform and observe each and every covenant, term, obligation or provision contained in the Related Loan Documents.

(ix) Where applicable, the Collateral will at all times be kept at the business premises of the Grantor and will not be removed from said premises without securing the written consent of the Secured Party except when done so in the ordinary course of business.

B. Until default, the Grantor may have possession of the Collateral and use it in any lawful manner not inconsistent with this Agreement and not inconsistent with any policy of insurance thereon.

3. Default and Remedies.

A. The Grantor shall be in default under this Agreement upon the happening and continuance of any one or more of the following events or conditions (“Event of Default”):

(i) Grantor shall fail to make any payments required under the terms of any of the Indebtedness, including but not limited to those required in any of the Related Loan Documents on the date such payment is due or demanded;

(ii) The occurrence and continuance of any event of default under the Loan Agreement or in one or more of the other Related Loan Documents, including without limitation this Security Agreement, or any agreement whether now existing or hereafter arising between or including both Grantor and Secured Party.

B. Upon the occurrence and continuance of an Event of Default for a period of seven (7) business days after notice, all of the Indebtedness secured hereby shall, without notice, become immediately due and payable in full, and Secured Party shall have all of the following rights and remedies:

(i) At the request of the Secured Party, the Grantor shall assemble the Collateral and make it available to the Secured Party at a place to be designated by the Secured Party which is reasonably convenient to both parties. The Secured Party will give the Grantor reasonable notice of the time and place of any public sale thereof or of the time after which any private sale or any other intended disposition thereof is to be made. The requirements of reasonable notice shall be met if such notice is mailed, by certified mail, to the address of the Grantor shown at the beginning of this Agreement, at least ten (10) days before the time of the sale or disposition. Expenses of retaking, holding, preparing for sale, selling, or the like, shall be paid by Grantor and shall include the Secured Party's reasonable attorneys' fees and legal expenses; and

(ii) The Secured Party shall have, in addition to any other rights and remedies set forth in this Agreement, and those contained in any of the Related Loan Documents and any other agreements, guarantees, notes, instruments and documents now or at any time hereafter executed by Grantor and delivered to Secured Party, all of the rights and remedies of a secured party under applicable law, including without limitation the Michigan Uniform Commercial Code, as amended.

In addition to all of the foregoing, the Secured Party shall have at any time prior to or after the occurrence and continuance of an Event of Default by the Grantor the right to set-off, without notice to Grantor, any and all deposits or other sums at any time or times credited by or due from the Secured Party to the Grantor, whether in a special account or other account or represented by a certificate of deposit (whether or not matured), which deposits and other sums shall at all times constitute additional security for the Indebtedness.

All of the foregoing rights and remedies afforded to the Secured Party shall be cumulative and nonexclusive.

C. No waiver by the Secured Party of any Event of Default shall be deemed a waiver of any other then existing or subsequent default. No delay or omission by the Secured Party in exercising any right or remedy under this Agreement or any of the other Related Loan Documents shall impair such right to be construed as a waiver thereof or an acquiescence therein, nor shall any single or partial exercise right, preclude other or further exercise thereof, or the exercise of any other right under this Agreement or any of the other Related Loan Documents or otherwise. Any waiver, consent or approval of any kind or character on the part of the Secured Party of any provision of this Agreement or of any of the other Related Loan Documents shall be in writing and shall be effective only to the extent specifically set forth in such writing.

4. Miscellaneous.

A. The rights and obligations of the parties hereto shall be binding upon and inure to the benefit of their respective successors and assigns.

B. This Agreement constitutes the complete understanding of the parties hereto regarding the matters set forth herein, and may not be altered, amended or modified in any way unless done so in writing and signed by the parties hereto.

C. This Agreement shall be governed by and construed according to the internal laws of the State of Michigan.

D. The headings included in this Agreement are for purposes of convenience only and shall not be construed to be a part of the Agreement.

E. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, and should any portion of this Agreement be declared invalid for any reason, such declaration shall have no effect on the remaining portions of this Agreement.

F. THE GRANTOR AND SECURED PARTY ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, THE RELATED LOAN DOCUMENTS OR ANY OTHER AGREEMENT BETWEEN OR INCLUDING THE GRANTOR AND THE SECURED PARTY, AFTER BEING PROVIDED THE OPPORTUNITY TO CONSULT WITH COUNSEL OF CHOICE, BORROWER HEREBY KNOWINGLY AND VOLUNTARILY WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION AS TO ANY AND ALL ISSUES ARISING FROM OR OUT OF THIS AGREEMENT, THE RELATED LOAN DOCUMENTS AND/OR ANY OTHER AGREEMENTS BETWEEN OR INCLUDING THE GRANTOR AND THE SECURED PARTY, INCLUDING WITHOUT LIMITATION ANY ISSUE RELATED TO THE PERFORMANCE OR ENFORCEMENT OF ANY OR ALL OF THE SAME.

G. Unless otherwise indicated, all capitalized terms used herein shall have the same meaning as defined in the Loan Agreement.

IN WITNESS WHEREOF, the parties hereto have set their hands and seals as of the day and year first above written.

GRANTOR:

AROTECH CORPORATION

A Delaware corporation

By: _______________________________

Its:____________________________

SECURED PARTY

KEYBANK NATIONAL ASSOCIATION,

a national banking association

By: _____________________________

Its: _____________________________

EX-4.3 4 ex4-3.htm AROTECH GUARANTY ex4-3.htm

Exhibit 4.3

UNLIMITED GUARANTY

(AROTECH CORPORATION)

THIS UNLIMITED GUARANTY (“Guaranty”) made as of December _____, 2007, by AROTECH CORPORATION, a Delaware corporation (”Guarantor”), to and for the benefit of KEYBANK NATIONAL ASSOCIATION, a national banking association, its successors and assigns (“Lender”).

RECITALS

A. On or about the date hereof, FAAC Incorporated, a Michigan corporation (the “Borrower”) along with Related Parties and Lender entered into a certain Loan Agreement (the “Loan Agreement”) whereby Lender agreed to provide and continue to provide a loan (the “Loan”) available to Borrower in the maximum aggregate amount at any time outstanding not to exceed the sum of Seven Million Five Hundred Thousand Dollars ($7,500,000). Capitalized terms used and not otherwise defined herein shall have the meanings given to them in the Loan Agreement.

B. In connection with the Loan, Borrower has executed and delivered a promissory note (the “Note”) in favor of Lender of even date herewith in the amount of the Loan, payment of which is secured by various security agreements made by Borrower, Guarantor and other Related Parties in favor of Lender including any other Related Loan Documents.

C. Guarantor will derive material financial benefit from the Loans evidenced and secured by the Note, security agreements, and the other Related Loan Documents.

D. Lender has relied on the statements and agreements contained herein in agreeing to make the Loans. The execution and delivery of this Guaranty by Guarantor is a condition precedent to the making of the Loans by Lender.

AGREEMENTS

NOW, THEREFORE, intending to be legally bound, Guarantor, in consideration of the matters described in the foregoing Recitals, which Recitals are incorporated herein and made a part hereof, and for other good and valuable consideration the receipt and sufficiency of which are acknowledged, hereby covenants and agrees for the benefit of Lender and its respective successors, indorsees, transferees, participants and assigns as follows:

1. Guarantor absolutely, unconditionally and irrevocably guarantees:

(a) the full and prompt payment of the principal and interest on the Note when due, whether at stated maturity, upon acceleration or otherwise, and at all times thereafter, and the full and prompt payment of all sums which may now be or may hereafter become due and owing under the Note, the Loan Agreement and the other Related Loan Documents;

(b) the prompt, full and complete performance of all of Borrower’s obligations under each and every covenant contained in the Related Loan Documents; and

(c) all other indebtedness and obligations of Borrower to Lender, whether such indebtedness and obligations are now existing or hereafter arising without limitation as to amount or nature; and

(d) the full and prompt payment of any Enforcement Costs (as hereinafter defined in Section 7 hereof).

All amounts due, debts, liabilities and payment obligations described in subsections (a) through (c) of this Section 1 shall be hereinafter collectively referred to as the “Indebtedness.”

2. In the event of any default by Borrower in the payment of the Indebtedness, after the expiration of any applicable cure or grace period, Guarantor agrees, on demand by Lender or the holder of the Note, to pay the Indebtedness regardless of any defense, right of set-off or claims which Borrower or Guarantor may have against Lender or the holder of the Note.

All of the remedies set forth herein and/or provided for in any of the Related Loan Documents or at law or equity shall be equally available to Lender, and the choice by Lender of one such alternative over another shall not be subject to question or challenge by Guarantor or any other person, nor shall any such choice be asserted as a defense, setoff, or failure to mitigate damages in any action, proceeding, or counteraction by Lender to recover or seeking any other remedy under this Guaranty, nor shall such choice preclude Lender from subsequently electing to exercise a different remedy. The parties have agreed to the alternative remedies provided herein in part because they recognize that the choice of remedies in the event of a default hereunder will necessarily be and should properly be a matter of good faith business judgment, which the passage of time and events may or may not prove to have been the best choice to maximize recovery by Lender at the lowest cost to Borrower and/or Guarantor. It is the intention of the parties that such good faith choice by Lender be given conclusive effect regardless of such subsequent developments.

3. Guarantor does hereby (a) waive notice of acceptance of this Guaranty by Lender and any and all notices and demands of every kind which may be required to be given by any statute, rule or law, (b) waive any and all rights Guarantor may have under any anti-deficiency statute or other similar protections, (c) waive presentment for payment, demand for payment, notice of nonpayment or dishonor, protest and notice of protest, diligence in collection and any and all formalities which otherwise might be legally required to charge Guarantor with liability, and (d) waive any failure by Lender to inform Guarantor of any facts Lender may now or hereafter know about Borrower, the Collateral, the Loans, or the transactions contemplated by the Loan Agreement, it being understood and agreed that Lender has no duty so to inform and that Guarantor is fully responsible for being and remaining informed by Borrower of all circumstances bearing on the risk of nonperformance of Borrower’s obligations. Credit may be granted or continued from time to time by Lender to Borrower without notice to or authorization from Guarantor, regardless of the financial or other condition of Borrower at the time of any such grant or continuation. Lender shall have no obligation to disclose or discuss with Guarantor its assessment of the financial condition of Borrower. Guarantor acknowledges that no representations of any kind whatsoever have been made by Lender. No modification or waiver

of any of the provisions of this Guaranty shall be binding upon Lender except as expressly set forth in a writing duly signed and delivered by Lender.

4. Guarantor further agrees that Guarantor’s liability as guarantor shall not be impaired or affected by any renewals or extensions which may be made from time to time, with or without the knowledge or consent of Guarantor of the time for payment of interest or principal under the Note or by any forbearance or delay in collecting interest or principal under the Note, or by any waiver by Lender under the Loan Agreement or any other Related Loan Documents, or by Lender’s failure or election not to pursue any other remedies it may have against Borrower or Guarantor, or by any change or modification in the Note, Loan Agreement or any other Related Loan Document, or by the acceptance by Lender of any additional security or any increase, substitution or change therein, or by the release by Lender of any security or any withdrawal thereof or decrease therein, or by the application of payments received from any source to the payment of any obligation other than the Indebtedness even though Lender might lawfully have elected to apply such payments to any part or all of the Indebtedness, it being the intent hereof that, subject to Lender’s compliance with the terms of this Guaranty, Guarantor shall remain liable for the payment of the Indebtedness, until the Indebtedness has been paid in full, notwithstanding any act or thing which might otherwise operate as a legal or equitable discharge of a surety. Guarantor further understands and agrees that Lender may at any time enter into agreements with Borrower to amend and modify the Note, Loan Agreement or other Related Loan Documents, and may waive or release any provision or provisions of the Note, Loan Agreement and other Related Loan Documents, and, with reference to such instruments, may make and enter into any such agreement or agreements as Lender and Borrower may deem proper and desirable, without in any manner impairing or affecting this Guaranty or any of Lender’s rights hereunder or Guarantor’s obligations hereunder.

5. This is an absolute, present and continuing guaranty of payment and not of collection. Guarantor agrees that this Guaranty may be enforced by Lender without the necessity at any time of resorting to or exhausting any other security or collateral given in connection herewith or with the Note, Loan Agreement or any of the other Related Loan Documents through foreclosure or sale proceedings, as the case may be, or resorting to any other guaranties, and Guarantor hereby waives any right to require Lender to join Borrower in any action brought hereunder or to commence any action against or obtain any judgment against Borrower or to pursue any other remedy or enforce any other right. Guarantor further agrees that nothing contained herein or otherwise shall prevent Lender from pursuing concurrently or successively all rights and remedies available to it at law and/or in equity or under the Note, Loan Agreement or any other Related Loan Documents, and the exercise of any of its rights or the completion of any of its remedies shall not constitute a discharge of Guarantor’s obligations hereunder, it being the purpose and intent of Guarantor that the obligations of Guarantor hereunder shall be absolute, independent and unconditional under any and all circumstances whatsoever. None of Guarantor’s obligations under this Guaranty or any remedy for the enforcement thereof shall be impaired, modified, changed or released in any manner whatsoever by any impairment, modification, change, release or limitation of the liability of Borrower under the Note, Loan Agreement or other Related Loan Documents or by reason of the bankruptcy of Borrower or by reason of any creditor or bankruptcy proceeding instituted by or against Borrower. This Guaranty shall continue to be effective or be reinstated (as the case may be) if at any time payment of all or any part of any sum payable pursuant to the Note, Loan Agreement or any other Related Loan Document is rescinded or otherwise required to be returned by Lender upon the insolvency, bankruptcy, dissolution, liquidation, or reorganization of Borrower, or upon or as a result of the appointment of a receiver, intervenor, custodian or conservator of or trustee or

similar officer for, Borrower or any substantial part of its Collateral, or otherwise, all as though such payment to Lender had not been made, regardless of whether Lender contested the order requiring the return of such payment. In the event of foreclosure of any security interest and of a deficiency, Guarantor hereby promises and agrees forthwith to pay the amount of such deficiency notwithstanding the fact that recovery of said deficiency against Borrower would not be allowed by applicable law; however, the foregoing shall not be deemed to require that Lender institute foreclosure proceedings or otherwise resort to or exhaust any other collateral or security prior to or concurrently with enforcing this Guaranty.

6. In the event Lender or any holder of the Note shall assign the Note to any lender or other entity to secure a loan from such lender or other entity to Lender or such holder for an amount not in excess of the amount which will be due, from time to time, from Borrower to Lender under the Note with interest not in excess of the rate of interest which is payable by Borrower to Lender under the Note, Guarantor will accord full recognition thereto and agree that all rights and remedies of Lender or such holder hereunder shall be enforceable against Guarantor by such Lender or other entity with the same force and effect and to the same extent as would have been enforceable by Lender or such holder but for such assignment; provided, however, that unless Lender shall otherwise consent in writing, Lender shall have an unimpaired right, prior and superior to that of its assignee or transferee, to enforce this Guaranty for Lender’s benefit to the extent any portion of the Indebtedness or any interest therein is not assigned or transferred.

7. If: (a) this Guaranty is placed in the hands of an attorney for collection or is collected through any legal proceeding; (b) an attorney is retained to represent Lender in any bankruptcy, reorganization, receivership, or other proceedings affecting creditors’ rights and involving a claim under this Guaranty; (c) an attorney is retained to provide advice or other representation with respect to this Guaranty; or (d) an attorney is retained to represent Lender in any proceedings whatsoever in connection with this Guaranty and Lender prevails in any such proceedings, then Guarantor shall pay to Lender upon demand all reasonable attorney’s fees, costs and expenses incurred in connection therewith (all of which are referred to herein as “Enforcement Costs”), in addition to all other amounts due hereunder, regardless of whether all or a portion of such Enforcement Costs are incurred in a single proceeding brought to enforce this Guaranty as well as the other Related Loan Documents.

8. The parties hereto intend and believe that each provision in this Guaranty comports with all applicable local, state and federal laws and judicial decisions. However, if any provision or provisions, or if any portion of any provision or provisions, in this Guaranty is found by a court of law to be in violation of any applicable local, state or federal ordinance, statute, law, administrative or judicial decision, or public policy, and if such court should declare such portion, provision or provisions of this Guaranty to be illegal, invalid, unlawful, void or unenforceable as written, then it is the intent of all parties hereto that such portion, provision or provisions shall be given force to the fullest possible extent that they are legal, valid and enforceable, that the remainder of this Guaranty shall be construed as if such illegal, invalid, unlawful, void or unenforceable portion, provision or provisions were not contained therein, and that the rights, obligations and interest of Lender or the holder of the Note under the remainder of this Guaranty shall continue in full force and effect.

9. TO THE GREATEST EXTENT PERMITTED BY LAW, GUARANTOR HEREBY WAIVES ANY AND ALL RIGHTS TO REQUIRE MARSHALLING OF ASSETS BY LENDER. WITH RESPECT TO ANY SUIT, ACTION OR PROCEEDINGS

RELATING TO THIS GUARANTY (EACH, A “PROCEEDING”), LENDER AND GUARANTOR IRREVOCABLY (A) SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS HAVING JURISDICTION IN THE CITY OF ANN ARBOR AND STATE OF MICHIGAN, AND (B) WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY PROCEEDING BROUGHT IN ANY SUCH COURT, WAIVES ANY CLAIM THAT ANY PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO SUCH PROCEEDING, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY. NOTHING IN THIS GUARANTY SHALL PRECLUDE LENDER FROM BRINGING A PROCEEDING IN ANY OTHER JURISDICTION NOR WILL THE BRINGING OF A PROCEEDING IN ANY ONE OR MORE JURISDICTIONS PRECLUDE THE BRINGING OF A PROCEEDING IN ANY OTHER JURISDICTION. LENDER AND GUARANTOR FURTHER AGREE AND CONSENT THAT, IN ADDITION TO ANY METHODS OF SERVICE OF PROCESS PROVIDED FOR UNDER APPLICABLE LAW, ALL SERVICE OF PROCESS IN ANY PROCEEDING IN ANY MICHIGAN STATE OR UNITED STATES COURT SITTING IN THE CITY OF ANN ARBOR AND MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO THE APPLICABLE PARTY AT THE ADDRESS INDICATED BELOW, AND SERVICE SO MADE SHALL BE COMPLETE UPON RECEIPT; EXCEPT THAT IF SUCH PARTY SHALL REFUSE TO ACCEPT DELIVERY, SERVICE SHALL BE DEEMED COMPLETE FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO MAILED.

10. Any indebtedness of Borrower to Guarantor now or hereafter existing is hereby subordinated to the payment of the Indebtedness. Guarantor agrees that, until the entire Indebtedness has been paid in full, Guarantor will not seek, accept, or retain for Guarantor’s own account, any payment from Borrower on account of such subordinated debt. Any payments to Guarantor on account of such subordinated debt shall be collected and received by Guarantor in trust for Lender and shall be paid over to Lender on account of the Indebtedness without impairing or releasing the obligations of Guarantor hereunder.

11. Any amounts received by Lender from any source on account of the Loans may be utilized by Lender for the payment of the Indebtedness and any other obligations of Borrower to Lender in such order as Lender may from time to time elect.

12. GUARANTOR AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHT UNDER THIS GUARANTY OR ANY OTHER RELATED LOAN DOCUMENTS OR RELATING THERETO OR ARISING FROM THE LENDING RELATIONSHIP WHICH IS THE SUBJECT OF THIS GUARANTY AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

13. Any notice, demand, request or other communication which any party hereto may be required or may desire to give hereunder shall be in writing and shall be deemed to have been properly given (a) if hand delivered, when delivered; (b) if mailed by United States Certified Mail (postage prepaid, return receipt requested), three Business Days after mailing (c) if by Federal Express or other reliable overnight courier service, on the next Business Day after

delivered to such courier service or (d) if by telecopier on the day of transmission so long as copy is sent on the same day by overnight courier as set forth below:

Guarantor:

Arotech Corporation

1229 Oak Valley Drive

Ann Arbor, Michigan 48108

Attn. Yaakov Har-Oz

FAX No: 011-932-2-990-6688

If to the Bank: KeyBank National Association

17199 North Laurel Park Drive, Suite 105

Livonia, Michigan 48152

ATTN: Jason Graves

FAX No: (734) 452-5500

With a copy to:

Bruce N. Elliott

Conlin, McKenney & Philbrick, P.C.

350 S. Main Street, Suite 400

Ann Arbor, Michigan 48104

FAX No. (734) 761-9001

or at such other address as the party to be served with notice may have furnished in writing to the party seeking or desiring to serve notice as a place for the service of notice.

14. In order to induce Lender to make the Loans, Guarantor makes the following representations and warranties to Lender set forth in this Section. Guarantor acknowledges that but for the truth and accuracy of the matters covered by the following representations and warranties, Lender would not have agreed to make the Loans.

(a) Any and all balance sheets, net worth statements, and other financial data with respect to Guarantor which have heretofore been given to Lender by or on behalf of Guarantor fairly and accurately present the financial condition of Guarantor as of the respective dates thereof.

(b) The execution, delivery, and performance by Guarantor of this Guaranty does not and will not contravene or conflict with (i) any laws, order, rule, regulation, writ, injunction or decree now in effect of any Government Authority, or court having jurisdiction over Guarantor, (ii) any contractual restriction binding on or affecting Guarantor or Guarantor’s Collateral or material assets which may adversely affect Guarantor’s ability to fulfill Guarantor’s obligations under this Guaranty, or (iii) the instruments creating any trust holding title to any material assets included in Guarantor’s financial statements.

(c) This Guaranty creates legal, valid, and binding obligations of Guarantor enforceable in accordance with its terms except (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally, (ii) as such enforceability may be limited by the application of general principles of equity and similar principles, including, without limitation, concepts of materiality, reasonableness, unconscionability, good faith and fair dealing, (iii) that waivers of jury trial may be limited under public policy, and (iv) that the remedy of

specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.

(d) Except as disclosed in writing to Lender, there is no action, proceeding, or investigation pending or, to the knowledge of Guarantor, threatened or affecting Guarantor, which may adversely affect Guarantor’s ability to fulfill his obligations under this Guaranty. There are no judgments rendered against Guarantor which have been undischarged for a period of ten (10) days. Guarantor is not in default under any agreements which may adversely affect Guarantor’s ability to fulfill its obligations under this Guaranty.

(e) All statements set forth in the Recitals are true and correct in all material aspects.

All of the foregoing representations and warranties shall be deemed remade on the date of the first disbursement of Loan proceeds, on the date of each advance of Loan proceeds, and upon any extension of the Loans pursuant to the Loan Agreement. Guarantor hereby agrees to indemnify and hold Lender harmless from and against all loss, cost, liability, damage, and expense, including attorney’s fees and costs, which Lender may sustain by reason of the inaccuracy or breach of any of the foregoing representations and warranties as of the date the foregoing representations and warranties are made and are remade.

15. Guarantor shall deliver or cause to be delivered to Lender in the manner provided in the Loan Agreement all of the Guarantor financial statements to be delivered in accordance with the terms of the Loan Agreement.

16. This Guaranty shall be binding upon the heirs, executors, legal and personal representatives, successors and assigns of Guarantor and shall not be discharged in whole or in part by the death of Guarantor. If more than one party executes this Guaranty, the liability of all such parties shall be joint and several.

17. THIS GUARANTY, THE NOTE, AND ALL OTHER INSTRUMENTS EVIDENCING AND SECURING THE LOANS SECURED HEREBY WERE NEGOTIATED IN THE STATE OF MICHIGAN, AND DELIVERED BY GUARANTOR OR BORROWER, AS APPLICABLE, AND ACCEPTED BY LENDER IN THE STATE OF MICHIGAN, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND THE UNDERLYING TRANSACTIONS EMBODIED HEREBY. IN ALL RESPECTS, INCLUDING, WITHOUT LIMITATION, MATTERS OF CONSTRUCTION OF THE IMPROVEMENTS AND PERFORMANCE OF THIS GUARANTY AND THE OBLIGATIONS ARISING HEREUNDER, THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF MICHIGAN APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY IN SUCH STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

18. Lender shall be entitled to honor any request for Loan proceeds made by Borrower and shall have no obligation to see to the proper disposition of such advances. Guarantor agrees that his obligations hereunder shall not be released or affected by reason of any improper disposition by Borrower of such Loan proceeds.

19. This Guaranty may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same instrument.

IN WITNESS WHEREOF, Guarantor has delivered this Guaranty in the State of Michigan as of the date first written above.

GUARANTOR:

AROTECH CORPORATION,

A Delaware Corporation

By:_________________________________

Its:______________________________