AROTECH
CORPORATION
2007
NON-EMPLOYEE DIRECTOR EQUITY COMPENSATION PLAN
1.
Purposes
of the Plan
. The purposes of this Arotech Corporation 2007 Non-Employee
Director Equity Compensation Plan are to attract qualified individuals for
positions of responsibility as outside directors of the Company, and to provide
incentives for qualified individuals to remain on the Board as outside
directors.
2.
Definitions
. As
used herein, the following definitions shall apply:
“
Annual
Meeting
” means the annual meeting of shareholders of the
Company.
“
Applicable
Laws
” means the requirements relating to the administration of equity plans
under U.S. state corporate laws, U.S. federal and state securities laws,
the
Code, any stock exchange or quotation system on which the Common Stock is
listed
or quoted and the applicable laws of any foreign country or jurisdiction
where
Restricted Shares are, or will be, granted under the Plan.
“
Board
”
means the Board of Directors of the Company.
“
Cause
”
means (i) conviction of, or the entry of a plea of guilty or no contest to,
a
felony or any other crime that causes the Company public disgrace or disrepute,
or materially and adversely affects the Company’s operations or financial
performance or the relationship the Company has with its customers, (ii)
gross
negligence or willful misconduct with respect to the Company or any of its
Affiliates, including, without limitation fraud, embezzlement, theft or proven
dishonesty; (iii) alcohol abuse or use of controlled drugs other than in
accordance with a physician’s prescription; (iv) a material breach of any
obligation or duty to the Company or any of its Affiliates (whether arising
by
statute, common law or agreement) relating to confidentiality, noncompetition,
nonsolicitation or proprietary rights, or (v) after a written warning and
a ten
(10) day opportunity to cure non-performance, failure to perform his or her
duties as a Director as prescribed by the laws of the State of
Delaware.
“
Change
in Control
” means the occurrence of any of the following events with respect
to the Company:
(A) the
consummation of any consolidation or merger of the Company in which the Company
is not the continuing or surviving corporation or pursuant to which Common
Stock
would be converted into cash, securities or other property, other than a
merger
of the Company in which the holders of Common Stock immediately prior to
the
merger own more than fifty percent (50%) of the outstanding common stock
of the
surviving corporation immediately after the merger; or
(B) the
consummation of any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all, or substantially all, of the
assets
of the Company, other than to a subsidiary or affiliate; or
(C) any
action pursuant to which any person (as such term is defined in Section 13(d)
of
the Exchange Act), corporation or other entity shall become the “beneficial
owner” (as such term is defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of shares of capital stock entitled to vote generally for
the
election of directors of the Company (“Voting Securities”) representing more
than fifty (50%) percent of the combined voting power of the Company’s then
outstanding Voting Securities (calculated as provided in Rule 13d-3(d) in
the
case of rights to acquire any such securities); or
(D) the
individuals (x) who, as of the Effective Date, constitute the Board (the
“Original Directors”) and (y) who thereafter are elected to the Board and whose
election, or nomination for election, to the Board was approved by a vote
of a
majority of the Original Directors then still in office (such Directors being
called “Additional Original Directors”) and (z) who thereafter are elected to
the Board and whose election or nomination for election to the Board was
approved by a vote of a majority of the Original Directors and Additional
Original Directors then still in office, cease for any reason to constitute
a
majority of the members of the Board; or
(E) the
dissolution or liquidation of the Company.
“
Code
”
means the Internal Revenue Code of 1986, as amended.
“
Committee
”
means a committee designated by the Board and consisting solely of members
of
the Board who are not Outside Directors.
“
Common
Stock
” means the common stock, par value $.01 per share, of the
Company.
“
Company
”
means Arotech Corporation, a Delaware corporation.
“
Director
”
means a member of the Board.
“
Disability
”
means permanent and total disability within the meaning of Section 22(e)(3)
of
the Code.
“
Effective
Date
” means the date on which this Plan is approved by stockholders of the
Company.
“
Exchange
Act
” means the Securities Exchange Act of 1934, as amended.
“
Fair
Market Value
” means, as of any date, the value of Common Stock determined as
follows:
(i) if
the Common Stock is listed on any established stock exchange or a national
market system, including without limitation the Nasdaq Global Market or The
Nasdaq Capital Market of The Nasdaq Stock Market, the fair market value of
a
share of Common Stock shall be the closing sales price of a share of
Common
Stock
as
quoted on such exchange or system for such date (or the most recent trading
day
preceding such date if there were no trades on such date), as reported in
The
Wall Street Journal
or such other source as the Committee deems
reliable;
(ii) if
the Common Stock is regularly quoted by a recognized securities dealer but
is
not listed in the manner contemplated by clause (i) above, the Fair Market
Value
of a Share of Common Stock shall be the mean between the high bid and low
asked
prices for the Common Stock on the last market trading day prior to the day
of
determination, as reported in The Wall Street Journal or such other source
as
the Committee deems reliable; or
(iii) if
neither clause (i) above nor clause (ii) above applies, the fair market value
of
a share of a share of Common Stock shall be determined in good faith by the
Committee based on the reasonable application of a reasonable valuation
method.
“
Outside
Director
” means any Director who, on the date such person is to receive a
grant of Restricted Shares hereunder is not an employee of the Company or
any of
the Company’s subsidiaries.
“
Participant
”
shall mean any Outside Director who holds a Restricted Stock Award granted
or
issued pursuant to the Plan.
“
Plan
”
means this Arotech Corporation 2007 Non-Employee Director Equity Compensation
Plan.
“
Restricted
Stock Award
” means a grant of Restricted Shares pursuant to Section 7 of the
Plan.
“
Restricted
Stock Agreement
” means an agreement, approved by the Committee, evidencing
the terms and conditions of a Restricted Stock Award.
“
Restricted
Shares
” means Shares subject to a Restricted Stock Award.
“
Share
”
means a share of Common Stock, as adjusted in accordance with Section 9 of
the
Plan.
3.
Stock
Subject to the Plan
. Subject to the provisions of Section 9
of the Plan, the maximum aggregate number of Shares that may be issued as
Restricted Shares under the Plan is seven hundred fifty thousand (750,000)
Shares. The Shares may be authorized, but unissued, or reacquired
Common Stock. Restricted Shares that have been transferred back to
the Company shall be available for future grants of Restricted Shares under
the
Plan.
4.
Administration
of the Plan
.
(a)
Administration
. The
Plan shall be administered by the Committee. The Committee shall have
the authority, in its discretion:
(i)
to determine the Fair Market Value of Common Stock;
(ii) to
approve forms of agreement for use under the Plan;
(iii)
to determine the number of Shares that may be issued as Restricted Shares
and
the terms and conditions of such Restricted Shares;
(iv)
to construe and interpret the terms of the Plan;
(v)
to prescribe, amend and rescind rules and regulations relating to the
Plan;
(vi)
to allow Participants to satisfy withholding tax obligations by having the
Company withhold from the shares of Common Stock to be issued upon vesting
of
Restricted Shares that number of Shares having a Fair Market Value equal
to the
amount required to be withheld, provided that withholding is calculated at
the
minimum statutory withholding level. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of
tax to
be withheld is to be determined. All determinations to have Shares
withheld for this purpose shall be made by the Committee in its
discretion;
(vii) to
authorize any person to execute on behalf of the Company any instrument required
to effect the grant of a Restricted Stock Award granted by the Committee;
and
(viii) to
make all other determinations deemed necessary or advisable for administering
the Plan.
(b)
Effect
of Committee’s Decision
. The Committee’s decisions,
determinations and interpretations shall be final and binding on all
Participants and anyone else who may claim an interest in Restricted
Shares.
5.
Eligibility
. The
only persons who shall be eligible to receive Restricted Stock Awards under
the
Plan shall be persons who, on the date such Awards are granted, are Outside
Directors.
6.
Term
of the Plan
. No Restricted Stock Award may be granted under the
Plan more than ten (10) years after the Effective Date.
7.
Grants
of Restricted Stock Awards
.
(a)
Initial
Grant.
Each individual who first becomes an Outside Director on
or after the date of the approval of this Plan by the stockholders of the
Company shall, upon first
qualifying
as an Outside Director, automatically be granted a number of Restricted Shares,
on the terms and conditions set forth in Section 8 below, having a Fair Market
Value on the date of grant (determined without regard to the restrictions
applicable thereto) equal to twenty-five thousand dollars ($25,000);
provided
,
however
, that grants of Restricted Shares under this
Plan shall not be made until a Form S-8 registration statement in respect
of the
Shares is filed with, and declared effective by, the Securities and Exchange
Commission.
(b)
Annual
Grant.
On March 31 of each year, beginning with March 31, 2008,
or the next following business day if March 31 is not a business day, each
Outside Director shall automatically be granted a number of Restricted Shares,
on the terms and conditions set forth in Section 8 below, having a Fair Market
Value on the date of grant (determined without regard to the restrictions
applicable thereto) equal to fifteen thousand dollars ($15,000);
provided
,
however
, that grants of Restricted Shares under this
Plan shall not be made until a Form S-8 registration statement in respect
of the
Shares is filed with, and declared effective by, the Securities and Exchange
Commission.
(c)
Special
Grant in Respect of 2007.
On the date which is two business days
after the date that a Form S-8 registration statement in respect of the Shares
is filed with, and declared effective by, the Securities and Exchange
Commission, each Outside Director who was serving as an Outside Director
on the
day prior to the date of the approval of this Plan by the stockholders of
the
Company shall automatically be granted a number of Restricted Shares, on
the
terms and conditions set forth in Section 8 below, having a Fair Market Value
on
the date of grant (determined without regard to the restrictions applicable
thereto) equal to fifteen thousand dollars ($15,000).
8.
Terms
of Restricted Stock Awards
. Except as provided herein,
Restricted Shares shall be subject to restrictions (“Restrictions”) prohibiting
such Restricted Shares from being sold, transferred, assigned, pledged or
otherwise encumbered or disposed of . The Restrictions with respect
to each award of Restricted Shares shall lapse as to one-third of such
Restricted Shares on each one-year anniversary date of the grant of such
award;
provided
,
however
, that the Restrictions with respect to such
Restricted Shares shall lapse immediately in the event that (i) the Participant
is removed from service as a Director (other than for Cause) before his or
her
term has expired (and does not continue as, or become, an employee of the
Company or a subsidiary of the Company), (ii) the Participant is nominated
for a
new term as an Outside Director but is not elected by stockholders of the
Company, or (iii) the Participant ceases to be a member of the Board due
to
death, disability or mandatory retirement (if any). Notwithstanding the
foregoing, the Restrictions with respect to all of a Participant's Restricted
Shares shall lapse immediately prior to a Change in Control provided that
the
Participant is a member of the Board immediately prior to such Change in
Control.
The
Company shall issue, in the name of each Participant to whom Restricted Shares
have been granted, stock certificates representing the total number of
Restricted Shares granted to such Participant as soon as reasonably practicable
after the grant. However, the Company shall hold such certificates,
properly endorsed for transfer, for the Participant’s benefit until such time as
the Restriction Period applicable to such Restricted Shares
lapses. Upon the expiration or termination of the Restricted Period,
the restrictions applicable to the Restricted Shares shall
lapse
and
a stock certificate for the number of Restricted Shares with respect to which
the restrictions have lapsed shall be delivered, free of all such restrictions,
to the Participant or his or her beneficiary or estate, as the case may
be. In the event that a Participant ceases to be a member of the
Board before the applicable Restriction Period has expired or under
circumstances in which the Restriction Period does not otherwise lapse, the
Restricted Shares granted to such Participant shall thereupon be forfeited
and
transferred back to the Company.
During
the Restriction Period, a Participant shall have the right to vote his or
her
Restricted Shares and shall have the right to receive any cash dividends
with
respect to such Restricted Shares. All distributions, if any,
received by a Participant with respect to Restricted Shares as a result of
any
stock split, stock distribution, combination of shares, or other similar
transaction shall be subject to the same restrictions as are applicable to
the
Restricted Shares to which such distributions relate.
9.
Adjustments
Upon Changes in Capitalization
. Subject to any required
action by the shareholders of the Company, the number of shares of Common
Stock
covered by each outstanding Restricted Stock Award, and the number of shares
of
Common Stock which have been authorized for issuance under the Plan but as
to
which no Restricted Stock Awards have yet been granted or which have been
returned to the Plan upon cancellation or expiration of a Restricted Stock
Award, shall be proportionately adjusted for any increase or decrease in
the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company;
provided
,
however
, that conversion of any convertible securities
of the Company shall not be deemed to have been “effected without receipt of
consideration.” Such adjustment shall be made by the Committee, whose
determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof
shall
be made with respect to, the number or price of shares of Common Stock subject
to a Restricted Stock Award.
10.
Grant
Agreement
. Each grant of a Restricted Stock Award under the
Plan will be evidenced by a document in such form as the Committee may from
time
to time approve. Such document will contain such provisions as the
Committee may in its discretion deem advisable, provided that such provisions
are not inconsistent with any of the provisions of the Plan.
11.
Amendment
and Termination of the Plan
.
(a)
Amendment
and Termination
. The Board may at any time amend, alter, suspend
or terminate the Plan.
(b)
Shareholder
Approval
. The Company shall obtain shareholder approval of any
Plan amendment to the extent necessary to comply with Applicable
Laws.
(c)
Effect
of Amendment or Termination
. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any
Participant, unless mutually agreed otherwise between the Participant and
the
Committee, which agreement must be in writing and
signed
by
the Participant and the Company. Termination of the Plan shall not
affect the Committee’s ability to exercise the powers granted to it hereunder
with respect to Restricted Shares granted under the Plan prior to the date
of
such termination.
12.
Conditions
Upon Issuance of Shares
.
(a)
Legal
Compliance
. Shares shall not be issued pursuant to a Restricted
Stock Award unless the issuance and delivery of such Shares shall comply
with
Applicable Laws and shall be further subject to the approval of counsel for
the
Company with respect to such compliance.
(b)
Investment
Representations
. As a condition to the issuance of Restricted
Shares, the Company may require the Participant to represent and warrant
at the
time of any such issuance that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is
required. Not in limitation of any of the foregoing, in any such case
referred to in the preceding sentence the Committee may also require the
Participant to execute and deliver documents containing such representations
(including the investment representations described in this Section 12(b)
of the
Plan), warranties and agreements as the Committee or counsel to the Company
shall deem necessary or advisable to comply with any exemption from registration
under the Securities Act of 1933, as amended, any applicable State securities
laws, and any other applicable law, regulation or rule.
(c)
Additional
Conditions
. The Committee shall have the authority to condition
the grant of any Restricted Shares in such other manner that the Committee
determines to be appropriate, provided that such condition is not inconsistent
with the terms of the Plan.
13.
Inability
to Obtain Authority
. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company’s counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
14.
Reservation
of Shares
. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15.
Shareholder
Approval
. The Plan shall be subject to approval by the
shareholders of the Company. Such shareholder approval shall be
obtained in the manner and to the degree required under Applicable
Laws.
16.
Withholding;
Notice of Sale
. Each Participant shall, no later than the
date as of which the value of a Restricted Stock Award or of any Shares or
other
amounts received thereunder first becomes includable in the gross income
of the
Participant for Federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Committee regarding payment of, any Federal,
state, or local taxes of any kind required by law to be withheld with respect
to
such income. The Company shall, to the extent permitted by law, have
the right to
deduct
any such taxes from any payment of any kind otherwise due to the
Participant. The Company’s obligation to deliver stock certificates
to any Participant is subject to and conditioned on any such tax obligations
being satisfied by the Participant. Subject to approval by the
Committee, a Participant may elect to have the minimum required tax withholding
obligation satisfied, in whole or in part, by (i) authorizing the Company
to
withhold from Shares to be issued pursuant to any Restricted Stock Award
a
number of Shares with an aggregate Fair Market Value (as of the date the
withholding is effected) that would satisfy the withholding amount due, or
(ii)
transferring to the Company Shares owned by the Participant with an aggregate
Fair Market Value (as of the date the withholding is effected) that would
satisfy the minimum withholding amount due.
17.
Governing
Law
. This Plan shall be governed by the laws of the State of
Delaware.