STOCK PURCHASE AND SALE AGREEMENT
This Stock Purchase and Sale Agreement ("Agreement") is made and entered
into by and among ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇, the
shareholders (the "Shareholders") of Audio International, Inc. ("AI") and
▇▇▇▇▇▇▇ Aircraft Holdings, Inc. ("DAH"), based on the following facts:
Shareholders own all of the outstanding stock of AI (the "Stock"); and
desire to sell 100% of the Stock to DAH;
DAH desires to purchase 100% of the Stock from the Shareholders on the
terms and conditions of this Agreement.
Based on the foregoing facts and circumstances, the parties hereby agree
as follows (capitalized terms being used herein as defined where noted in
Schedule A):
1. STOCK TO BE PURCHASED AND SOLD; PURCHASE PRICE.
1.1 PURCHASE AND SALE OF STOCK. At the Closing, DAH shall purchase
from the Shareholders 100% of the Stock for the amount specified in Section
1.2. Attached as Exhibit 1.1 is a list of the Shareholders which reflects the
percentage of the aggregate payments to be made pursuant to Sections 1.2.1 and
1.2.2 to each of the Shareholders. Each of the Shareholders, jointly and
severally, hereby agrees to indemnify and hold DAH harmless from any and all
loss, damage, claim or expense, resulting from any claim by any Shareholder or
the successor or heir of any Shareholder that the percentage received by the
Shareholder or such successor or heir is not correct as a percentage of the
aggregate amount paid.
1.2 PURCHASE PRICE OF THE STOCK.
1.2.1 At the Closing, DAH shall make federal funds and wire
transfers to each of the Shareholders, to accounts designated by the
Shareholders on Exhibit 1.2.1 hereto the aggregate sum of $24 million;
1.2.2 On March 31, 1999 and March 31, 2000, the Shareholders
shall receive such additional payments as are required pursuant to the Earnout
Agreement, attached as Exhibit 1.2.2.
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2. REPRESENTATIONS AND WARRANTIES.
2.1 BY DAH. Except as set forth on Schedule 2.1, the
representations and warranties of DAH, contained in this Agreement, including
those contained in this Section 2.1, are correct and complete as of the date of
this Agreement and will be correct and complete as of the Closing Date. DAH
hereby represents and warrants to the Shareholders the following:
2.1.1 ORGANIZATION. DAH is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has all requisite corporate power and authority to own, lease and operate
its properties and conduct its business as now being conducted. DAH is duly
qualified to do business and in good standing in Delaware and California.
Except as set forth on Schedule 2.1.1, DAH has not received any written notice
or assertion within the last three years from any governmental official of any
jurisdiction to the effect that DAH is required to be qualified or otherwise
authorized to do business in any other jurisdiction, in which DAH, has not
qualified or obtained such authorization. Attached hereto as Exhibit 2.1.1 are
complete and correct copies of DAH's certificate of incorporation and by-laws
as in effect on the date hereof, and DAH is not in default in the performance,
observation or fulfillment of any provision of its articles of incorporation or
by-laws.
2.1.2 AUTHORIZATION. DAH has all requisite corporate power
and authority to enter into this Agreement and the other Transaction Documents
to which DAH is a party, perform its obligations hereunder and thereunder and
consummate the transactions contemplated hereby and thereby. All necessary
corporate action has been taken by DAH with respect to the execution and
delivery of this Agreement and the other Transaction Documents to which DAH is
a party, the consummation of the transactions contemplated by this Agreement
and the other Transaction Documents to which DAH is a party, constitute valid
and binding obligations of DAH, enforceable against DAH, in accordance with
their respective terms, subject to applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance and moratorium laws and other laws of
general application affecting the enforcement of creditors' rights generally.
2.1.3 LITIGATION. There is no claim, litigation, action,
suit, proceeding, investigation or inquiry, administrative or judicial, pending
or, to the knowledge of DAH, threatened against DAH, at law or in equity,
before any federal, state or local court or regulatory agency, or other
governmental authority, which might have an adverse effect on DAH's ability to
perform any of its obligations under this Agreement or upon the consummation of
the transactions contemplated by this Agreement.
2.1.4 BROKERS AND FINDERS. Except as disclosed in Schedule
2.1.4, neither DAH nor any of its officers, directors or employees, has engaged
any broker or finder or incurred any liability for any brokerage fees,
commissions, finders' fees or similar fees or expenses and no broker or finder
has acted directly or indirectly for DAH in connection with this Agreement or
the transactions contemplated hereby.
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2.1.5 SEC REPORTS, FINANCIAL STATEMENTS OBLIGATIONS AND
LIABILITIES. Since April 16, 1997, DAH has filed all required forms, reports
and documents with the Securities and Exchange Commission (the "SEC") required
to be filed by it pursuant to the federal securities laws and the SEC rules and
regulations thereunder, all of which forms, reports and documents have complied
in all material respects as of the respective filing dates, or, in the case of
the S-1 Registration Statement effective April 16, 1997 as of such date (the
"Registration Statement"), with all applicable requirements of the Securities
Act of 1933 (the "Securities Act") and the Securities and Exchange Act of 1934
(the "Exchange Act"), and the rules and regulations promulgated thereunder.
None of such forms, reports or documents, including without limitation, any
exhibits, financial statements or schedules included therein, at the time
filed, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading. DAH's forms, reports and documents filed by DAH with the SEC under
the Exchange Act since April 16, 1997 are hereinafter collectively referred to
as the "DAH 34 Act Reports."
The "DAH Financial Statements" means the consolidated financial statements
of DAH and its subsidiaries included in the Registration Statement and the DAH
34 Act Reports. Each of the consolidated balance sheets of DAH in the DAH
Financial Statements (including the related notes and schedules) fairly present
the consolidated financial position of DAH and its consolidated subsidiaries as
of their respective dates and each of the consolidated statements of income,
stockholders' equity and the cash flows of DAH and its consolidated
subsidiaries in the DAH Financial statements (including the related notes and
schedules) fairly present the results of operations, shareholders' equity and
cash flows of DAH and its consolidated subsidiaries (subject, in the case of
unaudited statements to normal year-end audit adjustments which would not be
material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods
involved, except as may be noted therein.
DAH, on a consolidated basis, does not have any material debt, liability,
or obligation (whether accrued, absolute, contingent, by guarantee, indemnity,
or otherwise, and whether due or to become due) nor has there been any
occurrence which involves material liability of a type required to be disclosed
in the DAH Financial Statements or the notes thereto, except those (i)
disclosed in the DAH Financial Statements, the Registration Statement or the
DAH 34 Act Reports, or (ii) incurred in the ordinary course of business since
December 31, 1996.
2.1.6 ABSENCE OF CERTAIN EVENTS. Except as disclosed in
Schedule 2.1.7 and in the DAH 34 Act Reports, since December 31, 1996, there
has not been any event, circumstance or condition that has had or is reasonably
likely to have a DAH Material Adverse Effect, and (iii) DAH and its
subsidiaries have not introduced any principle or practice of accounting.
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2.1.7 COMPLETE DISCLOSURE No representation or warranty
made by DAH in this Agreement, and no exhibit, schedule, statement, certificate
or other writing furnished to the Shareholders by or on behalf of DAH pursuant
to this Agreement or in connection with the transactions contemplated hereby or
thereby, contains or will contain, any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
contained herein and therein not misleading.
2.2 THE SHAREHOLDERS. Except as set forth on Schedule 2.2, the
representations and warranties of the Shareholders, contained in this
Agreement, including those contained in this Section 2.2, are correct and
complete as of the date of this Agreement and will be correct and complete as
of the Closing Date. The Shareholders represent and warrant to DAH the
following:
2.2.1 CORPORATE ORGANIZATION. AI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Arkansas, and has all requisite corporate power and authority to own, lease and
operate its properties and conduct its business as now being conducted. AI is
duly qualified to do business and in good standing in each jurisdiction listed
on Schedule 2.2.1, and neither the nature of the business conducted by it nor
the property it owns, leases or operates requires it to qualify to do business
as a foreign corporation in any other jurisdiction. Except as set forth on
Schedule 2.2.1, AI has not received any written notice or assertion within the
last three years from any governmental official of any jurisdiction to the
effect that AI is required to be qualified or otherwise authorized to do
business therein, in which AI has not qualified or obtained such authorization.
Attached as Schedules 2.2.1 are complete and correct copies of AI's articles of
incorporation and by-laws as in effect on the date hereof, and AI is not in
default in the performance, observation or fulfillment of any provision of
either of its articles of incorporation or by-laws.
2.2.2 CAPITALIZATION AND SECURITY HOLDERS. The authorized
capital stock of AI consists solely of 1,000 shares of Common Stock, $1.00 par
value ("AI Common Shares"); AI has issued and outstanding 129 AI Common Shares,
constituting all of the issued and outstanding shares of capital stock of any
class of AI; all outstanding AI Common Shares have been validly issued and are
fully paid and non-assessable and free of preemptive rights; there are no
outstanding subscriptions' options, warrants, puts, calls, agreements,
understandings, or other commitments or rights of any type relating to the
issuance, sale or transfer by AI of any securities of AI, nor are there
outstanding any securities which are convertible into or exchangeable for any
shares of capital stock of AI; and AI has no obligation of any kind to issue
any additional securities. Schedule 2.2.2 accurately sets forth the names and
addresses of, the number of AI Common Shares held at the date of this Agreement
of record and/or beneficially by, and any AI Common Shares to be issued, sold
or otherwise transferred at or prior to the Closing Date to, each and every
shareholder of AI. All of such AI Common Shares are owned free and clear of all
liens, charges, claims, encumbrances, pledges, security interests, equities and
restrictions whatsoever.
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2.2.3 AUTHORIZATION OF THE SHAREHOLDERS. Each of the
Shareholders has all requisite power, authority and legal capacity and is
competent to execute and deliver this agreement, and the other Transaction
Documents to which he is a party, perform his obligations hereunder and
thereunder and consummate the transactions contemplated hereby. This Agreement
constitutes, and the other Transaction Documents to which the Shareholders are
parties when executed and delivered by the Shareholders will constitute, valid
and binding obligations of the Shareholders, enforceable against the
Shareholders in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance and moratorium
laws and other laws of general application affecting the enforcement of
creditors' rights generally.
2.2.4 FINANCIAL STATEMENTS. Attached hereto as Schedule
2.2.4 are (i) the balance sheets of AI as at December 31, 1996, 1995 and 1994
and September 30, 1997, (ii) the related statements of income for the years
ended December 31, 1996, 1995 and 1994 and the nine months ended September 30,
1997, and (iii) the related statements of retained earnings and cash flows for
the years ended December 31, 1996 and 1995 (all of such documents referred to
collectively as the "Financial Statements"). The 1996 Financial Statements
reflect all year-end adjustments reflected in the audited consolidated
financial statements of AI. The Financial Statements (i) are true, correct and
complete in all material respects, (ii) have been prepared from and are in
accordance with the books and records of AI, (iii) have been prepared using an
accrual basis method and FIFO inventory cost flow assumptions, (iv) are in
conformity with generally accepted accounting principles applied on a
consistent basis for such periods, and (v) fairly present the financial
position of AI as of the dates stated and the results of operations and cash
flows of AI for the periods then ended in accordance with such practices. On
the date of this Agreement, AI does not have any material contingent
liabilities, liabilities for taxes, unusual forward or long-term commitments or
unrealized or anticipated losses from any unfavorable commitments, except as
referred to or reflected or provided for in the balance sheets in the Financial
Statements. Since September 30, 1997, there has been no material adverse change
in the financial condition, operations, business or prospects taken as a whole
of AI from that set forth in the Financial Statements dated as of September 30,
1997.
2.2.5 ABSENCE OF CERTAIN CHANGES IN EVENTS. Except as set
forth on Schedule 2.2.5, since December 31, 1996, there has not been:
(a) Any material adverse change in the business
operations, assets, properties or rights, prospects or condition (financial or
otherwise) of AI or, any occurrence, circumstance, or combination thereof which
reasonably could be expected to result in any such material adverse change (a
"Material Adverse Effect");
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(b) Any material increase in amounts payable by AI to or
for the benefit of, or committed to be paid by AI: (A) to or for the benefit
of (x) any person listed on Schedule 2.2.5(b) (each a "Restricted Employee") or
(y) in the aggregate, all shareholders, directors, officers, partners,
consultants, agents and employees, in any capacity, of AI who are not listed on
Schedule 2.2.5(b) (the "Non-Restricted Employees") or (B) in any benefits
granted under any bonus, stock option, profit sharing, pension, retirement,
deferred compensation, insurance, or other direct or indirect benefit plan,
payment or arrangement made to, for the benefit of, or with (x) any Restricted
Employee or (y) in the aggregate, all Non-Restricted Employees;
(c) Any transaction entered into or carried out by AI
other than in the ordinary and usual course of business;
(d) Any borrowing or agreement to borrow funds; any
incurring of any assumption, guarantee or other obligation or liability,
contingent or otherwise except current liabilities incurred in the usual and
ordinary course of business or those not exceeding at any one time outstanding
$50,000;
(e) Any material change made by AI in the methods of doing
business, or other than such changes required by GAAP, any change in the
accounting principles or practices of AI with respect to the Financial
Statements or the method of application of such principles or practices;
(f) Other than those which are involuntary and in amounts
which are not material, any mortgage, pledge, lien, security interest,
hypothecation, charge or other encumbrance imposed or agreed to be imposed on
or with respect to the real (the "Real Property") or tangible or intangible
personal property of AI (the "Personal Property") (collectively the "Property");
(g) Any sale, lease or other disposition of or any
agreement to sell, lease or otherwise dispose of any of the material properties
or assets of AI, other than sales of finished goods in the usual and ordinary
course of business for AI's scheduled prices;
(h) Any purchase of or any agreement to purchase capital
assets for an amount in excess of $50,000 for any one such purchase or $100,000
for all such purchases made by AI on behalf of AI or any lease or any agreement
to lease, as lessee, any capital assets with payments over the term thereof to
be made by AI exceeding an aggregate of $50,000 for any one lease or $100,000
in the aggregate;
(i) Any loan or advance made by AI to any individual,
firm, corporation or other entity except for advances not material in amount
made in the usual and ordinary course of business to employees;
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(j) Any modification, waiver, change, amendment, release,
rescission or termination of, or accord and satisfaction with respect to, any
material term, condition or provision of any material contract, agreement,
license or other instrument to which AI is a party, other than any satisfaction
by performance in accordance with the terms thereof in the usual and ordinary
course of business;
(k) Any delay or postponement (beyond normal practice) by
AI on behalf of AI of the payment of material Accounts Payable or other
material liabilities of AI; or
(l) Any other event or condition of any character which
has had a Material Adverse Effect or may reasonably be expected to result in a
Material Adverse Effect.
2.2.6 UNDISCLOSED LIABILITIES. Except as disclosed on
Schedule 2.2.6, AI has no material liability or obligation of any nature
(whether liquidated, unliquidated, accrued, absolute, known or unknown,
contingent or otherwise and whether due or to become due) except:
(a) those set forth or reflected in the September 30, 1997
Balance Sheet which have not been paid or discharged since the date thereof;
(b) those arising under agreements or other commitments
expressly identified in any Schedule hereto; and
(c) current liabilities incurred in or as a result of the
conduct of its business in the ordinary and usual course consistent with past
practice since September 30, 1997, which are completely and accurately
reflected on its books and records and which are not inconsistent with the
other representations, warranties and agreements of AI and the Shareholders,
set forth in this Agreement or in the other Transaction Documents.
2.2.7 TAXES. Except as set forth on Schedule 2.2.7, AI has
filed all Federal, State and local tax returns. AI has filed, when due, all
federal, state and local tax returns; all amounts payable pursuant to such
returns by AI for taxes through the Closing Date have been or will be paid or
adequately provided for as reserves in the financial statements of AI. No
deficiency for any material amount of tax has been asserted or assessed by a
taxing authority against AI. Except as reserved for in the Closing Date
Balance Sheet, there will not be any amount owing for taxes, penalties or
interest.
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2.2.8 COMPLIANCE WITH LAW.
(a) Each of AI and the Shareholders, is in compliance in
all material respects (with respect to the business of AI) with all applicable
laws, statutes, orders, rules, regulations, policies or guidelines promulgated,
or judgments, decisions or orders entered, by any federal, state, local or
foreign court or governmental authority or instrumentality relating to AI or
any of its businesses or properties.
(b) AI is in compliance in all material respects with all
federal, state and local laws, ordinances, rules and regulations pertaining to
environmental matters, including solid waste disposal, toxic substances,
hazardous substances, hazardous materials, hazardous waste, toxic chemicals,
pollutants, contaminants and air or water pollution and to the storage, use,
handling, transportation, discharge and disposal (including spills and leaks)
of gaseous, liquid, semi-solid or solid materials. AI has not, and to the best
knowledge of AI and the Shareholders, no third party has, disposed or
discharged any chemicals, oil or solid wastes on any part of the Real Property
or any other any property owned, operated, leased or used by AI. There are no
underground storage tanks located on any part of the Real Property or any other
property owned, operated, leased or used by AI.
(c) Schedule 2.2.8(c) contains a complete copy of the
repair station approval. AI maintains all franchises, licenses, permits,
consents, authorization, approvals, and certificates of any regulatory,
administrative or other agency or body, to the extent reasonably necessary to
conduct the business of AI (collectively, the "Permits"). Each of the Permits
is currently valid and in full force and effect and, to the best knowledge of
AI and its Shareholders, closing of and the transactions contemplated by this
Agreement will not result in the termination of any Permit. AI is not in
material violation of any of the Permits and there is no pending or, to the
knowledge of AI and its Shareholders, threatened proceeding which could result
in the revocation, cancellation or inability of AI to renew or transfer any
Permit.
(d) To the best of the knowledge of AI and the
Shareholders, except as set forth in Schedule 2.2.8(d), the business of AI) has
not been charged with, or given notice of any material violation of, any
applicable law.
2.2.9 PROPRIETARY RIGHTS. AI has full right, title and
interest to all patents, patent applications, trademarks, tradenames, service
marks, copyrights, trade secrets, inventions, know-how and other similar rights
("Intellectual Property") which are material to the operation of the business
of AI. AI conducts its business without conflict or infringement with any
intellectual property claimed or held by others.
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2.2.10 RESTRICTIVE DOCUMENTS OR LAWS. With the exception of
the matters listed on Schedule 2.2.10, AI, (with respect to the business of
AI), is not a party to or bound under any certificate, mortgage, lien, lease,
agreement, contract, instrument, vote, which materially adversely affects, (i)
the condition, financial or otherwise, of AI or the Property; (ii) the
continued operation by DAH of the business of AI after the Closing Date on
substantially the same basis as said business was theretofore operated; or
(iii) the consummation of the transactions contemplated in this Agreement.
2.2.11 INSURANCE. AI has been and is insured with respect to
its property and the conduct of its business in such amounts and against such
risks as are sufficient for compliance with law and as it in good ▇▇▇▇▇ ▇▇▇▇▇
to be adequate to protect its properties and businesses in accordance with
normal industry practice. Schedule 2.2.11 is a true, correct and complete list
of all insurance policies and bonds in force in which AI is named as an insured
party, as respects the business of AI, or for which AI has been charged or has
paid any premiums. Except as disclosed in Schedule 2.2.11, all such policies
or bonds are currently in full force and AI has not received any notice from
any such insurer with respect to the cancellation of any such Insurance. AI
will continue all of such insurance in full force and effect up to and
including the Closing Date. All premiums due and payable on such policies have
been paid. AI is not a co-insurer under any term of any Insurance policy.
2.2.12 BANK ACCOUNTS, DEPOSITORIES AND POWERS OF ATTORNEY.
Schedule 2.2.12 is a true, correct and complete list of the names and locations
of all banks or other depositories in which AI maintains accounts or safe
deposit boxes, and the names of the persons authorized to draw thereon, borrow
therefrom or have access thereto. No person or entity holds a power of attorney
on behalf of AI.
2.2.13 REAL PROPERTY. Except as set forth in Schedule
2.2.13, and except with respect to real property leased pursuant to the Real
Property Leases listed on Schedule 2.2.13, AI has no real property. The
Property which is real property constitutes all of the Real Property now used
in and necessary for the conduct of the business of AI as presently conducted.
All such properties are held free and clear of all mortgages, pledges, liens,
security interests, encumbrances and restrictions of any nature whatsoever.
Schedule 2.2.13 contains a complete and accurate legal description of each
parcel of Real Property owned or used by AI in the conduct of its business.
Except as set forth in Schedule 2.2.13; all real property, buildings and
structures owned or used by AI and material to the operation of its business is
suitable for the purpose or purposes for which it is being used, and is in such
condition and repair as to permit the continued operation of said businesses.
To the best knowledge of AI and the Shareholders none of the Real Property,
buildings or structures is in need of material maintenance or repairs except
for ordinary, routine maintenance and repairs. To the best knowledge of AI and
the Shareholders, there are no material structural defects in the exterior
walls or the interior bearing walls, the foundation or the roof of any plant,
building, garage or other such structure owned,
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leased or used by AI and the electrical, plumbing and heating systems, and the
air conditioning system, if any, of any such plant, building, garage or
structure are in reasonable operating condition in light of their age and prior
use. The utilities servicing the real property owned, leased or used by AI are
adequate to permit the continued operation of the business of AI and to the
best knowledge of AI and the Shareholders there are no pending or threatened
zoning, condemnation or eminent domain proceedings, building, utility or other
moratoria, or injunctions or court orders which would materially effect such
continued operation. Schedule 2.2.13 lists, and AI have furnished or made
available to DAH copies, if any of, all engineering, geologic and environmental
reports prepared by or for AI with respect to the Real Property owned, leased
or used by AI.
2.2.14 PERSONAL PROPERTY. Except as set forth in Schedule 0,
and except with respect to personal property leased pursuant to the Personal
Property Leases listed on Schedule 0, AI has good, valid and marketable title
to all of its assets and properties which are Personal property of every kind,
nature and description, tangible or intangible wherever located, including all
property and assets which are personal property shown or reflected on the
September 30, 1997 Balance Sheet. The Personal Property constitutes all of the
personal property now used in and necessary for the conduct of the business of
AI as presently conducted, and is held free and clear of all mortgages,
pledges, liens, security interests, encumbrances and restrictions of any nature
whatsoever. Except as set forth in Schedule 2.2.14 no financing statement
naming AI as debtor has been filed in any jurisdiction, and AI is not a party
to or bound under any agreement or legal obligation authorizing any party to
file any such financing statement. Schedule 0 contains a complete and accurate
description of all tangible Personal Property having an individual value of
$5,000 or more owned or used by AI in the conduct of its business. Schedule 0
contains a complete and accurate description of all machinery, equipment,
tooling, parts, furniture, supplies and other tangible Personal Property having
an individual value of $5,000 or more owned or used by AI. Schedule 0 contains
a complete and accurate description of all automobiles, trucks and other
vehicles owned or used by AI. Except as noted on Schedule 0 as unsuitable, all
machinery and equipment and tangible personal property owned or used by AI and
material to the operation of the business is suitable for the purpose or
purposes for which it is being used, and is in such condition and repair as to
permit the continued operation of said business. None of such machinery or
equipment is in need of material maintenance or repairs except for ordinary,
routine maintenance and repairs.
2.2.15 ENVIRONMENTAL MATTERS. Except as set forth on
Schedule 2.2.15, the operations of AI are in material compliance with all
occupational health and safety acts and all environmental laws and regulations
of all federal, state and local governmental or regulatory bodies having
jurisdiction over AI. Without limiting the generality of the foregoing, and by
way of example only, except as set forth on Schedule 2.2.15:
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(a) There has not been, and is not occurring, any Release
of any Hazardous Substance on any real property owned or used by AI. For
purposes of this Agreement, the terms "Release" and "Hazardous Substance" shall
have the same meanings as those terms are given in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
Section 9601 ET SEQ. ("CERCLA"), except that for purposes of this Agreement
petroleum (including crude oil or any fraction thereof) shall be deemed a
Hazardous Substance.
(b) AI has never sent a Hazardous Substance to a site
which, pursuant to CERCLA or any similar state law, (A) has been placed, or is
proposed to be placed, or, to the best knowledge of AI or Shareholders, may in
the future be placed, on the "National Priorities List" of hazardous waste
sites or on any similar list of any federal, state or local governmental
agency, including the Comprehensive Environmental Response, Compensation and
Liability System list for potential hazardous waste sites, or (B) is subject to
a claim, an administrative order or other request to take "removal" or
"remedial" action (as defined under CERCLA) or to pay for any costs relating to
such site.
(c) AI has never been or is currently in violation of any
provision of the Toxic Substances Control Act or the regulations promulgated
thereunder.
(d) AI is not involved in any suit or has received notice
of any claim relating to personal injuries from exposure to Hazardous
Substances.
2.2.16 BROKERS, FINDERS. Except as set forth on Schedule
2.2.16, the transactions contemplated herein were not submitted to AI by any
broker or other person entitled to a commission or finder's fee thereon, and
were not with the consent of AI submitted to DAH by any such broker or other
person. Except as set forth on Schedule 2.2.16, neither AI nor any of its
offices, directors or employees has engaged any broker or finder or incurred or
taken any action which may give rise to any liability against itself or the
Property for any brokerage fees, commissions, finders fees or similar fees or
expenses and no broker or finder has acted directly or indirectly for AI in
connection with this Agreement or the transactions contemplated hereby. No
investment banking, financial advisory or similar fees have been incurred or
are or will be payable by AI in connection with this Agreement or the
transactions contemplated hereby.
2.2.17 LEGAL PROCEEDINGS. ETC. Except as set forth on
Schedule 2.2.17, there is no claim, litigation, action, suit or proceeding,
administrative or judicial, filed, pending or, to the knowledge of AI and the
Shareholders, threatened against AI or the Shareholders or involving the
Property, this Agreement or the transactions contemplated hereby, at law or in
equity, before any federal, state or local court or regulatory agency, or other
governmental authority, including any unfair labor practice or grievance,
proceedings or claim. Except as disclosed in Schedule 2.2.17, neither the
Shareholders nor AI is subject to any judgment, order or decree, or, to the
best knowledge of the Shareholders, any governmental restriction applicable to
AI, the Shareholders, or AI which has a reasonable probability of having a
Material Adverse Effect, or which materially adversely affects the ability of
AI to conduct business in any area.
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2.2.18 NO CONFLICT OR DEFAULT. Neither the execution and
delivery of this Agreement or any other Transaction Document, nor compliance
with the terms and provisions hereof or thereof, including the consummation of
the transactions contemplated hereby and thereby, will (a) violate in any
material respect any statute, regulation or ordinance of any governmental
authority, or (b) conflict with or result in the breach of any term, condition
or provision of the articles of incorporation or bylaws of AI or of any
agreement, deed, contract, mortgage, indenture, writ, order, decree, legal
obligation or instrument (with respect to the business of AI) to which AI or
any of the Shareholders, is a party or by which AI or any of the Shareholders
or any part of the Property is or may be bound, or (c) constitute a material
default (or an event which with the lapse of time or the giving of notice, or
both, would constitute a material default) thereunder, or (d) result in the
creation or imposition of any material lien, charge, encumbrance, or
restriction of any nature whatsoever with respect to any part of the Property,
or (e) give to others any interest or rights, including rights of termination,
acceleration or cancellation in or with respect to any part of the Property or
the business of AI.
2.2.19 LABOR RELATIONS. Schedule 2.2.19 sets forth all
collective bargaining or other labor agreements to which AI is bound and the
Shareholders have previously delivered to DAH true, correct and complete copies
of each such agreement. There is no labor strike, dispute, slowdown or
stoppage, or any union organizing campaign, or petition for certification
actually pending or, to the best knowledge of the Shareholders, threatened
against or involving AI. Schedule 2.2.19 sets forth all pending grievances and
arbitration proceedings against AI arising out of or under a collective
bargaining or other labor agreement. No collective bargaining or other labor
agreement is currently being negotiated by AI. AI has not experienced any work
stoppage or other material labor difficulty over the past three years. No such
agreement which is binding on AI restricts it from relocating or closing any or
all of its operations.
2.2.20 EMPLOYEE BENEFIT PLANS.
(a) Except as set forth in Schedule 2.2.20, AI does not
currently sponsor, maintain or contribute, or has within the past 3 years
sponsored, maintained or contributed to, to any pension, retirement,
profit-sharing, deferred compensation, bonus, stock option or other incentive
plan, or any other employee benefit program, arrangement, agreement or
understanding, or medical, vision, dental or other health plan, or life
insurance or disability plan, or any other employee benefit plan as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), whether or not any such employee benefit plan is otherwise exempt
from the provisions of ERISA, and whether or not formal or informal, written or
oral, and whether or not legally binding. All such plans, funds or programs
sponsored, maintained or contributed to by AI currently or within the past 3
years, whether or not listed on Schedule 2.2.20, are hereinafter referred to as
the "Employee Benefit Plans"). For the purpose of this Section 2.2.20, the term
"AI" shall include all "affiliates" of AI, whether or not incorporated, as such
term is used in Section 407(d)(7) of ERISA.
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(b) Full payment has been made of all amounts which AI is
required, under applicable law or under any Employee Benefit Plan or any
agreement relating to any Employee Benefit Plan to which it is a party, to have
paid as contributions to or benefits under any Employee Benefit Plan as of the
last day of the most recent fiscal year of such Employee Benefit Plan ended
prior to the date hereof. AI has made adequate provision in its financial
statements for liabilities to meet current contributions or benefit payments.
(c) AI has performed all obligations required to be
performed by it under the Employee Benefit Plans. AI has not engaged in any
transaction with respect to the Employee Benefit Plans which would subject AI
or DAH to a tax, penalty or liability for a prohibited transaction under
section 406, 407 or 502(i) of ERISA or Section 4975 of the Code, nor have
either of AI's or AI' directors, officers, partners, employees or agents, to
the extent they or any of them are fiduciaries with respect to such Employee
Benefit Plans, breached any of their responsibilities or obligations imposed
upon fiduciaries under Title I of ERISA or which would result in any claim
being made under or by or on behalf of any such Employee Benefit Plans by any
party with standing to make such claim. AI will not have any plan or
commitment, whether formal or informal, written or oral, and whether or not
legally binding, to modify or change any Employee Benefit Plan in any material
manner prior to the Closing Date. AI and any "administrator(s)" (as described
in Section 3(16)(A) of ERISA) of the Employee Benefits Plans have complied in
all material respects with the applicable requirements of ERISA, the Code and
all other statutes, orders, rules or regulations, specifically including
material compliance with all reporting and disclosure requirements of Part 1 of
Title 1 of ERISA and of the Code in a timely and accurate manner, and no
penalties have been or will be imposed, nor is AI, AI or any administrator
liable for any penalties imposed, under ERISA, the Code or otherwise with
respect to the Employee Benefit Plans or any related trusts of AI. AI is not
delinquent in the payment of any federal, state or local taxes with respect to
the Employee Benefit Plans. There is no pending litigation, arbitration, or
disputed claim, settlement adjudication or proceeding with respect to the
Employee Benefit Plans, and none of AI, AI or any administrator is aware of any
threatened litigation, arbitration or disputed claim, adjudication proceeding,
or any governmntal or other proceeding, or investigation with respect to the
Employee Benefit Plans or with respect to any fiduciary or administrator
thereof (in their capacities as such), or any party-in-interest thereto (with
respect to their relationship as such). There is no "defined benefit plan"
within the meaning of Section 414(j) of the Code or Section 3(35) of ERISA to
which AI has been a party or has been required to make any contributions at any
time during the last ten (10) years. There is no multiemployer plan to which AI
has been a party or has been required to make any contributions at any time
during the last ten (10) years.
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(d) The Shareholders have delivered or caused to be
delivered to DAH prior true, accurate and complete copies of (A) all Employee
Benefit Plans and any related trust agreements, custodial agreements,
investment management agreements, insurance contracts or policies, and
administrative service contracts, all as in effect, together with all
amendments thereto which will become effective at a later date; (B) the latest
Summary Plan Description and any modifications thereto for each Employee
Benefit Plan requiring same under ERISA; (C) the Summary Annual Report for the
current and prior fiscal years for each Employee Benefit Plan requiring same
under ERISA; (D) each Form 5500 and/or Form 990 series filing (including
required schedules and financial statements) for the current and prior fiscal
years for each Employee Benefit Plan required to file such form; and (E) the
most recent actuarial evaluation, analysis or other report issued with respect
to any Employee Benefit Plan. None of AI or any officer, partner, employee
representative or agent of either of them, has made any written or oral
representations or statements to any current or former employees, dependents,
participants or beneficiaries or other persons which are inconsistent in any
material manner with the provisions of these documents.
(e) With respect to any of AI's employee welfare plans (as
defined in Section 3(1) of ERISA and including those Employee Benefits Plans
which qualify as such) which are "group health plans" under Section 162(k) or
Section 4980B of the Code and Section 607(1) of ERISA and related regulations
(relating to the benefit continuation rights imposed by the Consolidated
Omnibus Budget Reconciliation Act of 1986 ("COBRA"), as amended to date), there
has been timely compliance in all material respects with all requirements
imposed thereunder, as and when applicable to such plans, so that AI has (or
will incur any) loss, assessment, penalty, loss of federal income tax deduction
or other sanction, arising on account of or in respect of any failure to comply
with any COBRA benefit continuation requirement, which is capable of being
assessed or asserted directly or indirectly against AI, or against DAH or DAH
or any of their respective subsidiaries or other member of DAH's corporate
control group, with respect to any such plan.
2.2.21 CONTRACTS AND COMMITMENTS. Schedule 2.2.21 is a list
of all contracts, agreements, contract rights, leases, license agreements,
franchise rights and agreements, policies, purchase and sales orders,
quotations and executory commitments, instruments, guaranties,
indemnifications, arrangements, obligations and understandings (written or
oral) to which AI is a party and which involve the payment by or to AI in the
aggregate of $100,000 or more during any year (the "Material Contracts"). The
Material Contracts are valid and binding, in full force and effect and
enforceable against AI in accordance with their respective provisions. AI has
not assigned, mortgaged, pledged, encumbered, or otherwise hypothecated any of
its right, title or interest under any Real Property Lease, any Personal
Property Lease, or any Material Contract. AI is not in violation of, in
default in respect of, nor has there occurred an event or condition which, with
the passage of time of giving of notice (or both) would constitute a violation
or default of any Material Contract; and, there are no facts or circumstances
which would reasonably indicate that AI (or any other party) will be or may be
in violation of or in default in respect of any Material Contract, subsequent
to the date hereof. No notice has been received by
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AI claiming any such default by AI or indicating the desire or intention of any
other party thereto to amend, modify, rescind or terminate the same.
2.2.22 ACCOUNTS RECEIVABLE. All of the accounts and notes
receivable, investments, deposits and prepaid expenses of AI as of September
30, 1997 are set forth on Schedule 2.2.22. All such accounts receivable,
arising between the date hereof and the Closing Date (in each case net of
allowances for doubtful accounts as disclosed on such Schedule, (a) are or will
be valid and subsisting, (b) represent or will represent sales actually made,
(c) arose or will arise in the ordinary and usual course of the business of AI
and (d) to the extent not collected prior to the Closing Date, will be
collectible according to their terms within 180 days after the date of the
Closing Date.
2.2.23 INVENTORIES. Schedule 2.2.23 completely and
accurately lists of all raw materials, supplies, parts, work-in-process, and
finished goods inventory and other inventory owned by AI and the accurate cost
of such inventory as of September 30, 1997. Except as set forth in Schedule
2.2.23, the inventories except for amounts which in the aggregate are not
material, of AI (i) consist of a quality and quantity usable and saleable in
the ordinary and usual course of business, except for items of obsolete
materials and materials of substandard quality, all of which have been written
off or written down on the books of AI to net realizable value prior to
September 30, 1997 and (ii) have been priced at the lower of cost or market on
a FIFO basis. The quantities of all material portions of each type of
inventory (whether raw materials, work-in-process, or finished goods) are not
excessive, but are reasonable and warranted in the present circumstances of AI;
and all material portions of work-in-process and finished goods inventory is
free of any material defect or other deficiency. Notwithstanding the
foregoing, quantities of raw materials, work in process and finished goods may
be present which, in the aggregate, are not material in the dollar amount for
which said items are carried on the books and which items cannot be used as a
result of specification changes of which AI has not been notified by AI's
customer.
2.2.24 BACKLOG. All unfilled orders to purchase goods of AI
as of September 29, 1997 are set forth in Schedule 2.2.24 and are firm and
binding commitments (subject to cancellation rights set forth therein) of the
respective purchasers (assuming that such purchaser has properly authorized by
all requisite corporate or, if not a corporation, by all other requisite action
and has properly executed and delivered such purchase order, which, is the
case) to purchase the goods indicated.
2.2.25 BOOKS OF ACCOUNT: RECORDS. Except as disclosed in
Schedule 2.2.25, the general ledgers, books of account and other financial
records of AI are complete and correct, have been maintained in accordance with
generally accepted accounting principles and practices and the matters
contained therein are appropriately and accurately reflected in the Financial
Statements in all material respects.
15
2.2.26 OFFICERS, PARTNERS. EMPLOYEES AND COMPENSATION.
Schedule 2.2.26 sets forth the name of all directors, partners and officers of
AI, their respective terms of office, the total salary, bonus payments, fringe
benefits and perquisites each received in each of the last 3 fiscal years ended
December 31, 1996, and changes to the foregoing which have occurred since
December 31, 1996; such Schedule also lists and describes the current base
salary, bonus payments, fringe benefits and perquisites of any other employee,
agent or representative of AI whose total current salary, bonus or other
compensation exceeds $50,000 annually during any of the last 3 fiscal years
ended December 31, 1996, and changes to the foregoing since December 31, 1996.
There are no other material forms of compensation paid to any such director,
officer or employee of AI. The provisions for wages and salaries accrued on the
September 30, 1997 Balance Sheet are adequate for salaries and wages, including
accrued vacation pay, for the period up through the date thereof, and AI has
accrued on its books and records all obligations for wages and salaries and
other compensation to its employees, including, but not limited to, vacation
pay and sick pay, and all commissions and other fees payable to agents,
salesmen and representatives. AI will file any and all payroll tax returns due
through the Closing Date and pay or reserve on the Closing Date Balance Sheet
all payroll taxes due for any and all AI employees.
Except as set forth on Schedule 2.2.26, AI has not become
obligated, directly or indirectly, to any shareholder, director, officer or
partner of AI or any member of their families, except for current liability for
employment compensation. Except as set forth on Schedule 2.2.26, no
shareholder, director, officer, partner, agent or employee of AI holds any
position or office with or has any financial interest, direct or indirect, in
any supplier, customer or account of, or other outside business which has
transactions with AI. AI, nor, any third party, has taken any action with
respect to any shareholder, director, officer, partner, employee or
representative of AI to attempt to induce or which would influence any such
person not to become associated with DAH from and after the Closing Date or
from serving DAH in a capacity similar to the capacity presently held. To the
best of the knowledge of the Shareholders, no employee of AI has a present
intention to leave the employ of AI or has taken any action directed towards
leaving the employ of AI. Except as set forth on Schedule 2.2.26, no former
employee of AI is currently or intends to enter into competition with the
business of AI.
2.2.27 CREDIT TERMS: PRODUCT WARRANTIES. The aggregate
amount of losses and expenses incurred by reason of allowances, customer
dissatisfaction or liabilities arising under AI's warranties and guarantees
during the three years ended December 31, 1996 are completely accounted for in
the financial statements of AI for such years and there has been no materially
adverse change in that experience since said date. Except as set forth on
Schedule 2.2.27, AI has conducted all qualification inspections and quality
conformance inspections required by the specifications for products of AI
included on qualified products lists in material compliance with the
requirements of such specifications, and all products shipped have been in
material conformance with such specifications.
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2.2.28 CONTRACTS WITH AFFILIATES. Any contract, commitment,
lease, permit or other instrument, agreement, understanding or obligation (each
a "Commitment") between AI and any affiliate including each Shareholder), is
the equivalent of an "arms-length" transaction with a third party, and each
such Commitment is described on Schedule 2.2.28 hereto.
2.2.29 GOVERNMENT CONTRACTS. AI is not a party to, nor is it
bound, nor does it have any liability, with respect to any Government
Contracts. For purposes of this Section 2.2.29, the term "Government" means any
agency, division, subdivision, audit group, or procuring office of the federal
government, including the employees or agents thereof; the term "Transferor"
means AI and its subsidiaries, divisions, affiliates, joint venturers, agents,
employees, officers and directors; the term "Government Contract" means any
prime contract, subcontract, basic ordering agreement, letter contract,
purchase order or delivery order of any kind, including all amendments,
modifications and options thereunder or relating thereto, between the
Transferor and any of the Government, any prime contractor of the Government,
any subcontractor of such a prime contractor or any subcontractor of another
subcontractor, however far removed from the prime contractor such subcontractor
may be, (A) currently in force; (B) which, within the three years preceding the
date of this Agreement, expired or were terminated; or (C) for which final
payment was received within the three years preceding the date of this
Agreement; and the term "Bid" means any outstanding quotation, bid or proposal
submitted by Transferor to the Government, any proposed prime contractor of the
Government, or any proposed subcontractor.
2.2.30 SOLVENCY. The total assets of each of the
Shareholders exceed their respective total liabilities; each of the
Shareholders are able to perform their respective financial obligations as
performance thereof becomes due.
2.2.31 NO STRATEGIC ALLIANCES. Except as disclosed in
Schedule 2.2.31, no agreement or understanding has been entered into between AI
and any company which is an arrangement with any other person which involves
equity investment or ownership, a joint venture or revenue or profit sharing a
"Strategic Alliance."
An arrangement for a preferred supplier relationship which
does not have any of the characteristics described in the foregoing sentence is
not a strategic alliance.
2.2.32 PAYMENTS AND EXPENDITURES. Except as set forth in
Schedule 2.2.32 since June 30, 1997, AI has not made (i) any payment or
incurred any liability on behalf of any Shareholder, (ii) made any payment to
or on behalf of any Shareholder except for the Shareholder's salary and expense
reimbursements made in the ordinary course of business, (iii) not paid any
amount not in the ordinary course of AI's business, or (iv) not made any
capital expenditure in excess of $100,000 in the aggregate.
2.2.33 COMPLETE DISCLOSURE No representation or warranty
made by AI or any of the Shareholders in this Agreement, and no exhibit,
schedule, statement, certificate or other writing furnished to DAH by or on
behalf of AI or any of the
17
Shareholders pursuant to this Agreement or in connection with the transactions
contemplated hereby or thereby, contains or will contain, any untrue statement
of a material fact or omits or will omit to state a material fact necessary to
make the statements contained herein and therein not misleading. Without
limiting the foregoing, to the extent applicable, no representation or warranty
made in any of Sections 2.2.4 through 2.2.32 would differ in any material
respect if the representation contained information concerning AI's wholly
owned subsidiary, Audio International Sales, Inc.
3. COVENANTS.
3.1 COVENANTS OF THE SHAREHOLDERS.
3.1.1 COVENANT AGAINST DISCLOSURE. Other than in the
ordinary course of business of AI and except for professional advisors
(including attorneys, accountants and investment bankers) who agree to maintain
the confidentiality of such information, each of the Shareholders agree not to
(a) disclose to any person, association, firm, corporation or other entity
(other than DAH) or those designated in writing by DAH) in any manner, directly
or indirectly, any information or data relevant to the business of AI, whether
of a technical or commercial nature, or (b) use, permit or assist, by
acquiescence material or otherwise, any person, association, firm corporation
or other entity (other than DAH or those designated in writing by DAH) to use,
in any manner, directly or indirectly, any such information or data, excepting
only use of such data or information as is at the time generally known to the
public and which did not become generally known through any breach of any
provision of this Section 4.2.2.
3.1.2 COVENANT AGAINST HIRING. Each of the Shareholders
understands that it is essential to the successful operation of the business to
be acquired hereunder that DAH retain substantially unimpaired AI's operating
organization. Each of the Shareholders agrees not to purposefully take any
action which would induce any current employee or representative of AI not to
become or continue as an employee. Without limiting the generality of the
foregoing, the Shareholders shall not, whether directly or indirectly through
any subsidiary or affiliate, employ, whether an employee, officer, director,
agent, consultant or independent contractor, or enter into any partnership,
joint venture or other business association with, any current employee,
partner, representative, or manager of AI, for a period of the 12 months, after
such person ceases or has ceased, for any reason, to be an employee,
representative, partner, or manager of AI; provided, however, that ▇▇▇▇▇ ▇▇▇▇▇▇
may hire any person (i) who is terminated by AI or (ii) who prior to being
solicited for employment by ▇▇▇▇▇ ▇▇▇▇▇▇, voluntarily terminates his or her
employment with AI.
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3.1.3 INJUNCTIVE RELIEF. Each of the Shareholders
acknowledges and agrees that DAH's remedy at law for any breach of any of such
Shareholders obligations under Subsections 3.1.1 and 3.1.2 hereof would be
inadequate, and agrees and consents that temporary and permanent injunctive
relief may be granted in a proceeding which may be brought to enforce any such
provision without the necessity of proof of actual damage. The rights and
remedies conferred upon DAH under this Section, or by any instrument or law
shall be cumulative and may be exercised singularly or concurrently.
3.1.4 CONDUCT OF BUSINESS OF AI PRIOR TO CLOSING DATE. Each
of the Shareholders agrees that on and after the date hereof and prior to the
Closing Date:
(a) The business and operations, activities and practices
of AI shall be conducted only in the ordinary course of business and consistent
with past practice;
(b) No change shall be made in the articles of
incorporation or bylaws of AI, except as is necessary to comply with Section
7.2(a) hereof;
(c) No change shall be made in the number of shares of
authorized or issued capital stock of AI; nor shall any option, warrant, call,
right, commitment or agreement of any character be granted or made by AI
relating to its equity;
(d) No dividend shall be declared or paid or other
distribution (whether in cash, stock, property or any combination thereof) or
payment declared or made in respect of the AI Common Shares by AI nor shall AI
purchase, acquire, redeem or split, combine or reclassify any shares of the
capital stock of AI;
(e) The Shareholders shall, directly or indirectly,
solicit or encourage (including by way of furnishing any non-public information
concerning the business, properties or assets of AI), or enter into any
negotiations or discussions concerning, any Acquisitions Proposal (as defined
below). Any Shareholder will notify DAH promptly by telephone, and thereafter
promptly confirm in writing, if any such information is requested from, or any
Acquisition Proposal is received by AI or Shareholder. As used in this
Agreement, "Acquisition Proposal" shall mean any proposal received by AI or any
Principal Shareholder prior to the Closing Date for a merger or other business
combination involving AI or for the acquisition of, or the acquisition of a
substantial equity interest in, or a substantial portion of the assets of AI
other than the one contemplated by this Agreement.
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(f) Except as set forth in Schedule 3.1.4(f), Shareholder
will not permit AI to:
(A) incur, become subject to, or suffer, or agree to
incur, become subject to or suffer, any obligation or liability (absolute or
contingent) except current liabilities incurred, and obligations entered into
in the ordinary course of business;
(B) discharge or satisfy any lien or encumbrance or
pay any obligation or liability (absolute or contingent) other than liabilities
payable in the ordinary course of business;
(C) mortgage, pledge or subject to lien, charge or
any other encumbrance, any of the Property or agree so to do;
(D) sell or transfer or agree to sell or transfer any
of its assets, or cancel or agree to cancel any debt or claim, except in each
case in the ordinary course of business;
(E) consent or agree to a waiver of any right of
substantial value;
(F) enter into any transaction other than in the
ordinary course of its business;
(G) increase the rate of compensation payable or to
become payable by it to any Restricted Employee over the rate being paid to
such Restricted Employee at September 30, 1997;
(H) increase the rate of compensation payable or to
become payable by it to any officer, partner, employee or agent of AI not
listed on Schedule 2.2.5(b) (a "Non-Restricted Employee") over the rate being
paid to such Non-Restricted Employee at September 30, 1997, other than in the
ordinary course of business and in accordance with AI's past practice;
(I) terminate any material contract, agreement,
license or other instrument to which it is a party;
(J) through negotiation or otherwise, make any
commitment or incur any liability or obligation of a material nature to any
labor organization;
(K) make or agree to make any accrual or arrangement
for or payment of bonuses or special compensation of any kind to any Restricted
Employee;
(L) make or agree to make any accrual or arrangement
for or payment of bonuses or special compensation of any kind to any
Non-Restricted Employee, other than in the ordinary course of business and in
accordance with AI's practice;
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(M) directly or indirectly pay or make a commitment
to pay any severance or termination pay to any Restricted Employee;
(N) directly or indirectly pay or make a commitment
to pay any severance or termination pay to any Non-Restricted Employee, other
than in the ordinary course of business and in accordance with AI's past
practice;
(O) introduce any new method of management, operation
or accounting with respect to its business or any of the assets, properties or
rights applicable thereto other than changes required by GAAP;
(P) offer or extend more favorable prices, discounts
or allowances than were offered or extended regularly on and prior to September
30, 1997, other than in the ordinary course of business; and
(Q) make capital expenditures in excess of $100,000
in the aggregate, or make any commitments for such capital expenditures.
(R) Enter into any Strategic Alliance.
(g) Each of the Shareholders will use their respective
reasonable efforts to preserve AI's business organization materially intact, to
keep available to AI the present service of AI's employees; and to preserve for
AI the good will of its suppliers, customers and others with whom business
relationships exist; and
(h) None of the Shareholders will take, agree to take or permit
to be taken any action or do or permit to be done anything in the conduct of
the business of AI, or otherwise, which would be contrary to or in breach of
any of the terms or provisions of this Agreement or which would cause any of
the representations or warranties of AI or the Shareholders contained herein to
be or become untrue in any material respect.
3.1.5 INSPECTION OF BOOKS AND RECORDS. From the date of
this Agreement until the Closing Date, AI shall make or cause to be made
available to DAH for examination the Property and all corporate records, minute
books, share records, treasury shares, tax returns, books of account, contract,
agreements, commitments, records and its documents of every character relating
to AI and its business and shall permit DAH and its representatives, attorneys,
accountants and agents to have access to and to copy, at DAH's expense, the
same at all reasonable times, so as to allow DAH to confirm compliance with
covenants and satisfaction of conditions hereunder.
3.1.6 FURTHER ASSURANCES. On and after the Closing Date,
the Shareholders shall prepare, execute and deliver, at DAH's expense, such
further instruments of conveyance, sale, assignment or transfer, and shall take
or cause to be
21
taken such other or further action as DAH shall reasonably request at any time
or from time to time in order to perfect, confirm or evidence in DAH title to
all or any part of the Stock or to consummate, in any other manner, the terms
and conditions of this Agreement.
3.1.7 PRESS RELEASES AND ANNOUNCEMENTS. Neither AI, any
Principal Shareholder, DAH nor DAH shall issue any press release or
announcement relating to the subject matter of this Agreement without the prior
written approval of the other parties hereto; PROVIDED, HOWEVER that DAH may
make any public disclosure it believes in good faith is required by law (in
which case he or it will advise the other parties hereto prior to making the
disclosure).
3.1.8 BANKRUPTCY. Neither AI nor any Principal Shareholder
shall commence any case, proceeding or other action (A) under any existing or
future law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order for
relief entered with respect to either of them or seeking to adjudicate either
of them bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other relief
with respect to either of them or for all of any substantial part of either of
their assets; (ii) neither AI nor any Shareholder shall make a general
assignment for the benefit of its creditors; (iii) no case, proceeding or other
action of a nature referred to in clause (i) above shall be commenced by any
person which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed or discharged for a
period of 60 days; (iv) no case, proceeding or other action shall be commenced
by any person seeking issuance of a warrant of attachment, execution distraint
or similar process against all or any substantial part of either of their
respective assets which results in the entry of an order for any such relief;
and (v) neither AI nor any Shareholder shall take any action in furtherance of,
or indicating its consent to, approval of, or acquiescence in, any of the acts
set forth in clause (i), (ii), (iii), or (iv) above.
3.1.9 LANDLORD'S CONSENTS, ETC.. The Shareholders agree
that if the terms of any Agreement relating to the right to use AI's Real
Property requires they shall obtain, on or prior to the Closing Date, all
consents required from any person whatsoever to effect the transfer to DAH,
free and clear of all mortgages, pledges, liens, security interest,
encumbrances, restrictions and claims of any nature whatsoever.
3.1.10 DELIVERY OF FINANCIAL STATEMENTS. As soon as
reasonably practicable but no later than 10 business days prior to the Closing,
the Shareholders shall deliver to DAH the balance sheet of AI as at October 31,
1997 and the related statements of income, retained earnings and cash flows for
the period then ended, which shall be true, correct and complete, shall have
been prepared from and are in accordance with the books and records of AI and
shall have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis for such periods using an accrual
basis method, and fairly present the financial condition of AI as of the dates
stated and the results of operations of AI for the periods then ended in
accordance with such practices. Such October 31, 1997 Financial Statements
(including all notes accompanying such statements) shall not disclose any event
or circumstance materially adversely affecting AI
22
or its businesses. The October 31, 1997 Financial Statements shall upon
delivery to DAH become part of the Financial Statements as defined herein for
all purposes hereof.
3.1.11 COOPERATION OF SHAREHOLDERS. The Shareholders shall
cooperate and shall use their best efforts to have AI's independent certified
public accountant deliver to DAH on or before 45 days following the Closing
Date, the audited financial statements of AI for periods which are presently
unaudited and for which DAH will become obligated to include such statements in
DAH's filings with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended.
3.1.12 CLOSING DATE BALANCE SHEET. The Shareholders will
cause a balance sheet as of the Closing Date to be delivered to DAH within a
reasonable time after the Closing Date (the "Closing Date Balance Sheet") which
shall be true, correct and complete, shall have been prepared from and are in
accordance with the books and records of AI and shall have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis for such periods using an accrual basis method, and fairly
present the financial condition of AI as of the date stated on such dates in
accordance with such practices.
3.2 COVENANTS OF DAH. On or prior to the Closing Date, DAH
covenants shall deliver to the Shareholders, all duly and properly executed,
the following:
3.2.1 LEGAL OPINION. The legal opinion referred to in
Section 6.2(a).
3.2.2 PAYMENT. The Payment pursuant to Section 1.2.1.
3.2.3 FURTHER ASSURANCES. On and after the Closing Date,
DAH shall prepare, execute and deliver, at its expense, such further
instruments of conveyance, sale, assignment or transfer, and shall take or
cause to be taken such other or further action as the Shareholders shall
reasonably request at any time or from time to time in order to perfect,
confirm or evidence in DAH title to all or any part of the Stock or to
consummate, in any other manner, the terms and conditions of this Agreement.
3.2.4 CONFIDENTIALITY AGREEMENTS. Between the date of this
Agreement and the Closing Date, DAH shall continue to be bound by its
obligations pursuant to the written confidentiality agreements to which DAH and
AI are parties.
23
4. INDEMNIFICATION.
4.1 The Shareholders, with full recourse, hereby indemnify and hold
DAH harmless from any and all claim, loss, damage or expense (including
attorneys' fees) ("losses") as a result of any breach of any warranty or
representation made in this Agreement by the Shareholders. Anything in Section
4.3 to the contrary notwithstanding, no claim may be asserted nor may any
action be commenced against the Shareholders for breach of any representation
or warranty contained herein, unless written notice of such claim or action is
received by the Shareholders describing in detail the facts and circumstances
with respect to the subject matter of such claim or action or prior to the date
on which the representation or warranty on which such claim or action is based
ceases to survive as set forth in Section 4.3, irrespective of whether the
subject matter of such claim or action shall have occurred before or after such
date.
4.2 Without limiting the generality of the foregoing, the
Shareholders agree to pay to DAH in immediately available funds within 10 days
after notice from DAH to pay, the following amounts:
4.2.1 On or before 180 days following the Closing Date, an
amount equal to (i) 100% of any Accounts Receivable of AI owing on the Closing
Date which have not been collected on or before 180 days after the Closing
Date, less (ii) the amount for doubtful accounts on the Closing Date Balance
Sheet of AI. With respect to any such Accounts Receivable, DAH will cause AI,
without warranty or recourse, to assign all of its right title and interest in
such accounts to the Shareholders in the percentages specified in Exhibit 1.1.
4.2.2 On or before two years and three months following the
Closing Date, an amount equal to 100% of the value on the Closing Date Balance
Sheet (or if acquired subsequent to the Closing Date at cost) of any Inventory
of AI owned by AI on both the Closing Date and the date two years following the
Closing Date. With respect to any such Inventory, DAH will cause AI, without
warranty or recourse, to transfer all of its right title and interest in such
Inventory to the Shareholders in the percentages specified in Exhibit 1.1.
Notwithstanding the foregoing, the Shareholders shall not be responsible for
indemnification of quantities of raw materials, work in process and finished
goods may be present which, in the aggregate, are not material in the dollar
amount for which said items are carried on the books and which items cannot be
used as a result of specification changes of which AI has not been notified by
AI's customer.
4.2.3 On or before each of April 30, 1999 and 2000, an
amount equal to 100% of the amount by which the cost to AI for performing
warranty work and providing replacement parts and equipment to customers for
sales made prior to the Closing Date, PROVIDED, HOWEVER, that no such
indemnification shall be required to be made by the Shareholders if adjusted
EBIT (as defined in the Earnout Agreement) is equal to or greater than $4
million in each of such years and, FURTHER PROVIDED, that for purposes of this
subsection, "warranty work" shall not be deemed to include immaterial
expenditures made in connection with product refinement.
24
4.2.4 Any amounts not paid by the Shareholders pursuant to
this Section 4 when due shall bear interest at the highest rate permitted by
law.
4.2.5 Subject to the other terms and provisions of this
Agreement and the Earnout Agreement, the representations and warranties of the
parties hereto contained in Section 2 herein shall survive the Closing and
shall remain in full force and effect, regardless of any investigation made by
or on behalf of the Shareholders or DAH until April 30, 2000.
4.2.6 The indemnification obligations of the Shareholders
hereto shall not be effective until the aggregate dollar amount of all Losses
which would otherwise be indemnifiable pursuant to this Section 4.2 exceeds
$250,000 (the "Threshold Amount"), and then only to the extent such aggregate
amount exceeds the Threshold Amount. In addition, no claim may be made against
the Shareholders for indemnification with respect to any individual item of
Loss (except for multiple losses which result from breach of the
representations the subject matter of each such loss being substantially
similar in nature), unless such item exceeds $5,000, nor shall any such item be
applied to or considered part of the Threshold Amount. The Indemnification
obligations of the Shareholders pursuant to this Section 4.2 shall be effective
only until the dollar amount paid, by the Shareholders individually, in respect
of the Losses (including those related to all representations and warranties,
except as provided below, and those for Sections 4.2.1, 4.2.2, and 4.2.3)
indemnified against an amount equal to $500,000 as respects to each Shareholder
provided, however that the limitation of the amount of the indemnity if the
indemnification results from (i) with respect to the financial statements, any
untrue statement of a material fact or failure to state a material fact
required to be stated therein or (ii) the breach of any provision in Section
2.2.15 shall be $1,700.000 for each Shareholder, severally and not jointly. In
the event of any obligation by the Shareholders to DAH resulting from a
determination of actual fraud, there shall be no limitation of dollar amount.
Without limiting DAH's rights pursuant to this Section 4, DAH may offset such
amounts, if any, as may be owing to the Shareholders pursuant to Sections
1.2.2, 1.2.3 or 1.2.4.
5. CONDITIONS PRECEDENT TO OBLIGATIONS.
5.1 CONDITIONS TO OBLIGATIONS OF DAH. Each and every obligation of
DAH to be performed at the Closing Date shall be subject to the satisfaction as
of or before the Closing Date of the following conditions (unless waived in
writing by DAH):
5.1.1 CONSENTS. AI shall have obtained and delivered to DAH
all consents set forth on Schedule 5.1.
5.1.2 OPINION OF COUNSEL. The Shareholders shall have
delivered or caused to be delivered to DAH an opinion of counsel for the
Shareholders, addressed to DAH and dated the Closing Date, in the form of
Exhibit C attached hereto.
25
5.1.3 DELIVERY OF CERTAIN AGREEMENTS BY SHAREHOLDERS.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇ shall have executed and delivered Employment
Agreements to DAH in the form to be agreed upon between DAH and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
and DAH and ▇▇▇▇ ▇▇▇▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇ shall have executed and
delivered Covenants Not to Compete to DAH in the form of Exhibit 5.1.3(A) and
▇▇▇▇▇ ▇▇▇▇▇▇ shall have executed and delivered a Covenant Not to Compete to DAH
in the form of Exhibit 5.1.3(B).
5.1.4 DELIVERY OF STOCK AND RECEIPT OF PAYMENT THEREFOR.
The Shareholders shall deliver the stock certificates of AI duly endorsed for
transfer by assignments separate from certificates, endorsed in blank with
signatures guaranteed by a national bank or member firm of the New York Stock
Exchange.
5.1.5 TRADE SECRETS AND CONFIDENTIAL INFORMATION. At the
Closing, the Shareholders shall deliver to DAH, reduced to writing as
reasonably practical, all trade secret information or other know how of a
business or technical nature, which is currently used for the present or then
anticipated future business of AI.
5.1.6 EARNOUT AGREEMENT. The Shareholders shall each
execute and deliver the Earnout Agreement to DAH.
5.2 CONDITIONS TO OBLIGATIONS OF AI AND THE SHAREHOLDERS. Each and
every obligation of the Shareholders, to be performed on or before the Closing
Date shall be subject to the satisfaction as of or before such time of the
following conditions (unless waived in writing by the Shareholders).
5.2.1 OPINION OF COUNSEL. DAH shall have delivered or
caused to be delivered to the Shareholders an opinion of counsel for DAH,
addressed to the Shareholders and dated the Closing Date, in form of Exhibit H
attached hereto.
5.2.2 DELIVERY OF CERTAIN AGREEMENTS BY DAH. DAH shall
cause AI to have executed and delivered Employment Agreements to ▇▇▇▇▇▇ ▇.
▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇ in the form to be agreed upon between DAH and ▇▇▇▇▇▇ ▇.
▇▇▇▇▇ and DAH and ▇▇▇▇ ▇▇▇▇▇. DAH shall and shall cause AI to have executed
and delivered Covenants Not to Compete in the form of Exhibit 4.1.3(a) to
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇ and the form of Exhibit 4.1.3(b) to ▇▇▇▇▇ ▇▇▇▇▇▇.
5.2.3 PAYMENT. DAH shall have made the payment required
pursuant to Section 1.2.1.
5.2.4 EARNOUT AGREEMENT. DAH shall have executed and
delivered the Earnout Agreement to each of the Shareholders.
26
6. MISCELLANEOUS PROVISIONS.
6.1 NOTICE. All notices and other communications required or
permitted under this Agreement shall be deemed to have been duly given and
made, if in writing, and (i) if served by personal delivery to the party for
whom intended (which shall include overnight delivery by Federal Express or
similar service), (ii) or 3 business days after being deposited, postage
prepaid, certified or registered mail, return receipt requested, in the United
States mail bearing the address shown in this Agreement for, or such other
address as may be designated by writing hereafter by, such party, or (iii) if
sent by telecopy to the number showing in this Agreement for, or such other
number as may be designated in writing hereafter by, such party and immediately
confirmed by sending a copy of such notice by either method described in clause
(i) or (ii) above.
If to Shareholders: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax Number: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ and
▇▇▇▇▇▇, PLC
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to DAH: ▇▇▇▇▇▇▇ Aircraft Holdings, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
27
and a copy to: Spolin & ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax Number: (▇▇▇) ▇▇▇-▇▇▇▇
6.2 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, and the documents refereed to herein and therein embody the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof, and supersede all prior and contemporaneous agreements and
understandings, oral or written, relative to said subject matter.
6.3 BINDING EFFECT; ASSIGNMENT. This Agreement and the rights and
obligations arising hereunder shall inure to the benefit of and be binding upon
AI, its DAH, its successors and permitted assigns, and the Shareholders, their
heirs, legal representative and permitted assigns. Neither this Agreement nor
any of the rights, interest or obligations hereunder shall be transferred or
assigned (by operation of law or otherwise) by any of the parties hereto
without the prior written consent of the other party or parties except that DAH
shall have the right to assign, in whole or in part, its rights hereunder to
one or more affiliates of DAH, which in each case shall be a wholly-owned
subsidiary of DAH. Any transfer or assignment of any of the rights, interests
or obligations hereunder in violation of the terms hereof shall be void and of
no force or effect.
6.4 CAPTIONS. This Agreement and Section headings of this Agreement
are inserted for convenience only and shall not constitute a part of this
Agreement in construing or interpreting any provision hereof.
6.5 WAIVER; CONSENT. This Agreement may not be changed, amended,
terminated, augmented, rescinded or discharged (other than by performance), in
whole or in part, except by a writing executed by the parties hereto, and no
waiver of any of the provisions or conditions of this Agreement or any of the
rights of a party hereto shall be effective or binding unless such waiver shall
be in writing and signed by the party claimed to have given or consented
thereto. Except to the extent that a party hereto may have otherwise agreed in
writing, no waiver by that party of any condition of this Agreement or breach
by the other party of any of its obligations or representations hereunder or
thereunder shall be deemed to be a waiver of any other condition or subsequent
or prior breach of the same or any other obligation or representation by the
other party, nor shall any forbearance by the first party to seek a remedy for
any noncompliance or breach by the other party be deemed to be a waiver by the
first party of its rights and remedies with respect to such noncompliance or
breach.
28
6.6 NO THIRD PARTY BENEFICIARIES. Nothing herein, expressed or
implied, is intended or shall be construed to confer upon or give to any
person, firm, corporation or legal entity, other than the parties hereto, any
rights, remedies or other benefits under or by reason of this Agreement.
6.7 COUNTERPARTS AND FACSIMILE SIGNATURES. This Agreement may be
executed simultaneously in multiple counterparts, each of which shall be deemed
an original, but all of which taken together shall constitute one and the same
instrument. The signature page of this Agreement when transmitted by facsimile
shall be effective execution and delivery of this Agreement.
6.8 GENDER. Whenever the context requires, words used in the
singular shall be construed to mean or include the plural and vie versa, and
pronouns of any gender shall be deemed to include and designate the masculine,
feminine or neuter gender.
6.9 GOVERNING LAW. This Agreement shall in all respects be
constructed in accordance with and governed by the laws of the State of
Delaware.
7. TERMINATION. This Agreement may be terminated by the parties and the
contemplated transactions abandoned at any time prior to closing, as follows:
(a) By the written consent of DAH and a majority of the Shareholders;
(b) By either DAH or a majority of the Shareholders, upon written
notice of all other parties of this Agreement, at any time after December 15,
1997 if the Closing Date shall not have occurred by such date; provided,
however, that the right to terminate this Agreement under this paragraph (b)
shall not be available to any party which has intentionally breached this
Agreement or whose failure to comply with its covenants and agreements set
forth in this Agreement shall have been the primary cause of the Closing not
occurring.
-------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
▇▇▇▇ ▇▇▇▇▇
-------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
29
▇▇▇▇▇▇▇ Aircraft Holdings, Inc.
-------------------------------
By:
30
SCHEDULE A
TO STOCK PURCHASE AND SALE AGREEMENT
DEFINITIONS
"Agreement".............................................................Preamble
"AI Common Shares".........................................................2.2.2
"AI"....................................................................Preamble
"AI"....................................................................Preamble
"Bid".....................................................................2.2.29
"CERCLA"..................................................................2.2.15
"COBRA"...................................................................2.2.20
"Commitment"..............................................................2.2.28
"DAH"...................................................................Preamble
"Employee Benefit Plan"...................................................2.2.20
"ERISA"...................................................................2.2.20
"Government"..............................................................2.2.29
"Hazardous substance".....................................................2.2.15
"Material Adverse Effect"..................................................2.2.5
"Non-Restricted Employees" ................................................2.2.5
"Permits"..................................................................2.2.8
"Principal Shareholders"................................................Preamble
"Real Property Leases"....................................................2.2.13
"Real Property"...........................................................2.2.13
"Release".................................................................2.2.15
"Restricted Employee"......................................................2.2.5
"Transferor"..............................................................2.2.29
"Financial Statements".....................................................2.2.4
"Government Contract".....................................................2.2.29
31
EXHIBIT "1.2.2"
FORM OF THE EARNOUT AGREEMENT
THIS EARNOUT AGREEMENT (this "Agreement") is entered into as of November
14, 1997, by and among ▇▇▇▇▇▇▇ Aircraft Holdings, Inc. ("DAH") and ▇▇▇▇▇▇ ▇.
▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇ (collectively, the "Shareholders").
RECITALS
WHEREAS, pursuant to a Stock Purchase Agreement dated as of October 31,
1997 , by and among DAH and the Shareholders (the "Purchase Agreement"),
whereby DAH is acquiring all of the stock of Audio International, Inc.
WHEREAS, the Purchase Agreement provides that it is a condition precedent
to the obligations of the Shareholders to consummate the transactions
contemplated by the Purchase Agreement that the parties thereto and hereto
shall have entered into one or more counterparts of this Agreement; and
WHEREAS, the parties hereto intend that any capitalized terms used in this
Agreement and not otherwise defined herein shall have the meanings scribed
thereto in the Purchase Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and subject to the conditions contained herein,
the parties hereto agree as follows:
1. DEFINITIONS.
"ACTUAL EBIT" means the dollar amount equal to the sum of AI's earnings
before interest and federal, state and local income taxes for the applicable
periods based on the Reviewed Financial Statements.
"ADJUSTED EBIT" means the dollar amount equal to the Actual EBIT plus (+),
or minus (-) the adjustments described and detailed on Schedule 1 attached
hereto.
"BUSINESS DAY" means any day, other than Saturday, Sunday or a federal
holiday, and shall consist of the time period from 12:01 a.m. through 12:00
midnight eastern time.
"EARNOUT PAYMENT" means the aggregate dollar amount owed and to be paid to
the Shareholders by DAH pursuant to Section 1.2.2 of the Purchase Agreement in
accordance with Section 2 below.
"CERTIFICATE" means the certificate to be delivered by DAH reflecting the
Earnout Payment and the applicable calculations relating thereto.
1
"DETERMINATION DATE" means the date, which shall be as soon as
practicable, that DAH receives the Reviewed Financial Statements.
"GAAS" means United States generally accepted auditing standards.
"REVIEWED FINANCIAL STATEMENTS" means for AI: (i) the balance sheets as of
December 31, 1998 and 1999; (ii) the income statement for the twelve (12) month
periods ended December 31, 1998 and 1999; (iii) the statement of changes in
stockholders' equity for the twelve (12) month periods ended December 31, 1998
and 1999; and (iv) the statement of changes in cash flows for the twelve (12)
month periods ended December 31, 1998 and 1999; as applicable, all of which
will be prepared in accordance with GAAP applied consistently with the past
practice of AI for the year ended December 31, 1996 and which are the subject
of a "Limited Review," as that term is defined under GAAS, by DAH's independent
accountants.
2. VESTING AND PAYMENT OF THE EARNOUT PAYMENT.
(a) On March 31, 1999, based on the amount of AI's Adjusted EBIT for
calendar year 1998 set forth in Column A, the Shareholders shall receive, in
the aggregate, the Earnout Payment amount in Column B:
Column A Column B
-------- --------
$5.0 million to $5.09 million $240,000
$5.1 million to $5.19 million $480,000
$5.2 million to $5.29 million $720,000
$5.3 million to $5.39 million $960,000
$5.4 million to $5.49 million $1,200,000
$5.5 million to $5.59 million $1,500,000
$5.6 million to $5.69 million $1,800,000
$5.7 million to $5.79 million $2,100,000
$5.8 million to $5.89 million $2,400,000
$5.9 million to $5.99 million $2,700,000
$6.0 million to or more $3,000,000
(b) On March 31, 2000, based on the amount of AI's Adjusted EBIT for
calendar year 1999 set forth in Column A, the Shareholders shall receive, in
the aggregate, the Earnout Payment amount in Column B:
Column A Column B
-------- --------
$6.0 million to $6.09 million $240,000
$6.1 million to $6.19 million $480,000
$6.2 million to $6.29 million $720,000
2
$6.3 million to $6.39 million $960,000
$6.4 million to $6.49 million $1,200,000
$6.5 million to $6.59 million $1,500,000
$6.6 million to $6.69 million $1,800,000
$6.7 million to $6.79 million $2,100,000
$6.8 million to $6.89 million $2,400,000
$6.9 million to $6.99 million $2,700,000
$7.0 million to or more $3,000,000
(c) In the event that AI's Adjusted EBIT for calendar year 1998 is an
amount less than $6.0 million but is at least $5.0 million, on March 31, 2000,
in addition to the amounts payable pursuant to paragraph (b) of this Section 2,
based on the amount of AI's Adjusted EBIT for calendar 1999 set forth in Column
A, the Shareholders shall receive, in the aggregate, the lesser of the Earnout
Payment amount in Column B or an Earnout Payment equal to the difference
between $3.0 million and the Earnout Payment amount received pursuant to
paragraph (a):
Column A Column B
-------- --------
$7.0 million to $7.19 million $300,000
$7.2 million to $7.29 million $600,000
$7.3 million to $7.39 million $900,000
$7.4 million to $7.49 million $1,200,000
$7.5 million or more $1,500,000
3. PAYMENT AND REVIEW PROCEDURES.
(a) DELIVERY OF THE CERTIFICATE AND THE REVIEWED FINANCIAL
STATEMENTS. On or before the date that is five (5) Business Days
following the Determination Date, DAH will deliver the following items
to the Shareholders:
(i) the Certificate; and
(ii) a copy of the Reviewed Financial Statements from which
the calculations in the Certificate were derived.
(b) PAYMENT WITHOUT OBJECTION. If the Shareholders do not
object to any of the calculations in the Certificate or the
Reviewed Financial Statements from which such calculations
were derived in accordance with the objection procedures in
subsection (c) below on or before the tenth Business Day
following the receipt of the items in subsection (a) above,
then DAH will deliver to each of the Shareholders, as
applicable, for receipt on March 31 of the applicable year a
bank cashier's check representing the Earnout Payment.
3
(c) OBJECTION PROCEDURES. If the Shareholders have any
objection to the calculation of the Certificates or the
Reviewed Financial Statements from which such calculation
was derived, then they shall deliver a detailed statement
describing their objections to DAH within ten (10) Business
Days after receiving the Certificate. DAH and the
Shareholders will use reasonable efforts to resolve any such
objections themselves. If the parties do not obtain a final
resolution within ten (10) Business Days after DAH has
received the statement of objections, DAH and the
Shareholders will select an accounting firm mutually
acceptable to them to resolve any remaining objections (the
"Referee"). If DAH and the Shareholders are unable to agree
on the choice of a Referee, they will immediately select a
nationally-recognized accounting firm by lot , (after
excluding their respective regular outside accounting firms)
as the Referee. The determination of any Referee so
selected will be set forth in writing within thirty (30)
days of submission thereto and will be conclusive and
binding upon the Parties. Thereafter, DAH will immediately
revise the Certificates and make payment to the Shareholders
as appropriate to reflect the resolution of any objections
thereto pursuant to this Section 3 (c).
(d) REVIEW OF MATERIALS. DAH will make the work papers and
back-up materials used in preparing the Certificate
available to the Shareholders and their accountants and
other representatives at reasonable times and upon
reasonable notice at any time during (i) the preparation by
DAH of the Certificate, (ii) the review by the Shareholders
of the Certificate; and (iii) the resolution by the parties
of any objection thereto.
4. Operation of Business. From the date of this Agreement until the
later of (i) the payment of all amounts due hereunder or (ii) the date that it
is finally determined that no payment is required by DAH hereunder, DAH will:
(a) maintain the books, records and financial statements of AI
on an unconsolidated basis;
(b) not, without the consent of the Shareholders, alter the
scope or type of business to be conducted by AI in a manner
that is inconsistent with the business conducted by AI prior
to the date of this Agreement;
(c) not sell, liquidate or dissolve AI or transfer any of
the assets of AI, except in the ordinary course of business
consistent with AI's past practice;
(d) provide adequate working capital to AI;
(e) maintain adequate liquid assets and/or financing so as to
ensure its ability to meet its payment obligations
hereunder; and
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5. TERMINATION OF OBLIGATION AND RESPONSIBILITIES. DAH's and the
Shareholder's obligations, responsibilities, covenants, agreements and
liabilities pursuant to this Agreement shall terminate on the earlier of
either of the following situations: (i) completion of all payments in
accordance with Sections 2 and 3(b) above; (ii) delivery of the letter by DAH
denoting that no further payment is due with respect to the Earnout Payment and
no objection by the Shareholders pursuant to Section 3(c) above; or (iii)
resolution of objections to the Certificate regarding calendar year 1999 by the
Referee in accordance with Section 3(c) above and settlement of the obligations
determined thereby.
6. MISCELLANEOUS.
(a) NO THIRD PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other than the
parties named herein and their respective successors and
permitted assigns.
(b) ENTIRE AGREEMENT. This Agreement, together with the
Purchase Agreement (and the Exhibits and Schedules thereto),
and any certificate or other documents delivered thereunder,
supersede all prior agreements, understandings or
representations by or among the parties hereto, written or
oral, that may have related in any way to the subject matter
thereof.
(c) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding
upon and insure to the benefit of the parties named herein
and their respective successors and permitted assigns. No
party may assign either this Agreement or any of its rights,
interest, or obligations hereunder without the prior written
approval of the other party.
(d) COUNTERPARTS. This Agreement may be executed in one or
more counterparts (including execution by facsimile), each
of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(e) HEADINGS. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in
any way the meaning interpretation of this Agreement.
(f) NOTICES. Notices shall be delivered to the parties at the
addresses set forth in the Purchase Agreement.
(g) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State
of Delaware.
(h) AMENDMENTS AND WAIVERS. No amendments of any provision of
the Agreement shall be valid unless the same shall be in
writing and signed
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by all of the parties hereto. No waiver by any party of any
covenant or agreement hereunder shall be deemed to extend to
any prior or subsequent default or breach of covenant or
agreement hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(i) SEVERABILITY. Any term of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms
and provisions hereof or the validity or enforceability of
the offending term or provision in any other situation or in
any other jurisdiction.
(j) EXPENSES. DAH and the Shareholders will share the fees and
expenses of the Referee equally.
(k) SPECIFIC PERFORMANCE. Each of the parties acknowledges and
agrees that the other parties would be damaged irreparably
in the event any of the provisions of this Agreement are not
performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the parties
agrees that the other parties shall be entitled to an
injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically
this Agreement and the terms and provisions hereof in any
action instituted in any court of the United States or any
state thereof having jurisdiction over the parties and the
matter (subject to the provisions set forth in Section 6(n)
below) in addition to any other remedy to which they may be
entitled, at law or in equity.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
▇▇▇▇▇▇▇ Aircraft Holdings, Inc.
By:
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Name:
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Title:
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Shareholders:
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SCHEDULE 1
Adjustments to Ascertain Adjusted EBIT
Capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the Earnout Agreement to which this Schedule 1 is a part
thereof.
Calculation of Adjusted EBIT is provided as follows:
Description Amount
----------- ------
1. Actual EBIT $
2. Adjustments:
1. Subtract any gain or add any loss from any sale,
exchange or other disposition of assets other than in the
ordinary course of business consistent with past practice;
2. subtract any extraordinary gain or add any
extraordinary loss as defined by GAAP;
3. add any additional depreciation, amortization or other
expenses resulting from the write-up of any asset and any
amortization of goodwill or other intangibles relating to
the acquisition of AI by DAH;
4. add any expenses directly or indirectly incurred in
connection with the financing of the acquisition of AI or
any financing of such indebtedness or any other financing,
except for financing used to expand the existing business,
not reflected in the December 31, 1996, or September 30,
1997, Financial Statements as presented in Schedule 2.2.4;
5. the effect of valuing inventories on a method not
consistent with current practices, as long as current
practices are in accordance with GAAP;
6. subtract any gain or income or add any loss or expense
resulting from a change in AI's accounting methods,
principles or practices or a change in GAAP or any GAAP
election or treatment not made or utilized by AI in its
audited financial statements for its fiscal year ended
December 31, 1996 and the September 30, 1997 unaudited
statements;
7. add any intercompany charges between AI or any AI
subsidiary and DAH which have not been approved by a
majority of the Shareholders,
excluding charges for legal, audit, tax return preparation
and insurance provided for AI;
8. add any employee termination or other costs arising out
of a consolidation of services or facilities or other
rationalization of AI subsequent to the acquisition by DAH
of AI other than in the ordinary course of business
consistent with past practice;
9. add any employment related costs associated with
personnel required by DAH to be employed by AI that AI would
not otherwise have employed;
10. add any expenses directly or indirectly incurred in
connection with the acquisition of AI by DAH; and
11. add or subtract any reserves or adjustments to reserve
which are not consistent with past practices of AI as long
as the past practices are in accordance with GAAP.
3. Adjusted EBIT $