STOCK PURCHASE AND SALE AGREEMENT
This Stock Purchase and Sale Agreement ("Agreement") is made and entered
into by and among Xxxxxx X. Xxxxx, Xxxx Xxxxx and Xxxxx Xxxxxx, the
shareholders (the "Shareholders") of Audio International, Inc. ("AI") and
XxXxxxx 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 xxxxx
xxxxx 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 funished 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
2.2.14, and except with respect to personal property leased pursuant to the
Personal Property Leases listed on Schedule 2.2.14, 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 2.2.14 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 2.2.14 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 2.2.14 contains a
complete and accurate description of all automobiles, trucks and other
vehicles owned or used by AI. Except as noted on Schedule 2.2.14 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.
16
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
Xxxxx Xxxxxx may hire any person (i) who is terminated by AI or (ii) who
prior to being solicited for employment by Xxxxx Xxxxxx, 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-
20
Restricted Employee, other than in the ordinary course of business and in
accordance with AI's practice;
(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.
Xxxxxx X. Xxxxx and Xxxx Xxxxx shall have executed and delivered Employment
Agreements to DAH in the form to be agreed upon between DAH and Xxxxxx X.
Xxxxx and DAH and Xxxx Xxxxx. Xxxxxx X. Xxxxx and Xxxx Xxxxx shall have
executed and delivered Covenants Not to Compete to DAH in the form of Exhibit
5.1.3(A) and Xxxxx Xxxxxx 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 Xxxxxx X.
Xxxxx and Xxxx Xxxxx in the form to be agreed upon between DAH and Xxxxxx X.
Xxxxx and DAH and Xxxx Xxxxx. 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
Xxxxxx X. Xxxxx and Xxxx Xxxxx and the form of Exhibit 4.1.3(b) to Xxxxx
Xxxxxx.
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: Xxxxxx X. Xxxxx
00 Xxxxxxxxxx
Xxxxxx Xxxx, Xxxxxxxx 00000
Telephone: (000) 000-0000
Xxxx Xxxxx
0000 Xxxxxxxxx Xxxx
Xxxxx Xxxxxxx, Xxxxxxxx 00000
Telephone: (000) 000-0000
Xxxxx Xxxxxx
00 Xxxxxxxxxx Xxxxx
Xxxxxx Xxxx, Xxxxxxxx 00000
Telephone: (000) 000-0000
Fax Number: (000) 000-0000
with copies to: Xxxxxx X. Xxxxxx
Xxxxxx, Xxxxxxx, Xxxxxx and
Xxxxxx, PLC
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
If to DAH: XxXxxxx Aircraft Holdings, Inc.
0000 Xxxxxxxxx Xxxxxx, Xxxxx 000
Xx Xxxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
27
and a copy to: Spolin & Xxxxxxxxx
000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxx Xxxxxx, Xxxxxxxxxx 9040
Attention: Xxxxxxx X. Xxxxxxxxx, Esq.
Telephone: (000) 000-0000
Fax Number: (000) 000-0000
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.
_______________________________
Xxxxxx X. Xxxxx
_______________________________
Xxxx Xxxxx
_______________________________
Xxxxx Xxxxxx
29
XxXxxxx 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". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.28
"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
