Exhibit 10.1
 
STOCK PURCHASE AGREEMENT
By and Among
ASTRONICS CORPORATION,
D M E CORPORATION
and
THE SHAREHOLDERS OF D M E CORPORATION
SIGNATORY HERETO
Dated as of January 28, 2009
 

 

 

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TABLE OF CONTENTS

         
ARTICLE I DEFINITIONS
    1  
Section 1.1 Defined Terms
    1  
Section 1.2 Construction
    9  
Section 1.3 Schedules and Exhibits
    9  
Section 1.4 Knowledge
    9  
 
       
ARTICLE II SALE OF SHARES
    9  
Section 2.1 Sale of Shares
    9  
Section 2.2 Consideration
    10  
Section 2.3 Reserved
    10  
Section 2.4 Closing
    10  
 
       
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS
    10  
Section 3.1 Ownership of Shares
    10  
Section 3.2 Existence and Good Standing
    11  
Section 3.3 Authority and Enforceability
    11  
Section 3.4 Consents and Approvals; No Violations
    11  
Section 3.5 Capitalization
    12  
Section 3.6 Subsidiaries and Investments
    12  
Section 3.7 Financial Statements
    13  
Section 3.8 Liabilities
    13  
Section 3.9 Tangible Personal Property
    13  
Section 3.10 Books and Records
    14  
Section 3.11 Owned Real Property
    14  
Section 3.12 Leased Real Property
    14  
Section 3.13 Contracts
    14  
Section 3.14 Litigation
    15  
Section 3.15 Taxes
    15  
Section 3.16 Insurance
    17  
Section 3.17 Intellectual Property
    17  
Section 3.18 Compliance with Laws
    19  
Section 3.19 Accounts Receivable; Accounts Payable; Accrued Liabilities
    19  
Section 3.20 Inventory
    19  
Section 3.21 Suppliers and Customers
    19  
Section 3.22 Personnel
    20  
Section 3.23 Employee Benefit Plans
    20  
Section 3.24 Environmental Matters
    22  
Section 3.25 Affiliate Transactions
    22  
Section 3.26 Bank Account; Powers of Attorney
    22  
Section 3.27 Permits
    22  
Section 3.28 Absence of Changes
    23  
Section 3.29 Brokers’ or Finders’ Fees
    24  
Section 3.30 Product Warranties
    24  
Section 3.31 Export Control Regulations
    25  
Section 3.32 Full Disclosure
    26  

 

 

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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
    26  
Section 4.1 Existence and Good Standing
    26  
Section 4.2 Authority and Enforceability
    26  
Section 4.3 Consents and Approvals; No Violations
    26  
Section 4.4 Brokers’ or Finders’ Fees
    27  
Section 4.5 Purchaser Shares, Promissory Notes and Contingent Promissory Notes
    27  
Section 4.6 Full Disclosure
    27  
 
       
ARTICLE V COVENANTS
    27  
Section 5.1 Public Announcements
    27  
Section 5.2 Investigation by the Purchaser
    27  
Section 5.3 Notifications, Consents and Approvals
    28  
Section 5.4 Conduct Pending Closing
    28  
Section 5.5 Notification of Certain Matters
    29  
Section 5.6 Access to Records and Personnel
    29  
Section 5.7 Further Assurances
    29  
Section 5.8 No Negotiation
    30  
Section 5.9 Tax Matters
    30  
Section 5.10 Warranty Obligations
    31  
Section 5.11 Confidentiality
    31  
Section 5.12 Update of Schedules
    32  
Section 5.13 Section 338(h)(10) Election
    32  
Section 5.14 Indebtedness
    33  
 
       
ARTICLE VI CONDITIONS TO PURCHASER’S OBLIGATIONS
    33  
Section 6.1 Representations and Warranties
    33  
Section 6.2 Agreements and Covenants
    33  
Section 6.3 Good Standing Certificate
    33  
Section 6.4 No Material Adverse Change
    33  
Section 6.5 No Litigation
    33  
Section 6.6 Delivery of Shares
    34  
Section 6.7 No Claim Regarding Share Ownership or Proceeds
    34  
Section 6.8 Consents and Approvals
    34  
Section 6.9 Statutes; Orders
    34  
Section 6.10 Proceedings
    34  
Section 6.11 Minute Book and Stock Records
    34  
Section 6.12 Pay-Off Letters
    34  
Section 6.13 Satisfactory Due Diligence
    34  
Section 6.14 Resignations
    34  
Section 6.15 Consulting Agreements
    35  
Section 6.16 Delivery of Section 338(h)(10) Election Forms
    35  
Section 6.17 Voting Agreement
    35  
 
       
ARTICLE VII CONDITIONS TO SHAREHOLDERS’ OBLIGATIONS
    35  
Section 7.1 Representations and Warranties
    35  
Section 7.2 Agreements and Covenants
    35  
Section 7.3 No Litigation
    35  
Section 7.4 Consents and Approvals
    35  
Section 7.5 Statutes; Orders
    35  
Section 7.6 Proceedings
    36  

 

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ARTICLE VIII SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
    36  
Section 8.1 Survival of Representations
    36  
Section 8.2 Indemnification
    36  
Section 8.3 Indemnification Procedure
    37  
Section 8.4 Third Party Claims
    38  
Section 8.5 Set-Offs Against the Notes
    40  
 
       
ARTICLE IX TERMINATION
    40  
Section 9.1 Termination Events
    40  
Section 9.2 Effect of Termination
    40  
 
       
ARTICLE X MISCELLANEOUS
    41  
Section 10.1 Expenses
    41  
Section 10.2 Governing Law
    41  
Section 10.3 Table of Contents; Captions
    41  
Section 10.4 Notices
    41  
Section 10.5 Assignment; Parties in Interest
    42  
Section 10.6 Counterparts; Facsimile Signatures
    42  
Section 10.7 Entire Agreement; Amendments
    42  
Section 10.8 Severability
    43  
Section 10.9 Independence of Covenants and Representations and Warranties
    43  
Section 10.10 Third-Party Beneficiaries
    43  
Section 10.11 No Strict Construction
    43  
Section 10.12 Waiver of Jury Trial
    43  
Section 10.13 Shareholders’ Representative
    44  

 

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SCHEDULES

      Schedule   Description    
 
1.1(a)  
Accounts Payable
1.1(b)  
Accounts Receivable
1.1(c)  
Accrued Liabilities
1.1(e)  
Inventory
2.2  
Allocation of Closing Payment
3.1  
Ownership of Shares
3.4(b)  
Required Consents and Approvals
3.5  
Capitalization
3.8  
Additional Liabilities
3.9(a)  
Tangible Personal Property
3.9(b)  
Liens on Tangible Personal Property
3.11  
Formerly Owned Real Property
3.12  
Lease Violations
3.13(a)  
Contracts; Loss Contracts
3.16  
Insurance
3.17(b)  
Infringements
3.17(c)  
Intellectual Property; Grants of Licenses
3.17(d)  
Third Party Intellectual Property
3.20  
Inventory
3.21  
Suppliers and Customers
3.22(a)  
Personnel Matters
3.22(b)  
Employee Claims
3.23(a)  
Employee Plans
3.24  
Environmental Matters
3.25  
Affiliate Transactions
3.26  
Bank Accounts; Powers of Attorney
3.27  
Permits
3.28  
Absence of Certain Changes
3.30(a)  
Product Warranties
3.30(d)  
Extended Warranties
3.31(a)  
Import and Export Licenses
3.31(b)  
Import and Export Disclosures
3.31(c)  
Import and Export Violations
5.13  
Allocation of Assets

 

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EXHIBITS

      Exhibit   Description    
 
A  
Form of Promissory Note
B  
Form of Contingent Promissory Note

 

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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this “Agreement”) dated as of January 28, 2009 by
and between ASTRONICS CORPORATION, a New York corporation (“Purchaser”), D M E
CORPORATION, a Florida corporation (the “Company”), and the shareholders of the
Company signatory hereto (such shareholders are sometimes hereinafter referred
to individually as a “Shareholder” and, collectively as the “Shareholders”).
W I T N E S S E T H:
WHEREAS, the Shareholders own an aggregate of 26,693 shares of the common stock
of the Company (the “Shares”), representing all of the issued and outstanding
shares of capital stock of the Company;
WHEREAS, the Company is engaged in the development, design, manufacture and
distribution of (i) weapons and communications test systems, (ii) training and
simulation devices, (iii) aviation safety products and (iv) airport lighting
products, and offers complementary services to its customers (the “Business");
and
WHEREAS, the Shareholders desire to sell, and the Purchaser desires to purchase,
the Shares pursuant to this Agreement; and
WHEREAS, it is the intention of the parties hereto that, upon consummation of
the transactions contemplated by this Agreement, the Purchaser shall own all of
the issued and outstanding shares of capital stock and all equity and voting
interest in the Company.
NOW, THEREFORE, IT IS AGREED:
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms. When used in this Agreement, the following terms
shall have the respective meanings specified below.
“Accounts Payable” means all bona fide accounts payable of the Company
(exclusive of any accounts payable to Affiliates of the Company, Accrued
Liabilities and Indebtedness) as of the Closing Date. Schedule 1.1(a) sets forth
the Accounts Payable as of the date hereof, which Schedule shall be updated by
the Company in accordance with Section 5.12 as of a date within two (2) Business
Days prior to the Closing.
“Accounts Receivable” means all bona fide accounts receivable of the Company
(exclusive of any accounts receivable attributable to Affiliates of the
Company). Schedule 1.1(b) sets forth the Accounts Receivable as of the date
hereof, which Schedule shall be updated by the Company in accordance with
Section 5.12 as of a date within two (2) Business Days prior to the Closing.

 

 

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“Accrued Liabilities” means all accrued expenses of the Company (exclusive of
Accounts Payable and Indebtedness) of a type shown on the Financial Statements.
Schedule 1.1(c) sets forth the Accrued Liabilities as of the date hereof, which
Schedule shall be updated by the Company in accordance with Section 5.12 as of a
date within two (2) Business Days prior to the Closing.
“Affiliate” means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with, such
Person; provided that, for the purposes of this definition, “control”
(including, with correlative meanings, the terms “controlled by” and “under
common control with”), as used with respect to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise and provided, further, that an Affiliate of
any Person shall also include (i) any Person that directly or indirectly owns
more than five percent (5%) of any class of capital stock or other equity
interest of such Person, (ii) any officer, director, trustee or beneficiary of
such Person, (iii) any spouse, parent, sibling or descendant of any Person
described in clauses (i) or (ii) above, and (iv) any trust for the benefit of
any Person described in clauses (i) through (iii) above or for any spouse, issue
or lineal descendant of any Person described in clauses (i) through (iii) above.
“Agreed Claims” has the meaning assigned in Section 8.3(c).
“Agreement” has the meaning assigned in the Preamble.
“Authorized Stock” has the meaning assigned in Section 3.5.
“Balance Sheet Date” has the meaning assigned in Section 3.7(a).
“Books and Records” means originals or true copies of all operating data and
records of the Company including, without limitation, financial, accounting and
bookkeeping books and records, purchase and sale orders and invoices, sales and
sales promotional data, advertising materials, marketing analyses, past and
present price lists, past and present customer service files, credit files,
warranty files, batch and product serial number records and files, written
operating methods and procedures, specifications, operating records and other
information related to the Company’s assets, properties and rights, reference
catalogues, insurance files, personnel records, records relating to potential
acquisitions and other records, on whatever media, pertaining to the Company or
its business or operations, or to customers or suppliers of, or any other
parties having contracts or other business relationships with, the Company.
“Business” has the meaning assigned in the Recitals.
“Business Day” means any day, other than a Saturday, Sunday or a day on which
banks are permitted or required by law to be closed in the State of New York.
“Certificate” has the meaning assigned in Section 8.3(a).

 

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“Closing” has the meaning assigned in Section 2.4.
“Closing Date” has the meaning assigned in Section 2.4.
“Closing Payment” has the meaning assigned in Section 2.2.
“Code” means the Internal Revenue Code of 1986, as amended from time to time and
the rules and regulations promulgated thereunder. Section references to the Code
are to the Code as in effect at the date of this Agreement.
“Company” has the meaning assigned in the Preambles.
“Confidential Information” means any information (other than information which
is generally available to the public, other than as a result of a breach by any
Person with any confidentiality obligation to the Company) concerning the
organization, business or finances of the Company or of any third party which
the Company is currently under an obligation to keep confidential or that is
currently maintained by the Company as confidential, including, without
limitation, confidential or secret processes, products, technology, know-how,
merchandising and advertising programs and plans, suppliers, services,
techniques, customers and plans with respect to the Company.
“Contingent Promissory Notes” has the meaning assigned in Section 2.2.
“Contracts” means the agreements and commitments, whether written or oral, which
are currently in effect and to which the Company is a party or by which the
Company or its assets or properties are bound, including, without limitation,
all contracts, agreements and commitments:
(i) which contain restrictions with respect to payment of dividends or any other
distribution in respect of the capital stock or other equity interests of the
Company;
(ii) relating to capital expenditures or other purchases of material, supplies,
equipment or other assets or properties (other than purchase orders for
inventory or supplies in the ordinary course of business) in excess of $50,000
individually, or $200,000 in the aggregate;
(iii) involving a loan (other than accounts receivable from trade debtors in the
ordinary course of business) or advance to (other than travel and entertainment
allowances to the employees of the Company extended in the ordinary course of
business), or investment in, any Person or relating to the making of any such
loan, advance or investment;
(iv) involving Indebtedness;
(v) under which any Person (other than the Company) has directly or indirectly
guaranteed Indebtedness;

 

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(vi) granting or evidencing a Lien on any properties or assets of the Company;
(vii) providing for any management, consulting, financial advisory or any other
similar service;
(viii) limiting the ability of the Company to engage in any line of business or
to compete with any Person;
(ix) (including letters of intent) involving the future disposition or
acquisition of assets or properties, or any merger, consolidation or similar
business combination transaction, whether or not enforceable;
(x) involving any joint venture, partnership, strategic alliance, shareholders’
agreement, co-marketing, co-promotion, co-packaging, joint development or
similar arrangements;
(xi) involving any resolution or settlement of any actual or threatened
litigation, arbitration, claim or other dispute;
(xii) involving a confidentiality, standstill or similar arrangement;
(xiii) involving leases or subleases of personal property to which the Company
is a party (as lessee or lessor) and involving an annual base rental payment in
excess of $50,000;
(xiv) all Contracts involving the payment or receipt by the Company of $200,000
or more which are not cancelable by the Company without penalty on thirty
(30) days’ or less notice; and
(xv) all other Contracts that are material to the business of the Company.
“Current Real Property” means the real property and improvements thereon leased
by the Company commonly known as (i) 12889 Ingenuity Drive, Orlando, Florida
32826, (ii) 6830 Northwest 16th Terrace, Fort Lauderdale, Florida 33309,
(iii) 603 Richard B. Russell Parkway, Suite C-1, Houston County, Georgia,
(iv) 1216 Dawson Road, Suite 107, Albany, Georgia 31707, and (v) 1293 N. State
Road 426, Unit 117, Oviedo, Florida 32765.
“Deductible Amount” has the meaning assigned in Section 8.2(d).
“Effective Time” has the meaning assigned in Section 2.4.
“Employee” has the meaning assigned in Section 3.22(a).
“Employee Plans” has the meaning assigned in Section 3.23(a).

 

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“Environmental Law” means any Law, Order or other requirement of law, including
any principle of common law, relating to the protection of human health or the
environment, or to the manufacture, use, transport, treatment, storage,
disposal, release or threatened release of petroleum products, asbestos, urea
formaldehyde insulation, polychlorinated biphenyls or any substance listed,
classified or regulated as hazardous or toxic, or any similar term, under such
Environmental Law.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and the rules and regulations promulgated thereunder. Section references to
ERISA are to ERISA as in effect at the date of this Agreement.
“Financial Statements” has the meaning assigned in Section 3.7(a).
“GAAP” means generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and the pronouncements of the
Financial Accounting Standards Board, which are in effect from time to time,
consistently applied.
“Government Contract” means a Contract between the Company and a Governmental or
Regulatory Authority, or a prime contractor or subcontractor thereof.
“Governmental or Regulatory Authority” means any instrumentality, subdivision,
court, administrative agency, commission, official or other authority of the
United States or any other country or any state, province, prefect,
municipality, locality or other government or political subdivision thereof, or
any quasi-governmental or private body exercising any regulatory, taxing,
importing or other governmental or quasi-governmental authority.
“Indebtedness” means, without duplication, (i) any obligations of the Company
for borrowed money (including all obligations for principal, interest, premiums,
penalties, fees, expenses and breakage costs) or indebtedness of the Company
issued or incurred in substitution or exchange for obligations for borrowed
money, (ii) any obligations of the Company evidenced by any note, bond,
debenture or other debt security, (iii) any obligations of a Person other than
the Company secured by a Lien against (A) the Company’s capital stock or (B) any
right, title and interest in and to the business, properties, assets and rights
of any kind, whether tangible or intangible, real or personal, and owned by the
Company or in which the Company has any interest, (iv) any obligations of the
Company under capital leases, (v) any obligations of the Company which would
become due and owing under any employment, severance, bonus, commission,
non-competition or similar agreement upon the execution of this Agreement or the
consummation of the transactions contemplated hereby, (vi) any checks written on
bank accounts of the Company prior to the Closing Date which have not cleared as
of the Closing Date, and (vii) all obligations of the types described in clauses
(i) through (vi) above of any Person other than the Company, the payment of
which is guaranteed, directly or indirectly, by the Company. Indebtedness shall
not, however, include (a) Accrued Liabilities, (b) Accounts Payable, (c) the
endorsement of negotiable instruments for collection in the ordinary course of
business, or (d) indebtedness incurred with respect to tax distributions to the
Shareholders on income prior to the Closing Date in the amount of $1,450,000,
and (z) unliquidated progress payments received under Government Contracts.

 

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“Indemnified Party” has the meaning assigned in Section 8.3(a).
“Indemnifying Party” has the meaning assigned in Section 8.3(a).
“Intellectual Property” shall mean all intellectual property used to conduct the
Business including, without limitation, (i) all inventions (whether patentable
or unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures, together
with all reissuances, continuations, continuations-in-part, revisions,
extensions, and re-examinations thereof, (ii) all trademarks, service marks,
trade dress, logos, trade names, and corporate names, together with all
translations, adaptations, derivations, and combinations thereof and including
all goodwill associated therewith, and all applications, registrations, and
renewals in connection therewith, (iii) all copyrightable works, all copyrights,
and all applications, registrations and renewals in connection therewith,
(iv) all mask works and all applications, registrations, and renewals in
connection therewith, (v) all trade secrets and confidential business
information (including ideas, research and development, know-how, formulas,
compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing
and cost information, and business and marketing plans and proposals), (vi) all
computer software (including data and related documentation and including
software installed on hard disk drives) other than off-the-shelf computer
software subject to shrinkwrap or clickwrap licenses and (vii) all copies and
tangible embodiments of any of the foregoing (in whatever form or medium).
“Inventory” means all raw material, work-in-process and finished goods inventory
of the Company. Schedule 1.1(e) sets forth the Inventory as of the date hereof,
which Schedule shall be updated by the Company in accordance with Section 5.12
as of a date within two (2) Business Days prior to the Closing.
“Law” means any statute, law, ordinance, rule or regulation of any Governmental
or Regulatory Authority.
“Leases” means (i) the Agreement of Lease, dated June 30, 1993, by and between
Welwyn Management Company (as assignee of Danis Properties Limited Partnership),
as landlord, and the Company, as tenant, as renewed, assigned and amended,
including by that certain First Amendment to Lease Agreement dated May 25, 2007
by and between AR3, Ltd., LLLP, as landlord and the Company, as tenant, with
respect to the Current Real Property at 12889 Ingenuity Drive, Orlando, Florida
32826, (ii) the Lease Agreement commencing April 27, 2006 between Guaso, LLC, as
landlord, and the Company, as tenant, with respect to the Current Real Property
at 6830 Northwest 16th Terrace, Fort Lauderdale, Florida 33309, (iii) the Lease
dated May 1, 2007 between Business Office Parks of America, as landlord, and the
Company, as tenant, with respect to the Current Real Property at 603 Richard B.
Russell Parkway, Suite C-1, Houston County, Georgia, (iv) the Lease dated
July 29, 2008, between Trinity Investment Company, as landlord, and the Company,
as tenant, with respect to the Current Real Property at 1216 Dawson Road,
Suite 107, Albany, Georgia 31707, and (v) the Lease, dated June 19, 2008,
between William F. Hayman, as landlord, and the Company, as tenant, with respect
to the Current Real Property located at 1293 N. State Road 426, Unit 117,
Oviedo, Florida 32765.

 

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“Liens” means liens, security interests, options, rights of first refusal,
claims, easements, mortgages, charges, indentures, deeds of trust, rights of
way, restrictions on the use of real property, encroachments, licenses to third
parties, leases to third parties, security agreements, or any other encumbrances
and other restrictions or limitations on use of real or personal property or
irregularities in title thereto.
“Losses” has the meaning assigned in Section 8.2(a).
“Material,” “Material Adverse Change” or “Material Adverse Effect” means,
(i) when used with respect to the Company or the Business, any change or effect
that is material and adverse to the Company or the Business, or (ii) when used
with respect to the Purchaser, any materially adverse change in or effect on
(including any material delay) the ability of the Purchaser to perform its
obligations hereunder.
“Order” means any judgment, order, injunction, decree, writ, permit or license
of any Governmental or Regulatory Authority or any arbitrator.
“Permits” means all permits, licenses, consents, franchises, approvals and other
authorizations required from any Governmental or Regulatory Authority or other
Person in connection with the operation of the Business and necessary to conduct
the Business as presently conducted.
“Person” means and includes an individual, a partnership, a joint venture, a
corporation, a limited liability company, a limited liability partnership, a
trust, an incorporated organization and a Governmental or Regulatory Authority.
“Proceeding” means any claim, demand, action, suit, litigation, dispute, audit,
inquiry, Order, writ, injunction, judgment, assessment, decree, grievance,
arbitral action, investigation or other proceeding.
“Promissory Notes” has the meaning assigned in Section 2.2.
“Purchaser” has the meaning assigned in the Preambles.
“Purchase Price” has the meaning assigned in Section 2.2.
“Purchaser Shares” has the meaning assigned in Section 2.2.
“Representative” means any officer, director, manager, principal, attorney,
accountant, agent, employee or other representative of any Person.
“Section 338(h)(10) Election” has the meaning assigned in Section 5.13.
“Shareholders’ Representative” has the meaning assigned in Section 10.13.

 

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“Shares” has the meaning assigned in the Recitals.
“Subsidiary” means, with respect to any Person, (i) any corporation more than
50% of whose stock of any class or classes having by the terms thereof ordinary
voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is owned by such Person directly or indirectly
through one or more Subsidiaries of such Person and (ii) any partnership,
limited liability company, association, joint venture or other entity in which
such Person, directly or indirectly, through one or more Subsidiaries of such
Person, has more than a 50% equity interest or more than 50% of the voting
control.
“Tangible Personal Property” means all of the tangible personal property (other
than Inventory) owned or leased by the Company or in which the Company has any
interest, including, without limitation, production and processing equipment,
warehouse equipment, computer hardware, furniture and fixtures, tooling,
transportation equipment, leasehold improvements, supplies and other tangible
assets, together with any transferable manufacturer or vendor warranties related
thereto.
“Tax Return” means any return, report, information return or other document
(including any related or supporting information and, where applicable, profit
and loss accounts and balance sheets) with respect to Taxes.
“Taxes” means all taxes, assessments, charges, duties, fees, levies or other
governmental charges, including all U.S. and non-U.S. federal, state, local and
other income, franchise, profits, capital gains, capital stock, transfer, sales,
use, occupation, property, excise, severance, windfall profits, stamp, license,
payroll, withholding and other taxes, assessments, charges, duties, fees, levies
or other governmental charges of any kind whatsoever (whether payable directly
or by withholding and whether or not requiring the filing of a Tax Return), all
estimated taxes, deficiency assessments, additions to tax, penalties and
interest and shall include any liability for such amounts as a result either of
being a member of a combined, consolidated, unitary or affiliated group or of a
contractual obligation to indemnify any Person or other entity.
“Transaction Costs” means the fees, costs and expenses of the Company in
connection with the transactions contemplated hereby, including, without
limitation, the fees and expenses of its counsel and financial advisers.
“Transaction Documents” means this Agreement, the Promissory Notes, the
Contingent Promissory Notes, certificates representing the Purchaser Shares and
all other instruments and agreements to be executed and delivered hereunder and
thereunder.
“Warranty Obligations” has the meaning assigned in Section 5.10.

 

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Section 1.2 Construction. In this Agreement, unless the context otherwise
requires:
(a) any reference in this Agreement to “writing” or comparable expressions
includes a reference to facsimile transmission or comparable means of
communication;
(b) words expressed in the singular number shall include the plural and vice
versa, words expressed in the masculine shall include the feminine and neuter
gender and vice versa;
(c) references to Articles, Sections, Schedules and Recitals are references to
articles, sections, schedules and recitals of this Agreement;
(d) reference to “day” or “days” are to calendar days;
(e) this “Agreement” or any other agreement or document shall be construed as a
reference to this Agreement or, as the case may be, such other agreement or
document as the same may have been, or may from time to time be, amended,
varied, novated or supplemented; and
(f) “include,” “includes,” and “including” are deemed to be followed by “without
limitation” whether or not they are in fact followed by such words or words of
similar import.
Section 1.3 Schedules and Exhibits. The Schedules and Exhibits to this Agreement
are incorporated into and form an integral part of this Agreement.
Section 1.4 Knowledge. Where any representation or warranty contained in this
Agreement is expressly qualified by reference to the knowledge of the Company,
it means the knowledge of Luis Mola, Brian Price, Diane Avidor and Ramon
Rodriguez, after reasonable inquiry as to the matters that are the subject of
such representations and warranties.
ARTICLE II
SALE OF SHARES
Section 2.1 Sale of Shares. On the terms, and subject to the conditions, set
forth in this Agreement, the Shareholders agree to sell, assign, transfer and
deliver to the Purchaser on the Closing Date, and the Purchaser agrees to
purchase from the Shareholders on the Closing Date, the Shares. The certificates
or other documentation representing the Shares held by each Shareholder shall be
delivered to the Purchaser at the Closing, duly endorsed in blank, or
accompanied by such other instruments of transfer as are reasonably acceptable
to the Purchaser, in each case, with all necessary transfer tax and other
revenue stamps, acquired at the Shareholders’ expense, affixed and canceled.

 

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Section 2.2 Consideration. As the aggregate consideration for the Shares, the
Purchaser shall pay and deliver to the Shareholders at the Closing (a) the sum
of FORTY MILLION DOLLARS ($40,000,000), (b) promissory notes of the Purchaser
payable to the Shareholders in the form of Exhibit A hereto in the aggregate
principal amount of FIVE MILLION DOLLARS ($5,000,000) (the “Promissory Note”),
(c) contingent promissory notes of the Purchaser payable to the Shareholders in
the form of Exhibit B hereto in the aggregate principal amount of TWO MILLION
DOLLARS ($2,000,000) (the “Contingent Promissory Notes”) plus (d) FIVE HUNDRED
THOUSAND (500,000) shares of the Purchaser’s common stock, $.01 par value per
share (the “Purchaser Shares”), minus the sum of (x) the aggregate amount of the
Indebtedness and (y) the aggregate amount of the unpaid Transaction Costs. At
Closing the Purchaser shall:
(a) pay an amount equal to FORTY MILLION DOLLARS ($40,000,000) minus the sum of
the aggregate amount of the Indebtedness and the aggregate amount of the unpaid
Transaction Costs (the “Closing Payment”) by wire transfer of immediately
available funds to an account identified to the Purchaser by the Shareholders’
Representative at least two (2) days prior to the Closing, allocated to the
Shareholders as set forth in Schedule 2.2;
(b) pay (i) the Indebtedness pursuant to the pay-off letters as required by
Section 6.12 and (ii) the unpaid Transaction Costs;
(c) deliver the Promissory Notes and Contingent Promissory Notes to the
Shareholders; and
(d) Deliver certificates representing the Purchaser Shares in the names and
amounts as designated by the Shareholders’ Representative.
The amounts described in clauses (a), (b), (c) and (d) above, as adjusted
pursuant to Section 2.3, are, collectively, the “Purchase Price.” The Purchase
Price shall be allocated among the Shareholders in accordance with the
percentage ownership of each Shareholder in the Company.
Section 2.3 Reserved.
Section 2.4 Closing. The closing of the sale and purchase of the Shares (the
“Closing”) shall take place following the satisfaction or waiver of all of the
conditions set forth in Article VI and Article VII at 10:00 A.M. New York time
on January 30, 2009 at such place as the parties hereto shall agree (the
“Closing Date”). Notwithstanding the foregoing, the effective time of the
Closing shall be deemed to have occurred at 12:01 a.m., New York time, on
January 30, 2009 (the “Effective Time”), it being the intent of the parties that
the business of the Company on the Closing Date shall be for the account of the
Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS
The Company and the Shareholders, jointly and severally, represent and warrant
to the Purchaser as follows:
Section 3.1 Ownership of Shares.
(a) Each Shareholder is the lawful owner, beneficially and of record of the
shares of the Company’s common stock set forth next to each Shareholder’s name
on Schedule 3.1, free and clear of all Liens. The Shareholders are,
collectively, the lawful owners, beneficially and of record, of all of the
Shares, free and clear of all Liens. The delivery to the Purchaser of the Shares
pursuant to this Agreement will transfer to the Purchaser good and valid title
to all of the issued and outstanding equity securities and voting interests of
the Company, free and clear of all Liens.

 

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(b) Each Shareholder (i) will acquire the Purchaser Shares for its own account
without any view to the distribution thereof except in accordance with the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder and all applicable state securities or “blue sky” laws and other
non-U.S. securities laws and (ii) acknowledges and agrees that the Purchaser
Shares may be resold by such Shareholder only pursuant to an effective
registration statement under the Securities Act of 1933, as amended and all
applicable state securities and “blue sky” laws and other applicable non-U.S.
securities laws or unless an exemption from such registration is available.
Section 3.2 Existence and Good Standing. The Company (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida, and (ii) has all requisite power and authority to own its property and
to carry on its business as now conducted. The Company is not and is not
required to be qualified to do business as a foreign corporation in any
jurisdiction, except for such jurisdictions where the failure to be so qualified
would not have a Material Adverse Effect.
Section 3.3 Authority and Enforceability. Each Shareholder has the legal
capacity and all necessary power and authority and has taken all action
necessary to authorize, execute and deliver the Transaction Documents, to
consummate the transactions contemplated thereby, and to perform his, her or its
obligations under the Transaction Documents. No other action on the part of the
Shareholders is required to authorize the execution and delivery of the
Transaction Documents and to consummate the transactions contemplated thereby.
The Transaction Documents, when delivered in accordance with the terms hereof
and thereof, assuming the due execution and delivery of this Agreement and each
such other document by the other parties hereto and thereto, shall have been
duly executed and delivered by each Shareholder and shall be valid and binding
obligations of each such Shareholder, enforceable against him in accordance with
their respective terms, except to the extent that their enforceability may be
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors’ rights generally and to
general equitable principles.
Section 3.4 Consents and Approvals; No Violations.
(a) The execution and delivery by each Shareholder of the Transaction Documents
will not, and the consummation by each such Shareholder of the transactions
contemplated thereby will not result in a violation or breach of, conflict with,
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation, payment or acceleration)
under, or result in the creation of any Lien on any of the properties or assets
of the Company under: (i) any provision of the organizational documents of the
Company; (ii) subject to obtaining and making any of the approvals, consents,
notices and filings referred to in paragraph (b) below, any Law or Order
applicable to such Shareholder or the Company or by which any of their
respective properties or assets may be bound; or (iii) any of the terms,
conditions or provisions of any Contract.

 

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(b) Except as set forth in Schedule 3.4(b) and except for the fact that the
Shares to be sold to the Purchaser hereunder have not been registered under the
Securities Act of 1933, as amended or under any state securities law and may not
be resold or transferred by the Purchaser except in compliance therewith, and no
consent, approval or action of, filing with or notice to any Governmental or
Regulatory Authority or other Person is necessary or required (i) under any of
the terms, conditions or provisions of any Law or Order applicable to any
Shareholder or the Company or by which any Shareholder or the Company or any of
their respective assets or properties may be bound, (ii) under any of the terms,
conditions or provisions of any Contract or (iii) for the execution and delivery
of the Transaction Documents by the Shareholders or the performance by the
Shareholders of their obligations thereunder or the consummation of the
transactions contemplated thereby.
Section 3.5 Capitalization. The authorized capitalization of the Company
consists of 100,000 shares of common stock, no par value per share (the
“Authorized Stock”), of which only the Shares are issued and outstanding All of
the Shares have been duly authorized and validly issued, are fully paid and
non-assessable and are not subject to, nor were they issued in violation of, any
preemptive rights. Except as set forth in Schedule 3.5, no other equity
securities of the Company are authorized, issued, outstanding or reserved for
issuance. Except as set forth in Schedule 3.5, there are no outstanding or
authorized options, warrants, rights, subscriptions, claims of any character,
agreements, obligations, convertible or exchangeable securities, or other
commitments contingent or otherwise, relating to the Authorized Stock or other
equity or voting interest in the Company, pursuant to which the Company is or
may become obligated to issue, deliver or sell or cause to be issued, delivered
or sold, Authorized Stock or other equity or voting interest in, the Company or
any securities convertible into, exchangeable for, or evidencing the right to
subscribe for or acquire, any Authorized Stock of or other equity or voting
interest in, the Company. Except as set forth in Schedule 3.5, there are no
outstanding or authorized stock appreciation, phantom stock, profit
participation or similar rights with respect to the Authorized Stock or other
equity or voting interest in the Company. The Company does not have any
authorized or outstanding bonds, debentures, notes or other Indebtedness, the
holders of which have the right to vote (or convertible into, exchangeable for,
or evidencing the right to subscribe for or acquire securities having the right
to vote) with the shareholders of the Company on any matter. There are no
agreements or commitments to which the Company is a party or by which it is
bound to (i) repurchase, redeem or otherwise acquire any of its outstanding
capital stock or other equity or voting interest in the Company or any other
Person or (ii) vote or dispose of any of its outstanding capital stock or other
equity or voting interest in, the Company. There are no irrevocable proxies and
no voting agreements with respect to any of the Company’s outstanding capital
stock or other equity or voting interest in the Company.
Section 3.6 Subsidiaries and Investments. The Company does not have any
Subsidiaries. On the Closing Date, the Company does not own, directly or
indirectly, any capital stock of, or other equity, ownership, proprietary or
voting interest in, any Person.

 

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Section 3.7 Financial Statements.
(a) The Company has furnished the Purchaser with (i) the audited balance sheets
of the Company as of December 31, 2007 (the “Balance Sheet Date”) and
December 31, 2006, the related audited statements of income for the three
(3) years ended December 31, 2007, 2006 and 2005, all audited by Ernst & Young
LLC, and (ii) the unaudited balance sheet of the Company as at November 23, 2008
and the related unaudited statements of income for the eleven (11) months then
ended (the unaudited balance sheet of the Company as at November 23, 2008, is
hereinafter referred to as the “Interim Balance Sheet”). The financial
statements referred to above, including the footnotes thereto (collectively, the
“Financial Statements”) have been prepared in accordance with GAAP, except, with
respect to the Interim Balance Sheet and the related unaudited statements of
income for the eleven (11) months ended November 23, 2008, for the absence of
notes and normal year-end audit adjustments.
(b) The Financial Statements fairly present, in all material respects, (i) the
financial condition of the Company at the dates thereof and (ii) the results of
the Company’s operations and cash flows and the changes in its financial
condition for the periods presented.
Section 3.8 Liabilities. The Company has no Material claims, obligations,
liabilities or Indebtedness, whether absolute, accrued, contingent or otherwise,
except for (i) claims, obligations, liabilities or Indebtedness set forth in the
Financial Statements, or specifically disclosed in the footnotes thereto
(ii) the Accrued Liabilities, (iii) the Accounts Payable, (iv) the Contracts,
(v) liabilities and obligations incurred between December 31, 2007 and the
Closing Date in the ordinary course of business of the Company (none of which
results from, arises out of or relates to any breach of contract, breach of
contractual warranty, tort, infringement or violation of law) and
(vi) liabilities set forth in Schedule 3.8.
Section 3.9 Tangible Personal Property.
(a) Schedule 3.9(a) sets forth (i) a depreciation list of each item of Tangible
Personal Property owned by the Company having a book value in excess of $5,000
and (ii) a list of each item of Tangible Personal Property leased by the Company
having an annual rental in excess of $10,000. Except as set forth in
Schedule 3.9(a), there is no Tangible Personal Property used in the operation of
the Business other than the Tangible Personal Property reflected in the Balance
Sheet or thereafter acquired, except for Tangible Personal Property disposed of
in the ordinary course of business, consistent with past practice, since the
Balance Sheet Date. Except as set forth in Schedule 3.9(a), all of the Tangible
Personal Property is located at the Current Real Property and there is no
Tangible Personal Property used by the Company in the operation of its business
located at the Current Real Property which is not owned or leased by the
Company. The Tangible Personal Property, taken as a whole, is in reasonable
working order and adequate for its intended use, ordinary wear and tear and
normal repairs and replacements excepted.
(b) Except as set forth in Schedule 3.9(b), the Company has good title to or, in
the case of leased assets, a valid leasehold interest in, free and clear of all
Liens, all of the Tangible Personal Property. The Company owns or has the
exclusive right to use all of the Tangible Personal Property and assets
necessary for the conduct of the Business as currently conducted.

 

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Section 3.10 Books and Records. The Books and Records, as previously made
available to the Purchaser and its Representatives, represent accurate records
of all meetings of, and material action taken by (including action taken by
written consent), the shareholders and directors of the Company in all material
respects. All of the records, systems, controls, data or information of the
Company, recorded, stored, maintained, operated or otherwise wholly or partly
dependent on or held by any means (including all means of access thereto and
therefrom) are under the exclusive ownership and direct control of the Company.
Section 3.11 Owned Real Property. The Company does not presently own.
Schedule 3.11 sets forth a list of real property formerly owned by the Company.
Section 3.12 Leased Real Property. The Leases are the only leases, subleases or
other agreements relating to the use or occupancy of real property to which the
Company is a party or bound. The Company has a valid leasehold interests in the
real property described in the Leases, free and clear of any and all Liens. Each
Lease is in full force and effect; all rents and additional rents due to date on
the Leases have been paid; the Company has been in peaceable possession since
the commencement of the original term of the Leases and is not in default
thereunder; no waiver, indulgence or postponement of the Company’s obligations
thereunder has been granted by the lessors; and , except as set forth on
Schedule 3.4(b), there exists no default or event, occurrence, condition or act
(including the transfer of the Shares) which, with the giving of notice, the
lapse of time or the happening of any further event or condition, would
reasonably be expected to become a default under any Lease. Except as set forth
on Schedule 3.12, the Company has not violated and is not currently in violation
of any of the terms or conditions under any Lease in any material respect, and,
to the knowledge of the Company, all of the covenants to be performed by the
lessor under the Leases have been fully performed.
Section 3.13 Contracts.
(a) Schedule 3.13 sets forth a true and complete list of all Contracts. Each
Contract is in full force and effect and there exists no (i) default or event of
default by the Company or, to the knowledge of the Company, any other party to
any such Contract with respect to any material term or provision of any such
Contract or (ii) event, occurrence, condition or act (including the consummation
of the transactions contemplated hereby) which, with the giving of notice, the
lapse of time or the happening of any other event or condition, would become a
default or event of default by the Company or, to the knowledge of the Company,
any other party thereto, with respect to any material term or provision of any
such Contract. Except as set forth in Schedule 3.13, the Company is not a party
to any Contract where the cost of completion of such Contract would be
reasonably expected to exceed the balance of monies to be paid by a customer or
other Person to the Company under such Contract.
(b) Except as set forth on Schedule 3.13, with respect to each Government
Contract, (i) neither the United States government nor any prime contractor or
subcontractor thereof or other Person has notified the Company in writing that
the Company has breached or violated any Law, certification, representation,
clause, provision or requirement pertaining to any such Government Contract in
any material respect, (ii) the Company has not received any written notice of
termination for convenience, notice of termination for default, cure notice or
show cause notice pertaining to any such Government Contract, (iii) as of the
date of this Agreement, other than in the ordinary course of business, to the
knowledge of the Company, no cost incurred by the Company pertaining to any such
Government Contract has been questioned or challenged, is the subject of any
audit or investigation or has been disallowed by any Governmental or Regulatory
Authority and (iv) as of the date of this Agreement, no payments due to the
Company pertaining to any such Government Contract has been withheld or set off,
nor has any written claim been made to withhold or set off money, and the
Company is entitled to all payments received to date with respect thereto.

 

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(c) Except as set forth on Schedule 3.13, to the knowledge of the Company,
(i) neither the Company nor any director, officer, employee, consultant or other
Representative of the Company is, or since January 1, 2004 has been, under
administrative, civil or criminal investigation, indictment or information by
any Governmental or Regulatory Authority or under any audit or investigation by
the Company with respect to any alleged act or omission arising under or
relating to any Government Contract, offer or bid and (ii) the Company has made
no voluntary disclosure with respect to any alleged irregularity, mischarging,
misstatement or omission arising under or related to any Government Contract,
offer or bid that has led or would be reasonably likely to lead, either before
or after the Closing Date, to any of the consequences set forth in clauses
(i) or (ii) above or any other damage, penalty assessment, recoupment or payment
or disallowance of cost.
(d) Neither the Company nor any director, officer or employee of the Company has
been suspended, debarred or, to the knowledge of the Company, proposed for
disbarment from participation in the award of any Government Contract, offer or
bid with the United States government or any other Governmental or Regulatory
Authority (excluding for this purpose ineligibility to bid on certain Government
Contracts due to generally applicable bidding requirements). To the knowledge of
the Company, there exists no facts or circumstances that would be reasonably
likely to result in the institution of suspension or debarment Proceedings or
the finding of non-responsibility or ineligibility on the part of the Company or
any of its directors, officers or employees.
Section 3.14 Litigation. There is no Proceeding pending by (or to the knowledge
of the Company, any investigation by) any Governmental or Regulatory Authority
or any other Person, or, to the knowledge of the Company, threatened, against or
affecting the Company, or any of its assets or rights. The Company is not
subject to any Order.
Section 3.15 Taxes. Since January 1, 1999:
(a) the Company has duly filed each Tax Return required to be filed by it
(taking into account extensions), and all such Tax Returns are true, correct and
complete in all material respects;
(b) the Company has paid all Taxes required to be paid by it (whether or not
shown due on any Tax Return);
(c) the Company has complied with all Laws relating to the payment and
withholding of Taxes and has, within the manner prescribed by Law, withheld and
paid over to the proper tax authorities all amounts required to be withheld and
paid over by it;

 

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(d) no pending or, to the knowledge of the Company, threatened audit,
proceeding, examination or litigation or similar claim has been commenced or is
presently pending with respect to any Taxes or Tax Return of the Company;
(e) no written claim has been made by any tax authority in a jurisdiction where
the Company does not file a Tax Return that the Company is or may be subject to
taxation in that jurisdiction;
(f) no outstanding written agreements, consents or waivers to extend the
statutory period of limitations applicable to the assessment of any Taxes or
deficiencies against the Company, and no power of attorney granted by the
Company with respect to any Taxes is currently in force;
(g) the Company is not a party to any agreement providing for the allocation or
sharing of any Taxes imposed on or with respect to any Person, and the Company
(A) has not been a member of an affiliated group (or similar state, local or
foreign filing group) filing a consolidated U.S. federal income Tax Return or
(B) has any liability for the Taxes of any Person under Treasury Regulations
Section 1.1502-6 (or any similar provision of state, local or foreign Law), or
as a transferee or successor;
(h) the federal income Tax Returns of the Company have been examined by and
settled with the Internal Revenue Service (or the applicable statutes of
limitation have lapsed) for all years through December 31, 2005. All assessments
for Taxes due with respect to such completed and settled examinations or any
concluded litigation have been fully paid;
(i) no state or local income Tax Returns were required to have been filed by the
Company that were not filed;
(j) the Company has not participated in a “reportable transaction” within the
meaning of Treasury Regulations Section 1.6011-4(b);
(k) the Company has previously delivered or made available to the Purchaser
(A) complete and accurate copies of all Tax Returns of the Company for the prior
three (3) tax years; (B) all audit reports, letter rulings, technical advice
memoranda and similar documents issued by any tax authority relating to the
United States Federal, state, local or foreign Taxes due from or with respect to
the Company and (C) any closing agreements entered into by the Company with any
tax authority in each case existing on the date hereof;
(l) the Company has made a valid S election under Section 1362 of the Code and
has made all such elections required under analogous provisions of state and
local law. All such elections were effective for the tax year of the Company
beginning April 1, 1999 and remain in full force and effect through the date
hereof;
(m) the Company is not presently and has not been, a United States real property
holding corporation (as defined in Section 897(c)(2) of the Code) during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code;

 

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(n) the Company has not been required to include in income any adjustment
pursuant to Section 481 of the Code by reason of a voluntary change in
accounting method initiated by the Company, and the IRS has not initiated or
proposed any such adjustment or change in accounting method;
(o) the Company has not been a “distributing corporation” or a “controlled
corporation” in a distribution intended to qualify under Section 355 of the Code
within the past five years;
(p) the Company has disclosed on all relevant Tax Returns any positions taken
therein that could give rise to a substantial understatement of Taxes within the
meaning of Section 6662 of the Code; and
(q) the Company is not a party to any agreement that would require it to make
any payment that would constitute an “excess parachute payment” for purposes of
Sections 280G and 4999 of the Code.
Section 3.16 Insurance. Set forth in Schedule 3.16 is a list and description of
each insurance policy that covers the Company (including self-insurance),
specifying as to each policy (i) the carrier, (ii) policy number, (iii) coverage
limits and deductibles, (iv) expiration date, (v) annual premiums, (vi) type of
coverage provided, (vii) policy exclusions and (viii) whether such policy is
claims or occurrence based. Such policies are in full force and effect, all
premiums thereon which are due have been paid, and the Company is otherwise in
compliance in all material respects with the terms and provisions of such
policies. The Company is not in default under any of the insurance policies set
forth in Schedule 3.16 (or required to be set forth in Schedule 3.16) and there
exists no event, occurrence, condition or act (including the transfer of the
Shares) which, with the giving of notice, the lapse of time or the happening of
any other event or condition, would reasonably be expected to become a default
thereunder. The Company has not received any notice of cancellation or
non-renewal of any such policy or arrangement nor has the termination of any
such policies or arrangements been threatened, and there exists no event,
occurrence, condition or act which, with the giving of notice, the lapse of time
or the happening of any other event or condition, would reasonably be expected
to entitle any insurer to terminate or cancel any such policies. Schedule 3.16
also sets forth a list of all pending claims and the claims history for the
Company during the past five (5) years (including with respect to insurance
obtained during such period but not currently maintained).
Section 3.17 Intellectual Property.
(a) The Company owns, or has the right to use, all Intellectual Property
necessary for the conduct of the Business as currently conducted. No claim has
been asserted or is pending by any Person challenging or questioning the use of
any such Intellectual Property or the validity or effectiveness of any such
Intellectual Property, nor, to the knowledge of the Company, does any valid
basis for any such claim exist. The Company’s operations and business do not
infringe or misappropriate the Intellectual Property rights of any Person. The
Company has taken reasonable steps to maintain and protect as confidential and
proprietary all of its trade secrets and other non-public proprietary
information.

 

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(b) Except as set forth on Schedule 3.17(b), (i) the Company has not interfered
with, infringed upon, misappropriated or otherwise come into conflict with any
Intellectual Property rights of third parties, and in the last five (5) years,
the Company has not received any charge, complaint, claim, demand or notice
alleging any such interference, infringement, misappropriation or violation
(including any claim that the Company must license or refrain from using any
intangible property rights of any third party) which has not been resolved and
(ii) to the knowledge of the Company, no third party has interfered with,
infringed upon, misappropriated or otherwise come into conflict with any of the
Intellectual Property.
(c) Schedule 3.17(c) identifies (i) each patent or registration which has been
issued to the Company with respect to any of the Intellectual Property,
(ii) each pending patent application or application for registration which the
Company has made with respect to any of the Intellectual Property and (iii) each
license, sublicense or other agreement which the Company has granted to any
third party with respect to any of the Intellectual Property. Schedule 3.17(c)
also identifies each copyright, trademark, service mark, trade name or
unregistered mark used by the Company in connection with the Business. Except as
set forth on Schedule 3.17(c), with respect to each item of Intellectual
Property required to be identified in Schedule 3.17(c): (i) the Company
possesses all right, title and interest in and to the item, free and clear of
any Liens or licenses, (ii) the item is not subject to any outstanding Order,
(iii) no Proceeding is pending or, to the knowledge of the Company, threatened
which challenges the legality, validity, enforceability, use or ownership of the
item and (iv) other than routine indemnities given to distributors, sales
representatives, dealers and customers, the Company does not have any current
obligations to indemnify any Person for or against any interference,
infringement, misappropriation, or other conflict with respect to the item.
(d) Schedule 3.17(d) identifies each item of Intellectual Property that any
third party owns and that the Company uses pursuant to a license, sublicense or
agreement. The Company has delivered to the Purchaser correct and complete
copies of all such licenses, sublicenses and other agreements (as amended to
date). Except as set forth on Schedule 3.17(d), with respect to each item of
Intellectual Property required to be identified in Schedule 3.17(d): (i) each
license, sublicense or other agreement covering the item is enforceable and,
following the Closing, will continue to be enforceable on substantially similar
terms and conditions, (ii) neither the Company nor, to the knowledge of the
Company, any other party to a license, sublicense or other agreement is in
breach or default, and no event has occurred which, with notice or lapse of
time, would reasonably be expected to constitute a breach or default or permit
early termination, modification or acceleration thereunder, (iii) neither the
Company nor, to the knowledge of the Company, any other party to a license,
sublicense or other agreement has repudiated any provision thereof, (iv) the
underlying item of Intellectual Property is not subject to any outstanding
Order, (v) no Proceeding is pending or, to the knowledge of the Company,
threatened which challenges the legality, validity, enforceability or use of the
underlying item of Intellectual Property and (vi) the Company has not granted
any sublicense or similar right with respect to any license, sublicense or other
agreement.

 

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Section 3.18 Compliance with Laws. The Company (and its assets and properties)
has complied and is in compliance with all applicable Laws, Orders and Permits,
except for such non-compliance which, individually or in the aggregate, would
not constitute a Material Adverse Effect. The Company has not received any
notice to the effect that, or otherwise been advised that, the Company or any of
its assets and properties are not in compliance with any applicable Law, Order
or Permit and, to the knowledge of the Company, there are no presently existing
facts, circumstances or events which, with notice or lapse of time, would result
in violations of any applicable Law, Order or Permit.
Section 3.19 Accounts Receivable; Accounts Payable; Accrued Liabilities.
(a) All of the Accounts Receivable represent sales actually made or services
actually performed by the Company and each is the valid and enforceable
obligation of the obligor thereto. To the knowledge of the Company, all of the
Accounts Receivable will be good and collectible in full in the ordinary course
of business and in any event not later than one hundred twenty (120) days after
the Closing Date, and none of such Accounts Receivable is, or at the Closing
Date will be, subject to any counterclaim or set-off except to the extent of any
such provision or reserve.
(b) The Accounts Payable and Accrued Liabilities have arisen in bona fide arm’s
length transactions in the ordinary course of business. There are no unpaid
invoices or bills representing amounts alleged to be owed by the Company, or
other alleged obligations of the Company, which the Company has disputed or
determined to dispute or refuse to pay.
Section 3.20 Inventory. Except as set forth in Schedule 3.20, (i) the Inventory
is in the physical possession of the Company and (ii) none of the Inventory has
been pledged as collateral or otherwise is subject to any Lien (other than any
Lien imposed as a matter of law) or is held on consignment from others. The
Inventory was acquired or produced by the Company in the ordinary course of
business. Except as reflected in the reserve for obsolete Inventory reflected in
the Financial Statements, the Inventory is good and merchantable and is of a
quality and quantity presently useable and salable by the Company in the
ordinary course of business.
Section 3.21 Suppliers and Customers. Schedule 3.21 sets forth the top ten (10)
customers and suppliers of the Company, based on sales volume, for the period
beginning on January 1, 2008 and ending on the date hereof. The relationship of
the Company with each such supplier and customer is a good commercial working
relationships, and except as set forth in Schedule 3.21, to the knowledge of the
Company, (i) no such supplier or customer has canceled or otherwise terminated
its relationship with the Company, and (ii) the Company has no reasonable basis
to believe that any supplier or customer set forth on Schedule 3.21 intends to
cancel or otherwise terminate its relationship with the Company. The Company has
not received any notice that any such supplier or customer may cancel or
otherwise materially and adversely modify its relationship with the Company or
limit its services, supplies or materials to the Company, or its usage or
purchase of the services and products of the Company either as a result of the
transactions contemplated hereby or otherwise. Except as set forth in
Schedule 3.21, no customer of the Company has any re-stocking rights or similar
right to return any non-defective products to the Company for reimbursement or
credit.

 

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Section 3.22 Personnel.
(a) Schedule 3.22(a) identifies for each current employee of the Company (an
“Employee”), his or her name, department and current base salary or wages.
(b) (i) the Company does not have any obligations under any written or oral
labor agreement, collective bargaining agreement or other agreement with any
labor organization or employee group, (ii) to the knowledge of the Company, the
Company is not currently engaged in any unfair labor practice and there is no
unfair labor practice charge or other employee-related or employment-related
complaint against the Company pending or, to the knowledge of the Company,
threatened before any Governmental or Regulatory Authority, (iii) there is
currently no labor strike, labor disturbance, slowdown, work stoppage or other
material labor dispute or arbitration pending or, to the knowledge of the
Company, threatened against the Company and no material grievance currently
being asserted, (iv) the Company has not experienced a labor strike, labor
disturbance, slowdown, work stoppage or other material labor dispute at any time
during the three (3) years immediately preceding the date of this Agreement and
(v) except as set forth in Schedule 3.22(b), to the knowledge of the Company,
there are no claims against the Company by any Person for unpaid wages, wrongful
termination, accidental injury or death, sexual harassment or discrimination or
violation of any Law and, to the knowledge of the Company, no valid basis for
any such claim exists.
(c) To the knowledge of the Company, the Company has classified each individual
who currently performs services for or on behalf of the Company as a contractor
or employee in accordance with all applicable Laws, except where such failure to
have made the correct classification will not result in a Material Adverse
Effect.
(d) The Company has on file a valid Form I-9 for each current Employee hired by
the Company on or after November 7, 1986 and for each employee whose employment
with the Company terminated on or after October 1, 2005. All Employees are
(i) United States citizens or lawful permanent residents of the United States,
(ii) aliens whose right to work in the United States is unrestricted, (iii)
aliens who have valid, unexpired work authorization issued by the U. S.
Department of Homeland Security or (iv) aliens who have been continually
employed by the Company since November 6, 1986. With respect to the Employees,
the Company has not been the subject of an immigration compliance or employment
visit from, nor has the Company been assessed any fine or penalty by, or been
the subject of any Order or directive of, the United States Department of Labor
or the U. S. Department of Homeland Security.
Section 3.23 Employee Benefit Plans.
(a) Schedule 3.23(a) sets forth a list of all “employee benefit plans” (as
defined in Section 3(3) of ERISA), whether or not subject to ERISA and all other
employment, compensation, consulting, bonus, stock option, restricted stock
grant, stock purchase, other cash or stock-based incentive, profit sharing,
savings, retirement, disability, insurance, severance, retention, change in
control, deferred compensation and other compensatory plans, policies, programs,
agreements or arrangements sponsored, maintained, contributed to or required to
be contributed to, or entered into or made by the Company with or for the
benefit of, or relating to, any current or former Employee, director or other
independent contractor of, or consultant to, the Company and with respect to
which the Company has or may have any direct or indirect liability (together,
the “Employee Plans”).

 

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(b) The Company has provided the Purchaser true and complete copies of (i) all
Employee Plans, together with all amendments thereto, (ii) the latest Internal
Revenue Service determination letters obtained with respect to any Employee Plan
intended to be qualified under Section 401(a) or 501(a) of the Code, (iii) the
two most recent annual actuarial valuation reports, if any, (iv) the two most
recently filed Forms 5500 together with all related schedules, if any, (v) the
“summary plan description” (as defined in ERISA), if any, and all modifications
thereto communicated to Employees, (vi) any trust or other funding governing
documents for vehicles maintained as part of any Employee Plan, and (vii) the
two most recent annual and periodic accountings of related plan assets.
(c) Neither the Company nor any of its directors, officers, Employees or agents
has, with respect to any Employee Plan, engaged in or been a party to any
“prohibited transaction” (as defined in Section 4975 of the Code or Section 406
of ERISA), which could result in the imposition of either a penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Code, in each case applicable directly or indirectly (through an indemnification
obligation or otherwise) to the Company or any Employee Plan.
(d) All Employee Plans have been administered in accordance with their terms and
in compliance in all material respects with Law. No compensation paid or
required to be paid under any Employee Plan is or will be subject to additional
tax under Section 409A(1)(B) of the Code.
(e) There are no pending or, to the knowledge of the Company, threatened claims,
arbitrations, regulatory or other Proceedings (other than routine claims for
benefits), relating to any of the Employee Plans, or the assets of any trust for
any Employee Plan.
(f) Each Employee Plan intended to qualify under Section 401(a) of the Code, and
the trusts created thereunder intended to be exempt from tax under the
provisions of Section 501(a) of the Code has received a favorable determination
or opinion letter from the Internal Revenue Service which is currently in
effect. To the knowledge of the Company, nothing has occurred since the date of
the determination letter that would adversely effect the qualification or tax
exempt status of such Employee Plan and its related trust.
(g) All contributions or payments required to be made before the Effective Time
under the terms of any Employee Plan will have been made by the Effective Time.
Contributions that are not yet due on or before the Effective Time have been
accrued on the Financial Statements.
(h) The Company does not contribute, nor within the six-year period ending on
the date hereof has it contributed or been obligated to contribute, to any plan,
program or agreement which is a “multiemployer plan” (as defined in
Section 3(37) of ERISA) or which is subject to Section 412 of the Code or
Section 302 or Title IV of ERISA.
(i) No Employee Plan provides medical, surgical, hospitalization, death or
similar benefits (whether or not insured) for current or former Employees,
directors, consultants or other personnel of the Company for periods extending
beyond their retirement or other termination of service(other than group health
plan continuation coverage mandated by Law), except that the Employee Plans
provide for coverage through the end of the month in which an employee’s
employment with the Company terminates.
(j) No condition exists that would prevent the Company from amending or
terminating any Employee Plan providing health or medical benefits in respect of
any active Employee.

 

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Section 3.24 Environmental Matters. Except as set forth in Schedule 3.24,
(i) the Company is now, and at all times prior to the Closing Date has been, in
material compliance with all applicable Environmental Laws, and has obtained,
and is in compliance with, all Permits required of it under applicable
Environmental Laws; (ii) there are no claims, Proceedings, investigations or
actions by any Governmental or Regulatory Authority or other Person or entity
pending, or to the knowledge of the Company, threatened, against the Company
under any Environmental Law; and (iii) there are no facts, circumstances or
conditions relating to the past or present business or operations of the Company
(including the disposal of any wastes, hazardous substances or other materials),
or to any real property or improvements now or formerly owned, leased, used,
operated or occupied by the Company, that could reasonably be expected to give
rise to any claim, Proceeding or action, or to any liability, under any
Environmental Law.
Section 3.25 Affiliate Transactions. Except as set forth in Schedule 3.25,
(i) there are no Contracts, liabilities or obligations between the Company, on
the one hand, and any Affiliate of the Company on the other hand and
(ii) neither the Company, nor any Affiliate of the Company nor any Shareholder
or director of the Company possesses, directly or indirectly, any financial
interest in, or is a director, officer or employee of, any Person which is a
client, supplier, customer, lessor, lessee, or competitor or potential
competitor of the Company. Ownership of securities of a company whose securities
are registered under the Securities and Exchange Act of 1934, as amended, of 1%
or less of any class of such securities shall not be deemed to be a financial
interest for purposes of this Section 3.25.
Section 3.26 Bank Account; Powers of Attorney. Set forth in Schedule 3.26 is an
accurate and complete list showing (i) the name and address of each bank in
which the Company has an account or safe deposit box, the number of any such
account or any such box and the names of all Persons authorized to draw thereon
or to have access thereto and (ii) the names of all Persons, if any, holding
powers of attorney from the Company and a summary statement of the terms
thereof.
Section 3.27 Permits. Schedule 3.27 contains a complete and accurate list of all
material Permits obtained or possessed by the Company, the date each such Permit
was last granted to the Company and the current term of each Permit. The Company
has obtained and possesses all Permits, except where the failure to obtain such
Permit would likely result in a Material Adverse Effect; and has made all
registrations or filings with or notices to any Governmental or Regulatory
Authority necessary for the lawful conduct of the Business as presently
conducted, or necessary for the lawful ownership of the its assets and
properties or the operation of its business as presently conducted. All such
Permits are in full force and effect. The Company is in compliance with all such
Permits except for such non-compliances that would not, individually or in the
aggregate, have a Material Adverse Effect. Except as set forth in Schedule 3.27,
each such Permit can be renewed or transferred in the ordinary course of
business. Any applications for the renewal of any such Permit which are due
prior to the Closing Date will be timely made or filed by the Company prior to
the Closing Date. No Proceeding to modify, suspend, revoke, withdraw, terminate
or otherwise limit any such Permit is pending or, to the knowledge of the
Company, threatened, and the Company does not know of any valid basis for such
Proceeding, including the transactions contemplated hereby. No administrative or
governmental action or Proceeding has been taken or, to the knowledge of the
Company, threatened, in connection with the expiration, continuance or renewal
of any such Permit and, to the knowledge of the Company, no valid basis for any
such Proceeding exists.

 

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Section 3.28 Absence of Changes. Except as set forth in Schedule 3.28, since the
Balance Sheet Date there has not been a Material Adverse Change with respect to
the Company, no fact, circumstance or event exists or has occurred which would,
individually or in the aggregate, result in a Material Adverse Change with
respect to the Company and the Company has not:
(a) increased the compensation payable (including, but not limited to, wages,
salaries, bonuses or any other remuneration) or to become payable to any
officer, employee or agent, other than in accordance with the Company’s usual
practices;
(b) made any bonus, profit sharing, pension, retirement or insurance payment,
distribution or arrangement to or with any officer, personnel, consultant or
agent, except for payments that were already accrued prior to the Balance Sheet
Date or cash dividends paid to the Shareholders prior to Closing;
(c) entered into, materially amended or become subject to any Contract or any
contract or agreement outside the ordinary course of business;
(d) permitted any of its properties or assets to be subject to any Lien (other
than Permitted Liens);
(e) sold, transferred, leased, licensed or otherwise disposed of any assets or
properties except for (i) sales of Inventory in the ordinary course of business
consistent with past practice and (ii) leases or licenses entered into in the
ordinary course of business consistent with past practice;
(f) acquired any business or Person, by merger or consolidation, purchase of
substantial assets or equity interests, or by any other manner, in a single
transaction or a series of related transactions, or entered into any Contract,
letter of intent or similar arrangement (whether or not enforceable) with
respect to the foregoing;
(g) made any capital expenditure or commitment therefor in excess of $50,000
individually or $100,000 in the aggregate or otherwise acquired any assets or
properties (other than Inventory in the ordinary course of business consistent
with practice) or entered into any Contract, letter of intent or similar
arrangement (whether or not enforceable) with respect to the foregoing;
(h) entered into, materially amended or become subject to any joint venture,
partnership, strategic alliance, members’ agreement, co-marketing, co-promotion,
co-packaging, joint development or similar arrangement;

 

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(i) written-off as uncollectible any notes or Accounts Receivable, except
write-offs in the ordinary course of business consistent with past practice
charged to applicable reserves;
(j) granted any special conditions with respect to any Account Receivable other
than in the ordinary course of business consistent with past practice;
(k) failed to pay any Account Payable on a timely basis in the ordinary course
of business consistent with past practice;
(l) canceled or waived any claims or rights of substantial value;
(m) made any change in any method of accounting or auditing practice;
(n) paid, discharged, settled or satisfied any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than payments, discharges or satisfactions in the ordinary
course of business and consistent with past practice of liabilities reflected or
reserved against in the Financial Statements;
(o) conducted its cash management customs and practices (including the
collection of receivables and payment of payables) other than in the ordinary
course of business consistent with past practice; or
(p) entered into any contract or letter of intent with respect to (whether or
not binding), or otherwise committed or agreed, whether or not in writing, to do
any of the foregoing.
Section 3.29 Brokers’ or Finders’ Fees. Except for Houlihan Lokey Howard & Zukin
Capital, Inc., no agent, broker, Person or firm acting on behalf of the
Shareholders, the Company or any of their respective Affiliates is, or will be,
entitled to any commission or brokers’ or finders’ fees from the Company or the
Purchaser, or from any of their Affiliates, in connection with any of the
transactions contemplated by this Agreement.
Section 3.30 Product Warranties.
(a) Schedule 3.30(a) contains a form of each product warranty relating to
products produced or sold by the Company or services performed by the Company
which will be in effect on the Closing Date.
(b) No products designed, manufactured, marketed or sold by the Company have
been recalled or withdrawn (whether voluntarily or otherwise) at any time during
the past five (5) years (for purposes of this Section 3.30, a product shall have
been recalled or withdrawn if all or a substantial number of products in a
product line were recalled or withdrawn) and (ii) no Proceedings by (or to the
knowledge of the Company, no investigations by) any Governmental or Regulatory
Authority have been instituted, threatened or completed at any time during the
past five (5) years seeking the recall, withdrawal, suspension or seizure of any
product sold by the Company.

 

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(c) To the knowledge of the Company, no material defect exists in any design,
materials, manufacture or otherwise in any products designed, manufactured,
marketed or sold by the Company during the past five (5) years or any defect in,
or replacement of, any such products exists which could give rise to any
material claim.
(d) Except as provided in any of the standard product warranties described in
Section 3.30(a) and as otherwise set forth in Schedule 3.30(d), the Company has
not sold any products or services which are subject to an extended warranty of
the Company beyond twelve (12) months and which warranty has not yet expired.
(e) Each of the products of the Company has been designed and manufactured to
meet and comply in all material respects with all governmental standards and
specifications currently in effect. To the knowledge of the Company, there are
no statements, citations or decisions by any Governmental or Regulatory
Authority or any product testing laboratory stating that any product of the
Company is unsafe or fails to meet any standards, whether mandatory or
voluntary, promulgated by such Governmental or Regulatory Authority or testing
laboratory, as the case may be, nor have there been any mandatory or voluntary
recalls of any product of the Company. To the knowledge of the Company, there
has been no pattern of defects in the design, construction, manufacture,
assembly or installation of any product designed, manufactured, marketed or sold
by the Company nor any fact relating to any such product that may reasonably be
expected to impose a duty on the Company to recall any product or warn any
customer of a defect in any product.
Section 3.31 Export Control Regulations.
(a) Schedule 3.31(a) contains a true and complete list of (i) all current and
active import and export licenses issued by the United States government for the
products imported or exported by the Company and for the procurement by the
Company of materials related to the manufacture of its products; (ii) a complete
and current accounting of licensing exemptions used by the Company for products
being imported or exported; and (iii) all export related agreements, including,
but not limited to, technical assistance agreements, manufacturing license
agreements, distribution and warehousing agreements with any non-U.S. entity for
the manufacture of export controlled designs or for the transfer of technical
information between the Company and a non-U.S Person.
(b) Schedule 3.31(b) contains a true and complete list of all voluntary
disclosures made, currently in process or proposed for submission to the U.S.
Government by the Company with respect to import and export matters.
(c) Except as set forth in Schedule 3.31(c), to the knowledge of the Company, no
current or past violation of the regulations of the United States or of any
foreign government as related to the import or export of the products of the
Company have occurred.
(d) The Company has an Export Compliance Program that has been administered in
such a manner as to reasonably assure that the Company has been conducted in
compliance with the U.S. Government regulations regarding the export of
commercial and defense related products and technology.

 

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Section 3.32 Full Disclosure. This Agreement (including the Schedules) does not
(i) contain any representation, warranty or information of or relating to the
Company or the Shareholders that is false or misleading with respect to any
material fact, or (ii) omit to state any material fact necessary in order to
make such representations, warranties and information contained and to be
contained herein and therein (in the light of the circumstances under which such
representations, warranties and information were or will be made or provided)
not false or misleading. Any item listed in any Schedule shall be also be
considered to have been listed on all other Schedules to the extent the
applicability to such other Schedules is reasonably evident.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Shareholders as follows:
Section 4.1 Existence and Good Standing. The Purchaser (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York, (ii) has all requisite corporate power and authority to own its
property and to carry on its business as now conducted, (iii) is duly qualified
to do business and is in good standing in each jurisdiction in which the
character or location of the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except for such jurisdictions where the failure to be so qualified or licensed
and in good standing would not have a Material Adverse Effect.
Section 4.2 Authority and Enforceability. The Purchaser has all necessary power
and authority and has taken all action necessary to authorize, execute and
deliver this Agreement and the Transaction Documents, to consummate the
transactions contemplated hereby and thereby, and to perform its obligations
under this Agreement and the Transaction Documents. No other action on the part
of the Purchaser is required to authorize the execution and delivery of this
Agreement and the Transaction Documents and to consummate the transactions
contemplated hereby and thereby. This Agreement and the Transaction Documents,
when delivered in accordance with the terms hereof, assuming the due execution
and delivery of this Agreement and each such other document by the other parties
hereto and thereto, shall have been duly executed and delivered by the Purchaser
and shall be valid and binding obligations of the Purchaser, enforceable against
it in accordance with their respective terms, except to the extent that their
enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors’ rights generally and to general equitable principles.
Section 4.3 Consents and Approvals; No Violations.
(a) The execution and delivery of this Agreement by the Purchaser do not, the
execution and delivery by the Purchaser of the other instruments and agreements
to be executed and delivered by the Purchaser as contemplated hereby will not
and the consummation by the Purchaser of the transactions contemplated hereby
and thereby will not result in a violation or breach of, conflict with,
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation, payment or acceleration)
under, or result in the creation of any Lien upon any of the properties or
assets of the Purchaser under: (i) any provision of the certificate of
incorporation or by-laws of the Purchaser; (ii) subject to obtaining and making
any of the approvals, consents, notices and filings referred to in paragraph
(b) below, any Law or Order applicable to the Purchaser or by which any of its
properties or assets may be bound (iii) any Contract to which the Purchaser is a
party, or by which any of its properties or assets is bound.

 

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(b) No consent, approval or action of, filing with or notice to any Governmental
or Regulatory Authority or other Person is necessary or required under any of
the terms, conditions or provisions of any Law or Order, any Contract to which
the Purchaser is a party or by which any of its properties or assets is bound,
for the execution and delivery of this Agreement and the Transaction Documents
by the Purchaser, the performance by the Purchaser of its obligations hereunder
or thereunder or the consummation of the transactions contemplated hereby and
thereby.
Section 4.4 Brokers’ or Finders’ Fees. No agent, broker, person or firm acting
on behalf of Purchaser is, or will be, entitled to any commission or brokers’ or
finders’ fees from the Shareholders or from their respective Affiliates, in
connection with any of the transactions contemplated by this Agreement.
Section 4.5 Purchaser Shares, Promissory Notes and Contingent Promissory Notes.
The Purchaser Shares, when delivered pursuant to this Agreement, will be
(i) duly authorized, validly issued and non-assessable and (ii) free and clear
of all Liens, except that such Purchaser Shares will not be registered under the
Securities Act of 1933, as amended, or any state securities law, and will be
subject to restrictions on transfer. When issued pursuant to this Agreement, the
Promissory Notes and the Contingent Promissory Notes will be free and clear of
all Liens.
Section 4.6 Full Disclosure. This Agreement (including the Schedules) does not
(i) contain any representation, warranty or information of or relating to the
Purchaser that is false or misleading with respect to any material fact, or
(ii) omit to state any material fact necessary in order to make such
representations, warranties and information contained and to be contained herein
and therein (in the light of the circumstances under which such representations,
warranties and information were or will be made or provided) not false or
misleading.
ARTICLE V
COVENANTS
Section 5.1 Public Announcements. Neither the Company, the Shareholders nor the
Purchaser shall, nor shall any of their respective Affiliates, without the
approval of the other parties, issue any press releases or otherwise make any
public statements with respect to the transactions contemplated by this
Agreement, except as may be required by applicable law or regulation or by
obligations pursuant to any listing agreement with any national securities
exchange.
Section 5.2 Investigation by the Purchaser. During the period beginning on the
date of this Agreement and ending on the Closing Date, the Purchaser and each of
its Representatives will continue to conduct a review of the Company and the
Business. In connection with such review, the Shareholders shall grant, and
cause the Company to grant, to the Purchaser and each of Purchaser’s
Representatives full access to the Books and Records, property, assets and
personnel of the Company upon reasonable prior notice and during normal business
hours. In connection with such review, the Shareholders agree, and shall cause
the Shareholders’ Representative, upon reasonable prior notice, to (i) cooperate
with the Purchaser and each of Purchaser’s Representatives, (ii) provide all
information, and all documents and other data relating to such information,
reasonably requested by the Purchaser or any Representative of the Purchaser and
(iii) permit the Purchaser and each of Purchaser’s Representatives to inspect
any assets of the Company or the Business.

 

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Section 5.3 Notifications, Consents and Approvals. As soon as practicable, the
Purchaser and the Shareholders shall commence all reasonable actions to obtain
the consents and approvals (including, but not limited to, those approvals,
consents, orders, registrations, declarations and filings marked with an
asterisk in Schedule 3.4(b)) and to make the filings required to consummate the
transactions contemplated by this Agreement.
Section 5.4 Conduct Pending Closing. From the date of this Agreement to the
Closing Date, and except as otherwise specifically provided in this Agreement or
consented to or approved by the Purchaser in advance in writing, such consent or
approval not to be unreasonably withheld or delayed, the Shareholders agree as
follows:
(a) the Shareholders shall cause the Company to carry on its business
substantially in the same manner as heretofore conducted and shall not engage in
any transaction or activity, enter into or amend any agreement or make any
commitment except in the ordinary course of business;
(b) the Shareholders shall use reasonable commercial efforts to preserve the
Company’s existence and business organization intact and to preserve the
Company’s business, properties, assets and relationships with its personnel,
suppliers, customers and others with whom it has business relations;
(c) the Shareholders shall cause the Company to distribute all cash and cash
equivalents to the Shareholders, except for cash necessary to cover outstanding
checks as of the date of the Closing;
(d) the Shareholders shall cause the Company to not (A) grant any special
conditions with respect to any Account Receivable other than in the ordinary
course of business consistent with past practice, (B) fail to pay any Account
Payable on a timely basis in the ordinary course of business consistent with
past practice, (C) except as disclosed in this Agreement, make or commit to make
any capital expenditures in excess of $10,000 in the aggregate without the prior
written consent of the Purchaser or (D) start up or acquire any new business or
product line which is not similar to or directly complementary to any existing
business or product line;
(e) the Shareholders shall cause the Company to not enter into any settlement
with respect to any Proceeding against or relating to the Company; and
(f) the Shareholders shall not voluntarily take any action or cause the Company
to take any action, or voluntarily fail to take any action or cause the Company
to voluntarily fail to take any action the failure of which, would cause, any
representation or warranty of the Shareholders contained in this Agreement to be
breached or untrue in any material respect.

 

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Section 5.5 Notification of Certain Matters.
(a) The Shareholders shall give prompt written notice to the Purchaser of
(i) any fact or circumstance, or any occurrence or failure to occur of any event
of which the Shareholders have knowledge, which fact, circumstance, occurrence
or failure causes or, with notice or the lapse of time, would cause any
representation or warranty of the Shareholders contained in this Agreement to be
breached or untrue or inaccurate in any respect any time from the date of this
Agreement to the Closing Date and (ii) any failure of the Shareholders or the
Company to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by the Shareholders under this Agreement.
(b) The Purchaser shall give prompt written notice to the Shareholders of
(i) any fact or circumstance, or any occurrence or failure to occur of any event
of which the Purchaser has knowledge, which fact, circumstance, occurrence or
failure causes or, with notice or the lapse of time, would cause any
representation or warranty of the Purchaser contained in this Agreement to be
breached or untrue or inaccurate in any respect any time from the date of this
Agreement to the Closing Date and (ii) any failure of the Purchaser to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by the Purchaser under this Agreement.
Section 5.6 Access to Records and Personnel. For a period of seven (7) years
after the Closing Date, the Shareholders and their Representatives will have
reasonable access to (including the right to make copies of) all Books and
Records of the Company to the extent that such access may reasonably be required
in connection with matters relating to (i) all matters as to which the
Shareholders are required to provide indemnification under this Agreement or
(ii) the preparation of any Tax Returns required to be filed by the Shareholders
with respect to any period, whether ending prior to, on or after the Closing.
Such access will be afforded by the Purchaser upon receipt of reasonable advance
notice and during normal business hours, provided such access does not unduly
disrupt the Purchaser’s normal business operations. The Shareholders will be
solely responsible for any costs or expenses incurred by it pursuant to this
Section 5.6. If the Purchaser wishes to dispose of any Books and Records prior
to the expiration of the seven-year period, the Purchaser shall, prior to such
disposition, give the Shareholders a reasonable opportunity, at the
Shareholders’ expense, to segregate and remove such books and records as the
Shareholders may select.
Section 5.7 Further Assurances. At any time and from time to time after the
Closing, the Shareholders shall, at the reasonable request of the Purchaser and
at the Purchaser’s expense but without further consideration, execute and
deliver any further deeds, bills of sale, endorsements, assignments, and other
instruments of conveyance and transfer, and take such other actions as the
Purchaser may reasonably request in order (i) to more effectively transfer,
convey, assign and deliver to the Purchaser, and to place the Purchaser in
actual possession and operating control of, and to vest, perfect or confirm, of
record or otherwise, in the Purchaser all right, title and interest in, to and
under the Shares and the assets, properties and rights of the Company, or
(ii) to otherwise carry out the intents and purposes of this Agreement.

 

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Section 5.8 No Negotiation. Until such time as this Agreement may be terminated
pursuant to Section 9.1, the Shareholders shall not, and shall cause the Company
not to, directly or indirectly, solicit, initiate, encourage or entertain any
inquiries or proposals from, or discuss or negotiate with any Person other than
the Purchaser or its Representatives relating to an acquisition or other
disposition of the Shares, any other shares of the Authorized Stock or the
assets, properties and rights of the Company.
Section 5.9 Tax Matters. The following provisions will govern the allocation of
responsibility as among the Purchaser and the Shareholders for certain Tax
matters following the Closing Date:
(a) Tax Periods Ending Prior to the Closing Date. The Shareholders shall prepare
or cause to be prepared and file by the original due date or cause to be filed
by the original due date all Tax Returns for the Company for all periods ending
prior to the Closing Date which are filed after the Closing Date and the
Shareholders shall pay all Taxes due in connection therewith. The Shareholders
shall provide the Purchaser with copies of all such Tax Returns at least 15 days
prior to filing for the Purchaser’s review and approval, such approval not to be
unreasonably withheld or delayed. Except as otherwise required by applicable
Laws, each of such Tax Returns must be prepared in a manner consistent with Tax
Returns prepared and filed by the Company prior to the Closing Date. The amount
of such Taxes of the Company with respect to such periods shall be a set-off
against the remaining payments due under the Promissory Notes.
(b) Tax Periods Beginning Before and Ending at the Closing Date. The
Shareholders shall prepare or cause to be prepared and file or cause to be filed
any Tax Returns of the Company for Tax periods which begin before the Closing
Date and end at the Closing Date. The Shareholders shall provide the Purchaser
with copies of all such Tax Returns at least 15 days prior to filing for the
Purchaser’s review and approval, such approval not to be unreasonably withheld
or delayed. Except as otherwise required by applicable Law, such Tax Returns
will be prepared in a manner consistent with Tax Returns prepared and filed by
the Company prior to the Closing Date. The amount of such Taxes of the Company
with respect to such periods shall be a set-off against the remaining payments
due under the Promissory Notes.
(c) Cooperation on Tax Matters. The Purchaser and the Shareholders shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with the filing of Tax Returns pursuant to this Section 5.9 and
any Proceeding with respect to Taxes. Such cooperation will include the
retention and (upon the other party’s request) the provision of records and
information which are reasonably relevant to any such Proceeding and making
employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. The Purchaser
and the Shareholders agree (i) to retain all books and records with respect to
Tax matters pertinent to the Company relating to any taxable period beginning
before the Closing Date until expiration of the statute of limitations (and, to
the extent notified by the Purchaser or the Shareholders, as applicable, any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and
(ii) after the expiration of the statute of limitations, to give the other party
reasonable written notice prior to destroying or discarding any such books and
records, and, if the other party so requests, the Purchaser or the Shareholders,
as the case may be, shall allow the other party to take possession of such books
and records. The Purchaser and the Shareholders agree, upon request, to use
their reasonable best efforts to obtain any certificate or other document from
any Governmental or Regulatory Authority as may be necessary to mitigate, reduce
or eliminate any Tax that could be imposed (including with respect to the
transactions contemplated hereunder).

 

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Section 5.10 Warranty Obligations. Following the Closing Date, the Purchaser
shall, at the Shareholders’ cost and expense, perform all warranty obligations
with respect to products manufactured and sold by the Company prior to the
Closing Date pursuant to the terms of the warranties issued in connection with
such sales which in the case of the Viper T system (also known as TETS) shall be
for the initial two (2) year term commencing upon acceptance by the Government,
it being understood that the Purchaser shall be responsible for any extension of
the Warranty Obligations with respect to the Viper T system beyond the initial
two (2) year term provided that such extension is granted after the Closing Date
(the “Warranty Obligations”). The Warranty Obligations to be paid, performed,
and discharged by the Purchaser shall be limited to the obligations stated under
the applicable warranties of the Company. Products will be deemed to be
“manufactured and sold” prior to the Closing Date if such products were
completed, sold and shipped or were in or finished goods Inventory prior to the
Closing Date. Products that were not completed prior to the Closing Date or were
in raw materials or work in process shall not be deemed to have been
manufactured and sold prior to the Closing Date and any Warranty Obligations
with respect to such products shall be the sole responsibility of the Purchaser.
As consideration for the Purchaser’s performance of the Warranty Obligations,
the Shareholders shall pay to the Purchaser the “factory cost” incurred by the
Purchaser in performing such Warranty Obligations, payable first, to the extent
of amounts remaining payable under the Promissory Notes and/or the Contingency
Promissory Notes, as a set-off against such amounts, and, if such remaining
amounts payable under the Note are insufficient or unavailable, from the
Shareholders by wire transfer of immediately available funds to the account
designated in writing by the Purchaser. Factory cost shall include all direct
costs of labor and materials actually paid by Purchaser net of any recoveries
received from suppliers. Purchaser will use its reasonable efforts to perform
the Warranty Obligations in the most cost effective manner, utilizing personnel
familiar with the subject product and will take all reasonable efforts to have
suppliers to the Company pay amounts owed by them with respect to Warranty
Obligations or perform the warranty work which they are obligated to perform.
Notwithstanding the above, the Shareholders shall have no obligation to pay or
reimburse the Purchaser for Warranty Obligations until, and then only to the
extent, that the Warranty Obligations exceed FIVE HUNDRED THOUSAND DOLLARS
($500,000).
Section 5.11 Confidentiality.
(a) Commencing on the date hereof and continuing for a period of five (5) years
thereafter, (i) each of the Shareholders will not divulge, transmit or otherwise
disclose (except as legally compelled by court order, and then only to the
extent required, after prompt notice to the Purchaser of any such order),
directly or indirectly, any Confidential Information with respect to the
Business and (ii) the Shareholders will not use, directly or indirectly, any
Confidential Information for the benefit of anyone other than the Purchaser or
the Business.

 

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(b) Commencing on the date hereof and thereafter, the Shareholders shall not
take any action to disparage or criticize the Purchaser or its Affiliates,
directors, owners, personnel or customers, or to engage in any other action that
is intended to injure or hinder the business relationships of the Business.
(c) It is the desire and intent of the parties to this Agreement that the
provisions of this Section 5.11 shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. If any particular provisions or portion of this
Section 5.11 shall be adjudicated to be invalid or unenforceable, this
Section 5.11 shall be deemed amended to delete therefrom such provision or
portion adjudicated to be invalid or unenforceable, such amendment to apply only
with respect to the operation of such Section in the particular jurisdiction in
which such adjudication is made.
(d) The parties recognize that the performance of the obligations under this
Section 5.11 by the Shareholders is special, unique and extraordinary in
character, and that in the event of the breach by the Shareholders of the terms
and conditions of this Section 5.11, the Purchaser and the Company shall be
entitled, if they so elect, to obtain damages for any breach of this
Section 5.11 or to enforce the specific performance thereof by the Shareholders.
Section 5.12 Update of Schedules. From time to time prior to the Closing Date,
the Shareholders may provide updates of all Schedules attached hereto to reflect
changes thereto, including changes to any representations and warranties in
Article III as to which no Schedules have been created as of the date hereof but
as to which a Schedule would have been required to have been created on or
before the date hereof if such changes had existed on the date hereof; provided,
however, that the Shareholders shall deliver such updated Schedules not less
than two (2) Business Days prior to the Closing Date in accordance with the
provisions of Section 10.4 and shall provide any additional information with
respect to such updated Schedules that the Purchaser may reasonably request
within one (1) Business Day after such request. If any such updated Schedule
represents a material change from such Schedule as attached to this Agreement on
the date hereof, the Purchaser may terminate this Agreement in reliance on
Section 9.1.
Section 5.13 Section 338(h)(10) Election. With respect to the acquisition of the
Shares hereunder, the Purchaser and the Shareholders shall make a timely
election under Section 338 of Code (and any corresponding elections under State
or local tax law) (collectively a “Section 338(h)(10) Election”). The
Shareholders and the Purchaser shall (i) take, and cooperate with each other to
take, all actions necessary and appropriate (including filing such forms,
returns, elections, schedules and other documents as may be required) to effect
and preserve a timely Section 338(h)(10) Election in accordance with Section 338
of the Code and Treasury Regulations Section 1.338(h)(10)-1 or any successor
provisions and any comparable provisions arising out of State or local tax law,
and (ii) the Shareholders and the Purchaser shall report the sale of the Shares
pursuant to this agreement consistent with the Section 338(h)(10) Election and
shall take no position contrary thereto or inconsistent therewith in any tax
return, any discussion with or Proceeding before any taxing authority, or
otherwise. Purchaser will provide Shareholders with an election on IRS Form 8023
with an appropriate asset allocation on IRS Form 8883 for their approval no
later than the Closing Date. The Purchaser and the Shareholders agree that the
Purchase Price and liabilities of the Company will be allocated among the assets
of the Company for all purposes on IRS Form 8883 as set forth in Schedule 5.13.
Purchaser, the Company and the Shareholders shall all file Tax Returns
(including amended returns and claims for refund) and information reports in a
manner consistent with such election.

 

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Section 5.14 Indebtedness. In the event that the Indebtedness owing to PNC Bank,
National Association as of the Closing Date is less than $1,450,000, Purchaser
shall reimburse the Shareholders for such offset in an amount equal to
$1,450,000 less the amount of the Indebtedness owed to PNC Bank, National
Association.
ARTICLE VI
CONDITIONS TO PURCHASER’S OBLIGATIONS
The purchase of the Shares by the Purchaser on the Closing Date is conditioned
on satisfaction by the Shareholders, or waiver by the Purchaser, at or prior to
the Closing, of the following conditions:
Section 6.1 Representations and Warranties. Each of the representations and
warranties of the Company and the Shareholders contained in this Agreement shall
be true and correct in all material respects on and as of the Closing Date as
though made on and as of the Closing Date (except for representations and
warranties that are made as of a specific date, which shall be true and correct
in all material respects as of that date), and the Shareholders shall have
delivered to the Purchaser a certificate of the Shareholders, dated the Closing
Date, to such effect.
Section 6.2 Agreements and Covenants. The Company and the Shareholders shall
have performed or complied with all agreements and covenants required by this
Agreement to be performed or complied with by them on or prior to the Closing
Date, and the Shareholders shall have delivered to the Purchaser a certificate
of the Shareholders, dated the Closing Date, to such effect.
Section 6.3 Good Standing Certificate. The Shareholders shall have delivered to
Purchaser a certificates of existence and/or good standing for the Company (with
tax clearance) from the Secretary of State of the State of Florida dated within
thirty (30) days of the date of this Agreement.
Section 6.4 No Material Adverse Change. Since the Balance Sheet Date, there
shall have been no Material Adverse Change with respect to the Business, and no
events, facts or circumstances shall have occurred which would reasonably be
expected to result, individually or in the aggregate, in a Material Adverse
Change, and the Shareholders shall have delivered to the Purchaser a certificate
of the Shareholders, dated the Closing Date, to such effect.
Section 6.5 No Litigation. No Proceedings shall have been instituted or
threatened before a court or other Governmental or Regulatory Authority to
restrain or prohibit or materially delay any of the transactions contemplated
hereby, and the Shareholders shall have delivered to the Purchaser a certificate
of the Shareholders, dated the Closing Date, to such effect.

 

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Section 6.6 Delivery of Shares. Each Shareholder shall have delivered to the
Purchaser, and the Purchaser shall have received, one or more certificates or
assignments representing, in the aggregate, the number of Shares owned by him,
her or it, or, if such certificates or assignments are not available, an
affidavit attesting to the loss of such documents accompanied by an indemnity
acceptable to Purchaser in its sole discretion.
Section 6.7 No Claim Regarding Share Ownership or Proceeds. There will not have
been made or threatened by any Person any claim asserting that such Person
(i) is the holder or the beneficial owner of, or has the right to acquire or to
obtain beneficial ownership of, any Authorized Stock, or any other voting,
equity or ownership interest in, the Company or (ii) is entitled to all or any
portion of the Purchase Price payable to the Shareholders for the Shares.
Section 6.8 Consents and Approvals. All governmental and third-party consents,
waivers and approvals, if any, disclosed in Schedule 3.4(b) or otherwise
necessary to permit the consummation of the transactions contemplated by this
Agreement shall have been received.
Section 6.9 Statutes; Orders. No Law or Order of any kind shall have been
enacted, entered, promulgated or enforced by any court or Governmental or
Regulatory Authority which would prohibit or materially delay the consummation
of the transactions contemplated by this Agreement or has the effect of making
them illegal.
Section 6.10 Proceedings. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to the Purchaser and its
counsel, and Purchaser shall have received copies of all such documents and
other evidences as it or its counsel may reasonably request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
Section 6.11 Minute Book and Stock Records. The Shareholders will have delivered
to the Purchaser the Company’s original minute book and stock records.
Section 6.12 Pay-Off Letters; Interest Rate Swap Agreement. All Indebtedness of
the Company as of the Closing Date shall have been repaid (as evidenced by
customary pay-off letters from the holders of such Indebtedness delivered to the
Purchaser by the Shareholders) and all arrangements reasonably satisfactory to
the Purchaser providing for lien releases, canceled notes and other documents
reasonably requested by the Purchaser prior to Closing shall have been made. The
Company shall have provided the Purchaser with evidence reasonably satisfactory
to the Purchaser that the ISDA Master Agreement, dated as of April 11, 2007, by
and between PNC Bank, National Association, and the Company has been terminated.
Section 6.13 Satisfactory Due Diligence. The Purchaser and its Representatives
shall have completed their environmental, tax, accounting, appraisal, legal and
other due diligence review of the Company, and the Purchaser shall be satisfied
in its sole discretion with the results of such due diligence review.
Section 6.14 Resignations. The Company shall have delivered to the Purchaser the
resignation of each officer and director of the Company, in their capacities as
officers and directors, and not as employees, as the Purchaser shall have
specified.

 

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Section 6.15 Consulting Agreement. The Company shall have entered into a two
(2) year consulting agreement with Luis R. Mola on terms mutually acceptable to
the Company and Luis R. Mola.
Section 6.16 Delivery of Section 338(h)(10) Election Forms. The Shareholders
shall have delivered to the Purchaser all required forms, returns, elections,
schedules and other documents necessary for the Section 338(h)(10) Election no
later than two (2) days prior to the Closing Date.
Section 6.17 Voting Agreement. The Shareholders and the Purchaser shall have
entered into a voting agreement with respect to the Purchaser Shares on terms
mutually acceptable to the Shareholders and the Purchaser.
ARTICLE VII
CONDITIONS TO SHAREHOLDERS’ OBLIGATIONS
The sale of the Shares by the Shareholders on the Closing Date is conditioned
upon satisfaction by the Purchaser, or waiver by the Shareholders, at or prior
to the Closing, of the following conditions:
Section 7.1 Representations and Warranties. Each of the representations and
warranties of the Purchaser contained in this Agreement shall have been true and
correct in all material respects on and as of the Closing Date as though made on
and as of the Closing Date (except for representations and warranties that are
made as of a specific date, which shall be true and correct in all material
respects as of that date), and the Purchaser shall have delivered to the
Shareholders’ Representative a certificate of the Purchaser, dated the Closing
Date, to such effect.
Section 7.2 Agreements and Covenants. The Purchaser shall have performed or
complied with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Closing Date, and the
Purchaser shall have delivered to the Shareholders’ Representative a certificate
of the Purchaser, dated the Closing Date, to such effect.
Section 7.3 No Litigation. No Proceedings shall have been instituted or
threatened against the Purchaser before a court or other Governmental or
Regulatory Authority to restrain or prohibit any of the transactions
contemplated hereby, and the Purchaser shall have delivered to Shareholders’
Representative a certificate of the Purchaser, dated the Closing Date, to such
effect.
Section 7.4 Consents and Approvals. All governmental and third-party consents,
waivers and approvals, if any, necessary to permit the consummation of the
transactions contemplated by this Agreement shall have been received.
Section 7.5 Statutes; Orders. No Law or Order of any kind shall have been
enacted, entered, promulgated or enforced by any court or Governmental or
Regulatory Authority which prohibits the consummation of the transactions
contemplated by this Agreement or has the effect of making them illegal.

 

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Section 7.6 Proceedings. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to the Shareholders and
their counsel, and the Shareholders shall have received copies of all such
documents and other evidences as they or their counsel may reasonably request in
order to establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
Section 8.1 Survival of Representations.
(a) Except as set forth in paragraph (b) below, the respective representations
and warranties of the parties contained in this Agreement or in any Schedule or
certificate delivered pursuant to this Agreement shall survive the purchase and
sale of the Shares pursuant to this Agreement until June 30, 2010.
(b) The representations and warranties contained in:
(i) Section 3.1 (Ownership of Shares), Section 3.3 (Authority and
Enforceability), Section 3.5 (Capitalization), Section 3.6 (Subsidiaries and
Investments) and Section 3.29 (Brokers’ or Finders’ Fees) shall survive
indefinitely.
(ii) Section 3.15 (Taxes) and Section 3.23 (Employee Benefit Plans) shall
survive until sixty (60) days after the expiration of the applicable statute of
limitations period (after giving effect to any waivers and extensions thereof).
(iii) Section 3.24 (Environmental Matters) shall survive until December 31,
2014.
Section 8.2 Indemnification.
(a) The Shareholders severally agree to indemnify and hold the Purchaser and its
Affiliates and their respective stockholders, officers, directors, employees,
agents, successors and assigns, harmless from and against any damages, losses,
liabilities, obligations, claims of any kind, interest or expenses (including,
without limitation, reasonable attorneys’ fees and expenses) (collectively,
“Losses”), suffered, incurred or paid, directly or indirectly, through
application of the Purchaser’s assets or otherwise, as a result of, in
connection with or arising out of (i) the failure of any representation or
warranty made by the Shareholders in this Agreement to be true and correct in
all respects as of the date of this Agreement and as of the Closing Date,
(ii) any breach by the Shareholders or the Company of any of their respective
covenants or agreements contained herein, and (iii) the Indebtedness (other than
to the extent reflected in the calculation of the Purchase Price).
(b) The Purchaser agrees to indemnify and hold the Shareholders and their
respective Affiliates and their respective trustees, agents, successors and
assigns, harmless from and against any Losses, suffered, incurred or paid,
directly or indirectly, through application of the Shareholders’ assets or
otherwise, as a result of, in connection with or arising out of (i) the failure
of any representation or warranty made by the Purchaser in this Agreement to be
true and correct in all respects as of the date of this Agreement and as of the
Closing Date and (ii) any breach by the Purchaser of any of its covenants or
agreements contained herein.

 

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(c) The obligations to indemnify and hold harmless pursuant to Sections 8.2(a)
and 8.2(b) shall survive the consummation of the transactions contemplated by
this Agreement for the time periods set forth in Section 8.1, except for claims
for indemnification asserted prior to the end of such periods, which claims
shall survive until final resolution thereof.
(d) The obligations to indemnify and hold harmless pursuant to
Sections 8.2(a)(i) and 8.2(b)(i) shall be limited to an aggregate amount of FIVE
MILLION DOLLARS ($5,000,000), except that this limitation shall not apply to
Losses which arise from a breach of representations and warranties contained in
Section 3.1 (Ownership of Shares), Section 3.3 (Authority and Enforceability),
Section 3.5 (Capitalization), Section 3.15 (Taxes) and Section 3.29 (Brokers or
Finders’ Fees), or which arises from fraud. No Person shall be entitled to
recovery for Losses pursuant to Sections 8.2(a)(i) or 8.2(b)(i) until the total
amount of Losses exceeds THREE HUNDRED FIFTY THOUSAND DOLLARS ($350,000) (the
“Deductible Amount”); provided, that to the extent the amount of Losses exceeds
the Deductible Amount, the Indemnified Party shall be entitled to recover only
the amount of Losses in excess of the Deductible Amount; provided, further,
that, the Deductible Amount shall not apply to Losses which arise from a breach
of representations and warranties contained in Section 3.1 (Ownership of
Shares), Section 3.3 (Authority and Enforceability), Section 3.5
(Capitalization), Section 3.15 (Taxes) and Section 3.29 (Brokers or Finders’
Fees), or which arises from fraud.
(e) The Shareholders shall not have any rights, hereunder or otherwise, to
indemnification or contribution from the Company with respect to any matter, and
each Shareholder hereby releases the Company from any liability arising out of
or in connection with any such claim; provided, however, that the foregoing
release is not intended to affect in any way the Shareholders’ right to be
indemnified by the Purchaser pursuant to Section 8.2(b).
(f) The Purchaser agrees to indemnify the Shareholders for any additional tax
due in the event that the Purchaser or any taxing authority changes the
character of an asset allocated on IRS Form 8883 attached hereto as
Schedule 5.13.
Section 8.3 Indemnification Procedure.
(a) Within a reasonable period of time after the incurrence of any Losses by any
Person entitled to indemnification pursuant to Section 8.2 hereof (an
“Indemnified Party”), including, any claim by a third party described in
Section 8.4, which might give rise to indemnification hereunder, the Indemnified
Party shall deliver to the party from whom indemnification is sought (the
“Indemnifying Party”) a certificate (the “Certificate”), which Certificate
shall:
(i) state that the Indemnified Party has paid or properly accrued Losses or
anticipates that it will incur liability for Losses for which such Indemnified
Party is entitled to indemnification pursuant to this Agreement; and

 

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(ii) specify in reasonable detail each individual item of Loss included in the
amount so stated, the date such item was paid or properly accrued, the basis for
any anticipated liability and the nature of the misrepresentation, breach of
warranty, breach of covenant or claim to which each such item is related and the
computation of the amount to which such Indemnified Party claims to be entitled
hereunder.
(b) In the event that the Indemnifying Party shall object to the indemnification
of an Indemnified Party in respect of any claim or claims specified in any
Certificate, the Indemnifying Party shall, within twenty (20) days after receipt
by the Indemnifying Party of such Certificate, deliver to the Indemnified Party
a notice to such effect and the Indemnifying Party and the Indemnified Party
shall, within the twenty (20) day period beginning on the date of receipt by the
Indemnified Party of such objection, attempt in good faith to agree upon the
rights of the respective parties with respect to each of such claims to which
the Indemnifying Party shall have so objected. If the Indemnified Party and the
Indemnifying Party shall succeed in reaching agreement on their respective
rights with respect to any of such claims, the Indemnified Party and the
Indemnifying Party shall promptly prepare and sign a memorandum setting forth
such agreement. Should the Indemnified Party and the Indemnifying Party be
unable to agree as to any particular item or items or amount or amounts, then
the Indemnified Party and the Indemnifying Party shall submit such dispute to a
court of competent jurisdiction. The party which receives a final judgment in
such dispute shall be indemnified and held harmless for all reasonable attorney
and consultant’s fees or expenses by the other party.
(c) Claims for Losses specified in any Certificate to which an Indemnifying
Party shall not object in writing within twenty (20) days of receipt of such
Certificate, claims for Losses covered by a memorandum of agreement of the
nature described in Section 8.3(b), claims for Losses the validity and amount of
which have been the subject of judicial determination as described in
Section 8.3(b) and claims for Losses the validity and amount of which shall have
been the subject of a final judicial determination, or shall have been settled
with the consent of the Indemnifying Party, as described in Section 8.4, are
hereinafter referred to, collectively, as “Agreed Claims.” Within twenty
(20) days of the determination of the amount of any Agreed Claims, the
Indemnifying Party shall pay to the Indemnified Party an amount equal to the
Agreed Claim by wire transfer in immediately available funds to the bank account
or accounts designated by the Indemnified Party in a notice to the Indemnifying
Party not less than three (3) Business Days prior to such payment.
Section 8.4 Third Party Claims. If a claim by a third party is made against any
Indemnified Party, and if such Indemnified Party intends to seek indemnity with
respect thereto under this Article VIII, such Indemnified Party shall promptly
notify the Indemnifying Party of such claims pursuant to Section 8.3; provided,
that the failure to so notify shall not relieve the Indemnifying Party of its
obligations hereunder, except to the extent that the Indemnifying Party is
actually and materially prejudiced thereby. The Indemnifying Party shall have
thirty (30) days after receipt of such notice to assume the conduct and control,
through counsel reasonably acceptable to the Indemnified Party at the expense of
the Indemnifying Party, of the settlement or defense thereof; provided, that
(i) the Indemnifying Party shall permit the Indemnified Party to participate in
such settlement or defense through counsel chosen by such Indemnified Party,
provided that the fees and expenses of such counsel shall be borne by such
Indemnified Party and (ii) the Indemnifying Party shall promptly be entitled to
assume the defense of such

 

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action only to the extent the Indemnifying Party acknowledges its indemnity
obligation and assumes and holds such Indemnified Party harmless from and
against the full amount of any Loss resulting therefrom; provided, further, that
the Indemnifying Party shall not be entitled to assume control of such defense
and shall pay the reasonable fees and expenses of counsel retained by the
Indemnified Party if (i) the parties agree, reasonably and in good faith, that
such third-party claim would give rise to Losses which are more than twice the
amount indemnifiable by such Indemnifying Party pursuant to this Article VIII;
(ii) the claim for indemnification relates to or arises in connection with any
criminal Proceeding, action, indictment, allegation or investigation; (iii) the
claim seeks an injunction or equitable relief against the Indemnified Party;
(iv) the Indemnified Party has been advised in writing by counsel that a
reasonable likelihood exists of a conflict of interest between the Indemnifying
Party and the Indemnified Party; (v) the Indemnified Party reasonably believes
an adverse determination with respect to the action, lawsuit, investigation,
Proceeding or other claim giving rise to such claim for indemnification would be
detrimental to or injure the Indemnified Party’s reputation or future business
prospects; or (vi) upon petition by the Indemnified Party, the appropriate court
rules that the Indemnifying Party failed or is failing to vigorously prosecute
or defend such claim. Any Indemnified Party shall have the right to employ
separate counsel in any such action or claim and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the Indemnifying Party unless (i) the Indemnifying Party shall have failed,
within a reasonable time after having been notified by the Indemnified Party of
the existence of such claim as provided in the preceding sentence, to assume the
defense of such claim, (ii) the employment of such counsel has been specifically
authorized in writing by the Indemnifying Party, which authorization shall not
be unreasonably withheld, or (iii) the named parties to any such action
(including any impleaded parties) include both such Indemnified Party and the
Indemnifying Party and such Indemnified Party shall have been advised in writing
by such counsel that there may be one or more legal defenses available to the
Indemnified Party which either are not available to the Indemnifying Party, or
are available to the Indemnifying Party but the assertion of which would be
adverse to the interests of the Indemnified Party. So long as the Indemnifying
Party is reasonably contesting any such claim in good faith, the Indemnified
Party shall not pay or settle any such claim. Notwithstanding the foregoing, the
Indemnified Party shall have the right to pay or settle any such claim, provided
that in such event it shall waive any right to indemnity therefor by the
Indemnifying Party for such claim unless the Indemnifying Party shall have
consented to such payment or settlement. If the Indemnifying Party does not
notify the Indemnified Party within thirty (30) days after the receipt of the
Indemnified Party’s notice of a claim of indemnity hereunder that it elects to
undertake the defense thereof, the Indemnified Party shall have the right to
contest, settle or compromise the claim but shall not thereby waive any right to
indemnity therefor pursuant to this Agreement. The Indemnifying Party shall not,
except with the consent of the Indemnified Party, enter into any settlement that
is not entirely indemnifiable by the Indemnifying Party pursuant to this
Article VIII and does not include as an unconditional term thereof the giving by
the Person or Persons asserting such claim to all Indemnified Parties of an
unconditional release from all liability with respect to such claim or consent
to entry of any judgment. The Indemnifying Party and the Indemnified Party shall
cooperate with each other in all reasonable respects in connection with the
defense of any claim, including making available records relating to such claim
and furnishing, without expense to the Indemnifying Party and/or its counsel,
such employees of the Indemnified Party as may be reasonably necessary for the
preparation of the defense of any such claim or for testimony as witnesses in
any Proceeding relating to such claim.

 

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Section 8.5 Set-Offs Against the Notes. Subject to the indemnification
procedures set forth in Section 8.3 and Section 8.4, respectively, an
Indemnified Party shall seek reimbursement for any indemnification claim against
the Shareholders under Section 8.2(a) to the extent of the amounts remaining
unpaid under the Promissory Notes.
ARTICLE IX
TERMINATION
Section 9.1 Termination Events. This Agreement may, by notice given prior to or
at the Closing, be terminated:
(a) by either the Purchaser, on the one hand, or the Shareholders, on the other
hand, if a material breach of any provision of this Agreement has been committed
by the other party and such breach has not been waived;
(b) by the Purchaser if any of the conditions in Article VI have not been
satisfied as of the Closing Date or if satisfaction of such condition is or
becomes impossible (other than through the failure of the Purchaser to comply
with its obligations under this Agreement) and the Purchaser has not waived such
condition on or before Closing;
(c) by the Shareholders if any of the conditions in Article VII have not been
satisfied as of the Closing Date or if satisfaction of such condition is or
becomes impossible (other than through the failure of the Shareholders to comply
with its obligations under this Agreement) and the Shareholders have not waived
such condition on or before Closing;
(d) by the mutual consent of the Purchaser and the Shareholders; or
(e) by either the Purchaser or the Shareholders if the Closing has not occurred
(excluding a delay resulting from the failure of the party seeking to terminate
this Agreement to comply fully with its obligations under this Agreement) on or
before January 31, 2009, or such later date as the parties may agree upon.
Section 9.2 Effect of Termination. Each party’s right of termination under
Section 9.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination will not be an election
of remedies. Except for the obligations contained in Section 5.11, if this
Agreement is terminated pursuant to Section 9.1, all further obligations of the
parties under this Agreement will terminate; provided, however, that if this
Agreement is terminated by a party because of the breach of the Agreement by the
other party or because one or more of the conditions to the terminating party’s
obligations under this Agreement is not satisfied as a result of the other
party’s failure to comply with all of its obligations under this Agreement, the
terminating party’s right to pursue all legal remedies will survive such
termination unimpaired. Notwithstanding the foregoing, if the Agreement is
terminated pursuant to Section 9.1(e), termination shall be the sole and
exclusive remedy and no party shall have any additional rights or remedies
available to it.

 

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ARTICLE X
MISCELLANEOUS
Section 10.1 Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, the parties hereto shall pay all of their own
expenses relating to the transactions contemplated by this Agreement, including
the fees and expenses of their respective counsel and financial advisers.
Section 10.2 Governing Law. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of the
State of Florida applicable to agreements executed and to be performed solely
within such State, without regard to principles of conflicts of law of any
jurisdiction.
Section 10.3 Table of Contents; Captions. The table of contents and the Article
and Section captions used herein are for reference purposes only, and shall not
in any way affect the meaning or interpretation of this Agreement.
Section 10.4 Notices. Any notice or other communication required or permitted
under this Agreement shall be deemed to have been duly given (i) five
(5) Business Days following deposit in the mails if sent by registered or
certified mail, postage prepaid, (ii) when sent, if sent by facsimile
transmission, if receipt thereof is confirmed by telephone, (iii) when
delivered, if delivered personally to the intended recipient and (iv) two
(2) Business Days following deposit with a nationally recognized overnight
courier service, in each case addressed as follows:
if to the Shareholders, a single notice addressed to the Shareholders’
Representative:
Luis R. Mola
2509 Castilla Isle
Fort Lauderdale, FL 33301
Telephone: (954) 462-0975
with a copy to:
Akerman Senterfitt
One S.E. Third Avenue
Miami, FL 33131
Telephone: (305) 374-5600
Facsimile: (305) 374-5095
Attn: Stephen K. Roddenberry, Esq.

 

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and if to the Purchaser, to
Astronics Corporation
130 Commerce Way
East Aurora, NY 14052
Telephone: (716) 805-1599
Facsimile: (716) 655-0309
Attn: Chief Financial Officer
with a copy to
Hodgson Russ LLP
The Guaranty Building
140 Pearl Street, Suite 100
Buffalo, NY 14202-4040
Telephone: (716) 856-4000
Facsimile: (716) 849-0349
Attn: Robert J. Olivieri, Esq.
or such other address or number as shall be furnished in writing by any such
party.
Section 10.5 Assignment; Parties in Interest. This Agreement may not be
transferred, assigned, pledged or hypothecated by any party hereto without the
express written consent of the other party hereto, other than by operation of
law; provided, that the Purchaser may assign its rights, interests and
obligations hereunder to any direct or indirect wholly owned Subsidiary or to
any Affiliate. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns.
Section 10.6 Counterparts; Facsimile Signatures. This Agreement may be executed
in two (2) or more counterparts, all of which taken together shall constitute
one (1) instrument. The parties agree that this Agreement may be executed by
facsimile transmission and that the reproduction of signatures by facsimile or
similar device shall be treated as binding as if originals, and each party
agrees and undertakes to provide the other party with a copy of the Agreement
bearing original signatures forthwith upon demand by the other party.
Section 10.7 Entire Agreement; Amendments. This Agreement, including the
Schedules and the Exhibits hereto, and the other documents referred to herein
which form a part hereof, contains the entire understanding of the parties
hereto with respect to the subject matter contained herein and therein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter. This Agreement may not be changed, and any
of the terms, covenants, representations, warranties and conditions cannot be
waived, except pursuant to an instrument in writing signed by the Purchaser and
the Shareholders or, in the case of a waiver, by the party waiving compliance.

 

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Section 10.8 Severability. If any term, provision, agreement, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, agreements, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party hereto. Upon such a determination, the parties shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a reasonably acceptable manner in order that
the transactions contemplated hereby may be consummated as originally
contemplated to the fullest extent possible.
Section 10.9 Independence of Covenants and Representations and Warranties. All
covenants hereunder shall be given independent effect so that if a certain
action or condition constitutes a default under a certain covenant, the fact
that such action or condition is permitted by another covenant shall not affect
the occurrence of such default, unless expressly permitted under an exception to
such initial covenant. In addition, all representations and warranties hereunder
shall be given independent effect so that if a particular representation or
warranty proves to be incorrect or is breached, the fact that another
representation or warranty concerning the same or similar subject matter is
correct or is not breached will not affect the incorrectness or a breach of such
initial representation or warranty.
Section 10.10 Third-Party Beneficiaries. Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any Person other than the parties hereto.
Section 10.11 No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event any
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by all parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provision of this Agreement.
Section 10.12 Waiver of Jury Trial. The Purchaser and the Shareholders hereby
waive, to the fullest extent permitted by applicable Law, any right it may have
to a trial by jury in respect of any litigation as between the parties directly
or indirectly arising out of, under or in connection with this Agreement or the
transactions contemplated hereby or disputes relating hereto. Purchaser and each
Shareholder (i) certify that no representative, agent or attorney of the other
party has represented, expressly or otherwise that such other party would not,
in the event of litigation, seek to enforce the foregoing waiver and
(ii) acknowledge that it and the other party have been induced to enter into
this Agreement by, among other things, the mutual waivers and certifications in
this Section 10.12.

 

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Section 10.13 Shareholders’ Representative.
(a) By the execution and delivery of this Agreement, each Shareholder hereby
irrevocably constitutes and appoints Luis R. Mola (or Ramon A. Rodriguez in the
event that Luis R. Mola is unable to act hereunder) as the true and lawful agent
and attorney-in-fact (“Shareholders’ Representative”) of the Shareholders with
full power of substitution to act in the name, place and stead of the
Shareholders with respect to the sale of the Shares in accordance with the terms
and provisions of this Agreement, and to act on behalf of the Shareholders in
any litigation or arbitration involving this Agreement, do or refrain from doing
all such further acts and things, and execute all such documents as
Shareholders’ Representative shall deem necessary or appropriate in connection
with the transactions contemplated by this Agreement, including, without
limitation, the power:
(i) to act for the Shareholders with regard to matters pertaining to
indemnification referred to in this Agreement, including the power to compromise
any indemnity claim on behalf of the Shareholders and to transact matters of
litigation;
(ii) to execute and deliver all ancillary agreements, certificates and documents
that Shareholders’ Representative deems necessary or appropriate in connection
with the consummation of the transactions contemplated by this Agreement;
(iii) to receive funds and give receipts for funds, including in respect of any
Purchase Price payments and adjustments to the Purchase Price;
(iv) to do or refrain from doing any further act or deed on behalf of the
Shareholders that the Shareholders’ Representative deems necessary or
appropriate in his sole discretion relating to the subject matter of this
Agreement as fully and completely as the Shareholders could do if personally
present; and
(v) to receive service of process in connection with any claims under this
Agreement.
(b) The appointment of the Shareholders’ Representative shall be deemed coupled
with an interest and shall be irrevocable, and the Purchaser and any other
Person may conclusively and absolutely rely, without inquiry, upon any action of
the Shareholders’ Representative in all matters referred to herein. All notices
required to be made or delivered by the Purchaser to the Shareholders shall be
made to the Shareholders’ Representative for the benefit of the Shareholders and
shall discharge in full all notice requirements of the Purchaser to the
Shareholders with respect thereto.
(c) If any Shareholder should die or become incapacitated, if any trust or
estate should terminate or if any other such event should occur, any action
taken by the Shareholders’ Representative pursuant to this Section 10.13 shall
be as valid as if such death or incapacity, termination or other event had not
occurred, regardless of whether or not such Shareholder or the Purchaser shall
have received notice of such death, incapacity, termination or other event.
[signature page follows]

 

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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
duly executed as of the day and year first above written.

            PURCHASER:

ASTRONICS CORPORATION
      By:   /s/ David C. Burney         Name:   David C. Burney        Title:  
Vice President — Finance,
Chief Financial Officer & Treasurer        COMPANY:

D M E CORPORATION
      By:   /s/ Luis Mola         Name:   Luis Mola        Title:   President   

 

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            SHAREHOLDERS:

LUIS R. MOLA REVOCABLE TRUST
      By:   /s/ Luis Mola         Name:   Luis Mola        Title:   Trustee     
  ANA M. MOLA REVOCABLE TRUST
      By:   /s/ Ana Mola         Name:   Ana Mola        Title:   Trustee       
MOLA 1999 FAMILY IRREVOCABLE TRUST f/b/o MARIA FRAXEDAS
      By:   /s/ Ana Mola         Name:   Ana Mola        Title:   Trustee       
MOLA 1999 FAMILY IRREVOCABLE TRUST f/b/o ANA FALOWSKI
      By:   /s/ Ana Mola         Name:   Ana Mola        Title:   Trustee       
MOLA 1999 FAMILY IRREVOCABLE TRUST f/b/o ISABEL MOLA
      By:   /s/ Ana Mola         Name:   Ana Mola        Title:   Trustee       
RAMON A. RODRIGUEZ REVOCABLE TRUST
      By:   /s/ Ramon A. Rodriguez         Name:   Ramon A. Rodriguez       
Title:   Trustee   

 

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            RAMON A. RODRIGUEZ FAMILY TRUST
      By:   /s/ Ramon A. Rodriguez         Name:   Ramon A. Rodriguez       
Title:   Trustee        SHAREHOLDERS REPRESENTATIVE:
      /s/ Luis Mola       LUIS R. MOLA   

 

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