Exhibit 10.34

EXECUTION COPY

STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement (this “Agreement”) is entered into as of
November 17, 2008 by and among each of the individuals set forth on Annex I
(each, a “Seller” and, collectively, the “Sellers”), NMC Group, Inc., a
California corporation (the “Company”), and Esterline Technologies Corporation,
a Delaware corporation (the “Buyer”).

Introduction

The Sellers own all of the issued and outstanding shares of capital stock of the
Company (the “Purchased Shares”). The Sellers wish to sell, and the Buyer wishes
to buy, all of the Purchased Shares on the terms and conditions set forth
herein.

An index of defined terms as used in this Agreement is set forth in Article 10.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE 1

PURCHASE AND SALE; CLOSING

1.1        Purchase and Sale.  Subject to the terms and conditions hereof, at
the Closing, the Sellers shall sell, transfer, assign and deliver to the Buyer,
and the Buyer shall purchase from the Sellers, all of the Purchased Shares.

1.2        Purchase Price; Payments at Closing.

(a)        As used herein, the following terms shall have the following
meanings:

“Closing Cash” means, as of immediately prior to the Closing, all the cash,
marketable securities and other cash equivalents, and deposits of the Company
(other than customer advances), wherever located.

“Closing Indebtedness” means any liability for (i) indebtedness for borrowed
money, including interest thereon and prepayment or other penalties becoming due
as a result of this transaction, created, issued or incurred by the Company,
including the Debt Amount, (ii) all payment obligations of the Company for the
deferred purchase price for purchases of property outside the ordinary course of
business arising in connection with transactions occurring prior to the Closing
which are not evidenced by trade payables, (iii) the present value of all
payment obligations of the Company under leases in existence immediately prior
to the Closing to which the Company is a party which are capital leases as of
the Closing as determined in accordance GAAP, (iv) any payment obligations in
respect of letters of credit, interest rate swaps, collars, caps, hedging
obligations or other similar contingent obligations, (v) any indebtedness of the
type referred to in clauses (i) through (iv) above of any Person other than the
Company in

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existence immediately prior to the Closing which is either guaranteed by, or
secured by a security interest upon any property owned by, the Company.

“Closing Purchase Price” means $89,500,000 (i) plus the aggregate amount of the
Closing Cash, (ii) minus an amount equal to the Closing Indebtedness, and
(iii) plus the amount, if any, by which the Closing Working Capital exceeds the
Target Working Capital Ceiling, or minus the amount, if any, by which the
Closing Working Capital is less than the Target Working Capital Floor.

“Closing Working Capital” means (i) the accounts receivable, inventory, prepaid
expenses and other current assets (excluding deferred Tax assets, cash,
marketable securities and cash equivalents, other than customer advances and
similar prepaid amounts which will be retained in the Company) of the Company as
of immediately prior to the Closing (net of all applicable reserves), minus
(ii) the accounts payable, accrued expenses, accrued compensation, accrued Taxes
and all other current liabilities of the Company as of immediately prior to the
Closing, excluding for this purpose the items set forth on Schedule 1.2(a)(i)
hereto, the Debt Amount, Sale Bonuses and Sellers’ Expenses paid pursuant to
Section 1.2(c). The Closing Working Capital shall be determined by reference to
the accounts that were used to determine the Target Working Capital, which was
determined in accordance with United States generally accepted accounting
principles (“GAAP”) as set forth on Schedule 1.2(a)(ii) hereto.

“Credit Facility” means that certain Loan Agreement by and among the Company and
Community Bank, dated May 15, 2006, as amended and supplemented, which
established a revolving credit line for the identified Borrowers from the
identified Lenders.

“Debt Amount” means all outstanding principal, accrued interest, fees, expenses
and other amounts owed by the Company immediately prior to the Closing in
connection with the Credit Facility.

“Escrow Account” means the account established by the Escrow Agent to hold the
Escrow Amount and any earnings thereon pursuant to the Escrow Agreement.

“Escrow Agent” means Wells Fargo, N.A.

“Escrow Agreement” means the Escrow Agreement, substantially in the form of
Exhibit A attached hereto, to be entered into among the Buyer, the
Representative and the Escrow Agent at the Closing.

“Escrow Amount” means the amount in the Escrow Account at the time of
determination.

“Estimated Closing Purchase Price” means the Closing Purchase Price, determined
using the estimate of the Closing Working Capital, the Closing Cash and the
Closing Indebtedness set forth in the Estimated Closing Purchase Price
Certificate.

 

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“Retained Employee” means each of Mark Balderrama, Thomas Mendez and Stephen
Williams.

“Retention Amount” means the following amounts for each of the following
Retained Employees:

Mark Balderrama – $87,000

Thomas Mendez – $180,620

Stephen Williams – $36,000

“Retention Bonuses” means the amount to be paid pursuant to Section 5.14.

“Sale Bonuses” means the Retention Bonuses and all change of control, sale, and
transaction bonuses, if any, payable to the employees of the Company in
connection with or as a result of the transactions contemplated by this
Agreement.

“Sellers’ Expenses” means the fees and expenses incurred by the Sellers and/or
the Company in connection with the transactions contemplated by this Agreement
including, without limitation, the fees and expenses of Houlihan Lokey Howard &
Zukin Capital, Inc. and Paul, Hastings, Janofsky & Walker LLP, but specifically
excluding any fees and expenses incurred by or for the benefit of the Buyer or
any of its Affiliates.

“Target Working Capital” means $5,600,000.

“Target Working Capital Ceiling” means Target Working Capital plus $50,000.

“Target Working Capital Floor” means Target Working Capital minus $50,000.

(b)        Except where the context clearly requires to the contrary: (i) each
reference in this Agreement to a designated “Section,” “Article,” “Schedule,”
“Exhibit,” or “Annex” is to the corresponding Section, Article, Schedule,
Exhibit or Annex of or to this Agreement; (ii) instances of gender or
entity-specific usage (e.g., “his” “her” “its” “person” or “individual”) shall
not be interpreted to preclude the application of any provision of this
Agreement to any individual or entity; (iii) the word “or” shall not be applied
in its exclusive sense; (iv) “including” shall mean “including, without
limitation”; (v) references to laws, regulations and other governmental rules,
as well as to contracts, agreements and other instruments, shall mean such rules
and instruments as in effect as of the date of this Agreement; (vi) references
to “$” or “dollars” shall mean the lawful currency of the United States;
(vii) references to “Federal” or “federal” shall be to laws, agencies or other
attributes of the United States (and not to any State or locality thereof);
(viii) the meaning of the terms “domestic” and “foreign” shall be determined by
reference to the United States; (ix) references to “days” shall mean calendar
days; references to “business days” shall mean any day other than Saturday,
Sunday or any day on which commercial banks in Los Angeles, California are

 

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authorized to close; (x) references to months or years shall be to the actual
calendar months or years at issue (taking into account the actual number of days
in any such month or year); (xi) days, business days and times of day shall be
determined by reference to local time in Los Angeles, California; and (xii) the
English language version of this Agreement shall govern all questions of
interpretation relating to this Agreement, notwithstanding that this Agreement
may have been translated into, and executed in, other languages.

(c)        At least two business days prior to the Closing, the Representative
will furnish to the Buyer (i) a certificate (the “Estimated Closing Purchase
Price Certificate”) setting forth an estimate of the Closing Working Capital,
the Closing Cash and the Closing Indebtedness and a calculation of the Closing
Purchase Price based thereon, and (ii) a payoff letter from each holder of such
outstanding Closing Indebtedness (A) indicating the amount required to discharge
such Closing Indebtedness at Closing and (B) if such Closing Indebtedness is
secured by any liens, security interests, mortgages, restrictions or
encumbrances (collectively, “Liens”), agreeing to release such Liens upon
receipt of the payoff amount. The Estimated Closing Purchase Price Certificate
shall be reasonably acceptable to the Buyer, and the Representative and the
Buyer shall cooperate in good faith to resolve any disputes raised by the Buyer
with respect to items set forth in the Estimated Closing Purchase Price
Certificate and consider whether any modifications thereto are applicable prior
to the Closing; provided that (i) if the Representative and the Buyer are unable
to agree on the Estimated Closing Purchase Price Certificate notwithstanding
such good faith efforts to resolve any such disputes prior to the Closing, then
the estimate of the Closing Working Capital, the Closing Cash and the Closing
Indebtedness reflected on the Estimated Closing Purchase Price Certificate, with
any modifications agreed to by the Representative and the Buyer, shall be used
in the calculation of the Estimated Closing Purchase Price payable pursuant to
Section 1.2(d) and (ii) no actions taken by the Buyer pursuant to this
Section 1.2(c) shall operate as a waiver of or otherwise affect or impair the
Buyer’s ability to take any actions or assert any disagreement or other rights
pursuant to Section 1.7.

(d)        At the Closing, the Buyer shall make the following payments in an
amount, in the aggregate, equal to the Estimated Closing Purchase Price, by wire
transfer of immediately available funds:

(i)        first, to the respective holders of the Closing Indebtedness, if any,
the amounts specified in the payoff letters delivered by the Representative to
the Buyer pursuant to Section 1.2(c)(ii) above;

(ii)        second, to such payees of the Sellers’ Expenses as directed in
writing by the Representative prior to the Closing;

(iii)        third, to an account established by the Company (the “Payment
Account”), an amount equal to the aggregate amount of Sale Bonuses (and
following the Closing, the Company shall pay the Retention Bonuses in accordance
with Section 5.14);

(iv)        fourth, to the Escrow Agent pursuant to the Escrow Agreement, an
amount equal to $8,500,000 (the “Initial Escrow Amount”) to be held in the
Escrow Account and disbursed in accordance with the terms of the Escrow
Agreement; and

 

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(v)        fifth, the remainder to or as directed by the Representative.

1.3        Cash Withdrawal.  Subject to the terms and conditions of this
Agreement, including Section 5.2 hereof, between the date hereof, through and
including the Closing Date, the Company shall have the right to distribute any
portion of its cash and cash equivalents from time to time to the Sellers, other
than such cash representing customer advance payments and other similar prepaid
amounts which will be retained in Company accounts.

1.4        The Closing.  The consummation of the transactions contemplated
hereby (the “Closing”) will take place at the offices of Paul, Hastings,
Janofsky & Walker LLP, on (a) the day that is two (2) business days after the
conditions set forth in Article 6 are satisfied (other than those conditions
which by their nature are normally satisfied at the Closing) or waived, or
(b) such later date that is agreed to in writing by the Sellers and the Buyer
(the “Closing Date”).

1.5        Deliveries at Closing by the Sellers and the Company.  At the
Closing, and upon satisfaction or waiver of the conditions set forth in
Section 6.2, the Sellers and the Company will deliver or cause to be delivered
the instruments, consents, certificates and other documents required of them by
Section 6.1.

1.6        Deliveries at Closing by the Buyer.  At the Closing, and upon
satisfaction or waiver of the conditions set forth in Section 6.1, the Buyer
will deliver or cause to be delivered the instruments, consents, certificates
and other documents required of it by Section 6.2.

1.7        Determination of Closing Purchase Price.

(a)        Within 120 days after the Closing Date, the Buyer will deliver to the
Representative a certificate (the “Closing Purchase Price Certificate”) executed
by the Buyer setting forth an itemized statement of the Closing Working Capital,
the Closing Cash and the Closing Indebtedness and a calculation of the Closing
Purchase Price.

(b)        If the Representative delivers written notice (the “Disputed Items
Notice”) to the Buyer within thirty (30) days after receipt by the
Representative of the Closing Purchase Price Certificate, stating that the
Representative objects to any items in the Closing Purchase Price Certificate,
specifying in reasonable detail the basis for such objection and setting forth
the Representative’s proposed modification to the Closing Purchase Price, the
Buyer and the Representative shall use their commercially reasonable efforts to
resolve and finally determine and agree upon the Closing Purchase Price as
promptly as practicable. The Disputed Items Notice shall specify those items or
amounts as to which the Representative disagrees, and the Representative shall
be deemed to have agreed with (and the Independent Accountant, if any, shall be
deemed to be bound by) all other items and amounts contained in the Closing
Purchase Price Certificate delivered pursuant to Section 1.7(a).

(c)        If the Representative and the Buyer are unable to agree upon the
Closing Purchase Price within thirty (30) days after delivery of the Disputed
Items Notice, the Representative and the Buyer will select an accounting firm of
nationally recognized standing, which shall in all cases be independent from the
parties hereto (the “Independent Accountant”), to resolve the items set forth in
the Disputed Items Notice (the “Disputed Items”). If the Buyer

 

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and the Representative are unable to agree upon the selection of the Independent
Accountant, either party may petition a court to select the Independent
Accountant. The Independent Accountant will (i) resolve the Disputed Items and
(ii) make a determination of the Closing Purchase Price using the calculations
set forth in the Closing Purchase Price Certificate, as modified only by the
Independent Accountant’s resolution of the Disputed Items. In making such
calculation, the Independent Accountant shall consider only those items or
amounts in the Closing Purchase Price Certificate and the calculation of the
Closing Working Capital, Closing Cash and the Closing Indebtedness as to which
the Representative has disagreed in the Disputed Items Notice and the
Independent Accountant’s determination with respect to each disputed item shall
not be in excess of, nor less than, the greatest or lowest value, respectively,
claimed for that particular item in the Closing Purchase Price Certificate or in
the Disputed Items Notice. The determination of the Independent Accountant will
be made within sixty (60) days after being selected. Such determination shall be
final and binding upon the Buyer and the Sellers, shall be deemed a final
arbitration award that is binding on the Buyer and the Sellers, and none of the
Buyer or the Sellers may seek further recourse to courts or other tribunals with
respect thereto, other than to enforce such determination. The fees and expenses
of the Independent Accountant shall be allocated to the Buyer, on the one hand,
and the Sellers, on the other, based upon the percentage that the portion of the
contested amount not awarded to each party bears to the amount actually
contested by such party, as determined by the Independent Accountant.

(d)        If the Representative does not deliver the Disputed Item Notice to
the Buyer within thirty (30) days after receipt by the Representative of the
Closing Purchase Price Certificate, the Closing Purchase Price specified in the
Closing Purchase Price Certificate will be conclusively presumed to be true and
correct in all respects and will be final and binding upon the parties.

(e)        At such time as the Closing Purchase Price is finally determined,
either (i) the Buyer shall pay the Representative (for payment to the Sellers)
an aggregate amount equal to the excess, if any, of the Closing Purchase Price
over the Estimated Closing Purchase Price or (ii) the Representative shall
instruct the Escrow Agent to pay the Buyer from the Escrow Account an aggregate
amount equal to the excess, if any, of the Estimated Closing Purchase Price over
the Closing Purchase Price. Any payment pursuant to this Section 1.7(e) shall be
made within five business days after the Closing Purchase Price has been
determined by wire transfer by the Buyer or the Escrow Agent, as the case may
be, of immediately available funds to the account of such other party as may be
designated in writing by such other party. Except as set forth in this
Section 1.7, the Buyer shall have no right to make any claim against any Seller
in respect of the determination of the Closing Purchase Price or the Closing
Working Capital and, without limiting the generality of the foregoing, no
adjustment to the Closing Purchase Price pursuant to this Section 1.7 shall be
considered a breach of any representation, warranty or other provision of this
Agreement.

(f)        The Sellers and their accountants, lawyers and other representatives
will be given full access at all reasonable times to (and shall be allowed to
make copies of) the relevant books and records of the Company and to any
personnel of the Company reasonably requested by such persons, in each case in
connection with the final determination of the Closing Purchase Price or any
dispute relating thereto.

 

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1.7.2        Withholding.  The Buyer shall be entitled to deduct and withhold
from the Closing Purchase Price otherwise deliverable to the Sellers under this
Agreement, and from any other payments to the Sellers otherwise required
pursuant to this Agreement, any amounts the Buyer is required to deduct and
withhold with respect to any such deliveries and payments under the Internal
Revenue Code of 1986, as amended (the “Code”) or any provision of state, local,
provincial or foreign Tax law. To the extent that amounts are so withheld, such
withheld amounts shall be treated for all purposes of this Agreement as having
been delivered and paid to the Sellers in respect of which such deduction and
withholding was made.

ARTICLE 2

REPRESENTATIONS AND WARRANTIES

CONCERNING THE SELLERS

Each Seller hereby, severally and not jointly, represents and warrants to the
Buyer that each of the statements contained in this Article 2, with respect to
himself or herself, when read together with and qualified by the Disclosure
Schedule delivered by the Sellers to the Buyer in connection with and prior to
the execution of this Agreement (the “Disclosure Schedule”) is true and correct
as of the date hereof.

2.1        Title.  Except as set forth on Schedule 2.1 of the Disclosure
Schedule, such Seller owns, and has good title to, the Purchased Shares set
forth opposite his or her name on Annex I attached hereto (the percentage of
such Purchased Shares owned being his or her “Pro Rata Share”). At the Closing,
such Seller will transfer his or her Purchased Shares to the Buyer free and
clear of all Liens, other than restrictions under applicable securities laws.
Upon the consummation of the transactions contemplated by this Agreement, the
Buyer will own such Purchased Shares, free and clear of all Liens, other than
restrictions imposed under applicable securities law.

2.2        Power and Authority.  Such Seller has the requisite capacity to
execute and deliver and to carry out the terms of this Agreement and the other
agreements, instruments and documents to be executed and delivered by such
Seller as contemplated hereby.

2.3        No-Conflict.  Except as set forth on Schedule 2.3 of the Disclosure
Schedule, such Seller’s execution, delivery and performance of this Agreement
and the other agreements, instruments and documents to be executed and delivered
by such Seller as contemplated hereby will not result in any material violation
of, be in material conflict with or constitute a material default under any law,
statute, regulation, rule, ordinance, contract, agreement or instrument,
judgment, decree or order to which such Seller is a party or by which such
Seller or his or her assets is bound.

2.4        Consents and Approvals.  Except for any applicable filings under the
HSR Act or as set forth on Schedule 2.4 of the Disclosure Schedule, no consent,
order, approval, authorization, declaration or filing from or with any
governmental authority or third party is required on the part of such Seller to
permit such Seller to fulfill all of such Seller’s obligations under this
Agreement and the other agreements, instruments and documents of such Seller
contemplated hereby.

 

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2.5        Validity and Enforceability.  Assuming the valid execution and
delivery by the other parties hereto and thereto, this Agreement is, and each of
the other agreements, instruments and documents to be executed and delivered by
such Seller as contemplated hereby will be when executed and delivered by such
Seller, the valid and binding obligations of such Seller, enforceable against
such Seller in accordance with their respective terms, subject, however, to
applicable bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors and to general equitable principles.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

CONCERNING THE COMPANY

The Company represents and warrants to the Buyer that each of the statements
contained in this Article 3 when read together with and qualified by the
Disclosure Schedule is true and correct as of the date hereof.

3.1        Organization, Power and Standing.  The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. The Company has full corporate power and authority to own, lease and
operate its properties and to carry on its business as such business is
conducted on the date hereof. The copies of the articles of incorporation and
by-laws of the Company, each as amended through the date hereof (the “Company
Charter Documents”), that have been made available to the Buyer by the Company
are complete and correct copies thereof.

3.2        Power and Authority.  The Company has the corporate power and
authority and has taken all required corporate action on its part necessary to
permit it to execute and deliver and to carry out the terms of this Agreement
and the other agreements, instruments and documents to be executed and delivered
by the Company as contemplated hereby.

3.3        Validity and Enforceability.  Assuming the valid execution and
delivery by the other parties hereto and thereto, this Agreement is, and each of
the other agreements, instruments and documents to be executed and delivered by
the Company as contemplated hereby will be when executed and delivered by the
Company, the valid and binding obligations of the Company, enforceable against
the Company in accordance with their respective terms, subject, however, to
applicable bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors and to general equitable principles.

3.4        Subsidiaries.  The Company has no subsidiaries and does not own or
have the right to acquire any equity interest in any corporation, limited
liability company, partnership, joint venture, trust or other business
organization.

3.5        Foreign Qualifications.  Schedule 3.5 of the Disclosure Schedule sets
forth a complete and accurate list of all jurisdictions in which the Company is
qualified to do business as a foreign entity. There are no other jurisdictions
in which the Company is required to qualify to do business as a foreign entity,
except for any jurisdiction(s) in which the failure to so qualify would not have
a Company Material Adverse Effect.

 

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As used herein, the term “Company Material Adverse Effect” shall mean any event,
circumstance, or condition which has had or reasonably could be expected to
have, a material adverse effect on the assets, liabilities, properties, results
of operations or financial condition of the Company, taken as a whole; provided,
however, that in no event shall any of the following be taken into account in
the determination of whether a Company Material Adverse Effect has occurred:
(a) any change in any Legal Requirement or GAAP; (b) any change resulting from
conditions affecting any of the industries in which the Company operates or from
changes in general business, financial, political, capital market or economic
conditions (including any change resulting from any hostilities, war or military
or terrorist attack), so long as the Company is not disproportionately affected
thereby; (c) any change resulting from the announcement or pendency of the
transactions contemplated by this Agreement or attributable to the fact that the
Buyer or any of its Affiliates are the prospective owners of the Company;
(d) any event, condition or other matter described on the Disclosure Schedule
that has not materially changed since the date of such disclosure; or (e) any
change resulting from the compliance by the Company with the terms of, or the
taking of any action by the Company contemplated or permitted by, this
Agreement.

3.6        Capitalization.  Schedule 3.6 of the Disclosure Schedule sets forth a
complete and accurate list of all outstanding shares of capital stock of the
Company and the record holders thereof. Such shares are duly authorized, validly
issued, fully paid and nonassessable. There are no outstanding options,
warrants, convertible or exchangeable securities or other rights that would
obligate the Company to issue shares of its capital stock or other equity
securities. Except as set forth on Schedule 3.6 of the Disclosure Schedule,
there are no agreements, written or oral, to which the Company is a party
relating to the acquisition, disposition, voting or registration under
applicable securities laws of any equity security of the Company. Except as set
forth on Schedule 3.6 of the Disclosure Schedule, there are no outstanding or
authorized stock appreciation, phantom stock or other similar rights with
respect to the Company.

3.7        Financial Statements.  (a) The Sellers have delivered to the Buyer
(i) an audited balance sheet of the Company as of each of December 31, 2006 and
2007, and audited statements of income, stockholders’ equity and cash flows for
the fiscal years then ended, and (ii) an unaudited balance sheet of the Company
(the “Balance Sheet”) as of June 30, 2008 (the “Balance Sheet Date”) and an
unaudited statement of income for the six-month period then ended. Such
financial statements and the notes thereto, if any, fairly present, in all
material respects, the financial condition of the Company for the periods then
ended, and were prepared in accordance with the books and records of the Company
in conformity with GAAP (except as set forth on Schedule 3.7(a) of the
Disclosure Schedule or in the case of unaudited financial statements for the
omission of footnotes and subject to year-end adjustments).

(b)        Except as set forth on Schedule 3.7(b) of the Disclosure Schedule,
each accrual reflected on the Balance Sheet is adequate to meet the liability
underlying such accrual and the reserve provided for doubtful accounts reflected
on the Balance Sheet is adequate given the Company’s history and current
knowledge of the account.

(c)        The Company has no liabilities, contingent or otherwise that are not
reflected on the Balance Sheet, including the notes thereto, other than
liabilities arising in the

 

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ordinary course of business, liabilities incurred in connection with the
transactions contemplated hereby and liabilities which are not material to the
Company. Except as reflected on the Balance Sheet and Schedule 3.7(c)(i) of the
Disclosure Schedule, the Company has no indebtedness for money borrowed or for
the deferred purchase price of property or services, capital lease obligations,
conditional sale or other title retention agreements relating to the Company’s
assets or business. Except as set forth in Schedule 3.7(c)(ii) of the Disclosure
Schedule, the Company is not a guarantor or otherwise liable for any liability
or obligation or any other person for any matter which relates to or affects the
Company or its assets or business.

(d)        All accounts receivable of the Company reflected in the Balance Sheet
or existing as of the Closing Date, are bona fide accounts receivables and are
or will be valid and enforceable against the account debtor, subject to the
allowance for doubtful accounts set forth on the Balance Sheet or in the books
and records of the Company, as the case may be.

(e)        All inventories of finished products consist of items of a quality
and quantity that are saleable in the ordinary course of business as currently
conducted by the Company, and all inventories of raw materials, work in process,
supplies, parts and packaging and labeling materials consist of items of a
quality and quantity that are useable in the ordinary course of business as
currently conducted by the Company. To the knowledge of the Company, there is no
adverse condition affecting the quality or supply of raw materials,
intermediates, supplies, parts and other materials available to the Company that
are necessary to manufacture, package or label its products.

3.8        Absence of Certain Changes.  Since the Balance Sheet Date, except as
set forth on Schedule 3.8 of the Disclosure Schedule and except for transactions
contemplated by this Agreement, (a) the Company has conducted its business in
all material respects in the ordinary course, (b) no Lien has been placed upon
any of the Company’s assets, other than Permitted Liens, (c) the Company has not
acquired or disposed of any material assets, except in the ordinary course of
business, (d) there has been no material damage, destruction or casualty loss
(other than those covered by insurance the proceeds of which will be used to
replace or repair the subject assets prior to Closing) with respect to any of
the assets or properties of the Company, (e) the Company has not cancelled,
compromised or waived any material right or claim, (f) the Company has not
accelerated, terminated, modified or cancelled any material agreement, contract,
lease or license related to the Company’s business, and (g) to the Company’s
knowledge, there has been no event or circumstance relating specifically to the
Company that has caused or could reasonably be expected to cause a Company
Material Adverse Effect.

3.9        Taxes.

(a)        The representations and warranties set forth in this Section 3.9 are
subject in all respects to the qualifications and disclosures set forth on
Schedule 3.9 of the Disclosure Schedule.

 

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(b)        For purposes of this Agreement, the following definitions shall
apply:

(i)        “Pre-Closing Tax Period” means all taxable periods ending on or
before the Closing Date and the portion of a Straddle Period ending on and
including the Closing Date.

(ii)        “Pre-Closing Taxes” means any and all Taxes of the Company that are
attributable to a Pre-Closing Tax Period, relate to an event or transaction
occurring on or before the Closing Date, or arise out of or result from the
transactions contemplated by this Agreement (including any transfer,
documentary, sales, use, stamp, registration and other such Taxes and fees, and
any interest, fines, assessments, penalties or additions to tax imposed in
connection therewith or with respect thereto).

(iii)        “Straddle Period” means a Tax period that includes, but does not
end on, the Closing Date

(iv)        “Tax” or “Taxes” means (a) any and all federal, state, provincial,
local, foreign and other taxes, levies, fees, imposts, duties and similar
governmental charges (including any interest, fines, assessments, penalties or
additions to tax imposed in connection therewith or with respect thereto),
whether computed on a separate or consolidated, unitary or combined basis or in
any other manner, including, without limitation, (A) taxes imposed on, or
measured by, income, franchise, profits or gross receipts, and (B) ad valorem,
value added, capital gains, sales, goods and services, use, real or personal
property, capital stock, license, branch, payroll, estimated, withholding,
employment, social security (or similar), unemployment, compensation, utility,
severance, production, excise, stamp, occupation, premium, windfall profits,
transfer and gains taxes, and customs duties; (b) liability for the payment of
any amounts of the type described in clause (a) arising as a result of being (or
ceasing to be) a member of any affiliated, consolidated, unitary or similar
group; or (c) liability for the payment of any amounts of the type described in
clause (a) or (b) as a result of any express or implied obligation to indemnify
or otherwise assume or succeed to the liability of any other Person.

(v)        “Tax Returns” means all reports, estimates, declarations of estimated
Tax, information statements and returns relating to Taxes and any schedules
attached to or amendments of any of the foregoing.

(c)        The Company has made a valid election, effective as of May 1, 1988 to
be treated as an S corporation within the meaning of Sections 1361 and 1362 of
the Code and under any corresponding state or local tax provision. For federal
and applicable state and local income Tax purposes, the Company has properly
qualified as an S corporation since the effective date of its election through
the date of this Agreement, and will properly qualify as an S corporation
through and until the Closing Date in all applicable jurisdictions in which it
is subject to Tax. Since the effective date of its election, the Company has not
been subject to income Tax as a C corporation within the meaning of
Section 1361(a) of the Code (or comparable provision of state or local law).

 

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(d)        The Company will not be obligated to pay Tax under Section 1374 of
the Code (or comparable provision of state or local law) in connection with the
transactions contemplated by this Agreement. The Company has not, in the past 10
years acquired assets from another corporation in a transaction in which the
Company’s Tax basis for the acquired assets was determined, in whole or in part,
by reference to the Tax basis of the acquired assets (or any other property) in
the hands of the transferor.

(e)        The Company has made available to the Buyer true and correct copies
of the Tax Returns of the Company for the 2005, 2006 and 2007 taxable years.

(f)        Except as set forth on Schedule 3.9(f) of the Disclosure Schedule,
the Company has duly and timely filed all Tax Returns that were required to be
filed by it and all such Tax Returns are true, correct and complete in all
material respects. The Company has paid when due all Taxes required to be paid
by it (whether or not shown or required to be shown to be due on any Tax
Return). The Company does not have any currently effective agreement or waiver
that would have the effect of extending any applicable statute of limitations in
respect of any of its Tax liabilities. No power of attorney has been granted by
the Company with respect to any Tax matter which is currently in force. There
are no unpaid assessments against the Company of any Taxes for any fiscal period
or pending or, to the knowledge of the Company, threatened tax examinations or
audits by any foreign, federal, state or local taxing authority. No governmental
authority has given notice to the Company of any intention to assert any
deficiency or claim for additional Taxes against the Company. All Taxes that the
Company is required by law to withhold or to collect for payment have been duly
withheld and collected and, to the extent required, paid to the proper
governmental entity. There are no Tax Liens pending or, to the knowledge of the
Company, threatened against the Company or its assets or property, other than
Permitted Liens.

(g)        The Company is not now, nor has it previously been, a member of an
affiliated group filing a consolidated, combined, unitary or similar Tax Return.
The Company has no liability for Taxes of any Person (other than itself) under
Treasury Regulation Section 1.1502-6 (or any similar provision of state, local
or foreign law), as a transferee or successor, by contract, or otherwise.

(h)        No claim has ever been made by a taxing authority in a jurisdiction
where the Company does not file Tax Returns that the Company is or may be
subject to taxation by that jurisdiction.

(i)        No withholding is required under Section 1445 of the Code in
connection with the consummation of the transactions contemplated by this
Agreement.

(j)        The Company is not now, nor has it previously been, a party to a
“reportable transaction” within the meaning of Section 1.6011-4(b) of the
Treasury Regulations.

(k)        The Company has not distributed stock of another Person nor has had
its stock distributed by another Person in a transaction that was purported or
intended to be governed in whole or in part by Sections 354, 355 or 361 of the
Code.

 

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(l)        Each “nonqualified deferred compensation plan” (as such term is
defined in Section 409A(d)(1) of the Code) sponsored or maintained by the
Company since January 1, 2005 has been operated since that date in good faith
compliance with Section 409A of the Code, the final or proposed regulations
thereunder, and any other Internal Revenue Service guidance issued with respect
thereto, to the extent applicable to such plan. No deferred compensation plan
existing prior to January 1, 2005, which would otherwise not be subject to
Section 409A of the Code, has been “materially modified” at any time after
October 3, 2004.

3.10        Personal Property.  The Company has valid title to or a valid
leasehold, license or other similar interest in all tangible personal property,
free and clear of all Liens, except for Permitted Liens, used by the Company in
its business, except for any tangible personal property disposed of in the
ordinary course of the business after the date hereof. The equipment and other
tangible operating assets of the Company, taken as a whole, are in adequate
condition to conduct the business of the Company as the same is conducted on the
date hereof, normal wear and tear excepted.

As used herein, “Permitted Liens” means (a) such imperfections of title,
easements, encumbrances, liens or restrictions which (i) are of record and
(ii) do not materially impair the current use of the Company’s assets,
(b) materialmen’s, mechanics’, carriers’, workmen’s, warehousemen’s,
repairmen’s, landlords’, and other like Liens arising in the ordinary course of
business, or deposits to obtain the release of such Liens for amounts which are
not yet due and payable, (c) Liens for Taxes not yet due and payable, or being
contested in good faith, (d) purchase money Liens incurred in the ordinary
course of business, (e) Liens created as a result of any action taken by or
through the Buyer or any of its Affiliates, or (f) Liens securing the Debt
Amount which will be removed at the Closing assuming compliance by Buyer with
its obligations hereunder.

3.11        Real Property.

(a)        The Company does not own any real property.

(b)        Schedule 3.11 of the Disclosure Schedule describes each interest in
real property leased by the Company, including the lessor of such leased
property, and identifies each lease or any other arrangement under which such
property is leased. The Company enjoys peaceful and quiet possession of its
leased premises and has not received any written notice from any landlord
asserting the existence of a default under any such lease or been informed in
writing that the lessor under any such lease has taken action or, to the
knowledge of Company, threatened to terminate the lease before the expiration
date specified in the lease. Except as set forth on Schedule 3.11 of the
Disclosure Schedule, each lease of real property is valid and binding against
the Company and, to the knowledge of the Company, against the counterparty
thereto, and is in full force and effect, and has not been amended from the
version provided to the Buyer. No security deposit or portion thereof deposited
with respect to any real property lease has been applied with respect of a
breach of default under such lease which has not been redeposited in full.
Except as set forth on Schedule 3.11 of the Disclosure Schedule, the Company has
not subleased, licensed or otherwise granted to any person or entity the right
to use or occupy any of the leased real property or any portion thereof. Except
as shown on

 

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Schedule 3.11 of the Disclosure Schedule, the transactions contemplated by this
Agreement will not be the basis for any lessor to terminate its lease prior to
the expiration date of the lease.

3.12        Intellectual Property.

(a)        As used herein “Intellectual Property” means all (i) patents,
provisional patents, patent applications, continuations, continuations in part,
extensions and patent disclosures, (ii) trademarks and service marks (registered
and unregistered), and registrations and applications for registration thereof
together, to the extent applicable, with all of the goodwill associated
therewith (iii) trade dress, trade names and corporate names (iv) copyrights
(registered or unregistered) and copyrightable works and registrations and
applications for registration thereof, (v) computer software, data, data bases
and documentation thereof, (vi) trade secrets and other confidential information
(including, without limitation, ideas, formulae, compositions, inventions
(whether patentable or unpatentable and whether or not reduced to practice),
know-how, manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs, plans, proposals,
technical data, financial and marketing plans and customer and supplier lists
and information), and (vii) Uniform Resource Locators (a.k.a. “URLs” or “domain
names”). As used herein “Company Intellectual Property” means Intellectual
Property owned by the Company.

(b)        Schedule 3.12(b) of the Disclosure Schedule contains a list of all
Company Intellectual Property included in clauses (i), (ii) and (vii) of the
definition of Intellectual Property, and all Company Intellectual Property
included in clause (iv) thereof that is material to the conduct of the business
as currently conducted. The Company has paid all necessary registration,
maintenance and renewal fees for the purpose of maintaining such Company
Intellectual Property.

(c)        Schedule 3.12(c) of the Disclosure Schedule contains a list of all
Intellectual Property licensed to the Company by any third party that is used in
the Company’s business, excluding “off-the-shelf” or “shrink wrap” products
licensed to the Company which are licensed in the ordinary course of business
and as to which the Company has adequate site, user or other applicable
licenses.

(d)        Schedule 3.12(d) of the Disclosure Schedule also contains a
description of all licenses granted by the Company to any third party with
respect to any Company Intellectual Property material to the Company’s business
as currently conducted.

(e)        Except as set forth on Schedule 3.12 of the Disclosure Schedule,
(i) to the Company’s knowledge, the Company is not infringing or otherwise
violating any Intellectual Property of any other Person and it is in material
compliance with the terms of any license related to Intellectual Property
licensed to the Company and (ii) to the Company’s knowledge, no third party is
infringing on any Company Intellectual Property.

(f)        The Company has taken reasonable steps to protect its rights in, and
(to the extent confidential) the confidentiality of, (i) the Company
Intellectual Property and (ii) any Intellectual Property provided by any other
Person to the Company, each material to the Company’s business as currently
conducted.

 

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3.13        Material Contracts.  Set forth on Schedule 3.13 of the Disclosure
Schedule is a list of all Material Contracts of the Company, showing the parties
thereto. Each Material Contract is in full force and effect and the Company,
and, to the knowledge of the Company, each other party thereto has performed all
material obligations required to be performed by them thereunder. The Company is
not in default under any material provision of any Material Contract. To the
knowledge of the Company, no third party is in default under any material
provision of any Material Contract.

As used herein, the term “Material Contract” shall mean each written contract or
agreement to which the Company is a party involving (i) aggregate consideration
payable to or by the Company of $100,000 other than those contracts or
agreements which will be terminated at or prior to the Closing or are terminable
by notice of not more than thirty (30) days without material liability to the
Company), (ii) any agreement, contract or commitment relating to the disposition
or acquisition of assets or any interest in any business enterprise relating
directly or indirectly to the Company, its current or historic business which
contain any obligation of the Company which will continue after the Closing,
(iii) any mortgages, indentures, loans, security agreements or other instruments
relating to the borrowing of money by the Company or under which any party has
imposed or may, with notice or the lapse of time impose, a lien on any of the
Company’s assets, (iv) any distribution, joint marketing, development,
partnership or joint venture agreement of the business of the Company, (v) any
employment, severance, bonus, noncompetition or nonsolicitation agreement with
any employee of the Company, (vi) any agreement, contract or commitment
containing any covenant limiting in any respect the right of the Company or any
of its Affiliates to engage in any line of business or to compete with any
person, (vii) any agreement that provides for the payment or receipt by the
Company of an ongoing license fee or royalty payment in excess of $100,000,
(viii) any agreement or lease under which the Company is a lessee of or holds or
operates any personal property owned by any other party that is used in the
Company’s business, (ix) any agreement involving a commitment to make capital
expenditures in excess of $100,000, or (x) any agreement related to hazardous
waste disposal, solid waste disposal, waste water management, investigation of
environmental matters, environmental remediation or any other material
environmental obligation, liability or agreement.

3.14        Litigation.  Except as disclosed on Schedule 3.14 of the Disclosure
Schedule, there is no action, arbitration, litigation, proceeding or
governmental investigation pending or, to the knowledge of the Company,
threatened against the Company.

3.15        No-Conflict; Required Consents and Approvals.  Except as set forth
on Schedule 3.15 of the Disclosure Schedule and except for applicable filings
under the HSR Act, the Company’s execution, delivery and performance of this
Agreement and the other agreements, instruments and documents of the Company
contemplated hereby will not result in any material violation of, be in material
conflict with or constitute a material default under the Company Charter
Documents, any Material Contract, any Authorization or any Legal Requirement.
Except as set forth on Schedule 3.15 of the Disclosure Schedule and except for
applicable filings and approvals under the HSR Act, no material consent, order,
approval, authorization, declaration or filing with or from any governmental
authority or any party to a Material Contract is required on the part of the
Company for or in connection with the

 

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execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby by the Company.

3.16        Licenses and Permits.  Schedule 3.16 of the Disclosure Schedule sets
forth a list of all licenses, permits and authorizations of governmental
authorities held by the Company which are material to the business of the
Company as it is currently conducted (except for licenses, permits and
authorizations relating to Environmental Laws, as to which Section 3.22 only
applies) (collectively, the “Authorizations”). The Authorizations are in full
force and effect. The Company is in material compliance with the Authorizations.
To the knowledge of the Company, no governmental authority has threatened the
amendment, suspension or cancellation of any Authorization, except where such
threatened suspension or cancellation relates to such items of noncompliance
that the Company had previously remedied or will remedy within the applicable
cure periods.

3.17        Compliance with Laws.  The Company is in material compliance with
all Legal Requirements (except as to Taxes, as to which Section 3.9 only
applies, to Benefit Plans, as to which Section 3.19 only applies, and to
Environmental Laws, as to which Section 3.22 only applies). As used herein, the
term “Legal Requirements” means, with respect to any Person, all foreign,
federal, state, and local statutes, laws, ordinances, judgments, decrees, and
orders and all governmental rules and regulations applicable to such Person.

3.18        Employees and Compensation.  Schedule 3.18 of the Disclosure
Schedule sets forth (i) a true and correct list of the name and current annual
salary of each officer or employee of the Company whose annual base salary
exceeds $75,000 and (ii) any other form of compensation (other than salary,
bonuses or customary benefits) paid or payable by the Company to each such
officer or employee for the most recent fiscal year. Except as contemplated by
Section 6.1(i), to the Company’s knowledge no employee identified on
Schedule 3.18 has any present intention to terminate his or her employment with
the Company within the next 12 months or is bound by any confidentiality
agreement, non-competition agreement or other contract that may reasonably be
expected to have an adverse effect on such employee’s participation in the
Company’s business. The Company has complied in all material respects with all
provisions of all Legal Requirements relating to employment and employment
practices, terms and condition of employment, wage and hours and similar
matters.

3.19        Benefit Plans.

(a)        Schedule 3.19(a) of the Disclosure Schedule sets forth all material
employee benefit plans, programs, policies, practices, agreements and
arrangements (including, but not limited to, all plans described in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”))
maintained or contributed to by the Company for the benefit of any of its
current or former officers, employees, directors or independent contractors, or
with respect to which the Company has (or reasonably could be expected to have)
any obligation or liability (including, but not limited to, liabilities arising
from affiliation under Section 414(b), (c), (m) or (o) of the Code, or
Section 4001 of ERISA) (each, a “Benefit Plan” and collectively, the “Benefit
Plans”). Except as disclosed on Schedule 3.19 of the Disclosure Schedule, there
has been no amendment or announcement (written or oral) by the Company relating
to a change in participation or coverage under, any Benefit Plan that could
reasonably be

 

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expected to materially increase the expense of maintaining such Benefit Plan
above the level of expense incurred with respect thereto for the most recent
fiscal year included in the financial statements provided pursuant to
Section 3.7. Each Benefit Plan can be terminated by the Company at any time
without material liability or expense (other than for any benefits accrued
thereunder at the time of such termination). None of the rights of the Company
under any Benefit Plan will be impaired in any way by the consummation of the
transactions contemplated by this Agreement.

(b)        With respect to each Benefit Plan, the Company has made available to
the Buyer (to the extent applicable to such Benefit Plan) true and complete
copies of: (i) all documents embodying such Benefit Plan (including all
amendments thereto) or, if such Benefit Plan is not in writing, a written
description of such Benefit Plan; (ii) the last three annual reports (Form 5500
series and all schedules and financial statements attached thereto) filed with
respect to such Benefit Plan; (iii) the most recent summary plan description,
and all summaries of material modifications related thereto, distributed with
respect to such Benefit Plan; (iv) all contracts and agreements (and any
amendments thereto) relating to such Benefit Plan, including, without
limitation, all trust agreements, investment management agreements, annuity
contracts, insurance contracts, bonds, indemnification agreements and service
provider agreements; (v) the most recent determination letter issued by the
Internal Revenue Service (the “IRS”) with respect to such Benefit Plan;
(vii) all written communications to employees or beneficiaries, generally (A) in
which the provisions of such Benefit Plan, as set forth or described therein,
differ materially from such provisions as set forth or described in the other
information or materials furnished under this subsection (b), or (B) relating to
the amendment, creation or termination of such Benefit Plan, or to an increase
or decrease in benefits, acceleration of payments or vesting or any other event
with respect to such Benefit Plan that could result in a material liability to
the Company; (viii) all material correspondence to or from any governmental
entity or agency relating to such Benefit Plan sent or received in the past
three (3) years; and (ix) all coverage, nondiscrimination, top heavy and Code
Section 415 tests performed with respect to such Benefit Plan for the three most
recently completed plan years.

(c)        Except as set forth on Schedule 3.19 of the Disclosure Schedule, with
respect to each Benefit Plan: (i) such Benefit Plan is, and at all times since
inception has been, maintained, operated, administered and funded in accordance
with its terms and all Legal Requirements in all material respects; (ii) the
Company and each other Person (including, without limitation, all fiduciaries)
have, at all times and in all material respects, properly performed all of their
duties and obligations under or with respect to such Benefit Plan; (iii) all
returns, reports, notices, statements and other disclosures relating to such
Benefit Plan required to be filed with any governmental authority or distributed
to any participant therein have been properly prepared and duly filed or
distributed in a timely manner; (iv) all contributions, premiums and other
payments due or required to be paid to (or with respect to) such Benefit Plan
have been timely paid, or, if not yet due, have been accrued as a liability on
the Balance Sheet; (v) no breach of fiduciary duty has occurred with respect to
any Benefit Plan(vi) no “prohibited transaction” (within the meaning of either
Section 4975(c) of the Code or Section 406 or 407 of ERISA) has occurred with
respect to such Benefit Plan; and (vii) the Company has not incurred, and there
exists no condition or set of circumstances in connection with which the Company
or Buyer could incur, directly or indirectly, any material liability or expense
(except for routine contributions and benefit payments) under ERISA, the Code or
any other applicable Legal

 

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Requirement or pursuant to any indemnification or similar agreement, with
respect to such Benefit Plan.

(d)        Each Benefit Plan that is intended to be qualified under
Section 401(a) of the Code is so qualified and each trust and group annuity
contract related thereto is exempt from taxation under Section 501(a) of the
Code. Each such Benefit Plan (i) is the subject of an unrevoked favorable
determination letter from the IRS with respect to such Benefit Plan’s qualified
status under the Code, as amended by that legislation commonly referred to as
“GUST” and “EGTRRA” and all subsequent legislation, (ii) has remaining a period
of time under the Code or applicable Treasury regulations or IRS pronouncements
in which to request, and make any amendments necessary to obtain, such a letter
from the IRS, or (iii) is a prototype plan or volume submitter plan entitled,
under applicable IRS guidance, to rely on the favorable opinion or advisory
letter issued by the IRS to the sponsor of such prototype or volume submitter
plan. To the Company’s knowledge, nothing has occurred, or is reasonably
expected by the Company or any Seller to occur, that could adversely affect the
qualification or exemption of any such Benefit Plan or any trust or group
annuity contract related thereto. The Company has been informed by the relevant
third party administrators that no such Benefit Plan is a “top-heavy plan,” as
defined in Section 416 of the Code.

(e)        The Company is not, and has not within the past six (6) years been, a
member of (i) a controlled group of corporations, within the meaning of
Section 414(b) of the Code, (ii) a group of trades or businesses under common
control, within the meaning of Section 414(c) of the Code, (iii) an affiliated
service group, within the meaning of Section 414(m) of the Code, or (iv) any
other group of Persons treated as a single employer under Section 414(o) of the
Code.

(f)        The Company does not sponsor, maintain or contribute to, and has not
previously sponsored, maintained or contributed to (or been obligated to
sponsor, maintain or contribute to), (a) a “multiemployer plan,” as defined in
Section 3(37) or 4001(a)(3) of ERISA or 414(f) of the Code, (b) a multiple
employer plan within the meaning of Section 4063 or 4064 of ERISA or
Section 413(c) of the Code, (c) an employee benefit plan that is subject to Part
3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the
Code, or (d) a “multiple employer welfare arrangement,” as defined in
Section 3(40) of ERISA.

(g)        Neither the Company nor any Benefit Plan provides or has any
obligation to provide (or contribute toward the cost of) life insurance, medical
benefits or any other welfare benefits (within the meaning of Section 3(1) of
ERISA) with respect to any current or former officer, employee, director, agent
or independent contractor of the Company after his or her retirement or other
termination of service for any reason, except to the extent required by Part 6
of Subtitle B of Title I of ERISA and Section 4980B(f) of the Code.

(h)        There are no lawsuits or claims (other than routine claims for
benefits) pending or, to the knowledge of the Company, threatened with respect
to (or against the assets of) any Benefit Plan, nor, to the Company’s knowledge
is there a basis for any such lawsuit or claim. The Company has not been
notified that any Benefit Plan is currently under investigation, audit or
review, directly or indirectly, by the IRS, the Department of Labor or any other
government authority.

 

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(i)        Schedule 3.19 of the Disclosure Schedule sets forth a complete and
accurate list of all “nonqualified deferred compensation plans” (within the
meaning of Section 409A of the Code) sponsored or maintained by the Company (or
to which the Company is (or was) a party), and in which any of their current or
former officers, employees, agents, directors or independent contractors
participated at any time since January 1, 2005. Each such plan has been operated
and administered since January 1, 2005 in good faith compliance with
Section 409A of the Code and any guidance issued by the United States Treasury
Department or the IRS thereunder (including, without limitation, IRS
Notice 2005-1, the proposed Treasury regulations issued on September 29, 2005,
and the final Treasury regulations issued on April 10, 2007), to the extent
applicable to such plan. No such plan has been “materially modified” (within the
meaning of IRS Notice 2005-1 or Proposed Treasury Regulation
Section 1.409A-6(a)(4)) at any time after October 3, 2004.

(j)        Except as set forth on Schedule 3.19 of the Disclosure Schedule,
neither the execution of this Agreement nor the consummation of the transactions
contemplated by this Agreement will (i) result in any benefit or right becoming
established or increased, or accelerate the time of payment or vesting, under
any Benefit Plan, (ii) increase the amount of compensation due to any individual
or forgive any indebtedness owed by any individual, or (iii) entitle any
individual to severance pay, unemployment compensation or any other payment from
the Company, Seller or any Benefit Plan.

3.20        Insurance.  The Company is insured under the insurance policies
listed on Schedule 3.20 of the Disclosure Schedule. The Company is in compliance
in all material respects with the terms and provisions of such insurance
policies. Except as disclosed on Schedule 3.20 of the Disclosure Schedule, as of
the date hereof, there are no pending claims under any such insurance policy as
to which the respective insurers have denied coverage, or provided the Company
notice that a defense will be afforded with reservation of rights. The insurance
policies maintained by the Company are of the type and in amounts customarily
carried by persons conducting businesses similar to those of the Company in the
jurisdiction in which the Company operates.

3.21        Brokers.  Except as set forth on Schedule 3.21 of the Disclosure
Schedule, the Company has not engaged any broker, finder or similar agent with
respect to the transactions contemplated by this Agreement, and the Company is
not under any obligation to pay any broker’s fee, finder’s fee or commission in
connection with the consummation of the transactions contemplated by this
Agreement as a result of any agreement of the Company.

3.22        Compliance with Environmental Laws.  Each of the representations and
warranties set forth in this Section 3.22 is subject in all respects to the
further qualifications and disclosures set forth on Schedule 3.22 of the
Disclosure Schedule.

(a)        For purposes of this Agreement, the following definitions shall
apply:

(i)        “Environment” shall mean soil, surface waters, sediments,
groundwaters, land, surface, subsurface strata, ambient air, fish, plant,
wildlife, habitat and any other environmental medium or natural resources.

 

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(ii)        “Environmental Claim” shall mean any litigation, proceeding, order,
claim, demand, directive, summons, notice, cause of action, complaint or
citation, relating to Environmental Laws or Hazardous Substances.

(iii)        “Environmental Laws” shall mean all foreign, federal, state and
local statutes, regulations, rules and ordinances relating to pollution or the
protection of the Environment, Hazardous Substances or the discharge of
materials into the Environment.

(iv)        “Hazardous Substances” shall mean any substance which is a
“hazardous substance,” “hazardous waste,” “toxic substance,” “toxic waste,”
“pollutant,” “contaminant” or words of similar import under any Environmental
Law including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. §9601 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. §6901 et seq.), the Federal Water
Pollution Control Act (33 U.S.C. §1251 et seq.), and the Clean Air Act (42
U.S.C. §7401 et seq.), and including, without limitation, which contains
polychlorinated biphenyl, asbestos, or gasoline, diesel fuel or other petroleum
hydrocarbons or volatile organic compounds.

(b)        The operations of the Company have at all times been and are in
material compliance with all applicable Environmental Laws.

(c)        The Company has at all times possessed and currently possesses all
material permits, licenses and authorizations required under applicable
Environmental Laws, and the operations of the Company have at all times been and
are in material compliance with the terms and conditions of such required
permits, licenses and authorizations.

(d)        There are no pending or, to the knowledge of the Company, threatened
Environmental Claims against the Company.

(e)        The Company’s operations have not resulted in a spill or release of
Hazardous Substances into the Environment that would be reasonably likely to
give rise to remediation costs in excess of $100,000. Except as set forth on
Schedule 3.22(e), the Company has no knowledge of any spills or releases of
Hazardous Substances at, from, onto or under any real property leased or
operated by the Company.

(f)        None of the following exists at any property or facility owned or
operated by the Company: (i) underground storage tanks; (ii) friable
asbestos-containing materials; (iii) materials or equipment containing
polychlorinated biphenyls; or (iv) landfills, surface impoundments or hazardous
waste disposal areas.

(g)        The Company has not either expressly or by operation of law, assumed
or undertaken any liability, including without limitation any material
obligation for corrective or remedial action, of any other Person related to any
Environmental Laws.

(h)        The Company has provided Buyer with complete and accurate copies of
all environmental assessments and reports in its possession that relate to the
operations of the Company or any real property leased by the Company.

 

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3.23        Affiliate Transactions.  Except for employment relationships and the
payment of compensation and benefits in the ordinary course of business or as
disclosed on Schedule 3.23 of the Disclosure Schedule, the Company is not a
party to any Material Contract or other arrangement with any stockholder,
officer, director or Affiliate of the Company. As used herein, the term
“Affiliate” shall have the meaning given to it under Rule 405 promulgated under
the Securities Act of 1933, as amended.

3.24        Customers and Suppliers.  To the knowledge of the Company no Major
Customer or Major Supplier has notified the Company that it intends to terminate
or modify its relationship with the Company. Except as set forth on
Schedule 3.24 of the Disclosure Schedule, no Major Customer or Major Supplier of
the Company has during the last twelve months materially decreased or limited,
or threatened to materially decrease or limit, its purchase of the Company’s
products, or its supply of materials or services to the Company, as the case may
be. Schedule 3.24 of the Disclosure Schedule lists the ten largest customers of
the Company by sales during the period from January 1, 2006 through June 30,
2008 (each a “Major Customer”). Schedule 3.24 of the Disclosure Schedule also
lists the ten largest suppliers of the Company by expenses of the Company for
materials or services purchased during the period from January 1, 2006 through
June 30, 2008 (each a “Major Supplier”).

3.25        Absence of Questionable Payments.  None of the Company or, to the
knowledge of the Company, any director, officer, agent, employee or other person
acting on behalf of the Company has used, any of the Company’s funds for
unlawful contributions, payments, gifts or entertainment, or made any unlawful
expenditures relating to political activity to any government official or other
person. None of the Company or, to the knowledge of the Company, any officer,
director, agent, employee other person acting on behalf of the Company has
accepted or received any unlawful contributions, payments, gifts, or
expenditures in connection with the operation of the Company’s business.

3.26        Product Warranties; Defects; Liabilities.  Each product
manufactured, sold, licensed, leased or delivered by the Company has been in
material conformity with all applicable contractual commitments and all
expressed and implied warranties. The Company does not have any material
liability (and to the knowledge of the Company, as of the date of this
Agreement, there is no current reasonable basis for any present action, suit,
proceeding, hearing, investigation, charge, complaint or claim against the
Company relating to any product giving rise to any material liability) for
replacement or repair thereof or any damages in connection therewith. No product
manufactured, sold, licensed, leased or delivered by the Company is subject to
any guaranty, warranty or other indemnity beyond the applicable standard terms
and conditions of sale, license or lease or beyond that implied or imposed by
applicable law or to any current recall whether initiated due to the action of
any governmental authority, private party or otherwise.

3.27        Government Contracts.  The Company is not now, nor has it previously
been, suspended or debarred from bidding on contracts or subcontracts for any
agency of the United States government or any foreign government, nor to the
knowledge of the Company has such a suspension or debarment been threatened or
action for suspension or debarment been commenced. The Company has not been nor
is it currently being audited, except in the ordinary course of business or as
is customary in the industry or as provided by the Federal

 

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Acquisition Regulations or, to the knowledge of the Company, investigated by any
agency of the United States government or any foreign government nor to the
knowledge of the Company has such audit or investigation been threatened. To the
knowledge of the Company, there is no valid basis for the Company’s suspension
or debarment from bidding on contracts or subcontracts for any agency of the
United States government or any foreign government and, to the knowledge of the
Company, there is no valid basis for a claim pursuant to an audit or
investigation by any agency of the United States government or any foreign
government, or any prime contractor with any such governmental authority. The
Company has not had a contract or subcontract terminated for default by the
Company by any agency of the United States government or any foreign government.
The Company does not have any outstanding agreements, contracts or commitments
that require it to obtain or maintain a government security clearance.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF THE BUYER

The Buyer hereby represents and warrants to the Sellers and the Company that
each of the statements contained in this Article 4 is true and correct as of the
date hereof.

4.1        Organization, Power and Standing.  The Buyer is a Delaware duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with all requisite power and authority to own, lease and operate its
properties and to carry on its business as such business is conducted on the
date hereof.

4.2        Power and Authority; No-Conflict.  The Buyer has full power and
authority and has taken all required action necessary to permit it to execute
and deliver and to carry out the terms of this Agreement and all other
agreements, instruments and documents to be executed and delivered by the Buyer
as contemplated hereby and none of such actions will result in any violation of,
be in conflict with or constitute a default under any charter, by-law,
organizational document, Legal Requirement, contract, agreement or instrument to
which the Buyer is a party or by which the Buyer or its assets are bound.

4.3        Consents and Approvals.  Except for any applicable filings under the
HSR Act, no consent, order, approval, authorization, declaration or filing from
or with any governmental authority or third party is required on the part of the
Buyer for or in connection with the execution, delivery and performance of this
Agreement or any other agreement, instrument or document contemplated hereby by
the Buyer and the consummation by the Buyer of any of the transactions
contemplated herein or therein.

4.4        Validity and Enforceability.  Assuming the valid execution and
delivery by the other parties hereto and thereto, this Agreement constitutes,
and each other agreement, instrument and document of the Buyer contemplated
hereby will be when executed and delivered by the Buyer, the valid and legally
binding obligation of the Buyer, enforceable against it in accordance with their
respective terms, subject, however, to applicable bankruptcy, insolvency and
other laws affecting the rights and remedies of creditors and to general
equitable principles.

 

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4.5        Brokers.  The Buyer has not engaged any broker, finder or similar
agent with respect to the transactions contemplated by this Agreement, and the
Buyer is not under any obligation to pay any broker’s fee, finder’s fee,
commission or similar amount in connection with the consummation of the
transactions contemplated by this Agreement.

4.6        Investment Representations.

(a)        The Buyer is acquiring the Purchased Shares for its own account for
investment only, and not with a view to, or for sale in connection with, any
distribution of the Purchased Shares in violation of the Securities Act of 1933,
as amended (the “Securities Act”), any rule or regulation under the Securities
Act, or any state securities laws.

(b)        The Buyer has had such opportunity as it has deemed adequate to
obtain from management of the Company such information about the business and
affairs of the Company as is necessary to permit the Buyer to evaluate the
merits and risks of its investment in the Company.

(c)        The Buyer has sufficient experience in business, financial and
investment matters to be able to evaluate the merits and risks involved in the
purchase of the Purchased Shares and to make an informed investment decision
with respect to such purchase.

(d)        The Buyer is an “accredited investor” within the meaning of Rule 501
promulgated under the Securities Act.

(e)        The Buyer understands that the Purchased Shares have not been
registered under the Securities Act or any other securities laws and are
therefore “restricted securities” within the meaning of Rule 144 under the
Securities Act, and the Purchased Shares cannot be sold, transferred or
otherwise disposed of unless they are subsequently registered under the
Securities Act and applicable securities laws, or an exemption from registration
is then available.

4.7        Financial Ability.  The Buyer has, and will have at the Closing, the
financial capability to consummate the transactions contemplated by this
Agreement, and the Buyer understands that under the terms of this Agreement the
Buyer’s obligations hereunder are not in any way contingent or otherwise subject
to (a) the Buyer’s consummation of any financing arrangements or the Buyer’s
obtaining any financing or (b) the availability of any financing to the Buyer.

4.8        No Other Agreements.  Except for the agreements expressly
contemplated hereby, neither the Buyer nor any of its Affiliates has any other
agreements, arrangements or understandings with any director, officer, employee,
consultant, stockholder or Affiliate of the Company in respect of the
transactions contemplated hereby.

4.9        No Other Representations or Warranties of the Sellers or the
Company.  The Buyer has been provided access and an opportunity to review
information in respect of the business of the Company requested by the Buyer. In
entering into this Agreement, Buyer is exclusively relying on the
representations and warranties made by each Seller to the Buyer expressly set
forth in Article 2 of this Agreement (as modified by the Disclosure Schedule),
the representations and warranties made by the Company to the Buyer expressly
set forth in

 

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Article 3 of this Agreement (as modified by the Disclosure Schedule) and the
covenants and agreements set forth in this Agreement.

ARTICLE 5

COVENANTS

5.1        Access to Information; Confidentiality.

(a)        If reasonably requested by the Buyer, the Sellers and the Company
shall permit the Buyer and its counsel, accountants and other representatives
access, upon reasonable notice and during normal business hours throughout the
period prior to the Closing, to the properties, books and records of the
Company. Any such access shall be managed by and conducted through those
representatives of the Company identified by the Company, and shall be subject
to such additional limitations as the Company may reasonably require to prevent
disclosure of the transactions contemplated hereby, the disruption of the
business of the Company and/or the disclosure of any confidential or legally
privileged information. While it is contemplated that Buyer will contact the
Company’s material customers and suppliers as part of its confirmatory due
diligence investigation, neither the Buyer nor any of its Affiliates or
representatives shall, directly or indirectly, contact any customer, dealer,
distributor, vendor, supplier or service provider of the Company concerning the
Company or the transactions contemplated by this Agreement without first
obtaining the Company’s written consent.

(b)        The confidentiality agreement between the Company (or its financial
advisor) and the Buyer or an Affiliate of the Buyer dated June 18, 2008 (the
“Confidential Agreement”) shall remain in full force and effect and shall be
applicable to the Buyer and its Affiliates and representatives.

5.2        Conduct of Business.  Between the date of this Agreement and the
Closing or earlier termination of this Agreement, unless the Buyer shall
otherwise consent in writing (such consent not to be unreasonably withheld,
delayed or conditioned) and except as set forth on Schedule 5.2 of the
Disclosure Schedule, as otherwise contemplated by this Agreement or as required
by any Legal Requirement:

(a)        Required Actions.  The Company shall:

(i)        maintain its legal existence;

(ii)        conduct its business only in the ordinary course; and

(iii)        use reasonable efforts to operate in such a manner as to assure
that the representations and warranties of the Company set forth in this
Agreement will be true and correct in all material respects as of the Closing
Date with the same force and effect as if such representations and warranties
had been made on and as of the Closing Date.

(b)        Prohibited Actions.  The Company shall not do any of the following:

(i)        effect any material change to the Company Charter Documents;

 

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(ii)        acquire or dispose of any material properties or assets, except in
the ordinary course of business;

(iii)        incur any indebtedness for borrowed money, other than in the
ordinary course of business;

(iv)        subject any of its properties or assets to any Lien, other than
Permitted Liens;

(v)        make any non-cash dividend or distribution on its shares of stock;

(vi)        modify or amend in any material respect or cancel or terminate any
Material Contract, other than in the ordinary course of business;

(vii)        make any material change in its Tax or accounting practices, other
than any change required by applicable law or GAAP;

(viii)        make any material change to any Tax election or Tax Return, other
than any change required by law;

(ix)        acquire any business, whether by merger or consolidation, purchase
of substantial assets or equity interests or any other manner;

(x)        make any material increase in the cash compensation of any employee,
other than salary increases and other changes in compensation in the ordinary
course of business and any payments (including Sale Bonuses) to employees from
the Closing Purchase Price;

(xi)        make any material change to any of the Benefit Plans, except to the
extent required by the terms of such Benefit Plan or applicable law; or

(xii)        commit to do any of the foregoing.

5.3        Exclusivity.  From the date of this Agreement until the Closing Date
or the earlier termination of this Agreement, neither the Company nor any of the
Sellers will, directly or indirectly, solicit any competing offers for the
acquisition of the Company, or the sale of all or substantially all of the
assets or business of the Company, or negotiate with respect to any unsolicited
offer or indication of interest with respect to any such acquisition or sale.

5.4        Consents and Approvals.  From the date of this Agreement until the
Closing Date or the earlier termination of this Agreement, the parties shall
cooperate and use all reasonable efforts to obtain all third party, governmental
and regulatory consents, approvals and actions necessary to consummate the
transactions contemplated hereby which are required to be obtained by any Legal
Requirement or Material Contract.

5.5        HSR Act Filings.  To the extent required in connection with the
transactions contemplated by this Agreement, within five (5) business days
following the date of execution of this Agreement the parties shall promptly
make or cause to be made any and all required

 

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filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the “HSR Act”), and will request early termination of the waiting
period required under the HSR Act. The parties agree to cooperate and promptly
respond to any inquiries or investigations initiated by the Federal Trade
Commission or the Department of Justice in connection with any such filings.

5.6        Reasonable Efforts.  From the date of this Agreement until the
Closing Date or the earlier termination of this Agreement, the parties agree to
act in good faith and use reasonable efforts to satisfy the conditions specified
in this Agreement necessary to consummate the transactions contemplated hereby.

5.7        Tax Matters.

(a)        Tax Indemnification.  Each Seller, severally and not jointly, agrees
to indemnify the Buyer and hold it harmless against and in respect of (i) any
and all Pre-Closing Taxes and related Losses; and (ii) any and all Taxes and
related Losses incurred by the Buyer or the Company that arise or result from
the failure of the Company or the Sellers to perform any of their covenants or
agreements contained in this Section 5.7, in each case, except to the extent
such Taxes and related Losses were reflected on the statement of the Closing
Working Capital and taken into account in the calculation of the Closing
Purchase Price. Notwithstanding anything to the contrary in this Agreement,
Seller’s indemnification obligations under this Section 5.7(a) shall not be
subject to the limitations and conditions set forth in Section 7.2(b).

(b)        Tax Refunds.  After the Closing, all refunds received or receivable
by the Buyer or the Company in respect of Taxes paid prior to the Closing or in
respect of any Pre-Closing Tax Period shall be paid by the Buyer or the Company
to each applicable Seller promptly upon receipt, except to the extent such
refunds were reflected on the statement of the Closing Working Capital and taken
into account in the calculation of the Closing Purchase Price. Neither the Buyer
nor the Company shall amend the Tax Returns of the Company in respect of Taxes
paid prior to the Closing or in respect of any Pre-Closing Tax Period in a
manner which would increase the Sellers’ tax liability without the prior written
consent of the Sellers (such consent not to be unreasonably withheld, delayed or
conditioned).

(c)        Tax Returns.

(i)        The Company shall prepare or cause to be prepared, and timely file,
all Tax Returns required to be filed by the Company, the due date of which
(taking account extensions) occurs on or before the Closing Date, and the
Company shall pay all Taxes due with respect to any such Tax Returns. Prior to
the due date for filing such Tax Returns, the Company shall make available to
the Buyer a draft of such Tax Returns as the Company proposes to file. The
Representative shall prepare of cause to be prepared all federal, state, local
and foreign income and franchise Tax Returns of the Company for the Pre-Closing
Tax Period required to be filed by the Company, the due date of which (taking
account extensions) occurs after the Closing Date, and will make available to
the Buyer drafts of such returns for its review and approval prior to filing
(such approval not to be unreasonably withheld, delayed or conditioned). The
Buyer shall prepare or cause to be prepared, and timely file, all other Tax
Returns of the Company for the Pre-Closing Tax

 

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Period. All Tax Returns of the Company for any Pre-Closing Tax Period shall be
prepared in a manner consistent with the past practice of the Company, except as
required by law.

(ii)        For purposes of this Agreement, in the case of any Taxes that are
payable for a Straddle Period, the portion of such Tax attributable to the
Pre-Closing Tax Period shall (A) in the case of any Taxes other than Taxes based
upon or related to income, sales, gross receipts, wages, capital expenditures or
expenses, be deemed to be the amount of such Tax for the Straddle Period
multiplied by a fraction the numerator of which is the days in the Pre-Closing
Tax Period and the denominator of which is the number of days in the Straddle
Period, and (B) in the case of any Tax based upon or related to income, sales,
gross receipts, wages, capital expenditures or expenses, be deemed to equal to
the amount which would be payable if the Pre-Closing Tax Period ended on the
Closing Date.

(d)        Section 338(h)(10) Election.

(i)        The Sellers shall join with the Buyer in making an election under
Section 338(h)(10) of the Code (and any comparable election under state, local
or foreign law) (the “Section 338 Elections”) with respect to the purchase and
sale of the Purchased Shares. Sellers shall prepare and deliver at the Closing
(or such other times as Buyer may request or as required by the Code in order to
effectuate the Section 338 Elections) an executed Form 8023 (and any
corresponding or similar forms under state, local or foreign law).

(ii)        The Buyer and the Sellers agree to cooperate fully with each other
in the making of the Section 338 Elections. Except as provided in
Section 5.7(d)(i) and Section 6.1(l), in connection with making the Section 338
Elections under applicable law, the Sellers shall prepare a complete set of
forms and any additional data or materials (including any allocation of purchase
price as required under the Code or regulations) required to be filed (the
“Section 338 Forms”) for the Buyer’s review and approval at least 30 days prior
to the due date for filing such forms, approval not to be unreasonably withheld.
The Buyer and the Sellers shall file all Tax Returns in a manner consistent with
the Section 338 Elections and the Section 338 Forms.

(iii)        The Sellers shall be responsible for and shall pay any and all
Taxes attributable to the purchase and sale of the Purchased Shares and the
making of the Section 338 Elections (including, without limitation, any Taxes
imposed on the Company under Section 1374 of the Code, and any comparable
provision under state, local or foreign law, or otherwise).

(iv)        Neither the Company nor the Sellers shall take or allow any action
that could result in the inability of the Sellers and the Buyer to make valid
Section 338 Elections.

(e)        Tax Audits.  The Buyer shall promptly notify the Representative in
writing with respect of any matter which may give rise to a claim for
indemnification against the Sellers pursuant to Section 5.7(a) (each, a “Tax
Matter”) upon learning of such claim or the facts constituting such claim,
describing the claim in reasonable detail, the amount thereof, and the

 

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basis therefor; provided, however, that failure of the Buyer to give Sellers
notice as provided herein will not relieve Sellers of their indemnification
obligations hereunder, except to the extent that Sellers are prejudiced by the
Buyer’s failure to give such prompt notice. The Representative shall have the
right, as to any Tax Matter, if the Representative notifies the Buyer that he or
she will defend such Tax Matter within ten (10) days after receipt of such
notice and commences the defense of such Tax Matter and the Sellers agree that
the Sellers are obligated to indemnify the Buyer with respect to the full amount
in dispute in such Tax Matter, (i) to control, in whole or in part, any Tax
audit, examination, contest or proceedings, (ii) to resolve and defend against
any assessment, notice of deficiency, or other adjustment or proposed
adjustment, (iii) to consent to any extension or waiver of the limitations
period applicable to any Tax Matter, (iv) to initiate any claim for refund of
Taxes related to a Pre-Closing Tax Period, and (v) to amend any Tax Return
related to a Pre-Closing Tax Period only upon a final settlement or a Tax
Matter, in each case solely to the extent relating to Taxes attributable to a
Pre-Closing Tax Period or Taxes otherwise attributable to a Tax Matter;
provided, however, Representative shall not enter into any settlement of or
otherwise compromise any such Tax Matter to the extent that it can reasonably be
expected to adversely affect the Tax liability of the Buyer or any affiliate
thereof for any taxable period ending after the Closing Date without the prior
written consent of the Buyer (such consent not to be unreasonably withheld,
delayed or conditioned), and provided further, the Buyer may participate in any
such audit, examination, contest or proceedings with counsel of its choice at
its own expense. In the event of a conflict between the provisions of this
Section 5.7(e) and Section 7.4, the provisions of this Section 5.7(e) shall
control.

(f)        Cooperation in Tax Matters.  Each party to this Agreement (a “Party,”
or collectively, the “Parties”) shall provide the other Parties with such
assistance as may be reasonably requested by such Party in connection with the
preparation of any Tax Return, any audit or other examination by any taxing
authority, or any judicial or administration contest or proceedings relating to
liability for Taxes, and shall provide the other Parties with any available
records or information that may be relevant to such Tax Return, audit,
examination, contest, proceedings or determination. Such assistance shall
include making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder and
shall include providing copies of any relevant Tax Return and supporting work
schedules. The Party requesting assistance hereunder shall reimburse the other
Parties for reasonable out-of-pocket expenses incurred in providing such
assistance.

(g)        S Election.  The Company and the Sellers shall not revoke the
Company’s election to be treated as an S corporation within the meaning of
Sections 1361 and 1362 of the Code (and any corresponding state or local tax
provision), and shall not take or allow any action that could result in the
termination of the Company’s status as a validly electing S corporation.

5.8        Directors’ and Officers’ Indemnification

(a)        In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative (each, a
“Proceeding”), in which any Person who is now, or has been at any time prior to
the Closing, a director, officer, employee or Affiliate of the Company (the
“Indemnified Persons”) is, or is threatened to be, made a party thereto based in
whole or in part on the fact that such Person is or was a director, officer,
employee or Affiliate of the Company, whether in any case asserted or arising
before, on or after

 

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the Closing, the Company shall, to the fullest extent permitted by law,
indemnify and hold harmless such Indemnified Person from and against any and all
losses, claims, damages, liabilities, costs, expenses (including reasonable
attorneys’ fees and expenses in advance of the final disposition of any
Proceeding to each Indemnified Person to the fullest extent permitted by law),
judgments, fines and amounts paid in settlement incurred in connection with or
arising out of such Proceeding.

(b)        An Indemnified Person shall notify the Company of the existence of a
Proceeding for which such Indemnified Person is entitled to indemnification
hereunder as promptly as reasonably practicable after such Indemnified Person
learns of such Proceeding; provided, that the failure to so notify shall not
affect the obligations of the Company under this Section 5.8 except to the
extent such failure to notify actually prejudices the Company. The Company, at
its expense, shall have the right to control the defense of the Proceeding with
counsel selected by the Company and reasonably acceptable to the Indemnified
Person. The Indemnified Person and the Company shall cooperate fully with each
other in connection with the defense of any Proceeding. No settlement of a
Proceeding may be made by the Company without the Indemnified Person’s consent
which consent will not be unreasonably withheld, delayed or conditioned, except
for a settlement which requires no more than a monetary payment for which the
Indemnified Person is fully indemnified and which does not require the admission
of liability. No settlement of a Proceeding may be made by an Indemnified Person
without the consent of the Company, unless such consent is unreasonably
withheld, delayed or conditioned.

(c)        The provisions of this Section 5.8 are intended to be for the benefit
of, and enforceable by, each Indemnified Person and such Indemnified Person’s
estate, heirs and representatives, and nothing herein shall affect any
indemnification rights that any Indemnified Person or such Indemnified Person’s
estate, heirs and representatives may have under the Company Charter Documents,
any Legal Requirements, any contract or otherwise.

(d)        The obligations of the Company under this Section 5.8 shall continue
in full force and effect for a period commencing as of the Closing and ending as
of the later of (i) the six (6) year anniversary of the Closing and (ii) the
date that all applicable statute of limitation periods have expired for any
claim or claims for which an Indemnified Person may be entitled to
indemnification under this Section 5.8; provided, that all rights to
indemnification in respect of any claim for indemnification under this
Section 5.8 asserted or made within such period shall continue until the final
disposition of such claim.

5.9        Books and Records.  From and after the Closing, the Buyer will cause
the Company to maintain a reasonable records retention policy. After the
Closing, the Sellers and their accountants, lawyers and other representatives
shall be entitled at all reasonable times to have access to and to make copies
of the books and records and other information of the Company for the period
prior to the Closing for the preparation of Tax Returns and the defense of
litigation related to the Sellers’ ownership of the Company or otherwise related
to Sellers’ obligation to provide indemnification pursuant to this Agreement. In
the event of any litigation or threatened litigation between the parties
relating to this Agreement or the transactions contemplated hereby, the
covenants contained in this Section 5.9 shall not be considered a waiver by any
party of any right to assert the attorney-client privilege.

 

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5.10        WARN Act.  Neither the Buyer nor the Company will, at any time prior
to one hundred eighty (180) days after the Closing Date, effectuate a “plant
closing” or “mass layoff” as those terms are defined in the Worker Adjustment
and Retraining Notification Act or any similar termination or reduction in force
under any Legal Requirement including, without limitation, California Labor Code
Section 1400 et. seq.

5.11        Noncompete.  Following the Closing Date, for a period of five
(5) years (the “Restricted Period”), each of the Sellers covenants that it will
not and will cause its Affiliates to not, directly or indirectly acquire, own,
participate or engage in, or be employed by, an entity (other than the Company)
anywhere in the United States that designs, manufactures, distributes or
provides products or services related to fasteners and/or hydraulic, air, fuel,
fluid, mechanical and electrical line management solutions used in the aerospace
industry and custom molding for automotive, medical and consumer markets;
provided, however, that, for purposes of this Section 5.11, ownership of
securities having less than five percent (5%) of the outstanding voting power of
any competitor which are listed on any national securities exchange shall not be
deemed to be in violation of this Section 5.11 as long as the Seller owning such
securities has no other connection or relationship with such competitor; and,
provided further, that the employment of Douglas P. Stephen Jr. by Precision
Tube Bending and any successor shall not be deemed to be in violation of this
Section 5.11; provided that Precision Tube Bending continues to offer products
and services substantially similar to those currently offered and that it does
not expand its business to being directly competitive with the Company’s
products and services. With respect to the Company’s executive, managerial,
technical and sales personnel (“Key Employees”) and any of the Company’s
customers and suppliers (such customers and suppliers, together with the Key
Employees, being “Company Contacts”), each Seller covenants that such Seller
will not directly or indirectly, without Buyer’s prior written consent, solicit
or otherwise interfere with the relationship between the Company and any Company
Contact during the Restricted Period for as long as such Company Contact
maintains its relationship with the Company; provided, however, that if any Key
Employee responds to a general solicitation to the public or other general
advertising conducted by any Seller during the Restricted Period, such general
solicitation or general advertising shall not be deemed to be a violation of
this Section 5.11 provided that Seller does not hire such Key Employee during
the Restricted Period. In addition, each of the Sellers agrees that, during the
Restricted Period, it will not, without Buyer’s prior written consent, hire any
Key Employee formerly employed by the Company within six months of the
termination of such Key Employee’s relationship with the Company in
substantially the same capacity as such terminated employee was employed by the
Company.

5.12        Transition Period for AgFast Corporation.  For a period of sixty
days after the Closing Date, Buyer hereby agrees, on the same terms and
conditions as currently in effect, to continue: (a) to grant a license to AgFast
Corporation to continue accessing and using the same office and warehouse space
currently used by it and (b) providing to AgFast Corporation the same level of
accounting and customer service support.

5.13        Inventory Repurchase Covenant.

(a)        Within 90 days of the first anniversary of the Closing Date, the
Buyer may provide the Representative a written notice (the “Inventory Notice”)
that identifies: (i) (A) any

 

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line of finished goods by SKU that existed as of the Closing Date for which the
Company has had no sales in the year following the Closing Date; or (B) any type
of component parts that comprise any finished goods for which the Company has
either had no sales or for which no units of such component parts have been
consumed in the creation of any finished goods in the year following the Closing
Date (an “Unsold Inventory Line”); (ii) the number of units comprising one
hundred percent of such Unsold Inventory Line held by the Company; and (iii) the
standard cost per unit for such Unsold Inventory Line reflected in the books and
records of the Company as of the Closing Date (the “Standard Cost”). In no event
shall the Buyer be entitled to deliver an Inventory Notice to purchase less than
one hundred percent of the units comprising the Unsold Inventory Line held by
the Company. If Buyer elects to deliver an Inventory Notice to the
Representative, the Representative will be granted reasonable access to the
Company’s books and records to confirm the information contained in the
Inventory Notice.

(b)        If the Representative does not object to the information contained in
the Inventory Notice by providing written notice of objection within twenty
(20) days of receipt, specifying in reasonable detail the amount and basis of
their objection, each Seller will purchase from the Buyer its Pro Rata Share of,
and the Buyer will deliver to the Representative, one hundred percent of the
units comprising the Unsold Inventory Line held by the Company at a per unit
price equal to the Standard Cost contained in the Inventory Notice.

(c)        If the Sellers dispute the information contained in the Inventory
Notice, and the parties cannot resolve such dispute through good faith
negotiations during the thirty (30) days following receipt of the dispute notice
from the Representative, then either the Buyer or the Representative may present
the dispute to the Independent Accountant in accordance with the procedures
described in Section 1.7(c). In the event that the Independent Accountant
determines that the Sellers must purchase an Unsold Inventory Line and the
Standard Cost for such Unsold Inventory Line, each Seller will purchase from the
Buyer its Pro Rata Share of, and the Buyer will deliver to the Representative,
one hundred percent of the units comprising the Unsold Inventory Line held by
the Company at a per unit price equal to the Standard Cost determined by the
Independent Accountant.

(d)        In the event that the Sellers purchase an Unsold Inventory Line
pursuant to this Section 5.13 and the Buyer subsequently wishes to repurchase
any or all of the units in such Unsold Inventory Line, then the Representative
shall be entitled to set the number of units to be sold and the purchase price
for such units in its sole and absolute discretion.

5.14        Payment of Sales Bonuses.  Within seven days after the six-month
anniversary of the Closing Date, the Buyer shall cause the Company to pay in
cash, by check or by wire transfer of immediately available funds, the Retention
Bonuses in the following manner:

(a)        In the event that a Retained Employee has been continuously employed
by the Company through the six-month anniversary of the Closing Date, the Buyer
shall cause the applicable Retention Amount to be paid from the Payment Account
to such Retained Employee, net of any required payroll withholding obligations
and, concurrently with such payment, the Buyer shall pay to the Representative
for disbursement to the Sellers, 20% of each such Retention Amount paid to the
Retained Employees. For the avoidance of doubt, any payment

 

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from the Payment Account to the Representative pursuant to Section 5.14(a) shall
be deemed to be an adjustment to the Closing Purchase Price.

(b)        In the event that a Retained Employee has not been continuously
employed by the Company through the six-month anniversary of the Closing Date,
the Buyer shall cause such Retained Employee’s Retention Amount to be paid from
the Payment Account to the Representative for disbursement to the Sellers. For
the avoidance of doubt, any payment from the Payment Account to the
Representative pursuant to Section 5.14(b) shall be deemed to be an adjustment
to the Closing Purchase Price.

5.15        Waiver of Buy-Sell Arrangement.  Each of the Sellers and the Company
hereby: (a) waive any rights or notice requirements under that certain NMC
Group, Inc. Stockholders Buy-Sell Agreement executed and accepted as of
January 1, 2001 by and among the Company, Thomas V. Stephen, Douglas P. Stephen,
Jr., Michael J. Stephen, Susan M. Stephen-Ellersick, Robert M. Stephen, Lesley
Stephen, Michelle Stephen, Jacqui Stephen, Michael Ellersick and Jennifer
Stephen (the “Buy-Sell Agreement”) arising in connection with this Agreement,
including, but not limited to, any rights to purchase the Purchased Shares of
any other Seller and (b) agree that the Buy-Sell Agreement shall be terminated
upon the consummation of the Closing.

ARTICLE 6

CONDITIONS TO CLOSING

6.1        Conditions Precedent to the Buyer’s Obligations.  The obligation of
the Buyer to purchase the Purchased Shares and to consummate the other
transactions contemplated by this Agreement is expressly subject to the
fulfillment or express written waiver of the following conditions on or prior to
the Closing Date:

(a)        Representations and Warranties True.  Each of the representations and
warranties contained in Articles 2 and 3 shall be true and correct in all
material respects (other than representations and warranties which are qualified
by materiality which shall be true and correct in all respects) at and as of the
Closing (except as a result of any event or circumstance contemplated, or any
action or inaction required, by this Agreement or otherwise approved in writing
by the Buyer, and except for any representation or warranty that expressly
relates to an earlier date, in which case such representation and warranty shall
be true and correct as of such earlier date).

(b)        Covenants Performed.  Each Seller and the Company shall each have
performed in all material respects, on or before the Closing Date, all
obligations contained in this Agreement which by the terms hereof are required
to be performed by them on or before the Closing Date.

(c)        Compliance Certificate.  The Buyer shall have received a certificate
signed by the Representative on behalf of each Seller and by the Company
certifying as to the matters set forth in Sections 6.1(a) and (b) above.

 

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(d)        No Injunction, Etc.  There shall not be any order of any court of
competent jurisdiction or governmental agency restraining or invalidating the
material transactions which are the subject of this Agreement.

(e)        HSR Act.  The waiting period under the HSR Act applicable to the
transactions contemplated by this Agreement shall have expired or been
terminated.

(f)        Required Consents.  All of the approvals, consents and licenses
listed on Schedule 6.1(f) of the Disclosure Schedule shall have been obtained.

(g)        Escrow Agreement.  The Sellers and the Escrow Agent shall have
executed and delivered the Escrow Agreement.

(h)        Share Certificates.  The Sellers shall have delivered original stock
certificates representing the Purchased Shares, together with assignments
separate from such certificates executed by the applicable Seller with respect
to such Purchased Shares.

(i)        Resignations.  All officers and directors of the Company shall have
delivered resignations from such positions to the Buyer.

(j)        Lease Amendment.  The Company shall have delivered a Lease Amendment
to the Buyer with respect to the Company’s principal facility in substantially
the form attached hereto as Exhibit B.

(k)        Royalty Agreement.  The Company shall have executed and delivered a
royalty agreement substantially in the form of Exhibit C attached hereto (the
“Royalty Agreement”).

(l)        Section 338 Elections.  The Sellers shall have delivered to the Buyer
an executed Form 8023 (and any corresponding or similar forms under state, local
or foreign law) in accordance with Section 5.7(d)(i).

(m)        FIRPTA Affidavit.  Each Seller shall have delivered to the Buyer a
non-foreign affidavit, in form and substance reasonably satisfactory to the
Buyer.

(n)        Related Party Indebtedness; Pay-off Letters.  The Buyer shall have
received evidence reasonably acceptable to it that all loans, advances and other
indebtedness owed to or payable by the Company with respect to any of the
Sellers, MJS Fastening Systems, or any Affiliate, shareholder or director of the
foregoing has been satisfied in full. The Buyer shall have received evidence
that the Company has been released from its guaranty of its landlord’s mortgage.
All indebtedness owed to the lender under the Credit Facility shall have been
paid in full and all Liens evidencing such indebtedness shall have been released
(or in each case provided for as contemplated by Section 1.2(c)(ii) and
Section 1.2(d)(i).

(o)        Funds Flow Statement.  The Representative and the Buyer shall have
agreed upon a closing flow of funds statement, in form and substance reasonably
satisfactory to the Buyer and the Representative, with respect to the payments
to be made on the Closing Date.

 

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6.2        Conditions Precedent to each Seller’s Obligations.  The obligation of
each Seller to consummate the transactions contemplated by this Agreement is
expressly subject to the fulfillment or express written waiver of the following
conditions on or prior to the Closing Date:

(a)         Representations and Warranties True.  Each of the representations
and warranties of the Buyer contained in Article 4 shall be true and correct in
all material respects at and as of the Closing.

(b)        Obligations Performed.  The Buyer shall have performed in all
material respects, on or before the Closing Date, all obligations contained in
this Agreement which by the terms hereof are required to be performed by the
Buyer on or before the Closing Date.

(c)        Compliance Certificate.  The Representative, on behalf of the
Sellers, shall have received a certificate signed by an authorized officer of
the Buyer certifying as to the matters set forth in Sections 6.2(a) and (b).

(d)        No Injunction, Etc.  There shall not be any order of any court of
competent jurisdiction or governmental agency restraining or invalidating the
material transactions which are the subject of this Agreement.

(e)        Closing Payments.  The Buyer shall have made the payments
contemplated by Section 1.2.

(f)        HSR Act.  The waiting period under the HSR Act applicable to the
transactions contemplated by this Agreement shall have expired or been
terminated.

(g)        Escrow Agreement.  The Buyer and the Escrow Agent shall have executed
and delivered the Escrow Agreement.

(h)        Royalty Agreement.  The Buyer shall have executed and delivered the
Royalty Agreement.

(i)        Lease Amendment.  The Buyer shall have delivered a Lease Amendment to
the Sellers with respect to the Company’s principal facility in substantially
the form attached hereto as Exhibit B.

(j)        Funds Flow Statement.  The Representative and the Buyer shall have
agreed upon a closing flow of funds statement, in form and substance reasonably
satisfactory to the Buyer and the Representative, with respect to the payments
to be made on the Closing Date.

ARTICLE 7

SURVIVAL; INDEMNIFICATION

7.1        Survival.  The representations and warranties contained in this
Agreement and in any certificate delivered at the Closing pursuant to this
Agreement shall survive the Closing until the eighteen-month anniversary of the
Closing (the “Cut-Off Date”); provided however that representations and
warranties: in (a) Sections 2.1 (Title), 3.1 (Organization, Power and

 

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Standing), 3.2 (Power and Authority), 3.3 (Validity and Enforceability),
3.6 (Capitalization) and 4.9 (No Other Representations) shall survive
indefinitely, (b) Sections 3.9 (Taxes), 3.19 (Benefit Plans) and
3.22 (Compliance with Environmental Laws) shall survive until the end of the
applicable statute of limitations plus thirty days (or in the event of an audit,
investigation, litigation or other action that has been commenced with respect
to such matters, until the conclusion of such action) and (c) Section 3.12(e)
(Intellectual Property Infringement) (the “IP Representation”) shall survive
until the fifth anniversary of the Closing Date. All representations or
warranties that survive for a period beyond the Cut-Off Date, other than the IP
Representation, are referred to as “Fundamental Representations.” Except with
respect to the Fundamental Representations and the IP Representation, no claim
for breach of any representation, warranty, pre-Closing covenant or pre-Closing
agreement may be brought after the Cut-Off Date, except for claims (a) of which
the Representative has been notified in writing with reasonable specificity by
the Buyer prior to the Cut-Off Date, (b) of which the Buyer has been notified in
writing with reasonable specificity by a Seller or the Representative prior to
the Cut-Off Date. The post-Closing covenants and post-Closing agreements
contained in this Agreement shall survive in accordance with their respective
terms.

7.2        Indemnification of the Buyer.

(a)        Subject to the other terms of this Article 7, from and after the
Closing, each Seller agrees to indemnify the Buyer and hold it harmless against
and in respect of any and all damages, losses, expenses, costs, obligations and
liabilities, including without limitation reasonable attorney’s fees
(collectively, “Losses”), (i) in an amount equal to his or her Pro Rata Share of
the Losses, incurred by the Buyer that arise or result from (as determined by an
order of a court of competent jurisdiction or by written agreement of the
Representative and the Buyer) (1) any breach of any of the representations or
warranties contained in Article 3 (as modified by the Disclosure Schedule,
(2) the failure of the Company or the Sellers to perform any of their covenants
or agreements contained herein, or (3) associated with correcting any material
documentary deficiencies associated with the Company’s 401(k) employee benefit
plan, and (ii) severally and not jointly, in an amount equal to the Losses
incurred by the Buyer that arise or result from (as determined by an order of a
court of competent jurisdiction or by written agreement of the applicable Seller
and the Buyer) any breach of any of the representations or warranties contained
in Article 2 (as modified by the Disclosure Schedule) by such Seller, it being
understood, that, for the avoidance of doubt, the indemnification obligations
set forth in this Section 7.2(a)(ii) for a breach of any of the representations
or warranties contained in Article 2 shall only apply to the Seller who
committed such breach.

(b)        Each Seller’s indemnification obligations under this Agreement with
regard to breaches of representations, warranties, pre-Closing covenants, and
pre-Closing agreements, however, shall be subject to the following limitations
and conditions:

(i)        except as otherwise provided herein, no claim shall be made unless,
and only to the extent that, the cumulative amount of Losses incurred by the
Buyer exceeds one-half of one percent (0.5%) of the Closing Purchase Price (the
“Deductible”);

 

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(ii)        the Deductible will not apply to claims under Section 7.2(a)(i)(3)
and the cumulative amount of Losses recoverable by the Buyer under
Section 7.2(a)(i)(3) will be capped at a maximum of $25,000.

(iii)        the Sellers’ cumulative liability for indemnification payments
under Section 7.2(a)(i)(1) (other than those that may be required with respect
to Fundamental Representations and the IP Representation) shall not exceed, in
the aggregate, an amount equal to the Initial Escrow Amount deposited in the
Escrow Account minus any amount paid to the Buyers by the Escrow Agent in
accordance with Section 1.7(e) and the Sellers’ obligation to make
indemnification payments under Section 7.2(a)(i)(1) (other than those that may
be required with respect to Fundamental Representations and the IP
Representation) shall be solely from the funds available in the Escrow Account;

(iv)        the Sellers’ cumulative liability for Losses associated with,
arising from or related to any breach of the IP Representation will be limited
as follows (1) no claim for such Losses will be made unless, and only to the
extent that the cumulative amounts of Losses incurred by the Buyer exceed
$500,000 and any such recovery shall only be had to the extent that such Losses
exceed $500,000, (2) the aggregate cap on claims to recover such Losses will be
ten percent (10%) of the Closing Purchase Price and (3) such claims will be paid
by each Seller personally in accordance with its Pro Rata Share and will not be
paid from the Escrow Account. For the avoidance of doubt, the Buyer acknowledges
that the Seller’s indemnity obligation with respect to the Company’s
representations relating to the non-infringement of the Intellectual Property of
any other Person is limited to infringement claims based on products
commercialized by the Company prior to the Closing, and that the Sellers shall
have no such obligation to indemnify to the extent any infringement claim is
based on any modification to such products made subsequent to the Closing;

(v)        without affecting any other limitations on a Seller’s liability for
indemnification set forth herein, no Seller’s cumulative liability for
indemnification payments pursuant to this Article VII shall exceed such Seller’s
proceeds for the sale of his or her Purchased Shares;

(vi)        no claim shall be made with respect to Losses arising out of any
breach of the representations or warranties contained in Article 3 as modified
by the Disclosure Schedule to the extent a corresponding reserve for such Losses
has been made on the Company’s financial statements or to the extent that there
has been a corresponding reduction in the calculation of Closing Working
Capital;

(vii)        no claim shall be made for punitive, exemplary or special damages;
and

(viii)        no claim shall be made with respect to any matter excluded by
Section 1.7(e).

(c)        In determining the foregoing thresholds and in otherwise determining
the amount of any Losses for which the Buyer is entitled to assert a claim for
indemnification

 

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hereunder, the amount of any such Losses shall be determined after deducting
therefrom the amount of any insurance proceeds actually received (after giving
effect to any applicable deductible or retention) and other third party
recoveries actually received by the Buyer or the Company in respect of such
Losses (which proceeds and recoveries the Buyer agrees to use, or to cause the
Company to use, commercially reasonable efforts to obtain). If an
indemnification payment is received by the Buyer, and the Buyer or the Company
later receives insurance proceeds or other third party recoveries in respect of
the related Losses, the Buyer shall immediately pay to the indemnifying Sellers
a sum equal to the lesser of (y) the actual amount of such insurance proceeds
other third party recoveries or (z) the actual amount of the indemnification
payment previously paid by such Sellers with respect to such Losses. The Buyer
shall use commercially reasonable efforts to mitigate the amount of Losses for
which it may be entitled to indemnification hereunder.

7.3        Indemnification of Sellers.  Subject to the other terms of this
Article 7, from and after the Closing, the Buyer and the Company agree to
indemnify each Seller and hold each Seller harmless from all Losses incurred by
any Seller that arise or result from (a) any breach of any of the Buyer’s
representations and warranties, (b) the failure of the Buyer to perform any of
its covenants or agreements set forth herein or (c) the failure of the Company
to perform any covenant or agreement set forth herein which by its terms is to
be performed after the Closing.

7.4        Procedure for Indemnification.

(a)        Any party entitled to make a claim for indemnification hereunder
shall promptly notify the indemnifying party of the claim in writing upon
learning of such claim or the facts constituting such claim, describing the
claim in reasonable detail, the amount thereof, and the basis therefor. The
indemnifying party will be relieved of its indemnification obligations hereunder
only to the extent that it is prejudiced by the indemnified party’s failure to
give such prompt notice. The party from whom indemnification is sought shall
respond to each such claim within twenty (20) days of receipt of such notice. No
action shall be taken pursuant to the provisions of this Agreement or otherwise
by the party seeking indemnification (unless reasonably necessary to protect the
rights of the party seeking indemnification) until the later of (i) the
expiration of the 20-day response period, or (ii) thirty (30) days following the
expiration of the 20-day response period if a response, received within such
20-day period by the party seeking indemnification, requests an opportunity to
cure the matter giving rise to indemnification (and, in such event, the amount
of such claim for indemnification shall be reduced to the extent so cured).

(b)        If a claim for indemnification hereunder is based on a claim by a
third party, the indemnifying party shall have the right to assume the entire
control of the defense thereof, including at its own expense, employment of
counsel reasonably satisfactory to the indemnified party, and, in connection
therewith, the party claiming indemnification shall reasonably cooperate with
the indemnifying party and make available to the indemnifying party all
pertinent requested information under its control; provided, that the
indemnified party may participate in any proceeding with counsel of its choice
at its own expense. In such event, the indemnifying party shall have the right
to settle or resolve any such claim by a third party; provided, that any such
settlement or resolution contemplated by the Sellers or the Representative, as
the indemnifying party, that involves any action by the Buyer other than the

 

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payment of an amount of money that is less than the remaining Escrow Amount
shall not be concluded without the prior written approval of the Buyer, unless
such approval is unreasonably withheld, delayed or conditioned; and, provided
further, that any such settlement or resolution contemplated by the Buyer, as
the indemnifying party, that involves any action by the Sellers other than the
payment of money shall not be concluded without the prior written approval of
each of the indemnified Sellers, which approval shall not be unreasonably
withheld, delayed or conditioned. Without limiting the generality of the
foregoing, the Buyer will, and the Buyer will cause the employees of the Buyer
and the Company to, cooperate fully with the Representative and each Seller in
connection with any matter for which any Seller is the indemnifying party. Such
cooperation shall include, without limitation, (i) assisting in the collection
and preparation of discovery materials, (ii) meeting with (and making employees
available to meet with) the indemnifying Sellers and/or their counsel to prepare
for and/or appear as witnesses at depositions, court proceedings and/or trial,
and (iii) providing to the indemnifying Sellers and/or their counsel all
information under the control of the Buyer or the Company that is deemed
necessary by the indemnifying Sellers and/or their counsel for the defense or
prosecution of such matter. Sellers will reimburse Buyer for its reasonable out
of pocket expenses incurred with respect to Buyer’s cooperation pursuant to this
Section 7.4(b).

(c)        (i) Notwithstanding the foregoing, if (A) the indemnifying party does
not give written notice to the indemnified party within the period specified in
Section 7.4(a) stating that the indemnifying party has elected to assume defense
of such third-party claim, (B) at any time the indemnifying party shall fail to
carry out such defense or handling diligently and in such manner as is
reasonable under the circumstances, (C) the third-party claim involves such
matters as in the good faith judgment of the Buyer may result in a material
adverse impact on the business, obligations, assets, liabilities (absolute,
accrued, contingent or otherwise), condition (financial or otherwise), material
customer or supplier relationships or prospects of the Buyer or its Affiliates
or (D) the indemnified party has reasonably determined, upon advice of counsel,
that having common counsel with the indemnifying party would present such
counsel with a conflict of interest or that, upon advice of counsel, there may
be legal defenses available to such indemnified party which are different from
or in addition to those available to the indemnifying party, then the provisions
of Section 7.4(c)(ii) below shall govern.

(ii)        The indemnified party may, at the indemnifying party’s expense,
select counsel reasonably satisfactory to the indemnifying party to defend or
handle such third-party claim in a manner that is reasonable under the
circumstances; provided, however, that the indemnified party shall keep the
indemnifying party timely apprised of the status of such third-party claim. The
indemnified party shall not settle such third-party claim without the prior
written consent of the indemnifying party (which consent shall not be
unreasonably withheld, conditioned or delayed). If the indemnified party defends
or handles such third-party claim, the indemnifying party shall cooperate with
the indemnified party and shall be entitled to participate in the defense of
handling of such third-party claim with its own counsel and at the indemnifying
party’s expense. In addition, in the event that the indemnifying party is not
permitted to assume the defense of the third-party claim solely by virtue of
clause (D) of subparagraph (c)(i) above, then the indemnifying party shall be
permitted to pursue, at its own expense, settlement discussions directly with
any other parties involved in such third-party claim. Notwithstanding the
preceding sentence, the indemnifying party shall not, without the prior written
consent of the indemnified party agree to a settlement of any third-party claim,
unless (A) the settlement is for monetary

 

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damages only for amounts which the Sellers agree to pay, and with respect to
claims by any indemnified party provides an unconditional release and discharge
of the indemnified parties, and the indemnified party has no reasonable good
faith objection to the form or substance of such discharge and release and
(B) the indemnified party shall not have reasonably objected to any such
settlement on the grounds that the circumstances surrounding the settlement
could adversely impact the business, operations, assets, liabilities (absolute,
accrued, contingent or otherwise), condition, financial or otherwise, material
or customer or supplier relationships of the Buyer or its Affiliates or could
establish or contribute to a precedential customer practice which could have a
material adverse effect on the continuing business interest of the Buyer or its
Affiliates.

7.5        Remedies Exclusive.  The remedies provided in this Article 7 shall be
the exclusive remedies of the parties hereto and their heirs, successors, and
assigns after the Closing with respect to this Agreement and the transactions
contemplated by this Agreement, including without limitation any breach or
non-performance of any representation, warranty, covenant or agreement contained
herein, except in the case of actual fraud, in which case the defrauded party
shall have all rights and remedies available under this Agreement and available
under the law against the party that committed such actual fraud. No party may
bring or commence any claim, suit, action or proceeding with respect to this
Agreement or the transactions contemplated hereby, whether in contract, tort or
otherwise, except to (a) bring a claim for actual fraud against the party that
committed such fraud and (b) enforce such party’s express rights under this
Agreement. The provisions of this Article 7 constitute an integral part of the
consideration given pursuant to this Agreement and were specifically bargained
for and reflected in the total amount of the Closing Purchase Price payable to
the Sellers.

7.6        Tax Treatment of Indemnity Payments.  To the maximum extent permitted
by law, it is the intention of the parties to treat any indemnity payment made
under this Agreement as an adjustment to the purchase price for all federal,
state, local and foreign Tax purposes, and the parties agree to file their Tax
Returns accordingly.

ARTICLE 8

TERMINATION

8.1        Termination.  Notwithstanding anything contained in this Agreement to
the contrary, this Agreement may be terminated at any time prior to the Closing:

(a)        by mutual written consent of the Representative and the Buyer;

(b)        by the Buyer, if (i) any of the representations and warranties of the
Sellers or the Company set forth in this Agreement shall not be true and correct
to the extent set forth in Section 6.1(a), or any Seller shall have breached or
failed to perform any of its obligations, covenants or agreements under this
Agreement to the extent set forth in Section 6.1(b), and (ii) such breach,
failure or misrepresentation is not cured within fifteen (15) days after the
Buyer gives the Sellers and the Company written notice identifying in reasonably
detail such breach, failure or misrepresentation;

 

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(c)        by the Representative, if (i) any of the representations and
warranties of the Buyer set forth in this Agreement shall not be true and
correct to the extent set forth in Section 6.2(a), or if the Buyer shall have
breached or failed to perform any of its obligations, covenants or agreements
under this Agreement to the extent set forth in Section 6.2(b), and (ii) such
breach, failure or misrepresentation is not cured within fifteen (15) days after
the Sellers give the Buyer written notice identifying in reasonable detail such
breach, failure or misrepresentation;

(d)        by either the Sellers or the Buyer, if any court or governmental
authority has issued a final and non-appealable order, decree or ruling
permanently restraining, enjoining or otherwise prohibiting the consummation of
the sale and purchase of the Purchased Shares contemplated by this Agreement; or

(e)        by either the Representative or the Buyer, if the Closing has not
occurred by January 31, 2009 or such other date, if any, as the Representative
and the Buyer may agree in writing; provided, that the right to terminate this
Agreement under this Section 8.1(e) shall not be available to the party whose
willful and knowing failure to fulfill any obligation under this Agreement has
contributed materially to the failure of the Closing to occur on or before such
date.

8.2        Effect of Termination.

(a)        If this Agreement is terminated as provided above, the parties shall
have no further obligations hereunder (including, without limitation, for costs
and expenses incurred by other parties in connection with this Agreement and the
transactions contemplated hereby), except as provided below and except that each
party shall be liable for its breach of this Agreement and the other parties
hereto shall be entitled to all rights and remedies provided by law in respect
of such breach.

(b)        The obligations of the Buyer under Section 5.1(b) shall survive the
termination of this Agreement.

ARTICLE 9

MISCELLANEOUS

9.1        Notices.  Any notices, demands and communications to a party
hereunder shall be in writing and shall be deemed to have been duly given and
received (a) if delivered personally or actually received, as of the date
received, (b) if delivered by certified mail, return receipt requested,
two (2) business days after being mailed, (c) if delivered by a nationally
recognized overnight delivery service, one (1) business day after being sent to
such delivery service, or (d) if sent via facsimile, electronic mail or similar
electronic transmission, as of the date received, to such party at its address
set forth below (or such other address as it may from time to time designate in
writing to the other parties hereto):

If to the Sellers, the Representative or the Company prior to the Closing, to:

NMC Group, Inc.

2755 Thompson Creek Road

 

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Pomona, CA 91767

Attn: Mr. Robert M. Stephen

Facsimile: (909) 593-8309

with a copy (which shall not constitute notice) to:

Paul, Hastings, Janofsky & Walker LLP

515 South Flower Street

Los Angeles, California 90071

Attn: Robert A. Miller, Jr., Esq.

Facsimile: (213) 627-0705

If to the Sellers or the Representative after the Closing, to:

Robert M. Stephen

16912 Marina Bay Drive

Huntington Beach, CA 92649

Facsimile: (562) 592-7856

with a copy (which shall not constitute notice) to:

Paul, Hastings, Janofsky & Walker LLP

515 South Flower Street

Los Angeles, California 90071

Attn: Robert A. Miller, Jr., Esq.

Facsimile: (213) 627-0705

If to the Buyer or, after the Closing, the Company, to:

Esterline Technologies Corporation

500 108th Avenue NE, Suite 1500

Bellevue, WA 98004

Attn: Stephen R. Larson

Facsimile: (425) 453-2916

with a copy (which shall not constitute notice) to:

Perkins Coie LLP

1201 Third Avenue, 48th Floor

Seattle, WA 98101

Attn: Troy Hickman

Facsimile: (206) 359-7356

9.2        No Waiver.  No failure of any party to exercise and no delay in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or remedy
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power or remedy hereunder.

 

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9.3        Amendments and Waivers.  This Agreement may be modified, amended or
waived only by a writing signed by the party against whom enforcement thereof is
sought.

9.4        Choice of Law; Forum.  This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California,
without regard to the choice of law provisions thereof. Any proceeding arising
out of or relating to this Agreement shall be brought in the courts of the State
of California, County of Los Angeles, or, if it has or can acquire jurisdiction,
in the United States District Court for the Central District of California. This
provision may be filed with any court as written evidence of the knowing and
voluntary irrevocable agreement between the parties to waive any objections to
jurisdiction, venue or convenience of forum. EACH PARTY HERETO ACKNOWLEDGES AND
AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO
INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY
AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

9.5        Binding Effect and Benefits.  This Agreement shall be binding upon
and shall inure to the benefit of the parties and their respective heirs,
successors and assigns, but may not be assigned by any party without the prior
written consent of the Representative in the case of a purported assignment by
the Buyer, or by the Buyer in the case of a purported assignment by any Seller.

9.6        Integration; Schedules.  This writing, the annexes, exhibits and
schedules attached hereto and the Disclosure Schedule, embody the entire
agreement and understanding among the parties with respect to this transaction
and supersede all prior discussions, understandings and agreements concerning
the matters covered hereby, except as set forth in Section 5.1(b). Information
set forth on the Disclosure Schedule shall be deemed to qualify each section of
this Agreement to which such information is applicable (regardless of whether or
not such other section is qualified by reference to the Disclosure Schedule), so
long as application to such section is reasonably discernible from the reading
of such disclosure. No information set forth on any schedule to the Disclosure
Schedule shall be deemed to broaden in any way the scope of any Seller’s or the
Company’s representations and warranties. The inclusion of an item on any
schedule to the Disclosure Schedule is not evidence of the materiality of such
item for purposes of this Agreement or otherwise, or that such item is a
disclosure required under the Agreement. No disclosure in any schedule to the
Disclosure Schedule relating to any possible breach or violation of any
agreement, Authorization or Legal Requirement shall be construed as an admission
or indication that any such breach or violation exists or has actually occurred,
or shall constitute an admission of liability to any third party.

9.7        Counterparts.  This Agreement may be executed in two or more
counterparts, and with counterpart signature pages, each of which shall be an
original, but all of which together shall constitute one and the same Agreement,
binding on all of the parties hereto notwithstanding that all such parties have
not signed the same counterpart. Counterpart signature pages to this Agreement
transmitted by facsimile transmission, by electronic mail in

 

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“portable document format” (“.pdf”) form, or by any other electronic means
intended to preserve the original graphic and pictorial appearance of a
document, will have the same effect as physical delivery of the paper document
bearing an original signature.

9.8        Limitation on Scope of Agreement.  If any provision of this Agreement
is unenforceable or illegal, such provision shall be enforced to the fullest
extent permitted by law and the remainder of the Agreement shall remain in full
force and effect.

9.9        Sellers’ Representative.

(a)        Each Seller hereby appoints Robert M. Stephen as his or her
representative (the “Representative”), to be his or her true and lawful
attorney-in-fact for all matters in connection with this Agreement, including
without limitation, the compromise of any disputes between the Buyer and any
Seller relating to the transactions contemplated by this Agreement and to take
any other action contemplated to be taken by the Representative hereof. The
power of attorney granted to the Representative appointed hereunder is coupled
with an interest and will continue in full force and effect notwithstanding the
subsequent death or incapacity of a Seller. The Representative appointed
hereunder will have the power to act on behalf of the Sellers with respect to
all matters requiring action by the Sellers under this Agreement, including,
without limitation, the execution and delivery of any documents contemplated
hereby. Robert M. Stephen hereby accepts such appointment. In the event of the
death, or the incapacity to serve or resignation as the Representative by Robert
M. Stephen, a successor Representative will promptly be appointed by the Sellers
constituting the former holders of a majority of the Purchased Shares and the
Sellers will jointly notify the Buyer of such appointment. The Buyer will be
entitled to rely on any communication received from the Representative or his
successor without investigation.

(b)        The Representative shall not be liable to the Sellers for any act
taken or omitted by him as permitted under this Agreement and the transactions
contemplated hereby, except if such act is taken or omitted in bad faith or by
willful misconduct. The Representative shall also be fully protected against the
Sellers in relying upon any written notice, demand, certificate or document that
he in good faith believes to be genuine.

(c)        The Sellers agree, severally but not jointly, to indemnify the
Representative for, and to hold the Representative harmless against Losses, in
an amount equal to his or her Pro Rata Share of the Losses, incurred without
willful misconduct or bad faith on the part of the Representative, arising out
of or in connection with the Representative’s carrying out its duties under this
Agreement and the transactions contemplated hereby, including costs and expenses
of successfully defending the Representative against any claim of liability with
respect thereto. The Representative may consult with counsel of its own choice
and will have full and complete authorization and protection for any action
taken and suffered by it in good faith and in accordance with the opinion of
such counsel.

9.10        Headings.  The headings of Articles and Sections herein are inserted
for convenience of reference only and shall be ignored in the construction or
interpretation hereof.

 

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9.11        Expenses.  All legal and other costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses, except as otherwise
expressly provided herein.

9.12        No Third Party Beneficiaries.  Except as otherwise expressly set
forth in this Agreement, including Section 5.8 hereof, nothing in this Agreement
will be construed as giving any third party, any right, remedy or claim under or
in respect of this Agreement or any provision hereof. No employee of the Company
shall be a third-party beneficiary or entitled to rely on Section 5.10.

9.13    Further Assurances.  Following the Closing, the parties shall execute
and deliver to each other such documents and take such other actions as may
reasonably be requested in order to consummate more effectively the transactions
contemplated hereby.

9.14        “Knowledge” Defined.  As used herein, “to the knowledge of the
Company,” “to the Company’s knowledge” or any other similar phrase shall mean
the actual knowledge of Robert M. Stephen, Mark Balderraama, Tom Mendez, Doug
Stephen and Stephen Williams.

9.15        Publicity.  Pending the Closing, no party shall issue a press
release or make any other public announcement concerning the transactions
contemplated by this Agreement without the prior written consent of the
Representative and the Buyer, except to the extent required by law, in which
case the other parties hereto shall have the opportunity to review and comment
prior to disclosure.

9.16        No Strict Construction.  The parties hereto have participated
jointly in the negotiation and drafting of this Agreement and the other
agreements and documents contemplated herein. In the event an ambiguity or
question of intent or interpretation arises under any provision of this
Agreement or any other agreement or documents contemplated herein, this
Agreement and such other agreements or documents shall be construed as if
drafted jointly by the parties thereto, and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of authoring any of the
provisions of this Agreement or any other agreements or documents contemplated
herein.

ARTICLE 10

DEFINITIONS

The following terms, as used in this Agreement, have the meanings given to them
in the section or place indicated below:

 

Term:

  

Section or Place

Where Defined:

Affiliate

   Section 3.23

Agreement

   Preamble

Authorizations

   Section 3.16

Balance Sheet

   Section 3.7

Balance Sheet Date

   Section 3.7

Benefit Plans

   Section 3.19

 

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Term:

  

Section or Place

Where Defined:

Buyer

   Preamble

Closing

   Section 1.4

Closing Cash

   Section 1.2

Closing Date

   Section 1.4

Closing Indebtedness

   Section 1.2

Closing Purchase Price

   Section 1.2

Closing Purchase Price Certificate

   Section 1.7

Closing Working Capital

   Section 1.2

Code

   Section 3.9

Company

   Preamble

Company Charter Documents

   Section 3.1

Company Contacts

   Section 5.11

Company Intellectual Property

   Section 3.12

Company Material Adverse Effect

   Section 3.5

Confidential Agreement

   Section 5.1

Credit Facility

   Section 1.2

Cut-Off Date

   Section 7.1

Debt Amount

   Section 1.2

Deductible

   Section 7.2

Disclosure Schedule

   Article 2

Disputed Items

   Section 1.7

Disputed Items Notice

   Section 1.7

Environment

   Section 3.22

Environmental Claim

   Section 3.22

Environmental Laws

   Section 3.22

ERISA

   Section 3.19

Escrow Account

   Section 1.2

Escrow Agent

   Section 1.2

Escrow Agreement

   Section 1.2

Escrow Amount

   Section 1.2

Estimated Closing Purchase Price

   Section 1.2

Estimated Closing Purchase Price Certificate

   Section 1.2

Fundamental Representations

   Section 7.1

GAAP

   Section 1.2

HSR Act

   Section 5.5

Hazardous Substances

   Section 3.22

Indemnified Persons

   Section 5.9

Independent Accountant

   Section 1.7

Initial Escrow Amount

   Section 1.2

Intellectual Property

   Section 3.12

Inventory Notice

   Section 5.13

IP Representation

   Section 7.1

IRS

   Section 3.19

 

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Term:

  

Section or Place

Where Defined:

Key Employees

   Section 5.11

Knowledge

   Section 9.14

Legal Requirements

   Section 3.17

License Agreement

   Section 6.1

Liens

   Section 1.2

Losses

   Section 7.2

Major Customer

   Section 3.24

Major Supplier

   Section 3.24

Material Contract

   Section 3.13

Parties

   Section 5.7

Payment Account

   Section 1.2

Permitted Liens

   Section 3.10

Pre-Closing Taxes

   Section 3.9

Pre-Closing Tax Period

   Section 3.9

Proceeding

   Section 5.9

Pro Rata Share

   Section 2.1

Purchased Shares

   Introduction

Representative

   Section 9.9

Restricted Activities

   Section 5.11

Restricted Period

   Section 5.11

Retained Employee

   Section 1.2

Retention Amount

   Section 1.2

Retention Bonuses

   Section 1.2

Sale Bonuses

   Section 1.2

Section 338 Elections

   Section 5.8

Section 338 Forms

   Section 5.8

Securities Act

   Section 4.6

Seller

   Preamble

Sellers

   Preamble

Seller’s Expenses

   Section 1.2

Standard Cost

   Section 5.13

Straddle Period

   Section 3.9

Target Working Capital

   Section 1.2

Target Working Capital Ceiling

   Section 1.2

Target Working Capital Floor

   Section 1.2

Tax or Taxes

   Section 3.9

Tax Matter

   Section 5.7

Tax Returns

   Section 3.9

Unsold Inventory Line

   Section 5.13

 

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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as
of the date first above written.

 

NMC GROUP, INC.

By:

 

/s/    Robert M. Stephen

Name:

 

Robert M. Stephen

 

Title:

 

President

 

SELLERS:

/s/    Douglas P. Stephen

Douglas P. Stephen, Co-Trustee of The

Stephen Family Trust

/s/    Barbara M. Stephen

Barbara M. Stephen, Co-Trustee of The

Stephen Family Trust

/s/    Douglas P. Stephen, Jr.

Douglas P. Stephen, Jr.

/s/    Robert M. Stephen

Robert M. Stephen

/s/    Michael J. Stephen

Michael J. Stephen

/s/    Susan M. Stephen Ellersick

Susan M. Stephen Ellersick

/s/    Thomas V. Stephen

Thomas V. Stephen

[Signature Page to the Stock Purchase Agreement]

--------------------------------------------------------------------------------

ESTERLINE TECHNOLOGIES

CORPORATION

By:

 

/s/    Robert W. Cremin

Name:

 

Robert W. Cremin

Title:

 

Chairman, Pres & CEO

[Signature Page to the Stock Purchase Agreement]

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ANNEX I

SHAREHOLDERS

 

Shareholder  

Shares of Series A

Voting Common

Stock

 

Shares of Series B

Non-Voting

Common Stock

 

Pro Rata Share of

Outstanding Shares

Douglas P. Stephen
and Barbara M.
Stephen, Co-Trustees
of the Stephen Family
Trust   1,250   0   25% Douglas P. Stephen,
Jr.   250   500   15%

Robert M. Stephen

 

  250   500   15%

Michael J. Stephen

 

  250   500   15% Susan M. Stephen
Ellersick   250   500   15%

Thomas V. Stephen

 

  250   500   15%

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EXHIBIT A

ESCROW AGREEMENT

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EXHIBIT B

LEASE AMENDMENT

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EXHIBIT C

ROYALTY AGREEMENT

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Schedule 1.2(a)(i)

Excluded Accounts for Closing Working Capital

2330-000-10-00        Accrued Distributions – The purpose of this account is to
accrue future distributions to the Company’s shareholders.

2339-000-10-00        Accrued Calif Income Tax – The purpose of this account is
to accrue future tax payments to the California State Board of Equalization.

2374-000-10-00        Accrued Interest – The purpose of this account is to
accrue future interest payments to debt holders of the Company.

2393-000-10-00        Short Term Portion of Notes Payable DPS – The purpose of
this account was to account for the short term portion of a long term loan
pursuant to an agreement with Douglas P. Stephen.

2394-000-10-00        Short Term Portion of Notes Payable – The purpose of this
account was to account for the short term portion of a long term loan pursuant
to an agreement with Community Bank to finance equipment.

2395-000-10-00        Community Bank W/C Line – The purpose of this account is
to account for the Company’s line of credit with Community Bank.

2395-001-10-00        Do Not Use LOC Community Bank Temp – The purpose of this
account is the same as 2395-000-10-00 listed above. This account is used only if
the Company transfers its account from Community Bank to another bank.

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Schedule 1.2(a)(ii)

Target Working Capital Statement