**Exhibit 2.1**

 

 

**STOCK PURCHASE AGREEMENT**

 

dated as of

 

March 14, 2003

 

among

 

**WINGS HOLDINGS, INC.**

 

and

 

**DECRANE AIRCRAFT HOLDINGS, INC.**

 

and

 

**DECRANE HOLDINGS CO.**

 

relating to the purchase and sale

 

of

 

**100% of the Common Stock**

 

of

 

**AVTECH CORPORATION**

 

and

 

**TRI-STAR ELECTRONICS INTERNATIONAL, INC.**

 

and

 

**100% of theMembership Interests**

 

of

 

**AEROSPACE DISPLAY SYSTEMS, LLC**

 

----

 

**TABLE OF CONTENTS**

 
| ARTICLE  1                               |
|------------------------------------------|
| DEFINITIONS                              |
|                                     |
| Section 1.01.                            | *Definitions* |
|                                     |   |
| ARTICLE  2                               |
| PURCHASE AND SALE                        |
|                                     |
| Section  2.01.                           | *Purchase  and Sale* |
| Section  2.02.                           | *Purchase Price Allocation* |
| Section  2.03.                           | *Closing* |
| Section  2.04.                           | *Closing Working Capital* |
| Section  2.05.                           | *Adjustment of Purchase Price* |
|                                     |   |
| ARTICLE  3                               |
| REPRESENTATIONS AND WARRANTIES OF SELLER |
|                                     |   |
| Section  3.01.                           | *Existence  and Power* |
| Section  3.02.                           | *Corporate  Authorization* |
| Section  3.03.                           | *Governmental  Authorization* |
| Section  3.04.                           | *Noncontravention* |
| Section  3.05.                           | *Capitalization* |
| Section  3.06.                           | *Ownership  of Shares* |
| Section  3.07.                           | *Subsidiaries* |
| Section  3.08.                           | *Financial  Statements* |
| Section  3.09.                           | *Absence  of Certain Changes* |
| Section  3.10.                           | *No  Undisclosed Material Liabilities* |
| Section  3.11.                           | *Intercompany  Accounts* |
| Section  3.12.                           | *Material  Contracts* |
| Section  3.13.                           | *Litigation* |
| Section  3.14.                           | *Compliance  with Laws and Court Orders* |
| Section  3.15.                           | *Properties* |
| Section  3.16.                           | *Intellectual  Property* |
| Section  3.17.                           | *Insurance  Coverage* |
| Section  3.18.                           | *Finders’  Fees* |
| Section  3.19                            | *Employees* |
| Section  3.20.                           | *Employee  Benefit Plans* |
| Section  3.21.                           | *Environmental  Matters* |
| Section  3.22.                           | *Taxes* |
| Section  3.23.                           | *Arrangements With Buyer* |
| Section  3.24.                           | *Permits* |

 

----

 
| Section  3.25.                          | *Accounts Receivable*                            |
|-----------------------------------------|--------------------------------------------------|
| Section  3.26.                          | *Inventory*                                      |
| Section  3.27.                          | *WARN  Act*                                      |
| Section  3.28.                          | *Product Liability*                              |
| Section  3.29.                          | *No  Other Representations*                      |
|                                    |                                             |
| ARTICLE  4                              |
| REPRESENTATIONS AND WARRANTIES OF BUYER |
|                                    |
| Section  4.01.                          | *Corporate  Existence and Power*                 |
| Section  4.02.                          | *Corporate  Authorization*                       |
| Section  4.03.                          | *Governmental  Authorization*                    |
| Section  4.04.                          | *Noncontravention*                               |
| Section  4.05.                          | *Financing*                                      |
| Section  4.06.                          | *Purchase  for Investment*                       |
| Section  4.07.                          | *Litigation*                                     |
| Section  4.08.                          | *Finders’  Fees*                            |
| Section  4.09.                          | *Inspections;  No Other Representations*         |
|                                    |                                             |
| ARTICLE  5                              |
| COVENANTS OF SELLER                     |
|                                    |                                             |
| Section  5.01.                          | *Conduct  of the Companies and the Subsidiaries* |
| Section  5.02.                          | *Access  to Information*                         |
| Section  5.03.                          | *Notices  of Certain Events*                     |
| Section  5.04.                          | *Resignations*                                   |
| Section  5.05.                          | *Taxes*                                          |
| Section  5.06.                          | *Intercompany Accounts*                          |
| Section  5.07.                          | *No-Shop*                                        |
| Section  5.08.                          | *Confidentiality*                                |
|                                    |                                             |
| ARTICLE  6                              |
| COVENANTS OF BUYER                      |
|                                    |
| Section  6.01.                          | *Confidentiality*                                |
| Section  6.02.                          | *Access*                                         |
| Section  6.03.                          | *Trademarks;  Tradenames*                        |
| Section  6.04.                          | *Taxes*                                          |
| Section  6.05.                          | *Notices of Certain Events*                      |
|                                    |                                             |
| ARTICLE  7                              |
| COVENANTS OF BUYER AND SELLER           |
|                                    |
| Section  7.01.                          | *Further  Assurances*                            |

 

ii

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| Section  7.02.            | *Certain  Filings*                                                            |
|---------------------------|-------------------------------------------------------------------------------|
| Section  7.03.            | *Public  Announcements*                                                       |
| Section  7.04.            | *Non Solicitation/Noncompetition*                                             |
| Section  7.05.            | *Insurance*                                                                   |
|                      |                                                                          |
| ARTICLE  8                |
| TAX  MATTERS              |
|                      |                                                                          |
| Section  8.01.            | *Filing of Returns*                                                           |
| Section  8.02.            | *Refunds*                                                                     |
| Section  8.03.            | *Transfer Taxes*                                                              |
| Section  8.04.            | *Tax Sharing*                                                                 |
| Section  8.05.            | *Cooperation on Tax Matters*                                                  |
| Section  8.06.            | *Indemnification by Seller*                                                   |
| Section  8.07.            | *Indemnification by Buyer*                                                    |
| Section  8.08.            | *Closing of Tax Periods*                                                      |
| Section  8.09.            | *Reattribution Of Net Operating Losses*                                       |
| Section  8.10.            | *Purchase Price Adjustment*                                                   |
|                      |                                                                          |
| ARTICLE  9                |
| EMPLOYEE BENEFITS         |
|                      |                                                                          |
| Section  9.01.            | *Maintenance of Employee Benefits*                                            |
| Section  9.02.            | *Employee Agreements; Change Of Control  Agreements and Severance Agreements* |
| Section  9.03.            | *401(k) Plan Covenants*                                                       |
|                      |                                                                          |
| ARTICLE  10               |
| CONDITIONS TO CLOSING     |
|                      |                                                                          |
| Section  10.01.           | *Conditions  to Obligations of Buyer and Seller*                              |
| Section  10.02.           | *Conditions  to Obligation of Buyer*                                          |
| Section  10.03.           | *Conditions  to Obligation of Seller*                                         |
|                      |                                                                          |
| ARTICLE  11               |
| SURVIVAL; INDEMNIFICATION |
|                      |                                                                          |
| Section  11.01.           | *Survival*                                                                    |
| Section  11.02.           | *Indemnification*                                                             |
| Section  11.03.           | *Procedures*                                                                  |
| Section  11.04.           | *Calculation  of Damages*                                                     |
| Section  11.05.           | *Environmental Matters*                                                       |
| Section  11.06.           | *Assignment  of Claims*                                                       |
| Section  11.07.           | *Exclusivity*                                                                 |

 

iii

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| ARTICLE  12     |
|-----------------|
| TERMINATION     |
|            |
| Section  12.01. | *Grounds  for Termination* |
| Section  12.02. | *Effect  of Termination* |
|            |   |
| ARTICLE  13     |
| MISCELLANEOUS   |
|            |
| Section  13.01. | *Notices* |
| Section  13.02. | *Amendments  and Waivers* |
| Section  13.03. | *Expenses* |
| Section  13.04. | *Successors  and Assigns* |
| Section  13.05. | *Governing  Law* |
| Section  13.06. | *WAIVER OF JURY TRIAL* |
| Section  13.07. | *Disputes Arising On or Prior to the Closing  Date* |
| Section  13.08. | *Disputes Arising After the Closing Date* |
| Section  13.09. | *Counterparts;  Third Party Beneficiaries* |
| Section  13.10. | *Entire  Agreement* |
| Section  13.11. | *Captions* |
| Section  13.12. | *Interpretation* |

 

**SCHEDULES**

 
| Schedule  1.01      | Liens on  Shares / Definitions |
|---------------------|--------------------------------|
|                |                           |
| Schedule  2.02      | Purchase  Price Allocation     |
|                |                           |
| Schedule  3.03      | Governmental  Consents         |
|                |                           |
| Schedule  3.04      | Noncontravention               |
|                |                           |
| Schedule  3.05      | Capitalization                 |
|                |                           |
| Schedule  3.07      | Subsidiaries                   |
|                |                           |
| Schedule  3.08      | Financial  Statements          |
|                |                           |
| Schedule  3.09      | Absence of  Certain Changes    |
|                |                           |
| Schedule  3.10      | Certain  Liabilities           |
|                |                           |
| Schedule  3.11      | Intercompany  Accounts         |
|                |                           |
| Schedule  3.12 | Certain  Contracts             |

 

iv

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| Schedule  3.13     | Litigation                                                                                                                                                                        |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|               |                                                                                                                                                                              |
| Schedule  3.15     | Properties                                                                                                                                                                        |
|               |                                                                                                                                                                              |
| Schedule  3.16     | Intellectual  Property                                                                                                                                                            |
|               |                                                                                                                                                                              |
| Schedule  3.17     | Insurance                                                                                                                                                                         |
|               |                                                                                                                                                                              |
| Schedule  3.19     | Employees                                                                                                                                                                         |
|               |                                                                                                                                                                              |
| Schedule  3.20(a)  | List of  Employee Plans                                                                                                                                                           |
|               |                                                                                                                                                                              |
| Schedule  3.20(f)  | Employee  Benefit Plans–Increases or Changes to Benefits and/or Acceleration of Payment  or Vesting under any Benefit Plans and Arrangements as a Result of the  Transaction |
|               |                                                                                                                                                                              |
| Schedule  3.21     | Environmental  Matters                                                                                                                                                            |
|               |                                                                                                                                                                              |
| Schedule  3.22(c)  | Taxes–Tax  Jurisdictions                                                                                                                                                     |
|               |                                                                                                                                                                              |
| Schedule  3.22(f)  | Taxes–Entity  Status                                                                                                                                                         |
|               |                                                                                                                                                                              |
| Schedule  3.22(k)  | Tax Sharing  Agreements                                                                                                                                                           |
|               |                                                                                                                                                                              |
| Schedule  4.05     | Financing  Commitment Letters                                                                                                                                                     |
|               |                                                                                                                                                                              |
| Schedule  6.03     | Trademarks  and Tradenames                                                                                                                                                        |
|               |                                                                                                                                                                              |
| Schedule  9.02     | Employee  Agreements and Change of Control                                                                                                                                        |
|               |                                                                                                                                                                              |
| Schedule  10.02(d) | Liens                                                                                                                                                                             |
|               |                                                                                                                                                                              |
| Schedule  10.02(g) | Third Party  Consents                                                                                                                                                             |
|               |                                                                                                                                                                              |

 
| **EXHIBIT A** | Opinion of  Seller’s Counsel |
|---------------|-----------------------------------|

 

v

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**STOCK PURCHASE AGREEMENT**

 

AGREEMENTdated as of March 14, 2003 among Wings Holdings, Inc., a Delaware corporation(“**Buyer**”), DeCrane AircraftHoldings, Inc., a Delaware corporation (“**Seller**”), and DeCrane Holdings Co., aDelaware corporation (“**Parent**”).

 

**W I T N E S S E T H :**

 

WHEREAS,Seller is the record and beneficial owner of all of the outstanding (i) sharesof common stock, no par value (the “**Avtech Shares**”) of Avtech Corporation, aWashington corporation (“**Avtech**”), (ii) shares of common stock, nopar value (the “**Tri-Star Shares**”), of Tri-Star Electronics International,Inc., a California corporation (“**Tri-Star**”), and (iii) membership interests(the “**ADSShares**” and, collectively with the Avtech Shares and the Tri-StarShares, the “**Shares**”), of Aerospace Display Systems, LLC, a Delawarelimited liability company (“**ADS**” and, each of Avtech, Tri-Star and ADS,a “**Company**”and, collectively, the “**Companies**”).

 

WHEREAS,Seller desires to sell the Shares to Buyer, and Buyer desires to purchase theShares from Seller, upon the terms and subject to the conditions hereinafterset forth;

 

The partieshereto agree as follows:

 

ARTICLE 1DEFINITIONS

 

Section 1.01. *Definitions.*** (a) The following terms, as used herein, have the followingmeanings:

 

**“ADS CompetitiveActivities”** has the meaning set forth in Item 3 onSchedule 1.01.

 

“**Affiliate**” means, with respect to anyPerson, any other Person directly or indirectly controlling, controlled by, orunder common control with such Person. For purposes of this Agreement, each Company and each Subsidiary shall,(i) prior to the Closing, be treated as an Affiliate of Seller and Parent andnot be treated as an Affiliate of Buyer, and (ii) from and after the Closing(and solely after the Closing Date for purposes of Sections 2.01, 2.03(b) and3.07(b)), (x) be treated as an Affiliate of Buyer (for so long as Buyer directlyor indirectly controls, is controlled by or is under common control with suchCompany or Subsidiary) and (y) not be treated as an Affiliate of Seller orParent.

 

1

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“**Antitrust Law**” means the Sherman Act, asamended, the Clayton Act, as amended, the HSR Act, the Federal Trade CommissionAct, as amended, and all other applicable, federal, state and foreign,statutes, rules, regulations, orders, decrees, administrative and judicialdoctrines and other laws that are designed or intended to prohibit, restrict orregulate actions having the purpose or effect of monopolization or restraint oftrade or lessening of competition through merger or acquisition.

 

**“Avtech CompetitiveActivities”** has the meaning set forth in Item 3 onSchedule 1.01.

 

“**Balance Sheet**” means the audited specialpurpose combined balance sheet of the Companies and the Subsidiaries as ofDecember 31, 2002.

 

“**Balance Sheet Date**” means December 31,2002.

 

“**Business Day**”means any day on which commercial banks are open for business in New York City.

 

“**Capital Stock**” means (i) in the case of acorporation, its corporate stock, (ii) in the case of a partnership or limitedliability company, its partnership or membership interests or units (whethergeneral or limited), and (iii) any other interest or participation that conferson a person the right to receive a share of the profits and losses of, ordistribution of assets of, the issuing entity.

 

“**Change ofControl**” means, with respect to Parent or Seller, atransaction in which such Person consolidates with, or merges with orinto, another Person or sells, assigns, conveys, transfers, leases or otherwisedisposes of all or substantially all of its assets to any Person, or any Personconsolidates with, or merges with or into Parent or Seller, where, in eachcase, immediately after such transaction, DLJ Merchant Banking Partners II,L.P. and its Affiliates own, directly or indirectly, less than 50% of the totalVoting Securities of the surviving or transferee corporation, as applicable.

 

“**Closing Date**” means the date of theClosing.

 

“**Code**”means the Internal Revenue Code of 1986, as amended.

 

“**ColtechObligations**” means Avtech’s obligations to pay deferred purchaseprice consideration to the sellers of Coltech, Inc. pursuant to that certainStock Purchase and Sale Agreement dated August 18, 2000 by and among theshareholders of Coltech, Inc. listed therein, Coltech, Inc., Seller and Avtech.

 

“**CombinedIncome Tax**” means any income Tax payable to any state, local orforeign taxing jurisdiction in which any Company or any Subsidiary has filed orwill file a Return with a member of the Seller Group on an affiliated,consolidated, combined or unitary basis with respect to such Tax.

 

2

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“**Employees**”means all current and former employees of the Companies and the Subsidiaries,including any such employees on approved leaves of absence (whether familyleave, maternity or parental leave, workers’ compensation, short-termdisability, long-term disability (but only to the extent that any such employeereturns to active employment with any of the Companies or any Subsidiary),medical leave or military leave) and the term “**Employee**” means any of theEmployees.

 

“**Environmental Claims**” means any complaint,summons, citation, notice, directive, order, claim, litigation, investigation,judicial or administrative proceeding, judgment, letter or other writtencommunication from any third party, including, any Governmental Authority,alleging any actual or alleged violations of, or actual or potential liabilityunder, any Environmental Laws.

 

“**Environmental Costs and Liabilities**” meansany and all claims (including Environmental Claims), actions, suits,proceedings, liabilities (whether absolute or contingent), obligations, losses,damages, judgment, awards, settlement amounts, demands, counterclaims, clean-upobligations, costs and expenses (including the reasonable fees of attorneys,consultants, engineers and other experts), in each case, arising under orpursuant to any Environmental Law.

 

“**Environmental Laws**” means all foreign,federal, regional, state, or local Laws and Permits relating to, or imposingliability or establishing standards of conduct for, pollution or protection of theenvironment, including without limitation the Comprehensive EnvironmentalResponse, Compensation, and Liability Act (“**CERCLA**”),the Resource Conservation and Recovery Act, the Clean Air Act, the Clean WaterAct, the Toxic Substances Control Act, and the regulations promulgated pursuantthereto and all analogous state or local statutes.

 

“**Equity Securities**” means (i) shares ofCapital Stock or other equity securities, (ii) subscriptions, calls, warrants,options or commitments of any kind or character relating to, or entitling anyperson or entity to purchase or otherwise acquire, any Capital Stock or otherequity securities and (iii) securities convertible into or exercisable orexchangeable for shares of Capital Stock or other equity securities.

 

“**ERISA**” means the Employee Retirement IncomeSecurity Act of 1974, as amended and the rules and regulations promulgatedthereunder.

 

“**ERISA Affiliate**” of any Person means anyother Person that, together with such Person, would be treated as a singleemployer under Section 414 of the Code.

 

“**FederalIncome Tax**” means any Tax with respect to which any Company or anySubsidiary has filed or will file a Return with a member of the Seller Group ona consolidated basis pursuant to Section 1501 of the Code.

 

3

----

 

“**GAAP**”means generally accepted accounting principles in the United States of America.

 

“**Governmental Authority**” means any entityexercising executive, legislative, judicial, regulatory or administrativefunctions of or pertaining to United States federal, state or local government,including any governmental authority, agency, department, board, commission orinstrumentality of the United States, any state of the United States or anypolitical subdivision thereof, and any tribunal, court or arbitrator(s) ofcompetent jurisdiction.

 

**“Harness PermittedActivities”**has the meaning set forth in Item 3 onSchedule 1.01.

 

“**Hazardous Materials**” means (a) any element,compound, or chemical that is defined, listed or otherwise classified as acontaminant, pollutant, waste, toxic pollutant, toxic or hazardous substance,extremely hazardous substance or chemical, hazardous waste, medical waste,biohazardous or infectious waste or special waste under Environmental Laws; (b)petroleum, petroleum-based or petroleum-derived products; (c) polychlorinatedbiphenyls and (d) any asbestos containing materials.

 

“**HSR Act**” means the Hart-Scott-RodinoAntitrust Improvements Act of 1976, as amended.

 

“**Indebtedness**” means any of the following:(a) any indebtedness for borrowed money; (b) any obligationsevidenced by bonds, debentures, notes or other similar instruments;(c) any obligations to pay the deferred purchase price of property orservices, except trade accounts payable and other current liabilities arisingin the Ordinary Course of Business; (d) any obligations as lessee undercapitalized leases; (e) any indebtedness created or arising under anyconditional sale or other title retention agreement with respect to acquiredproperty; (f) any obligations, contingent or otherwise, under bankersacceptance, letters of credit or similar facilities; and (g) any guaranty ofany of the foregoing.

 

“**Intellectual Property Right**” means any (i)patents, patent applications, and patentable inventions, (ii) trademarks,service marks, brand marks, trade names, brand names, logos, and corporatenames, and registrations and applications for registration thereof and suchunregistered rights, (iii) copyrights, (iv) domain names, (v) computersoftware, source code and object code and (vi) trade secrets.

 

“**Knowledge of Seller**”, “**Seller’s Knowledge**” or any other similarknowledge qualification relating to Seller in this Agreement means to theactual knowledge of the persons listed in Item 2 of Schedule 1.01.

 

“**Laws**” means (a) all laws, statutes,ordinances, regulations, decrees, rules and orders of every federal, state,local or foreign government and every federal,

 

4

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state, local or foreign courtor other Governmental Authority and (b) any judgment, decision, decree or orderof any Governmental Authority.

 

“**Lien**” means, with respect to any propertyor asset, any mortgage, lien, pledge, charge, security interest or otherencumbrance in respect of such property or asset.

 

“**Majority-OwnedSubsidiary**” means, with respect to any Person, any other Person ofwhich a majority of the outstanding Voting Securities are directly orindirectly owned by such Person.

 

“**Material Adverse Effect**” means a materialadverse effect on, or material adverse change with respect to, the business,assets, financial condition or results of operations of the Companies and theSubsidiaries, taken as whole, except any such effect or change (i) resultingfrom or arising in connection with (A) changes or conditions affecting thecommercial aerospace industry generally, (B) changes in economic or politicalconditions generally or (C) any act(s) of war (whether or not declared) orterrorism, or (ii) attributable to the fact that the prospective owner of theCompanies and Subsidiaries hereunder is an Affiliate of Odyssey InvestmentPartners, LLC.

 

“**1934 Act**” means the Securities Exchange Actof 1934, as amended, and the rules and regulations promulgated thereunder.

 

“**OrdinaryCourse of Business**” means the ordinary course of business of theCompanies and the Subsidiaries, consistent with past practices.

 

“**Organizational Documents**” means thearticles of incorporation, by-laws, articles of organization, limited liabilitycompany agreement, partnership agreement, formation agreement, joint ventureagreement or other similar organizational documents (in each case, as amended).

 

“**PermittedLiens**” means, collectively, Liens of the type described in any ofparagraphs (a)-(d) of this definition:

 

(a)           Liens disclosed in Item 1 of Schedule1.01 or on Schedule 3.15;

 

(b)           Liens for Taxes that are not yet due;

 

(c)           mechanic’s, materialman’s, carrier’s,repairer’s and other similar Liens imposed by Law arising or incurred in theOrdinary Course of Business with respect to amounts that are not yet due; or

 

(d)           other Liens arising in the OrdinaryCourse of Business, securing liabilities (other than Indebtedness), which donot materially detract from the value of the encumbered property or asset.

 

5

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“**Person**” means an individual, corporation,partnership, limited partnership, limited liability company, association,trust, joint venture or other entity or organization, including a government orpolitical subdivision or an agency or instrumentality thereof.

 

“**Post-ClosingTax Period**” means any Tax period beginning after the Closing Date;and, with respect to a Tax period that begins on or before the Closing Date andends thereafter, the portion of such Tax period beginning on the day after theClosing Date.

 

“**Pre-ClosingTax Period**” means any Tax period ending on or before the ClosingDate; and, with respect to a Tax period that begins on or before the ClosingDate and ends thereafter, the portion of such Tax period ending on the ClosingDate.

 

“**Release**” means any spilling, leaking,pumping, pouring, emitting, emptying, discharging, injecting, escaping,leaching, dumping, or disposing of Hazardous Materials into the environment.

 

“**Remedial Action**” means (a) all actionsrequired under Environmental Law to be taken to clean up, remove, remediate,contain, treat, monitor (including any post-remedial operation and maintenanceactivities) assess, evaluate or in any other way address Hazardous Materials inthe environment or (b) any other actions required by 42 U.S.C. 9601.

 

“**Seller Group**”means, with respect to Federal Income Taxes, the affiliated group ofcorporations (as defined in Section 1504(a) of the Code) of which Seller is amember, and with respect to Taxes other than Federal Income Taxes, anyaffiliated, consolidated, combined or unitary group of which Seller or any ofits Affiliates is a member.

 

**“Separate Income Tax”**means, any income Tax other than a Federal Income Tax or a Combined Income Tax.

 

“**Subsidiary**” means any entity of whichsecurities or other ownership interests having ordinary voting power to elect amajority of the board of directors or other persons performing similarfunctions are at the time directly or indirectly owned by any of the Companies.

 

**“Systems PermittedActivities”** has the meaning set forth in Item 3 onSchedule 1.01.

 

“**Tax**”means (i) any tax, governmental fee or other like assessment or charge of anykind whatsoever (including, but not limited to, withholding on amounts paid toor by any Person), together with any interest, penalty, addition to tax oradditional amount imposed by any governmental authority (a “**TaxingAuthority**”) responsible for the imposition of any such tax (domesticor foreign), 

 

6

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and any liability for any ofthe foregoing as transferee, and (ii) in the case of any Company or anySubsidiary, liability for the payment of any amount of the type described inclause (i) as a result of being or having been before the Closing Date a memberof an affiliated, consolidated, combined or unitary group with any othercorporation at any time on or prior to the Closing Date.

 

“**Tax Asset**”means any net operating loss, net capital loss, investment tax credit, foreigntax credit, charitable deduction or any other credit or tax attribute thatcould be carried forward or back to reduce Taxes (including without limitationdeductions and credits related to alternative minimum Taxes).

 

**“Tri-Star CompetitiveActivities”**has the meaning set forth in Item 3 onSchedule 1.01.

 

“**VotingSecurities**” means, with respect to any Person, the Equity Securitiesof any class or kind ordinarily having the power to vote for the election ofdirectors or other members of the governing body of such Person.

 

(b)      Each of the following terms is defined inthe Section set forth opposite such term:

 
| **Term**                              |   | **Section** |   |
|---------------------------------------|--------|-------------|--------|
|                                  |   |        |   |
| Accounting  Referee                   |   | 2.02        | (a)    |
| ADS                                   |   | Recitals    |   |
| ADS  Allocation Statement             |   | 2.02        | (a)    |
| ADS Shares                            |   | Recitals    |   |
| Avtech                                |   | Recitals    |   |
| Avtech  Shares                        |   | Recitals    |   |
| Basket                                |   | 11.02       | (a)    |
| Buyer                                 |   | Preamble    |   |
| Buyer Tax  Loss                       |   | 8.06        | (a)    |
| CERCLA                                |   | 1.01        | (a)    |
| Cap                                   |   | 11.02       | (a)    |
| Claim                                 |   | 11.03       | (a)    |
| Closing                               |   | 2.03        |   |
| Closing  Working Capital              |   | 2.04        | (a)    |
| Closing  Working Capital Statement    |   | 2.04        | (a)    |
| Commitment  Letters                   |   | 4.05        |   |
| Companies                             |   | Recitals    |   |
| Company                               |   | Recitals    |   |
| Company  Intellectual Property Rights |   | 3.16        | (a)    |
| Company  Securities                   |   | 3.05        | (b)    |
| Confidentiality  Agreement            |   | 6.01        | (a)    |
| Damages                               |   | 11.02       | (a)    |
| DeCrane  Group                        |   | 7.04        | (b)    |
| Direct  Meeting                       |   | 13.08       | (h)    |
| Dispute  Notice                       |   | 7.05        | (b)    |

 

7

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| **Term**                          |   | **Section** |   |
|-----------------------------------|--------|-------------|--------|
|                              |   |        |   |
| Employee  Plans                   |   | 3.20        | (a)    |
| 401(k) Plan                       |   | 9.03        | (a)    |
| Final  Working Capital            |   | 2.05        | (a)    |
| Indemnified  Party                |   | 11.03       | (a)    |
| Indemnifying  Party               |   | 11.03       | (a)    |
| Indemnity  Notice                 |   | 11.03       | (a)    |
| International  Plan               |   | 3.20        | (h)    |
| JAMS                              |   | 13.08       | (a)    |
| JAMS Rules                        |   | 13.08       | (a)    |
| Licenses and  Permits             |   | 3.24        | (a)    |
| Parent                            |   | Preamble    |   |
| Payment  Request                  |   | 7.05        | (b)    |
| Permits                           |   | 3.21        | (b)    |
| PMA                               |   | 3.24        | (b)    |
| Pre-Closing  Releases             |   | 11.05       | (a)    |
| Potential  Contributor            |   | 11.06       |   |
| Prohibited  Action                |   | 11.05       | (c)    |
| Properties                        |   | 11.05       | (a)    |
| Proposed  Acquisition Transaction |   | 5.07        |   |
| Purchase  Price                   |   | 2.01        |   |
| Remedial  Action Documents        |   | 11.05       | (b)    |
| Representatives                   |   | 5.08        |   |
| Returns                           |   | 3.22        | (a)    |
| Seller                            |   | Preamble    |   |
| Seller  Credit Agreement          |   | 10.02       | (d)    |
| Seller  Indenture                 |   | 10.02       | (d)    |
| Seller Tax  Loss                  |   | 8.07        | (a)    |
| Shares                            |   | Recitals    |   |
| Specified  Layoff                 |   | 3.27        |   |
| Subject  Patent                   |   | 3.16        | (e)    |
| Subject  Product                  |   | 3.16        | (e)    |
| Subsidiary  Securities            |   | 3.07        | (b)    |
| Successor  401(k) Plan            |   | 9.03        | (b)    |
| Termination  Date                 |   | 7.04        | (b)    |
| Third Party  Claim                |   | 11.03       | (b)    |
| Tri-Star                          |   | Recitals    |   |
| Tri-Star Shares                   |   | Recitals    |   |
| Tri-Star  Technologies            |   | 3.07        | (b)    |
| WARN                              |   | 3.27        |   |
| Warranty  Breach                  |   | 11.02       | (a)    |

 

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ARTICLE2

PURCHASE ANDSALE

 

Section 2.01.  *Purchaseand Sale*.  Upon the terms andsubject to the conditions of this Agreement, Seller agrees to sell to Buyer,and Buyer agrees to purchase from Seller, the Shares (free and clear of allLiens, other than Liens created by Buyer or any of its Affiliates) at theClosing.  The purchase price for theShares is $140,000,000 in cash (the “**Purchase Price**”).  The Purchase Price shall be paid as provided in Section 2.03 andshall be subject to adjustment as provided in Section 2.05.

 

Section 2.02*.  Purchase Price Allocation. *(a)**The Purchase Price shall beallocated in accordance with Schedule 2.02. As soon as practicable after the Closing Date (but no later than 90 daysafter the Closing Date), Buyer shall deliver to Seller a statement allocatingthe portion of the Purchase Price (plus assumed liabilities, to the extent properlytaken into account under Section 1060 of the Code) that is allocated to the ADSShares pursuant to Schedule 2.02 among ADS’s assets in accordance with Section1060 of the Code (the “**ADS****AllocationStatement**”).  If, within 20days after the delivery of the ADS Allocation Statement, Seller notifies Buyerin writing that Seller objects to the allocation set forth in the ADSAllocation Statement, Buyer and Seller shall use commercially reasonableefforts to resolve such dispute within 20 days.  If Buyer and Seller are unable to resolve such dispute within 20days, Buyer and Seller shall jointly retain Ernst & Young LLP (or, if such firm shall decline or isunable to act, or has a material relationship with Buyer or Seller or theirrespective Affiliates or other material conflicts, another nationallyrecognized independent accounting firm mutually acceptable to Seller and Buyer)(the “**AccountingReferee**”) to resolve the disputed items.  Upon resolution of the disputed items, theallocation reflected on the ADS Allocation Statement shall be adjusted toreflect such resolution.  The costs,fees and expenses of the Accounting Referee shall be borne proportionately byBuyer and Seller based on the extent to which Buyer’s and Seller’s respectiveallocations differ from the allocation reflected on the final ADS AllocationStatement.

 

(b)           Seller and Buyer agree to (i) bebound by Schedule 2.02 and the ADS Allocation Statement and (ii) act inaccordance with Schedule 2.02 and the ADS Allocation Statement in the preparation,filing and audit of any Tax return (including, without limitation, in filingForm 8594 with its Federal Income Tax return for the taxable year that includesthe Closing Date).

 

(c)           If an adjustment is made to thePurchase Price pursuant to Section 2.05, Schedule 2.02 and the ADS AllocationStatement shall be adjusted in accordance with Section 1060 of the Code and asmutually agreed by Buyer and Seller.  Inthe event that an agreement regarding such adjustment is not reached within 30days after the determination of Final Working Capital, any disputed items shallbe resolved in the manner described in Section 2.02(a).  Buyer and

 

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Seller agree to file anyadditional information return required to be filed in order to treat Schedule2.02 and the ADS Allocation Statement as so adjusted.

 

(d)           Not later than 20 days prior to thefiling of their respective Forms 8594 relating to this transaction, each partyshall deliver to the other party a copy of its Form 8594.

 

Section 2.03.  *Closing*.  The closing (the “**Closing**”) of the purchase and sale of the Shares hereundershall take place at the offices of Davis Polk & Wardwell, 450 LexingtonAvenue, New York, New York, as soon as possible, but in no event later thanfive business days after satisfaction (or waiver as provided herein) of theconditions set forth in Article 10 (other than those conditions that by theirnature will be satisfied at the Closing), or at such other time or place asBuyer and Seller may agree. Buyer and Seller will use their respectivecommercially reasonable efforts to cause the Closing of the purchase and saleof the Shares hereunder to take place no later than March 31, 2003 and, if suchClosing does not occur on or prior to such date, then as soon as practicablethereafter; *provided*that neither party shall be required as a result of the foregoing to waive anyconditions to such party’s obligations to consummate the Closing. At theClosing:

 

(a)           Buyer shall deliverto Seller the Purchase Price in immediately available funds by wire transfer toan account of Seller with a bank designated by Seller, by notice to Buyer,which notice shall be delivered no later than three days prior to the ClosingDate.

 

(b)           Seller shall deliverto Buyer (i) certificates for the Avtech Shares and Tri-Star Shares dulyendorsed or accompanied by stock powers duly endorsed in blank, with anyrequired transfer stamps affixed thereto, (ii) transfer and assignmentinstruments evidencing the transfer of the ADS Shares, and (iii) otherdocuments and instruments necessary to vest in Buyer all of Seller’s right,title and interest in and to the Shares, free and clear of all Liens (otherthan Liens created by Buyer or any of its Affiliates).

 

(c)           Seller or Buyer, asapplicable, shall deliver the certificates, instruments and other documentsrequired to be delivered pursuant to Article 10 or otherwise reasonablynecessary to evidence the satisfaction of the conditions set forth in Article10.

 

Section 2.04*.  Closing Working Capital. *(a)* *As promptlyas practicable, but no later than 60 days after the Closing Date, Buyer willcause to be prepared and delivered to Seller an unaudited Closing WorkingCapital Statement (the “**Closing WorkingCapital Statement**”), setting forth Buyer’s calculation of ClosingWorking Capital (as defined below). The Closing Working Capital Statement shall(x) be prepared in accordance with GAAPapplied on a basis substantially consistent with those used in the preparationof the Balance Sheet

 

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and fairly present in allmaterial respects the combined current assets and current liabilities of theCompanies and the Subsidiaries as at the close of business on the Business Dayimmediately preceding the Closing Date, (y) include line items for currentassets and current liabilities substantially consistent with those in theBalance Sheet, and (z) be prepared in accordance with accounting policies andpractices (including methods for determining reserves) substantially consistentwith those used in the preparation of the Balance Sheet; *provided*, that GAAP shallapply to the extent any of the foregoing are not permitted by GAAP.  “**ClosingWorking Capital**” means the excess of the combined current assets overthe combined current liabilities of the Companies and the Subsidiaries as shownon the Closing Working Capital Statement excluding (i) all cash andcash-equivalents, (ii) all Indebtedness, (iii) all receivables and payablesbetween Parent, Seller or any of their respective Affiliates (other than anyCompany or any Subsidiary), on the one hand, and any Company or any Subsidiary,on the other hand, (iv) the Coltech Obligations, and (v) all fees and expensesincurred in connection with the transactions contemplated by this Agreement.

 

(b)           If Seller disagrees with Buyer’scalculation of Closing Working Capital delivered pursuant to Section 2.04(a),Seller may, within 10 days after receipt of the documents referred to inSection 2.04(a), deliver a written notice to Buyer disagreeing with suchcalculation and setting forth Seller’s calculation of Closing WorkingCapital.  Any such notice ofdisagreement shall specify those items or amounts as to which Seller disagrees,with a written explanation of the reasons for disagreement with each such itemor amount, and Seller shall be deemed to have agreed with all other items andamounts contained in the Closing Working Capital Statement and the calculationof Closing Working Capital delivered pursuant to Section 2.04(a).  If Seller fails to deliver such a writtennotice within such 10 day period, Buyer’s calculation of Closing WorkingCapital shall be binding upon the parties. Notwithstanding anything in this Section 2.04(a) to the contrary, (i)Seller shall not contest any item for which the amount in disagreement is lessthan $25,000 and shall not contest Buyer’s calculation of the Closing WorkingCapital if the difference between Seller’s calculation and Buyer’s calculationis less than $100,000 and (ii) Seller’s only basis for disagreement shall be(A) non-compliance with the standards set forth in Section 2.04(a) for thepreparation of the Closing Working Capital Statement and (B) computationerrors.

 

(c)           If a notice of disagreement shall beduly delivered pursuant to Section 2.04(b), Buyer and Seller shall, during the30 days following such delivery, use their commercially reasonable efforts toreach agreement on the disputed items or amounts in order to determine, as maybe required, the amount of Closing Working Capital, which amount shall not bemore than the amount thereof shown in Seller’s calculations delivered pursuantto Section 2.04(b) nor less than the amount thereof shown in Buyer’scalculation delivered pursuant to Section 2.04(a).  If, during such period or any mutually agreed extension thereof,Buyer and Seller are unable to reach such agreement, they shall promptly

 

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thereafter cause the AccountingReferee promptly to review this Section 2.04 and the disputed items or amountsfor the purpose of calculating Closing Working Capital.  In making such calculation, the AccountingReferee shall consider only those items or amounts in Buyer’s calculation ofClosing Working Capital as to which Seller has disagreed.  The Accounting Referee shall deliver toBuyer and Seller, as promptly as practicable, a report setting forth suchcalculation.  Such report shall be finaland binding upon Buyer and Seller.  Thefees and expenses of the Accounting Referee shall be borne proportionately byBuyer and Seller based on the extent to which Buyer’s and Seller’s respectivedeterminations differ from the Accounting Referee’s determination.

 

(d)           Buyer and Seller agree that theywill, and agree to cause their respective independent accountants and theCompanies and the Subsidiaries to, cooperate and assist in the preparation ofthe Closing Working Capital Statement and the calculation of Closing WorkingCapital and, including without limitation, the making available to the extent necessarybooks, records, work papers and personnel.

 

Section 2.05*.  Adjustment of Purchase Price. *(a)* *If Final Working Capital is less than $27,750,000, Sellershall pay to Buyer, as an adjustment to the Purchase Price, in the manner andwith interest as provided in Section 2.05(b), an amount of cash equal to thedifference between $27,750,000 and Final Working Capital.  If Final Working Capital exceeds$29,000,000, Buyer shall pay to Seller, in the manner and with interest asprovided in Section 2.05(b), an amount of cash equal to the difference betweenFinal Working Capital and $29,000,000. If Final Working Capital is equal to $27,750,000 or $29,000,000, or isgreater than $27,750,000 but less than $29,000,000, no amount shall be payableby either Seller or Buyer under this Section 2.05.  “**Final Working Capital**”means the Closing Working Capital (i) as shown in Buyer’s calculation deliveredpursuant to Section 2.04(a), if no notice of disagreement with respect theretois duly delivered pursuant to Section 2.04(b); or (ii) if such a notice ofdisagreement is delivered, (A) as agreed by Buyer and Seller pursuant toSection 2.04(c) or (B) in the absence of such agreement, as shown in theAccounting Referee’s calculation delivered pursuant to Section 2.04(c); *provided* that in no event shall Final Working Capital be more thanSeller’s calculation of Closing Working Capital delivered pursuant to Section2.04(b) or less than Buyer’s calculation of Closing Working Capital deliveredpursuant to Section 2.04(a).

 

(b)           Any payment pursuant to Section2.05(a) shall be made at a mutually convenient time and place within threeBusiness Days after the Final Working Capital has been determined by deliveryby Buyer or Seller, as the case may be, of a wire transfer of immediatelyavailable funds to the account of the other party as may be designated by suchother party at least one Business Day prior to such delivery.  The amount of any payment to be madepursuant to this Section 2.05 shall bear interest from and including theClosing Date to but excluding the date of payment at a rate per annum equal tothe Prime Rate as published in the Wall Street Journal, Eastern Edition ineffect from time to time

 

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during the period from theClosing Date to the date of payment. Such interest shall be payable at the same time as the payment to whichit relates and shall be calculated daily on the basis of a year of 365 days andthe actual number of days elapsed, without compounding.

 

ARTICLE3

REPRESENTATIONS AND WARRANTIES OF SELLER

 

Each of Sellerand, with respect to Parent, Parent represents and warrants to Buyer as of thedate hereof and as of the Closing Date that:

 

Section 3.01.  *Existenceand Power*.  Each of Seller,Parent and each Company is duly formed, validly existing and in good standingunder the laws of its jurisdiction of formation and has all powers and allgovernmental licenses, authorizations, permits, consents and approvals requiredto carry on its business as now conducted and to own, operate and lease itsfacilities and assets as presently owned, leased and operated, except for thoselicenses, authorizations, permits, consents and approvals the absence of whichwould not have a Material Adverse Effect and would not materially adverselyaffect the ability of Seller to consummate the transactions contemplated bythis Agreement.  Each Company is dulyqualified to do business as a foreign company in all jurisdictions where suchqualification is required, except for such jurisdictions where the lack of suchqualifications would not, individually or in the aggregate, have a MaterialAdverse Effect.

 

Section 3.02.  *CorporateAuthorization*.  Theexecution, delivery and performance by each of Seller and Parent of thisAgreement, and the consummation of the transactions contemplated hereby, arewithin each of Seller’s and Parent’s corporate powers and have been dulyauthorized by all necessary corporate action on the part of each of Seller andParent.  This Agreement constitutes a validand binding agreement of each of Seller and Parent, in each case enforceableagainst each of Seller and Parent in accordance with its terms, subject tobankruptcy, insolvency, fraudulent transfer, reorganization, moratorium andsimilar laws of general applicability relating to or affecting creditors rightsand to general equity principles.

 

Section 3.03.  *GovernmentalAuthorization*.  Theexecution, delivery and performance by each of Seller and Parent of thisAgreement, and the consummation of the transactions contemplated hereby,require no action by or in respect of, or filing with, any GovernmentalAuthority, other than (i) compliance with any applicable requirements of theHSR Act; (ii) compliance with any applicable requirements of the 1934 Act; (iii)any such action or filing listed on Schedule 3.03 and (iv) any such action orfiling as to which the failure to make or obtain would not have a MaterialAdverse Effect and would not materially adversely affect the ability of Selleror to consummate the transactions contemplated by this Agreement.

 

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Section 3.04.  *Noncontravention*.  The execution, delivery and performance byeach of Seller and Parent of this Agreement, and the consummation of the transactionscontemplated hereby, do not and will not (i) violate the OrganizationalDocuments of Seller, Parent, any Company or any Subsidiary, (ii) assumingcompliance with the matters referred to in Section 3.03, violate any applicableLaws, except for any such violations which would not have a Material AdverseEffect, (iii) except as disclosed in Schedule 3.04 or as to matters which wouldnot have a Material Adverse Effect, require any consent or other action by anyPerson under, constitute a default under, or give rise to any right oftermination, cancellation or acceleration of any right or obligation of anyCompany or any Subsidiary or to a loss of any benefit to which such Company orsuch Subsidiary is entitled under any provision of any agreement or otherinstrument binding upon such Company or such Subsidiary or (iv) result in thecreation or imposition of any Lien on any material asset of any Company or anySubsidiary, except for any Permitted Liens.

 

Section 3.05.  *Capitalization*.  (a) The (i) authorized Capital Stock, (ii)par value per share, as applicable, and (iii) number of issued and outstandingshares of Capital Stock of each of the Companies are as set forth in Schedule3.05.

 

(b)           All of the Shares have been dulyauthorized and validly issued and are fully paid and non-assessable.  Except as set forth on Schedule 3.05, thereare no outstanding (i) Equity Securities of any Company, (ii) securities ofSeller, any Company or any Subsidiary convertible into or exchangeable forEquity Securities of any Company, or (iii) options, subscriptions, warrants,calls, rights of first offer, rights of first refusal, tag along rights, dragalong rights or other rights to acquire from Seller, any Company or anySubsidiary, or other obligation of any Company to issue, Equity Securities orsecurities convertible into or exchangeable for Equity Securities of anyCompany (the items in clauses 3.05(b)(i), 3.05(b)(ii) and 3.05(b)(iii) beingreferred to collectively as the “**CompanySecurities**”).  There are nooutstanding obligations of any Company or any Subsidiary to repurchase, redeemor otherwise acquire any Company Securities. There are no stockholder agreements, voting trusts, proxies or otheragreements, instruments or understandings with respect to the purchase, sale orvoting of the Company Securities, except for this Agreement and as disclosed inSchedule 3.05.  No Company Securitiesare reserved for issuance.

 

Section 3.06.  *Ownershipof Shares*.  Seller is therecord and beneficial owner of the Shares, free and clear of any Lien otherthan Permitted Liens, and will transfer and deliver to Buyer at the Closingvalid title to the Shares free and clear of any Lien, other than Liens createdby Buyer.

 

Section 3.07.  *Subsidiaries*.  (a) Each Subsidiary is duly formed, validlyexisting and in good standing (if applicable) under the laws of itsjurisdiction of formation and has all powers and all governmental licenses,authorizations, permits, consents and approvals required to carry on itsbusiness as now conducted and to own, operate and lease its facilities andassets as presently

 

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owned, leased and operated, except for those licenses, authorizations,consents and approvals the absence of which would not have a Material AdverseEffect.  Each of the Subsidiaries isduly qualified to do business as a foreign company in all jurisdictions wherethe qualification is required, except where the lack of such qualificationwould not, individually or in the aggregate, have a Material AdverseEffect.  All Subsidiaries and theirrespective jurisdictions of formation are identified on Schedule 3.07.

 

(b)           All of the outstanding shares ofCapital Stock or membership interests of each Subsidiary (other than Tri-StarTechnologies, a California general partnership (“**Tri-Star Technologies**”)) havebeen duly authorized and validly issued and are fully paid andnon-assessable.  All of the generalpartnership interests of Tri-Star Technologies owned by Tri-Star have been dulyauthorized and validly issued.  Exceptas disclosed in Schedule 3.07, all of the outstanding Equity Securities of eachSubsidiary are owned by the Company identified as the owner on Schedule 3.07,directly or indirectly, free and clear of any Lien, other than PermittedLiens.  At Closing, the Companyidentified as the owner on Schedule 3.07 will own the Equity Securities of theSubsidiary identified as owned by such Company, directly or indirectly, freeand clear of all Liens, other than Liens created by Buyer or any of itsAffiliates.  Except as disclosed inSchedule 3.07, there are no outstanding (i) Equity Securities of anySubsidiary, (ii) securities of Seller, any Company or any Subsidiaryconvertible into or exchangeable for Equity Securities of any Subsidiary or(iii) options, subscriptions, warrants, calls, rights of first offer, rights offirst refusal, tag along rights, drag along rights or other rights to acquirefrom Seller, any Company or any Subsidiary, or other obligation of anySubsidiary to issue, any Equity Securities of any Subsidiary (the items inclauses 3.07(b)(i) and 3.07(b)(iii) being referred to collectively as the “**Subsidiary Securities**”).  There are no outstanding obligations of anyCompany or any Subsidiary to repurchase, redeem or otherwise acquire anySubsidiary Securities.  Except asdisclosed in Schedule 3.07, there are no stockholder agreements, voting trusts,proxies or other agreements, instruments or understandings with respect to thepurchase, sale or voting of the Subsidiary Securities.  No Subsidiary Securities are reserved forissuance.

 

(c)           Other than as disclosed in Section3.07(a) and (b) above, no Company, directly or indirectly, owns or has theright to acquire any Capital Stock or other Equity Securities, or securitiesconvertible into or exchangeable for any Capital Stock or other EquitySecurities, in any other Person.

 

Section 3.08.  *FinancialStatements*.  (a) Theunaudited balance sheet as of December 31, 2001 and the related unauditedstatement of income and cash flow of the Companies and the Subsidiaries for theyear ended December 31, 2001, attached hereto as Schedule 3.08, have beenderived from the consolidated audited financial statements of Seller and itssubsidiaries, have been prepared in accordance with GAAP consistently appliedand fairly present in all material respects the financial position of each ofthe Companies and their respective Subsidiaries as of the date thereof andtheir respective results of operations and 

 

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cash flow for the year thenended (subject to the omission of footnote disclosures and other presentationitems, it being understood that such financial statements have been preparedwithout consideration of income taxes).

 

(b)           The audited special purpose combinedbalance sheet as of December 31, 2002 and the related audited special purposecombined statement of income and cash flow of the Companies and theSubsidiaries for the year ended December 31, 2002 (together with notesthereto), attached hereto as Schedule 3.08, have been prepared in accordancewith GAAP consistently applied, and fairly present in all material respects thefinancial position of the Companies and the Subsidiaries as of the date thereofand their results of operations and cash flow for the year then ended (it beingunderstood that such financial statements have been prepared withoutconsideration of income taxes and as special purpose combined financialstatements).

 

Section 3.09.  *Absenceof Certain Changes*.  Exceptas disclosed in Schedule 3.09, since the Balance Sheet Date to the date hereof,the business of the Companies and the Subsidiaries has been conducted in theOrdinary Course of Business and there has not been:

 

(a)           any event, occurrence or developmentwhich has had, or could reasonably be expected to have, a Material AdverseEffect;

 

(b)           any declaration, setting aside orpayment of any dividend or other distribution with respect to any EquitySecurities of any Company or any Subsidiary, or any repurchase, redemption orother acquisition by any Company or any Subsidiary of any outstanding EquitySecurities or other securities of any Company or any Subsidiary; 

 

(c)           any amendment of any term of anyoutstanding security of any Company or any Subsidiary;

 

(d)           any incurrence, assumption orguarantee by any Company or any Subsidiary of any Indebtedness other than anyIndebtedness owed to Parent, Seller or any of its Subsidiaries incurred in theOrdinary Course of Business; 

 

(e)           any making by any Company or anySubsidiary of any loan, advance or capital contributions to or investment inany Person other than  (i) to Parent,Seller or any of its Subsidiaries in the Ordinary Course of Business and (ii)loans or advances to employees in the Ordinary Course of Business;

 

(f)            any transaction or commitment made,or any contract or agreement entered into, by any Company or any Subsidiaryrelating to its assets or business (including without limitation any sale,lease, transfer or other disposal of any such asset or business, or anyacquisition of any business), or any modification thereto, that is material tothe Companies and the Subsidiaries, taken as a whole, other 

 

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than sales of inventory orpurchases of supplies in the Ordinary Course of Business and those specificallycontemplated by this Agreement;

 

(g)           any shutdown by any Company or anySubsidiary of any manufacturing facility;

 

(h)           any material change in any method ofaccounting or accounting practice by any Company or any Subsidiary, except forany such change required by reason of a concurrent change in GAAP;

 

(i)            any (i) employment, deferredcompensation, severance, retirement or other similar agreement entered intowith any director, officer or employee of any Company or any Subsidiary (or anyamendment to any such existing agreement), (ii) grant of any severance ortermination pay to any director, officer or employee of any Company or anySubsidiary, or (iii) change in compensation, benefit plans or other benefits payableto any director, officer or employee of any Company or any Subsidiary pursuantto any severance or retirement plans or policies thereof or compensationincreases for employees, directors, officers, consultants or agents, in eachcase other than to or for any non-executive employee in the Ordinary Course ofBusiness;

 

(j)            any material payments, discountactivity or any other consideration to customers or suppliers, other than inthe Ordinary Course of Business;

 

(k)           any damage, destruction or loss of propertyof any of the Companies or any of the Subsidiaries that exceeded $100,000 inany one instance;

 

(l)            any alteration through merger,liquidation, reorganization or restructuring of the corporate structure orownership of any Company or any Subsidiary;

 

(m)          any payment, discharge or satisfactionof any material liability, other than in the Ordinary Course of Business;

 

(n)           any changes or amendments to theOrganizational Documents of any Company or any Subsidiary;

 

(o)           any revaluation of any of the assetsor properties of the Companies or the Subsidiaries, including, withoutlimitation, any write-off (in whole or in part) of notes or accountsreceivable, the cancellation, waiver or release of any material other right orclaim or any increase in any reserve, or unbilled customer expenses other thanin the Ordinary Course of Business;

 

(p)           any written notice received bySeller, the Company or any of the Subsidiaries of any termination of anymaterial customer account or group of accounts or material reduction inpurchases or royalties payable by any customer, and Seller otherwise has noKnowledge of the occurrence of any event that is 

 

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likely to result in any suchtermination or reduction (except any of the matters specified as exceptions inthe definition of Material Adverse Effect in Section 1.01);

 

(q)           any settlement or compromise of (i)any litigation or (ii) the matters referred to in Items 3 and 4 of Schedule3.09;

 

(r)            any labor strike, slowdown or workstoppage, or, to the Knowledge of Seller, any threat thereof;

 

(s)           any material changes or amendments toany contract or agreement listed on Schedule 3.12;

 

(t)            any failure to pay or satisfy whendue any material liability of any Company or any Subsidiary; or

 

(u)           if applicable, agreement orcommitment to do any of the foregoing.

 

Section 3.10.  *NoUndisclosed Material Liabilities*. (a) There are no liabilities or obligations (whether direct or indirect,known or unknown, absolute or contingent, liquidated or unliquidated, accruedor unaccrued, matured or unmatured) of any Company or any Subsidiary of anykind, other than:

 

(i)            liabilities orobligations reflected on or reserved for on the Balance Sheet or included inthe calculation of Closing Working Capital;

 

(ii)           liabilities orobligations disclosed on Schedule 3.10;

 

(iii)          liabilities orobligations disclosed in, related to, or arising under any lease, agreement,contract or instrument or with respect to other matters disclosed in thisAgreement or any Schedule hereto;

 

(iv)          liabilities orobligations for Federal Income Taxes, Combined Income Taxes and Separate IncomeTaxes relating to any Pre-Closing Tax Period;

 

(v)           obligations tocomply with Laws;

 

(vi)          liabilities andobligations arising after the date hereof in the Ordinary Course of Business oras otherwise required or permitted by this Agreement;

 

(vii)         liabilities andobligations for compensation and benefits with respect to Employees; and

 

(viii)        other undisclosedliabilities which, individually or in the aggregate, do not and could notreasonably be expected to have a Material Adverse Effect.

 

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(b)           Except as disclosed on Schedule 3.10,no Company or Subsidiary has any obligations or liabilities relating to anyIndebtedness.

 

Section 3.11.  *IntercompanyAccounts*.  Schedule 3.11contains a complete list of all intercompany balances, as of the Balance SheetDate, between Seller and its Affiliates (other than any Company or anySubsidiary), on the one hand, and any Company and any Subsidiary, on the otherhand.  Since the Balance Sheet Datethere has not been any accrual of liability by any Company or any Subsidiary toSeller or any of its Affiliates (other than any Company or any Subsidiary) orother transaction between any Company or any Subsidiary and Seller or any ofits Affiliates (other than any Company or any Subsidiary), except in theOrdinary Course of Business of the Companies and the Subsidiaries or asprovided in Schedule 3.11.

 

Section 3.12.  *MaterialContracts*.  (a)  Except (x) as disclosed in Schedule 3.12 and(y) for any contracts or agreements entered into after the date hereof in theOrdinary Course of Business (subject to Section 5.01) or as otherwise requiredor permitted by this Agreement, no Company or Subsidiary is a party to or boundby:

 

(i)            any lease (whetherof real or personal property) providing for annual rentals of $100,000 or morethat cannot be terminated on not more than 60 days’ notice without payment byany Company or any Subsidiary of any material penalty;

 

(ii)           any agreement forthe purchase of materials, supplies, goods, services, equipment or other assetsproviding for either (A) annual payments by any Company or any Subsidiary of$250,000 or more or (B) aggregate payments by any Company or any Subsidiary of$1,000,000 or more, in each case that cannot be terminated on not more than 60days’ notice without payment by any Company or any Subsidiary of any materialpenalty;

 

(iii)          any contract oragreement (A) providing for the sale by any Company or any Subsidiary ofmaterials, supplies, goods, services, equipment or other assets that providesfor a specified annual minimum dollar sales amount by any Company or anySubsidiary of $1,000,000 or more or (B) pursuant to which any Company or anySubsidiary received payments of $500,000 or more in the year ended December 31,2002;

 

(iv)          any partnership,joint venture or other similar agreement;

 

(v)           any agreementrelating to the acquisition or disposition of any material business (whether bymerger, sale of stock, sale of assets or otherwise);

 

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(vi)          any agreementrelating to Indebtedness, except any such agreement entered into subsequent tothe date of this Agreement as permitted by Section 5.01;

 

(vii)         any materialagreement that limits the freedom of any Company or any Subsidiary to competein any line of business or with any Person or in any area;

 

(viii)        any materialagreement with Seller or any of its Affiliates (other than any Company or anySubsidiary) or any director or officer of Seller or any of its Affiliates(other than any Company or any Subsidiary) (each of which, if any, may beterminated by the relevant Company or Subsidiary on not more than 10 days’ notice);

 

(ix)           any employment orcompensation agreement with any director, stockholder or officer of theCompanies and the Subsidiaries or any other material agreement with anyEmployee;

 

(x)            any agreementrelating to securities of any Company or any Subsidiary or rights in connectiontherewith;

 

(xi)           any contractpursuant to which any of the Intellectual Property Rights are licensed orsublicensed to or from any Company or any Subsidiary;

 

(xii)          any contract underwhich any Company or any Subsidiary has loaned money or promised to lend money,or made any other loan or advance to, or other investment in, any other Person;

 

(xiii)         any collectivebargaining agreement or similar labor related contract; and

 

(xiv)        any other agreementnot made in the Ordinary Course of Business that involves aggregate paymentshereafter to or by any Company or any Subsidiary of more than $100,000.

 

(b)           Each lease, agreement or contractrequired to be disclosed pursuant to Section 3.12(a) is a valid and bindingagreement of the relevant Company or Subsidiary, as the case may be, and is infull force and effect, and none of the Companies, the Subsidiaries or, to theKnowledge of Seller, any other party thereto is in default or breach in anyrespect under the terms of any such lease or agreement, and no event hasoccurred that, with the passing of time or the giving of notice would result ina default or breach of any such contract, lease or agreement, or allow fortermination or cancellation thereof, except for any such defaults or breacheswhich have not had and which are not reasonably expected to have, individuallyor in the aggregate, a Material Adverse Effect.  Neither Seller nor any of its Affiliates has received any writtennotice from any party to such 

 

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lease, agreement or contract ofany intention to terminate, cancel or otherwise fail to perform any obligationsof such party under any such lease, agreement or contract.

 

Section 3.13.  *Litigation*.  Except as disclosed on Schedule 3.13, thereare no actions, suits, investigations, proceedings or claims pending before anyGovernmental Authority against, or to the Knowledge of Seller, threatenedagainst or affecting, any Company, any Subsidiary or any of their respectiveproperties or any Employee Plan (other than routine audits or routine claimsfor benefits) which have had or would reasonably be expected to have,individually or in the aggregate, a Material Adverse Effect or which in anymanner challenges or seeks to prevent, enjoin or materially delay thetransactions contemplated by this Agreement.

 

Section 3.14.  *Compliancewith Laws and Court Orders*. None of the Companies, any Subsidiary or any Employee Plan is inviolation of any applicable Law, except for violations which have not had andwhich are not reasonably expected to have, individually or in the aggregate, aMaterial Adverse Effect.

 

Section 3.15.  *Properties*.  Schedule 3.15 sets forth, and identifies assuch, all real property owned or leased by any Company or any Subsidiary.  Except as set forth on Schedule 3.15, thereare no leases, subleases, licenses, options or other agreements granting to anyparty the right of occupancy or ownership of any portion of the real propertyowned by any Company or any Subsidiary. The Companies and the Subsidiaries have good title to, or in the case ofleased property and assets have valid leasehold interests in, all property andassets (whether real, personal, tangible or intangible) reflected on theBalance Sheet or acquired after the Balance Sheet Date and material to theCompanies and the Subsidiaries, taken as a whole, except for inventory andobsolete equipment sold since the Balance Sheet Date in the Ordinary Course ofBusiness or in accordance with Section 5.01. The assets and properties owned, leased or licensed by the Companies andthe Subsidiaries are sufficient for the conduct of the businesses of theCompanies and the Subsidiaries as presently conducted.  None of such property or assets is subjectto any Lien, except for Permitted Liens.

 

Section 3.16.  *IntellectualProperty*.  (a)  Except as set forth in item 1 of Schedule3.16, the Companies and the Subsidiaries have ownership or valid and legallyenforceable rights to use, free and clear of all Liens (other than Permitted Liens),all material Intellectual Property Rights used or held for use by any Companyor any Subsidiary and necessary for the conduct of the business of theCompanies and the Subsidiaries as currently conducted (the “**CompanyIntellectual Property Rights**”), except as would not reasonably beexpected to have, individually or in the aggregate, a Material Adverse Effect.

 

(b)           No Company Intellectual PropertyRight is subject to any outstanding judgment, injunction, order, decree oragreement restricting the use thereof by any Company or any Subsidiary orrestricting the licensing thereof by 

 

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any Company or any Subsidiaryto any Person, except for any judgments, injunctions, orders, decrees oragreements which do not, individually or in the aggregate, have a MaterialAdverse Effect.  Except as set forth inSchedule 3.16, to the Knowledge of Seller, (i) no Person is infringing on orviolating any Company Intellectual Property Rights, and (ii) no Company nor anySubsidiary is infringing on or violating the Intellectual Property Rights ofany other Person.

 

(c)           The consummation of the transactionscontemplated by this Agreement, with or without the giving of notice or thelapse of time or both, do not and will not trigger any provision under anylicense agreement with respect to Company Intellectual Property Rights topermit the termination of such agreement by the licensor, permit therenegotiation of any terms, including without limitation the amount of anycommission, royalty or other fee(s) payable under such agreement, restrict, inany material way, the use of such Company Intellectual Property Rights in thebusiness subsequent to the Closing Date, except as would not reasonably beexpected to have, individually or in the aggregate, a Material Adverse Effect.

 

(d)           Each Company and Subsidiary has takenreasonable steps necessary to protect such Company’s or Subsidiary’s rights inall material trade secrets, know-how or other confidential or proprietaryinformation of such Company or such Subsidiary by limiting the disclosure anduse of such information pursuant to appropriate confidentiality agreements,except as would not reasonably be expected to have, individually or in theaggregate, a Material Adverse Effect.

 

(e)           Prior to the date hereof, theCompanies and the Subsidiaries have not (i) infringed upon or violated anyvalid and enforceable claim of the patent referred to in Item 2 of Schedule3.16 (the “**Subject Patent**”), or (ii) manufactured, produced or sold theproduct referred to in Item 3 of Schedule 3.16 (the “**Subject Product**”), other thanthe manufacture and production of prototypes or display units of such product.

 

Section 3.17.  *InsuranceCoverage*.  Schedule 3.17 setsforth all insurance policies and fidelity bonds of the Companies and theSubsidiaries.  Seller has made availableto Buyer true and complete copies of all insurance policies and fidelity bondsrelating to the assets, business, operations, employees, officers or directorsof the Companies and the Subsidiaries. There are no material claims by any Company or any Subsidiary pendingunder any of such policies or bonds as to which coverage has been questioned,denied or disputed by the underwriters of such policies or bonds or in respectof which such underwriters have reserved their rights.  The insurance policies and bonds set forthon Schedule 3.17 (i) are in full force and effect and, to the Knowledge ofSeller, are free from any right of termination on the part of the insurancecarriers, (ii) except as set forth on Schedule 3.17, all premiums due withrespect thereto have been paid or, with respect to the premiums not yet due,accrued by Seller, (iii) no written notice of termination or cancellationhas been received with respect to any such policy and (iv) no writtennotice has been received with respect to any material changes that

 

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are required in the conduct ofthe business of any Company or any Subsidiary as a condition to thecontinuation of coverage under, or renewal of, any such policy.  With respect to “occurrence” based policies,(i) there are no lapses in historical insurance coverage, (ii) current andhistorical limits of liability have not been exhausted and (iii) each of theCompanies is a named insured party.

 

Section 3.18.  *Finders’Fees*.  Except for CreditSuisse First Boston Corporation, whose fees will be paid by Seller, there is noinvestment banker, broker, finder or other intermediary that has been retainedby or is authorized to act on behalf of Seller or any Company or any Subsidiaryor any of their respective Affiliates who might be entitled to any fee orcommission in connection with the transactions contemplated by this Agreement.

 

Section 3.19*.Employees. *Schedule 3.19sets forth a true and complete list of the names, titles, current annualsalaries and most recent bonuses paid for all officers of the Companies and theSubsidiaries and all other current employees, in each case whose annual basesalary exceeds $100,000.  No Company orSubsidiary is a party to any collective bargaining or other labor agreementwith respect to any Employees with any union, labor association, workerscounsel or similar organization.  NoCompany or Subsidiary has received written notice of, or to the Knowledge ofSeller has experienced, any attempt by a union, labor association, workerscounsel or similar organization (or any representative thereof) to make any ofthe Companies or any Subsidiary conform with the demands of organized labor relatingto any Employees or to enter into any agreement with any such union, laborassociation, workers counsel or similar organization.  There is no strike or unfair labor practice pending or, to theKnowledge of Seller, threatened against any Company or Subsidiary.

 

Section 3.20.  *EmployeeBenefit Plans*.  (a) Sellerhas provided to Buyer a list of and copies of each material “employee benefitplan”, as defined in Section 3(3) of ERISA, each material employment, severanceor similar contract, plan arrangement or policy and each other material plan orarrangement (written or oral) providing for compensation, bonuses,profit-sharing, stock option or other stock related rights or other forms ofincentive or deferred compensation, vacation benefits, insurance (including anyself-insured arrangements), health or medical benefits, employee assistanceprogram, disability or sick leave benefits, workers’ compensation, supplementalunemployment benefits, severance benefits and post-employment or retirementbenefits (including compensation, pension, health, medical or life insurancebenefits) which is maintained, administered or contributed to by any Company orany ERISA Affiliate and covers any Employee (or any dependent or beneficiarythereof) or any current or former director or independent contractor of anyCompany or any Subsidiary (and, if applicable, related trust or fundingagreements or insurance policies) and all amendments thereto and writteninterpretations thereof have been furnished to Buyer together with the mostrecent annual report (Form 5500 including, if applicable, Schedule B thereto)and Form 990, if applicable, prepared in connection with any such plan ortrust.  Such plans are referred tocollectively herein as the “**Employee Plans**”.

 

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Schedule 3.20(a) contains acorrect and complete list identifying each Employee Plan.

 

(b)           None of the Companies, any ERISAAffiliate or any predecessor thereof sponsors, maintains or contributes to, orhas in the past sponsored, maintained or contributed to, any Employee Plansubject to Title IV of ERISA.

 

(c)           None of the Companies, any ERISAAffiliate or any predecessor thereof contributes to, or has in the pastcontributed to, any multiemployer plan, as defined in Section 3(37) of ERISA.

 

(d)           Each Employee Plan that is intendedto be qualified under Section 401(a) of the Code is subject to a favorabledetermination letter from the Internal Revenue Service and all amendments toany such Employee Plan for which the remedial amendment period (as defined inSection 401(b) of the Code and applicable regulations) has expired are coveredby a favorable determination letter from the Internal Revenue Service and, tothe Knowledge of Seller, no fact or circumstance exists giving rise to amaterial likelihood that such Employee Plan would not be treated as soqualified by the Internal Revenue Service. Seller has provided to Buyer copies of the most recent Internal RevenueService determination letters with respect to each such Employee Plan.  Each Employee Plan has been maintained incompliance with its terms and with the requirements prescribed by allapplicable Laws (including but not limited to ERISA and the Code), except forsuch terms and requirements which have not had and which are not reasonablyexpected to have, individually or in the aggregate, a Material Adverse Effect.

 

(e)           None of the Companies nor anySubsidiary has any current or projected liability in respect of post-employmentor post-retirement health or medical or life insurance benefits for Employees,except as required to avoid excise tax under Section 4980B of the Code.

 

(f)            Except as set forth on Schedule3.20(f), no Employee will become entitled to any bonus, retirement, severance,job security or similar benefit or any accelerated or enhanced payment orbenefit as a result of the transactions contemplated by this Agreement.

 

(g)           There is no contract, plan orarrangement (written or otherwise) covering any Employee that, individually orcollectively, would reasonably be expected to give rise to the payment of anyamount that would not be deductible pursuant to the terms of Section 280G ofthe Code.

 

(h)           Any Employee Plan that has beenadopted or maintained by any Company or any Subsidiary principally for the benefitof Employees outside the United States (“**International Plan**”) has been maintained inall material respects with its terms and conditions and in all materialrespects with all applicable Laws (including without limitation any specialprovisions relating to the tax status of

 

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contributions to, earnings of, or distributions from such InternationalPlans where the applicable International Plan was intended to have such taxstatus).  With respect to each InternationalPlan, all employer and employee contributions have been made or, if applicable,accrued in accordance with applicable accounting practices.  Each International Plan that is required tobe registered with any governmental entity or regulatory authority has been soregistered and has been maintained in good standing with all applicablegovernmental entities and regulatory authorities, except such terms, conditionsand requirements which have not had and which are not reasonably expected tohave, individually or in the aggregate, a Material Adverse Effect.

 

(i)            There have been no prohibitedtransactions (within the meaning of Section 406 of ERISA or 4975 of the Code)with respect to any Employee Plan.  Nofiduciary (within the meaning of Section 3(21) of ERISA) has any materialliability for breach of fiduciary duty or for any other failure to act orcomply in connection with the administration or investment of the assets of anysuch Employee Plan.  There have been noacts or omissions by any person with respect to any Employee Plan that havegiven rise to, or could reasonably be expected to give rise, to any materialliability under Section 502 of ERISA.

 

(j)            None of the Companies or any of theSubsidiaries maintains or otherwise has any liability with respect to anydeferred compensation, excess benefit or other non-qualified supplementalretirement plan, program or arrangements.

 

Section 3.21.  *EnvironmentalMatters*.  Except as disclosedon Schedule 3.21 or except as to matters which have not had and which are notreasonably expected to have, individually or in the aggregate, a MaterialAdverse Effect:

 

(a)           thereare no Environmental Claims pending or, to the Knowledge of Seller, threatened,in each case relating to any Company or any Subsidiary;

 

(b)           eachCompany and each Subsidiary possess all permits, licenses, authorizations orconsents (“**Permits**”) necessary for its operations to comply with allapplicable Environmental Laws and are in compliance with the terms of suchPermits and all such Permits are listed on Schedule 3.21;

 

(c)           therehave been no written environmental audits, reports, analyses, studies,investigations or assessments conducted within the past five years by, or onbehalf of, Seller, any Company or any Subsidiary of any property currentlyowned or leased by any Company or any Subsidiary that has not been madeavailable to Buyer prior to the date hereof;

 

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(d)           Thebusiness and operations, and the owned, operated or leased property of anyCompany or any Subsidiary are currently in compliance with all EnvironmentalLaws and have been in compliance for the past 5 years with all EnvironmentalLaws;

 

(e)           Therehas been no Release of Hazardous Materials which resulted, or could reasonablybe expected to result, in a required Remedial Action by any Company or anySubsidiary, and neither any Company nor any Subsidiary is currently conducting,or can reasonably be expected to need to conduct, any Remedial Action;

 

(f)            Noneof any Companies or any Subsidiaries (i) has received any written request forinformation, or has been notified that it is a potentially responsible party,under CERCLA or any similar state law or (ii) has been, or is reasonably likelyto be, subject to any Environmental Costs or Liabilities arising under orpursuant to CERCLA or any similar state law; and

 

(g)           Noneof any Companies or any Subsidiaries has created or assumed any liabilities,guaranties, obligations or indemnifications under any consent decree,settlement agreement or contract with any third party, including anyGovernmental Authority, related to any actual or potential Environmental Costsand Liabilities.

 

Except as setforth in this Section 3.21, no representations or warranties are being madewith respect to environmental matters.

 

Section3.22.*  Taxes*.  (a) All material Tax returns, statements, reports, elections, declarations,disclosures, schedules and forms (including estimated tax or informationreturns and reports) filed or required to be filed with any Taxing Authoritywith respect to any Pre-Closing Tax Period by or on behalf of any Company orany Subsidiary (collectively, the “**Returns**”), have, to the extent required tobe filed on or before the date hereof, been filed when due in accordance withall applicable laws.  As of the time offiling, the Returns were true and complete in all material respects.  All material Taxes of the Companies and theSubsidiaries have been timely paid, or withheld and remitted to the appropriateTaxing Authority.

 

(b)           No member of the Seller Group hasgranted any extension or waiver of the statute of limitations period applicableto any Return, which period (after giving effect to such extension or waiver)has not yet expired.  There is no auditnow pending against or with respect to any Company or any Subsidiary nor isthere any audit pending against or with respect to any member of the SellerGroup in respect of any material Tax or material Tax Asset of the SellerGroup.  No adjustment that wouldmaterially increase the Tax liability, or materially reduce any Tax Asset, ofany Company or any Subsidiary has been made or proposed by a Taxing Authorityduring any audit of a Pre-Closing Tax Period that is

 

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reasonably expected to be madeor proposed in an audit of any subsequent Pre-Closing Tax Period orPost-Closing Tax Period.  There are norequests for rulings or determinations in respect of any material Tax ormaterial Tax Asset pending between any Company or any Subsidiary and any TaxingAuthority.  None of the Companies, theSubsidiaries, or any member of the Seller Group has received a tax opinion withrespect to any transaction relating to any Company or any Subsidiary, otherthan a transaction in the Ordinary Course of Business.

 

(c)           (i) Schedule 3.22(c) contains a list of each jurisdiction (whether foreignor domestic) in which any Company or any Subsidiary has filed a Federal IncomeTax Return, a Combined Income Tax Return or a Separate Income Tax Return duringthe five-year period ending on the date hereof; and (ii) no jurisdiction otherthan a jurisdiction listed on Schedule 3.22(c) has asserted, during thefive-year period ending on the date hereof, that any Company or any Subsidiaryowes a Federal Income Tax, a Combined Income Tax or a Separate Income Tax to aTaxing Authority within such jurisdiction.

 

(d)           None of the Companies or anySubsidiary has been a member of an affiliated, consolidated, combined orunitary group other than one of which Seller was the common parent.  None of Seller, the Companies or anySubsidiary has entered into any agreement or arrangement with any TaxingAuthority with regard to the Tax liability of any Company or any Subsidiaryaffecting any Tax period for which the applicable statute of limitations, aftergiving effect to extensions or waivers, has not expired.

 

(e)           None of the Companies, theSubsidiaries or any member of the Seller Group is a party to any understandingor arrangement described in Section 6111(d) or Section 6662(d)(2)(C)(iii) ofthe Code.  During the five-year periodending on the date hereof, none of the Companies or any Subsidiary was adistributing corporation or a controlled corporation in a transaction intendedto be governed by Section 355 of the Code. None of Seller, any Company or any Subsidiary is a party to anytransaction, understanding or arrangement that qualifies as a “reportabletransaction” under Treasury Regulations Section 1.6011-4T(b).

 

(f)            Except as set forth on Schedule3.22(f), (i) no election has been made under Treasury Regulations Section301.7701-3 or any similar provision of Tax law to treat any Company or anySubsidiary as an association, corporation or partnership; (ii) none of theCompanies nor any Subsidiary, is disregarded as an entity for Tax purposes;(iii) none of Seller, any Company, any Subsidiary, or any other person onbehalf of any Company or any Subsidiary, has entered into any agreement orconsent pursuant to Section 341(f) of the Code.

 

(g)           None of the assets of any Company orSubsidiary is property required to be treated as being owned by any otherperson pursuant to the “safe harbor lease” provisions of former Section168(f)(8) of the Code.  None of theassets of any Company or Subsidiary directly or indirectly secures any debt the

 

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interest on which is tax-exemptunder Section 103(a) of the Code.  Noneof the assets of any Company or Subsidiary is “tax-exempt use property” withinthe meaning of Section 168(h) of the Code.

 

(h)           No Company or Subsidiary has agreedto make, or is required to make, any adjustment under Section 481(a) of theCode or any comparable provision of state or foreign tax laws by reason of achange in accounting method or otherwise that would result in a material incomeinclusion for such Company or Subsidiary in any Post-Closing Tax Period.

 

(i)            No Company or Subsidiary will berequired to include any material item of taxable income or exclude any materialitem of deduction in a Post-Closing Tax Period as a result of an intercompanytransaction, as defined in Treasury Regulations Section 1.1502-13, entered intoby such entity in a Pre-Closing Tax Period.

 

(j)            No Company or Subsidiary has enteredinto an installment sale or open transaction in a Pre-Closing Tax Period thatwill result in a material Tax liability or materially reduce any Tax Asset ofsuch entity in a Post-Closing Tax Period.

 

(k)           Except as set forth on Schedule3.22(k), no Company or Subsidiary is a party to or bound by any Tax indemnity,Tax sharing or Tax allocation agreement.

 

Section3.23*. Arrangements With Buyer. *Norepresentations or warranties shall be deemed to have been made with respect toany relationship, arrangement, transaction, or agreement of any kind with Buyeror any of its Affiliates.

 

Section3.24*.  Permits. *(a) The Companies and the Subsidiaries have allmaterial local, state and federal governmental licenses, permits,registrations, certificates, contracts, consents, accreditations and approvals(collectively, the “**Licenses and Permits**”) necessary to operateand conduct their businesses as presently conducted, except for Licenses andPermits the failure of which to have could not reasonably be expected to have aMaterial Adverse Effect.  No Company orSubsidiary is in violation of any of the Licenses and Permits, except forviolations which have not had and which are not reasonably expected to have,individually or in the aggregate, a Material Adverse Effect.

 

(b)           To the Knowledge of Seller, as of thedate of this Agreement, (i) each Company and each Subsidiary has all of theParts Manufacturer Approvals (“**PMA**”) and repair stations facilitiescertificates from the Federal Aviation Administration or the Department ofTransportation needed to conduct its business as presently conducted and (ii)no competitor of any Company or any Subsidiary has obtained a PMA for anymaterial product that competes in any material respect with any materialproduct currently offered by any Company or any Subsidiary that is material tothe business of such Company or Subsidiary.

 

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Section 3.25.  *Accounts Receivable. *The accounts and notes receivable reflected on the BalanceSheet (except to the extent collected since the Balance Sheet Date) arose inthe Ordinary Course of Business.  Suchaccounts and notes receivable have been determined in accordance with GAAPconsistently applied, and no additional performance is required on the part ofany Company or any Subsidiary for such accounts and notes receivables to berecognized as such in accordance with GAAP.

 

Section3.26*.  Inventory. *Each Companyand each Subsidiary has good title toits inventory free and clear of Liens, except for Permitted Liens.  The inventory reflected on the Balance Sheethas been determined in accordance with GAAP consistently applied.

 

Section3.27*.  WARN Act. *No Company or Subsidiary has within the 180 daysimmediately preceding the date hereof, effectuated a “plant closing” or “masslayoff” as defined in the Workers Adjustment and Retraining Notification (“**WARN**”)Act, or any analogous U.S. state or U.S. local Law affecting in whole or inpart any facility, site of employment, operating unit or employees of anyCompany or any Subsidiary, without fully complying with the WARN Act or anyanalogous U.S. state or U.S. local law. No Specified Layoff has occurred during the 90 days immediatelypreceding the date hereof.  For purposesof this Section 3.27, “**Specified Layoff**” means a reduction inforce which results in employment loss by at least 45 Employees at a singlesite of employment during any 30 day period.

 

Section 3.28.  *Product Liability. *(a) Each of the products produced or sold by each Company andeach Subsidiary is, and at all times up to and including the sale thereof byany Company or any Subsidiary has been, (i) in compliance in all materialrespects with all applicable Laws, (ii) in conformity in all material respectswith any warranties made in any written materials accompanying such product orin connection with its sale and (iii) fit for the ordinary purpose for whichsuch product is intended to be used.  NoCompany or Subsidiary has received written notice of, and Seller has noKnowledge of, any claim based on any product warranty.

 

(b)           No Company or Subsidiary hascommitted any act, and there has been no omission, which would reasonably beexpected to result in, and there has been no occurrence which would reasonablybe expected to give rise to, product liability or liability for breach ofwarranty on the part of any Company or any Subsidiary with respect to productsdesigned, manufactured, assembled or sold prior to or on the Closing Date,except for any such liabilities which would not have a Material Adverse Effect.There are no product warranties applicable to products sold by the Companiesand the Subsidiaries except the express warranties which are set forth inwritten agreements between the applicable Company or Subsidiary and itscustomers and such warranties as are imposed by applicable Law. Each of suchproducts bears such warnings and, when delivered, instructions, as are requiredby applicable Laws.

 

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(c)           No Company or Subsidiary has receivedany statements, citations, decisions or orders by any Governmental Authoritystating that any product produced or sold by any Company or Subsidiary isdefective or unsafe or fails to meet any product warranty or any standardspromulgated by any such Governmental Authority.  No products produced or sold by any Company or Subsidiary havebeen subject to any material recall.

 

(d)           No Company or Subsidiary uses or hasused any asbestos or asbestos containing material in its manufacturingoperations or processes, including but not limited to the use of asbestos as araw material.

 

(e)           To the extent that any representationor warranty of Seller contained in this Section 3.28 relates to any Company orSubsidiary at any time prior to Seller’s direct or indirect ownership of suchCompany or Subsidiary, such representation or warranty shall be deemed to bemade to Seller’s Knowledge.

 

Section3.29*.  No Other Representations. *Seller is an informed andsophisticated party and has engaged expert advisors experienced in transactionsof the type contemplated by this Agreement. Seller hereby acknowledges andaffirms that in making its decision to enter into this Agreement and toconsummate the transactions contemplated hereby it has relied solely on therepresentations, warranties and covenants of the Buyer contained in this Agreement.

 

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF BUYER

 

Buyerrepresents and warrants to Seller as of the date hereof and as of the ClosingDate that:

 

Section 4.01.  *CorporateExistence and Power*.  Buyeris duly formed, validly existing and in good standing under the laws of theState of Delaware and has all powers and all material governmental licenses,authorizations, permits, consents and approvals required to carry on itsbusiness as now conducted.

 

Section 4.02.  *CorporateAuthorization*.  The execution,delivery and performance by Buyer of this Agreement and the consummation of thetransactions contemplated hereby are within Buyer’s corporate powers and havebeen duly authorized by all necessary corporate action on the part of Buyer.  This Agreement constitutes a valid andbinding agreement of Buyer, enforceable against Buyer in accordance with itsterms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,moratorium and similar laws of general applicability relating to or affectingcreditors rights and to general equity principles.

 

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Section 4.03.  *GovernmentalAuthorization*.  Theexecution, delivery and performance by Buyer of this Agreement and theconsummation of the transactions contemplated hereby require no material actionby or in respect of, or material filing with, any governmental body, agency orofficial other than (i) compliance with any applicable requirements of the HSRAct; (ii) compliance with any applicable requirements of the 1934 Act and (iii)any such action or filing as to which the failure to make or obtain would notmaterially adversely affect the ability of Buyer to consummate the transactionscontemplated by this Agreement.

 

Section 4.04.  *Noncontravention*. The execution, delivery and performanceby Buyer of this Agreement and the consummation of the transactionscontemplated hereby do not and will not (i) violate the certificate ofincorporation or bylaws of Buyer, (ii) assuming compliance with the matters referredto in Section 4.03, violate any applicable Law, (iii) other than any consentsthat have been obtained, require any consent or other action by any Personunder, constitute a default under, or give rise to any right of termination,cancellation or acceleration of any right or obligation of Buyer or to a lossof any benefit to which Buyer is entitled under any provision of any agreementor other instrument binding upon Buyer or (iv) result in the creation orimposition of any Lien on any material asset of Buyer.

 

Section 4.05.  *Financing*.  Buyer has received, and furnished to Sellera copy of, all of the commitment letters and the accompanying term sheets (the“**CommitmentLetters**”) from financing sources set forth in Schedule 4.05.  The aggregate proceeds of the financing tobe provided thereunder will be in an amount sufficient to acquire the Sharesand to pay all fees and expenses incurred by Buyer in connection with thetransactions contemplated by this Agreement and the Commitment Letters.  As of the date hereof, the CommitmentLetters are in full force and effect and Buyer knows of no facts orcircumstances that are reasonably likely to result in any such commitment notbeing funded or in any condition set forth in any Commitment Letter not being satisfied.

 

Section 4.06.  *Purchasefor Investment*.  Buyer ispurchasing the Shares for investment for its own account and not with a viewto, or for sale in connection with, any distribution thereof.  Buyer (either alone or together with itsadvisors) has sufficient knowledge and experience in financial and businessmatters so as to be capable of evaluating the merits and risks of itsinvestment in the Shares and is capable of bearing the economic risks of suchinvestment.

 

Section 4.07.  *Litigation*.  There is no action, suit, investigation orproceeding pending against, or to the knowledge of Buyer threatened against oraffecting, Buyer before any court or arbitrator or any governmental body,agency or official which in any manner challenges or seeks to prevent, enjoin,alter or materially delay the transactions contemplated by this Agreement.

 

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Section 4.08.  *Finders’Fees*.  Except for the fees ofOdyssey Investment Partners, LLC, whose fees will be paid by Buyer or, if theClosing occurs, by one or more of the Companies (after the Closing), there isno investment banker, broker, finder or other intermediary which has beenretained by or is authorized to act on behalf of Buyer who might be entitled toany fee or commission from Seller or any of its Affiliates upon consummation ofthe transactions contemplated by this Agreement.

 

Section 4.09.  *Inspections;No Other Representations*. Buyer is an informed and sophisticated purchaser, and has engaged expertadvisors, experienced in the evaluation and purchase of companies such as theCompanies and the Subsidiaries as contemplated hereunder.  Buyer has undertaken such investigation andhas been provided with and has evaluated such documents and information as it hasdeemed necessary to enable it to make an informed and intelligent decision withrespect to the execution, delivery and performance of this Agreement.  Buyer will undertake prior to Closing suchfurther investigation and request such additional documents and information asit deems necessary.  Buyer herebyacknowledges and affirms that in making its decision to enter into thisAgreement and to consummate the transactions contemplated hereby it has reliedsolely on (A) its own investigation of the Companies and (B) therepresentations, warranties and covenants of the Seller contained in thisAgreement.  Seller acknowledges andagrees that Buyer’s inspection shall not be asserted as defense against Buyeror its Affiliates in any proceeding alleging, or otherwise limit the rights ofBuyer and its Affiliates (pursuant to Section 11.02 or otherwise) with respectto, any breach of any representation or warranty expressly set forth in thisAgreement.  Buyer acknowledges that noneof Seller or any of its Affiliates, counsel, advisors, accountants or otherrepresentatives makes any representation or warranty with respect to (i) anyprojections, estimates or budgets delivered to or made available to Buyer offuture revenues, future results of operations (or any component thereof),future cash flows or future financial condition (or any component thereof) ofany Companies or any Subsidiaries or the future business and operations of anyCompanies or any Subsidiaries or (ii) any other information or documents madeavailable to Buyer or its counsel, advisors, accountants or otherrepresentatives with respect to any Companies or any Subsidiaries or theirrespective businesses or operations, except as expressly set forth in thisAgreement.

 

ARTICLE 5

COVENANTS OF SELLER

Seller agreesthat:

 

Section 5.01.  *Conductof the Companies and the Subsidiaries*.  From the date hereof until the Closing Date, Seller shall causeeach Company and each Subsidiary to maintain its corporate existence, conductits business in the

 

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Ordinary Course of Business andto use its commercially reasonable efforts to preserve intact its businessorganizations and relationships with third parties and to keep available theservices of its present officers and employees.  Without limiting the generality of the foregoing, from the datehereof until the Closing Date, Seller will not permit any Company or anySubsidiary to:

 

(a)           adopt or propose anychange in its Organizational Documents;

 

(b)           acquire a materialamount of assets from any other Person; except (i) pursuant to existingcontracts or commitments disclosed on Schedules hereto or (ii) otherwise in theOrdinary Course of Business;

 

(c)           sell, lease, licenseor otherwise dispose of any material assets or property except (i) pursuant toexisting contracts or commitments disclosed on Schedules hereto or (ii) salesof inventory or obsolete equipment in the Ordinary Course of Business;

 

(d)           declare, set asideor pay any dividend or other distribution with respect to any EquitySecurities, or repurchase, redeem or otherwise acquire any of its EquitySecurities;

 

(e)           amend any term ofany of its outstanding securities;

 

(f)            incur, assume orguarantee any Indebtedness other than any Indebtedness owed to Parent, Selleror any of its subsidiaries;

 

(g)           make any loan,advance or capital contributions to or investment in any other Person otherthan (i) to Parent, Seller or any of its subsidiaries in the Ordinary Course ofBusiness or (ii) loans or advances to employees in the Ordinary Course ofBusiness;

 

(h)           adopt, propose orenter into any (A) employment, deferred compensation, severance, retirement orother similar agreement with any director, officer or employee of such Person(or any amendment to any such existing agreement), (B) grant of any severanceor termination pay to any director, officer or employee of such Person, or (C)change in compensation, benefit plans or other benefits payable to anydirector, officer or employee of such Person pursuant to any severance orretirement plans or policies thereof or compensation increases for employees,directors, officers, consultants or agents, in each case other than to or forany non-executive employee in the Ordinary Course of Business;

 

(i)            shut down anymanufacturing facility;

 

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(j)            make any materialchange in any method of accounting or accounting practice by any Company or anySubsidiary, except for any such change required by reason of a concurrentchange in GAAP;

 

(k)           increase in anymaterial way any payments, discount activity or any other consideration tocustomers or suppliers, other than in the Ordinary Course of Business;

 

(l)            alter its structureor existence through merger, liquidation, reorganization or restructuring ofthe corporate structure or ownership;

 

(m)          make any payment,discharge or satisfaction of any material liability, other than in the OrdinaryCourse of Business;

 

(n)           settle or compromise(i) any litigation or (ii) the matters set forth in Items 3 and 4 of Schedule3.09;

 

(o)           make any materialchanges or amendments to any contract or agreement listed on any Schedulehereto;

 

(p)           (i) infringe upon orviolate any valid and enforceable claim of the Subject Patent or (ii)manufacture, produce, market or sell the Subject Product; or

 

(q)           agree or commit todo any of the foregoing.

 

Section 5.02.  *Access toInformation*.  (a) From thedate hereof until the Closing Date, Seller will (i) give, and will cause eachCompany and each Subsidiary to give, Buyer, its counsel, financial advisors,auditors and other authorized representatives reasonable access to the offices,properties, books and records of the Companies and the Subsidiaries and to thebooks and records of Seller relating to the Companies and the Subsidiaries,(ii) furnish, and will cause each Company and each Subsidiary to furnish, toBuyer, its counsel, financial advisors, auditors and other authorizedrepresentatives such financial and operating data and other informationrelating to any Company or any Subsidiary as such Persons may reasonablyrequest and (iii) instruct the employees, counsel and financial advisors ofSeller or any Company or any Subsidiary to cooperate with Buyer in itsinvestigation of any Company or any Subsidiary. Any investigation pursuant tothis Section shall be conducted in such manner as not to interfere unreasonablywith the conduct of the business of Seller, the Companies and theSubsidiaries.  Notwithstanding theforegoing, Buyer shall not have access to any personnel records relating toindividual performance or evaluation records, medical histories or otherinformation that in Seller’s good faith opinion is sensitive or the disclosureof which could reasonably be expected to subject Seller, or any Company or any Subsidiaryto risk of liability and Buyer shall not be entitled to conduct any invasivesampling or testing with respect to the properties of any Person.

 

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(b)           Buyer shall bear all of theout-of-pocket costs and expenses (including, without limitation, Buyer’sattorneys’ fees, but excluding reimbursement for general overhead, salaries,expenses and employee benefits of Seller, any Company or any Subsidiary)reasonably incurred in connection with the foregoing.

 

Section 5.03.  *Noticesof Certain Events*.  (a)Seller shall promptly notify Buyer of:

 

(i)            any notice or othercommunication from any Person alleging that the consent of such Person is ormay be required in connection with the transactions contemplated by thisAgreement;

 

(ii)           any notice or othercommunication from any governmental or regulatory agency or authority inconnection with the transactions contemplated by this Agreement;

 

(iii)          any actions, suits,claims, investigations or proceedings commenced relating to Seller, any Companyor any Subsidiary that, if pending on the date of this Agreement, would havebeen required to have been disclosed pursuant to Section 3.13;

 

(iv)          the occurrence of aMaterial Adverse Effect, or any event that could reasonably be expected tocause a Material Adverse Effect; and

 

(v)           any event, notice oroccurrence that would reasonably be expected to result in the failure of anycondition set forth in Section 10.01 or Section 10.02 hereof to be satisfied;

 

*provided*that any such notification pursuant to this Section 5.03 shall not be deemed tocure, or to relieve Seller of any liability or obligation with respect to anybreach of, or failure to satisfy any, representation, warranty, covenant oragreement hereunder.

 

Section 5.04.  *Resignations*.  At or prior to the Closing, Seller willdeliver to Buyer the resignations of (i) all directors of each Company and eachSubsidiary and (ii) all officers of each Company and each Subsidiary who, uponconsummation of the Closing, are not current Employees, in each case, fromtheir positions with such Company or such Subsidiary at or prior to the ClosingDate.

 

Section5.05*.  Taxes. *Without the prior written consentof Buyer, neither Seller nor any Affiliate of Seller shall, to the extent itmay affect or relate to any Company or any Subsidiary, make or change any Taxelection, change any annual Tax accounting period, adopt or change any methodof Tax accounting, file any amended Return, enter into any closing agreement,settle any Tax claim or assessment, surrender any right to claim a Tax refund,offset or other reduction in Tax liability, consent to any extension or waiverof the limitations period

 

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applicable to any Tax claim orassessment or take or omit to take any other action, if any such action oromission would have the effect of materially increasing the Tax liability ormaterially reducing any Tax Asset of any Company or any Subsidiary with respectto a Post-Closing Tax Period.

 

Section5.06*. Intercompany Accounts. *Allintercompany accounts between Parent, Seller or any of its subsidiaries (otherthan Company or any Subsidiary), on the one hand, and any Company or anySubsidiary, on the other hand, remaining unpaid as of the Closing Date shall berepaid or canceled as determined by Seller (irrespective of the terms ofpayment of such intercompany accounts), and if canceled shall be canceled in amanner designed to minimize any tax consequences associated with suchcancellation;*provided* that any liabilities of any Company or anySubsidiary for Taxes resulting from such repayment or cancellation will bedeemed Buyer Tax Losses for purposes of Section 8.06.

 

Section5.07*. No-Shop. *Seller shallnot, and shall cause the Companies and the Subsidiaries, and their respectiveshareholders, members, managers, directors, officers, employees andrepresentatives (including, without limitation, investment bankers, attorneysand accountants) not to, directly or indirectly, through any agent orotherwise, enter into, solicit, initiate, conduct or continue any discussionsor negotiations with, or encourage any inquiries or proposals or offers by,provide information to, or otherwise cooperate in any other way with, anyPerson or group, other than Buyer, concerning (i) any sale of all or anymaterial portion of the assets (other than as otherwise permitted under thisAgreement) or the business of, or of any shares or equity securities in, anyCompany or any Subsidiary, (ii) any merger, acquisition, consolidation,recapitalization, liquidation, dissolution or similar transaction involving anyCompany or any Subsidiary or (iii) any transaction that would have an effectsimilar to the transactions described in (i) or (ii) (each such transaction beingreferred to herein as a “**Proposed Acquisition Transaction**”).  Seller hereby represents that it is not nowengaged in discussions or negotiations with any Person other than Buyer withrespect to any Proposed Acquisition Transaction.  Seller shall not, and shall cause the Companies and theSubsidiaries not to, release any Person from, or waive any provision of, anyconfidentiality or standstill agreement to which they (or any of them) are aparty in connection with any Proposed Acquisition Transaction.  If Seller, any Company or any Subsidiaryreceives any inquiry relating to any Proposed Acquisition Transaction, Sellershall promptly notify the Buyer if any offer is made (including the terms ofsuch offer) or if any discussions or negotiations are sought to be initiatedwith respect to any Proposed Acquisition Transaction.

 

Section5.08*. Confidentiality. *Fromand after the Closing, Seller will, and will cause its Affiliates to, hold, andwill use its commercially reasonable efforts to cause their respectiveofficers, directors, employees, accountants, counsel, consultants, advisors andagents (“**Representatives**”)to hold, in confidence, except to the extent compelled to disclose by judicialor administrative process or by other requirements of law, all confidentialdocuments and information 

 

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concerning the Companies andthe Subsidiaries, including any confidential documents and informationdisclosed pursuant to Section 6.02, except to the extent that such informationcan be shown to have been (i) in the public domain through no fault of Selleror any of its Affiliates or (ii) lawfully acquired by Seller or any of itsAffiliates after the Closing Date from sources which, to Seller’s Knowledge,are not prohibited from disclosing such information by a legal, contractual orfiduciary obligation; *provided*that Seller may disclose suchinformation to its officers, directors, employees, accountants, counsel,consultants, advisors and agents in connection with the transactionscontemplated by this Agreement, any matter relating to this Agreement or itsrights and obligations hereunder or thereunder or any period ending on orbefore the Closing Date so long as such Persons are informed by Seller of theconfidential nature of such information and are directed by Seller to treatsuch information confidentially.  Sellershall be responsible for any failure to treat such information confidentiallyby such Persons.  The obligation of eachPerson to hold any such information in confidence shall be satisfied if theyexercise the same care with respect to such information as they would take topreserve the confidentiality of their own similar information.  If Seller or any of its Affiliates orRepresentatives are compelled to disclose any such information by judicial oradministrative process or by other requirements of Law, Seller shall promptlynotify Buyer in writing.

 

ARTICLE 6

COVENANTS OF BUYER

 

Buyer agrees that:

 

Section6.01.  * Confidentiality.*(a)Prior to the Closing Date and after any termination of this Agreement, Buyerand its Affiliates will comply with all of the obligations of TransDigm Inc.under the confidentiality agreement dated November 21, 2002 between Seller andTransDigm Inc. (the “**Confidentiality Agreement**”) to the fullextent of such obligations as if Buyer was a party to and duly executed suchConfidentiality Agreement.  From andafter the Closing, Buyer and its Affiliates will hold, and will use theircommercially reasonable efforts to cause their respective Representatives tohold, in confidence, except to the extent compelled to disclose by judicial oradministrative process or by other requirements of law, all confidentialdocuments and information relating to Seller and its Affiliates (other than anyCompany or any Subsidiary) furnished to Buyer or its Affiliates in connectionwith the transactions contemplated by this Agreement, except to the extent thatsuch information can be shown to have been (i) previously known on anonconfidential basis by Buyer, (ii) in the public domain through no fault ofBuyer or (iii) later lawfully acquired by Buyer from sources other than Selleror any Company or any Subsidiary which, to Buyer’s knowledge are not prohibitedfrom disclosing such information by a legal, contractual or fiduciaryobligation; *provided* that Buyermay disclose such 

 

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information to its officers,directors, employees, accountants, counsel, consultants, advisors, lenders andagents in connection with the transactions contemplated by this Agreement solong as such Persons are informed by Buyer of the confidential nature of suchinformation and are directed by Buyer to treat such information confidentially.  Buyer shall be responsible for any failureto treat such information confidentially by such Persons.  The obligation of each Person to hold anysuch information in confidence shall be satisfied if they exercise the samecare with respect to such information as they would take to preserve theconfidentiality of their own similar information.  If this Agreement is terminated, Buyer and its Affiliates will,and will use their commercially reasonable efforts to cause their respectiveofficers, directors, employees, accountants, counsel, consultants, advisors andagents to, destroy or deliver to Seller, upon request, all documents and othermaterials, and all copies thereof, obtained by Buyer or its Affiliates or ontheir behalf from Seller, any Company or any Subsidiary, their respective officers,directors, employees, accountants, counsel, consultants, advisors and agents inconnection with this Agreement that are subject to such confidence.  If Buyer or any of its Affiliates orRepresentatives are compelled to disclose any such information by judicial oradministrative process or by other requirements of law, Buyer shall promptlynotify Seller in writing.

 

(b)           At the time of the Closing, theConfidentiality Agreement will terminate; *provided* that such termination will notaffect any rights that any party thereto may have with respect to a breach ofthe Confidentiality Agreement which occurred prior to the Closing Date.

 

Section 6.02.  *Access*.  Buyer will cause each Company and eachSubsidiary, on and after the Closing Date, to afford promptly to Seller and itsagents reasonable access to their offices, properties, books, records,employees and auditors solely to the extent necessary to permit Seller todetermine any matter relating to its rights and obligations hereunder or to anyperiod ending on or before the Closing Date; *provided*that any such access by Seller and its agents shall not unreasonably interferewith the conduct of the business of Buyer.

 

Section 6.03. *Trademarks; Tradenames*.  From and after the date that is twelvemonths after the Closing, Buyer shall not, and shall not permit any of itsAffiliates to, use any of the marks or names set forth on Schedule 6.03.

 

Section 6.04*.*  *Taxes. *Buyer covenants that, except asrequired to comply with applicable law, it will not, and will not cause orpermit any Company, any Subsidiary or any Affiliate of Buyer to, (i) take anyaction on the Closing Date other than in the Ordinary Course of Business,including but not limited to the distribution of any dividend or theeffectuation of any redemption that could give rise to any Tax liability orreduce any Tax Asset of the Seller Group or give rise to any loss of Seller orthe Seller Group under this Agreement, (ii) make any election or deemedelection under Section 338 of the Code or any comparable provision underapplicable law with respect to the transactions contemplated by this Agreement,or (iii) make or change any Tax election that affects any Pre-

 

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Closing Tax Period or amend anyReturn that was filed with respect to any Pre-Closing Tax Period, in eithersuch case that results in any materially increased Tax liability or materialreduction of any Tax Asset of Seller or the Seller Group in respect of anyPre-Closing Tax Period.

 

Section 6.05.  *Notices of Certain Events. *Buyer shall promptly notify Seller of any event,notice or occurrence that would reasonably be expected to result in the failureof any condition set forth in Section 10.01 or 10.03 hereof to be satisfied; *provided*that any such notification pursuant to this Section 6.05 shall not be deemed tocure, or to relieve Buyer, of any liability or obligation with respect to anybreach of, or failure to satisfy any, representation, warranty, covenant oragreement hereunder.

 

ARTICLE 7

COVENANTS OF BUYER AND SELLER

 

Buyer and Seller agree that:

 

Section 7.01.  *FurtherAssurances*.  Subject to theterms and conditions of this Agreement, Buyer and Seller will use theirrespective commercially reasonable efforts to take, or cause to be taken, allactions and to do, or cause to be done, all things necessary or desirable underapplicable laws and regulations to consummate the transactions contemplated bythis Agreement.  Seller and Buyer agree,and Seller, prior to the Closing, and Buyer, after the Closing, agree to causeeach Company and each Subsidiary, to execute and deliver such other documents,certificates, agreements and other writings and to take such other actions asmay be necessary or desirable in order to consummate or implement expeditiouslythe transactions contemplated by this Agreement.  If Seller, Buyer or any Company determines that any materialassets or property (other than cash or cash equivalents) have been used or heldfor use by any Company or any Subsidiary primarily in the operation of thebusiness of such Company or Subsidiary prior to the Closing but are in factowned or leased by Parent or Seller or any of their respective Affiliates(other than any Company or any Subsidiary), then, prior to the Closing, Sellershall cause any such assets or properties to be assigned or otherwisetransferred to the appropriate Company or Subsidiary, without any payments bysuch Company or Subsidiary.

 

Section 7.02.  *CertainFilings*.  (a) Seller andBuyer shall cooperate with one another (i) in determining whether any action byor in respect of, or filing with, any Governmental Authority is required, orany actions, consents, approvals or waivers are required to be obtained fromparties to any material contracts, in connection with the consummation of thetransactions contemplated by this Agreement and (ii) in taking such actions ormaking any such filings, furnishing information required in connectiontherewith and seeking timely to obtain any such actions, consents, approvals orwaivers.

 

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(b)           Each of Buyer andSeller shall use commercially reasonable efforts to cooperate in all respectswith each other, and to keep the other party informed in all material respectswith respect to any communication given or received, in connection with anyfiling, submission, investigation or proceeding relating to the transactionscontemplated hereby.

 

(c)           Each of Buyer andSeller agrees to make an appropriate filing of a Notification and Report Formpursuant to the HSR Act with respect to the transactions contemplated hereby aspromptly as practicable and in any event within ten business days of the datehereof and to supply as promptly as practicable any additional information anddocumentary material that may be requested pursuant to the HSR Act.

 

(d)           If any objectionsare asserted with respect to the transactions contemplated hereby under anyAntitrust Law or if any suit or proceeding is instituted or threatened by anygovernmental authority or any private party challenging any of the transactionscontemplated hereby as violative of any Antitrust Law, each of Buyer and Sellershall use its commercially reasonable efforts promptly to resolve suchobjections;*provided* that none of Seller, Buyer or any of their respectiveAffiliates shall have any obligation to hold separate or divest any materialproperty or assets, expend significant funds or defend against any lawsuit,action or proceeding, judicial or administrative, challenging this Agreement orthe transactions contemplated hereby.

 

Section 7.03.  *PublicAnnouncements*.  The partiesagree to consult with each other as to the form and substance of any pressrelease or public statement with respect to this Agreement or the transactionscontemplated hereby before issuing such press release or making such publicstatement and, except for any press releases and public announcements theissuance or making of which may be required by applicable law or any listingagreement with any national securities exchange, will not issue any such pressrelease or make any such public statement prior to such consultation.

 

Section7.04*.**  NonSolicitation/Noncompetition. *(a)  Each of the parties agrees that for a periodof two full years from and after the Closing Date, neither it nor any of itsdirect or indirect Majority-Owned Subsidiaries shall employ or solicit, orreceive or accept the performance of services by, any employee of the otherparty or its Majority-Owned Subsidiaries; *provided* that this Section 7.04(a) shallnot prohibit or restrict any party from hiring any such employee whoindependently responds to general advertising or solicitations not targeted,directly or indirectly, at any such employee.

 

(b)           Parent agrees that,prior to the fifth anniversary of the Closing Date (the “**Termination Date**”), neitherit nor any of its Majority-Owned Subsidiaries (other than the Companies and theSubsidiaries) (collectively, the “**DeCrane Group**”) shall engage, eitherdirectly or indirectly, in Avtech Competitive Activities, Tri-Star CompetitiveActivities or ADS Competitive Activities;

 

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*provided* that nothing herein shall prohibitthe DeCrane Group from acquiring any Person having, at the time of suchacquisition, (i) annual revenues (based on its most recent annual financialstatements) of (A) not more than the lesser of $2,000,000 and 33% of suchannual revenues attributable to Avtech Competitive Activities and (B) not morethan $500,000 of such annual revenues attributable to any of (x) lighting, (y)Selcal or (z) cockpit and flight-deck audio (in any such case, as individualproduct lines, to the extent included in Avtech Competitive Activities), (ii)annual revenues (based on its most recent annual financial statements) of notmore than the lesser of $2,000,000 and 33% of such annual revenues attributableto Tri-Star Competitive Activities, and (iii) annual revenues (based on itsmost recent annual financial statements) of not more than the lesser of$500,000 and 33% of such annual revenues attributable to ADS CompetitiveActivities; *providedfurther* that if, following any such acquisition, the annual revenuesderived by the DeCrane Group for any fiscal year (A) from Avtech CompetitiveActivities exceeds $2,000,000, (B) from any of (x) lighting, (y) Selcal or (z)cockpit and flight-deck audio (in any such case, as individual product lines,to the extent included in Avtech Competitive Activities) exceeds $500,000, (C)from Tri-Star Competitive Activities exceeds $2,000,000 or (D) from ADSCompetitive Activities exceeds $500,000, the DeCrane Group shall, within 12months after the end of such fiscal year (if such 12 month period ends prior tothe Termination Date), dispose of or otherwise discontinue such activities tocause its annual revenues derived from such activities to be less than suchamounts.  This Section 7.04(b) shallcease to be binding on Parent or Seller (but not such Person’s Majority-OwnedSubsidiaries at the time of the applicable Change of Control) if a Change ofControl occurs with respect to such Person (unless such Person, immediatelyprior to such Change of Control, conducts any material activities except thoseof a holding company with respect to ownership interests in other Persons).

 

(c)           If any provision contained in thisSection 7.04 shall for any reason be held invalid, illegal or unenforceable inany respect, such invalidity, illegality or unenforceability shall not affectany other provisions of this Section, but this Section shall be construed as ifsuch invalid, illegal or unenforceable provision had never been containedherein.  It is the intention of theparties that if any of the restrictions or covenants contained herein is heldto cover a geographic area or to be for a length of time which is not permittedby applicable law, or in any way construed to be too broad or to any extentinvalid, such provision shall not be construed to be null, void and of noeffect, but to the extent such provision would be valid or enforceable underapplicable law, a court of competent jurisdiction shall construe and interpretor reform this Section to provide for a covenant having the maximum enforceablegeographic area, time period and other provisions (not greater than thosecontained herein) as shall be valid and enforceable under such applicable law.

 

Section 7.05.  *Insurance.*(a) To the extent Parent, Seller, any Company or any Subsidiaryshall be entitled, under the terms and conditions of its 

 

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“occurrence” based insurancepolicies in effect on the date hereof, to coverage for losses suffered by anyCompany or any Subsidiary after the Closing arising out of any occurrencescovered by such policies occurring prior to the Closing, Parent shall, andshall cause its subsidiaries to, use such efforts and take such actions torecover such losses on behalf of such Company or such Subsidiary pursuant tosuch policies as it would use or take in conducting its own businesses in theordinary course if such losses were suffered by Parent or any of itssubsidiaries, and shall deliver the proceeds thereby recovered to such Companyor such Subsidiary.  In the event of anydispute regarding the date of any loss or occurrence, the terms of theapplicable insurance policy shall govern. Parent shall continue to maintain such insurance policies, to the extentthey apply on the date hereof to the Companies and the Subsidiaries, in fullforce and effect (and without any amendment that would be adverse, in anymaterial respect, to any Company or any Subsidiary) with respect to occurrencesprior to and including the Closing, and Parent shall continue to have eachCompany as a named insured party under each such policy with respect tooccurrences prior to and including the Closing.

 

(b)           Buyer agrees to pay Parent and itsAffiliates promptly upon demand for any and all out-of-pocket costs andexpenses (including any fees and expenses of counsel) that may be suffered orincurred by Parent or any of its Affiliates in performing its obligationspursuant to this Section 7.05, as such amounts are suffered or incurred (or inadvance if reasonably requested by Seller). If Buyer does not either (i) pay such amount in full or (ii) deliver toParent or such Affiliate a written notice (a “**Dispute Notice**”) that itdisputes its obligation hereunder to pay any such amount (which written noticemust provide an explanation of the reasons for such dispute), in either case bythe end of the 30th day after Parent or any of its Affiliatesdelivers a written demand for payment of any such costs and expenses (a “**PaymentRequest**”), then Parent’s obligations pursuant to this Section 7.05shall terminate on the 10th day after Parent or such Affiliatedelivers a second written demand for payment of such amount unless Buyer eitherpays such amount in full or delivers a Dispute Notice by the end of such 10thday.  If Buyer timely delivers a DisputeNotice at any time prior to the end of such 10 day period, the applicabledispute shall be resolved in accordance with Section 13.08, except the costs ofarbitration shall be paid by the non-prevailing party in such dispute.  If Buyer fails to pay the amount of suchaward by the end of the 10th day after such award is rendered,Parent’s obligations under this Section 7.05 shall terminate on such 10thday.

 

(c)           If Buyer delivers a Dispute Notice,the amount of any payment pursuant to Section 7.05(b) shall bear interest fromand including the date of the Payment Request to but excluding the date ofpayment at a rate per annum equal to the Prime Rate as published in the WallStreet Journal, Eastern Edition in effect from time to time.  Such interest shall be payable at the sametime as the payment to which it relates and shall be calculated daily on thebasis of a year of 365 days and the actual number of days elapsed, withoutcompounding.

 

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(d)           Buyer shall provide, and shall causeeach Company and Subsidiary to provide, Parent with all records and otherinformation necessary for the reporting, investigation, negotiation and, ifapplicable, prosecution of any claim made by Parent pursuant to this Section7.05.  Any deductible or similar amountthat may be payable in respect thereof shall be the responsibility of Buyer.

 

ARTICLE 8

TAX MATTERS

 

Section 8.01*.  Filing of Returns. *(a)**Sellershall prepare and timely file, or cause to be prepared and filed, all FederalIncome Tax returns and Combined Income Tax returns required to be filed on orafter the Closing Date with respect to any Company or any Subsidiary withrespect to any Pre-Closing Tax Period (taking into account any extension of arequired filing date).  Seller shall, nolater than 15 Business Days prior to the filing date of such tax returns,submit copies of the portions of such returns relating to the Companies orSubsidiaries to Buyer for Buyer’s review. Seller shall timely pay or cause to be paid all Taxes shown to be due onsuch tax returns.

 

(b)           Buyer shall prepare and timely file,or cause to be prepared and timely filed, all other tax returns required to befiled by any Company or any Subsidiary after the Closing Date with respect toany Pre-Closing Tax Period (taking into account any extension of a requiredfiling date).  Except as otherwiserequired by applicable law, any such return shall be prepared in a mannerconsistent with past practice and without a change of any election or anyaccounting method and shall be submitted by Buyer to Seller (together withschedules, statements and, to the extent requested by Seller, supportingdocumentation) at least 15 days prior to the due date (including extensions) ofsuch return for Seller’s consent, which consent shall not be unreasonablywithheld or delayed.  Seller shall payto Buyer, prior to the due date for such returns, the Taxes that relate to thePre-Closing Tax Period as shown on such returns, determined in the mannerprovided in Section 8.06(b), except to the extent that such Taxes are reflectedas a liability in the calculation of Final Working Capital and not included onthe Balance Sheet.

 

Section 8.02.* Refunds. *Buyer shallpromptly pay or cause to be paid to Seller all refunds of Taxes and interestthereon received by Buyer, any Affiliate of Buyer, any Company or anySubsidiary attributable to Taxes paid by Seller or any Affiliate of Seller (orany predecessor or affiliate of the foregoing) with respect to any Pre-ClosingTax Period except to the extent that such refund arises as a result of acarryback of a loss or other Tax benefit from a Post-Closing Tax Period, or tothe extent such refund was reflected as an asset in the calculation of FinalWorking Capital and not included on the Balance Sheet.

 

Section 8.03.*  TransferTaxes. *All transfer,documentary, sales, use, stamp, registration and other such Taxes and fees(including any penalties and 

 

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interest) incurred inconnection with transactions contemplated by this Agreement (including any realproperty transfer Tax and any similar Tax) shall be borne and paid 50% byBuyer, and 50% by Seller, and Buyer will file all necessary returns and otherdocumentation with respect to all such Taxes and fees, and, if required byapplicable law, Seller will, and will cause Parent and its Subsidiaries to,join in the execution of any such returns and other documentation.  Each of Buyer and Seller will bear 50% ofthe cost of any such filings.

 

Section8.04.*  Tax Sharing.*Any and all existingTax indemnity, Tax allocation or Tax sharing agreements between any Company orany Subsidiary and any other member of the Seller Group shall be terminated asof the Closing Date. After such date, none of the Companies, any Subsidiary,Seller or any Affiliate of Seller shall have any further rights or liabilitiesthereunder.  This Agreement shall be thesole Tax sharing agreement relating to any Company or any Subsidiary for anyPre-Closing Tax Period.

 

Section8.05*.  Cooperationon Tax Matters. *Buyer andSeller agree to furnish or cause to be furnished to each other, upon request,as promptly as practicable, such information (including access to books andrecords) and assistance relating to the Companies as is reasonably necessaryfor the filing of any tax return (including any report required pursuant toSection 6043 of the Code and all Treasury Regulations promulgated thereunder),for the preparation for any audit, and for the prosecution or defense of anyclaim, suit or proceeding relating to any proposed Tax adjustment.  Buyer and Seller agree to retain or cause tobe retained all books and records pertinent to the Companies and theSubsidiaries until the applicable period for assessment under applicable law(giving effect to any and all extensions or waivers) has expired, and to abideby or cause the abidance with all record retention agreements entered into withany Taxing Authority.  Buyer agrees touse its best efforts to cause the Companies and the Subsidiaries to give Sellerreasonable notice prior to transferring, discarding or destroying any suchbooks and records relating to Tax matters and, if Seller so requests, cause theCompanies and the Subsidiaries to allow Seller to take possession of such booksand records.  Buyer and Seller shallcooperate with each other in the conduct of any audit or other proceedingsinvolving any Company or any Subsidiary for any Tax purposes and each shallexecute and deliver such powers of attorney and other documents as arenecessary to carry out the intent of this subsection.

 

Section8.06*. Indemnification by Seller.*(a) Seller and Parent hereby indemnify Buyer and its Affiliatesagainst and agrees to hold each of them harmless from (i) any Federal IncomeTax, Combined Income Tax or Separate Income Tax of any Company or anySubsidiary or any income Tax of any member of the Seller Group relating to aPre-Closing Tax Period and (ii) any Taxes or damages incurred or suffered byBuyer or any of its Affiliates arising out of a breach of any other covenantsor agreements contained in this Article 8 (the sum of (i) and (ii) beingreferred to as a **“Buyer Tax Loss”**); *provided* that the term Buyer Tax Lossshall not include, and Seller and Parent shall have no 

 

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liability for, the payment ofany such Tax attributable to or resulting from any action described in Section6.04, including, without limitation, an election made or deemed made by Buyeror any of its Affiliates under Section 338 of the Code or any comparableprovision of applicable law**;**and *provided further* that**Sellershall have no liability for the payment of a Buyer Tax Loss to the extent thatsuch Buyer Tax Loss is reflected as a liability in the calculation of FinalWorking Capital and not included on the Balance Sheet.

 

(b)           Any Taxes for a period that begins onor before the Closing Date and ends thereafter shall be apportioned between thePre-Closing Tax Period and the Post-Closing Tax Period based on the actualactivities, taxable income or taxable loss of the applicable entity during suchPre-Closing Tax Period and such Post-Closing Tax Period.

 

(c)           Any payment by Seller or Parentpursuant to this Section 8.06 shall be made not later than 30 days afterreceipt by Seller of written notice from Buyer stating that any Buyer Tax Losswill, within the next 30 days, be paid by Buyer or any of its Affiliates andthe amount of the indemnity payment requested.

 

(d)           If any claim or demand for Taxes inrespect of which indemnity may be sought pursuant to this Section 8.06 isasserted in writing against Buyer or any of its Affiliates, Buyer shall notifySeller of such claim or demand within 15 days of receipt thereof, or suchearlier time that would allow Seller to timely respond to such claim or demand,and shall give Seller such information with respect thereto as Seller mayreasonably request.  Seller maydischarge, at any time, its indemnification obligation under this Section 8.06by paying to Buyer the amount payable pursuant to this Section 8.06, calculatedon the date of such payment. Seller may, at its own expense, participate inand, upon notice to Buyer, assume the defense of any such claim, suit, action,litigation or proceeding (including any Tax audit).  If Seller assumes such defense, Seller shall have the solediscretion as to the conduct of such defense and Buyer shall have the right(but not the duty) to participate in the defense thereof and to employ counsel,at its own expense, separate from the counsel employed by Seller, *provided*,*however*,that Seller may not settle any claim, suit, action, litigation, or proceedingthat relates solely to a Company or Subsidiary without Buyer’s consent, not tobe unreasonably withheld or delayed. Whether or not Seller chooses to defend or prosecute any claim, all ofthe parties hereto shall cooperate in the defense or prosecution thereof.

 

(e)           Seller or Parent shall not be liableunder this Section 8.06 for (i) any Tax the payment of which was made withoutSeller’s prior written consent or (ii) any settlement of a claim, suit, action,litigation or proceeding with respect to which Seller was not notified pursuantto Section 8.06(d) unless Seller unreasonably withheld or delayed such consentor Seller failed to notify Buyer that it desired to participate in or assumethe defense of such Tax proceedings leading to such settlement; *provided*,that Seller shall only be relieved of liability pursuant to this Section8.06(e) to the extent that Seller is materially prejudiced by the failure ofBuyer to obtain such consent or give such notice.

 

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Section8.07*.  Indemnificationby Buyer.*(a)**NotwithstandingSection 8.06(a), Buyer agrees that Seller is to have no liability for any Taxresulting from any action referred to in Section 6.04 of any Company, anySubsidiary, Buyer or any Affiliate of Buyer, and agrees to indemnify and holdharmless Seller and its Affiliates against (i) any such Tax and, (ii) any Taxor damages incurred or suffered by Seller or any of its Affiliates arising outof a breach of any other covenant or agreement contained in this Article 8,(the sum of (i) and (ii), being referred to as a “**Seller Tax Loss**”).  Seller agrees to give prompt notice to Buyerof the assertion of any claim, or the commencement of any action or proceeding,in respect of which indemnity may be sought under this Section 8.07.  Buyer may participate in any such suit,action or proceeding at its own expense and the parties hereto shall cooperatein the defense or prosecution thereof.

 

(b)           Buyer shall not be liable under thisSection 8.07 for (i) any Tax the payment of which was made without Buyer’sprior written consent or (ii) any settlement of a claim, suit, action,litigation, or proceeding with respect to which Buyer was not notified pursuantto Section 8.07(a) unless Buyer unreasonably withheld or delayed such consentor Buyer failed to notify Seller that it desired to participate in or assumethe defense of such tax proceedings leading to such settlement; *provided*that Buyer shall only be relieved of liability pursuant to this Section 8.07(b)to the extent that Buyer is materially prejudiced by the failure of Seller toobtain such consent or give such notice.

 

Section 8.08.*  Closing ofTax Periods. *To the extentpermitted under applicable state, local or foreign law, Seller and Buyer agreeto close the taxable year of each Company and Subsidiary on the Closing Date.

 

Section 8.09.* Reattribution Of Net Operating Losses. *Seller shall not elect to reattribute to itself any TaxAssets of the Companies or the Subsidiaries pursuant to Treasury RegulationsSection 1.1502-20(g).

 

Section 8.10*.  Purchase Price Adjustment. *Any amount paid by Seller orBuyer under Article 8 or Article 11 will be treated as an adjustment to thePurchase Price to the extent permitted by applicable law.

 

ARTICLE 9

EMPLOYEE BENEFITS

 

Section 9.01.* Maintenance of Employee Benefits.*(a) For a period of twelve months from the Closing Date, Buyeragrees that it will, and will cause the Companies and the Subsidiaries to,provide the current Employees with compensation and benefits coverage that, inthe aggregate, is substantially comparable to the compensation and benefitscoverage provided to such Employees immediately prior to the Closing Date; *provided*,that in no event shall Buyer be required to provide such Employees with anybenefits to the extent that such provision of benefits would adversely affectthe financial condition or results 

 

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of operation of the Companiesand the Subsidiaries on a stand-alone basis. Without limiting the generality of the foregoing, Buyer shall honor andassume the vacation or other paid time off for each Employee that has beenaccrued on the Closing Working Capital Statement but remains unused as of theClosing Date.

 

(b)           Buyer will, and will cause theCompanies and the Subsidiaries to, (i) waive all limitations as to pre-existingconditions, exclusions and waiting periods with respect to participation andcoverage requirements applicable to the Employees under any health and welfareplans in which such Employees are eligible to participate after the ClosingDate to the extent that such limitations were waived under the applicableemployee plan; (ii) provide each Employee with credit for any co-payments anddeductibles paid prior to the Closing Date in satisfying any applicabledeductible or out-of-pocket requirements under any health and welfare plansthat such Employees are eligible to participate in after the Closing Date; and(iii) provide each Employee with full credit for all service with Seller, anyCompany or any Subsidiary for purposes of eligibility and vesting (but not forpurposes of benefit accrual under any defined benefit pension plan) under anysuch plans or arrangements provided after the Closing Date pursuant to thisSection 9.01.

 

(c)           Buyer and Seller acknowledge andagree that nothing contained in this Section 9.01 shall be construed to limitin any way the ability of Buyer, the Companies or the Subsidiaries to terminatethe employment of any current Employee from and after the Closing Date.

 

Section 9.02*.  Employee Agreements; Change Of ControlAgreements and Severance Agreements. *Fromand after the Closing Date, Buyer agrees that it will, and will cause theCompanies and the Subsidiaries to, honor and perform all obligations of Seller,the Companies and Subsidiaries pursuant to each of the change of control,severance and employment agreements and arrangements set forth on Schedule9.02, and Buyer acknowledges and agrees that the consummation of thetransactions contemplated by this Agreement will constitute, to the extentapplicable, a “change of control” of the Companies for purposes of all suchplans, arrangements and agreements. Buyer further agrees that, from and after the Closing Date, Buyer, theCompanies and the Subsidiaries shall be responsible for any liabilities orclaims that may arise under the plans, arrangements and agreements set forth onSchedule 9.02.  Notwithstanding theforegoing, Seller agrees that it will be responsible for paying all transactionor similar bonuses that Seller (or any of the Companies or the Subsidiaries)has agreed, orally or in writing, to provide to any Employee (including withoutlimitation those certain bonuses that Seller has orally agreed to provide tothe persons listed and in the amounts set forth on Schedule 3.20(f)).

 

Section 9.03*.  401(k) Plan Covenants. *(a) With respect to each ofSeller’s 401(k) retirement plans (“**401(k) Plan**”), on the Closing Date or assoon as practicable thereafter, Seller shall (i) fully vest all currentEmployees under the

 

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401(k) Plan; (ii) cause thetrustee of the 401(k) Plan to segregate the assets of the 401(k) Planrepresenting the full account balances of current Employees as of the ClosingDate; (iii) make any and all filings and submissions to the appropriategovernmental agencies arising in connection with such segregation of assets and(iv) make all necessary amendments to the 401(k) Plan and related trustagreement to provide for such segregation of assets and the transfer of assetsas described below. The manner in which the account balances of currentEmployees under the 401(k) Plans are invested shall not be affected by suchsegregation of assets.

 

(b)           On or prior to the Closing Date,Buyer shall establish or designate a 401(k) plan for the benefit of currentEmployees (the “**Successor 401(k) Plan**”), shall take all necessary action, ifany, to qualify such plan under the applicable provisions of the Code and shallmake any and all filings and submissions to the appropriate governmentalagencies required to be made by it in connection with the transfer of assetsdescribed below.  As soon as practicablefollowing the earlier of the delivery to Seller of a favorable determinationletter from the Internal Revenue Service regarding the qualified status of theSuccessor 401(k) Plan as amended to the date of transfer, or the issuance ofindemnities satisfactory to Seller and Buyer, Seller shall cause the trustee ofthe 401(k) Plan to transfer in the form of cash (notes evidencing employeeindebtedness or such other form as may be agreed by Buyer and Seller) the fullaccount balances of current Employees under the 401(k) Plan (which accountbalances will have been credited with appropriate earnings attributable to theperiod from the Closing Date to the date of transfer described herein), reducedby any necessary benefit or withdrawal payments to or in respect of currentEmployees occurring during the period from the Closing Date to the date oftransfer described herein, to the appropriate trustee as designated by Buyerunder the trust agreement forming a part of the Successor 401(k) Plan.  Seller and Buyer shall cooperate to ensurethat the transactions under this Agreement will not give rise to a defaultevent for any current Employee’s 401(k) Plan loan.

 

(c)           In consideration for the transfer ofassets described herein, Buyer shall, effective as of the date of transferdescribed herein, assume all of the obligations of Seller and any of its ERISAAffiliates in respect of the account balances accumulated by current Employeesunder the 401(k) Plan (exclusive of any portion of such account balances whichare paid or otherwise withdrawn prior to the date of transfer described herein)on or prior to the Closing Date. Neither Buyer nor any of its Affiliates shall assume any otherobligations or liabilities arising under or attributable to the 401(k) Plan.

 

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ARTICLE 10

CONDITIONS TOCLOSING

 

Section 10.01.  *Conditionsto Obligations of Buyer and Seller*. The obligations of Buyer and Seller to consummate the Closing aresubject to the satisfaction of the following conditions:

 

(a)           Any applicablewaiting period under the HSR Act relating to the transactions contemplatedhereby shall have expired or been terminated.

 

(b)           No provision of anyapplicable law or regulation and no judgment, injunction, order or decree shallprohibit the consummation of the Closing.

 

(c)           All actions by or inrespect of, or filings with and all consents, authorizations and approvals of,any Governmental Authority, including without limitation those listed onSchedule 3.03, required to permit the consummation of the Closing shall havebeen taken, made or obtained.

 

Section 10.02.  *Conditionsto Obligation of Buyer*.  Theobligation of Buyer to consummate the Closing is subject to the satisfaction(or waiver by Buyer in its sole discretion), of the following furtherconditions:

 

(a)           (i) Each of Sellerand Parent shall have performed in all material respects all of its obligationshereunder required to be performed by it on or prior to the Closing Date, (ii)the representations and warranties of each of Seller and Parent contained inthis Agreement and in any certificate or other writing delivered by Seller orParent pursuant hereto shall be true at and as of the Closing Date****asif made at and as of such date (except to the extent a representation orwarranty is expressly made as of an earlier date, in which case suchrepresentation or warranty shall be true at and as of such date) with only suchexceptions as would not in the aggregate have a Material Adverse Effect and(iii) Buyer shall have received a certificate signed by the Senior VicePresident/Chief Financial Officer of each of Seller and Parent to the foregoingeffect.  For purposes of Section10.02(a)(ii), the representations and warranties of each of Seller and Parentcontained in this Agreement or in any certificate or writing delivered bySeller or Parent pursuant hereto shall be deemed to have been made without anyqualifications as to materiality and, accordingly, all references therein to“material,” “Material Adverse Effect,” “in all material respects” and similarqualifications as to materiality shall be deemed to be deleted therefrom(except where any such provision requires disclosure of lists of items of amaterial nature or above a specified threshold).

 

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(b)           Buyer shall havereceived all documents it may reasonably request relating to the existence ofeach of Seller and Parent, the Companies and the Subsidiaries and the authorityof each of Seller and Parent to enter into and perform this Agreement, all inform and substance reasonably satisfactory to Buyer.

 

(c)           Buyer shall havereceived a certificate signed by Seller to the effect that Seller is not a“foreign person” as defined in Section 1445 of the Code and, upon Buyer’srequest, any clearance certification or similar document(s) that, in Buyer’sdetermination, may be required by any state taxing authority in order torelieve Buyer of any obligation to withhold any portion of the Purchase Price.

 

(d)           Seller shall havedelivered to Buyer evidence of (i) the release, concurrently with Closing, ofall Liens listed on Schedule 10.02(d) with respect to the property or assets ofthe Companies and the Subsidiaries, including Liens securing the obligationsunder or in connection with the Third Amended and Restated Credit Agreementdated as of May 11, 2000 (as subsequently amended from time to time) amongSeller and the other parties listed on the signature pages thereto (the “**SellerCredit Agreement**”) (ii) the repayment of all outstandingIndebtedness of the Companies and the Subsidiaries (other than liabilitiesunder capitalized leases identified on Schedule 3.10), (iii) the repayment orother cancellation of all intercompany accounts between Parent, Seller or itssubsidiaries (other than any Company or an Subsidiary), on the one hand, andany Company or any Subsidiary on the other hand, and (iv) the release of all guaranteesby any Company or any Subsidiary of any Indebtedness or other obligation of anythird party, including the Seller or any of its Affiliates, including, withoutlimitation, any such guarantees under the Seller Credit Agreement and theIndenture between Seller and the State Street Bank and Trust Company, datedOctober 15, 1998 (the “**Seller Indenture**”), in each case in formand substance reasonably satisfactory to the Buyer.

 

(e)           Buyer shall haveobtained an aggregate of $80,000,000 of financing from the lenders referred toin the Commitment Letters set forth as items 1 and 2 of Schedule 4.05 and onthe terms and structure and in the amounts contemplated in the term sheetsattached to such Commitment Letters.

 

(f)            Buyer shall havereceived a written opinion from counsel for the Seller, dated as of the ClosingDate, addressed to Buyer, substantially in the form of Exhibit A hereto.

 

(g)           Buyer shall havereceived copies of the third party consents and approvals set forth on Schedule10.02(g).

 

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Section 10.03. *Conditions to Obligation of Seller*.  The obligation of Seller to consummate theClosing is subject to the satisfaction (or waiver by Seller in its solediscretion) of the following further conditions:

 

(a)            (i) Buyer shallhave performed in all material respects all of its obligations hereunderrequired to be performed by it at or prior to the Closing Date, (ii) therepresentations and warranties of Buyer contained in this Agreement and in anycertificate or other writing delivered by Buyer pursuant hereto shall be truein all material respects at and as of the Closing Date, as if made at and as ofsuch date (except to the extent a representation or warranty is expressly madeas of an earlier date, in which case such representation and warranty shall betrue at and, as of such date) and (iii) Seller shall have received acertificate signed by the Chief Financial Officer of Buyer to the foregoingeffect.  For purposes of Section10.03(a)(ii), the representations and warranties of Buyer contained in thisAgreement or in any certificate or writing delivered by Buyer pursuant heretoshall be deemed to have been made without any qualifications as to materialityand, accordingly, all references therein to “material,” “Material AdverseEffect,” “in all material respects” and similar qualifications as tomateriality shall be deemed to be deleted therefrom (except where any suchprovision requires disclosure of lists of items of a material nature or above aspecified threshold).

 

(b)           Seller shall havereceived all documents it may reasonably request relating to the existence ofBuyer and the authority of Buyer to enter into and perform this Agreement, allin form and substance reasonably satisfactory to Seller.

 

ARTICLE 11

SURVIVAL;INDEMNIFICATION

 

Section 11.01.  *Survival*.  The representations and warranties of theparties hereto contained in this Agreement shall survive the Closing until thefirst anniversary of the Closing Date; *provided*that (i) the representations and warranties contained in Sections 3.01 3.02,3.05, 3.06, 3.07, 3.18, 4.02, and 4.08, shall survive indefinitely, and (ii)the representations and warranties contained in Sections 3.20 and 3.22 shallsurvive until 30 days after the expiration of the statute of limitationsapplicable to the matters covered thereby (giving effect to any waiver,mitigation or extension thereof), if later. The covenants and agreements of the parties hereto shall remain in full forceand effect in accordance with their terms (or, if no survival period isspecified herein, such covenants and agreements shall survive until fullyperformed or fulfilled). Notwithstanding the preceding sentences, any covenant, agreement,representation or warranty in respect of which indemnity may be sought underthis Agreement shall survive the time at which it would otherwise terminate, ifnotice of the inaccuracy or breach

 

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thereof giving rise to suchright of indemnity shall have been given to the party against whom suchindemnity may be sought prior to such time. The indemnity obligation pursuant to Section 11.02(a)(3) shall surviveindefinitely.

 

Section 11.02.  *Indemnification*.  (a) Seller and Parent hereby indemnify Buyerand its Affiliates (including the Companies and the Subsidiaries) against andagree to hold each of them harmless from any and all damage, loss, liability,cost, charge, obligation, fee and expense (including, without limitation,reasonable expenses of investigation and reasonable attorneys’ fees andexpenses in connection with any action, suit or proceeding) (“**Damages**”) incurred or suffered by any suchPersons arising out of, resulting from, or relating or incident to (1) anymisrepresentation or breach of a representation or warranty (each suchmisrepresentation and breach of a representation or warranty, a “**Warranty Breach**”), (2) any breach ofcovenant or agreement made or to be performed by Seller pursuant to thisAgreement (other than in each case, any covenant or agreement made or to beperformed pursuant to Article 8, which shall be governed by Section 8.06) or(3) the crash of Swissair Flight 111 on September 2, 1998; *provided* that with respect toindemnification by Seller and Parent for any Warranty Breach pursuant to thisSection, (i) neither Seller nor Parent shall be liable unless the aggregateamount of Damages with respect to such Warranty Breaches exceeds $2,000,000(the “**Basket**”)and then only to the extent of such excess, (ii) neither Seller nor Parentshall be liable for any single claim with respect to Warranty Breaches whichresults in Damages of $50,000 or less (and such claims shall not be aggregatedfor purposes of clause 11.02(a)(i); *provided* that multiple claims arising outof the same or similar event or occurrence shall be aggregated for purposes ofclause 11.02(a)(ii)) and (iii) Seller’s and Parent’s maximum aggregateliability for all such Warranty Breaches shall not exceed $14,000,000 (the “**Cap**”).  Notwithstanding the foregoing, the limitationsset forth in the proviso to the foregoing sentence shall not apply toindemnification pursuant to Section 11.02(a)(2) or 11.02(a)(3).  For purposes of Section 11.02(a)(1), therepresentations and warranties herein shall be deemed to have been made withoutany qualifications as to materiality and, accordingly, all references thereinto “material,” “Material Adverse Effect,” “in all material respects” andsimilar qualifications as to materiality shall be deemed to be deletedtherefrom (except where any such provision requires disclosure of lists ofitems of a material nature or above a specified threshold).

 

(b)           Buyer hereby indemnifies Seller andits Affiliates against and agrees to hold each of them harmless from any andall Damages incurred or suffered by Seller or any of its Affiliates arising outof any (1) Warranty Breach or (2) breach of covenant or agreement made or to beperformed by Buyer pursuant to this Agreement (other than a covenant oragreement made or to be performed pursuant to Section 6.04 or Article 8, whichshall be governed by Section 8.07); *provided*that with respect to indemnification by Buyer for any Warranty Breach pursuantto this Section, (i) Buyer shall not be liable unless the aggregate amount ofDamages with respect to such Warranty Breaches exceeds the Basket and then

 

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only to the extent of suchexcess, (ii) Buyer shall not be liable for any single claim which results inDamages of $50,000 or less (and such claims shall not be aggregated forpurposes of clause 11.02(b)(i); *provided* that multiple claims arising outof the same or similar event or occurrence shall be aggregated for purposes ofclause 11.02(b)(ii)) and (iii) Buyer’s maximum aggregate liability for all suchWarranty Breaches shall not exceed the Cap. Notwithstanding the foregoing, the limitations set forth in the provisoto the foregoing sentence shall not apply to indemnification pursuant toSection 11.02(b)(2).  For purposes ofSection 11.02(b)(1), the representations and warranties herein shall be deemedto have been made without any qualifications as to materiality and,accordingly, all references therein to “material,” “Material Adverse Effect,”“in all material respects” and similar qualifications as to materiality shallbe deemed to be deleted therefrom (except where any such provision requiresdisclosure of lists of items of a material nature or above a specifiedthreshold).

 

Section 11.03.  *Procedures*.  (a) The party seeking indemnification underSection 11.02 (the “**Indemnified Party**”)shall give prompt notice (the “**Indemnity Notice**”) to the party againstwhom indemnity is sought (the “**IndemnifyingParty**”) of the assertion of any claim, or the commencement of anysuit, action or proceeding (“**Claim**”)in respect of which indemnity may be sought under such Section and will providethe Indemnifying Party such information with respect thereto that theIndemnifying Party may reasonably request. The failure to so notify theIndemnifying Party shall not relieve the Indemnifying Party of its obligationshereunder, except to the extent such failure shall have adversely prejudicedthe Indemnifying Party.

 

(b)           The Indemnifying Party shall beentitled to participate in the defense of any Claim asserted by any third party(“**Third Party Claim**”) and, subjectto the limitations set forth in this Section, shall be entitled to control andappoint lead counsel for such defense, in each case at its expense.  If the Indemnifying Party intends to controlthe defense of a Third Party Claim, the Indemnifying Party shall so notify theIndemnified Party in writing within 30 days of the delivery of the IndemnityNotice with respect to such Third Party Claim.

 

(c)           If the Indemnifying Party shallassume the control of the defense of any Third Party Claim, (i) theIndemnifying Party shall obtain the prior written consent of the IndemnifiedParty before entering into any settlement of such Third Party Claim, if (A) thesettlement does not release the Indemnified Party from all liabilities and obligationswith respect to such Third Party Claim or (B) the settlement imposes injunctiveor other equitable relief against the Indemnified Party and (ii) theIndemnified Party shall be entitled to participate in the defense of such ThirdParty Claim and to employ separate counsel of its choice for such purpose.  The fees and expenses of such separatecounsel shall be paid by the Indemnified Party; *provided* that such fees andexpenses will be paid by the Indemnifying Party if the Indemnified Party (y)has assumed the defense of such action pursuant to Section 11.03(d) or (z)reasonably determines in good faith based on advice of counsel that a conflictexists between the interests of the 

 

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Indemnified Party and theIndemnifying Party, or that one or more defenses may be available to theIndemnified Party that may not be available to the Indemnifying Party.

 

(d)           If (i) the Indemnifying Party doesnot notify the Indemnified Party in writing within 30 days of the delivery ofthe Indemnity Notice with respect to a Third Party Claim that the IndemnifyingParty will assume the defense of such Third Party Claim or (ii) the IndemnifiedParty reasonably determines in good faith that the Indemnifying Party has failedto pursue the defense thereof in good faith, then the Indemnified Party mayassume such defense by notifying the Indemnifying Party of its election to doso.

 

(e)           The Indemnified Party shall obtainthe prior written consent of the Indemnifying Party (which consent shall not beunreasonably withheld, conditioned or delayed) before entering into anysettlement of any Third Party Claim.

 

(f)            Each party shall cooperate, andcause their respective Affiliates to cooperate, in the defense or prosecutionof any Third Party Claim and shall furnish or cause to be furnished suchrecords, information and testimony, and attend such conferences, discoveryproceedings, hearings, trials or appeals, as may be reasonably requested inconnection therewith.

 

(g)           Each Indemnified Party shall use itscommercially reasonable efforts to collect any amounts available underinsurance coverage, or from any other Person alleged to be responsible, for anyDamages payable under Section 11.02; *provided* that this Section 11.03(g) shallnot prevent such Indemnified Party from exercising its rights under Section11.02 prior to or concurrently with its use of such efforts.

 

Section 11.04.  *Calculationof Damages*.  (a) The amountof any Damages payable under Section 11.02 by the Indemnifying Party shall bereduced by any amounts recovered by the Indemnified Party under applicableinsurance policies or from any other Person alleged to be responsibletherefor.  If the Indemnified Partyreceives any amounts under applicable insurance policies or from any otherPerson alleged to be responsible for any Damages, subsequent to anindemnification payment by the Indemnifying Party, then such Indemnified Partyshall promptly reimburse the Indemnifying Party for any payment made or expenseincurred by such Indemnifying Party in connection with providing suchindemnification payment up to the amount received by the Indemnified Party, netof any expenses incurred by such Indemnified Party in collecting such amount.

 

(b)           The Indemnifying Party shall not beliable under Section 11.02 for Damages relating to any matter to the extentthat (i) there is included in the Closing Working Capital Statement and in thecalculation of Final Working Capital a specific liability or reserve relatingto such matter that was not included on the Balance Sheet or (ii) theIndemnified Party had otherwise been 

 

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compensated for such matterpursuant to the Purchase Price adjustment under Section 2.05.

 

(c)           Each party agrees that, for so longas such party has any right of indemnification under Section 11.02, it willnot, and agrees to use its commercially reasonable efforts to ensure that itsAffiliates do not, voluntarily or by discretionary action (including, withoutlimitation, conducting any invasive sampling or testing), accelerate thetiming, or increase the cost, of any obligations of any other party underSection 11.02 or this Section 11.04, except to the extent such action is taken(i) for a reasonable legitimate business purpose and not with a purpose ofdiscovering a condition that would constitute a breach of any representation,warranty, covenant or agreement of any other party hereto or (ii) in responseto a discovery by such party (or, in the case of Buyer, by any Company or anySubsidiary), without violation of clause (i) above, of meaningful evidence of acondition that constitutes a breach of any representation, warranty, covenantor agreement of any other party hereunder.

 

(d)           The Indemnifying Party shall not beliable under Section 11.02 for any punitive Damages (other than punitiveDamages paid to any third party in respect of a Third Party Claim).

 

(e)           Seller acknowledges and agrees that,upon and after the Closing, none of the Companies or the Subsidiaries shall haveany liability or obligation to indemnify, save or hold harmless or otherwisepay, reimburse or make Seller or any of its Affiliates or Representatives wholefor or on account of any indemnification claims made by Seller or any of itsAffiliates or Representatives for any breach of any representation, warranty,covenant or agreement of Seller, the Company, or any of the Subsidiaries, andSeller and its Affiliates and Representatives shall have no right ofcontribution against any Company or any Subsidiary.

 

Section 11.05.  *Environmental Matters*.  (a) Seller and Parent hereby indemnify Buyerand its Affiliates (including the Companies and the Subsidiaries) against, andagree to hold each of them harmless from, any and all Environmental Costs andLiabilities incurred or suffered by any such Persons arising out of theRelease, prior to the Closing Date, of any Hazardous Materials (“**Pre-ClosingReleases**”) at, on, under or from Avtech’s facilities located at3400, 3326, 3320 and 3422 Wallingford Avenue North and 1813, 1815, and 1914North 34th Street, Seattle, Washington (collectively, the “**Properties**”);*providedthat* (i) Seller’s maximum liability under this Section 11.05(a)shall not exceed, in the aggregate, $5,000,000, (ii) Seller’s obligation toindemnify Buyer and its Affiliates pursuant to this Section 11.05(a) shallterminate on the earlier of (x) 7.5 years after the Closing Date and (y) therepayment and termination of the senior secured credit facility described inthe Commitment Letter for such facility set forth on Schedule 4.05 and (iii)Seller shall have no obligation under this Section 11.05 to indemnify Buyer andits Affiliates to the extent that any Environmental Costs and Liabilities arecaused or exacerbated as a direct result of any action or omissions of Buyer or

 

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its Affiliates (including theCompanies and the Subsidiaries) after the Closing Date.

 

(b)           With respect to any Pre-ClosingReleases for which Seller is obligated to indemnify Buyer and its Affiliatespursuant to this Section 11.05, Buyer shall have the right to control anyRemedial Action which may be required in connection with such Pre-ClosingReleases; *providedthat* (i) Buyer shall provide Seller with any report, workplan,technical data, test result, correspondence or other information in connectionwith such Remedial Action (“**Remedial Action Documents**”) and anopportunity to comment on (which comments shall not be unreasonably withheld ordelayed and shall be reasonably taken into account by Buyer) and approve (whichapproval shall not be unreasonably withheld or delayed by Seller) such RemedialAction Documents prior to their submission to any Governmental Authority orthird party claimant, (ii) Seller shall be provided with at least ten (10)days’ notice of (except in the case of an emergency, Seller shall be providedwith notice of any meetings or scheduled telephonic conferences as soon as practicable prior thereto),and have the right to attend, any meetings or scheduled telephonic conferenceswith any Governmental Authority or third party claimant relating to suchRemedial Action and (iii) Seller shall have the right to take split samples andshall be provided reasonable access, in each case, for the purpose of verifyingthe performance of any Remedial Action.

 

(c)           Buyer agrees that it shall not, forso long as it has any right of indemnification under this Section 11.05, andagrees to use its best efforts to ensure that its Affiliates (including theCompanies and the Subsidiaries) do not, voluntarily or by discretionary action,(including, without limitation, conducting any invasive sampling or testing)accelerate the timing of, or increase the cost of, any obligation of Sellerunder this Section 11.05, except to the extent that such action is taken (i)for a reasonable legitimate business purpose and not with a purpose ofdiscovering a condition that could lead to an indemnification claim under thisSection 11.05 or (ii) in response to a discovery by Buyer, any Company or any Subsidiary,without violation of clause (i) above, of meaningful evidence of a conditionthat could lead to an indemnification claim under this Section 11.05; (any suchvoluntary or discretionary action, other than as so excepted, a “**ProhibitedAction**”).  Notwithstandingany provision herein to the contrary, Seller shall not be obligated toindemnify Buyer and its Affiliates under this Section 11.05 for anyEnvironmental Costs and Liabilities to the extent identified as a result of, orarising from, any Prohibited Action.

 

(d)           Notwithstanding any other provisionherein to the contrary, Seller shall be obligated to indemnify Buyer and itsAffiliates pursuant to this Section 11.05 only to the extent that any RemedialAction conducted pursuant to this Section 11.05 (i) is required pursuant to anapplicable Environmental Law in effect as of the Closing Date, (ii) shall bethe most reasonable cost-effective method under the circumstances and basedupon the assumption that the use of the Properties is the same as that of theClosing Date, and (iii) shall not exceed the 

 

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least stringent requirements ofany applicable Environmental Law in effect as of the Closing Date.  To the extent necessary to achieve thepurposes set forth in this Section 11.05(d), Buyer shall agree to theinstitution of any deed or land use restrictions or other institutionalcontrols in the scope of work for the Remedial Action so long as suchrestrictions or controls do not materially or unreasonably restrict or limitthe activities currently being performed at the Properties.

 

(e)           In the event Seller purchases anenvironmental risk insurance policy insuring Seller against any EnvironmentalCosts and Liabilities that it may incur pursuant to this Section 11.05, Buyeragrees that it shall pay all premiums relating to such insurance policy, not toexceed $110,000.

 

(f)            This Section 11.05 shall not limit,restrict, impact, alter or otherwise have any effect on the indemnification setforth in Section 11.02.  In the eventthat Buyer can make a claim under both Sections 11.02 and 11.05, Buyer shallnot be precluded from making a claim under one section by virtue of its pursuitof a claim under the other section; *provided* that any Environmental Costs andLiabilities recovered under one section with respect to a particular mattershall not be recoverable under the other section.

 

Section 11.06.  *Assignmentof Claims*.  If theIndemnified Party receives any payment from an Indemnifying Party in respect ofany Damages pursuant to Section 11.02 or 11.05 and the Indemnified Party couldhave recovered all or a part of such Damages from a third party (a “**Potential Contributor**”) based on theunderlying claim asserted against the Indemnifying Party, the Indemnified Partyshall use commercially reasonable efforts to assign such of its rights toproceed against the Potential Contributor as are necessary to permit theIndemnifying Party to seek to recover from the Potential Contributor the amountof such payment.

 

Section 11.07.  *Exclusivity*.  Except as specifically set forth in Sections8.06, 8.07, 11.02 and 11.05 and effective as of the Closing, each party andeach party on behalf of each of its Affiliates waives any rights and claims(other than rights to an equitable remedy for breach of any covenants containedherein) that it may have against any other party and such other party’sAffiliates, and their respective counsel, financial advisors, auditors andother authorized representatives, whether in law or in equity, relating to anyCompany, any Subsidiary or the Shares or the transactions contemplatedhereby.  The rights and claims referredto in the immediately preceding sentence include, without limitation, claimsfor contribution or other rights of recovery arising out of or relating to anyEnvironmental Law, whether now or hereafter in effect, claims for breach ofcontract, breach of representation or warranty, negligent misrepresentation andall other claims for breach of duty. After the Closing, Sections 8.06, 8.07, 11.02 and 11.05 will provide theexclusive remedy for any misrepresentation, breach of warranty, covenant orother agreement or other claim arising out of this Agreement or thetransactions contemplated hereby (other than rights to an equitable remedy forbreach of any covenants contained herein).

 

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Notwithstanding the foregoing,nothing shall limit the rights of (i) any Person to assert any claim allegingfraud or deceit or (ii) Seller or its Affiliates to assert any claim withrespect to any Releases of Hazardous Materials (excluding any future migrationof Pre-Closing Releases) or violations of any Environmental Laws, in each case,to the extent that such Releases or violations occur after the Closing Date, inconnection with any Company or Subsidiary or their respective properties.

 

ARTICLE 12

TERMINATION

 

Section 12.01.  *Groundsfor Termination*.  ThisAgreement may be terminated at any time prior to the Closing:

 

(a)           by mutual written agreement of Sellerand Buyer;

 

(b)           by either Seller or Buyer if theClosing shall not have been consummated on or before June 30, 2003;

 

(c)           by Buyer (if Buyer is not in breachof any of the representations, warranties or covenants made by it under thisAgreement), if Seller is in breach of any representation, warranty or covenantmade by Seller hereunder, which breach (i) would, if not remedied, result inthe failure of any condition set forth in Section 10.01 or 10.02 to besatisfied and (ii) either (A) is impossible to remedy or (B) is not remediedwithin 30 days of delivery of notice of such breach by Buyer to Seller;

 

(d)           by Seller (if Seller is not in breachof any of the representations, warranties or covenants made by it under thisAgreement), if Buyer is in breach of any representation, warranty or covenantmade by Buyer hereunder, which breach (i) would if not remedied, result in thefailure of any condition set forth in Section 10.01 or 10.03 to be satisfiedand (ii) either (A) is impossible to remedy or (B) is not remedied within 30days of delivery of notice of such breach by Seller to Buyer;

 

(e)           by either Seller or Buyer ifconsummation of the transactions contemplated hereby would violate anynon-appealable final order, decree or judgment of any Governmental Authorityhaving competent jurisdiction.

 

The party desiring to terminatethis Agreement pursuant to clause 12.01(b), 12.01(c), 12.01(d) or 12.01(e)shall give notice of such termination to the other party.

 

Section 12.02.  *Effect ofTermination*.  If thisAgreement is terminated as permitted by Section 12.01, such termination shallbe without liability of either party (or any stockholder, director, officer,employee, agent, consultant, Affiliate

 

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or representative of such party) to the other party to this Agreement; *provided* that if such termination shallresult from the willful (i) failure of either party to fulfill a condition tothe performance of the obligations of the other party, (ii) failure of eitherparty to perform a covenant of this Agreement or (iii) breach by either partyhereto of any representation or warranty or agreement contained herein, suchparty shall be fully liable for any and all Damages incurred or suffered by theother party as a result of such failure or breach.  The provisions of Sections 6.01and 7.03 and Article 13 shallsurvive any termination hereof pursuant to Section 12.01.

 

ARTICLE 13

MISCELLANEOUS

 

Section 13.01.  *Notices*.  All notices, requests and other communicationsto any party hereunder shall be in writing (including facsimile transmission)and shall be given,

 

if to Buyer,to:

 

Wings Holdings, Inc.

c/o Odyssey Investment Partners, LLC

280 Park Avenue

West Tower, 38th Floor

New York, New York 10017

Attention:  Bill Hopkins

Telecopy No.: (212) 351-7930

 

with a copyto:

 

Latham & Watkins LLP

885 Third Avenue

New York, New York 10022

Attention: Robert Kennedy

Telecopy No.: (212) 751-4865

 

if to Seller,to:

 

DeCrane Aircraft Holdings, Inc.

2361 Rosecrans Avenue

Suite 180

El Segundo, CA  90245

Attention: Richard J. Kaplan

Fax: (310) 643-5106

 

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with a copyto:

 

Davis Polk & Wardwell

450 Lexington Avenue

New York, New York  10017

Attention: Nancy L. Sanborn

Fax:  (212) 450-3800

 

All such notices, requests and other communications shall be deemedreceived on the date of receipt by the recipient thereof if received prior to 5p.m. in the place of receipt and such day is a business day in the place ofreceipt.  Otherwise, any such notice,request or communication shall be deemed not to have been received until thenext succeeding business day in the place of receipt.

 

Section 13.02.  *Amendmentsand Waivers*.  (a) Anyprovision of this Agreement may be amended or waived if, but only if, suchamendment or waiver is in writing and is signed, in the case of an amendment,by each party to this Agreement, or in the case of a waiver, by the partyagainst whom the waiver is to be effective.

 

(b)           No failure or delay by any party in exercisingany right, power or privilege hereunder shall operate as a waiver thereof norshall any single or partial exercise thereof preclude any other or furtherexercise thereof or the exercise of any other right, power or privilege. Therights and remedies herein provided shall be cumulative and not exclusive ofany rights or remedies provided by law.

 

Section 13.03.  *Expenses*.  Except as otherwise provided herein, allcosts and expenses incurred in connection with this Agreement shall be paid bythe party incurring such cost or expense; *provided* that all fees and expenses of theCompanies’ and the Subsidiaries’ outside counsel, financial advisors,independent accountants and other advisors incurred in connection with thisAgreement and the transactions contemplated hereby shall be paid by Seller(other than any amounts incurred after the date hereof at the request of Buyeror any of its Affiliates, (*provided* that Seller notifies Buyer inwriting prior to the incurrence of such expense that such expense will be paidby Buyer) or otherwise in connection with the financing of the Purchase Price,and fees and expenses of Buyer and its Affiliates).

 

Section 13.04.  *Successorsand Assigns*.  The provisionsof this Agreement shall be binding upon and inure to the benefit of the partieshereto and their respective successors and assigns; *provided* that no party may assign, delegate or otherwisetransfer any of its rights or obligations under this Agreement without theconsent of the other party hereto. Notwithstanding the immediately preceding sentence, Buyer may assign,delegate, or otherwise transfer all or any part of its rights and obligationsunder this Agreement (i) to any Affiliate of Buyer that owns directly orindirectly the Companies and the Subsidiaries, (ii) in connection with the saleof all or substantially all of the business and assets of the Companies

 

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and the Subsidiaries, or (iii)as collateral security for the agent and lenders pursuant to the senior securedcredit facility referenced in the Commitment Letters; in each case, so long asBuyer and such transferee each shall be responsible for Buyer’s obligationsunder this Agreement.  In addition,prior to the Closing, Buyer may assign its right to purchase the Shares inwhole or in part to one or more subsidiaries of Buyer, so long as Buyer andsuch transferee each shall be responsible for Buyer’s obligations under thisAgreement.

 

Section 13.05.  *GoverningLaw*.  This Agreement shall begoverned by and construed in accordance with the law of the State of New York,without regard to the conflicts of law rules of such state.

 

Section 13.06*.  WAIVER OF JURY TRIAL. *EACH OF THE PARTIES HERETO HEREBYIRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDINGBROUGHT BY ANY PARTY HERETO ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THETRANSACTIONS CONTEMPLATED HEREBY.

 

Section 13.07*.  Disputes Arising On or Prior to the ClosingDate. *(a) Except asotherwise expressly provided in this Agreement, the parties hereto agree thatany suit, action or proceeding brought by any party hereto on or prior to theClosing Date which seeks to enforce any provision of, or is based on any matterarising out of or in connection with, this Agreement or the transactionscontemplated hereby shall be brought in the United States District Court forthe Southern District of New York or any New York State court sitting in NewYork County, so long as one of such courts shall have subject matterjurisdiction over such suit, action or proceeding, and that any cause of actionarising out of this Agreement shall be deemed to have arisen from a transactionof business in the State of New York, and each of the parties herebyirrevocably consents to the jurisdiction of such courts (and of the appropriateappellate courts therefrom) in any such suit, action or proceeding, and eachparty irrevocably waives, to the fullest extent permitted by law, any objectionthat it may now or hereafter have to the laying of the venue of any such suit,action or proceeding in any such court or that any such suit, action orproceeding which is brought in any such court has been brought in aninconvenient forum.  Process in any suchsuit, action or proceeding, may be served on any party anywhere in the world,whether within or without the jurisdiction of any such court.  Without limiting the foregoing, each partyagrees that service of process on such party as provided in Section 13.01 shallbe deemed effective service of process on such party.

 

(b)           The parties hereto agree thatirreparable damage would occur if any provision of this Agreement which isanticipated to be performed on or prior to the Closing Date were not performedin accordance with the terms hereof and that each party shall be entitled toequitable relief in the form of specific performance, a temporary restrainingorder, a temporary or permanent injunction or injunctions or other equitablerelief to prevent breaches of any such provisions of this Agreement or toenforce specifically the performance of any such terms

 

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and provisions of thisAgreement in the United States District Court for the Southern District of NewYork or any New York State court sitting in New York County, in addition to anyother remedy to which such party is entitled at law or in equity*.*

 

Section 13.08*.  Disputes Arising After the ClosingDate. *(a)** The parties hereto agree that any and alldisputes, claims or controversies brought by any party hereto after the ClosingDate that arise out of or relate to this Agreement, other than disputespursuant to Section 2.02 or 2.04 of this Agreement, but including disputes withrespect to issues regarding the validity, formation or enforceability of thisAgreement, shall be submitted to final and binding arbitration before Jams in NEW YORK, NEW YORK (“**JAMS**”), or its successor; *provided*that any disputes arising under Sections 2.02 or 2.04(c) of this Agreementshall be resolved in accordance with the dispute resolution mechanismscontained in those Sections.  Any partymay commence the arbitration process called for in this Section by filing awritten demand for arbitration with JAMS,with copies to the other party.  Thearbitration will be conducted in accordance with the provisions of JAMS’ Streamlined Arbitration Rules andProcedures as revised September 2002 (“**JAMS Rules**”), except that the timedeadlines and other terms in this Agreement shall govern and supersede the JAMSRules in the event of a conflict.  The partieswill cooperate with JAMS and withone another in selecting an arbitrator from JAMS’panel of neutrals, and in scheduling the arbitration proceedings.  The parties agree that they will participatein the arbitration in good faith, and that they will share equally in itscosts.  The provisions of this Sectionmay be enforced by any court of competent jurisdiction.

 

(b)           The arbitration shall be conducted byone neutral arbitrator, who must be a retired state court or federal courtjudge, selected in accordance with JAMS Rule 12.  The JAMS Case Manager shall supervise the selection of thearbitrator to assure that an arbitrator is appointed and that the partiesparticipate in an initial conference with the arbitrator within 30 days of thedate of the filing of the demand for arbitration with JAMS.  In no event shall any delay in the selectionand appointment of the arbitrator delay the time deadline for the commencementof the arbitration hearing as provided for in Section 13.08(d) of thisAgreement.

 

(c)           The exchange of information by theparties to the arbitration shall be in accordance with JAMS Rule 13, exceptthat the arbitrator shall have the discretion to permit the parties to conductadditional discovery as long as such discovery is reasonable and does not delaythe commencement of the arbitration hearing as provided for in Section 13.08(d)of this Agreement.

 

(d)           The arbitrator, after consultationwith the parties, shall determine the date of the arbitration hearing.  The arbitration hearing should begin within60 calendar days of the filing of the demand for arbitration with JAMS.  In no event shall the arbitration hearingcommence later than 75 calendar days from the date

 

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of filing of the demand forarbitration, as the parties agree that time is of the essence.  The arbitrator and the parties shallschedule the hearing for no longer than 10 consecutive business days, with timeat the hearing allocated equally to each side. The place of arbitration shall be New York City.

 

(e)           Absent good cause for an extension,the arbitrator shall render an award within 15 calendar days of the conclusionof the arbitration hearing in accordance with JAMS Rule 19(f), except that thearbitrator shall provide a written statement of his or her reasons for theaward which shall become part of the award and be admissible in any judicialproceeding to enforce the award.  Theaward of the arbitrator shall be final, binding, non-appealable and enforceableas a judgment in any court of competent jurisdiction.  No motion for a new trial or hearing will be allowed.

 

(f)            Any action brought to enforce thisSection or any arbitration award pursuant to this Section shall be brought inthe United States District Court for the Southern District of New York in theState of New York or in any New York State court sitting in New York County,and each of the parties hereby irrevocably consents to the jurisdiction of suchcourt.

 

(g)           The costs of such arbitrationpursuant to this Section 13.08, including the fees and expenses of thearbitrator, shall be shared equally by the parties.  Each party shall bear the costs of preparing and presenting itscase, including its own attorney’s fees. Buyer and Seller agree that this provision and the arbitrator’sauthority to grant relief shall be subject to the United States ArbitrationAct, 9 U.S.C. 1-16 et seq., the provisions of this Agreement, and the ABA-AAACode of Ethics for Arbitrators in Commercial Disputes.  Buyer and Seller agree that the arbitratorshall have no power or authority to make awards or issue orders of any kindexcept as expressly permitted by this Agreement, and that in no event shall thearbitrator have the authority to make any award that provides for punitive orexemplary damages.

 

(h)           At the option of either party, suchparty may include in the demand for arbitration a request for a meeting betweensenior executives of the parties having responsibility for the matter (the “**DirectMeeting**”).  If a request fora Direct Meeting is made, the parties to this Agreement shall cause theirrespective senior executives to meet in person or, by agreement by the parties,by a telephonic conference call, no later than 10 calendar days followingreceipt of the request.  The parties mayconsider mediation; however, in no event shall the Direct Meeting and/ormediation delay or change the time deadlines for the arbitration.

 

Section 13.09*.*  *Counterparts;Third Party Beneficiaries*. This Agreement may be signed in any number of counterparts, each ofwhich shall be an original, with the same effect as if the signatures theretoand hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall havereceived a counterpart hereof signed by the other party hereto.  No provision

 

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of this Agreement is intendedto confer upon any Person other than the parties hereto any rights or remedieshereunder.

 

Section 13.10.  *EntireAgreement*.  This Agreementand the Confidentiality Agreement constitute the entire agreement between theparties with respect to the subject matter of this Agreement and supersede allprior agreements and understandings, both oral and written, between the partieswith respect to the subject matter of this Agreement.

 

Section 13.11.  *Captions*.  The captions herein are included forconvenience of reference only and shall be ignored in the construction orinterpretation hereof.

 

Section 13.12*.  Interpretation. *Each of the parties acknowledges that it has beenrepresented by counsel in connection with this Agreement and the transactionscontemplated hereby and thereby. Accordingly, any rule of law or any legal decision that would requireinterpretation of any claimed ambiguities in this Agreement against the partythat drafted it has no application and is expressly waived.

 

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IN WITNESSWHEREOF, the parties hereto have caused this Agreement to be duly executed bytheir respective authorized officers as of the day and year first abovewritten.

 
|   | WINGS HOLDINGS, INC.            |
|--------|---------------------------------|
|   |                            |
|   |                            |
|   | By:                             | /s/ William F. Hopkins |   |
|   |                            | Name: | William F. Hopkins |
|   |                            | Title: | President |
|   |                            |   |   |
|   |                            |   |   |
|   | DECRANE AIRCRAFT HOLDINGS, INC. |
|   |                            |   |
|   | By:                             | /s/ Richard J. Kaplan |   |
|   |                            | Name: | Richard J. Kaplan |
|   |                            | Title: | Senior Vice President,  Chief Financial Officer,  Secretary and Treasurer |
|   |                            |   |   |
|   |                            |   |
|   | DECRANE HOLDINGS CO.            |
|   |                            |
|   |                            |   |
|   | By:                             | /s/ Richard J. Kaplan |   |
|   |                            | Name: | Richard J. Kaplan |
|   |                            | Title: | Chief Financial Officer and  Assistant Secretary |
|        |                                 |  |  |  |

 

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