Document:

Exhibit 10.6

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (this “Agreement”),
signed on January     , 2008 and effective as of the
date hereof (the “Commencement Date”) is made by and between Innovative
Solutions and Support, Inc., a Pennsylvania corporation, having its
principal offices at 720 Pennsylvania Drive, Exton, PA 19341 (the “Company”),
and Mr. Raymond J. Wilson (the “Executive”).

 

Recitals

 

1.                                       The Company
desires to employ Executive as the Chief Executive Officer of the Company, and
to enter into this Agreement embodying the terms of employment.

 

2.                                       The Executive is
willing to serve as Chief Executive Officer of the Company on the terms set
forth herein.

 

Agreement

 

NOW,
THEREFORE, in consideration of the premises and mutual covenants herein contained,
and other good and valuable consideration, and intending to be legally bound
hereby, the Company and the Executive hereby agree as follows:

 

1.                                      Definitions.

 

1.1.                            “Affiliate”
means any person or entity controlling, controlled by or under common control
with the Company.

 

1.2.                            “Board”  means the Board of Directors of the Company.

 

1.3.                            “Cause”
means (a) the Executive, in carrying out his duties under this Agreement,
engages in intentional and continued gross misconduct or gross negligence
directly resulting in demonstrable and material financial injury to the
Company, (b) the Executive willfully embezzles the Company’s assets, (c) the
Executive is convicted (including a plea of guilty or nolo
contendere) of a felony or a misdemeanor involving moral turpitude, (d) any
willful acts of fraud or misappropriation, (e) Executive’s material breach
of Section 4 or Section 11 of this Agreement; or (f) any failure
to adhere or to carry out lawful duties, directives or policies of the Board,
consistent with Executive’s position and duties described in Section 4
below, except for any such failure to carry out a direction which Executive in
believes, in good faith, would violate his fiduciary obligations to the Company
or any of its Affiliates.

 

1.4.                            “Change
of Control” shall have the meaning ascribed thereto in the Company’s 1998
Stock Option Plan, as amended from time to time.

 

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

 

1.6.                            “Disability”
means that Executive is unable to engage in any substantial gainful activity or
is receiving income replacement benefits for a period of not less than 3 months
under the Company’s accident and health plan by reason of any medically
determinable physical 

 

 

or mental impairment that can be expected to result in
death or last for a continuous period of not less than 12 months.

 

1.7.                            “Good Reason” means and shall be
deemed to exist if, without the prior express written consent of the Executive,
(a) the Executive suffers a material reduction in the duties, responsibilities
or effective authority associated with his titles and positions, as set forth
and described in Section 4 of this Agreement; (b) the Executive’s
Base Salary or target bonus opportunity (as contemplated by Section 5.2)
is decreased by the Company; (c) the Company fails to pay the Executive’s
compensation or to provide for the Executive’s benefits when due, other than as
a result of a mistake in processing payroll or other inadvertent error; (d) the
Company materially breaches the terms of this Agreement; (e) the Executive’s
office location is moved to a location more than 25 miles outside of Exton,
Pennsylvania; and/or (f) the Executive’s employment is terminated for any
reason following a Change of Control of the Company; provided, however,
that Good Reason shall not be deemed to exist unless the Executive provides
written notice to the Company, indicating the circumstances that constitute
Good Reason, within 90 days following the occurrence of such circumstances, and
the Company fails to remedy such circumstances within thirty (30) days after
the receipt of such notice.

 

2.                                      Employment.  Subject to the terms and provisions set forth
in this Agreement, the Company hereby agrees that the Executive shall be
employed as the Chief Executive Officer of the Company as well as certain
Affiliates as set forth in Annex 1, and
the Executive hereby accepts such employment.

 

3.                                      Term
of Employment.  The term of
employment under this Agreement shall commence on the Commencement Date and
shall continue until December 31, 2009 unless earlier terminated pursuant
to Section 6 of this Agreement (the “Term of Employment”).

 

4.                                      Positions,
Responsibilities and Duties.

 

4.1.                            Positions.  During the Term of Employment, the Executive
shall be employed and serve as Chief Executive Officer of the Company as well
as certain Affiliates as set forth in Annex 1.  In such position, the Executive shall have
the duties, responsibilities and authority normally associated with the office
and position of Chief Executive Officer of a corporation, and shall have such
duties as the Board, in its discretion, designates, consistent with those of a
Chief Executive Officer.  In addition,
during the Term of Employment, the Executive shall be nominated for election as
a member of the Board and agrees to serve if so elected.

 

4.2.                            Duties.  During the Term of Employment, the Executive
shall devote substantially all of his business time, during normal business
hours, to the business and affairs of the Company and the Executive shall use
his reasonable best efforts to perform the duties and responsibilities
contemplated by this Agreement; provided, however, that the
Executive shall be allowed, to the extent such activities do not substantially
interfere with the performance by the Executive of his duties and
responsibilities hereunder, to (a) manage the Executive’s personal,
financial and legal affairs, and (b) serve on civic or charitable boards
or committees.

 

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5.                                      Compensation
and Other Benefits.

 

5.1.                            Annual
Base Salary.  During the Term of
Employment, the Executive shall receive an annual base salary (“Base Salary”)
payable in accordance with the Company’s normal payroll practices of no less
than US$400,000.  The Board shall review
the Executive’s Base Salary annually, for the first time effective from October 1,
2008, and may, at its sole discretion, increase (but not decrease) the
Executive’s Base Salary.

 

5.2.                            Annual
Bonus.  In respect of each fiscal
year during the Term of Employment, the Executive shall be eligible to receive
an annual bonus (the “Bonus”), depending on the extent to which Company
financial goals established by the Company’s management and approved by the
Company’s Compensation Committee of the Board of Directors (the “Committee”)
in consultation with Company management (the “Annual Budget”) are
attained.  The Committee may, in its
discretion, increase the Bonus payable to Executive hereunder; provided,
that the following shall apply:

 

5.2.1.                  if
the Company achieves 90% or less of the Annual Budget, no Bonus shall be
required to be paid to Executive hereunder;

 

5.2.2.                  if
the Company achieves 100% of the Annual Budget, Executive shall be entitled to
a Bonus of $300,000;

 

5.2.3.                  if
the Company achieves 120% of the Annual Budget, Executive shall be entitled to
a Bonus of $600,000;

 

5.2.4.                  if
the Company achieves more than 90% but less than 100% of the Annual Budget,
Executive shall be entitled to a pro rated Bonus such that, for example, if the
Company achieves 95% of the Annual Budget, Executive shall be entitled to a
Bonus of $150,000; and

 

5.2.5.                  if
the Company achieves more than 100% but less than 120% of the Annual Budget,
Executive shall be entitled to a pro rated Bonus such that, for example, if the
Company achieves 110% of the Annual Budget, Executive shall be entitled to a
Bonus of $450,000.

 

The
Bonus, if any, shall be paid as soon as practicable after the end of each
fiscal year (but not later than December 31), provided Executive remains
continuously employed hereunder by the Company through the date such Bonus is
paid to Executive.

 

5.3.                            Retirement
and Savings Plans.  During the
Term of Employment, the Executive shall be eligible – subject to the terms and
conditions of the applicable plans – to participate, not later than the Commencement
Date, in all incentive, pension, retirement, savings, 401(k) and other
employee pension benefit plans, policies and programs (the “Retirement Plans”)
established or maintained by the Company from time to time for the benefit of
senior executives and/or other employees.

 

5.4.                            Welfare
Benefit Plans.  During the Term
of Employment, the Executive, the Executive’s spouse, if any, and their
dependents, if any, shall be eligible – subject to the terms and conditions of
the applicable plans – to participate, not later than the Commencement Date, in
and be covered on the same basis as other senior executive officers of the
Company 

 

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under all the welfare benefit plans, policies and/or
programs maintained by the Company from time to time including, without
limitation, all medical, hospitalization, dental, disability, life, accidental
death and dismemberment and travel accident insurance plans, policies and/or
programs (the “Welfare Plans”).

 

5.5.                            Expense
Reimbursement.

 

5.5.1.                       General.  During and in respect of the Term of
Employment, the Executive shall be entitled to receive prompt reimbursement for
expenses incurred by the Executive in performing his duties and
responsibilities hereunder in accordance with the Company’s expense
reimbursement policy for senior executives of the Company.

 

5.5.2.                       Moving
Expenses.

 

5.5.2.1.            The Executive shall be entitled to
reimbursement for moving expenses incurred by the Executive in relocating from
the United Kingdom to the vicinity of Exton, Pennsylvania in connection with
his employment hereunder to the extent such expenses are incurred and
appropriate receipts submitted to the Company for reimbursement prior to February 15,
2008.  Such reimbursement shall be paid
to Executive as soon as practicable following receipt of appropriate
documentation from Executive, but in no event later than March 15, 2008.

 

5.5.2.2.            In addition, the Executive shall be
entitled to reimbursement for moving expenses incurred by the Executive in relocating
from the vicinity of Exton, Pennsylvania to the United Kingdom upon the
termination of his employment hereunder; provided, that the Executive shall not
be entitled to reimbursement for moving expenses hereunder in the event that (i) the
Executive voluntarily terminates his employment without Good Reason, or (ii) the
Executive’s employment is terminated for Cause. 
Notwithstanding anything herein or in the Company’s expense
reimbursement policy for senior executives, expenses incurred by Executive following
termination of his employment by the Company or its Affiliates shall only be
eligible for reimbursement to the extent they are:  (A) incurred on or before the last day
of the second calendar year following the calendar year during which the Executive’s
employment terminates, and (B) reimbursed on or before the last day of the
third calendar year following the calendar year during which the Executive’s
employment terminates.

 

5.5.2.3.            The maximum amount of aggregate expenses to
be reimbursed under this Section 5.5.2 shall in no event exceed US$75,000.

 

5.5.3.                       Legal Fees.  The Executive shall be entitled to receive
prompt reimbursement for legal fees and expenses incurred by the Executive in
negotiating this Agreement; provided that the aggregate amount of expenses
eligible to be reimbursed under this Section 5.5.3 shall not exceed
US$15,000.

 

5.6.                            Vacation.  During the Term of Employment, the
Executive shall be entitled to six weeks paid vacation each calendar year.  If the Term of Employment commences or
terminates during a calendar year, the vacation shall be adjusted pro rata for
such calendar year.

 

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5.7.                            Automobile
Allowance.  During the Term of
Employment, the Company shall provide Executive with a suitable leased
automobile, or, in the Company’s discretion, an automobile allowance of
US$2,000 per month (payable on or before the last day of the month), in
accordance with the Company’s standard practice for the administration of
Company automobile allowances.

 

6.                                      Termination.

 

6.1.                            Termination
Due to Death.  In the event of
the Executive’s death, the Executive’s beneficiary (designated in writing to
the Company) or estate, as the case may be, shall be entitled to: (a) any
Base Salary accrued but unpaid as of the date of the Executive’s death, (b) continued
payment of the Executive’s Base Salary for an additional period of six months
after the date of the Executive’s death; (c) an amount equal to Executive’s
Bonus for the year of such death, multiplied by a fraction, the numerator of
which is the number of days transpired in the fiscal year up to and including
the date of the death of the Executive, and the denominator of which is 365,
which amount shall be determined and payable pursuant to the terms of Section 5.2;
(d) payment, on the tenth day following such termination, of any unpaid
expense reimbursements and unused accrued vacation days through the date of the
Executive’s death; and (e) any other benefits which the Executive, the
Executive’s estate or the Executive’s executor is entitled to receive under any
of the Retirement Plans or Welfare Plans

 

6.2.                            Termination
Due to the Executive’s Disability. 
Upon thirty (30) days prior written notice to the Executive, the Company
may terminate the Executive’s employment hereunder due to Disability.  In such event, the Executive or his executor,
as the case may be, shall be entitled to: (a) any Base Salary accrued but
unpaid as of the date of the Executive’s termination due to Disability; (b) continued
payment of the Executive’s Base Salary for an additional period of six (6) months
after the date of the Executive’s Disability, provided that each month’s
continued Base Salary shall be reduced, dollar-for-dollar, by any amounts
received by Executive during such month under the Company’s short-term
disability plan, if applicable; (c) an amount equal to Executive’s Bonus
for the year of such Disability, multiplied by a fraction, the numerator of
which is the number of days transpired in the fiscal year up to and including
the date of the Executive’s Disability, and the denominator of which is 365,
which amount shall be determined and payable pursuant to the terms of Section 5.2;
(d) payment, on the tenth day following such termination, of any unpaid
expense reimbursements and unused accrued vacation days through the date of
termination; and (e) any other payments and/or benefits which the
Executive or the Executive’s estate is entitled to receive under any of the
Retirement Plans or Welfare Plans.

 

6.3.                            Termination
Without Cause or by the Executive for Good Reason.  Upon thirty (30) days prior written notice to
the Executive, the Company may terminate the Executive’s employment hereunder
without Cause.  Upon thirty (30) days
prior written notice to the Company, the Executive may terminate his employment
hereunder with the Company for Good Reason. 
In either such event, the Executive shall be entitled to: (a) any
Base Salary accrued but unpaid through the date of termination; (b) Executive’s
Base Salary for the remainder of the Term of Employment; (c) an amount
equal to Executive’s Bonus for the year of such termination, multiplied by a
fraction, the numerator of which is the number of days transpired in the fiscal
year up to and including the date of the Executive’s termination, and the 

 

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denominator of which is 365, which amount shall be
determined and payable pursuant to the terms of Section 5.2; (d) payment,
on the tenth day following such termination, of any unpaid expense
reimbursements and unused accrued vacation days through the date of
termination; and (e) any other payments and/or benefits which the
Executive is entitled to receive under any of the Retirement Plans or Welfare
Plans.  The Company may terminate the
Executive with immediate effect pursuant to this Section, without providing
thirty (30) days prior written notice, in which case it will pay the Executive
thirty (30) days’ Base Salary in addition to the amounts set forth in clauses (a) through
(e) above.  For the purposes of Section 409A
of the Internal Revenue Code of 1986, as amended (the “Code”), each
monthly payment described in 6.3(b) shall be considered a separate
payment.   Notwithstanding anything to
the contrary herein, if any of the payments provided for in this Section 6.3
would be subject to an additional 20% tax pursuant to Section 409A of the
Code by reason of Executive’s status as a “specified employee” as that term is
defined for purposes of Section 409A of the Code, such payments shall be
delayed for the shortest period practicable (no less than 6 months following
Executive’s termination of employment without Cause or for Good Reason) in
order to avoid such additional tax.  The
payments made pursuant to this Section 6.3 are in consideration of
Executive’s covenants set forth in Section 11.3.

 

6.4.                            Termination
For Cause.  Upon written notice
to the Executive, the Company may terminate the Executive’s employment for
Cause.  In such event, the Executive
shall be entitled to:  (a) any Base
Salary accrued but unpaid through the date of termination; (b) payment, on
the tenth day following such termination, of any unpaid expense reimbursements
and unused accrued vacation days through the date of termination; and (c) any
other payments and/or benefits which the Executive is entitled to receive under
any of the Retirement Plans or Welfare Plans. 
The Executive shall be given the opportunity within thirty (30) calendar
days of the receipt of such notice to cure such act or failure to act which
constitutes Cause, but only if the Board deems such act or failure to act
amenable to cure; otherwise, the termination for Cause is with immediate
effect.  Upon failure of the Executive to
correct such act or failure to act within such thirty (30) day cure period, if
applicable, the Company may proceed to terminate the Executive for Cause with
immediate effect.

 

6.5.                            Termination
Without Good Reason.  Upon thirty
(30) days prior written notice to the Company, the Executive shall have the
right to terminate his employment hereunder without Good Reason.  In such event, the Executive shall be
entitled to:  (a) any Base Salary
accrued but unpaid through the date of termination; (b) payment of any
unpaid expense reimbursements and unused accrued vacation days through the date
of termination; and (c) any other payments and/or benefits which the
Executive is entitled to receive under any of the Retirement Plans or Welfare
Plans.

 

6.6.                            Effect
of Notice.  Upon either party’s
delivery of a notice of termination of Executive’s employment to the other, the
Board, in its absolute discretion, may relieve Executive of all his duties,
responsibilities and authority with respect to the Company and restrict
Executive’s access to Company property.

 

6.7.                            Payment.  Except as otherwise provided in this
Agreement, any payments to which the Executive shall be entitled under this Section 6
shall be made as promptly as possible following the date of termination.

 

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6.8.                            General Release.  The
Executive’s receipt of the payments under Section 6.3(b) is
contingent upon his timely execution, delivery and non-revocation of a general
release in a form satisfactory to the Company, which, among other things, shall
include a general release of the Company from all liability and other terms
deemed reasonably necessary by the Company for its protection.

 

6.9.                            Excise
Tax Limitation.  Notwithstanding any other provisions of this
Agreement to the contrary, in the event that any payments or benefits received
or to be received by the Executive in connection with the Executive’s
employment with the Company (or termination thereof) would subject the
Executive to the excise tax imposed under Sections 280G or 4999 of the Code
(the “Excise Tax”), and if the net-after tax amount (taking into account all
applicable taxes payable by the Executive, including any Excise Tax) that the
Executive would receive with respect to such payments or benefits does not
exceed the net-after tax amount the Executive would receive if the amount of
such payment and benefits were reduced to the maximum amount which could
otherwise be payable to the Executive without the imposition of the Excise Tax,
then, to the extent necessary to eliminate the imposition of the Excise Tax, (i) such
cash payments and benefits shall first be reduced (if necessary, to zero) and (ii) all
other non-cash payments and benefits shall next be reduced.

 

7.                                      Non-exclusivity
of Rights.  Nothing in this
Agreement shall prevent or limit the Executive’s continuing or future
participation in any benefit, bonus, incentive or other plan, policy or program
provided or maintained by the Company and/or any Affiliate and for which the
Executive may qualify, nor shall anything herein limit or otherwise prejudice
such rights as the Executive may have under any other existing or future
agreements with the Company and/or any Affiliate, including, without
limitation, any equity agreements or plans. 
Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plans or programs of the Company and/or any
Affiliate at or subsequent to the date of termination shall be payable in
accordance with such plans or programs.

 

8.                                      Full
Settlement.  The Company’s
obligation to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any circumstances,
including, without limitation, any set-off, counterclaim, recoupment, defense
or other right which the Company may have against the Executive or others.

 

9.                                      Successors.

 

9.1.                            The
Executive.  This Agreement is
personal to the Executive and, without the prior express written consent of the
Company, shall not be assignable by the Executive, except that the Executive’s
rights to receive any compensation or benefits under this Agreement may be
transferred or disposed of pursuant to testamentary disposition, intestate
succession or pursuant to a domestic relations order.  This Agreement shall inure to the benefit of
and be enforceable by the Executive’s heirs, beneficiaries and/or executors.

 

9.2.                            The
Company.  This Agreement shall
inure to the benefit of and be binding upon the Company and its respective
successors and assigns.

 

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10.                               Indemnification.  The Company agrees that if the Executive is
made a party or is threatened to be made a party to any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”),
by reason of the fact that he is or was a director or officer of the Company
and/or any Affiliate or is or was serving at the request of the Company and/or
any Affiliate as a director, officer, member, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including, without limitation, service with respect to employee benefit plans,
whether or not the basis of such Proceeding is alleged action in an official
capacity as a director, officer, member, employee or agent while serving as a
director, officer, member, employee or agent, he shall be indemnified and held
harmless by the Company to the fullest extent authorized by Pennsylvania law,
as the same exists or may hereafter be amended, against all expenses or losses
incurred or suffered by the Executive in connection therewith, and such
indemnification shall continue as to the Executive even if the Executive has
ceased to be an officer, director or agent, or is no longer employed by the
Company and shall inure to the benefit of his heirs, executors and
administrators.  Any reimbursement in any
taxable year pursuant to indemnification under this Section 10 shall not
affect the expenses eligible for reimbursement in any other taxable year.

 

11.                               Restrictive
Covenants.

 

11.1.                     Protection
of the Company’s Interests.  To
the fullest extent permitted by law, all rights worldwide with respect to any
intellectual or other property of any nature conceived, developed, produced,
created, suggested or acquired by Executive as a result of Executive’s
employment with the Company or any Affiliate, or through the use of the Company’s
or such Affiliate’s equipment, facilities, trade secrets or confidential
information during the period commencing on the date of Executive’s employment
with the Company and ending upon termination of the Term of Employment shall be
the sole and exclusive property of the Company and any such intellectual or
other property shall be deemed to be works made for hire.  Executive agrees to execute, acknowledge and
deliver to the Company at the Company’s request, such further documents as the
Company finds appropriate to evidence the Company’s rights in such
property.  In addition to the above, you
agree that upon signing this Agreement you will execute an Intellectual
Property Agreement in the form supplied by the Company.

 

11.2.                     Confidentiality.  Executive shall keep confidential and not
disclose to any other person or entity or use for his own benefit or the
benefit of any other person or entity any confidential information, proprietary
information, technology, know-how, trade secrets (including all results of
research and development), product formulas, industrial designs, customer
lists, franchises, inventions or other intellectual property regarding the
Company and/or its affiliates or the business and operation of the Company
and/or its affiliates (“Confidential Information”) in his possession or
control.  The obligations of Executive
under this Section 11.2 shall not apply to Confidential Information which (i) is
or becomes generally available to the public without breach of the commitment
provided for in this Section; or (ii) is required to be disclosed by law,
order or regulation of a court or tribunal or governmental authority; provided,
however, that, in any such case, Executive shall notify the Board as early as
reasonably practicable prior to disclosure to allow the Board to take
appropriate measures to preserve the confidentiality of such Confidential
Information.

 

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11.3.                     Non-Compete.

 

11.3.1.           During the period beginning on the Effective
Date and ending 12 months following termination of the Executive’s employment
(the “Non-Compete Period”), the Executive covenants and agrees not to,
and shall cause his controlled affiliates not to, directly or indirectly and anywhere
in the United States or the world, conduct, manage, operate, be employed by or
otherwise connected in any manner with, or engage in, or have an ownership
interest in any business or enterprise engaged in, whether as principal,
manager, employee, agent, consultant, officer, equity holder, partner,
investor, lender or member or in any other capacity, any business or enterprise
(or subsidiary or division thereof) which at any relevant time during the
Non-Compete Period directly or indirectly competes with the Business of the
Company or its Affiliates (collectively, the “Protected Companies”), in
any geographic location in which the Protected Companies are conducting
business.  For purposes of this
Agreement, “Business” shall mean any business or enterprise engaged
in  (i) the development, design,
engineering, manufacture, sale and provision of flat panel display systems,
flight information computers and advanced monitoring systems to the U.S.
Department of Defense, government agencies, defense contractors, commercial air
transport carriers, original equipment manufacturers, and the corporate/general
aviation markets, and the integration of any such systems or computers with
other flight information systems (ii) any business that uses any
trademark, tradenames or slogan similar to the “Innovative Solutions and
Support, Inc.” or “IS&S” trademarks, tradenames or slogans, or (iii) any
activities that are otherwise competitive with the business of the Company
and/or its affiliates, including any products or services that are being
created, developed or modified or any new end market entries that are being
planned with respect to existing products or services, at any relevant time
during the Term of Employment.

 

11.3.2.           During the Non-Compete Period, the Executive
shall not, directly or indirectly, call-on, solicit or induce, or attempt to
solicit or induce, any customer or other business relationship of any of the
Protected Companies for the provision of products or services, related to the
Business engaged in by any of the Protected Companies prior to the termination
of the Term of Employment, or in any other manner that would interfere with the
business relationship between any such Protected Company and its customers and
other business relationships.

 

11.3.3.           During the Non-Compete Period, the Executive
shall not, directly or indirectly, call-on, solicit or induce, or attempt to
solicit or induce, any employee, staff, independent contractor or consultant of
any of the Protected Companies to leave his or her employ or service with the
Company or any of its Affiliates for any reason whatsoever, nor shall the
Executive offer or provide employment (whether such employment is for the
Executive or any other business or enterprise), either on a full-time,
part-time or consulting basis, to any person who then currently is, or who
within six months immediately prior thereto was, an employee of or staffed with
any of the Protected Companies; provided, however, that the Executive
shall not be restricted from conducting any general solicitation for employees
or public advertising of employment opportunities (including through the use of
employment agencies) not specifically directed at any such persons, provided
further, however, that the Executive shall not, and shall cause his
affiliates not to, hire any such person who responds to any such general
solicitation or public advertising.

 

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11.3.4.           During the Term of
Employment and thereafter, Executive, on the one hand, and the Company, on the
other hand, shall not directly (or through any other person or entity) make any
public or private statements (whether orally or in writing) that disparage,
denigrate or malign the other, their respective businesses, activities,
operations, affairs, reputations or prospects or any of their respective affiliates
(including, in the case of the Company, its Affiliates, officers, employees, directors, partners (limited
and general), agents, members or shareholders); provided that Executive may comment
generally on industry matters in response to inquiries from the press and in
other public speaking engagements.  For
purposes of clarification, and not limitation, a statement shall be deemed to
disparage, denigrate or malign the Executive, the Company or any of its Affiliates,
as applicable, if
such statement could be reasonably construed to adversely affect the opinion
any other person may have or form of such person.

 

11.3.5.           The
Executive acknowledges and agrees that the provisions of this Section 11
are reasonable and necessary to protect the legitimate business interests of
the Protected Companies.  The Executive
shall not contest that the Protected Companies’ remedies at law for any breach
or threat of breach by the Executive or any of his affiliates of the provisions
of this Section 11 will be inadequate, and that the Protected Companies
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Section 11 and to enforce specifically such terms and
provisions, in addition to any other remedy to which they may be entitled at
law or equity.  The restrictive covenants
contained in this Section 11 are covenants independent of any other
provision of this Agreement or any other agreement among the parties hereunder
and the existence of any claim which the Executive may allege against any of
the Protected Companies under any other provision of the Agreement or any other
agreement will not prevent the enforcement of these covenants.

 

11.3.6.           If
any of the provisions contained in this Section 11 shall for any reason be
held to be excessively broad as to duration, scope, activity or subject, then
such provision shall be construed by limiting and reducing it, so as to be
valid and enforceable to the extent compatible with the applicable law or the
determination by a court of competent jurisdiction.

 

12.                               Miscellaneous.

 

12.1.                     Applicable
Law.  This Agreement shall be
governed by and construed in accordance with the laws of the Commonwealth of
Pennsylvania, applied without reference to principles of conflict of laws.

 

12.2.                     Amendments.  This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.

 

12.3.                     Notices.  All notices and other communications
hereunder shall be in writing and shall be given by hand-delivery to the other
parties or by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:

 

10

 

	
  To the Executive:

  	
   

  	
   

  
	
   

  	
   

  	
  Mr. Raymond J. Wilson

  
	
   

  	
   

  	
  1431 Hampton Drive

  
	
   

  	
   

  	
  Downingtown, PA 19335

  
	
  with a copy to:

  	
   

  	
   

  
	
   

  	
   

  	
  Drinker Biddle and Reath LLP

  
	
   

  	
   

  	
  One Logan Square 

  
	
   

  	
   

  	
  18th and Cherry Streets 

  
	
   

  	
   

  	
  Philadelphia, PA 19103-6996

  
	
   

  	
   

  	
  Attn: F. Douglas Raymond, III

  
	
   

  	
   

  	
   

  
	
  To the Company:

  	
   

  	
   

  
	
   

  	
   

  	
  Innovative Solutions and Support, Inc.

  
	
   

  	
   

  	
  720 Pennsylvania Drive

  
	
   

  	
   

  	
  Exton, PA 19341

  
	
   

  	
   

  	
  Attn: Chairman of the Board of Directors

  
	
  with a copy to:

  	
   

  	
   

  
	
   

  	
   

  	
  Dechert LLP

  
	
   

  	
   

  	
  Cira Centre

  
	
   

  	
   

  	
  2929 Arch Street

  
	
   

  	
   

  	
  Philadelphia, PA 19104

  
	
   

  	
   

  	
  Attn: Henry N. Nassau, Esq. & John D.
  LaRocca, Esq.

  

 

or to such other address as any party shall have furnished to the
others in writing in accordance herewith. 
Notices and communications shall be effective when actually received by
the addressee.

 

12.4.                     Withholding.  The Company may withhold from any amounts
payable under this Agreement such federal, state or local income taxes to the
extent the same is required to be withheld pursuant to any applicable law or
regulation.

 

12.5.                     Severability.
 The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.

 

12.6.                     Captions.  The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect.

 

12.7.                     Beneficiaries/References.  The Executive shall be entitled to select
(and change) a beneficiary or beneficiaries to receive any compensation or
benefit payable hereunder following the Executive’s death, and may change such
election, in either case by giving the Company written notice thereof.  In the event of the Executive’s death or a
judicial determination of his incompetence, reference in this Agreement to the
Executive shall be deemed, where appropriate, to refer to his beneficiary(ies),
estate or other executor(s).

 

12.8.                     Entire
Agreement.  This Agreement
contains, except as expressly stated otherwise herein, the entire agreement
between the parties concerning the subject matter hereof and supersedes all
prior agreements, understandings, discussions, negotiations and undertakings, 

 

11

 

whether written or oral, between the parties with
respect thereto.  The Company has made no
promises to the Executive regarding the subject matter hereof other than those
set forth in this Agreement.  .

 

12.9.                     Representations.  The Company represents and warrants that it
is fully authorized and empowered to enter into this Agreement.

 

12.10.              Survivorship.  The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement or the
Executive’s term of employment hereunder for any reason to the extent necessary
to the intended provision of such rights and the intended performance of such
obligations.

 

12.11.              Arbitration
of Disputes.  In the event that
any disputes of any kind arise under or with respect to this Agreement, the
Executive and the Company agree to submit any such dispute to confidential and
final binding arbitration in Philadelphia, Pennsylvania in accordance with the rules of
the American Arbitration Association then in effect.  In the event that Executive prevails in any
such final arbitration, the Company shall reimburse Executive for his
reasonable costs incurred in such arbitration, including reasonable attorneys’
fees.  Notwithstanding the foregoing or
anything to the contrary herein, the Company shall be entitled to bring an
action in any court of competent jurisdiction in order to enforce or prevent
the breach of any of the covenants of Section 11 hereof.

 

IN WITNESS WHEREOF,
the Executive has hereunto set the Executive’s hand and the Company has caused
this Agreement to be executed in its name on its behalf, all as of the day and
year first above written.

 

 

	
  INNOVATIVE SOLUTIONS

  	
   

  	
   

  
	
   AND SUPPORT,
  INC

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
  RAYMOND J. WILSON

  
	
   

  	
  Title:

  	
   

  	
   

  

 

12Exhibit 10.8

 

SETTLEMENT AGREEMENT

 

This Settlement Agreement (“Agreement”) is by and between Innovative
Solutions and Support, Inc. (referred to herein as “IS&S”), which is
incorporated under the laws of the State of Pennsylvania, with a principal
place of business at 720 Pennsylvania Drive, Exton, Pennsylvania, and Kollsman, Inc.
(referred to herein as “Kollsman”), which is incorporated under the laws of
Delaware, with a principal place of business at 220 Daniel Webster Highway,
Merrimack, New Hampshire.

 

RECITALS

 

A.                                   IS&S and Kollsman have been engaged in
litigation in the United States District Court for the Western District of
Tennessee (Civil Action No. 05-2665-MI P) (referred to herein as the
“Lawsuit”), relating to IS&S’ claims for misappropriation of trade secrets
and patent infringement.

 

B.                                     The jury has returned a verdict in favor of
IS&S, and the United States District Court for the Western District of
Tennessee has issued certain rulings relating to the award of exemplary
damages, attorneys’ fees, and prejudgment interest, and entered permanent and
head start injunctions against Kollsman.

 

C.                                     IS&S has asserted a claim in the Lawsuit
against Kollsman for infringement of U.S. Patent No. 6,584,839 (the “839
Patent”), which claim was stayed pending reexamination. Kollsman has asserted
counterclaims for non-infringement, invalidity, and unenforceability of the
‘839 Patent.

 

D.                                    IS&S and Kollsman desire to compromise
the above claims and to enter into a settlement agreement on the terms set
forth in this Agreement.

 

NOW, THEREFORE, in consideration of the above recitals and the mutual
covenants hereinafter contained, the parties agree as follows.

 

1.                                       DEFINITIONS

 

As used herein, capitalized terms not otherwise defined herein shall
have the following meanings:

 

1.1                                 “Change of Control” with respect to IS&S
or Kollsman, as the case may be (referred to for convenience in this Section as
the “affected party”), means a transaction or series of related transactions in
which (1) any Person is or becomes the beneficial owner, directly or indirectly,
of more than fifty percent (50%) of the voting securities of the affected
party; or (2) a merger or consolidation of the affected party or any
direct or indirect subsidiary of the affected party is consummated with any other
Person wherein the voting securities of the affected party outstanding
immediately prior to such merger or consolidation represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity or any parent thereof) less than 50% of the voting securities
of the affected party or such surviving entity or

 

Confidential

 

1

 

any parent thereof outstanding
immediately after such merger or consolidation; or (3) an agreement for
the sale or disposition by the affected party of more than 50% of the affected
party’s assets. However, no transaction will be considered to constitute a
Change of Control with respect to a party if under said transaction the
ultimate parent company of the respective party remains the same as its
ultimate parent company on the Execution Date of this Agreement.

 

1.2                                 “Control” (including
the terms “Controlling,” “Controlled by” and “under common Control with”) means
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting shares or of other voting rights entitled to elect
directors or other managing authority, by contract, or otherwise, except that
ownership of less than twenty percent (20%) of the voting shares or of other
voting rights entitled to elect directors or other managing authority for such
Person or rights to fifty percent (50%) or less of the profits and losses of
such Person shall conclusively be deemed not to constitute “Control” (or the
terms “Controlling,” “Controlled by” and “under common Control with”) as
defined herein.

 

1.3                                 “Court” means the
United States District Court for the Western District of Tennessee.

 

1.4                                 “Effective Date” means
the date upon which IS&S receives the payment described in Section 8.1.

 

1.5                                 “Execution Date”
means the date upon which this Agreement becomes signed by all parties.

 

1.6                                 “Injunction” means the
Order entering permanent and head start injunctions against Kollsman and in
favor of IS&S dated June 30, 2008.

 

1.7                                 “Consent Order” means
the document attached hereto as Exhibit A, which will be filed with the
Court in two versions, (1) a redacted version as shown and (2) an
unredacted version in which the redacted portions will correspond to the
redacted portions in the Injunction and which the parties will request to
remain sealed by the Court.

 

1.8                                 “Person” means an
individual, trust, corporation, partnership, joint venture, limited liability
company, association, unincorporated organization
or other legal or governmental entity.

 

1.9                                 “Settlement Payment” shall mean the
payment described in Section 8.1 of this Agreement.

 

1.10                           “Trade Secrets” means the
trade secrets that the jury in the Lawsuit found Kollsman had misappropriated.

 

2

 

2.                                       DISMISSALS,
RELEASES, AND CONDUCT AGREEMENTS

 

2.1                                 In consideration of
the mutual promises set forth herein, within two (2) business days of the
Execution Date, IS&S and Kollsman shall jointly file with the Court a
motion and proposed order for entry of the Consent Order attached as
Exhibit A. To the extent the consent of other parties to the Lawsuit is
necessary to effectuate the entry of the Consent Order, IS&S and Kollsman
agree jointly to seek such consent. Should the Court refuse to enter the
Consent Order in the form attached as Exhibit A or in a form that is
mutually acceptable to the parties, IS&S will not be entitled to the
Settlement Payment, and the parties will have no further obligation under this
Agreement, which shall be null and void.

 

3.                                       MUTUAL RELEASE OF
CLAIMS

 

3.1                                 Effective upon
receipt by IS&S of the Settlement Payment described below and subject to
the Consent Order and to their obligations herein, the parties hereby release
and forever discharge each other and their past and present directors,
managers, officers, and employees, parents, subsidiaries, partners, joint
venturers and affiliated entities and each of them, separately and
collectively, from any and all claims, liens, demands, causes of action,
obligations, damages, and liabilities of any nature whatsoever, whether known
or unknown and now existing, arising out of actions or inactions of any kind
from the beginning of time through the Effective Date of this Agreement that
are based upon the claims and counterclaims brought in the Lawsuit or arise out
of the same allegations asserted in the Lawsuit (the “Released Claims”).

 

4.                                       NO SETTLEMENT,
RELEASE, OR DISMISSAL OF CLAIMS AGAINST OTHER DEFENDANTS

 

4.1                                 This Agreement,
including the release of Kollsman herein, is made in good faith based upon good
and valuable consideration given to IS&S. Subject to the terms of this
Agreement above, nothing in this Agreement will be construed to release or
reduce any claim, cause of action, or judgment IS&S has or may have against
any person, entity, or individual that is not a party to this Agreement.
Specifically, this Agreement will not be construed to release or reduce any
claim, cause of action, or judgment IS&S has or may have against
J2, Inc. or its subsidiaries, affiliates, or successors in interest;
ZTI, Inc., or its subsidiaries, affiliates, or successors in interest;
Strathmann & Associates, or its subsidiaries, affiliates, or
successors in interest; Joseph Caesar;
James Zachary; Steven Tomlinson; or Frederick Strathmann.

 

4.2                                 The parties agree
that for solely for purposes of T.C.A. 29-11-105, and without any admission of
liability whatsoever by Kollsman, in connection with the enforcement of any
award against the remaining defendants, the Settlement Payment will be
apportioned so as to provide the maximum available award against the remaining
defendants. Nothing in this Agreement shall release J2, Inc., Joe Caesar,
James Zachary or Zachary Technologies, Inc. (the “J2 Defendants”) from
satisfying their responsibilities, obligations and indebtedness for any
compensatory damages award, the attorneys’ fees award, or the pre-judgment
interest award pursuant to the Court’s rulings in the Lawsuit. Finally, the
parties acknowledge that the Settlement Payment by Kollsman is not a payment or
satisfaction of any claims, judgments,

 

3

 

orders or rulings rendered against any of the
J2 Defendants, including any such claims, judgments, orders, or rulings
rendered solely against any of the J2 Defendants.

 

5.                                       CONDUCT REGARDING FUTURE PRODUCTS

 

5.1                                 As an integral part of this Agreement,
Kollsman agrees to abide by the restrictions in the Consent Order with respect
to future products.

 

5.2                                 As a further integral part of this Agreement,
Kollsman shall be granted a limited, royalty-free license to use the Trade
Secrets as necessary to repair and return to service any previously sold air
data computer model numbers 24471, 50042, or 49970 or parts or attachments
previously sold with such air data computers. In connection with such repairs, Kollsman
agrees that the Kollsman personnel performing such repairs will only be
provided the Trade Secrets on a need-to-know basis and only to the extent necessary
to perform such repairs and will maintain necessary and sufficient safeguards
so that Trade Secrets are not disclosed to others who are not performing such
repairs. The Trade Secrets shall not be used for other purposes.

 

5.3                                 As a further integral part of this Agreement,
Kollsman agrees and acknowledges that any violation of the provisions of this
section shall be deemed to cause irreparable harm, entitling IS&S to
injunctive relief to halt any such breaches.

 

6.                                       NO ADMISSION OF LIABILITY

 

6.1                                 The parties agree that the settlement of the
Lawsuit is intended solely as a compromise of disputed claims. Neither the fact
of a party’s entry into this Agreement nor the terms hereof nor any acts
undertaken pursuant hereto shall constitute an admission or concession by any
party relating to liability or the validity of any claim, counterclaim, or
defense in the Lawsuit.

 

7.                                       COSTS AND EXPENSES

 

7.1                                 Except as expressly provided herein, as
between the parties to this Agreement, each party shall be responsible for and
shall pay its own attorneys’ fees and costs incurred in connection with the
Lawsuit, the settlement of the Lawsuit, and the preparation and execution of
this Agreement, and the dismissals.

 

8.                                       PAYMENTS

 

8.1                                 Settlement Amount

 

8.1.1                        In consideration of the rights granted
herein, upon execution of this Agreement, Kollsman will deposit by wire
transfer $17,000,000.00 (Seventeen Million and No/100 US Dollars) with
Greenberg Traurig, LLP as escrow agent. Within one (1) business day after the
entry by the Court of the Consent Order described above and in the form
requested by

 

4

 

the parties and
after IS&S has provided an executed IRS Form W-9 to the escrow agent,
the escrow agent shall transfer to IS&S such Settlement Payment, which
payment shall be nonrefundable and irrevocable. Should the Court not enter the
Consent Order in the form requested by the parties or such other form as is
mutually acceptable to the parties, the escrow agent shall return the Settlement
Payment to Kollsman and this Settlement Agreement shall be null and void.

 

8.2                                 Payment
Instructions

 

8.2.1                        Kollsman will make
the Settlement Payment under this Agreement to Greenberg Traurig, LLP by wire
transfer to:

 

	
  Beneficiary:

  	
   

  	
  Greenberg
  Traurig, LLP IOLTA Account

  
	
  Bank:

  	
   

  	
  Compass
  Bank

  
	
  Bank
  Address:

  	
   

  	
  Medical
  City

  
	
   

  	
   

  	
  7777
  Forest Lane, Suite C130 

  
	
   

  	
   

  	
  Dallas,
  TX. 75230

  
	
  Account
  Number:

  	
   

  	
  25405994

  
	
  ABA
  or Routing No.:

  	
   

  	
  113010547

  
	
  Swift:

  	
   

  	
   

  

 

8.2.2                        Subject to the requirements
of Section 8.1, Greenberg Traurig, LLP will transfer the settlement
payment to IS&S by wire transfer to:

 

	
  Beneficiary:

  	
   

  	
  Innovative
  Solutions & Support, Inc.

  
	
  Bank:

  	
   

  	
  PNC
  Bank - Treasury Management

  
	
  Account
  Number:

  	
   

  	
  1006795363

  
	
  Bank
  Address:

  	
   

  	
  Two
  PNC Plaza

  
	
   

  	
   

  	
  Pittsburgh,
  PA 15265

  
	
   

  	
   

  	
  John
  DiNapoli

  
	
   

  	
   

  	
  Telephone:
  610-725-5760

  
	
   

  	
   

  	
  Fax:
  610-725-5799

  
	
   

  	
   

  	
   

  
	
  ABA
  or Routing No.:

  	
   

  	
  ACH
  Routing Number: 043000096

  
	
  Swift:

  	
   

  	
   

  

 

9.                                       ASSIGNMENT AND
CHANGE OF CONTROL

 

9.1                                 Assignment: General
Rule

 

9.1.1                        Except as is
expressly provided in this Section, Kollsman may not assign, voluntarily, by
operation of law, or otherwise, this Agreement or any rights under this
Agreement, or delegate any duties under this Agreement, without the prior
written consent of IS&S. Any assignment or attempted assignment or other transfer
not in compliance with the

 

5

 

terms and
conditions of this Agreement will be null and void. As used herein, an
“assignment” includes without limitation a transfer of rights under this
Agreement by reason of merger, acquisition or consolidation in which a party
participates. If a party consents, which consent may be granted or withheld in
such party’s sole discretion, to an assignment of this Agreement, (i) the
successor-in-interest must agree in writing to be bound by the terms and
conditions of this Agreement; and (ii) Kollsman, as the assigning party,
shall retain no rights under this Agreement, but shall remain liable for all of
its obligations hereunder.

 

9.2                                 Exceptions From
General Prohibition Against Assignment

 

9.2.1                        Notwithstanding
Section 9.1, Kollsman may assign this Agreement without the prior consent
of IS&S to an entity which is under the Control of Elbit Systems Ltd., as
part of a transfer of substantially all of the assets of a Kollsman business
unit or shares of Kollsman, provided that Kollsman provides written notice to
IS&S of such assignment, the assignee agrees in writing to be bound by
Kollsman’s obligations under this Agreement and the Consent Order, and Kollsman
remains bound by all of its obligations under this Agreement and the Consent
Order.

 

10.                                 TERMINATION

 

10.1                           Term

 

10.1.1                  The term of this Agreement
shall commence on the Effective Date and remain in effect for a period of ten
(10) years, unless sooner terminated as provided herein. If the Effective
Date does not occur within thirty (30) days after the Execution Date (or any
mutually agreed upon extension), the Agreement will be deemed null and void,
without constituting a waiver of either party’s respective rights, claims or
defenses with respect to the Lawsuit.

 

10.2                           Termination for
Material Breach

 

10.2.1                  Either party shall
have the right to terminate this Agreement, by reason of the occurrence of an
Event of Default. As used herein, an “Event of Default” shall mean (a) a
failure by Kollsman to timely make the payment required by this Agreement;
(b) the disclosure or use by Kollsman of the Trade Secrets or breach by
Kollsman of its agreement as described above; or (c) the breach by a party
of any material provision in this Agreement. Notwithstanding the foregoing, and
without derogating from any other rights and remedies a party may have for the
other party’s breach of this Agreement, under no circumstances will Kollsman be
entitled to a refund of the Settlement Payment.

 

10.3                           Effect of
Expiration and Termination

 

10.3.1                  Upon the expiration
of the term of this Agreement, all rights granted pursuant to this Agreement
shall cease, except that this shall not release Kollsman from its obligation to
maintain the confidentiality of the Trade Secrets or comply with the Consent
Order.

 

6

 

10.3.2                  Notwithstanding the
above, the rights granted to the non-defaulting party will continue in full
force and effect through the expiration of the term of this Agreement as if
this Agreement remained in full force and effect, provided the Agreement is not
earlier terminated as to the non-defaulting party.

 

10.3.3                   Without limiting
the foregoing, the payment described in Section 8.1 is fully earned and
nonrefundable as of the Effective Date.

 

11.                                 REPRESENTATIONS,
WARRANTIES & DISCLAIMERS

 

11.1                           Representations and
Warranties

 

11.1.1                  IS&S and
Kollsman each represent and warrant that each has the power and authority to
enter into this Agreement, to perform all of its duties and obligations under
this Agreement; and 

 

11.1.2                  IS&S and
Kollsman each represent and warrant that the execution and delivery of this
Agreement does not violate, conflict with, or constitute a default under such
party’s charter or similar organization document, its bylaws or the terms or
provisions of any material agreement or other instrument to which it is a party
or by which it is bound as it relates to any intellectual property rights or to
any order; award, judgment or decree to which it is a party or by which it is
bound.

 

11.1.3                  Kollsman represents
that Kollsman Part No. 20148, is a 2.5-inch square circuit card, to
be provided to the United States Air Force through Raytheon Company in connection
with the Miniature Airborne Light Decoy (“MALD”) for the United States Air
Force program. The product has an air data module, which provides airspeed and
altitude information to a small Raytheon navigation module inside the MALD.
Kollsman represents that this product is based on air data products developed
by CIC in the mid-1990s for military applications (Unmanned Air Vehicles and
Tactical Fighter Aircraft), and that the air data module uses a Raytheon
specified RS 422 communication. Kollsman further represents that the air data
module has no altitude rate change algorithm and does not include and is not
based on any of the Trade Secrets.

 

11.2                           Disclaimers

 

11.2.1                  Nothing contained
in this Agreement shall be construed as:

 

a
warranty or representation by any party as to the validity, enforceability or
scope of any patents;

 

an
agreement by any party to bring or prosecute actions or suits against any third
party for infringement, or conferring any right to any other party to bring or prosecute
actions or suits against any third party for infringement;

 

7

 

conferring upon any party or
any related entity any right to include in advertising, packaging or other
commercial activities related to any product, any reference to another party
(or its subsidiaries or affiliates), its trade names, trademarks or service
marks in a manner which would be likely to cause confusion or to indicate that
such product is in any way certified by any other party or its subsidiaries or
affiliates; or

 

an obligation to furnish any
technical information, copyrights, mask works or know-how, or any tangible
embodiments thereof.

 

12.                                 CONFIDENTIALITY, NONDISPARAGEMENT AND
EXPLORATION OF FUTURE BUSINESS COOPERATION

 

12.1                           General

 

12.1.1                  No party shall disclose the terms of this
Agreement without the prior written consent of the other party except:

 

in connection with the
Lawsuit or other litigation based upon the allegations which form the basis of
the Lawsuit;

 

to the extent such matters have
been disclosed in press releases already issued by the parties or in the press release
attached as Exhibit B;

 

to any governmental body
having jurisdiction;

 

in response to a valid
subpoena or as otherwise may be required by law, the official rules of a
court or tribunal, or court order, provided that the party receiving such
judicial process shall provide reasonably prompt notice thereof to the other
party, and the parties shall reasonably cooperate to seek a protective order or
otherwise prevent or restrict such disclosure;

 

as otherwise may be required
by law or legal process (including legal requirements and regulations of the
U.S. Securities and Exchange Commission or rules of the NYSE or NASDAQ)
and subject to the requirements herein with respect to public releases;

 

when disclosed by the
disclosing party for bona fide business reasons, which information is
included within the scope of a nondisclosure agreement executed by the
recipient of such information; and

 

to counsel and accountants
for the party.

 

8

 

12.2                           Seal

 

12.2.1                  Notwithstanding any provision to the contrary
herein, any party is permitted to file this Agreement under seal with and
disclose under seal this Agreement, in whole or in part, and information
relating to this Agreement to a court, tribunal, or government agency of
competent jurisdiction in an action or proceeding brought by or against a party
when reasonably necessary for such action or proceeding, subject to written
notice to the other party and an opportunity to obtain a protective order or
other restriction as described above.

 

12.3                           Press Release

 

12.3.1                  Any public release or announcement by a party
or any of its respective affiliates with respect to the settlement of the
Lawsuit will contain the substance of the form of announcement contained in Exhibit B
hereto. Following the Effective Date of this Agreement, IS&S and/or
Kollsman and their respective affiliates will be entitled to issue a public
release containing the substance set forth in Exhibit B. Any change to
that substance will require the prior written consent of the other party, which
consent shall not be unreasonably withheld.

 

12.4                           Non-Disparagement and Non-Disclosure
regarding Dispute and Lawsuit

 

12.4.1                  The parties agree that neither will engage in
any conduct or communication designed to disparage the other with respect to
any allegations made in the Lawsuit,
the outcome of the Lawsuit, the findings of the Court, or the contents or
impact of this Agreement.

 

12.4.2                  The parties further agree that neither will
furnish, reveal, make available, mention, discuss, or disclose to any third
party, in relation to matters relating to the other party, any allegations in the Lawsuit, the
outcome of the Lawsuit, the findings of the jury or the Court, the jury
verdict, the orders and rulings entered by the Court, including but not limited
to any of the contents of the Court’s orders concerning punitive damages, the
award of attorneys’ fees, the award of prejudgment interest, and the granting
and issuance of temporary,
permanent and head start injunctions (“Breaching Disclosure”), except:

 

in connection with the
Lawsuit or other litigation based upon the allegations which form the basis of
the Lawsuit;

 

to the extent such matters
have been disclosed in press releases already issued by the parties or in the
press release attached as Exhibit B;

 

with the written consent of
the other party;

 

to any governmental body
having jurisdiction;

 

in response to a valid
subpoena or as otherwise may be required by law, the official rules of a
court or tribunal, or court order, provided that the party receiving such
judicial process shall provide reasonably prompt notice thereof to the other
party, and the parties shall reasonably cooperate to seek a protective order or
otherwise prevent or restrict such disclosure;

 

9

 

as otherwise may be required
by law or legal process (including legal requirements and regulations of the
U.S. Securities and Exchange Commission or rules of the NYSE or NASDAQ)
and subject to the requirements herein with respect to public releases;

 

when disclosed by the
disclosing party for bona fide business
reasons, which information is included within the scope of a nondisclosure
agreement executed by the recipient of such information;

 

to counsel and accountants
for the party; and

 

IS&S may provide notice
of the Consent Order under Rule 65 as necessary to enforce the provisions
of the Consent Order.

 

Under no circumstances,
except as otherwise agreed between the parties, will the parties disclose,
disseminate or publicize the contents of the Court’s rulings with respect to
the temporary injunction, the permanent injunction, exemplary damages,
attorney’s fees or prejudgment interest, and the parties will not refer to
these rulings in marketing, promotional or other sales efforts.

 

12.4.3                  The parties agree that the obligations of
confidentiality and non-disclosure regarding the dispute and the Lawsuit are fundamental
to this Agreement, that irreparable injury will result if there is a breach of
said obligations, that in the event of a breach or threatened breach of said
obligations there will be no adequate remedy at law, and that in the event of
an intentional breach of said obligations, the non-breaching party shall be
entitled to seek immediate and other equitable relief and shall be entitled to
recover liquidated damages of $10,000 (Ten Thousand and No/100 Dollars) per
breaching disclosure.

 

12.5                           Future Cooperation.

 

12.5.1                  The parties may explore potential areas for
future business cooperation, but are under no obligation to do so under this
Agreement.

 

13.                                 SIDE LETTER

 

13.1                           Within one business day of the Execution
Date, Kollsman will provide IS&S with a letter signed by an authorized
representative of Elbit Systems of America, LLC, which states as follows:

 

Elbit Systems of America,
LLC (“Elbit”) is aware of the terms of the Settlement Agreement between
Innovative Solutions and Support and Kollsman, Inc, dated August
    , 2008, and the proposed Consent Order and Permanent
Injunction. Elbit, on behalf of itself and its subsidiaries, agrees to abide by
the Settlement Agreement and Consent Order and Permanent Injunction.

 

10

 

14.                                 MISCELLANEOUS

 

14.1                           Entire Agreement

 

14.1.1                  This Agreement
constitutes the entire agreement between the parties relating to the subject
matter hereof, and supersedes all prior proposals, agreements, representations,
and other communications, if any, between the parties with respect to the
subject matter hereof.

 

14.2                           Modification;
Waiver

 

14.2.1                  No modification or
amendment to this Agreement will be effective unless it is in writing and
executed by authorized representatives of the parties, nor will any waiver of
any rights be effective unless assented to in writing by the party to be
charged. The failure or delay of either party in exercising any of its rights
hereunder, including any rights with respect to a breach or default by the
other party, will in no way operate as a waiver of such rights or prevent the
assertion of such rights with respect to any later breach or default by the
other party.

 

14.3                           Exhibits

 

14.3.1                  Any exhibits
referred to herein will be
construed with and as an integral part of this Agreement to the same extent as if
they were set forth verbatim herein.

 

14.4                           Headings

 

14.4.1                  The headings used
in this Agreement are for reference and convenience only and will not be used
in interpreting the provisions of this Agreement.

 

14.5                           Notices

 

14.5.1                  All notices
required or permitted to be given hereunder shall be in writing and shall be
deemed received as follows: (a) if by personal delivery, then upon actual
receipt, or (b) if by prepaid, overnight courier, then one business day
after delivery to such courier, or (c) if by registered or certified
airmail, postage prepaid, then five (5) business days after delivery to
the post office; all addressed as follows or to such other address as a party
will designate by written notice given to another party in accordance with the
terms of this Section:

 

	
  To
  IS&S:

  	
   

  	
  President

  
	
   

  	
   

  	
  Innovative
  Solutions & Support, Inc.

  
	
   

  	
   

  	
  720
  Pennsylvania Drive

  
	
   

  	
   

  	
  Exton,
  Pennsylvania 19341-1149

  
	
   

  	
   

  	
  U.S.A.

  
	
   

  	
   

  	
   

  
	
  To
  Kollsman:

  	
   

  	
  Chief
  Operating Officer

  
	
   

  	
   

  	
  220
  Daniel Webster Highway

  
	
   

  	
   

  	
  Merrimack, New Hampshire
  03054

  
	
   

  	
   

  	
  U.S.A.

  

 

11

 

14.6                           Governing Law

 

14.6.1                  This Agreement will be governed by and construed in
accordance with the laws of the State of Tennessee without regard to choice of
law provisions or rules. The parties further agree that this Agreement was
mutually drafted by all parties and that any interpretation of this Agreement
or any terms thereof will not be interpreted against one party as the drafting
party

 

14.6.2                  The Court shall retain jurisdiction over disputes arising out
of this Agreement and the Consent Order, and the parties stipulate that the
state and federal courts located in Memphis, Tennessee, have personal
jurisdiction over the parties.

 

14.7                           Counterparts

 

14.7.1                  This Agreement may be executed in counterparts by any of the parties hereto on any
number of counterparts, each of which will be deemed an original, but all such
respective counterparts will together constitute one and the same agreement.
The parties agree that electronically transmitted signature pages will be
treated as if they were originals.

 

14.8                           Additional Provisions

 

14.8.1                  Each party hereby declares and represents
that it is executing this Agreement after consultation with its own independent
legal counsel.

 

14.8.2                  Any rule of construction to the effect
that ambiguities are to be resolved against the drafting party will not be
applied in the construction or interpretation of this Agreement. As used in
this Agreement, the words “include” and “including,” “for example,” “such as,”
and variations thereof, will not be deemed to be terms of limitation, but
rather will be deemed to be followed by the words “without limitation.”

 

14.8.3                  Each party acknowledges to the other party
that it has been represented by independent legal counsel of its own choice
throughout all of the negotiations which preceded the execution of this
Agreement. Each party further acknowledges that it and its counsel have had
adequate opportunity to make whatever investigation or inquiry they may deem
necessary or desirable in connection with the subject matter of this Agreement
prior to the execution hereof and that in entering into this Agreement it is
not relying on any representations of the other party in connection therewith.

 

In Witness Whereof, the parties hereto have caused this Agreement
to be executed by their duly authorized representatives as undersigned:

 

12

 

	
  Kollsman, Inc.

  	
   

  	
  Innovative
  Solutions & Support, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Yuval
  Ramon

  	
   

  	
  By:

  	
  /s/ Ray
  Wilson

  
	
  Printed
  Name:

  	
  Yuval Ramon

  	
   

  	
  Printed
  Name:

  	
  Ray Wilson

  
	
  Title:

  	
  VP & COO

  	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
  Date:

  	
  8/25/08

  	
   

  	
  Date:

  	
  8/27/08

  
									

 

13

 

EXHIBIT A

 

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF TENNESSEE

WESTERN DIVISION

 

	
  INNOVATIVE
  SOLUTIONS AND

  	
  §

  	
   

  
	
  SUPPORT,
  INC.,

  	
  §

  	
   

  
	
  Plain tiff

  	
  §

  	
  No. 05-2665-JPM/tmp

  
	
  v.

  	
  §

  	
   

  
	
  J2, INC.,
  JOSEPH CAESAR, JAMES

  	
  §

  	
   

  
	
  ZACHARY,
  ZACHARY TECHNOLOGIES,

  	
  §

  	
   

  
	
  INC., and
  KOLLSMAN, INC.,

  	
  §

  	
   

  
	
  Defendants

  	
  §

  	
   

  

 

CONSENT ORDER AND PERMANENT INJUNCTION

 

Innovative Solutions and Support (“IS&S”) and Kollsman, Inc.
(“Kollsman”) have been engaged in litigation relating to IS&S’ claims for
misappropriation of trade secrets and patent infringement before this Court;

 

Whereas IS&S and Kollsman have entered into a settlement agreement,
dated August      , 2008 (the “Settlement Agreement”)
and are desirous of dismissing the litigation on the terms stated herein;

 

NOW THEREFORE, the parties agree as follows:

 

1.                                       The Court’s previously entered Order granting
IS&S’ request for a permanent and head start injunction and associated
redacted version of that Order (Docket Nos. 763 and 775-2) shall be modified as
to Kollsman in accord with the parties’ Settlement Agreement as follows:

 

A.                                   IT IS HEREBY ORDERED and DECREED that
pursuant to Federal Rule of Civil Procedure 65, all Defendants and their
officers, agents, servants, employees, and

 

1

 

attorneys, and those
persons in active concert or participation with them who receive actual notice
of this Order by personal service or otherwise, are enjoined and restrained
from using or disclosing in any manner the following six trade secrets (“Trade
Secrets”) of IS&S tried to a jury verdict in this matter:

 

(1)                                  IS&S’ checksum
source code;

 

(2)                                  IS&S’ checksum
algorithm;

 

(3)                                  IS&S’ altitude
rate algorithm,

 

REDACTED

 

and
as described herein:

 

REDACTED

 

b.                                      The “new” Kollsman
altitude rate algorithm used in the 24471, 50042, and 49970 air data computers;

 

(4)                                  IS&S’ combined
recipe incorporated in the IS&S ADDU and AIU interface;

 

(5)                                  IS&S’ RS422
logical message protocol; and

 

(6)                                  IS&S’ testing
and calibration procedures relating to pressure transducer stability, i.e., the
pressure transducer stability problem and how to solve the problem,
specifically:

 

a.                                       The IS&S
testing and calibration procedure

 

REDACTED

 

and

 

b.                                      The Kollsman
testing and calibration procedure 

 

REDACTED

 

B.                                     IT IS FURTHER
ORDERED and DECREED that pursuant to Federal

 

2

 

Rule of
Procedure 65 Defendant Kollsman and its officers, agents, servants, employees,
and attorneys, and those persons in active concert or participation with it who
receive actual notice of this Order by personal service or otherwise, are
enjoined and restrained for two years from the date of this Order from
manufacturing, marketing, developing, selling, qualifying, or certifying by
similarity with any governmental entity any air data products that are based on
or derived from any use of the Trade Secrets in the 24471, 49970, or 50042
ADCs, and/or any derivatives thereof.

 

C.                                     IT IS FURTHER
ORDERED AND DECREED THAT the Head Start Injunction described in the preceding
paragraph will not prohibit Kollsman from supplying Kollsman
Part No. 20148 to the United States Air Force through Raytheon
Company in connection with the Miniature Airborne Light Decoy for the United
States Air Force program, so long as Kollsman Part No. 20148 does not
use and is not based on the Trade Secrets.

 

D.                                    IT IS FURTHER
ORDERED and DECREED that Kollsman is permitted to use the Trade Secrets as
necessary to repair and return to service any previously sold air data computer
model numbers 24471, 50042, or 49970 or parts thereof or attachments thereto.
In connection with such repairs, Kollsman personnel performing such repairs may
be provided the Trade Secrets only on a need-to-know basis and only to the
extent necessary to perform such repairs and will maintain necessary and sufficient
safeguards so that Trade Secrets are not disclosed or used in any other way.

 

E.                                      This Order does not
supplement or modify in any way the permanent and head start injunctions
currently in place against the other Defendants in this lawsuit.

 

2.                                       Pursuant to the
Settlement Agreement, the terms of which are incorporated herein, all claims
and counterclaims brought by IS&S and Kollsman against the other in this
matter are

 

3

 

hereby dismissed
with prejudice to the re-filing of same.

 

3.                                       As between them,
IS&S and Kollsman shall each bear their own costs of court.

 

4.                                       The dismissal of
IS&S’ claims against Kollsman shall not be construed as releasing any
claim, cause of action, or judgment IS&S may have against any person,
entity or individual other than Kollsman.

 

5.                                       The parties waive
any right of appeal to this Consent Order.

 

6.                                       The Protective
Order entered by the Court in this action shall remain in full force and
effect.

 

7.                                       The Court retains
jurisdiction over disputes arising out of the Settlement Agreement and the
enforcement of this Consent Order and Permanent Injunction.

 

So ORDERED this
       day of August 2008.

 

 

	
   

  	
   

  
	
   

  	
  UNITED
  STATES DISTRICT JUDGE

  

 

4

 

EXHIBIT B

 

FORM OF PRESS RELEASE

 

On August         ,2008, a
settlement between Innovative Solutions and Support, Inc. (“IS&S”) and
Kollsman, Inc. (“Kollsman”) became effective with respect to all claims filed
by IS&S and Kollsman against each other in the United States District Court for the Western
District of Tennessee and a Consent Order has been entered. This release is
further to previous announcements by the [the applicable party or its
affiliate] regarding this litigation dated                      
and                      .
 Under the settlement agreement, all
claims between IS&S and Kollsman have been dismissed with prejudice, a
final agreed injunction has been entered, and the matter has been fully and
finally mutually settled without any admission of guilt by either party. In
addition, an agreed settlement payment of $17 million dollars has been made by
Kollsman to IS&S. Kollsman and IS&S may explore opportunities for
future business collaboration.

 

[To the extent required by law, each party may add any required
explanation of the impact of the Settlement Agreement on its financial
results.]

 

5

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