================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
-------------------------------
Date of Report (Date of Earliest Event Reported): October 3, 1997
UNITED INDUSTRIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter
Delaware
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
1-4252 95-2081809
- ------------------------------------- ------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
18 East 48th Street
New York, New York 10017
- ---------------------------------------- ------------------------------
(Address of Principal Executive Offices) (Zip Code)
(212) 752-8787
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Unchanged
- -------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
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<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On October 3, 1997, United Industrial Corporation (the
"Company") completed the sale of all of the capital stock of AAI Systems
Management, Inc. ("SMI"), an indirect wholly-owned subsidiary of the Company, to
All Weather, Inc. (the "Purchaser"), a holding company formed by Ridge Capital,
Northstar Capital and the management team of SMI. SMI was directly owned by the
Company's AAI Corporation subsidiary. The purchase price was $18.5 million in
cash and a five-year subordinated note in the principal amount of $2.375
million. The purchase price was determined based upon arm's-length negotiations
between the Company and the Purchaser. SMI is primarily engaged in the automated
weather and environmental reporting systems business.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) Pro Forma Financial Information
The following pro forma financial statements of the
Company are filed herewith:
1. Pro forma Consolidated Balance Sheet as of
June 30, 1997.
2. Pro forma Consolidated Statements of
Operations for the six months ended June 30,
1997 and the year ended December 31, 1996.
(c) Exhibits
2. Stock Purchase Agreement between All Weather, Inc.
and AAI Corporation, dated September 30, 1997.
99. Press release of the Company dated October 3, 1997.
2
<PAGE>
The following unaudited pro forma consolidated condensed
financial statements give effect to the sale of the 100% stock interest in SMI
on October 3, 1997 by AAI Corporation, a wholly-owned subsidiary of the Company.
The unaudited pro forma consolidated condensed statement of income data give
effect to the sale as if it had occurred on the first day of the periods
presented while the unaudited pro forma consolidated condensed balance sheet
data give effect to the sale as if it had occurred on June 30, 1997. These pro
forma financial statements are based on estimates and assumptions set forth
below and in the notes to such statements which include pro forma adjustments.
The pro forma financial statements have been prepared utilizing the historical
financial statements of the Company and should be read in conjunction with the
historical financial statements and accompanying notes included in the Company's
1996 Annual Report on Form 10-K and on Form 10-Q for the quarter ended June 30,
1997.
These pro forma financial statements do not purport to be
indicative of the results that actually would have been achieved if this
disposition had been effected on the dates indicated or of the results that may
be obtained in the future.
3
<PAGE>
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Pro Forma
As Reported Adjustments Pro Forma
---------------- ---------------- ----------------
ASSETS
Current Assets
<S> <C> <C> <C>
Cash & cash equivalents $7,863 $12,302 (1) $20,165
Trade receivables 35,127 (4,986)(2) 30,141
Inventories
Finished goods & work in process 26,529 (356)(2) 26,173
Materials & supplies 4,174 (438)(2) 3,736
---------------- ---------------- ----------------
30,703 (794) 29,909
Deferred income taxes 6,262 6,262
Prepaid expenses & other current assets 1,133 (50)(2) 1,083
---------------- ---------------- ----------------
Total Current Assets 81,088 6,472 87,560
Other assets 37,836 2,375 (1) 40,211
Property & equipment - less allowance
for depreciation 40,787 (438)(2) 40,349
================ ================ ================
$159,711 $8,409 $168,120
================ ================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts payable $6,932 ($1,376)(2) $5,556
Accrued employee compensation & taxes 8,190 (427)(2) 7,763
Customer Advances 3,748 (297)(2) 3,451
Federal income taxes 638 638
Other liabilities 6,098 6,098
Provision for contract losses 7,549 7,549
---------------- ---------------- ----------------
Total Current Liabilities 33,155 (2,100) 31,055
Long-term liabilities, less current maturities 2,654 2,654
Deferred income taxes 9,753 9,753
Deferred gain 2,375 (3) 2,375
Postretirement benefits other than pensions 22,250 22,250
---------------- ---------------- ----------------
67,812 275 68,087
SHAREHOLDERS' EQUITY
Common stock $1.00 par value
Authorized - 15,000,000 shares; outstanding
12,173,743, net of shares in treasury 14,374 14,374
Additional capital 90,186 90,186
Retained earnings 4,605 8,134 (3) 12,739
Treasury stock, at cost, 2,200,405 shares (17,266) (17,266)
---------------- ---------------- ----------------
91,899 8,134 100,033
================ ================ ================
$159,711 $8,409 $168,120
================ ================ ================
</TABLE>
4
<PAGE>
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
As Reported Adjustments Pro Forma
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales $114,093 ($18,063)(4) $96,030
Operating costs & expenses
Cost of sales 87,122 (14,024)(4) 73,098
Selling & administrative 21,360 (2,235)(4) 19,125
Other expense 12 12
Interest expense 591 (6) (89)(5) 502
Interest income (478) (7) (478)
---------------- ---------------- ----------------
108,607 (16,348) 92,259
---------------- ---------------- ----------------
Income before income taxes 5,486 (1,715) 3,771
Income taxes 2,053 (642)(4) 1,411
---------------- ---------------- ----------------
Net income $3,433 ($1,073) $2,360
================ ================ ================
Net income per common share $0.28 $0.19
================ ================
Average number of common shares outstanding 12,328,204 12,328,204
================ ================
</TABLE>
5
<PAGE>
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
Pro forma
As Reported Adjustments Pro Forma
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales $220,822 ($37,000)(4) $183,822
Operating costs & expenses
Cost of sales 168,315 (29,721)(4) 138,594
Selling & administrative 40,847 (4,479)(4) 36,368
Gain on sale of assets (1,135) (1,135)
Other expense, net 1,190 1,190
Interest expense 1,997 (1,064)(5) 933
Interest income (1,033) (1,033)
---------------- ---------------- ----------------
210,181 (35,264) 174,917
---------------- ---------------- ----------------
Income before income taxes 10,641 (1,736) 8,905
Income taxes 4,237 (691)(4) 3,546
---------------- ---------------- ----------------
Net income $6,404 ($1,045) $5,359
================ ================ ================
Net income per common share $0.52 $0.44
================ ================
Average number of common shares outstanding 12,211,319 12,211,319
================ ================
</TABLE>
6
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(1) Reflects transaction proceeds of $18.5 million in cash less related
expenses and income taxes on gain ($775 thousand and $5.423 million,
respectively) and a five year subordinated note for $2.375 million.
(2) Reflects the elimination of the balance sheet of SMI.
(3) Reflects the following:
($000)
----------------
Proceeds from sale of stock less related expenses $20,100
Less:
Recognition of deferred gain 2,375
Book basis of investment in SMI 4,168
----------------
6,543
Estimated gain before income taxes 13,557
Income taxes 5,423
================
Estimated net gain $8,134
================
The footnoted item reflects the gain on the transaction, net of expenses
and income taxes, of $8.134 million and a deferred gain of $2.375
million related to the subordinated note receivable. Receipt of the note
can be expected, but such receipt remains uncertain.
(4) Reflects elimination of SMI's operations.
(5) Reflects the reduction of the Company's interest expense attributable to
the use of net cash received to reduce the amount outstanding under the
long term note purchase agreement. The reduction of interest expense is
computed using a weighted average rate of 8.65%.
(6) Included in interest expense is a prepayment penalty and a write-off of
deferred financing costs ($366 thousand and $118 thousand,
respectively) related to the repayment of long term debt.
(7) Interest income does not include any pro forma adjustment for investment
earnings on the net cash proceeds from the sale of SMI.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
UNITED INDUSTRIAL CORPORATION
Dated: October 17, 1997 By: /s/ James H. Perry
-------------------
Name: James H. Perry
Title: Treasurer
8
<PAGE>
EXHIBIT INDEX
Exhibit
-------
Stock Purchase Agreement between All Weather, Inc.
and AAI Corporation, dated September 30, 1997
Press release of the Company dated October 3, 1997
9
NYFS11...:\95\78495\0018\1708\FRM0067K.29B
EXHIBIT 2
STOCK PURCHASE AGREEMENT
BETWEEN
ALL WEATHER, INC.
AND
AAI CORPORATION
RELATING TO THE
BUSINESS OF
AAI SYSTEMS MANAGEMENT, INC.
DATED SEPTEMBER 30, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
Page
1. Definitions................................................................1
2. Sale of Shares; Purchase Price.............................................8
3. Representations and Warranties of Seller...................................9
(a) Organization and Good Standing; No Subsidiaries........10
(b) Ownership of Shares and Execution of Agreement.........10
(c) Capitalization.........................................11
(d) Financial Statements...................................11
(e) No Undisclosed Liabilities.............................11
(f) Absence of Certain Changes.............................12
(g) Taxes..................................................14
(h) Patents, Trademarks and Copyrights.....................17
(i) Real Property; Leases of Real Property.................17
(j) Permits; Compliance with Laws..........................18
(k) Insurance..............................................18
(l) Material Contracts.....................................18
(m) Title to Properties; Absence of Encumbrances...........20
(n) Restrictions...........................................21
(o) Litigation; Consents...................................22
(p) Environmental Matters..................................22
(q) Collective Bargaining Agreements and Labor.............24
(r) ERISA..................................................25
(s) Customers..............................................26
(t) Accuracy of Information................................26
4. Representations and Warranties of Purchaser...............................26
(a) Organization and Good Standing.........................26
(b) Restrictions...........................................27
(c) Litigation; Consents...................................27
(d) Execution and Effect of Agreement......................27
(e) Investment Representation..............................28
(f) Sources of Information.................................28
5. Covenants of Seller.......................................................28
(a) Representations and Warranties.........................28
(b) Access to Documents; Opportunity to Ask Questions......29
(c) Maintenance of Insurance...............................29
i
<PAGE>
(d) Conduct of Business....................................29
(e) Consents; Conditions Precedent.........................31
(f) Employee Transfers.....................................31
(g) Flight Systems Division; Other Transfers...............31
(h) Transaction Documents..................................32
(i) Notices of Certain Events..............................32
(j) No Other Discussions...................................32
(k) Restrictive Covenants..................................33
(l) Further Assurances.....................................35
(m) Supplemental Disclosure................................35
6. Covenants of Purchaser....................................................36
(a) Representations and Warranties.........................36
(b) Consents; Conditions Precedent.........................36
(c) Reserved...............................................36
(d) Change of Name.........................................36
(e) Restrictive Covenants..................................36
7. Tax Matters...............................................................38
(a) Section 338 Election...................................38
(b) Tax Indemnification....................................39
(c) Preparation of Tax Returns; Payment of Taxes...........39
(d) Cooperation with Respect to Tax Returns................41
(e) Tax Audits.............................................42
(f) Refund Claims..........................................42
(g) Other Tax Matters......................................43
(h) Tax Sharing Agreements.................................43
8. Post-Closing Matters......................................................43
(a) Offer of Employment....................................43
(b) Compensation and Benefits..............................43
(c) Employee Benefit Plans.................................44
(d) Facilitation of Transition.............................45
(e) Certain Employees of Seller............................45
(f) Cash Processing........................................46
(g) Records................................................46
9. Conditions Precedent to Purchaser's Obligation............................46
10. Conditions Precedent to Seller's Obligation..............................49
11. Closing Date; Closing....................................................50
12. No Brokers...............................................................52
13. Survival of Representations and Warranties...............................53
ii
<PAGE>
14. Indemnification of and by Purchaser and Limitation of Liability..........53
15. Termination..............................................................57
16. Further Assurances.......................................................58
17. Confidentiality; Press Releases..........................................58
18. Notices..................................................................58
19. Entire Agreement.........................................................60
20. Successors...............................................................60
21. Section Headings.........................................................60
22. Applicable Law...........................................................60
23. Transfer Taxes...........................................................60
24. Expenses.................................................................61
25. Waiver of Jury Trial.....................................................61
26. Severability.............................................................61
27. Counterparts.............................................................61
iii
<PAGE>
List of Schedules and Exhibits
------------------------------
Schedules
- ---------
1(a) Assets
2(c) Bonus Agreements
3(a) State Qualifications
3(b) Encumbrances on Shares
3(e) Liabilities
3(f) Certain Changes
3(g) Tax Matters
3(h) Patents, Trademarks and Copyrights
3(k) Insurance Policies
3(l) Material Contracts
3(m) Encumbrances
3(n) Restrictions
3(o) Litigation
3(p) Environmental Matters
3(q) Collective Bargaining Agreements and Labor
3(r) ERISA
3(s) Significant Customers
5(f) AAI Engineering Support, Inc. Transferred Employees
5(g) Flight Systems Division
8(e) Seller Employees
Exhibits
A Form of Guaranty and Non-Competition Agreement
B Form of Lease
C Form of Manufacturing Agreement
D Form of Seller Note
E Form of Subordination Agreement
F Transfer Agreement
G-1 Form of Opinion of Senior Counsel to Seller
G-2 Form of Opinion of Counsel to Seller
H Form of Opinion of Counsel to Purchaser
iv
<PAGE>
STOCK PURCHASE AGREEMENT
AGREEMENT made this 30th day of September, 1997, by and
between All Weather, Inc., a Delaware corporation ("Purchaser"), and AAI
Corporation, a Maryland corporation ("Seller").
W I T N E S S E T H:
--------------------
WHEREAS, Seller is the owner of 1,000 shares (the "Shares") of
common stock, no par value per share (the "Common Stock"), of AAI Systems
Management, Inc., a Maryland corporation ("Company"), which Shares constitute
all of the issued and outstanding shares of capital stock of Company; and
WHEREAS, Seller desires to sell to Purchaser, and Purchaser
desires to purchase from Seller, the Shares, for the purchase price and upon the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual
covenants hereinafter contained, the parties hereto agree as follows:
1. Definitions. (a) As used in this Agreement, the following
-----------
terms shall have the indicated meanings, which meanings shall be applicable,
except to the extent otherwise indicated in a definition of a particular term,
both to the singular and plural forms of such terms.
"Aggregate Operating Income" shall mean, for the period
specified, the Company's earnings before interest, taxes, depreciation, and
amortization, calculated in accordance with GAAP, and before consulting fees or
other payments (excluding expense reimbursements) to Ridge Advisors, Inc. or
Seidler Capital Partners, L.P. or any of their affiliates.
"Assets" shall mean the assets of Seller and AAI Engineering
Support, Inc. that
<PAGE>
are used primarily in the Business and are set forth on Schedule 1(a) hereto.
"Balance Sheet" shall mean the unaudited balance sheet of
Company as at June 29, 1997.
"Balance Sheet Date" shall mean June 29, 1997.
"Benefit Arrangement" means any employment, severance or
similar contract or policy, or any other contract, plan, policy or arrangement
(whether or not written) providing for compensation, bonus, profit-sharing,
stock options, or other stock-related rights or other forms of incentive or
deferred compensation, vacation benefits, insurance coverage (including any
self-insured arrangements), health or medical benefits, disability benefits,
workers' compensation, supplemental unemployment benefits, severance,
post-employment or retirement benefits (including compensation, pension, health,
medical or life insurance benefits) that (i) is not an Employee Plan or a
Multiemployer Plan, (ii) is entered into or maintained, as the case may be, by
UIC, Seller, the Company, or any of their respective ERISA Affiliates and (iii)
covers any United States employee of the Company or former United States
employee of the Company by virtue of his or her employment with the Company.
"Best Efforts" shall mean commercially reasonable good faith
efforts but shall in no event require the commencement of litigation against any
third party or the payment of fees or other consideration to any third party.
"Business" shall mean the automated weather and water
monitoring and reporting systems business of Company and which includes, but is
not limited to, the development, manufacture, assembly, sales, installation, and
servicing of the Automated Surface Observing System ("ASOS"), ASOS Controller
Equipment and hybrid systems thereof
2
<PAGE>
("ACE"), Next Generation Weather Observing System ("NEXWOS"), NEXWOS
International, Aqua Watch, and Tactical Meteorological Systems ("TACMET").
"Business Day" shall mean any weekday on which commercial
banks in New York, New York and Chicago, Illinois are open. Any action, notice
or right which is to be exercised or lapses on or by a given date which is not a
Business Day may be taken, given or exercised, and shall not lapse, until the
end of the next Business Day.
"Closing" has the meaning specified in Section l1(a) of this
Agreement.
"Closing Date" has the meaning specified in Section l1(a) of
this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Common Stock" has the meaning specified in the first recital
of this Agreement.
"Company" has the meaning specified in the first recital of
this Agreement.
"Confidentiality Agreement" shall mean that certain letter
agreement dated as of March 24, 1997 between UIC and Ridge Capital Corporation
with respect to, among other things, the treatment of confidential information
regarding Company.
"Employee Plan" means any "employee benefit plan", as defined
in Section 3(3) of ERISA (other than a Multiemployer Plan), that (i) is subject
to any provision of ERISA, (ii) is maintained, administered or contributed to by
UIC, Seller, the Company, or any of their respective ERISA Affiliates and (iii)
covers any employee of the Company or former employee of the Company by virtue
of his or her employment with the Company.
"Encumbrances" shall mean any lien, security interest,
mortgage, pledge, hypothecation, easement, charge, restriction, adverse claim,
conditional sale, capital lease, or other title retention agreement.
3
<PAGE>
"Environmental Laws" shall mean any federal, state, local, or
foreign law, treaty, judicial decision, regulation, rule, judgment, order,
decree, injunction, permit, agreement or enforceable governmental requirement
now in effect, relating to human health and safety, the environment or to
pollutants, contaminants, wastes or chemicals, or any toxic, radioactive,
ignitable, corrosive, reactive or otherwise hazardous substances, wastes or
materials.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"ERISA Affiliate" of any entity means any other entity which,
together with such entity, would be treated as a single employer under Section
414 of the Code.
"Financial Statements" shall mean the Balance Sheet and the
related unaudited statements of operations of the Company for the six-month
period ended June 29, 1997 and the unaudited balance sheets of the Company as of
December 31, 1995 and December 29, 1996 and the related unaudited statements of
operations of the Company for each of the years in the two-year period ended
December 29, 1996.
"Flight Systems Division" has the meaning specified in Section
5(g) of this Agreement.
"GAAP" shall mean generally accepted accounting principles as
in effect at the time of application thereof.
"Governmental Authority" means any government or governmental
or regulatory body thereof, or political subdivision thereof, whether federal,
state, local or foreign, or any agency, instrumentality or authority thereof, or
any court or arbitrator (public or private).
4
<PAGE>
"Guaranty and Non-Competition Agreement" means the Guaranty
and Non- Competition Agreement between Purchaser and UIC having substantially
the terms set forth in Exhibit A hereto.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976.
"Hazardous Materials" shall mean hazardous wastes as presently
defined by the Resource Conservation and Recovery Act of 1976, 42 U.S.C. ss.609
et. seq., as amended, and the regulations promulgated thereunder and hazardous
substances as presently defined by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. ss.9601 et. seq., as amended
("CERCLA" or "Superfund") and the regulations promulgated thereunder.
"Income Taxes" shall mean any income tax or any franchise or
other state or local tax based on net income, adjusted gross receipts, or
income.
"Indebtedness" shall mean all obligations which arise from
borrowed money or the deferred purchase price of property, or services (other
than accounts payable arising in the ordinary course of business).
"International Plan" means any employment, severance or
similar contract, arrangement or policy (exclusive of any such contract which is
terminable within 30 days without liability of UIC, Seller, the Company, or any
of their respective ERISA Affiliates), or any plan or arrangement providing for
severance, insurance coverage (including any self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, pension or retirement benefits or for deferred compensation,
profit-sharing, bonuses, stock options, stock appreciation rights or other forms
5
<PAGE>
of incentive compensation or post-retirement insurance, compensation or benefits
that (i) is not an Employee Plan, Multiemployer Plan or a Benefit Arrangement,
(ii) is maintained or contributed to by UIC, Seller, the Company, or any of
their respective ERISA Affiliates and (iii) covers any employee of the Company
or former employee of the Company by virtue of his or her employment with the
Company.
"Lease" means the Lease Agreement between Company and Seller
having substantially the terms set forth in Exhibit B hereto.
"Manufacturing Agreement" means the Manufacturing and Assembly
Agreement between Company and Seller having substantially the terms set forth in
Exhibit C hereto.
"Material Adverse Effect" shall mean a material adverse effect
on the business, operations, assets, affairs, results of operations, properties,
liabilities, prospects, or condition (financial or otherwise) of Company.
"Multiemployer Plan" shall mean each employee benefit plan
that is a Multiemployer Plan, as defined in Section 3(37) of ERISA and that is
contributed to by UIC, Seller, the Company or any of their respective ERISA
Affiliates.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Encumbrance" shall mean (a) Encumbrances imposed
by any Governmental Authority for Taxes not yet due and payable or which are
being contested in good faith and by appropriate proceedings if adequate
reserves with respect thereto are maintained on the books of Company in
accordance with GAAP; (b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Encumbrances arising in the ordinary course of
business which are not overdue for a period of more than 30 days or
6
<PAGE>
which are being contested in good faith and by appropriate proceedings, if
adequate reserves with respect thereto are maintained on the books of Company or
its Subsidiaries in accordance with GAAP; (c) pledges or deposits in connection
with worker's compensation, unemployment insurance and other social security
legislation; and (d) deposits to secure the performance of any or all of the
following: bids, trade contracts (other than for borrowed money), leases,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business.
"Purchase Price" has the meaning specified in Section 2(b) of
this Agreement.
"Purchaser" has the meaning specified in the first paragraph
of this Agreement.
"Seller" has the meaning specified in the first paragraph of
this Agreement.
"Seller Group" means, with respect to Federal Taxes, the
affiliated group of corporations (as defined in Section 1504(a) of the Code) of
which the Company is a member, and with respect to State Taxes, the
consolidated, combined or unitary group of which the Company is a member.
"Seller Note" means a 9% Junior Subordinated Note of Purchaser
and Company due 2002 having substantially the terms set forth in Exhibit D
hereto.
"Shares" has the meaning specified in the first recital of
this Agreement.
"Subordination Agreement" means the Subordination Agreement by
and among Purchaser, Seller, Company, Seidler Capital Partners, L.P., and
LaSalle National Bank having substantially the terms set forth in Exhibit E
hereto.
"Subsidiary" shall mean each corporation, partnership or other
entity, of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions or a majority of the equity
7
<PAGE>
interests are owned or controlled directly or indirectly by another person.
"Tax" or "Taxes" means all taxes, charges, fees, imposts,
levies or other assessments, including, without limitation, all net income,
franchise, profits, gross receipts, capital, sales, use, ad valorem, value
added, transfer, transfer gains, inventory, capital stock, license, withholding,
payroll, employment, social security, unemployment, excise, severance, stamp,
occupation, real or personal property, and estimated taxes, water, rent and
sewer service charges, fees, assessments and charges of any kind whatsoever,
together with any interest and any penalties, fines, additions to tax or
additional amounts thereon, imposed by any taxing authority (federal, state,
local or foreign) and shall include any transferee or several liability in
respect of Taxes.
"Tax Return" means all returns, declarations, reports,
estimates, forms, information returns and statements required to be filed in
respect of any Taxes.
"Taxing Authority" shall mean any Governmental Authority
(domestic or foreign) responsible for the imposition, administration, or
collection of any Tax.
"Transaction Documents" means this Agreement, the Guaranty and
Non- Competition Agreement, the Lease, the Manufacturing Agreement, the Seller
Note, and the Subordination Agreement.
"UIC" means United Industrial Corporation, a Delaware
corporation and the owner of all of the issued and outstanding shares of capital
stock of Seller.
"WARN" shall mean the Workers Adjustment and Retraining Act of
1988 and any similar state or local plant closing law.
2. Sale of Shares; Purchase Price. (a) On the terms and
------------------------------
subject to the conditions set forth in this Agreement, Seller hereby agrees to
sell, assign and transfer to
8
<PAGE>
Purchaser, and Purchaser hereby agrees to purchase from Seller, on the Closing
Date, the Shares.
(b) In consideration of the sale of the Shares
(the "Purchase Price"), urchaser shall:
(i) pay to Seller on the Closing Date, by
wire transfer in U.S. dollars in immediately available funds, to the account
specified by Seller on or prior to the Closing Date, $18,500,000 (the "Cash
Purchase Price"); and
(ii) deliver to Seller on the Closing Date,
the Seller Note in an aggregate principal amount of $2,375,000.
(c) Seller hereby assumes and retains any and
all liabilities and obligations the Company may have in connection with all
bonus or retention obligation agreements entered into with any employees of the
Company in connection with the sale of the Company and the Shares including
without limitation those agreements identified on Schedule 2(c) hereto. As of
the Closing Date, all intercompany accounts between Company, on the one hand,
and Seller and Seller's other Subsidiaries, on the other hand, shall be
cancelled without any further payments thereon.
3. Representations and Warranties of Seller. Seller hereby
----------------------------------------
represents and warrants to Purchaser as follows (it being understood that the
inclusion of any item on a schedule hereto shall not be deemed an acknowledgment
that such item is (i) material, (ii) would be reasonably likely to result in a
Material Adverse Effect, or (iii) is required to be disclosed under this
Agreement):
(a) Organization and Good Standing; No
Subsidiaries. Each of Seller and Company is a corporation duly incorporated,
validly existing and in good standing
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under the laws of the State of Maryland, and has full corporate power and
authority to own, lease, and operate its properties and carry on its business as
it is now being conducted. Company is duly qualified as a foreign corporation
and is in good standing under the laws of (i) each jurisdiction in which it owns
real property and (ii) each other jurisdiction in which the conduct of its
business or the ownership of its assets requires such qualification and where a
failure to be so qualified would have a Material Adverse Effect. Schedule 3(a)
hereto sets forth a list of all jurisdictions in which the Company is qualified
to do business. The copies of Company's Articles of Incorporation and Bylaws
(together with all amendments thereto) which have been previously delivered to
Purchaser are complete and correct. Company has no Subsidiaries.
(b) Ownership of Shares and Execution of
Agreement. Except as set forth on Schedule 3(b) hereto, Seller is the record and
beneficial owner of the Shares, free and clear of any and all Encumbrances and
any other limitation or restriction (including any restriction on the right to
vote, sell, or otherwise dispose of the Shares). Seller has the requisite
corporate power and authority to enter into this Agreement and the other
Transaction Documents to which it is a party and to sell, assign, transfer and
deliver the Shares as provided in this Agreement, and such delivery will convey
to Purchaser good and marketable title to the Shares, free and clear of any and
all Encumbrances. The execution and delivery of this Agreement and the
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of Seller and UIC, to the extent they are parties thereto. This
Agreement has been, and on the Closing Date the Transaction Documents will be,
duly executed and delivered by each of Seller and UIC, to the extent it is a
party thereto, and constitute, or will
10
<PAGE>
constitute, the legal, valid and binding obligations of each of Seller and UIC,
to the extent it is a party thereto, enforceable against it in accordance with
their respective terms.
(c) Capitalization. The authorized capital
stock of Company consists of 5,000 shares of Common Stock, of which 1,000 shares
are outstanding as of the date hereof. All of the outstanding shares of Common
Stock of Company have been validly issued and are fully paid and non-assessable.
No shares of capital stock are held by Company as treasury stock. There is no
existing option, warrant, call, commitment or other security or agreement of any
kind to which Company is a party requiring, and there are no convertible
securities of Company outstanding which upon conversion would require, the
issuance of any additional shares of capital stock of Company or other
securities convertible into shares of capital stock or any debt or equity
security of Company of any kind.
(d) Financial Statements. Seller has delivered
to Purchaser copies of the Financial Statements. Each of the Financial
Statements is in accordance with the books and records of Company, as of the
dates and for the periods indicated, has been prepared in accordance with GAAP
and in conformity with the practices consistently applied by Company in the
immediately preceding fiscal periods, and presents fairly in all material
respects the consolidated financial position and results of operations of
Company as of the dates and for the periods indicated, subject to the absence of
footnotes and, as to the interim statements, to normal year-end adjustments. The
Financial Statements do not include the assets, liabilities or results of
operations of the Flight Systems Division.
(e) No Undisclosed Liabilities. As of the
Balance Sheet Date, Company had no Indebtedness or liabilities (whether accrued,
absolute, contingent or otherwise, and whether due or to become due) except: (i)
liabilities provided for in the
11
<PAGE>
Balance Sheet or disclosed in the notes thereto; (ii) liabilities disclosed on
Schedule 3(e) or any other Schedule hereto; (iii) other undisclosed normal
liabilities incurred in the ordinary course of business, consistent with prior
practice, since the Balance Sheet Date which, individually or in the aggregate,
are not material to the Company; (iv) other liabilities that are the subject
matter of another representation or warranty of Seller herein which pursuant to
the terms thereof are not required to be disclosed; and (v) product warranty
liabilities.
(f) Absence of Certain Changes. Except as set
forth on Schedule 3(f), since the Balance Sheet Date, the business of the
Company has been conducted in the ordinary course consistent with past practices
and there has not been:
(i) any event, occurrence, development
or state of circumstances or facts which, individually or in the aggregate, has
had or could reasonably be expected to have a Material Adverse Effect;
(ii) any declaration, setting aside or
payment of any dividend or other distribution with respect to any shares of
capital stock of the Company or any repurchase, redemption or other acquisition
by the Company of any outstanding shares of capital stock or other securities
of, or other ownership interests in, the Company, except as contemplated by
Section 5(g) hereof;
(iii) any amendment of any material term
of any outstanding security of the Company;
(iv) any incurrence, assumption or
guarantee by the Company of any indebtedness for borrowed money;
(v) any creation or assumption by the
Company of any Encumbrance on any material asset other than in the ordinary
course of business consistent
12
<PAGE>
with past practices or any sale, lease, pledge or other disposition of accounts
receivable of the Company to any person;
(vi) any making of any loan, advance or
capital contributions to or investment in any person other than employee
advances in the ordinary course of business in an aggregate amount less than
$10,000;
(vii) any damage, destruction or other
casualty loss (whether or not covered by insurance) affecting the business or
assets of the Company which, individually or in the aggregate, has had or could
reasonably be expected to have a Material Adverse Effect;
(viii) any transaction or commitment made,
or any contract or agreement entered into, by the Company relating to its assets
or business (including the acquisition or disposition of any assets) or any
relinquishment by the Company of any contract or other right, in either case,
which, individually or in the aggregate, are material to the Company, other than
transactions and commitments in the ordinary course of business consistent with
past practices and those contemplated by this Agreement;
(ix) any change in any method of
accounting or accounting practice by the Company;
(x) any (A) employment, deferred
compensation, severance, retirement or other similar agreement entered into with
any director, officer or employee of the Company (or any amendment to any such
existing agreement), (B) grant of any severance or termination pay to any
director, officer or employee of the Company other than pursuant to a
pre-existing plan or policy, or (C) change in compensation or other benefits
payable to any director, officer or employee of the Company pursuant to any
severance or retirement plans or
13
<PAGE>
policies thereof, except for agreements covered by Section 2(c) hereof;
(xi) any labor dispute, other than routine
individual grievances, or any activity or proceeding by a labor union or
representative thereof to organize any employees of the Company, which employees
were not subject to a collective bargaining agreement at the Balance Sheet Date,
or any lockouts, strikes, slowdowns, work stoppages or threats thereof by or
with respect to any employees of the Company, or the termination of employment
of any officers or key employees of the Company which terminations could
reasonably be expected to have a Material Adverse Effect; or (xii) any change in
the present relationship between the Company and its suppliers, insurers,
lessors, licensors, licensees, distributors, or customers that could reasonably
be expected to have a Material Adverse Effect. (g) Taxes. (i) Except as set
forth on Schedule 3(g) hereto, all material Tax Returns required to be filed by
or on behalf of Company have been filed with the appropriate Taxing Authorities
in all jurisdictions in which such Tax Returns are required to be filed, and all
amounts shown on such Tax Returns (including interest and penalties) as due from
Company either directly, as part of a consolidated, combined or unitary Tax
Return (whether or not allocable to the Company), or otherwise, have been fully
and timely paid or are adequately provided for on the Balance Sheet. (ii) Except
as set forth on Schedule 3(g) hereto, the Tax Returns correctly reflected (and,
as to any Tax Returns not filed as of the date hereof, will correctly reflect),
in all material respects, the facts regarding the income, business, assets,
operations, activities and status of the Company and any other information
required to be shown therein;
14
<PAGE>
(iii) Except as set forth on Schedule 3(g)
hereto, all deficiencies asserted or assessments made as a result of any
examinations by the Internal Revenue Service or any other Taxing Authority of
the Tax Returns of or covering Company have been fully paid, and there are no
unpaid deficiencies asserted or assessments made by any Taxing Authority against
Company;
(iv) Except as set forth on Schedule 3(g)
hereto, Company has complied in all material respects with all applicable laws,
rules and regulations relating to the withholding of Taxes, and all material
amounts required to be collected or withheld and paid over to a Taxing Authority
have timely been collected or withheld and paid over;
(v) the charges, accruals and reserves
for Taxes with respect to the Company reflected on the books of the Company
(excluding any provisions for deferred income taxes) are adequate, in accordance
with GAAP, to cover such Taxes;
(vi) all United States Federal Tax Returns
filed with respect to Tax years of the Company through the Tax year ended
December 31, 1989 have been examined and closed or are Tax Returns with respect
to which the applicable period for assessment under applicable law, after giving
effect to extensions or waivers, has expired;
(vii) the Company has not requested any
extension of time within which to file any Tax Return that was not filed on a
timely basis;
(viii) neither the Company nor any member of
the Seller Group has granted any extension or waiver of the statue of
limitations period applicable to any Tax Return, which period (after giving
effect to such extension or waiver) has not yet expired;
(ix) except as set forth on Schedule 3(g)
hereto, there is no claim, audit, action, suit, or proceeding now pending or, to
Seller's knowledge, threatened
15
<PAGE>
against or with respect to the Company or any member of the Seller Group in
respect of any Tax;
(x) there are no requests for rulings or
determinations in respect of any Tax pending between the Company and any Taxing
Authority;
(xi) the Company does not have any
long-term contracts subject to Section 460 of the Code;
(xii) the Company has not been a member of
an affiliated, consolidated, combined, or unitary group other than one of which
UIC was the common parent;
(xiii) all information set forth in the
notes to the Balance Sheet relating to Tax matters is true and complete;
(xiv) Except as set forth on Schedule 3(g)
hereto, Company has not filed a consent pursuant to Section 341(f) of the Code
or agreed to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code)
owned by Company; (xv) Company is not and has not been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii); and (xvi)
Except as set forth on Schedule 3(g) hereto, no property owned by Company (A) is
property required to be treated as being owned by another person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended
and in effect immediately prior to the enactment of the Tax Reform Act of 1986,
(B) constitutes "tax-exempt use property" within the meaning of Section
168(h)(1) of the
16
<PAGE>
Code or (C) is tax-exempt bond financed property within the meaning of Section
168(g) of the Code.
(h) Patents, Trademarks and Copyrights.
Schedule 3(h) hereto contains a complete and correct list of each patent, and
each material trademark, trade name, service mark and copyright owned or used by
Company and registrations and pending applications therefor and identifies with
respect to each of such intellectual property rights, as applicable: (i) the
nature of such intellectual property right; (ii) the owner of such intellectual
property right; (iii) the jurisdictions by or in which such intellectual
property right is registered or in which an application for such registration
has been filed, including the respective registration or application numbers;
and (iv) licenses, sublicenses and other agreements as to which the Company is a
party and pursuant to which any person is authorized to use such intellectual
property right. Except as set forth on Schedule 3(h) hereto, each of the
foregoing is owned by the party shown on such Schedule as owning the same, free
and clear of all Encumbrances, other than Permitted Encumbrances. Except as set
forth on Schedule 3(h) hereto, to Seller's knowledge, there have been no claims
asserted in writing, that are still pending, that any of the foregoing is
invalid or conflicts with the asserted rights of others. Company possesses all
patents, patent licenses, trade names, trademarks, service marks, brand marks,
brand names, copyrights, know-how, formulas and other proprietary and trade
rights necessary for the conduct of its business as it is now being conducted,
except for those the absence of which could not reasonably be expected to result
in a Material Adverse Effect.
(i) Real Property; Leases of Real Property.
Company does not own or lease any real property. Company occupies a portion of
the premises owned by Seller in
17
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Hunt Valley, Maryland, for which it pays Seller its allocated cost.
(j) Permits; Compliance with Laws. Company has
all necessary permits, licenses and governmental authorizations ("Permits")
required for the ownership or occupancy of its properties and assets and the
carrying on of its business, except where the failure to have any such Permit
could not reasonably be expected to result in a Material Adverse Effect. All
such Permits are valid and in full force and effect and none of the Permits will
be terminated or impaired or become terminable, in whole or in part, as a result
of the transactions contemplated hereby. Company is in compliance with all laws,
except where such non-compliance could not reasonably be expected to result in a
Material Adverse Effect.
(k) Insurance. Schedule 3(k) hereto contains a
complete and correct list in all material respects of all policies of insurance
or bonds of any kind or nature covering the assets, business, operations,
employees, officers, or directors of Company, including, without limitation,
policies of life, fire, theft, employee fidelity and other casualty and
liability insurance, and such policies are in full force and effect. Complete
and correct copies of each such policy have been furnished or made available to
Purchaser. There is no claim by the Company pending under 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 respect of which such underwriters
have reserved their rights. All premiums payable under all such policies and
bonds have been paid timely, and the Company has otherwise complied in all
material respects with the terms and conditions of all such policies and bonds.
Except as provided in such policies and bonds with respect to pre-Closing
occurrences, such policies and bonds shall not continue to apply to Company
following the Closing Date.
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<PAGE>
(l) Material Contracts. Except as listed in
Schedule 3(1) hereto, Company is not a party to any (i) material contract,
agreement, commitment, arrangement, or plan not made in the ordinary course of
business; (ii) any agreement for the purchase of materials, supplies, goods,
services, equipment, or other assets that provides for either (A) annual
payments by the Company of $50,000 or more or (B) aggregate payments by the
Company of $50,000 or more; (iii) any sales, distribution, or other similar
agreement providing for the sale by the Company of materials, supplies, goods,
services, equipment, or other assets that provides for either (A) annual
payments to the Company of $50,000 or more or (B) aggregate payments to the
Company of $50,000 or more; (iv) severance agreement involving a payment of more
than $25,000 to an individual; (v) contract for the employment of any officer or
employee requiring payments in excess of $30,000 in any year; (vi) franchise,
distributorship or sales agency agreement; (vii) contract for the future
purchase of materials, supplies, services, merchandise or equipment not capable
of being fully performed or not terminable within a period of one year from the
date hereof or in excess of normal operating requirements; (viii) agreement for
the sale or lease of any of its assets other than in the ordinary course of
business; (ix) contract or commitment for capital expenditures in excess of
$50,000; (x) mortgage, pledge, conditional sales contract, security agreement,
factoring agreement, or other similar agreement with respect to any of its real
or personal property; (xi) lease of machinery or equipment involving annual
payments in excess of $50,000; (xii) agreement with a labor union or labor
association; (xiii) loan agreement, promissory note issued by it, guarantee, or
subordination or similar type of agreement; (xiv) stock option, retirement,
severance, pension, bonus, profit sharing, group insurance, medical or other
fringe benefit plan or program providing employee benefits; (xv) consulting
agreement involving
19
<PAGE>
annual payments in excess of $25,000; (xvi) municipal or other governmental
franchise agreements; or (xvii) any agreement with (A) Seller, UIC, or any of
their affiliates, (B) any person directly or indirectly owning, controlling or
holding with power to vote, 5% or more of the outstanding voting securities of
Seller, UIC, or any of their affiliates, (C) any person 5% or more of whose
outstanding voting securities are directly or indirectly owned, controlled or
held with power to vote by Seller, UIC, or any of their affiliates, or (D) any
director or officer of Seller, UIC, the Company, or any of their affiliates or
any "associates" or members of the "immediate family" (as such terms are
respectively defined in Rule 12b-2 and Rule 16a-1 of the Securities Exchange Act
of 1934, as amended) of any such director or officer. Complete and correct
copies of each such agreement have been furnished to Purchaser. Each agreement,
commitment, arrangement, or plan required to be disclosed pursuant to this
Section 3(l) is a valid and binding agreement of the Company and is in full
force and effect. Except as set forth in Schedule 3(1) hereto, Company has
performed all of the obligations required to be performed by it to date and is
not in default under any of the agreements, leases, contracts or other documents
listed on Schedule 3(1) nor, to the Seller's knowledge, is any third party in
such default or has repudiated any such agreements, leases, contracts or other
documents other than for those failures to perform and defaults which would not
reasonably be expected to result in a Material Adverse Effect. Except as
disclosed herein or in Schedule 3(1) hereto, Company is not a party to any
non-compete or similar agreement which restricts the operation of its business.
(m) Title to Properties; Absence of
Encumbrances. Company has good and marketable title to all of its properties and
assets shown as owned on the Balance Sheet (except for assets disposed of in the
ordinary course of business since the Balance Sheet
20
<PAGE>
Date or pursuant to the terms hereof) or acquired after the Balance Sheet Date,
free and clear of any and all Encumbrances, except as set forth in Schedule 3(m)
hereto and except for Permitted Encumbrances. The physical assets and equipment
owned by the Company are in good operating condition and repair, normal wear and
tear excepted, and have been reasonably maintained and are adequate and suitable
for their present and intended uses. The assets and properties of the Company
constitute, in the aggregate, all of the property necessary for the conduct of
the Company's business in the manner and to the extent to which it is currently
being conducted. The value at which Company's inventories are carried on the
Balance Sheet reflects the normal inventory valuation policies of the Company,
stating inventories at the lower of cost or market on a last-in first-out basis,
all determined in accordance with GAAP. There are no developments affecting any
such property or assets pending or, to Seller's knowledge, threatened, which,
individually or in the aggregate, are reasonably likely to materially detract
from the value of such property or assets or materially interfere with any
present or intended use of any such property or assets. The Seller has
previously delivered to the Purchaser a complete list of all receivables of the
Company, as of July 31, 1997, including accounts receivable, notes receivable,
and insurance proceeds receivable. All of the receivables either listed thereon
or set forth or reflected in the Balance Sheet were, as of the dates as of which
the information is given therein, and as of the Closing Date all of the
receivables of the Company will be, valid accounts receivable.
(n) Restrictions. Except as set forth in
Schedule 3(n) hereto, neither the execution or delivery of this Agreement or any
of the other Transaction Documents nor the consummation of the transactions
contemplated hereby or thereby, will (i) conflict with or result in a breach of,
or give rise to a right of termination of, or accelerate the performance
21
<PAGE>
required by, any terms of any agreement or instrument binding upon Company,
Seller, or UIC, or, in either case, constitute a default thereunder, except for
such conflicts, breaches, rights of termination or acceleration and defaults
that, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect, (ii) violate any of the provisions of the
Articles or Certificate of Incorporation or By-Laws of Company, Seller, or UIC,
(iii) violate any law, rule, regulation, order, judgment, or decree by which
Company, Seller, or UIC are bound, or (iv) result in the creation or imposition
of any Encumbrance on the Shares or any asset of the Company.
(o) Litigation; Consents. Except as disclosed
in Schedule 3(o) hereto, there is no action, suit, proceeding, inquiry or
investigation pending against or, to Seller's knowledge, threatened against
Seller or Company (i) which seeks to restrain or prohibit or otherwise
challenges the consummation, legality or validity of the transactions
contemplated hereby or (ii) which, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect. Except with
respect to the Hart-Scott-Rodino Act and local governmental permits or licenses,
no consent, approval or authorization of any Governmental Authority on the part
of Seller or Company is required in connection with the execution and delivery
of this Agreement or the consummation of any of the transactions contemplated
hereby.
(p) Environmental Matters. Except as disclosed
in Schedule 3(p) hereto: (i) no notice, notification, demand, request for
information, citation, summons or order has been issued, no complaint has been
filed, no penalty has been assessed and no investigation, action, claim, suit,
proceeding or review is pending, or to Seller's knowledge, threatened by any
Governmental Authority or other person with respect to any matters relating
22
<PAGE>
to the Company and relating to or arising out of any Environmental Law except
for, with respect to all of the above, matters that occurred more than three
years prior to the date of this Agreement that have been finally and
conclusively resolved with no further obligation or liability of the Company;
(ii) there are no liabilities of the Company of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, arising
under or relating to any Environmental Law except for such liabilities as could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect, and there are no facts, conditions, situations or set of
circumstances which are reasonably likely to result in or be the basis for any
such liability; (iii) no polychlorinated biphenyls, radioactive material, lead,
lead paint, asbestos-containing material, incinerator, surface impoundment,
lagoon, landfill, or underground storage tank (active or inactive) is or has
been present at, on, under or in any property or equipment now or previously
owned, leased or operated by the Company except for such matters as could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect; (iv) no Hazardous Substance has been discharged, disposed of,
dumped, injected, pumped, deposited, spilled, leaked, emitted, or released at,
on, under, or in any property or equipment now or previously owned, leased or
operated by the Company except for such matters as could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect; (v) no
property now or previously owned, leased or operated by the Company nor any
property to which the Company has, directly or indirectly, transported or
arranged for the transportation of any Hazardous Substances is listed or, to
Seller's knowledge, proposed for listing on the National Priorities List
promulgated pursuant to CERCLA, on CERCLIS (as defined in CERCLA) or on any
similar federal, state, or foreign list of sites requiring investigation or
clean-up; and (vi) the Company is in
23
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compliance with all Environmental Laws and has obtained and is in compliance
with all permits, licenses, authorizations, certificates, and approvals of
Governmental Authorities relating to or required by Environmental Laws and
necessary or proper for the business of the Company as currently conducted,
except for such noncompliance as could not, individually or in the aggregate
reasonably be expected to have a Material Adverse Effect. Except as disclosed in
Schedule 3(p) hereto, there has been no written environmental assessment,
investigation, study, audit, test, review or other environmental analysis
conducted of which the Company or Seller has knowledge in relation to the
current or prior business of the Company or any property or facility now or
previously owned, leased, or operated by the Company, with the exception of
periodic regulatory filings required to be made in the ordinary course of
business, which has not been delivered to Purchaser prior to the date hereof.
For purposes of this Section, the term "Company" shall include any entity which
is, in whole or in part, a predecessor of the Company.
(q) Collective Bargaining Agreements and Labor.
(i) Except as set forth on Schedule 3(q) hereto, Company is not a party to any
labor or collective bargaining agreement, and there are no labor or collective
bargaining agreements which pertain to employees of Company.
(ii) Except as set forth on Schedule 3(q)
hereto, there is not pending or, to the knowledge of the Company or the Seller,
threatened any strike, work stoppage, slowdown, lockout, arbitration or other
material labor dispute against Company which would be reasonably likely to
result in a Material Adverse Effect.
(iii) Except as set forth on Schedule 3(q)
hereto, to Seller's knowledge, there are no pending complaints, charges or
claims against Company filed with
24
<PAGE>
any public or Governmental Authority, arbitrator or court based upon the
employment or termination of employment by Company of any individual which could
reasonably be expected to result in a Material Adverse Effect.
(iv) Except as set forth on Schedule 3(q)
hereto, Company is in compliance with all laws, regulations and orders relating
to the employment of labor, including all such laws, regulations and orders
relating to wages, hours, WARN, collective bargaining, discrimination, civil
rights, safety and health, accommodation for disabilities, workers' compensation
and the collection and payment of withholding and/or social security taxes and
any similar tax, except for such non-compliance which could not, individually or
in the aggregate, reasonably be expected to result in a Material Adverse Effect.
(v) Schedule 3(q) sets forth a true and
complete list of the names, titles, annual salaries, and other compensation of
all officers of the Company and all other employees of the Company whose annual
base salary equals or exceeds $50,000. Except as set forth on Schedule 3(q),
none of the employees required to be identified on Schedule 3(q) has advised the
Company in writing that such employee intends to resign or retire as a result of
the transactions contemplated by this Agreement or otherwise.
(r) ERISA. (i) Schedule 3(r) hereto sets
forth all Employee Plans, International Plans, and Benefit Arrangements.
Schedule 3(r) hereto separately identifies each Employee Plan which is a
Multiemployer Plan. Except as specifically indicated on Schedule 3(r), none of
the Employee Plans, International Plans, or Benefit Arrangements is maintained
or sponsored by the Company.
(ii) True, correct and complete copies
of the following documents, with respect to each of the Employee Plans (other
than the Multiemployer Plans)
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<PAGE>
and Benefit Arrangements, have been delivered to Purchaser by Seller: (A) any
plans and related trust documents, and amendments thereto; (B) the most recent
Forms 5500; (C) the last IRS determination letter, if applicable; and (D)
summary plan descriptions.
(iii) The Employee Plans intended to qualify
under Section 401 of the Code are so qualified and the trusts maintained
pursuant thereto are exempt from federal income taxation under Section 501 of
the Code, and nothing has occurred with respect to the operation of the Employee
Plans which could cause the loss of such qualification or exemption or the
imposition of any material liability, penalty or tax under ERISA or the Code.
(iv) The Employee Plans and Benefit
Arrangements have been maintained in accordance with their terms and with all
provisions of the Code and ERISA (including the rules and regulations
thereunder) and other applicable federal and state laws and regulations, except
where the failure to do so could not reasonably be expected to have a Material
Adverse Effect.
(s) Customers. Except as set forth in Schedule
3(s), since the Balance Sheet Date there has not been any material change in the
relationship of the Company with any customer that has, in any of the last three
fiscal years of the Company, accounted for more than $100,000 in revenues of the
Company (a "Significant Customer"), and the Company does not have knowledge that
would reasonably indicate that any Significant Customer intends to discontinue
its use of the Company's services.
(t) Accuracy of Information. No representation
or statement made, or information given, by Seller in this Agreement and the
various schedules attached hereto contains any untrue statement of a material
fact or omits any material fact necessary to make
26
<PAGE>
the information contained therein, in light of the circumstances under which
made, not misleading.
4. Representations and Warranties of Purchaser. Purchaser
-------------------------------------------
hereby represents and warrants to Seller as follows:
(a) Organization and Good Standing. Purchaser
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware, and has full corporate power and authority to
own its properties and carry on its business as it is now being conducted.
(b) Restrictions. The execution and delivery
of this Agreement and the other Transaction Documents and the consummation of
the transactions contemplated hereby and thereby will not conflict with or
result in a breach of any terms of any agreement to which Purchaser is a party,
except for such conflicts and breaches that in the aggregate would not have a
material adverse effect on Purchaser's ability to consummate the transactions
contemplated by this Agreement, nor will it violate any of the provisions of
Purchaser's Certificate of Incorporation or Bylaws.
(c) Litigation; Consents. There is no action,
suit, proceeding inquiry, or investigation pending or, to Purchaser's knowledge,
threatened against Purchaser which seeks to restrain or prohibit or otherwise
challenges the consummation, legality or validity of the transactions
contemplated hereby, and no consent, approval or authorization of any
Governmental Authority on the part of Purchaser is required in connection with
the execution and delivery of this Agreement or the consummation of any of the
transactions contemplated hereby including pursuant to the Hart-Scott-Rodino
Act. For purposes of the Hart-Scott-Rodino Act, Purchaser does not have any
ultimate parent entity and is its own
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ultimate parent entity. Purchaser was formed for the purposes of engaging in the
transactions contemplated hereby and has no assets other than those contributed
or loaned in connection therewith.
(d) Execution and Effect of Agreement.
Purchaser has the requisite corporate power and authority to enter into this
Agreement and the Transaction Documents to which it is a party, and the
execution and delivery of this Agreement and such Transaction Documents and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of Purchaser. This
Agreement has been, and on the Closing Date the Transaction Documents to which
Purchaser is a party will be, duly executed and delivered by Purchaser and
constitutes, or will constitute, the legal, valid and binding obligations of
Purchaser, enforceable against it in accordance with their respective terms.
(e) Investment Representation. Purchaser
possesses such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of its investment hereunder.
Purchaser is acquiring the Shares for its own account, for investment purposes
only and not with a view to the distribution thereof. Purchaser is an
"accredited investor" as defined in Regulation D under the Securities Act of
1933, as amended.
(f) Sources of Information. Purchaser
acknowledges that it has conducted its own investigation of the business and
affairs of Company, that the Shares have not been registered under the
Securities Act of 1933, as amended, or any state securities or "Blue Sky" laws,
and that it has received all the information that it requested from Seller
concerning Company.
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5. Covenants of Seller. Seller hereby covenants and agrees
-------------------
that:
(a) Representations and Warranties. From and
after the date hereof and until the Closing Date, Seller will not, and it will
not permit Company to, take any action which would cause any of the
representations and warranties made by Seller in this Agreement not to be true
and correct in all material respects on and as of the Closing Date with the same
force and effect as if such representations and warranties had been made on and
as of the Closing Date, except for such changes therein as are permitted or
contemplated hereby.
(b) Access to Documents; Opportunity to Ask
Questions. From and after the date hereof and until the Closing Date, Seller
shall make available for inspection by Purchaser or its representatives, upon
reasonable advance notice and during normal business hours, Company's corporate
records, books of account, contracts and all other documents reasonably
requested by Purchaser, Company's managerial employees, counsel and auditors in
order to permit Purchaser and such representatives to make reasonable inspection
and examination of the business and affairs of Company. Seller shall further
cause the managerial employees, counsel and regular independent certified public
accountants of Company to be available upon reasonable advance notice to answer
questions of Purchaser's representatives concerning the business and affairs of
Company and shall further cause them to make available all relevant books and
records in connection with such inspection and examination. No investigation by
Purchaser or other information received by the Purchaser or any other person
shall operate as a waiver or otherwise affect any representation, warranty, or
agreement given or made by Seller hereunder.
(c) Maintenance of Insurance. From and after
the date hereof and
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until the Closing Date, Seller shall use its Best Efforts to maintain in full
force and effect all of Company's presently existing insurance coverage, or
insurance comparable to such existing coverage. Such insurance shall not
continue to apply to Company following the Closing Date.
(d) Conduct of Business. From and after the
date hereof and until the Closing Date, Seller shall cause Company to conduct
its business in the ordinary course, consistent with the present conduct of its
business and use Best Efforts to preserve intact their business organizations
and relationships with third parties and keep available the services of their
present officers and employees. During such period of time, except upon the
prior written consent of Purchaser or as contemplated by this Agreement, Seller
shall not permit Company to: (i) amend its Articles of Incorporation or Bylaws,
other than to change its name to eliminate references to AAI, (ii) issue any
additional shares of capital stock or issue, sell or grant any option or right
to acquire or otherwise dispose of or commit to dispose of any of its authorized
but unissued capital stock, (iii) declare or pay any dividends or make any other
distribution in cash or property on Company's capital stock, (iv) repurchase or
redeem any shares of Company's capital stock, (v) enter into any employment
agreement or become liable for any bonus, profit-sharing or incentive payment to
any of its officers or directors, except pursuant to presently existing plans,
arrangements or agreements disclosed herein or in a schedule hereto or in the
ordinary course of business, (vi) mortgage, pledge, or otherwise encumber any
part of its assets, tangible or intangible, except Permitted Encumbrances, (vii)
sell, transfer or acquire any properties or assets, tangible or intangible,
other than in the ordinary course of business, (viii) make any material changes
in its customary method of operations, including marketing and pricing policies
and maintenance of business premises, fixtures, furniture and equipment, (ix)
modify, amend or cancel any of its existing leases or
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enter into any contracts, agreements, leases or understandings, other than in
the ordinary course of business, or enter into any loan agreements, (x) enter
into any collective bargaining agreement, (xi) merge or consolidate with any
corporation, acquire control or, except in the ordinary course of business,
acquire any capital stock or other securities of any other corporation or
business entity, or take any steps incident to or in furtherance of any such
actions whether by entering into an agreement providing therefor or otherwise,
(xii) incur any debt, liability or obligation, whether fixed or contingent,
except in the ordinary course of business and in a manner and to an extent
consistent with past practice; (xiii) fail to pay its accounts payable in a
manner consistent with past practice, or (xiv) fail to maintain in full force
and effect all licenses, permits, franchises, approvals, or authorizations of
which the Seller (to the extent they constitute Assets) or the Company is
currently in possession, nor sell, transfer, license, or otherwise dispose of,
or agree to sell, transfer, license, or otherwise dispose of, any rights or
interests in any such licenses, permits, franchises, approvals, or
authorizations. Notwithstanding the foregoing, Company may transfer its Flight
System Division to Seller as provided in Section 5(g) below.
(e) Consents; Conditions Precedent. From and
after the date hereof and until the Closing Date, Seller shall use its Best
Efforts to obtain the consents of those parties indicated on Schedule 3(n) in
connection with the transactions contemplated hereby and to cause the conditions
precedent to the consummation of the transactions contemplated hereby to be
satisfied.
(f) Employee Transfers. Immediately prior to
the Closing, Seller shall cause AAI Engineering Support, Inc. to transfer to
Company those employees listed on Schedule 5(f) hereto.
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(g) Flight Systems Division; Other Transfers.
On or prior to the Closing Date and pursuant to a transfer agreement, in the
form attached hereto as Exhibit F (the "Transfer Agreement"), Seller shall (i)
cause Company to transfer to it all of the business, operations, assets,
liabilities and employees of Company that are not included in the Business (the
"Flight Systems Division"), as more particularly described on Schedule 5(g)
hereto, (ii) expressly assume all of Company's liabilities, including contingent
and unaccrued liabilities, related to the Flight Systems Division, (iii) in
connection therewith indemnify Company and hold it harmless from and against any
and all liabilities of and relating to the Flight Systems Division, and (iv)
transfer and cause AAI Engineering Support, Inc., to transfer the Assets to
Company, free and clear of all Encumbrances.
(h) Transaction Documents. On the Closing Date,
each of Seller and UIC shall enter into the Transaction Documents to which it is
a party.
(i) Notices of Certain Events. Seller shall
promptly notify Purchaser of:
(i) any notice or other communication
from any person alleging that the consent of such person is or may be required
in connection with the transactions contemplated by this Agreement;
(ii) any notice or other communication
from any Governmental Authority in connection with the transactions contemplated
by this Agreement; and
(iii) any actions, suits, claims,
investigations or proceedings commenced or, to its knowledge threatened against,
relating to or involving or otherwise affecting UIC, Seller, or the Company
that, if pending on the date of this Agreement, would
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<PAGE>
have been required to have been disclosed pursuant to Section 3 hereof or that
relate to the consummation of the transactions contemplated by this Agreement.
(j) No Other Discussions. None of the Company,
Seller, or UIC will, prior to the Closing Date, enter into discussions or
negotiate with or entertain or accept the unsolicited offer of any other party
concerning the potential sale of all or any part of the assets, other than in
the ordinary course of business, or shares of the Company to, or the merger
consolidation of the Company with, any person other than the Purchaser.
(k) Restrictive Covenants. In order to ensure
that the Purchaser will realize the value and goodwill inherent in the Company,
the Seller hereby agrees with the Purchaser that neither the Seller nor UIC nor
any of their Subsidiaries shall:
(i) directly or indirectly, for a period
of four (4) years following the Closing Date, engage anywhere in the world in
the Business or in any other business which would be competitive with the
Business as conducted by the Company on the Closing Date, or acquire or retain
any financial interest having a fair value in excess of $500,000 in any business
which is so engaged;
(ii) directly or indirectly, for a period of
four (4) years following the Closing Date, request, advise, or induce any
individual or company which is a customer of Company to withdraw, curtail, or
cancel any such customer's business with the Company; or
(iii) directly or indirectly, for a period
of two (2) years following the Closing Date, solicit, other than through general
advertising, the employment of any of the Transferred Employees or the employees
identified on Schedule 8(e) then employed by the Company or Purchaser or any of
their Subsidiaries.
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<PAGE>
Notwithstanding the above restrictions, nothing contained in
this Section 5(k) shall prohibit Seller, UIC, or any of their Subsidiaries from
(i) owning less than 5% in the aggregate of the capital or voting stock of any
corporation if such stock is publicly traded and listed on any national stock
exchange or reported on the National Market tier of the Nasdaq Stock Market, or
(ii) entering into and performing a contract (a "Contract") that has a broader
scope than the maintenance or servicing of the products constituting part of the
Business; provided, however, if such a Contract would include the maintenance or
servicing of such products, and if that effort would form a significant or
material portion of the overall performance of such Contract, the parties hereto
shall endeavor to form a teaming relationship to pursue such Contract. In the
event such a Contract would include the maintenance or servicing of such
products and if that maintenance or servicing would not be a significant or
material portion of overall performance under that Contract, but would be
material to Company's maintenance and servicing business, Company shall be
offered a subcontract at cost and price no greater than the respective amounts
that UIC or any of its Subsidiaries would bid for that particular Contract. In
either case, a declination by any party hereto to pursue the work under such
Contract will serve as permission for the one party to pursue and perform such
Contract without the declining party.
Notwithstanding any other provisions of this Agreement to the
contrary, in the event of a dispute regarding significance, materiality, cost or
price of maintenance or servicing of products under this Section 5(k), the
matter shall be referred to a single arbitrator for resolution, whose decision
shall be final. In addition, the prevailing party of such a dispute shall not be
responsible for the fees and expenses of the arbitrator.
If any provision of this Section 5(k), as applied to any party
or to any
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<PAGE>
circumstances, is adjudged by a court to be invalid or unenforceable, the same
will in no way affect any other provision of this Section 5(k) or any other part
of this Agreement, the application of such provision in any other circumstances
or the validity or enforceability of this Agreement. If any such provision, or
any part thereof, is held to be unenforceable because of the duration of such
provision or the area covered thereby, the parties agree that the court making
such determination will have the power to reduce the duration and/or area of
such provision, and/or to delete specific words or phrases, and in its reduced
form such provision will then be enforceable and will be enforced. Upon breach
of any provision of this Section 5(k), the Purchaser will be entitled to
injunctive relief, because the remedy at law would be inadequate and
insufficient. In addition, the Purchaser will be entitled to such damages as it
can show it has sustained by reason of such breach.
(l) Further Assurances. From time to time after
the Closing Date, Seller shall (i) execute, deliver, acknowledge, file, and
record, or cause to be executed, delivered, acknowledged, filed, and recorded,
such further bills of sale, deeds, general conveyances, endorsements,
assignments, and other good and sufficient instruments of sale, transfer,
assignment, and conveyance and such further consents, certifications,
affidavits, and assurances as are required in order to vest in the Purchaser and
Company all right, title, and interest in the Shares and the Assets,
respectively, or otherwise to consummate and make effective the transactions
contemplated by this Agreement and (ii) take, or cause to be taken, all actions
and do, or cause to be done, all things, as are required in order to put the
Purchaser and Company in actual possession and operating control of the Shares
and the Assets, respectively, or otherwise to accomplish the purposes of this
Agreement.
(m) Supplemental Disclosure. The Seller shall
have a continuing
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<PAGE>
obligation promptly to supplement or amend each of the Schedules hereto with
respect to any matter that arises or is discovered after the date hereof which,
if existing or known at the date of the execution and delivery of this
Agreement, would have been required to be set forth or listed in the Schedules
hereto; provided, however, that for purposes of the rights and obligations of
the parties hereunder (other than the obligations of the Seller under this
Section 5(m)), any such supplemental disclosure shall not be deemed to have been
disclosed to the Purchaser unless the Purchaser otherwise consents in writing.
6. Covenants of Purchaser. Purchaser hereby covenants and
----------------------
agrees that:
(a) Representations and Warranties. From and
after the date hereof and until the Closing Date, Purchaser will not take any
action which would cause any of the representations and warranties made by it in
this Agreement not to be true and correct in all material respects on and as of
the Closing Date with the same force and effect as if such representations and
warranties had been made on and as of the Closing Date.
(b) Consents; Conditions Precedent. From and
after the date hereof and until the Closing Date, Purchaser shall use its Best
Efforts to obtain any consents required pursuant to Schedule 3(n) hereto in
connection with the transactions contemplated hereby and to cause the conditions
precedent to the consummation of the transactions contemplated hereby to be
satisfied.
(c) Reserved .
(d) Change of Name. On or as soon as
practicable after the Closing Date, Purchaser shall change Company's name to
eliminate the reference to AAI. In addition, Purchaser shall, and shall cause
Company to, cease to use or make reference to the AAI name in the conduct of its
business, its correspondence or otherwise.
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<PAGE>
(e) Restrictive Covenants. Purchaser hereby
agrees with Seller that neither Purchaser nor Company nor any of their
Subsidiaries shall:
(i) directly or indirectly, for a period
of four (4) years following the Closing Date, engage anywhere in the world in
the Covered ESI Business (as defined below) or in any other business which would
be competitive with the Covered ESI Business as conducted by Seller and its
Subsidiaries on the Closing Date, or acquire or retain any financial interest
having a fair value in excess of $500,000 in any business which is so engaged.
(ii) directly or indirectly, for a period of
four (4) years following the Closing Date, request, advise, or induce any
individual or company which is a customer of the Covered ESI Business to
withdraw, curtail, or cancel any such customer's business with Seller or its
Subsidiaries related thereto; or
(iii) directly or indirectly, for a period
of two (2) years from the Closing Date, solicit, other than through general
advertising, the employment of any employees of Seller's Covered ESI Business
then employed by Seller or any of its Subsidiaries.
Notwithstanding the above restrictions, nothing contained in
this Section 6(e) shall prohibit Purchaser, Company or any of their Subsidiaries
from (i) owning less than 5% in the aggregate of the capital or voting stock of
any corporation if such stock is publicly traded and listed on any national
stock exchange or reported on the National Market tier of the Nasdaq Stock
Market, or (ii) entering into and performing contracts that include as an
immaterial portion of each such contract services related to the Covered ESI
Business.
For purposes of this Section 6(e), "Covered ESI Business"
means engineering,
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maintenance and management services, involving: (i) the installation, operation,
maintenance and repair of electronic and peripheral equipment used in
conjunction with aviation and transportation, training, automatic testing of
other equipment, and medical diagnostic applications, typically performed in the
field or in regional technical centers; (ii) privatization of activities
conducted by a government or quasi-governmental authority; (iii) fire fighter
training; and (iv) management and administration of workload and support at
single or multiple sites.
If any provision of this Section 6(e), as applied to any party
or to any circumstances, is adjudged by a court to be invalid or unenforceable,
the same will in no way affect any other provision of this Section 6(e) or any
other part of this Agreement, the application of such provision in any other
circumstances or the validity or enforceability of this Agreement. If any such
provision, or any part thereof, is held to be unenforceable because of the
duration of such provision or the area covered thereby, the parties agree that
the court making such determination will have the power to reduce the duration
and/or area of such provision, and/or to delete specific words or phrases, and
in its reduced form such provision will then be enforceable and will be
enforced. Upon breach of any provision of this Section 6(e), Seller will be
entitled to injunctive relief, because the remedy at law would be inadequate and
insufficient. In addition, Seller will be entitled to such damages as it can
show it has sustained by reason of such breach.
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7. Tax Matters.
-----------
(a) Section 338 Election. (i) Seller and
Purchaser hereby agree to make an election under Section 338(h)(10) of the Code
(the "Section 338(h)(10) Election") to treat the purchase and sale of the Shares
pursuant to this Agreement as a sale of assets for federal income tax purposes.
In connection therewith Seller and Purchaser further agree, in reporting the
deemed asset sale as a result of the Section 338(h)(10) Election, to take a
position consistent with the allocation of the deemed purchase price of the
Company's assets as agreed to by Purchaser and Seller in accordance with the
applicable regulations under Section 338 of the Code. Seller and Purchaser agree
(A) to sign all federal, state and local Tax Returns, forms and documents, (B)
to do all other acts necessary to ensure that the Section 338(h)(10) Election is
timely and effectively filed and (C) to report all federal, state and local
Income Taxes in a manner consistent with such election.
(ii) Purchaser agrees not to either take
any actions itself or to cause the Company to take any actions, including
engaging in any transactions on or as of the Closing Date, that could cause the
Taxes payable by Seller (or as to which Seller is indemnifying Purchaser
hereunder) to increase.
(b) Tax Indemnification. (i) Seller agrees to
be responsible for and to indemnify and hold Purchaser and the Company harmless
from and against any and all Taxes that may be imposed upon or assessed against
Company or the assets of Company (A) with respect to Income Taxes, for all
taxable periods ending on or prior to the Closing Date, including without
limitation any Income Tax resulting from the Section 338(h)(10) Election; (B)
arising by reason of any breach by Seller of any of the representations
contained in Section 3(g) hereof or its covenant under Section 7(h) hereof; and
(C) with respect to any
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increase in Income Taxes for a taxable period beginning after the Closing Date
solely by reason of the failure by a Taxing Authority to recognize the
allocation of revenue and expense set forth in the last sentence of Section
7(c)(iv) hereof.
(ii) Purchaser agrees to indemnify and
hold harmless Seller from and against any and all Taxes that may be imposed upon
or assessed against Seller as to the Business (A) with respect to Income Taxes,
for all taxable periods beginning after the Closing Date; (B) with respect to
all other Taxes, for all taxable periods beginning after the Balance Sheet Date;
(C) arising by reason of a breach by Purchaser of its covenants under Section
7(a)(ii) hereof; and (D) with respect to any increase in Income Taxes for a
taxable period ending on or prior to the Closing Date solely by reason of the
failure by a Taxing Authority to recognize the allocation of revenue and expense
set forth in the last sentence of Section 7(c)(iv) hereof.
(c) Preparation of Tax Returns; Payment of
Taxes. (i) Seller shall include Company or cause Company to be included in, and
shall file or cause to be filed, all consolidated, combined or unitary Income
Tax Returns of Seller or its affiliates for the taxable periods of Company
ending (or the portion of any taxable period ending) on or prior to the Closing
Date, and shall pay any and all Taxes due with respect to such Tax Returns.
(ii) Following the Closing, Purchaser
shall be responsible for preparing or causing to be prepared all federal,
foreign, state and local Tax Returns required to be filed by Company with
respect to Taxes (other than Income Taxes) for all taxable periods and as to
Income Taxes for all taxable periods beginning after the Closing Date. To the
extent any Taxes shown due on such Tax Returns are indemnifiable by Seller, (A)
such Tax Returns shall be prepared in a manner consistent with prior practice
unless otherwise
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<PAGE>
required by applicable Tax laws, rules or regulations; (B) Purchaser shall
provide Seller with copies of each such Tax Return at least 30 days prior to the
due date for filing such return; and (C) Seller shall have the right to review
and approve (which approval shall not be unreasonably withheld) such Tax Returns
for 15 days following receipt thereof. Purchaser shall file or cause to be filed
all such Tax Returns and shall pay the Taxes shown due thereon; provided,
however, that nothing contained in the foregoing shall in any manner terminate,
limit or adversely affect any right of Purchaser, Seller or Company to receive
indemnification pursuant to any provision in this Agreement.
(iii) Not later than two days before the due
date for payment of Taxes with respect to any Tax Returns which Purchaser has
the responsibility to file, Seller shall pay to Purchaser an amount equal to
that portion of the Taxes shown on such return for which Seller has an
obligation to indemnify Purchaser pursuant to the provisions of subsection (b)
above.
(iv) For all Income Tax purposes, the
taxable year of Company shall end as of the close of the Closing Date, and with
respect to all other Taxes, Seller and Purchaser will, unless prohibited by
applicable law, close the taxable period of Company on the Balance Sheet Date.
Neither Seller nor Purchaser shall take any position inconsistent with the
preceding sentence on any Tax Return. Notwithstanding anything contained herein
to the contrary, Seller and Purchaser shall report all transactions not in the
ordinary course of business occurring on the Closing Date on Seller's Tax
Returns, including any transactions contemplated hereunder, including the
transfer of the Flight Systems Division; provided, however, that nothing
contained in the foregoing shall affect any right of Seller to recover from
Purchaser under Section 7(b)(ii)(C) hereof. The portion of Income
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<PAGE>
Taxes of Company for taxable periods extending through the Closing Date that
shall be paid by Seller shall be computed on a closing-of-the-books basis as if
the taxable period ended at the close of business on the Closing Date.
(d) Cooperation with Respect to Tax Returns.
Purchaser and Seller agree to furnish or cause to be furnished to each other,
and each at their own expense, as promptly as practicable, such information
(including access to books and records) and assistance, including making
employees available on a mutually convenient basis to provide additional
information and explanations of any material provided, relating to Company as is
reasonably necessary for the filing of any Tax Return and elections in respect
thereof, for the preparation for any audit, and for the prosecution or defense
of any claim, suit or proceeding relating to any adjustment or proposed
adjustment with respect to Taxes. Purchaser or Company shall retain in its
possession, and shall provide Seller reasonable access to (including the right
to make copies of), such supporting books and records and any other materials
that Seller may specify with respect to Tax matters relating to any taxable
period ending on or prior to the Closing Date until the relevant statute of
limitations (or extensions thereof) has expired. After such time, Purchaser may
dispose of such material, provided that prior to such disposition Purchaser
shall give Seller a reasonable opportunity to take possession of such materials.
(e) Tax Audits. (i) Seller shall have the sole
right to represent the interests of Company in any Income Tax audit or
administrative or court proceeding relating to taxable periods of Company which
end on or before the Closing Date and in any other Tax audit or administrative
or court proceeding relating to taxable periods of Company which end on or
before the Balance Sheet Date, and to employ counsel of its choice at its
expense.
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Purchaser agrees that it will cooperate fully with Seller and its counsel in the
defense against or compromise of any claim in any such proceeding.
(ii) If any taxing authority asserts a
claim, makes an assessment or otherwise disputes or affects the Tax reporting
position of Company for taxable periods for which Seller has indemnified
Purchaser, Purchaser shall, promptly upon receipt by Purchaser or Company of
notice thereof, inform Seller thereof.
(f) Refund Claims. Except as otherwise provided
in subsection (g) below, to the extent any determination of Tax liability of
Company, whether as the result of an audit or examination, a claim for refund,
the filing of an amended return or otherwise, results in any refund of Taxes
paid attributable to (i) Income Taxes for any period which ends on or before the
Closing Date or (ii) any other Taxes for any period which ends on or before the
Balance Sheet Date, any such refund shall belong to Seller, and Purchaser shall
promptly pay any such refund, and the interest actually received thereon, to
Seller upon receipt thereof by Purchaser. Any payments made under this
subsection (f) shall be net of any Taxes payable with respect to such refund,
credit or interest thereon (taking into account any actual reduction in Tax
liability realized upon the payment pursuant to this subsection (f)).
(g) Other Tax Matters. (i) The indemnification
provided for in this Section 7 shall be the sole and exclusive remedy for any
claim in respect of Taxes and the provisions of Section 14 (other than
subsections (d), (g) and (h) of Section 14 and, solely with respect to Section
7(b)(i)(B) hereof, subsection (c) of Section 14) shall not apply to such claims.
(ii) Any claim for indemnity under this
Section 7 may be made at any time prior to 60 days after the expiration of the
applicable Tax statute of
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<PAGE>
limitations with respect to the relevant taxable period (including all periods
of extension, whether automatic or permissive).
(h) Tax Sharing Agreements. Any and all
existing Tax indemnity, sharing, or allocation agreements to which the Company
is a party shall be terminated as of the Closing Date. After the Closing Date,
the Company shall not have any further rights or liabilities thereunder. This
Agreement supersedes any previous Tax sharing agreements relating to the
Company.
8. Post-Closing Matters.
--------------------
(a) Offer of Employment. After the Closing,
Purchaser shall cause Company to continue to employ all employees, other than
those employees of the Flight Systems Division and Russel Zink, employed by the
Company immediately prior to the Closing ("Transferred Employees"); provided,
however, that except as otherwise provided in an employment agreement disclosed
to Purchaser in accordance with Section 3 hereof, the employment of all
Transferred Employees shall be at will.
(b) Compensation and Benefits. After the
Closing, Purchaser shall cause Company to initially provide Transferred
Employees compensation, benefits and severance substantially equivalent to or
greater in value in the aggregate to that which Transferred Employees had with
the Company immediately prior to the Closing; provided that such compensation,
benefits and severance may be modified to the extent permitted by applicable law
and that nothing contained herein shall be construed to require Purchaser or
Company to maintain any specific type of benefit plan.
(c) Employee Benefit Plans. Transferred
Employees and their dependents shall participate under benefit plans established
by Purchaser or Company as of
44
<PAGE>
the Closing Date (the terms of which shall, except as otherwise explicitly
provided herein, be determined by Purchaser in its sole discretion) and
participation by Transferred Employees and their dependents under the Employee
Plans shall cease on the day before the Closing Date. Purchaser shall cause any
preexisting condition restrictions or waiting periods under Company's health
plans to be waived to the extent necessary to provide immediate coverage.
Company's health plans shall apply any amounts paid under any Employee Plan
which is a health plan by a Transferred Employee or deductibles and copayments
during 1997 toward deductible and out-of-pocket limits of Company's health plans
for the 1997 plan year. Purchaser shall cause Company to grant service credit
under Company's employee benefit plans and service awards equal to the credited
service prior to the Closing credited under the Employee Plans for all
Transferred Employees. Service prior to the Closing of a Transferred Employee
which is recognized by the Employee Plans for purposes of participation, vesting
and eligibility shall be recognized by Company's employee benefit plans.
Company's health plans shall be required to provide coverage only for medical
services rendered on or after the Closing Date. In no event shall anything
contained in this Agreement be construed to require Company or Purchaser to
provide employee benefits of any kind to any former employee of the Company who
is not a Transferred Employee.
(d) Facilitation of Transition. In addition to
the specific actions outlined in this Section 8, the parties hereto will use
their Best Efforts to facilitate the transition of Company from a subsidiary of
Seller to a company operating on a stand-alone basis; provided that nothing in
this Section 8(d) shall be deemed to require any party to incur any expense on
behalf of any other party in addition to those otherwise specifically mentioned
herein or in any Transaction Document.
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<PAGE>
(e) Certain Employees of Seller. (i) Schedule
8(e) lists certain employees of Seller who currently provide final testing and
assembly of ASOS ("ASOS Assembly Services"). Seller shall make such employees,
while employees of Seller, available to Company for a period of up to 24 months
after the Closing Date in order to facilitate the transition of the operations
of the Business to a stand-alone basis. Purchaser shall have the right to hire
any of the individuals identified on Schedule 8(e) upon the termination of
Seller's provision of ASOS Assembly Services.
(ii) Seller will provide Purchaser and
Company such access to Mr. G. Russell Zink as Purchaser and Company may
reasonably request during normal business hours in a manner that does not
unreasonably interfere with Seller's business operations or with Mr. Zink's
fulfillment of his duties to Seller.
(iii) With respect to any employees of
Seller or any of its affiliates hired by Company, the parties hereto shall use
their Best Efforts to transfer the employment of each employee as promptly as
practical; provided that nothing herein shall obligate Company to offer any such
employee any particular level of compensation or other inducement to transfer
employment.
(f) Cash Processing. Company will transfer and
deliver to Seller, promptly after receipt thereof, any cash or other property
that Company receives after the Closing Date in respect of any claims,
contracts, licenses, leases, commitments, sales orders, purchase orders,
receivables of any character, or any other assets of Seller, and Seller will
transfer and deliver to Company, promptly after the receipt thereof, any cash or
other property that Seller receives after the Closing Date in respect of any
claims, contracts, licenses, leases, commitments, sales orders, purchase orders,
receivables of any character, or any other assets
46
<PAGE>
of Company. Company and Seller will provide each other with monthly summaries of
such transferred amounts in reasonable detail and in such formats as Seller and
Company, respectively, may reasonably request. Purchaser shall cause Company to
reimburse Seller for any post-closing Company related expenses that are paid by
Seller, promptly following receipt of appropriate invoices therefor.
(g) Records. For a period of six months
following the Closing Date, Seller will provide, and will cause its affiliates
to provide, Purchaser with reasonable access to all files (other than management
information systems) relating to Company and ASOS in its or its affiliate's
possession and will, at Company's reasonable request and expense, copy such
records and transfer them to such location as may be designated by Company.
9. Conditions Precedent to Purchaser's Obligation. The
----------------------------------------------
obligation of Purchaser to consummate the purchase of the Shares on the Closing
Date is, at the option of Purchaser, subject to the satisfaction of the
following conditions:
(a) Each of the representations and warranties
of Seller contained in Section 3 hereof shall be true and correct in all
material respects as of the Closing Date with the same force and effect as
though the same had been made on and as of the Closing Date, except for those
given as of a particular date, which shall be true and correct in all material
respects as of such date, and except for changes therein permitted or
contemplated hereby.
(b) Seller shall have performed and complied in
all material respects with the covenants and provisions in this Agreement
required herein to be performed or complied with by it between the date hereof
and the Closing Date.
(c) No action or proceeding shall have been
instituted against Purchaser, Seller or Company before any court or other
governmental body, or statute, rule,
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<PAGE>
regulation, injunction, order, or decree enacted, enforced, promulgated, or
issued, which would have the effect of, seeking to restrain or prohibit the
consummation of the transactions contemplated hereby or to make the consummation
of the transactions contemplated hereby illegal, which in the reasonable opinion
of Purchaser makes it inadvisable to consummate such transactions.
(d) Purchaser shall have received opinions of a
Senior Counsel of Seller and Weil, Gotshal & Manges LLP, counsel for Seller,
each dated the Closing Date and each in form and substance reasonably
satisfactory to Purchaser and its counsel, to the effect set forth in Exhibits
G-1 and G-2 hereto, respectively.
(e) Purchaser shall have received a certificate
to the effect set forth in subsections (a) and (b) above, dated the Closing
Date, signed by a duly authorized officer of Seller as to its representations,
warranties and covenants.
(f) Purchaser shall have received a certificate
of a duly authorized officer of Seller, dated the Closing Date, setting forth
resolutions of the Board of Directors of Seller authorizing the signing of this
Agreement and certifying that such resolutions were duly adopted and have not
been rescinded or amended as of the Closing Date.
(g) Reserved.
(h) Each of the Transaction Documents shall have
been executed and delivered by the parties thereto other than the Purchaser and
assuming due execution and delivery by the Purchaser, each such Transaction
Document shall be in full force and effect.
(i) All obligations of the Company to pay any
premiums or other amounts to Seller or UIC or any of their affiliates in respect
of insurance or self insurance arrangements shall have terminated.
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<PAGE>
(j) Purchaser shall have arranged for the
financing of the Purchase Price on terms satisfactory to it in its reasonable
discretion.
(k) Purchaser shall have received certification
signed by Seller to the effect that Seller is not a "foreign person" as defined
in Section 1445 of the Code.
(l) Purchaser shall have received all documents
it may reasonably request relating to the existence of Seller and the Company
and the authority of Seller and the Company for this Agreement, all in form and
substance reasonably satisfactory to Purchaser.
(m) The Company shall not have any liability
for debt for borrowed money (including, without limitation, any liability as a
guarantor of any such debt).
(n) All of the waivers, permits, consents,
approvals, and authorizations from, and registrations, filings, and notices with
or to, any Governmental Authority or other persons required in order to carry
out the sale, transfer, conveyance, and delivery to the Purchaser of the Shares
upon the terms hereof or in connection with any other transactions contemplated
by this Agreement or the Transaction Documents shall have been obtained or
effected, as the case may be, and none of such waivers, permits, consents,
approvals, authorizations, registrations, filings, or notices shall impose any
material condition or material costs which would, in the Purchaser's reasonable
judgment, be unduly burdensome to the Purchaser.
10. Conditions Precedent to Seller's Obligation. The
-------------------------------------------
obligation of Seller to consummate the sale, transfer and assignment to
Purchaser of the Shares on the Closing Date is, at the option of Seller, subject
to the satisfaction of the following conditions:
(a) Each of the representations and warranties
of Purchaser contained in Section 4 hereof shall be true and correct in all
material respects as of the
49
<PAGE>
Closing Date with the same force and effect as though the same had been made on
and as of the Closing Date.
(b) Purchaser shall have performed and complied
in all material respects with the covenants and provisions in this Agreement
required herein to be performed or complied with by Purchaser between the date
hereof and the Closing Date.
(c) No action or proceeding shall have been
instituted against Purchaser, Seller or Company before any court or other
governmental body, or statute, rule, regulation, injunction, order, or decree
enacted, enforced, promulgated, or issued, which would have the effect of,
seeking to restrain or prohibit the consummation of the transactions
contemplated hereby or to make the consummation of the transactions contemplated
hereby illegal, which in the reasonable opinion of Seller makes it inadvisable
to consummate such transactions.
(d) Seller shall have received an opinion of
Bell, Boyd & Lloyd, counsel for Purchaser, dated the Closing Date, in form and
substance reasonably satisfactory to Seller and its counsel, to the effect set
forth in Exhibit H hereto.
(e) Seller shall have received a certificate to
the effect set forth in subsections (a) and (b) above, dated the Closing Date,
signed by a duly authorized officer of Purchaser.
(f) Seller shall have received a certificate of
a duly authorized officer of Purchaser, dated the Closing Date, setting forth
the resolutions of the Board of Directors of Purchaser authorizing the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby, and certifying that such resolutions were duly adopted and
have not been rescinded or amended as of the Closing Date.
50
<PAGE>
11. Closing Date; Closing.
---------------------
(a) Except as hereinafter provided, the closing
hereunder (herein called the "Closing") shall take place at the offices of Bell,
Boyd & Lloyd, 70 West Madison Street, Chicago, IL at 10:00 A.M. on September 30,
1997 or, if later, the date that is five (5) Business Days after each of the
conditions precedent to the Closing shall have been satisfied or waived, but not
later than October 1, 1997, unless otherwise mutually agreed to in writing by
Purchaser and Seller. The date of the Closing is referred to in this Agreement
as the "Closing Date."
(b) All proceedings to be taken and all
documents to be executed and delivered by Seller or UIC in connection with the
consummation of the transactions contemplated hereby shall be reasonably
satisfactory in form and substance to Purchaser and its counsel. All proceedings
to be taken and all documents to be executed and delivered by Purchaser in
connection with the consummation of the transactions contemplated hereby shall
be reasonably satisfactory in form and substance to Seller and its counsel. All
proceedings to be taken and all documents to be executed and delivered by all
parties at the Closing shall be deemed to have been taken and executed
simultaneously, and no proceedings shall be deemed taken nor any documents
executed or delivered until all have been taken, executed and delivered.
(c) On the Closing Date, Seller shall deliver,
or shall cause to be delivered, to Purchaser the following:
(i) Certificates representing the
Shares, which certificates shall be duly endorsed in blank or, in lieu thereof,
shall have affixed thereto stock powers executed in blank, and in proper form
for transfer.
51
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(ii) Each of the Transaction Documents duly
executed by UIC, Seller, and Company, to the extent parties thereto.
(iii) Opinions of counsel for Seller, dated
the Closing Date, setting forth the matters required pursuant to Section 9(d)
hereof.
(iv) The certificates signed by Seller as
referred to in Sections 9(e) and 9(k) hereof.
(v) The certified resolutions of the Board
of Directors of Seller referred to in Section 9(f) hereof.
(vi) An incumbency certificate setting forth
the names of officers of Seller who are authorized to execute this Agreement and
all documents executed by Seller pursuant hereto, together with their respective
signatures, signed by a duly authorized officer of Seller.
(d) On the Closing Date, Purchaser shall deliver
to Seller the following:
(i) A wire transfer of funds, in the
aggregate amount of the Cash Purchase Price, as provided in Section 2 hereof.
(ii) The Seller Note in an aggregate
principal amount of $2,375,000, signed by a duly authorized officer of each of
Purchaser and Company, and the other Transaction Documents to which Purchaser or
Company is a party, duly executed by Purchaser or Company, respectively.
(iii) An opinion of counsel for Purchaser,
dated the Closing Date, setting forth the matters required pursuant to Section
l0(d) hereof.
(iv) The certificate signed by a duly
authorized officer of
52
<PAGE>
Purchaser referred to in Section l0(e) hereof.
(v) The certified resolutions of the
Board of Directors of Purchaser referred to in Section l0(f) hereof.
(vi) An incumbency certificate setting
forth the names of officers of Purchaser who are authorized to execute this
Agreement and all documents executed by Purchaser pursuant hereto, together with
their respective signatures, signed by a duly authorized officer of Purchaser.
12. No Brokers. Neither Seller nor Company, on the one hand,
----------
and Purchaser, on the other hand, represent to each other that they respectively
have had no dealings with any broker or finder in connection with the
transactions contemplated by this Agreement, other than, in the case of Seller,
Schroder Wertheim & Co. Incorporated. Seller agrees to indemnify and hold
Purchaser harmless from and against any and all liability to which Purchaser may
be subjected by reason of any broker's, finder's or similar fee with respect to
the transactions contemplated by this Agreement to the extent such fee is
attributable to any action undertaken by or on behalf of Seller or UIC, which
shall be deemed to include any such fees of Schroder Wertheim & Co.
Incorporated. Purchaser agrees to indemnify and hold Seller harmless from and
against any and all liability to which Seller may be subjected by reason of any
broker's, finder's or similar fee with respect to the transactions contemplated
by this Agreement to the extent such fee is attributable to any action
undertaken by or on behalf of Purchaser.
13. Survival of Representations and Warranties. The parties
------------------------------------------
hereto agree that the representations and warranties contained in this Agreement
or in any certificate, document or instrument delivered in connection herewith,
shall survive the execution and
53
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delivery of this Agreement, and the Closing hereunder, regardless of any
investigation made by the parties hereto; provided, however, that any claims or
actions with respect thereto shall terminate unless, within two (2) years after
the Closing Date (except in the case of the representations made pursuant to
Section 3(p) which shall survive for a period of five (5) years after the
Closing Date, and in the case of representations made pursuant to Sections 3(g)
and 3(r) which shall survive for the applicable statute of limitations), written
notice of such claims is given to Seller or such actions are commenced.
14. Indemnification of and by Purchaser and Limitation of
-----------------------------------------------------
Liability.
- ---------
(a) Subject to the survival provisions set forth in
Section 13 above and the limitations and requirements hereinafter contained in
this Section 14, Seller hereby agrees to indemnify and hold Purchaser and
Company harmless from and against:
(i) Any and all liabilities, obligations,
damages, deficiencies and expenses resulting from any misrepresentation or
breach of warranty by Seller contained in this Agreement or any certificate
delivered by Seller pursuant hereto;
(ii) Any and all liabilities, obligations,
damages, deficiencies and expenses resulting from the non-fulfillment of any
covenant, obligation, or agreement on Seller's or its affiliates' part under the
terms of this Agreement;
(iii)One-half of any and all liabilities,
obligations, damages, deficiencies and expenses relating to the replacement,
modification, or correction of, or refund or reimbursement for, rain bucket
tipping gauges on ASOS provided to the Federal Aviation Administration through
the Department of Commerce, up to a maximum payment by Seller pursuant to this
Section 14(a)(iii) of $125,000;
(iv) Any and all liabilities, obligations,
taxes, penalties,
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additions to tax, damages, actions, demands, costs and expenses (including
reasonable attorneys' fees, expenses of investigation, and fees and
disbursements of counsel and other professionals) arising from any Employee
Plan, Multiemployer Plan, International Plan, or Benefit Arrangement or any
other "employee benefit plan," as defined in Section 3(3) of ERISA, which is
maintained, sponsored, or contributed to by UIC, Seller, or any of their ERISA
Affiliates, in each case regardless of whether Purchaser or Company would also
be entitled to indemnification under subsection (a)(i) above;
(v) Any and all liabilities, obligations,
damages, deficiencies, and expenses resulting from or relating to the Flight
Systems Division; and
(vi) All actions, suits, proceedings,
demands, assessments, judgments, costs and expenses, including reasonable
attorneys' fees, incident to the foregoing.
(b) From and after the Closing Date, Purchaser
agrees to, and agrees to cause Company to, indemnify and hold Seller harmless
from and against any and all liabilities, obligations, damages, deficiencies and
expenses arising out of the severance of any employee of Company on or after the
Closing Date (including without any limitation any liabilities under or with
respect to WARN).
(c) Anything to the contrary herein
notwithstanding, the indemnifications by Seller contained in Section 12 hereof
and subsections (a)(i), (a)(ii), and (a)(vi) (to the extent they relate to
indemnifications claimed under subsections (a)(i) or (a)(ii)) above of this
Section 14 and any and all liabilities and obligations of and causes of action
against Seller, and any recovery in respect thereof, arising out of or relating
to this Agreement and the transactions contemplated hereby shall be effective
only if the aggregate of such losses, liabilities, damages, deficiencies or
expenses (including reasonable attorneys' fees)
55
<PAGE>
indemnified against shall exceed $250,000, in which event such indemnification
shall be effective with respect to all such losses, liabilities or damages, and
shall be limited to an aggregate payment of no more than $10,000,000 (except for
indemnifiable damages arising from a breach of the representations and
warranties contained in Section 3(p) hereof, as to which such limit shall be
$15,000,000 less any other indemnification payments hereunder that are subject
to the $10,000,000 limitation). In addition, Seller may satisfy up to 50% of its
indemnification obligations under Section 12 and this Section 14 by electing to
reduce and offset the payments to be made by Purchaser pursuant to the Seller
Note in the order in which such payments are to be made. Seller shall notify
Purchaser in writing of the amounts, if any, that it has elected to offset
pursuant to the preceding sentence at or prior to the time such payments by
Seller would otherwise by required to be made.
(d) Anything to the contrary herein
notwithstanding, Purchaser's recovery from Seller under the indemnification
provisions of this Agreement shall in no event include any special, indirect,
incidental or consequential damages.
(e) In the event that any legal proceedings
shall be instituted or that any claim or demand shall be asserted by any person
in respect of which payment may be sought by an indemnified party from an
indemnifying party under the provisions of this Section 14, regardless of the
$250,000 minimum referred to in subsection (c) above, the indemnified party
shall promptly cause written notice of the assertion of any claim of which it
has knowledge which is covered by this indemnity to be forwarded to the
indemnifying party, and the indemnifying party shall have the right, at its
option and at its own expense, to be represented by counsel of its choice and to
defend against, negotiate, settle or otherwise deal with any proceeding, claim
or demand which relates to any loss, liability, damage or
56
<PAGE>
deficiency indemnified against hereunder; provided, however, that no settlement
shall be made without the prior written consent of the indemnified party, which
consent shall not be unreasonably withheld or delayed; and provided further,
that the indemnified party may participate in any such proceeding with counsel
of its choice and at its expense. The parties hereto agree to cooperate fully
with each other in connection with the defense, negotiation or settlement of any
such legal proceeding, claim or demand.
After any final judgment or award shall have been rendered by
a court, arbitration board or administrative agency of competent jurisdiction
and the expiration of the time in which to appeal therefrom, or a settlement
shall have been consummated, or Purchaser and Seller shall have arrived at a
mutually binding agreement with respect to each separate matter indemnified by
Purchaser or Seller, hereunder, as the case may be, the indemnified party shall
forward to the indemnifying party notice of any sums due and owing by it
pursuant to this Agreement with respect to such matter, and the indemnifying
party shall be required to pay all of the sums so owing to the indemnified party
within ten (10) days after the date of such notice.
(f) Notwithstanding anything contained herein to
the contrary, the indemnities provided for in Section 14(a) hereof shall exist
with respect to any loss, liability, damage or deficiency whether or not the
actual amount of which shall have been ascertained prior to the conclusion of
the applicable period following the Closing Date set forth in Section 13 hereof,
so long as written notice shall have been given to Seller by Purchaser prior to
the conclusion of said applicable period of the matter as to which
indemnification has been asserted.
(g) Any indemnity payments otherwise due and
payable under
57
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Sections 12 and 14 hereof shall be decreased to the extent of any reduction of
Tax liability that is realizable by the indemnified party upon payment of an
indemnifiable loss, including any decrease thereof pursuant to payments under
this Section 14.
(h) Any payments under Sections 12 and 14 hereof
shall be treated by the parties hereto for federal, state, local and foreign
income Tax purposes either as a non-taxable reimbursement or capital
contribution or as a purchase price adjustment, as the case maybe, except to the
extent that another treatment is required by law.
15. Termination. Anything contained in this Agreement to the
-----------
contrary notwithstanding, this Agreement may be terminated:
(a) At any time on or prior to the Closing Date,
by the mutual consent in writing of Purchaser and Seller; or
(b) By either Purchaser or Seller if the Closing
shall not have occurred on or before October 1, 1997 (or such later date as may
be agreed upon in writing by the parties hereto).
In the event that this Agreement shall be terminated pursuant
to this Section 15, all further obligations of the parties under this Agreement
(other than Sections 12, 17 and 24) shall terminate without further liability of
either party to the other, provided that nothing herein shall relieve any party
from liability for its breach of this Agreement.
16. Further Assurances. The parties hereto each agree to
------------------
execute such other documents or agreements as may be necessary or desirable for
the implementation of this Agreement and the consummation of the transactions
contemplated hereby.
17. Confidentiality; Press Releases. (a) As more specifically
-------------------------------
set forth in the Confidentiality Agreement, Purchaser agrees to keep proprietary
information regarding Seller
58
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and, prior to the Closing, Company confidential and agrees that it will only use
such information in connection with the transactions contemplated by this
Agreement and not disclose any of such information other than (i) to Purchaser's
directors, officers, employees, representatives, agents, and financing sources
(including their agents and representatives) who are or may be involved with the
transactions contemplated by this Agreement, (ii) to the extent such information
presently is or hereafter becomes available, on a non-confidential basis, from a
source other than Seller or Company, (iii) to the extent disclosure is required
by law, regulation or judicial order by any Governmental Authority, and (iv) to
the extent disclosure is reasonably necessary to assist Purchaser in obtaining
the financing of the Purchase Price.
(b) Prior to any disclosure required by law,
regulation or judicial order, Purchaser shall advise Seller of such requirement
so that it may seek a protective order.
(c) Prior to Closing or thereafter, Purchaser
shall not make any press release or public announcement in connection with the
transactions contemplated hereby without the prior written consent of Seller or,
if required by law, without prior consultation with Seller.
18. Notices. Any notices or other communications required or
-------
permitted hereunder, shall be sufficiently given if in writing and personally
delivered or sent by registered or certified mail, postage prepaid, return
receipt requested, or sent by facsimile, addressed as follows or to such other
address as the parties shall have given notice of pursuant hereto:
In the case of Purchaser:
Ridge Capital Corporation
257 East Main Street, Suite 302
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<PAGE>
Barrington, Illinois 60010
Attention: J. Bradley Davis
Telecopy: (847) 381-2599
With a copy to:
Bell, Boyd & Lloyd
70 West Madison Street
Chicago, Illinois 60602
Attention: D. Mark McMillan, Esq.
Telecopy: (312) 372-2098
In the case of Seller:
AAI Corporation
P.O. Box 126 (York Road and Industry Lane)
Hunt Valley, Maryland 21030
Attention: Robert W. Worthing, Esq.
Telecopy: (410) 683-6498
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With a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Ted S. Waksman, Esq.
Telecopy: (212) 310-8007
19. Entire Agreement. This Agreement, including the Exhibits
----------------
hereto, and the Confidentiality Agreement represent the entire understanding and
agreement between the parties hereto with respect to the subject matter hereof
and can be amended, supplemented or changed, and any provision hereof can be
waived, only by written instrument making specific reference to this Agreement
signed by the party against whom enforcement of any such amendment, supplement,
modification or waiver is sought.
20. Successors. This Agreement shall be binding upon and shall
----------
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that this Agreement and all rights and obligations
hereunder may not be assigned or transferred without the prior written consent
of the other party hereto. There are no third party beneficiaries of this
Agreement.
21. Section Headings. The section headings contained in this
----------------
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
22. Applicable Law. This Agreement shall be governed by,
--------------
construed and enforced in accordance with the laws of the State of New York,
without regard to the principles thereof relating to conflict of laws.
23. Transfer Taxes. Each of Seller and Purchaser shall be
--------------
liable for and shall pay one-half of all excise, sales, use, transfer (including
real property transfer or gains),
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stamp, documentary, filing, recordation and other similar taxes which may be
imposed in connection with the transactions contemplated by this Agreement,
together with any interest, additions or penalties with respect thereto. Each
party hereto hereby agrees to file all necessary documentation (including, but
not limited to, all Tax Returns) with respect to all such amounts in a timely
manner.
24. Expenses. Whether or not the transactions contemplated
--------
hereby are consummated, the parties hereto shall pay their own respective
expenses, except that Purchaser shall pay the applicable filing fees in
connection with the filings referred to in Sections 5(f) and 6(c) hereof.
25. Waiver of Jury Trial. The parties hereto waive all right
--------------------
to trial by jury in any action or proceeding to enforce or defend any rights
under this Agreement.
26. Severability. If at any time subsequent to the date
------------
hereof, any provision of this Agreement shall be held by any court of competent
jurisdiction to be illegal, void or unenforceable, such provision shall be of no
force and effect, but the illegality or unenforceability of such provision shall
have no effect upon and shall not impair the enforceability of any other
provision of this Agreement.
27. Counterparts. This Agreement may be executed in one or
------------
more counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same instrument.
62
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
ALL WEATHER, INC.
By /s/ Clark F. Davis
-------------------------
Name: Clark F. Davis
Title: Vice President
AAI CORPORATION
By /s/ James Perry
-------------------------
Name: James Perry
Title: Vice President
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EXHIBIT D
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, OR
TRANSFERRED EXCEPT IN COMPLIANCE THEREWITH.
THIS NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY ARE
SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THAT CERTAIN
SUBORDINATION AGREEMENT (THE "SUBORDINATION AGREEMENT") DATED THE DATE OF THIS
NOTE AMONG ALL WEATHER, INC. ("AWI"), AAI SYSTEMS MANAGEMENT, INC., A MARYLAND
CORPORATION TO BE KNOWN AS SYSTEMS MANAGEMENT, INC. ("SMI"), SEIDLER CAPITAL
PARTNERS L.P. ("SENIOR SUBORDINATED LENDER"), LASALLE NATIONAL BANK ("SENIOR
LENDER") AND AAI CORPORATION TO THE INDEBTEDNESS (INCLUDING INTEREST) FROM TIME
TO TIME OWED BY SMI AND AWI TO SENIOR LENDER AND SENIOR SUBORDINATED LENDER, AND
THEIR RESPECTIVE SUCCESSORS AND ASSIGNS AND EACH HOLDER OF THIS NOTE, BY
ACCEPTANCE HEREOF, SHALL BE BOUND BY THE PROVISIONS OF THE SUBORDINATION
AGREEMENT.
No. 1 $2,375,000
AAI SYSTEMS MANAGEMENT, INC.
and
ALL WEATHER, INC.
9.0% Junior Subordinated Note Due 2002
AAI Systems Management, Inc., a Maryland corporation, to be
known as Systems Management, Inc. ("SMI"), and All Weather, Inc., a Delaware
corporation ("AWI," and collectively and together with SMI and their respective
successors, transferees and assigns, the "ISSUERS"), for value received, hereby
jointly and severally promise to pay, subject to Section 5 below, to the order
of AAI Corporation, a Maryland corporation (the "HOLDER"), the principal sum of
Two Million Three Hundred Seventy Five Thousand Dollars ($2,375,000) by wire
transfer of immediately available funds to the Holder's account (the "BANK
ACCOUNT") at a bank in the United States specified by the Holder from time to
time, in three annual installments, the first annual installment shall be in the
amount of Seven Hundred Ninety One Thousand Six Hundred Sixty Six Dollars
($791,666) due and payable on September 30, 2000, and the last two annual
installments shall each be in the amount of Seven Hundred Ninety One Thousand
Six Hundred Sixty Seven Dollars ($791,667) due and payable on September 30 in
the years 2001 and 2002, in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts, and to pay, subject to Section 5 below, interest,
annually in arrears, on September 30 (unless such day is not a Business Day, in
which event on the next succeeding Business Day) (each an "INTEREST PAYMENT
DATE") of each year in which this Note remains outstanding, commencing with
September 30, 1998, on the unpaid principal sum hereof outstanding in like coin
or currency, at the rates per annum set forth below, by wire transfer of
immediately available funds to the
<PAGE>
Bank Account, from the most recent Interest Payment Date to which interest has
been paid in full on this Note, or if no interest has been paid on this Note,
from September 30, 1997, until payment in full of the principal sum hereof has
been made.
This Note shall bear interest, commencing September 30, 1997,
at a rate per annum (the "INTEREST RATE") equal to 9.0%. Interest on this Note
will be calculated on the basis of a 365 day year; provided that the Issuers
shall pay interest on overdue principal at a rate per annum equal to 11.5% (the
"OVERDUE RATE"), and interest on overdue installments of interest, to the extent
lawful, at the Overdue Rate.
Upon the occurrence and continuation of a Payment Default (as
defined below) with respect to this Note, at the option and upon demand of the
Holder of this Note, the Issuers shall pay any overdue interest on this Note
through the issuance of additional Notes ("ADDITIONAL SECURITIES"). Such
Additional Securities shall be issued in an aggregate principal amount equal to
the amount of overdue interest payable with respect to this Note and such
Additional Securities shall be identical to this Note except that such
Additional Notes shall bear interest at the Overdue Rate and shall be payable on
demand and shall contain such other terms and conditions reasonably satisfactory
to the Holder.
This Note is the duly authorized note of the Issuers (the
"NOTE") referred to in the Stock Purchase Agreement (the "STOCK PURCHASE
AGREEMENT") dated as of September 30, 1997, between AWI and the Holder.
Section 1. Certain Terms Defined.
---------------------
(a) The following terms for all purposes of this Note shall have the
respective meanings specified below.
"AFFILIATE" of any Person means any other Person directly or
indirectly controlling, controlled by, under direct or indirect common control
with such Person. For the purposes of this definition, "control" when used with
respect to any Person means the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"BUSINESS DAY" means any day except a Saturday, Sunday or
other day on which commercial banks in the City of Chicago or The City of New
York are authorized by law to close.
"CAPITALIZED LEASE OBLIGATIONS" means, without duplication,
all monetary obligations of the Issuers under any lease, sale-lease back
transaction or other similar arrangement which, in accordance with GAAP, would
be classified as capitalized leases, and, for purposes of this Note the amount
of such obligations shall be the capitalized amount thereof, determined in
accordance with GAAP, and the stated maturity thereof shall be the date of the
2
<PAGE>
last scheduled payment of rent or any other amount due under such lease prior to
the first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"CAPITAL STOCK" means, with respect to either Issuer, any and
all shares, interests, participations or other equivalents of or interests in
(however designated) corporate stock, including without limitation, shares of
preferred or preference stock of such Issuer.
"DEFAULT" means any condition or event which constitutes an
Event of Default or which with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"INDEBTEDNESS" means for any Person without duplication: (a)
all indebtedness, whether or not represented by bonds, debentures, notes,
securities, or other evidences of indebtedness, for the repayment of money
borrowed by such Person, (b) all indebtedness representing deferred payment of
the purchase price of property or assets, except account payables or other
obligations to trade creditors which have been incurred in the ordinary course
of business, (c) all Capital Lease Obligations of such Person, (d) all
indebtedness under guaranties, endorsements, assumptions, or other contractual
obligations of such Person, including any letters of credit of such Person, or
the obligations of such Person in respect of, or to purchase or otherwise
acquire, indebtedness of others, (e) all indebtedness secured by a Lien existing
on property owned by such Person, whether or not the indebtedness secured
thereby shall have been assumed by such Person, (f) trade accounts payable more
than one hundred twenty (120) days past due, (g) all amendments, renewals,
extensions, modifications and refundings of any indebtedness or obligations
referred to in clauses (a), (b), (c), (d), (e) or (f).
"INDEMNIFICATION OBLIGATIONS" means any and all liabilities
and obligations of the Holder to AWI pursuant to Sections 12 and 14 of the Stock
Purchase Agreement which relate to the obligation of the Holder to indemnify
AWI.
"INITIAL INVESTORS" means the parties to a Shareholders
Agreement, other than AWI, dated of even date herewith, and shall include,
without limitation, Seidler Capital Partners L.P., Ridge Advisors, Inc. and
certain members of the management of SMI or any of their Affiliates.
"LIEN" means any lien, mortgage, security interest, tax lien,
pledge, encumbrance, financing statement, or conditional sale or title retention
agreement, or any other interest in property designed to secure the repayment of
Indebtedness or any other obligation, whether arising by agreement, operation of
law, or otherwise.
"NOTE PURCHASE AGREEMENT" means the Note Purchase Agreement
dated as of September 30, 1997 by and between SMI and the Senior Subordinated
Lender and all documents and instruments delivered in connection with the loans
and advances made
3
<PAGE>
thereunder, as such note purchase agreement may be amended, amended and
restated, supplemented, consolidated or otherwise modified from time to time.
"OTHER ACCELERATION EVENT" means the acceleration of the
principal amount of Indebtedness of either Issuer (other than such Indebtedness
in an aggregate principal amount not in excess of $1,000,000) in advance of the
stated maturity therefor, whether such acceleration is voluntary, involuntary,
by declaration or otherwise or the failure to pay such Indebtedness upon the
stated maturity therefor.
"PAYMENT DEFAULT" means the failure to pay, when due (whether
upon maturity, acceleration, redemption or otherwise), any principal of or
interest on this Note and, other than with respect to the payment of principal,
such failure shall continue for more than five days.
"PERSON" means any individual, sole proprietorship,
corporation, business trust, unincorporated organization, association, company,
partnership, limited liability company, joint venture, governmental authority
(whether a national, federal, state, county, municipality or otherwise, and
shall include without limitation any instrumentality, division, agency, body or
department thereof), or other entity.
"SENIOR ACCELERATION EVENT" means the acceleration of at least
$1,000,000 of principal amount of Senior Indebtedness in advance of the stated
maturity therefor, whether such acceleration is voluntary, involuntary, by
declaration or otherwise or the failure to pay such Indebtedness upon the stated
maturity therefor.
"SENIOR INDEBTEDNESS" means (i) all Indebtedness (whether now
outstanding or hereafter incurred) of the Issuers in respect of the Senior Loan
Agreement, including, without limitation, all principal, interest, fees,
expenses, indemnities and all other amounts payable under the Senior Loan
Agreement and any notes, security documents, guarantees or other loan documents
referred to therein or pursuant thereto secured by all assets of SMI and certain
assets of AWI and (ii) all Indebtedness (whether now outstanding or hereafter
incurred) of the Issuer in respect of the Note Purchase Agreement, including,
without limitation, all principal, interest, fees, expenses, indemnities and all
other amounts payable under the Note Purchase Agreement and any notes or other
loan documents referred to therein and any amendments, modifications or
supplements to, or any renewals, extensions, deferrals, refinancings and
refundings of, any of the foregoing.
"SENIOR LOAN AGREEMENT" means the Secured Credit Agreement
dated as of September 30, 1997 by and between SMI and the Senior Secured Lender
and all agreements, documents and instruments delivered pursuant thereto in
connection with the loans and advances made thereunder (including, without
limitation, the Pledge Agreement dated as of September 30, 1997 by and between
AWI and the Senior Secured Lender), as such agreements and documents may be
amended, amended and restated, supplemented, consolidated or otherwise modified
from time to time.
4
<PAGE>
"SENIOR SECURED LENDER" means LaSalle National Bank, its
respective successors and assigns, and any Person who replaces or refinances the
Indebtedness of the Issuers incurred under the Senior Loan Agreement.
"SENIOR SUBORDINATED LENDER" means Seidler Capital Partners
L.P., a Delaware limited partnership, its respective successors and assigns, and
any Person who replaces or refinances the Indebtedness of the Issuers incurred
under the Note Purchase Agreement.
"SUBORDINATION AGREEMENT" means the Subordination Agreement
dated as of September 30, 1997 among the Issuers, the Holder, the Senior Secured
Lender and the Senior Subordinated Lender, as such subordination agreement may
be amended, amended and restated, supplemented, consolidated or otherwise
modified from time to time.
"SUBSIDIARY" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are at the time
directly or indirectly owned by either Issuer.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
TERM SECTION
Change of Control 4.2
Event of Default 2.1
Redemption Event 4.2
Section 2. Events of Default and Remedies.
------------------------------
Section 2.1. Event of Default Defined: Acceleration of Maturity: Waiver
of Default.
------------------------------------------------------------
In case one or more of the following events ("EVENTS OF DEFAULT") (whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body) shall have occurred and be
continuing:
(a) a Payment Default shall have occurred and be continuing;
(b) a breach by either Issuer of any covenant contained in Section 3
hereof which remains uncured for five (5) days after receipt of written notice
thereof by the Issuers from the Holder;
(c) a Senior Acceleration Event shall have occurred and be continuing
and such event shall remain in effect for at least five days or an Other
Acceleration Event shall have occurred and be continuing and such event shall
remain in effect for at least five days;
5
<PAGE>
(d) either Issuer shall permit or suffer to exist the entry of a decree
or order for relief, entered by a court of competent jurisdiction, in respect of
such Issuer in an involuntary case under any applicable bankruptcy, insolvency
or other similar law relating to or affecting creditors' rights generally now or
hereafter in effect, or appointing a receiver, liquidator, custodian, trustee,
sequestrator (or similar official) of such Issuer or for any substantial part of
the property of such Issuer or ordering the winding up or liquidation of the
affairs of such Issuer or any such case or proceeding shall have been commenced
against such Issuer seeking such a decree or order which remains unstayed and in
effect or has not been dismissed for a period of 90 days; or
(e) either Issuer shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law relating to or affecting creditors
rights generally now or hereafter in effect, or consent to the entry of an order
for relief in an involuntary case under any such law, or consent to the
appointment or taking possession by a receiver, liquidator, custodian, trustee,
sequestrator (or similar official) of such Issuer or for any substantial part of
the property of such Issuer or such Issuer shall make any general assignment for
the benefit of creditors;
then, and in each and every such case, other than an Event of Default described
in clauses (a) and (b) above, the aggregate principal amount of this Note shall
become and be immediately due and payable without any declaration, presentment,
demand, protest, notice of default, notice of acceleration or other act on the
part of the Holder, all of which are hereby expressly waived. Subject to Section
5 hereof, upon the occurrence of an Event of Default described in clauses (a) or
(b), the Holder of this Note may (in addition to any other right, power or
remedy permitted to the Holder by law) declare the entire aggregate principal
amount of this Note due and payable and the same, together with any accrued and
unpaid interest thereon, shall thereupon become forthwith due and payable,
without any presentment, demand, protest, notice of default, notice of
acceleration or other notices of any kind, all of which are hereby expressly
waived.
Section 2.2. Powers and Remedies Cumulative: Delay or Omission Not
-----------------------------------------------------
Waiver of Default. No right or remedy herein conferred upon or reserved to the
- -----------------
Holder is intended to be exclusive of any other right or remedy, and every right
and remedy shall, to the extent permitted by law, be cumulative and in addition
to every other right and remedy given hereunder or now or hereafter existing at
law or in equity or otherwise. The assertion or employment of any right or
remedy hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
No delay or omission of the Holder to exercise any right or
power accruing upon any Default or Event of Default occurring and continuing as
aforesaid shall impair any such right or power or shall be construed to be a
waiver of any such Default or Event of Default or an acquiescence therein; and
every power and remedy given by this Note or by law may be exercised from time
to time, and as often as shall be deemed expedient, by the Holder.
Any term or provision of this Note (including this Section
2.2) to the contrary notwithstanding, the Holder shall have no right (directly
or indirectly) to exercise, nor shall any
6
<PAGE>
Holder in fact exercise (directly or indirectly), any rights or remedies against
the Issuers, any of their respective Subsidiaries or any of their respective
assets in respect of any breach hereunder or otherwise, nor shall the Holder
commence (directly or indirectly) any litigation, action or other proceeding
against any of the foregoing in respect of any breach hereunder or otherwise,
unless (but only unless) an Event of Default has occurred and is continuing,
and, in such event, the exercise of any such right or remedy shall be subject to
Section 5 hereof.
Section 2.3. Waiver of Past Defaults. The Holder may waive any past
-----------------------
Default or Event of Default hereunder and its consequences. In the case of any
such waiver, the Issuers and the Holder shall be restored to their former
positions and rights hereunder, respectively; but no such waiver shall extend to
any subsequent or other Default or Event of Default or impair any right
consequent thereon.
Upon any such waiver, such Default or Event of Default shall
cease to exist and be deemed to have been cured and not to have occurred, and
any Default or Event of Default arising therefrom shall be deemed to have been
cured, and not to have occurred for every purpose of this Note; but no such
waiver shall extend to any subsequent or other Default or Event of Default or
impair any right consequent thereon.
Section 3. Covenants. Each Issuer agrees that, so long as any amount
---------
payable under this Note remains unpaid:
Section 3.1. Information. Such Issuer shall deliver, or cause to be
-----------
delivered, to the Holder:
(a) within five days after any officer of such Issuer obtains actual
knowledge of any Default or Event of Default, a certificate of the chief
financial officer or the chief accounting officer of such Issuer setting forth
the details thereof and the action which such Issuer is taking or proposes to
take with respect thereto;
(b) as soon as available and in any event within 60 days after the end
of each of the first three fiscal quarters of each fiscal year of AWI (or, if
AWI or any of its Subsidiaries is required to file such information on a Form
10-Q with the Securities and Exchange Commission, promptly following such
filing), a consolidated balance sheet of AWI and its Subsidiaries (including
SMI) as of the end of such fiscal quarter, together with the related
consolidated statement of profit and loss and cash flow for such fiscal quarter
and for the period commencing at the end of the previous fiscal year and ending
with the end of the fiscal quarter (it being understood that the foregoing
requirement may be satisfied by delivery of AWI's report to the Securities and
Exchange Commission on Form 10-Q, if any), certified by the chief financial
officer of Awl, and a copy of a Form 10-Q, if any, for such period that is filed
with the Securities and Exchange Commission by any of AWI's Subsidiaries; and
(c) as soon as available and in any event within 120 days after the end
of each fiscal year of AWI (or, if AWI or any of its Subsidiaries is required to
file such information on Form
7
<PAGE>
10-K with the Securities and Exchange Commission, promptly following such
filing), a copy of the annual audit report for such fiscal year for AWI and its
Subsidiaries (including SMI) including therein a consolidated balance sheet for
AWI and its Subsidiaries as of the end of such fiscal year, together with the
related consolidated statement of profit and loss and cash flow of AWI and its
Subsidiaries for such fiscal year (it being understood that the foregoing
requirement may be satisfied by delivery of AWI's report to the Securities and
Exchange Commission on Form 10-K, if any), in each case certified (without
qualification) by AWI's independent public accountants, and a copy of a Form
10-K, if any, for such period that is filed with the Securities and Exchange
Commission by any of AWI's Subsidiaries.
Section 3.2. Maintenance of Existence. Each Issuer will preserve, renew
------------------------
and keep in full force and effect, its corporate existence and its respective
rights, privileges and franchises necessary or desirable in the normal conduct
of business.
Section 3.3. Compliance with Laws. Each Issuer will comply, and will
--------------------
cause each of its respective Subsidiaries to comply with all applicable laws,
ordinances, rules, regulations, and requirements of governmental authorities
except where the necessity of compliance therewith is contested in good faith by
appropriate proceedings or where such noncompliance would not, individually or
in the aggregate, have a material adverse effect on the business, operations or
financial condition of such Issuer.
Section 3.4. Indebtedness. SMI shall not incur or permit to exist any
------------
Indebtedness other than (i) Indebtedness evidenced by this Note, (ii) Senior
Indebtedness incurred pursuant to the terms and conditions of the Senior Loan
Agreement and the Note Purchase Agreement in effect on the date hereof in a
principal amount not to exceed the amounts originally outstanding thereunder
plus amounts constituting deferred interest added to principal pursuant to the
terms of the Note Purchase Agreement, (iii) Capitalized Lease Obligations and
other Indebtedness secured by liens upon property granted in connection with the
acquisition of property not to exceed $750,000 in the aggregate in any fiscal
year of SMI provided that (A) such liens attach only to the property acquired
with the Indebtedness secured thereby and (B) the principal amount of the
Indebtedness secured by any such lien shall not exceed the cost of the property
so acquired, (iv) additional Indebtedness incurred for working capital purposes
and up to $1,500,000 for any purpose, (v) Indebtedness of SMI outstanding on the
date hereof; and (vi) any extension, renewal or refinancing of any Indebtedness
described in clauses (i), (ii), (iii), (iv) and (v) on such terms and conditions
as are, on the whole, no more onerous to SMI than the terms and conditions of
such Indebtedness being extended, renewed or refinanced on the date of such
extension, renewal or refinancing.
Section 3.5. Senior Indebtedness. The Issuers agree that they shall not
-------------------
consent to or agree to advance the scheduled principal payment dates of the
Senior Indebtedness.
Section 4.1. Redemption and Repurchase.
-------------------------
(a) So long as no default exists or would occur under or in respect of
any Senior Indebtedness, the Issuers at their option may, upon thirty days'
written notice to the Holder of
8
<PAGE>
this Note, at any time redeem all, or from time to time any part of, the
principal amount of this Note at a price equal to 100% of the principal amount
of this Note so redeemed, together with accrued and unpaid interest through the
date of redemption.
(b) In the event the Issuers shall redeem this Note or any portion
hereof, notice of such redemption shall be given by first class mail, postage
prepaid, mailed, in the case of a redemption pursuant to Section 4.1, not less
than 30 days nor more than 60 days prior to the redemption date to the Holder at
the Holder's address as the same appears on the Issuers' books and records. Each
such notice shall state: (i) the redemption date; (ii) the aggregate principal
amount of this Note to be redeemed and, if less than all of the principal amount
of this Note is to be redeemed, the aggregate principal amount of this Note to
be redeemed; (iii) the redemption price; (iv) the place or places where this
Note is to be surrendered for payment of the redemption price; (v) that interest
on the principal of this Note to be redeemed will cease to accrue on such
redemption date; and (vi) that, after giving effect to such redemption, no
default exists or would occur under or in respect of any Senior Indebtedness.
(c) Notice having been mailed as aforesaid, from and after the
redemption date (unless default shall be made by either Issuer or any of their
respective Subsidiaries under or in respect of any Senior Indebtedness or
otherwise in providing money for the payment of the redemption price of the
portion of this Note called for redemption), interest on the principal amount of
this Note so called for redemption shall cease to accrue, and all rights of the
Holder thereof (except the right to receive from the Issuers the redemption
price) shall cease. Upon surrender in accordance with said notice of this Note
(properly endorsed or assigned for transfer, if the Board of Directors of either
Issuer shall so require and the notice shall so state), this Note (or portion
hereof) shall be redeemed by the Issuers at the aforesaid redemption price. In
case this Note is redeemed in part, a new Note shall be issued representing the
unredeemed portion of this Note without cost to the Holder hereof.
Section 4.2. Redemption upon Change of Control.
---------------------------------
(a) At any time after all Indebtedness under and in respect of the
Senior Loan Agreement and the Note Purchase Agreement (and any refinancings
thereof) have been paid in full in cash and all commitments under or in respect
of the Senior Loan Agreement and the Note Purchase Agreement (and any
replacements thereof) have been terminated, if there shall occur a Change in
Control (as defined below), the Holder shall have the right, at such Holder's
option, to require the Issuers to redeem, and upon the exercise of such right
the Issuers shall redeem, the aggregate principal amount of this Note held by
such Holder at a price equal to 100.0% of the principal amount thereof, together
with accrued interest through the date of redemption. For purposes of this
Section 4.2, "CHANGE OF CONTROL" means either (i) a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended), other than any person or group comprised solely of the
Initial Investors, becoming the beneficial owner, by way of merger,
consolidation or otherwise, of 51% or more of the voting power of all classes of
voting Capital Stock of either Issuer or (ii) any sale or other disposition of
all or substantially all of the assets of either Issuer in a single transaction
or a series of transactions.
9
<PAGE>
(b) On or before the tenth day after the occurrence of any Change of
Control, the Issuers shall send the Holder a notice (a "REDEMPTION NOTICE")
advising such Holder of its rights hereunder and specifying the date, not less
than 20 nor more than 60 days after the date such notice is delivered to such
Holder, on which the Issuers propose to redeem this Note if the Holder requests
redemption pursuant to Section 4.2(b); provided that no failure of the Issuers
to give such notice shall limit the rights of the Holder hereunder. If the
Holder wishes to exercise its rights hereunder it shall deliver to the Issuers,
on or before the fifteenth day after receipt of the Redemption Notice, written
notice (which shall be irrevocable) of such Holder's exercise of such right,
which notice shall set forth the name of the Holder and the aggregate principal
amount of this Note held by such Holder as to which an election to exercise its
rights hereunder is being made.
(c) From and after the redemption date set forth in the Redemption
Notice (unless Default shall be made by the Issuers in providing money for the
payment of the redemption price of this Note), interest on this Note, if the
Holder elected to have this Note redeemed as set forth in the foregoing
paragraph (c), shall cease to accrue, and all rights of the Holder with respect
to this Note (except the right to receive from the Issuers the redemption price)
shall cease. Upon surrender in accordance with said notice of the certificate
for this Note so required to be redeemed (properly endorsed or assigned for
transfer, if the Board of Directors of either Issuer shall so require and the
Redemption Notice shall so state), this Note shall be redeemed by the Issuers at
the aforesaid redemption price.
Section 5. Subordination. Each Issuer covenants and agrees and the
-------------
Holder, by its acceptance hereof likewise covenants and agrees, in each case
notwithstanding any other provisions of this Note or any other agreement,
document or instrument (it being the express agreement of such Holder that the
provisions of this Section 5 and thereby the provisions of the Subordination
Agreement shall govern in the event of any conflicting terms or provisions
herein or otherwise), that this Note shall be issued subject to the provisions
of the Subordination Agreement; and the Person holding this Note, whether upon
original issue or upon transfer, assignment or exchange thereof accepts and
agrees that the payment of the principal of, interest on or any other amounts or
obligations (monetary or otherwise) on, under or in respect of this Note by or
on behalf of the Issuers shall, to the extent and in the manner set forth in the
Subordination Agreement, be subordinated and junior in right of payment, to the
prior payment in full in cash of all Senior Indebtedness.
Section 6. Miscellaneous.
-------------
Section 6.1. Modification of Notes. This Note may be modified with the
---------------------
written consent of the Issuers and the Holder. The Holder may waive compliance
by the Issuers of any provision of this Note.
Section 6.2. Set-Off. Notwithstanding anything contained herein to the
-------
contrary, if any Indemnification Obligations are due and owing by the Holder to
AWI, at the option and upon written demand of the Holder, the Issuers shall set
off and apply up to 50% of the Indemnification Obligations to the obligations
due and owing, or that will become due and
10
<PAGE>
owing, to the Holder under this Note in the order in which such payments are to
be made in accordance with the terms of this Note. The Holder shall notify the
Issuers in writing of the amounts, if any, it has elected to offset pursuant to
this Section 6.2 prior to the time payments to be offset hereunder would
otherwise be required to be made.
Section 6.3. Miscellaneous. THIS NOTE SHALL BE GOVERNED BY AND BE
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
THE CONFLICTS OF LAW RULES OF SUCH STATE. Each Issuer hereby waives presentment,
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Note, except as
specifically provided herein, and consents to extensions of the time of payment,
or forbearance or other indulgence without notice. The Holder by acceptance of
this Note agrees to be bound by the provisions of this Note and the
Subordination Agreement. The Section headings herein are for convenience only
and shall not affect the construction hereof.
Section 6.4. Transfer. This Note is registered on the books of the
--------
Issuers and is transferable only in whole and not in part and only by surrender
thereof at the principal office of AWI duly endorsed or accompanied by a written
instrument of transfer duly executed by the registered Holder of this Note or
its attorney duly authorized in writing. Any such transferee shall be deemed a
Holder hereunder.
11
<PAGE>
IN WITNESS WHEREOF, each Issuer has caused this instrument to
be duly executed as of this 30th day of September, 1997.
AAI SYSTEMS MANAGEMENT, INC.
By: /s/ D. Tyler Mayoras
--------------------------
D. Tyler Mayoras
Its: Chairman
ALL WEATHER, INC.
By: /s/ Clark F. Davis
--------------------------
Clark F. Davis
Its: Vice President
12
NYFS11...:\95\78495\0018\1708\NOT0167K.490
EXHIBIT 99
UNITED INDUSTRIAL CORPORATION
18 EAST 48TH STREET, NEW YORK, NY 10017
Contact: Susan Fein Zawel
(212) 752-8787
FOR IMMEDIATE RELEASE
UNITED INDUSTRIAL CORPORATION
SELLS WEATHER SYSTEMS BUSINESS
------------------------------
New York, NY, October 3, 1997 -- United Industrial Corporation
(NYSE:UIC) today announced the sale of its AAI Systems Management, Inc. (SMI)
subsidiary to All Weather, Inc., a holding company formed by Ridge Capital,
Northstar Capital, and the management team of SMI. The sale of SMI, which
produces automated weather and environmental reporting systems, is part of
United Industrial's strategy to refocus its resources on building its core
defense and related technology businesses.
Under the terms of the transaction, United Industrial received cash of
$18.5 million and a five-year subordinated note for $2.375 million. United
Industrial plans to invest the proceeds from the sale in growing its core
business.
For the six months ended June 30, 1997 and for the year ended December
31, 1996 the net sales of the Weather Systems business were 15.8% and 16.9% of
the United Industrial's consolidated net sales, respectively. Pretax earnings
were 22.3% and 26.3% of the consolidated pretax earnings during corresponding
periods.
Richard R. Erkeneff, President and Chief Executive Officer of United
Industrial, commented, "The sale of SMI demonstrates our continued progress in
implementing the strategy we announced last December. With the sale of Neo
Products last month, we have now divested two non-core businesses, so that we
can better focus on maximizing the growth potential in our core defense and
related technology businesses."
United Industrial Corporation is an international high technology
company focused on the design and production of defense, training,
transportation, and energy systems. Its products include unmanned air vehicles,
training and
<PAGE>
simulation systems, automated aircraft test and maintenance equipment, and
combat vehicles and ordnance systems. It also manufactures ground transportation
components, combustion equipment for biomass and refuse fuels, and specialized
firefighter training installations.
Ridge Capital Corporation is a private investment management and
merchant banking firm based in Barrington, Illinois. Northstar Capital, Ltd. is
a Minneapolis-based investment management company.
2
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