Investment Agreement

INVESTMENT AGREEMENT


THIS INVESTMENT AGREEMENT, dated as of February 7, 2000, is entered into by and between KCEP VENTURES II, L.P., a Kansas limited partnership ("Purchaser"), and AIRPORT SYSTEMS INTERNATIONAL, INC., a Kansas corporation ("Company").


RECITALS


A. Company is in the business of developing, manufacturing and marketing navigational aids, and is entering the business of electronic contract manufacturing and acquiring related entities.


B. Immediately prior to the consummation of the transactions contemplated herein, the Company will consummate the transactions contemplated by that certain Stock Purchase Agreement by and among the Company, DCI, Inc. ("DCI"), Chris I. Hammond, Larry C. Klusman and William D. Cook in which DCI will become a wholly-owned subsidiary of the Company (the "Stock Purchase Agreement"), followed by consummation of the transactions contemplated by that certain Asset Purchase Agreement by and among DCI, KHC of Lenexa, L.L.C. ("KHC"), Hammond, Klusman and Cook (the "Asset Purchase Agreement"). The purchases under both the Stock Purchase Agreement and Asset Purchase Agreement shall be financed by Bank of America, N.A. ("BOA"), which financing shall be evidenced by a Loan and Security Agreement by and among the Company, DCI and BOA (the "Loan Agreement") and the Assignment and Assumption among DCI, BOA, KHC, UMB Bank, N.A., and the City of Lenexa (the "Assignment Agreement"). The Stock Purchase Agreement, the Asset Purchase Agreement, the Loan Agreement and the Assignment Agreement and any and all documents contemplated therein to be executed and delivered shall be collectively referred to as the "Transaction Documents."


C. Purchaser desires to invest in Company pursuant to the terms and conditions of this Agreement.


AGREEMENT


In consideration of the mutual promises and covenants contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:


1. AUTHORIZATION AND SALE OF COMMON STOCK, DEBENTURE AND WARRANT.


1.1 AUTHORIZATION. Company has, or on or before the Closing (as defined in Section 2 below) will have, duly authorized and reserved for issuance as described below:


(a) COMMON STOCK. Up to 410,715 shares of its voting common stock, $.01 par value (the "Common Stock"), having the rights, restrictions, privileges, and preferences set forth in the Articles of Incorporation of the Company, as amended (the "Articles of Incorporation");


(b) CONVERTIBLE SUBORDINATED DEBENTURE. A convertible subordinated debenture (the "Convertible Subordinated Debenture") in an amount of $500,000, with a conversion price of $3.00 per share (the "Debenture Price"), in substantially the form attached hereto as Exhibit A; and


(c) WARRANT. A warrant (the "Warrant") granting Purchaser the right to purchase 45,635 shares of Common Stock for $150,595.50 (or $3.30 per share) (the "Warrant Price"), in substantially the form attached hereto as Exhibit B.


1.2 SALE OF THE COMMON STOCK. Subject to the terms and conditions of this Agreement, at the Closing (as defined in Section 2 below) Company will sell and issue to Purchaser, and Purchaser will acquire, 198,413 shares of Common Stock for $500,000 (or $2.52 per share) (the "Common Stock Purchase Price").


1.3 SALE OF CONVERTIBLE SUBORDINATED DEBENTURE. Subject to the terms and conditions of this Agreement, at the Closing (as defined in Section 2 below) Company will sell and issue to Purchaser, and Purchaser will acquire, the Convertible Subordinated Debenture in the amount of $500,000.


1.4 SALE OF WARRANT TO PURCHASE COMMON STOCK. Subject to the terms and conditions of this Agreement, Company will execute and deliver to Purchaser, and Purchaser will acquire, at the Closing (as defined in Section 2 below), the Warrant. Together, the shares of Common Stock acquired pursuant to Section 1.2, the Convertible Subordinated Debenture and the Warrant are referred to herein as the "Securities."


1.5 USE OF PROCEEDS.


(a) WORKING CAPITAL. Company will use the proceeds from the sale of the Securities for general working capital purposes and to fund acquisitions in the electronic contract manufacturing business pursuant to the acquisition plan, attached hereto as Exhibit C, agreed to between Company and Purchaser. Pending such use, Company shall place such proceeds in one or more federally insured deposit accounts.


(b) LIMITATIONS. Notwithstanding anything herein to the contrary, no portion of the proceeds from the sale of the Securities sold will be used (i) for relending or reinvesting, if Company's primary purpose involves, directly or indirectly, providing funds to others, (ii) for the purchase of debt obligations, factoring, or the long-term leasing of equipment with no provision for maintenance or repair, (iii) to, directly or indirectly, provide capital or financing to a company licensed under the Small Business Investment Act of 1958, as amended (together with the rules and regulations thereunder, the "SBI Act"), (iv) to acquire, or to pay obligations relating to the prior acquisition of, land or improved real estate to be held, without prompt and substantial improvement, for resale or leasing to others, (v) outside the United States (except that all or any portion of such proceeds may be used by Company in the domestic production of products for distribution abroad or to acquire abroad materials used in such production, provided the major portion of the assets and activities of Company after such proceeds are so employed remains within the territorial jurisdiction of the United States), (vi) for any purpose contrary to the public interest (including but not limited to activities which are in


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violation of law or inconsistent with free competitive enterprise), (vii) to purchase goods or services from a supplier that is an "associate" (as defined in Section 107.50 of Title 13 of the Code of Federal Regulations (the "CFR")) of Purchaser if 50% or more of such proceeds will be used to purchase goods or services from any such supplier (provided, however, that (A) in no event may such proceeds be used to purchase capital goods from an associate supplier, and (B) such goods and services shall be at a price no greater than that charged other customers of the associate supplier), or (viii) to acquire "farm land" (as that term is defined in Section 107.720 of Title 13 of the CFR).


(c) UNAUTHORIZED DIVERSION. Unless specifically consented to by Purchaser, any (i) diversion by Company of the proceeds from the sale of the Securities from the purposes set forth in this Section 1.5 or (ii) change in Company's business activity within the 12-month period following the Closing (as defined in Section 2 below) that renders the Securities an ineligible investment for Purchaser pursuant to Section 107.760(b) of Title 13 of the CFR shall constitute an event of default under this Agreement. Upon the occurrence of such event of default, Purchaser shall have the right to demand immediate repurchase of, and Company shall immediately repurchase, (i) all the Common Stock acquired pursuant to Section 1.2 above and held by Purchaser, at a per share purchase price equal to $2.52, (ii) the Convertible Subordinated Debenture held by Purchaser, at face value plus all accrued interest thereon, (iii) any shares of Common Stock held by Purchaser as a result of the conversion of the Convertible Subordinated Debenture, at a per share purchase price equal to $3.00 for any Common Stock issued to Purchaser, and (iv) any purchased and issued Common Stock acquired pursuant to the Warrant, at a per share purchase price equal to $3.30. In addition, the Warrant shall be cancelled.


2. THE CLOSING.


2.1 THE CLOSING. The closing of the sale and purchase of the Common Stock, Convertible Subordinated Debenture and the Warrant (the "Closing") under this Agreement shall take place at the offices of Blackwell Sanders Peper Martin LLP ("Legal Counsel's Offices"), 2300 Main, Suite 1100, Kansas City, Missouri 64108 at 10:00 a.m., Central Time, on February 7, 2000 (the "Closing Date"), or at such other time, date and place as are mutually agreeable to Company and Purchaser, but in no event later than 5:00 p.m., Central Time, on March 15, 2000. At the Closing, Company will deliver to Purchaser a certificate or certificates for 198,413 Common Stock shares registered in the name of Purchaser against receipt by Company, as consideration, of the Common Stock Purchase Price by wire transfer, check, or other method acceptable to Company. At the Closing, Company will deliver to Purchaser the Convertible Subordinated Debenture in the name of the Purchaser against receipt by Company, as consideration, of the Debenture Price, by wire transfer, check or other method acceptable to Company. At the Closing, Company will deliver to Purchaser the Warrant in the name of the Purchaser. In addition, the Company will pay the Purchaser a commitment fee in the amount of $20,000 at the Closing.


2.2 If at Closing any of the applicable conditions specified in Section 5 hereof shall not have been fulfilled, Purchaser shall, at its election, be relieved of its obligations to purchase Securities at such Closing without thereby waiving any other rights it may have by reason of such failure or such non-fulfillment.


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3. REPRESENTATIONS OF COMPANY. Subject to and except as disclosed by Company in the schedules attached hereto, Company hereby represents and warrants to Purchaser as follows:


3.1 ORGANIZATION AND STANDING. Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Kansas and has full corporate power and authority to conduct its business as presently conducted and as proposed to be conducted by it, to enter into and perform this Agreement, and to carry out the transactions contemplated by this Agreement. Company is duly qualified to do business as a foreign corporation in every other jurisdiction in which the failure to so qualify would have a material adverse effect on Company's operations or financial condition.


3.2 CAPITALIZATION. The authorized capital stock of Company (immediately prior to the Closing) will consist of: 5,000,000 shares of common stock, $.01 par value, of which (i) 198,413 shares are reserved for issuance of Common Stock, (ii) 166,667 shares are reserved for issuance upon the conversion of the Convertible Subordinated Debenture (iii) 45,635 shares are reserved for issuance upon the exercise of the Warrant, (iv) 475,000 shares are reserved for issuance pursuant to the Company's option plan, and (v) 2,230,500 shares are issued and outstanding, with 150,000 shares to be issued to three individuals pursuant to that certain Stock Purchase Agreement (as defined below).


All of the issued and outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid and nonassessable. Except as otherwise provided in this Agreement or as set forth on SCHEDULE 3.2 hereto: (i) no subscription, warrant, option, convertible security, or other right (contingent or otherwise) to purchase or acquire any shares of capital stock of Company is authorized or outstanding, (ii) there is not any commitment of Company to issue any subscription, warrant, option, convertible security, or other such right or to issue or distribute to holders of any shares of its capital stock any evidences of indebtedness or assets of Company, and (iii) Company has no obligation (contingent or otherwise) to purchase, redeem, or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof. Except as otherwise provided in this Agreement or as set forth on SCHEDULE 3.2 hereto, no person or entity is entitled to (i) any preemptive or similar right with respect to the issuance of any capital stock of Company or (ii) any rights with respect to the registration of any capital stock of Company under the Securities Act of 1933, as amended (the "Securities Act"). All of the issued and outstanding shares of Common Stock have been offered, issued, and sold by Company in compliance with applicable federal and state securities laws.


3.3 SUBSIDIARIES. Except as set forth on SCHEDULE 3.3 hereto, Company has no subsidiaries nor owns or controls, directly or indirectly, any other corporation, association or business entity.


3.4 DEBTHOLDERS AND STOCKHOLDERS LIST AND STOCKHOLDERS' AGREEMENTS. The Company has no debt securities outstanding other than those notes disclosed on SCHEDULE 3.4 hereto. Except as set forth on SCHEDULE 3.4 hereto, there are no agreements, written or oral, between Company and any holder of its capital stock. No provision of this Agreement activates, or will activate, the rights or obligations of any party under a stockholder rights plan or voting agreement to which the Company is a party. The transactions contemplated herein, including the


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conversion and exercise of the Convertible Subordinated Debenture and the Warrant, respectively, shall not result in any loss by the Purchaser of the right to vote as a stockholder of the Company any shares of common stock acquired hereunder pursuant to the provisions set forth in section 17-1286 et. al, Control Shares Acquisitions, of the Kansas statutes.


3.5 ISSUANCE OF SECURITIES. The issuance, sale, and delivery of the Securities in accordance with this Agreement, and the issuance and delivery of the shares of Common Stock issuable upon conversion of the Convertible Subordinated Debenture and exercise of the Warrant, have been or will be, on or prior to the applicable Closing, duly authorized and reserved for issuance, as the case may be, by all necessary corporate action on the part of Company, and the shares when so issued, sold, and delivered against payment therefor in accordance with the provisions of this Agreement, and the shares of Common Stock issuable upon conversion or exercise of the Convertible Subordinated Debenture, when issued upon such conversion or exercise, will be duly and validly issued, fully paid, and nonassessable.


3.6 AUTHORITY FOR AGREEMENT. The execution, delivery, and performance by Company of this Agreement and all other agreements required to be entered into pursuant to this Agreement have been or will be, on or prior to the applicable Closing, duly authorized by all necessary corporate action, and duly executed and delivered by Company. This Agreement and such other agreements constitute valid and binding obligations of Company enforceable in accordance with their respective terms. The execution and performance of the transactions contemplated by this Agreement and such other agreements to be executed and delivered by Company hereunder and compliance with their provisions by Company will not violate any provision of law and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, its Articles of Incorporation or bylaws, any indenture, lease, agreement, or other instrument to which Company is a party or by which it or any of its properties is bound, or any decree, judgment, order, statute, rule or regulation applicable to Company.


3.7 GOVERNMENTAL CONSENTS. No consent, approval, order, or authorization of, or registration, qualification, designation, declaration, or filing with, any governmental authority is required on the part of Company in connection with the execution and delivery of this Agreement, the offer, issue, sale and delivery of the Securities, or the other transactions to be consummated at the applicable Closing, as contemplated by this Agreement, except such filings as shall have been made prior to and shall be effective on and as of such Closing. Based on the representations made by Purchaser in Section 4 of this Agreement, the offer and sale of the Securities to Purchaser will be exempt from registration under applicable federal and state securities laws.


3.8 LITIGATION. Except as set forth on SCHEDULE 3.8, there is no action, suit, proceeding, or investigation pending, or, to the best of Company's knowledge, any basis therefor or threat thereof, against Company which questions the validity of this Agreement or Company's right to enter into it, or which might result, either individually or in the aggregate, in any material adverse change in Company's assets, condition (financial or otherwise), business, or prospects, nor is there any litigation pending, or, to the best of Company's knowledge, any basis therefor or threat thereof, against Company by reason of the past employment relationships, the proposed activities of Company, or negotiations by Company with possible investors in Company.


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3.9 FINANCIAL STATEMENTS; ABSENCE OF LIABILITIES. On or before the date hereof, Company has furnished to Purchaser a complete and correct copy of the balance sheet of Company (the "Audited Balance Sheet") as of April 30, 1999 (the "Audited Balance Sheet Date"), and the related statements of operations and of changes in financial position for the 12 months then ended (collectively, the "Audited Financial Statements"), a complete and correct copy of the balance sheet of the Company (the "Unaudited Balance Sheet") as of October 31, 1999 (the "Unaudited Balance Sheet Date"), and the related unaudited statements of operations and of changes in financial position for the six months then ended, (collectively, the "Unaudited Financial Statements"). (The Audited Financial Statements and the Unaudited Financial Statements are collectively referred to herein as the "Financial Statements"). The Financial Statements are complete and correct, are in accordance with the books and records of Company, and present fairly the financial condition and results of operations of Company, as of the dates and for the periods indicated, and the Audited Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") in all material respects. Company did not have, at the Unaudited Balance Sheet Date, any liabilities of any type which in the aggregate exceeded $25,000, whether absolute or contingent, which were not fully reflected on the Unaudited Balance Sheet, and, since the Unaudited Balance Sheet Date, (x) no material change to Company's net worth has occurred and (y) Company has not incurred or otherwise become subject to any such liabilities or obligations except in the ordinary course of business, incurred in connection with acquisitions publicly disclosed, or in connection with and as disclosed in this Agreement. Attached as EXHIBIT 3.9 is certain financial and operating information relating to DCI that was provided by the Company to the Purchaser; provided, however, that no representation in this Section 3.9 is made as to the accuracy of any projections, pro formas or forecasts. The projections, pro formas and forecasts delivered to the Purchaser by the Company were prepared in good faith on the basis of the assumptions stated therein, which assumptions were fair in light of conditions existing at the time of delivery.


3.10 TAXES. Company has set aside sufficient funds for the payment of all accrued and unpaid federal, state, county, local, and foreign taxes for all current and prior periods. Company has filed or has obtained presently effective extensions with respect to all federal, state, county, local, and foreign tax returns which are required to have been filed by it, such returns are true and correct and all taxes shown thereon to be due have been timely paid. Federal income tax returns of Company have not been audited by the Internal Revenue Service, and no controversy with respect to taxes of any type is pending or, to Company's knowledge, threatened.


3.11 PROPERTY AND ASSETS. Company has good title to all of its material properties and assets, including all material properties and assets reflected in the Balance Sheet, except those disposed of in the ordinary course of business, and none of such properties or assets is subject to any mortgage, pledge, lien, security interest, lease, charge, or encumbrance other than those encumbrances described in the Balance Sheet or the most recent balance sheet delivered to Purchaser pursuant to Subsection 7.2(a)(i) below (the "Most Recent Balance Sheet"), if any.


3.12 PATENTS AND TRADEMARKS. Company owns or possesses, or can obtain by payment of royalties in amounts which, in the aggregate, do not materially and adversely affect Company's proposed business and prospects, all of the patents, trademarks, service marks, trade


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names, copyrights, proprietary rights, trade secrets, and licenses or rights to the foregoing, necessary for the conduct of Company's business as conducted and as proposed to be conducted. To Company's knowledge, the contract electronics manufacturing business proposed by Company will not cause Company to infringe or violate any of the patents, trademarks, service marks, trade names, copyrights, licenses, trade secrets, or other proprietary rights of any other person or entity.


3.13 INSURANCE. Company maintains valid policies of insurance with respect to its properties and business of the kinds and in amounts not less than is customarily obtained by corporations of established reputation engaged in the same or similar business and similarly situated, including, without limitation, insurance against loss, damage, fire, theft, public liability, and employment-related accidents of Company's employees.


3.14 MATERIAL CONTRACTS AND OBLIGATIONS. Company has disclosed to Purchaser a list of all material agreements of any nature to which Company is a party or by which it is bound, including, without limitation, (a) each agreement which requires future expenditures by Company in excess of $100,000 in the aggregate, (b) all employment and consulting agreements, employee benefit, bonus, pension, profit-sharing, stock option, stock purchase, and similar plans and arrangements, and (c) any agreement to which any stockholder, officer, or director of Company, or any "affiliate" or "associate" of such persons (as such terms are defined in the rules and regulations promulgated under the Securities Act), is presently a party, including any agreement or other arrangement prov ...