Stock Purchase Agreement - Is&s / Parker Hannifin

Exhibit 10.5


STOCK PURCHASE AGREEMENT


THIS AGREEMENT is made and entered into as of the 11th day of July, 1991, by and between Parker-Hannifin Corporation, an Ohio Corporation having an address at 17325 Euclid Avenue, Cleveland, Ohio 44112 ("PARKER"), and Innovative Solutions & Support, Inc., a Pennsylvania Corporation having an address at 420 Lapp Road, Malvern, Pennsylvania 19355 ("IS&S").


PARKER wishes to purchase and IS&S wishes to sell an ownership interest in IS&S under the terms of this Agreement. PARKER and IS&S also wish to enter into two (2) other Agreements executed of even date herewith pertaining to aircraft instrumentation products ("Instrumentation Agreements").


NOW, THEREFORE, the parties agree as follows:


ARTICLE I
PURCHASE, SALE AND TERMS OF PREFERRED SHARES


1.01. THE PREFERRED SHARES. IS&S has authorized the issuance and sale to PARKER of IS&S Class B Convertible Preferred Stock, par value $.001 per share ("Class B Shares") to be authorized and unissued prior to Closing (as defined below). The description, rights, preferences and other terms and conditions relating to the Class B Shares of IS&S shall be as set forth in Exhibit 1.01 hereto. The shares of Class A and Class B Convertible Preferred Stock, and any unrealized shares of Convertible Preferred Stock, are referred to collectively herein as "Preferred Shares."


1.02. THE CONVERSION SHARES. Prior to Closing IS&S shall have authorized and reserved, and IS&S covenants thereafter to continue to reserve, free of preemptive rights and other preferential rights, a sufficient number of previously authorized but unissued shares of its Common Stock to satisfy the rights of conversion of all holders (including Parker) of the Preferred Shares. Any shares of IS&S Common Stock issuable upon conversion of the Preferred Shares, and such shares when issued, are referred to as the "Conversion Shares." The description, rights, preferences and other terms and conditions relating to the Conversion Shares shall be as set forth in Exhibit 1.02 hereto.


1.03. SALE AND PURCHASE OF CLASS B SHARES. Subject to the conditions, terms, representations and warranties of this Agreement, IS&S will issue and sell, and PARKER will purchase at the Closing (as defined below), one hundred thousand (100,000) Class B Shares, representing 16.7% of the issued outstanding capital stock of IS&S, for an aggregate purchase price of three million dollars ($3,000,000) (the "Purchase Price").


1.04. CLOSING. The sale and purchase of the Class B Shares (the "Closing") shall take place on July 12, 1991 (the "Closing Date"), or at such other place and date as may be agreed to by IS&S and PARKER.


1.05. PAYMENT AT CLOSING. At the Closing, PARKER will pay the Purchase Price by:


(a) TRANSFER FUNDS. Wire transfer of the sum of two million five hundred thousand dollars ($2,500,000) to an account designated by IS&S, as payment for 83,333-1/3 Class B Shares; and


(b) CONTRIBUTE NOTE. Contribute a January 24, 1991 note receivable in the amount of $500,000 ("Note Receivable") to the capital of IS&S, by signing the Capital Contribution Agreement attached as Exhibit 1.05(b), as payment for 16,666-2/3 Class B Shares.


1.06. USE OF FUNDS. The funds received by IS&S from PARKER, under Article 1.05 above will be used by IS&S only to repay a certain loan to IS&S from Geoffrey S.M. Hedrick (Article 4.10 below), to repay certain expenses of Douglas Gemmell (Article 4.10 below), and to fund operating expenses in the ordinary course of business and capital equipment purchases consistent with current and proposed operations.


1.07. CLASS B SHARES AT CLOSING. At the Closing, IS&S will deliver to PARKER certificates for the one hundred thousand (100,000) Class B Shares to be issued and sold to PARKER, duly registered in PARKER's name.


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1.08. CERTIFIED FINANCIAL INFORMATION AT CLOSING. At the Closing, IS&S will deliver to PARKER Arthur Anderson certified financial results (including footnotes) for IS&S fiscal year 1990, identical in substance and form to the unsigned financial results for IS&S fiscal year 1990 attached hereto as Exhibit 4.09.


ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF PARKER


PARKER represents and warrants to IS&S as follows:


2.01. SECURITIES LAWS COMPLIANCE. It is Parker's present intention to acquire the Class B Shares and Conversion Shares for its own account, and the Class B Shares and Conversion Shares will be acquired by it for the purpose of investment and not with a view to distribution or resale thereof. PARKER acknowledges and agrees that the Class B Shares and Conversion Shares have not been registered under the Securities Act of 1933, as amended ("Securities Act") or the securities laws of certain states and that the certificates representing the Class B Shares and Conversion Shares will be subject to the restriction that, unless a registration statement under the Securities Act is in effect in respect to PARKER's Class B Shares and Conversion Shares, PARKER may not sell or otherwise transfer or dispose of its Class B Shares or Conversion Shares or any interest therein unless it shall first furnish to IS&S an opinion of counsel reasonably satisfactory to IS&S to the effect that registration thereof under the Securities Act and applicable state securities laws is not required. PARKER understands and agrees that unless registered under the Securities Act, the certificates representing the Class B Shares and the Conversion Shares, whether upon initial issuance or upon any transfer thereof, may bear a legend reading substantially as follows:


"The Shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
shares have been acquired for investment and not with a view
to distribution or resale, and may not be sold, mortgaged,
pledged, hypothecated or otherwise transferred without an
effective registration statement for such shares under said
Act, or an opinion of counsel for the Owner that registration
is not required thereunder."


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2.02. CORPORATE STATUS AND AUTHORITY. PARKER is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio, and has the corporate power and authority to acquire the Class B Shares and Conversion Shares hereunder. The execution, delivery and performance by PARKER of this Agreement and the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of PARKER, and this Agreement constitutes the valid and binding obligation of PARKER, enforceable against it in accordance with its terms.


2.03. AGREEMENT NOT IN BREACH OF OTHER INSTRUMENTS. The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and the fulfillment by PARKER of the terms hereof, will not result in a breach of any of the terms and provisions of, or constitute a default under, or conflict with or cause any acceleration of any material obligation of PARKER under any agreement, indenture or other instrument to which PARKER or its assets is bound, PARKER's Articles of Incorporation or By-laws, any judgment, decree or order, or any applicable law, rule or regulation.


ARTICLE 3
CONDITIONS TO PARKER'S OBLIGATIONS


3.01. CONDITIONS TO PARKER'S OBLIGATIONS AT THE CLOSING. The obligations of PARKER on the Closing Date to purchase and pay for the Class B Shares shall be subject to the satisfaction of each of the following conditions precedent, each of which IS&S agrees to use its best efforts to cause to be fulfilled and any one or more of which may be waived by PARKER:


(a) REPRESENTATIONS, WARRANTIES AND PERFORMANCE. Each of the representations and warranties of IS&S set forth in Article 4 shall be true and correct on the Closing Date, and IS&S shall have performed all of its obligations under this Agreement to be performed prior to or at the Closing;


(b) AIRCRAFT INSTRUMENTATION AGREEMENTS. IS&S and PARKER shall have entered into the Aircraft Instrumentation Agreements;


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(c) EMPLOYMENT AND NONCOMPETE AGREEMENTS. Geoffrey S.M. Hedrick and Douglas Gemmell shall have each entered into employment and noncompete agreements with IS&S in the form attached as Exhibit 3.01(c);


(d) SHAREHOLDER AGREEMENT. Geoffrey S.M. Hedrick shall have entered into the Shareholder Agreement attached as Exhibit 3.01(d), which required Mr. Hedrick to vote his shares of IS&S Common Stock to elect a person designated by PARKER to the Board of Directors of IS&S;


(e) CORPORATE DOCUMENTS. IS&S shall have furnished PARKER true and correct copies of all charter documents of IS&S; the resolutions of the Board of Directors and, if required by law, the stockholders, of IS&S evidencing approval of this Agreement, the issuance of the Class B Shares, and other matters contemplated hereby; the By-Laws of IS&S; and all documents evidencing other necessary corporate or other action and approvals, if any, with respect to this Agreement, the Class B Shares and the Conversion Shares; and


(f) OPINION OF COUNSEL. IS&S shall have delivered to PARKER a favorable opinion of Wolf, Block, Schorr and Solis-Cohen, counsel for IS&S, in the form set forth in Exhibit 3.01(f).


ARTICLE 4
REPRESENTATIONS AND WARRANTIES


Except as set forth in the Disclosure Schedule attached hereto as Exhibit 4.00, IS&S represents and warrants to PARKER as follows:


4.01. ORGANIZATION AND STANDING OF IS&S. IS&S is a duly organized and validly existing corporation in good standing under the laws of the Commonwealth of Pennsylvania and has all requisite corporate power and authority for the ownership and operation of its properties and for the carrying on of its business as now conducted and as now proposed to be conducted. IS&S is duly licensed or qualified and in good standing as a foreign corporation authorized to do business in all jurisdictions wherein the character


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of the property owned or leased, or the nature of the activities conducted by it, makes such licensing or qualification necessary, except where the failure to be so licensed, qualified or in good standing would not have a material adverse impact on IS&S. IS&S has no Subsidiaries.


4.02. CORPORATE ACTION. All of the provisions of this Agreement, the Preferred Shares, the Conversion Shares and any other agreements and instruments executed in connection with this Agreement are the valid and binding obligations of IS&S. The issuance and delivery of the Class B Shares and the execution, delivery and performance of this Agreement and any other agreement and instruments executed in connection with this Agreement have been duly authorized by all necessary corporate or other action of IS&S. Sufficient shares of authorized but unissued Class B Shares to be issued to PARKER hereunder and sufficient shares of authorized but unissued Common Stock of IS&S to be issued in connection with the prospective conversion of the Preferred Shares will have been reserved by appropriate corporate action prior to Closing. Neither the issuance of the Class B Shares nor the issuance of the Conversion Shares will require any further corporate action other than as contemplated herein or by the Articles of Incorporation, and will not be subject to preemptive or other preferential rights or similar statutory or contractual rights either arising pursuant to any agreement or instrument to which IS&S is a party or which are otherwise binding upon IS&S.


4.03. GOVERNMENTAL APPROVALS. No authorization, consent, approval, license, exemption of or filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, under any applicable laws, rules or regulations presently in effect, is or will be necessary for, or in connection with, the offer, issuance, sale, execution or delivery by IS&S of the Class B Shares or the Conversion Shares or for the performance by it of its obligations under this Agreement, the Preferred Shares or the Conversion Shares.


4.04. LITIGATION. There is no litigation or governmental proceeding or investigation pending or, to the best knowledge of IS&S, threatened against IS&S affecting any of its properties or assets. To the best knowledge of IS&S, there is no litigation or governmental


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proceeding or investigation pending or threatened against any officer of IS&S or against Douglas Gemmell. Neither IS&S, nor to the best knowledge of IS&S, or any officer of IS&S or Douglas Gemmell, is in default with respect to any order, writ, injunction, decree, ruling or decision of any court, commission, board or other government agency. The foregoing sentences include, without limiting their generality, actions pending, or to the best knowledge of IS&S threatened, involving the prior employment of any IS&S officer or employee or their use in connection with IS&S business of any information or techniques allegedly proprietary to any of their former employers.


4.05. REGISTRATION RIGHTS. Except as set forth in Article 7 hereof, no person has demand or other rights to cause IS&S to file any registration statement under the Securities Act relating to any securities of IS&S or any right to participate in any such registration statement.


4.06. CERTAIN AGREEMENTS OF OFFICERS AND EMPLOYEES.


(a) To the best knowledge of IS&S, no employee of IS&S is in violation of any term of any employment contract, patent disclosure agreement, noncompetition agreement, or any other contract or agreement or any restrictive covenant relating to the right of any such officer or employee to be employed by IS&S, or relating to the use of trade secrets or proprietary information of others; and


(b) Each present or former officer and employee of IS&S who is or was authorized to have access to proprietary information of IS&S has executed IS&S's nondisclosure and inventions agreement attached as Exhibit 4.06(b). To the best knowledge of IS&S, no officer or employee or former officer or employee of IS&S is in violation of the terms of the aforesaid agreement or of any other obligation relating to the use of confidential or proprietary information of IS&S.


4.07. COMPLIANCE WITH OTHER INSTRUMENTS. IS&S is in compliance in all respects with the terms and provisions of this Agreement and of its Articles of Incorporation and By-Laws and in all material respects with the terms and provisions of the mortgages,


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indentures, leases, agreements and other instruments to which IS&S is a party and of all judgments, decrees, governmental orders, statutes, rules or regulations by which it is bound or to which it or any of its properties or assets are subject. There is no term or provision in any of the foregoing documents and instruments which materially adversely affects the business, assets or financial condition of IS&S. Neither the execution and delivery of this Agreement, the Preferred Shares or the Conversion Shares, nor the consummation of any transaction contemplated by this Agreement, has constituted or resulted in or will constitute or result in a material default or violation of any term or provision in any of the foregoing documents, instruments, judgments, decrees, orders, statutes, rules and regulations.


4.08. TITLE TO ASSETS, PATENTS.


(a) IS&S has title to all of its assets now carried on its books as owned by it including those reflected in the most recent balance sheet of IS&S (Article 4.09 below) or acquired since the date of such balance sheet free of any mortgages, pledges, charges, liens, security interests or other encumbrances; and


(b) IS&S owns, or to the best knowledge of IS&S, it has a valid right to use, the patents, patent rights, licenses, permits, trade secrets, trademarks, trade names, copyrights, inventions and intellectual property rights being used to conduct its business as now operated and as now proposed to be operated; and IS&S has not received any notice and does not have any reason to believe that the conduct of its business as now operated and as now proposed to be operated does or will conflict with valid patents, patent rights, licenses, permits, trade secrets, trademarks, trade names, copyrights, inventions and intellectual property rights of others. IS&S has no obligation to compensate any person for the use of any such rights.


4.09. FINANCIAL INFORMATION. The balance sheets and income statements of IS&S attached hereto as Exhibit 4.09, (i) include the Arthur Anderson unsigned financial results (including footnotes) for IS&S fiscal year 1990, and (ii) present fairly the interim financial position of IS&S as of April 30, 1991. IS&S has no liability, contingent or otherwise, not


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adequately reflected in or reserved against in the aforesaid balance sheets that could, together with all such other liabilities, materially affect the financial condition of IS&S, nor does IS&S have any reasonable grounds to know of any such liability. Since the date of the aforesaid interim balance sheet, (i) there has been no material adverse change in the business, assets, financial condition, operations or prospects of IS&S; (ii) the business, financial condition, operations or prospects of IS&S or any of its properties or assets has not been materially and adversely affected as the result of any legislative or regulatory change, any revocation or change in any franchise, license or right to do business, or any other event or occurrence, whether or not insured against; and (iii) IS&S has not entered into any transaction or agreement outside the ordinary course of business, and has not made any distribution of its capital stock.


4.10. LOANS AND GUARANTEES. IS&S has not made any loan or advance to any person which is outstanding on the date of this Agreement, nor is IS&S obligated or committed to make any such loan or advance, nor does IS&S own any capital stock, assets comprising the business of, obligations of, or any interest in, any person, except as set forth in Exhibit 4.10. IS&S has not assured or guaranteed the indebtedness of any other ...