<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY , 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
DECRANE HOLDINGS CO.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3728 13-4019703
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code No.) Identification
Incorporation or Organization) No.)
</TABLE>
C/O DLJ MERCHANT BANKING PARTNERS II, L.P.
277 PARK AVENUE
NEW YORK, NEW YORK 10172
(212) 892-3000
(Address, including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
THOMPSON DEAN
CHAIRMAN OF THE BOARD AND PRESIDENT
DECRANE HOLDINGS, INC.
277 PARK AVENUE
NEW YORK, NEW YORK 10172
(212) 892-3000
(Name, Address, including Zip Code, and Telephone Number,
including Area Code, of Agent for Service)
--------------------------
COPIES TO:
STEPHEN A. SILVERMAN, ESQ.
JAMES BRYCE CLARK, ESQ.
SPOLIN & SILVERMAN LLP
100 Wilshire Boulevard, Suite 940
Santa Monica, California 90401
(310) 576-1221
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TITLE OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE(1)
<S> <C> <C> <C> <C>
Common Stock, par value $0.01........ 155,000 Shares $23.00 $3,565,000 $1,023.15
Warrants to purchase common stock.... 155,000 Shares $23.00 $3,565,000 $1,023.15
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8 OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8, MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION, DATED JANUARY , 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[LOGO]
DeCrane Holdings Co.
COMMON STOCK, PAR VALUE $0.01 PER SHARE
WARRANTS TO PURCHASE COMMON STOCK
This Prospectus relates to the resale of 155,000 warrants (the "warrants")
to purchase shares of common stock, par value $0.01 per share of DeCrane
Holdings Co., and the shares issued upon the exercise of warrants, held by
certain holders named herein or in an accompanying supplement to this
Prospectus. All of the offered securities are being sold by such persons or
entities and we will not receive any proceeds received therefrom, other than
upon exercise of warrants. The warrants were issued, and shares issued upon the
exercise of warrants by persons other than exercising warrantholders have been
or will be issued, pursuant to an exemption from the registration requirements
of the Securities Act of 1933, as amended (the "Securities Act"). The offered
securities are being registered by us pursuant to registration rights granted in
connection with the issuance of the units in October, 1998 which included these
warrants and senior subordinated notes of DeCrane Aircraft Holdings, Inc.
The offered securities may be offered by the holders from time to time in
transactions in the over-the-counter market, in privately negotiated
transactions, in underwritten offerings or by a combination of such methods of
sale, at fixed prices that may be changed, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. The warrantholders may effect such transactions by selling
the warrants to or through broker-dealers and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
holders or the purchasers of the offered securities for whom such broker-dealers
may act as agent or to whom they sell as principal or both (which compensation
to a particular broker-dealer might be in excess of customary commissions). If
required, the names of any such broker-dealers and the applicable compensation,
if any, will be set forth in an accompanying supplement to this Prospectus. See
"Plan of Distribution."
The holders and any broker-dealers or agents that participate with the
holders in the distribution of the offered securities may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act, and
any commissions received by them and any profit on the resale of the offered
securities purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
The information in this Prospectus is not yet complete and may be amended.
We have filed a registration statement regarding these securities with the
Securities and Exchange Commission. You may not sell or accept offers to buy
before the registration statement becomes effective. This prospectus is not an
offer to sell, or the solicitation of an offer to buy. We will not participate
in any sale of these securities in any state in which offer, solicitation or
sale would be unlawful before registering or qualifying under the securities
laws of that state.
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF CERTAIN RISK
FACTORS THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THE OFFERED SECURITIES.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR PASSED UPON
THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is , 1999
<PAGE>
EXPLANATORY NOTE
This Prospectus relates to the resale of 155,000 warrants (the "Warrants")
to purchase shares of common stock, par value $0.1 per share of DeCrane Holdings
Co. by certain holders named herein or in an accompanying supplement to this
Prospectus ("warrantholders"). All of the warrants are being sold by such
persons or entities and we will not receive any of proceeds received therefrom,
other than upon exercise of warrants. The warrants were issued, and shares
issued upon the exercise of warrants by persons other than exercising
warrantholders, have been or will be issued pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"). The Offered Securities are being registered by us pursuant to
registration rights granted in connection with the private placement of the
Warrants in connection with the Mergers described herein.
The Offered Securities may be offered by the warrantholders from time to
time in transactions in the over-the-counter market, in privately negotiated
transactions, in underwritten offerings or by a combination of such methods of
sale, at fixed prices that may be changed, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. The warrantholders may effect such transactions by selling
the warrants to or through broker-dealers and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
warrantholders or the purchasers of the offered securities for whom such
broker-dealers may act as agent or to whom they sell as principal or both (which
compensation to a particular broker-dealer might be in excess of customary
commissions). If required, the names of any such broker-dealers and the
applicable compensation, if any, will be set forth in an accompanying supplement
to this Prospectus. See "Plan of Distribution."
The Warrantholders and Selling Stockholders and any broker-dealers or agents
that participate with the Warrantholders and Selling Stockholders in the
distribution of the Offered Securities may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, and any commissions received
by them and any profit on the resale of the Offered Securities purchased by them
may be deemed to be underwriting commissions or discounts under the Securities
Act.
The information in this Prospectus is not yet complete and may be amended.
We have filed a registration statement regarding these securities with the
Securities and Exchange Commission. You may not sell or accept offers to buy
before the registration statement becomes effective. This prospectus is not an
offer to sell, or the solicitation of an offer to buy. We will not participate
in any sale of these securities in any state in which offer, solicitation or
sale would be unlawful before registering or qualifying under the securities
laws of that state.
1
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY CONTAINS BASIC INFORMATION ABOUT THIS OFFERING. IT
LIKELY DOES NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. TO FULLY
UNDERSTAND THIS OFFERING, YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY,
INCLUDING THE FINANCIAL STATEMENTS AND THEIR RELATED NOTES.
THE DEBT SECURITIES REGISTERED BY THIS PROSPECTUS ARE OBLIGATIONS ISSUED BY
DECRANE AIRCRAFT HOLDINGS, INC. DECRANE AIRCRAFT'S PARENT COMPANY, DECRANE
HOLDINGS CO., IS A HOLDING COMPANY AND DOES NOT HAVE ANY MATERIAL OPERATIONS OR
ASSETS OTHER THAN ITS OWNERSHIP OF THE CAPITAL STOCK OF DECRANE AIRCRAFT. THIS
PROSPECTUS USES THE PHRASES "DECRANE AIRCRAFT" AND "DECRANE HOLDINGS" WHEN WE
REFER TO THOSE COMPANIES SEPARATELY.
DECRANE AIRCRAFT REPORTS ITS FINANCIAL INFORMATION ON A CONSOLIDATED BASIS
WITH ITS SUBSIDIARIES. REFERENCES IN THIS DOCUMENT TO "WE" AND "US" MEAN DECRANE
AIRCRAFT AND ITS SUBSIDIARIES AS A GROUP. EXCEPT FOR HISTORICAL FINANCIAL
INFORMATION, AND PLACES WHERE WE INDICATE OTHERWISE, THIS PROSPECTUS PRESENTS
ALL INFORMATION ON A "PRO FORMA" BASIS, GIVING EFFECT TO ALL OF THE TRANSACTIONS
REFERRED TO IN "UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA," INCLUDING THE
DLJ ACQUISITION OF DECRANE AIRCRAFT, AND OUR ACQUISITIONS OF AUDIO
INTERNATIONAL, INC., AVTECH CORPORATION AND DETTMERS INDUSTRIES, INC.
OUR COMPANY
We manufacture components for avionics and systems (such as aircraft
navigation, communications and flight control systems) and related products, and
provide systems integration services, for niche markets within the commercial,
regional and high-end corporate aircraft industries. We believe that we are a
leading provider of components within each niche market we serve. Since DeCrane
Aircraft was founded in 1989, our strategy has been to combine complementary
businesses with leading market positions. We generated revenues of $168.9
million for the twelve months ended September 30, 1998, and Adjusted EBITDA of
$35.0 million for the same period, on a pro forma basis. (Adjusted EBITDA is
defined in "Summary Pro Forma Consolidated Financial Data" herein.)
We seek to maximize our sales by emphasizing the complementary nature of our
products and services. We manufacture:
- electrical contacts;
- connectors (which often include our contacts);
- wire harness assemblies (which often include our connectors);
- structural supports for connectors and harnesses (often packaged with
other products of ours and sold as "installation kits");
- dichroic liquid crystal display ("LCD") devices, which are often used as
part of display panels in flight deck avionics;
- cockpit audio and communications, lighting, and power and control devices
for commercial aircraft; and
- stereo systems, video monitors, passenger switches, cabin lighting,
seating and climate controls for the high-end corporate aircraft market.
Our systems integration services include design and engineering of avionics
systems, certifications on behalf of the Federal Aviation Administration, the
assembly of installation kits for systems to be installed ("kitting"), and
installation services. Smoke detection, fire suppression and in-flight
entertainment systems for aircraft are among the systems for which we supply
design, certification, assembly and/or installation services. We manufacture
many of the components required to complete a systems integration project. We
believe that our combination of strong component manufacturing and integration
capabilities gives us a critical competitive advantage, which would be difficult
for competitors to duplicate.
2
<PAGE>
By successfully combining and growing complementary businesses, we have
achieved strong revenue growth. From 1993 to 1997, our revenues increased from
$48.2 million to $108.9 million on a historical basis. That increase resulted in
a compound annual growth rate of 22.6%. During the same period, DeCrane
Aircraft's EBITDA increased from $6.0 million to $16.9 million on a historical
basis, representing a combined annual growth rate of 29.5%. We have realized
this growth primarily by:
- obtaining new customers and additional business from existing customers;
- selectively acquiring complementary avionics businesses, generally with
high margins;
- taking advantage of favorable trends in the aerospace industry (discussed
below);
- initiating cost reduction programs and productivity improvements; and
- increasing the revenues of acquired businesses, by refocusing or
diversifying their strategies and products.
Since 1990, we have completed eleven acquisitions, most recently Avtech
Corporation and Dettmers Industries, Inc. in June 1998.
We believe that demand for our products and services continues to increase
as a result of several favorable industry trends such as:
- the general increase in new aircraft production;
- the increasing demand for cabin and flight deck systems;
- the increase in new safety requirements in the U.S. and the adoption by
other countries of similar requirements;
- the consolidation of approved suppliers and vendors; and
- the increased outsourcing of products and services.
We have established strong positions in several specialized niches within
the commercial aircraft industry. We believe that we are:
- the largest supplier of bulk contacts to commercial aircraft original
equipment manufacturers (called "OEMs");
- the largest supplier of dichroic LCD devices for use by commercial
aircraft OEMs;
- the largest provider of aircraft entertainment and cabin management
products and systems for the high-end corporate aircraft market;
- a major supplier of wire harness assemblies for use in in-flight
entertainment systems; and
- a leading supplier of cockpit audio controls.
We believe that we are well-positioned to take advantage of the foregoing
trends and expected growth, as a result of the following competitive strengths:
- a diversified revenue base, spanning multiple markets which typically
experience different production cycles;
- complementary and strategically integrated business lines;
- strong customer relationships;
- low-cost, high-quality operations; and
- authorization to perform key regulatory certifications.
3
<PAGE>
We intend to grow our businesses by:
- capitalizing on growth in aircraft production and increased demand for
cabin and flight deck systems;
- emphasizing integrated product systems and complementary services;
- expanding and diversifying systems integration services; and
- completing additional strategic acquisitions.
RECENT DEVELOPMENTS
Until August 1998, we were a publicly-held company. In August 1998, a
holding company organized by DLJ Merchant Banking Partners II, L.P. and
affiliated funds and entities completed a successful tender offer for all shares
of our common stock. See "Recent Developments--The DLJ Acquisition." In December
1998, we signed an agreement with certain of the principal shareholders of PATS,
Inc. to acquire 100% of its stock for a purchase price of approximately $41.5
million, subject to various adjustments and reserves, and contingent upon the
resolution of various conditions. See "Recent Developments--PATS, Inc."
RISK FACTORS
Investing in the notes involves certain risks. See the section on "Risk
Factors."
------------------------
4
<PAGE>
WHERE YOU CAN GET MORE INFORMATION
Each registered purchaser of the old notes from the initial purchaser will
receive a copy of this Prospectus and any related amendments or supplements. Any
registered purchaser may request from us any information it wishes in order to
verify the information in this Prospectus. Apart from this Prospectus and any
responses we make to those requests, no-one is authorized to give information
about this exchange offer or the notes on our behalf.
We have filed with the Securities and Exchange Commission a registration
statement on the SEC's Form S-1, to register the new notes. This Prospectus is a
part of that registration statement. However, the registration statement has
additional information which is not included here, in accordance with SEC rules.
Our descriptions and statements about any contract or other document in this
Prospectus are summaries. We are required to attach copies of most important
contracts and documents as exhibits to the registration statement.
Our fiscal year ends on December 31. We intend to become a reporting company
as a result of the registration of the notes, and file annual, quarterly and
current reports, proxy statements and other information with the SEC. You may
read and copy any reports, statements or other information we file at the SEC's
reference room in Washington D.C. (Please call the SEC at (202) 942-8090 for
further information on the operation of the reference rooms.) You can also
request copies of these documents, upon payment of a duplicating fee, by writing
to the SEC, or review our SEC filings on the SEC's EDGAR web site, which can be
found at http\\www.sec.gov. If you want more information, write or call us at
our corporate headquarters located at 2361 Rosecrans Avenue, Suite 180, El
Segundo, California 90245. Our telephone number is (310) 725-9123.
COMMON STOCK
<TABLE>
<S> <C>
COMMON STOCK................. The holders of DeCrane Holdings common stock are entitled to
one vote per share on all matters submitted for action by
the shareholders. There is no provision for cumulative
voting with respect to the election of directors. Holders of
DeCrane Holdings common stock are entitled to share equally,
share for share, if dividends are declared on DeCrane
Holdings common stock, whether payable in cash, property or
securities of DeCrane Holdings. In the event of any
voluntary or involuntary liquidation, dissolution or winding
up of DeCrane Holdings, after payment has been made from the
funds available therefore to the holders of Preferred Stock,
if any, for the full amount to which they are entitled, the
holders of the shares of DeCrane Holdings common stock are
entitled to share equally, share for share, in the assets
available for distribution. See "Description of Capital
Stock of DeCrane Holdings."
</TABLE>
5
<PAGE>
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
The table below presents summary unaudited pro forma consolidated financial
data for DeCrane Aircraft and DeCrane Holdings. The summary unaudited pro forma
financial data were derived from historical financial data and give pro forma
effect to the transactions described in the unaudited pro forma consolidated
financial statements included elsewhere in this Prospectus. The pro forma
financial data do not purport to represent what the actual results of operations
or actual financial position would have been if such transactions had actually
occurred on such dates or to project the future results of operations or
financial position. The information in this table should be read in conjunction
with "Recent Developments--The DLJ Acquisition," "The Initial Offering,"
"Selected Consolidated Financial Data," "Unaudited Pro Forma Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the DeCrane Aircraft and DeCrane Holdings
financial statements and related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECRANE AIRCRAFT (1) DECRANE HOLDINGS (1)
------------------------------------------- -------------------------------------------
YEAR NINE MONTHS TWELVE MONTHS YEAR NINE MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1998 1997 1998 1998
------------- ------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS
DATA:
Revenues.......................... $ 160,054 $ 128,953 $ 168,904 $ 160,054 $ 128,953 $ 168,904
Gross profit (2).................. 43,294 44,817 57,224 43,294 44,817 57,224
Operating income.................. 8,050 16,182 19,913 7,950 16,107 19,813
Provision for income taxes
(benefit)....................... (3,174) 1,623 1,560 (3,234) 1,577 1,500
Loss before extraordinary item.... (10,000) (1,456) (2,881) (10,091) (1,523) (2,972)
OTHER PRO FORMA FINANCIAL DATA:
EBITDA (3)........................ $ 26,678 $ 26,676 $ 33,905 $ 26,578 $ 26,601 $ 33,805
EBITDA margin..................... 16.7% 20.7% 20.1% 16.6% 20.6% 20.0%
Adjusted EBITDA (4)............... $ 28,185 $ 27,089 $ 34,956 $ 28,085 $ 27,014 $ 34,856
Adjusted EBITDA margin............ 17.6% 21.0% 20.7% 17.5% 20.9% 20.6%
Depreciation and amortization
(5)............................. $ 13,992 $ 10,494 $ 13,992 $ 13,992 $ 10,494 $ 13,992
Capital expenditures.............. 7,251 3,201 4,237 7,251 3,201 4,237
Cash interest expense............. 19,886 14,761 19,717 19,886 14,761 19,717
Adjusted EBITDA to cash interest
expense......................... 1.4x 1.8x 1.8x 1.4x 1.8x 1.8x
OTHER OPERATING DATA:
Bookings (6)...................... $ 169,038 $ 140,574 $ 181,899 $ 169,038 $ 140,574 $ 181,899
Backlog at end of period (7)...... 75,477 84,607 84,607 75,477 84,607 84,607
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
(1)
---------------------------
DECRANE DECRANE
AIRCRAFT HOLDINGS
------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
PRO FORMA BALANCE SHEET DATA:
Cash and cash equivalents............................................................ $ 4,267 $ 4,267
Working capital...................................................................... 47,615 47,105
Total assets......................................................................... 336,609 337,117
Total debt (8)....................................................................... 189,867 189,867
Mandatorily redeemable preferred stock............................................... -- 34,436
Stockholder's equity................................................................. 97,629 63,191
</TABLE>
See accompanying notes to Summary Pro Forma Consolidated Financial Data.
6
<PAGE>
NOTES TO SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
(1) Reflects the following as if each had occurred as of January 1, 1997: (i)
the Audio International, Avtech and Dettmers acquisitions; (ii) the DLJ
acquisition; and (iii) the Initial Offering. See "Recent Transactions--The
DLJ Acquisition," "The Initial Offering" and "Unaudited Pro Forma
Consolidated Financial Data."
(2) Net of $4.6 million of non-cash acquisition related charges for the year
ended December 31, 1997 to reflect cost of sales based on the fair value of
inventory acquired in connection with the DLJ acquisition.
(3) EBITDA equals operating income plus depreciation, amortization and non-cash
acquisition related charges described in Note 2 above. EBITDA is not a
measure of performance or financial condition under generally accepted
accounting principles. EBITDA is not intended to represent cash flow from
operations and should not be considered as an alternative to income from
operations or net income computed in accordance with generally accepted
accounting principles, as an indicator of DeCrane Aircraft's operating
performance, as an alternative to cash flow from operating activities or as
a measure of liquidity. DeCrane Aircraft believes that EBITDA is a standard
measure of liquidity commonly reported and widely used by analysts,
investors and other interested parties in the financial markets. However,
not all companies calculate EBITDA using the same method and the EBITDA
numbers set forth above may not be comparable to EBITDA reported by other
companies.
(4) Adjusted EBITDA equals EBITDA plus the following nonrecurring charges:
<TABLE>
<CAPTION>
DECRANE AIRCRAFT DECRANE HOLDINGS
------------------------------------------- -------------------------------------------
YEAR NINE MONTHS TWELVE MONTHS YEAR NINE MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1998 1997 1998 1998
------------- ------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
EBITDA (See Note 3 above)...... $ 26,678 $ 26,676 $ 33,905 $ 26,578 $ 26,601 $ 33,805
Adjustment for nonrecurring
charges:
Reduction of corporate
expenses................... 570 310 452 570 310 452
Consolidation of
facilities................. 222 -- 109 222 -- 109
Non-cash stock option
compensation expense....... 240 73 137 240 73 137
Charge for adverse subleases
on vacated manufacturing
facilities................. 290 -- 290 290 -- 290
Expiration of employment
contract for a former
shareholder of a previously
acquired company........... 185 30 63 185 30 63
------------- ------------- ------------- ------------- ------------- -------------
Total adjustments.......... 1,507 413 1,051 1,507 413 1,051
------------- ------------- ------------- ------------- ------------- -------------
Adjusted EBITDA................ $ 28,185 $ 27,089 $ 34,956 $ 28,085 $ 27,014 $ 34,856
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
(5) Reflects depreciation of plant and equipment and amortization of goodwill
and other intangible assets. Excludes amortization of deferred financing
costs and debt discounts, which is classified as a component of interest
expense.
(6) Bookings represent the total invoice value of purchase orders received
during the period. See "Business--Backlog."
(7) Orders are generally subject to cancellation by the customer prior to
shipment. The level of unfilled orders at any given date during the year
will be materially affected by the timing of the Company's receipt of orders
and the speed with which those orders are filled. See "Business-- Backlog."
(8) Total debt is defined as long-term debt, including current portion, and
short-term borrowings.
7
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
DECRANE AIRCRAFT
The table below presents summary historical consolidated financial data for
DeCrane Aircraft. The summary historical financial data for the three years
ended December 31, 1995, 1996 and 1997 were derived from audited financial
statements of DeCrane Aircraft. The summary historical financial data as of and
for the nine, eight and one month periods ended September 30, 1997, August 31,
1998 and September 30, 1998, respectively, were derived from the unaudited
historical financial statements of DeCrane Aircraft for such periods, which, in
the opinion of management of DeCrane Aircraft, reflect normal and recurring
adjustments necessary to present fairly the financial position and results of
operations for the periods presented. The results of operations for interim
periods are not necessarily indicative of results of operations for the full
year. The information in this table should be read in conjunction with "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and DeCrane Aircraft's consolidated
financial statements and related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
(PREDECESSOR) (SUCCESSOR)
--------------------------------------------------------- -----------
EIGHT
NINE MONTHS MONTHS ONE MONTH
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED
------------------------------- SEPTEMBER AUGUST 31, SEPTEMBER
1995 1996(1) 1997(2) 30, 1997(3) 1998(4) 30, 1998(4)
--------- --------- --------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $ 55,839 $ 65,099 $ 108,903 $ 80,887 $ 90,077 $ 16,012
Gross profit(5)............. 12,376 15,707 28,656 20,223 29,976 4,932
Operating income............ 1,835 4,251 11,995 8,595 9,278 960
Interest expense............ 3,821 4,248 3,154 2,598 2,350 1,765
Provision for income
taxes(6).................. 1,078 712 3,344 2,191 2,892 (506)
Income (loss) before
extraordinary item........ (3,446) (817) 5,254 3,564 3,189 (480)
Extraordinary loss from debt
refinancing(7)............ -- -- (2,078) (2,078) -- (296)
Net income (loss)........... (3,446) (817) 3,176 1,486 3,189 (776)
OTHER FINANCIAL DATA:
EBITDA(8)................... $ 5,471 $ 7,602 $ 16,915 $ 12,022 $ 13,636 $ 3,285
EBITDA margin............... 9.8% 11.7% 15.5% 14.9% 15.1% 20.5%
Depreciation and
amortization(9)........... $ 3,636 $ 3,351 $ 4,920 $ 3,427 $ 4,358 $ 1,166
Capital expenditures(10).... 1,203 5,821 3,842 2,842 1,745 307
OTHER OPERATING DATA:
Bookings(11)................ $ 50,785 $ 81,914 $ 112,082 $ 93,911 $ 94,439 $ 16,890
Backlog at end of
period(12)................ 19,761 44,433 49,005 44,791 89,184 84,607
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
BALANCE SHEET DATA: 1998(13)
-------------
<S> <C>
Cash and cash equivalents..................................................... $ 4,267
Working capital............................................................... 46,683
Total assets.................................................................. 333,300
Total debt(14)................................................................ 184,893
Stockholders' equity.......................................................... 98,362
</TABLE>
See accompanying notes to Summary Historical Consolidated Financial Data.
8
<PAGE>
NOTES TO SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
(1) Includes the effect of the acquisition of the remaining 25% minority
interest in Cory Components beginning February 20, 1996, the date on which
the transaction occurred, and the results of Aerospace Display Systems and
Elsinore Aerospace Services, Inc. and Elsinore Engineering, Inc.
(collectively, "Elsinore") beginning September 18, 1996 and December 5,
1996, respectively, the dates on which they were acquired.
(2) Includes the effect of the acquisition of Audio International beginning
November 14, 1997, the date on which it was acquired.
(3) Excludes the effect of the acquisition of Audio International, which was not
acquired until November 14, 1997.
(4) The results of operations of Avtech and Dettmers, which were acquired on
June 26, 1998 and June 30, 1998, respectively, have been included in DeCrane
Aircraft's results of operations for the eight months ended August 31, 1998
(Predecessor) and one month ended September 30, 1998 (Successor). The
results of operations for the one month ended September 30, 1998 also
reflect the DLJ acquisition.
(5) Net of $1.2 million of non-cash charges for the one month ended September
30, 1998 to reflect cost of sales based on the fair value of inventory
acquired in connection with the DLJ acquisition.
(6) Prior to the acquisition of the remaining 25% minority interest in Cory
Components in 1996, DeCrane Aircraft did not consolidate the earnings of
Cory Components for tax purposes. As such, despite a consolidated pre-tax
loss in each of the years, DeCrane Aircraft recorded a provision for income
taxes up to the date of the acquisition in February 1996 which primarily
relates to Cory Components.
(7) Represents: (i) the write-off, net of an income tax benefit, of deferred
financing costs, unamortized original issue discounts, a prepayment penalty
and other related expenses incurred as a result of the repayment of debt by
the Company with the net proceeds from its initial public offering in April
1997; and (ii) the write-off, net of income tax benefit, of deferred
financing costs as a result of the repayment of DeCrane Aircraft's existing
indebtedness in connection with the DLJ acquisition.
(8) EBITDA equals operating income plus depreciation, amortization and non-cash
acquisition related charges described in Note 5 above. EBITDA is not a
measure of performance or financial condition under generally accepted
accounting principles. EBITDA is not intended to represent cash flow from
operations and should not be considered as an alternative to income from
operations or net income computed in accordance with generally accepted
accounting principles, as an indicator of DeCrane Aircraft's operating
performance, as an alternative to cash flow from operating activities or as
a measure of liquidity. DeCrane Aircraft believes that EBITDA is a standard
measure of liquidity commonly reported and widely used by analysts,
investors and other interested parties in the financial markets. However,
not all companies calculate EBITDA using the same method and the EBITDA
numbers set forth above may not be comparable to EBITDA reported by other
companies.
(9) Reflects depreciation and amortization of plant and equipment and goodwill
and other intangible assets. Excludes amortization of deferred financing
costs and debt discounts which is classified as a component of interest
expense.
(10) Includes $4.4 million for the year ended December 31, 1996 related to the
acquisition of a manufacturing facility. See "Business--Acquisition
History."
(11) Bookings represent the total invoice value of purchase orders received
during the period. See "Business--Backlog."
9
<PAGE>
(12) Orders are generally subject to cancellation by the customer prior to
shipment. The level of unfilled orders at any given date during the year
will be materially affected by the timing of DeCrane Aircraft's receipt of
orders and the speed with which those orders are filled. See
"Business--Backlog."
(13) Reflects the DLJ acquisition.
(14) Total debt is defined as long-term debt, including current portion, and
short-term borrowings.
10
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
DECRANE HOLDINGS
DeCrane Holdings is a holding company formed in July 1998 prior to the DLJ
acquisition. The selected historical financial data from inception to August 27,
1998 were derived from the audited financial statements of DeCrane Holdings. The
selected historical financial data as of and for the period from inception to
September 30, 1998 were derived from the unaudited historical financial
statements of DeCrane Holdings, which, in the opinion of management of DeCrane
Holdings reflect normal and recurring adjustments necessary to present fairly
the financial position and results of operations. The summary results of
operations for the interim period are not necessarily indicative of the results
of operations for the full year. The information in this table should be read in
conjunction with "Recent Developments--The DLJ Acquisition," "Selected
Consolidated Financial Data" and the DeCrane Holdings financial statements and
related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
INCEPTION TO
INCEPTION TO SEPTEMBER 30,
AUGUST 27, 1998(1) 1998(2)
------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................................ $ -- $ 16,012
Gross profit(3)......................................................... -- 4,932
Operating income........................................................ -- 960
Interest expense........................................................ -- 1,769
Provision for income taxes.............................................. -- (508)
Income (loss) before extraordinary item................................. -- (482)
Extraordinary loss from debt refinancing(4)............................. -- (296)
Net income (loss)....................................................... -- (778)
OTHER FINANCIAL DATA:
EBITDA(5)............................................................... $ -- $ 3,285
EBITDA margin........................................................... -- 20.5%
Depreciation and amortization(6)........................................ $ -- $ 1,166
Capital expenditures.................................................... -- 307
OTHER OPERATING DATA:
Bookings(7)............................................................. $ -- $ 16,890
Backlog at end of period(8)............................................. -- 84,607
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1998
------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................................................................... $ 4,267
Working capital............................................................................... 46,173
Total assets.................................................................................. 333,808
Total debt(9)................................................................................. 184,893
Mandatorily redeemable preferred stock........................................................ 34,436
Stockholders equity........................................................................... 63,924
</TABLE>
11
<PAGE>
NOTES TO SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
(1) DeCrane Holdings is a newly incorporated entity formed in July 1998 with no
operations or cash flows prior to the DLJ acquisition on August 28, 1998.
(2) On August 28, 1998 DeCrane Holdings and two other companies organized by DLJ
Merchant Banking Partners II, L.P. and affiliated funds and entities
completed a successful tender offer for all the shares of DeCrane Aircraft.
At the completion of the tender offer, the two other companies merged with
DeCrane Aircraft. As a result, DeCrane Aircraft became a wholly-owned
subsidiary of DeCrane Holdings.
(3) Net of $1.2 million of non-cash charges to reflect cost of sales based on
the fair value of inventory acquired in connection with the DLJ acquisition.
(4) Represents the write-off, net of an income tax benefit, of deferred
financing costs as a result of the repayment of DeCrane Aircraft's existing
indebtedness in connection with the DLJ acquisition.
(5) EBITDA equals operating income plus depreciation, amortization and non-cash
acquisition related charges described in Note 3 above. EBITDA is not a
measure of performance of financial condition under generally accepted
accounting principals. EBITDA is not intended to represent cash flow from
operations and should not be considered as an alternative to income from
operations or net income computed in accordance with generally accepted
accounting principles, as an indicator of DeCrane Holdings' operating
performance, as an alternative to cash flow from operating activities or as
a measure of liquidity. DeCrane Holdings believes that EBITDA is a standard
measure of liquidity commonly reported and widely used by analysts,
investors and other interested parties in the financial markets. However,
not all companies calculate EBITDA using the same method and the EBITDA
numbers set forth above may not be comparable to other companies.
(6) Reflects depreciation and amortization of plant and equipment and goodwill
and other intangible assets. Excludes amortization of deferred financing
costs and debt discounts, which is classified as a component of interest
expense.
(7) Bookings represent the total invoice value of purchase orders received
during the period. See "Business--Backlog."
(8) Orders are generally subject to cancellation by the customer prior to
shipment. The level of unfilled orders at any given date during the year
will be materially affected by the timing the subsidiaries receipt of orders
and the length of time with which those orders are filled. See
"Business--Backlog."
(9) Total debt is defined as long-term debt, including current portion, and
short-term borrowings.
12
<PAGE>
EARNINGS TO FIXED CHARGES RATIO
The DeCrane Aircraft and DeCrane Holdings historical and pro forma earnings
to fixed charges ratio for the periods indicated are presented in the tables
below. For purposes of calculating the ratio, earnings represents net income
before income taxes, minority interest in the income of majority-owned
subsidiaries, extraordinary items and fixed charges. Fixed charges consist of:
(i) interest, whether expensed or capitalized; (ii) amortization of debt expense
and discount relating to any indebtedness, whether expensed or capitalized; and
(iii) one-third of rental expense under operating leases which is deemed to be
representative of the interest factor. For DeCrane Holdings, fixed charges also
includes preferred stock dividends. The information in these tables should be
read in conjunction with "Recent Developments--The DLJ Acquisition," the DeCrane
Aircraft and DeCrane Holdings "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Unaudited Pro Forma Consolidated Financial Data" and the financial
statements and related notes included elsewhere in this Prospectus.
DECRANE AIRCRAFT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
(PREDECESSOR)
-------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED EIGHT MONTHS
----------------------------------------------------------- SEPTEMBER 30, ENDED AUGUST 31,
1993 1994 1995 1996 1997 1997 1998
----- --------- --------- ----- ----- ----------------- -----------------
(DOLLARS IN THOUSANDS)
HISTORICAL:
Earnings to fixed charges
ratio:
Ratio...................... -- -- -- 1.0x 3.3x 2.9x 3.2x
Deficiency................. $ 3 $ 1,808 $ 2,283 $ -- $ -- $ -- $ --
<CAPTION>
(SUCCESSOR)
-----------------
ONE MONTH ENDED
SEPTEMBER 30,
1998
-----------------
HISTORICAL:
Earnings to fixed charges
ratio:
Ratio...................... --
Deficiency................. $ 980
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED TWELVE MONTHS
DECEMBER 31, SEPTEMBER 30, ENDED SEPTEMBER
1997 1998 30, 1998
------------- ----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
PRO FORMA:
Earnings to fixed charges ratio:
Ratio............................................ -- 1.0x --
Deficiency....................................... $ 13,062 $ -- $ 1,236
</TABLE>
DECRANE HOLDINGS
<TABLE>
<CAPTION>
INCEPTION TO INCEPTION TO
AUGUST 27, SEPTEMBER 30,
1998(1) 1998
--------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
HISTORICAL:
Earnings to fixed charges ratio:
Ratio............................................................... -- --
Deficiency.......................................................... $ -- $ 984
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED TWELVE MONTHS
DECEMBER 31, SEPTEMBER 30, ENDED SEPTEMBER
1997 1998 30, 1998
------------- ----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
PRO FORMA:
Earnings to fixed charges ratio:
Ratio............................................ -- 1.0x --
Deficiency....................................... $ 13,213 $ -- $ 1,387
</TABLE>
- ------------------------------
(1) DeCrane Holdings is a newly incorporated entity formed in July 1998 with no
operations or cash flows prior to the DLJ acquisition on August 28, 1998.
13
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING INFORMATION AS PART OF YOUR
EVALUATION OF OUR COMPANY AND ITS BUSINESS BEFORE MAKING AN INVESTMENT IN THE
OFFERED SECURITIES.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this Prospectus discuss future expectations,
beliefs or strategies, projections or other "forward-looking" information. These
statements are subject to both known and unknown risks. Many factors could cause
actual company results, performance or achievements, or industry results, to be
materially different from the projections expressed or implied by this
Prospectus. Some of those risks are specifically described below, but we are
also vulnerable to a variety of elements which affect many businesses, such as:
- - fuel prices and general economic conditions in our market areas, which affect
demand for aircraft and air travel, which in turn affect demand for our
products and services;
- - changes in prevailing interest rates and the availability of financing to fund
our plans for continued growth;
- - inflation, and other general changes in costs of goods and services;
- - liability and other claims asserted against us;
- - labor disturbances; and
- - changes in operating strategy, or our acquisition and capital expenditure
plans.
We cannot predict any of the foregoing with certainty, so our forward-looking
statements are not necessarily accurate predictions. Also, we are not obligated
to update any of these statements, to reflect actual results or report later
developments. You should not rely on our forward-looking statements as if they
were certainties.
SUBSTANTIAL LEVERAGE
We incurred significant debt as part of the DLJ acquisition transaction. As
of September 30, 1998, on a pro forma basis, we would have had total
consolidated indebtedness of approximately $189.9 million, and would have
available $41.2 million of additional revolving borrowings under the DeCrane
Aircraft bank credit facility. (In order to borrow those funds, we will have to
satisfy funding conditions of the kind usually imposed in similar agreements.)
The bank credit facility, and the Indenture under which the DeCrane Aircraft
senior subordinated notes are issued, each also permit us to incur significant
amounts of additional debt, and to secure that debt with some of our assets.
The amount of debt we carry could have important consequences:
- it may limit the cash flow available for general corporate purposes, and
acquisitions, because a substantial portion of our cash flow must be
dedicated to repay the debt;
- it may limit our ability to obtain additional debt financing in the future
for working capital, capital expenditures or acquisitions;
- it may limit our flexibility in reacting to competitive and other changes
in the industry and economic conditions generally; and
- it may expose us to increased interest expenses, when interest rates
fluctuate, because some of our borrowing may be at variable "floating"
rates.
Our ability to satisfy all of our debt obligations will depend upon our future
operating performance and the cash flow it generates. We anticipate that our
operating cash flow, together with borrowings under our bank credit facility,
will be sufficient to meet our anticipated future operating and capital
expenditures and debt payments as they become due. However, if our cash flow is
lower than we expect, we might be forced to reduce or delay acquisitions or
capital expenditures, sell assets or reduce operating
14
<PAGE>
expenses, in order to make all required loan payments. For example, a reduction
in our operating expenses might reduce important efforts such as selling and
marketing programs, management information system upgrades and new product
development. If we were unable to service the debt, we could attempt to
restructure or refinance our indebtedness or seek additional equity capital.
However, we cannot assure you that we will be able to accomplish any of the
foregoing on satisfactory terms, or at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-- Liquidity and
Capital Resources."
RESTRICTIONS AND FINANCIAL COVENANTS IN OUR DEBT AGREEMENTS
The Indenture for the notes and our bank credit facility each impose various
contractual restrictions on our operations and businesses. Both restrict our
ability to incur additional indebtedness, incur liens, pay dividends or make
certain other restricted payments, enter into certain types of transactions with
affiliates, limit the ability of certain of our subsidiaries to pay dividends or
make certain payments to DeCrane Aircraft, merge or consolidate with any other
person, or transfer, lease or otherwise dispose of substantially all of our
assets. Our bank credit facility contains additional restrictions, and prohibits
us from prepaying our other indebtedness (including the notes). See "Description
of Bank Credit Facility" and "Description of Notes--Certain Covenants." Our bank
credit facility requires that we maintain specified financial ratios and satisfy
several tests of financial condition. Our ability to do so can be affected by
events beyond our control, and we cannot assure you that we will meet those
tests. Our failure to do so could result in a default under our bank credit
facility or the notes.
HOLDING COMPANY STRUCTURE; RELIANCE ON CASH FLOW FROM SUBSIDIARIES
We conduct all of our operations through subsidiaries. DeCrane Aircraft's
ability to meet its debt service obligations will depend upon it receiving
dividends from those operations. The Indenture may allow our subsidiaries to
enter into future loan agreements which restrict or prohibit them from paying
dividends to DeCrane Aircraft. See "Description of Notes--Certain Covenants."
State law may also limit the amount of the dividends that our subsidiaries are
permitted to pay to DeCrane Aircraft.
HISTORICAL NET LOSSES
On a pro forma basis, taking into account the DLJ acquisition transactions,
we would have had a $10.0 million loss before extraordinary items for the twelve
months ended December 31, 1997. See "Unaudited Pro Forma Consolidated Financial
Data." In the past, our acquisitions resulted in increased interest and
amortization expenses. As a result we incurred historical net losses in each
year from our inception through 1996, despite positive operating income. The
first historical net profit we reported occurred in 1997, in part because of the
repayment of a significant part of our outstanding debt with the net proceeds of
our initial public offering. We cannot assure you that our future operations
will generate sufficient earnings to pay our obligations. See "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH ACQUISITIONS
Our ability to grow by acquisition depends on the availability of suitable
acquisition candidates and capital, and by restrictions contained in our bank
credit facility and the Indenture. We are continually engaged in discussions
with potential acquisition candidates. However, it is not certain that we will
complete any potential acquisition. It is also not certain whether we will be
able to identify suitable acquisition candidates, complete acquisitions or
obtain satisfactory financing for them. Also, we may have difficulty integrating
the operations and personnel of acquired companies, or amortizing acquired
intangible assets. We may not always be able to retain the key employees of
acquired companies. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business--Acquisition History" and
"Business--Growth Strategy."
15
<PAGE>
AIRCRAFT INDUSTRY RISKS
Our principal customers include the world's OEMs in the commercial,
regional, corporate and military aircraft markets.
- COMMERCIAL AIRCRAFT. The principal market for OEMs of commercial
aircraft (100 seats and over) is the commercial airline industry, which is
cyclical and has been adversely affected by a number of factors, including
increased fuel and labor costs and intense price competition. For example,
new commercial aircraft deliveries declined from a peak of approximately 767
aircraft in 1991 to approximately 367 aircraft in 1995, according to
AEROSPACE AND AIRTRANSPORT CURRENT ANALYSIS published by Standard and Poor's
Industry Surveys (the "S&P Report"); and Boeing has also recently announced
production line cutbacks for 1999 and 2000.
- REGIONAL AIRCRAFT. The principal markets for regional OEMs are the
commercial and commuter airline industry. Commuter airlines, like commercial
airlines, operate in a cyclical industry subject to the adverse factors
noted above. We cannot assure you that this market will continue to grow.
- CORPORATE AIRCRAFT. The principal markets for such OEMs are
corporations and wealthy individuals. The corporate aircraft market is also
cyclical and has been adversely affected by a number of factors, including
the general state of the U.S. economy, corporate profits, interest rates and
commercial airline fares. A downturn in any of these factors could depress
the demand for corporate aircraft.
- MILITARY AIRCRAFT. The military aircraft industry is dependent upon
the level of equipment expenditures by the armed forces of countries
throughout the world, and especially those of the United States. In recent
years, this industry has been adversely affected by a number of factors,
including the reduction in military spending since the end of the Cold War.
Further decreases in military spending could further depress demand for
military aircraft.
A downturn in any of the foregoing markets could adversely affect our business.
See "Business-- Industry Overview and Trends."
DEPENDENCE ON KEY CUSTOMERS
Our two largest customers for the fiscal year ended December 31, 1997, were
Boeing (including McDonnell Douglas) and Matsushita Avionics Systems
("Matsushita"). Boeing accounted for 22.1% of our consolidated revenues for that
year, and Matsushita for 7.6%, on a pro forma basis. In addition, a significant
part of our sales of components are sold to Boeing indirectly, through sales to
suppliers of Boeing. Most of our sales contracts with Boeing allow Boeing to
stop purchasing or terminate the contract at any time. In addition, under
certain circumstances, those contracts may allow Boeing to enforce alternative
economic terms, which would make the contracts less commercially favorable to
us. During October 1997, Boeing announced that parts shortages adversely
affected its production and delivery rates. Boeing shut down its 737 and 747
production lines for approximately one month and did not resume normal
production rates until late November 1997. In late 1998, among other things,
Boeing announced reductions in its previously scheduled production for the 747,
757, 767 and 777 programs in 1999 and 2000. (See "--Instability in Asian
Markets," below.) Boeing might suffer further production schedule disruptions.
We generally sell components and services to Matsushita pursuant to purchase
orders. However, we do have a supply agreement for connectors through September
1999. On a pro forma basis, in the first nine months of 1998 as compared to the
same period in 1997, our sales to Boeing increased $0.2 million while our sales
to Matsushita declined by $2.3 million. A significant decline in business from
any one of our key customers could have a material adverse effect on our
business. See "Business--Customers" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
16
<PAGE>
INSTABILITY IN ASIAN MARKETS
The Asian markets are important for commercial aircraft and avionics OEMs.
Boeing has a large backlog of aircraft sales to customers in Asia, and some
deliveries have been deferred or cancelled. Among other things, in recent press
releases, Boeing projects that its 747 production rates will be reduced by
approximately 42% in late 1999 and by 71% in early 2000 if market conditions
fail to improve. That situation could, if it continues or worsens, result in
additional significant cancellations or deferrals of deliveries for new
aircraft. Those events would adversely affect the OEMs, which could have a
material adverse effect on our business.
PRODUCTS INSURANCE AND RISKS OF EXCESS LOSSES
We currently carry aviation products insurance. However, we cannot assure
you that our existing insurance coverage will be adequate to cover claims, or
that such coverage can be renewed.
REGULATION BY THE FAA
The Federal Aviation Administration prescribes standards and licensing
requirements for aircraft components, licenses private repair stations and
issues Designated Air Station approvals, which give the holder the right to
certify certain aircraft design modifications on behalf of the FAA. Our ability
to arrange for rapid government certification of systems integration services is
important to our business. It depends on our continuing access to, or use of,
these FAA certifications and approvals, and our employment of, or access to,
FAA-certified individual engineering professionals. We cannot assure you that we
will continue to have adequate access to those certifications, approvals and
certified professionals. The FAA curtailed our subsidiary's use of a Designated
Air Station certification for new projects for several months during 1997, until
the facility was brought into compliance with the FAA's regulations governing
FAA-certified repair stations. See "Business--Industry Regulation." The loss of
a required license or certificate, or its unavailability, could adversely affect
our operations. The FAA could also change its policies regarding the delegation
of inspection and certification responsibilities to private companies, which
could adversely affect our business. See "Business--Industry Regulation."
FLUCTUATIONS IN GOLD AND COPPER PRICES
A significant portion of the cost of the materials used in our contacts is
comprised of the cost of gold, and to a lesser extent, the cost of copper.
Accordingly, a significant increase in the price of gold or copper could
adversely affect our results of operations. We have not purchased commodities
contracts for gold or copper and do not anticipate doing so. See "Business--Raw
Materials and Component Parts."
LIMITED SUPPLY OF QUALIFIED ENGINEERING PERSONNEL
Our ability to attract and retain a high-quality engineering staff is
important to our business. Competition for qualified avionics engineers is
intense. We cannot assure you that we will be able to retain our existing
engineering staff or fill new positions or vacancies created by expansion or
turnover. See "Business--Products and Services" and "Business--Employees."
ENVIRONMENTAL RISKS AND REGULATIONS
We are subject to various local and foreign environmental laws and
regulations. Certain laws, particularly the federal Comprehensive Environmental
Response, Compensation and Liability Act, as amended ("CERCLA"), impose strict,
retroactive and joint and several liability upon persons responsible for
releases or potential releases of hazardous substances. We have sent waste to
treatment, storage or disposal facilities that have been designated as National
Priority List sites under CERCLA or equivalent listings under state laws. We
have received CERCLA requests for information or allegations of potential
responsibility from the Environmental Protection Agency regarding our use of
certain such sites. Given the retroactive nature of CERCLA liability, it is
possible that we will receive additional
17
<PAGE>
notices of potential liability relating to current or former activities. See
"Business--Environmental Matters." We may incur costs in the future for prior
waste disposal by us or former owners of our subsidiaries or our facilities.
Some of our operations are located on properties which are contaminated to
varying degrees. Some of our manufacturing processes create wastewater which
requires chemical treatment, and one of our facilities has been cited for
failure to adequately treat that water. See "Business--Legal Proceedings." We
may incur costs in the future to address existing or future contamination.
EXPOSURE TO FOREIGN CURRENCY FLUCTUATIONS
We have a manufacturing facility in Switzerland, and incur in Swiss Francs a
significant percentage of the cost of the contact blanks we manufacture there.
As a result our financial results are subject to fluctuations of the Swiss Franc
in relation to the U.S. Dollar. From 1996 through 1998, in order to reduce the
risks of currency fluctuations, we have entered into forward exchange contracts
to purchase Swiss Francs. We expect to continue to hedge our foreign exchange
risk as appropriate. We do not invest in foreign currency for speculative
purposes. However, we cannot assure you that our hedging activities will prevent
currency fluctuations from adversely affecting our results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
COMPLIANCE OF KEY SYSTEMS WITH YEAR 2000 PERFORMANCE STANDARDS
We are dependent in part on computer- and date-controlled systems for some
internal functions, particularly inventory control, purchasing, customer billing
and payroll. Similarly, suppliers of components and services on which we rely,
and our customers, may have Year 2000 compliance risks which would affect their
operations and their transactions with us. Our review of these third-party
compliance risks from our key vendors and customers is not yet complete. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Compliance of Key Systems With Year 2000 Performance Standards."
Although we are not aware of any material customer- or vendor-related Year 2000
issues, we can not currently evaluate the magnitude of our exposure. Because of
the complexity of these issues and the interdependence of many companies using
computer- and date-controlled systems, our assessment of the risks may be
incorrect. Additionally, in view of the mixed results achieved by software
vendors in correcting these problems, we cannot assure you that new systems we
obtain to replace noncompliant systems will themselves prove to be fully
compliant.
Based on current information, we expect that our costs to remediate and test
our systems, and evaluate the risks of our key customers and vendors, will not
be material. Our management does not anticipate encountering any significant
failures of Year 2000 compliance in our systems, products or supply chain that
would materially disrupt our operations. However, we may experience cost
overruns and delays as we replace or modify our systems, or address our
third-party exposures, which could have a material adverse effect on our
consolidated financial position, results of operations or cash flow. We cannot
assure you that our assessment of the foregoing risks from our own systems and
products, or those of our customers or vendors, is or will be correct. We have
not yet determined the extent of contingency planning that may be required if we
have incorrectly assessed the foregoing Year 2000 risks. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Compliance of Key Systems With Year 2000 Performance Standards."
CONTROL OF DECRANE AIRCRAFT BY PRINCIPAL SHAREHOLDERS
DeCrane Aircraft is wholly owned by DeCrane Holdings, and all of the
outstanding shares of common stock of DeCrane Holdings are held by the DLJMB
Funds. (The DLJMB Funds own approximately 94% of the common stock of DeCrane
Holdings, on a fully diluted basis assuming exercise of all outstanding
warrants.) As a result of their stock ownership, the DLJMB Funds control DeCrane
Holdings and DeCrane Aircraft, and have (among other things) the power to elect
all of their directors,
18
<PAGE>
appoint new management, approve sales of all or substantially all of the assets
of the companies, issue additional capital stock, establish stock purchase
programs and declare dividends.
The general partners of each of the DLJMB Funds are affiliates or employees
of Donaldson, Lufkin & Jenrette, Inc. ("DLJ, Inc."). DLJ Capital Funding, Inc.,
which is an agent and lender under our bank credit facility, DLJ Bridge Finance,
Inc., which purchased the original bridge notes refinanced by the old notes, and
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC"), which was the
initial purchaser of the old notes, are also affiliates of DLJ, Inc.
The interests of those principal shareholders could conflict with your
interests as a holder of the the warrants of common stock acquired thereunder.
Those shareholders may also have an interest in pursuing transactions that they
believe enhance the value of their equity investment in DeCrane Aircraft or
DeCrane Holdings, even though the transactions involve risks to your equity
investment.
19
<PAGE>
RECENT DEVELOPMENTS
THE DLJ ACQUISITION
In August 1998, DeCrane Holdings and two other holding companies organized
by DLJ Merchant Banking Partners II, L.P. ("DLJMB") and affiliated funds and
entities (the "DLJMB Funds") completed a successful tender offer for all shares
of our common stock (including options to purchase shares, net of the exercise
proceeds) for $23.00 per share, resulting in a net price of approximately $182.0
million. At the completion of the tender offer, the two other holding companies
merged with DeCrane Aircraft. All of our old outstanding shares were cancelled,
non-tendering shareholders were paid out, and as a result DeCrane Aircraft
became a wholly-owned subsidiary of DeCrane Holdings.
Prior to the tender offer, one of the merging holding companies entered into
a $130.0 million syndicated bank credit facility, with a group of lenders led by
DLJ Capital Funding, Inc. That syndicated facility is now our bank credit
facility. For its principal terms, see "Description of Bank Credit Facility."
The initial borrowings from that facility totalled $80.0 million of term loans
and $5.4 million of revolving loans, and were used to fund the purchase of
shares in the tender offer, as well as to refinance existing debt of DeCrane
Aircraft. That same merging company also issued $100.0 million of senior
subordinated increasing rate notes to DLJ Bridge Finance, Inc., before merging
into DeCrane Aircraft, making the bridge notes our obligation. The proceeds from
those bridge notes were used to fund the tender offer purchases. The bridge
notes were refinanced by our issuance of the old notes in October 1998 to the
initial purchaser Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC").
See "The Initial Offering."
DeCrane Holdings raised additional funds for the tender offer purchases, and
expenses of the acquisition transactions, by selling all of the shares of its
common stock for $65.0 million and all of the shares of its Senior Redeemable
Exchangeable Preferred Stock due 2009 ("DeCrane Holdings Preferred") for $34.0
million. DeCrane Holdings also issued to the DLJMB Funds warrants to acquire an
additional 5% of its common stock on a fully diluted basis (assuming exercise of
all of the warrants).
The following table sets forth the cash sources and uses of funds for the
DLJ acquisition, including the Initial Offering (completed in October 1998) and
related fees and expenses (dollars in thousands):
<TABLE>
<S> <C>
SOURCES
Cash from income tax refund (1)................................................ $ 4,368
Proceeds from the exercise of stock options.................................... 4,314
Bank credit facility:
Revolving credit facility.................................................... 5,400
Term facility................................................................ 80,000
Units sold in the Initial Offering............................................. 100,000
DLJMB equity investment........................................................ 99,000
Estimated additional borrowings to fund transaction fees and expenses.......... 2,528
-----------
Total Sources............................................................ $ 295,610
-----------
-----------
USES
Purchase price for the shares.................................................. $ 173,116
Purchase of shares from the exercise of stock options.......................... 13,194
Repayment of prior senior credit facility...................................... 93,000
Estimated transaction fees and expenses........................................ 16,300
-----------
Total Uses............................................................... $ 295,610
-----------
-----------
</TABLE>
- ------------------------
(1) As of June 30, 1998, DeCrane Aircraft had approximately $4.4 million of
income taxes refundable. Since that time, we have received $4.2 million of
this amount and used the cash to reduce our indebtedness.
21
<PAGE>
PATS, INC.
In December 1998, we signed an agreement with certain of the principal
shareholders of PATS, Inc. to acquire 100% of its stock for a purchase price of
approximately $41.5 million, subject to adjustments for changes to its net
working capital, and reserves for certain environmental and other indemnities
made by the shareholders. PATS is a designer, manufacturer and installer of
auxiliary fuel tanks which significantly extend the flight range of commercial
and corporate aircraft. Among other things, PATS is the principal supplier of
auxiliary fuel tank systems to the Boeing Business Jet program. PATS also is a
supplier of auxiliary power units which supply ground power to aircraft.
However, our obligation to close this acquisition is conditional, and will
depend on the resolution of various issues, including our obtaining financing on
satisfactory terms, the completion of our ongoing diligence review of PATS'
business and operations, the agreement to sell by 100% of PATS' shareholders,
and the satisfactory completion of our review and analysis of PATS' major
contracts. We may or may not be able to satisfactorily resolve each of these
issues.
USE OF PROCEEDS
We are conducting this exchange offer in order to satisfy our obligations
under the Registration Rights Agreement entered into at the time of the initial
offering of the DeCrane Aircraft Senior Subordinated Notes. All of the
securities offered hereby are being sold by the holders of the relevant warrants
or warrant shares. DeCrane Holdings will not receive any of the proceeds from
the sale of the offered securities, other than upon the exercise of warrants by
exercising warrantholders. DeCrane Holdings will pay certain expenses relating
to the registration and sale of the offered securities.
22
<PAGE>
CAPITALIZATION
The following table sets forth the historical cash and cash equivalents and
consolidated capitalization of DeCrane Holdings and DeCrane Aircraft as of
September 30, 1998 and on a pro forma basis. This table should be read in
conjunction with the consolidated financial statements of the Company and the
notes thereto included elsewhere herein, the "Unaudited Pro Forma Consolidated
Financial Statements" and notes thereto included elsewhere herein, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
------------------------------------------------
DECRANE AIRCRAFT DECRANE HOLDINGS
----------------------- -----------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
---------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents........................................ $ 4,267 $ 4,267 $ 4,267 $ 4,267
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Total debt:
Bank credit facility
Term facility................................................ $ 80,000 $ 80,000 $ 80,000 $ 80,000
Revolving credit facility(1)................................. 3,800 8,774 3,800 8,774
Senior Subordinated Notes due 2008(2).......................... 100,000 100,000 100,000 100,000
Other debt..................................................... 1,093 1,093 1,093 1,093
---------- ----------- ---------- -----------
Total debt....................................................... 184,893 189,867 184,893 189,867
Mandatorily redeemable preferred stock........................... -- -- 34,436 34,436
Stockholder's equity............................................. 98,362 97,629 63,924 63,191
---------- ----------- ---------- -----------
Total capitalization............................................. $ 283,255 $ 287,496 $ 283,253 $ 287,494
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
- ------------------------
(1) Pro forma reflects the additional borrowing required to fund the transaction
expenses of the Initial Offering and the accrued interest on the old notes.
See Note 2 to the "Unaudited Pro Forma Consolidated Financial Data" on page
32.
(2) The bridge notes outstanding as of September 30, 1998 in the original
principal amount of $100.0 million were refinanced on October 2, 1998 by the
old notes which are the subject of this exchange offer.
DIVIDEND POLICY
DeCrane Holdings has not paid dividends to date on our common stock and we
do not anticipate paying any cash dividends on our common stock in the
forseeable future. DeCrane Holdings is a holding company that is dependent on
distributions from its subsidiaries to meet its cash requirements. The terms of
the Indenture restrict the ability of DeCrane Aircraft to make distributions to
DeCrane Holdings and, consequently, will restrict our ability to pay dividends
on our stock. Holders of our warrants will not have the right to receive any
dividends so long as their warrants are unexercised.
23
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
BASIS OF PRESENTATION
The following unaudited pro forma consolidated financial data of DeCrane
Aircraft and DeCrane Holdings are based on the historical financial statements
of DeCrane Aircraft and DeCrane Holdings adjusted to reflect certain
transactions that are aggregated into two categories: the "Acquisition
Adjustments" and the "Offering Adjustments", each described below. Unaudited pro
forma consolidated statements of operations of DeCrane Aircraft and DeCrane
Holdings are presented for the year ended December 31, 1997, the nine months
ended September 30, 1998 and the twelve months ended September 30, 1998. Those
statements reflect the Acquisition Adjustments and the Offering Adjustments as
if they had occurred as of January 1, 1997. The unaudited pro forma consolidated
balance sheets of both DeCrane Aircraft and DeCrane Holdings reflect the
Offering Adjustments as of September 30, 1998; all of the Acquisition Adjustment
events had occurred by that date and are also reflected.
The Acquisition Adjustments reflect the Audio International, Avtech and
Dettmers acquisitions and the DLJ acquisition. For additional information on the
Audio International, Avtech and Dettmers acquisitions, see the discussion in
Note 3 to DeCrane Aircraft's consolidated financial statements included
elsewhere in this Prospectus. For additional information on the DLJ acquisition,
see the discussion under Note 1 to DeCrane Aircraft's consolidated financial
statements.
The Offering Adjustments reflect the issuance and sale of units in the
initial offering (comprised of the old notes and warrants for the common stock
of DeCrane Holdings) and additional revolving credit facility borrowings and the
use of the proceeds therefrom to repay the bridge notes, including accrued
interest, and fees and expenses as described in the use of proceeds table in
"Recent Developments--The DLJ Acquisition." For additional information on the
units in the initial offering, see the discussion in Note 1 to DeCrane
Aircraft's consolidated financial statements.
The pro forma adjustments are based upon available information and certain
assumptions management believes are reasonable under the circumstances. The
unaudited pro forma consolidated financial data and accompanying notes should be
read in conjunction with the historical consolidated financial statements of
DeCrane Aircraft, Audio International and Avtech, including the notes thereto,
included elsewhere in this Prospectus. The pro forma financial data do not
purport to represent what DeCrane Aircraft's or DeCrane Holdings' actual results
of operations or actual financial position would have been if the transactions
described above in fact occurred on such dates or to project DeCrane Aircraft's
or DeCrane Holdings' results of operations or financial position for any future
period or date. For a discussion of the consequences of the incurrence of
indebtedness in connection with the DLJ acquisition, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
24
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED
BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
DECRANE
AIRCRAFT
HISTORICAL OFFERING
(SUCCESSOR)(1) ADJUSTMENTS(2) PRO FORMA
----------- -------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents....................... $ 4,267 $ -- $ 4,267
Accounts receivable, net........................ 28,617 -- 28,617
Inventories..................................... 37,343 -- 37,343
Income taxes refundable......................... 3,000 -- 3,000
Prepaid expenses and other current assets....... 1,472 -- 1,472
----------- -------------- ---------
Total current assets.......................... 74,699 -- 74,699
----------- -------------- ---------
Property and equipment, net....................... 28,215 -- 28,215
Other assets, principally intangibles, net........
Goodwill and other intangibles.................. 219,954 -- 219,954
Deferred financing costs........................ 6,866 2,097(3) 8,963
Deferred income taxes........................... 3,020 1,212(4) 4,232
Other assets.................................... 546 -- 546
----------- -------------- ---------
Net other assets, principally intangibles..... 230,386 3,309 233,695
----------- -------------- ---------
$333,300 $ 3,309 $336,609
----------- -------------- ---------
----------- -------------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Short-term borrowings........................... $ 80 $ -- $ 80
Current portion of long-term obligations........ 1,267 -- 1,267
Accounts payable................................ 9,801 -- 9,801
Accrued expenses................................ 15,258 (932)(5) 14,326
Income taxes payable............................ 1,610 -- 1,610
----------- -------------- ---------
Total current liabilities..................... 28,016 (932) 27,084
----------- -------------- ---------
Long-term liabilities
Revolving credit facility....................... 3,800 4,974(6) 8,774
Term facility................................... 79,550 -- 79,550
Bridge notes.................................... 100,000 (100,000)(7) --
Senior subordinated notes....................... -- 100,000(8) 100,000
Other long-term obligations..................... 196 -- 196
Deferred income taxes........................... 22,844 -- 22,844
Other long-term liabilities..................... 532 -- 532
----------- -------------- ---------
Total long-term liabilities................... 206,922 4,974 211,896
----------- -------------- ---------
Stockholder's equity.............................. 98,362 (733)(9) 97,629
----------- -------------- ---------
$333,300 $ 3,309 $336,609
----------- -------------- ---------
----------- -------------- ---------
</TABLE>
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Data.
25
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
ACQUISITION ADJUSTMENTS
----------------------------------------------------
DECRANE COMPANIES ACQUIRED (10)
AIRCRAFT ---------------------------------------
HISTORICAL AUDIO
(1) INTERNATIONAL, AVTECH DETTMERS OFFERING
(PREDECESSOR) INC. CORPORATION INDUSTRIES ADJUSTMENTS ADJUSTMENTS PRO FORMA
------------- -------------- ----------- ---------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues..................... $108,903 $12,431 $34,689 $4,283 $ (252)(11) $-- $160,054
Cost of sales................ 80,247 7,345 22,396 2,917 3,855(12) -- 116,760
------------- ------- ----------- ---------- ----------- ----------- ---------
Gross profit................. 28,656 5,086 12,293 1,366 (4,107) -- 43,294
Selling, general and
administrative expenses.... 15,756 3,983 7,036 1,029 (2,184)(13) -- 25,620
ESOP contribution............ -- -- 1,200 -- (1,200)(16) -- --
Amortization of intangible
assets..................... 905 -- -- -- 8,719(17) -- 9,624
------------- ------- ----------- ---------- ----------- ----------- ---------
Operating income (loss)...... 11,995 1,103 4,057 337 (9,442) -- 8,050
Interest expense (income).... 3,154 8 (305) 21 16,269(18) 1,890(21) 21,037
Other expenses (income)...... 243 5 (59) (2) -- -- 187
------------- ------- ----------- ---------- ----------- ----------- ---------
Income (loss) before
provision for income taxes
and extraordinary item..... 8,598 1,090 4,421 318 (25,711) (1,890) (13,174)
Provision for income taxes
(benefit).................. 3,344 365 1,487 -- (7,611)(20) (759)(22) (3,174)
------------- ------- ----------- ---------- ----------- ----------- ---------
Income (loss) before
extraordinary item (23).... $ 5,254 $ 725 $ 2,934 $ 318 $(18,100) $(1,131) $(10,000)
------------- ------- ----------- ---------- ----------- ----------- ---------
------------- ------- ----------- ---------- ----------- ----------- ---------
OTHER FINANCIAL DATA:
EBITDA (24).................. $ 16,915 $ 1,226 $ 4,602 $ 373 $ 3,562 $-- $ 26,678
Depreciation and amortization
(25)....................... 4,920 123 545 36 8,368 -- 13,992
Capital expenditures......... 3,842 343 3,009 57 -- -- 7,251
Cash interest expense........ 2,716 41 6 21 15,369 1,733 19,886
</TABLE>
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Data.
26
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ACQUISITION ADJUSTMENTS
------------------------------------
COMPANIES ACQUIRED (10)
DECRANE AIRCRAFT
HISTORICAL (1) -----------------------
-------------------------- AVTECH DETTMERS OFFERING
(PREDECESSOR) (SUCCESSOR) CORPORATION INDUSTRIES ADJUSTMENTS ADJUSTMENTS PRO FORMA
------------- ----------- ----------- ---------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $90,077 $ 16,012 $20,984 $2,013 $ (133)(11) $-- $128,953
Cost of sales................. 60,101 11,080 13,267 1,454 (1,766)(12) -- 84,136
------------- ----------- ----------- ---------- ----------- ----------- ---------
Gross profit.................. 29,976 4,932 7,717 559 1,633 -- 44,817
Selling, general and
administrative expenses..... 15,719 3,170 3,695 760 (1,927)(13) -- 21,417
Nonrecurring acquisition
expenses.................... 3,632 -- 1,229 -- (4,861)(14) -- --
Nonrecurring bonuses and
employment contract
termination expenses........ -- -- 3,592 -- (3,592)(15) -- --
ESOP contribution............. -- -- 300 -- (300)(16) -- --
Amortization of intangible
assets...................... 1,347 802 -- -- 5,069(17) -- 7,218
------------- ----------- ----------- ---------- ----------- ----------- ---------
Operating income (loss)....... 9,278 960 (1,099) (201) 7,244 -- 16,182
Interest expense (income)..... 2,350 1,765 (60) 13 11,542(18) 12(21) 15,622
Other expenses (income)....... 847 181 (35) -- (600)(19) -- 393
------------- ----------- ----------- ---------- ----------- ----------- ---------
Income (loss) before provision
for income taxes and
extraordinary item.......... 6,081 (986) (1,004) (214) (3,698) (12) 167
Provision for income taxes
(benefit)................... 2,892 (506) (322) -- (436)(20) (5)(22) 1,623
------------- ----------- ----------- ---------- ----------- ----------- ---------
Income (loss) before
extraordinary item (23)..... $ 3,189 $ (480) $ (682) $ (214) $ (3,262) $ (7) $ (1,456)
------------- ----------- ----------- ---------- ----------- ----------- ---------
------------- ----------- ----------- ---------- ----------- ----------- ---------
OTHER FINANCIAL DATA:
EBITDA (24)................... $13,636 $ 3,285 $ (837) $ (197) $ 10,789 $-- $ 26,676
Depreciation and amortization
(25)........................ 4,358 1,166 262 4 4,704 -- 10,494
Capital expenditures.......... 1,745 307 1,145 4 -- -- 3,201
Cash interest expense......... 2,378 1,641 -- 13 10,835 (106) 14,761
</TABLE>
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Data.
27
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ACQUISITION ADJUSTMENTS
----------------------------------------------------
COMPANIES ACQUIRED (10)
DECRANE ---------------------------------------
AIRCRAFT AUDIO
HISTORICAL INTERNATIONAL, AVTECH DETTMERS OFFERING
(1) INC. CORPORATION INDUSTRIES ADJUSTMENTS ADJUSTMENTS PRO FORMA
------------- -------------- ----------- ---------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues..................... $134,105 $ 1,269 $30,634 $3,220 $ (324)(11) $-- $168,904
Cost of sales................ 90,764 1,165 19,761 2,274 (2,284)(12) -- 111,680
------------- ------- ----------- ---------- ----------- ----------- ---------
Gross profit................. 43,341 104 10,873 946 1,960 -- 57,224
Selling, general and
administrative expenses.... 23,633 753 5,523 1,053 (3,275)(13) -- 27,687
Nonrecurring acquisition
expense.................... 3,632 -- 1,229 -- (4,861)(14) -- --
Nonrecurring bonuses and
employment contract
termination expenses....... -- -- 3,592 -- (3,592)(15) -- --
ESOP contribution............ -- -- 600 -- (600)(16) -- --
Amortization of intangible
assets..................... 2,438 -- -- -- 7,186(17) -- 9,624
------------- ------- ----------- ---------- ----------- ----------- ---------
Operating income (loss)...... 13,638 (649) (71) (107) 7,102 19,913
Interest expense (income).... 4,671 7 (169) 19 16,072(18) 265(21) 20,865
Other expenses (income)...... 1,029 4 (62) (2) (600)(19) -- 369
------------- ------- ----------- ---------- ----------- ----------- ---------
Income (loss) before
provision for income taxes
and extraordinary item..... 7,938 (660) 160 (124) (8,370) (265) (1,321)
Provision for income taxes
(benefit).................. 3,539 (259) 74 -- (1,687)(20) (107)(22) 1,560
------------- ------- ----------- ---------- ----------- ----------- ---------
Income (loss) before
extraordinary item (23).... $ 4,399 $ (401) $ 86 $ (124) $ (6,683) $ (158) $ (2,881)
------------- ------- ----------- ---------- ----------- ----------- ---------
------------- ------- ----------- ---------- ----------- ----------- ---------
OTHER FINANCIAL DATA:
EBITDA (24).................. $ 21,814 $ (630) $ 334 $ (93) $ 12,480 $-- $ 33,905
Depreciation and amortization
(25)....................... 7,017 19 405 14 6,537 -- 13,992
Capital expenditures......... 3,052 -- 1,167 18 -- -- 4,237
Cash interest expense........ 4,566 9 -- 18 15,016 108 19,717
</TABLE>
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Data.
28
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(1) As of September 30, 1998, reflects DeCrane Aircraft's financial position
subsequent to the DLJ acquisition. For the year ended December 31, 1997,
reflects DeCrane Aircraft's historical results of operation prior to the DLJ
acquisition (Predecessor). For the nine months ended September 30, 1998,
reflects DeCrane Aircraft's historical results of operations for the
following periods: (i) eight months ended August 31, 1998 prior to the DLJ
acquisition (Predecessor); and (ii) one month ended September 30, 1998
subsequent to the DLJ acquisition (Successor). For the twelve months ended
September 30, 1998, reflects DeCrane Aircraft's historical results of
operations for the following periods: (i) eleven months ended August 31,
1998 prior to the DLJ acquisition (Predecessor); and (ii) one month ended
September 30, 1998 subsequent to the DLJ acquisition (Successor).
(2) Sources and uses of cash for the initial offering as of September 30, 1998
are as follows (dollars in thousands):
<TABLE>
<S> <C>
SOURCES:
Proceeds from units sold in the initial offering................ $ 100,000
Revolving credit facility borrowings............................ 4,974
---------
Total Sources................................................. $ 104,974
---------
---------
USES:
Repayment of bridge notes....................................... $ 100,000
Estimated transaction fees and expenses......................... 4,042
Payment of bridge notes accrued interest........................ 932
---------
Total Uses.................................................... $ 104,974
---------
---------
</TABLE>
(3) Reflects: (i) $4.0 million of transaction fees and expenses attributable to
the initial offering; (ii) the $1.2 million value ascribed to the warrants
issued as part of the units in the Initial Offering and capitalized as
deferred financing costs; and (iii) a $3.1 million write-off of deferred
financing costs associated with the bridge notes.
(4) Reflects the income tax benefit (at 38.5%) of the $3.1 million write-off of
bridge notes deferred financing costs.
(5) Reflects the payment of accrued interest on the bridge notes.
(6) Reflects revolving credit facility borrowings required to fund the
transaction fees and expenses and bridge notes accrued interest paid in
conjunction with the initial offering.
(7) Reflects repayment of the bridge notes with the proceeds from the initial
offering.
(8) Reflects the $100.0 million of notes sold in the initial offering.
(9) Reflects the write-off of the bridge notes deferred financing costs, net of
income tax benefit, offset by the $1.2 million value ascribed to the
warrants and recorded as additional paid-in capital.
(10) Represents the results of operations for the companies acquired for the
periods not included in the DeCrane Aircraft Historical columns. The results
of operations for the acquired companies are for the periods from the
beginning of the periods presented to: (i) November 13, 1997 for Audio
International; (ii) June 25, 1998 for Avtech; and (iii) June 29, 1998 for
Dettmers.
(11) Reflects the elimination of intercompany sales.
29
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(12) Reflects the net change in cost of goods sales attributable to the
following (dollars in thousands):
<TABLE>
<CAPTION>
YEAR NINE MONTHS TWELVE MONTHS
ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1998
------------- ------------- --------------
<S> <C> <C> <C>
Increase (decrease) in non-cash acquisition
related charges (a)........................... $ 4,636 $ (1,159) $ (1,159)
Decrease in depreciation expense (b)............ (431) (414) (695)
Elimination of intercompany sales............... (252) (133) (324)
Work force reductions attributable to merging
the companies acquired........................ (98) (60) (106)
------ ------------- -------
Net increase (decrease) in cost of sales........ $ 3,855 $ (1,766) $ (2,284)
------ ------------- -------
------ ------------- -------
</TABLE>
- ------------------------
(a) To reflect cost of sales based on the fair value of inventory acquired
in connection with the DLJ acquisition.
(b) To reflect a decrease in depreciation expense resulting from the fair
value and remaining economic useful lives of depreciable assets acquired
in connection with the DLJ acquisition.
(13) Reflects the net decrease in selling, general and administrative expenses
attributable to the following (dollars in thousands):
<TABLE>
<CAPTION>
YEAR NINE MONTHS TWELVE MONTHS
ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1998
------------ ------------- --------------
<S> <C> <C> <C>
Decrease in compensation expense (a)............ $ (1,852) $ (1,775) $ (2,915)
Decrease in investor relations expenses (b)..... (362) (176) (369)
Other, net (c).................................. 30 24 9
------------ ------------- -------
Net decrease in selling, general and
administrative expenses....................... $ (2,184) $ (1,927) $ (3,275)
------------ ------------- -------
------------ ------------- -------
</TABLE>
- ------------------------
(a) To reflect the resignation of certain former employees and changes to
employment agreements for certain remaining employees of the companies
acquired.
(b) To reflect the decrease in investor relations expenses associated with
becoming a privately held company as a result of the DLJ acquisition.
(c) To reflect an increase in depreciation expense resulting from the fair
value and remaining economic useful lives of depreciable assets acquired
in connection with the DLJ acquisition, net of cost savings attributable
to employee benefit plans implemented at the companies acquired.
(14) Reflects a reduction for nonrecurring charges incurred: (i) by DeCrane
Aircraft on behalf of its stockholders related to the DLJ acquisition; and
(ii) by Avtech on behalf of its stockholders related to its acquisition by
DeCrane Aircraft.
(15) Reflects a reduction in expense attributable to employment contract
termination expenses and nonrecurring bonuses awarded prior to, and in
anticipation of, the acquisition of Avtech.
30
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(16) Reflects a reduction in expense attributable to the termination of the
Employee Stock Ownership Plan in conjunction with the acquisition of Avtech.
(17) Reflects a net increase in amortization expense pertaining to the
amortization of goodwill and other intangible assets related to the DLJ
acquisition on a straight-line basis as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR NINE MONTHS TWELVE MONTHS
ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
AMOUNT YEAR 1997 1998 1998
---------- --------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Elimination of Predecessor
amortization......................... $ (905) $ (1,347) $ (1,636)
Successor amortization:
Goodwill............................. $ 170,744 30 5,691 3,794 5,216
FAA certifications................... 30,391 15 2,026 1,351 1,857
Engineering drawings................. 9,138 15 609 406 558
Assembled workforce.................. 6,580 7 940 627 862
Tradenames, trademarks and patents... 3,903 5 to 12 358 238 329
------ ------------- -------
Net increase in amortization....... $ 8,719 $ 5,069 $ 7,186
------ ------------- -------
------ ------------- -------
</TABLE>
31
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(18) Reflects the net increase in interest expense, including deferred financing
cost amortization and commitment fees, as a result of the following (dollars
in thousands):
<TABLE>
<CAPTION>
YEAR NINE MONTHS TWELVE MONTHS
ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
RATE OR TERM AMOUNT 1997 1998 1998
-------------------- --------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Elimination of Predecessor net
interest expense:
Pertaining to debt refinanced
(a):
Interest expense.............. $ (2,411) $ (2,205) $ (2,673)
Deferred financing cost
amortization................ (317) (96) (118)
Commitment fees and
expenses.................... (162) (95) (117)
Interest income (b)............. 357 145 268
Successor interest expense:
Interest expense:
Revolving credit facility..... LIBOR (c) +2.25% $ 7,378 567 383 525
Term facility:
Term A...................... LIBOR (c) +2.25% 35,000 2,692 1,744 2,417
Term B...................... LIBOR (c) +2.50% 45,000 3,573 2,330 3,223
Bridge notes.................. Prime + (d) 100,000 10,625 8,443 11,318
Deferred financing cost
amortization:
Revolving credit facility..... 6 years (e) 1,232 205 137 188
Term facility
Term A...................... 6 years (f) 862 193 126 174
Term B...................... 7 years (f) 1,109 172 112 155
Bridge notes.................. 7.5 years (e) 3,180 424 283 389
Commitment fees and expenses.... 351 235 323
------------- ------------- -------
Net increase in interest
expense..................... $ 16,269 $ 11,542 $ 16,072
------------- ------------- -------
------------- ------------- -------
</TABLE>
- --------------------------
(a) See the notes to DeCrane Aircraft's consolidated financial statements
included elsewhere in this Prospectus for a description of the debt
refinanced.
(b) Interest income earned from invested surplus cash balances prior to
acquisition.
(c) Calculations based on LIBOR at 5.44%.
(d) Calculations based on Prime at 8.50%, the rate in effect during the
period the bridge notes were issued and outstanding, plus: (i) 2.125% for
the year ended December 31, 1997; (ii) 4.0% for the nine months ended
September 30, 1998; and 3.75% for the twelve months ended September 30,
1998.
(e) Deferred financing costs are amortized on a straight-line basis over the
term of the agreement.
(f) Deferred financing costs are amortized using the effective interest
method.
(19) Reflects adjustment for nonrecurring charges associated with a terminated
debt offering in June 1998. Such offering was terminated upon initiation of
the DLJ acquisition.
(20) Represents a decrease in the provision for income taxes as a result of a
corresponding change in pro forma taxable income. The effective tax rate
differs from the U.S. federal statutory rate due to goodwill amortization
related to the DLJ acquisition not deductible for income tax purposes.
32
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(21) Reflects the net increase in interest expense, including deferred financing
cost amortization and commitment fees, as a result of the initial offering
as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR NINE MONTHS TWELVE MONTHS
ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
RATE OR TERM AMOUNT 1997 1998 1998
--------------------- --------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Elimination of bridge notes
interest expense:
Interest expense........... Prime + (a) $ 100,000 $ (10,625) $ (9,375) $ (12,250)
Deferred financing cost
amortization............. 7.5 years (b) 3,180 (424) (318) (424)
Senior subordinated notes due
2008:
Interest expense........... 12.00% 100,000 12,000 9,000 12,000
Deferred financing cost
amortization............. 10 years (c) 5,810 581 436 581
Revolving credit facility:
Interest expense........... LIBOR (d) + 2.25% 4,974 383 288 383
Commitment fees and
expenses................. (25) (19) (25)
------------ ------------- --------------
Net increase in interest
expense.................. $ 1,890 $ 12 $ 265
------------ ------------- --------------
------------ ------------- --------------
</TABLE>
- --------------------------
(a) Calculations based on Prime at 8.50%, the rate in effect during the
period the bridge notes were issued and outstanding, plus: (i) 2.125% for
the year ended December 31, 1997; (ii) 4.0% for the nine months ended
September 30, 1998; and 3.75% for the twelve months ended September 30,
1998.
(b) Deferred financing costs are amortized on a straight-line basis over the
term of the agreement.
(c) Deferred financing costs are amortized using the effective interest
method.
(d) Calculations based on LIBOR at 5.44%.
(22) Represents a decrease in the provision for income taxes as a result of a
decrease in pro forma taxable income.
(23) In conjunction with DeCrane Aircraft's initial public offering in April
1997, deferred financing costs of $2.1 million, net of income tax benefit,
were written off as an extraordinary charge as a result of a debt
refinancing with net proceeds from the initial public offering. This amount
has not been reflected in the unaudited pro forma consolidated statement of
operations for the fiscal year ended December 31, 1997. In conjunction with
the DLJ acquisition, deferred financing costs of $296,000, net of income tax
benefit, were written off as an extraordinary charge as a result of the
termination of DeCrane Aircraft's prior senior credit facility. In
conjunction with the Initial Offering, deferred financing costs of $1.9
million, net of income tax benefit, will be written off as an extraordinary
charge as a result of the termination of the bridge notes. These amounts
have not been reflected in the unaudited pro forma consolidated statement of
operations for the periods presented.
(24) EBITDA equals operating income plus depreciation, amortization and non-cash
acquisition related charges described in Note 12 above. EBITDA is not a
measure of performance or financial condition under generally accepted
accounting principles. EBITDA is not intended to represent cash flow from
operations and should not be considered as an alternative to income from
operations or net income computed in accordance with generally accepted
accounting principles, as an indicator of DeCrane Aircraft's operating
performance, as an alternative to cash flow from operating activities or as
a measure of liquidity. DeCrane Aircraft believes that EBITDA is a standard
measure of liquidity commonly reported and widely used by analysts,
investors and other interested parties in the financial markets. However,
not all companies calculate EBITDA using the same method and the EBITDA
numbers set forth above may not be comparable to EBITDA reported by other
companies.
(25) Reflects depreciation and amortization of plant and equipment, goodwill and
other intangible assets. Excludes amortization of deferred financing costs
and debt discounts which is classified as a component of interest expense.
33
<PAGE>
DECRANE HOLDINGS CO. AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED
BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
DECRANE DECRANE
HOLDINGS AIRCRAFT OFFERING
HISTORICAL PRO FORMA (1) ADJUSTMENTS (2) ELIMINATIONS (3) PRO FORMA
---------- -------------- --------------- ---------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets...............................
Cash and cash equivalents.................. $ -- $ 4,267 $-- $ -- $ 4,267
Accounts receivable, net................... -- 28,617 -- -- 28,617
Inventories................................ -- 37,343 -- -- 37,343
Income taxes refundable.................... -- 3,000 -- -- 3,000
Prepaid expenses and other current
assets................................... -- 1,472 -- -- 1,472
---------- -------------- ------ ---------------- ---------
Total current assets..................... -- 74,699 -- -- 74,699
---------- -------------- ------ ---------------- ---------
Property and equipment, net.................. -- 28,215 -- -- 28,215
Other assets, principally intangibles, net...
Goodwill and other intangibles............. -- 219,954 -- -- 219,954
Investment in DeCrane Aircraft Holdings,
Inc...................................... 99,000 -- 1,200 (100,200) --
Deferred financing costs................... 506 8,963 -- -- 9,469
Deferred income taxes...................... 2 4,232 -- -- 4,234
Other assets............................... -- 546 -- -- 546
---------- -------------- ------ ---------------- ---------
Net other assets, principally
intangibles............................ 99,508 233,695 1,200 (100,200) 234,203
---------- -------------- ------ ---------------- ---------
$99,508 $336,609 $1,200 $(100,200) $337,117
---------- -------------- ------ ---------------- ---------
---------- -------------- ------ ---------------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings...................... $ -- $ 80 $-- $ -- $ 80
Current portion of long-term obligations... -- 1,267 -- -- 1,267
Accounts payable........................... -- 9,801 -- -- 9,801
Accrued expenses........................... 510 14,326 -- -- 14,836
Income taxes payable....................... -- 1,610 -- -- 1,610
---------- -------------- ------ ---------------- ---------
Total current liabilities................ 510 27,084 -- -- 27,594
---------- -------------- ------ ---------------- ---------
Long-term liabilities
Revolving credit facility.................. -- 8,774 -- -- 8,774
Term facility.............................. -- 79,550 -- -- 79,550
Bridge notes............................... -- -- -- -- --
Senior subordinated notes.................. -- 100,000 -- -- 100,000
Other long-term obligations................ -- 196 -- -- 196
Deferred income taxes...................... -- 22,844 -- -- 22,844
Other long-term liabilities................ -- 532 -- -- 532
---------- -------------- ------ ---------------- ---------
Total long-term liabilities.............. -- 211,896 -- -- 211,896
---------- -------------- ------ ---------------- ---------
Mandatorily redeemable preferred stock....... 34,436 -- -- -- 34,436
Stockholders' equity......................... 64,562 97,629 1,200 (100,200) 63,191
---------- -------------- ------ ---------------- ---------
$99,508 $336,609 $1,200 $(100,200) $337,117
---------- -------------- ------ ---------------- ---------
---------- -------------- ------ ---------------- ---------
</TABLE>
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Data.
34
<PAGE>
DECRANE HOLDINGS CO. AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DECRANE DECRANE
HOLDINGS AIRCRAFT OFFERING
HISTORICAL (4) ADJUSTMENTS PRO FORMA (1) ADJUSTMENTS PRO FORMA
-------------- ----------- -------------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues..................................... $-- $-- $160,054 $-- $160,054
Cost of sales................................ -- -- 116,760 -- 116,760
----- --- -------------- ----- ---------
Gross profit................................. -- -- 43,294 -- 43,294
Selling, general and administrative
expenses................................... -- -- 25,620 100(7) 25,720
Amortization of intangible assets............ -- -- 9,624 -- 9,624
----- --- -------------- ----- ---------
Operating income (loss)...................... -- -- 8,050 (100) 7,950
Interest expense (income).................... -- 51(5) 21,037 -- 21,088
Other expenses (income)...................... -- -- 187 -- 187
----- --- -------------- ----- ---------
Loss before provision for income taxes and
extraordinary item......................... -- (51) (13,174) (100) (13,325)
Provision for income taxes (benefit)......... -- (20)(6) (3,174) (40)(8) (3,234)
----- --- -------------- ----- ---------
Loss before extraordinary item (9)........... $-- $ (31) $(10,000) $ (60) $(10,091)
----- --- -------------- ----- ---------
----- --- -------------- ----- ---------
OTHER FINANCIAL DATA:
EBITDA (10).................................. $-- $-- $ 26,678 $ (100) $ 26,578
Depreciation and amortization (11)........... -- -- 13,992 -- 13,992
Capital expenditures......................... -- -- 7,251 -- 7,251
Cash interest expense........................ -- -- 19,886 -- 19,886
</TABLE>
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Data.
35
<PAGE>
DECRANE HOLDINGS CO. AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
DECRANE DECRANE
HOLDINGS AIRCRAFT OFFERING
HISTORICAL ADJUSTMENTS PRO FORMA (1) ADJUSTMENTS PRO FORMA
-------------- ----------- -------------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues..................................... $-- $-- $128,953 $-- $128,953
Cost of sales................................ -- -- 84,136 -- 84,136
----- ----- -------------- ----------- ---------
Gross profit................................. -- -- 44,817 -- 44,817
Selling, general and administrative
expenses................................... -- -- 21,417 75(7) 21,492
Amortization of intangible assets............ -- -- 7,218 -- 7,218
----- ----- -------------- ----------- ---------
Operating income (loss)...................... -- -- 16,182 (75) 16,107
Interest expense (income).................... 4 34(5) 15,622 -- 15,660
Other expenses (income)...................... -- -- 393 -- 393
----- ----- -------------- ----------- ---------
Income (loss) before provision for income
taxes and extraordinary item............... (4) (34) 167 (75) 54
Provision for income taxes (benefit)......... (2) (14)(6) 1,623 (30)(8) 1,577
----- ----- -------------- ----------- ---------
Loss before extraordinary item (9)........... $ (2) $ (20) $ (1,456) $ (45) $ (1,523)
----- ----- -------------- ----------- ---------
----- ----- -------------- ----------- ---------
OTHER FINANCIAL DATA:
EBITDA (10).................................. $-- $-- $ 26,676 $ (75) $ 26,601
Depreciation and amortization (11)........... -- -- 10,494 -- 10,494
Capital expenditures......................... -- -- 3,201 -- 3,201
Cash interest expense........................ -- -- 14,761 -- 14,761
</TABLE>
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Data.
36
<PAGE>
DECRANE HOLDINGS CO. AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
DECRANE DECRANE
HOLDINGS AIRCRAFT OFFERING
HISTORICAL ADJUSTMENTS PRO FORMA (1) ADJUSTMENTS PRO FORMA
-------------- ----------- -------------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues..................................... $-- $-- $168,904 $-- $168,904
Cost of sales................................ -- -- 111,680 -- 111,680
----- --- -------------- ----- ---------
Gross profit................................. -- -- 57,224 -- 57,224
Selling, general and administrative
expenses................................... -- -- 27,687 100(7) 27,787
Amortization of intangible assets............ -- -- 9,624 -- 9,624
----- --- -------------- ----- ---------
Operating income (loss)...................... -- -- 19,913 (100) 19,813
Interest expense (income).................... 4 47(5) 20,865 -- 20,916
Other expenses (income)...................... -- -- 369 -- 369
----- --- -------------- ----- ---------
Loss before provision for income taxes and
extraordinary item......................... (4) (47) (1,321) (100) (1,472)
Provision for income taxes (benefit)......... (2) (18)(6) 1,560 (40)(8) 1,500
----- --- -------------- ----- ---------
Loss before extraordinary item (9)........... $ (2) $ (29) $ (2,881) $ (60) $ (2,972)
----- --- -------------- ----- ---------
----- --- -------------- ----- ---------
OTHER FINANCIAL DATA:
EBITDA (10).................................. $-- $-- $ 33,905 $ (100) $ 33,805
Depreciation and amortization (11)........... -- -- 13,992 -- 13,992
Capital expenditures......................... -- -- 4,237 -- 4,237
Cash interest expense........................ -- -- 19,717 -- 19,717
</TABLE>
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Data.
37
<PAGE>
DECRANE HOLDINGS CO. AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(1) Reflects the pro forma balance sheet and results of operations of DeCrane
Aircraft as described starting on page 28.
(2) Reflects DeCrane Holdings' additional capital contribution to DeCrane
Aircraft of the value ascribed to the warrants in the initial offering.
(3) Reflects elimination of DeCrane Holdings' investment in DeCrane Aircraft.
(4) DeCrane Holdings is a newly incorporated entity with no assets, liabilities
or operations prior to August 1998.
(5) Reflects the amortization of fees and expenses associated with the issuance
of the DeCrane Holdings preferred stock on a straight-line basis over ten
years.
(6) Reflects the income tax benefit as a result of the pre-tax loss attributable
to the adjustment described above.
(7) Reflects DeCrane Holdings incremental expenses associated with regulatory
compliance as a result of the Initial Offering.
(8) Reflects the income tax benefit as a result of the pre-tax loss attributable
to the adjustment described above.
(9) Reflects loss before the extraordinary item described in Note 23 on page 36
of the DeCrane Aircraft Notes to Unaudited Pro Forma Consolidated Financial
Data.
(10) EBITDA equals operating income plus depreciation, amortization and non-cash
acquisition related charges described in Note 12 for DeCrane Aircraft on
page 33. EBITDA is not a measure of performance or financial condition under
generally accepted accounting principles. EBITDA is not intended to
represent cash flow from operations and should not be considered as an
alternative to income from operations or net income computed in accordance
with generally accepted accounting principles, as an indicator of DeCrane
Holding's operating performance, as an alternative to cash flow from
operating activities or as a measure of liquidity. DeCrane Holdings believes
that EBITDA is a standard measure of liquidity commonly reported and widely
used by analysts, investors and other interested parties in the financial
markets. However, not all companies calculate EBITDA using the same method
and the EBITDA numbers set forth above may not be comparable to EBITDA
reported by other companies.
(11) Reflects depreciation and amortization of plant and equipment, goodwill and
other intangible assets. Excludes amortization of deferred financing costs
and debt discounts which is classified as a component of interest expense.
38
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
DECRANE AIRCRAFT
The following table presents historical consolidated financial data of
DeCrane Aircraft as of and for each of the five years in the period ended
December 31, 1997 and as of and for the nine months ended September 30, 1997,
the eight months ended August 31, 1998 and the one month ended September 30,
1998. The selected historical financial data as of and for each of the five
years in the period ended December 31, 1997 were derived from the audited
financial statements of DeCrane Aircraft. The selected historical financial data
as of and for the nine, eight and one month periods ended September 30, 1997,
August 31, 1998 and September 30, 1998, respectively, were derived from the
unaudited historical financial statements of DeCrane Aircraft for such periods,
which, in the opinion of management of DeCrane Aircraft, reflect normal and
recurring adjustments necessary to present fairly the financial position and
results of operations for the periods presented. The results of operations for
interim periods are not necessarily indicative of results of operations for the
full year. The information in this table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and DeCrane Aircraft's consolidated financial statements and related
notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
(PREDECESSOR)
---------------------------------------------------------------------------------------
NINE MONTHS EIGHT MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED
------------------------------------------------------- SEPTEMBER 30, AUGUST 31,
1993 1994 1995 1996(1) 1997(2) 1997(3) 1998(4)
--------- --------- --------- ----------- --------- --------------- -------------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................... $ 48,197 $ 47,092 $ 55,839 $ 65,099 $ 108,903 $ 80,887 $ 90,077
Cost of sales(6)....................... 36,258 36,407 43,463 49,392 80,247 60,664 60,101
--------- --------- --------- ----------- --------- ------- -------------
Gross profit........................... 11,939 10,685 12,376 15,707 28,656 20,223 29,976
Selling, general and administrative
expenses............................. 7,953 7,716 9,426 10,747 15,756 11,012 15,719
Nonrecurring charges(7)................ -- -- -- -- -- -- 3,632
Amortization of intangible assets...... 1,210 1,209 1,115 709 905 616 1,347
--------- --------- --------- ----------- --------- ------- -------------
Operating income....................... 2,776 1,760 1,835 4,251 11,995 8,595 9,278
Interest expense....................... 2,940 3,244 3,821 4,248 3,154 2,598 2,350
Terminated debt offering expenses...... -- -- -- -- -- -- 600
Other (income) expense, net............ (148) 332 382 108 243 242 247
--------- --------- --------- ----------- --------- ------- -------------
Income (loss) before provision for
income taxes, cumulative effect of
accounting change and extraordinary
item................................. (16) (1,816) (2,368) (105) 8,598 5,755 6,081
Provision for income taxes
(benefit)(8)......................... 620 613 1,078 712 3,344 2,191 2,892
--------- --------- --------- ----------- --------- ------- -------------
Income (loss) before cumulative effect
of accounting change and
extraordinary item................... (636) (2,429) (3,446) (817) 5,254 3,564 3,189
Cumulative effect of accounting
change(9)............................ (121) -- -- -- -- -- --
Extraordinary loss from debt
refinancing(10)...................... -- (264) -- -- (2,078) (2,078) --
--------- --------- --------- ----------- --------- ------- -------------
Net income (loss)...................... $ (757) $ (2,693) $ (3,446) $ (817) $ 3,176 $ 1,486 $ 3,189
--------- --------- --------- ----------- --------- ------- -------------
--------- --------- --------- ----------- --------- ------- -------------
OTHER FINANCIAL DATA:
Cash flows from operating activities... $ 2,474 $ (2,322) $ 1,457 $ 2,958 $ 4,641 $ 3,950 $ 3,014
Cash flows from investing activities... (629) (993) (1,462) (24,016) (27,809) (2,842) (87,378)
Cash flows from financing activities... (1,458) 3,028 41 21,051 22,957 (1,046) 89,871
EBITDA(11)............................. 6,034 5,196 5,471 7,602 16,915 12,022 13,636
EBITDA margin.......................... 12.5% 11.0% 9.8% 11.7% 15.5% 14.9% 15.1%
Depreciation and amortization(12)...... $ 3,258 $ 3,436 $ 3,636 $ 3,351 $ 4,920 $ 3,427 $ 4,358
Capital expenditures(13)............... 666 1,016 1,203 5,821 3,842 2,842 1,745
Ratio of earnings to fixed
charges(14).......................... -- -- -- 1.0x 3.3x 2.9x 3.2x
OTHER OPERATING DATA:
Bookings(15)........................... $ 46,830 $ 47,896 $ 50,785 $ 81,914 $ 112,082 $ 93,911 $ 94,439
Backlog at end of period(16)........... 23,933 24,493 19,761 44,433 49,005 44,791 84,184
<CAPTION>
(SUCCESSOR)
---------------
ONE MONTH ENDED
SEPTEMBER 30,
1998(5)
---------------
STATEMENT OF OPERATIONS DATA:
<S> <C>
Revenues............................... $ 16,012
Cost of sales(6)....................... 11,080
-------
Gross profit........................... 4,932
Selling, general and administrative
expenses............................. 3,170
Nonrecurring charges(7)................ --
Amortization of intangible assets...... 802
-------
Operating income....................... 960
Interest expense....................... 1,765
Terminated debt offering expenses...... --
Other (income) expense, net............ 181
-------
Income (loss) before provision for
income taxes, cumulative effect of
accounting change and extraordinary
item................................. (986)
Provision for income taxes
(benefit)(8)......................... (506)
-------
Income (loss) before cumulative effect
of accounting change and
extraordinary item................... (480)
Cumulative effect of accounting
change(9)............................ --
Extraordinary loss from debt
refinancing(10)...................... (296)
-------
Net income (loss)...................... $ (776)
-------
-------
OTHER FINANCIAL DATA:
Cash flows from operating activities... $ (1,506)
Cash flows from investing activities... (307)
Cash flows from financing activities... 358
EBITDA(11)............................. 3,285
EBITDA margin.......................... 20.5%
Depreciation and amortization(12)...... $ 1,166
Capital expenditures(13)............... 307
Ratio of earnings to fixed
charges(14).......................... --
OTHER OPERATING DATA:
Bookings(15)........................... $ 16,890
Backlog at end of period(16)........... 84,607
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
(PREDECESSOR)
----------------------------------------------------------------
AS OF DECEMBER 31, (SUCCESSOR)
-----------
AS OF SEPTEMBER 30,
<S> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------- ----------------------
1993 1994 1995 1996(1) 1997(2) 1997(3) 1998(17)
--------- --------- --------- --------- --------- --------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.... $ 441 $ 236 $ 305 $ 320 $ 206 $ 339 $ 4,267
Working capital.............. (637) 11,459 12,583 10,486 24,772 22,329 46,683
Total assets................. 34,653 37,685 36,329 69,266 99,137 70,645 333,300
Total debt(18)............... 19,653 23,874 24,672 42,250 38,838 14,336 184,893
Mandatorily redeemable
preferred stock and common
stock warrants............. 5,818 2,329 1,633 6,879 -- -- --
Stockholders' equity
(deficit).................. (2,618) 766 (1,697) 1,236 39,527 37,789 98,362
</TABLE>
- ------------------------
(1) Includes the effect of the acquisition of the remaining 25% minority
interest in Cory Components beginning February 20, 1996, the date on which
the transaction occurred, and the results of Aerospace Display Systems and
Elsinore beginning September 18, 1996 and December 5, 1996, respectively,
the dates on which they were acquired.
(2) Includes the effect of the acquisition of Audio International beginning
November 14, 1997, the date on which it was acquired.
(3) Excludes the effect of the acquisition of Audio International, which was not
acquired until November 14, 1997.
(4) Includes the results of operations of Avtech and Dettmers beginning June 26,
1998 and June 30, 1998, respectively, the dates on which they were acquired.
(5) Reflects the results of operations subsequent to the DLJ acquisition
(Successor).
(6) Includes $1.2 million of non-cash charges for the one month ended September
30, 1998 to reflect cost of sales based on the fair value of inventory
acquired in connection with the DLJ acquisition.
(7) Represents non-capitalizable transaction costs associated with the DLJ
acquisition.
(8) Prior to the acquisition of the remaining 25% minority interest in Cory
Components in 1996, DeCrane Aircraft did not consolidate the earnings of
Cory Components for tax purposes. As such, despite a consolidated pre-tax
loss in each of the years, DeCrane Aircraft recorded a provision for income
taxes from 1993 up to the date of the acquisition in 1996 which primarily
relates to Cory Components.
(9) Represents the adoption, as of January 1, 1993, of SFAS 109, "Accounting for
Income Taxes."
(10) Represents: (i) the write-off of unamortized deferred financing costs,
unamortized original issue discounts and a prepayment penalty incurred as a
result of the refinancing by DeCrane Aircraft of a substantial portion of
our debt in November 1994; (ii) the write-off, net of an income tax benefit,
of deferred financing costs, unamortized original issue discounts, a
prepayment penalty and other related expenses incurred as a result of the
repayment of debt by DeCrane Aircraft with the net proceeds from its initial
public offering in April 1997; and (iii) the write-off, net of an income tax
benefit, of deferred financing costs as a result of the repayment of DeCrane
Aircraft's existing indebtedness in connection with the DLJ acquisition.
40
<PAGE>
(11) EBITDA equals operating income plus depreciation, amortization and non-cash
acquisition related charges described in Note 6 above. EBITDA is not a
measure of performance or financial condition under generally accepted
accounting principles. EBITDA is not intended to represent cash flow from
operations and should not be considered as an alternative to income from
operations or net income computed in accordance with generally accepted
accounting principles, as an indicator of DeCrane Aircraft's operating
performance, as an alternative to cash flow from operating activities or as
a measure of liquidity. DeCrane Aircraft believes that EBITDA is a standard
measure of liquidity commonly reported and widely used by analysts,
investors and other interested parties in the financial markets. However,
not all companies calculate EBITDA using the same method and the EBITDA
numbers set forth above may not be comparable to EBITDA reported by other
companies.
(12) Reflects depreciation and amortization of plant and equipment and goodwill
and other intangible assets. Excludes amortization of deferred financing
costs and debt discounts which are classified as a component of interest
expense.
(13) Includes $4.4 million for the year ended December 31, 1996 related to the
acquisition of a manufacturing facility. See "Business--Acquisition
History."
(14) For purposes of calculating the earnings to fixed charges ratio, earnings
represent net income before income taxes, minority interests in the income
of majority-owned subsidiaries, cumulative effect of an accounting change,
extraordinary items and fixed charges. Fixed charges consist of: (i)
interest, whether expensed or capitalized; (ii) amortization of debt expense
and discount or premium relating to any indebtedness, whether expensed or
capitalized; and (iii) one-third of rental expenses under operating leases
considered to represent interest cost (such one-third portion is deemed by
DeCrane Aircraft to be a reasonable approximation of the interest portion of
such expense). There was a deficiency of earnings to cover fixed charges for
the years ended December 31, 1994 and 1995 and the one month ended September
30, 1998 of $1.8 million, $2.3 million and $1.0 million, respectively. There
was also a deficiency of earnings to cover fixed charges for the year ended
December 31, 1993 of less than $.1 million.
(15) Bookings represent the total invoice value of purchase orders received
during the period. See "Business--Backlog."
(16) Orders are generally subject to cancellation by the customer prior to
shipment. The level of unfilled orders at any given date during the year
will be materially affected by the timing of DeCrane Aircraft's receipt of
orders and the speed with which those orders are filled. See "Business--
Backlog."
(17) Reflects the financial position of Avtech and Dettmers and the DLJ
acquisition.
(18) Total debt is defined as long-term debt, including current portion, and
short-term borrowings.
41
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
DECRANE HOLDINGS
DeCrane Holdings is a holding company formed in July 1998 prior to the DLJ
acquisition. The selected historical financial data as of and for the period
from inception to August 27, 1998 were derived from the audited financial
statements of DeCrane Holdings. The selected historical financial data as of and
for the period from inception to September 30, 1998 were derived from the
unaudited historical financial statements of DeCrane Holdings, which, in the
opinion of management of DeCrane Holdings reflect normal and recurring
adjustments necessary to present fairly the financial position and results of
operations. The summary results of operations for the interim period are not
necessarily indicative of the results of operations for the full year. The
information in this table should be read in conjunction with "Recent
Developments--The DLJ Acquisition" and the DeCrane Holdings financial statements
and related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
INCEPTION TO
INCEPTION TO SEPTEMBER 30,
AUGUST 27, 1998(1) 1998(2)
------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................................. $ -- $ 16,012
Cost of sales(3).......................................................... -- 11,080
----- -------
Gross profit.............................................................. -- 4,932
Selling, general and administrative expenses.............................. -- 3,170
Amortization of intangible assets......................................... -- 802
----- -------
Operating income.......................................................... -- 960
Interest expense.......................................................... -- 1,769
Other (income) expense, net............................................... -- 181
----- -------
Income (loss) before provision for income taxes and extraordinary item.... -- (990)
Provision for income taxes (benefit)...................................... -- (508)
----- -------
Income (loss) before effect of extraordinary item......................... -- (482)
Extraordinary loss from debt refinancing(4)............................... -- (296)
----- -------
Net income (loss)......................................................... $ -- $ (778)
----- -------
----- -------
OTHER FINANCIAL DATA:
Cash flows from operating activities...................................... $ -- $ (1,506)
Cash flows from investing activities...................................... -- (307)
Cash flows from financing activities...................................... -- 358
EBITDA(5)................................................................. -- 3,285
EBITDA margin............................................................. -- 20.5%
Depreciation and amortization(6).......................................... $ -- $ 1,166
Capital expenditures...................................................... -- 307
Ratio of earnings to fixed charges(7)..................................... -- --
OTHER OPERATING DATA
Bookings(8)............................................................... $ -- $ 16,890
Backlog at end of period(9)............................................... -- 84,607
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
AS OF
AS OF SEPTEMBER 30,
AUGUST 27, 1998(1) 1998(2)
------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents................................................. $ -- $ 4,267
Working capital........................................................... -- 46,173
Total assets.............................................................. -- 333,808
Total debt(10)............................................................ -- 184,893
Manditorily redeemable preferred stock.................................... -- 34,436
Stockholders' equity...................................................... -- 63,924
</TABLE>
- ------------------------
(1) DeCrane Holdings is a newly incorporated entity formed in July 1998 with no
operations or cash flows prior to the DLJ acquisition on August 28, 1998.
(2) On August 28, 1998 DeCrane Holdings and two other companies organized by DLJ
Merchant Banking Partners II, L.P. and affiliated funds and entities
completed a successful tender offer for all the shares of DeCrane Aircraft.
At the completion of the tender offer, the two other companies merged with
DeCrane Aircraft. As a result, DeCrane Aircraft became a wholly-owned
subsidiary of DeCrane Holdings.
(3) Includes $1.2 million of non-cash charges to reflect cost of sales based on
the fair value of inventory acquired in connection with the DLJ acquisition.
(4) Represents the write-off, net of an income tax benefit, of deferred
financing costs as a result of the repayment of DeCrane Aircraft's existing
indebtedness in connection with the DLJ acquisition.
(5) EBITDA equals operating income plus depreciation, amortization and non-cash
acquisition related charges described in Note 3 above. EBITDA is not a
measure of performance of financial condition under generally accepted
accounting principals. EBITDA is not intended to represent cash flow from
operations and should not be considered as an alternative to income from
operations or net income computed in accordance with generally accepted
accounting principals, as an indicator of DeCrane Holdings' operating
performance, as an alternative to cash flow from operating activities or as
a measure of liquidity. DeCrane Holdings believes that EBITDA is a standard
measure of liquidity commonly reported and widely used by analysts,
investors and other interested parties in the financial markets. However,
not all companies calculate EBITDA using the same method and the EBITDA
numbers set forth above may not be comparable to other companies.
(6) Reflects depreciation and amortization of plant and equipment and goodwill
and other intangible assets. Excludes amortization of deferred financing
costs and debt discounts, which are classified as a component of interest
expense.
(7) For purposes of calculating the earnings to fixed charges ratio, earnings
represent net income before income taxes, cumulative effect of an accounting
change, extraordinary items and fixed charges. Fixed charges consist of: (i)
interest, whether expensed or capitalized; (ii) amortization of debt expense
and discount or premium relating to any indebtedness, whether expensed or
capitalized; (iii) one-third of rental expenses under operating leases
considered to represent interest costs (such one-third portion is deemed by
DeCrane Holdings to be a reasonable approximation of the interest portion of
such expense) and (iv) preferred stock dividends. DeCrane Holdings earnings
were insufficient to cover the fixed charges for the one month ended
September 30, 1998. The dollar amount of the deficiency was $1.0 million.
(8) Bookings represent the total invoice value of purchase orders received
during the period. See "Business--Backlog."
(9) Orders are generally subject to cancellation by the customer prior to
shipment. The level of unfilled orders at any given date during the year
will be materially affected by the timing the subsidiaries receipt of orders
and the length of time with which those orders are filled. See "Business--
Backlog."
(10) Total debt is defined as long-term debt, including current portion, and
short-term borrowings.
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSIONS SHOULD BE READ IN CONJUNCTION WITH CONSOLIDATED
FINANCIAL STATEMENTS OF DECRANE HOLDINGS AND DECRANE AIRCRAFT AND THE RELATED
NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS.
DECRANE HOLDINGS
DeCrane Holdings is a holding company and does not have any material
operations or assets other than its ownership of all of the capital stock of
DeCrane Aircraft. See "--DeCrane Aircraft--The DLJ Acquisition and Financing."
DECRANE AIRCRAFT
OVERVIEW
Our results of operations have been affected by our history of acquisitions.
Since our formation in 1989, we have completed eleven acquisitions of businesses
or assets, the most recent of which, Avtech and Dettmers, were closed in June
1998. As a result, our historical financial statements do not reflect the
results of all of our current businesses.
Our principal strategy is to establish and expand leading positions in
high-margin niches within the commercial, regional, corporate and military
markets, with a focus on the manufacturing of avionics components and the
integration of avionics systems. We also seek to maintain a balance of revenues
among the OEM market, the retrofit market and the aftermarket. We believe that
such a strategy will reduce the cyclical risk in the aircraft industry.
In April 1997, we completed our initial public offering of common stock and
used the $28.9 million of net proceeds to refinance debt outstanding. In April
1998, we completed a follow-on common stock offering and used the $34.8 million
of net proceeds to reduce borrowings outstanding under our credit facility, a
majority of which we incurred to finance the Audio International acquisition.
THE DLJ ACQUISITION AND FINANCING
In July 1998, DeCrane Holdings, an affiliate of DLJ Merchant Banking
Partners II, L.P. formed a finance subsidiary and an acquisition subsidiary. The
acquisition subsidiary conducted a successful tender for our shares and, when
the tender offer was completed, merged with DeCrane Aircraft. To finance the
purchase of shares in the tender offer and to refinance existing debt, the
finance subsidiary entered into a $130.0 million syndicated bank credit facility
with a group of lenders led by DLJ Capital Funding, Inc., issued $100.0 million
of senior subordinated increasing rate bridge notes to DLJ Bridge Finance Inc.
and received an equity contribution of approximately $99.0 million from the sale
of preferred and common stock by DeCrane Holdings. The bank credit facility and
the bridge notes became our obligations when the finance subsidiary was also
merged into DeCrane Aircraft. When the two mergers were completed in August,
1998, DeCrane Aircraft became a wholly owned subsidiary of DeCrane Holdings. The
bridge notes were refinanced by the sale of the old notes in October, 1998.
The gross purchase price for DeCrane Aircraft's shares and options was
$186.3 million. The excess of the purchase price over the historical value of
the net assets acquired was $127.9 million and was allocated as follows: (i)
$4.7 million to inventory; (ii) $3.0 million to fixed assets; (iii) $50.0
million to certain identifiable intangible assets; and (iv) $70.2 million to
goodwill. The inventory step-up will be expensed completely during the remainder
of 1998. The intangible assets, other than goodwill, will be amortized on a
straight-line basis over periods between five and fifteen years. Goodwill will
be amortized on a straight-line basis over a period of thirty years.
44
<PAGE>
The term loan facility under our bank credit facility consists of a $35.0
million amortizing loan maturing in six years (the "Term A loan") and a $45.0
million amortizing loan maturing in seven years (the "Term B loan"). Scheduled
aggregate amortization is $112,500 in 1998 and $887,500 in 1999. The bank credit
facility also includes a $25.0 million working capital revolving credit facility
and a $25.0 million acquisition revolving credit facility, of which $5.4 million
was drawn upon completion of the DLJ acquisition. Both revolving credit
facilities will terminate after six years. See "Description of Bank Credit
Facility."
Borrowings under our bank credit facility generally bear interest based on a
margin over, at DeCrane Aircraft's option, the base rate or the Euro-Dollar
rate. The applicable margin is 1.00% for base rate borrowings and 2.25% for
Euro-Dollar borrowings for the first six months (other than the Term B loan,
which has a margin of 1.25% for base rate borrowings and 2.50% for Euro-Dollar
borrowings) and thereafter will vary based upon DeCrane Aircraft's ratio of
total debt to EBITDA (as defined). DeCrane Aircraft's obligations under the bank
credit facility are guaranteed by DeCrane Holdings and all existing and future
wholly-owned domestic subsidiaries of DeCrane Aircraft (the "subsidiary
guarantors") and are secured by substantially all of the assets of DeCrane
Aircraft and the subsidiary guarantors, including a pledge of the capital stock
of all existing and future subsidiaries of DeCrane Aircraft (provided that no
more than 65% of the voting stock of any foreign subsidiary shall be pledged)
and a pledge by DeCrane Holdings of the stock of DeCrane Aircraft. The bank
credit facility contains customary covenants and events of default.
The notes (including the old notes, and the new notes to be exchanged for
old notes in this exchange offer) will mature in 2008 and are guaranteed by
DeCrane Aircraft's wholly-owned domestic subsidiaries. Interest on the notes is
payable semiannually in cash. The notes contain customary covenants and events
of default, including covenants that limit DeCrane Aircraft's ability to incur
debt, pay dividends and make certain investments.
In connection with the DLJ acquisition, DeCrane Holdings raised
approximately $99.0 million through its sale of common stock and DeCrane
Holdings Preferred Stock to the DLJMB Funds. The proceeds of those sales were
contributed to DeCrane Aircraft. The DeCrane Holdings Preferred provides for
cumulative dividends that do not require payment in cash through 2003, but will
be payable in cash thereafter and will be mandatorily redeemable in 2009. The
DeCrane Holdings Preferred is exchangeable into debentures that will contain
customary covenants and events of default, including covenants that limit the
ability of DeCrane Holdings and its subsidiaries to incur debt, pay dividends
and make certain investments.
45
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the items in DeCrane Aircraft's consolidated
statements of operations as percentages of its revenues for the periods
indicated. The percentages for each of the years in the three year period ended
December 31, 1997 and the nine months ended September 30, 1997 reflect the
historical results of operations prior to the DLJ acquisition (Predecessor). The
percentages for the nine months ended September 30, 1998 reflects the combined
historical results of operations for the eight months ended August 31, 1998
prior to the DLJ acquisition (Predecessor) and the one month ended September 30,
1998 subsequent to the DLJ acquisition (Successor).
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues........................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................................................... 77.8 75.9 73.7 75.0 67.1
--------- --------- --------- --------- ---------
Gross profit....................................................... 22.2 24.1 26.3 25.0 32.9
Selling, general and administrative expenses....................... 16.9 16.5 14.5 13.6 21.2
Amortization of intangible assets.................................. 2.0 1.1 0.8 0.8 2.0
--------- --------- --------- --------- ---------
Operating income................................................... 3.3 6.5 11.0 10.6 9.7
Interest expense................................................... 6.8 6.5 2.9 3.2 3.9
Other expense, net................................................. 0.7 0.2 0.2 0.3 1.0
--------- --------- --------- --------- ---------
Income (loss) before provision for income taxes,
and extraordinary item........................................... (4.2) (0.2) 7.9 7.1 4.8
Provision for income taxes......................................... (2.0) (1.1) (3.1) (2.7) (2.2)
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item............................ (6.2) (1.3) 4.8 4.4 2.6
Extraordinary loss from debt refinancing........................... -- -- (1.9) (2.6) (0.3)
--------- --------- --------- --------- ---------
Net income (loss).................................................. (6.2)% (1.3)% 2.9% 1.8% 2.3%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
REVENUES. Revenues increased $25.2 million, or 31.1%, to $106.1 million for
the nine months ended September 30, 1998 from $80.9 million for the nine months
ended September 30, 1997. Major contributing factors included the inclusion of
$14.8 million of revenues from Audio International, which was acquired on
November 14, 1997; the inclusion of $13.1 million of revenues from Avtech, which
was acquired on June 26, 1998; and the inclusion of $1.2 million of revenues
from Dettmers, which was acquired on June 30, 1998. Partially offsetting this
increase was a decline in sales to Matsushita of $2.3 million.
GROSS PROFIT. Gross profit increased $14.7 million, or 72.6%, to $34.9
million for the nine months ended September 30, 1998 from $20.2 million for the
nine months ended September 30, 1997. Gross profit as a percent of revenues
increased to 32.9% for the nine months ended September 30, 1998 from 25.0% for
the nine months ended September 30, 1997. These improvements were attributable
primarily to increased sales volume from acquired companies, which have
generally higher gross margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative (referred to as SG&A herein) expenses increased $11.5 million, or
104.5%, to $22.5 million for the nine months ended September 30, 1998 from $11.0
million for the nine months ended September 30, 1997. SG&A expenses as a percent
of revenues increased to 21.2% for the nine months ended September 30, 1998 from
13.6% for the nine months ended September 30, 1997. SG&A expenses increased
primarily due to the inclusion of SG&A expenses from Audio International, Avtech
and Dettmers, the non-capitalizable transaction
46
<PAGE>
costs associated with the DLJ acquisition, and the increase in research and
development expenditures for new product introductions at Audio International
and Dettmers.
OPERATING INCOME. Operating income increased $1.6 million to $10.2 million
for the nine months ended September 30, 1998 from $8.6 million for the nine
months ended September 30, 1997. Operating income as a percent of revenues,
however, decreased to 9.7% for the nine months ended September 30, 1998 from
10.6% for the nine months ended September 30, 1997. The increase in operating
income resulted from the factors described above, but was offset by higher
amortization and other expenses due to the acquisition of Avtech and the DLJ
acquisition.
INTEREST EXPENSE. Interest expense increased $1.5 million, or 58.4%, to
$4.1 million for the nine months ended September 30, 1998 from $2.6 million for
the nine months ended September 30, 1997. This increase resulted from the higher
debt levels associated with the acquisition of Avtech and the DLJ acquisition.
PROVISION FOR INCOME TAXES. During the nine months ended September 30,
1998, we increased our provision for income taxes by $0.2 million to $2.4
million from $2.2 million for the nine months ended September 30, 1997, as lower
income before taxes was somewhat offset by an increase in non-deductible
expenses.
EXTRAORDINARY LOSS FROM DEBT REFINANCING. During the nine months ended
September 30, 1997, we incurred a $2.1 million extraordinary charge, net of an
estimated $1.4 million income tax benefit, as a result of a debt refinancing
with the proceeds from our initial public offering.
NET INCOME. Net income increased $0.9 million to $2.4 million for the nine
months ended September 30, 1998 compared to $1.5 million for the same period in
1997 due to the factors described above.
BOOKINGS AND BACKLOG. Bookings increased $28.9 million, or 35.1%, to $111.3
million for the nine months ended September 30, 1998 compared to $82.4 million
for the same period in 1997. The increase in bookings for 1998 includes $14.7
million attributable to Audio International, $7.7 million attributable to Avtech
and $1.4 million attributable to Dettmers. As of September 30, 1998, we had a
sales order backlog of $84.6 million compared to $49.0 million as of December
31, 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES. Revenues increased $43.8 million, or 67.3%, to $108.9 million for
1997 from $65.1 million for 1996. Revenues increased primarily due to the
inclusion of $10.7 million of revenues from Aerospace Display Systems, growth in
our private labeling programs of $6.4 million, growth in contact sales of $6.3
million driven by new aircraft production rate increases, an increase in sales
of harness assemblies for in-flight entertainment systems of $5.1 million, an
increase in sales of specialty connectors for cabin management and in-flight
entertainment systems principally on Boeing's 777 aircraft of $4.9 million, an
increase of sales to IFT of $3.3 million relating to a major systems integration
program for Swissair, the inclusion of $3.0 million of revenue from Elsinore,
new systems integration programs for navigational systems of $1.5 million, the
inclusion of $1.3 million of revenue from Audio International, a new systems
integration program for United Parcel Service of $0.9 million, and the overall
growth in the commercial aircraft market. Partially offsetting this increase was
a decline in sales to AT&T Wireless Services, Inc. of $3.8 million, reflecting
the completion in late 1995 and early 1996 of a major systems integration
program.
GROSS PROFIT. Gross profit increased $12.9 million, or 82.4%, to $28.7
million for 1997 from $15.7 million for 1996. Gross profit as a percentage of
revenues increased to 26.3% for 1997 from 24.1% for 1996. This increase in
profit margin was attributable to an increased sales volume, favorable mix,
savings from the rationalization of certain newly purchased manufacturing assets
purchased from AMP, Inc. with our existing facilities in El Segundo, California
and Lugano, Switzerland, sustained price increases and lower material costs.
47
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased $5.0
million, or 46.6%, to $15.8 million for 1997 from $10.7 million for 1996. SG&A
expenses as a percentage of revenues decreased to 14.5% for 1997 from 16.5% for
1996. SG&A expenses increased primarily due to the addition of staff to pursue
higher sales to OEMs and to develop capabilities for in-flight entertainment,
navigation and satellite communication and safety systems integration services,
the inclusion of SG&A expenses from Aerospace Display Systems, the AMP facility
and Elsinore, all of which were acquired in late 1996, and the inclusion of SG&A
expenses from Audio International, which was acquired in 1997.
OPERATING INCOME. Operating income increased $7.7 million, or 182.2%, to
$12.0 million for 1997 from $4.3 million for 1996. Operating income as a
percentage of revenues increased to 11.0% for 1997 from 6.5% for 1996. The
increase in operating income resulted from the factors described above.
INTEREST EXPENSE. Interest expense decreased $1.1 million, or 25.8%, to
$3.2 million for 1997 from $4.2 million for 1996. The decrease resulted from the
completion of the initial public offering on April 16, 1997 and the repayment of
a substantial portion of debt with the net proceeds.
PROVISION FOR INCOME TAXES. During 1997, we reduced our deferred tax asset
valuation allowance by $0.5 million to reflect the book benefit of federal and
state net operating loss carry forwards not previously recognized. We have
approximately $2.5 million of net operating loss carry forwards available at
December 31, 1997 for federal income tax purposes.
EXTRAORDINARY LOSS FROM DEBT REFINANCING. During 1997, we incurred a $2.1
million extraordinary charge, net of an estimated $1.4 million income tax
benefit, as a result of refinancing debt with the net proceeds from the initial
public offering.
NET INCOME (LOSS). Net income increased $4.0 million to $3.2 million for
1997 from a net loss of $0.8 million for 1996. The increase is a result of the
factors described above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Revenues increased $9.3 million, or 16.6%, to $65.1 million for
1996 from $55.8 million for 1995. Revenues increased primarily due to growth in
contact sales driven by new aircraft production rate increases and growth in our
private labeling programs of $6.4 million, an increase of sales to IFT of $3.0
million in 1996 relating to a major systems integration program for Swissair,
the inclusion of $2.8 million of revenues from Aerospace Display Systems which
was acquired on September 18, 1996, an increase in sales of specialty connectors
for cabin management and in-flight entertainment systems on Boeing's 777
aircraft of $2.4 million, and an increase in sales of harness assemblies for
in-flight entertainment systems of $2.4 million. Partially offsetting this
increase was a decline in sales to AT&T Wireless of $9.2 million, reflecting the
completion in 1995 of a major systems integration program primarily for American
Airlines.
GROSS PROFIT. Gross profit increased $3.3 million, or 26.9%, to $15.7
million for 1996 from $12.4 million for 1995. Gross profit as a percentage of
revenues increased to 24.1% for 1996 from 22.2% for 1995. This increase was
attributable to an improvement in gross profit as a percentage of revenues from
the sale of contacts for 1996, partially offset by a decline in higher margin
sales to AT&T Wireless. This improvement resulted from sustained price
increases, increased sales volume, lower wage-related expenses and lower
material costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased $1.3
million, or 14.0%, to $10.7 million for 1996 from $9.4 million for 1995. SG&A
expenses as a percentage of revenues decreased to 16.5% for 1996 from 16.9% for
1995. SG&A expenses increased primarily due to the addition of staff to pursue
higher sales to OEMs and to develop capabilities for in-flight entertainment,
navigation and satellite communication and safety systems integration services,
and the inclusion of SG&A expenses from Aerospace Display Systems and Elsinore,
which were acquired in 1996. This
48
<PAGE>
increase in SG&A expenses was offset partially by the elimination of $0.7
million of expenses related to our acquisition in 1996 of the remaining 25%
minority interest in Cory Components in February 1996.
OPERATING INCOME. Operating income increased $2.4 million, or 131.7%, to
$4.3 million for 1996 from $1.8 million for 1995. The increase in operating
income resulted from the factors described above and a decline of $0.4 million
in amortization of intangible assets as a result of the termination of certain
non-compete agreements.
INTEREST EXPENSE. Interest expense increased $0.4 million, or 11.2%, to
$4.2 million for 1996 from $3.8 million for 1995. This increase resulted from
higher outstanding indebtedness attributed to the funding of the acquisitions of
Aerospace Display Systems and Elsinore and the purchase of the AMP manufacturing
facility.
NET LOSS. Net loss decreased $2.6 million, or 76.3%, to $0.8 million for
1996 from a net loss of $3.4 million for 1995. The decrease in net loss resulted
from the factors described above and a lower tax provision resulting from the
acquisition of the remaining 25% minority interest in Cory Components.
LIQUIDITY AND CAPITAL RESOURCES
We have required cash primarily to fund acquisitions and, to a lesser
extent, to fund capital expenditures and for working capital. Our principal
sources of liquidity have been cash flow from operations and third party
borrowings.
For the nine months ended September 30, 1998, we generated cash from
operating activities of $1.5 million. We used $4.5 million in cash for working
capital. Our accounts receivable consist of trade receivables and unbilled
receivables, which are recognized pursuant to the percentage of completion
method of accounting for long-term contracts. Accounts receivable increased $4.6
million for the nine months ended September 30, 1998 from the inclusion of
Avtech and Dettmers as well as higher overall sales. Unbilled receivables
accounted for $2.0 million of this increase. Inventories increased only $0.5
million for the nine months ended September 30, 1998, due to improved inventory
management at several subsidiaries. Accounts payable increased by $0.3 million
for the nine months ended September 30, 1998. The inclusion of additional
entities was offset by an agreement with a new gold supplier for significantly
lower prices in exchange for shorter payment terms.
In 1997 and 1996, we generated cash from operating activities of $4.6
million and $3.0 million, respectively. We used $5.4 million in 1997 and $0.8
million in 1996 in cash for working capital. Trade receivables increased $3.0
million in 1997 and $2.7 million in 1996 due to higher sales. Unbilled
receivables increased $0.2 million in 1997 as a result of the systems
integration program for Swissair (through IFT) that began in mid-1996.
Inventories increased by $5.0 million in 1997 and $2.7 million in 1996 in
support of sales growth. Accounts payable decreased by $0.4 million in 1997 and
increased by $1.9 million in 1996.
Net cash used in investing activities was $87.7 million during the nine
months ended September 30, 1998. Of this amount, $83.6 million was used for the
Avtech acquisition and $2.1 million for the Dettmers acquisition (both net of
cash acquired). The total purchase price for the Dettmers acquisition also
included additional contingent consideration with a maximum of $2.0 million
payable between 1999 and 2002. We spent $2.1 million on capital expenditures
during the nine months ended September 30, 1998. We anticipate spending
approximately $4.5 million on capital expenditures in 1998. The bank credit
facility contains certain restrictions on our ability to make capital
expenditures; however, we believe the permitted capital expenditures will be
sufficient to complete our investment program and maintain our facilities.
Net cash used in investing activities was $27.8 million for 1997 and $24.0
million for 1996. Of the $27.8 million used in 1997, $23.6 million related to
the acquisition of Audio International in November 1997. The total purchase
price for the Audio International acquisition also included contingent
consideration with a maximum of $6.0 million payable in 1999 and 2000. Of the
$24.0 million used in
49
<PAGE>
1996, $22.6 million related to the acquisition of the remaining 25% minority
interest in Cory Components in February 1996, the acquisition of Aerospace
Display Systems in September 1996, the acquisition of Elsinore and the purchase
of the AMP manufacturing facility in December 1996. We made capital expenditures
of $3.8 million in 1997 and $1.5 million in 1996. Capital expenditures were
incurred in 1997 to increase manufacturing capacity in support of revenue
growth, improve plating controls and capacity and construct three additional
selective plating machines.
Net cash provided by financing activities was $90.2 million for the nine
months ended September 30, 1998. In connection with the DLJ acquisition, we
entered into a new credit facility that provides for term loan borrowings in the
aggregate principal amount of $80.0 million and revolving loan borrowings up to
an aggregate principal amount of $50.0 million, including $25 million for
working capital purposes which expires in 2004 (See Note 1 to the DeCrane
Aircraft consolidated financial statements included elsewhere in this
Prospectus). In 1998, prior to the DLJ acquisition, we also completed a
follow-on common stock offering, using the $34.8 million of net proceeds to
reduce amounts outstanding under our then existing senior credit facility, and
borrowed $85.8 million under that credit facility to finance the Avtech and
Dettmers acquisitions.
Net cash provided by financing activities in 1997 was $23.0 million. Our
initial public offering raised $28.9 million in net proceeds in April 1997. The
net proceeds from the offering were used to repay debt outstanding. In November
1997, the acquisition of Audio International (including the related fees and
expenses) was financed with senior credit facility borrowings.
Net cash provided by financing activities in 1996, was $21.1 million.
Specifically, we financed the acquisition of the remaining 25% minority interest
in Cory Components (including the related fees and expenses) in February 1996
for $6.5 million, the acquisition of Aerospace Display Systems (including the
related fees and expenses) in September 1996 for $11.4 million, and the
acquisition of Elsinore and the initial cash portion of the AMP manufacturing
facility acquisition in December 1996 for an aggregate of $8.0 million. The
foregoing acquisitions were financed by various combinations of convertible
preferred stock, warrants for common stock and convertible notes (all of which
were subsequently converted to common stock), debt notes, and a total of $2.1
million in senior credit facility borrowings.
Cash increased $4.1 million for the nine months ended September 30, 1998,
decreased $0.1 million in 1997 and remained unchanged in 1996 due to the factors
described above.
The DLJ acquisition created substantial debt for us, resulting in
significant debt service obligations. Although we cannot be certain, we
anticipate that operating cash flow, together with borrowings under the bank
credit facility, will be sufficient to meet our future operating expenses,
working capital, capital expenditures and debt service obligations. However, our
ability to pay principal or interest, to refinance our debt and to satisfy our
other debt obligations will depend on our future operating performance. We will
be affected by economic, financial, competitive, legislative, regulatory,
business and other factors beyond our control. In addition, we are continually
considering acquisitions that complement or expand our existing businesses or
that may enable us to expand into new markets. Future acquisitions may require
additional debt, equity financing or both. We may not be able to obtain any
additional financing on acceptable terms.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." This
statement establishes standards for reporting financial and descriptive
information about operating segments. Under SFAS No. 131, information pertaining
to the Company's operating segments will be reported on the basis that is used
internally for evaluating segment performance and making resource allocation
determinations. Management is currently studying the potential effects of
adoption of this statement, which is required for the fiscal year ending
December 31, 1998.
50
<PAGE>
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. It also requires that gains or losses
resulting from changes in the values of those derivatives be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. Adoption of SFAS No. 133 is required for the fiscal year beginning
January 1, 2000. Management believes the adoption of SFAS No. 133 will not have
a material impact on our consolidated financial position or results of
operations.
SWISS FRANC FORWARD EXCHANGE CONTRACTS
Certain of the contact blanks we use in the production of our contacts are
manufactured at our Swiss facility and shipped to our El Segundo, California
facility for plating and assembly. In 1996, 1997 and 1998, solely in an effort
to mitigate the effects of currency fluctuations between the U.S. Dollar and the
Swiss Franc, we entered into forward exchange contracts at fixed rates. We plan
to continue efforts to mitigate this risk in the future. We do not engage in any
currency exchange transactions for trading or speculative purposes. Realized and
unrealized gains and losses on foreign exchange contracts are recognized
currently in the consolidated statements of operations.
COMPLIANCE OF KEY SYSTEMS WITH YEAR 2000 PERFORMANCE STANDARDS
We are dependent in part on computer- and date-controlled systems for some
internal functions, particularly inventory control, purchasing, customer billing
and payroll. In 1996, we performed an evaluation of all of our information
systems to determine if the existing hardware and software would meet our
long-term requirements. Because of numerous acquisitions made over the past
several years, we operate several stand-alone systems using different, and in
some cases internally customized, software. We concluded that some of our
existing software should be upgraded to newer, off-the-shelf, integrated
manufacturing and business application software which is also Year 2000
compliant. We believe the migration to the new integrated software will be
completed prior to 2000.
Similarly, suppliers of components and services on which we rely, and our
customers, may have Year 2000 compliance risks which would affect their
operations and their transactions with us. We are developing plans for
mitigating the impact of the Year 2000 problem from key vendors and customers. A
comprehensive effort in this area began in the fourth quarter of 1998. Although
we are not aware of any material customer or vendor related Year 2000 issues, we
cannot currently evaluate the magnitude of our exposure. Our review of these
third-party compliance risks from our key vendors and customers is not yet
complete. Because of the complexity of these issues and the interdependence of
many companies using computer- and date-controlled systems, our assessment of
the risks may be incorrect. Additionally, in view of the mixed results achieved
by software vendors in correcting these problems, we cannot assure you that new
systems we obtain to replace noncompliant systems will themselves prove to be
fully compliant.
We believe that the majority of our computer-controlled systems were put
into service during the last five years and that these systems are Year 2000
compliant. We believe the number of products manufactured and sold by us which
are dependent upon computer-controlled systems is not significant. We intend to
review our Year 2000 exposure from internal computer-controlled systems and
manufactured products again prior to the third quarter of 1999.
Based on current information, we expect that our costs to remediate and test
our systems, and evaluate the risks of our key customers and vendors, will not
be material. Costs incurred to date in addressing the Year 2000 issue have not
been significant and are being funded through operating cash flows. Our
management does not anticipate encountering any significant failures of Year
2000 compliance in our systems, products or supply chain that would materially
disrupt our operations. However, we may experience cost overruns and delays as
we replace or modify our systems, or address our third-party exposures, which
could have a material adverse effect on our consolidated financial position,
results of operations or cash flow. We cannot assure you that our assessment of
the foregoing risks from our own
51
<PAGE>
systems and products, or those of our customers or vendors, is or will be
correct. We have not yet determined the extent of contingency planning that may
be required if we have incorrectly assessed the foregoing Year 2000 risks.
COMMON EUROPEAN CURRENCY
The Treaty on European Economic and Monetary Union (the "Maastricht Treaty")
provides for the introduction of a single European currency, the Euro, in
substitution for the national currencies of the member states of the European
Union that adopt the Euro. In May 1998, the European Council determined the 11
member states that met the requirement for the Monetary Union and the currency
exchange rates among the currencies for the member states joining the Monetary
Union. The transitory period for the Monetary Union starts on January 1, 1999.
According to Council Resolution of July 7, 1997, the introduction of the Euro
will be made in three steps: (i) a transitory period from January 1, 1999 to
December 31, 2001, in which currency accounts may be opened and financial
statements may be drawn in Euros, and local currencies and Euro will coexist;
(ii) from January 1, 2002 to June 30, 2002, in which local currencies will be
exchanged for Euros; and (iii) from July 1, 2002 in which local currencies will
disappear. Although there can be no assurance that a single European currency
will be adopted or, if adopted, on what time schedule and with what success,
substantial transitional costs could result as we redesign our software systems
to reflect the adoption of the new currency. In addition, no assurance can be
given as to effect of the adoption of the Euro on our commercial agreements in
currencies to be replaced by the Euro.
52
<PAGE>
BUSINESS
DECRANE HOLDINGS
DeCrane Holdings is a holding company and has no material operations or
assets other than its ownership of the capital stock of DeCrane Aircraft.
DeCrane Holdings currently owns 100% of the stock of DeCrane Aircraft.
DECRANE AIRCRAFT
We manufacture avionics and related components, and provide systems
integration services, for niche markets within the commercial, regional,
corporate and military aircraft industries. We believe that we are a leading
provider of components within each niche market we serve. Since DeCrane Aircraft
was founded in 1989, our strategy has been to combine complementary businesses
with leading positions in cabin and flight deck systems. We generated revenues
of $168.9 million for the twelve months ended September 30, 1998, and Adjusted
EBITDA of $35.0 million for the same period, on a pro forma basis.
We seek to maximize our sales by emphasizing the complementary nature of our
products and services. We manufacture:
- electrical contacts;
- connectors (which often include our contacts);
- wire harness assemblies (which often include our connectors);
- structural supports for avionic connectors and harnesses (often packaged
with other products of ours and sold as "installation kits");
- dichroic liquid crystal display ("LCD") devices, which are often used with
flight deck avionics;
- cockpit audio and communications, lighting, and power and control devices
for commercial aircraft; and
- stereo systems, video monitors, passenger switches, cabin lighting,
seating and climate controls for the high-end corporate aircraft market.
Our systems integration services include design and engineering of avionics
systems, supplemental type certifications on behalf of the Federal Aviation
Administration, the assembly of installation kits for systems to be installed
("kitting"), and installation services. Smoke detection, fire suppression and
in-flight entertainment systems for jet aircraft are among the systems for which
we supply design, certification, assembly and/or installation services. We
manufacture many of the components required to complete a systems integration
project. We believe that our combination of these component manufacturing and
integration capabilities gives us a critical competitive advantage, which would
be difficult for competitors to duplicate.
By successfully combining and growing complementary businesses, we have
achieved strong revenue growth. From 1993 to 1997, our revenues increased from
$48.2 million to $108.9 million on a historical basis. That increase resulted in
a compound annual growth rate of 22.6%. During the same period, DeCrane
Aircraft's EBITDA increased from $6.0 million to $16.9 million on a historical
basis, representing a combined annual growth rate of 29.5%. We have acheived
this growth primarily by:
- obtaining new customers and additional business from existing customers;
- selectively acquiring complementary avionics businesses, generally with
high margins;
- taking advantage of favorable trends in the aerospace industry (discussed
below);
53
<PAGE>
- initiating cost reduction programs and productivity improvements; and
- increasing the revenues of acquired businesses, by refocusing or
diversifying their strategies and products.
Since 1990, we have completed eleven acquisitions, most recently Avtech
Corporation and Dettmers Industries, Inc. in June 1998.
INDUSTRY OVERVIEW AND TRENDS
We sell to the commercial, regional, corporate and military aircraft
markets. Within these markets, our customers include original equipment
manufacturers ("OEMs") of aircraft and avionics equipment, aircraft repair and
modification centers, and airlines. The 1998 CURRENT MARKET OUTLOOK released by
Boeing in early 1998 (the "1998 Boeing Report") projects that expenditures for
new commercial jet aircraft production will total about $520 billion from 1997
through 2007, and worldwide air travel will average 4.9% annual growth over the
next two decades. The aircraft component retrofit market (the integration of new
systems into existing aircraft) and the aircraft component aftermarket (the
manufacture and sale of replacement products for existing aircraft) are served
by a highly fragmented group of companies, including many of the OEMs. The
aviation industry has been consolidating at an increasing pace in recent years,
and we expect that consolidation will continue for the foreseeable future.
The Boeing Company and Airbus Industrie are the primary OEMs of commercial
aircraft designed to carry 100 or more passengers. There is a slightly larger
group of leading principal OEMs of regional and corporate aircraft (fewer than
100 passengers), including Bombardier, Dassault and Gulfstream. The major
systems installed on new aircraft, such as flight deck avionics systems, are
produced by a limited number of OEMs, including AlliedSignal, Rockwell Collins,
General Electric, Honeywell, Raytheon and Sextant Avionique. Components for new
aircraft, and sub-systems for major systems, are provided by a much more
fragmented group of smaller, specialized companies like our operating
subsidiaries. We market our commercial aircraft products directly to the
aircraft OEMs as well as to the major systems OEMs. In some cases, we sell our
products to competing manufacturers--so our competitors ultimately may sell some
of our products.
We believe that there are many barriers to entry which limit access to the
aircraft industry, including:
- the reluctance of OEMs to add new companies as approved vendors on the
engineering drawings of the OEMs (a favored status called "print
position");
- the general FAA certification requirements necessary to perform aircraft
modifications or maintenance;
- the required compliance with FAA aircraft manufacturing and aircraft
modification design and installation standards;
- the required compliance with military specifications for some products
sold to military and commercial markets;
- the required compliance with qualification and approval standards imposed
by aircraft and avionics systems OEMs; and
- the significant initial capital investment and tooling requirements
necessary for the manufacture of some aircraft components and systems.
54
<PAGE>
We believe the following trends are affecting the commercial, regional and
corporate aircraft industry:
INCREASED DEMAND FOR NEW COMMERCIAL AIRCRAFT. The 1998 Boeing Report
projects that the world jetliner fleet will grow from 12,300 aircraft at the end
of 1997 to nearly 17,700 aircraft in 2007 and to 26,200 aircraft by 2017. The
report also estimates that, over the next 20 years, the industry will require
17,650 new aircraft, both to support the projected world fleet expansion and to
replace capacity lost as aircraft are removed from commercial airline service.
We believe that every commercial aircraft model currently produced by Boeing and
Airbus contains components manufactured by us. The 1998 BOEING REPORT notes that
the pent-up demand for replacement aircraft, and upcoming deadlines for noise
abatement, may take some older aircraft out of service, and will require
carriers to add capacity to keep pace with traffic growth. Boeing has, however,
recently announced production cutbacks in several of its lines for 1999 and 2000
in response to continuing instability in its Asian markets. See "Risk
Factors--Instability of Asian Market."
INCREASED DEMAND FOR NEW REGIONAL AIRCRAFT. The U.S. Regional Airline
Association forecasts that the total commercial regional aircraft fleet will
grow about 58% over the next ten years, with about 50% of the fleet being
replaced with new aircraft over the same period. The forecast indicates that
about two-thirds of the new aircraft will be jet aircraft (such as the Canadair
Regional Jet) with the remainder being turboprop aircraft. These trends should
be driven in part by continuing increases in worldwide revenue passenger
kilometers (called "RPKs") flown. The 1998 Boeing Report projects that worldwide
RPKs will increase at a compound annual growth rate of 5.0% over the next ten
years. We believe that the increase in new regional aircraft production is
driven by:
- the introduction of new regional aircraft with state-of-the-art cockpits
and the same safety equipment as larger commercial aircraft;
- continued integration of the services of regional carriers with major
carriers;
- newer longer-range turboprop and jet aircraft that allow regional carriers
to consider new point-to-point routes, which would permit passengers to
bypass hubs; and
- upgraded airport facilities for regional passengers.
INCREASED DEMAND FOR NEW CORPORATE AIRCRAFT. The ALLIEDSIGNAL ANNUAL
BUSINESS AVIATION OUTLOOK projects that 2,300 new corporate aircraft will be
delivered from 1997 through 2001. This would be a 61% increase over the previous
five-year period. We believe that the increase in new corporate aircraft
production is driven by:
- the introduction of new, larger and more efficient aircraft;
- the growing popularity of fractional aircraft ownership;
- the minimal availability of used aircraft;
- the need for long range flights to expanding international markets; and
- the increased demand for more expedient travel.
INCREASED DEMAND FOR CABIN AND FLIGHT DECK SYSTEMS. In recent years, demand
for cabin systems has increased. These systems include in-flight passenger
telecommunications systems and in-flight entertainment systems, such as video,
video-on-demand and other interactive systems. We believe that demand for
avionics systems on the flight deck, as well as in the passenger cabin, is
increasing, as a result of:
- a desire by airlines for additional revenue-producing services;
55
<PAGE>
- longer flights combined with a demand by airline passengers for more
sophisticated forms of in-flight services; and
- the advent of new technologies and FAA mandates related to aircraft safety
and navigation.
INDUSTRY CONSOLIDATION-REDUCTION IN NUMBER OF APPROVED SUPPLIERS AND
VENDORS. To reduce purchasing costs and have greater control over quality, OEMs
and aircraft operators have been reducing the number of vendors and suppliers
from whom they purchase. Suppliers and vendors must now possess the size and
production and distribution capabilities required to provide a broader range of
products and services to airlines and OEMs.
NEW SAFETY REQUIREMENTS. New technologies and FAA mandates are driving a
proliferation of new safety systems for airplanes. The world's airlines,
aircraft and avionics OEMs have cooperated with regulatory agencies in the
development of industry standards, regulations and system requirements for
future air navigation systems (the "FANS" initiative). We expect that this
initiative will drive a complete modernization of both airborne and ground-based
air traffic management systems. As navigation technology becomes more accurate,
new navigation systems such as Global Positioning Systems ("GPS"), may become
federally required. Other new technologies which have already been mandated
include Traffic Collision Avoidance Systems ("TCAS"), cargo hold fire detection
and suppression systems, and windshear detection systems. In anticipation of new
FAA recommendations and mandates, many airlines have already begun to install
enhanced ground proximity warning systems, predictive windshear detection
systems and enhanced digital flight data recorders. Each of these systems
presents aircraft avionics retrofit opportunities for us.
DOWNSIZING AND OUTSOURCING. Airlines have come under increasing pressure to
reduce the operating and capital costs associated with providing services. In
response, airlines have increased purchases of some components from third
parties and have outsourced some repair, overhaul and retrofit functions.
Similarly, aircraft and avionics OEMs increasingly are reducing their level of
vertical integration by outsourcing more manufacturing, repair and retrofit
functions to third parties. We believe that these trends are creating increased
demand for low-cost, high-quality component manufacturers and systems
integrators.
ACQUISITION HISTORY
DeCrane Aircraft was formed in 1989 to capitalize on emerging trends in the
aircraft market through acquisitions. Since its formation, we have completed
eleven acquisitions, summarized as follows:
<TABLE>
<CAPTION>
YEAR OF PRINCIPAL PRODUCTS AND SERVICES
COMPLETION ACQUIRED ENTITY OR ASSET AT THE TIME OF THE TRANSACTION
- ------------- ------------------------------------------------- -------------------------------------------------
<C> <S> <C>
1990 Hollingsead International Avionics support structures
1991 Tri-Star Electronics International Contacts and connectors
1991 Tri-Star Europe, S.A. Contact blanks
1991 Tri-Star Technologies Wire marking equipment
1991 Cory Components Connectors & harness assemblies
1996 Aerospace Display Systems Dichroic LCD devices
1996 Elsinore Engineering Engineering services
1996 AMP manufacturing facility Contact blanks
1997 Audio International Cabin management & entertainment products
1998 Avtech Corporation Cockpit audio, lighting, power & control
1998 Dettmers Industries Corporate aircraft seats
</TABLE>
56
<PAGE>
COMPETITIVE STRENGTHS
We believe that we are well-positioned to take advantage of the foregoing
trends and expected growth, as a result of the following competitive strengths:
LEADING POSITIONS IN NICHE MARKETS. We have established strong positions in
several specialized niches within the commercial aircraft industry. We believe
that we are:
- the largest supplier of bulk contacts to commercial aircraft original
equipment manufacturers ("OEMs");
- the largest supplier of dichroic LCD devices for use by commercial
aircraft OEMs;
- the largest provider of aircraft entertainment and cabin management
products and systems for the high-end corporate aircraft market;
- a major supplier of wire harness assemblies for use in in-flight
entertainment systems; and
- a leading supplier of cockpit audio controls.
We have used our strong market positions to compete more effectively as well
as to capitalize on industry consolidation trends.
DIVERSIFIED REVENUE BASE. We sell to the commercial, regional, corporate
and military aircraft markets. Within these markets, our customers include OEMs
of aircraft and avionics equipment, aircraft repair and modification centers,
and airlines. Each of these markets typically experience different production
cycles. We believe that our involvement in multiple markets, reduces our
exposure to cyclical product demand in the aircraft industry. Additionally, as a
primary supplier of products and services to manufacturers of cabin and flight
deck systems, we believe we have opportunities for growth that are independent
of the aircraft OEM market. Such systems typically are installed on a retrofit
basis by purchasers and operators of existing aircraft, rather than by aircraft
OEMs.
COMPLEMENTARY AND STRATEGICALLY INTEGRATED BUSINESS LINES. Since DeCrane
Aircraft was formed in 1989, we have completed eleven acquisitions of businesses
and assets. We have successfully executed our strategy of acquiring
complementary businesses in the cabin and flight deck markets. Our acquisitions
complement each other, and create a core of avionics products and services which
increases our cross-selling opportunities. For example, our acquisitions of
Dettmers, a corporate aircraft seat manufacturer, and Audio, which makes custom
aircraft entertainment and cabin management products, will enable us to offer a
more integrated set of products and services to the high-end corporate aircraft
market.
STRONG CUSTOMER RELATIONSHIPS. We seek to establish and maintain long-term
relationships with leaders in our primary markets. For example, we have entered
into requirements contracts to supply bulk contacts and specific connectors to
Boeing, which is the largest commercial aircraft OEM. Through these agreements,
we believe that we are:
- the supplier of a substantial majority of the bulk contacts for all
aircraft currently manufactured by Boeing;
- the sole source supplier of certain connectors for in-flight entertainment
systems installed by Boeing on its 777 aircraft; and
- the primary supplier of cockpit audio control systems to Boeing.
We are also a preferred supplier of wire harness assemblies to Matsushita for
its in-flight entertainment systems.
57
<PAGE>
LOW-COST, HIGH-QUALITY OPERATIONS. We believe that we have established
low-cost operations through cost reduction programs, technological development
and, where appropriate, the use of vertical integration. Our low-cost operations
are demonstrated, for example, by the growth of programs under which we supply
contacts to many of our competitors.
We use sophisticated processes to ensure that our products meet or exceed
industry and customer quality requirements. Many customers formally have
recognized the effectiveness of our quality programs by issuing quality approval
letters, awarding quality compliance certificates and authorizing our inspection
personnel to act as their authorized quality certification representatives. For
example, four of our facilities have received Boeing's D1-9000 Advanced Quality
System award, and nine of our facilities are currently ISO-9001 or ISO-9002
certified.
REGULATORY CERTIFICATIONS. We employ FAA-certified airframe and power-plant
mechanics who are authorized to perform specified aircraft modification
functions. This level of expertise enables us to respond rapidly and effectively
to our customers' technical requirements. As of January 6, 1999, our
subsidiaries:
- include one of only 31 currently active Designated Air Stations worldwide
which are authorized by the FAA to provide approval and certification of
the design of specific aircraft modifications on behalf of the FAA;
- hold numerous Parts Manufacturer Approval authorizations from the FAA,
permitting them to manufacture and sell various parts in many different
types of aircraft; and
- hold seven FAA domestic repair station certificates, authorizing them to
perform specific aircraft modifications.
GROWTH STRATEGY
Our principal strategy is to establish and expand leading positions in
high-margin, niche markets within the commercial, regional, corporate and
military aircraft markets. We focus on the manufacture of avionics components
and the integration of avionics systems. We also seek to maintain a balance of
revenues among the OEM market, the retrofit market and the aftermarket. We
believe that such a strategy will position us to grow by:
CAPITALIZING ON GROWTH IN AIRCRAFT PRODUCTION AND INCREASED DEMAND FOR CABIN
AND FLIGHT DECK SYSTEMS. Our strong market positions, and alignment with many
of the leading participants in the industry, should permit us to take advantage
of the projected increases in the production of aircraft discussed above. For
example, in-flight entertainment systems have become more sophisticated in
recent years with the inclusion of such products as video-on-demand and in-seat
VCRs. Increasingly, airlines view sophisticated in-flight entertainment systems
as a required service on airlines long-haul flights, particularly in first
class. Such systems are also increasingly being installed in business and coach
class and on planes serving shorter routes. We believe that the trend toward
jets instead of turboprops in the corporate and regional markets will further
increase our dollar content per aircraft, as well as the demand for our products
and services in that market. We believe that this increased demand creates a
significant retrofit and aftermarket opportunity for cabin avionics systems, as
well as the components and systems integration services necessary to such
systems. We work closely with OEMs and modification centers to meet their
delivery and scheduling requirements, and, in some cases, to provide total,
turnkey solutions to adding avionics systems new aircraft.
EXPANDING AND DIVERSIFYING SYSTEMS INTEGRATION SERVICES. Our systems
integration services began in the in-flight passenger telecommunications market.
Beginning in 1995, we diversified by expanding our systems integration expertise
and sales efforts to include navigation and satellite communication, safety, and
in-flight entertainment systems. We believe that we are one of the few companies
having in-house
58
<PAGE>
capabilities in each of the four elements of systems integration (design,
certification, kitting and system installation). We have contracted to provide
systems integration services for GPS (for KLM Royal Dutch Airlines through
Canadian Marconi and Smiths Industries plc), for smoke detection and fire
suppression safety systems (for Southwest Airlines through Securaplane and
Northwest Airlines through Kidde Safety), for TCAS (for Federal Express) and for
in-flight entertainment systems (for Swissair through Interactive Flight
Technologies, Inc.).
EMPHASIZING INTEGRATED PRODUCT SYSTEMS AND COMPLEMENTARY SERVICES. Over the
past several years, we increasingly have combined our manufactured components to
create higher value-added products. This activity has created additional
opportunities to cross-sell and vertically integrate our products. For example,
our contact business provides components to our connector business, which
supplies components to our wire harness business. Our harness assemblies often
are packaged with its avionics support structures to form the foundation as the
installation kits which we then sell to our systems integration customers. We
believe that these complementary products and services provide opportunities to
increase our sales to existing customers and compete more effectively for new
customers.
COMPLETING ADDITIONAL STRATEGIC ACQUISITIONS. We operate in a fragmented
market, which we estimate to include over 100 companies with revenues of less
than $100 million in 1997. We target for acquisition aircraft component
manufacturers and systems integration providers that are complementary to our
existing businesses, and have a leading market share in their own niches. We
seek to leverage our existing strengths, and add new expertise, through
acquisitions that offer strategic value and cross-selling opportunities. We
regard economies of scale, product line extensions, new customer relationships,
increased manufacturing capacity and opportunities for increased cost reductions
as particularly important in our analysis of a potential acquisition's strategic
value. We are continually engaged in discussions with potential acquisition
candidates. However, acquisitions involve many uncertainties, and our attempts
to identify appropriate acquisitions, and complete and finance any particular
acquisition, may not be successful.
PRODUCTS AND SERVICES
We believe that our products are used in each of the commercial aircraft
models currently produced by Boeing (including McDonnell Douglas models) and
Airbus, the two largest commercial aircraft OEMs. Our six principal classes of
products and services are:
<TABLE>
<CAPTION>
SHARE OF 1997 SALES
ON A PRO FORMA
CLASS BASIS
----------------------------- -------------------
<C> <S> <C>
- electrical contacts About 23%
- cockpit audio, About 22%
communications, lighting and
power and control devices
- connectors and harness About 17%
assemblies
- integration of cabin and About 11%
flight deck systems
- dichroic LCD devices About 9%
- entertainment and cabin About 9%
management products
</TABLE>
No other product or service accounted for more than 10% of our pro forma
revenues in 1997.
ELECTRICAL CONTACTS. Contacts conduct electronic signals or electricity and
are installed at the terminus of a wire or an electronic or electrical device.
We supply precision-machined contacts for use in connectors found in virtually
every electronic and electrical system on a commercial aircraft. We sell
59
<PAGE>
contacts directly to aircraft and avionics OEMs and, through our private
labeling programs, to several major connector manufacturers who sell connectors
to the same markets under their brand name. We believe that we are the supplier
of a substantial majority of the bulk contact requirements for all aircraft
currently manufactured by Boeing, and the largest supplier of bulk contacts to
the commercial aircraft OEMs.
COCKPIT AUDIO, COMMUNICATION, LIGHTING AND POWER AND CONTROL DEVICES. We
are a leading manufacturer of cockpit audio, lighting and power and control
devices used in commercial, regional and corporate aircraft. We believe we are
the primary supplier of cockpit audio control systems to Boeing, and a leading
supplier of power conversion and fluorescent lamp ballast devices and dimmers to
corporate aircraft OEMs. We also manufacture commercial aircraft safety system
components, including warning tone generators, temperature and de-icing
monitoring systems, steep approach monitors and low voltage power supplies for
TCAS.
CONNECTORS AND HARNESS ASSEMBLIES. Electronic and electrical connectors
link wires and devices in avionics systems, and permit their assembly,
installation, repair and removal. Our connectors are specially manufactured to
meet the critical performance requirements demanded by OEMs and required in the
harsh environment of an operating aircraft. We produce connectors that are used
in aircraft galleys, flight decks and control panels in the passenger cabin. We
are the sole-source supplier of several specific connectors for in-flight
entertainment systems installed by Boeing on its 777 aircraft.
We also produce wire harness assemblies for use in cabin avionics systems,
from wire, connectors, contacts and hardware. We typically sell our harness
assemblies to avionics OEMs. In addition, we incorporate and sell our harness
assemblies as part of our systems integration services. We are a primary
supplier of harness assemblies to Matsushita, one of the largest manufacturers
of in-flight entertainment systems.
INTEGRATION OF CABIN AND FLIGHT DECK SYSTEMS. We have designed, patented
and produced a wide range of avionics support structures. These structures are
used to support and environmentally cool avionics equipment, including
navigation, communication and flight control equipment. Our avionics support
structures are sold under the Box-Mount-TM- name, which we believe is highly
respected in the marketplace. We sell these support structures to aircraft and
avionics OEMs, airlines and major modification centers. In addition, these
products are essential components of the installation kits used in our systems
integration operations. We also perform all of the functions, including design,
engineering, certification, manufacturing & installation, necessary to retrofit
an aircraft with a new or upgraded avionics system.
DICHROIC LCD DEVICES. We believe we are a leading manufacturer of dichroic
LCDs and modules used in commercial and military aircraft. (Modules are LCDs
packaged with a backlight source and direct-drive electronics.) We believe we
are a primary supplier of these devices to aircraft and avionics OEMs and the
U.S. military. Our products are used in a variety of flight deck applications,
such as flight control systems, fuel quantity indicators, airborne
communications and safety systems. Dichroic LCD products are widely used in the
aircraft industry because they are easily adapted to custom design, and they
possess high performance characteristics, which include high readability in
sunlight and darkness, readability from extreme viewing angles, and the ability
to withstand wide temperature fluctuations. We also manufacture electronic
clocks which use our dichroic LCD devices. We believe that we are the only clock
manufacturer which has designed a line of clocks capable of serving all types of
aircraft.
60
<PAGE>
ENTERTAINMENT AND CABIN MANAGEMENT. We are a leading supplier of aircraft
entertainment and cabin management products and systems to the high-end
corporate aircraft market. We supply switching and control modules, audio and
video components, stereo systems, video monitors, amplifiers, chimes and paging
devices, headphone systems, passenger switches, and cabin lighting and climate
controls. We also offer systems integration services for cabin management
electronics to corporate aircraft OEMs and major modification centers.
INDUSTRY REGULATION
The aviation industry is highly regulated in the U.S. by the FAA, and in
other countries by similar agencies to ensure that aviation products and
services meet stringent safety and performance standards. We and our customers
are subject to these regulations. In addition, many customers impose their own
compliance and quality requirements on their suppliers. The FAA prescribes
standards and licensing requirements for aircraft components, issues Designated
Air Station ("DAS") authorizations, and licenses private repair stations. Our
subsidiaries hold various FAA approvals, which may only be used by the
subsidiary obtaining such approval.
The FAA can authorize or deny authorization of many of the services and
products we provide. Any such denial would preclude our ability to provide the
pertinent service or product. If we failed to comply with applicable FAA
standards or regulations, the FAA could exercise a wide range of remedies,
including a warning letter, a civil penalty action, and suspension or revocation
of a certificate or approval.
In July of 1997, the FAA notified us that our FAA-approved repair station
which holds DAS authorization did not fully comply with some of the requirements
for some of the FAA ratings that it held. The FAA granted us until September 10,
1997 to bring the facility into full compliance, and curtailed several
operations of the repair station (including prohibiting initiation of new DAS
projects) until it achieved full compliance. On August 28, 1997 the FAA
inspected the repair station and determined that it was in full compliance with
all FAA requirements applicable to Class III and Class IV Airframe ratings. The
FAA issued a revised Air Agency Certificate including those ratings, and removed
the operating restrictions, as of September 5, 1997.
The FAA also has the power to issue cease and desist orders and orders of
compliance and to initiate court action for injunctive relief. In most
(nonemergency) cases, we would be permitted to continue making the products and
delivering the goods pending any available appeals, but would be required to
stop if the FAA eventually prevailed on appeal. If the FAA were to suspend or
revoke our certificates or approvals on an emergency basis, we would be obliged
to stop the manufacturing of products and delivering of services that require
such certificate or approval. If the FAA determines that noncompliance with its
standards creates a safety hazard, it can also order that the pertinent
component or aircraft immediately cease to be operated until the condition is
corrected. This could require that customers ground aircraft, or remove affected
components from aircraft currently in service, both of which are expensive
actions.
Each type of aircraft operated by airlines in the United States must receive
an FAA type certificate ("TC"), generally held by the OEM, indicating that the
type design meets applicable airworthiness standards. When someone else develops
a major modification to an aircraft already type-certificated, that person must
obtain an FAA-issued Supplemental Type Certificate ("STC") for the modification.
Historically, we have obtained well over 100 STCs, most of which we obtained on
behalf of our customers as part of our systems integration services. Some of the
STCs we obtain are or will eventually be transferred to our customers. As of
January 6, 1999, we own and/or manage 96 STCs. Many of these are multi-aircraft
certificates which apply to all of the aircraft of a single type. We foresee the
need to obtain additional STCs so that we can expand the services we provide and
the customers we serve.
61
<PAGE>
STCs can be issued to proposed aircraft modifications, directly by the FAA,
or on behalf of the FAA by one of the 31 holders of currently active DAS
authorizations (as of January 6, 1999). The FAA designates what types of STC can
be issued by each DAS holder. Our subsidiary Elsinore, as one of the 31, can
directly issue many of the STCs we and our customers require for our systems
integration operations. In many cases, this has increased the speed with which
we can obtain STCs and help bring our customers' systems to market.
After obtaining an STC, a manufacturer must apply for a Parts Manufacturer
Approval ("PMA") from the FAA, or a supplement to an existing PMA, which permits
the holder to manufacture and sell installation kits according to the approved
design and data package. We have six PMAs, and multiple supplements to each of
our PMAs. In general, each initial PMA is an approval of a manufacturing or
modification facility's production quality control system. Each supplement
authorizes the manufacture of a particular part in accordance with the
requirements of the corresponding STC. We routinely apply for and receive PMA
supplements. In order to perform the actual installations of a modification, we
are also required to have FAA approval. This authority either is specified in
our PMAs and supplements, or in our repair station certificates. In order for a
company to perform most kinds of repair, engineering, installation or other
services on aircraft, its facility must be designated as an FAA-authorized
repair station. As of January 6, 1999, we had seven authorized repair stations.
In addition to its approval of design, production, and installation, the FAA
certifies personnel. Several of our engineering personnel have been certified by
the FAA to perform specific tasks related to the design, production, and
performance of aircraft modifications. Such certified personnel include
mechanics and repairmen. The FAA also delegates some of its oversight
responsibilities, such as testing and inspection responsibilities, to
FAA-certified Designated Engineering Representatives ("DERs"). We employ several
DERs who evaluate engineering design data packages, ensure compliance with
applicable FAA regulations, oversee product testing to ensure airworthiness, and
work with the FAA to obtain approvals of those data packages.
U. S. military specification ("mil-spec") standards are frequently used by
both military and commercial customers in the aircraft industry to define and
control characteristics of a product. Through the use of a government Qualified
Parts List ("QPL") and Qualified Vendor's List ("QVL"), a customer may be
assured that a product or service has met all of the requirements set forth in
the mil-specs. Parts listed with a QPL allow others to reliably design parts to
interface with such parts as a result of the mil-spec standards used. We believe
that we hold more QPLs for our contact product line than any other manufacturer.
SALES AND MARKETING
Product line managers and our product engineering staff provide technical
sales support for our direct sales personnel and agents. We may also assign
responsibility for marketing, sales and/or services for certain key customers to
one of our senior executives. We have nine authorized distributors who purchase,
stock and resell several of our product lines.
Our systems integration services are sold by sales managers on our staff who
are assigned to geographic territories. Because of the significant amount of
technical engineering work required in the sales process, our sales managers are
generally assisted by a support team of program management, installation and
engineering personnel. Each support team specializes in safety systems,
in-flight entertainment, or navigation systems. These support teams continue to
manage the project throughout the entire integration process.
CUSTOMERS
In 1997, we sold our products and services to about 1,300 customers. Our
primary customers include aircraft and avionics OEMs, airlines, aircraft
component manufacturers and distributors, and
62
<PAGE>
aircraft repair and modification companies. In fiscal 1997, on a pro forma
basis, our two largest customers were Boeing (including McDonnell Douglas) and
Matsushita. Boeing accounted for about 22.1%, and Matsushita for about 7.6%, of
our 1997 consolidated pro forma revenues. In addition, a significant portion of
our sales of components also are sold to Boeing indirectly through our sales to
suppliers of Boeing.
Historically, our systems integration operations have been affected by the
timing and magnitude of program awards, at times resulting in quarterly and
yearly fluctuations in revenue and earnings. We believe that we have reduced our
exposure to such fluctuations by developing capabilities in multiple specialties
such as safety systems, in-flight entertainment systems and navigation systems.
We have secured orders for integration services in each of these targeted areas.
The timing and magnitude of program awards for systems integration services may
make other customers significant sources of nonrecurring income in a single
year. However, we believe that we will continue to be able to significantly
offset such year-to-year fluctuations with new contracts.
Most of our sales to Boeing are pursuant to contracts which may be
terminated by Boeing at any time, and include various terms favorable to the
buyer. For example, one provides that we must extend to Boeing any reductions in
prices or lead times that we provide to other customers; and that we must match
other suppliers' price reductions of more than five percent, or else delete the
affected products from the contract. Another contract relieves Boeing from any
obligation to order products covered by the contract if Boeing's customers
request an alternate supplier, or our product is not technologically competitive
in Boeing's judgment, or Boeing changes the design of an aircraft so that our
products are no longer needed, or Boeing reasonably determines that we cannot
meet its requirements in the amounts and within the schedules it requires. Our
contracts with Boeing also generally grant Boeing an irrevocable non-exclusive
worldwide license to use our intellectual property rights (such as designs,
trade secrets and tooling) related to products sold to Boeing, if we default, or
suffer a bankruptcy filing, or transfer our manufacturing rights to a third
party.
We generally sell components and services to Matsushita pursuant to purchase
orders. However, we do have one supply agreement with Matsushita for connectors,
through September 1999.
MANUFACTURING AND QUALITY CONTROL
Many of our product lines use process-specific equipment and procedures that
have been custom-designed or fabricated to provide high-quality products at
relatively low cost. Some of our key product lines are vertically integrated,
which we believe improves our product performance, customer service and
competitive pricing.
We have conducted programs to reduce costs including overhead expenses. In
some cases these programs have involved the use of proprietary equipment or
processes which have enabled us to reduce costs without reducing quality levels.
Several of our key customers have developed their own design, product
performance, manufacturing process and quality system standards and require us
(and other suppliers) to comply with such standards. As a result, we have
developed and conducted comprehensive quality policies and procedures which meet
or exceed our customers' requirements. Many of our customers have recognized
formally the effectiveness of our quality programs by issuing quality approval
letters and awarding quality compliance certificates. In addition, some of our
customers have authorized our inspection personnel also to act as their
authorized quality representatives. That authorization enables us to ship
directly into the inventory stockrooms of these customers, eliminating the need
for inspection at the receiving end.
We use sophisticated equipment and procedures to ensure the quality of our
products and to comply with mil-specs and FAA certification requirements. We
perform a variety of testing procedures,
63
<PAGE>
including environmental testing under different temperature, humidity and
altitude levels, shock and vibration testing and X-ray fluorescent measurement.
These procedures, together with other customer approved techniques for document,
process and quality control, are used throughout our manufacturing facilities.
RAW MATERIALS AND COMPONENT PARTS
The components we manufacture require the use of various raw materials
including gold, aluminum, copper, rhodium, plating chemicals and plastics. The
availability and prices of these materials may fluctuate. Their price is a
significant component in, and part of, the sales price of many of our products.
Although some of our contracts have prices tied to raw materials prices, we
cannot always recover increases in raw materials prices in our product sale
prices. We also purchase a variety of manufactured component parts from various
suppliers. Raw materials and component parts are generally available from
multiple suppliers at competitive prices. However, any delay in our ability to
obtain necessary raw materials and component parts may affect our ability to
meet customer production needs.
INTELLECTUAL PROPERTY AND PROPRIETARY INFORMATION
We have various trade secrets, proprietary information, trademarks, trade
names, patents, copyrights and other intellectual property rights which we
believe are important to our business in the aggregate (but not individually).
COMPETITION
We compete with a number of established companies that have significantly
greater financial, technological, manufacturing and marketing resources than
ours. We believe that our ability to compete depends on high product
performance, short lead-time and timely delivery, competitive price, and
superior customer service and support.
The niche markets within the aircraft industry that we serve are relatively
fragmented, with several competitors for each of the products and services we
provide. Due to the global nature of the aircraft industry, competition in these
categories comes from both U.S. and foreign companies. However, we know of no
single competitor that offers the same range of products and services as those
we provide.
64
<PAGE>
Our principal competitors in contacts and connectors are large and
diversified corporations which produce a broad range of products. In other areas
we generally face a group of smaller companies and enterprises.
<TABLE>
<CAPTION>
CLASS OF PRODUCT PRINCIPAL COMPETITORS
- --------------------------------------------------- ---------------------------------------------------
<S> <C>
- electrical contacts - Amphenol Corporation
- Deutsch Engineered Connecting Devices (a division
of Deutsch Co.)
- ITT Cannon (a division of ITT Industries, Inc.)
- cockpit audio, - Becker Avionics, Inc.
communications, lighting and power - Crane ELDEC Corp.
and control devices - Diehl GmbH & Co.
- Gables Engineering Inc.
- Page Aerospace, Inc.
- connectors - AMP, Inc.
- ITT Cannon
- Radiall S.A.
- integration of cabin and flight deck avionics - Electronic Cable Specialists ("ECS")
systems into different aircraft models - Engineering departments of airlines
- Numerous independent airframe maintenance and
modification companies
- dichroic LCD devices - Cristalloid, Inc.
- entertainment and cabin management products - Aerospace Lighting Corporation
- Baker Electronics
- DPI Labs
- Grimes Aerospace Company
- Nellcor Puritan Bennett Inc.
- Pacific Systems Corporation
</TABLE>
BACKLOG
As of September 30, 1998, we had an aggregate sales order backlog of $84.6
million compared to $75.5 million as of December 31, 1997, all on a pro forma
basis. Orders are generally subject to cancellation by the customer prior to
shipment. The level of unfilled orders at any given date will be materially
affected by when we receive orders and how fast we fill them. Period-to-period
comparisons of backlog figures may not be meaningful. For that reason, our
backlogs do not necessarily accurately predict actual shipments or sales for any
future period.
EMPLOYEES
As of September 30, 1998, we had 1,444 employees (including 53 temporary
employees), of whom 197 were in engineering (including 3 temporary employees),
72 were in sales, 1,055 were in manufacturing operations (including 45 temporary
employees) and 120 were in finance and administration (including 5 temporary
employees). None of our employees are subject to a collective bargaining
agreement, and we have not experienced any material business interruption as a
result of labor disputes since DeCrane Aircraft was formed. We believe that we
have a good relationship with our employees.
65
<PAGE>
FACILITIES
We lease most of our principal facilities, as described in the following
table.
<TABLE>
<CAPTION>
APPROX. LEASE
LOCATION DESCRIPTION SQ. FT. EXPIRATION
- ----------------------------------------------- ------------------------------------------- --------- ----------
<S> <C> <C> <C>
El Segundo, CA................................. Manufacturing and engineering facility 81,300 2000
Garden Grove, CA............................... Manufacturing and engineering facility 58,300 2004
Stuart, FL..................................... Manufacturing facility and offices 29,700 2008
Lugano, Switzerland............................ Manufacturing facility 28,000 2003
Hatfield, PA................................... Manufacturing and engineering facility 27,500 1999
Lugano, Switzerland............................ Manufacturing facility 21,000 2001
Irvine, CA..................................... Manufacturing facility 16,400 1999
Seattle, WA.................................... Storage facility 10,000 2001
Stuart, FL..................................... Manufacturing facility 9,000 1999
Wiltshire, United Kingdom...................... Manufacturing facility 5,700 2013
El Segundo, CA................................. Executive offices 5,000 2004
Santa Barbara, CA.............................. Engineering facility 3,500 2000
Seattle, WA.................................... Engineering facility 3,200 1999
Santa Ana, CA.................................. Engineering facility 1,300 1999
</TABLE>
Additionally, we have a leased manufacturing facility of approximately
52,000 square feet in Santa Fe Springs, CA, which expires in 2000, and that we
have leased in part to several subtenants. Also, we own a manufacturing and
engineering facility comprised of six buildings having an aggregate of 87,382
square feet in Seattle, Washington (and additional leased rental office and
vacant space nearby, comprising another 34,229 square feet), and an 18,000
square foot manufacturing and engineering facility in North Little Rock,
Arkansas. We believe that our properties are in good condition and are adequate
to support our operations for the foreseeable future.
ENVIRONMENTAL MATTERS
Our facilities and operations are subject to various federal, state, local,
and foreign environmental requirements, including those relating to discharges
to air, water, and land, the handling and disposal of solid and hazardous waste,
and the cleanup of properties affected by hazardous substances. In addition,
some environmental laws, such as the federal Comprehensive Environmental
Response, Compensation and Liability Act, as amended ("CERCLA"), similar state
laws, impose strict liability upon persons responsible for releases or potential
releases of hazardous substances. That liability generally is retroactive, and
may be separately asserted (as "joint and several" liability) against multiple
parties who have some relationship to a site or a source of waste. We have sent
waste to treatment, storage, or disposal facilities that have been designated as
National Priority List sites under CERCLA or equivalent listings under state
laws. We have received CERCLA requests for information or allegations of
potential responsibility from the Environmental Protection Agency regarding our
use of several of those sites. In addition, some of our operations are located
on properties which are contaminated to varying degrees.
We have not incurred, nor do we expect to incur liabilities in any
significant amount as a result of the foregoing matters, because in these cases
other entities have been held primarily responsible, the levels of contamination
are sufficiently low so as not to require remediation, or we are indemnified
against such costs. In most cases, we do not believe that we have any material
liability for past waste disposal. However, in a few cases, we do not have
sufficient information to assess our potential liability, if any. It is
possible, given the retroactive nature of CERCLA liability, that we will from
time to time receive additional notices of potential liability, relating to
current or former activities.
Some of our manufacturing processes create wastewater which requires
chemical treatment, and one of our facilities has been cited for failure to
adequately treat that water. The costs associated with
66
<PAGE>
remedying that failure have been immaterial. See "--Legal Proceedings." We have
been and are in substantial compliance with environmental requirements. We
believe that we have no liabilities under environmental requirements, except for
liabilities which would we do not expect would likely have a material adverse
effect on our business, results of operations or financial condition. However,
some risk of environmental liability is inherent in the nature of our business,
and we might in the future incur material costs to meet current or more
stringent compliance, cleanup, or other obligations pursuant to environmental
requirements. See "Risk Factors--Environmental Risks and Regulations" and
"Business--Legal Proceedings."
LEGAL PROCEEDINGS
Our manufacturing facility in El Segundo, California, has received several
notices of violation related to its wastewater discharge permit, most recently
on June 18, 1998. We have taken various corrective measures. However, we
continue to experience difficulty in meeting the wastewater flow limitations
contained in its discharge permit and we are evaluating additional measures,
including seeking modification to our permit. We have installed new treatment
equipment. The cost for such installation, plus the anticipated cost of any
additional installations and/or outsourcing of the plating processes that create
the discharge, is not expected to be material. We do not believe that the
notices will result in any material sanctions. See "Risk Factors--Environmental
Risks and Regulations" and "Business--Environmental Matters."
As part of its investigation of the crash off the Canadian coast on
September 2, 1998 of Swissair Flight 111, the Canadian Transportation Safety
Board ("TSB") notified us that they recovered burned wire which was attached to
the in-flight entertainment system installed on some of Swissair's aircraft by
one of our subsidiaries. Attorneys for families of persons who died aboard the
flight requested that we put our insurance carrier on notice of a potential
claim by those families, and we did so. The TSB has advised us that it has no
evidence that the system we installed malfunctioned or failed during the flight.
We are fully cooperating with the TSB investigation.
We are a party to a license agreement with McDonnell Douglas (now a part of
Boeing) pursuant to which we may request specified data in order to design and
market modifications to aircraft manufactured by McDonnell Douglas. Under the
agreement, we are to pay McDonnell Douglas a royalty of five percent of the net
sales price of all modifications sold by us, for which we have requested data
from McDonnell Douglas. We have requested data for a single modification, which
we believe is exempt from the agreement's provision requiring royalties. In
1996, McDonnell Douglas made a demand for $650,000 for royalties. We do not
believe that we are obligated to McDonnell Douglas in any amount. However, if
the claim is asserted, and if we are unsuccessful in defending it, we may be
required to pay royalties to McDonnell Douglas.
Three of our subsidiaries are defendants in an action filed in federal court
by American International Airways, Inc., relating to the conversion and
modification of two Boeing 747 aircraft from passenger to freighter
configuration. No specific amount of damages is sought. The events in question
occurred prior to our purchase of the relevant businesses from their prior
owner. DeCrane Aircraft and two of the subsidiaries are indemnified for any such
liability and for the further cost of defense of the action. The third defendant
subsidiary is being defended with a reservation of rights by its insurance
carrier, and we intend to deny any liability.
On July 21, 1998, plaintiffs seeking to represent a purported class of our
stockholders filed in Delaware Chancery Court an action entitled TAAM
Associates, Inc. v. DeCrane, et al. against DeCrane Aircraft, our directors,
DLJ, Inc. and one of its affiliates. The compliant alleged, among other things,
that our directors had breached their fiduciary duties by entering into the
merger agreement with the DLJ affiliate (see "Recent Developments--The DLJ
Acquisition") without engaging in an auction or "active market check" and,
therefore, agreed to terms that were unfair and inadequate from the
67
<PAGE>
standpoint of our stockholders. On July 24, 1998, the plaintiffs amended the
complaint to add allegations that the Schedule 14D-9 we filed with the SEC as
part of the tender offer and merger transaction contained various material
misstatements or omissions; that the termination fees to the affiliate of DLJ
were unreasonable; and that the directors who approved the DLJ acquisition had
conflicts of interest. The complaint sought among other things an injunction
barring the transaction, or damages plus attorneys' fees and litigation
expenses. Without admitting any wrongdoing in the action, in order to avoid the
burden and expense of further litigation, the defendants reached an agreement in
principle with the plaintiffs which contemplates settlement of the action. The
foregoing defendants and the plaintiffs entered into a memorandum of
understanding under which the parties, subject to selected facts being confirmed
through discovery which has not been completed, would enter into a settlement
agreement subject to approval by the Court of Chancery. That memorandum of
understanding required that we make several additional disclosures by filing an
amendment to our Schedule 14D-9, which we did, and for a complete release and
settlement of all claims arising out of the facts set forth in the complaint.
The memorandum also contemplates that plaintiffs' counsel will apply to the
Court of Chancery for an award of attorney's fees and litigation expenses in an
amount not exceeding $375,000, which application the defendants agreed not to
oppose.
In August 1998, DeCrane Aircraft and R. Jack DeCrane, its chief executive
officer, were served in an action filed in state court in California by Robert
A. Rankin, claiming that he was due additional compensation in the form of stock
options, and claiming fraud, negligent misrepresentation and breach of contract
in connection therewith, fraudulent misrepresentation in violation of certain
provisions of the California Labor Code (for which doubled damages are sought),
promissory estoppel, and wrongful discharge in violation of public policy (as a
result of his allegations of improprieties in connection with the DLJ
acquisition transactions). The action seeks not less than $1.5 million plus
punitive damages and costs. The action is in its early stage of development and
discovery has not been completed. We intend to vigorously defend against the
claim. Mr. Rankin's employment with DeCrane Aircraft has been terminated.
We are party to other litigation incident to the normal course of business.
We do not believe that the outcome of any of such other matters in which we are
currently involved will have a material adverse effect on our financial
condition or results of operations.
68
<PAGE>
MANAGEMENT
The following table sets forth certain information concerning each person
who is currently a director or executive officer of DeCrane Aircraft. Each
director also serves as a director of DeCrane Holdings.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
R. Jack DeCrane........................... 52 Director and Chief Executive Officer
Charles H. Becker......................... 52 President and Chief Operating Officer
John R. Hinson............................ 36 Chief Financial Officer, Secretary and Treasurer
Thompson Dean............................. 40 Director
John F. Fort, III......................... 57 Director
Dr. Robert J. Hermann..................... 65 Director
Dr. Paul G. Kaminski...................... 56 Director
Susan C. Schnabel......................... 37 Director
Timothy J. White.......................... 37 Director
</TABLE>
R. JACK DECRANE is the founder of DeCrane Aircraft. Mr. DeCrane served as
President since it was founded in December 1989, until April 1993 when he was
elected to the newly-created office of Chief Executive Officer. Prior to
founding our company, Mr. DeCrane held various positions at the aerospace
division of B.F. Goodrich. Mr. DeCrane was a Group Vice President at the
aerospace division of B.F. Goodrich with management responsibility for three
business units from 1986 to 1989.
CHARLES H. BECKER has been President and Chief Operating Officer of DeCrane
Aircraft since April 1998. Mr. Becker previously served as Group Vice President
of Components of the Company from December 1996 to April 1998, and President of
Tri-Star from December 1994 to April 1998. Prior to joining us, Mr. Becker was
President of the Interconnect Systems Division of Microdot, Inc. from 1984 to
1994.
JOHN R. HINSON has been the Chief Financial Officer, Secretary and Treasurer
for DeCrane Aircraft since September 1998. From April 1998 to August 1998, he
served as Vice President, Planning & Business Development. From March 1995 to
March 1998, Mr. Hinson was Vice President, Finance and Chief Financial Officer
for the Tri-Star Companies. From October 1991 to March 1995 he held various
positions, including Director of Finance and Director of Operations, at MiniMed,
Inc. Prior to that, Mr. Hinson was employed in financial positions by
Hewlett-Packard Company and Bankers Trust Company.
THOMPSON DEAN has been the Managing Partner of DLJ Merchant Banking, Inc.
("DLJMB Inc."), since November 1996. Previously, Mr. Dean was a Managing
Director of DLJMB Inc. (and its predecessor). Mr. Dean serves as a director of
Commvault Inc., Von Hoffman Press, Inc., Manufacturer's Services Limited, Phase
Metrics, Inc., AKI Holding Corp. and Insilco Holding Corporation.
JOHN F. FORT, III served as Chairman of the Board of Directors of Tyco
International, Inc. from 1982 to December 1992, and as Chief Executive Officer
from 1982 to June 1992. Mr. Fort serves as a director of Tyco International,
Inc., Dover Corporation and Roper Industries.
DR. ROBERT J. HERMANN is a Senior Partner of Global Technology Partners. Dr.
Hermann most recently served as Senior Vice President for Science and Technology
at United Technologies Corporation and served in various other capacities at
United Technologies Corporation since 1982. Prior to joining United Technologies
Corporation, Dr. Hermann spent twenty years with the National Security Agency.
In 1977 he was appointed Principal Deputy Assistant Secretary of Defense for
Communications, Command, Control and Intelligence, and in 1979 was named
Assistant Secretary of the Air Force for Research, Development and Logistics and
Director of the National Reconnaissance Office.
69
<PAGE>
DR. PAUL G. KAMINSKI is a Senior Partner of Global Technology Partners. Dr.
Kaminski currently serves as Chief Executive Officer of Technovation, Inc., a
consulting firm focusing on business strategy and advanced technology. Dr.
Kaminski served as U.S. Undersecretary of Defense for Acquisition and Technology
from October 1994 to 1997. Prior to that time, he served as Chairman and Chief
Executive Officer of Technology Strategies and Alliances. Dr. Kaminski is a
former Chairman of the Defense Science Board and is currently a member of the
Senate Select Committee on Intelligence-Technical Advisory Group, the NRO
Advisory Council and the National Academy of Engineering. Dr. Kaminski is a
director of General Dynamics Corporation, Dyncorp, Eagle-Picher Technologies and
several privately held information technology companies.
SUSAN C. SCHNABEL has been a Managing Director of DLJMB Inc. since January
1998. In 1997, she served as Chief Financial Officer of PETsMART, a high growth
specialty retailer of pet products and supplies. From 1990 to 1996, Ms. Schnabel
was with Donaldson, Lufkin & Jenrette Securities Corporation, where she became a
Managing Director in 1996. Ms. Schnabel serves as a director of Dick's Clothing
and Sporting Goods, Environmental Systems Products and Wavetek Corporation.
TIMOTHY J. WHITE has been a Vice President of DLJMB Inc. since June 1998.
From October 1994 to May 1998, Mr. White was an Associate and Vice President at
Donaldson, Lufkin & Jenrette Securities Corporation. From May 1994 to October
1994, Mr. White was an Associate Counsel in the Office of the Independent
Counsel, United States Department of Justice. Prior to that time, Mr. White was
an attorney with Davis Polk & Wardwell.
SUMMARY COMPENSATION TABLE
The following table describes all annual compensation awarded to, earned by
or paid to our Chief Executive Officer and the four-most highly compensated
executive officers other than the Chief Executive Officer for the years ended
December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------------------- ------------------------------------------------
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
COMPENSATION STOCK OPTIONS/ LTIP COMPENSATION
YEAR SALARY BONUS (1) AWARDS SAR(2) PAYOUT (3)
--------- --------- --------- ------------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. Jack DeCrane........ 1997 $ 244,744 $ 220,000 -- 50,000 $ 29,411
Chief Executive Officer 1996 206,600 146,000 7,813 34,028 --
and Director(4) 1995 180,000 55,000 -- -- --
R.G. MacDonald(5)...... 1997 184,859 102,000 10,536 4,000 --
1996 177,437 82,000 13,200 -- --
1995 173,607 35,000 8,292 -- --
Charles H. Becker...... 1997 174,492 102,000 6,168 15,000 18,000
President and Chief 1996 148,750 65,000 9,103 19,850 30,586
Operating Officer(6) 1995 137,515 16,000 1,610 14,179 --
Roger L. Keller(7)..... 1997 163,866 30,000 1,682 10,000 --
1996 150,000 -- 2,083 19,850 --
1995 121,250 7,500 -- 14,179 17,405
Robert A. Rankin(8).... 1997 149,309 103,000 7,158 15,000 --
1996 139,375 65,000 12,838 19,850 --
1995 135,000 20,000 6,628 -- 80,357
</TABLE>
- ------------------------
(1) Amounts paid by us for premiums on health, life and long-term disability
insurance and automobile leases provided by us for the benefit of the named
executive officer.
70
<PAGE>
(2) Number of shares of common stock issuable upon exercise of options granted
during the last fiscal year.
(3) Relocation costs.
(4) Mr. DeCrane also served as Chairman of the Board of Directors through August
1998.
(5) Mr. MacDonald served as President through December 1996 and Vice Chairman of
the Board of Directors through August 1998.
(6) Mr. Becker served as Group Vice President of Components and President of
Tri-Star through April 1998. Mr. Becker became President and Chief Operating
Officer in April 1998.
(7) Mr. Keller served as Group Vice President of Systems from December 1996
until January 1999, President of Hollingsead from December 1995 until
January 1999, and Vice President for Engineering, Sales and Program
Management of Hollingsead from May 1994 through November 1995.
(8) Mr. Rankin served as Chief Financial Officer, Secretary and Treasurer until
August 1998.
71
<PAGE>
STOCK OPTION/SARS GRANTS IN LAST FISCAL YEAR
The following table sets forth individual grants of stock options granted to
the executive officers named below during the fiscal year ended December 31,
1997, pursuant to the share incentive plan then in place. (See "Employment
Agreements and Compensation Arrangements--Former Share Incentive Plan.").
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES ANNUAL RATES OF STOCK
UNDERLYING % OF EXERCISE OR PRICE APPRECIATION(1)
OPTIONS/ OPTIONS/SAR BASE PRICE EXPIRATION ------------------------
NAME SAR GRANTED GRANTED PER SHARE DATE 5% 10%
- ------------------------------------------- ------------- --------------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
R. Jack DeCrane............................ 50,000 30.6% $ 16.75 2007 $ 526,699 $ 1,334,759
R.G. MacDonald............................. 4,000 2.4% 16.75 2007 42,136 106,781
Charles H. Becker.......................... 15,000 9.2% 16.75 2007 158,010 400,428
Roger L. Keller............................ 10,000 6.1% 16.75 2007 105,340 266,952
Robert A. Rankin........................... 15,000 9.2% 16.75 2007 158,010 400,428
</TABLE>
- ------------------------
(1) The potential realizable value assumes a rate of annual compound stock price
appreciation of 5% and 10% from the date the option was granted over the
full option term. These assumed annual compound rates of stock price
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent our estimate or projection of future prices
of the common stock.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table sets forth information about the stock options exercised
by the executive officers named below during the fiscal year ended December 31,
1997.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
SHARES UNDERLYING IN-THE-MONEY
ACQUIRED VALUE UNEXERCISED OPTIONS/SAR
NAME ON EXERCISE REALIZED OPTIONS/SAR AT FY-END(1)
- ---------------------------------------- --------------- ----------- ------------- -----------------
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
------------- -----------------
<S> <C> <C> <C> <C>
R. Jack DeCrane......................... -- -- $80,819/95,370 $1,329,172/655,294
R.G. MacDonald.......................... -- -- 45,372/15,342 747,324/187,814
Charles H. Becker....................... -- -- 14,180/34,849 229,559/287,686
Roger L. Keller......................... -- -- 13,047/30,982 210,897/305,098
Robert A. Rankin........................ -- -- 16,448/32,581 269,315/247,930
</TABLE>
- ------------------------
(1) Based on the common stock share price of $16.75 per share as of December 31,
1997, the measuring date.
72
<PAGE>
In August 1998, on the effective date of the mergers conducted as a part of
the DLJ acquisition, all outstanding options for the common stock of DeCrane
Aircraft were canceled. See "Recent Developments--The DLJ Acquisition". The
holders of all vested and unvested options received a cash payment determined,
for each option, as follows:
<TABLE>
<S> <C> <C>
($23.00 per share--exercise price of X maximum number of shares holder could
option) have purchased (if all options were
fully vested) by exercising option just
before the effective date.
</TABLE>
EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS
On July 17, 1998, the Compensation Committee of our Board of Directors
approved an employment agreement between the Company and R. Jack DeCrane
replacing his prior employment agreement that was to expire on September 1,
1998. Mr. DeCrane's employment agreement provides for various benefits,
including:
- an initial salary of $310,000, which is subject to annual review and
increase, but not decrease;
- an annual bonus ranging from 0% to 100% of Mr. DeCrane's annual base
salary depending on the degree to which we achieve certain performance
goals;
- a $500,000 bonus in recognition of our then-recent acquisition of Avtech
Corporation;
- a $250,000 signing bonus;
- options to purchase 50,000 shares of common stock of DeCrane Aircraft at a
price equal to the fair market value of the shares as of July 16, 1998
(one-half of which were immediately exercisable; the rest became
exercisable upon the completion of the DLJ acquisition);
- a $150,000 cash continuation bonus payable on January 2, 1999, if employed
by us on January 1, 1999.
Mr. DeCrane's immediately exercisable options were cancelled in August 1998
and he received a cash payout in lieu of the options, calculated according to
the formula noted above, under "Aggregated Option/SAR Exercises in Last Fiscal
Year and FY-End Option/SAR Values."
The employment agreement also provides that if certain change-of-control
events occur, and Mr. DeCrane's employment is terminated by us for any reason
(other than for cause (as defined in the agreement) or as a result of his death
or disability), or by Mr. DeCrane for good reason (as defined in the agreement),
then we will pay Mr. DeCrane a lump sum in cash within fifteen days. The amount
of that payment will be $1.00 less than three times the sum of Mr. DeCrane's
average base salary plus bonus for the five calendar years preceding his
termination date.
FORMER SHARE INCENTIVE PLAN
We adopted a Share Incentive Plan in 1993 which permitted us to grant to our
eligible employees options to purchase shares of our common stock, shares of
common stock with conditional vesting based upon performance criteria, and
options to receive payments based on the appreciation of common stock, commonly
known as Share Appreciation Rights (or "SARs"). That plan permitted such grants
to be made to key employees of DeCrane Aircraft designated by a compensation
committee of the Board of Directors. As described above, all options to purchase
common stock outstanding were terminated when the DLJ acquisition transactions
were completed, and the holders received cash payments in exchange for those
options.
DeCrane Holdings has indicated to us that it intends to give certain key
members of our management the opportunity to purchase an equity participation in
DeCrane Holdings pursuant to customary
73
<PAGE>
arrangements. However, these parties have not entered into any agreement
regarding such equity participation.
1996 INCENTIVE PLAN
In 1996 we introduced an incentive plan (the "1996 Incentive Plan") for our
management personnel tied to DeCrane Aircraft's and each operating unit's annual
budget as approved each year by the Compensation Committee of the Board of
Directors. The 1996 Incentive Plan matrix provides for an annual bonus of up to
70% of participating employees' base salary if the relevant operating unit
achieves 110% of budget. Fifty percent of the bonus is payable solely based on
performance of the relevant operating unit and the remainder is payable upon the
achievement by the employee of his or her individual objectives in the
discretion of our Chief Executive Officer or the president of the relevant
operating unit.
401(K) RETIREMENT PLAN
Effective April 1992, we adopted the Lincoln National Life Insurance Company
Non-Standardized 401(k) Salary Reduction Plan and Trust Prototype Plan. The
401(k) allows employees as participants to defer, on a pre-tax basis, a portion
of their salary and accumulate tax deferred earnings, plus interest, as a
retirement fund. Effective October 1, 1997, we matched 25% of the employee
contribution up to 6% of the employee's salary for the fourth quarter of 1997
and each quarter of 1998. Effective January 1, 1999, we plan to match 50% of the
employee contribution for up to 6% of the employee's salary. The full amount
vested in a participant's account will be distributed to a participant following
termination of employment, normal retirement or in the event of disability or
death.
DIRECTORS' COMPENSATION
The directors of DeCrane Aircraft generally do not receive annual fees or
fees for attending meetings of the Board of Directors or committees thereof.
However, John F. Fort, III, an independent director not affiliated with any
investor in DeCrane Holdings, receives a director's fee of $5,000 for each
meeting attended. Also, all directors are reimbursed for out-of-pocket expenses.
We expect to continue those policies. DeCrane Holdings does not compensate or
intend to compensate its directors.
74
<PAGE>
WARRANTHOLDERS AND SELLING SHAREHOLDERS
The offered securities are being registered to permit public secondary
trading of the offered securities, and the holders may offer the offered
securities for resale from time to time. See "Plan of Distribution."
The Company has filed with the SEC a registration statement on Form S-1, of
which this Prospectus forms a part, regarding the resale of the offered
securities from time to time, pursuant to Rule 415 under the Securities Act.
These resales may occur in the over-the-counter market, in privately-negotiated
transactions, in underwritten offerings or by a combination of such methods of
sale. We have agreed to use our best efforts to keep this registration statement
effective for two years or, if later, the first date on which all of the
warrants have expired or been exercised.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER (1)
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
- ------------------------
(1)
DeCrane Holdings is authorized to issue an aggregate of 3,500,000 shares of
DeCrane Holdings Common Stock, par value $.01 per share, of which 2,846,185 are
outstanding (excluding 310,000 reserved for issuance for outstanding warrants).
DeCrane Holdings is authorized to issue up to 2,500,000 shares of Preferred
Stock, par value $.01 per share, in one or more series, of which 342,417 are
outstanding. For a full description of DeCrane Holdings' capital stock, please
review DeCrane
75
<PAGE>
Holdings' Certificate of Incorporation and Certificate of Designation for its
14% Senior Redeemable Exchangeable Preferred Stock due 2008. You can obtain a
copy from us or from the exhibits to the registration statement of which this
prospectus is a part. See "Where You Can Obtain More Information" in the
Summary.
76
<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
THE MERGER AGREEMENT. The Merger Agreement entered into in connection with
the DLJ acquisition entitled a holding company controlled by DLJMB to designate
a number of directors proportionally commensurate with its stock ownership of
DeCrane Aircraft. DeCrane Holdings selected all of the current members of the
Board of Directors of DeCrane Aircraft. DLJMB or its designate selected all of
the members of the Board of Directors of DeCrane Holdings.
THE DLJ ACQUISITION. DLJ Capital Funding, Inc., an affiliate of DLJMB,
received customary fees and reimbursement of expenses in connection with the
arrangement and syndication of the bank credit facility and as a lender
thereunder. DLJ Bridge Finance, Inc., an affiliate of DLJMB, received customary
fees in connection with its commitment to purchase and its purchase of the
bridge notes. Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC"),
which is also an affiliate of DLJMB, acted as financial advisor and dealer
manager in connection with the tender offer, as arranger of the bank credit
facility and received customary fees for those services, DLJSC also acted as the
initial purchaser of the old notes. The aggregate amount of all fees payable to
the DLJ entities in connection with the DLJ acquisition is approximately $12.0
million. DeCrane Aircraft is also obligated to reimburse DLJSC for certain
reasonable out-of-pocket expenses incurred in connection with the tender offer
(including the fees and disbursements of outside counsel) and to indemnify DLJSC
against certain liabilities, including certain liabilities under the federal
securities laws. In addition, DeCrane Aircraft is obligated to pay DLJSC an
annual advisory fee of $300,000 beginning on the consummation of the tender
offer for a period of five years. We may from time to time enter into other
investment banking relationships with DLJSC or one of its affiliates pursuant to
which DLJSC or its affiliate will receive customary fees and will be entitled to
reimbursement for all reasonable disbursements and out-of-pocket expenses
incurred in connection therewith. We expect that any such arrangement will
include provisions for the indemnification of DLJSC against certain liabilities,
including liabilities under the federal securities laws.
THE INVESTORS AGREEMENT. In connection with the DLJ acquisition, an
Investors' Agreement dated as of August 28, 1998 (the "Investors' Agreement")
was entered into among DeCrane Holdings and the DLJMB Funds. It provides that
any person acquiring shares of common stock or preferred stock of DeCrane
Holdings who is required by the terms of the Investors' Agreement or any
employment agreement or stock purchase, option, stock option or other
compensation plan of DeCrane Holdings to become a party thereto shall execute an
agreement to become bound by the Investors' Agreement and thereafter shall be
bound by it. The terms of the Investors' Agreement restrict transfers of the
shares of DeCrane Holdings common stock and preferred stock by the stockholders
party to the agreement. The agreement permits those shareholders to participate
in certain sales of shares of DeCrane Holdings' common stock by the DLJMB Funds
and permits the DLJMB Funds to require the other shareholders who are party to
the Investors Agreement to sell shares of DeCrane Holdings' common stock in
certain circumstances should the DLJMB Funds choose to sell any such shares
owned by them. The DLJMB Funds are entitled, pursuant to the agreement, to
request six demand registrations with respect to the DLJMB warrants for DeCrane
Holdings common stock, the common stock and preferred stock held by the funds,
which are immediately exercisable subject to customary deferral and cutback
provisions. In addition, the shareholders will also be entitled to unlimited
piggyback registration rights (other than in the case of a registration of
shares issuable in connection with any employee benefit plan or in connection
with an acquisition), subject to customary cutback provisions. The agreement
provides that DeCrane Holdings will indemnify the shareholders against certain
liabilities and expenses, including liabilities under the Securities Act. The
Investors' Agreement also provides that the DLJMB Funds have the right to
appoint all of the members of the Boards of Directors of DeCrane Holdings and
DeCrane Aircraft, and that at least one of such directors on each board will be
an independent director. Messrs. Hermann, Kaminski and Fort are independent
directors.
77
<PAGE>
Each warrant for DeCrane Holdings common stock held by the DLJMB funds
entitles the holder thereof to purchase one share of common stock at an exercise
price of not less than $0.01 per share subject to customary antidilution
provisions and other customary terms. These warrants are exercisable at any time
prior to 5:00 p.m. New York City time on August 28, 2009, subject to applicable
federal and state securities laws.
In connection with the DLJ acquisition, Global Technology Partners, LLC
("GTP") will have options to purchase up to 1.25% of DeCrane Holdings common
stock. The options will vest over a three-year period, subject to acceleration
if the DLJMB Funds sell any of their shares of common stock. Those options will
be exercisable at an exercise price equal to the price paid for DeCrane
Holdings' common stock by the DLJMB Funds. In addition, in December 1998 six
members of GTP, including Messrs. Hermann and Kaminski, purchased approximately
$704,000 of shares of newly issued common and preferred stock of DeCrane
Holdings. DeCrane Aircraft loaned half of the purchase price for such shares to
those members at an interest rate equal to the interest rate on the longest
maturity senior bank debt of DeCrane Aircraft in effect from time to time, plus
1.0%. The loans are repayable out of the proceeds from the sale of such stock
and are secured by such stock. DeCrane Holdings has indemnified GTP against
certain claims and liabilities, including liabilities under the Securities Act.
PRIOR SHAREHOLDERS AGREEMENT. Pursuant to the Fifth Amended and Restated
Shareholders Agreement dated January 10, 1997 among the Company, Nassau Capital
Partners, L.P., Brantley Venture Partners II, L.P., DSV Partners, IV, Electra
Investment Trust P.L.C., Electra Associates, Inc. and certain other parties, and
subject to election by the Company's stockholders, Nassau, Brantley and DSV each
had the right to nominate a representative to serve as a director so long as the
relevant stockholder owns at least five percent of the common stock. The
Shareholders Agreement also provided that Mr. DeCrane may nominate a director
for election by DeCrane Aircraft's stockholders for so long as he was the Chief
Executive Officer of DeCrane Aircraft. The Shareholders Agreement ceased to be
in effect upon consummation of the DLJ acquisition.
WAIVERS AND EXCHANGES OF SECURITIES. Effective immediately prior to our
initial public offering ("IPO"), certain of the Company's then-existing
shareholders, including Nassau, Brantley, DSV and the Electra entities, and
holders of warrants for common stock, agreed to waive a number of rights under
the agreements by which such shareholders and warrant holders acquired such
rights from DeCrane Aircraft, releasing DeCrane Aircraft from certain dividend
payment requirements, voting requirements and certain other rights, as well as
eliminating certain negative and affirmative covenants contained therein.
The foregoing agreement provided for: (i) the conversion of all 6,847,705
shares of issued and outstanding cumulative convertible preferred stock into
1,941,804 shares of common stock; (ii) the cashless exercise and conversion of
all 52,784 and 9,355 issued and outstanding of such preferred stock warrants and
common stock warrants, respectively, into a total of 16,585 shares of common
stock; (iii) the cashless exercise of 508,497 mandatorily redeemable common
stock warrants (the "Redeemable Warrants") into a total of 507,708 shares of
common stock; and (iv) the cancellation of 95,368 Redeemable Warrants. In
December 1997, the Company issued an additional 16,918 shares of common stock to
the Electra entities and 33,825 shares to Nassau to resolve a disputed
calculation regarding the number of shares that should have been issued as part
of the conversions described above.
Redeemable Warrants exercisable into 208,968 common shares remained after
the foregoing conversions. Of this amount, 138,075 Redeemable Warrants were
cancelled upon the consummation of the IPO and repayment of DeCrane Aircraft's
senior subordinated debt and convertible notes in accordance with the terms of
the respective warrant agreements. Redeemable Warrants exercisable into 70,893
common shares remained after the foregoing conversions, the IPO and application
of the net proceeds therefrom. Concurrent with the consummation of the IPO, the
mandatory redemption feature
78
<PAGE>
of these warrants was terminated and, as a result, the value ascribed thereto
was reclassified to stockholders' equity as additional paid-in capital.
Upon consummation of the IPO and as part of the foregoing conversions, R.G.
MacDonald, Charles H. Becker, Robert A. Rankin and John R. Hinson exchanged an
aggregate of 75,000 shares of preferred stock of the Company for 21,268 shares
of common stock.
FORMER INDEPENDENT DIRECTOR. In June 1997, the Company extended its Share
Incentive Plan for employees to independent non-management directors of the
Company who are not appointed to the Board pursuant to the Existing Shareholders
Agreement, and issued 6,000 options to Mitchell I. Quain, the only director
presently qualifying for such plan. Such options were cancelled and Mr. Quain
received a cash payment therefor in connection with the consummation of the
tender offer. See "Recent Developments--The DLJ Acquisition."
79
<PAGE>
DESCRIPTION OF CAPITAL STOCK OF DECRANE HOLDINGS
GENERAL
DeCrane Holdings is authorized to issue an aggregate of 3,500,000 shares of
Holdings Common Stock, par value $.01 per share, of which 2,846,185 are
outstanding (excluding 310,000 reserved for issuance for outstanding warrants,
including the Warrants). DeCrane Holdings is authorized to issue up to 2,500,000
shares of Preferred Stock, par value $.01 per share, in one or more series, of
which 342,417 are outstanding. See "--Preferred Stock." The following is a
summary of certain of the rights and privileges pertaining to DeCrane Holdings
common stock and Preferred Stock. For a full description of DeCrane Holdings'
capital stock, reference is made to DeCrane Holdings' Certificate of
Incorporation currently in effect, a copy of which is available from DeCrane
Holdings.
COMMON STOCK
VOTING RIGHTS
The holders of DeCrane Holdings common stock are entitled to one vote per
share on all matters submitted for action by the shareholders. There is no
provision for cumulative voting with respect to the election of directors.
Accordingly, the holders of more than 50% of the shares of DeCrane Holdings
common stock can, if they choose to do so, elect the Board of Directors of
DeCrane Holdings and determine most matters on which stockholders are entitled
to vote. Pursuant to the Investors' Agreement, the shareholders who are party to
such agreement have agreed to vote their shares to cause the DLJMB Funds to
select all of DeCrane Holdings' directors. See "Certain Relationships and
Transactions--The Acquisition."
DIVIDEND RIGHTS
Holders of DeCrane Holdings common stock are entitled to share equally,
share for share, if dividends are declared on DeCrane Holdings common stock,
whether payable in cash, property or securities of DeCrane Holdings.
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of DeCrane Holdings, after payment has been made from the funds
available therefore to the holders of Preferred Stock, if any, for the full
amount to which they are entitled, the holders of the shares of DeCrane Holdings
common stock are entitled to share equally, share for share, in the assets
available for distribution. Holders of DeCrane Holdings common stock have no
conversion, redemption or preemptive rights.
PREFERRED STOCK
The board of directors of DeCrane Holdings has authorized the designation of
1,360,000 shares of 14% Senior Exchangeable Redeemable Preferred Stock due 2009,
par value $0.01 per share ("DeCrane Holdings Preferred"), of which 340,000
shares have been issued to the DLJMB Funds and are outstanding. Holders of the
DeCrane Holdings Preferred are entitled to receive, when, as and if declared by
the board of directors, dividends at a rate equal to 14% per annum, subject to
increases of 0.25% for each quarter that no dividend is paid (up to a maximum of
an additional 5%). Prior to September 30, 2003, dividends are not paid in cash
but instead accrete in liquidation value. Shares have a liquidation preference
of $100 (subject to increase through accretion) plus accrued and unpaid cash
dividends. The DeCrane Holdings Preferred is mandatorily redeemable on August
28, 2009 and is redeemable at DeCrane Holdings' option:
80
<PAGE>
- prior to September 30, 2001 with the net cash proceeds of public equity
offerings at a redemption price equal to 114% of liquidation value plus
accrued and unpaid cash dividends,
- on or after September 30, 2003 at a redemption price equal to the 107% of
liquidation value, on or after September 30, 2004 at a redemption price of
104.667% of liquidation value, on or after September 30, 2005 at a
redemption price of 102.333% of liquidation value and on or after
September 30, 2006 at a redemption price of 100.000% of liquidation value
plus in each case accrued and unpaid cash dividends, or
- in the event of a change of control (as defined) at a redemption price
equal to the present value of all remaining dividends, premium and
liquidation value payments that would become due on the DeCrane Holdings
Preferred as if the DeCrane Holdings Preferred was to remain outstanding
and be redeemed on September 30, 2003, computed using a discount rate
equal to the Treasury Rate plus 50 basis points. Upon the occurrence of a
change of control, each holder will have the right to require DeCrane
Holdings to repurchase all or any part of such holder's DeCrane Holdings
Preferred at an offer price equal to 101% of the liquidation preference
thereof plus accrued and unpaid cash dividends. Holders of the DeCrane
Holdings Preferred are not entitled to voting rights; PROVIDED that
DeCrane Holdings has agreed that it will not amend or modify its charter
so as to adversely affect the holders of the Holdings Preferred or create,
authorize or issue securities prior to or on a par with the Holdings
Preferred without the consent of the holders thereof. In addition, if and
whenever
- four consecutive or any six quarterly dividend payments are not made,
- DeCrane Holdings fails to fulfill its obligations to redeem the DeCrane
Holdings Preferred on August 28, 2009 or in the event of a change of
control,
- DeCrane Holdings makes any payments on the Common Stock or other security
ranking junior to or on parity with the DeCrane Holdings Preferred in
violation of the Certificate of Designations, or
- DeCrane Holdings amends its charter or creates parity or prior securities
in violation of the Certificate of Designations, the number of directors
will be increased by two and the holders of the DeCrane Holdings Preferred
will be entitled to elect the additional directors until such violation is
remedied.
DeCrane Holdings may, at its option, at any time on any dividend payment
date so long as no shares are held by any DLJMB Fund or its affiliates, exchange
the shares of DeCrane Holdings Preferred for 14% senior subordinated exchange
debentures due September 30, 2009 (the "Exchange Debentures"). The Exchange
Debentures will be subordinated to all senior debt of DeCrane Holdings and will
contain customary covenants and events of default, including covenants that
limit the ability of DeCrane Holdings and its subsidiaries to incur debt, pay
dividends and make certain investments.
In addition, DeCrane Holdings may issue additional shares of Preferred Stock
from time to time in one or more series and with such designations and
preferences for each series as shall be stated in the resolutions providing for
the designation and issue of each such series adopted by the board of directors
of DeCrane Holdings. The board of directors is authorized by DeCrane Holdings'
Certificate of Incorporation to determine the voting, dividend, redemption and
liquidation preferences and limitations pertaining to such series. The board of
directors, without shareholder approval, may issue preferred stock with voting
and other rights that could adversely affect the voting power of the holders of
the common stock and could have certain antitakeover effects. DeCrane Holdings
has no present plans to issue any additional shares of Preferred Stock. The
ability of the board of directors to issue preferred stock without stockholder
approval could have the effect of delaying, deferring or preventing a change in
control of DeCrane Holdings or the removal of existing management.
81
<PAGE>
SECTION 203 OF DELAWARE GENERAL CORPORATION LAW
DeCrane Holdings is a Delaware corporation and subject to Section 203 of the
Delaware General Corporation Law. Section 203 prevents an "interested
stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware corporation for three years following
the date such person became an interested stockholder, subject to certain
exceptions such as transactions done with the approval of the board of directors
and of the holders of at least two-thirds of the outstanding shares of voting
stock not owned by the interested stockholder. The existence of this provision
would be expected to have an anti-takeover effect, including possibly
discouraging takeover attempts that might result in a premium over the market
price for the shares of DeCrane Holdings common stock.
DLJMB WARRANTS
Each DLJMB warrant will entitle the holder thereof to purchase one share of
DeCrane Holdings common stock at an exercise price of not less than $0.01 per
share subject to customary antidilution provisions (which differ in certain
respects than those contained in the Warrants) and other customary terms. The
DLJMB warrants will be exercisable at any time prior to 5:00 p.m., New York City
time, on August 28, 2009. The exercise of the DLJMB warrants also will be
subject to applicable federal and state securities laws.
The DLJMB Funds will be entitled to request six demand registrations with
respect to the DLJMB warrants (together with all or any portion of any preferred
stock and the DeCrane Holdings common stock owned by them), which demand
registration rights will be immediately exercisable subject to customary
deferral and cutback provisions. In addition, the holders of the DLJMB warrants
will also be entitled to unlimited piggyback registration rights with respect to
such warrants subject to customary cutback provisions.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the DeCrane Holdings common stock will
be the Corporate Secretary of DeCrane Holdings.
82
<PAGE>
DESCRIPTION OF WARRANTS
The warrants have been issued pursuant to the Warrant Agreement dated
September , 1998 between Holdings and State Street Bank and Trust Company, as
Warrant Agent (the "Warrant Agent"). The following summary of certain provisions
of the Warrant Agreement is not complete.
GENERAL
Each warrant, when exercised, will entitle its holder to receive 1.55 fully
paid and non-assessable shares of DeCrane Holdings Common Stock (the "Warrant
Shares"), at an exercise price of $23.00 per share, subject to adjustment. The
exercise price and the number of warrant shares are both subject to adjustment
in certain cases referred to below. The holders of the warrants would be
entitled, in the aggregate, to purchase shares of DeCrane Holdings common stock
representing approximately 5% of DeCrane Holdings common stock on a fully
diluted basis on the date of this Offering Memorandum (assuming exercise of all
outstanding warrants, including the DLJMB warrants). The Warrants will be
exercisable at any time on or after the separation date. Unless exercised, the
warrants will automatically expire on September 30, 2008.
The warrants may be exercised by surrendering to DeCrane Holdings the
warrant certificates evidencing the warrants to be exercised with the
accompanying form of election to purchase properly completed and executed,
together with payment of the exercise price. Payment of the exercise price may
be made at the holder's election (i) by tendering notes having an aggregate
principal amount at maturity, plus accrued and unpaid interest, if any, thereon,
to the date of exercise equal to the exercise price and (ii) in cash in United
States dollars by wire transfer or by certified or official bank check to the
order of DeCrane Holdings. Upon surrender of the warrant certificate and payment
of the exercise price, DeCrane Holdings will deliver or cause to be delivered,
to or upon the written order of such holder, stock certificates representing the
number of whole warrant shares to which the holder is entitled. If less than all
of the warrants evidenced by a warrant certificate are to be exercised, a new
warrant certificate will be issued for the remaining number of warrants. Holders
of warrants will be able to exercise their warrants only if a registration
statement relating to the warrant shares underlying the warrants is then in
effect, or the exercise of such warrants is exempt from the registration
requirements of the Securities Act, and such securities are qualified for sale
or exempt from qualification under the applicable securities laws of the states
in which the various holders of warrants or other persons to whom it is proposed
that warrant shares be issued on exercise of the warrants reside.
No fractional warrant shares will be issued upon exercise of the warrants.
DeCrane Holdings will pay to the holder of the warrant at the time of exercise
an amount in cash equal to the current market value of any such fractional
warrant shares less a corresponding fraction of the exercise price.
The holders of the warrants will have no right to vote on matters submitted
to the stockholders of DeCrane Holdings and will have no right to receive
dividends. The holders of the warrants will not be entitled to share in the
assets of DeCrane Holdings in the event of liquidation, dissolution or the
winding up of DeCrane Holdings. In the event a bankruptcy or reorganization is
commenced by or against DeCrane Holdings, a bankruptcy court may hold that
unexercised warrants are executory contracts which may be subject to rejection
by DeCrane Holdings with approval of the bankruptcy court, and the holders of
the warrants may, even if sufficient funds are available, receive nothing or a
lesser amount as a result of any such bankruptcy case than they would be
entitled to if they had exercised their warrants prior to the commencement of
any such case.
In the event of a taxable distribution to holders of DeCrane Holdings common
stock that results in an adjustment to the number of warrant shares or other
consideration for which a warrant may be exercised, the holders of the warrants
may, in certain circumstances, be deemed to have received a distribution subject
to United States federal income tax as a dividend. See "Certain Federal Income
Tax Considerations."
83
<PAGE>
ADJUSTMENTS
The number of warrant shares purchasable upon exercise of warrants and the
exercise price will be subject to adjustment in certain events including: (i)
the payment by DeCrane Holdings of dividends and other distributions on the
DeCrane Holdings common stock in DeCrane Holdings common stock, (ii)
subdivisions, combinations and reclassifications of the DeCrane Holdings common
stock, (iii) the issuance to all holders of DeCrane Holdings common stock of
rights, options or warrants entitling them to subscribe for DeCrane Holdings
common stock or securities convertible into, or exchangeable or exercisable for,
DeCrane Holdings common stock at a price which is less than the Fair Market
Value per share (as defined) of DeCrane Holdings common stock, (iv) certain
distributions to all holders of DeCrane Holdings common stock of any of DeCrane
Holdings' assets or debt securities or any rights or warrants to purchase any
such securities (excluding those rights and warrants referred to in clause (iii)
above), (v) the issuance of shares of DeCrane Holdings common stock for
consideration per share less than the then Fair Market Value per share of
DeCrane Holdings common stock (excluding securities issued in transactions
referred to in clauses (i) through (iv) above or (vi) below and subject to
certain exceptions), (vi) the issuance of securities convertible into or
exchangeable for DeCrane Holdings common stock for a conversion or exchange
price plus consideration received upon issuance less than the then Fair Market
Value per share of DeCrane Holdings common stock at the time of issuance of such
convertible or exchangeable security (excluding securities issued in
transactions referred to in clauses (i) through (iv) above), and (vii) certain
other events that could have the effect of depriving holders of the warrants of
the benefit of all or a portion of the purchase rights evidenced by the
warrants. Adjustments to the exercise price will be calculated to the nearest
cent. No adjustment need be made for any of the foregoing transactions if
warrant holders are to participate in the transaction on a basis and with notice
that the board of directors determines to be fair and appropriate in light of
the basis and notice and on which other holders of DeCrane Holdings common stock
participate in the transaction.
"DISINTERESTED DIRECTOR" means, in connection with any issuance of
securities that gives rise to a determination of the Fair Market Value thereof,
each member of the Board of Directors of DeCrane Holdings who is not an officer,
employee, director or other affiliate of the party to whom DeCrane Holdings is
proposing to issue the securities giving rise to such determination.
"FAIR MARKET VALUE" per security at any date of determination shall be (1)
in connection with a sale to a party that is not an affiliate of DeCrane
Holdings in an arm's-length transaction (a "Non-Affiliate Sale"), the price per
security at which such security is sold and (2) in connection with any sale to
an affiliate of DeCrane Holdings, (a) the last price per security at which such
security was sold in a Non-Affiliate Sale within the three-month period
preceding such date of determination or (b) if clause (a) is not applicable, the
fair market value of such security determined in good faith by (i) a majority of
the Board of Directors of DeCrane Holdings, including a majority of the
Disinterested Directors, and approved in a board resolution delivered to the
Warrant Agent or (ii) a nationally recognized investment banking, appraisal or
valuation firm, which is not an affiliate of DeCrane Holdings, in each case,
taking into account, among all other factors deemed relevant by the Board of
Directors or such investment banking, appraisal or valuation firm, the trading
price and volume of such security on any national securities exchange or
automated quotation system on which such security is traded.
No adjustment in the Exercise Price will be required unless such adjustment
would require an increase or decrease of at least one percent (1.0%) in the
Exercise Price; PROVIDED, HOWEVER, that any adjustment that is not made will be
carried forward and taken into account in any subsequent adjustment. In the case
of certain consolidations or mergers of DeCrane Holdings, or the sale of all or
substantially all of the assets of DeCrane Holdings to another corporation, (i)
each warrant will thereafter be exercisable for the right to receive the kind
and amount of shares of stock or other securities or property to which such
holder would have been entitled as a result of such consolidation, merger or
sale had the warrants been exercised immediately prior thereto and (ii) the
person formed by or
84
<PAGE>
surviving any such consolidation or merger (if other than DeCrane Aircraft) or
to which such sale shall have been made will assume the obligations of DeCrane
Holdings under the Warrant Agreement.
RESERVATION OF SHARES
DeCrane Holdings has authorized and reserved for issuance and will at all
times reserve and keep available such number of shares of DeCrane Holdings
common stock as will be issuable upon the exercise of all outstanding warrants.
Such shares of DeCrane Holdings common stock, when paid for and issued, will be
duly and validly issued, fully paid and non-assessable, free of preemptive
rights and free from all taxes, liens, charges and security interests with
respect to the issuance thereof.
AMENDMENT
From time to time, DeCrane Holdings and the Warrant Agent, without the
consent of the holders of the warrants, may amend or supplement the Warrant
Agreement for certain purposes, including curing defects or inconsistencies or
making any change that does not adversely affect the legal rights of any holder.
Any amendment or supplement to the Warrant Agreement that adversely affects the
legal rights of the holders of the warrants will require the written consent of
the holders of a majority of the then outstanding warrants (excluding warrants
held by DeCrane Holdings or any of its affiliates). The consent of each holder
of the warrants affected will be required for any amendment pursuant to which
the exercise price would be increased or the number of warrant shares
purchasable upon exercise of warrants would be decreased (other than pursuant to
adjustments provided in the Warrant Agreement).
REGISTRATION RIGHTS
Pursuant to the Warrant Agreement and the Warrant Registration Rights
Agreement, DeCrane Holdings has agreed to file the shelf registration statement
of which this Prospectus is a part covering the resale of the warrants, the
issuance of DeCrane Holdings common stock upon the exercise the warrants resold
pursuant to such registration statement and the resale of the shares of DeCrane
Holdings common stock issuable upon exercise of the warrants by the holder
thereof, and to use its reasonable best efforts to cause such registration
statement to be declared effective, subject to certain exceptions, on or before
180 days after the issuance of the warrants and (subject to certain "black-out"
periods not to exceed 60 days in any calendar year subject to extension for 30
days in certain circumstances) to remain effective, subject to certain
exceptions, until the later of (i) two years following the effective date of the
registration statement and (ii) the earlier of (A) the expiration of the
warrants and (B) the first date as of which all warrants had been exercised.
Holders of warrants will be required to deliver certain information to be
used in connection with the shelf registration statement within the time periods
set forth in the Warrant Registration Rights Agreement in order to have their
warrants or warrant shares included in the shelf registration statement.
85
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
This section is a summary of certain federal income tax considerations
relevant to the offered securities. It is not a complete analysis of all
potential tax effects. We have not considered foreign or state taxes, gift taxes
or gift taxes (among other things), and your individual tax liabilities and
consequences also depend on your own circumstances. We based this summary on
U.S. federal tax law, regulations, pronouncements and judicial decisions now in
effect. All of the laws and rules may change, and changes can be made
retroactively as well.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES TO
YOU OF PARTICIPATING IN THIS EXCHANGE OFFER.
86
<PAGE>
PLAN OF DISTRIBUTION
The Company will receive no proceeds from this offering, other than in
connection with the exercise of warrants by exercising warrantholders. The
offered securities offered hereby may be sold by the warrantholders from time to
time in transactions in the over-the-counter market, in negotiated transactions,
in underwritten offerings, or a combination of such methods of sale, at fixed
prices which may be changed, at market prices prevailing at the time of sale, at
prices related to prevailing market prices or at negotiated prices. the
warrantholders may effect such transactions by selling the offered securities to
or through broker-dealers, and such broker-dealers may receive compensation in
the form of discounts, concessions or commission from the warrantholders or the
purchasers of the offered securities for whom such broker-dealers may act as
agents or to whom they sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
In order comply with the securities laws of certain states, if applicable,
the offered securities will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
offered securities may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
The Warrantholders and any broker-dealers or agents that participate with
the warrantholders in the distribution of the offered securities may be deemed
to be "underwriters" with the meaning of the Securities Act, and any commission
received by them and any profit on the resale of the offered securities
purchased by them may be deemed to be underwriting commission or discounts under
the Securities Act.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the offered securities may not simultaneously
engage in market making activities with respect to the common stock of DeCrane
Holdings for a period of two business days prior to the commencement of such
distribution. In addition and without limiting the foregoing, each warrantholder
will be subject to applicable provisions of the exchange Act and the rules and
regulations thereunder, which provisions may limit the timing of purchases and
sales of shares of DeCrane Holdings' common stock by the warrantholders.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
DeCrane Aircraft by Spolin & Silverman LLP, Santa Monica, California.
EXPERTS
The consolidated balance sheets as of December 31, 1996 and 1997 and the
consolidated statements of operations, of stockholders' equity (deficit) and of
cash flows for each of the three years in the period ended December 31, 1997 of
DeCrane Aircraft Holdings, Inc., the balance sheet as of August 27, 1998 of
DeCrane Holdings Co. and the balance sheets as of September 30, 1996 and 1997
and the statements of income, of stockholder's equity and of cash flows for each
of the three years in the period ended September 30, 1997 of Avtech Corporation
included in this Prospectus have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of Audio International, Inc. and
subsidiary as of December 31, 1996 and 1995 and for each of the two years in the
period ended December 31, 1996 included in this Prospectus have been so included
in reliance on the report of Thomas & Thomas, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
87
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
Report of Independent Accountants........................................................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 and
September 30, 1998 (unaudited)......................................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1995, 1996 and 1997 and the nine
months ended September 30, 1997, eight months ended August 31, 1998 and the one month ended September
30, 1998 (unaudited)................................................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1995, 1996 and
1997, and the eight months ended August 31, 1998 and the one month ended September 30, 1998
(unaudited)............................................................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997 and the nine
months ended September 30, 1997, eight months ended August 31, 1998 and the one month ended September
30, 1998 (unaudited)................................................................................... F-7
Notes to Consolidated Financial Statements............................................................... F-8
DECRANE HOLDINGS CO.
Report of Independent Accountants........................................................................ F-51
Balance Sheet as of August 27, 1998...................................................................... F-52
Notes to Balance Sheet................................................................................... F-53
AVTECH CORPORATION
Report of Independent Accountants........................................................................ F-54
Balance Sheets as of September 30, 1996 and 1997 and June 25, 1998 (unaudited)........................... F-55
Statements of Income for the years ended September 30, 1995, 1996 and 1997 and the nine months ended June
30, 1997 and June 25, 1998 (unaudited)................................................................. F-56
Statements of Stockholders' Equity for the years ended September 30, 1995, 1996 and 1997 and the nine
months ended June 25, 1998 (unaudited)................................................................. F-57
Statements of Cash Flows for the years ended September 30, 1995, 1996 and 1997 and the nine months ended
June 30, 1997 and June 25, 1998 (unaudited)............................................................ F-58
Notes to Financial Statements............................................................................ F-59
AUDIO INTERNATIONAL, INC. AND SUBSIDIARY
Report of Independent Accountants........................................................................ F-66
Consolidated Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997 (unaudited).......... F-67
Consolidated Statements of Income for the years ended December 31, 1995 and 1996 and the nine months
ended September 30, 1996 and 1997 (unaudited).......................................................... F-68
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995 and 1996 and the
nine months ended September 30, 1997 (unaudited)....................................................... F-69
Consolidated Statements of Cash Flows for the years ended December 31, 1995 and 1996 and the nine months
ended September 30, 1996 and 1997 (unaudited).......................................................... F-70
Notes to Consolidated Financial Statements............................................................... F-71
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
DeCrane Aircraft Holdings, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
DeCrane Aircraft Holdings, Inc. and its subsidiaries at December 31, 1996 and
1997 and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
February 24, 1998
F-2
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
-------------------- 30, 1998
1996 1997 (SUCCESSOR)
(PREDECESSOR)
<S> <C> <C> <C>
--------- --------- ------------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents......................................... $ 320 $ 206 $ 4,267
Accounts receivable, net.......................................... 13,185 18,152 28,617
Inventories....................................................... 19,573 25,976 37,343
Income taxes refundable........................................... -- -- 3,000
Prepaid expenses and other current assets......................... 812 782 1,472
--------- --------- ------------
Total current assets............................................ 33,890 45,116 74,699
Property and equipment, net......................................... 12,187 14,054 28,215
Other assets, principally intangibles, net.......................... 23,189 39,967 230,386
--------- --------- ------------
Total assets.................................................. $ 69,266 $ 99,137 $ 333,300
--------- --------- ------------
--------- --------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings............................................. $ 1,974 $ 568 $ 80
Current portion of long-term obligations to unaffiliated
lenders......................................................... 3,004 858 1,267
Convertible subordinated notes payable to related parties......... 2,922 -- --
Accounts payable.................................................. 7,420 8,032 9,801
Accrued expenses.................................................. 7,241 6,911 15,258
Income taxes payable.............................................. 843 3,975 1,610
--------- --------- ------------
Total current liabilities....................................... 23,404 20,344 28,016
--------- --------- ------------
Long-term liabilities
Long-term obligations
Unaffiliated lenders............................................ 28,323 37,412 183,546
Related parties................................................. 6,027 -- --
Other long-term liabilities....................................... 85 96 532
Deferred income taxes............................................. 3,312 1,758 22,844
--------- --------- ------------
Total long-term liabilities..................................... 37,747 39,266 206,922
--------- --------- ------------
Commitments and contingencies (Notes 17 and 23)..................... -- -- --
Mandatorily redeemable common stock warrants........................ 6,879 -- --
--------- --------- ------------
Stockholders' equity
Cumulative convertible preferred stock, $.01 par value (no par
value prior to February 19, 1997), 8,314,018 shares authorized;
6,847,705 shares issued and outstanding as of December 31, 1996
(none as of December 31, 1997 and September 30, 1998)........... 13,850 -- --
Undesignated preferred stock, $.01 par value, 10,000,000 shares
initially authorized as of February 19, 1997; none issued and
outstanding..................................................... -- -- --
Common stock, no par value, 4,253,550 shares authorized; 85,593
shares issued and outstanding prior to February 19, 1997........ 216 -- --
Common stock, $.01 par value, 9,924,950 shares authorized as of
February 19, 1997; 5,318,563 and 100 shares issued and
outstanding as of December 31, 1997 and September 30, 1998,
respectively (none as of December 31, 1996)..................... -- 53 --
Additional paid-in capital........................................ -- 51,057 99,000
Accumulated deficit............................................... (12,951) (11,444) (776)
Accumulated other comprehensive income (loss)..................... 121 (139) 138
--------- --------- ------------
Total stockholders' equity...................................... 1,236 39,527 98,362
--------- --------- ------------
Total liabilities and stockholders' equity.................... $ 69,266 $ 99,137 $ 333,300
--------- --------- ------------
--------- --------- ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ONE MONTH
NINE MONTHS EIGHT MONTHS ENDED
YEAR ENDED DECEMBER 31, ENDED ENDED SEPTEMBER 30,
------------------------------- SEPTEMBER 30, AUGUST 31, 1998
1995 1996 1997 1997 1998 (SUCCESSOR)
(PREDECESSOR) (PREDECESSOR)
<S> <C> <C> <C> <C> <C> <C>
--------- --------- --------- ------------- ------------- -------------
(UNAUDITED)
(UNAUDITED)
Revenues......................... $ 55,839 $ 65,099 $ 108,903 $ 80,887 $ 90,077 $ 16,012
Cost of sales.................... 43,463 49,392 80,247 60,664 60,101 11,080
--------- --------- --------- ------------- ------------- -------------
Gross profit............... 12,376 15,707 28,656 20,223 29,976 4,932
--------- --------- --------- ------------- ------------- -------------
Operating expenses
Selling, general and
administrative expenses...... 9,426 10,747 15,756 11,012 15,719 3,170
Nonrecurring charges........... -- -- -- -- 3,632 --
Amortization of intangible
assets....................... 1,115 709 905 616 1,347 802
--------- --------- --------- ------------- ------------- -------------
Total operating expenses..... 10,541 11,456 16,661 11,628 20,698 3,972
--------- --------- --------- ------------- ------------- -------------
Income from operations........... 1,835 4,251 11,995 8,595 9,278 960
Other expenses (income)
Interest expense
Unaffiliated lenders......... 2,628 2,807 2,520 1,964 2,350 1,765
Related parties.............. 1,193 1,441 634 634 -- --
Terminated debt offering
expenses..................... -- -- -- -- 600 --
Other expenses (income)........ 297 (85) 131 161 199 175
Minority interests............. 85 193 112 81 48 6
--------- --------- --------- ------------- ------------- -------------
Income (loss) before provision
for income taxes and
extraordinary item............. (2,368) (105) 8,598 5,755 6,081 (986)
Provision (benefit) for income
taxes.......................... 1,078 712 3,344 2,191 2,892 (506)
--------- --------- --------- ------------- ------------- -------------
Income (loss) before
extraordinary item............. (3,446) (817) 5,254 3,564 3,189 (480)
Extraordinary loss from debt
refinancing, net of income tax
benefit........................ -- -- 2,078 2,078 -- 296
--------- --------- --------- ------------- ------------- -------------
Net income (loss)................ $ (3,446) $ (817) $ 3,176 $ 1,486 $ 3,189 $ (776)
--------- --------- --------- ------------- ------------- -------------
--------- --------- --------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------
ACCUMULATED
NO PAR VALUE $.01 PAR VALUE OTHER
CUMULATIVE --------------- ----------------- COMPRE-
CONVERTIBLE NUMBER NUMBER ADDITIONAL ACCUM- HENSIVE
PREFERRED OF OF PAID-IN ULATED INCOME
PREDECESSOR: STOCK SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (LOSS) TOTAL
- ------------------------------ ----------- ------- ------ --------- ------ ---------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994...................... $ 5,549 85,593 $ 58 -- $-- $ -- $ (5,057) $ 216 $ 766
-------
Comprehensive loss
Net loss.................. -- -- -- -- -- -- (3,446) -- (3,446)
Translation adjustment.... -- -- -- -- -- -- -- 287 287
-------
(3,159)
Adjustment to estimated
redemption value of
mandatorily redeemable
common stock warrants..... -- -- -- -- -- -- 696 -- 696
----------- ------- ------ --------- ------ ---------- -------- ----------- -------
Balance, December 31,
1995...................... 5,549 85,593 58 -- -- -- (7,807) 503 (1,697)
-------
Comprehensive loss
Net loss.................. -- -- -- -- -- -- (817) -- (817)
Translation adjustment.... -- -- -- -- -- -- -- (382) (382)
-------
(1,199)
Adjustment to estimated
redemption value of
mandatorily redeemable
common stock warrants..... -- -- -- -- -- -- (4,320) -- (4,320)
Issuance of cumulative
convertible preferred
stock, net................ 8,301 -- -- -- -- -- -- -- 8,301
Mandatorily redeemable
common stock warrants
issued pursuant to
anti-dilution
provisions................ -- -- -- -- -- -- (7) -- (7)
Stock option compensation
expense................... -- -- 158 -- -- -- -- -- 158
----------- ------- ------ --------- ------ ---------- -------- ----------- -------
Balance, December 31,
1996...................... 13,850 85,593 216 -- -- -- (12,951) 121 1,236
-------
Comprehensive income
Net income................ -- -- -- -- -- -- 3,176 -- 3,176
Translation adjustment.... -- -- -- -- -- -- -- (260) (260)
-------
2,916
Delaware reorganization and
reverse stock split....... -- (85,593) (216) 85,593 1 215 -- -- --
Adjustment to estimated
redemption value of
mandatorily redeemable
common stock warrants..... -- -- -- -- -- -- (2,203) -- (2,203)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA) (CONTINUED)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------
ACCUMULATED
NO PAR VALUE $.01 PAR VALUE OTHER
CUMULATIVE --------------- ----------------- COMPRE-
CONVERTIBLE NUMBER NUMBER ADDITIONAL ACCUM- HENSIVE
PREFERRED OF OF PAID-IN ULATED INCOME
STOCK SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (LOSS) TOTAL
----------- ------- ------ --------- ------ ---------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Recapitalization
Conversion of preferred
stock into common
stock................... (13,850) -- -- 1,941,804 19 13,831 -- -- --
Cashless exercise and
conversion of
warrants................ -- -- -- 524,293 6 6,097 -- -- 6,103
Cancellation of
mandatorily redeemable
common stock warrants... -- -- -- -- -- -- 1,143 -- 1,143
Initial Public Offering
Proceeds from the
offering, net........... -- -- -- 2,700,000 27 28,229 -- -- 28,256
Cancellation of
mandatorily redeemable
common stock warrants
upon debt repayment and
reclassification of
warrants no longer
redeemable.............. -- -- -- -- -- 1,836 -- -- 1,836
Common shares issued
pursuant to
anti-dilution
provisions.............. -- -- -- 50,743 -- 609 (609) -- --
Cashless exercise of common
stock warrants............ -- -- -- 16,130 -- -- -- -- --
Stock option compensation
expense................... -- -- -- -- -- 240 -- -- 240
----------- ------- ------ --------- ------ ---------- -------- ----------- -------
Balance, December 31,
1997...................... -- -- -- 5,318,563 53 51,057 (11,444) (139) 39,527
-------
Comprehensive income
Net income (Unaudited).... -- -- -- -- -- -- 3,189 -- 3,189
Translation adjustment
(Unaudited)............. -- -- -- -- -- -- -- 94 94
-------
3,283
Exercise of stock options
(Unaudited)............... -- -- -- 575,692 6 8,206 -- -- 8,212
Sale of common stock
(Unaudited)............... -- -- -- 2,206,177 22 34,793 -- -- 34,815
----------- ------- ------ --------- ------ ---------- -------- ----------- -------
Balance, August 31, 1998
(Unaudited)............... $ -- -- $-- 8,100,432 $81 $ 94,056 $ (8,255) $ (45) $85,837
----------- ------- ------ --------- ------ ---------- -------- ----------- -------
----------- ------- ------ --------- ------ ---------- -------- ----------- -------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
SUCCESSOR:
- ------------------------------
Sale of common stock
(Unaudited)............... $ -- -- $-- 100 -- $ 99,000 $ -- $-- $99,000
-------
Comprehensive income
Net loss (Unaudited)...... -- -- -- -- -- -- (776) -- (776)
Translation adjustment
(Unaudited)............. -- -- -- -- -- -- -- 138 138
----------- ------- ------ --------- ------ ---------- -------- ----------- -------
(638)
-------
Balance, September 30, 1998
(Unaudited)............... $ -- -- $-- 100 -- $ 99,000 $ (776) $ 138 $98,362
----------- ------- ------ --------- ------ ---------- -------- ----------- -------
----------- ------- ------ --------- ------ ---------- -------- ----------- -------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ONE MONTH
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
ENDED EIGHT MONTHS SEPTEMBER 30,
--------------------------- SEPTEMBER 30, ENDED AUGUST 1998
1995 1996 1997 1997 31, 1998 (SUCCESSOR)
(PREDECESSOR) (PREDECESSOR)
<S> <C> <C> <C> <C> <C> <C>
------- -------- -------- ------------- ------------ -------------
(UNAUDITED)
(UNAUDITED)
Cash flows from operating activities
Net income (loss)............................... $(3,446) $ (817) $ 3,176 $ 1,486 $ 3,189 $ (776)
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating
activities
Depreciation and amortization............... 4,542 4,343 5,372 3,856 4,454 1,252
Extraordinary loss from debt refinancing.... -- -- 2,078 2,078 -- 296
Deferred income taxes....................... 867 88 (1,281) 532 (1,247) (747)
Other, net.................................. 70 188 654 122 (360) (61)
Changes in assets and liabilities
Accounts receivable.................... 2,256 (3,069) (3,159) (2,409) (3,621) (975)
Inventories............................ (2,962) (2,665) (4,956) (2,418) (2,017) 1,492
Prepaid expenses and other assets...... 274 (3) (136) 1,179 (58) (650)
Accounts payable....................... (1,004) 1,891 (361) 881 (1,127) 1,514
Accrued expenses....................... 682 2,477 (1,041) (1,443) 3,519 (1,525)
Income taxes payable................... 178 525 4,295 86 282 (1,326)
------- -------- -------- ------------- ------------ -------------
Net cash provided by (used for)
operating activities............ 1,457 2,958 4,641 3,950 3,014 (1,506)
------- -------- -------- ------------- ------------ -------------
Cash flows from investing activities
Purchase of stock of Avtech Corporation, net of
cash acquired................................. -- -- -- -- (83,599) --
Purchase of net assets of Dettmers Industries
Inc., net of cash acquired.................... -- -- -- -- (2,209) --
Purchase of stock of Audio International, Inc.,
net of cash acquired.......................... -- -- (23,597) -- -- --
Purchase of net assets of Aerospace Display
Systems....................................... -- (11,693) -- -- -- --
Purchase of minority stockholder's interest..... -- (5,207) -- -- -- --
Purchase of net assets and stock of Elsinore
Engineering Services and Elsinore Aerospace
Services, Inc., respectively.................. -- (1,300) -- -- -- --
Capital expenditures............................ (1,203) (5,821) (3,842) (2,842) (1,745) (307)
Other, net...................................... (259) 5 (370) -- 175 --
------- -------- -------- ------------- ------------ -------------
Net cash used for investing
activities...................... (1,462) (24,016) (27,809) (2,842) (87,378) (307)
------- -------- -------- ------------- ------------ -------------
Cash flows from financing activities
Acquisition of Predecessor
Proceeds from senior credit facility and
bridge notes................................ -- -- -- -- -- 185,400
Proceeds from sale of common stock............ -- -- -- -- -- 99,000
Proceeds from stock options exercised......... -- -- -- -- -- 4,314
Purchase of shares outstanding................ -- -- -- -- -- (186,310)
Repayment of existing senior credit
facility.................................... -- -- -- -- -- (93,000)
Transaction fees and expenses................. -- -- -- -- -- (7,398)
Common stock offerings and application of the
net proceeds
Proceeds from sale of common stock in the
initial public offering, net of $3,467 for
underwriting discounts, commissions and
expenses paid in 1997....................... -- -- 28,933 28,770 -- --
Proceeds from the sale of common stock in the
follow-on equity offering, net.............. -- -- -- -- 34,815 --
Borrowings under new credit facility, net of
deferred financing costs of $463............ -- -- 12,312 12,775 -- --
Repayment of debt............................. -- -- (42,160) (42,160) (34,815) --
Financing of acquisitions
Revolving line of credit borrowings........... -- 6,399 23,597 -- 85,808 --
Proceeds from issuance of cumulative
convertible preferred stock and mandatorily
redeemable common stock warrants, net....... -- 8,805 -- -- -- --
Senior term loan borrowings................... -- 5,000 -- -- -- --
Convertible subordinated note borrowings from
related parties............................. -- 3,000 -- -- -- --
Promissory note principal payments............ -- -- (1,095) (1,095) -- --
Net borrowings under revolving line of credit
agreements.................................... 1,972 1,191 2,906 2,387 5,453 (1,519)
Principal payments on capitalized lease and
other long-term obligations................... (1,665) (2,001) (1,675) (1,356) (1,317) (129)
Proceeds from issuance of cumulative convertible
preferred stock, net.......................... -- 112 -- -- -- --
Payment of deferred financing costs and stock
offering...................................... -- (851) -- -- -- --
Other, net...................................... (266) (604) 139 (367) (73) --
------- -------- -------- ------------- ------------ -------------
Net cash provided by (used for)
financing activities............ 41 21,051 22,957 (1,046) 89,871 358
------- -------- -------- ------------- ------------ -------------
Effect of foreign currency translation on cash.... 33 22 97 (43) 26 (17)
------- -------- -------- ------------- ------------ -------------
Net increase (decrease) in cash and cash
equivalents...................................... 69 15 (114) 19 5,533 (1,472)
Cash and cash equivalents at beginning of
period........................................... 236 305 320 320 206 5,739
------- -------- -------- ------------- ------------ -------------
Cash and cash equivalents at end of period........ $ 305 $ 320 $ 206 $ 339 $ 5,739 $ 4,267
------- -------- -------- ------------- ------------ -------------
------- -------- -------- ------------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
DeCrane Aircraft Holdings, Inc. and subsidiaries (the "Company")
manufactures avionics components and provides avionics systems integration
services in certain niche markets of the commercial, regional and high-end
corporate jet aircraft industries.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and all majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Certain reclassifications have been made to
prior years' financial statements to conform to the 1997 presentation.
Preparation of these consolidated financial statements in conformity with
generally accepted accounting principles requires the Company to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
INTERIM FINANCIAL STATEMENTS
The consolidated financial information as of September 30, 1998 and for the
nine months ended September 30, 1997, the eight months ended August 31, 1998 and
the one month ended September 30, 1998 is unaudited. In the opinion of the
Company, the unaudited financial information is presented on a basis consistent
with the audited financial statements and contains all adjustments, consisting
only of normal recurring adjustments, necessary for a fair statement of the
results for such interim periods. The results of operations for interim periods
are not necessarily indicative of results of operations for the full year.
REORGANIZATION AND REVERSE STOCK SPLIT
On February 19, 1997, the Company reorganized as a Delaware corporation. In
conjunction with the reorganization, the Company established a $.01 par value
for its cumulative convertible preferred stock and common stock and increased
the number of common shares and preferred shares authorized to 9,924,950 and
18,314,018 shares (which includes 10,000,000 shares of a newly designated series
of preferred stock), respectively.
Effective March 25, 1997, the Company effected a 3.53-for-1 reverse stock
split. All common share information set forth in the consolidated financial
statements and notes thereto has been restated to reflect the reverse stock
split.
THE DLJ ACQUISITION (UNAUDITED)
In July 1998, DeCrane Holdings Co. ("Holdings") and two other holding
companies were organized by DLJ Merchant Banking Partners II, L.P. ("DLJMB") and
affiliated funds and entities (the "DLJMB Funds") to carry out a tender offer
for all the shares of the Company's common stock (including options to
F-8
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
purchase shares) for $23.00 per share (the "DLJ Acquisition"). At the completion
of the tender offer in August 1998, the two other holding companies merged with
the Company. All of the Company's old outstanding shares were cancelled,
non-tendering shareholders were paid out, and as a result the Company became a
wholly-owned subsidiary of Holdings. This transaction resulted in a predecessor
entity and a successor entity for purposes of reporting the financial results
included in the accompanying financial statements.
As a result of the tender offer, the Company terminated a debt offering
which was in process at that time and recorded a $600,000 pre-tax charge as of
June 30, 1998 for the estimated costs incurred. The gross purchase price for the
Company's shares and options was $186.3 million. The excess of the purchase
price over the historical value of the net assets acquired was $127.9 million
and was allocated as follows: (i) $4.7 million to inventory; (ii) $3.0 million
to fixed assets; (iii) $50.0 million to certain identifiable intangible assets;
and (iv) $70.2 million to goodwill. The inventory step-up will be expensed
completely during the remainder of 1998. The intangible assets, other than
goodwill, will be amortized on a straight-line basis over periods between five
and fifteen years. Goodwill will be amortized on a straight-line basis over a
period of thirty years.
At the completion of the tender offer, the Company was required to repay all
of its borrowings under its previous Senior Credit Facility (Note 11). In order
to fund the purchase of the shares in the tender offer, repay the Senior Credit
Facility and pay expenses incurred in connection therewith, the Company: (i)
issued $100.0 million of senior subordinated increasing rate notes (the "Bridge
Notes") which were subsequently replaced by $100.0 million of 12% Senior
Subordinated Notes due 2008 (the "Notes") from the Company's "Units" offering
(Note 24), (ii) entered into a syndicated senior secured loan facility (the "New
Credit Facility"), and (iii) received a $99.0 million equity contribution from
Holdings.
The Bridge Notes were purchased by an affiliate of DLJ and accrued interest
at 10%. The terms of the issue called for floating rate increases to the prime
rates plus 2.5% after six months, and increases 0.5% every three months subject
to a 17.0% maximum, as long as the Bridge Notes remained outstanding. The Bridge
Notes were to mature on August 28, 1999, but were refinanced in October 1998
(Note 24).
The New Credit Facility provides for term loan borrowings in the aggregate
principal amount of $80.0 million and revolving loan borrowings up to an
aggregate principal amount of $50.0 million. Principal payments under the term
loan borrowings are due in increasing amounts over the next seven years and all
borrowings under the revolving loan facility must be repaid within six years.
Loans under the New Credit Facility generally bear interest based on a margin
over, at the Company's option, the prime rate or the Euro-Dollar rate.
Currently, the applicable margins are 1.00%-1.25% for prime rate borrowings and
2.25%-2.50% for Euro-Dollar borrowings. The Company is subject to certain
commitment fees under the facility as well as the maintenance of certain
financial ratios and cash flow results.
The equity contribution from Holdings represents the net proceeds from
Holdings selling all of the shares of its common stock for $65.0 million and
shares of its senior redeemable exchangeable preferred stock due 2009 for $34.0
million to the DLJMB Funds. Preferred stock dividends are payable quarterly at a
rate of 14% per annum. Prior to September 30, 2003, dividends are not paid in
cash but instead accrete in liquidation value which, in turn, increases the
redemption obligation. On or after September 30, 2003,
F-9
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
preferred stock dividends are paid in cash. Since the Company is Holdings' only
operating subsidiary and source of cash, the Company may be required to fund
Holdings' preferred stock dividend and redemption requirements in the future.
The Company incurred non-recurring charges totaling approximately $3.6
million (pre-tax) during the eight months ended August 31, 1998 in conjunction
with the tender offer and acquisition.
INVENTORIES
Inventories are stated at the lower of cost, as determined under the
first-in, first-out ("FIFO") method, or market. Costs include materials, labor
and manufacturing overhead.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over their estimated useful lives, ranging from two to
twenty years. Building and building improvements are depreciated using the
straight-line method over their estimated useful lives of forty years. Leasehold
improvements are amortized using the straight-line method over their estimated
useful lives or remaining lease term, whichever is less. Expenditures for
maintenance and repairs are expensed as incurred. The costs for improvements are
capitalized. Upon retirement or disposal, the cost and accumulated depreciation
of property and equipment are reduced and any gain or loss is recorded in income
or expense.
OTHER ASSETS
Goodwill is amortized on a straight-line basis over periods ranging from
fifteen to thirty years. Other intangibles are amortized on a straight-line
basis over their estimated useful lives, ranging from ten to twenty years.
Revolving credit agreement deferred financing costs are amortized on a
straight-line basis over the term of the agreement. Term debt deferred financing
costs are amortized using the interest method over the terms of their respective
agreements.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets and certain intangible assets for
impairment when events or changes in circumstances indicate the carrying amount
of an asset may not be recoverable. In the event the sum of the expected
undiscounted future cash flows resulting from the use of the asset is less than
the carrying amount of the asset, an impairment loss equal to the excess of the
asset's carrying value over its fair value is recorded. The Company has
recognized no such losses.
DERIVATIVES
Market value gains and losses on forward foreign exchange contracts are
recognized currently in the consolidated statements of operations.
F-10
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Deferred income taxes are determined using the liability method. A deferred
tax asset or liability is determined based on the difference between the
financial statement and tax basis of assets and liabilities as measured by the
enacted tax rates which will be in effect when these differences reverse.
Deferred tax expense is the result of changes in the asset and/or liability for
deferred taxes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
All financial instruments are held for purposes other than trading. The
estimated fair values of all nonderivative financial instruments approximate
their carrying amounts at December 31, 1996 and 1997. The estimated fair value
of foreign currency forward exchange contracts is based on quotes obtained from
various financial institutions that deal in this type of instrument.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's U.K. and Swiss subsidiaries have
been translated into U.S. dollars from their functional currencies, pounds
sterling and Swiss francs, respectively, in the consolidated financial
statements. Assets and liabilities have been translated at the exchange rate on
the balance sheet date and income statement amounts have been translated at
average exchange rates in effect during the period. The net translation
adjustment is reflected as a component of stockholders' equity (deficit).
Realized foreign currency exchange gains (losses) included in other expenses
(income) in the consolidated statements of operations were $(314,000), $71,000
and $(72,000) for the years ended December 31, 1995, 1996 and 1997,
respectively.
STOCK OPTION PLAN
As permitted under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company measures
compensation expense related to the employee stock option plan utilizing the
intrinsic value method as prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Refer to Note 16 for information
concerning the pro forma effect on results of operations assuming the fair value
method of measuring compensation expense was utilized.
REVENUE RECOGNITION
Revenues from the sale of manufactured products, except for products
manufactured under long-term contracts, are recorded when products are shipped.
Revenues on long-term contracts are recognized using the
percentage-of-completion method based on costs incurred to date compared with
total estimated costs at completion. Unbilled accounts receivable were $465,000
and $654,000 at December 31, 1996 and 1997, respectively. Unbilled accounts
receivable are expected to be billed during the succeeding twelve-month period.
F-11
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, cash equivalents include
short-term, highly liquid investments with original maturities of three months
or less.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. For the Company, comprehensive income consists of its
reported net income or loss and the change in the foreign currency translation
adjustment during a period. The Company adopted SFAS 130 for the year ending
December 31, 1998 and has reclassified earlier periods to reflect application of
the statement.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures About Segments of
an Enterprise and Related Information." This statement establishes standards for
reporting financial and descriptive information about operating segments. Under
SFAS No. 131, information pertaining to the Company's operating segments will be
reported on the basis that is used internally for evaluating segment performance
and making resource allocation determinations. Management is currently studying
the potential effects of adoption of this statement, which is required for the
fiscal year ending December 31, 1998.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. It also requires that gains or losses
resulting from changes in the values of those derivatives be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. Adoption of SFAS No. 133 is required for the fiscal year beginning
January 1, 2000. Management believes the adoption of SFAS No. 133 will not have
a material impact on our consolidated financial position or results of
operations.
NOTE 2 - RECAPITALIZATION, CONSUMMATION OF INITIAL PUBLIC OFFERING AND
FOLLOW-ON EQUITY OFFERING
RECAPITALIZATION AND CONSUMMATION OF INITIAL PUBLIC OFFERING
In January and March 1997, the holders of certain securities agreed to a
plan for the recapitalization of the Company (the "Recapitalization").
Completion of the Recapitalization was a condition to the consummation of the
Company's initial public offering (the "IPO") and, was effective concurrent
therewith. The IPO was consummated on April 16, 1997.
The Recapitalization provided for: (i) the conversion of all 6,847,705
shares of issued and outstanding cumulative convertible preferred stock
("Preferred Stock") into 1,941,804 shares of common stock; (ii) the
F-12
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 2 - RECAPITALIZATION, CONSUMMATION OF INITIAL PUBLIC OFFERING AND
FOLLOW-ON EQUITY OFFERING (CONTINUED)
cashless exercise and conversion of all 52,784 and 9,355 issued and outstanding
Preferred Stock warrants and common stock warrants, respectively, into a total
of 16,585 shares of common stock; (iii) the cashless exercise of 508,497
mandatorily redeemable common stock warrants (the "Redeemable Warrants") into a
total of 507,708 shares of common stock; and (iv) the cancellation of 95,368
Redeemable Warrants.
Redeemable Warrants exercisable into 208,968 common shares remained after
the Recapitalization. Of this amount, 138,075 Redeemable Warrants were cancelled
upon the consummation of the IPO and repayment of the Company's senior
subordinated debt and convertible notes in accordance with the terms of the
respective warrant agreements. Redeemable Warrants exercisable into 70,893
common shares remained after the Recapitalization and the IPO and application of
the net proceeds therefrom. Concurrent with the consummation of the IPO, the
mandatory redemption feature of these warrants was terminated and, as a result,
the value ascribed thereto was reclassified to stockholders' equity as
additional paid-in capital.
On April 16, 1997, the Company completed the IPO and sold 2,700,000 shares
of common stock for $12.00 per share. Proceeds from the IPO of $30,132,000, net
of $2,268,000 for underwriting discounts and commissions, together with
approximately $12,775,000 of proceeds from borrowings under a new credit
facility were used to repay amounts due under the Company's senior revolving
line of credit, senior term notes, senior subordinated notes and convertible
notes.
FOLLOW-ON EQUITY OFFERING (UNAUDITED)
In April 1998, the Company sold 2,206,177 shares of common stock for $17.00
per share ("Follow-On Equity Offering"). Net proceeds from the offering of
$34,815,000 were used to partially repay borrowings outstanding under the
Company's senior credit facility.
NOTE 3 - ACQUISITIONS
AUDIO INTERNATIONAL
On November 14, 1997, the Company purchased all of the outstanding stock of
Audio International, Inc. ("Audio International"). Audio International provides
premium, customized aircraft entertainment and cabin management products and
systems for the high-end corporate jet market.
The total purchase price was $24,726,000 in cash at closing, including
$726,000 in acquisition related costs, plus contingent consideration Aggregating
a maximum of $6,000,000 payable over two years based on future attainment of
defined performance criteria. The acquisition was funded with borrowings under
the Company's revolving line of credit facility.
The acquisition was accounted for as a purchase and the $20,110,000
difference between the purchase price, excluding the contingent consideration,
and the fair value of the net assets acquired was recorded as goodwill and is
being amortized over 30 years. The amount of contingent consideration paid in
the future, if any, will increase goodwill and will be amortized prospectively
over the remaining period of the initial 30-year term.
F-13
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 3 - ACQUISITIONS (CONTINUED)
The consolidated results of operations for the year ended December 31, 1997
include the operating results of Audio International subsequent to November 13,
1997.
MINORITY STOCKHOLDER'S 25% INTEREST
On February 20, 1996, the Company purchased the remaining 25% of a
subsidiary's stock it did not already own from the subsidiary's minority
stockholder (the "Minority Stockholder") for a total purchase price of
$5,748,000, including $334,000 of acquisition related costs and expenses (the
"Minority Interest Acquisition"). The purchase price consisted of $4,873,000
paid in cash at closing and a $600,000 non-interest bearing obligation payable
to the Minority Stockholder. The cash portion of the purchase price was funded
with the proceeds from the sale of Preferred Stock and Redeemable Warrants.
The acquisition was accounted for as a purchase and the $5,498,000
difference between the purchase price and 25% of the fair value of the net
assets acquired was recorded as goodwill and is being amortized over 26 years,
representing the remaining useful life of the goodwill recorded upon the initial
75% acquisition in October 1991.
The consolidated results of operations for the year ended December 31, 1996
include 100% of the operating results of the subsidiary subsequent to February
20, 1996. For the periods prior to February 20, 1996, the consolidated results
of operations include a charge for the Minority Stockholder's 25% ownership
interest.
For the periods prior to February 20, 1996, the Minority Stockholder, who is
also President of the subsidiary, was compensated pursuant to an employment
agreement. The employment agreement was cancelled as of February 20, 1996. For
the years ended December 31, 1995 and 1996, the Minority Stockholder earned
compensation of $851,000 and $22,000, respectively.
AEROSPACE DISPLAY SYSTEMS
On September 18, 1996, the Company purchased for cash substantially all of
the assets, subject to certain liabilities assumed, of the Aerospace Display
Systems division ("ADS") of Allard Industries, Inc. ("Allard"). The total
purchase price was $13,395,000, including $402,000 in acquisition related costs.
ADS develops and manufactures dichroic liquid crystal displays and modules for
commercial and military avionics systems.
The acquisition was funded with the proceeds from the sale of Preferred
Stock, convertible subordinated notes and Redeemable Warrants, borrowings under
the Company's revolving line of credit and a $2,000,000 non-interest bearing
obligation payable to certain Allard stockholders.
The acquisition was accounted for as a purchase and the $7,425,000
difference between the purchase price and the fair value of the net assets
acquired was recorded as goodwill and is being amortized over 30 years.
The consolidated results of operations for the year ended December 31, 1996
include the operating results of ADS subsequent to September 18, 1996.
F-14
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 3 - ACQUISITIONS (CONTINUED)
ELSINORE
On December 5, 1996, the Company acquired Elsinore Aerospace Services, Inc.
and the Elsinore Engineering Services Division of Elsinore, L.P. (collectively,
"Elsinore"). Elsinore provides engineering services to the commercial aircraft
industry. The total purchase price was $2,443,000, including $300,000 of
acquisition related costs. The purchase price consisted of $1,000,000 paid in
cash at closing and a $1,250,000 15% promissory note payable to the sellers.
The purchase agreement provided for an adjustment of the purchase price
should the amount of working capital decline as of the closing date. The
purchase price was allocated to the assets acquired and liabilities assumed
using estimated fair values and $2,585,000 was assigned to goodwill, subject to
final determination of the purchase price. During 1997, the Company and the
sellers agreed to reduce the purchase price by $155,000 to reflect the decline
in working capital as of the closing date and, as a result, goodwill was
decreased by a corresponding amount during 1997.
PRO FORMA RESULTS OF OPERATIONS FOR ACQUISITIONS, RECAPITALIZATION AND IPO
Unaudited pro forma consolidated results of operations are presented in the
table below for each of the two years in the period ended December 31, 1997 and
are pro forma for the Recapitalization, the IPO and the application of the net
proceeds therefrom (Note 2). For 1996, the results are also pro forma as if the
Audio International, Minority Interest and ADS acquisitions were consummated on
January 1, 1996; the pro forma effect of the Elsinore acquisition is not
material and, accordingly, is not reflected. For 1997, the results are pro forma
as if the Audio International acquisition was consummated on January 1, 1997.
<TABLE>
<CAPTION>
PRO FORMA FOR THE
YEAR ENDED DECEMBER
31,
---------------------
1996 1997
--------- ----------
<S> <C> <C>
Revenues................................................................................ $ 82,939 $ 121,334
Income before extraordinary item........................................................ 2,284 5,252
</TABLE>
The above information reflects adjustments for depreciation, amortization,
general and administrative expenses, minority interest and interest expense
based on the new cost basis and debt structure of the Company. In 1997, income
excludes the effect of a $2,078,000 extraordinary loss incurred in connection
with the Company's debt refinancing (Note 11).
RECENT ACQUISITIONS (UNAUDITED)
AVTECH
On June 26, 1998, the Company purchased substantially all of the common
stock of Avtech Corporation ("Avtech"). Avtech is a manufacturer of avionics
components and an avionics systems integrator for the commercial and high-end
corporate jet aircraft industries.
The total purchase price was $84,693,000 in cash at closing, including an
estimated $1,250,000 of acquisition related costs. The acquisition was financed
with borrowings under the Company's senior credit facility. The acquisition was
accounted for as a purchase and the $57,911,000 difference between the
F-15
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 3 - ACQUISITIONS (CONTINUED)
purchase price and the fair value of the net assets acquired was recorded as
goodwill and is being amortized on a straight-line basis over 30 years.
The consolidated balance sheet as of September 30, 1998 reflects the Avtech
assets and liabilities acquired and the consolidated results of operations
include the operating results of Avtech subsequent to June 25, 1998.
DETTMERS
On June 30, 1998, the Company purchased certain assets, subject to certain
liabilities assumed, of Dettmers Industries Inc. ("Dettmers"). Dettmers is a
manufacturer of seats for high-end corporate jet aircraft.
The total purchase price was $2,314,000 in cash at closing, including an
estimated $141,000 of acquisition related costs, plus contingent consideration
aggregating a maximum of $2,000,000 payable over four years based on future
attainment of defined performance criteria during each of the years in the four-
year period ending December 31, 2002. The acquisition was financed with
borrowings under the Company's senior credit facility. The acquisition was
accounted for as a purchase and the $2,068,000 difference between the purchase
price, excluding the contingent consideration, and the fair value of the net
assets acquired was recorded as goodwill and is being amortized on a
straight-line basis over 30 years. The amount of contingent consideration paid
in the future, if any, will increase goodwill and will be amortized
prospectively over the remaining period of the initial 30-year term.
The consolidated balance sheet as of September 30, 1998 reflects the
Dettmers assets and liabilities acquired and the consolidated results of
operations include the operating results of Dettmers subsequent to June 29,
1998.
PRO FORMA RESULTS OF OPERATIONS FOR ACQUISITIONS, RECAPITALIZATION, IPO,
FOLLOW-ON EQUITY OFFERING AND DLJ ACQUISITION
Unaudited pro forma consolidated results of operations are presented in the
table below for the year ended December 31, 1997 and the nine months ended
September 30, 1997 and 1998. For all periods presented, the results of
operations are pro forma for the Recapitalization, the IPO, the Follow-On Equity
Offering, the DLJ Acquisition and the application of the net proceeds therefrom
(Notes 1 and 2). For the year ended December 31, 1997 and nine months ended
September 30, 1997, the results are also pro forma as if the Audio
International, Avtech and Dettmers acquisitions were consummated on January 1,
1997. For the nine months ended September 30, 1998, the results are pro forma as
if the Avtech and Dettmers acquisitions were consummated on January 1, 1997.
F-16
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 3 - ACQUISITIONS (CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA
------------------------------------
YEAR NINE MONTHS ENDED
ENDED SEPTEMBER 30,
DECEMBER 31, ----------------------
1997 1997 1998
------------ ---------- ----------
<S> <C> <C> <C>
Revenues................................................................... $ 160,054 $ 120,103 $ 128,953
Loss before extraordinary item............................................. (10,000) (5,800) (1,456)
</TABLE>
The above information reflects adjustments for inventory step-up,
depreciation, amortization, general and administrative expenses and interest
expense based on the new cost basis and debt structure of the Company. In 1997
and 1998, income excludes the effect of a $2,078,000 and $296,000 extraordinary
loss, respectively, incurred in connection with the Company's debt refinancing
(Note 11).
NOTE 4 - ACCOUNTS RECEIVABLE AND SIGNIFICANT CUSTOMERS
ACCOUNTS RECEIVABLE
Accounts receivable is net of an allowance for doubtful accounts of $379,000
and $487,000 at December 31, 1996 and 1997, respectively.
The Company is potentially subject to concentrations of credit risk as the
Company relies heavily on customers operating in the domestic and foreign
commercial and high-end corporate jet aircraft industries. Generally, the
Company does not require collateral or other security to support accounts
receivable subject to credit risk. Under certain circumstances, deposits or cash
on delivery terms are required. The Company maintains reserves for potential
credit losses and generally, such losses have been within management's
expectations.
SIGNIFICANT CUSTOMERS
Three customers each accounted for more than 10% of the Company's
consolidated revenues, as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Customer A........................................................................... 8.9% 15.8% 19.0%
Customer B........................................................................... 25.4% 7.7% 1.1%
Customer C........................................................................... 8.7% 7.2% 11.2%
</TABLE>
Complete loss of either Customer A or C could have a significant adverse
impact on the results of operations expected in future periods. During the year
ended December 31, 1997, Customer A acquired another customer of the Company.
The above amounts for Customer A include the Company's revenue from the acquired
customer after its acquisition. For the year ended December 31, 1997, revenue
from Customer A would have been 20.9% had the acquisition been consummated on
January 1, 1997.
F-17
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 5 - INVENTORIES
Inventories are comprised of the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
-------------------- 30, 1998
1996 1997 (SUCCESSOR)
-----------
(PREDECESSOR)
<S> <C> <C> <C>
(UNAUDITED)
Raw material.................................................. $ 12,350 $ 14,224 $ 19,691
Work-in process............................................... 2,717 4,655 10,622
Finished goods................................................ 4,506 7,097 7,030
--------- --------- -----------
Total inventories........................................... $ 19,573 $ 25,976 $ 37,343
--------- --------- -----------
--------- --------- -----------
</TABLE>
Included above are costs relating to long-term contracts recognized on the
percentage of completion method of $1,378,000 and $125,000 at December 31, 1996
and 1997, respectively.
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment includes the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Machinery and equipment................................................................... $ 16,637 $ 18,151
Tooling................................................................................... 2,944 3,133
Computer equipment, furniture and fixtures................................................ 2,462 3,660
Land, buildings and leasehold improvements................................................ 1,676 3,580
---------- ----------
Total cost.............................................................................. 23,719 28,524
Accumulated depreciation and amortization............................................... (11,532) (14,470)
---------- ----------
Net property and equipment............................................................ $ 12,187 $ 14,054
---------- ----------
---------- ----------
</TABLE>
Property and equipment under capital leases included above consists of the
following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Machinery and equipment................................................................... $ 920 $ 1,160
Computer equipment, furniture and fixtures................................................ 306 455
---------- ----------
Total cost.............................................................................. 1,226 1,615
Accumulated depreciation and amortization................................................. (347) (523)
---------- ----------
Net property and equipment............................................................ $ 879 $ 1,092
---------- ----------
---------- ----------
</TABLE>
Depreciation of machinery and equipment under capital leases is included in
cost of sales in the consolidated financial statements.
F-18
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 6 - PROPERTY AND EQUIPMENT (CONTINUED)
On December 12, 1996, the Company purchased all of the manufacturing assets
and inventory relating to the cold-heading manufacturing facility of the
Qualitronix Division of AMP, Inc. (the "AMP Facility"). The purchase price of
$6,802,000 (including $2,433,000 of inventory purchased) consisted of $5,399,000
paid in cash at closing with the balance paid in January 1997. The $2,213,000
difference between the purchase price and the fair value of the individual
assets acquired was recorded as an intangible asset and is being amortized over
15 years.
NOTE 7 - OTHER ASSETS
Other assets includes the following and is net of accumulated amortization
for the respective periods as parenthetically noted (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Goodwill (net of $808 and $1,682)......................................................... $ 19,756 $ 38,592
Deferred financing costs (net of $1,368 and $64) (Note 11)................................ 2,296 399
Other intangibles (net of $164 and $194).................................................. 274 596
Other non-amortizable assets.............................................................. 863 380
---------- ----------
Other assets, net....................................................................... $ 23,189 $ 39,967
---------- ----------
---------- ----------
</TABLE>
NOTE 8 - ACCRUED EXPENSES
Accrued expenses are comprised of the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Salaries, wages, compensated absences and payroll related taxes........................... $ 2,842 $ 3,410
Other accrued expenses.................................................................... 4,399 3,501
---------- ----------
Total accrued expenses.................................................................. $ 7,241 $ 6,911
---------- ----------
---------- ----------
</TABLE>
NOTE 9 - SHORT-TERM BORROWINGS
Short-term borrowings outstanding as of December 31, 1996 and 1997 includes
the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Promissory note, 15% interest and principal payable as described below.................... $ 1,250 $ --
Short-term revolving line of credit....................................................... 724 568
---------- ----------
Total short-term borrowings............................................................. $ 1,974 $ 568
---------- ----------
---------- ----------
</TABLE>
F-19
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 9 - SHORT-TERM BORROWINGS (CONTINUED)
The promissory note was issued on December 5, 1996 in conjunction with the
Elsinore acquisition and was payable to the former owners. The promissory note,
as adjusted (Note 3), was repaid during 1997.
The Company's Swiss subsidiary has a short-term revolving line of credit
with a Swiss bank under which Swiss franc denominated borrowings of $724,000 and
$568,000 were outstanding at December 31, 1996 and 1997, respectively. Interest
on the line accrues at the bank's prime rate (5.25% at December 31, 1997) plus
0.25%. The line of credit is guaranteed by the Company.
NOTE 10 - CONVERTIBLE SUBORDINATED NOTES PAYABLE TO RELATED PARTIES
In conjunction with the ADS acquisition, the Company sold 15% convertible
subordinated notes ("Convertible Notes") and Redeemable Warrants to a group of
investors, who are also related parties (Note 21). As described in Note 14,
$124,000 of the aggregate $3,000,000 proceeds was allocated to Redeemable
Warrants in the consolidated financial statements. The corresponding reduction
in the recorded principal amount of the notes was treated as debt discount and
amortized as interest expense over the life of the notes. The principal balance
of the notes, plus accrued interest, was paid with a portion of the IPO
proceeds.
F-20
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 11 - LONG-TERM OBLIGATIONS
Long-term obligations outstanding includes the following (amounts in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
-------------------- 30, 1998
1996 1997 (SUCCESSOR)
-----------
(PREDECESSOR)
<S> <C> <C> <C>
(UNAUDITED)
Senior Credit Facility (Note 1)............................... $ -- $ 36,000 $ 83,800
12% Senior Subordinated Notes due 2008, with interest payable
semi-annually commencing on March 30, 1999 (Notes 1 and
24)......................................................... -- -- 100,000
Note payable to Arkansas Development Finance Authority,
principal and interest at rates ranging from 5.25% to 6.0%,
secured by land, building and equipment..................... -- 712 --
Capital lease obligations and equipment term financing, with
interest at 4.34 % to 18.08%, secured by equipment.......... 662 547 430
Acquisition financing payable to sellers
Payable to Allard stockholders (for the ADS acquisition),
due in monthly installments of $56,000 through August 18,
1999...................................................... 1,531 1,011 583
Payable to Minority Stockholder (for the Minority Interest
acquisition), due in monthly installments of $33,000
through December 15, 1997................................. 383 -- --
Debt repaid with IPO proceeds
Senior revolving line of credit............................. 11,982 -- --
Senior term notes........................................... 16,769 -- --
Senior subordinated debt payable to related parties (Note
21)....................................................... 6,027 -- --
--------- --------- -----------
Total long-term obligations............................... 37,354 38,270 184,813
Less current portion...................................... (3,004) (858) (1,267)
--------- --------- -----------
Long-term obligations, less current portion............. $ 34,350 $ 37,412 $ 183,546
--------- --------- -----------
--------- --------- -----------
</TABLE>
DEBT REPAID WITH IPO PROCEEDS
In April 1997, the Company used the net proceeds from the IPO (Note 2),
together with approximately $12,775,000 of proceeds from borrowings under a new
credit facility, to repay the following: (i) senior revolving line of credit
borrowings of $15,356,000; (ii) senior term notes aggregating $16,531,000; (iii)
senior subordinated notes payable to related parties aggregating $7,000,000; and
(iv) Convertible Notes payable to related parties aggregating $3,000,000. In
conjunction with the debt repayment, the Company incurred a $3,436,000
extraordinary charge, before an income tax benefit of $1,358,000, which is
comprised of: (i) a $1,943,000 write-off of deferred financing costs; (ii) a
$1,149,000 write-off of unamortized original issued discounts; and (iii) a
$344,000 charge for a prepayment penalty and other related expenses.
SENIOR CREDIT FACILITY
Concurrent with the completion of the IPO, the Company obtained a new credit
agreement with a group of banks for a $40 million senior revolving line of
credit, expiring in April 2002 (the "Senior Credit
F-21
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 11 - LONG-TERM OBLIGATIONS (CONTINUED)
Facility"). The Senior Credit Facility was amended in November 1997 in
conjunction with the Audio International acquisition to provide a $60 million
revolving line of credit. Borrowings under the Senior Credit Facility are
secured by assets totaling $96,122,000 as of December 31, 1997. At December 31,
1997, additional borrowings of $24,000,000 were available under the Senior
Credit Facility. In February 1998, the Senior Credit Facility was further
amended to provide for a $75 million revolving line of credit.
The Company, at its option, may elect to pay interest on Senior Credit
Facility borrowings based on either the prime rate or interbank offered rate
("IBOR") plus defined margins. The Company is required to pay a commitment fee,
up to a maximum 0.375%, on the unused portion of the Senior Credit Facility. The
weighted-average interest rate on borrowings outstanding was 7.03% as of
December 31, 1997. Interest rate margins and commitment fee rates are reset
quarterly, based upon a defined leverage ratio. The maximum interest rate
margins are 0.75% above the prime rate or 2.00% above the IBOR rate.
The Senior Credit Facility contains certain restrictive covenants which
require the Company to: (i) maintain certain defined financial ratios such as
interest coverage, leverage and working capital, and minimum levels of net
worth; and (ii) limit capital expenditures, including capital lease obligations,
and additional indebtedness which may be incurred. The Senior Credit Facility
also prohibits the Company from paying any cash dividends on its common stock.
SENIOR CREDIT FACILITY AMENDMENT (UNAUDITED)
In May 1998, the Senior Credit Facility was amended to provide for a $105
million revolving line of credit. The revolving line of credit is subject to
automatic reductions of up to $45 million upon the incurrence of additional
indebtedness permitted under the loan plus $500,000 per month from October 31,
1998 through May 31, 1999 and $1 million per month thereafter. The maximum
interest rate margins were increased 0.25% to 1.00% above the prime rate or
2.25% above the IBOR rate and the maximum commitment fee was increased to 0.425%
on the unused portion of the Senior Credit Facility. In connection with the
completion of the DLJ Acquisition, the Company was required to repay all of its
borrowings under the Senior Credit Facility and entered into the New Credit
Facility (Note 1).
ARKANSAS DEVELOPMENT FINANCE AUTHORITY
The note was assumed in conjunction with the Audio International acquisition
and is guaranteed by its former stockholders. The acquisition agreement provides
that the Company must obtain a release of the former stockholders' guarantees.
The Company is evaluating various alternatives including repayment of the note
by borrowing under the Senior Credit Facility. The note is classified as a
long-term obligation as of December 31, 1997.
REPAYMENT AND RELEASE OF GUARANTEES (UNAUDITED)
On April 28, 1998, the Company repaid the note with borrowings under the
Senior Credit Facility and the former stockholders were released from their
guarantees.
F-22
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 11 - LONG-TERM OBLIGATIONS (CONTINUED)
ACQUISITION FINANCING PAYABLE TO SELLERS
In conjunction with the Minority Interest Acquisition and the ADS
acquisition, the sellers provided financing that is payable in monthly
installments over an eighteen-month and a three-year period, respectively. The
Minority Stockholder and ADS payment obligations are non-interest bearing;
original issue discounts of 9.75% and 11.5%, respectively, are being amortized
over the payment obligation terms. Unamortized debt discounts were $264,000 and
$100,000 as of December 31, 1996 and December 31, 1997, respectively.
AGGREGATE MATURITIES
The aggregate maturities of long-term obligations are as follows as of
December 31, 1997 (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1998................................................................................................. $ 942
1999................................................................................................. 633
2000................................................................................................. 46
2001................................................................................................. 17
2002................................................................................................. 36,728
Thereafter........................................................................................... 4
---------
Total aggregate maturities......................................................................... 38,370
Less unamortized debt discount..................................................................... (100)
---------
Total long-term obligations...................................................................... $ 38,270
---------
---------
</TABLE>
NOTE 12 - INCOME TAXES
Income (loss) before income taxes and extraordinary item was taxed under the
following jurisdictions (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Domestic............................................................................ $ (2,534) $ (855) $ 7,509
Foreign............................................................................. 166 750 1,089
--------- --------- ---------
Total............................................................................. $ (2,368) $ (105) $ 8,598
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-23
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 12 - INCOME TAXES (CONTINUED)
The provisions for income taxes are as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current
U.S. federal................................................................ $ 60 $ 269 $ 3,231
State and local............................................................. 24 194 968
Foreign..................................................................... 127 161 426
---------- ---------- ----------
Total current............................................................. 211 624 4,625
---------- ---------- ----------
Deferred
U.S. federal................................................................ 751 70 (1,021)
State and local............................................................. 226 21 (279)
Foreign..................................................................... (110) (3) 19
---------- ---------- ----------
Total deferred............................................................ 867 88 (1,281)
---------- ---------- ----------
Total provision
U.S. federal................................................................ 811 339 2,210
State and local............................................................. 250 215 689
Foreign..................................................................... 17 158 445
---------- ---------- ----------
Total provision........................................................... $ 1,078 $ 712 $ 3,344
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Deferred tax liabilities (assets) are comprised of the following (amounts in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Gross deferred tax liabilities
Tax effect on earnings of subsidiary not consolidated for tax purposes...... $ 2,431 $ 2,688 $ 2,688
Depreciable and amortizable assets.......................................... 781 991 996
Other....................................................................... 367 279 409
---------- ---------- ----------
Gross deferred tax liabilities............................................ 3,579 3,958 4,093
---------- ---------- ----------
Gross deferred tax (assets)
Inventory................................................................... (1,376) (1,798) (2,811)
Loss carryforwards.......................................................... (1,391) (1,238) (865)
Accrued expenses............................................................ (220) (605) (697)
State income taxes.......................................................... -- -- (194)
Allowance for doubtful accounts............................................. (41) (68) (159)
Other....................................................................... (122) -- (184)
---------- ---------- ----------
Gross deferred tax (assets)............................................... (3,150) (3,709) (4,910)
---------- ---------- ----------
Deferred tax assets valuation allowance....................................... 2,681 3,063 2,575
---------- ---------- ----------
Net deferred tax liability.................................................. $ 3,110 $ 3,312 $ 1,758
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-24
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 12 - INCOME TAXES (CONTINUED)
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal rate to the income
(loss) before income taxes and extraordinary item as a result of the following
differences (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Income tax (benefit) at U.S. statutory rates.................................. $ (805) $ (36) $ 2,923
Increase (decrease) resulting from
Tax on earnings of subsidiary not consolidated for tax purposes............. 977 92 --
Book benefit not provided (provided) for net operating loss carryforwards... 773 172 (488)
Amortization of assets and other expenses not deductible for income tax
purposes.................................................................. 68 137 441
State income taxes, net of federal benefit.................................. 16 157 482
Lower tax rates on earnings of foreign subsidiaries......................... (11) (65) (116)
Other, net.................................................................. 60 255 102
---------- ---------- ----------
Income tax at effective rates............................................. $ 1,078 $ 712 $ 3,344
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Approximately $2,543,000 of the Company's loss carryforwards remained at
December 31, 1997 for federal income tax purposes. The carryforwards expire in
varying amounts through 2012. No benefit for the remaining loss carryforwards
has been recognized in the consolidated financial statements. The amount of loss
carryforwards that may be utilized in the future are subject to limitations
because of the occurrence of a change in control of the Company, as defined in
the Internal Revenue Code. A change in control occurred during 1996 as a result
of certain equity transactions and upon completion of the IPO. The amount of
loss carryforwards that may be used in the future is limited to approximately
$800,000 in each year for federal income tax purposes until fully utilized. The
deferred tax asset valuation allowance was reduced in 1997 by $488,000 to
reflect the amount of federal and state tax loss carryforwards that has been
utilized to reduce 1997 current income taxes.
Undistributed earnings of foreign subsidiaries are not material to the
consolidated financial statements. As such, foreign taxes that may be due, net
of U.S. foreign tax credits, have not been provided.
EIGHT MONTHS ENDED AUGUST 31, 1998 AND ONE MONTH ENDED SEPTEMBER 30, 1998
(UNAUDITED)
For the eight months ended August 31, 1998 and the one month ended September
30, 1998, the difference between the actual tax provision and the amount
obtained by applying the U.S. statutory rates is primarily attributable to the
effect of nondeductible expense relating to goodwill. In addition, during the
eight months ended August 31, 1998 and one month ended September 30, 1998, the
Company reduced its deferred tax asset valuation allowance by $182,000 and
$63,000, respectively, to reflect the book benefit of federal net operating loss
carryforwards not previously recognized. Approximately $1,823,000 of the
Company's loss carryforwards remained at September 30, 1998 for federal income
tax purposes. No benefit for the remaining loss carryforwards has been
recognized in the consolidated financial statements.
F-25
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 12 - INCOME TAXES (CONTINUED)
The amount of loss carryforwards that may be utilized in the future are
subject to limitations due to the occurrence of a change in control of the
Company, as defined in the Internal Revenue Code. A change in control occurred
as a result of certain equity transactions that occurred during 1996, the
Offering and the DLJ Acquisition. The amount of loss carryforwards that may be
utilized is limited to approximately $800,000 per year for both federal and
state income tax purposes.
NOTE 13 - DERIVATIVE FINANCIAL INSTRUMENTS
The Company does not use derivative financial instruments for trading
purposes but only to manage well-defined foreign exchange rate risks.
The Company enters into Swiss franc ("CHF") forward exchange contracts to
purchase Swiss francs as a general economic hedge against foreign inventory
procurement and manufacturing costs. Market value gains and losses on forward
foreign exchange contracts are recognized in the consolidated statements of
operations and aggregated a realized net loss of $316,000 and $487,000 for the
years ended December 31, 1996 and 1997, respectively (none in the year ended
December 31, 1995).
At December 31, 1997, the Company has twelve open forward exchange contracts
with one of its senior lenders to purchase a total of CHF 9,836,000 for
$7,200,000 at rates ranging between 1.341 and 1.391 CHF per U.S. dollar.
Settlement of the contracts is to occur in twelve equal monthly amounts of
$600,000 from January 15, 1998 through December 15, 1998. As of December 31,
1997, the Company has recognized in cost of sales an unrealized market value
loss of $469,000 on the open contracts.
The Company believes exposure to derivative credit losses is minimal in the
event of nonperformance by the senior lender because any amounts due, but not
paid, to the Company by the senior lender could be offset against the Company's
principal and interest payments to the lender.
F-26
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 14 - MANDATORILY REDEEMABLE COMMON STOCK WARRANTS
Mandatorily redeemable common stock warrants (the "Redeemable Warrants")
were issued in conjunction with various debt and equity transactions. During
1997, all Redeemable Warrants were either exercised or cancelled in conjunction
with the Recapitalization and IPO (Note 2). The table below summarizes the
transactions during the three-year period ended December 31, 1997 (amounts in
thousands, except share data).
<TABLE>
<CAPTION>
REDEEMABLE WARRANTS
----------------------
NUMBER OF
COMMON
AMOUNT SHARES
--------- -----------
<S> <C> <C>
Balance, December 31, 1994................................................................. $ 2,329 446,296
Adjustment to estimated redemption value................................................... (696) --
--------- -----------
Balance, December 31, 1995................................................................. 1,633 446,296
Issued in conjunction with sale of Preferred Stock to finance Minority Interest
acquisition.............................................................................. 492 194,618
Issued in conjunction with sale of Convertible Notes and Preferred Stock to finance ADS
acquisition.............................................................................. 248 98,158
Issued pursuant to anti-dilution provisions upon the sale of Preferred Stock............... 7 2,868
Issued in conjunction with debt agreement amendment........................................ 179 70,893
Adjustment to estimated redemption value................................................... 4,320 --
--------- -----------
Balance, December 31, 1996................................................................. 6,879 812,833
Adjustment to redemption value to reflect the IPO per share price.......................... 2,203 --
Cashless exercise and conversion pursuant to the Recapitalization.......................... (6,103) (508,497)
Cancelled pursuant to the Recapitalization................................................. (1,143) (95,368)
Cancelled upon debt repayment with IPO proceeds............................................ (1,657) (138,075)
Reclassification of warrants no longer mandatorily redeemable to additional paid-in
capital.................................................................................. (179) (70,893)
--------- -----------
Balance, December 31, 1997................................................................. $ -- --
--------- -----------
--------- -----------
</TABLE>
Prior to the IPO, the warrant holders had the right, after various dates and
contingent upon certain events, to require the Company to redeem the warrants
and, in certain instances, to purchase the common stock issued upon exercise of
the warrants. In all instances, the redemption or purchase price, was equal to
the greater of either fair market value, book value, or a value based upon a
defined formula which included, in part, an earnings multiple. During the years
ended December 31, 1995 and 1996, the Company increased (decreased) by
$(696,000) and $4,320,000, respectively, the amount ascribed to the Redeemable
Warrants to reflect estimated redemption value. Concurrent with the consummation
of the Recapitalization and IPO, the Company increased the redemption value by
$2,203,000 to reflect the $12.00 per share IPO price. The adjustments to
redemption value were charged (credited) to accumulated deficit.
F-27
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 15 - CUMULATIVE CONVERTIBLE PREFERRED STOCK
As of December 31, 1996, the number of cumulative convertible preferred
shares authorized to be issued consisted of 8,314,018 shares in various series
("Preferred Stock"). All Preferred Stock was without par value. As of December
31, 1994, 1995 and 1996, there were 4,022,705, 4,022,705 and 6,847,705 shares
outstanding, respectively. At December 31, 1996, the Company also had Preferred
Stock warrants outstanding to purchase a total of 52,784 preferred shares at an
exercise price of $1.263 per share.
On February 19, 1997, the Company reorganized as a Delaware corporation. In
conjunction with the reorganization, the Company established a $.01 par value
for its Preferred Stock and increased the number of preferred shares authorized
to 18,314,018 shares, which includes 10,000,000 shares of a newly designated
series of preferred stock. As part of the Recapitalization, which occurred
concurrent with the IPO, all issued and outstanding shares of Preferred Stock
were converted into .28357 of a share of common stock. The Recapitalization also
provided for the cashless exercise and conversion of all Preferred Stock
warrants into 10,206 common shares. There were no shares of Preferred Stock or
warrants to purchase Preferred Stock outstanding as of December 31, 1997.
On February 9, 1996, certain members of Company management purchased for
$112,000 an aggregate of 75,000 preferred shares. On February 20, 1996, the
Company sold 2,000,000 preferred shares at $3.25 per share and issued Redeemable
Warrants to purchase 194,618 common shares to a related party (Note 21).
Proceeds from the sale aggregating $492,000 were ascribed to the Redeemable
Warrants to reflect their estimated fair market value on the issuance date. The
proceeds from the sale, net of issuance costs of $558,000, were used to fund the
Minority Interest Acquisition.
On September 18, 1996, the Company sold 750,000 preferred shares at $4.00
per share and issued Redeemable Warrants to purchase 49,079 common shares to
related parties (Note 22). Proceeds from the sale aggregating $124,000 were
ascribed to the Redeemable warrants to reflect their estimated fair market value
on the issuance date. The proceeds from the sale, net of issuance costs of
$137,000, were used to fund the ADS acquisition.
NOTE 16 - COMMON STOCK
At December 31, 1996 the Company was authorized to issue 4,253,550 common
shares, without par value and, in addition to the Redeemable Warrants, had
issued non-redeemable warrants to purchase a total of 9,355 common shares at an
exercise price of $4.454 per share. On February 19, 1997, in conjunction with
reorganizing as a Delaware corporation, the Company established a $.01 par value
for its common stock and increased to 9,924,950 the number of common shares
authorized. As of December 31, 1997, a total of 527,156 common shares were
reserved for issuance upon exercise of stock options outstanding under the
Company's stock option plan.
As part of the Recapitalization, the holders of the non-redeemable warrants
agreed to the cashless exercise and conversion of all warrants outstanding into
6,379 common shares. As described in Note 2, Redeemable Warrants to purchase
70,893 common shares at an exercise price of $14.11 per share remained after the
Recapitalization. Concurrent with the consummation of the IPO, the mandatory
redemption feature of these warrants was terminated and, consequently, became
non-redeemable warrants. In December 1997, the holders of these warrants elected
to exercise all of the warrants on a cashless
F-28
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 16 - COMMON STOCK (CONTINUED)
basis and convert the warrants into 16,130 common shares. No non-redeemable
warrants were outstanding as of December 31, 1997.
The Company has a qualified stock option plan for key employees under which
options to purchase common shares may be granted. The plan permits the granting
of incentive stock options, as defined by Section 422 of the Internal Revenue
Code, non-qualified stock options, restricted stock options and stock
appreciation rights. The plan expires in 2003. Options generally vest in equal
installments over five years from the date of grant and remain exercisable until
December 31, 2002.
The following table summarizes the status of the Company's stock option plan
at December 31, 1995, 1996, and 1997 and the activity for the three years ended
December 31, 1997:
<TABLE>
<CAPTION>
1995 1996 1997
---------------------- ---------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of
year......................................... 185,029 $ 0.529 208,423 $ 0.529 355,001 $ 1.724
Granted....................................... 37,573 0.529 147,031 3.413 163,662 15.574
Cancelled..................................... (14,179) 0.529 (453) 0.529 (17,403) 6.228
--------- --------- ---------
Options outstanding at end of year............ 208,423 0.529 355,001 1.724 501,260 6.089
--------- --------- ---------
--------- --------- ---------
Options exercisable at end of year............ 85,581 0.529 141,845 0.633 200,444 0.921
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table summarizes information about stock options outstanding
and stock options exercisable at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- -----------------------------
NUMBER WEIGHTED-AVERAGE WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1997 LIFE PRICE 1997 PRICE
- ------------------ -------------- ---------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
$0.529 - $1.234 303,998 7.0 years $ 0.724 194,556 $ 0.622
7.053 - 16.75 197,262 9.7 years 14.357 5,888 10.802
------- -------
501,260 8.1 years 6.089 200,444 0.921
------- -------
------- -------
</TABLE>
The Company believes the per share exercise price of options granted through
February 1996 and subsequent to January 1997 approximated the fair market value
of the underlying common stock on the grant date. The exercise price of certain
options granted from February 1996 to January 1997 were deemed to be below the
fair market value of the underlying common stock on the grant date and such
difference is being recognized as additional compensation expense in the
consolidated financial statements on a straight line basis over the vesting
period of the underlying options. Compensation expense recognized was $158,000
and $240,000 for the years ended December 31, 1996 and 1997, respectively.
F-29
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 16 - COMMON STOCK (CONTINUED)
The Company measures compensation expense related to its employee stock
option plan using the intrinsic value method as prescribed by APB Opinion No.
25. Had compensation cost for the Company's stock option plan been determined
based on the fair value of the options at the grant dates consistent with the
method of SFAS 123, the Company's net income (loss) would have been as follows
(amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss)
As reported...................................................................... $ (3,446) $ (817) $ 3,176
Pro forma........................................................................ (3,446) (822) 3,129
Weighted-average fair value of options granted
Compensatory stock options....................................................... -- 5.91 5.70
Non-compensatory stock options................................................... 0.10 0.10 5.08
</TABLE>
For purposes of the pro forma presentation, the fair value for options
granted subsequent to the IPO (April 16, 1997) was estimated on the dates of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions: risk-free interest rate of 5.8%; expected dividend
yield of 0%; expected life of 2.5 years; and expected stock price volatility of
39.9%. The fair value for options granted prior to the IPO was estimated on the
dates of grant using a minimum value method, assuming a risk-free interest rate
of 5.5% to 5.7% with no projected dividend yields. Unlike other permitted option
pricing models, the minimum value method excludes stock price volatility, which
could not be reasonably estimated for the Company prior to the IPO.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models, as well as the minimum value method, do not
necessarily provide a reliable single measure of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of options
granted in fiscal years after December 31, 1994 is amortized to expense over the
options' vesting period. The effects of applying SFAS 123 in providing the pro
forma disclosures are not likely to be representative of the effects on the
reported consolidated financial statements in future years.
NOTE 17 - COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is a party to a license agreement with McDonnell Douglas
Corporation (now part of The Boeing Company) pursuant to which the Company may
request certain data in order to design and market modifications to aircraft
manufactured by McDonnell Douglas. The agreement provides that the Company will
pay McDonnell Douglas a royalty of five percent of the net sales price of all
modifications
F-30
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
sold by the Company for which the Company has requested data from McDonnell
Douglas. The Company has requested data for a single modification, which
modification the Company believes is exempt from the obligation to pay royalties
under the agreement. In 1996, McDonnell Douglas made a demand for $650,000 for
royalties. The Company does not believe that it is obligated to McDonnell
Douglas in any amount. However, there can be no assurance that the Company will
not be required to pay royalties to McDonnell Douglas.
Certain subsidiaries of the Company have recently been served in an action
filed in federal court by American International Airways, Inc., relating to the
conversion and modification of two Boeing 747 aircraft from passenger to
freighter configuration. No specific amount of damages is sought. The events in
question occurred prior to the Company's purchase of the relevant businesses
from its prior owner; the Company intends to deny any liability, and further
believes that it is indemnified with respect to any such liabilities.
The Company and its subsidiaries are also involved in other routine legal
and administrative proceedings incident to the normal conduct of business.
Management believes the ultimate disposition of these matters, as well as the
matters discussed in the preceding paragraphs, will not have a material adverse
effect on the Company's consolidated financial position, results of operations
or cash flows.
LEASE COMMITMENTS
The Company leases certain facilities and equipment under various capital
and operating leases. Certain leases require payment of property taxes and
include escalation clauses. Future minimum capital and operating lease
commitments under non-cancelable leases are as follows as of December 31, 1997
(amounts in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
Year ending December 31,
1998....................................................................................... $ 318 $ 2,909
1999....................................................................................... 203 2,732
2000....................................................................................... 50 2,274
2001....................................................................................... 21 1,855
2002....................................................................................... 17 1,771
2003 and thereafter........................................................................ 9 5,547
----- -----------
Total minimum payments required............................................................ 618 $ 17,088
-----------
-----------
Less amount representing future interest cost.............................................. (71)
-----
Recorded obligation under capital leases................................................. $ 547
-----
-----
</TABLE>
Total rental expense charged to operations for the years ended December 31,
1995, 1996 and 1997 was $1,531,000, $1,614,000 and $2,065,000, respectively.
F-31
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 18 - CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS INFORMATION
During the three years ended December 31, 1997, the Company paid the
following amounts in cash (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Interest............................................................................. $ 3,275 $ 2,983 $ 2,842
Income taxes......................................................................... 33 132 300
</TABLE>
INFORMATION ON NONCASH INVESTING AND FINANCING ACTIVITIES
Certain noncash investing and financing transactions occurred during the
three years ended December 31, 1997, as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Debt incurred for the acquisition of machinery and equipment......................... $ 33 $ 414 $ 182
Financing provided by sellers in connection with acquisitions........................ -- 3,492 --
Liabilities assumed in connection with acquisitions.................................. -- 2,687 2,581
</TABLE>
The Recapitalization and IPO described in Note 2 included a series of
noncash transactions.
F-32
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 19 - FOREIGN OPERATIONS AND EXPORT REVENUES
FOREIGN OPERATIONS
The Company operates in one business segment - avionics components
manufacturing and integration services. Domestic and foreign operations consist
of (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues
Gross revenues
United States............................................................ $ 54,394 $ 64,383 $ 109,490
Western Europe........................................................... 9,388 10,882 12,240
---------- ---------- ----------
Total gross revenues................................................... 63,782 75,265 121,730
---------- ---------- ----------
Less interarea transfers
United States............................................................ (814) (1,496) (2,448)
Western Europe........................................................... (7,129) (8,670) (10,379)
---------- ---------- ----------
Total interarea transfers.............................................. (7,943) (10,166) (12,827)
Net revenues
United States............................................................ 53,580 62,887 107,042
Western Europe........................................................... 2,259 2,212 1,861
---------- ---------- ----------
Total net revenues..................................................... $ 55,839 $ 65,099 $ 108,903
---------- ---------- ----------
---------- ---------- ----------
Income from operations
United States.............................................................. $ 1,354 $ 3,727 $ 10,833
Western Europe............................................................. 501 746 1,572
Interarea eliminations..................................................... (20) (222) (410)
---------- ---------- ----------
Total income from operations............................................. $ 1,835 $ 4,251 $ 11,995
---------- ---------- ----------
---------- ---------- ----------
Consolidated assets
United States.............................................................. $ 34,425 $ 67,889 $ 98,076
Western Europe............................................................. 6,490 6,015 6,421
Interarea eliminations..................................................... (4,586) (4,638) (5,360)
---------- ---------- ----------
Total consolidated assets................................................ $ 36,329 $ 69,266 $ 99,137
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Interarea sales are accounted for at prices that the Company believes would
be equivalent to unaffiliated customer sales. Interarea transfers and
eliminations reflect the shipment of raw component parts between areas.
Operating income excludes net interest expense, other income (expense) and
minority interests that are directly attributable to the related operations.
Corporate assets are included with United States assets.
F-33
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 19 - FOREIGN OPERATIONS AND EXPORT REVENUES (CONTINUED)
EXPORT REVENUES
Consolidated revenues include export revenues of $5,161,000, $6,484,000 and
$12,430,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
Export revenues are primarily derived from sales to customers located in Western
Europe, the Far East and Canada.
NOTE 20 - EMPLOYEE BENEFIT PLANS
The Company's Swiss subsidiary sponsors a defined contribution pension plan
covering substantially all of its employees as required by Swiss law.
Contributions and costs, which are shared equally by the Company and the
employees, are determined as a percentage of each covered employees' salary.
Company contributions and costs associated with the plan were $148,000, $151,000
and $157,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
Substantially all of the Company's domestic employees are eligible to
participate in a 401(k) defined contribution plan (the "Plan"). Participation in
the Plan is at the discretion of each individual employee who is eligible to
participate. Each participating employee is permitted to contribute up to a
maximum amount defined in the Plan. The Company and its subsidiaries may make
periodic discretionary matching contributions to the Plan. The Company made
matching contributions of $41,000 during the year ended December 31, 1997. No
matching contributions were made to the plan during the years ended December 31,
1995 and 1996. The costs associated with administering the plan were not
significant for any period presented.
F-34
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 21 - RELATED PARTY TRANSACTIONS
The Company's transactions with related parties included in the consolidated
financial statements are summarized in the table below (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Senior Subordinated Lenders
Interest and advisory fees
Earned during the period......................................................... $ 912 $ 983 $ 358
Accrued and payable as of year end............................................... -- 43 --
Purchase of Convertible Notes, Preferred Stock and Redeemable Warrants in
conjunction with ADS acquisition................................................. -- 2,000 --
Fees and expenses earned........................................................... -- 36 --
Debt repaid with IPO proceeds
Senior subordinated debt......................................................... -- -- 7,000
Convertible Notes................................................................ -- -- 1,000
Investors
Purchases of debt and equity securities
Preferred Stock and Redeemable Warrants in conjunction with Minority Interest
acquisition.................................................................... -- 6,500 --
Convertible Notes, Preferred Stock and Redeemable Warrants in conjunction with
ADS acquisition................................................................ -- 4,000 --
Fees and expenses earned........................................................... -- 74 --
Convertible Notes
Interest earned during the period................................................ -- 86 98
Interest accrued and payable as of year end...................................... -- 86 --
Repaid with IPO proceeds......................................................... -- -- 2,000
</TABLE>
Each related party is described below:
Senior Subordinated Lenders - Own 8.9% of the Company's issued and
outstanding common stock at December 31, 1997, were represented on the Company's
Board of Directors in 1995 and 1996, and provided a portion of the Company's
Convertible Notes financing and the Subordinated Debt (Notes 10, 11, 14, 15 and
16). The ownership percentage reflects the cashless exercise and conversion of
all Preferred Stock, Preferred Stock warrants, common stock warrants and
Redeemable Warrants into 451,370 common shares in conjunction with the
Recapitalization (Note 2).
Investors - Own 16.4% of the Company's issued and outstanding common stock
at December 31, 1997, are represented on the Company's Board of Directors, and
provided a portion of the Company's Convertible Notes and Preferred Stock
financing (Notes 10, 14, 15 and 16). The ownership percentage reflects the
cashless exercise and conversion of all Preferred Stock and Redeemable Warrants
into 840,808 common shares in conjunction with the Recapitalization (Note 2).
F-35
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 21 - RELATED PARTY TRANSACTIONS (CONTINUED)
DLJ ACQUISITION (UNAUDITED)
In connection with the DLJ Acquisition, the Company and its affiliates
incurred fees payable to DLJ related entities of approximately $12.0 million. In
addition, subsequent to the DLJ Acquisition, the majority of the Company's
interest expense has been payable to DLJ related entities.
NOTE 22 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
In conjunction with the Notes, Bridge Notes and New Credit Facility
described in Note 1, the following summarized condensed consolidating financial
information is presented for the Company, segregating guarantor subsidiaries and
non-guarantor subsidiaries. The accompanying financial information in the
"Guarantor Subsidiaries" column reflects the financial position, results of
operations and cash flows for those subsidiaries which will guarantee the Notes,
Bridge Notes and New Credit Facility. The guarantor subsidiaries are
wholly-owned subsidiaries of the Company and the guarantees will be full,
unconditional, and joint and several. Separate financial statements of the
guarantor subsidiaries are not presented because management believes that such
financial statements would not be material to investors.
Investments in subsidiaries in the following condensed consolidating
financial information are accounted for under the equity method of accounting.
Consolidating adjustments include the following:
(1) Elimination of investments in subsidiaries.
(2) Elimination of intercompany accounts.
(3) Elimination of intercompany sales between guarantor and
non-guarantor subsidiaries.
(4) Elimination of equity in earnings of subsidiaries.
F-36
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 22 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
(CONTINUED)
BALANCE SHEETS (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 (PREDECESSOR)
-----------------------------------------------------------------------------------
DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED
HOLDINGS, INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
---------------- ------------ ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........ $ 37 $ 87 $ 196 $ -- $ 320
Accounts receivable, net......... -- 12,341 844 -- 13,185
Inventories...................... -- 18,434 1,139 -- 19,573
Other current assets............. 134 556 122 -- 812
------- ------------ ------------- -------------- ------------
Total current assets........... 171 31,418 2,301 -- 33,890
Property and equipment, net........ 104 10,454 1,629 -- 12,187
Other assets, principally
intangibles, net.................. 3,036 19,906 247 -- 23,189
Investments in subsidiaries........ 14,226 2,379 -- (16,605)(1) --
Intercompany receivables........... 35,664 394 3,109 (39,167)(2) --
------- ------------ ------------- -------------- ------------
$53,201 $64,551 $ 7,286 $(55,772) $69,266
------- ------------ ------------- -------------- ------------
------- ------------ ------------- -------------- ------------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Short-term obligations........... $ 3,102 $ 1,094 $ 782 $ -- $ 4,978
Convertible subordinated notes... 2,922 -- -- -- 2,922
Other current liabilities........ 3,366 10,225 1,913 -- 15,504
------- ------------ ------------- -------------- ------------
Total current liabilities...... 9,390 11,319 2,695 -- 23,404
------- ------------ ------------- -------------- ------------
Long-term liabilities
Long-term obligations............ 32,929 1,349 72 -- 34,350
Intercompany payables............ -- 38,773 394 (39,167)(2) --
Other long-term liabilities...... 2,888 85 424 -- 3,397
------- ------------ ------------- -------------- ------------
Total long-term liabilities.... 35,817 40,207 890 (39,167) 37,747
------- ------------ ------------- -------------- ------------
Mandatorily redeemable common stock
warrants.......................... 6,879 -- -- -- 6,879
------- ------------ ------------- -------------- ------------
Stockholders' equity
Paid-in capital.................. 14,066 12,622 1,194 (13,816)(1) 14,066
Retained earnings (deficit)...... (12,951) 403 2,386 (2,789)(1) (12,951)
Accumulated comprehensive
income......................... -- -- 121 -- 121
------- ------------ ------------- -------------- ------------
Total stockholders' equity..... 1,115 13,025 3,701 (16,605) 1,236
------- ------------ ------------- -------------- ------------
$53,201 $64,551 $ 7,286 $(55,772) $69,266
------- ------------ ------------- -------------- ------------
------- ------------ ------------- -------------- ------------
</TABLE>
F-37
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 22 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
(CONTINUED)
BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 (PREDECESSOR)
-----------------------------------------------------------------------------------
DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED
HOLDINGS, INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
---------------- ------------ ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........ $ 16 $ 109 $ 81 $ -- $ 206
Accounts receivable, net......... -- 17,101 1,051 -- 18,152
Inventories...................... -- 24,399 1,577 -- 25,976
Other current assets............. 98 505 179 -- 782
------- ------------ ------------- -------------- ------------
Total current assets........... 114 42,114 2,888 -- 45,116
Property and equipment, net........ 290 12,928 836 -- 14,054
Other assets, principally
intangibles, net.................. 472 39,257 238 -- 39,967
Investments in subsidiaries........ 20,414 3,378 -- (23,792)(1) --
Intercompany receivables........... 60,946 659 4,357 (65,962)(2) --
------- ------------ ------------- -------------- ------------
$82,236 $98,336 $ 8,319 $(89,754) $99,137
------- ------------ ------------- -------------- ------------
------- ------------ ------------- -------------- ------------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Short-term obligations........... $ 4 $ 801 $ 621 $ -- $ 1,426
Other current liabilities........ 4,333 12,780 1,805 -- 18,918
------- ------------ ------------- -------------- ------------
Total current liabilities...... 4,337 13,581 2,426 -- 20,344
------- ------------ ------------- -------------- ------------
Long-term liabilities
Long-term obligations............ 36,027 1,372 13 -- 37,412
Intercompany payable............. 873 64,430 659 (65,962)(2) --
Other long-term liabilities...... 1,333 96 425 -- 1,854
------- ------------ ------------- -------------- ------------
Total long-term liabilities.... 38,233 65,898 1,097 (65,962) 39,266
------- ------------ ------------- -------------- ------------
Stockholders' equity
Paid-in capital.................. 51,110 12,418 1,194 (13,612)(1) 51,110
Retained earnings (deficit)...... (11,444) 6,439 3,741 (10,180)(1) (11,444)
Accumulated comprehensive income
(loss)......................... -- -- (139) -- (139)
------- ------------ ------------- -------------- ------------
Total stockholder's equity..... 39,666 18,857 4,796 (23,792) 39,527
------- ------------ ------------- -------------- ------------
$82,236 $98,336 $ 8,319 $(89,754) $99,137
------- ------------ ------------- -------------- ------------
------- ------------ ------------- -------------- ------------
</TABLE>
F-38
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 22 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
(CONTINUED)
BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 (SUCCESSOR)
------------------------------------------------------------------------------------
DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED
HOLDINGS, INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
---------------- ------------ ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........ $ 3,067 $ 1,067 $ 133 $ -- $ 4,267
Accounts receivable, net......... -- 27,208 1,409 -- 28,617
Inventories...................... -- 35,320 2,023 -- 37,343
Other current assets............. 2,426 1,707 339 -- 4,472
-------- ------------ ------------- --------------- ------------
Total current assets........... 5,493 65,302 3,904 -- 74,699
Property and equipment, net........ 289 26,394 1,532 -- 28,215
Other assets, principally
intangibles, net.................. 9,524 206,977 13,885 -- 230,386
Investments in subsidiaries........ 240,961 18,501 -- (259,462)(1) --
Intercompany receivables........... 57,407 788 3,422 (61,617)(2) --
-------- ------------ ------------- --------------- ------------
$313,674 $317,962 $22,743 $(321,079) $333,300
-------- ------------ ------------- --------------- ------------
-------- ------------ ------------- --------------- ------------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Short-term obligations........... $ 455 $ 789 $ 103 $ -- $ 1,347
Other current liabilities........ 8,379 17,011 1,279 -- 26,669
-------- ------------ ------------- --------------- ------------
Total current liabilities...... 8,834 17,800 1,382 -- 28,016
-------- ------------ ------------- --------------- ------------
Long-term liabilities
Long-term obligations............ 183,373 173 -- -- 183,546
Intercompany payables............ 873 59,956 788 (61,617)(2) --
Other long-term liabilities...... 22,370 532 474 -- 23,376
-------- ------------ ------------- --------------- ------------
Total long-term liabilities.... 206,616 60,661 1,262 (61,617) 206,922
-------- ------------ ------------- --------------- ------------
Stockholders' equity
Paid-in capital.................. 99,000 213,335 15,890 (229,225)(1) 99,000
Retained earnings (deficit)...... (776) 26,166 4,071 (30,237)(1) (776)
Accumulated comprehensive income
(loss)......................... -- -- 138 -- 138
-------- ------------ ------------- --------------- ------------
Total stockholders' equity..... 98,224 239,501 20,099 (259,462) 98,362
-------- ------------ ------------- --------------- ------------
$313,674 $317,962 $22,743 $(321,079) $333,300
-------- ------------ ------------- --------------- ------------
-------- ------------ ------------- --------------- ------------
</TABLE>
F-39
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 22 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
(CONTINUED)
STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1995 (PREDECESSOR)
------------------------------------------------------------------------------------
DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED
HOLDINGS, INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
---------------- ------------ ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues........................... $-- $52,685 $10,283 $(7,129)(3) $55,839
Cost of sales...................... -- 42,284 8,308 (7,129)(3) 43,463
------- ------------ ------------- ------- -------------
Gross profit..................... -- 10,401 1,975 -- 12,376
Selling, general and administrative
expenses.......................... 1,431 7,083 912 -- 9,426
Amortization of intangible
assets............................ -- 1,101 14 -- 1,115
Interest expense................... 3,659 31 131 -- 3,821
Intercompany charges............... (783) 583 200 -- --
Equity in earnings of
subsidiaries...................... (1,347) (149) -- 1,496(4) --
Other expenses..................... 1 176 205 -- 382
Provision for income taxes......... 485 576 17 -- 1,078
------- ------------ ------------- ------- -------------
Net income (loss).................. $(3,446) $ 1,000 $ 496 $(1,496) $(3,446)
------- ------------ ------------- ------- -------------
------- ------------ ------------- ------- -------------
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1996 (PREDECESSOR)
-----------------------------------------------------------------------------------
DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED
HOLDINGS, INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
---------------- ------------ ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues........................... $-- $61,835 $11,934 $ (8,670)(3) $65,099
Cost of sales...................... -- 48,542 9,520 (8,670)(3) 49,392
------- ------------ ------------- -------------- ------------
Gross profit..................... -- 13,293 2,414 -- 15,707
Selling, general and administrative
expenses.......................... 2,461 7,240 1,046 -- 10,747
Amortization of intangible
assets............................ -- 695 14 -- 709
Interest expense................... 4,032 129 87 -- 4,248
Intercompany charges............... (2,182) 2,002 180 -- --
Equity in earnings of
subsidiaries...................... (2,820) (594) -- 3,414(4) --
Other expenses (income)............ (3) 204 (93) -- 108
Provisions for income taxes........ (671) 1,225 158 -- 712
------- ------------ ------------- -------------- ------------
Net income (loss).................. $ (817) $ 2,392 $ 1,022 $ (3,414) $ (817)
------- ------------ ------------- -------------- ------------
------- ------------ ------------- -------------- ------------
</TABLE>
F-40
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 22 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
(CONTINUED)
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1997 (PREDECESSOR)
------------------------------------------------------------------------------------
DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED
HOLDINGS, INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
---------------- ------------ ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues........................... $-- $106,154 $13,128 $(10,379)(3) $108,903
Cost of sales...................... -- 81,115 9,511 (10,379)(3) 80,247
------- ------------ ------------- -------------- -------------
Gross profit..................... -- 25,039 3,617 -- 28,656
Selling, general and administrative
expenses.......................... 3,646 10,720 1,390 -- 15,756
Amortization of intangible
assets............................ -- 892 13 -- 905
Interest expense................... 2,888 220 46 -- 3,154
Intercompany charges............... (4,617) 4,432 185 -- --
Equity in earnings of
subsidiaries...................... (6,392) (999) -- 7,391(4) --
Other expenses..................... -- 161 82 -- 243
Provision (benefit) for income
taxes............................. (779) 3,678 445 -- 3,344
Extraordinary charge, net of tax... 2,078 -- -- -- 2,078
------- ------------ ------------- -------------- -------------
Net income......................... $ 3,176 $ 5,935 $ 1,456 $ (7,391) $ 3,176
------- ------------ ------------- -------------- -------------
------- ------------ ------------- -------------- -------------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 (PREDECESSOR)
------------------------------------------------------------------------------------
DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED
HOLDINGS, INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
---------------- ------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues........................... $-- $78,916 $9,366 $(7,395)(3) $80,887
Cost of sales...................... -- 61,290 6,769 (7,395)(3) 60,664
------- ------------- ------ ------- ------------
Gross profit..................... -- 17,626 2,597 -- 20,223
Selling, general and administrative
expenses.......................... 2,625 7,383 1,004 -- 11,012
Amortization of intangible
assets............................ -- 608 8 -- 616
Interest expense................... 2,389 167 42 -- 2,598
Intercompany charges............... (3,246) 3,102 144 -- --
Equity in earnings of
subsidiaries...................... (4,319) (932) -- 5,251(4) --
Other expenses (income)............ 100 77 65 -- 242
Provision (benefit) for income
taxes............................. (1,113) 2,902 402 -- 2,191
Extraordinary charge, net of tax... 2,078 -- -- -- 2,078
------- ------------- ------ ------- ------------
Net income......................... $ 1,486 $ 4,319 $ 932 $(5,251) $ 1,486
------- ------------- ------ ------- ------------
------- ------------- ------ ------- ------------
</TABLE>
F-41
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 22 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
(CONTINUED)
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED AUGUST 31, 1998 (PREDECESSOR)
------------------------------------------------------------------------------------
DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED
HOLDINGS, INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
---------------- ------------ ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues........................... $-- $87,312 $ 8,503 $(5,738)(3) $90,077
Cost of sales...................... -- 59,252 6,587 (5,738)(3) 60,101
------- ------------ ------------- ------- -------------
Gross profit..................... -- 28,060 1,916 -- 29,976
Selling, general and administrative
expenses.......................... 3,949 11,041 729 -- 15,719
Nonrecurring charges............... 3,632 -- -- -- 3,632
Amortization of intangible
assets............................ -- 1,337 10 -- 1,347
Interest expense (income).......... 2,343 7 -- -- 2,350
Intercompany charges............... (4,357) 4,229 128 -- --
Equity in earnings of
subsidiaries...................... (6,824) (489) -- 7,313(4) --
Other expenses (income)............ 600 (164) 411 -- 847
Provision (benefit) for income
taxes............................. (2,532) 5,275 149 -- 2,892
------- ------------ ------------- ------- -------------
Net income......................... $ 3,189 $ 6,824 $ 489 $(7,313) $ 3,189
------- ------------ ------------- ------- -------------
------- ------------ ------------- ------- -------------
</TABLE>
<TABLE>
<CAPTION>
ONE MONTH ENDED SEPTEMBER 30, 1998 (SUCCESSOR)
------------------------------------------------------------------------------------
DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED
HOLDINGS, INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
---------------- ------------ ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues........................... $-- $15,659 $ 1,096 $ (743)(3) $16,012
Cost of sales...................... -- 10,975 848 (743)(3) 11,080
------- ------------ ------------- ------- -------------
Gross profit....................... -- 4,684 248 -- 4,932
Selling, general and administrative
expenses.......................... 359 2,714 97 -- 3,170
Nonrecurring charges............... -- -- -- -- --
Amortization of intangible
assets............................ 9 749 44 -- 802
Interest expense (income).......... 1,701 64 -- -- 1,765
Intercompany charges............... (576) 559 17 -- --
Equity in earnings of
subsidiaries...................... (2) 62 -- (60)(4) --
Other expenses (income)............ -- (7) 188 -- 181
Provision for income taxes
(benefit)......................... (1,011) 541 (36) -- (506)
Extraordinary charge, net of tax... 296 -- -- -- 296
------- ------------ ------------- ------- -------------
Net income (loss).................. $ (776) $ 2 $ (62) $ 60 $ (776)
------- ------------ ------------- ------- -------------
------- ------------ ------------- ------- -------------
</TABLE>
F-42
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 22 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
(CONTINUED)
STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1995 (PREDECESSOR)
---------------------------------------------------------------------
DECRANE
AIRCRAFT
HOLDINGS, GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED
INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
------------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net income (loss).............. $ (3,446) $ 1,000 $ 496 $ (1,496) $ (3,446)
Adjustments to net income
(loss)
Non-cash adjustments to net
income (loss).............. 1,891 2,766 822 -- 5,479
Equity in earnings of
subsidiaries............... (1,347) (149) -- 1,496(4) --
Changes in working capital... 2,860 (2,650) (786) -- (576)
------------- ----------- ----- ----------- -----------
Net cash provided by (used
for) operating
activities............... (42) 967 532 -- 1,457
------------- ----------- ----- ----------- -----------
Cash flows from investing
activities
Capital expenditures and
other........................ (309) (786) (367) -- (1,462)
------------- ----------- ----- ----------- -----------
Net cash used for investing
activities............... (309) (786) (367) -- (1,462)
------------- ----------- ----- ----------- -----------
Cash flows from financing
activities
Principal payments on long-term
debt and leases.............. (1,500) (105) (60) -- (1,665)
Line of credit borrowings
(repayments)................. 2,022 -- (50) -- 1,972
Other, net..................... (199) (67) -- -- (266)
------------- ----------- ----- ----------- -----------
Net cash provided by (used
for) financing
activities............... 323 (172) (110) -- 41
------------- ----------- ----- ----------- -----------
Effect of foreign currency
translation on cash............ -- -- 33 -- 33
------------- ----------- ----- ----------- -----------
Net increase (decrease) in cash
and equivalents................ (28) 9 88 -- 69
Cash and equivalents at beginning
of period...................... 44 8 184 -- 236
------------- ----------- ----- ----------- -----------
Cash and equivalents at end of
period......................... $ 16 $ 17 $ 272 $ -- $ 305
------------- ----------- ----- ----------- -----------
------------- ----------- ----- ----------- -----------
</TABLE>
F-43
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 22 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
(CONTINUED)
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1996 (PREDECESSOR)
-------------------------------------------------------------------
DECRANE
AIRCRAFT
HOLDINGS, GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED
INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net income (loss).............. $ (817) $ 2,392 $ 1,022 $ (3,414) $ (817)
Adjustments to net income
(loss)
Non-cash adjustments to net
income (loss).............. 1,093 2,623 903 -- 4,619
Equity in earnings of
subsidiaries............... (2,820) (594) -- 3,414(4) --
Changes in working capital... (864) 1,525 (1,505) -- (844)
------------- ----------- ------------- ----------- -----------
Net cash provided by (used
for) operating
activities............... (3,408) 5,946 420 -- 2,958
------------- ----------- ------------- ----------- -----------
Cash flows from investing
activities
Acquisition of companies, net
of cash acquired............. (18,200) -- -- -- (18,200)
Capital expenditures and
other........................ (97) (5,353) (366) -- (5,816)
------------- ----------- ------------- ----------- -----------
Net cash used for investing
activities............... (18,297) (5,353) (366) -- (24,016)
------------- ----------- ------------- ----------- -----------
Cash flows from financing
activities
Net proceeds from sale of
equity....................... 8,240 -- -- -- 8,240
Debt financing for
acquisitions................. 13,548 -- -- -- 13,548
Principal payments on long-term
debt and leases.............. (1,500) (438) (63) -- (2,001)
Line of credit borrowings
(repayments)................. 1,280 -- (89) -- 1,191
Other, net..................... 158 (85) -- -- 73
------------- ----------- ------------- ----------- -----------
Net cash provided by (used
for) financing
activities............... 21,726 (523) (152) -- 21,051
------------- ----------- ------------- ----------- -----------
Effect of foreign currency
translation on cash............ -- -- 22 -- 22
------------- ----------- ------------- ----------- -----------
Net increase (decrease) in cash
and equivalents................ 21 70 (76) -- 15
Cash and equivalents at beginning
of period...................... 16 17 272 -- 305
------------- ----------- ------------- ----------- -----------
Cash and equivalents at end of
period......................... $ 37 $ 87 $ 196 $ -- $ 320
------------- ----------- ------------- ----------- -----------
------------- ----------- ------------- ----------- -----------
</TABLE>
F-44
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 22 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
(CONTINUED)
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1997 (PREDECESSOR)
-------------------------------------------------------------------
DECRANE
AIRCRAFT
HOLDINGS, GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED
INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net income..................... $ 3,176 $ 5,935 $ 1,456 $ (7,391) $ 3,176
Adjustments to net income
Non-cash adjustments to net
income..................... 1,307 4,687 829 -- 6,823
Equity in earnings of
subsidiaries............... (6,392) (999) -- 7,391(4) --
Changes in working capital... 1,374 (4,530) (2,202) -- (5,358)
------------- ----------- ------------- ----------- -----------
Net cash provided by (used
for) operating
activities............... (535) 5,093 83 -- 4,641
------------- ----------- ------------- ----------- -----------
Cash flows from investing
activities
Acquisition of companies, net
of cash acquired............. (23,597) -- -- -- (23,597)
Capital expenditures and
other........................ (244) (3,823) (145) -- (4,212)
------------- ----------- ------------- ----------- -----------
Net cash used for investing
activities............... (23,841) (3,823) (145) -- (27,809)
------------- ----------- ------------- ----------- -----------
Cash flows from financing
activities
Net proceeds from sale of
equity....................... 28,933 -- -- -- 28,933
Net debt repaid with equity
offering proceeds............ (29,848) -- -- -- (29,848)
Debt financing for
acquisitions................. 23,597 -- -- -- 23,597
Principal payments on long-term
debt and leases.............. (474) (1,147) (54) -- (1,675)
Line of credit borrowings
(repayments)................. 1,907 -- (96) -- 1,811
Other, net..................... 240 (101) -- -- 139
------------- ----------- ------------- ----------- -----------
Net cash provided by (used
for) financing
activities............... 24,355 (1,248) (150) -- 22,957
------------- ----------- ------------- ----------- -----------
Effect of foreign currency
translation on cash............ -- -- 97 -- 97
------------- ----------- ------------- ----------- -----------
Net increase (decrease) in cash
and equivalents................ (21) 22 (115) -- (114)
Cash and equivalents at beginning
of period...................... 37 87 196 -- 320
------------- ----------- ------------- ----------- -----------
Cash and equivalents at end of
period......................... $ 16 $ 109 $ 81 $ -- $ 206
------------- ----------- ------------- ----------- -----------
------------- ----------- ------------- ----------- -----------
</TABLE>
F-45
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 22 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
(CONTINUED)
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 (PREDECESSOR)
-------------------------------------------------------------------
DECRANE
AIRCRAFT
HOLDINGS, GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED
INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net income..................... $ 1,486 $ 4,319 $ 932 $ (5,251) $ 1,486
Adjustments to net income
Non-cash adjustments to net
income..................... 3,094 2,890 604 -- 6,588
Equity in earnings of
subsidiaries............... (4,319) (932) -- 5,251(4) --
Changes in working capital... 82 (2,744) (1,462) -- (4,124)
------------- ----------- ------------- ----------- -----------
Net cash provided by
operating activities..... 343 3,533 74 -- 3,950
------------- ----------- ------------- ----------- -----------
Cash flows from investing
activities
Capital expenditures and
other........................ (224) (2,551) (67) -- (2,842)
------------- ----------- ------------- ----------- -----------
Net cash used for investing
activities............... (224) (2,551) (67) -- (2,842)
------------- ----------- ------------- ----------- -----------
Cash flows from financing
activities
Net proceeds from sale of
equity....................... 28,770 -- -- -- 28,770
Net debt repaid with equity
offering proceeds............ (29,385) -- -- -- (29,385)
Principal payments on long-term
debt and leases.............. (474) (842) (40) -- (1,356)
Line of credit borrowings...... 1,254 -- 38 -- 1,292
Other, net..................... (266) (101) -- -- (367)
------------- ----------- ------------- ----------- -----------
Net cash used for financing
activities............... (101) (943) (2) -- (1,046)
------------- ----------- ------------- ----------- -----------
Effect of foreign currency
translation on cash............ -- -- (43) -- (43)
------------- ----------- ------------- ----------- -----------
Net increase (decrease) in cash
and equivalents................ 18 39 (38) -- 19
Cash and equivalents at beginning
of period...................... 37 87 196 -- 320
------------- ----------- ------------- ----------- -----------
Cash and equivalents at end of
period......................... $ 55 $ 126 $ 158 $ -- $ 339
------------- ----------- ------------- ----------- -----------
------------- ----------- ------------- ----------- -----------
</TABLE>
F-46
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 22 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
(CONTINUED)
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED AUGUST 31, 1998 (PREDECESSOR)
---------------------------------------------------------------------
DECRANE
AIRCRAFT
HOLDINGS, GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED
INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
------------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net income..................... $ 3,189 $ 6,824 $ 489 $ (7,313) $ 3,189
Adjustments to net income
Non-cash adjustments to net
income..................... (1,130) 3,420 557 -- 2,847
Equity in earnings of
subsidiaries............... (6,824) (489) -- 7,313(4) --
Changes in working capital... 4,400 (7,393) (29) -- (3,022)
------------- ----------- ----- ----------- -----------
Net cash provided by (used
for) operating
activities............... (365) 2,362 1,017 -- 3,014
------------- ----------- ----- ----------- -----------
Cash flows from investing
activities
Acquisition of companies, net
of cash acquired............. (87,071) 1,263 -- -- (85,808)
Capital expenditures and
other........................ (44) (1,306) (220) -- (1,570)
------------- ----------- ----- ----------- -----------
Net cash used for investing
activities............... (87,115) (43) (220) -- (87,378)
------------- ----------- ----- ----------- -----------
Cash flows from financing
activities
Net proceeds from sale of
equity....................... 34,815 -- -- -- 34,815
Net debt repaid with equity
offering proceeds............ (34,815) -- -- -- (34,815)
Debt financing for
acquisitions................. 85,808 -- -- -- 85,808
Principal payments on long-term
debt and leases.............. (3) (1,280) (34) -- (1,317)
Line of credit borrowings
(repayments)................. 6,007 -- (554) -- 5,453
Other, net..................... 23 (96) -- -- (73)
------------- ----------- ----- ----------- -----------
Net cash provided by (used
for) financing
activities............... 91,835 (1,376) (588) -- 89,871
------------- ----------- ----- ----------- -----------
Effect of foreign currency
translation on cash............ -- -- 26 -- 26
------------- ----------- ----- ----------- -----------
Net increase in cash and
equivalents.................... 4,355 943 235 -- 5,533
Cash and equivalents at beginning
of period...................... 16 109 81 -- 206
------------- ----------- ----- ----------- -----------
Cash and equivalents at end of
period......................... 4,371 $ 1,052 $ 316 $ -- $ 5,739
------------- ----------- ----- ----------- -----------
------------- ----------- ----- ----------- -----------
</TABLE>
F-47
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 22 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
ONE MONTH ENDED SEPTEMBER 30, 1998 (SUCCESSOR)
-----------------------------------------------------------------------
DECRANE
AIRCRAFT
HOLDINGS, GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED
INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
------------- ----------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net income..................... $ (776) $ 2 $ (62) $ 60 $ (776)
Adjustments to net income
Non-cash adjustments to net
income..................... (342) 1,020 62 -- 740
Equity in earnings of
subsidiaries............... (2) 62 -- (60)(4) --
Changes in working capital... (589) (711) (170) -- (1,470)
------------- ----------- ----- ----- -----------
Net cash provided by (used
for) operating
activities............... (1,709) 373 (170) -- (1,506)
------------- ----------- ----- ----- -----------
Cash flows from investing
activities
Capital expenditures and
other........................ -- (240) (67) -- (307)
------------- ----------- ----- ----- -----------
Net cash used for investing
activities............... -- (240) (67) -- (307)
------------- ----------- ----- ----- -----------
Cash flows from financing
activities
Acquisition of Predecessor,
net.......................... 2,006 -- -- -- 2,006
Principal payments on long-term
debt and leases.............. (1) (118) (10) -- (129)
Line of credit borrowings
(repayments)................. (1,600) -- 81 -- (1,519)
------------- ----------- ----- ----- -----------
Net cash provided by (used
for) financing
activities............... 405 (118) 71 -- 358
------------- ----------- ----- ----- -----------
Effect of foreign currency
translation on cash............ -- -- (17) -- (17)
------------- ----------- ----- ----- -----------
Net increase (decrease) in cash
and equivalents................ (1,304) 15 (183) -- (1,472)
Cash and equivalents at beginning
of period...................... 4,371 1,052 316 -- 5,739
------------- ----------- ----- ----- -----------
Cash and equivalents at end of
period......................... $ 3,067 $ 1,067 $ 133 $ -- $ 4,267
------------- ----------- ----- ----- -----------
------------- ----------- ----- ----- -----------
</TABLE>
NOTE 23 - LITIGATION (UNAUDITED)
On July 21, 1998, TAAM Associates, Inc. commenced an action in Delaware
Chancery Court on behalf of a purported class of stockholders of the Company
against the Company, its directors, Donaldson, Lufkin & Jenrette, Inc. and
certain of its affiliates ("DLJ"), alleging, among other things, that the
directors had breached their fiduciary duties by entering into the merger
agreement related to the DLJ Acquisition without engaging in an auction or
"active market check" and, therefore, agreed to terms that were unfair
F-48
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 23 - LITIGATION (UNAUDITED) (CONTINUED)
and inadequate from the standpoint of the Company's stockholders. On July 24,
1998, the plaintiffs amended the complaint by repeating the allegations in the
initial complaint and adding allegations that: (i) the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 (the "14D-9") contained
material misstatements or omissions; (ii) the termination fees were
unreasonable; and (iii) the directors who approved the DLJ Acquisition had
conflicts of interest. The complaint sought a preliminary and permanent
injunction barring defendants from proceeding with the transaction or, if the
transaction is consummated, an order rescinding it or awarding damages, together
with interest, and an award of attorneys' fees and litigation expenses. Without
admitting any wrongdoing in the action, in order to avoid the burden and expense
of further litigation, the Company, DLJ, and the individual defendants reached
an agreement in principle with the plaintiffs which contemplates settlement of
the action. The Company, DLJ and the individual defendants and the plaintiffs
entered into a memorandum of understanding (the "Memorandum of Understanding"),
pursuant to which the parties would, subject to certain facts being confirmed
through discovery which has not been completed, enter into a settlement
agreement which would be subject to approval by the Court of Chancery. The
Memorandum of Understanding required the Company to provide additional
disclosures in an amendment to the 14D-9 which has occurred, and for a complete
release and settlement of all claims, whether asserted directly, derivatively or
otherwise, against defendants, or any of their affiliates, directors, officers,
employees or agents arising out of the facts set forth in the complaint. The
Memorandum of Understanding contemplates that, in connection with the benefit
conferred, plaintiffs' counsel will apply to the Court of Chancery for an award
of attorney's fees and litigation expenses in an amount not exceeding $375,000,
which application, the defendants have agreed not to oppose.
On August 5, 1998, the Company and its chief executive officer were served
in an action filed in state court in California by the Company's chief financial
officer and secretary claiming that he is due additional compensation in the
form of stock options, and claiming fraud, negligent misrepresentation and
breach of contract in connection therewith. On September 22, 1998, the plaintiff
amended the compliant by repeating the allegations in the initial compliant and
adding allegations of fraudulent misrepresentation in violation of certain
provisions of the California Labor Code (for which doubled damages are sought),
promissory estoppel, and wrongful discharge as a violation of public policy (as
a result of allegations made by the plaintiff of improprieties in connection
with the fairness opinion with respect to the DLJ Acquisition). The action seeks
not less than $1.5 million plus punitive damages and costs. The action is in its
early stage of development and discovery has not been completed. The Company
intends to vigorously defend against such claim. The plaintiff's employment with
the Company has been terminated.
The Canadian Transportation Safety Board ("TSB") has notified the Company
that as part of its investigation of the crash of Swissair Flight 111 on
September 2, 1998, the TSB has found burned wire which was attached to the
in-flight entertainment system installed on certain Swissair aircraft by a
subsidiary of the Company. The TSB has advised the Company that it does not have
evidence that the system the Company installed malfunctioned or failed during
the flight. The Company has been requested by attorneys for families of persons
who died aboard the flight to put its insurance carrier on notice of a potential
claim by such families.
F-49
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND THE
ONE MONTH ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 23 - LITIGATION (UNAUDITED) (CONTINUED)
The Company and two of its subsidiaries have confirmed that they are
indemnified for any liability in the action filed by American International
Airways, Inc. referenced in Note 17; and for the further cost of defense of the
action. The third defendant subsidiary is being defended by its insurance
carrier and intends to deny any liability.
NOTE 24 - SUBSEQUENT EVENTS (UNAUDITED)
On October 5, 1998 (subsequent to the DLJ Acquisition and financing), the
Bridge Notes were repaid with the net proceeds from the Units offering. Each
Unit consists of $1,000 principal amount of the Notes and one warrant
(collectively, the "Warrants") to purchase 1.55 shares of Common Stock, par
value $0.01 per share ("Holdings Common Stock") of DeCrane Holdings Co. The
Notes will mature on September 30, 2008. Interest on the Notes will be payable
semi-annually on March 30 and September 30 of each year, commencing on March 30,
1999. The Notes are unsecured general obligations of the Company and will be
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company, including indebtedness pursuant to the New Credit Facility. Each
Warrant entitles the holder thereof, subject to certain conditions, to purchase
1.55 shares of Holdings Common Stock at an exercise price of $23.00 per share of
Holdings Common Stock, subject to adjustment under certain circumstances. The
Warrants will be exercisable at any time on or after the Separation Date and,
unless earlier exercised, will expire on September 30, 2008.
In December 1998, the Company signed an agreement with certain of the
principal shareholders of PATS, Inc. to acquire 100% of its stock for a purchase
price of $41.5 million, subject to adjustments for changes to its net working
capital, and reserves for certain environmental and other indemnities made by
the shareholders. However, our obligation to complete the purchase is subject to
the resolution of various conditions, which may or may not be satisfied. PATS is
a Maryland-based designer, manufacturer and installer of aircraft and avionics
systems. Among other things, PATS is the principal supplier of auxiliary fuel
tank systems to the Boeing Business Jet program. The transaction, if completed,
will be accounted for as a purchase and the difference between the purchase
price and the fair value of the net assets acquired will be recorded as goodwill
and amortized on a straight-line basis over thirty years.
F-50
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
DeCrane Holdings Co.
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of DeCrane Holdings Co. at August 27,
1998 in conformity with generally accepted accounting principles. This financial
statement is the responsibility of the Company's management; our responsibility
is to express an opinion on this financial statement based on our audit. We
conducted our audit of this statement in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
December 21, 1998
F-51
<PAGE>
DECRANE HOLDINGS CO.
BALANCE SHEET
AUGUST 27, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Total assets.............................................................................................. $ --
---
---
LIABILITIES AND EQUITY
Total liabilities......................................................................................... $ --
Preferred stock; $.01 par value; 2,500,000 shares authorized, no shares issued............................ --
Common stock; $.01 par value; 3,500,000 shares authorized, no shares issued............................... --
---
Total Liabilities and Equity.............................................................................. $ --
---
---
</TABLE>
See notes to balance sheet.
F-52
<PAGE>
DECRANE HOLDINGS CO.
NOTES TO BALANCE SHEET
NOTE 1--FORMATION
In July 1998, DeCrane Holdings Co. ("DeCrane Holdings") was incorporated as
a Delaware corporation. From inception through August 27, 1998, DeCrane Holdings
had no operations or cash flows.
NOTE 2--SUBSEQUENT EVENT--THE DLJ ACQUISITION
On August 28, 1998, DeCrane Holdings and two other holding companies
organized by DLJ Merchant Banking Partners II, L.P. ("DLJMB") and affiliated
funds and entities (the "DLJMB Funds") completed a successful tender offer for
all shares of DeCrane Aircraft Holdings, Inc. ("DeCrane Aircraft") common stock
(including options to purchase shares) for $23.00 per share, net to the seller,
for a total price of approximately $186.3 million (the "DLJ Acquisition"). At
the completion of the tender offer, the two other holding companies merged with
DeCrane Aircraft. As a result, DeCrane Aircraft became a wholly-owned subsidiary
of DeCrane Holdings.
DeCrane Holdings raised a portion of the funds for the tender offer and
related expenses by selling all of the shares of its common stock for $65.0
million and shares of its Senior Redeemable Exchangeable Preferred Stock due
2009 ("DeCrane Holdings Preferred") for $34.0 million to the DLJMB Funds.
DeCrane Holdings also issued to the DLJMB Funds warrants to acquire an
additional 5% of its common stock on a fully diluted basis (assuming exercise of
all of the warrants).
F-53
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Avtech Corporation
In our opinion, the accompanying balance sheets and the related statements
of income, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Avtech Corporation at September 30,
1996 and 1997 and the results of its operations and its cash flows for each of
the three years in the period ended September 30, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
June 12, 1998
F-54
<PAGE>
AVTECH CORPORATION
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1996 1997 JUNE 25, 1998
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents....................... $ 1,052 $ 4,136 $ 1,093
Accounts receivable, net of allowance for
doubtful accounts of $20, $20 and $20 at
September 30, 1996 and 1997 and June 25, 1998,
respectively.................................. 7,398 4,928 5,321
Inventories..................................... 4,233 5,254 5,832
Prepaid expenses and other assets............... 69 183 57
Income taxes refundable......................... -- -- 4,368
Deferred income taxes........................... -- 247 1,613
------- ------- -------------
Total current assets.......................... 12,752 14,748 18,284
------- ------- -------------
Property, plant and equipment
Land............................................ 431 791 791
Buildings and improvements...................... 2,411 4,685 5,176
Machinery and equipment......................... 2,764 3,005 3,477
Furniture, computer and other equipment......... 3,216 3,426 3,555
------- ------- -------------
8,822 11,907 12,999
Less: Accumulated depreciation.................. (6,523) (7,050) (7,380)
------- ------- -------------
2,299 4,857 5,619
Other assets
Patents, net of amortization.................... 5 4 4
Deferred income taxes........................... -- 629 3,239
------- ------- -------------
Total assets.................................. $15,056 $20,238 $ 27,146
------- ------- -------------
------- ------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................................ $ 768 $ 1,388 $ 1,396
Accrued expenses................................ 2,120 4,043 1,955
Deferred income taxes........................... 389 -- --
------- ------- -------------
Total current liabilities..................... 3,277 5,431 3,351
------- ------- -------------
Long-term liabilities
Deferred compensation........................... 1,229 1,385 --
Other........................................... 438 472 472
------- ------- -------------
1,667 1,857 472
------- ------- -------------
Commitments and contingencies (Note 8)............ -- -- --
------- ------- -------------
Stockholders' equity
Common stock, no par value, 1,500,000 shares
authorized; 323,541, 318,929 and 468,929
shares outstanding at September 30, 1996 and
1997 and June 25, 1998, respectively.......... 237 232 10,519
Retained earnings............................... 9,875 12,718 12,804
------- ------- -------------
10,112 12,950 23,323
------- ------- -------------
$15,056 $20,238 $ 27,146
------- ------- -------------
------- ------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE>
AVTECH CORPORATION
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, --------------------
------------------------------- JUNE 30, JUNE 25,
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales...................................................... $ 21,020 $ 28,797 $ 32,619 $ 24,071 $ 30,634
Cost of sales.............................................. 12,333 15,967 20,422 14,667 19,643
--------- --------- --------- --------- ---------
Gross profit........................................... 8,687 12,830 12,197 9,404 10,991
--------- --------- --------- --------- ---------
Operating expenses
General and administrative............................... 1,991 1,992 2,758 1,915 2,448
Selling expenses......................................... 1,257 1,559 1,295 880 1,180
Research, development and engineering.................... 2,853 2,697 2,707 2,040 2,013
Employee stock ownership plan............................ 1,200 1,000 1,200 900 600
Nonrecurring bonus and employment contract termination
expenses............................................... -- -- -- -- 3,592
--------- --------- --------- --------- ---------
7,301 7,248 7,960 5,735 9,833
--------- --------- --------- --------- ---------
Income from operations..................................... 1,386 5,582 4,237 3,669 1,158
--------- --------- --------- --------- ---------
Other income (expense)
Interest expense......................................... (8) (8) (6) -- --
Gain on disposal of equipment............................ -- 14 -- -- --
Interest income.......................................... 46 30 269 197 169
Rental income, net....................................... -- -- 32 -- 62
Stockholder transaction expenses......................... -- -- -- -- (1,229)
--------- --------- --------- --------- ---------
38 36 295 197 (998)
--------- --------- --------- --------- ---------
Income before provision for federal income tax............. 1,424 5,618 4,532 3,866 160
Provision for federal income tax........................... 493 1,934 1,518 1,352 74
--------- --------- --------- --------- ---------
Net income................................................. $ 931 $ 3,684 $ 3,014 $ 2,514 $ 86
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<PAGE>
AVTECH CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
STATED
NUMBER OF VALUE OF
SHARES COMMON RETAINED
OUTSTANDING STOCK EARNINGS
----------- --------- ---------
<S> <C> <C> <C>
Balance at September 30, 1994.................................................. 323,541 $ 237 $ 5,260
Net income..................................................................... -- -- 931
----------- --------- ---------
Balance at September 30, 1995.................................................. 323,541 237 6,191
Net income..................................................................... -- -- 3,684
----------- --------- ---------
Balance at September 30, 1996.................................................. 323,541 237 9,875
Stock redemption............................................................... (4,612) (5) (171)
Net income..................................................................... -- -- 3,014
----------- --------- ---------
Balance at September 30, 1997.................................................. 318,929 232 12,718
Exercise of stock options (Unaudited).......................................... 150,000 2,683 --
Tax benefit of stock options exercised (Unaudited)............................. -- 7,604 --
Net income (Unaudited)......................................................... -- -- 86
----------- --------- ---------
Balance at June 25, 1998 (Unaudited)........................................... 468,929 $ 10,519 $ 12,804
----------- --------- ---------
----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE>
AVTECH CORPORATION
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, --------------------
------------------------------- JUNE 30, JUNE 25,
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income................................................ $ 931 $ 3,684 $ 3,014 $ 2,514 $ 86
Adjustments to reconcile net income
to net cash provided by (used in) operating
activities
Depreciation and amortization........................... 587 582 528 363 405
Gain on sale of property and equipment.................. -- (14) -- -- --
Deferred income tax provision........................... 54 947 (1,265) (1,150) 334
Changes in assets and liabilities:
Accounts receivable................................... (1,797) (2,990) 2,470 2,899 (393)
Inventories........................................... (1,504) 198 (1,021) (1,216) (578)
Prepaid and other current assets...................... 63 (20) (114) (86) 126
Accounts payable...................................... 400 (152) 620 678 8
Accrued expenses...................................... 1,620 (872) 2,153 1,209 (2,977)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities.................................. 354 1,363 6,385 5,211 (2,989)
--------- --------- --------- --------- ---------
Cash flows from investing activities
Purchases of property and equipment....................... (735) (509) (3,085) (370) (1,167)
Proceeds from sale of assets.............................. -- 15 -- -- --
--------- --------- --------- --------- ---------
Net cash used in investing activities................... (735) (494) (3,085) (370) (1,167)
--------- --------- --------- --------- ---------
Cash flows from financing activities
Exercise of stock options................................. -- -- -- -- 1,143
Stock redemption.......................................... -- -- (176) (176) --
Capital lease obligations................................. (36) (36) (40) (27) (30)
--------- --------- --------- --------- ---------
Net cash used in
financing activities.................................. (36) (36) (216) (203) 1,113
--------- --------- --------- --------- ---------
Net (decrease) increase in cash and
equivalents............................................... (417) 833 3,084 4,638 (3,043)
Cash and equivalents at beginning
of the period............................................. 636 219 1,052 1,052 4,136
--------- --------- --------- --------- ---------
Cash and equivalents at end of
the period................................................ $ 219 $ 1,052 $ 4,136 $ 5,690 $ 1,093
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE>
AVTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE COMPANY
Avtech Corporation (the "Company") is a custom design and manufacturing firm
established in 1963 to produce high-quality equipment for the aircraft industry.
In 1970, the Company began to produce engineered products and has since focused
its engineering and product development efforts on responding to specifications
from original equipment aircraft manufacturers (OEMs). The Company's products
fall into five main categories:
1. Aircraft communication control equipment (including audio control units,
multiplexed audio systems and audio amplifiers).
2. Aircraft lighting controls (including ballasts, dimmers and flood lighting).
3. Power systems (including transformer rectifier units, power inverters and
battery chargers).
4. Airborne facsimile terminals (AvFax).
5. Special products (including PDX intercoms, liquid-gauging and fill control,
and frequency units).
FINANCIAL STATEMENT PRESENTATION
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
At September 30, 1996 and 1997, the Company maintained $549,000 and
$119,000, respectively, of its cash and cash equivalents balances at one bank.
At September 30, 1996 and 1997, the Company maintained $503,000 and $4,017,000,
respectively, in a money market funds and bankers' acceptances.
RECEIVABLES AND CONCENTRATIONS OF CREDIT RISK
Accounts receivable from trade customers are generally due within thirty
days. The Company performs periodic credit evaluations of its customers'
financial conditions and generally does not require collateral. All of the
Company's sales are to businesses directly associated with the aviation industry
(airlines, aircraft manufacturers, etc.). Approximately 70% of the Company's
sales are to customers based in the United States.
F-59
<PAGE>
AVTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
The cost of property, plant and equipment is depreciated over the estimated
useful lives of the related assets. Depreciation is computed using the
straight-line and accelerated methods over the following estimated lives:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Buildings............................................................................. 20-39
Building improvements................................................................. 10-39
Machinery and equipment............................................................... 5
Furniture, computer and other equipment............................................... 5-7
</TABLE>
Maintenance and repairs are charged to operations when incurred. Additions
and improvements are capitalized. When property, plant and equipment are sold or
otherwise disposed of, the asset account and related accumulated depreciation
account are relieved, and any gain or loss is included in operations.
INVENTORIES
Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market. Costs of manufactured inventories include all
direct materials, labor and an allocation of overhead. Market represents the
lower of replacement cost or estimated net realizable value.
REVENUE RECOGNITION
Revenues from the sale of manufactured products are recorded when shipped.
Reimbursements for nonrecurring engineering costs, which are expensed as
incurred, are included in revenues at the time a negotiated settlement is
reached with the customer. The Company's nonrecurring engineering revenues for
the years ended September 30, 1995, 1996 and 1997 were $1,257,000, $4,042,000
and $527,000, respectively. Included within accounts receivable at September 30,
1996 are $3,384,000 of unbilled receivables which were collected in fiscal year
1997.
INCOME TAXES
Deferred income taxes are determined using the liability method. A deferred
tax asset or liability is determined based on the difference between the
financial statement and tax basis of assets and liabilities as measured by the
enacted tax rates which will be in effect when these differences reverse.
Deferred tax expense is the result of changes in the asset and/or liability for
deferred taxes.
STOCK OPTION PLAN
As permitted under Statement of Financial Accounting Standards No., 123,
"Accounting for Stock-Based Compensation" (SFAS 123), the Company measures
compensation expense related to the employee stock option plan utilizing the
intrinsic value method as prescribed by Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees".
F-60
<PAGE>
AVTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCRUED WARRANTIES
The Company sells a majority of its products to customers along with various
repair or replacement warranties. The terms of the warranties vary according to
the customer and/or the product involved. The most common warranty period is the
earlier of:
a. 36 months from the date of delivery to the operator, or;
b. 42 months from the date of manufacture
Provisions for estimated future warranty costs are made in the period
corresponding to the sale of the product. Classification between short and
long-term warranty obligations is estimated based on historical trends.
UNAUDITED INTERIM RESULTS
The financial information as of June 25, 1998 and for the nine months ended
June 30, 1997 and June 25, 1998 is unaudited. In the opinion of the Company, the
unaudited financial information is presented on a basis consistent with the
audited financial statements and contains all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results for
such interim period. The results of operations for the interim periods are not
necessarily indicative of results of operations for the full year.
NOTE 2 - INVENTORIES
Inventories at September 30, 1996 and 1997 and June 25, 1998 (unaudited)
consist of the following (amounts in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- JUNE 25,
1996 1997 1998
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials and components..................................... $ 2,488 $ 2,617 $ 3,218
Work in process.................................................. 1,285 2,014 1,912
Finished goods................................................... 460 623 702
--------- --------- -----------
$ 4,233 $ 5,254 $ 5,832
--------- --------- -----------
--------- --------- -----------
</TABLE>
NOTE 3 - PROPERTY AND EQUIPMENT
The Company owns property located immediately adjacent to its main facility.
The property is not currently used for any rental or productive activity. In
1990, the property was condemned by the local authorities and is considered
unsuitable for habitation in its current state. The current carrying value of
$62,000 represents the original cost of the land and is lower than its estimated
net realizable value.
In 1997, the Company purchased a 20,275 square foot office building and an
adjacent vacant lot for investment purposes. The net book value of the property
was $2,134,000 at September 30, 1997. The Company leases the office space to
tenants under one to three-year noncancelable operating leases. At
F-61
<PAGE>
AVTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - PROPERTY AND EQUIPMENT (CONTINUED)
March 31, 1998, the building was fully occupied. Minimum future rentals to be
received on noncancelable leases are as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
- ------------------------------------------------------------------
<S> <C>
1998.............................................................. $ 128
1999.............................................................. $ 20
</TABLE>
The Company leases equipment under a five-year lease term. Based on the
provisions of Statement No. 13, issued by the Financial Accounting Standards
Board, these leases meet the criteria of capital leases and, accordingly, have
been recorded as such. These assets are stated on the balance sheet at their
capitalized cost of $194,000. Depreciation of $161,000 has been recognized
through September 30, 1997.
NOTE 4 - ACCRUED EXPENSES
Accrued expenses at September 30, 1996 and 1997 consist of the following
(amounts in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Employee compensation and related taxes........................................................ $ 875 $ 2,556
Employee stock option plan contribution........................................................ 1,000 1,200
Current portion of warranty reserve............................................................ 204 240
Other.......................................................................................... 41 47
--------- ---------
$ 2,120 $ 4,043
--------- ---------
--------- ---------
</TABLE>
NOTE 5 - DEFINED CONTRIBUTION PLANS
The Company sponsors an employee stock ownership plan (ESOP) for the benefit
of employees with twelve or more months of continuous service. Contributions are
made to the plan at the discretion of the Company's Board of Directors. The
Company's contributions for the years ended September 30, 1995, 1996 and 1997
were $1,200,000, $1,000,000 and $1,200,000, respectively.
The Company also sponsors a cash or deferred compensation (401k) plan for
the benefit of eligible employees. Under the plan, employees may elect to defer
a portion of their compensation (subject to statutory limitations).
Discretionary contributions by the Company may be made when authorized by the
Board of Directors. No such contributions were made during the years ended
September 30, 1995, 1996 and 1997.
NOTE 6 - FEDERAL INCOME TAXES
The provision (benefit) for federal income taxes is comprised of the
following (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Current................................................................................ $ 439 $ 987 $ 2,783
Deferred............................................................................... 54 947 (1,265)
--------- --------- ---------
$ 493 $ 1,934 $ 1,518
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-62
<PAGE>
AVTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - FEDERAL INCOME TAXES (CONTINUED)
The provision for federal income tax expense approximates the federal
statutory rate for all periods presented. The Company is not required to pay
state income taxes.
Deferred tax assets and liabilities at September 30, 1996 and 1997 include
the following (amounts in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
DEFERRED TAX ASSETS
Reserves........................................................................................ $ 335 $ 393
Compensatory stock options...................................................................... 416 471
Capitalized inventories......................................................................... 10 12
--------- ---------
761 876
DEFERRED TAX LIABILITIES
Deferred revenue................................................................................ (1,150) --
--------- ---------
$ (389) $ 876
--------- ---------
--------- ---------
</TABLE>
The classification in the balance sheet between current and noncurrent
deferred tax assets is based on the classification of the related asset that
gives rise to the temporary difference. A deferred tax asset that is not related
to an asset is classified according to the expected reversal date of the
temporary difference.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
The Company has commitments based on open purchase orders arising out of its
normal business operations. As of September 30, 1996 and 1997, these commitments
were $5,080,000 and $6,760,000, respectively.
TERMINATION FOR CONVENIENCE CLAUSES
The Company routinely enters into contractual commitments with customers to
design and manufacture parts. These contracts contain "termination for
convenience" clauses that permit recovery of costs incurred by the Company if
the customer terminates the contract prior to its completion. These recoveries
are included in sales when billed.
F-63
<PAGE>
AVTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEASING ARRANGEMENTS
The Company leases a building under a five-year operating lease. The lease
calls for monthly payments of $5,000 plus utilities, taxes and maintenance and
expires in April 2001. The lessor has the right to terminate the lease at
anytime by giving the Company at least twelve months written notice. The Company
subleases a portion of its facilities under an operating lease that expires
December 1998. The following is net rental expense under operating leases for
the years ended September 30, 1995, 1996 and 1997 (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Rent expense.............................................................................. $ 60 $ 60 $ 60
Less: Sublease rentals.................................................................... (7) (11) (10)
--- --- ---
$ 53 $ 49 $ 50
--- --- ---
--- --- ---
</TABLE>
The following is a schedule by years of the future minimum rentals under
this lease (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30, LESSEE SUBLEASE NET
- ------------------------------------------------------------------- ----------- ----------- ---------
<S> <C> <C> <C>
1998........................................................... $ 60 $ 10 $ 50
1999........................................................... 60 11 49
2000........................................................... 60 11 49
2001........................................................... 60 11 49
----- --- ---------
$ 240 $ 43 $ 197
----- --- ---------
----- --- ---------
</TABLE>
NOTE 8 - ECONOMIC DEPENDENCE
A material part of the Company's business is dependent on one customer, the
loss of which could have a material effect on the Company. For the years ended
September 30, 1995, 1996 and 1997, approximately 29.5%, 24% and 46.9%,
respectively, of revenues were attributable to this customer. At September 30,
1996 and 1997, accounts receivable from this customer represented approximately
41.1% and 23.4%, respectively, of total accounts receivable.
NOTE 9 - STOCK OPTION PLANS
Prior to 1993, the Company implemented a nonqualified compensatory stock
option plan with the President. Under this Plan, options to purchase 90,000
shares of the Company's stock were granted at an option price of $2.70 per
share. These options are currently exercisable by the President.
During the year ended September 30, 1994, the Company and three key
employees entered into employment contracts which voided all prior compensatory
stock option plans other than that of the President's. Under these new
contracts, the Company granted 20,000 shares to each of the three employees at
an exercise price of $15 per share. Fair market value was $28 per share at the
date of the grant. Each employee still employed at September 30, 1998, is
entitled to exercise his option to purchase 20,000 fully
F-64
<PAGE>
AVTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - STOCK OPTION PLANS (CONTINUED)
vested shares. Accordingly, the Company has expensed $156,000 during each of the
years ended September 30, 1995, 1996 and 1997. These shares, when exercised,
cannot be sold until September 30, 2003. The Company has the first right to
purchase the shares upon exercise but is not obligated to do so.
The accumulated expense resulting from the difference between the exercise
prices and fair market values at the respective date of grant has been
classified as a long-term liability in deferred compensation.
NOTE 10 - ADDITIONAL CASH FLOW INFORMATION
Supplementary cash flow information for the years ended September 30, 1995,
1996 and 1997 is as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Cash paid during the period for:
Capital leases.................................. $ 36 $ 36 $ 40
------ ------ ------
------ ------ ------
Interest........................................ $ 10 $ 7 $ 5
------ ------ ------
------ ------ ------
Income taxes.................................... $-- $1,449 $2,900
------ ------ ------
------ ------ ------
</TABLE>
NOTE 11 - SUBSEQUENT EVENT (UNAUDITED)
In May 1998, the Company signed a definitive purchase agreement whereby all
of the outstanding shares of the Company would be acquired by DeCrane Aircraft
Holdings, Inc. The transaction was consummated on June 26, 1998. Prior to
closing the transaction, all outstanding stock options were exercised and the
income tax benefit resulting from the tax deduction allowed for the difference
between the exercise price and the fair market value of the stock was recorded.
The $7,604,000 income tax benefit from the stock options exercised is a noncash
transaction for purposes of the statement of cash flows for the nine months
ended June 25, 1998. Additionally, certain members of management were paid a
one-time bonus at closing and the balance due pursuant to their employment
contracts that were terminated immediately prior to closing.
F-65
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Audio International, Inc.
North Little Rock, Arkansas
We have audited the accompanying consolidated balance sheets of Audio
International, Inc. and subsidiary as of December 31, 1995 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits of the consolidated financial
statements referred to in the preceding paragraph provide a reasonable basis for
our opinion.
In our previously issued auditors' reports dated April 4, 1996, and February
21, 1997, we did not express an opinion on the consolidated statements of
income, stockholders' equity, or cash flows for the year ended December 31,
1995, since we had not audited such statements. In accordance with your
subsequent instructions, we have now audited the consolidated statement of
income, stockholders' equity, and cash flows for the year ended December 31,
1995, in accordance with generally accepted auditing standards. Accordingly, our
present opinion on these financial statements, as presented herein, is different
from that expressed in our previous reports.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Audio International, Inc. and subsidiary as of December 31, 1995 and 1996, and
the results of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
As discussed in Note 12, the Company prepared its financial statements for
years prior to 1995 on the income tax basis of accounting. Effective January 1,
1995, the Company adopted generally accepted accounting principles for the
preparation of its financial statements, and accordingly, appropriate
adjustments have been made to retained earnings as of January 1, 1995.
THOMAS & THOMAS
Little Rock, Arkansas
February 21, 1997
(Except for paragraph 3 above, as to
which the date is December 17, 1997)
F-66
<PAGE>
AUDIO INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash in financial institutions................................ $ 3 $ 46 $ 311
Repurchase agreements......................................... 471 1,543 467
Receivables
Trade, net.................................................. 633 1,207 2,526
Employees and other......................................... 29 13 10
Inventories................................................... 831 1,503 1,538
Prepaid income taxes.......................................... 55 -- --
Deferred income taxes......................................... 30 38 350
--------- --------- ------
Total current assets........................................ 2,052 4,350 5,202
Property and equipment, net..................................... 1,243 1,299 1,538
Other assets
Other investments............................................. -- 100 100
Utility deposits.............................................. 1 1 1
--------- --------- ------
Total assets................................................ $ 3,296 $ 5,750 $ 6,841
--------- --------- ------
--------- --------- ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Construction contract payable................................. $ 269 $ -- $ --
Accounts payable, trade....................................... 438 426 272
Accrued expenses.............................................. 154 312 785
Income taxes payable.......................................... -- 817 471
Current portion of long-term debt............................. 39 44 45
--------- --------- ------
Total current liabilities................................... 900 1,599 1,573
--------- --------- ------
Long-term debt, excluding current portion....................... 579 724 702
Deferred income taxes........................................... 31 23 36
--------- --------- ------
Total liabilities........................................... 1,510 2,346 2,311
--------- --------- ------
Stockholders' equity
Common stock, $1 par value, 1,000 shares authorized, 129
shares issued and outstanding............................... -- -- --
Additional paid-in capital.................................... 601 601 601
Contributed capital........................................... 90 90 90
Retained earnings............................................. 1,095 2,713 3,839
--------- --------- ------
Total stockholders' equity.................................. 1,786 3,404 4,530
--------- --------- ------
Total liabilities and stockholders' equity................ $ 3,296 $ 5,750 $ 6,841
--------- --------- ------
--------- --------- ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE>
AUDIO INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER NINE MONTHS ENDED
31, SEPTEMBER 30,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales and service revenues, net......................................... $ 5,182 $ 10,134 $ 7,535 $ 11,162
Cost of sales and service............................................... 2,710 4,667 3,527 6,180
--------- --------- --------- ---------
Gross profit.......................................................... 2,472 5,467 4,008 4,982
Selling, general and administrative expenses............................ 2,174 2,926 1,959 3,230
--------- --------- --------- ---------
Operating income...................................................... 298 2,541 2,049 1,752
Other income (expense)
Investment income..................................................... 15 32 18 31
Interest expense...................................................... (28) (45) (34) (31)
Gain (loss) on disposal of assets, net................................ (38) 11 5 (2)
Other................................................................. -- 5 6 --
--------- --------- --------- ---------
Income before income taxes.......................................... 247 2,544 2,044 1,750
Provision for income taxes.............................................. 66 926 733 624
--------- --------- --------- ---------
Net income.......................................................... $ 181 $ 1,618 $ 1,311 $ 1,126
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-68
<PAGE>
AUDIO INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
NUMBER ADDITIONAL
OF PAID-IN CONTRIBUTED RETAINED
SHARES AMOUNT CAPITAL CAPITAL EARNINGS TOTAL
------- ------- --------- ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994................... 100 -- $ 1 $ 90 $ 853 $ 944
Restatement of beginning balance............. -- -- -- -- 61 61
Issuance of common stock..................... 29 -- 600 -- -- 600
Net income................................... -- -- -- -- 181 181
------- ------- --------- --- -------- ------
Balance, December 31, 1995................... 129 -- 601 90 1,095 1,786
Net income................................... -- -- -- -- 1,618 1,618
------- ------- --------- --- -------- ------
Balance, December 31, 1996................... 129 -- 601 90 2,713 3,404
------- ------- --------- --- -------- ------
Net income (Unaudited)....................... -- -- -- -- 1,126 1,126
------- ------- --------- --- -------- ------
Balance, September 30, 1997 (Unaudited)...... 129 -- $ 601 $ 90 $3,839 $4,530
------- ------- --------- --- -------- ------
------- ------- --------- --- -------- ------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-69
<PAGE>
AUDIO INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER ENDED
31, SEPTEMBER 30,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income............................................................... $ 181 $ 1,618 $ 1,311 $ 1,126
--------- --------- --------- ---------
Adjustments to reconcile net income to net cash provided by operating
activities
(Gain) loss on disposal of assets, net................................. 38 (11) (2) 5
Depreciation........................................................... 94 151 81 104
(Increase) decrease in operating assets
Accounts receivable, trade........................................... (103) (573) (763) (1,319)
Accounts receivable, employee and other.............................. (22) 16 16 3
Inventories.......................................................... (472) (672) (578) (35)
Prepaid income taxes................................................. (55) 55 55 --
Deferred income taxes................................................ -- (8) 30 (312)
Increase (decrease) in operating liabilities
Accounts payable..................................................... 353 (12) 110 (154)
Accrued expenses..................................................... 22 158 144 473
Construction contract payable........................................ 269 (269) (269) --
Income taxes payable................................................. (137) 817 636 (346)
Deferred income taxes................................................ 4 (8) (30) 13
--------- --------- --------- ---------
Total adjustments, net............................................. (9) (356) (570) (1,568)
--------- --------- --------- ---------
Net cash provided by (used by) operating activities.................... 172 1,262 741 (442)
--------- --------- --------- ---------
Cash flows from investing activities
Payments for purchase of property and equipment, net..................... (994) (197) (125) (348)
Other investments........................................................ -- (100) -- --
Repayments of stockholder loans.......................................... (240) -- -- --
Other assets............................................................. (1) -- -- --
--------- --------- --------- ---------
Net cash used by investing activities.................................. (1,235) (297) (125) (348)
--------- --------- --------- ---------
Cash flows from financing activities
Proceeds from common stock issuance...................................... 600 -- -- --
Payments on long-term debt............................................... (15) (18) (14) (35)
Proceeds from issuance of long-term debt................................. 597 168 152 14
--------- --------- --------- ---------
Net cash provided by (used by) financing activities.................... 1,182 150 138 (21)
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents................... 119 1,115 754 (811)
Cash and cash equivalents, beginning of period............................. 355 474 474 1,589
--------- --------- --------- ---------
Cash and cash equivalents, end of period................................... $ 474 $ 1,589 $ 1,228 $ 778
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-70
<PAGE>
AUDIO INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
Audio International, Inc. (the "Company"), an Arkansas Corporation, was
incorporated January 2, 1987 for the primary purpose of designing, manufacturing
and marketing audio and video systems for the aviation industry. On February 16,
1995, the Company formed a new corporation, Audio International Sales, Inc. (a
Foreign Sales Corporation), in the Virgin Islands which is a wholly-owned
subsidiary of the Company. Foreign sales accounted for approximately 7.2% and
6.9% of total revenues for the years ended December 31, 1995 and 1996, and
approximately 6.2% and 13.9% of total revenues for the nine months ended
September 30, 1996 and 1997, respectively.
CONSOLIDATION
The accompanying financial statements present the consolidated accounts of
the Company and its wholly-owned subsidiary. Accordingly, the consolidated
financial statements include all of the assets, liabilities, income, expenses,
and cash flows for these companies. All significant intercompany transactions
and balances have been eliminated.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out basis) or
market.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Bad debts are provided on the allowance method based on historical
experience and management's evaluation of outstanding accounts receivable. The
balance of the allowance at December 31, 1995 and 1996, was $20,000, and at
September 30, 1997 was $174,000.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Major renewals and betterments
are capitalized while replacements, maintenance, and repairs which do not
improve or extend the life of an asset are expensed. Property and equipment is
depreciated over the estimated useful lives of the various assets using the
straight-line method for financial statement purposes.
INCOME TAXES
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities, using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Current income taxes are based on taxable income for federal and
state tax reporting purposes.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, management considers all
highly liquid debt instruments, including repurchase agreements, with an
original maturity of three months or less to be cash equivalents.
F-71
<PAGE>
AUDIO INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT
Current operations are charged with all research, engineering, and product
development expenses which amounted to approximately $376,000 and $640,000 for
the years ended December 31, 1995 and 1996, and approximately $428,000 and
$742,000 for the nine months ended September 30, 1996 and 1997, respectively.
WARRANTY RESERVE
The financial statements include product warranty reserves of approximately
$25,000 and $62,000 at December 31, 1995 and 1996, and $109,000 at September 30,
1997. The reserve, which is classified as a current liability for financial
statement purposes, is based upon estimates of future costs associated with
fulfilling warranty obligations.
ADVERTISING EXPENSE
Advertising expenditures, including production cost related to various units
utilized for demonstrations and display, are expensed as incurred.
CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash in financial institutions, repurchase
agreements, and trade accounts receivable. The Company places its cash and
temporary cash investments with high credit quality institutions. At times such
deposits may be in excess of insurance limits. The Company routinely assesses
the financial strength of its customers and, as a consequence, believes that its
trade accounts receivable credit risk exposure is limited.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts for the year ended December 31, 1995, have been reclassified
to conform with the presentation of the December 31, 1996 amounts. The
reclassifications have no effect on net income for the years ended December 31,
1995 or 1996.
NOTE 2 - REPURCHASE AGREEMENTS
The Company is party to a contract with a local bank under which all
operating funds on deposit with the bank are invested in repurchase agreements
on a daily basis. The bank maintains, as collateral for the
F-72
<PAGE>
AUDIO INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
NOTE 2 - REPURCHASE AGREEMENTS (CONTINUED)
benefit of the Company, certain securities in its investment portfolio. The
collateral consists of United States government obligations, obligations of
United States government agencies, or other obligations guaranteed by the United
States government. The securities are held by an agent bank or registered in the
agent's name as an owner or pledgee at the Federal Reserve Bank. Interest, at a
rate determined by the bank, is paid on a daily basis. The agreements are
repurchased by the bank upon presentation of any check or other withdrawal of
funds from the Company's operating account.
NOTE 3 - INVENTORIES
Inventories consist of the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials $ 546 $ 863 $ 879
Work-in-process 147 403 492
Finished goods 138 237 167
--------- --------- ------
Total inventories $ 831 $ 1,503 $ 1,538
--------- --------- ------
--------- --------- ------
</TABLE>
NOTE 4 - PROPERTY AND EQUIPMENT
During 1995 the City of North Little Rock Industrial Development Corporation
conveyed title to certain land to the Company for consideration of $10 and an
agreement that the Company would locate its new facility on the property. This
land, and the related contribution of capital, was recorded for financial
statement purposes at its estimated fair market value of $90,000 at the date of
receipt.
The following is a summary of property and equipment (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED -------------- SEPTEMBER 30,
USEFUL LIVES 1995 1996 1997
------------ ------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land, contributed....................... -- $ 90 $ 90 $ 90
Building and improvements............... 40 years 727 786 915
Machinery and equipment................. 3-7 years 536 658 846
Office furniture and equipment.......... 3-7 years 70 96 96
Motor vehicles.......................... 5 years 111 95 90
------ ------ ------
1,534 1,725 2,037
Accumulated depreciation.............. (291) (426) (499)
------ ------ ------
Net property and equipment.......... $1,243 $1,299 $1,538
------ ------ ------
------ ------ ------
</TABLE>
The Company substantially completed construction of its new facility, and
moved its operations from leased facilities, in December 1995. This change in
facilities resulted in losses from abandonment of leasehold improvements of
approximately $42,000.
F-73
<PAGE>
AUDIO INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
NOTE 5 - OTHER INVESTMENTS
In December 1996, the Company entered into a contract with an unrelated
entity, whereby the Company advanced the entity $100,000 to be used to
manufacture and develop certain products for the Company. The advance payment
will be recovered through annual discounts on Company purchases of products from
the entity over the term of the contract.
NOTE 6 - BANK LINE OF CREDIT
A revolving line of credit, which bears interest at the lender's prime rate,
is provided to the Company under the terms of a credit agreement dated June 15,
1996. The terms of the agreement allow the Company to borrow up to $200,000. The
line of credit is secured by amounts on deposit with the financial institution.
There was no balance outstanding on this line of credit at December 31, 1995 or
1996, or at September 30, 1997.
NOTE 7 - ACCRUED EXPENSES
Accrued expenses consist of the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1995 1996 1997
---- ---- -------------
(UNAUDITED)
<S> <C> <C> <C>
Payroll........................................... $ 52 $107 $366
Vacation.......................................... 36 54 54
Payroll taxes withheld and accrued................ 33 75 65
Reserve for warranties............................ 25 61 109
Other............................................. 8 15 191
---- ---- -----
Total accrued expenses.......................... $154 $312 $785
---- ---- -----
---- ---- -----
</TABLE>
NOTE 8 - LONG-TERM DEBT
Long-term debt consists of the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1995 1996 1997
---- ---- -------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to Arkansas Development Finance
Authority; due in annual installments through
May, 2011, including interest ranging from 5.25%
to 6.0%, secured by property and equipment...... $597 $750 $724
Notes payable to bank; secured by vehicles;
payable in monthly installments including
interest at 7.3%, through February, 2000........ 21 18 23
---- ---- -----
618 768 747
Current portion................................... (39) (44) (45)
---- ---- -----
Long-term debt, excluding current portion....... $579 $724 $702
---- ---- -----
---- ---- -----
</TABLE>
F-74
<PAGE>
AUDIO INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
NOTE 8 - LONG-TERM DEBT (CONTINUED)
During the year ended December 31, 1996, the Company obtained permanent
financing, which refinanced its interim note on its new facility. Thus, the note
has been classified as long-term debt as of December 31, 1995 and 1996, for
financial statement purposes. This debt requires a reserve account for monthly
deposits to provide for the next installment of debt service. The balance in
this account, which totaled $-0- and $43,000 at December 31, 1995 and 1996,
respectively, and $43,000 at September 30, 1997, is included in Cash in
Financial Institutions. The terms of the note also require the Company to meet
certain restrictive debt covenants, which have been met as of December 31, 1995
and 1996 and September 30, 1997.
Cash payments for interest on all debt amounted to $23,000 and $46,000 for
the years ended December 31, 1995 and 1996, and $34,000 and $35,000 for the nine
months ended September 30, 1996 and 1997, respectively.
Maturities of long-term debt, based upon the Company's monthly sinking fund
and other debt requirements, is as follows at December 31, 1996 (amounts in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31,
1997.................................................................................................... $ 44
1998.................................................................................................... 39
1999.................................................................................................... 44
2000.................................................................................................... 41
2001.................................................................................................... 40
Thereafter.............................................................................................. 560
---------
Total................................................................................................. $ 768
---------
---------
</TABLE>
Maturities of long-term debt based upon the Company's monthly sinking fund
and other debt requirements, is as follows at September 30, 1997 (amounts in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Twelve months ending September 30,
1998.................................................................................................... $ 45
1999.................................................................................................... 44
2000.................................................................................................... 43
2001.................................................................................................... 41
2002.................................................................................................... 40
Thereafter.............................................................................................. 534
---------
Total................................................................................................. $ 747
---------
---------
</TABLE>
F-75
<PAGE>
AUDIO INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
NOTE 9 - INCOME TAXES
Income tax expense (benefit) is summarized as follows (amounts in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1995 1996
---- ----
<S> <C> <C>
Current:
Federal......................................... $61 $794
State........................................... 1 149
---- ----
Total current................................. 62 943
---- ----
Deferred:
Federal......................................... 4 (14)
State........................................... 0 (3)
---- ----
Total deferred................................ 4 (17)
---- ----
Total provision for income taxes............ $66 $926
---- ----
---- ----
</TABLE>
The actual income tax expense differs from "expected" tax expense (computed
by applying appropriate U.S. Federal corporate income tax rates to income before
income taxes) primarily due to the effects of state income tax, Federal and
state tax credits, nondeductible life insurance premiums, Foreign Sales
Corporation income exclusions and entertainment expenses.
Cash payments for income taxes amounted to $259,000 and $88,000 for the
years ended December 31, 1995 and 1996, and $55,000 and $1,302,000 for the nine
months ended September 30, 1996 and 1997, respectively.
The Company's deferred tax assets and deferred tax liabilities are as
follows (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1995 1996
---- ----
<S> <C> <C>
Current deferred tax assets, net.................. $30 $38
Noncurrent deferred tax liabilities, net.......... 31 23
---- ----
Net deferred tax asset (liability).............. $(1) $15
---- ----
---- ----
</TABLE>
The Company's deferred tax assets and deferred tax liabilities result
primarily from the use of accelerated methods of depreciation for tax purposes;
bad debt reserves, accrued warranty expense and accrued vacation expense being
recorded for financial statement purposes; and different inventory valuations
for tax and book purposes.
In assessing deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax asset will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Based upon the level of historical taxable
income, management believes it is more likely than not the Company will realize
the benefits of these deductible differences.
F-76
<PAGE>
AUDIO INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
NOTE 10 - EMPLOYEE BENEFIT PLAN
The Company has adopted a retirement plan which qualifies under Section
401(k) of the Internal Revenue Code and therefore includes certain salary
deferral features for eligible employees. Employees may elect to contribute up
to fifteen percent of their gross earnings to the plan. The Company makes
matching contributions equal to employee contributions up to 3% of each
participating employee's salary. Matching contributions to the plan were
approximately $25,000 and $40,000 for the years ended December 31, 1995 and
1996, and $29,000 and $41,000 for the nine months ended September 30, 1996 and
1997, respectively.
NOTE 11 - BUSINESS CONCENTRATIONS
The majority of the Company's sales and service revenues are generated
through customers in the private aviation industry located throughout the United
States. At any given time, certain customers may account for significant
portions of the Company's business. The Company's largest six customers
accounted for approximately 58% and 63% of net sales for the years ended
December 31, 1995 and 1996, and 61% and 64% of net sales for the nine months
ended September 30, 1996 and 1997, respectively.
NOTE 12 - RESTATEMENT OF BALANCES
Effective January 1, 1995, the Company adopted generally accepted accounting
principles for the preparation of its financial statements. In previous years,
the records and financial statements of the Company were prepared on the income
tax basis of accounting. Certain adjustments have been applied to the beginning
retained earnings in order to restate amounts in accordance with generally
accepted accounting principles.
An analysis of these adjustments, and the restated beginning retained
earnings, is as follows (amounts in thousands):
<TABLE>
<CAPTION>
<S> <C>
January 1, 1995 balance, as previously reported........................................................... $ 853
Adjustments for expense accruals and reserves............................................................. (70)
Adjustments for inventory, property and equipment valuations.............................................. 131
---------
January 1, 1995 balance, as restated.................................................................... $ 914
---------
---------
</TABLE>
NOTE 13 - COMMON STOCK ISSUANCE
During 1995, the Company and its shareholders entered into an agreement
under which twenty-nine shares of the Company's $1 par value capital stock were
to be issued to a new shareholder in exchange for consideration of $600,000
deposited with the Company during 1995. In addition, the then existing
shareholders of the Company each would sell seven shares of their capital stock
to the new shareholder, creating a one-third interest for each of the three
shareholders. This agreement was consummated February 20, 1996. For comparative
financial statement purposes, certain reclassifications have been made to
reflect this transaction as of December 31, 1995. Thus, at December 31, 1995 and
1996, one hundred and twenty-nine of the Company's one thousand authorized
shares were considered to be issued and outstanding.
F-77
<PAGE>
AUDIO INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
NOTE 13 - COMMON STOCK ISSUANCE (CONTINUED)
The stock acquisition agreement contained additional provisions requiring
the employment of each of the three shareholders for a minimum of five years
from the date of the agreement and various other provisions related to bonus
arrangements and fringe benefits.
NOTE 14 - EVENT (UNAUDITED) SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITORS'
REPORT
On November 14, 1997, the Company's stockholders entered into an acquisition
agreement, under which all shares of the Company were acquired by DeCrane
Aircraft Holdings, Inc.
F-78
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN
ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT IS ACCURATE AS OF
ANY DATE OTHER THAN THE DATE ON THE FRONT OF THOSE DOCUMENTS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 2
Where You Can Get More Information........................................ 5
Summary Pro Forma Consolidated Financial Data............................. 10
Risk Factors.............................................................. 18
Recent Developments....................................................... 25
Use of Proceeds........................................................... 26
Capitalization............................................................ 27
Unaudited Pro Forma Consolidated Financial Data........................... 28
Selected Consolidated Financial Data...................................... 46
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 48
Business.................................................................. 57
Management................................................................ 73
Certain Relationships and Transactions.................................... 81
Description of Bank Credit Facility....................................... 84
Description of Notes...................................................... 86
The Initial Offering...................................................... 121
The Exchange Offer........................................................ 121
Certain Federal Income Tax Consequences................................... 127
Plan of Distribution...................................................... 128
Legal Matters............................................................. 128
Experts................................................................... 128
Index to Financial Statements............................................. F-1
</TABLE>
DeCrane Holdings Co.
COMMON STOCK, $0.01 PAR VALUE
WARRANTS TO PURCHASE COMMON STOCK
---------------------
PROSPECTUS
---------------------
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all estimated expenses we have incurred
or expect to incur in connection with the exchange offer for and registration of
the warrants.
<TABLE>
<CAPTION>
ITEM AMOUNT
- -------------------------------------------------------------- ---------------------------------------
<S> <C> <C>
SEC Registration Fee..........................................
Printing and Engraving Costs..................................
Transfer Agent Fees...........................................
Legal Fees and Expenses.......................................
Accounting Fees and Expenses..................................
Miscellaneous.................................................
Total.......................................................
</TABLE>
All amounts are estimated except for the SEC registration fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation of DeCrane Holdings contains a provision
eliminating or limiting director liability to the company and its stockholders
for monetary damages arising from acts or omissions in the director's capacity
as a director. Those provisions may not, however, eliminate or limit the
personal liability of a director: (i) for any breach of such director's duty of
loyalty to the company or its stockholders; (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) under the Delaware statutory provision making directors personally
liable, under a negligence standard, for unlawful dividends or unlawful stock
purchases or redemptions; or (iv) for any transaction from which the director
derived an improper personal benefit. As a result of this provision, the ability
of DeCrane Holdings, or a stockholder thereof, to successfully prosecute an
action against a director for breach of his duty of care is limited. However,
the provision does not affect the availability of equitable remedies such as an
injunction or recision based upon a director's breach of his duty of care. The
SEC has taken the position that the provision will have no effect on claims
arising under the Federal securities laws.
In addition, the Certificate of Incorporation and Bylaws for DeCrane
Holdings provide for mandatory indemnification rights, subject to limited
exceptions, to any director or executive officer of the company who (by reason
of the fact that he or she is a director or officer) is involved in a legal
proceeding of any nature. Such indemnification rights include reimbursement for
expenses incurred by such director or officer in advance of the final
disposition of such proceeding in accordance with the applicable corporate law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(1) As A part of the financing for DLJ acquisition of DeCrane Aircraft, DeCrane
Holdings sold all of the shares of its common stock to the DLJMB Funds for
$65.0 million in August 1998.
(2) As a part of the financing for the DLJ acquisition of DeCrane Aircraft,
DeCrane Holdings sold all of the shares of its Senior Redeemable
Exchangeable Preferred Stock due 2009 to the DLJMB Funds for $34.0 million
in August 1998.
(3) DeCrane Holdings issued warrants for 155,000 shares of its common stock to
the initial purchaser, Donaldson Lufkin & Jenrette Securities Corporation,
and issued warrants for another 155,000 shares of its common stock to the
DLJMB Funds, in October 1998 as an inducement for the purchase of the
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES (CONTINUED)
$100.0 million of old notes by DeCrane Aircraft. The transactions did not
generate any proceeds for DeCrane Holdings.
(4) DeCrane Holdings sold 20,098 newly-issued shares of common stock for
$462,222 and 2,418 shares of newly-issued Senior Redeemable Exchangeable
Preferred Stock due 2009 for $241,778 to Dr. Robert Herman, Dr. Paul
Kaminski and four other member of Global Technology Partners, LLC in
December, 1998. DeCrane Aircraft loaned half of the aggregate $704,000
purchase price to the six purchasers.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------------
<C> <S>
3.1.1 Bylaws of DeCrane Holdings Co. (formerly Delight Holdings Co.)
3.1.2 Certificate of Incorporation of DeCrane Holdings, Co. (formerly Delight Holdings Co.)
3.2.1 Certificate of Incorporation of DeCrane Aircraft Holdings, Inc.
3.2.2 Bylaws of DeCrane Aircraft Holdings, Inc.
3.3.1 *Certificate of Incorporation of Aerospace Display Systems, Inc. (formerly ADS Acquisition [Inc.])
3.3.2 Bylaws of Aerospace Display Systems, Inc.
3.4.1 *Articles of Incorporation of Audio International, Inc.
3.4.2 Amended & Restated Bylaws of Audio International, Inc.
3.5.1 *Articles of Incorporation of Avtech Corporation
3.5.2 Bylaws of Avtech Corporation
3.6.1 *Articles of Incorporation of Cory Components
3.6.2 Bylaws of Cory Components, Inc.
3.7.1 *Certificate of Incorporation of Dettmers Industries, Inc. (formerly DAHX Acquisition, Inc.)
3.7.2 Bylaws of Dettmers Industries, Inc.
3.8.1 Restated Articles of Incorporation of Elsinore Aerospace Services, Inc.
3.8.2 Bylaws of Elsinore Aerospace Services, Inc.
3.9.1 *Certificate of Incorporation of Elsinore Engineering Inc. (formerly EE Acquisition, Inc.)
3.9.2 Bylaws of Elsinore Engineering Inc. (formerly EE Acquisition, Inc.)
3.10.1 *Articles of Incorporation and Agreement and Plan of Merger of Hollingsead International, Inc.
3.10.2 Bylaws of Hollingsead International, Inc.
3.11.1 *Articles of Incorporation of Tri-Star Electronics International, Inc. (formerly Tri-Star Electronics
International, Inc., II)
3.11.2 Bylaws of Tri-Star Electronics International, Inc.
4.1 [Reserved]
4.2 DeCrane Holdings Co., Warrants to Purchase 155,000 Shares of Common Stock
4.3 [Reserved]
</TABLE>
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------------
<C> <S>
4.4 Certificate of Designations, Preferences and Rights of 14% Senior Redeemable Exchangeable Preferred
Stock Due 2008
5.1 Opinion of Spolin & Silverman (re legality)+
10.1 [Reserved]
10.2 Amended & Restated Investors' Agreement dated as of October 2, 1998
10.3 [Reserved]
10.4 Warrant Registration Rights Agreement--DeCrane
10.5 Tax Sharing Agreement dated March 15, 1993 between the Company and TSH and Hollingsead International,
Inc.
10.6 Employment Agreement dated July 17, 1998 between the Company and R. Jack DeCrane
10.7 401(k) Salary Reduction Non-Standardized Adoption Agreement dated April 30, 1992 between the Company
and The Lincoln National Life Insurance Company
10.8 [Reserved]
10.9 [Reserved]
10.10 Credit Agreement dated August 28, 1998 by and among DeCrane Aircraft Holdings, Inc. (successor by
merger to DeCrane Finance Co.) and DLJ Capital Funding, Inc.
10.11 [Reserved]
10.12 Lease dated September 1989 as amended on December 15, 1993 among Continental Development Corporation,
Tri-Star Electronics, Inc., and Cory Components, Inc. for real property in El Segundo, CA
(incorporated by reference to the Company's Registration Statement on Form S-1, Registration No.
333-19939)
10.13 Lease among Kilroy Realty, L.P., Kilroy Realty Corporation and Hollingsead International for real
property in Garden Grove, California+
10.14 General Terms Agreement dated July 5, 1995 between the Boeing Company and Cory Components, Number
6-5752-0002 (incorporated by reference to the Company's Registration Statement on Form S-1,
Registration No. 333-19939)
10.15 Special Business Provisions dated November 30, 1995 between the Boeing Company and Cory Components,
Number 6-5752-0004 (incorporated by reference to the Company's Registration Statement on Form S-1,
Registration No. 333-19939)
10.16 Purchase Agreement 9423JC4548 between Boeing Defense & Space- Irving Co. and Cory Components, January
1, 1995 through December 31, 1999 (incorporated by reference to the Company's Registration Statement
on Form S-1, Registration No. 333-19939)
[10.18 Asset Purchase and Sale Agreement by and among Allard Industries, Inc., Gerald R. Allard, Trustee of
the Gerald R. Allard Revocable Trust of 1994, The Allard Children's Trust f/b/o John Allard, The
Allard Children's Trust f/b/o Michael E. Allard, Younes Nazarian and David and Angela Nazarian,
Trustees of the Nazarian Family Trust, the principal shareholders of Allard, the Company and ADS
Acquisition, Inc. (incorporated by reference to the Company's Registration Statement on Form S-1,
Registration No. 333-19939)]
[10.19 Assets Purchase and Sale Agreement dated December 4, 1996 among the Company, EE Acquisition, Inc.,
William Lyon, and Elsinore LP (incorporated by reference to the Company's Registration Statement on
Form S-1, Registration No. 333-19939)]
</TABLE>
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------------
<C> <S>
[10.20 Asset Purchase and Sale Agreement dated November 25, 1996 among AMP, Incorporated, the Whitaker
Corporation and DeCrane Aircraft Holdings, Inc. (incorporated by reference to the Company's
Registration Statement on Form S-1, Registration No. 333-19939)]
[10.21 Stock Purchase Agreement, dated January 1, 1995 among the Company and Cory Components, Inc.
(incorporated by reference to the Company's Registration Statement on Form S-1, Registration No.
333-19939)]
10.31 Share Purchase Agreement dated February 9, 1996 among the Company, R.G. MacDonald, Charles Becker,
Robert Rankin (incorporated by reference to the Company's Registration Statement on Form S-1,
Registration No. 333-19939)
[10.37 Stock Purchase and Sale Agreement dated as of October 31, 1997 by and among Robert S. Brown, Richard
Marsh, Wayne Richie, and DeCrane Aircraft Holdings, Inc. (incorporated by reference to Exhibit 2.1 to
the Company's Form 8-K/A (Amendment No. 1), filed November 14, 1997)]
10.?? Stock Purchase and Sale Agreement dated June 26, 1998 by and among the Principal Shareholders of
Avtech Corporation and DeCrane Aircraft Holdings, Inc.
[10.?? Stock Purchase and Sale Agreement dated December 22, 1998 by and among PATS, Inc. and DeCrane Aircraft
Holdings, Inc.]
10.??
11.1 Statement regarding computation of per share earnings of the Company[*]
12.1
12.2
21.1 List of Subsidiaries of Registrant
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Spolin & Silverman LLP (included in Exhibit 5.1)
23.3 Consent of Thomas & Thomas
24.1 Power of Attorney
27 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by Amendment.
(B) FINANCIAL STATEMENT SCHEDULE:
Schedule II--Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
(a) [Insofar as indemnification for liabilities arising under the Securities
Act, may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC, such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. If a claim for indemnification against such liabilities is
asserted by such director, officer or controlling person in connection with the
II-4
<PAGE>
ITEM 17. UNDERTAKINGS (CONTINUED)
securities being registered (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding), the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.]
(c) The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
This Registration Statement, pursuant to the requirements of the Securities
Act of 1933, as amended, has been signed on its behalf by the undersigned,
thereunto duly authorized, in the State of New York, on this day of January,
1999.
<TABLE>
<S> <C> <C>
DECRANE HOLDINGS CO.
By: /s/ TIMOTHY J. WHITE
-----------------------------------------
Timothy J. White
VICE PRESIDENT AND
SECRETARY
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints R. Jack
DeCrane and John R. Hinson, and each of them, his true and lawful
attorneys-in-fact and agents, with the full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, and to take such actions in, and file with the appropriate
authorities in, whatever states said attorneys-in-fact and agents, and each of
them, shall determine, such applications, statements, consents and other
documents as may be necessary or expedient to register securities of the Company
for sale, granting unto said attorneys-in-fact and agents full power and
authority to do so and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agents or any of them, or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof and the
registrant hereby confers like authority on its behalf. This Registration
Statement and Power of Attorney, pursuant to the requirement of the Securities
Act of 1933, as amended, have been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman of the Board of
Directors, President and
- ------------------------------ Treasurer (principal January , 1999
Thompson Dean accounting officer)
- ------------------------------ Director January , 1999
R. Jack DeCrane
- ------------------------------ Director January , 1999
John F. Fort, III
- ------------------------------ Director January , 1999
Dr. Robert J. Hermann
- ------------------------------ Director January , 1999
Dr. Paul Kaminski
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
- ------------------------------ Director January , 1999
Susan Schnabel
- ------------------------------ Vice President, Secretary January , 1999
Timothy J. White & Director
</TABLE>
II-7
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COST AND CHARGED TO END OF
CLASSIFICATION PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS PERIOD
- -------------------------------------------- ------------ ------------ -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Allowance of doubtful accounts.............. $ 243,000 $ 66,000 $ 62,000(A) $ 112,000 $ 259,000
Reserve for excess, slow moving and
potentially obsolete material............. $ 893,000 $ 416,000 -- $ 155,000 $ 1,154,000
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts............. $ 259,000 $ 68,000 $ 71,000(B) $ 19,000 $ 379,000
Reserve for excess, slow moving and
potentially obsolete material............. $ 1,154,000 $ 1,055,000 -- $ 116,000 $ 2,093,000
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts............. $ 379,000 $ 111,000 $ 174,000(C) $ 177,000 $ 487,000
Reserve for excess, slow moving and
potentially obsolete material............. $ 2,093,000 $ 1,374,000 $ 59,000(D) $ 162,000 $ 3,364,000
</TABLE>
- ------------------------
<TABLE>
<S> <C> <C>
(A) Comprised of the following:
Effect of foreign currency translation; $ 3,000
Recovery of amounts previously written off. 59,000
---------
$ 62,000
---------
---------
(B) Comprised of the following:
Effect of foreign currency translation; $ (4,000)
Recovery of amounts previously written off; 20,000
Attributable to companies acquired. 55,000
---------
$ 71,000
---------
---------
(C) Attributable to company acquired.
(D) Attributable to companies acquired.
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
3.1.1 Bylaws of DeCrane Holdings Co. (formerly Delight Holdings Co.)
3.1.2 Certificate of Incorporation of DeCrane Holdings, Co. (formerly Delight Holdings Co.)
3.2.1 Certificate of Incorporation of DeCrane Aircraft Holdings, Inc.
3.2.2 Bylaws of DeCrane Aircraft Holdings, Inc.
3.3.1 *Certificate of Incorporation of Aerospace Display Systems, Inc. (formerly ADS Acquisition
[Inc.])
3.3.2 Bylaws of Aerospace Display Systems, Inc.
3.4.1 *Articles of Incorporation of Audio International, Inc.
3.4.2 Amended & Restated Bylaws of Audio International, Inc.
3.5.1 *Articles of Incorporation of Avtech Corporation
3.5.2 Bylaws of Avtech Corporation
3.6.1 *Articles of Incorporation of Cory Components
3.6.2 Bylaws of Cory Components, Inc.
3.7.1 *Certificate of Incorporation of Dettmers Industries, Inc. (formerly DAHX Acquisition,
Inc.)
3.7.2 Bylaws of Dettmers Industries, Inc.
3.8.1 Restated Articles of Incorporation of Elsinore Aerospace Services, Inc.
3.8.2 Bylaws of Elsinore Aerospace Services, Inc.
3.9.1 *Certificate of Incorporation of Elsinore Engineering Inc. (formerly EE Acquisition, Inc.)
3.9.2 Bylaws of Elsinore Engineering Inc. (formerly EE Acquisition, Inc.)
3.10.1 *Articles of Incorporation and Agreement and Plan of Merger of Hollingsead International,
Inc.
3.10.2 Bylaws of Hollingsead International, Inc.
3.11.1 *Articles of Incorporation of Tri-Star Electronics International, Inc. (formerly Tri-Star
Electronics International, Inc., II)
3.11.2 Bylaws of Tri-Star Electronics International, Inc.
4.1 [Reserved]
4.2 DeCrane Holdings Co., Warrants to Purchase 155,000 Shares of Common Stock
4.3 [Reserved]
4.4 Certificate of Designations, Preferences and Rights of 14% Senior Redeemable Exchangeable
Preferred Stock Due 2008
5.1 Opinion of Spolin & Silverman (re legality)+
10.1 [Reserved]
10.2 Amended & Restated Investors' Agreement dated as of October 2, 1998
10.3 [Reserved]
10.4 Warrant Registration Rights Agreement--DeCrane
10.5 Tax Sharing Agreement dated March 15, 1993 between the Company and TSH and Hollingsead
International, Inc.
10.6 Employment Agreement dated July 17, 1998 between the Company and R. Jack DeCrane
10.7 401(k) Salary Reduction Non-Standardized Adoption Agreement dated April 30, 1992 between
the Company and The Lincoln National Life Insurance Company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
10.8 [Reserved]
10.9 [Reserved]
10.10 Credit Agreement dated August 28, 1998 by and among DeCrane Aircraft Holdings, Inc.
(successor by merger to DeCrane Finance Co.) and DLJ Capital Funding, Inc.
10.11 [Reserved]
10.12 Lease dated September 1989 as amended on December 15, 1993 among Continental Development
Corporation, Tri-Star Electronics, Inc., and Cory Components, Inc. for real property in
El Segundo, CA (incorporated by reference to the Company's Registration Statement on Form
S-1, Registration No. 333-19939)
10.13 Lease among Kilroy Realty, L.P., Kilroy Realty Corporation and Hollingsead International
for real property in Garden Grove, California+
10.14 General Terms Agreement dated July 5, 1995 between the Boeing Company and Cory Components,
Number 6-5752-0002 (incorporated by reference to the Company's Registration Statement on
Form S-1, Registration No. 333-19939)
10.15 Special Business Provisions dated November 30, 1995 between the Boeing Company and Cory
Components, Number 6-5752-0004 (incorporated by reference to the Company's Registration
Statement on Form S-1, Registration No. 333-19939)
10.16 Purchase Agreement 9423JC4548 between Boeing Defense & Space- Irving Co. and Cory
Components, January 1, 1995 through December 31, 1999 (incorporated by reference to the
Company's Registration Statement on Form S-1, Registration No. 333-19939)
[10.18 Asset Purchase and Sale Agreement by and among Allard Industries, Inc., Gerald R. Allard,
Trustee of the Gerald R. Allard Revocable Trust of 1994, The Allard Children's Trust
f/b/o John Allard, The Allard Children's Trust f/b/o Michael E. Allard, Younes Nazarian
and David and Angela Nazarian, Trustees of the Nazarian Family Trust, the principal
shareholders of Allard, the Company and ADS Acquisition, Inc. (incorporated by reference
to the Company's Registration Statement on Form S-1, Registration No. 333-19939)]
[10.19 Assets Purchase and Sale Agreement dated December 4, 1996 among the Company, EE
Acquisition, Inc., William Lyon, and Elsinore LP (incorporated by reference to the
Company's Registration Statement on Form S-1, Registration No. 333-19939)]
[10.20 Asset Purchase and Sale Agreement dated November 25, 1996 among AMP, Incorporated, the
Whitaker Corporation and DeCrane Aircraft Holdings, Inc. (incorporated by reference to
the Company's Registration Statement on Form S-1, Registration No. 333-19939)]
[10.21 Stock Purchase Agreement, dated January 1, 1995 among the Company and Cory Components, Inc.
(incorporated by reference to the Company's Registration Statement on Form S-1,
Registration No. 333-19939)]
10.31 Share Purchase Agreement dated February 9, 1996 among the Company, R.G. MacDonald, Charles
Becker, Robert Rankin (incorporated by reference to the Company's Registration Statement
on Form S-1, Registration No. 333-19939)
[10.37 Stock Purchase and Sale Agreement dated as of October 31, 1997 by and among Robert S.
Brown, Richard Marsh, Wayne Richie, and DeCrane Aircraft Holdings, Inc. (incorporated by
reference to Exhibit 2.1 to the Company's Form 8-K/A (Amendment No. 1), filed November
14, 1997)]
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
10.?? Stock Purchase and Sale Agreement dated June 26, 1998 by and among the Principal
Shareholders of Avtech Corporation and DeCrane Aircraft Holdings, Inc.
[10.?? Stock Purchase and Sale Agreement dated December 22, 1998 by and among PATS, Inc. and
DeCrane Aircraft Holdings, Inc.]
10.??
11.1 Statement regarding computation of per share earnings of the Company[*]
12.1
12.2
21.1 List of Subsidiaries of Registrant
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Spolin & Silverman LLP (included in Exhibit 5.1)
23.3 Consent of Thomas & Thomas
24.1 Power of Attorney
27 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by Amendment.
<PAGE>
EXHIBIT 99.32
CERTIFICATE OF INCORPORATION
OF
DELIGHT HOLDINGS CO.
* * * * *
FIRST: The name of the Corporation is Delight Holdings Co.
SECOND: The address of its registered office in the State of Delaware is
1013 Centre Road, City of Wilmington, County of New Castle, Delaware 19805.
The name of its registered agent at such address is Corporation Service
Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of the State of Delaware as the same exists or may hereafter
be amended ("Delaware Law").
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 100, and the par value of each such share is $.01,
amounting in the aggregate to $1.00.
FIFTH: The name and mailing address of the incorporator are:
Name Mailing Address
- --------------------------- -------------------------------
Kimberly Yule 450 Lexington Avenue
New York, New York 10017
SIXTH: The Board of Directors shall have the power to adopt, amend or
repeal the bylaws of the Corporation.
SEVENTH: Election of directors need not be by written ballot unless the
bylaws of the Corporation so provide.
EIGHTH: (1) A director of the Corporation shall not be liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director to the fullest extent permitted by Delaware Law.
<PAGE>
(2)(a) Each person (and the heirs, executors or administrators of such
person) who was or is a party or is threatened to be made a party to, or is
involved in any threatened, pending or completed action, suit or proceeding
whether civil, criminal, administrative or investigative, by reason of the
fact that such person is or was a director or officer of the Corporation or
is or was serving at the request of the Corporation as a director or officer
of another corporation, partnership, joint venture, trust or other
enterprise, shall be indemnified and held harmless by the Corporation to
the fullest extent permitted by Delaware Law. The right to indemnification
conferred in this ARTICLE EIGHTH shall also include the right to be paid by
the Corporation the expenses incurred in connection with any such proceedings
in advance of its final disposition to the fullest extent authorized by
Delaware Law. The right to indemnification conferred in this ARTICLE EIGHTH
shall be a contract right.
(b) The Corporation may, by action of its Board of Directors,
provide indemnification to such of the officers, employees and agents of the
Corporation to such extent and to such effect as the Board of Directors shall
determine to be appropriate and authorized by Delaware Law.
(3) The Corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any expense, liability or
loss incurred by such person in any such capacity or arising out of his
status as such, whether or not the Corporation would have the power to
indemnify him against such liability under Delaware Law.
(4) The rights and authority conferred in this ARTICLE EIGHTH shall not
be exclusive of any other right which any person may otherwise have or
hereafter acquire.
(5) Neither the amendment nor repeal of this ARTICLE EIGHTH, nor the
adoption of any provision of this Certificate of Incorporation or the bylaws
of the Corporation, nor, to the fullest extent permitted by Delaware Law, any
modification of law, shall eliminate or reduce the effect of this ARTICLE
EIGHTH in respect of any acts or omissions occurring prior to such amendment,
repeal, adoption or modification.
NINTH: The Corporation reserves the right to amend this Certificate of
Incorporation in any manner permitted by Delaware Law and, with the sole
exception of those rights and powers conferred under the above ARTICLE
2
<PAGE>
EIGHTH, all rights and powers conferred herein on stockholders, directors and
officers, if any, are subject to this reserved power.
IN WITNESS WHEREOF, I have hereunto signed my name this 13th day of July
1998.
/s/ Kimberly Yule
---------------------
Kimberly Yule
3
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
DELIGHT HOLDINGS CO.
Delight Holdings Co., (the "COMPANY") a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Company, in lieu of meeting
by consent, adopted the following resolution:
RESOLVED THAT THE BOARD OF DIRECTORS HEREBY DECLARES IT ADVISABLE AND IN
THE BEST INTEREST OF THE COMPANY THAT ARTICLE FIRST OF THE CERTIFICATE OF
INCORPORATION BE AMENDED TO READ AS FOLLOWS:
FIRST: THE NAME OF THE CORPORATION IS DECRANE HOLDINGS CO.
SECOND: That the said amendment has been consented to and authorized by
the holders of a majority of the issued and outstanding stock entitled to
vote by written consent given in accordance with the provisions of Section
228 of the General Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of the General Corporation
Law of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed
by Timothy White, this 16th day of July, 1998.
By: /s/ Timothy White
------------------------------
Timothy White
Vice President and Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
DECRANE HOLDINGS CO.
DeCrane Holdings Co., (the "COMPANY") a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DELAWARE LAW"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Company, in lieu of meeting
by consent, adopted the following resolution:
RESOLVED THAT THE BOARD OF DIRECTORS HEREBY DECLARES IT
ADVISABLE AND IN THE BEST INTEREST OF THE COMPANY THAT ARTICLE
FOURTH OF THE CERTIFICATE OF INCORPORATION BE AMENDED TO READ
AS FOLLOWS:
FOURTH: THE TOTAL NUMBER OF SHARES OF STOCK WHICH THE
CORPORATION SHALL HAVE AUTHORITY TO ISSUE IS 6,000,000,
CONSISTING OF 3,500,000 SHARES OF COMMON STOCK, PAR VALUE
$0.01 PER SHARE, AND 2,500,000 SHARES OF PREFERRED STOCK,
PAR VALUE $0.01 PER SHARE (THE "PREFERRED STOCK"). THE
BOARD OF DIRECTORS IS HEREBY EMPOWERED TO AUTHORIZE BY
RESOLUTION OR RESOLUTIONS FROM TIME TO TIME THE ISSUANCE
OF ONE OR MORE CLASSES OR SERIES OF PREFERRED STOCK AND
TO FIX THE DESIGNATIONS, POWERS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER RIGHTS, IF ANY, AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF, IF ANY,
WITH RESPECT TO EACH SUCH CLASS OR SERIES OF PREFERRED STOCK
AND THE NUMBER OF SHARES CONSTITUTING EACH SUCH CLASS OR
SERIES, AND TO INCREASE OR DECREASE THE NUMBER OF SHARES OF
ANY SUCH CLASS OR SERIES TO THE EXTENT PERMITTED BY THE
DELAWARE LAW.
SECOND: That the aforesaid amendment has been consented to and
authorized by the holders of a majority of the issued and outstanding stock
entitled to vote by written consent given in accordance with the provisions
of Section 228 of the Delaware Law.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of the Delaware Law.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed
by Timothy White, this 27th day of August, 1998.
By: /s/ Timothy White
------------------------------
Name: Timothy White
Title: Vice President and Secretary
2
<PAGE>
EXHIBIT A
BYLAWS
OF
DELIGHT HOLDINGS CO.
* * * * *
ARTICLE 1
OFFICES
SECTION 1.01. REGISTERED OFFICE. The registered office shall be in the
City of Wilmington, County of New Castle, State of Delaware.
SECTION 1.02. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board
of Directors may from time to time determine or the business of the
Corporation may require.
SECTION 1.03. BOOKS. The books of the Corporation may be kept within or
without of the State of Delaware as the Board of Directors may from time to
time determine or the business of the Corporation may require.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
SECTION 2.01. TIME AND PLACE OF MEETINGS. All meetings of stockholders
shall be held at such place, either within or without the State of Delaware,
on such date and at such time as may be determined from time to time by the
Board of Directors (or the Chairman in the absence of a designation by the
Board of Directors).
SECTION 2.02. ANNUAL MEETINGS. Annual meetings of stockholders,
commencing with the year 1998, shall be held to elect the Board of Directors
and transact such other business as may properly be brought before the
meeting.
<PAGE>
SECTION 2.03. SPECIAL MEETINGS. Special meetings of stockholders may be
called by the Board of Directors or the chairman of the Board and shall be
called by the Secretary at the request in writing of holders of record of a
majority of the outstanding capital stock of the Corporation entitled to
vote. Such request shall state the purpose or purposes of the proposed
meeting.
SECTION 2.04. NOTICE OF MEETINGS AND ADJOURNED MEETINGS; WAIVERS OF
NOTICE. (a) Whenever stockholders are required or permitted to take any
action at a meeting, a written notice of the meeting shall be given which
shall state the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
Unless otherwise provided by the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended ("DELAWARE LAW"),
such notice shall be given not less than 10 nor more than 60 days before the
date of the meeting to each stockholder of record entitled to vote at such
meeting. Unless these bylaws otherwise require, when a meeting is adjourned
to another time or place (whether or not a quorum is present), notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the Corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than 30
days, or after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
(b) A written waiver of any such notice signed by the person entitled
thereto, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends the meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice.
SECTION 2.05. QUORUM. Unless otherwise provided under the certificate
of incorporation or these bylaws and subject to Delaware Law, the presence,
in person or by proxy, of the holders of a majority of the outstanding
capital stock of the Corporation entitled to vote at a meeting of
stockholders shall constitute a quorum for the transaction of business.
SECTION 2.06. VOTING. (a) Unless otherwise provided in the certificate
of incorporation and subject to Delaware Law, each stockholder shall be
entitled to one vote for each outstanding share of capital stock of the
Corporation held by such stockholder. Unless otherwise provided in Delaware
Law, the certificate of
2
<PAGE>
incorporation or these bylaws, the affirmative vote of a majority of the
shares of capital stock of the Corporation present, in person or by proxy, at
a meeting of stockholders and entitled to vote on the subject matter shall be
the act of the stockholders.
(b) Each stockholder entitled to vote at a meeting of stockholders or
to express consent or dissent to a corporate action in writing without a
meeting may authorize another person or persons to act for him by proxy, but
no such proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period.
SECTION 2.07. ACTION BY CONSENT. (a) Unless otherwise provided in the
certificate of incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any
annual or special meeting of stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding capital stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted and shall be
delivered to the Corporation by delivery to its registered office in
Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective
to take the corporate action referred to therein unless, within 60 days of
the earliest dated consent delivered in the manner required by this Section
and Delaware Law to the Corporation, written consents signed by a sufficient
number of holders to take action are delivered to the Corporation by delivery
to its registered office in Delaware, its principal place of business, or an
officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
SECTION 2.08. ORGANIZATION. At each meeting of stockholders, the
Chairman of the Board, if one shall have been elected, (or in his absence or
if one shall not have been elected, the President) shall act as chairman of
the meeting. The Secretary (or in his absence or inability to act, the person
whom the chairman
3
<PAGE>
of the meeting shall appoint secretary of the meeting) shall act as secretary
of the meeting and keep the minutes thereof.
SECTION 2.09. ORDER OF BUSINESS. The order of business at all meetings
of stockholders shall be as determined by the chairman of the meeting.
ARTICLE 3
DIRECTORS
SECTION 3.01. GENERAL POWERS. Except as otherwise provided in Delaware
Law or the certificate of incorporation, the business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors.
SECTION 3.02. NUMBER, ELECTION AND TERM OF OFFICE. The number of
directors which shall constitute the whole Board shall be fixed from time
to time by resolution of the Board of Directors but shall not be less than
two nor more than nine. The directors shall be elected at the annual meeting
of the stockholders, except as provided in Section 3.12 herein, and each
director so elected shall hold office until his successor is elected and
qualified or until his earlier death, resignation or removal. Directors need
not be stockholders.
SECTION 3.03. QUORUM AND MANNER OF ACTING. Unless the certificate of
incorporation or these bylaws require a greater number, a majority of the
total number of directors shall constitute a quorum for the transaction of
business, and the affirmative vote of a majority of the directors present at
meeting at which a quorum is present shall be the act of the Board of
Directors. When a meeting is adjourned to another time or place (whether or
not a quorum is present), notice need not be given of the adjourned meeting
if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting, the Board of Directors may
transact any business which might have been transacted at the original
meeting. If a quorum shall not be present at any meeting of the Board of
directors the directors present thereat may adjourn the meeting, from time
to time, without notice other than announcement at the meeting, until a
quorum shall be present.
SECTION 3.04. TIME AND PLACE OF MEETINGS. The Board of Directors shall
hold its meetings at such place, either within or without the State of
Delaware, and at such time as may be determined from time to time by the
Board of Directors (or the Chairman in the absence of a determination by the
Board of Directors).
4
<PAGE>
SECTION 3.05. ANNUAL MEETING. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of
other business, as soon as practicable after each annual meeting of
stockholders, on the same day and at the same place where such annual meeting
shall be held. Notice of such meeting need not be given. In the event such
annual meeting is not so held, the annual meeting of the Board of Directors
may be held at such place either within or without the State of Delaware, on
such date and at such time as shall be specified in a notice thereof given as
hereinafter provided in Section 3.07 hereof or in a waiver of notice thereof
signed by any director who chooses to waive the requirement of notice.
SECTION 3.06. REGULAR MEETINGS. After the place and time of regular
meetings of the Board of Directors shall have been determined and notice
thereof shall have been once given to each member of the Board of Directors,
regular meetings may be held without further notice being given.
SECTION 3.07. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President and
shall be called by the Chairman of the Board, President or Secretary on the
written request of three directors. Notice of special meetings of the Board
of Directors shall be given to each director at least three days before the
date of the meeting in such manner as is determined by the Board of Directors.
SECTION 3.08. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting
of the committee. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange
of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the bylaws of the Corporation; and
unless the resolution of the Board of Directors or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Each
committee shall keep regular minutes of its meetings and report the same to
the Board of Directors when required.
5
<PAGE>
SECTION 3.09. ACTION BY CONSENT. Unless otherwise restricted by the
certificate of incorporation or these bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board
oR committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board or
committee.
SECTION 3.10. TELEPHONE MEETINGS. Unless otherwise restricted by the
certificate of incorporation or these bylaws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or such committee, as the
case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
SECTION 3.11. RESIGNATION. Any director may resign at any time by
giving written notice to the Board of Directors or to the Secretary of the
Corporation. The resignation of any director shall take effect upon receipt
of notice hereof or at such later time as shall be specified in such notice;
and unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
SECTION 3.12. VACANCIES. Unless otherwise provided in the certificate
of incorporation, vacancies and newly created directorships resulting from
any increase in the authorized number of directors elected by all the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by
a sole remaining director. Whenever the holders of any class or classes of
stock or series thereof are entitled to elect one or more directors by the
certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of directors
elected by such class or classes or series thereof then in office or by a
sole remaining director so elected. Each director so chosen shall hold office
until his successor is elected and qualified, or until his earlier death,
resignation or removal. If there are no directors in office, then an election
of directors may be held in accordance with Delaware Law. Unless otherwise
provided in the certificate of incorporation, when one or more directors
shall resign from the Board, effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have
the power to fill such vacancy or vacancies, the vote thereon to take effect
when such resignation or resignations shall become effective, and each
director so chosen shall hold office as provided in the filling of other
vacancies.
6
<PAGE>
SECTION 3.13. REMOVAL. Any director or the entire Board of Directors
may be removed, with or without cause, at any time by the affirmative vote of
the holders of a majority of the outstanding capital stock of the Corporation
entitled to vote and the vacancies thus created may be filled in accordance
with Section 3.12 herein.
SECTION 3.14. COMPENSATION. Unless otherwise restricted by the
certificate of incorporation or these bylaws, the Board of Directors shall
have authority to fix the compensation of directors, including fees and
reimbursement of expenses.
ARTICLE 4
OFFICERS
SECTION 4.01. PRINCIPAL OFFICERS. The principal officers of the
Corporation shall be a President, one or more Vice Presidents, a Treasurer
and a Secretary who shall have the duty, among other things, to record the
proceedings of the meetings of stockholders and directors in a book kept for
that purpose. The Corporation may also have such other principal officers,
including one or more Controllers, as the Board may in its discretion
appoint. One person may hold the offices and perform the duties of any two or
more of said officers, except that no one person shall hold the offices and
perform the duties of President and Secretary.
SECTION 4.02. ELECTION, TERM OF OFFICE AND REMUNERATION. The principal
officers of the Corporation shall be elected annually by the Board of
Directors at the annual meeting thereof. Each such officer shall hold office
until his successor is elected and qualified, or until his earlier death,
resignation or removal. The remuneration of all officers of the Corporation
shall be fixed by the Board of Directors. Any vacancy in any office shall be
filled in such manner as the Board of Directors shall determine.
SECTION 4.03. SUBORDINATE OFFICERS. In addition to the principal
officers enumerated in Section 4.01 hereof, the Corporation may have one or
more Assistant Treasurers, Assistant Secretaries and Assistance Controllers
and such other subordinate officers, agents and employees as the Board of
Directors may deem necessary, each of whom shall hold office for such period
as the Board of Directors may from time to time determine. The Board of
Directors may delegate to any principal officer the power to appoint and to
remove any such subordinate officers, agents or employees.
7
<PAGE>
SECTION 4.04. REMOVAL. Except as otherwise permitted with respect to
subordinate officers, any officer may be removed, with or without cause, at
any time, by resolution adopted by the Board of Directors.
SECTION 4.05. RESIGNATIONS. Any officer may resign at any time by
giving written notice to the Board of Directors (or to a principal officer if
the Board of Directors has delegated to such principal officer the power to
appoint and to remove such officer). The resignation of any officer shall
take effect upon receipt of notice thereof or at such later time as shall be
specified in such notice; and unless otherwise specified herein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 4.06. POWERS AND DUTIES. The officers of the Corporation shall
have such powers and perform such duties incident to each of their respective
offices and such other duties as may from time to time be conferred upon or
assigned to them by the Board of Directors.
ARTICLE 5
GENERAL PROVISIONS
SECTION 5.01. FIXING THE RECORD DATE. (a) In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, the Board of Directors
may fix a record date, which record date shall not precede the date upon
which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than 60 nor less than 10
days before the date of such meeting. If no record date is fixed by the Board
of Directors, the record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business
on the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; PROVIDED that the Board of Directors may fix a
new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the
Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which date shall not be more than 10 days
after the date upon which the resolution fixing
8
<PAGE>
the record date is adopted by the Board of Directors. If no record date has
been fixed by the Board of Directors, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
Delaware Law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in Delaware, its principal
place of business, or an officer or agent of the Corporation having custody
of the book in which proceedings of meetings of stockholders are recorded.
Delivery made to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. If no record date has
been fixed by the Board of Directors and prior action by the Board of
Directors is required by Delaware Law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or
allotment of any rights of the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose
of any other lawful action, the Board of Directors may fix a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted, and which record date shall be not more than 60
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
SECTION 5.02. DIVIDENDS. Subject to limitations contained in Delaware
Law and the certificate of incorporation, the Board of Directors may declare
and pay dividends upon the shares of capital stock of the Corporation, which
dividends may be paid either in cash, in property or in shares of the capital
stock of the Corporation.
SECTION 5.03. FISCAL YEAR. The fiscal year of the Corporation shall
commence on January 1 and end on December 31 of each year.
SECTION 5.04. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the
words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed, affixed or otherwise reproduced.
SECTION 5.05. VOTING OF STOCK OWNED BY THE CORPORATION. The Board of
Directors may authorize any person, on behalf of the Corporation, to attend,
vote
9
<PAGE>
at and grant proxies to be used at any meeting of stockholders of any
corporation (except this Corporation) in which the Corporation may hold stock.
SECTION 5.06. AMENDMENTS. These bylaws or any of them, may be altered,
amended or repealed, or new bylaws may be made, by the stockholders entitled
to vote thereon at any annual or special meeting thereof or by the Board of
Directors.
10
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
DAHX, INC.
FIRST: The name of the corporation (the "Corporation") shall be DAHX,
Inc.
SECOND: The address of the Corporation's registered office in the State
of Delaware is 15 East North Street, Dover, Delaware 19901, County of Kent.
The name of its registered agent at such address is Paracorp, Incorporated.
THIRD: The nature of the business or the purpose to be conducted or
promoted by the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH: The aggregate number of shares of all classes of which the
Corporation shall have authority to issue is as follows:
(i) 35,000,000 shares of Common Stock, with par value of $0.01 per share
(the "Common Shares");
(ii) 167,702 shares of Series A Convertible Preferred Stock, with par
value of $0.01 per share (the "Series A Preferred Shares"), 1,646,316 shares
of Series B Convertible Preferred Stock, with par value of $0.01 per share
(the "Series B Preferred Shares"), 3,000,000 shares of Series C Convertible
Preferred Stock, with par value of $0.01 per share (the "Series C Preferred
Shares"), 2,000,000 shares of Series D Convertible Preferred Stock, with par
value of $0.01 per share (the "Series D Preferred Shares"), and 1,500,000
shares of Series E Convertible Preferred Stock, with par value of $0.01 per
share (the "Series E Preferred Stock," and, collectively, with all of the
shares described in this clause (h), the "Convertible Preferred Shares");
PROVIDED, HOWEVER, that the number of authorized Convertible Preferred Shares
of each series shall be reduced by the number of such Convertible Preferred
Shares converted to Common Shares from time to time or otherwise acquired by
the Corporation, and the Corporation shall not be authorized to issue
Convertible Preferred Shares in replacement of or substitution for any such
converted or acquired Convertible Preferred Shares; and
(iii) 10,000,000 shares of Preferred Stock, with par value of $0.01 per
share (the "Undesignated Preferred Shares" and together with the Convertible
Preferred Shares, the "Preferred Shares"). The Undesignated Preferred Shares
may be issued in one or more series. The Board of Directors is hereby
authorized pursuant to the General Corporation Law of Delaware to fix or
alter from time to time the designations, powers, preferences and rights and
the qualifications, limitations or restrictions of the shares of each such
series of Undesignated Preferred Stock, and to establish from time to time
the number of shares constituting any such series or any of them; and to
increase or decrease the number of shares of any series, but not below the
number of shares of such
<PAGE>
series then outstanding. In case the number of shares of any series shall be
decreased to accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of
the resolution originally fixing the number of shares of such series.
FIFTH: The following is a statement of the designations, powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof, in respect of the Convertible Preferred Shares:
1. Except to the extent prohibited by law and subject to the
restrictions contained in that certain Credit Agreement dated November 2,
1994 among DeCrane Aircraft Holdings, Inc., an Ohio corporation ("DAH Ohio"),
Internationale Nederlanden (U.S.) Capital Corporation, a Delaware corporation
("ING"), certain affiliates of DAH, Ohio and certain other parties, as such
agreement may be amended from time to time (the "Credit Agreement"), which
will be adopted by the Corporation following the merger of DAH Ohio with and
into the Corporation, and in that certain Securities Purchase Agreement dated
November 2, 1994 among DAH Ohio, Electra Investment Trust P.L.C., a
corporation organized under the laws of the United Kingdom ("EIT"), and
Electra Associates, Inc., a Delaware corporation ("Electra Associates" and
collectively, with EIT "Electra"), and certain affiliates of DAH Ohio, as
such agreement may be amended from time to time (the "Purchase Agreement"),
which will be adopted by the Corporation following the merger of DAH Ohio
with and into the Corporation, the holders of Series A Preferred Shares,
Series B Preferred Shares, Series C Preferred Shares, Series D Preferred
Shares and Series E Preferred Shares shall be entitled to receive, pari
passu, when, as and if declared by the Board of Directors of the Corporation,
cash dividends out of funds legally available for such purpose. Cash
dividends at the annual rate of $.10 per Series A Preferred Shares, $.1263
per Series B Preferred Share, $.15 per Series C Preferred Share, $.325 per
Series D. Preferred Share and $.40 per Series E Preferred Share, whether or
not they are declared, shall cumulate from July 1, 1993 for the Series A
Preferred Shares and Series B Preferred Shares, from July 1, 1994 for the
Series C Preferred Shares, from February 15, 1996 for the Series D Preferred
Shares and from September 18, 1996 for the Series E Preferred Shares, and,
except to the extent prohibited by law and subject to the restrictions
contained in the Credit Agreement and the Purchase Agreement, such dividends
shall be payable quarterly, commencing July 1, 1993 for the Series A
Preferred Shares and the Series B Preferred Shares commencing July 1, 1994
for the Series C Preferred Shares, commencing February 15, 1996 for the
Series D Shares and commencing September 18, 1996 for the Series E Shares. In
the event that on or prior to May 5, 1997, the Corporation shall consummate
an underwritten public offering of Common Shares at a price to the public of
at least $4.50 per share (as adjusted for splits, stock dividends,
combinations and other events) with gross proceeds to the Corporation (before
deduction of underwriting discounts) of at least $10,000,000.00, all accrued
dividends on the Convertible Preferred Stock for the period ending on the
date of consummation of such offering shall be cancelled and eliminated. In
no event, so long as any Convertible Preferred Shares shall be outstanding,
shall any dividend whatsoever be declared or paid
- 2 -
<PAGE>
upon, nor shall any distribution made upon any Common Shares, whether in cash
or other property (excluding, however, dividends or distributions payable
solely in Common Shares) unless a dividend is paid or a distribution is made
simultaneously to holders of Convertible Preferred Shares immediately prior
to the record date for such dividend or distribution on the Common Shares.
2. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary:
(a) The holders of the Series D Preferred Shares and the Series
E Preferred Shares, before any distribution or payment is made upon any
Series A Preferred Shares, Series B Preferred Shares and Series C Preferred
Shares and Common Shares shall be entitled to be paid, pari passu, an amount
equal to (1) first, $3.25 per Series D Preferred Share and $4.00 per Series E
Preferred Share and (11) then an amount equal to any dividends thereon
declared but unpaid, and the holders of Series D Preferred Shares and Series
E Preferred Shares shall not be entitled to any further payment, such amounts
being sometimes referred to as the "Senior Liquidation Payments." If upon
such liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the assets to be distributed among the holders of
Series D Preferred Shares and Series E Preferred Shares shall be insufficient
to permit payment to such holders of the Senior Liquidation Payments, then
the entire assets of the Corporation to be so distributed shall be
distributed among each such series of Convertible Preferred Shares and among
the holders thereof (r) first, until all payments referred to in clause (i)
above have been made, pari passu, to the holders of the Series D Preferred
Shares and Series E Preferred Shares is the proportions set forth in clause
(l) above, and (y) then, to the extent that assets remain, to the payments
referred to in clause (ll) above pro rata to all holders of such series of
Preferred Shares in relative proportion to the amounts of accrued and unpaid
dividends with respect to each such Convertible Preferred Share. Upon any
such liquidation, dissolution or winding up of the Corporation, after the
holders of Series D Preferred Shares and Series E Preferred Shares shall have
been paid in full the amounts to which they shall be entitled, the remaining
net assets of the Corporation may be distributed to the holders of the Series
A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares
in the manner set forth in subparagraph 2(b).
(b) The holders of the Series A Preferred Shares, Series B
Preferred Shares and Series C Preferred Shares, before any distribution or
payment is made upon any Common Shares, shall be entitled to be paid, pari
passu, an amount equal to (i) first, $1.00 per Series A Preferred Share,
$1.263 per Series B Preferred Share and $1.50 per Series C Preferred Share,
and (11) then an amount equal to any dividends thereon declared but unpaid,
and the holders of Series A Preferred Shares. Series B Preferred Shares and
Series C Preferred Shares shall not be entitled to any further payment, such
amounts being sometimes referred to as the "Senior Subordinated Liquidation
Payments." If upon such liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to be distributed
among the holders of
- 3 -
<PAGE>
Series A Preferred Shares, Series B Preferred Shares and Series C Preferred
Shares after the Senior Liquidation Payments have been distributed shall be
insufficient to permit payments to such holders of the Senior Subordinated
Liquidation Payments, then the entire assets of the Corporation to be so
distributed shall be distributed ratably among each such series of
Convertible Preferred Shares and among the holders thereof (x) first, until
all payments referred to in clause (i) above have been made, pari passu, to
the holders of the Series A Preferred Shares, Series B Preferred Shares and
Series C Preferred Shares, in the proportion set forth in clause (i) above,
and (y) then, to the extent that assets remain, to the payments referred to
in clause (ii) above, pro rata to all holders of such series of Convertible
Preferred Shares in relative proportion to the amounts of accrued and unpaid
dividends with respect to each such Convertible Preferred Share.
(c) Upon any such liquidation, dissolution or winding up of the
Corporation, after the holders of Series D Preferred Shares and Series E
Preferred Shares, and the holders of Series A Preferred Shares, Series B
Preferred Shares and Series C Preferred Shares shall have been paid in full
the amounts to which they shall be entitled, the remaining net assets of the
Corporation may be distributed to the holders of Common Shares.
(d) Written notice of such liquidation, dissolution or winding up,
stating a payment date, the amount of the Senior Liquidation Payments and
Senior Subordinated Liquidation Payments as the case may be, and the place
where said Senior Liquidation Payments and Senior Subordinated Liquidation
Payments, as the case may be, shall be payable, shall be given by mail,
postage prepaid, not less than 30 days prior to the payment date stated
therein, to the holders of record of Series D Preferred Shares and Series E
Preferred Shares and to the holders of record of Series A Preferred Shares,
Series B Preferred Shares and Series C Preferred Shares, as the case may be,
such notice to be addressed to each such holder at his post office address as
shown by the records of the Corporation.
(e) For purposes of this paragraph 2 of Article FIFTH only, the
sale or transfer by the Corporation of all or substantially all its assets
shall be deemed to be a liquidation, dissolution or winding up of the
Corporation within the meaning of the provisions of this paragraph 2. Such a
sale or transfer by the Corporation shall not be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of any other
Article of this Certificate of Incorporation.
3A. Subject to the terms and conditions of this paragraph 3, each holder
of Series A Preferred Shares, Series B Preferred Shares, Series C Preferred
Shares, Series D Preferred Shares or Series E Preferred Shares shall have the
right, at its option at any time, to convert any such Series A Preferred
Shares, Series B Preferred Shares, Series C Preferred Shares, Series D
Preferred Shares or Series E Preferred Shares (except that upon any
liquidation of the Corporation the right of conversion shall terminate at the
close of business on the last full business day next preceding the date fixed
for payment
-4-
<PAGE>
of the amount distributable on the Series D Preferred Shares, the Series E
Preferred Shares, and the Series A Preferred Shares, the Series B Preferred
Shares and Series C Preferred Shares) into such number of fully paid and
nonassessable whole Common Shares as is obtained by, (i) in the case of
conversion of Series A Preferred Shares, multiplying the number of Series A
Preferred Shares so to be converted by $1.00 and dividing the result by the
conversion price of $1.00 per share or by the applicable conversion price as
last adjusted and in effect at the date any share or shares of such series of
Series A Preferred Shares are surrendered for conversion (such price, or such
price as last adjusted, being referred to herein as the "Series A Conversion
Price"), (ii) in the case of conversion of Series B Preferred Shares,
multiplying the number of Series B Preferred Shares so to be converted by
$1.263 and dividing the result by the conversion price of $1,263 per share or
by the applicable conversion price as last adjusted and in effect at the date
any share or shares of such series of Series B Preferred Shares are
surrendered for conversion (such price, or such price as last adjusted, being
referred to herein as the "Series B Conversion Price"), (iii) in the case of
conversion of Series C Preferred Shares, multiplying the number of Series C
Preferred Shares so to be converted by $1.50 and dividing the result by the
conversion price of $1.50 per share or by the applicable conversion price as
last adjusted and in effect at the date any share or shares of such series of
Series C Preferred Shares are surrendered for conversion (such price, or such
price as last adjusted, being referred to herein as the "Series C Conversion
Price"), (iv) in the case of conversion of Series D Preferred Shares,
multiplying the number of Series D Preferred Shares so to be converted by
$3.25 and dividing the result by the conversion price of $3.25 per share or
by the applicable conversion price as last adjusted and in effect at the date
any share or shares of such series of Series D Preferred Shares are
surrendered for conversion (such price, or such price as last adjusted, being
referred to herein as the "Series D Conversion Price"), and, (v) in the case
of conversion of Series E, Preferred Shares, multiplying the number of Series
E Preferred Shares so to be converted by $4.00 and dividing the result by the
conversion price of $4.00 per share or by the applicable conversion price as
last adjusted and in effect at the date any share or shares of such series of
Series E Preferred Shares are surrendered for conversion (such price, or such
price as last adjusted, being referred to herein as the "Series E Conversion
Price") and together with the Series A Conversion Price, the Series B
Conversion Price, the Series C Conversion Price and the Series D Conversion
Price, as the "Conversion Prices"). Such rights of conversion shall be
exercised by the holder thereof by giving written notice that the holder
elects to convert a stated number of Convertible Preferred Shares into Common
Shares and by surrender of a certificate or certificates for the shares so to
be converted to the Corporation at its principal office (or such other office
or agency of the Corporation as the Corporation may designate by notice in
writing to the holder or holders of Convertible Preferred Shares at any time
during its usual business hours on the date set forth in such notice,
together with a statement of the name or names (with address) in which the
certificate or certificates for shares of Common Shares shall be issued.
3B. Promptly after the receipt of the written notice referred to in
subparagraph 3A and surrender of the certificate or certificates for the
Convertible
-5-
<PAGE>
Preferred Shares to be converted, the Corporation shall issue and deliver, or
cause to be issued and delivered, to the holder, registered in such name or
names as such holder may direct a certificate or certificates for the number
of whole Common Shares issuable upon the conversion of such Convertible
Preferred Shares. To the extent permitted by law, such conversion shall be
deemed to have been effected and any one or more of the Conversion Prices, as
required, shall be determined as of the close of business on which such
written notice shall have been received by the Corporation and the
certificate or certificates for such share or shares shall have been
surrendered as aforesaid, and at such time the rights of the holder of such
Convertible Preferred Shares shall cease, and the person or persons in whose
name or names any certificate or certificates for Common Shares shall be
issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby.
3C. No fractional shares shall be issued upon conversion of the
Convertible Preferred Shares into Common Shares and no payment or adjustment
shall be made upon any conversion on account of any cash dividends on the
Common Shares issued upon such conversion. Except to the extent prohibited by
law and subject to the restrictions contained in the Credit Agreement and the
Purchase Agreement, at the time of each conversion, the Corporation shall pay
in cash an amount equal to all dividends accrued and unpaid on the shares
surrendered for conversion to the date upon which such conversion is deemed
to take place as provided in subparagraph 3B. In case the number of
Convertible Preferred Shares represented by the certificate or certificates
surrendered pursuant to subparagraph 3A exceeds the number of shares
converted, the Corporation shall, upon such conversion, execute and deliver
to the holder thereof, at the expense of the Corporation, a new certificate
or certificates for the number of Convertible Preferred Shares represented by
the certificate or certificates surrendered which are not to be converted. If
any fractional interest in a Common Share would, except for the provisions of
the first sentence of this subparagraph 3C, be deliverable upon any such
conversion, the Corporation, in lieu of delivering the fractional share
thereof, shall pay to the holder surrendering the Convertible Preferred
Shares for conversion an amount in cash equal to the current market price of
such fractional interest as determined in good faith by the Board of
Directors of the Corporation.
3D. Except (x) as provided in subparagraph 3F hereof or (y) in the
event of a dividend or distribution payable in equity securities of the
Corporation, if and whether the Corporation shall issue or sell, or is, in
accordance with subparagraphs 3D(1) through 3D(5), deemed to have issued or
sold, any of its Common Shares or securities convertible into or exercisable
for Common Shares, for a consideration per share (on a fully-diluted Common
Share basis) less than any one or more of the Conversion Prices in effect
immediately prior to the time of such issue or sale, then, forthwith upon
such issue or sale, each such Conversion Price which exceeds such per share
consideration shall be reduced to the price (calculated to the nearest cent)
equal to the product determined by multiplying the Conversion Price in effect
immediately prior thereto by a fraction, of which the numerator shall be
(i)(A) the total number of Common Shares outstanding immediately prior to the
time of such issue or sale, plus (B) the number of
-6-
<PAGE>
additional Common Shares which the aggregate offering price of the total
number of Common Shares so issued or sold would purchase at the Conversion
Price in effect immediately prior to such issuance or sale, and (ii) of which
the denominator shall be (A) the total number of Common Shares outstanding
immediately prior to such issuance or sale, plus (B) the number of Common
Shares so issued or sold. For purposes of the foregoing sentence, the total
number of Common Shares outstanding shall be deemed to include the number of
Common Shares which would be outstanding if all outstanding securities
exercisable for or convertible into Common Shares (except options (other than
warrants (to purchase Common Shares) were so exercised or converted, and all
securities exercisable for or convertible into Common Shares (except options
(other than warrants (to purchase Common Shares) were so exercised or
converted, as applicable, and then converted or exercised, as applicable.
For purposes of this subparagraph 3D, the following subparagraphs 3D(1)
to 3D(5), shall also be applicable:
3D(1). In case at any time the Corporation shall in any manner
grant (whether directly or by assumption in a merger or otherwise) any rights
to subscribe for or to purchase, or any options for the purchase of, Common
Shares or any stock or securities convertible into or exchangeable for Common
Shares (such rights or options being herein called "Options" and such
convertible or exchangeable stock or securities being herein called
"Convertible Securities") whether or not such Options or the right to convert
or exchange any such Convertible Securities are immediately exercisable, and
the price per share for which Common Shares are issuable upon the exercise of
such Options or upon conversion or exchange of such Convertible Securities
(determined by dividing (i) the total amount, if any, received or receivable
by the Corporation as consideration for the granting of such Options, plus
the minimum aggregate amount of additional consideration payable to the
Corporation upon the exercise of all such Options, plus, in the case of such
Options which relate to Convertible Securities, the minimum aggregate amount
of additional consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (ii)
the total maximum number of Common Shares issuable upon the exercise of such
Options or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options) shall be less than any one or
more of the conversion Prices in effect immediately prior to the time of the
granting of such Options, then the total maximum number of shares of Common
Shares issuable upon the exercise of such Options shall be deemed to have
been issued for such price per share as of the date of granting of such
Options and thereafter shall be deemed to be outstanding. Except as otherwise
provided in subparagraph 3D(3), no adjustment of any of the Conversion Prices
shall be made upon the actual issue of such Common Shares or of such
Convertible Securities upon exercise of such Options or upon the actual issue
of such Common Shares upon conversion or exchange of such Convertible
Securities.
3D(2). In case the Corporation shall in any manner issue (whether
directly or by assumption in a merger or otherwise) or sell any Convertible
Securities,
-7-
<PAGE>
whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Shares are issuable
upon such conversion or exchange (determined by dividing (i) the total amount
received or receivable by the Corporation as consideration for the issue or
sale of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (ii) the total maximum number of Common
Shares issuable upon the conversion or exchange of all such Convertible
Securities) shall be less than any one or more of the Conversion Prices in
effect immediately prior to the time of such issue or sale, then the total
maximum number of Common Shares issuable upon conversion or exchange of all
such Convertible Securities shall be deemed to have been issued for such
price per share as of the date of the issue or sale of such Convertible
Securities and thereafter shall be deemed to be outstanding, provided that
(a) except as otherwise provided in subparagraph 3D(3) below, no adjustment
of any of the Conversion Prices shall be made upon the actual issue of such
Common Shares upon conversion or exchange of such Convertible Securities, and
(b) if any such issue or sale of such Convertible Securities is made upon
exercise of any Option to purchase any such Convertible Securities for which
adjustments of any one or more of the Conversion Prices have been or are to
be made pursuant to other provisions of this subparagraph 3D, no further
adjustment of any such Conversion Price shall be made by reason of such issue
or sale.
3D(3). Upon the happening of any of the following events, namely,
if the purchase price provided for in any Option referred to in subparagraph
3D(1), the additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in subparagraph 3D(1) or
3D(2), or the rate at which any Convertible Securities referred to in
subparagraph 3D(1) or 3D(2) are convertible into or exchangeable for Common
Shares shall change at any time (other than under or by reason of provisions
designed to protect against dilution), each of the Conversion Prices in
effect at the time of such event shall forthwith be readjusted to such
Conversion Price which would have been in effect at such time had such
Options or Convertible Securities still outstanding provided for such changed
purchase price, additional consideration or conversion rate, as the case may
be, at the time initially granted, issued or sold; and on the expiration of
any such Option or the termination of any such right to convert or exchange
such Conversion Securities, each of the Conversion Prices then in effect
hereunder shall, as required, forthwith be increased to the respective such
Conversion Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued, and the Common Shares issuable thereunder shall no longer be
deemed to be outstanding. If the purchase price provided for in any such Option
referred to in subparagraph 3D(1) or the rate at which any Convertible
Securities referred to in subparagraph 3D(1) or 3D(2) are convertible into or
exchangeable for Common Shares shall be reduced at any time under or by
reason of provisions with respect thereto designed to protect against
dilution, then, in case of the delivery of Common Shares upon the exercise of
any such Option, or upon conversion or exchange of any such Convertible
Securities, each of the
-8-
<PAGE>
Conversion Prices then in effect hereunder shall forthwith be adjusted to
such respective amount as would have been obtained had such Option or
Convertible Securities never been issued as to such Common Shares and had
adjustments been made upon the issuance of the Common Shares delivered as
aforesaid, but only if as a result of such adjustment any such Conversion
Price then in effect hereunder is hereby reduced.
3D(4). In case any Common Shares, Options or Convertible Securities
shall be issued or sold for cash, the consideration received therefor shall
be deemed to be the amount received by the Corporation therefor, without
deduction therefrom of any expenses incurred or any underwriting commissions
paid or allowed by the Corporation in connection therewith. In case any
Common Shares, Options or Convertible Securities shall be issued or sold for
a consideration other than cash, the amount of the consideration other than
cash received by the Corporation shall be deemed to be the fair market value
of such consideration as determined in good faith by the Board of Directors
of the Corporation, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Corporation in
connection therewith. The amount of consideration deemed to be received by
the Corporation pursuant to the foregoing provisions of this subparagraph
3D(4) upon any issuance and/or sale of Common Shares, Options or Convertible
Securities pursuant to an established compensation plan of the Corporation,
to directors, officers or employees of the Corporation in connection with
their employment shall be increased by the amount of any tax benefit realized
by the Corporation as a result of such issuance and/or sale, the amount of
such tax benefit being the amount by which the federal and/or state income or
other tax liability of the Corporation shall be reduced by reason of any
deduction or credit in respect of such issuance and/or sale. In case any
Options shall be issued in connection with the issue and sale of other
securities of the Corporation, together comprising one integral transaction
in which no specific consideration is allocated to such Options by the
parties thereto, the consideration deemed to have been received by the
Corporation for such Options shall be an amount (i) agreed to by the
Corporation, the holders of a majority of the Convertible Preferred Shares
then outstanding and the holders of a majority of the Common Shares then
outstanding or, (ii) in the absence of such agreement, by an independent firm
of investment bankers, appraisers or accountants selected by the Corporation
(and approved by the holders of a majority of the Common Shares then
outstanding and the holders of a majority of the Convertible Preferred Shares
then outstanding) or, (iii) in the absence of agreement as to the identity of
such independent firm, by three independent firms of investment bankers,
appraisers or accountants, (A) one of which shall be selected by the
Corporation (and approved by the holders of a majority of the Common Shares
then outstanding), (B) one by the holders of a majority of the Convertible
Preferred Shares then outstanding and (C) the third selected by the
investment bankers, appraisers or accountants selected by the Corporation and
such holders of a majority of the outstanding Convertible Preferred Shares
pursuant to parts (A) and (B) of this clause (iii), or (iv) in such other
manner as may be agreed between the Corporation and the holders of a majority
of the Convertible Preferred Shares outstanding (and approved by the holders
of a majority of the Common Shares then outstanding). The Corporation
-9-
<PAGE>
shall bear the costs associated with compensating the investment bankers,
appraisers and accountants described in the preceding sentence if the
determination of the value of the consideration deemed to have been received
by the Corporation for the Options is made pursuant to clause (ii) of the
preceding sentence, but if such determination is made pursuant to clause
(iii) of the preceding sentence, (x) the Corporation shall bear the costs
associated with compensating the investment bankers, appraisers or
accountants appointed pursuant to part (A) of such clause (iii), (y) the
holders of the then outstanding Convertible Preferred Shares (pro rata in
proportion to the number of Convertible Preferred Shares held by each such
holder) shall bear the costs associated with compensating the investment
bankers, appraisers or accountants appointed pursuant to part (B) of such
clause (iii), and (z) the Corporation shall bear one-half of the costs
associated with compensating the investment bankers, appraisers and
accountants appointed pursuant to part (C) of such clause (iii), and the
holders of the then outstanding Convertible Preferred Shares (pro rata in
proportion to the number of Preferred Shares held by each such holder) shall
bear the remaining one-half of such costs. For purposes of the foregoing
provisions of this subparagraph 3D(4), (i) holders of Common Shares
outstanding shall be deemed to include the holders of securities (except
Convertible Preferred Shares, securities exchangeable for or exercisable
into Convertible Preferred Shares, and options (other than warrants) to
purchase Common Shares) Convertible into or exercisable for Common Shares
("Common Convertible Securities"), (ii) the number of Common Shares deemed to
be held by the holders referred to in the immediately preceding clause (i) shall
be deemed to be equal to the number of Common Shares into which such Common
Convertible Securities could then be converted or for which such Common
Convertible Securities could then be exercised, (iii) the holders of
Convertible Preferred Shares outstanding shall be deemed to include the
holders of securities Convertible into or exercisable for Convertible
Preferred Shares ("Preferred Convertible Securities"), and (iv) the number of
Convertible Preferred Shares deemed to be held by the holders referred to in
the immediately preceding clause (iii) shall be deemed to be equal to the
number of Convertible Preferred Shares into which such Convertible Preferred
Convertible Securities could then be converted or for which such Preferred
Convertible Securities could then be exercised.
3D(5). The number of Common Shares outstanding at any given time
shall not include shares owned or held by or for the account of the
Corporation, and the disposition of any such shares shall be considered an
issue or sale of Common Shares for the purposes of this subparagraph 3D.
3E. In case the Corporation shall at any time subdivide its outstanding
Common Shares into a greater number of shares or make a dividend or
distribution payable in Common Shares, the Conversion Prices in effect
immediately prior to such subdivision shall be proportionately reduced, and
conversely, in case the outstanding Common Shares of the Corporation shall be
combined into a smaller number of shares, the Conversion Prices in effect
immediately prior to such combination shall be proportionately increased.
-10-
<PAGE>
3F. Anything herein to the contrary notwithstanding, the Corporation
shall not be required to make any adjustment of any of the Conversion Prices
in the case of the issuance of:
(i) up to an aggregate of 867,000 Common Shares, or options to
purchase the same, pursuant to stock options or purchase plans adopted
by the Corporation;
(ii) up to an aggregate of 205,000 Common Shares, or options to
purchase the same, for key employees of businesses acquired by the
Corporation;
(iii) the Common Shares or Preferred Shares upon exercise of any
presently outstanding warrant (or any Common Shares upon conversion of
Preferred Shares issued upon exercise of any presently outstanding
warrant), not including the warrants referred to in subparagraph (iv) of
this Section 3F, Common Shares upon conversion of presently outstanding
Preferred Shares;
(iv) warrants for Common Shares, and the Common Shares issued
upon exercise of such warrants, to ING, Electra, Nassau Capital
Partners L.P. and NAS Partners I, L.L.C.;
(v) up to an aggregate of 41,000 Common Shares, or options to
purchase the same, to directors of the Corporation; or
(vi) up to an aggregate of 820,000 Common Shares, or options to
purchase the same, in connection with any merger or acquisition to which
the Corporation or any subsidiary is a party.
3G. If any capital reorganization or reclassification of the capital
stock of the Corporation shall be effected in such a way that holders of
Common Shares shall be entitled to receive shares, securities or assets with
respect to or in exchange for Common Shares, then, as a condition of such
reorganization or reclassification, lawful and adequate provisions (in form
satisfactory to the holders of at least 66-2/3% of the outstanding
Convertible Preferred Shares voting together as a class) shall be made
whereby each holder of Convertible Preferred Shares shall thereafter have the
right to receive, upon the basis and upon the terms and conditions specified
herein and in lieu of the Common Shares of the Corporation immediately
theretofore receivable upon the conversion of Convertible Preferred Shares,
such shares, securities or assets as may be issued or payable with respect to
or in exchange for a number of outstanding Common Shares equal to the number
of such shares immediately theretofore so receivable upon such conversion,
and in any such case appropriate provision shall be made with respect to the
rights and interests of such holder to the end that the provisions hereof
(including without limitation provisions for adjustments of the Conversion
Prices) shall thereafter be applicable, as nearly as may be in relation to
any shares, securities or assets thereafter deliverable upon the exercise of
such conversion rights (including, as required, an
-11-
<PAGE>
immediate adjustment, by reason of such reorganization or reclassification,
of any one or more, of the Conversion Prices to the value for the Common
Shares reflected by the terms of such reorganization or reclassification if
the value so reflected is less than any Conversion Price in effect
immediately prior to such reorganization or reclassification). In the event
of a merger or consolidation of the Corporation as a result of which a
greater or lesser number of Common Shares of the surviving corporation are
issuable to holders of Common Shares of the Corporation outstanding
immediately prior to such merger or consolidation, each of the Conversion
Prices in effect immediately prior to such merger or consolidation shall, as
required, be adjusted in the same manner as though there were subdivision or
combination of the outstanding Common Shares of the Corporation. The
Corporation will not effect any such consolidation, merger or sale, unless
prior to the consummation thereof the successor corporation (other than the
Corporation) resulting from such consolidation or merger or if the
corporation purchasing such assets shall assume by written instrument (in
form reasonably satisfactory to the holders of at least 66-2/3% of the
Convertible Preferred Shares at the time outstanding voting together as a
class) executed and mailed or delivered to each holder of Convertible
Preferred Shares at the last address of such holder appearing on the books of
the Corporation, the obligation to deliver to such holder such shares,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to receive.
3H. Upon any adjustment of any one or more of the Conversion Prices,
then and in each such case the Corporation shall give written notice thereof,
by first class mail, postage prepaid, addressed to each holder of Convertible
Preferred Shares at the address of such holder as shown on the books of the
Corporation, which notice shall state the Conversion Price resulting from
such adjustment, setting forth in reasonable detail the method of calculation
and the facts upon which such calculation is based.
3I. In case at any time:
(1) the Corporation shall declare any dividend upon its Common
Shares payable in cash or shares or make any other distribution to the
holder of its Common Shares;
(2) the Corporation shall offer for subscription PRO RATA to the
holders of its Common Shares any additional shares of any class or other
rights;
(3) there shall be any capital reorganization or reclassification
or merger of the Corporation with, or a sale of all or substantially all
of its assets to, another corporation; or
(4) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
-12-
<PAGE>
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, addressed to each holder of any Convertible
Preferred Shares at the address of such holder as shown on the books of the
Corporation, at least 20 days' prior written notice of the date (a) on which
the books of the Corporation shall close or a record shall be taken for the
purpose of determining the holders entitled to receive such dividend,
distribution or subscription rights or (b) for determining rights to vote in
respect of any reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up shall take place. Such notice in
accordance with the foregoing clause (a) shall also specify, in the case of
any such dividend, distribution or subscription rights, the date on which the
holders of Common Shares shall be entitled thereto, and such notice in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Shares shall be entitled to exchange their Common
Shares for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
3J. The Corporation will at all times reserve and keep available out
of its authorized Common Shares or its treasury shares, solely for the
purpose of issuance upon conversion of Convertible Preferred Shares as herein
provided, such number of Common Shares as shall then be issuable upon the
conversion of all outstanding Convertible Preferred Shares (including shares
issuable in respect of any cumulated but unpaid dividends on the convertible
Preferred Shares). The Corporation covenants that all Common Shares which
shall be so issued shall be duly and validly issued and fully paid and
nonassessable and free from all liens and charges with respect to the issue
thereof. The Corporation will not take any action which results in any
adjustment of any of the Conversion Prices if the total number of Common
Shares issued and issuable after such action upon conversion of the
Convertible Preferred Shares would exceed the total number of Common Shares
then authorized by this Certificate of Incorporation.
3K. The issuance of certificates for shares of Common Shares upon
conversion of the Convertible Preferred Shares shall be made without charge
to the holders thereof for any issuance tax in respect thereof, provided that
the Corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Convertible
Preferred Shares which is being converted.
3L. The Corporation will at no time close its transfer books against
the transfer of any Convertible Preferred Shares or any shares of Common
Shares issued or issuable upon the conversion of any shares of Convertible
Preferred Shares in any manner which interfere with the timely conversion of
such Convertible Preferred Shares.
3M. The adjustments to the Conversion Prices which are referred to
above in this paragraph 3 shall be effective as to all Convertible Preferred
Shares, whether or not such Convertible Preferred Shares are issued and
outstanding at the time of occurrence of the events which trigger the
adjustment in the Conversion Prices.
- 13 -
<PAGE>
3. Except as otherwise provided by law and this Certificate of
Incorporation, the holders of Common Shares and Convertible Preferred Shares
shall vote together as a class (together with holders of Convertible
Preferred Shares or any other series entitled to vote) on all matters to be
voted on by the shareholders of the Corporation on the basis that each holder
of Convertible Preferred Shares shall be entitled to vote for each share of
Common Shares which would be issuable to such holder upon the conversion of
all the Convertible Preferred Shares so held on the record date for the
determination of shareholders entitled to vote.
4. Subject to the provisions contained in that certain Fourth Amended
and Restated Shareholders Agreement dated as of September 18, 1996 among DAH
Ohio and the other parties named therein, as it may be amended from time to
time, which will be adopted by the Corporation, at any time when shares of
Convertible Preferred Shares are outstanding, except where the vote of the
holders of a greater number of shares of the Corporation is required by law
or by the Certificate of Incorporation and in addition to any other vote
required by law.
5A. The Corporation will not create or authorize the creation of any
additional class of shares unless the same ranks junior to the Series D
Preferred Shares and the Series E Preferred Shares as to the distribution of
assets on the liquidation, dissolution or winding up of the Corporation, or
increase the authorized amount of the Series D Preferred Shares or the Series
E Preferred Shares or increase the authorized amount of any additional class
of shares of stock unless the same ranks junior to the Series D Preferred
Shares and the Series E Preferred Shares as to the distribution of assets on
the liquidation, dissolution or winding up of the Corporation, or create or
authorize any obligation or security convertible into Series D Preferred
Shares or Series E Preferred Shares or into shares of any other class of
shares unless the same ranks junior to the Series D Preferred Shares and the
Series E Preferred Shares as to the distribution of assets on the
liquidation, dissolution or winding up of the Corporation, whether any such
creation of authorization or increase shall be by means of amendment of this
Certificate of Incorporation or by merger, consolidation or otherwise,
without the prior consent of the holders of a majority of the outstanding
Series D Preferred Shares, voting as a class, and the holders of a majority
of the outstanding Series E Preferred Shares, voting as a class, given in
person or by proxy at an annual or special meeting called for that purpose,
at which meeting the holders of the shares of Series D Preferred Shares,
Series E Preferred Shares shall vote together as a separate class.
5B. The Corporation will not create or authorize the creation of any
additional class of shares unless the same ranks junior to the Series A
Preferred Shares, Series B Preferred Shares and Series C Preferred Shares as
to the distribution of assets on the liquidation, dissolution or winding up
of the Corporation, or increase the authorized amount of the Series A
Preferred Shares, Series B Preferred Shares or Series C Preferred Shares or
increase the authorized amount of any additional class of shares of stock
unless the same ranks junior to the Series A Preferred Shares, Series B
Preferred
- 14 -
<PAGE>
Shares and Series C Preferred Shares as to the distribution of assets of the
liquidation, dissolution or winding up of the Corporation, or create or
authorize any obligation or security convertible into Series A Preferred
Shares, Series B Preferred Shares, Series C Preferred Shares or into any
other class of shares unless the same ranks junior to the Series A Preferred
Shares, Series B Preferred Shares and Series C Preferred Shares as to the
distribution of assets on the liquidation, dissolution or winding up of the
Corporation, whether any such creation or authorization or increase shall be
by means of amendment of the Certificate of Incorporation or by merger,
consolidation or otherwise, without the prior consent of the holders of a
majority of the outstanding Series A Preferred Shares, Series B Preferred
Shares and Series C Preferred Shares, voting as a class, given in person or
proxy, at an annual or special meeting called for that purpose, at which
meeting the holders of the shares of Series A Preferred Shares, Series B
Preferred Shares and Series C Preferred Shares shall vote together as a
separate class.
5C. The Corporation will not merge or consolidate with or into any
other corporation or sell (except in the ordinary course of business) assets
representing more than 10% of the Corporation's total assets, excluding
inventory, without the prior consent of the holders of a majority of the
outstanding Convertible Preferred Shares voting as a class, given in person
or by proxy, at a special meeting called for that purpose, at which meeting
the holders of Convertible Preferred Shares shall vote together as a separate
class; provided, however, that notwithstanding any provision of this
paragraph 5C, to the contrary, the provisions of this paragraph 5C shall not
apply with respect to the exercise (i) by ING, of its rights under any of the
Security Documents (as defined in the Credit Agreement, as it may be amended
from time to time), or (ii) by Electra of its rights under the Purchase
Agreement or any of the Related Agreements (as defined in the Purchase
Agreement).
5D. The Corporation will not amend, alter or repeal its Certificate of
Incorporation or By-Laws in any manner so as to adversely affect the
respective relative rights and preferences of the Convertible Preferred
Shares or the holders thereof, without the prior consent of the holders of a
majority of the outstanding shares of the Series of Convertible Preferred
Shares whose rights or preferences would be adversely affected thereby, given
in person or by proxy, at an annual or special meeting called for that
purpose, at which meeting the holders of the shares of the Series of
Convertible Preferred Shares whose rights or preferences would be adversely
affected thereby voting together as a separate class.
5. All cross-references in each subdivision of this Article FIFTH
shall refer to other subdivisions of this Article FIFTH.
- 15 -
<PAGE>
SIXTH: The following is a statement of the designations, powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof, in respect of the Common Shares:
1. The holders of Common Shares shall be entitled to receive such
dividends as from time to time may be declared by the Board of Directors of
the Corporation subject to the provisions of subdivision 1 of Article FIFTH
with respect to the rights of holders of the Convertible Preferred Shares.
2. In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after payment shall have been
made to holders of the Convertible Preferred Shares of the full amounts to
which they shall respectively be entitled as stated and expressed herein or
as may be stated and expressed pursuant thereto, the holders of Common Shares
shall be entitled to the exclusion of the holders of the Convertible
Preferred Shares to share ratably according to the number of Common Shares
held by them in all remaining assets of the Corporation available for
distribution to its stockholders.
3. All of the Common Shares shall be identical with each other in every
respect. Each Common Share shall entitled the holder thereof to one vote for
each share upon all matters upon which shareholders have the right to vote.
The Corporation may issue from time to time warrants to acquire Common Shares
which permit the holders thereof to vote together with the holders of Common
Shares a number of votes equal to the number of shares of Common Shares which
may be acquired upon exercise of such warrants.
SEVENTH: The name and mailing address of the incorporator is as follows:
NAME MAILING ADDRESS
Linda Criblez 2121 Avenue of the Stars
18th Floor
Los Angeles, CA 90067
EIGHTH:
1. The directors of the Corporation shall have no personal liability
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except (i) for any breach of a director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of
Delaware, or (iv) for any transaction from which a director derived any
improper personal benefit. If the General Corporation Law of Delaware is so
amended after the filing of this Certificate of Incorporation to further
eliminate or limit the personal liability of directors, then the personal
liability of the directors shall be
- 16 -
<PAGE>
eliminated or limited to the fullest extent permitted by the General
Corporation Law of Delaware as so amended.
2. The Corporation shall indemnify, to accordance with and to the
fullest extent now or hereafter permitted by law, any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal administrative
or investigative, including without limitation, an action by or in the right
of the Corporation, by reason of his acting as a director or executive
officer (within the meaning of Rule 3b-7 promulgated under the Securities
Exchange Act of 1934, as amended) of the Corporation (and the Corporation, in
the discretion of the Board of Directors, may so indemnify a person by reason
of the fact that he is or was an other officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation in any
other capacity for or on behalf of the Corporation) against any liability or
expense actually and reasonably incurred by each person in respect thereof;
provided, however, the Corporation shall be required to indemnify an officer
or director in connection with an action, suit or proceeding if such action,
suit or proceeding was authorized by the Board of Directors of the
Corporation. Such indemnification is not exclusive of any other right to
indemnification provided by law or otherwise. The right to indemnification
conferred by this Section 2 shall be deemed to be a contract between the
Corporation and each person referred to herein.
3. No amendment to or repeal of those provisions shall apply to or have
any effect on the liability or alleged liability of any person for or with
respect to any acts or omissions of such person occurring prior to such
amendments.
NINTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make adopt, alter,
amend or repeal the By-laws of the Corporation. Subject to any provisions in
the By-laws providing indemnification to officers and directors of the
Corporation, the By-laws of the Corporation may be altered or amended or new
By-laws adopted by the affirmative vote of the holders of at least 66 1/3% of
the outstanding shares of capital stock of the Corporation (including any
warrants with voting rights) entitled to vote (voting together as a single
class).
TENTH: [Deleted by the Agreement Plan of Merger dated as of June 17, 1998
between the Corporation and DeCrane AcquisiTion Co.]
- 17 -
<PAGE>
ELEVENTH: The affirmative vote of at least 66-2/3% of the outstanding
shares of capital stock of the Corporation entitled to vote (including any
warrants with voting rights) shall be required to amend or repeal any
provision of Articles EIGHTH, NINTH, TENTH and ELEVENTH hereof or to adopt any
provision inconsistent therewith.
TWELFTH: The Corporation reserves the rights to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
-18-
<PAGE>
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a Corporation pursuant to the General Corporation Law of
the State of Delaware, do make this certificate, hereby declaring and
certifying that this is my act and deed and the facts herein stated
are true, and accordingly have hereunto set my hand as of January 8, 1997.
/s/ Linda Criblez
-------------------------------
Linda Criblez
-19-
<PAGE>
Exhibit 3.2
BYLAWS
OF
DAHX, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICERS
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Dover, County of Kent or in
such other city within the State of Delaware as the Board of Directors may
select, from time to time.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by
the Board of Directors, and may also have offices at such other places, both
within and without the State of Delaware,as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State
of Delaware, as may be designated from time to time by the Board of
Directors, or, if not so designated, then at the office of the corporation
required to be maintained pursuant to Section 2 hereof.
1.
<PAGE>
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation, for the
purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (B) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (C)
otherwise properly brought before the meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary
of the corporation. To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal executive offices of the corporation
not later than the close of business on the sixtieth (60th) day nor earlier
than the close of business on the ninetieth (9Oth) day prior to the first
anniversary of the preceding year's annual meeting; PROVIDED, HOWEVER, that
in the event that no annual meeting was held in the previous year or the date
of the annual meeting has been changed by more than thirty (30) days from the
first anniversary of the preceding year's annual meeting, notice by the
stockholder to be timely must be so received not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not
later than the close of business on the later of the sixtieth (60th) day
prior to such annual meeting or, in the event public announcement of the date
of such annual meeting is first made by the corporation fewer than seventy
(70) days prior to the date of such annual meeting, the close of business on
the tenth (lOth) day following the day on which public announcement of the
date of such meeting is first made by the corporation. A stockholder's notice
to the Secretary shall set forth as to each matter the stockholder proposes
to bring before the annual meeting: (i) a brief description of the business
desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and address, as
they appear on the corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the " 1934 Act"), in his
capacity as a proponent to a stockholder proposal. Notwithstanding the
foregoing, in order to include information with respect to a stockholder
proposal in the proxy statement and form of proxy for a stockholder's
meeting, stockholders must provide notice as required by the regulations
promulgated under the 1934 Act. Notwithstanding anything in these Bylaws to
the contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this paragraph (b). The chairman
of the annual meeting shall, if the facts warrant, determine and declare at
the meeting that business was not properly brought before the meeting and in
accordance with the provisions of this paragraph (b), and, if he should so
determine, he shall so declare at the meeting that any such business not
properly brought before the meeting shall not be transacted.
2.
<PAGE>
(c) Only persons who are nominated in accordance with the procedures set
forth in this paragraph (c) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction
of the Board of Directors or by any stockholder of the corporation entitled
to vote in the election of directors at the meeting who complies with the
notice procedures set forth in this paragraph (c). Such nominations, other
than those made by or at the direction of the Board of Directors, shall be
made pursuant to timely notice in writing to the Secretary of the corporation
in accordance with the provisions of paragraph (b) of this Section 5. Such
stockholder's notice shall set forth (i) as to each person, if any, whom the
stockholder proposes to nominate for election or re-election as a director:
(A) the name, age, business address and residence address of such person, (B)
the principal occupation or employment of such person, (C) the class and
number of shares of the corporation which are beneficially owned by such
person, (D) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nominations are to be made by the
stockholder, and (E) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the 1934 Act (including without limitation such person's written
consent to being named in the proxy statement, if any, as a nominee and to
serving as a director if elected); and (ii) as to such stockholder giving
notice, the information required to be provided pursuant to paragraph (b) of
this Section 5. At the request of the Board of Directors, any person
nominated by a stockholder for election as a director shall confirm in
writing to the Secretary of the corporation the accuracy of the information
set forth in the stockholder's notice of nomination which pertains to the
nominee. No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth in
this paragraph (c). The chairman of the meeting shall, if the facts warrant,
determine and declare at the meeting that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, and if he should
so determine, he shall so declare at the meeting, and the defective
nomination shall be disregarded.
(d) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board of Directors for adoption) or (iv) by the President.
(b) If a special meeting is called by any person or persons other than
the Board of Directors, the request shall be in writing, specifying the
general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board of Directors, the Chief
3.
<PAGE>
Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice.
The Board of Directors shall determine the time and place of such special
meeting, which shall be held not less than thirty-five (35) nor more than one
hundred twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote,
in accordance with the provisions of Section 7 of these Bylaws. If the notice
is not given within sixty (60) days after the receipt of the request, the
person or persons requesting the meeting may set the time and place of the
meeting and give the notice. Nothing contained in this paragraph (b) shall be
construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of
stockholders shall be given not less than ten (10) nor more than sixty (60)
days before the date of the meeting to each stockholder entitled to vote at
such meeting, such notice to specify the place, date and hour and purpose or
purposes of the meeting. Notice of the time, place and purpose of any meeting
of stockholders may be waived in writing, signed by the person entitled to
notice thereof, either before or after such meeting, and will be waived by
any stockholder by his attendance thereat in person or by proxy, except when
the stockholder attends a meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Any stockholder so waiving notice
of such meeting shall be bound by the proceedings of any such meeting in all
respects as if due notice thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where otherwise
provided by statute or by the Certificate of Incorporation, or by these
Bylaws, the presence, in person or by proxy duly authorized, of the holders
of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time,
either by the chairman of the meeting or by vote of the holders of a majority
of the shares represented thereat, but no other business shall be transacted
at such meeting. The stockholders present at a duly called or convened
meeting, at which a quorum is present, may continue to transact business
until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, all action taken by the holders
of a majority of the vote cast, excluding abstentions, at any meeting at
which a quorum is present shall be valid and binding upon the corporation;
provided, however, that directors shall be elected by a plurality of the
votes of the shares present in person or represented by proxy at the meeting
and entitled to vote on the election of directors. Where a separate vote by a
class or classes or series is required, except where otherwise provided by
the statute or by the Certificate of Incorporation or these Bylaws, a
majority of the outstanding shares of such class or classes or series,
present in person or represented by proxy, shall constitute a quorum entitled
to take action with respect to that vote on that matter and, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, the affirmative vote of the majority (plurality, in the case of
the election of directors) of the
4.
<PAGE>
votes cast, including abstentions, by the holders of shares of such class or
classes or senes shall be the act of such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the
shares casting votes, excluding abstentions. When a meeting is adjourned to
another time or place, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting, the corporation may transact
any business which might have been transacted at the original meeting. If the
adjournment is for more than thirty (30) days or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those stockholders
entitled to vote at any meeting of the stockholders, except as otherwise
provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by
an agent or agents authorized by a proxy granted in accordance with Delaware
law. An agent so appointed need not be a stockholder. No proxy shall be voted
after three (3) years from its date of creation unless the proxy provides for
a longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety, or otherwise, or if two (2) or more persons have the
same fiduciary relationship respecting the same shares, unless the Secretary
is given written notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein it
is so provided, their acts with respect to voting shall have the following
effect: (a) if only one (1) votes, his act binds all; (b) if more than one
(1) votes, the act of the majority so voting binds all; (c) if more than one
(1) votes, but the vote is evenly split on any particular matter, each
faction may vote the securities in question proportionally, or may apply to
the Delaware Court of Chancery for relief as provided in the General
Corporation Law of Delaware, Section 217(b). If the instrument filed with the
Secretary shows that any such tenancy is held in unequal interests, a
majority or even-split for the purpose of subsection (c) shall be a majority
or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list
of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
5.
<PAGE>
produced and kept at the time and place of meeting during the whole time
thereof and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of Incorporation,
any action required by statute to be taken at any annual or special meeting
of the stockholders, or any action which may be taken at any annual or
special meeting of the stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective
to take the corporate action referred to therein unless, within sixty (60)
days of the earliest dated consent delivered to the corporation in the manner
herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to
its registered office in the State of Delaware, its principal place of
business or an officer or agent of the corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made
to a corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the General Corporation Law of the State of Delaware if such
action had been voted on by stockholders at a meeting thereof, then the
certificate filed under such section shall state, in lieu of any statement
required by such section concerning any vote of stockholders, that written
notice and written consent have been given as provided in Section 228 of the
General Corporation Law of Delaware.
(d) Notwithstanding the foregoing, no such action by written consent
may be taken from and after such time as the corporation shall have a class
of equity security registered under Section 12(b) or 12(g) of the 1934 Act.
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen
by a majority in interest of the stockholders entitled to vote, present in
person or by proxy, shall act as chairman. The Secretary, or, in his absence,
an Assistant Secretary directed to do so by the President, shall act as
secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary,
6.
<PAGE>
appropnate or convenient. Subject to such rules and regulations of the Board
of Directors if any, the chairman of the meeting shall have the right and
authority to prescribe such rules, regulations and procedures and to do all
such acts as, in the judgment of such chairman, are necessary, appropriate or
convenient for the proper conduct of the meeting, including, without
limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders
of record of the corporation and their duly authorized and constituted
proxies and such other persons as the chairman shall permit, restrictions on
entry to the meeting after the time fixed for the commencement thereof,
limitations on the time allotted to questions or comments by participants and
regulation of the opening and closing of the polls for balloting on matters
which are to be voted on by ballot. Unless and to the extent determined by
the Board of Directors or the chairman of the meeting, meetings of
stockholders shall not be required to be held in accordance with rules of
parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of directors
of the corporation shall be between five and nine. The exact number of
directors within the limitations specified in the preceding sentence shall be
fixed from time to time by a resolution adopted by the affirmative vote of
the Board of Directors or by a By-Law duly adopted by the Board of Directors.
Directors need not be stockholders unless so required by the Certificate of
Incorporation. If for any cause, the directors shall not have been elected at
an annual meeting, they may be elected as soon thereafter as convenient at a
special meeting of the stockholders called for that purpose in the manner
provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. RESIGNATION. Any director may resign at any time by delivering
his written resignation to the Secretary, such resignation to specify whether
it will be effective at a particular time, upon receipt by the Secretary or
at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors.
SECTION 18. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors shall
be held immediately before or after the annual meeting of stockholders and at
the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may
lawfully come before it.
7.
<PAGE>
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided, regular
meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the
State of Delaware which has been designated by resolution of the Board of
Directors or the written consent of all directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, special meetings of the Board of Directors may be held at
any time and place within or without the State of Delaware whenever called by
the Chairman of the Board, the President or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of any
committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a
meeting by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by
telephone, facsimile, telegraph or telex, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent
in writing to each director by first class mail, charges prepaid, at least
three (3) days before the date of the meeting. Notice of any meeting may be
waived in writing at any time before or after the meeting and will be waived
by any director by attendance thereat, except when the director attends the
meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
(f) WAIVER OF NOTICE. The transaction of all business at any meeting of
the Board of Directors, or any committee thereof, however called or noticed,
or wherever held, shall be as valid as though had at a meeting duly held
after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records
or made a part of the minutes of the meeting.
SECTION 19. QUORUM AND VOTING.
(a) A quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of
Directors in accordance with the Certificate of Incorporation; PROVIDED,
HOWEVER, at any meeting whether a quorum be present or otherwise, a majority
of the directors present may adjourn from time to time until the time fixed
for the next regular meeting of the Board of Directors, without notice other
than by announcement at the meeting.
(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative
vote of a majority of the
8.
<PAGE>
directors present unless a different vote be required by law, the
Certificate of Incorporation or these Bylaws.
SECTION 20. ACTION WITHOUT MEETING. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board
of Directors or committee, as the case may be, consent thereto in writing,
and such writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
SECTION 21. FEES, AND COMPENSATION. Directors shall be entitled to
such compensation for their services as may be approved by the Board of
Directors, including, if so approved, by resolution of the Board of
Directors, a fixed sum and expenses of attendance, if any, for attendance at
each regular or special meeting of the Board of Directors and at any meeting
of a committee of the Board of Directors. Nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee, or otherwise and receiving
compensation therefor.
SECTION 22. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors appoint an Executive
Committee to consist of two (2) or more members of the Board of Directors.
The Executive Committee, to the extent permitted by law and provided in the
resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the
business and affairs of the corporation, including without limitation the
power or authority to declare a dividend, to authorize the issuance of stock
and to adopt a certificate of ownership and merger, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but
no such committee shall have the power or authority in reference to amending
the Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of
shares of stock adopted by the Board of Directors fix the designations and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other
class or classes or any other series of the same or any other class or
classes of stock of the corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any series),
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending
the bylaws of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the whole Board of Directors, from time to time appoint such
other committees as may be permitted by law. Such other committees appointed
by the Board of Directors shall consist of two (2) or more members of the
Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such
9.
<PAGE>
committees, but in no event shall such committee have the powers denied to
the Executive Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Bylaw may at any time increase or decrease the
number of members of a committee or terminate the existence of a committee.
The membership of a committee member shall terminate on the date of his death
or voluntary resignation from the committee or from the Board of Directors.
The Board of Directors may at any time for any reason remove any individual
committee member and the Board of Directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members
of the committee. The Board of Directors may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place
of any such absent or disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 22 shall be held at such times and places
as are determined by the Board of Directors, or by any such committee, and
when notice thereof has been given to each member of such committee, no
further notice of such regular meetings need be given thereafter. Special
meetings of any such committee may be held at any place which has been
determined from time to time by such committee, and may be called by any
director who is a member of such committee, upon written notice to the
members of such committee of the time and place of such special meeting given
in the manner provided for the giving of written notice to members of the
Board of Directors of the time and place of special meetings of the Board of
Directors. Notice of any special meeting of any committee may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends such special
meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened. A majority of the authorized number of members
of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which
a quorum is present shall be the act of such committee.
SECTION 23. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed
or is absent, the Chief Executive Officer, or if the Chief Executive Officer
is not present, the President, or if the President is absent, the most senior
Vice President, or, in the absence of any such officer, a chairman of the
meeting chosen by a majority of the directors present, shall preside over the
meeting. The Secretary, or in his absence, an Assistant Secretary directed
to do so by the President, shall act as secretary of the meeting.
10.
<PAGE>
ARTICLE V
OFFICERS
SECTION 24. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of
the Board of Directors, the Chief Executive Officer, the President, one or
more Vice Presidents, the Secretary and the Chief Financial Officer, all of
whom shall be elected at the annual organizational meeting of the Board of
Directors. The Board of Directors may also appoint a Treasurer, a Controller,
one or more Assistant Secretaries, Assistant Treasurers, Assistant
Controllers and such other officers and agents with such powers and duties as
it shall deem necessary. The Board of Directors may assign such additional
titles to one or more of the officers as it shall deem appropriate. Any one
person may hold any number of offices of the corporation at any one time
unless specifically prohibited therefrom by law. The salaries and other
compensation of the officers of the corporation shall be fixed by or in the
manner designated by the Board of Directors.
SECTION 25. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly
elected and qualified, unless sooner removed. Any officer elected or
appointed by the Board of Directors may be removed at any time by the Board
of Directors. If the office of any officer becomes vacant for any reason, the
vacancy may be filled by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman
of the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of
Directors shall perform other duties commonly incident to his office and
shall also perform such other duties and have such other powers as the Board
of Directors shall designate from time to time. If there is no President,
then the Chairman of the Board of Directors shall also serve as the Chief
Executive Officer of the corporation and shall have the powers and duties
prescribed in paragraph (c) of this Section 25.
(c) DUTIES OF CHIEF EXECUTIVE OFFICER. The Chief Executive
Officer shall preside at all meetings of the stockholders and at all meetings
of the Board of Directors, unless the Chairman of the Board of Directors has
been appointed and is present. The Chief Executive Officer shall, subject to
the control of the Board of Directors, have general supervision, direction
and control of the business and officers of the corporation. The Chief
Executive Officer shall perform other duties commonly incident to his office
and shall also perform such other duties and have such other powers as the
Board of Directors shall designate from time to time.
(d) DUTIES OF PRESIDENT. The President may assume and perform the
duties of Chief Executive Officer in the absence or disability of the Chief
Executive Officer or whenever the office of Chief Executive Officer is
vacant. The President shall perform such duties and such other powers as the
Board of Directors or the Chief Executive Officer shall designate from time
to time.
11.
<PAGE>
(e) DUTIES OF VICE PRESIDENT. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of
Directors, the Chief Executive Officer or the President shall designate from
time to time.
(f) DUTIES OF SECRETARY. The Secretary shall attend all meetings
of the stockholders and of the Board of Directors and shall record all acts
and proceedings thereof in the minute book of the corporation. The Secretary
shall give notice in conformity with these Bylaws of all meetings of the
stockholders and of all meetings of the Board of Directors and any committee
thereof requiring notice. The Secretary shall perform all other duties given
him in these Bylaws and other duties commonly incident to his office and
shall also perform such other duties and have such other powers as the Board
of Directors shall designate from time to time. The Chief Executive Officer
or the President may direct any Assistant Secretary to assume and perform the
duties of the Secretary in the absence or disability of the Secretary, and
each Assistant Secretary shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors, the Chief Executive Officer or the President shall
designate from time to time.
(g) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the
corporation in a thorough and proper manner and shall render statements of
the financial affairs of the corporation in such form and as often as
required by the Board of Directors or the President. The Chief Financial
Officer, subject to the order of the Board of Directors, shall have the
custody of all funds and securities of the corporation. The Chief Financial
Officer shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors, the Chief Executive Officer or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant
Treasurer, or the Controller or any Assistant Controller to assume and
perform the duties of the Chief Financial Officer in the absence or
disability of the Chief Financial Officer, and each Treasurer and Assistant
Treasurer and each Controller and Assistant Controller shall perform other
duties commonly incident to his office and shall also perform such other
duties and have such other powers as the Board of Directors, the Chief
Executive Officer or the President shall designate from time to time.
SECTION 26. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other
officer or agent, notwithstanding any provision hereof.
SECTION 27. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors, the Chief Executive Officer or to
the President or to the Secretary. Any such resignation shall be effective
when received by the person or persons to whom such notice is given, unless a
later time is specified therein, in which event the resignation shall become
effective at such later time. Unless otherwise specified in such notice, the
acceptance of any such resignation shall not be necessary to make it
effective. Any resignation shall be without prejudice to the rights, if any,
of the corporation under any contract with the resigning officer.
12.
<PAGE>
SECTION 28. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers
upon whom such power of removal may have been conferred by the Board of
Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 29. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory
officer or officers, or other person or persons, to execute on behalf of the
corporation any corporate instrument or document, or to sign on behalf of the
corporation the corporate name without limitation, or to enter into contracts
on behalf of the corporation, except where otherwise provided by law or these
Bylaws, and such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and
other evidences of indebtedness of the corporation, and other corporate
instruments or documents requiring the corporate seal, and certificates of
shares of stock owned by the corporation, shall be executed, signed or
endorsed by the Chairman of the Board of Directors, the Chief Executive
Officer or the President or any Vice President, and by the Secretary or
Treasurer or any Assistant Secretary or Assistant Treasurer. All other
instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall
be signed by such person or persons as the Board of Directors shall authorize
so to do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or for any amount.
SECTION 30. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such
authorization, by the Chairman of the Board of Directors, the Chief Executive
Officer, the President, or any Vice President.
13.
<PAGE>
ARTICLE VII
SHARES OF STOCK
SECTION 31. FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares
of stock of the corporation shall be in such form as is consistent with the
Certificate of Incorporation and applicable law. Every holder of stock in the
corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the
President or any Vice President and by the Treasurer or Assistant Treasurer
or the Secretary or Assistant Secretary, certifying the number of shares
owned by him in the corporation. Any or all of the signatures on the
certificate may be facsimiles. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued with the same
effect as if he were such officer, transfer agent, or registrar at the date
of issue. Each certificate shall state upon the face or back thereof, in full
or in summary, all of the powers, designations, preferences, and rights, and
the limitations or restrictions of the shares authorized to be issued or
shall, except as otherwise required by law, set forth on the face or back a
statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights. Within a reasonable time after the
issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section
or otherwise required by law or with respect to this section a statement that
the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of certificates representing stock of the same
class and series shall be identical.
SECTION 32. LOST CERTIFICATES. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by
the corporation alleged to have been lost, stolen, or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen, or destroyed. The corporation may require, as a
condition precedent to the issuance of a new certificate or certificates,
the owner of such lost, stolen, or destroyed certificate or certificates,
or his legal representative, to advertise the same in such manner as it shall
require or to give the corporation a surety bond in such form and amount as
it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost,
stolen, or destroyed.
SECTION 33. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation shall be
made only upon its books by the holders thereof, in person or by transfer
agent duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
14.
<PAGE>
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock
of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any
manner not prohibited by the General Corporation Law of Delaware.
SECTION 34. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting. If no record date is fixed by the Board of Directors,
the record date for determining stockholders entitled to notice of or to vote
at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, or if notice is waived, at
the close of business on the day next preceding the day on which the meeting
is held. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; PROVIDED, HOWEVER, that the Board of Directors may fix a new record
date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or
allotment of any rights for the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose
of any other lawful action, the Board of Directors may fix, in advance, a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record date shall be
not more than sixty (60) days prior to such action. If no record date is
fixed, the record date for determining stockholders for any such purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
SECTION 35. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 36. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 31), may be signed by the Chairman of the Board of
Directors, Chief Executive Officer, the President or any Vice President, or
such other person as may be authorized by the Board of Directors, and, if
required, the corporate seal impressed thereon or a facsimile of such seal
imprinted thereon and
15.
<PAGE>
attested by the signature of the Secretary or an Assistant Secretary, or the
Chief Financial Officer or Treasurer or an Assistant Treasurer; PROVIDED,
HOWEVER, that where any such bond, debenture or other corporate security
shall be authenticated by the manual signature, or where permissible
facsimile signature, of a trustee under an indenture pursuant to which such
bond, debenture or other corporate security shall be issued, the signatures
of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as
aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the
corporation or such other person as may be authorized by the Board of
Directors, or bear imprinted thereon the facsimile signature of such person.
In case any officer who shall have signed or attested any bond, debenture or
other corporate security, or whose facsimile signature shall appear thereon
or on any such interest coupon, shall have ceased to be such officer before
the bond, debenture or other corporate security so signed or attested shall
have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
FISCAL YEAR
SECTION 37. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE X
INDEMNIFICATION
SECTION 38. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify, in accordance with and to the fullest extent now or hereafter
permitted by law, any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative,
including without limitation, an action by or in the right of the
corporation, by reason of his acting as a director or executive officer
(within the meaning of Rule 3b-7 promulgated under the Securities Exchange
Act of 1934, as amended) of the corporation any liability or expense actually
and reasonably incurred by such person in respect thereof; provided, however,
the corporation shall be required to indemnify an executive officer or
director in connection with an action, suit or proceeding if such action,
suit or proceeding was authorized by the Board of Directors of the
corporation. Such indemnification is not exclusive of any other right to
indemnification provided by law or otherwise.
16.
<PAGE>
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation
shall have power to indemnify its other officers, employees and other agents
as set forth in the Delaware General Corporation Law.
(c) EXPENSES. The corporation shall advance to any person who was
or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was a
director or executive officer, of the corporation, or is or was serving at
the request of the corporation as a director or executive officer of another
corporation, partnership, joint venture, trust or other enterprise, prior to
the final disposition of the proceeding, promptly following request therefor,
all expenses incurred by any director or executive officer in connection with
such proceeding upon receipt of an undertaking by or on behalf of such person
to repay said amounts if it should be determined ultimately that such person
is not entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to
an executive officer of the corporation (except by reason of the fact that
such executive officer is or was a director of the corporation in which event
this paragraph shall not apply) in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, if a determination is
reasonably and promptly made (i) by the Board of Directors by a majority vote
of a quorum consisting of directors who were not parties to the proceeding,
or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, that the facts known to the decision-making party at the time such
determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in
or not opposed to the best interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw shall be deemed to be contractual rights
and be effective to the same extent and as if provided for in a contract
between the corporation and the director or executive officer. Any right to
indemnification or advances granted by this Bylaw to a director or executive
officer shall be enforceable by or on behalf of the person holding such right
in any court of competent jurisdiction if (i) the claim for indemnification
or advances is denied, in whole or in part, or (ii) no disposition of such
claim is made within ninety (90) days of request therefor. The claimant in
such enforcement action, if successful in whole or in part, shall be entitled
to be paid also the expense of prosecuting his claim. In connection with any
claim for indemnification, the corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the Delaware General Corporation Law
for the corporation to indemnify the claimant for the amount claimed. In
connection with any claim by an executive officer of the corporation (except
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such executive officer is or was a
director of the corporation) for advances, the corporation shall be entitled
to raise a defense as to any such action clear and convincing evidence that
such person acted in bad faith or in a manner that such person did not
believe to be in or not opposed to the best interests of the corporation, or
with respect to any criminal action or proceeding that such person acted
17.
<PAGE>
without reasonable cause to believe that his conduct was lawful. Neither the
failure of the corporation (including its Board of Directors, independent
legal counsel or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual determination by
the corporation (including its Board of Directors, independent legal counsel
or its stockholders) that the claimant has not met such applicable standard
of conduct, shall be a defense to the action or create a presumption that
claimant has not met the applicable standard of conduct.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or
permitted to be indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall only
be prospective and shall not affect the rights under this Bylaw in effect at
the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer
to the full extent not prohibited by any applicable portion of this Bylaw
that shall not have been invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(i) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony
in, any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative.
18.
<PAGE>
(ii) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and
expenses of any nature or kind incurred in connection with any proceeding.
(iii) The term the "corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority
to indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Bylaw with
respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had
continued.
(iv) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer,
employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
(v) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer,
employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in
a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted
in a manner "not opposed to the best interests of the corporation" as
referred to in this Bylaw.
ARTICLE XI
NOTICES
SECTION 39. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given
in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
19.
<PAGE>
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by
facsimile, telex or telegram, except that such notice other than one which is
delivered personally shall be sent to such address as such director shall
have filed in writing with the Secretary, or, in the absence of such filing,
to the last known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer
agent appointed with respect to the class of stock affected, specifying the
name and address or the names and addresses of the stockholder or
stockholders, or director or directors, to whom any such notice or notices
was or were given, and the time and method of giving the same, shall in the
absence of fraud, be prima facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing, and
all notices given by facsimile, telex or telegram shall be deemed to have
been given as of the sending time recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any
other permissible method or methods may be employed in respect of any other
or others. ,
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice
sent him in the manner above provided, shall not be affected or extended in
any manner by the failure of such stockholder or such director to receive
such notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person
shall not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such
person. Any action or meeting which shall be taken or held without notice to
any such person with whom communication is unlawful shall have the same force
and effect as if such notice had been duly given. In the event that the
action taken by the corporation is such as to require the filing of a
certificate under any provision of the Delaware General Corporation Law, the
certificate shall state, if such is the fact and if notice is required, that
notice was given to all persons entitled to receive notice except such
persons with whom communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of
the taking of action by written consent without a meeting to
20.
<PAGE>
such person during the period between such two consecutive annual meetings,
or (ii) all, and at least two, payments (if sent by first class mail) of
dividends or interest on securities during a twelve-month period, have been
mailed addressed to such person at his address as shown on the records of the
corporation and have been returned undeliverable, the giving of such notice
to such person shall not be required. Any action or meeting which shall be
taken or held without notice to such person shall have the same force and
effect as if such notice had been duly given. If any such person shall
deliver to the corporation a written notice setting forth his then current
address, the requirement that notice be given to such person shall be
reinstated. In the event that the action taken by the corporation is such as
to require the filing of a certificate under any provision of the Delaware
General Corporation Law, the certificate need not state that notice was not
given to persons to whom notice was not required to be given pursuant to this
paragraph.
ARTICLE XII
AMENDMENTS
SECTION 40. AMENDMENTS. Subject to paragraph (h) of Section 38 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
outstanding shares of capital stock of the corporation (including any
warrants with voting rights) entitled to vote (voting together as a single
class). The Board of Directors shall also have the power to adopt, amend, or
repeal Bylaws.
ARTICLE XII
LOANS TO OFFICERS
SECTION 41. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other
employee of the corporation or of its subsidiaries, including any officer or
employee who is a Director of the corporation or its subsidiaries, whenever,
in the judgment of the Board of Directors, such loan, guarantee or assistance
may reasonably be expected to benefit the corporation. The loan, guarantee or
other assistance may be with or without interest and may be unsecured, or
secured in such manner as the Board of Directors shall approve, including,
without limitation, a pledge of shares of stock of the corporation. Nothing
in these Bylaws shall be deemed to deny, limit or restrict the powers of
guaranty or warranty of the corporation at common law or under any statute.
21.
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
AUDIO INTERNATIONAL, INC.
ARTICLE I
STOCK
1. CERTIFICATES. Certificates of stock shall be issued to each holder
of fully paid stock in numerical order. Each certificate shall be signed by
the President and attested by the Secretary. A record of each certificate
shall be kept in the corporation's records.
2. FORM. The form of the certificate to represent stock ownership in
the corporation shall be fixed by the original incorporators, and may be
changed from time to time by the Board of Directors.
3. TRANSFER. Shares of the corporation shall be transferred on its
books only upon the surrender to the corporation of the share certificates
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer. In that event, the surrendered certificates shall be
canceled, new certificates issued to the person entitled to them, and the
transaction recorded on the books of the corporation.
4. LOST CERTIFICATES. The Board of Directors shall direct a new
certificate to be issued in place of a certificate alleged to
1
<PAGE>
have been destroyed or lost if the owner makes an affidavit that it is
destroyed or lost, but the Board in its discretion may, as a condition
precedent to issuing the new certificate, require the owner to give the
corporation a bond or security acceptable to the Board as indemnity against
any claim that may be made against the corporation on the certificate
allegedly destroyed or lost.
5. RESTRICTIONS ON TRANSFER. The President and Secretary of the
corporation shall have the authority on behalf of the corporation to enter
into any contract between the corporation and all of its shareholders (a)
imposing restrictions on the future transfer (whether inter vivos, by
inheritance or testamentary gift), hypothecation or other disposition of its
shares; (b) granting purchase options to the corporation or its shareholders;
or (c) requiring the corporation or its shareholders to purchase such shares
upon stated contingencies. In addition, any or all of such restrictions,
options or requirements may be imposed on all shares of the corporation,
issued and unissued, upon the unanimous resolution of the Board of Directors
and the consent of all stockholders as of the date of the Board's resolution.
ARTICLE II
STOCKHOLDERS
1. ANNUAL MEETING. The annual meeting of the stockholders of this
corporation shall be held at such place as the Directors shall designate, the
date of the meeting to be the last business day of the corporation's fiscal
year.
2
<PAGE>
2. SPECIAL MEETINGS. Special meetings of the stockholders may be
called at any time by the President, by resolution of the Board of Directors,
or by any member of the Board of Directors.
3. NOTICE. Written notice of the stockholders' meetings shall be
given either personally or by mail, to each stockholder of record at his
address, as the same appears on the stock book of the corporation, not less
than ten (10) nor more than fifty (50) days before the meeting is to be held.
If a proposal to increase the authorized capital stock or bonded indebtedness
is to be submitted, notice must be given not less than sixty (60) nor more
than seventy-five (75) days before the meeting. In case of special meetings,
the notice shall also include a statement of the purpose or purposes for
which the meeting is called. If at any annual meeting there shall be
presented a proposal to increase the authorized capital stock or bonded
indebtedness, to dissolve, merge or consolidate, or to sell, lease, exchange,
or otherwise dispose of all or substantially all of the corporation's assets,
to amend the Articles of Incorporation or to effect any other fundamental
corporate change, then that annual meeting shall be deemed, for the purpose
of notice, a special meeting. Notice of any meeting or service of such notice
may be waived in writing before or after the meeting by a stockholder or by
the attendance in person or by proxy of any stockholder at such meeting. No
irregularity of notice of any regular or special meeting of the stockholders
shall invalidate such meeting or any proceeding thereat.
3
<PAGE>
4. QUORUM. A quorum at any meeting of the stockholders shall consist
of a majority in interest in the stock issued and outstanding then entitled
to vote, represented in person or by proxy. A majority of such quorum shall
decide any question that may come before the meeting.
5. PROXIES. A stockholder may vote at any meeting of the stockholders
by being present in person or by giving to some other person present at the
meeting a written proxy.
6. VOTING. In the election of Directors, the holder of each share of
stock then entitled to vote shall be entitled to cast votes equal to the
number of Directors to be elected. Directors shall be elected at the annual
meeting of stockholders. In all other matters to be determined at a
stockholders' meeting, the holders of shares of stock then entitled to vote
shall be entitled to cast votes equal to the number of shares held.
7. INFORMAL ACTION BY SHAREHOLDERS. Unless otherwise provided by law,
any action required to be taken at a meeting of the shareholders, or any
other action which may be taken at a meeting of the shareholders, may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all of the shareholders entitled to vote with
respect to the subject matter thereof.
ARTICLE III
DIRECTORS
1. GENERAL POWERS. The business and affairs of the corporation shall
be managed by its Board of Directors.
4
<PAGE>
2. NUMBER, TENURE AND QUALIFICATIONS. The number of Directors of the
corporation shall be three. Each Director shall hold office for the term for
which he is elected or until his successor shall have been elected and
qualified. Directors need not be residents of Arkansas nor shareholders of
the corporation.
3. VACANCIES. If a vacancy occurs in the Board of Directors by reason
of death or resignation, or if the stockholders fail to fill all the
vacancies in the Board of Directors at the annual meeting of stockholders or
any meeting for the purpose of electing Directors, the vacancies shall be
filled by the affirmative vote of a majority of the remaining members of the
Board of Directors.
4. RESIGNATIONS. A Director may resign at any time by filing his
written resignation with the Secretary.
5. REMOVAL. A Director may be removed at any time, with or without
cause, by a special stockholders' meeting called expressly for that purpose.
6. MEETINGS. Meetings of the Board of Directors shall be held on call
of any member after giving notice in writing or otherwise to all members at
least twenty-four hours prior thereto. Notice of any meeting or service of
such notice may be waived in writing before or after the meeting by a
Director or by attendance at such meeting. No irregularity of notice of such
meeting shall invalidate such meeting or any proceeding thereat.
7. QUORUM. A quorum of any meeting of the Board of Directors shall
consist of a majority of the entire membership of
5
<PAGE>
the Board. A majority of such quorum shall decide any question that may come
before the meeting.
8. INFORMAL ACTION. Action taken by a majority of the Directors
without a meeting in respect to any corporation matter shall be valid if,
before or after such action, all Board members sign and file with the
Secretary for inclusion in the corporate minute book a memorandum showing
(a) the nature of the action taken, (b) the consent of the each Board member,
and (c) the names of Directors approving and Directors opposing such action.
9. PROXIES. Directors may not vote by proxy.
10. ELECTION OF OFFICERS. Officers of the corporation shall be elected
by the Board of Directors and shall serve at the pleasure of the Board of
Directors subject to any contracts of employment entered into by the
corporation. The Board of Directors shall fix the compensation of all
officers of the corporation.
ARTICLE IV
OFFICERS
1. NUMBER. The officers of the corporation shall be a Chief Executive
Officer, a President, a Chief Operating Officer, one or more Vice Presidents
(the number and designation thereof to be determined by the Board of
Directors), a Treasurer, a Secretary and such other officers as may be
elected in accordance with these bylaws. If there is only one shareholder,
any two offices may be held by the same person. If there is more than one
shareholder, any two offices may be held by the same person, except the
offices of President and Secretary.
6
<PAGE>
2. VACANCIES. When a vacancy occurs in one of the executive offices
by death, resignation or otherwise, it shall be filled by the Board of
Directors. The officer so selected shall hold offices until his successor is
chosen and qualified.
3. EXECUTION OF WRITTEN INSTRUMENTS. Leases, deeds, mortgages, and
contracts not in the ordinary course of business may be executed by the
Chairman of the Board, the President, or the Chief Operating Officer and
attested by the Secretary or Treasurer unless the Board of Directors shall in
a particular situation designate another procedure for their execution. The
Board of Directors may authorize any one or more officers and/or employees to
execute contracts in the ordinary course of business on behalf of the
corporation, and such authority may be general or confined to specific
instances.
4. CHECKS AND NOTES. Checks, notes, drafts and demands for money
shall be signed by any one or more officers and/or employees who may from
time to time be designated by the Board of Directors.
5. VOTING SHARES IN OTHER CORPORATIONS. In the absence of other
arrangements by the Board of Directors, shares of stock issued by any other
corporation and owned or controlled by this corporation may be voted at any
shareholders' meeting of the other corporation by the Chairman of the Board,
the President, or the Chief Executive Officer of this corporation; and in the
event neither the Chairman of the Board, the President, nor the Chief
Executive Officer is to be present at a meeting, the shares may be voted by
such person as the President and Secretary of the
7
<PAGE>
corporation shall by duly elected proxy designate to represent the
corporation at the meeting.
6. REIMBURSEMENT OF PAYMENTS. Any payments made to an officer such as
salary, commission, bonus, interest, or rent, or entertainment expense
incurred by him, which shall be disallowed in whole or in part as a
deductible expense by the Internal Revenue Service, shall be reimbursed by
such officer to the corporation to the full extent of such disallowance. It
shall be the duty of the Board of Directors to enforce payment of each such
amount disallowed. In lieu of payment by the officer, subject to the
determination of the Board of Directors, proportionate amounts may be
withheld from his future compensation payments until the amount owed to the
corporation has been recovered.
ARTICLE V
AMENDMENTS
Bylaws may be adopted, amended or repealed at any meeting of the Board
of Directors by the unanimous consent of the Directors, unless the Articles
of Incorporation provide for the adoption, amendment or repeal by the
shareholders, in which event action thereon may be taken at any meeting of
the shareholders by the unanimous consent of the shares outstanding and a
majority of the outstanding shares of any other class which may be
substantially adversely affected by such action.
8
<PAGE>
CERTIFICATE OF ADOPTION
The undersigned do hereby certify that the above is a true and correct
state of the Bylaws approved at the Organizational Meeting of the Board of
Directors held on 20 February, 1996.
----------- --
ADOPTED: 20 February, 1996.
------------------
/s/ Wayne [ILLEGIBLE]
-------------------------------
Secretary
APPROVED:
/s/ Wayne [ILLEGIBLE]
- -------------------------------
Chairman
9
<PAGE>
DECRANE HOLDINGS CO.
[FORM OF]
CLASS A WARRANT FOR THE PURCHASE OF SHARES OF
COMMON STOCK OF DECRANE HOLDINGS CO.
CLASS A
NO.[___] WARRANT TO PURCHASE
[_______] SHARES
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD EXCEPT
IN COMPLIANCE THEREWITH. THIS SECURITY IS ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER, VOTING AND OTHER MATTERS AS SET FORTH IN THE
INVESTORS' AGREEMENT (AS HEREIN DEFINED), COPIES OF WHICH MAY BE OBTAINED
UPON REQUEST FROM THE COMPANY.
FOR VALUE RECEIVED, DECRANE HOLDINGS CO., a Delaware corporation
(the "COMPANY"), hereby certifies that [_______________________________,
L.P.,] its successor or permitted assigns (the "Holder"), is entitled, subject
to the provisions of this Class A Warrant, to purchase from the Company, at
the times specified herein, [_____] fully paid and non-assessable shares of
common stock of the Company, par value $ 0.01 per share (the "WARRANT
SHARES"), at a purchase price per share equal to the Exercise Price (as
hereinafter defined). The number of Warrant Shares to be received upon the
exercise of this Class A Warrant and the price to be paid for a Warrant Share
are subject to adjustment from time to time as hereinafter set forth.
(a) DEFINITIONS.
(1) The following terms, as used herein, have the following meanings:
"AFFILIATE" shall have the meaning given to such term in Rule 12b-2
promulgated under the Securities and Exchange Act of 1934, as amended.
<PAGE>
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized by law to close.
"COMMON STOCK" means the Common Stock, par value $0.01 per share, of the
Company or other capital stock of the Company that is not preferred as to
liquidation or dividends or any other security for which this Warrant may be
exercised pursuant to Section (i) hereof after the occurrence of any of the
transactions described in such Section.
"DULY ENDORSED" means duly endorsed in blank by the Person or Persons in
whose name a stock certificate is registered or accompanied by a duly
executed stock assignment separate from the certificate with the signature(s)
thereon guaranteed by a commercial bank or trust company or a member of a
national securities exchange or of the National Association of Securities
Dealers, Inc.
"EXERCISE PRICE" means $0.01 per Warrant Share, such Exercise Price to
be adjusted from time to time as provided herein.
"EXPIRATION DATE" means August 28, 2009 at 5:00 p.m. New York City time.
"FAIR MARKET VALUE" means, with respect to one share of Common Stock on
any date, the Current Market Price Per Common Share as defined in paragraph
(h)(6) hereof.
"INVESTORS' AGREEMENT" means the Amended and Restated Investors'
Agreement dated as of the date hereof among the Company, DLJ Merchant Banking
Partners II, L.P., DLJ Merchant Banking Partners II-A, L.P., DLJ Offshore
Partners II, C.V., DLJ Diversified Partners, L.P., DLJ Diversified
Partners-A, L.P., DLJ Millennium Partners, L.P., DLJ Millennium Partners-A,
L.P., DLJMB Funding II, Inc., UK Investment Plan 1997 Partners, DLJ EAB
Partners, L.P., DLJ ESC II L.P. and DLJ First ESC L.P.
"PERSON" means an individual, partnership, corporation, limited
liability company, association, trust, or other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
"PRINCIPAL HOLDERS" means, on any date, the Holders of at least 50% of
the Warrants.
"SUBSCRIPTION AGREEMENT" means the Subscription Agreement dated as of
the date hereof between the Company and the investors party thereto.
2
<PAGE>
"TRANSFER" shall have the meaning assigned to such term in the
Investors' Agreement.
"Warrants" means the Class A Warrants issued to the subscribers under
the Subscription Agreement.
(2) Capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Investors' Agreement.
(b) EXERCISE OF WARRANT.
(1) The Holder is entitled to exercise this Warrant in whole or
in part at any time, or from time to time, until the Expiration Date
or, if such day is not a Business Day, then on the next succeeding day
that shall be a Business Day. To exercise this Warrant, the Holder
shall execute and deliver to the Company a Warrant Exercise Notice
substantially in the form annexed hereto. No earlier than ten days
after delivery of the Warrant Exercise Notice, the Holder shall
deliver to the Company this Warrant Certificate duly executed by the
Holder, together with payment of the applicable Exercise Price;
PROVIDED, HOWEVER, that in connection with a public offering of the
Common Stock, a Holder may deliver the Warrant Exercise Notice and
this Warrant Certificate to the Company simultaneously. Upon such
delivery and payment, the Holder shall be deemed to be the holder of
record of the Warrant Shares subject to such exercise, notwithstanding
that the stock transfer books of the Company shall then be closed or
that certificates representing such Warrant Shares shall not then be
actually delivered to the Holder. Notwithstanding anything herein to
the contrary, in lieu of payment in cash of the applicable Exercise
Price, the Holder may elect (i) to receive upon exercise of this
Warrant, the number of Warrant Shares reduced by a number of shares of
Common Stock having the aggregate Fair Market Value equal to the
aggregate Exercise Price for the Warrant Shares, (ii) to deliver as
payment, in whole or in part of the aggregate Exercise Price, shares
of Common Stock having the aggregate Fair Market Value equal to the
applicable portion of the aggregate Exercise Price for the Warrant
Shares or (iii) to deliver as payment, in whole or in part of the
aggregate Exercise Price, such number of Warrants which, if exercised,
would result in a number of shares of Common Stock having an aggregate
Fair Market Value equal to the applicable portion of the aggregate
Exercise Price for the Warrant Shares. Notwithstanding anything to
the contrary in this paragraph (b)(1), if the aggregate Fair Market
Value of the
3
<PAGE>
Common Stock applied or delivered pursuant to (i), (ii) or (iii) above
exceeds the aggregate Exercise Price, in no event shall the Holder be
entitled to receive any amounts from the Company.
(2) The Exercise Price may be paid in cash or by certified or
official bank check or bank cashier's check payable to the order of
the Company or by any combination of such cash or check. The Company
shall pay any and all documentary, stamp or similar issue or transfer
taxes payable in respect of the issue or delivery of the Warrant
Shares.
(3) If the Holder exercises this Warrant in part, this Warrant
Certificate shall be surrendered by the Holder to the Company and a
new Warrant Certificate of the same tenor and for the unexercised
number of Warrant Shares shall be executed by the Company. The
Company shall register the new Warrant Certificate in the name of the
Holder or in such name or names of its transferee pursuant to
paragraph (f) hereof as may be directed in writing by the Holder and
deliver the new Warrant Certificate to the Person or Persons entitled
to receive the same.
(4) Upon surrender of this Warrant Certificate in conformity with
the foregoing provisions, the Company shall transfer to the Holder of
this Warrant Certificate appropriate evidence of ownership of the
shares of Common Stock or other securities or property (including any
money) to which the Holder is entitled, registered or otherwise placed
in, or payable to the order of, the name or names of the Holder or
such transferee as may be directed in writing by the Holder, and shall
deliver such evidence of ownership and any other securities or
property (including any money) to the Person or Persons entitled to
receive the same, together with an amount in cash in lieu of any
fraction of a share as provided in paragraph (e) below.
(c) RESTRICTIVE LEGEND. Certificates representing shares of Common
Stock issued pursuant to this Warrant shall bear a legend substantially in
the form of the legend set forth on the first page of this Warrant
Certificate to the extent that and for so long as such legend is required
pursuant to the Investors' Agreement.
(d) RESERVATION OF SHARES. The Company hereby agrees that at all times
it shall reserve for issuance and delivery upon exercise of this Warrant such
number of its authorized but unissued shares of Common Stock or other
securities of the Company from time to time issuable upon exercise of this
4
<PAGE>
Warrant as will be sufficient to permit the exercise in full of this Warrant.
All such shares shall be duly authorized and, when issued upon such
exercise, shall be validly issued, fully paid and non-assessable, free and
clear of all liens, security interests, charges and other encumbrances or
restrictions on sale and free and clear of all preemptive rights, except to
the extent set forth in the Investors' Agreement.
(e) FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant and in
lieu of delivery of any such fractional share upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the Current Market Price Per Common Share (as defined in
paragraph (h)(6)) at the date of such exercise.
The Company further agrees that it will not change the par value of the
Common Stock from par value $0.01 per share to any higher par value which
exceeds the Exercise Price then in effect, and will reduce the par value of
the Common Stock upon any event described in paragraph (h) that (i) provides
for an increase in the number of shares of Common Stock subject to purchase
upon exercise of this Warrant, in inverse proportion to and effective at the
same time as such number of shares is increased, but only to the extent that
such increase in the number of shares, together with all other such increases
after the date hereof, causes the aggregate Exercise Price of all Warrants
(without giving effect to any exercise thereof) to be greater than $1,550.00
or (ii) would, but for this provision, reduce the Exercise Price below the
par value of the Common Stock.
(f) EXCHANGE, TRANSFER OR ASSIGNMENT OF WARRANT.
(1) This Warrant and the Warrant Shares are subject to the
provisions of the Investors' Agreement, including the restrictions on
transfer. Each holder of this Warrant Certificate by holding the
same, consents and agrees that the registered holder hereof may be
treated by the Company and all other persons dealing with this Warrant
Certificate as the absolute owner hereof for any purpose and as the
person entitled to exercise the rights represented hereby. The Holder,
by its acceptance of this Warrant, will be subject to the provisions
of, and will have the benefits of, the Investors' Agreement to the
extent set forth therein, including the transfer restrictions and the
registration rights included therein.
(2) Subject to compliance with the transfer restrictions set forth
in the Investors' Agreement, upon surrender of this Warrant to the
Company, together with the attached Warrant Assignment Form duly
executed, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee or assignees
5
<PAGE>
named in such instrument of assignment and, if the Holder's entire
interest is not being assigned, in the name of the Holder and this Warrant
shall promptly be canceled.
(g) LOSS OR DESTRUCTION OF WARRANT. Upon receipt by the Company of
evidence satisfactory to it (in the exercise of its reasonable discretion) of
the loss, theft, destruction or mutilation of this Warrant Certificate, and
(in the case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Warrant
Certificate, if mutilated, the Company shall execute and deliver a new
Warrant Certificate of like tenor and date.
(h) ANTI-DILUTION PROVISIONS. The Exercise Price of this Warrant and
the number of shares of Common Stock for which this Warrant may be exercised
shall be subject to adjustment from time to time upon the occurrence of
certain events as provided in this paragraph (h); PROVIDED that
notwithstanding anything to the contrary contained herein, the Exercise Price
shall not be less than the par value of the Common Stock, as such par value
may be reduced from time to time in accordance with paragraph (e).
(1) In case the Company shall at any time after the date hereof
(i) declare a dividend or make a distribution on Common Stock payable
in Common Stock, (ii) subdivide or split the outstanding Common Stock,
(iii) combine or reclassify the outstanding Common Stock into a
smaller number of shares, or (iv) issue any shares of its capital
stock in a reclassification of Common Stock (including any such
reclassification in connection with a consolidation or merger in which
the Company is the surviving corporation), the Exercise Price in
effect at the time of the record date for such dividend or
distribution or of the effective date of such subdivision, split,
combination or reclassification shall be proportionately adjusted so
that, after giving effect to paragraph (h)(9), the exercise of this
Warrant after such time shall entitle the holder to receive the
aggregate number of shares of Common Stock or other securities of the
Company (or shares of any security into which such shares of Common
Stock have been reclassified pursuant to clause (iii) or (iv) above)
which, if this Warrant had been exercised immediately prior to such
time, such holder would have owned upon such exercise and been
entitled to receive by virtue of such dividend, distribution,
subdivision, split, combination or reclassification. Such adjustment
shall be made successively whenever any event listed above shall
occur.
6
<PAGE>
(2) In case the Company shall issue or sell any Common Stock
(other than Common Stock issued (I) upon exercise of the Warrants,
(II) upon exercise of any of the warrants to purchase an aggregate of
155,000 shares of Common Stock issued by the Corporation together with
its 12% Senior Subordinated Notes due 2008 on October 5, 1998 (the
"PUBLIC WARRANTS"), (III) upon exercise of any options or warrants to
purchase shares of Common Stock issued to any investor that becomes a
party to the Investors' Agreement within 90 days of the date hereof
(other than a DLJ Entity, as such term is defined in the Investors'
Agreement), (IV) pursuant to any Common Stock related employee
compensation plan of the Company approved by the Company's Board of
Directors, or (V) upon exercise or conversion of any security the
issuance of which caused an adjustment under paragraphs (h)(3) or
(h)(4) hereof), the Exercise Price to be in effect after such issuance
or sale shall be determined by multiplying the Exercise Price in
effect immediately prior to such issuance or sale by a fraction, the
numerator of which shall be the sum of (x) the number of shares of
Common Stock outstanding immediately prior to the time of such
issuance or sale multiplied by the Current Market Price Per Common
Share immediately prior to such issuance or sale and (y) the aggregate
consideration, if any, to be received by the Company upon such
issuance or sale, and the denominator of which shall be the product of
the aggregate number of shares of Common Stock outstanding immediately
after such issuance or sale and the Current Market Price Per Common
Share immediately prior to such issuance or sale but in no event will
such fraction exceed 1. In case any portion of the consideration to
be received by the Company shall be in a form other than cash, the
fair market value of such noncash consideration shall be utilized in
the foregoing computation. Such fair market value shall be determined
by the Board of Directors of the Company; PROVIDED that if the
Principal Holders shall object to any such determination, the Board of
Directors shall retain an independent appraiser reasonably
satisfactory to the Principal Holders to determine such fair market
value. The Holder shall be notified promptly of any consideration
other than cash to be received by the Company and furnished with a
description of the consideration and the fair market value thereof, as
determined by the Board of Directors.
(3) In case the Company shall fix a record date for the issuance
of rights, options or warrants to the holders of its Common Stock or
other securities entitling such holders to subscribe for or purchase
for a period expiring within 60 days of
7
<PAGE>
such record date shares of Common Stock (or securities convertible into
shares of Common Stock) at a price per share of Common Stock (or having
a conversion price per share of Common Stock, if a security convertible
into shares of Common Stock) less than the Current Market Price Per
Common Share on such record date, the maximum number of shares of Common
Stock issuable upon exercise of such rights, options or warrants (or
conversion of such convertible securities) shall be deemed to have been
issued and outstanding as of such record date and the Exercise Price
shall be adjusted pursuant to paragraph (h)(2) hereof, as though such
maximum number of shares of Common Stock had been so issued for an
aggregate consideration payable by the holders of such rights, options,
warrants or convertible securities prior to their receipt of such shares
of Common Stock. In case any portion of such consideration shall be in
a form other than cash, the fair market value of such noncash
consideration shall be determined as set forth in paragraph (h)(2)
hereof. Such adjustment shall be made successively whenever such record
date is fixed; and in the event (i) that such rights, options or
warrants are not so issued or expire unexercised, or (ii) of a change in
the number of shares of Common Stock to which the holders of such
rights, options or warrants are entitled (other than pursuant to
adjustment provisions therein which are no more favorable in their
entirety than those contained in this paragraph (h)), the Exercise Price
shall again be adjusted to be the Exercise Price which would then be in
effect in the case of clause (i), if such record date had not been
fixed, or in the case of clause (ii), if such holders had initially been
entitled to such changed number of shares of Common Stock.
(4) In case the Company shall sell or issue rights, options
(other than (I) options issued to any investor that becomes a party to
the Investors' Agreement within 90 days of the date hereof (other than
a DLJ Entity, as such term is defined in the Investors' Agreement), or
(II) options issued pursuant to a plan described in clause (II) of
paragraph (h)(2)) or warrants entitling the holders thereof to
subscribe for or purchase Common Stock (or securities convertible into
shares of Common Stock) (other than warrants to purchase shares of
Common Stock issued to any investor that becomes a party to the
Investors' Agreement within 90 days of the date hereof (other than a
DLJ Entity, as such term is defined in the Investors' Agreement) and
other than the Public Warrants) or shall issue convertible securities,
and the price per share of Common Stock of such rights, options,
warrants or convertible securities
8
<PAGE>
(including, in the case of rights, options or warrants, the price at
which they may be exercised) is less than the Current Market Price Per
Common Share, the maximum number of shares of Common Stock issuable upon
exercise of such rights, options or warrants or upon conversion of such
convertible securities shall be deemed to have been issued and
outstanding as of the date of such sale or issuance, and the Exercise
Price shall be adjusted pursuant to paragraph (h)(2) hereof as though
such maximum number of shares of Common Stock had been so issued for an
aggregate consideration equal to the aggregate consideration paid for
such rights, options, warrants or convertible securities and the
aggregate consideration payable by the holders of such rights, options,
warrants or convertible securities prior to their receipt of such shares
of Common Stock. In case any portion of such consideration shall be in
a form other than cash, the fair market value of such noncash
consideration shall be determined as set forth in paragraph (h)(2)
hereof. Such adjustment shall be made successively whenever such
rights, options, warrants or convertible securities are issued; and in
the event (i) that such rights, options or warrants expire unexercised,
or (ii) of a change in the number of shares of Common Stock to which the
holders of such rights, options, warrants or convertible securities are
entitled (other than pursuant to adjustment provisions therein which are
no more favorable in their entirety than those contained in this
paragraph (h)), the Exercise Price shall again be adjusted to be the
Exercise Price which would then be in effect in the case of clause (i),
if such rights, options, warrants or convertible securities had not been
issued, or in the case of clause (ii), if such holders had initially
been entitled to such changed number of shares of Common Stock. No
adjustment of the Exercise Price shall be made pursuant to this
paragraph (h)(4) to the extent that the Exercise Price shall have been
adjusted pursuant to paragraph (h)(3) upon the setting of any record
date relating to such rights, options, warrants or convertible
securities and such adjustment fully reflects the number of shares of
Common Stock to which the holders of such rights, options, warrants or
convertible securities are entitled and the price payable therefor.
(5) In case the Company shall fix a record date for the making
of a distribution to holders of Common Stock (including any such
distribution made in connection with a consolidation or merger in
which the Company is the surviving corporation) of evidences of
indebtedness, cash, assets or other property (other than dividends
payable in Common Stock or rights, options or
9
<PAGE>
warrants referred to in, and for which an adjustment is made pursuant
to, paragraph (h)(3) hereof), the Exercise Price to be in effect after
such record date shall be determined by multiplying the Exercise Price
in effect immediately prior to such record date by a fraction, the
numerator of which shall be the Current Market Price Per Common Share on
such record date, less the fair market value (determined as set forth in
paragraph (h)(2) hereof) of the portion of the assets, cash, other
property or evidence of indebtedness so to be distributed which is
applicable to one share of Common Stock, and the denominator of which
shall be such Current Market Price Per Common Share. Such adjustments
shall be made successively whenever such a record date is fixed; and in
the event that such distribution is not so made, the Exercise Price
shall again be adjusted to be the Exercise Price which would then be in
effect if such record date had not been fixed.
(6) For the purpose of any computation under paragraph (e) or
paragraph (h)(2), (3), (4) or (5) hereof, on any determination date,
the Current Market Price Per Common Share shall be deemed to be the
average (weighted by daily trading volume) of the Daily Prices (as
defined below) per share of the Common Stock for the 20 consecutive
trading days ending three days prior to such date. "DAILY PRICE" means
(1) if the shares of Common Stock then are listed and traded on the
New York Stock Exchange, Inc. ("NYSE"), the closing price on such day
as reported on the NYSE Composite Transactions Tape; (2) if the shares
of Common Stock then are not listed and traded on the NYSE, the
closing price on such day as reported by the principal national
securities exchange on which the shares are listed and traded; (3) if
the shares of Common Stock then are not listed and traded on any such
securities exchange, the last reported sale price on such day on the
National Market of the National Association of Securities Dealers,
Inc. Automated Quotation System ("NASDAQ"); (4) if the shares of
Common Stock then are not listed and traded on any such securities
exchange and not traded on the NASDAQ National Market, the average of
the highest reported bid and lowest reported asked price on such day
as reported by NASDAQ; or (5) if such shares are not listed and traded
on any such securities exchange, not traded on the NASDAQ National
Market and bid and asked prices are not reported by NASDAQ, then the
average of the closing bid and asked prices, as reported by The Wall
Street Journal for the over-the-counter market. If on any
determination date the shares of Common Stock are not quoted by any
such organization, the Current Market Price Per Common Share shall be
10
<PAGE>
the fair market value of such shares on such determination date as
determined by the Board of Directors, without regard to considerations
of the lack of liquidity, applicable regulatory restrictions or any of
the transfer restrictions or other obligations imposed on such shares
set forth in the Investors' Agreement. If the Principal Holders shall
object to any determination by the Board of Directors of the Current
Market Price Per Common Share, the Current Market Price Per Common Share
shall be the fair market value per share of Common Stock as determined
by an independent appraiser retained by the Company at its expense and
reasonably acceptable to the Principal Holders. For purposes of any
computation under this paragraph (h), the number of shares of Common
Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Company or its subsidiaries.
(7) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least one
percent in such price; PROVIDED that any adjustments which by reason
of this paragraph (h)(7) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All
calculations under this paragraph (h) shall be made to the nearest one
tenth of a cent or to the nearest hundredth of a share, as the case
may be.
(8) In the event that, at any time as a result of the provisions
of this paragraph (h), the holder of this Warrant upon subsequent
exercise shall become entitled to receive any shares of capital stock
or other securities of the Company other than Common Stock, the number
of such other shares so receivable upon exercise of this Warrant shall
thereafter be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions
contained herein.
(9) Upon each adjustment of the Exercise Price as a result of
the calculations made in paragraphs (h)(1), (2), (3), (4) or (5)
hereof, the number of shares for which this Warrant is exercisable
immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Exercise Price, that
number of shares of Common Stock obtained by (i) multiplying the
number of shares covered by this Warrant immediately prior to this
adjustment of the number of shares by the Exercise Price in effect
immediately prior to such adjustment of the Exercise Price and (ii)
11
<PAGE>
dividing the product so obtained by the Exercise Price in effect
immediately after such adjustment of the Exercise Price.
(10) The Company shall notify all Holders of the fixing of a
record date for the purpose of payment of a cash dividend to holders
of Common Stock as soon as reasonably practicable, but in no event
less than 20 days prior to any such record date.
(11) Not less than 10 nor more than 30 days prior to the record
date or effective date, as the case may be, of any action which
requires or might require an adjustment or readjustment pursuant to
this paragraph (h), the Company shall forthwith file in the custody of
the secretary or any assistant secretary at its principal executive
office and with its stock transfer agent or its warrant agent, if any,
an officers' certificate showing the adjusted Exercise Price
determined as herein provided, setting forth in reasonable detail the
facts requiring such adjustment and the manner of computing such
adjustment. Each such officers' certificate shall be signed by the
chairman, president or chief financial officer of the Company and by
the secretary or any assistant secretary of the Company. Each such
officers' certificate shall be made available at all reasonable times
for inspection by the Holder or any holder of a Warrant executed and
delivered pursuant to paragraph (f) and the Company shall, forthwith
after each such adjustment, mail a copy, by first-class mail, of such
certificate to the Holder.
(12) The Holder shall, at its option, be entitled to receive, in
lieu of the adjustment pursuant to paragraph (h)(5) otherwise required
thereof, on the date of exercise of the Warrants, the evidences of
indebtedness, other securities, cash, property or other assets which
such Holder would have been entitled to receive if it had exercised
its Warrants for shares of Common Stock immediately prior to the
record date with respect to such distribution. The Holder may
exercise its option under this paragraph (h)(12) by delivering to the
Company a written notice of such exercise within seven days of its
receipt of the certificate of adjustment required pursuant to
paragraph (h)(11) to be delivered by the Company in connection with
such distribution.
(i) CONSOLIDATION, MERGER, OR SALE OF ASSETS. In case of any
consolidation of the Company with, or merger of the Company into, any other
Person, any merger of another Person into the Company (other than a merger
which does not result in any reclassification, conversion, exchange or
cancellation
12
<PAGE>
of outstanding shares of Common Stock) or any sale or transfer of all or
substantially all of the assets of the Company or of the Person formed by
such consolidation or resulting from such merger or which acquires such
assets, as the case may be, the Holder shall have the right thereafter to
exercise this Warrant for the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer by a
holder of the number of shares of Common Stock for which this Warrant may
have been exercised immediately prior to such consolidation, merger, sale or
transfer, assuming (i) such holder of Common Stock is not a Person with which
the Company consolidated or into which the Company merged or which merged
into the Company or to which such sale or transfer was made, as the case may
be ("CONSTITUENT PERSON"), or an Affiliate of a constituent Person and (ii)
in the case of a consolidation, merger, sale or transfer which includes an
election as to the consideration to be received by the holders, such holder
of Common Stock failed to exercise its rights of election, as to the kind or
amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer (PROVIDED that if the kind or amount
of securities, cash and other property receivable upon such consolidation,
merger, sale or transfer is not the same for each share of Common Stock held
immediately prior to such consolidation, merger, sale or transfer by other
than a constituent Person or an Affiliate thereof and in respect of which
such rights of election shall not have been exercised ("NON-ELECTING SHARE"),
then for the purpose of this paragraph (i) the kind and amount of securities,
cash and other property receivable upon such consolidation, merger, sale or
transfer by each non-electing share shall be deemed to be the kind and amount
so receivable per share by a plurality of the non-electing shares).
Adjustments for events subsequent to the effective date of such a
consolidation, merger and sale of assets shall be as nearly equivalent as may
be practicable to the adjustments provided for in this Warrant. In any such
event, effective provisions shall be made in the certificate or articles of
incorporation of the resulting or surviving corporation, in any contract of
sale, conveyance, lease or transfer, or otherwise so that the provisions set
forth herein for the protection of the rights of the Holder shall thereafter
continue to be applicable; and any such resulting or surviving corporation
shall expressly assume the obligation to deliver, upon exercise, such shares
of stock, other securities, cash and property. The provisions of this
paragraph (i) shall similarly apply to successive consolidations, mergers,
sales, leases or transfers.
(j) NOTICES. Any notice, demand or delivery authorized by this Warrant
Certificate shall be in writing and shall be given to the Holder or the
Company as the case may be, at its address (or telecopier number) set forth
below, or such other address (or telecopier number) as shall have been
furnished to the party giving or making such notice, demand or delivery:
13
<PAGE>
If to the Company: DeCrane Holdings Co.
2361 Rosecrans Avenue
Suite 180
El Segundo, CA 90245
Telecopy: 310-643-0746
Attention: R. Jack DeCrane
If to the Holder: [________________________________]
[________________________________]
[________________________________]
Each such notice, demand or delivery shall be effective (i) if given by
telecopy, when such telecopy is transmitted to the telecopy number specified
herein and the intended recipient confirms the receipt of such telecopy or
(ii) if given by any other means, when received at the address specified
herein.
(k) RIGHTS OF THE HOLDER. Prior to the exercise of any Warrant, the
Holder shall not, by virtue hereof, be entitled to any rights of a
shareholder of the Company, including, without limitation, the right to vote,
to receive dividends or other distributions or to receive any notice of
meetings of shareholders or any notice of any proceedings of the Company
except as may be specifically provided for herein.
(l) GOVERNING LAW. THIS WARRANT CERTIFICATE AND ALL RIGHTS ARISING
HEREUNDER SHALL BE CONSTRUED AND DETERMINED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF NEW YORK, AND THE PERFORMANCE THEREOF SHALL BE GOVERNED
AND ENFORCED IN ACCORDANCE WITH SUCH LAWS.
(m) AMENDMENTS; WAIVERS. Any provision of this Warrant Certificate may
be amended or waived if, and only if, such amendment or waiver is in writing
and signed, in the case of an amendment, by the Holder and the Company, or in
the case of a waiver, by the party against whom the waiver is to be
effective. No failure or delay by either party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
14
<PAGE>
IN WITNESS WHEREOF, the Company has duly caused this Warrant Certificate
to be signed by its duly authorized officer and to be dated as of October 2,
1998.
DECRANE HOLDINGS CO.
By
-------------------------------
Name:
Title:
Acknowledged and Agreed:
[________________________________]
By
-------------------------------
Name:
Title:
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF 14% SENIOR REDEEMABLE EXCHANGEABLE
PREFERRED STOCK DUE 2008
of
DECRANE HOLDINGS CO.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
We, the undersigned, Thompson Dean, President and Treasurer, and Timothy
White, Vice President and Secretary, of DeCrane Holdings Co., a Delaware
corporation (hereinafter called the "Corporation"), pursuant to the
provisions of Sections 103 and 151 of the General Corporation Law of the
State of Delaware, do hereby make this Certificate of Designations and do
hereby state and certify that pursuant to the authority expressly vested in
the Board of Directors of the Corporation by the Certificate of
Incorporation, the Board of Directors duly adopted the following resolutions:
RESOLVED, that, pursuant to Article Fourth of the Certificate of
Incorporation (which authorizes 2,500,000 shares of preferred stock, par
value $0.01 per share ("PREFERRED STOCK"), of which no shares of Preferred
Stock are currently issued and outstanding), the Board of Directors hereby
fixes the powers, designations, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations and
restrictions, of a series of Preferred Stock.
RESOLVED, that each share of such series of Preferred Stock shall rank
equally in all respects and shall be subject to the following provisions:
(1) NUMBER AND DESIGNATION. 1,360,000 shares of the Preferred Stock of
the Corporation shall be designated as 14% Senior Redeemable Exchangeable
Preferred Stock Due 2008 (the "SENIOR PREFERRED STOCK").
(2) RANK. The Senior Preferred Stock shall, with respect to dividend
rights and rights on liquidation, dissolution and winding up, rank prior to
all classes of or series of common stock of the Corporation, including the
Corporation's common stock, par value $0.01 per share ("COMMON STOCK"), and
each other class of capital stock of the Corporation, the terms of which
provide that such class shall rank junior to the Senior Preferred Stock or
the terms of
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 11:01 AM 08/27/1998
981337579 - 2919756
<PAGE>
which do not specify any rank relative to the Senior Preferred Stock. All
equity securities of the Corporation to which the Senior Preferred Stock
ranks prior (whether with respect to dividends or upon liquidation,
dissolution, winding up or otherwise), including the Common Stock, are
collectively referred to herein as the "JUNIOR SECURITIES." All equity
securities of the Corporation with which the Senior Preferred Stock ranks on
a parity (whether with respect to dividends or upon liquidation, dissolution
or winding up) are collectively referred to herein as the "PARITY
SECURITIES." The respective definitions of Junior Securities and Parity
Securities shall also include any rights or options exercisable for or
convertible into any of the Junior Securities and Parity Securities, as the
case may be. The Senior Preferred Stock shall be subject to the creation of
Junior Securities.
(3) DIVIDENDS. (a)(i) The holders of shares of Senior Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available for the payment of dividends,
(subject to Sections 3(a)(ii) and (iii) hereof) at a rate equal to 14% per
annum (computed on the basis of a 360 day year) (the "DIVIDEND RATE") on the
Liquidation Value of each share of Senior Preferred Stock on and as of the
most recent Dividend Payment Date (as defined below). In the event the
Corporation is unable or shall fail to discharge its obligation to redeem all
outstanding shares of Senior Preferred Stock pursuant to paragraph 5(c) or
5(d) hereof, the Dividend Rate shall increase by .25 percent per quarter
(each, a "DEFAULT DIVIDEND") for each quarter or portion thereof following
the date on which such redemption was required to be made until cured;
PROVIDED that the aggregate increase shall not exceed 5%. Such dividends
shall be payable in the manner set forth below in Sections 3(a)(ii) and (iii)
quarterly on March 31, June 30, September 30 and December 31 of each year
(unless such day is not a business day, in which event on the next succeeding
business day) (each of such dates being a "DIVIDEND PAYMENT DATE" and each
such quarterly period being a "DIVIDEND PERIOD"). Such dividends shall be
cumulative from the date of issue, whether or not in any Dividend Period or
Periods there shall be funds of the Corporation legally available for the
payment of such dividends.
(ii) Prior to the fifth anniversary of the issuance of the Senior
Preferred Stock (the "CASH PAY DATE"), dividends shall not be payable in
cash to holders of shares of Senior Preferred Stock but shall, subject
to Section 3(b) hereof, accrete to the Liquidation Value in accordance
with Section 4(a) hereof.
(iii) Following the Cash Pay Date, each such dividend shall be
payable in cash on the Liquidation Value per share of the Senior
Preferred Stock, in equal quarterly amounts (to which the Default
Dividend, if any, shall be added), to the holders of record of shares of
the Senior Preferred
2
<PAGE>
Stock, as they appear on the stock records of the Corporation at the
close of business on such record dates, not more than 60 days or less
than 10 days preceding the payment dates thereof, as shall be fixed by
the Board of Directors. Accrued and unpaid dividends for any past
Dividend Periods may be declared and paid at any time, without reference
to any Dividend Payment Date, to holders of record on such date, not
more than 45 days preceding the payment date thereof, as may be fixed by
the Board of Directors.
(b) At the written request of the holders of a majority of the shares of
Senior Preferred Stock, the Corporation shall, commencing on the first
Dividend Payment Date after such request and ending on the Cash Pay Date, be
required to pay all dividends on shares of Senior Preferred Stock by the
issuance of additional shares of Senior Preferred Stock ("ADDITIONAL
SHARES"). The Additional Shares shall be identical to all other shares of
Senior Preferred Stock, except as set forth in Section 4. For the purposes of
determining the number of Additional Shares to be issued as dividends
pursuant to this Paragraph (b), such Additional Shares shall be valued at
their Applicable Liquidation Value as provided in Section 4(c).
(c) Holders of shares of Senior Preferred Stock shall not be entitled to
any dividends, whether payable in cash, property or stock, in excess of the
cumulative dividends, as herein provided, on the Senior Preferred Stock.
Except as provided in this Section 3, no interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on
the Senior Preferred Stock that may be in arrears.
(d) So long as any shares of the Senior Preferred Stock are outstanding,
no dividends, except as described in the next succeeding sentence, shall be
declared or paid or set apart for payment on Parity Securities, for any
period unless (to the extent such dividends are payable in cash) full
cumulative dividends have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart of such
payment on the Senior Preferred Stock for all Dividend Periods terminating on
or prior to the date of payment of the dividend on such class or series of
Parity Securities. When (to the extent such dividends are payable in cash)
dividends are not paid in full or a sum sufficient for such payment is not
set apart, as aforesaid, all dividends declared upon shares of the Senior
Preferred Stock and all dividends declared upon any other class or series of
Parity Securities shall (in each case, to the extent payable in cash) be
declared ratably in proportion to the respective amounts of dividends
accumulated and unpaid on the Senior Preferred Stock and accumulated and
unpaid on such Parity Securities.
3
<PAGE>
(e) So long as any shares of the Senior Preferred Stock are
outstanding, no dividends (other than dividends or distributions paid in
shares of, or options, warrants or rights to subscribe for or purchase shares
of, Junior Securities) shall be declared or paid or set apart for payment or
other distribution declared or made upon Junior Securities, nor shall any
Junior Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan of the Corporation or any
subsidiary) (all such dividends, distributions, redemptions or purchases
being hereinafter referred to as a "JUNIOR SECURITIES DISTRIBUTION") for any
consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any shares of any such stock) by the Corporation,
directly or indirectly (except by conversion into or exchange for Junior
Securities), unless in each case (i) the full cumulative dividends on all
outstanding shares of the Senior Preferred Stock and any other Parity
Securities shall (to the extent payable in cash) have been paid or set apart
for payment for all past Dividend Periods with respect to the Senior
Preferred Stock and all past dividend periods with respect to such Parity
Securities and (ii) (to the extent payable in cash) sufficient funds shall
have been paid or set apart for the payment of the dividend for the current
Dividend Period with respect to the Senior Preferred Stock and the current
dividend period with respect to such Parity Securities.
(4) LIQUIDATION PREFERENCE. (a) In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, before any payment or distribution of the assets of the
Corporation (whether capital or surplus) shall be made to or set apart for
the holders of Junior Securities, the holders of the shares of Senior
Preferred Stock shall be entitled to receive an amount equal to the
Liquidation Value of such share plus any accrued and unpaid cash dividends to
the date of distribution, "LIQUIDATION VALUE" on any date means, with respect
to (x) any share of Senior Preferred Stock other than any Additional Shares,
the sum of (1) $100.00 per share and (2) the aggregate of all dividends
accreted on such share until the most recent Dividend Payment Date upon which
an accretion to Liquidation Value has occurred (or if such date is a Dividend
Payment Date upon which an accretion to Liquidation Value has occurred, such
date); PROVIDED that in the event of an actual liquidation, dissolution or
winding up of the Corporation or the redemption of any shares of Senior
Preferred Stock pursuant to Section 5 hereunder, the amount referred to in
(2) shall be calculated by including dividends accreting to the actual date
of such liquidation, dissolution or winding up or the redemption date, as the
case may be, rather than the Dividend Payment Date referred to above and
PROVIDED FURTHER that in no event will dividends accrete beyond the earlier
of (i) the Cash Pay Date and (ii) the most recent Dividend Payment Date prior
to the Dividend Payment Date on which dividends on the Senior Preferred Stock
are payable in Additional
4
<PAGE>
Shares and (y) any Additional Share, the Applicable Liquidation Value. All
accretions to Liquidation Value will be calculated using compounding on the
quarterly basis. Except as provided in the proceeding sentences, holders of
shares of Senior Preferred Stock shall not be entitled to any distribution in
the event of liquidation, dissolution or winding up of the affairs of the
Corporation. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation, or proceeds thereof, distributable
among the holders of the shares of Senior Preferred Stock shall be
insufficient to pay in full the preferential amount aforesaid and liquidating
payments on any Parity Securities, then such assets, or the proceeds thereof,
shall be distributed among the holders of shares of Senior Preferred Stock
and any such other Parity Securities ratably in accordance with the
respective amounts that would be payable on such shares of Senior Preferred
Stock and any such other stock if all amounts payable thereon were paid in
full. For the purposes of this paragraph (4), (i) a consolidation or merger
of the Corporation with one or more corporations, or (ii) a sale or transfer
of all or substantially all of the Corporation's assets, shall not be deemed
to be a liquidation, dissolution or winding up, voluntary or involuntary, of
the Corporation.
(b) Subject to the rights of the holders of any Parity Securities,
after payment shall have been made in full to the holders of the Senior
Preferred Stock, as provided in this paragraph (4), any other series or class
or classes of Junior Securities shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive any and all
assets remaining to be paid or distributed, and the holders of the Senior
Preferred Stock shall not be entitled to share therein.
(c) The Applicable Liquidation Value of any Additional Shares shall be
the Liquidation Value of Senior Preferred Stock outstanding immediately prior
to the first Dividend Payment Date occurring after a request for payment in
Additional Shares has been made in accordance with Section 3(b).
(5) REDEMPTION. (a) Redemption Upon Consummation of Public Offering.
The Corporation may, at its option, to the extent it shall have funds legally
available for such payment, redeem, prior to September 30, 2001, in whole
but not in part, shares of Senior Preferred Stock, at a redemption price per
share equal to 114% of the Liquidation Value, in cash, plus accrued and
unpaid cash dividends on such shares to the date fixed for redemption,
without interest, PROVIDED that the Corporation shall not redeem any shares
of Senior Preferred Stock pursuant to this Paragraph 5(a) unless (i) prior to
such redemption a Public Offering shall have been consummated, and (ii) the
aggregate redemption price of the shares of Senior Preferred Stock redeemed
pursuant to this Section 5(a) does
5
<PAGE>
not exceed the net proceeds received by the Corporation in such Initial
Public Offering.
"PUBLIC OFFERING" shall mean any underwritten public offering of Common
Stock pursuant to an effective registration statement under the Securities
Act of 1933, as amended, and shall, in addition, for the purposes of Section
5(a) hereof, include any sale, pursuant to such an underwritten registered
public offering, following the Closing Date of any common stock by any
affiliate of the Corporation, the net proceeds of which are contributed or
loaned to the Corporation in such a manner that such proceeds may lawfully be
used for the redemption of the Senior Preferred Stock.
"CLOSING DATE" shall have the meaning ascribed to such term in the
Investors' Agreement.
"INVESTORS' AGREEMENT" means the Investors' Agreement dated as of the
Closing Date by and among DeCrane Holdings Co., DLJ Merchant Banking Partners
II, L.P., DLJ Merchant Banking Partners, II-A, L.P., DLJ Offshore Partners
II, C.V., DLJ Diversified Partners L.P., DLJ Diversified Partners-A, L.P.,
DLJ Millennium Partners, L.P., DLJ Millennium Partners-A, L.P., DLJMB Funding
II, Inc., DLJ EAB Partners, L.P., DLJ First ESC L.P., UK Investment Plan 1997
Partners and DLJ ESC II L.P., (collectively, the "DLJMB Funds"), and certain
other stockholders listed on the signature pages thereof.
(b) REDEMPTION AT THE OPTION OF THE CORPORATION. On and after
September 30, 2003, to the extent the Corporation shall have funds legally
available for such payment, the Corporation may, at its option, redeem shares
of Senior Preferred Stock, at any time in whole but not in part, at
redemption prices per share in cash set forth in the table below, together
with accrued and unpaid cash dividends thereon to the date fixed for
redemption, without interest.
<TABLE>
<CAPTION>
YEAR BEGINNING SEPTEMBER 30 PERCENTAGE OF LIQUIDATION VALUE
--------------------------- -------------------------------
<S> <C>
2003 107.000%
2004 104.667%
2005 102.333%
2006 100.000%
</TABLE>
In addition, at any time prior to September 30, 2003, the Corporation
may, at its option upon the occurrence of a Change of Control (as defined
below), redeem the Preferred Stock, in whole but not in part, upon not less
than 30 nor more than 60 days' prior notice (but in no event may any such
redemption occur more than 60 days after the occurrence of such Change of
Control), in cash at a
6
<PAGE>
redemption price equal to the present value of the sum of all the remaining
dividends, premium and Liquidation Preference payments that would become due
on the Preferred Stock as if the Preferred Stock was to remain outstanding
and be redeemed on September 30, 2003, computed using a discount rate equal
to the Treasury Rate plus 50 basis points.
(c) REDEMPTION IN THE EVENT OF A CHANGE OF CONTROL. In the event of a
Change of Control, the Corporation shall, to the extent it shall have funds
legally available for such payment, offer to redeem all of the shares of
Senior Preferred Stock then outstanding, and shall redeem the shares of
Senior Preferred Stock of any holder of such shares that shall consent to
such redemption, upon a date no later than 30 days following the Change in
Control, at a redemption price per share equal to 101% of the Liquidation
Value, in cash, plus accrued and unpaid cash dividends thereon to the date
fixed for redemption, without interest.
"CHANGE OF CONTROL" means such time as: (a) 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, has become the beneficial owner, by way of merger,
consolidation or otherwise, of 30% or more of the voting power of all classes
of voting securities of the Corporation, and such person or group has become
the beneficial owner of a greater percentage of the voting power of all
classes of voting securities of the Corporation than that beneficially owned
by the Initial Investors, or (b) a sale or transfer of all or substantially
all of the assets of the Corporation to any person or group (other than any
group consisting solely of the Initial Investors or their affiliates) has
been consummated; or (c) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of the Corporation (together with any new directors whose election
was approved by a vote of a majority of the directors then still in office,
who either were directors at the beginning of such period or whose election
or nomination for the election was previously so approved) cease for any
reason to constitute a majority of the directors of the Corporation, then in
office.
"INITIAL INVESTORS" means the Stockholders (determined as of the
issuance of the Preferred Stock) and their Permitted Transferees, each as
defined in the Investors' Agreement.
"TREASURY RATE" means, as of any redemption date, the yield to maturity
as of such redemption date of United States Treasury securities with a
constant maturity (as compiled and published in the most recent Federal
Reserve Statistical Release H.15 (519) that has become publicly available at
least two Business Days prior to the redemption date (or, if such
Statistical Release is no longer published,
7
<PAGE>
any publicly available source of similar market data)) most nearly equal to
the period from the redemption date to September 30, 2003; PROVIDED that if
the period from the redemption date to September 30, 2003 is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
(d) MANDATORY REDEMPTION. To the extent the Corporation shall have
funds legally available for such payment, on September 30, 2008, if any
shares of the Senior Preferred Stock shall be outstanding, the Corporation
shall redeem all outstanding shares of the Senior Preferred Stock, at a
redemption price equal to the aggregate Liquidation Value, in cash, together
with any accrued and unpaid cash dividends thereon to the date fixed for
redemption, without interest.
(e) STATUS OF REDEEMED SHARES. Shares of Senior Preferred Stock which
have been issued and reacquired in any manner, including shares purchased or
redeemed, shall (upon compliance with any applicable provisions of the laws
of the State of Delaware) have the status of authorized and unissued shares
of the class of Preferred Stock undesignated as to series and may be
redesignated and reissued as part of any series of the Preferred Stock;
PROVIDED that no such issued and reacquired shares of Senior Preferred Stock
shall be reissued or sold as Senior Preferred Stock.
(f) FAILURE TO REDEEM. If the Corporation is unable or shall fail to
discharge its obligation to redeem all outstanding shares of Senior Preferred
Stock pursuant to paragraph (5)(c) or 5(d) (each, a "MANDATORY REDEMPTION
OBLIGATION"), such Mandatory Redemption Obligation shall be discharged as soon
as the Corporation is able to discharge such Mandatory Redemption Obligation.
If and so long as any Mandatory Redemption Obligation with respect to the
Senior Preferred Stock shall not be fully discharged, the Corporation shall
not (i) directly or indirectly, redeem, purchase, or otherwise acquire any
Parity Security or discharge any mandatory or optional redemption, sinking
fund or other similar obligation in respect of any Parity Securities (except
in connection with a redemption, sinking fund or other similar obligation to
be satisfied pro rata with the Senior Preferred Stock) or (ii) in accordance
with paragraph 3(e), declare or make any Junior Securities Distribution, or,
directly or indirectly, discharge any mandatory or optional redemption,
sinking fund or other similar obligation in respect of the Junior Securities.
(g) FAILURE TO PAY DIVIDENDS. Notwithstanding the foregoing
provisions of this paragraph (5), unless full cumulative cash dividends
(whether or not declared) on all outstanding shares of Senior Preferred Stock
shall have been paid or contemporaneously are declared and paid or set apart
for payment for all divided periods terminating on or prior to the applicable
redemtpion date, none
8
<PAGE>
of the shares of Senior Preferred Stock shall be redeemed, and no sum shall
be set aside for such redemption, unless shares of Senior Preferred Stock are
redeemed pro rata.
(6) PROCEDURE FOR REDEMPTION. (a) In the event the Corporation shall
redeem shares of Senior Preferred Stock pursuant to Sections 5(a), (b) or
(d), notice of such redemption shall be given by first class mail, postage
prepaid, mailed not less than 30 days nor more than 60 days prior to the
redemption date, to each holder of record of the shares to be redeemed at
such holder's address as the same appears on the stock register of the
Corporation; PROVIDED that neither the failure to give such notice nor any
defect therin shall affect the validity of the giving of notice for the
redemption of any share of Senior Preferred Stock to be redeemed except as to
the holder to whom the Corporation has failed to give said notice or except
as to the holder whose notice was defective. Each such notice shall state:
(i) the redemption date; (ii) the number of shares of Senior Preferred Stock
to be redeemed; (iii) the redemption price; (iv) the place or places where
certificates for such shares are to be surrendered for payment of the
redemption price; and (v) that dividends on the shares to be redeemed will
cease to accrue on such redemption date.
(b) In the case of any redemption pursuant to Sections 5(a), (b) or
(d) hereof, notice having been mailed as provided in Section 6(b) hereof,
from and after the redemption date (unless default shall be made by the
Corporation in providing money for the payment of the redemption price of the
shares called for redemption), dividends on the shares of Senior Preferred
Stock so called for redemption shall cease to accrue, and all rights of the
holders thereof as stockholders of the Corporation (except the right to
receive from the Corporation the redemption price) shall cease. Upon
surrender in accordance with said notice of the certificates for any shares
so redeemed (properly endorsed or assigned for transfer, if the Board of
Directors of the Corporation shall so require and the notice shall so state),
such share shall be redeemed by the Corporation at the redemption price
aforesaid. In case fewer than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares without cost to the holder thereof.
(c) In the case of a redemption pursuant to Section 5(c) hereof,
notice of such redemption shall be given by first class mail, postage
prepaid, mailed not more than 10 days following the occurrence of the Change
of Control and not less than 20 days prior to the redemption date, to each
holder of record of the shares to be redeemed at such holder's address as
the same appears on the stock register of the Corporation; PROVIDED that
neither the failure to give such notice nor any defect therein shall affect
the validity of the giving of notice for the redemption of any share of
Senior Preferred Stock to be redeemed except as to the holder to
9
<PAGE>
whom the Corporation has failed to give said notice or except as to the
holder whose notice was defective. Each such notice shall state: (i) that a
Change of Control has occurred; (ii) the redemption date; (iii) the
redemption price; (iv) that such holder may elect to cause the Corporation to
redeem all or any of the shares of Senior Preferred Stock held by such
holder; (v) the place or places where certificates for such shares are to be
surrendered for payment of the redemption price; and (vi) that dividends on
the shares the holder elects to cause the Corporation to redeem will cease
to accrue on such redemption date.
Upon receipt of such notice, the holder shall, within 20 days of receipt
thereof, return such notice to the Corporation indicating the number of shares
of Senior Preferred Stock such holder shall elect to cause the Corporation to
redeem, if any.
(d) In the case of a redemption pursuant to Section 5(c) hereof, notice
having been mailed as provided in Section 6(d) hereof, from and after the
redemption date (unless default shall be made by the Corporation in providing
money for the payment of the redemption price of the shares called for
redemption), dividends on such shares of Senior Preferred Stock as the holder
elects to cause the Corporation to redeem shall cease to accrue, and all
rights of the holders thereof as stockholders of the Corporation (except the
right to receive from the Corporation the redemption price) shall cease. Upon
surrender in accordance with said notice of the certificates for any shares
so redeemed (properly endorsed or assigned for transfer, if the Board of
Directors of the Corporation shall so require and the notice shall so state),
such share shall be redeemed by the Corporation at the redemption price
aforesaid. In case fewer than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares without cost to the holder thereof.
(7) EXCHANGE. (a) Subject to the provisions of this paragraph (7) the
Corporation may, at its option, at any time and from time to time on any
Dividend Payment Date, exchange, to the extent it is legally permitted to do
so, all, but not less than all, outstanding shares (and fractional shares) of
Senior Preferred Stock, for Exchange Debentures; PROVIDED that (i) on or
prior to the date of exchange the Corporation shall have paid to or declared
and set aside for payment to the holders of outstanding shares of Senior
Preferred Stock all accrued and unpaid cash dividends on shares of Senior
Preferred Stock through the exchange date in accordance with the next
succeeding paragraph; and (ii) no event of default under the indenture (as
defined in such indenture) governing the Exchange Debentures shall have
occurred and be continuing; and (iii) no shares of Senior Preferred Stock are
held on such date by the DLJMB Funds or any of their Affiliates, or any of
their Permitted Transferees. The principal amount of Exchange Debentures
10
<PAGE>
deliverable upon exchange of a share of Senior Preferred Stock, adjusted as
hereinafter provided, shall be determined in accordance with the Exchange
Ratio (as defined below).
Cash dividends on any shares of Senior Preferred Stock exchanged for
Exchange Debentures which have accrued but have not been paid as of the date
of exchange shall be paid in cash. In no event shall the Corporation issue
Exchange Debentures in denominations other than $1,000 or in an integral
multiple thereof. Cash will be paid in lieu of any such fraction of an
Exchange Debenture which would otherwise have been issued (which shall be
determined with respect to the aggregate principal amount of Exchange
Debentures to be issued to a holder upon any such exchange). Interest will
accrue on the Exchange Debentures from the date of exchange.
Prior to effecting any exchange hereunder, the Corporation shall appoint
a trustee to serve in the capacity contemplated by an indenture between the
Corporation and such trustee, containing customary terms and conditions.
The Exchange Ratio shall be, as of any Dividend Payment Date, $1.00 (or
fraction thereof) of principal amount of Exchange Debenture for each $1.00 of
(i) Liquidation Value plus (ii) accrued and unpaid cash dividends, if any, per
share of Senior Preferred Stock held by a holder on the applicable exchange
date.
"AFFILIATES" shall have the meaning ascribed such term in the Investors'
Agreement.
"EXCHANGE DEBENTURES" means 14% Senior Subordinated Exchange Debentures
due 2008 of the Corporation, to be issued pursuant to an indenture between
the Corporation and a trustee, containing customary terms and conditions
approved by the Board of Directors.
"PERMITTED TRANSFEREES" shall have the meaning ascribed to such term in
the Investors' Agreement.
(a) PROCEDURE FOR EXCHANGE. (i) In the event the Corporation shall
exchange shares of Senior Preferred Stock, notice of such exchange shall be
given by first class mail, postage prepaid, mailed not less than 30 days nor
more than 60 days prior to the exchange date, to each holder of record of the
shares to be exchanged at such holder's address as the same appears on the
stock register of the Corporation, PROVIDED that neither the failure to give
such notice nor any defect therein shall affect the validity of the giving of
notice for the exchange of any share of Senior Preferred Stock to be
exchanged except as to the holder to whom the Corporation has failed to give
said notice or except as to the holder
11
<PAGE>
whose notice was defective. Each such notice shall state: (A) the exchange
date; (B) the number of shares of Senior Preferred Stock to be exchanged and,
if fewer than all the shares held by such holder are to be exchanged, the
number of shares to be exchanged from such holder; (C) the Exchange Ratio;
(D) the place or places where certificates for such shares are to be
exchanged for notes evidencing the Exchange Debentures to be received by the
exchanging holder; and (E) that dividends on the shares to be exchanged will
cease to accrue on such exchange date.
(ii) Prior to giving notice of intention to exchange, the
Corporation shall execute and deliver with a bank or trust company
selected by the Corporation an indenture containing customary terms and
conditions. The Corporation will cause the Exchange Debentures to be
authenticated on the Dividend Payment Date on which the exchange is
effective, and will pay interest on the Exchange Debentures at the rate
and on the dates specified in such indenture from the exchange date.
The Corporation will not give notice of its intention to exchange
under paragraph 6(b)(i) hereof unless it shall file at the place or
places (including a placing in the Borough of Manhattan, The City of New
York) maintained for such purpose an opinion of counsel (who may be an
employee of the Corporation) to the effect that (i) the indenture has
been duly authorized, executed and delivered by the Corporation, has
been duly qualified under the Trust Indenture Act of 1939 (or that such
qualification is not necessary) and constitutes a valid and binding
instrument enforceable against the Corporation in accordance with its
terms (subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles, and
subject to such other qualifications as are then customarily contained
as opinions of counsel experienced in such matters), (ii) the Exchange
Debentures have been duly authorized and, when executed and
authenticated in accordance with the provisions of the indenture and
delivered in exchange for the shares of Preferred Stock, will constitute
valid and binding obligations of the Corporation entitled to the
benefits of the indenture (subject as aforesaid), (iii) neither the
execution nor delivery of the indenture or the Exchange Debentures nor
compliance with the terms, conditions or provisions of such instruments
will result in a breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of
trust or agreement or instrument, known to such counsel, to which the
Corporation or any of its subsidiaries is a party or by which it or any
of them is bound, or any decree, judgment, order, rule or regulation,
known to such counsel, of any court or governmental agency or body
having jurisdiction over the
12
<PAGE>
Corporation and such subsidiaries or any of their properties, (iv) the
Exchange Debentures have been duly registered for such exchange with the
Securities and Exchange Commission under a registration statement that
has become effective under the Securities Act of 1933 (the "Act") or
that the exchange of the Exchange Debentures for the shares of Senior
Preferred Stock is exempt from registration under the Act, and (v) the
Corporation has sufficient legally available funds for such exchange
such that such exchange is permitted under applicable law.
(iii) Notice having been mailed as aforesaid, from and after the
exchange date (unless default shall be made by the Corporation in
issuing Exchange Debentures in exchange for the shares called for
exchange), dividends on the shares of Senior Preferred Stock so called
for exchange shall cease to accrue, and all rights of the holders
thereof as stockholders of the Corporation (except the right to receive
from the Corporation the Exchange Debentures and any rights such holder,
upon the exchange, may have as a holder of the Exchange Debenture) shall
cease. Upon surrender in accordance with said notice of the certificates
for any shares so exchanged (properly endorsed or assigned for transfer,
if the Board of Directors of the Corporation shall so require and the
notice shall so state), such share shall be exchanged by the Corporation
for the Exchange Debentures at the Exchange Ratio. In case fewer than
all the shares represented by any such certificate are exchanged, a new
certificate shall be issued representing the unexchanged shares without
cost to the holder thereof.
(iv) Each exchange shall be deemed to have been effected
immediately after the close of business on the relevant Dividend Payment
Date, and the person in whose name or names any Exchange Debentures
shall be issuable upon such exchange shall be deemed to have become the
holder of record of the Exchange Debentures represented thereby at such
time on such Dividend Payment Date.
(v) Prior to the delivery of any securities which the Corporation
shall be obligated to deliver upon exchange of the Senior Preferred
Stock, the Corporation shall comply with all applicable federal and
state laws and regulations which require action to be taken by the
Corporation.
(c) The Corporation will pay any and all documentary stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of notices
evidencing Exchange Debentures on exchange of the Senior Preferred Stock
pursuant hereto; PROVIDED that the Corporation shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issue
or delivery
13
<PAGE>
of Exchange Debentures in a name other than that of the holder of the Senior
Preferred Stock to be exchanged and no such issue or delivery shall be made
unless and until the person requesting such issue or delivery has paid to the
Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(8) VOTING RIGHTS. (a) The holders of record of shares of Senior
Preferred Stock shall not be entitled to any voting rights except as
hereinafter provided to this paragraph (8), as otherwise provided by law or
as provided in the Investors' Agreement.
(b) If and whenever (i) four consecutive or six quarterly cash
dividends payable on the Senior Preferred Stock have not been paid in full,
(ii) for any reason (including the reason that funds are not legally
available for a redemption), the Corporation shall have failed to discharge
any Mandatory Redemption Obligation (including a redemption in the Event of a
Change of Control pursuant to Section 5(c) hereof), (iii) the Corporation
shall have failed to provide the notice required by Section 6(d) hereof
within the time period specified in such section or (iv) the Corporation
shall have failed to comply with Sections 3(d), 3(e) or 8(c) hereof, (1) the
number of directors then constituting the Board of Directors shall be
increased by two and the holders of a majority of the outstanding shares of
Senior Preferred Stock, together with the holders of shares of every other
series of preferred stock upon which like rights have been conferred and are
exercisable (resulting from either the failure to pay dividends or the
failure to redeem) (any such series is referred to as the "PREFERRED
SHARES"), voting as a single class regardless of series, shall be entitled
to elect the two additional directors to serve on the Board of Directors at
any annual meeting of stockholders or special meeting held in place thereof,
or at a special meeting of the holders of the Senior Preferred Stock and the
Preferred Shares called as hereinafter provided. Whenever (i) all arrears in
cash dividends on the Senior Preferred Stock and the Preferred Shares then
outstanding shall have been paid and cash dividends thereon for the current
quarterly dividend period shall have been paid or declared and set apart for
payment, (ii) the Corporation shall have fulfilled its Mandatory Redemption
Obligation, (iii) fulfilled its obligation to provide notice as specified in
subsection (b)(iii) hereof, or (iv) the Corporation shall have complied with
Sections 3(d), 3(e) or 8(c) hereof, as the case may be, then the right of the
holders of the Senior Preferred Stock to elect such additional two directors
shall cease (but subject always to the same provisions for the vesting of
such voting rights in the case of any similar future (i) arrearage in six
consecutive quarterly cash dividends, (ii) failure to fulfill any Mandatory
Redemption Obligation, (iii) failure to fulfill the obligation to provide the
notice required by Section 6(d) hereof within the time period specified in
such section or (iv) failure to comply with Sections 3(d), 3(e), or 8(c)) and
the terms of office of all persons elected as directors by the holders of
14
<PAGE>
the Senior Preferred Stock shall forthwith terminate and the number of the
Board of Directors shall be reduced accordingly. At any time after such
voting power shall have been vested in the holders of shares of Senior
Preferred Stock and the Preferred Shares, the secretary of the Corporation
may, and upon the written request of any holder of Senior Preferred Stock
(addressed to the secretary at the principal office of the Corporation)
shall, call a special meeting of the holders of the Senior Preferred Stock
and of the Preferred Shares for the election of the two directors to be
elected by them as herein provided, such call to be made by notice similar to
that provided in the Bylaws of the Corporation for a special meeting of the
stockholders or as required by law. If any such special meeting required to
be called as above provided shall not be called by the secretary within 20
days after receipt of any such request, then any holder of shares of Senior
Preferred Stock may call such meeting, upon the notice above provided, and
for that purpose shall have access to the stock books of the Corporation. The
directors elected at any such special meeting shall hold office until the
next annual meeting of the stockholders or special meeting held in lieu
thereof if such office shall not have previously terminated as above
provided. If any vacancy shall occur among the directors elected by the
holders of the Senior Preferred Stock and the Preferred Shares, a successor
shall be elected by the Board of Directors, upon the nomination of the
then-remaining director elected by the holders of the Senior Preferred Stock
and the Preferred Shares or the successor of such remaining director, to
serve until the next annual meeting of the stockholders or special meeting
held in place thereof if such office shall not have previously terminated as
provided above.
(c) Without the written consent of a majority of the outstanding shares
of Senior Preferred Stock or the vote of holders of a majority of the
outstanding shares of Senior Preferred Stock at a meeting of the holders of
Senior Preferred Stock called for such purpose, the Corporation will not (i)
amend, alter or repeal any provision of the Certificate of Incorporation (by
merger or otherwise) so as to adversely affect the preferences, rights or
powers of the Senior Preferred Stock; PROVIDED that any such amendment that
decreases the dividend payable on or the Liquidation Value of the Senior
Preferred Stock shall require the affirmative vote of holders of each share
of Senior Preferred Stock at the meeting of holders of Senior Preferred Stock
called for such purpose or written consent of the holder of each share of
Senior Preferred Stock; or (ii) create, authorize or issue any class of stock
ranking prior to, or on a parity with, the Senior Preferred Stock with
respect to dividends or upon liquidation, dissolution, winding up or
otherwise, or increase the authorized number of shares of any such class or
series, or reclassify any authorized stock of the Corporation into any such
prior or parity shares or create, authorize or issue any obligation or
security convertible into or evidencing the right to purchase any such prior
or parity shares, except that the Corporation may, without such approval,
create authorize and issue Parity Securities for the purpose
15
<PAGE>
of utilizing the proceeds from the issuance of such Parity Securities for the
redemption or repurchase of all outstanding shares of Senior Preferred Stock
in accordance with the terms hereof or of the Investors' Agreement.
(d) In exercising the voting rights set forth in this paragraph (8),
each share of Senior Preferred Stock shall have one vote per share, except
that when any other series of preferred stock shall have the right to vote
with the Senior Preferred Stock as a single class on any matter, then the
Senior Preferred Stock and such other series shall have with respect to such
matters one vote per $100 of Liquidation Value or other liquidation
preference. Except as otherwise required by applicable law or as set forth
herein, the shares of Senior Preferred Stock shall not have any relative,
participating, optional or other special voting rights and powers and the
consent of the holders thereof shall not be required for the taking of any
corporate action.
(9) REPORTS. So long as any of the Senior Preferred Stock is
outstanding, the Corporation will furnish the holders thereof with the
quarterly and annual financial reports that the Corporation is required to
file with the Securities and Exchange Commission pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934, or in the event the
Corporation is not required to file such reports, reports containing the same
information as would be required in such reports.
(10) GENERAL PROVISIONS. (a) The term "PERSON" as used herein means any
corporation, limited liability company, partnership, trust, organization,
association, other entity or individual.
(b) The term "OUTSTANDING", when used with reference to shares of
stock, shall mean issued shares, excluding shares held by the Corporation or
a subsidiary.
(c) The headings of the paragraphs, subparagraphs, clauses and
subclauses used herein are for the convenience of reference only and shall
not define, limit or affect any of the provisions hereof.
(d) Each holder of Senior Preferred Stock, by acceptance thereof,
acknowledges and agrees that payments of dividends, interest, premium and
principal on, and exchange, redemption and repurchase of, such securities by
the Corporation are subject to restrictions on the Corporation contained in
certain credit and financing agreements.
16
<PAGE>
IN WITNESS WHEREOF, DeCrane Holdings Co. has caused this Certificate of
Designations to be signed and attested by the undersigned this 27th day of
August, 1998.
DECRANE HOLDINGS CO.
By: /s/ Thompson Dean
------------------------------
Name: Thompson Dean
Title: President and Treasurer
ATTEST:
/s/ Timothy White
- -----------------------------------
Name: Timothy White
Title: Vice President and Secretary
17
<PAGE>
AMENDED AND RESTATED
INVESTORS' AGREEMENT
dated as of
October 2, 1998
by and among
DECRANE HOLDINGS CO.,
DLJ MERCHANT BANKING PARTNERS, II, L.P.,
DLJ MERCHANT BANKING PARTNERS II-A, L.P.,
DLJ OFFSHORE PARTNERS II, C.V.,
DLJ DIVERSIFIED PARTNERS, L.P.
DLJ DIVERSIFIED PARTNERS -A, L.P.,
DLJ MILLENNIUM PARTNERS, L.P.
DLJ MILLENNIUM PARTNERS -A, L.P.
DLJMB FUNDING II, INC.,
UK INVESTMENT PLAN 1997 PARTNERS,
DLJ EAB PARTNERS, L.P.,
DLJ FIRST ESC L.P.,
DLJ ESC II L.P.
and certain other Stockholders named herein
<PAGE>
TABLE OF CONTENTS
---------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1
DEFINITIONS
SECTION 1.01. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2
CORPORATE GOVERNANCE
SECTION 2.01 COMPOSITION OF THE BOARD . . . . . . . . . . . . . . . . . 10
SECTION 2.02 REMOVAL. . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.03 VACANCIES. . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.04 MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.05 ACTION BY THE BOARD. . . . . . . . . . . . . . . . . . . . 10
SECTION 2.06 CONFLICTING CHARTER OR BYLAW PROVISIONS. . . . . . . . . . 11
ARTICLE 3
RESTRICTIONS ON TRANSFER
SECTION 3.01 GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 3.02 LEGENDS. . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 3.03 PERMITTED TRANSFEREES. . . . . . . . . . . . . . . . . . . 12
SECTION 3.04 RESTRICTIONS ON TRANSFERS BY MANAGEMENT STOCKHOLDERS . . . 12
SECTION 3.05 RESTRICTIONS ON TRANSFERS BY THE INVESTORS . . . . . . . . 13
ARTICLE 4
TAG-ALONG RIGHTS; DRAG-ALONG RIGHTS
SECTION 4.01 RIGHTS TO PARTICIPATE IN TRANSFER. . . . . . . . . . . . . 14
SECTION 4.02 RIGHTS TO COMPEL PARTICIPATION IN CERTAIN TRANSFERS. . . . 15
SECTION 4.03 CERTAIN RIGHTS . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 5
REGISTRATION RIGHTS
SECTION 5.01 DEMAND REGISTRATION. . . . . . . . . . . . . . . . . . . . 17
SECTION 5.02 INCIDENTAL REGISTRATION. . . . . . . . . . . . . . . . . . 20
SECTION 5.03 HOLDBACK AGREEMENTS. . . . . . . . . . . . . . . . . . . . 21
SECTION 5.04 REGISTRATION PROCEDURES. . . . . . . . . . . . . . . . . . 21
SECTION 5.05 INDEMNIFICATION BY THE COMPANY . . . . . . . . . . . . . . 24
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 5.06 INDEMNIFICATION BY PARTICIPATING STOCKHOLDERS. . . . . . . 25
SECTION 5.07 CONDUCT OF INDEMNIFICATION PROCEEDINGS . . . . . . . . . . 26
SECTION 5.08 CONTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 5.09 PARTICIPATION IN PUBLIC OFFERING . . . . . . . . . . . . . 28
SECTION 5.10 OTHER INDEMNIFICATION. . . . . . . . . . . . . . . . . . . 29
SECTION 5.11 COOPERATION BY THE COMPANY . . . . . . . . . . . . . . . . 29
ARTICLE 6
MISCELLANEOUS
SECTION 6.01 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . 29
SECTION 6.02 BINDING EFFECT; BENEFIT. . . . . . . . . . . . . . . . . . 29
SECTION 6.03 EXCLUSIVE FINANCIAL AND INVESTMENT BANKING ADVISOR . . . . 29
SECTION 6.04 ASSIGNABILITY. . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 6.05 AMENDMENT; WAIVER; TERMINATION . . . . . . . . . . . . . . 30
SECTION 6.06 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 6.07 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 6.08 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 6.09 APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 6.10 SPECIFIC ENFORCEMENT . . . . . . . . . . . . . . . . . . . 31
SECTION 6.11 CONSENT TO JURISDICTION. . . . . . . . . . . . . . . . . . 31
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED
INVESTORS' AGREEMENT
AMENDED AND RESTATED INVESTORS' AGREEMENT dated as of October 2, 1998
among (i) DeCrane Holdings Co., a Delaware corporation (the "COMPANY"), and
(ii) DLJ Merchant Banking Partners II, L.P., a Delaware limited partnership,
DLJ Offshore Partners II, C.V., a Netherlands Antilles limited partnership,
DLJ Merchant Banking Partners II-A, L.P., a Delaware limited partnership, DLJ
Diversified Partners, L.P., a Delaware limited partnership, DLJ Diversified
Partners-A, L.P., a Delaware limited partnership, DLJ EAB Partners, L.P., a
Delaware limited partnership, DLJ Millenium Partners, L.P., a Delaware
limited partnership, DLJ Millennium Partners-A, L.P., a Delaware limited
partnership, DLJMB Funding II, Inc., a Delaware corporation, UK Investment
Plan 1997 Partners, a Delaware partnership, DLJ First ESC L.P., a Delaware
limited partnership and DLJ ESC II L.P., a Delaware limited partnership,
(each of the foregoing, a "DLJ ENTITY", and collectively, the "DLJ ENTITIES").
WITNESSETH
WHEREAS, in connection with the merger (the "MERGER") of DeCrane
Acquisition Co., a Delaware corporation and an indirect second tier
subsidiary of the Company, with and into DeCrane Aircraft Holdings, Inc., a
Delaware corporation, pursuant to the Agreement and Plan of Merger (the
"MERGER AGREEMENT") dated as of July 16, 1998 between the parties to the
Merger certain parties hereto have acquired or will be acquiring equity
securities of the Company;
WHEREAS, the parties hereto desire to enter into this Agreement to
govern certain of their rights, duties and obligations after consummation of
the transactions contemplated by the Merger Agreement;
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein and in the Merger Agreement, the parties hereto agree as
follows:
<PAGE>
ARTICLE 1
DEFINITIONS
SECTION 1.01. DEFINITIONS. (a) The following terms, as used herein,
have the following meanings:
"ADVERSE PERSON" means any Person whom the Board determines is a
competitor or a potential competitor of the Company or any of its
Subsidiaries or to whom the Board determines a transfer of Shares would be
inadvisable.
"AFFILIATE" means, with respect to any Person, any other Person directly
or indirectly controlling, controlled by, or under common control with such
Person; PROVIDED that no stockholder of the Company shall be deemed an
Affiliate of any other stockholder of the Company solely by reason of any
investment in the Company. For the purpose of this definition, the term
"CONTROL" (including with correlative meanings, the terms "CONTROLLING",
"CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), 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 and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise.
"AFFILIATED EMPLOYEE BENEFIT TRUST" means any trust that is a successor
to the assets held by a trust established under an employee benefit plan
subject to ERISA or any other trust established directly or indirectly under
such plan or any other such plan having the same sponsor.
"AGGREGATE OWNERSHIP" means, with respect to any Stockholder or group of
Stockholders, and with respect to any class of Company Securities, the total
number or amount of such class of Company Securities "beneficially owned" (as
such term is defined in Rule 13d-3 under the Exchange Act) (without
duplication) by such Stockholder or group of Stockholders as of the date of
such calculation (but adjusted in accordance with the proviso below),
calculated on a Fully Diluted basis and taking into account any stock
dividend, stock split or reverse stock split; PROVIDED that such number or
amount of such class of Company Securities shall be increased (without
duplication) with respect to any Stockholder, by any stock appreciation
rights, options, warrants or other rights to purchase or subscribe for Common
Shares of such Other Stockholder as and when such stock appreciation rights,
options, warrants or other rights have vested.
"BOARD" means the board of directors of the Company.
2
<PAGE>
"BUSINESS DAY" means any day except a Saturday or other day on which
commercial banks in New York City are authorized by law to close.
"BYLAWS" means the Bylaws of the Company, as amended from time to time.
"CHANGE OF CONTROL" means:
(a) any "person" or "group of persons" (within the meaning of Section
13 or 14 of the Exchange Act), other than the DLJ Entities and/or their
respective Permitted Transferees, acquires, directly or indirectly, by
virtue of the consummation of any purchase, merger or other combination,
beneficial ownership (within the meaning of Section 13(d)(3) of the
Exchange Act) of securities of the Company representing more than 51% of
the combined voting power of the Company's then outstanding voting
securities with respect to matters submitted to a vote of the stockholders
generally; or
(b) a sale or transfer by the Company or any of its Subsidiaries of
substantially all of the consolidated assets of the Company and its
Subsidiaries to an entity which is not an Affiliate of the Company prior to
such sale or transfer.
"CHARTER" means the Certificate of Incorporation of the Company, as amended
from time to time.
"CLOSING DATE" means August 28, 1998.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" means the common stock, par value $0.01 per share, of the
Company and any stock into which such Common Stock may thereafter be converted
or changed, and "COMMON SHARES" means shares of Common Stock.
"COMPANY SECURITIES" means the Common Stock and securities convertible into
or exchangeable for Common Stock, the Preferred Stock and options, warrants
(including the Warrants) or other rights to acquire Common Stock, Preferred
Stock or any other equity security issued by the Company.
"DRAG-ALONG PORTION" means, with respect to any Other Stockholder and any
class of Company Securities, the number of such class of Company Securities
beneficially owned by such Other Stockholder on a Fully Diluted basis multiplied
by a fraction, the numerator of which is the number of such class of Company
3
<PAGE>
Securities proposed to be sold by the DLJ Entities on behalf of the DLJ Entities
and the Other Stockholders and the denominator of which is the total number of
such class of Company Securities beneficially owned by the Stockholders on a
Fully Diluted basis.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FULLY DILUTED" means, with respect to Common Stock and without
duplication, all outstanding Common Shares and all Common Shares issuable in
respect of securities convertible into or exchangeable for Common Shares, stock
appreciation rights, options, warrants (including the Warrants) and other rights
to purchase or subscribe for Common Shares or securities convertible into or
exchangeable for Common Shares; PROVIDED that, to the extent any of the
foregoing stock appreciation rights, options, warrants or other rights to
purchase or subscribe for Common Shares are subject to vesting, the Common
Shares subject to vesting shall be included in the definition of "FULLY DILUTED"
only upon and to the extent of such vesting.
"INITIAL OWNERSHIP" means, with respect to any Stockholder and any class of
Company Securities, the number of shares or units of such class of Company
Securities beneficially owned (and (without duplication) which such Persons have
the right to acquire from any Person) as of the date hereof, or in the case of
any Person that shall become a party to this Agreement on a later date, as of
such date, taking into account any stock split, stock dividend, reverse stock
split or similar event.
"INITIAL PUBLIC OFFERING" means the initial sale after the date hereof of
Registrable Securities pursuant to an effective registration statement under the
Securities Act (other than a registration statement on Form S-8 or any successor
form).
"INVESTORS" means each investor in the Company's equity (other than the DLJ
Entities, the Management Stockholders and their respective Permitted
Transferees), if any, who becomes a Stockholder after the date of this Agreement
for so long as such investor shall beneficially own any Company Securities.
"MANAGEMENT STOCKHOLDERS" means each of the members of management of the
Company (if any) who becomes a Stockholder after the date of this Agreement for
so long as such member of management shall beneficially own any Company
Securities.
4
<PAGE>
"Other Stockholders" means all Stockholders and their respective
Permitted Transferees, other than the DLJ Entities and their respective
Permitted Transferees.
"PERMITTED TRANSFEREE" means:
(i) in the case of any DLJ Entity (A) any other DLJ Entity, (B)
any general or limited partner of any DLJ Entity (a "DLJ PARTNER"), and
any corporation, partnership, Affiliated Employee Benefit Trust or other
entity that is an Affiliate of any DLJ Partner (collectively, the "DLJ
AFFILIATES"), (C) any managing director, director, general partner,
limited partner, officer or employee of any DLJ Entity or of any DLJ
Affiliate, or the heirs, executors, administrators, testamentary
trustees, legatees or beneficiaries of any of the foregoing persons
referred to in this clause (C) (collectively, the "DLJ ASSOCIATES"), (D)
a trust, the beneficiaries of which, or a corporation, limited
liability company or partnership, the stockholders, members or general
or limited partners of which, include only DLJ Entities, DLJ Affiliates,
DLJ Associates, their spouses or their lineal descendants or (E) a
voting trustee for one or more DLJ Entities, DLJ Affiliates or DLJ
Associates under the terms of a voting trust designed to conform with
the requirements of the Insurance Law of the State of New York; and
(ii) in the case of any Other Stockholder (A) any Other
Stockholder, (B) a Person to whom Shares are transferred from such Other
Stockholder (1) by will or the laws of descent and distribution or (2)
by gift without consideration of any kind; PROVIDED that, in the case of
clause (2), such transferee is the issue or spouse of such Other
Stockholder or (C) a trust that is for the exclusive benefit of such
Other Stockholder or its Permitted Transferees under (B) above.
"PERSON" means an individual, corporation, limited liability company,
partnership, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"PREFERRED STOCK" means the 14% Senior Redeemable Exchangeable
Preferred Stock, par value $0.01 per share, of the Company, and "PREFERRED
SHARES" means shares of Preferred Stock.
"PRO RATA PORTION" means the number of Common Shares a Stockholder
holds multiplied by a fraction, the numerator of which is the number of
Common Shares to be sold by the DLJ Entities and their Permitted Transferees
in a Public Offering and the denominator of which is the total number of
Common Shares, on
5
<PAGE>
a Fully Diluted basis, held in the aggregate by the DLJ Entities and their
Permitted Transferees prior to such Public Offering.
"PUBLIC OFFERING" means any primary or secondary public offering of
Registrable Securities of the Company pursuant to an effective registration
statement under the Securities Act other than pursuant to a registration
statement filed in connection with a transaction of the type described in
Rule 145 of the Securities Act or for the purpose of issuing securities
pursuant to an employee benefit plan.
"REGISTRABLE SECURITIES" means at any time, with respect to any
Stockholder or its Permitted Transferees, any Shares of Warrants and any
securities issued or issuable in respect of such Shares or Warrants by way of
conversion, exchange, stock dividend, split or combination, recapitalization,
merger, consolidation or other reorganization or otherwise until (i) a
registration statement covering such Shares or Warrants has been declared
effective by the SEC and such Shares or Warrants have been disposed of
pursuant to such effective registration statement, (ii) such Shares or
Warrants are sold under circumstances in which all of the applicable
conditions of Rule 144 (or any similar provisions then in force) under the
Securities Act are met or (iii) such Shares or Warrants are otherwise
transferred, the Company has delivered a new certificate or other evidence of
ownership for such Shares or Warrants not bearing the legend required
pursuant to this Agreement and such Shares or Warrants may be resold without
subsequent registration under the Securities Act.
"REGISTRATION EXPENSES" means (i) all registration and filing fees, (ii)
fees and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities registered), (iii) printing
expenses, (iv) internal expenses of the Company (including, without
limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), (v) reasonable fees and disbursements
of counsel for the Company and customary fees and expenses for independent
certified public accountants retained by the Company (including expenses
relating to any comfort letters or costs associated with the delivery by
independent certified public accountants of any comfort letter requested
pursuant to Section 5.04(h) hereof), (vi) the reasonable fees and expenses of
any special experts retained by the Company in connection with the applicable
registration, (vii) reasonable fees and expenses of up to one counsel for the
Stockholders participating in the offering selected (A) by the DLJ Entities,
in the case of any offering in which such entities participate, or (B) in any
other case, by the Other Stockholders holding the majority of the Shares or
Warrants to be sold for the account of all Other Stockholders in the offering,
(viii) fees and expenses in connection with any review of underwriting
arrangements by the
6
<PAGE>
National Association of Securities Dealers, Inc. (the "NASD"), including fees
and expenses of any "QUALIFIED INDEPENDENT UNDERWRITER", and (ix) fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities; but shall not include any underwriting fees, discounts or
commissions attributable to the sale of Registrable Securities, or any
out-of-pocket expenses (except as set forth in clause (vii) above) of the
Stockholders (or the agents who manage their accounts) or any fees and expenses
of underwriter's counsel.
"RESTRICTION TERMINATION DATE" means the earlier to occur of (a) the second
anniversary of the First Public Offering and (b) the fifth anniversary of the
Closing Date.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means the Common Shares and the Preferred Shares.
"STOCKHOLDER" means each Person (other than the Company) who shall be a
party to or bound by this Agreement, whether in connection with the execution
and delivery hereof as of the date hereof, pursuant to Section 6.04 or
otherwise, so long as such Person shall beneficially own any Company
Securities.
"SUBSIDIARY" means, with respect to any Person, any entity of which
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 such Person.
"TAG-ALONG PORTION" means with respect to any Tagging Person or the Selling
Person, as the case may be:
(i) where the Selling Person is selling Common Shares, the number of
Common Shares beneficially owned by such Tagging Person or the Selling Person,
as the case may be, on a Fully Diluted Basis multiplied by a fraction, the
numerator of which is the number of Common Shares proposed to be sold in the
Tag-Along Sale pursuant to Section 4.01 and the denominator of which is the
aggregate number of Common Shares beneficially owned by all Stockholders on a
Fully Diluted basis,
(ii) where the Selling Person is selling Preferred Shares, the number of
Preferred Shared beneficially owned by such Tagging Person or the Selling
Person, as the case may be, multiplied by a fraction, the numerator of which is
the number of Preferred Shares proposed to be sold in the Tag-Along Sale
pursuant to
7
<PAGE>
Section 4.01 and the denominator of which is the aggregate number of Preferred
Shares beneficially owned by all Stockholders, and
(iii) where the Selling Person is selling Warrants, the number of Common
Shares beneficially owned (or, without duplication, acquirable under the
Warrants) by such Tagging Person or the Selling Person, as the case may be,
on a Fully Diluted Basis multiplied by a fraction, the numerator of which is
the number of Common Shares for which the Warrants proposed to be sold in the
Tag-Along Sale pursuant to Section 4.01 are exercisable and the denominator
of which is the aggregate number of Common Shares beneficially owned by all
Stockholders on a Fully Diluted Basis, PROVIDED that where a Tag-Along Right
includes the right to sell Common Stock, any holder of Warrants may, in lieu
of exercising Warrants, transfer Warrants for some or all of that number of
Common Shares as would otherwise have constituted its Tag-Along Portion, in
which event the price to be received with respect to each such Warrant shall
be the price per Common Share applicable to the Tag-Along Offer, less the
then applicable exercise price of the Warrants owned by such holder.
"THIRD PARTY" means a prospective purchaser of Company Securities in an
arm's-length transaction from a Stockholder where such purchaser is not a
Permitted Transferee of such Stockholder.
"UNDERWRITTEN PUBLIC OFFERING" means a firmly underwritten Public Offering.
"WARRANTS" means the warrants issued by the Company to the Stockholders for
the purchase of an aggregate of 155,000 Common Shares (subject to adjustment as
provided for herein).
(b) The term "DLJ ENTITIES", to the extent such entities shall have
transferred any of their Shares to "Permitted Transferees", shall mean the
DLJ Entities and the Permitted Transferees of the DLJ Entities, taken
together, and any right or action that may be taken at the election of the
DLJ Entities may be taken at the election of the DLJ Entities and such
Permitted Transferees.
(c) The term "OTHER STOCKHOLDERS", to the extent such stockholders
shall have transferred any of their Company Securities to "Permitted
Transferees", shall mean the Other Stockholders and the Permitted
Transferees of the Other Stockholders, taken together, and any right or
action that may be taken at the election of the Other Stockholders may be
taken at the election of the Other Stockholders and such Permitted
Transferees.
8
<PAGE>
(d) Each of the following terms is defined in the Section set forth
opposite such term:
<TABLE>
<CAPTION>
TERM SECTION
<S> <C>
Applicable Holdback Period 5.03
Demand Registration 5.01(a)
DLJMB 2.01
DLJSC 6.03
Drag-Along Rights 4.02(a)
Holders 5.01(a)(ii)
Incidental Registration 5.02(a)
Indemnified Party 5.07
Indemnifying Party 5.07
Independent Director 2.01(a)
Inspectors 5.04(g)
Maximum Offering Size 5.01(e)
Merger recitals
Merger Agreement recitals
Nominee 2.03(a)
Public Offering Limitation 3.04(a)
Records 5.04(g)
Section 4.01 Response Notice 4.01(a)
Section 4.02 Notice 4.02(a)
Section 4.02 Notice Period 4.02(a)
Section 4.02 Sale 4.02(a)
Section 4.02 Sale Price 4.02(a)
Selling Person 4.01(a)
Selling Stockholder 5.01(a)
Tag-Along Notice 4.01(a)
Tag-Along Notice Period 4.01(a)
Tag-Along Offer 4.01(a)
Tag-Along Right 4.01(a)
Tag-Along Sale 4.01(a)
Tagging Person 4.01(a)
transfer 3.01(a)
</TABLE>
9
<PAGE>
ARTICLE 2
CORPORATE GOVERNANCE
SECTION 2.01. COMPOSITION OF THE BOARD. (a) The Board shall consist
initially of six directors, all of whom shall be designated by DLJ Merchant
Banking Partners II, L.P. ("DLJMB") and one of whom shall not be either
an "Affiliate" or an "Associate" (as such terms are used within the meaning of
Rule 12b-2 under the Exchange Act) of any of the DLJ Entities (the
"INDEPENDENT DIRECTOR").
(b) Each Stockholder entitled to vote for the election of directors to
the Board agrees that it will vote its Common Shares or execute written
consents, as the case may be, and take all other necessary action (including
causing the Company to call a special meeting of stockholders) in order to
ensure that the composition of the Board is as set forth in this Section 2.01.
SECTION 2.02. REMOVAL. Each Stockholder agrees that if, at any time, it
is then entitled to vote for the removal of directors of the Company, it will
not vote any of its Common Shares in favor of the removal of any director who
shall have been designated or nominated pursuant to Section 2.01 unless such
removal shall be for cause or the Persons entitled to designate or nominate
such director shall have consented to such removal in writing.
SECTION 2.03. VACANCIES. If, as a result of death, disability,
retirement, resignation, removal (with or without cause) or otherwise, there
shall exist or occur any vacancy of the Board:
(a) the Person or Persons entitled under Section 2.01 to designate or
nominate such director whose death, disability, retirement, resignation or
removal resulted in such vacancy may designate another individual (the
"NOMINEE") to fill such capacity and serve as a director of the Company; and
(b) each Stockholder then entitled to vote for the election of the
Nominee as a director of the Company agrees that it will vote its Common
Shares, or execute a written consent, as the case may be, in order to ensure
that the Nominee is elected to the Board.
SECTION 2.04. MEETINGS. The Board shall hold a regularly scheduled
meeting at least once every fiscal quarter.
SECTION 2.05. ACTION BY THE BOARD. (a) A quorum of the Board shall
consist of three directors. All actions of the Board shall require the
affirmative
10
<PAGE>
vote of at least a majority of the directors present at a duly convened
meeting of the Board at which a quorum is present or the unanimous written
consent of the Board; PROVIDED that, in the event there is a vacancy on the
Board and an individual has been nominated to fill such vacancy, the first
order of business shall be to fill such vacancy.
(b) The Board may create executive, compensation and audit committees,
as well as such other committees as it may determine.
SECTION 2.06. CONFLICTING CHARTER OR BYLAW PROVISIONS. Each Stockholder
shall vote its Common Shares or execute written consents, as the case may be,
and take all other actions necessary, to ensure that the Company's Charter
and Bylaws facilitate and do not at any time conflict with any provision of
this Agreement.
ARTICLE 3
RESTRICTIONS ON TRANSFER
SECTION 3.01. GENERAL. (a) Each Stockholder understands and agrees that
the Company Securities purchased pursuant to the applicable subscription
agreement have not been registered under the Securities Act and are
restricted securities. Each Stockholder agrees that it will not, directly or
indirectly, sell, assign, transfer, grant a participation in, pledge or
otherwise dispose of ("transfer") any Company Securities (or solicit any
offers to buy or otherwise acquire, or take a pledge of any Company
Securities) except in compliance with the Securities Act and the terms and
conditions of this Agreement. Subject to the Securities Act and Section 4.01,
Company Securities may be freely transferred by any DLJMB Entities.
(b) Any attempt to transfer any Company Securities not in compliance
with this Agreement shall be null and void and the Company shall not, and
shall cause any transfer agent not to, give any effect in the Company's stock
records to such attempted transfer.
SECTION 3.02. LEGENDS. In addition to any other legend that may be
required, each certificate for Shares or Warrants that is issued to any
Stockholder shall bear a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY
11
<PAGE>
STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD EXCEPT IN
COMPLIANCE THEREWITH. THIS SECURITY IS ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE
AMENDED AND RESTATED INVESTORS' AGREEMENT DATED AS OF OCTOBER
2, 1998. COPIES OF WHICH MAY BE OBTAINED UPON REQUEST FROM
DECRANE HOLDINGS CO. OR ANY SUCCESSOR THERETO.
If any Company Securities shall cease to be Registrable Securities under
clause (i) or clause (ii) of the definition thereof, the Company shall, upon
the written request of the holder thereof, issue to such holder a new
certificate evidencing such securities without the first sentence of the
legend required by this Section endorsed thereon. If any Company Securities
shall cease to be subject to any and all restrictions on transfer set forth
in this Agreement, the Company shall, upon the written request of the holder
thereof, issue to such holder a new certificate evidencing such securities
without the second sentence of the legend required by this Section endorsed
thereon.
SECTION 3.03. PERMITTED TRANSFEREES. Notwithstanding anything in this
Agreement to the contrary, any Stockholder may at any time transfer any or
all of its Company Securities to one of more of its Permitted Transferees
without the consent of the Board or any other Stockholder or group of
Stockholders and without compliance with Sections 3.04, 3.05 and 4.01 so long
as (a) such Permitted Transferee shall have agreed in writing to be bound by
the terms of this Agreement and (b) the transfer to such Permitted Transferee
is not in violation of applicable federal or state securities laws.
SECTION 3.04. RESTRICTIONS ON TRANSFERS BY MANAGEMENT STOCKHOLDERS. (a)
Each Management Stockholder and each Permitted Transferee of such Management
Stockholder may transfer its Company Securities only as follows:
(i) in a transfer made in compliance with Section 4.01 or 4.02, or
as permitted or required by any employment contract between the Company or
any Subsidiary and an employee;
(ii) subject to the Public Offering Limitations, in a Public
Offering in connection with the exercise of its rights under Section 5.02
hereof;
(iii) in a transfer made at the conclusion of the Applicable
Holdback Period (as defined in Section 5.03) following a Public Offering, in
compliance with Rule 144 promulgated under the Securities Act;
12
<PAGE>
PROVIDED, HOWEVER, that until the Restriction Termination Date, the
Aggregate Ownership of such Management Stockholder as a result of such
transfer shall be equal to or exceed the greater of (x) 50% of such
Management Stockholder's Initial Ownership and (y) the percentage of such
Management Stockholder's Initial Ownership that is equal to the Aggregate
Ownership of the DLJ Entities as a percentage of the DLJ Entities' Initial
Ownership; or
(iv) following the Restriction Termination Date, to any Third Party
other than an Adverse Person for consideration consisting solely of cash;
PROVIDED, HOWEVER, that the number of Common Shares transferred by such
Management Stockholder pursuant to this Section 3.04 (a)(iv) in any
twelve month period shall not exceed 20% of such Management
Stockholder's Aggregate Ownership at the beginning of such twelve month
period.
For purposes of this Agreement, "PUBLIC OFFERING LIMITATIONS" means (A)
no Management Stockholder shall be permitted to exercise its rights under
Section 5.02 hereof (x) with respect to the Initial Public Offering and (y)
until such time as the Aggregate Ownership of the DLJ Entities shall be less
than 50% of their aggregate Initial Ownership and (B) in each Public Offering
following the Initial Public Offering, such Management Stockholder shall be
entitled to transfer a number of Shares not exceeding such Management
Stockholder's Pro Rata Portion of such Management Stockholder's Shares.
(b) The provisions of Section 3.04(a) shall terminate upon the earliest
to occur of (i) the tenth anniversary of the Closing Date and (ii) a Change
of Control. Notwithstanding the foregoing sentence, the provisions of Section
3.04(a) shall not terminate with respect to any Management Stockholder's
Shares which shall have been pledged to the Company as security in connection
with any indebtedness for borrowed money owed by such Management Stockholder
to the Company unless the proceeds from the sale of such Shares are applied
to repay such indebtedness in full.
SECTION 3.05. RESTRICTIONS ON TRANSFERS BY THE INVESTORS. (a) Except as
provided in Section 3.03, each of the Investors and its Permitted Transferees
may transfer its Company Securities only as follows:
(i) in a transfer made in compliance with Section 4.01 or 4.02;
or
(ii) in a Public Offering in connection with the exercise of its
rights under Article 5 hereof.
13
<PAGE>
(b) The provisions of Section 3.05(a) shall terminate upon the earlier
to occur of (i) the tenth anniversary of the Closing Date and (ii) a Change
of Control.
ARTICLE 4
TAG-ALONG RIGHTS; DRAG-ALONG RIGHTS
SECTION 4.01 RIGHTS TO PARTICIPATE IN TRANSFER. (a) If DLJ Entities
(the "SELLING PERSON") propose to transfer (other than transfers of Common
Shares (i) in a Public Offering or (ii) to any Permitted Transferee of any of
the DLJ Entities) a number of Company Securities equal to or exceeding 20% of
the Aggregate Ownership of the DLJ Entities in a single transaction or in a
series of related transactions on the date of the proposed sale (a "TAG-ALONG
SALE"), the Other Stockholders may, at their option, elect to exercise their
rights under this Section 4.01 (each such Stockholder, a "TAGGING PERSON").
In the event of such a proposed transfer, the Selling Person shall provide
each Other Stockholder written notice of the terms and conditions of such
proposed transfer ("TAG-ALONG NOTICE") and offer each Tagging Person the
opportunity to participate in such sale. The Tag-Along Notice shall identify
the number and type of Company Securities subject to the offer ("TAG-ALONG
OFFER"), the cash price at which the transfer is proposed to be made, and
all other material terms and conditions of the Tag-Along Offer. Each Tagging
Person shall have the right (a"TAG-ALONG RIGHT"), exercisable by written
notice ("SECTION 4.01 RESPONSE NOTICE") given to the Selling Person within 10
Business Days of the date of receipt of the Tag-Along Notice by such Tagging
Person (the "TAG-ALONG NOTICE PERIOD"), to request that the Selling Person
include in the proposed transfer the number and type of Company Securities
held by such Tagging Person as is specified in such notice; PROVIDED that if
the aggregate number of Company Securities proposed to be sold by the Selling
Person and all Tagging Persons in such transaction exceeds the number of
Company Securities which can be sold on the terms and conditions set forth in
the Tag-Along Notice, then only the Tag-Along Portion of the Company
Securities of each Tagging Person shall be sold pursuant to the Tag-Along
Offer and the Selling Person shall sell its Tag-Along Portion of the Company
Securities and such additional Company Securities as permitted by Section
4.01(d). Each Tagging Person shall deliver to the Selling Person, together
with its Section 4.01 Response Notice, the certificate or certificates
representing the Company Securities of such Tagging Person to be included in
the transfer, together with a limited power-of-attorney authorizing the
Selling Person to transfer such Company Securities on the terms set forth in
the Tag-Along Notice. Delivery of such certificate or certificates
representing the Company Securities to be
14
<PAGE>
transferred and the limited power-of-attorney authorizing the Selling
Person to transfer such Company Securities shall constitute an irrevocable
acceptance of the Tag-Along Offer by such Tagging Persons. If, at the end of
a 120 day period after such delivery, the Selling Person has not completed
the transfer of all such Company Securities on substantially the same terms
and conditions set forth in the Tag-Along Notice, the Selling Person shall
return to each Tagging Person the limited power-of attorney (and all copies
thereof) together with certificates representing the unsold Company
Securities which such Tagging Person delivered for transfer pursuant to this
Section 4.01.
(b) Concurrently with the consumption of the Tag-Along Sale, the Selling
Person shall notify the Tagging Persons thereof, shall remit to the Tagging
Person the total consideration (by bank or certified check) for the Company
Securities of the Tagging Person transferred pursuant thereto, and shall,
promptly after the consummation of such Tag-Along Sale, furnish such other
evidence of the completion and time of completion of such transfer and the
terms thereof as may be reasonably requested by the Tagging Persons.
(c) If at the termination of the Tag-Along Notice Period any Tagging
Person shall not have elected to participate in the Tag-Along Sale, such
Tagging Person will be deemed to have waived its rights under Section 4.01(a)
with respect to the transfer of its Company Securities pursuant to such
Tag-Along Sale.
(d) If any Tagging Person declines to exercise its Tag-Along Rights or
elects to exercise its Tag-Along Rights with respect to less than such
Tagging Person's Tag-Along Portion, the DLJ Entities shall be entitled to
transfer, pursuant to the Tag-Along Offer, a number and type of Company
Securities held by the DLJ Entities equal to the number and type of Company
Securities constituting the portion of such Tagging Person's Tag-Along
Portion with respect to which Tag-Along Rights were not exercised.
(e) The DLJ Entities and any Tagging Person who exercise the Tag-Along
Rights pursuant to this Section 4.01 may sell the Company Securities subject
to the Tag-Along Offer on the terms and conditions set forth in the Tag-Along
Notice (PROVIDED, HOWEVER, that the cash price payable in any such sale may
exceed the cash price specified in the Tag-Along Notice by up to 10%) within
120 days of the date on which Tag-Along Rights shall have been
waived, exercised or expired.
SECTION 4.02. RIGHTS TO COMPEL PARTICIPATION IN CERTAIN TRANSFERS. (a)
If (i) the DLJ Entities propose to transfer not less than 50% of their Initial
Ownership of any class of Company Securities to a Third Party in a bona fide
sale or (ii) the DLJ Entities propose a transfer in which the Company
the Securities to be
15
<PAGE>
transferred by the DLJ Entities and their Permitted Transferees constitute
more than 50% of such class of outstanding Company Securities (a "SECTION
4.02 SALE"), the DLJ Entities may at their option require all Other
Stockholders to sell the Drag-Along Portion of their Company Securities
("DRAG-ALONG RIGHTS"). DLJMB shall provide written notice of such Section
4.02 Sale to the Other Stockholders (a "SECTION 4.02 NOTICE") not later than
15 days prior to the proposed Section 4.02 Sale. The Section 4.02 Notice
shall identify the proposed transferee for the Section 4.02 Sale, the number
and type of Company Securities proposed to be transferred pursuant to the
Section 4.02 Sale, the proposed consideration for the Company Securities
(the "SECTION 4.02 SALE PRICE") and all other material terms and conditions
of the proposed Section 4.02 Sale. The number of Company Securities to be
sold by each Other Stockholder will be the Drag-Along Portion of the Company
Securities that such Other Stockholder owns. Subject to the Sections 4.02 and
4.03, each Other Stockholder shall be required to participate in the Section
4.02 Sale on the terms and conditions set forth in the Section 4.02 Notice
and to tender the Drag-Along Portion of its Company Securities as set forth
below. The price payable in such transfer shall be the Section 4.02 Sale
Price. Not later than the 10th day following the date of the Section 4.02
Notice (the "SECTION 4.02 NOTICE PERIOD"), each to the Other Stockholders
shall deliver to a representative of DLJMB designated in the Section 4.02
Notice certificates representing the Drag Along Portion of such Other
Stockholder's Company Securities, duly endorsed, together with all other
documents required to be executed in connection with such Section 4.02 Sale.
If any Other Stockholder should fail to deliver such certificates to DLJMB,
the Company shall cause the books and records of the Company to show that
the Drag-Along Portion of such Other Stockholder's Company Securities are
bound by the provisions of this Section 4.02 and Section 4.03 and that such
Company Securities shall be transferred to the purchaser of the Company
Securities subject to the Section 4.02 Sale immediately upon surrender for
transfer by the holder thereof.
(b) The DLJ Entities shall have a period of 90 days from the date of
receipt of the Section 4.02 Notice to consummate the Section 4.02 Sale on the
terms and conditions set forth in such Section 4.02 Sale Notice. If the
Section 4.02 Sale shall not have been consummated during such period, DLJMB
shall return to each of the Other Stockholders all certificates representing
Company Securities that such Other Stockholder delivered for transfer
pursuant hereto, together with any documents in the possession of DLJMB
executed by the Other Stockholder in connection with such proposed Section
4.02 Sale, and all the restrictions on transfer contained in this Agreement
or otherwise applicable at such time with respect to the Company Securities
owned by the Other Stockholders shall again be in effect.
16
<PAGE>
(c) Concurrently with the consummation of any Section 4.02 Sale
pursuant to this Section 4.02 and Section 4.03, DLJMB shall give notice
thereof to all Stockholders, shall remit to each Stockholder who has
surrendered certificates in connection with such Section 4.02 Sale the total
consideration (by bank or certified check) for the Company Securities
represented by such Stockholder's certificates and shall furnish such other
evidence of the completion and time of completion of such Section 4.02 Sale
and the terms thereof as may be reasonably requested by such Stockholders.
SECTION 4.03. CERTAIN RIGHTS. It is understood and agreed that the
employment agreements or associated restricted stock purchase agreements
between one or more Management Stockholders and the Company or any Subsidiary
may contain provisions permitting or requiring, under certain circumstances,
such Management Stockholders to sell to the Company or a Subsidiary, and
permitting or requiring, under certain circumstances, the Company or such
Subsidiary to purchase from such Management Stockholder, Common Shares. Such
provisions may, by the terms of such agreements, remain effective
notwithstanding that the employment relationship created by such employment
agreements has been terminated, in which event such provisions are deemed to
be incorporated herein and made a part hereof, to the extent appropriate.
ARTICLE 5
REGISTRATION RIGHTS
SECTION 5.01. DEMAND REGISTRATION. (a) If the Company shall receive a
written request by the DLJ Entities or their Permitted Transferees (any such
requesting Person, a "SELLING STOCKHOLDER") that the Company effect the
registration under the Securities Act of all or a portion of such Selling
Stockholder's Registrable Securities, and specifying the intended method of
disposition thereof, then the Company shall promptly give written notice of
such requested registration (a "DEMAND REGISTRATION") at least 10 days prior
to the anticipated filing date of the registration statement relating to such
Demand Registration to the Other Stockholders and thereupon will use its
best efforts to effect, as expeditiously as possible, the registration under
the Securities Act of:
(i) the Registrable Securities then held by the Selling
Stockholders which the Company has been so requested to register by the
Selling Stockholders; and
17
<PAGE>
(ii) subject to the restrictions set forth in Section 3.04, all
other Registrable Securities of the same type as that to which the
request by the Selling Stockholders relates which any Other Stockholder
entitled to request the Company to effect an Incidental Registration (as
such term is defined in Section 5.02) pursuant to Section 5.02 (all such
Stockholders, together with the Selling Stockholders, the "HOLDERS") has
requested the Company to register by written request received by the
Company within 5 days after the receipt by such Holders of such written
notice given by the Company,
all to the extent necessary to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities so to be
registered; PROVIDED that, subject to Section 5.01(d) hereof, the Company
shall not be obligated to effect more than six Demand Registrations for the
DLJ Entities; PROVIDED, FURTHER, that the Company shall not be obligated to
effect a Demand Registration unless the aggregate proceeds expected to be
received from the sale of the Common Stock to be included in such Demand
Registration, in the reasonable opinion of DLJMB exercised in good faith,
equal or exceed (x) $25,000,000 if such Demand Registration would constitute
the First Public Offering, or (y) $10,000,000 in all other cases. In no
event will the Company be required to effect more than one Demand
Registration within any four-month period.
(b) Promptly after the expiration of the 5-day period referred to in
Section 5.01(a)(ii) hereof, the Company will notify all the Holders to be
included in the Demand Registration of the other Holders and the number of
Registrable Securities requested to be included therein. The Selling
Stockholders requesting a registration under this Section may, at any time
prior to the effective date of the registration statement relating to such
registration, revoke such request, without liability to any of the other
Holders, by providing a written notice to the Company revoking such request,
in which case such request, so revoked, shall be considered a Demand
Registration unless the participating Stockholders reimburse the Company for
all costs incurred by the Company in connection with such registration or
unless such revocation arose out of the fault of the Company.
(c) The Company will pay all Registration Expenses in connection with
any Demand Registration.
(d) A registration requested pursuant to this Section shall not be
deemed to have been effected unless the registration statement relating
thereto (A) has become effective under the Securities Act and (B) has
remained effective for a period of at least 180 days (or such shorter period
in which all Registrable Securities of the Holders included in such
registration have actually been sold
18
<PAGE>
thereunder); PROVIDED that if (i) after any registration statement requested
pursuant to this Section becomes effective (x) such registration statement is
interfered with by any stop order, injunction or other order or requirement
of the SEC or other governmental agency or court and (y) less than 75% of the
Registrable Securities included in such registration statement is sold
thereunder, or (ii) the Maximum Offering Size (as defined below) is reduced
in accordance with Section 5.01(e) such that less than 66 2/3% of the
Registrable Securities of the Selling Stockholders sought to be included in
such registration are included, such registration statement shall be at the
sole expense of the Company and shall not be considered a Demand Registration.
(e) If a Demand Registration involves an Underwritten Public Offering
and the managing underwriter shall advise the Company and the Selling
Stockholders that, in its view, (i) the and/or type number of Registrable
Securities requested to be included in such registration (including any
securities which the Company proposes to be included which are not
Registrable Securities) or (ii) the inclusion of some or all of the
Registrable Securities owned by the Holders, in any such case, exceeds the
largest number and/or type of securities which can be sold without having an
adverse effect on such offering, including the price at which such securities
can be sold (the "MAXIMUM OFFERING SIZE"), the Company will include in such
registration, in the priority listed below, up to the Maximum Offering Size:
(A) first, all Registrable Securities requested to be
registered by the Selling Stockholders (allocated, if necessary for
the offering not to exceed the Maximum Offering Size, pro rata
among such Holders on the basis of the relative number of shares of
Registrable Securities so requested to be registered);
(B) second, all Registrable Securities requested to be
included in such registration by any other Holder and their
Permitted Transferees (allocated, if necessary for the offering not
to exceed the Maximum Offering Size, pro rata among such Holders on
the basis of the relative number of shares of Registrable
Securities so requested to be included); and
(C) third, any securities proposed to be registered by the
Company.
(f) If, in connection with any Demand Registration pursuant to this
Section with respect to the Common Shares or Preferred Shares, any Selling
Stockholder shall seek to transfer any Warrants together with Common Shares
or Preferred Shares, the Company shall at the request of any such Selling
19
<PAGE>
Stockholder effect a registration of such Warrants to which the provisions of
this Article 5 shall apply MUTATIS MUTANDIS and a registration, pursuant to a
shelf registration statement, so as to permit the resale of the Common Shares
for which any Warrants so transferred may be exercisable. The Company shall
maintain the effectiveness of any such shelf registration statement, and take
all actions necessary to permit resale of such Common Shares as may be
required by applicable state securities laws.
SECTION 5.02 INCIDENTAL REGISTRATION. (a) If the Company proposes to
register any Company Securities under the Securities Act (other than a
registration of Common Shares (A) issuable upon exercise of employee stock
options or in connection with any employee benefit or similar plan of the
Company or (B) in connection with a direct or indirect acquisition by the
Company of another company), whether or not for sale for its own account, it
will each such time, subject to the provisions of Section 5.02(b), give
prompt written notice at least 10 days prior to the anticipated filing date
of the registration statement relating to such registration to each DLJ
Entity and each Other Stockholder, which notice shall set forth such
Stockholder's rights under this Section 5.02 and shall offer such
Stockholders the opportunity to include in such registration statement such
number of Registrable Securities of the same type as are proposed to be
registered as each such Stockholder may request (an "INCIDENTAL
REGISTRATION"). Upon the written request of any such Stockholder made within
5 days after the receipt of notice from the Company (which request shall
specify the number of Registrable Securities intended to be disposed of by
such Stockholder), the Company will use its best efforts to effect the
registration under the Securities Act of all Registrable Securities which the
Company has been so requested to register by such Stockholders, to the extent
requisite to permit the disposition of the Registrable Securities so to be
registered; PROVIDED that (1) if such registration involves an Underwritten
Public Offering, all such Stockholders requesting to be included in the
Company's registration must sell their Registrable Securities to the
underwriters selected as provided in Section 5.04(f) on the same terms and
conditions as apply to the Company and (2) if, at any time after giving
written notice of its intention to register any stock pursuant to this
Section 5.02(a) and prior to the effective date of the registration statement
filed in connection with such registration, the Company shall determine for
any reason not to register such securities, the Company shall give written
notice to all such Stockholders and, thereupon, shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration (without prejudice, however, to the rights of any DLJ Entity
under Section 5.01). No registration effected under this Section 5.02 shall
relieve the Company of its obligations to effect a Demand Registration to the
extent required by Section 5.01. The Company will pay all Registration
Expenses in connection with each registration of Registrable Securities
requested pursuant to this Section 5.02.
20
<PAGE>
(b) If a registration pursuant to this Section 5.02 involves an
Underwritten Public Offering (other than in the case of an Underwritten
Public Offering requested by a Selling Stockholder in a Demand Registration,
in which case the provisions with respect to priority of inclusion in such
offering set forth in Section 5.01(e) shall apply) and the managing
underwriter advises the Company that, in its view, the number and/or type of
shares of Registrable Securities which the Company and the Other Stockholders
intend to include in such registration exceeds the Maximum Offering Size, the
Company will include in such registration, in the priority listed below, up
to the Maximum Offering Size:
(i) first, so much of the securities proposed to be registered for
the account of the Company as would not cause the offering to exceed the
Maximum Offering Size; and
(ii) second, all Registrable Securities requested to be included in
such registration pursuant to Section 5.02 (allocated, if necessary for the
offering not to exceed the Maximum Offering Size, pro rata among such
Stockholders on the basis of the relative number of shares of Registrable
Securities requested to be so included).
SECTION 5.03. HOLDBACK AGREEMENTS. If any registration of Registrable
Securities shall be in connection with an Underwritten Public Offering, each
Stockholder agrees not to effect any public sale or distribution, including
any sale pursuant to Rule 144, or any successor provision, under the
Securities Act, of any Registrable Securities, and not to effect any such
public sale or distribution of any Common Shares or of any stock convertible
into or exchangeable or exercisable for any Common Shares (in each case,
other than as part of such Underwritten Public Offering) during the 14 days
prior to the effective date of such registration statement (except as part of
such registration) or during the period after such effective date equal to
the lesser of (i) such period of time as agreed between such managing
underwriter and the Company and (ii) 180 days (such lesser period, the
"APPLICABLE HOLDBACK PERIOD").
SECTION 5.04. REGISTRATION PROCEDURES. Whenever Stockholders request
that any Registrable Securities be registered pursuant to Section 5.01 or
5.02, the Company will, subject to the provisions of such Sections, use its
best efforts to effect the registration and the sale of such Registrable
Securities in accordance with the intended method of disposition thereof as
quickly as practicable, and in connection with any such request:
(a) The Company will as expeditiously as possible prepare and file with
the SEC a registration statement on any form for which the Company then
21
<PAGE>
qualifies or which counsel for the Company shall deem appropriate and which
form shall be available for the sale of the Registrable Securities to be
registered thereunder in accordance with the intended method of distribution
thereof, and use its best efforts to cause such filed registration statement
to become and remain effective for a period of not less than 180 days.
(b) The Company will, if requested, prior to filing a registration
statement or prospectus or any amendment or supplement thereto, furnish to
each Stockholder holding Registrable Securities covered by such registration
statement and each underwriter, if any, of the Registrable Securities covered
by such registration statement copies of such registration statement as
proposed to be filed, and thereafter the Company will furnish to such
Stockholder and underwriter, if any, such number to copies of such
registration statement, each amendment and supplement thereto (in each case
including all exhibits thereto and documents incorporated by reference
therein), the prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as such Stockholder or
underwriter may reasonably request in order to facilitate the disposition of
the Registrable Securities owned by such Stockholder.
(c) After the filing of the registration statement, the Company will
promptly notify each Stockholder holding Registrable Securities covered by
such registration statement of any stop order issued or threatened by the SEC
and take all reasonable actions required to prevent the entry of such stop
order or to remove it if entered.
(d) The Company will use its best efforts to (i) register or qualify
the Registrable Securities covered by such registration statement under such
other securities or blue sky laws of such jurisdictions in the United States
as any Stockholder holding such Registrable Securities reasonably (in light
of such Stockholder's intended plan of distribution) requests and (ii) cause
such Registrable Securities to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company and do any and all other acts and
things that may be reasonably necessary or advisable to enable such
Stockholder to consummate the disposition of the Registrable Securities owned
by such Stockholder; PROVIDED that the Company will not be required to (A)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (d),(B) subject
itself to taxation in any such jurisdiction or (C) consent to general service
of process in any such jurisdiction.
(c) The Company will immediately notify each Stockholder holding such
Registrable Securities, at any time when a prospectus relating thereto is
22
<PAGE>
required to be delivered under the Securities Act, of the occurrence of an
event requiring the preparation of a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and
promptly prepare and make available to each such Stockholder any such
supplement or amendment.
(f) (i) The DLJ Entities will have the right, in their sole discretion, to
select an underwriter or underwriters in connection with any Public Offering
resulting from the exercise by any such DLJ Entity or its Permitted Transferee
of a Demand Registration, which underwriter or underwriters may include any
Affiliate of any DLJ Entity and (ii) the Company will select an underwriter or
underwriters in connection with any other Public Offering. In connection with
any Public Offering, the Company will enter into customary agreements (including
an underwriting agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of
Registrable Securities in any such Public Offering, including the engagement of
a "qualified independent underwriter" in connection with the qualification of
the underwriting arrangements with the NASD.
(g) Upon the execution of confidentiality agreements in form and substance
satisfactory to the Company, the Company will make available for inspection by
any Stockholder and any underwriter participating in any disposition pursuant to
a registration statement being filed by the Company pursuant to this Section
5.04 and any attorney, accountant or other professional retained by any such
Stockholder or underwriter (collectively, the "INSPECTORS"), all financial and
other records, pertinent corporate documents and properties of the Company
(collectively, the "RECORDS") as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
Inspectors in connection with such registration statement. Records that the
Company determines, in good faith, to be confidential and that it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors unless (i)
the disclosure of such Records is necessary to avoid or correct a misstatement
or omission in such registration statement or (ii) the release of such Records
is ordered pursuant to a subpoena or other order from a court of competent
jurisdiction. Each Stockholder agrees that information obtained by it as a
result of such inspections shall be deemed confidential and shall not be used by
it as the basis for any market transactions in the Company Securities or its
Affiliates unless and until such is made generally available to the public.
Each Stockholder further agrees that it will, upon learning that disclosure of
such Records is sought in a court of competent jurisdiction, give notice to the
Company
23
<PAGE>
and allow the Company, at its expense, to undertake appropriate action to
prevent disclosure of the Records deemed confidential.
(h) The Company will furnish to each such Stockholder and to each such
underwriter, if any, a signed counterpart, addressed to such underwriter, of (i)
an opinion or opinions of counsel to the Company and (ii) a comfort letter or
comfort letters from the Company's independent public accountants, each in
customary form and covering such matters of the type customarily covered by
opinions or comfort letters, as the case may be, as a majority of such
Stockholders or the managing underwriter therefor reasonably requests.
(i) The Company will otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
stockholders, as soon as reasonably practicable, an earnings statement covering
a period of 12 months, beginning within three months after the effective date of
the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act.
The Company may require each such Stockholder to promptly furnish in
writing to the Company such information regarding the distribution of the
Registrable Securities as the Company may from time to time reasonably request
and such other information as may be legally required in connection with such
registration.
Each such Stockholder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 5.04(e),
such Stockholder will forthwith discontinue disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until such Stockholder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 5.04(e), and, if so directed by the
Company, such Stockholder will deliver to the Company all copies, other than any
permanent file copies then in such Stockholder's possession, of the most recent
prospectus covering such Registrable Securities at the time of receipt of such
notice. In the event that the Company shall give such notice, the Company shall
extend the period during which such registration statement shall be maintained
effective (including the period referred to in Section 5.04(a)) by the number of
days during the period from and including the date of the giving of notice
pursuant to Section 5.04(e) to the date when the Company shall make available to
such Stockholder a prospectus supplemented or amended to conform with the
requirements of Section 5.04(e).
SECTION 5.05. INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless each Stockholder holding Registrable Securities
24
<PAGE>
covered by a registration statement, its officers, directors and agents, and
each person, if any, who controls such Stockholder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages and liabilities caused by any
untrue statement or alleged untrue statement of a material fact contained in
any registration statement or prospectus relating to the Registrable
Securities (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) or any preliminary prospectus, or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or omission or alleged untrue statement
or omission based upon information furnished in writing to the Company by
such Stockholder or on such Stockholder's behalf expressly for use therein;
PROVIDED that with respect to any untrue statement or omission or alleged
untrue statement or omission made in any preliminary prospectus, or in any
prospectus, as the case may be, the indemnity agreement contained in this
paragraph shall not apply to the extent that any such loss, claim, damage,
liability or expense results from the fact that a current copy of the
prospectus (or, in the case of a prospectus, the prospectus as amended or
supplemented) was not sent or given to the person asserting any such loss,
claim, damage, liability or expense at or prior to the written confirmation
of the sale of the Registrable Securities concerned to such person if it is
determined that the Company has provided such prospectus and it was the
responsibility of such Stockholder to provide such person with a current copy
of the prospectus (or such amended or supplemented prospectus, as the case
may be) and such current copy of the prospectus (or such amended or
supplemented prospectus, as the case may be) would have cured the defect
giving rise to such loss, claim, damage, liability or expense. The Company
also agrees to indemnify any underwriters of the Registrable Securities,
their officers and directors and each person who controls such underwriters
on substantially the same basis as that of the indemnification of the
Stockholders provided in this Section 5.05.
SECTION 5.06. INDEMNIFICATION BY PARTICIPATING STOCKHOLDERS. Each
Stockholder holding Registrable Securities included in any registration
statement agrees, severally but not jointly, to indemnify and hold harmless
the Company, its officers, directors and agents and each Person, if any, who
controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Company to such Stockholder, but only (i) with
respect to information furnished in writing by such Stockholder or on such
Stockholder's behalf expressly for use in any registration statement or
prospectus relating to the Registrable Securities, or any amendment or
supplement thereto, or any preliminary prospectus or (ii) to the extent that
any loss, claim, damage, liability or expense described in Section 5.05
25
<PAGE>
results from the fact that a current copy of the prospectus (or, in the case
of a prospectus, the prospectus as amended or supplemented) was not sent or
given to the Person asserting any such loss, claim, damage, liability or
expense at or prior to the written confirmation of the sale of the
Registrable Securities concerned to such Person if it is determined that it
was the responsibility of such Stockholder to provide such Person with a
current copy of the prospectus (or such amended or supplemented prospectus,
as the case may be) and such current copy of the prospectus (or such amended
or supplemented prospectus, as the case may be) would have cured the defect
giving rise to such loss, claim, damage, liability or expense. Each such
Stockholder also agrees to indemnify and hold harmless underwriters of the
Registrable Securities, their officers and directors and each Person who
controls such underwriters on substantially the same basis as that of the
indemnification of the Company provided in this Section 5.06. As a condition
to including Registrable Securities in any registration statement filed in
accordance with Article 5 hereof, the Company may require that it shall have
received an undertaking reasonably satisfactory to it from any underwriter to
indemnify and hold it harmless to the extent customarily provided by
underwriters with respect to similar securities.
SECTION 5.07. CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any
proceeding (including any governmental investigation) shall be instituted
involving any Person in respect of which indemnity may be sought pursuant to
this Article 5, such Person (an "INDEMNIFIED PARTY") shall promptly notify
the Person against whom such indemnity may be sought (the "INDEMNIFYING
PARTY") in writing and the Indemnifying Party shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to such
Indemnified Party, and shall assume the payment of all fees and expenses;
PROVIDED that the failure of any Indemnified Party so to notify the
Indemnifying Party shall not relieve the Indemnifying Party of its
obligations hereunder except to the extent that the Indemnifying Party is
materially prejudiced by such failure to notify. In any such proceeding, any
Indemnified Party shall have the right to retain its own counsel, but the
fees and expenses of such counsel shall be at the expense of such Indemnified
Party unless (i) the Indemnifying Party and the Indemnified Party shall have
mutually agreed to the retention of such counsel or (ii) in the reasonable
judgment of such Indemnified Party representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them. It is understood that the Indemnifying Party shall not, in
connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Indemnified Parties, and that all such fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for
the Indemnified Parties, such firm shall be designated in writing by the
Indemnified Parties. The Indemnifying
26
<PAGE>
Party shall not be liable for any settlement of any proceeding effected
without its written consent, but if settled with such consent, or if there be
a final judgment for the plaintiff, the Indemnifying Party shall indemnify
and hold harmless such Indemnified Parties from and against any loss or
liability (to the extent stated above) by reason of such settlement or
judgment. No Indemnifying Party shall, without the prior written consent of
the Indemnified Party, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Party is or could have been a
party and indemnity could have been sought hereunder by such Indemnified
Party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability arising out of such proceeding.
SECTION 5.08. CONTRIBUTION. If the indemnification provided for in
this Article 5 is unavailable to the Indemnified Parties in respect of any
losses, claims, damages or liabilities referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a
result of such losses, claims, damages or liabilities (i) as between the
Company and the Stockholders holding a Registrable Securities covered by a
registration statement on the one hand and the underwriters on the other, in
such proportion as is appropriate to reflect the relative benefits received
by the Company and such Stockholders on the one hand and the underwriters on
the other, from the offering of the Registrable Securities, or if such
allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits but also the relative
fault of the Company and such Stockholders on the one hand and of such
underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations and (ii) as between the Company on
the one hand and each such Stockholder on the other, in such proportion as is
appropriate to reflect the relative fault of the Company and of each such
Stockholder in connection with such statements or omissions, as well as any
other relevant equitable considerations. The relative benefits received by
the Company and such Stockholders on the one hand and such underwriters on
the other shall be deemed to be in the same proportion as the total proceeds
from the offering (net of underwriting discounts and commissions but before
deducting expenses) received by the Company and such Stockholders bear to the
total underwriting discounts and commissions received by such underwriters,
in each case as set forth in the table on the cover page of the prospectus.
The relative fault of the Company and such Stockholders on the one hand and
of such underwriters on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company and such Stockholders or by such
underwriters. The relative fault of the Company on the one hand and of each
such
27
<PAGE>
Stockholder on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by such party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Stockholders agree that it would not be just and
equitable if contribution pursuant to this Section 5.08 were determined by
pro rata allocation (even if the underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages or liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred
by such Indemnified Party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 5.08, no
underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Registrable Securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission, and no Stockholder shall be required to
contribute any amount in excess of the amount by which the total price at
which the Registrable Securities of such Stockholder were offered to the
public exceeds the amount of any damages which such Stockholder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. Each such Stockholder's obligation to
contribute pursuant to this Seton 5.08 is several in the proportion that the
proceeds of the offering received by such Stockholder bears to the total
proceeds of the offering received by all such Stockholders and not joint.
SECTION 5.09. PARTICIPATION IN PUBLIC OFFERING. No Person may
participate in any Public Offering hereunder unless such Person (a) agrees to
sell such Person's securities on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) complete and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and the provisions
of this Agreement in respect of registration rights.
28
<PAGE>
SECTION 5.10. OTHER INDEMNIFICATION. Indemnification similar to that
specified herein (with appropriate modifications) shall be given by the
Company and each Stockholder participating therein with respect to any
required registration to other qualification of securities under any federal
or state law or regulation or governmental authority other than the
Securities Act.
SECTION 5.11. COOPERATION BY THE COMPANY. In the event any Stockholder
shall transfer any Registrable Securities pursuant to Rule 144A under the
Securities Act, the Company shall cooperate, to the extent commercially
reasonable, with such Stockholder and shall provide to such Stockholder such
information as such Stockholder shall reasonably request.
ARTICLE 6
MISCELLANEOUS
SECTION 6.01. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties hereto and supersedes all prior agreements and
understandings, oral and written, among the parties hereto with respect to
the subject matter hereof.
SECTION 6.02. BINDING EFFECT; BENEFIT. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
heirs, successors, legal representatives and permitted assigns. Nothing in
this Agreement, expressed or implied, shall confer on any Person other than
the parties hereto, and their respective heirs, successors, legal
representatives and permitted assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
SECTION 6.03. EXCLUSIVE FINANCIAL AND INVESTMENT BANKING ADVISOR.
During the period from and including the date hereof through and including
the fifth anniversary of the date hereof, Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJSC"), or any Affiliate of DLJSC that the DLJ
Entities may choose in their sole discretion, shall be engaged as the
exclusive financial and investment banking advisor of the Company. DLJSC or
such Affiliate shall be entitled to reimbursement from the Company for all
expenses incurred by DLJSC or such Affiliate (including, without limitation,
fees and expenses of counsel) as financial and investment banking advisor of
the Company.
SECTION 6.04. ASSIGNABILITY. This Agreement shall not be assignable by
any party hereto, except that any Person acquiring Shares who is required by
the
29
<PAGE>
terms of this Agreement or any employment agreement or stock purchase,
option, stock option or other compensation plan of the Company or any
Subsidiary to become a party hereto shall (unless already bound hereby)
execute and deliver to the Company an agreement to be bound by this Agreement
and shall thenceforth be a "STOCKHOLDER". Any Stockholder who ceases to own
beneficially any Shares shall cease to be bound by the terms hereof (other
than the provisions of Sections 5.05, 5.06, 5.07, 5.08, and 5.10 applicable
to such Stockholder with respect to any offering of Registrable Securities
completed before the date such Stockholder ceased to own any Shares).
SECTION 6.05. AMENDMENT; WAIVER; TERMINATION. No provision of this
Agreement may be waived except by an instrument in writing executed by the
party against whom the waiver is to be effective. No provision of this
Agreement may be amended or otherwise modified except by an instrument in
writing executed by the Company with the approval of the Board and
Stockholders holding at least 75% of the outstanding Shares.
SECTION 6.06. NOTICES. All notices, requests and other communications
to any party hereunder shall be in writing (including facsimile transmissions
and shall be given,
if to the Company, to:
DeCrane Holdings Co.
2361 Rosecrans Avenue
Suite 180
El Segundo, CA 90245
Attention: R. Jack DeCrane
Fax: (310) 643-0746
if to the DLJ Entities, to:
DLJ Merchant Banking Partners II, L.P.
277 Park Avenue
New York, New York 10172
Attention: Thompson Dean
Fax: (212) 892-7272
30
<PAGE>
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: George R. Bason, Jr., Esq.
Fax: (212) 450-4800
All notices, requests and other communications shall be deemed received
on the date of receipt by the recipient thereof if received prior to 5 p.m.
in the place of receipt and such day is a business day in the place of
receipt. Otherwise, any such notice, request or communication shall be deemed
not to have been received until the next succeeding business day in the place
of receipt. Any notice, request or other written communication sent by
facsimile transmission shall be confirmed by certified mail, return receipt
requested, posted within one Business Day, or by personal delivery, whether
courier or otherwise, made within two Business Days after the date of such
facsimile transmission.
Any Person who becomes a Stockholder shall provide its address and fax
number to the Company, which shall provide such information to each other
Stockholder.
SECTION 6.07. HEADINGS. The headings contained in this Agreement are
for convenience only and shall not affect the meaning or interpretation of
this Agreement.
SECTION 6.08. COUNTERPARTS. This Agreement may be executed in any
number of counterparts,each of which shall be deemed to be an original and
all of which together shall be deemed to be one and the same instrument.
SECTION 6.09. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE CONFLICTS OF LAW RULES OF SUCH STATE.
SECTION 6.10. SPECIFIC ENFORCEMENT. Each party hereto acknowledges
that the remedies at law of the other parties for a breach or threatened
breach of this Agreement would be inadequate and, in recognition of this
fact, any party to this Agreement, without posting any bond, and in addition
to all other remedies which may be available, shall be entitled to obtain
equitable relief in the form of specific performance, a temporary restraining
order, a temporary or permanent injunction or any other equitable remedy
which may then be available.
31
<PAGE>
SECTION 6.11. CONSENT TO JURISDICTION. Any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or
in connection with, this Agreement or the transactions contemplated hereby
shall be brought in the United States District Court for the Southern
District of New York or any other New York State Court sitting in New York
City, and each of the parties hereby consents to the exclusive jurisdiction
of such courts (and of the appropriate appellate courts therefrom) in any
such suit, action or proceeding and irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding in any such court,
or that any such suit, action or proceeding which is brought in any such
court has been brought in an inconvenient forum. Process in any such suit,
action or proceeding may be served on any party anywhere in the world,
whether within or without the jurisdiction of any such court. Without
limiting the foregoing, each party agrees that service of process on such
party as provided in Section 6.06 shall be deemed effective service of
process on such party.
32
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
DECRANE HOLDINGS CO.
By: _______________________________
Name:
Title:
DLJ MERCHANT BANKING
PARTNERS II, L.P.
BY DLJ MERCHANT BANKING II, INC.
Managing General Partner
By: _______________________________
Name:
Title:
DLJ MERCHANT BANKING
PARTNERS II-A, L.P.
BY DLJ MERCHANT BANKING II, INC.,
Managing General Partner
By: _______________________________
Name:
Title:
DLJ OFFSHORE PARTNERS II, C.V.
BY DLJ MERCHANT BANKING II, INC.,
Advisory General Partner
By: _______________________________
Name:
Title:
<PAGE>
DLJ DIVERSIFIED PARTNERS, L.P.
BY DLJ DIVERSIFIED PARTNERS, INC.,
Managing General Partner
By: _______________________________
Name:
Title:
DLJ DIVERSIFIED PARTNERS-A, L.P.
BY DLJ DIVERSIFIED PARTNERS, INC.,
Managing General Partner
By: _______________________________
Name:
Title:
DLJMB FUNDING II, INC.
By: _______________________________
Name:
Title:
DLJ EAB PARTNERS, L.P.
BY DLJ LBO PLANS MANAGEMENT
CORPORATION, General Partner
By: _______________________________
Name:
Title:
<PAGE>
DLJ MILLENNIUM PARTNERS, L.P.
BY DLJ MERCHANT BANKING II, INC.,
Managing General Partner
By: _______________________________
Name:
Title:
UK INVESTMENT PLAN 1997 PARTNERS
DONALDSON, LUFKIN & JENRETTE, INC.,
General Partner
By: _______________________________
Name:
Title:
DLJ FIRST ESC L.P.
BY DLJ LBO PLANS MANAGEMENT
CORPORATION, as General Partner
By: _______________________________
Name:
Title:
DLJ ESC II L.P.
BY DLJ LBO PLANS MANAGEMENT
CORPORATION, as General Partner
By: _______________________________
Name:
Title:
<PAGE>
DLJ MILLENNIUM PARTNERS-A, L.P.
BY DLJ MERCHANT BANKING II, INC.,
Managing General Partner
By: _______________________________
Name:
Title:
<PAGE>
WRNTRGRT.DOC
EXECUTION COPY
================================================================================
WARRANT
REGISTRATION RIGHTS AGREEMENT
DECRANE HOLDINGS CO.
________________________________________
Warrants to Purchase 155,000 Shares of Common Stock
________________________________________
Dated as of October 5, 1998
___________________
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
================================================================================
<PAGE>
This Warrant Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of October 5, 1998, by and among DeCrane Holdings Co., a
Delaware corporation (the "ISSUER"), and Donaldson, Lufkin & Jenrette Securities
Corporation (the "INITIAL PURCHASER"), which has agreed to purchase the Warrants
of the Issuer issued pursuant to the Warrant Agreement (the "WARRANT AGREEMENT")
between the Issuer and State Street Bank and Trust Company, as warrant agent
(the "WARRANT AGENT").
The Warrants are being issued and sold in connection with the offering by
DeCrane Aircraft Holdings, Inc. ("DECRANE") of 100,000 Units each consisting of
(i) $1,000 principal amount at maturity of 12% Senior Subordinated Notes due
2008 (the "NOTES") of DeCrane and (ii) one Warrant.
This Agreement is made pursuant to the Purchase Agreement, dated September
29, 1998 (the "PURCHASE AGREEMENT"), by and between the Issuer, DeCrane, the
Guarantors (as defined in the Purchase Agreement) and the Initial Purchaser. In
order to induce the Initial Purchaser to purchase the Warrants, the Issuer has
agreed to provide the registration rights set forth in this Agreement. The
execution and delivery of this Agreement is a condition to the obligations of
the Initial Purchaser set forth in Section 9 of the Purchase Agreement.
Capitalized terms used herein and not otherwise defined shall have the meaning
assigned to them in the Warrant Agreement.
The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have the
following meanings:
ACT: The Securities Act of 1933, as amended.
AFFILIATE: As defined in Rule 144.
BLACK OUT NOTICE: As defined in Section 4(b) hereof.
BLACK OUT PERIOD: As defined in Section 3(a) hereof.
CLOSING DATE: The date hereof.
COMMISSION: The Securities and Exchange Commission.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
EXPIRATION DATE: 5:00 p.m. New York City time on September 30, 2008.
HOLDERS: As defined in Section 2 hereof.
PROSPECTUS: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
<PAGE>
REGISTRATION STATEMENT: Any registration statement of the Issuer relating
to the registration for resale of Transfer Restricted Securities that is filed
pursuant to the provisions of this Agreement and including the Prospectus
included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
RULE 144: Rule 144 promulgated under the Act.
TRANSFER RESTRICTED SECURITIES: (a) Each Warrant and Warrant Share held by
an Affiliate of the Issuer and (b) each other Warrant and Warrant Share until
the earlier to occur of (i) the date on which such Warrant or Warrant Share
(other than any Warrant Share issued upon exercise of a Warrant in accordance
with a Registration Statement) has been disposed of in accordance with a
Registration Statement and (ii) the date on which such Warrant or Warrant Share
(or the related Warrant) is distributed to the public pursuant to Rule 144 under
the Act.
2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities (each,
a "HOLDER") whenever such Person is the holder of record of Transfer Restricted
Securities.
3. SHELF REGISTRATION
(a) SHELF REGISTRATION. The Issuer shall prepare and cause to be
filed with the Commission on or before 120 days from the Closing Date pursuant
to Rule 415 under the Securities Act a Registration Statement on the appropriate
form relating to resales of Transfer Restricted Securities by the Holders
thereof. The Company shall use its reasonable best efforts to cause the
Registration Statement to be declared effective by the Commission on or before
180 days after the Closing Date.
To the extent necessary to ensure that the Registration Statement is
available for sales of Transfer Restricted Securities by the Holders thereof
entitled to the benefit of this Section 3(a), the Issuer shall use its
reasonable best efforts to keep any Registration Statement required by this
Section 3(a) continuously effective, supplemented, amended and current as
required by and subject to the provisions of Section 4(a) hereof and in
conformity with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, until
the later of (i) the second anniversary of the effective date of the
Registration Statement and (ii) the earlier of (A) the Expiration Date and (B)
the first date as of which all Warrants have been exercised by the Holders
thereof; PROVIDED that such obligation shall expire before such date if the
Issuer delivers to the Warrant Agent a written opinion of counsel to the Issuer
(which opinion of counsel shall be satisfactory to the Issuer) that all Holders
(other than Affiliates of the Issuer) of Warrants and Warrant Shares may resell
the Warrants and the Warrant Shares without registration under the Act and
without restriction as to the manner, timing or volume of any such sale; and
PROVIDED, FURTHER, that notwithstanding the foregoing, any Affiliate of the
Issuer may, with notice to the Issuer, require the Issuer to keep the
Registration Statement continuously effective for resales by such Affiliate for
so long as such Affiliate holds Warrants or Warrant Shares, including as a
result of any market-making activities or other trading activities of such
Affiliate. Notwithstanding the foregoing, the Issuer shall not be required to
amend or supplement the Registration Statement, any related prospectus or any
document incorporated therein by reference, for a period (a "BLACK OUT PERIOD")
not to exceed, for so long as this Agreement is in effect, an aggregate of 60
days in any calendar year, in the event that (i) an event occurs and is
continuing as a result of which the Registration Statement, any related
prospectus or any document incorporated therein by reference as then amended or
supplemented would, in the Issuer's good faith judgment, contain an untrue
statement of a
<PAGE>
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and (ii)(A) the Issuer determines in its good faith
judgment that the disclosure of such event at such time would have a material
adverse effect on the business, operations or prospects of the Issuer or (B)
the disclosure otherwise relates to a material business transaction which has
not yet been publicly disclosed; PROVIDED that such Black Out Period shall be
extended for any period, not to exceed an aggregate of 30 days in any calendar
year, during which the Commission is reviewing any proposed amendment or
supplement to the Registration Statement, any related prospectus or any
document incorporated therein by reference which has been filed by the Issuer;
and PROVIDED, FURTHER, that no Black Out Period may be in effect during the
three months prior to the Expiration Date.
(b) PROVISION BY HOLDERS OF CERTAIN INFORMATION IN CONNECTION WITH
THE REGISTRATION STATEMENT. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Registration Statement
pursuant to this Agreement unless and until such Holder furnishes to the Issuer
in writing, within 20 days after receipt of a request therefor, the information
specified in Item 507 or 508 of Regulation S-K, as applicable, of the Act for
use in connection with any Registration Statement or Prospectus or preliminary
Prospectus included therein. Each selling Holder agrees to promptly furnish
additional information required to be disclosed in order to make the information
previously furnished to the Issuer by such Holder not materially misleading.
4. REGISTRATION PROCEDURES
(a) In connection with the Registration Statement and any related
Prospectus required by this Agreement, the Issuer shall:
(i) use its reasonable best efforts to effect such registration to
permit the sale of the Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof
(as indicated in the information furnished to the Issuer pursuant to
Section 3(b) hereof), and pursuant thereto the Issuer will prepare and
file with the Commission a Registration Statement relating to the
registration on any appropriate form under the Act, which form shall be
available for the sale of the Transfer Restricted Securities in
accordance with the intended method or methods of distribution thereof
within the time periods and otherwise in accordance with the provisions
hereof;
(ii) use its reasonable best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 of this Agreement. Upon
the occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain an untrue
statement of material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading or (B) not to be effective and
usable for resale of Transfer Restricted Securities during the period
required by this Agreement, the Issuer shall, subject to Section 3(a),
file promptly an appropriate amendment to such Registration Statement or
a supplement to the Prospectus, as applicable, curing such defect, and,
in the case of an amendment, use its reasonable best efforts to cause
such amendment to be declared effective as soon as practicable;
(iii) prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement as may
be necessary to keep such Registration Statement effective for the
applicable period set forth in Section 3; cause the
<PAGE>
Prospectus to be supplemented by any required Prospectus supplement, and
as so supplemented to be filed pursuant to Rule 424 under the Act, and to
comply fully with Rules 424, 430A and 462, as applicable, under the Act
in a timely manner; and comply with the provisions of the Act with
respect to the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the intended
method or methods of distribution by the sellers thereof set forth in
such Registration Statement or supplement to the Prospectus;
(iv) advise the Initial Purchaser promptly and, if requested
by the Initial Purchaser, confirm such advice in writing, (A) when the
Prospectus or any Prospectus supplement or post-effective amendment has
been filed, and, with respect to any applicable Registration Statement or
any post-effective amendment thereto, when the same has become effective,
(B) of any request by the Commission for amendments to the Registration
Statement or amendments or supplements to the Prospectus or for
additional information relating thereto, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement under the Act or of the suspension by any state
securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation of
any proceeding for any of the preceding purposes, and (D) of the
existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any document
incorporated by reference therein untrue, or that requires the making of
any additions to or changes in the Registration Statement in order to
make the statements therein not misleading, or that requires the making
of any additions to or changes in the Prospectus in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. If at any time the Commission shall issue any
stop order suspending the effectiveness of the Registration Statement, or
any state securities commission or other regulatory authority shall issue
an order suspending the qualification or exemption from qualification of
the Transfer Restricted Securities under state securities or Blue Sky
laws, the Issuer shall use its reasonable best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time;
(v) subject to Section 4(a)(ii), if any fact or event
contemplated by Section 4(a)(iv)(D) hereof shall exist or have occurred,
prepare a supplement or post-effective amendment to the Registration
Statement or related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter
delivered to the purchasers of Transfer Restricted Securities, the
Prospectus will not contain an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(vi) furnish to the Initial Purchaser, before filing with the
Commission, copies of any Registration Statement or any Prospectus
included therein or any amendments or supplements to any such
Registration Statement or Prospectus (including all documents
incorporated by reference after the initial filing of such Registration
Statement), which documents will be subject to the review and comment of
such Persons, if any, for a period of at least five Business Days, and
the Issuer will not file any such Registration Statement or Prospectus or
any amendment or supplement to any such Registration Statement or
Prospectus (including all such documents incorporated by reference) to
which the Initial Purchaser shall reasonably object within five Business
Days after the receipt thereof. The Initial Purchaser shall be deemed to
have reasonably objected to such filing if such Registration Statement,
amendment, Prospectus or supplement, as applicable, as proposed to be
filed, contains an untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in the
<PAGE>
light of the circumstances under which they were made, not misleading or
fails to comply with the applicable requirements of the Act;
(vii) promptly prior to the filing of any document that is to
be incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the Initial Purchaser, make the
Issuer's representatives available for discussion of such document and
other customary due diligence matters, and include such information in
such document prior to the filing thereof as the Initial Purchaser may
reasonably request;
(viii) make available, at reasonable times, for inspection by
the Initial Purchaser and any attorney or accountant retained by the
Initial Purchaser, all financial and other records, pertinent corporate
documents of the Issuer and cause the Issuer's officers, directors and
employees to supply all information reasonably requested by the Initial
Purchaser, attorney or accountant in connection with such Registration
Statement or any post-effective amendment thereto subsequent to the
filing thereof and prior to its effectiveness;
(ix) if requested by the Initial Purchaser, promptly
include in any Registration Statement or Prospectus, pursuant to a
supplement or post-effective amendment if necessary, such information as
the Initial Purchaser may reasonably request to have included therein,
including, without limitation, information relating to the "Plan of
Distribution" of the Transfer Restricted Securities and the use of the
Registration Statement or Prospectus for market-making activities; and make
all required filings of such Prospectus supplement or post-effective
amendment as soon as practicable after the Issuer is notified of the
matters to be included in such Prospectus supplement or post-effective
amendment;
(x) furnish to the Initial Purchaser and each Holder
upon request, without charge, at least one copy of the Registration
Statement, as first filed with the Commission, and of each amendment
thereto, including all documents incorporated by reference therein and all
exhibits (including exhibits incorporated therein by reference);
(xi) deliver to the Initial Purchaser and each Holder,
without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as the
Initial Purchaser or such Holder reasonably may request; the Issuer hereby
consents to the use (in accordance with law and subject to Section 4(d)
hereof) of the Prospectus and any amendment or supplement thereto by each
selling Person in connection with the offering and the sale of the Transfer
Restricted Securities covered by the Prospectus or any amendment or
supplement thereto and all market-making activities of the Initial
Purchaser, as the case may be;
(xii) upon the request of the Initial Purchaser, enter into
such agreements (including underwriting agreements) and make such
representations and warranties and take all such other actions in
connection therewith in order to expedite or facilitate the disposition
of the Transfer Restricted Securities pursuant to any applicable
Registration Statement contemplated by this Agreement as may be
reasonably requested by the Initial Purchaser in connection with any sale
or resale pursuant to any applicable Registration Statement. In such
connection, the Issuer shall:
<PAGE>
(A) upon request of the Initial Purchaser, furnish (or in
the case of paragraphs (2) and (3), use its reasonable best efforts to
cause to be furnished) to the Initial Purchaser, upon the
effectiveness of the Registration Statement:
(1) a certificate, dated such date, signed on behalf of
the Issuer by (x) the President or any Vice President and (y) a
principal financial or accounting officer of the Issuer,
confirming, as of the date thereof, the matters set forth in
Sections 6(ee), 9(a) and 9(b) of the Purchase Agreement and such
other similar matters as such Person may reasonably request;
(2) an opinion, dated the date of effectiveness of
the Registration Statement, of counsel for the Issuer
covering matters similar to those set forth in Sections
9(e), (f) and (g) of the Purchase Agreement and such other
matters as the Initial Purchaser may reasonably request, and
in any event including a statement to the effect that such
counsel has participated in conferences with officers and
other representatives of the Issuer, representatives of the
independent public accountants for the Issuer and have
considered the matters required to be stated therein and the
statements contained therein, although such counsel has not
independently verified the accuracy, completeness or
fairness of such statements; and that such counsel advises
that, on the basis of the foregoing (relying as to
materiality to the extent such counsel deems appropriate
upon the statements of officers and other representatives of
the Issuer) and without independent check or verification),
no facts came to such counsel's attention that caused such
counsel to believe that the applicable Registration
Statement, at the time such Registration Statement or any
post-effective amendment thereto became effective contained
an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the
Prospectus contained in such Registration Statement as of
its date contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make
the statements therein, in the light of the circumstances
under which they were made, not misleading. Without
limiting the foregoing, such counsel may state further that
such counsel assumes no responsibility for, and has not
independently verified, the accuracy, completeness or
fairness of the financial statements, notes and schedules
and other financial data included in any Registration
Statement contemplated by this Agreement or the related
Prospectus; and
(3) a customary comfort letter, dated the date of
effectiveness of the Registration Statement, from the
Issuer's independent accountants, in the customary form and
covering matters of the type customarily covered in comfort
letters to underwriters in connection with underwritten
offerings, and affirming the matters set forth in the
comfort letters delivered pursuant to Section 9(i) of the
Purchase Agreement; and
(B) deliver such other documents and certificates as may be
reasonably requested by the Initial Purchaser to evidence compliance
with the matters covered in
<PAGE>
clause (A) above and with any customary conditions contained in any
agreement entered into by the Issuer pursuant to this clause;
(xiii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders and their counsel in
connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders may request and do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the
applicable Registration Statement; PROVIDED that the Issuer shall not be
required to register or qualify as a foreign corporation where it is not
now so qualified or to take any action that would subject it to the
service of process in suits or to taxation, other than as to matters and
transactions relating to the Registration Statement, in any jurisdiction
where it is not now so subject;
(xiv) in connection with any sale of Transfer Restricted Securities
that will result in such securities no longer being Transfer Restricted
Securities, cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Transfer Restricted
Securities to be sold and not bearing any restrictive legends; and to
register such Transfer Restricted Securities in such denominations and
such names as the selling Holders may request at least two Business Days
prior to such sale of Transfer Restricted Securities;
(xv) use its reasonable best efforts to cause the disposition of
the Transfer Restricted Securities covered by the Registration Statement
to be registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof
to consummate the disposition of such Transfer Restricted Securities,
subject to the proviso contained in clause (xiii) above;
(xvi) provide a CUSIP number for all Transfer Restricted Securities
not later than the effective date of a Registration Statement covering
such Transfer Restricted Securities and provide the Warrant Agent with
printed certificates for the Transfer Restricted Securities which are in
a form eligible for deposit with The Depository Trust Company;
(xvii) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be
audited) covering a twelve-month period beginning after the effective
date of the Registration Statement (as such term is defined in Rule
158(c) under the Act); and
(xviii) provide promptly to the Initial Purchaser, upon request,
each document filed with the Commission pursuant to the requirements of
Section 13 or Section 15(d) of the Exchange Act.
<PAGE>
(b) RESTRICTIONS ON HOLDERS. Each Holder agrees by acquisition of a
Transfer Restricted Security and the Initial Purchaser agrees that, upon receipt
of the notice from the Issuer of the commencement of a Black Out Period (in each
case, a "BLACK OUT NOTICE"), such Person will forthwith discontinue disposition
of Transfer Restricted Securities pursuant to the applicable Registration
Statement until such Person is advised in writing by the Issuer of the
termination of the Black Out Period. Each Person receiving a Black Out Notice
hereby agrees that it will either (i) destroy any Prospectuses, other than
permanent file copies, then in such Person's possession which have been replaced
by the Issuer with more recently dated Prospectuses or (ii) deliver to the
Issuer (at the Issuer's expense) all copies, other than permanent file copies,
then in such Person's possession of the Prospectus covering such Transfer
Restricted Securities that was current at the time of receipt of the Black Out
Notice.
5. REGISTRATION EXPENSES
All expenses incident to the Issuer's performance of or compliance with
this Agreement will be borne by the Issuer, regardless of whether a Registration
Statement becomes effective, including, without limitation: (i) all registration
and filing fees and expenses; (ii) all fees and expenses of compliance with
federal securities and state Blue Sky or securities laws; (iii) all expenses of
printing (including printing Prospectuses (whether for sales, market-making or
otherwise), messenger and delivery services and telephone; (iv) all fees and
disbursements of counsel for the Issuer; (v) all application and filing fees in
connection with listing the Warrant Shares on a national securities exchange or
automated quotation system pursuant to the requirements hereof; and (vi) all
fees and disbursements of independent certified public accountants of the Issuer
(including the expenses of any special audit and comfort letters required by or
incident to such performance).
The Issuer will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Issuer.
6. INDEMNIFICATION
(a) The Issuer agrees to indemnify and hold harmless each Holder, its
directors, officers and each Person, if any, who controls such Holder (within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act), from
and against any and all losses, claims, damages, liabilities, judgments,
(including, without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any action that
could give rise to any such losses, claims, damages, liabilities or judgments)
caused by any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement, preliminary prospectus or Prospectus
(or any amendment or supplement thereto) provided by the Issuer to any Holder or
any prospective purchaser of Transfer Restricted Securities, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or judgments are
caused by an untrue statement or omission or alleged untrue statement or
omission that is based upon information relating to a Holder furnished in
writing to the Issuer by such Holder.
(b) Each Holder of Transfer Restricted Securities agrees, severally
and not jointly, to indemnify and hold harmless the Issuer, its directors and
officers, and each person, if any, who controls (within the meaning of Section
15 of the Act or Section 20 of the Exchange Act) the Issuer, to the same extent
as the foregoing indemnity from the Issuer set forth in Section 6(a) hereof, but
only with reference to information relating to such Holder furnished in writing
to the Issuer by such Holder expressly for use
<PAGE>
in any Registration Statement. In no event shall any Holder, its directors,
officers or any Person who controls such Holder be liable or responsible for
any amount in excess of the amount by which the total amount received by such
Holder with respect to its sale of Transfer Restricted Securities pursuant to
a Registration Statement exceeds (i) the amount paid by such Holder for such
Transfer Restricted Securities and (ii) the amount of any damages that such
Holder, its directors, officers or any Person who controls such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 6(a) or 6(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing,
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that,
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 6(a) and 6(b), a Holder shall not be required to assume the
defense of such action pursuant to this Section 6(c), but may employ separate
counsel and participate in the defense thereof, but the fees and expenses of
such counsel, except as provided below, shall be at the expense of the Holder).
Any indemnified party shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the indemnified party, unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the indemnifying party, (ii) the indemnifying party shall have failed to assume
the defense of such action or employ counsel reasonably satisfactory to the
indemnified party or (iii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all indemnified parties and all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by a majority of
the Holders, in the case of the parties indemnified pursuant to Section 6(a),
and by the Issuer, in the case of parties indemnified pursuant to Section 6(b).
The indemnifying party shall indemnify and hold harmless the indemnified party
from and against any and all losses, claims, damages, liabilities and judgments
by reason of any settlement of any action effected with its written consent.
Notwithstanding the foregoing, any such settlement may be effected by the
Initial Purchaser without the Issuer's written consent if the settlement is
entered into more than twenty Business Days after the Issuer shall have received
a request from the Initial Purchaser for reimbursement for the fees and expenses
of counsel (in any case where such fees and expenses are at the expense of the
Issuer) and, prior to the date of such settlement, the Issuer shall have failed
to comply with such reimbursement request. The Issuer shall not, without the
prior written consent of the Initial Purchaser, effect any settlement or
compromise of, or consent to the entry of judgment with respect to, any pending
or threatened action in respect of which the Initial Purchaser is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the Initial Purchaser, unless such settlement, compromise or
judgment (i) includes an unconditional release of the Initial Purchaser from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the Initial Purchaser.
<PAGE>
(d) To the extent that the indemnification provided for in this
Section 6 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or judgments (i) in such proportion
as is appropriate to reflect the relative benefits received by the Issuer, on
the one hand, and the Holders, on the other hand, from their sale of Transfer
Restricted Securities or (ii) if the allocation provided by clause 6(d)(i) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause 6(d)(i) hereof but also the
relative fault of the Issuer, on the one hand, and of the Holder, on the other
hand, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative fault of the Issuer, on the one hand,
and of the Holder, on the other hand, shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Issuer, on the one hand, or by the Holder, on the
other hand, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities or judgments referred to above shall be deemed to include,
subject to the limitations set forth in the second paragraph of Section 6(a),
any legal or other fees or expenses reasonably incurred by such indemnified
party in connection with investigating or defending any matter, including any
action that could have given rise to such losses, claims, damages, liabilities
or judgments.
The Issuer and each Holder agree that it would not be just and equitable if
contribution pursuant to this Section 6(d) were determined by PRO RATA
allocation (even if the Holders were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 6, no Holder, its directors, its
officers or any Person, if any, who controls such Holder shall be required to
contribute, in the aggregate, any amount in excess of the amount by which the
total received by such Holder with respect to the sale of Transfer Restricted
Securities pursuant to a Registration Statement exceeds (i) the amount paid by
such Holder for such Transfer Restricted Securities and (ii) the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Holders' obligations to contribute
pursuant to this Section 6(d) are several in proportion to the respective
principal amount of Transfer Restricted Securities held by each Holder hereunder
and not joint.
(e) The Issuer agrees that the indemnity and contribution provisions
of this Section 6 shall apply to the Initial Purchaser to the same extent, on
the same conditions, as it applies to Holders.
7. RULE 144
The Issuer agrees with each Holder, for so long as any Transfer Restricted
Securities remain outstanding and during any period in which the Issuer is
subject to Section 13 or 15(d) of the Exchange Act, to make all filings required
thereby in a timely manner in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144.
<PAGE>
8. MISCELLANEOUS
(a) REMEDIES. The Issuer acknowledges and agrees that any failure by
the Issuer to comply with its obligations under Section 3 hereof may result in
material irreparable injury to the Initial Purchaser or the Holders for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of any such failure,
the Initial Purchaser or any Holder may obtain such relief as may be required to
specifically enforce the Issuer's obligations under Section 3 hereof. The
Issuer further agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. The Issuer will not, on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of the Issuer's securities under any agreement
in effect on the date hereof.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless (i) in the case of this
Section 8(c)(i), the Issuer has obtained the written consent of Holders of all
outstanding Transfer Restricted Securities, and (ii) in the case of all other
provisions hereof, the Issuer has obtained the written consent of Holders of a
majority of the outstanding principal amount of Transfer Restricted Securities
(excluding Transfer Restricted Securities held by the Issuer or its Affiliates);
provided that this Agreement may be amended without the consent of any Holder
pursuant to Section 11(l) of the Warrant Agreement.
(d) THIRD PARTY BENEFICIARY. The Holders shall be third party
beneficiaries to the agreements granting rights to Holders made hereunder
between the Issuer, on the one hand, and the Initial Purchaser, on the other
hand, and shall have the right to enforce such agreements directly to the extent
they may deem such enforcement necessary or advisable to protect its rights or
the rights of Holders hereunder.
(e) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the
records of the Warrant Agent, with a copy to the Warrant Agent; and
(ii) if to the Issuer:
DeCrane Holdings Co.
c/o DLJ Merchant Banking Partners
277 Park Avenue
New York, New York 10172
Telecopier No.: (212) 892-3000
Attention: Timothy White
<PAGE>
With a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopier No.: (212) 450-4000
Attention: Richard D. Truesdell, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next Business Day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Warrant Agent at the
address specified in Warrant Agreement.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without limitation, and without the need for an express
assignment, subsequent Holders; PROVIDED that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Transfer Restricted
Securities in violation of the terms hereof or of the Purchase Agreement or the
Warrant Agreement. If any transferee of any Holder shall acquire Transfer
Restricted Securities in any manner, whether by operation of law or otherwise,
such Transfer Restricted Securities shall be held subject to all of the terms of
this Agreement, and by taking and holding such Transfer Restricted Securities
such Person shall be conclusively deemed to have agreed to be bound by and to
perform all of the terms and provisions of this Agreement, including the
restrictions on resale set forth in this Agreement and, if applicable, the
Purchase Agreement, and such Person shall be entitled to receive the benefits
hereof.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
DECRANE HOLDINGS CO.
By:
----------------------------------
Name:
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
---------------------------------
Name:
Title:
<PAGE>
10.2 TAX SHARING AGREEMENT, DATED MARCH 15, 1993, BY AND AMONG D.A.H., INC.,
TSH AND HOLLINGSEAD INTERNATIONAL, INC.
TAX SHARING AGREEMENT
between
DeCRANE AIRCRAFT HOLDINGS, INC.
and
ITS SUBSIDIARY CORPORATIONS
Agreement dated March 15, 1993 by and among D.A.H., Inc. ("Parent") and each of
its undersigned subsidiaries:
WITNESSETH
WHEREAS, the parties hereto are members of an affiliated group ("Affiliated
Group") as defined in Section 1504(a) of the Internal Revenue Code of 1986, as
amended (the "Code"); and
WHEREAS, such Affiliated Group has filed a U.S. consolidated income tax return
for its taxable year ended August 31, 1991 and is required to file consolidated
income tax returns for subsequent years; and
WHEREAS, it is the intent and desire of the parties hereto that a method be
established for allocating the consolidated income tax liability of the
Affiliated Group among its members, for:
- Reimbursing the Parent for payment of such tax liability;
- Establishing payables/receivables among members arising from the
use of one member's losses or tax credits by other member(s) and
defining the circumstances under which cash is to be exchanged,
and;
- Providing for the allocation and payment of any refund arising
from a carryback of losses or tax credits from subsequent taxable
years;
NOW, THEREFORE, in consideration of the mutual covenants and promises contained
herein, the parties hereto agree as follows:
1. CONSENT TO FILE CONSOLIDATED TAX RETURN
A U.S. consolidated income tax return has been filed by the Parent for
the taxable year ended August 31, 1991 and shall be filed for each subsequent
taxable period in respect of which this agreement is in effect and for which the
Affiliated Group is required or permitted to file a consolidated tax return.
Each subsidiary shall execute and file such consent, elections, and other
documents that may be required or appropriate for the proper filing of such
return.
2. RESPONSIBILITY FOR PAYMENT OF CONSOLIDATED TAX LIABILITY
If, in any taxable year, there is a consolidated tax liability, the
Parent shall be responsible for the payment to the Internal Revenue Service of
the consolidated tax liability.
<PAGE>
3. METHOD OF ALLOCATION OF CONSOLIDATED TAX LIABILITY
(a) The Parent and each Subsidiary agree that the consolidated tax
liability for each year shall be apportioned among them in accordance with the
provisions of Regulation Section 1.1552-1(a)(2) for tax return purposes.
Regulation Section 1.1552-1(a)(2) requires the consolidated tax liability of the
group to be allocated among the members of the Affiliated Group on the basis of
the percentage of the total tax which the tax of such member, if computed on a
separate return basis, would bear to the total amount of the tax for all members
computed on a separate return basis.
(b) In addition, for financial statement ("book") purposes, the
Parent and each Subsidiary agree to the immediate allocation of 100% of the tax
benefits utilized to those members who generated the benefits. In determining
the amount of tax benefits utilized, all profitable members will establish a Tax
Payable account in an amount which equals their separate return liability (as
defined under Section 4), and all loss members establish a Tax Receivable
account in a corresponding amount.
In any year in which the total amount of tax benefits utilized by
the profitable members of the Affiliated Group are less than the total amount of
tax benefits available, the losses and credits of each member that has generated
such tax benefits will be deemed to be utilized in the same proportion as such
member's cumulative tax benefits bear to the total cumulative tax benefits of
all members.
(c) Each member of the group shall maintain a record of their tax
liability computed on a separate return basis for each year this agreement is in
effect for purposes of making the calculations under Section 3(a) and (b).
(d) If a member of the affiliated group is:
(1) merged into another member of the affiliated group, or
(2) liquidated into another member of the affiliated group,
then the successor corporation will assume any liability or succeed to any
benefit that the dissolving member would be obligated or entitled to under
Sections 3(a) and (b) if it had not been merged or liquidated.
4. DETERMINATION OF SEPARATE RETURN LIABILITY
(a) The term "separate tax liability" of each member, as it is used
in Section 3(b), means the amount of tax it would owe for each period in which
it is a member of the Affiliated Group, computed as if it had filed a separate
return for each period, adjusted as follows:
- 2 -
<PAGE>
(1) No surtax exemption will be allowed, and
(2) Net operating losses, tax credits (including the alternative
minimum tax credit) and other items which, under the Code,
could have been carried forward or back by a member if it
were filing a separate return shall be included in computing
its tax liability provided such attributes were generated in
a period in which it was a member of the Affiliated Group
and have not been deemed to be utilized by another member
under Section 3(b).
5. PAYMENT AMONG MEMBERS
(a) Each subsidiary shall pay to the Parent its share of tax
liability allocated under Section 3(a) UPON DEMAND FOR such payment from the
Parent.
(b) The only circumstances in which cash will be exchanged between
the subsidiaries with respect to the Tax Receivables/Payables established
pursuant to Section 3(b) are as follows:
(1) A previously non-profitable subsidiary AND the Affiliated
Group become profitable, or
(2) A subsidiary is sold.
Payments to members for benefits surrendered and utilized under Section 3(b),
will be paid UPON MEETING the conditions set forth in either (1) or (2) above.
(c) No interest will either accrue or be paid on the balances due
from one member to another which are attributable to Tax Payables/Receivables
arising under Section 3(b).
6. ESTIMATED TAX PAYMENTS
In the event the Affiliated Group is required to make quarterly
estimated tax payments, each subsidiary shall pay to the Parent its share of
each payment, as determined by the Parent, UPON receiving notice from the
Parent. Any amount paid by a subsidiary will be included in determining the
payments due under Section 5. Any overpayments of estimated tax will be
refunded to the subsidiary.
7. TERMINATION
(a) This agreement shall terminate with respect to any subsidiary on
the happening of any of the following events:
- 3 -
<PAGE>
(1) If the Parent and such subsidiary agree, in writing, to
terminate this agreement, or;
(2) Notwithstanding Section 3(d), if such subsidiary ceases to
be a member of the Affiliated Group.
(b) For purposes of this agreement, any subsidiary which is required
to recognize income or recapture credits as a result of an election made or
deemed to be made under IRC Section 338 shall be treated as if such income or
recaptured credits were generated after such subsidiary ceased being a member of
the affiliated group.
8. SUBSEQUENT ADJUSTMENTS
If the consolidated tax liability is adjusted for any taxable period,
whether by means of an amended return claim for refund or after a tax audit by
the Internal Revenue Service, the liability of each member shall be recomputed
to give effect to such adjustments, and in the case of a refund, the Parent
shall make payment to each member for its share of the refund, determined in the
same manner as in Section 3 above, AS SOON AS THE refund is received by the
Parent. In the case of an increase in tax liability, each member shall pay to
the Parent its allocable share of such increased tax liability under Section
3(a) after receiving notice of such liability from the Parent and recompute any
Tax Receivables/Payables required under Section 3(b) as well as payments
required under Section 5(b) based upon the adjusted separate return liabilities
of the members of the group.
9. NEW MEMBERS OF THE AFFILIATED GROUP
If, during a consolidated return period, the Parent or any subsidiary
acquires or organizes another corporation that is required to be included in the
consolidated return, then such corporation shall join in and be bound by this
agreement.
10. EFFECTIVE DATES
This agreement shall apply to the taxable year ending August 31, 1991
and all subsequent taxable periods unless the Parent and the subsidiaries agree
to terminate the agreement. Notwithstanding such termination, this agreement
shall continue in effect with respect to any payment or refund due for all
taxable periods prior to termination.
11. MISCELLANEOUS PROVISIONS
This agreement shall be binding upon and inure to the benefits of any
successor, whether by statutory merger, acquisition of assets or otherwise, to
any of the parties hereto, to the same extent as if the successor had been an
original party to the agreement.
- 4 -
<PAGE>
For the purposes of this section, the term "successor" shall include
the direct parent corporation of a subsidiary corporation that dissolves without
distributing any net assets to the direct parent.
IN WITNESS THEREOF, the parties hereto have caused this agreement to be executed
by their duly authorized representatives on March 15, 1993.
D.A.H., INC. TRI-STAR HOLDINGS, INC.
/s/ R. Jack DeCrane /s/ Robert Rankin
- ------------------------------ -----------------------------------
HOLLINGSEAD INTERNATIONAL, INC.
/s/ R. Jack DeCrane
-----------------------------------
- 5 -
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into July
17, 1998 by and between DeCrane Aircraft Holdings, Inc. (the "Company") and R.
Jack DeCrane ("Executive") based on the following facts:
A. Executive is currently employed by the Company in the capacity as
Chief Executive Officer ("CEO") and is a key executive of the Company.
B. The Company desires to employ Executive for the term of this Agreement
on the terms and conditions specified in this Agreement; Executive
desires to be employed and to perform the services described herein
pursuant to the terms of this Agreement.
C. The Compensation Committee of the Board of Directors (the "Committee")
has recommended that Executive be employed pursuant to the terms of
this Agreement and the Board of Directors of the Company (the "Board")
has approved the recommendation of the Committee.
Based on the foregoing facts and circumstances and for good and valuable
consideration, receipt of which is hereby acknowledged, the Company and
Executive agree as follows:
1. TERM OF AGREEMENT. Except as otherwise provided herein, the term of
this Agreement shall commence effective July 1, 1998 and shall
continue through June 30, 2001 (the "Term").
2. DUTIES. Executive agrees to be employed as the CEO of the Company
during the Term and to devote his full business time and attention to
the Company. Executive may devote such of his time as reasonable to
his personal investments and to civic and/or charitable activities.
Executive may serve as a director or trustee of any other corporation
or trust with the consent of the Board, which consent will not
unreasonably be withheld. Executive's duties shall not be diminished,
nor will the responsibilities be decreased from those currently in
effect. The Company will not assign duties to the CEO inconsistent
with those attendant to the position of a Chief Executive Officer and
a director of the Company. Except as specified by the terms of this
Agreement, the powers and duties of Executive may be more specifically
determined by the Board from time to time.
1
<PAGE>
3. COMPENSATION. During the Term, Executive shall receive the following
compensation and benefits:
A. SALARY. During the first year of the Term, the Company shall
pay Executive an annual base salary of $310,000 payable on the
regular payroll dates for employees of the Company; for each
subsequent year during the Term, Company shall pay Executive an
annual salary in an amount at least equal to the sum of (i)
Executive's annual base salary for the preceding year, plus
(ii) an additional amount as favorable to Executive as pay
increases paid by the Company for other executives of the
Company;
B. BONUS. During the Term, the Company shall pay Executive bonus
payments annually (said bonus payments, together with
Executive's salary as provided in Section 3.A., being sometimes
collectively referred to herein as "Compensation"), as a
percentage of his annual base salary in effect at the time of the
payment of such bonus payment based upon the Company's
achievement of mutually agreed performance goals as set forth in
the Company's operation plan approved by the Board for such year.
For the calendar year 1998, the bonus payment shall be based upon
the Company's achievement of earnings before taxes, depreciation
and amortization ("EBITDA") as specified in Executive's
Employment Agreement dated September 1, 1994 (the 1994 Employment
Agreement) and at the percentages specified in the chart below;
provided, however, no portion of the bonus shall be based upon
EBITDA of any business for any period prior to the date such
business was acquired by the Company. During each subsequent
year during the Term, the bonus payments shall be based upon the
Company's achievement of earnings per share ("EPS") as determined
pursuant to generally accepted accounting principles ("GAAP")
consistently applied and followed in connection with the
preparation of the Company's audited financial statements, as
follows:
<TABLE>
<CAPTION>
Level of Achievement as a Bonus as a Percentage of
Percentage of Performance Goal Annual Base Salary
<S> <C>
EPS equals 80% 55%
EPS equals 90% 65%
EPS equals 100% 75%
EPS equals 110% 85%
EPS equals 120% 100%
</TABLE>
2
<PAGE>
Said bonus shall be deemed earned on a pro rata basis throughout the year;
C. INCENTIVE STOCK OPTIONS. Pursuant to the Company 1993 Share
Incentive Plan (the "Plan"), the Company shall from time to time
make awards to Executive and Executive shall receive options to
purchase shares of the Company's Common Stock subject to the
terms of the Plan. The Executive is hereby awarded options to
purchase 50,000 shares at the Designated Current Price,
specified below (the "1998 Award"). As used herein, "Designated
Current Price" means the closing price of the Company's Common
Stock on the Nasdaq National Market on July 16, 1998 as notified
to the Holder by the Company in a separate writing, based upon
the price therefor as reported in the Wall Street Journal issue
dated July 17, 1998. Subject to earlier vesting as provided in
the Option Agreement, the options granted pursuant to this
Section 3.C. shall vest 1/2 on July 31, 1998, and 1/2 on July 31,
1999;
D. AVTECH BONUS. In consideration for the services performed by
Executive in the Company's acquisition of Avtech Corporation
on June 26, 1998, Company shall concurrent with the execution
of this Agreement pay to Executive $500,000.
E. EXECUTION BONUS. To induce Executive to enter into this
Employment Agreement, Company shall concurrent with the execution
of this Agreement, pay Executive $250,000.
F. CONTINUATION BONUS. So long as Executive is employed by the
Company on January 1, 1999, Company shall pay to Executive on
January 2, 1999 the sum of $150,000.
G. BENEFITS. During the Term, the Company shall provide to
Executive, his spouse and his eligible dependents and maintain in
full force and effect throughout the Term, group insurance
(including conversion features) and benefits, including life,
major medical, dental, vision and the related benefits as have
been provided to Executive, his spouse and his eligible
dependents during the immediately preceding year (the "Health
Care Benefits"). Without limiting the Health Care Benefits
provided in the foregoing sentence, the Company shall provide to
Executive life insurance with a death benefit of not less than $1
million. Without limiting the Health Care Benefits to be
provided to Executive, the Company may provide the Health Care
Benefits
3
<PAGE>
pursuant to group insurance plans if available to the Company on
such basis;
H. PROFIT SHARING PLAN. The Company agrees that Executive will be a
participant, on the same basis as other executives, in any profit
sharing or other deferred compensation or qualified retirement
plan adopted or maintained during the Term;
I. TRAVEL. The Company shall reimburse or pay directly all business-
related travel, entertainment and other expenses of Executive at
a level of accommodation as provided to Executive during the
immediately preceding year;
J. VACATION. Executive shall provide Executive annually not less
than four weeks of paid vacation but not less than the amount of
vacation provided to employees of the Company or any of its
subsidiaries with tenure equal to that of Executive.
4. TERMINATION. The Company may terminate the employment of Executive at
any time with or without "Cause." Except as provided in Section 4C,
in the event that the Company terminates the employment of Executive
without Cause, the Company shall be obligated to pay Executive
compensation and provide benefits pursuant to Sections 3.A, 3.B and
3.G. for eighteen months. Executive's right to receive Compensation
and Health Care Benefits from the Company pursuant to the foregoing
sentence, shall not be diminished by Executive's receipt of
compensation in connection with employment by any person or entity
other than the Company. In the event of termination for Cause,
Executive shall not be entitled to Compensation following the last
date of Executive's employment by the Company.
A. FOR CAUSE. As used in this Agreement, "Cause" shall mean (i) any
material act of dishonesty constituting a felony (of which
Executive is convicted or pleads guilty) which results or is
intended to result directly or indirectly in substantial gain or
personal enrichment to Executive at the expense of the Company,
or (ii) after notice of breach delivered to Executive specifying
in reasonable detail and a reasonable opportunity for Executive
to cure the breaches specified in the notice, the Board, acting
by a two thirds vote, after a meeting held for the purpose of
making such determination and after reasonable notice to
Executive and an opportunity for him together with his counsel to
be heard before the Board, determines, in good faith, other than
for
4
<PAGE>
reasons of physical or mental illness, Executive willfully
and continually fails to substantially perform his duties
pursuant to this Agreement and such failure results in
demonstrable material injury the Company. The following shall
not constitute Cause: (i) Executive's bad judgment or negligence,
(ii) any act or omission by Executive without intent of gaining
therefrom directly or indirectly a profit to which Executive was
not legally entitled, (iii) any act or omission by Executive with
respect to which a determination shall have been made that
Executive met the applicable standard of conduct prescribed for
indemnification or reimbursement of payment of expenses under the
By-Laws of the Company or the laws of the State of Delaware as in
effect at the time of such act or omission.
B. The Company may terminate this Agreement without Cause at any
time by giving Executive 90 days notice, subject to Executive's
right to receive Compensation and Health Care Benefits as
provided in this Section 4.
C. COMPENSATION UPON TERMINATION FOLLOWING A CHANGE OF CONTROL. In
addition to the rights and benefits accruing to Executive as
otherwise described in this Agreement, in the event that (i) a
Change of Control shall have occurred while Executive is employed
hereunder and (ii) the Executive's employment hereunder shall be
involuntarily terminated for any reason other than Cause, death
or disability or Executive shall terminate his employment
hereunder for Good Reason, then the Company shall make the
following payments to Executive within 15 days following the date
of such termination of employment (the "Termination Date") (in
the case of (i) and (ii) below) and provide the following
benefits to Executive after the Termination Date (in the case of
(iii), (iv) (v), (vi) and (vii) below), subject in each case to
any applicable payroll or other taxes required to be withheld and
subject to the provisions of Section 5 relating to limitations on
parachute payments:
(1) The Company shall pay Executive a lump sum amount in cash
equal to $1 less than three times the sum of (a) Executive's
average base salary and (b) Executive's average bonus, in
each case, during the five calendar years immediately
preceding the Termination Date.
5
<PAGE>
(2) The Company shall pay Executive a lump sum amount in cash
equal to accrued but unpaid salary and bonus through the
Termination Date, and unpaid salary with respect to any
vacation days accrued but not taken as of the Termination
Date.
(3) The Company shall continue to provide Executive Health Care
Benefits on terms no less favorable to Executive and his
dependents covered thereby (including with respect to any
costs borne by Executive) than the greater of (i) the
coverage provided on the date of the Change of Control or
(ii) the coverage provided by the Company immediately prior
to the Termination Date. Such benefits shall be provided
for the period beginning on the Termination Date and ending
on the first to occur of (i) the date of Executive's
employment (including self-employment) in a position
providing substantially the same or greater benefits as
Executive's assignment with the Company on the Termination
Date, or (ii) the second anniversary of the Termination
Date.
(4) The Company shall pay to Executive a lump sum amount in cash
equal to the invested portion of the Company's contributions
to Executive's account under any of the Company's plans that
are "qualified" under Section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), to which the Company
makes contributions to employee accounts in effect as of the
Termination Date (the "Savings Plans"), plus an amount in
cash equal to two times an amount equal to the amount of the
Company's annual contribution on behalf of Executive
pursuant to the Savings Plans as in effect on the date of
the Change of Control or the Termination Date, whichever is
greater. For purposes of this Section, the Company's
matching contributions to the Savings Plans shall be deemed
to be at the maximum percentage contribution to which
Executive could be entitled under the Savings Plans.
In addition, within five days following the Termination
Date, Executive shall be paid in cash an amount equal to the
Company's matching contributions determined pursuant to the
Savings Plans as in effect on the date of the Change of
Control or the Termination Date, whichever is greater,
6
<PAGE>
which would have accrued to the benefit of Executive had he
continued his participation in, and elected to make the
maximum contributions under, the Savings Plans for the
period of 24 months from the Termination Date or until
December 31 of the year in which Executive would reach age
65, whichever is the shorter period. The benefits received
by Executive pursuant to this Section are in addition to any
benefits that were vested prior to the Termination Date in
accordance with the terms of the Savings Plans.
(5) Within five days following the Termination Date, the Company
shall pay to Executive (i) an amount in cash equal to the
vested and invested amounts that have been credited to
Executive's account or accounts under any deferred
compensation plan that the Company maintains for its
employees as of the Termination Date whether or not then
vested, plus (ii) an amount equal to the total amount
required to be, or actually, credited to Executive's
account, including interest equivalents, for the year in
which the Termination Date occurs.
(6) Within five days following the Termination Date, the Company
shall select and engage at Company's expense a nationally
recognized executive placement firm reasonably satisfactory
to Executive to provide outplacement consulting services to
Executive until the first to occur of the date of
Executive's employment (including self-employment) and the
second anniversary of the Termination Date.
(7) Notwithstanding anything set forth in this
Section 4(C), if the benefits payable pursuant to this
Agreement, either alone or together with other payments
which the Executive has the right to receive either directly
or indirectly from the Employer or any of its Affiliates,
would constitute an excess parachute payment (the "Excess
Payment") under Section 280G of the Code, the Executive
hereby agrees that the benefit payable pursuant to this
Agreement shall be reduced (but not below zero) by the
amount necessary to prevent any such payments to the
Executive from constituting an Excess Payment, as
determined by such independent public accounting firm with
a national
7
<PAGE>
reputation as the Employer shall select.
Executive is not required to seek other employment or otherwise mitigate
the amount of any payments to be made by the Company pursuant to this
Agreement.
As used in this Agreement, "Change of Control" shall mean an event
involving the Company of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), assuming
that such Schedule, Regulation and Act applied to the Company, provided that
such a Change of Control shall be deemed to have occurred at such time as:
(i) any "person" (as that term is used in Sections 13(d) and 14(d)(2) of the
Exchange Act) (other than an Excluded Person (as defined below)) becomes,
directly or indirectly, the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) of securities representing 20% or more of the
combined voting power for election of members of the Board of Directors of
the then outstanding voting securities of the Company or any successor of the
Company, excluding any person whose beneficial ownership of securities of the
Company or any successor is obtained in a merger or consolidation not
included in paragraph (iii) below; (ii) during any period of two consecutive
years or less, individuals who at the beginning of such period constituted
the Board of Directors of the Company cease, for any reason, to constitute at
least a majority of the Board, unless the appointment, election or nomination
for election of each new member of the Board (other than a director whose
initial assumption of office is in connection with an actual or threatened
election contest, including but not limited to a consent solicitation,
relating to the election of directors of the Company) was approved by a vote
of at least two-thirds of the members of the Board of Directors then still in
office who were members of the Board at the beginning of the period or whose
appointment, election or nomination was so approved since the beginning of
such period; (iii) there is consummated any merger, consolidation or similar
transaction to which the Company is a party as a result of which the persons
who were equity holders of the Company immediately prior to the effective date
of the merger or consolidation shall have beneficial ownership of less than
50% of the combined voting power for election of members of the Board of
Directors (or equivalent) of the surviving entity or its parent following the
effective date of such merger or consolidation; (iv) any sale or other
disposition (or similar transaction) (in a single transaction or series of
related transactions) of (x) 50% or more of the assets or earnings power of
the Company or (y) business operations which generated a majority of the
consolidated revenues (determined on the basis of the Company's four most
recently completed fiscal quarters for which reports have been completed) of
the Company and its subsidiaries immediately prior thereto, other than a
sale, other disposition, or similar transaction to an Excluded Person or to
an entity of which equityholders of the Company beneficially own at least 50%
of the combined voting power; (v) any liquidation of the Company. For
purposes of this definition of Change
8
<PAGE>
of Control, the term "Excluded Person" shall mean and include (i) any
corporation beneficially owned by shareholders of the Company in
substantially the same proportion as their ownership of shares of the Company
and (ii) the Company.
As used in this Agreement, "Good Reason" shall mean the occurrence,
following a Change of Control, of any one of the following events without
Executive's consent: (i) the Company assigns Executive to any duties
substantially inconsistent with his position, duties, responsibilities,
status or reporting responsibility with the Company immediately prior to the
Change of Control, or assigns Executive to a position that does not provide
Executive with substantially the same or better compensation, status,
responsibilities and duties as Executive enjoyed immediately prior to the
Change of Control; (ii) the Company reduces the amount of Executive's base
salary as in effect as of the date of the Change of Control or as the same
may be increased thereafter from time to time, except for across-the-board
salary reductions similarly affecting all senior executives of the Company;
(iii) the Company fails to pay Executive an annual bonus consistent with this
Agreement and bonuses consistent with past practices are paid to any other
senior executives of the Company; (iv) the Company modifies Executive's
annual bonus attributable to the performance levels; (v) the Company changes
the location at which Executive is employed by more than 50 miles from the
location at which Executive is employed as of the date of this Agreement; or
(vi) the Company breaches this Agreement in any material respect, including
without limitation failing to obtain a succession agreement from any
successor to assume and agree to perform this Agreement.
D. DEATH. In the event of Executive's death, the Company shall pay
to Executive's personal representative for a period of one year
following the death of Executive (i) Executive's annual base
salary and (ii) Executive's bonus and the Company shall provide
to Executive's widow and eligible dependents Health Care Benefits
for such one year period.
E. DISABILITY. The Company may terminate the Executive if the
Executive is unable for a period of 180 consecutive days to
perform his duties as a result of being "disabled" as defined in
this Section 4.E. "Disabled" shall mean (i) a determination by a
physician selected by Executive and approved by the Board that
Executive is suffering from total disability and (ii) the Company
has given Executive 30 days notice of potential termination and
within such 30 day period Executive has not returned to the full
time performance of his duties.
9
<PAGE>
5. MITIGATION. Executive is not required to seek other employment or
otherwise mitigate the amount of any payments to be made by the
Company pursuant to this Agreement.
6. ASSIGNMENT. Neither Company nor Executive shall have the right to
assign its respective rights pursuant to this Agreement. The Company
shall require any proposed successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company, by agreement in form
and substance reasonably satisfactory to Executive, to expressly
assume and agree to perform this agreement in the same manner and to
the same extent that the Company would be required to perform it if no
such succession had taken place, concurrent with the execution of a
definitive agreement with the Company to engage in such transaction.
7. This Agreement shall be binding on the inure to the benefit of
Executive and his heirs and the Company and any permitted assignee.
The Company shall not engage in any transaction, including a merger or
sale of assets unless, as a condition to such transaction such
successor organization assumes the obligations of the Company pursuant
to this Agreement.
8. NOTICES.
If to Company: DeCrane Aircraft Holdings, Inc.
2361 Rosecrans Avenue, Suite 180
El Segundo, CA 90245
Attention: Chief Financial Officer
Fax: (310) 643-0746
If to Executive: R. Jack DeCrane
14020 Old Harbor Lane, Unit 208
Marina del Rey, CA 90292
Fax: (310) 822-1159
9. FACSIMILE SIGNATURES, EXECUTION AND DELIVERY. This Agreement shall be
effective upon transmission of a signed facsimile by one party to the
other.
10. MISCELLANEOUS. This Agreement supersedes and, except as incorporated
herein, makes void any prior agreement between the parties (including
but not limited to the 1994 Employment Agreement), and sets forth the
entire agreement and understanding of the parties
10
<PAGE>
hereto with respect to the matters covered hereby, except for
changes in Compensation as provided in this Agreement by
action of the Committee and may not otherwise be amended or
modified except by written agreement executed by the Company
and the Executive. This Agreement shall be governed by and
construed in accordance with the laws of the State of
California. The Company has retained special counsel to
review this Agreement and consented to the firm of Spolin &
Silverman advising Executive; this Agreement has been authorized by
resolution of the Compensation Committee of the Board of Directors
of the Company.
This Agreement has been executed on the date specified in the first
paragraph.
DeCRANE AIRCRAFT HOLDINGS, INC.
By: /s/ [ILLEGIBLE]
-------------------------------
Authorized Signatory
Executive
/s/ R. Jack DeCrane
-------------------------------
R. Jack DeCrane
11
<PAGE>
401(k) SALARY REDUCTION
----------------------
NON-STANDARDIZED
----------------------
ADOPTION AGREEMENT
----------------------
IRS Serial #D359971a
Approved April 30, 1992
[LOGO]
1300 South Clinton Street Fort Wayne, IN 46801
<PAGE>
Internal Revenue Service Department of the Treasury
Plan Description: Prototype Non-standardized Profit Sharing Plan with CODA
FFN: 50337598001-007 Case: 9100610 EIN: 35-0472300
GFD: 01 Plan: 007 Letter Serial No:
0359971a Washington DC 20224
LINCOLN NATIONAL LIFE INSURANCE CO Person to Contact Mr. Wolf
Telephone Number (202) 566-6421
1300 SOUTH CLINTON STREET
PO BOX 2340 Refer Reply to: E:EP:Q:1
FORT WAYNE IN 46801
Date 04/30/92
Dear Applicant:
In our opinion, the form of the plan identified above is acceptable under
section 401 of the Internal Revenue Code for use by employers for the benefit of
their employees. This opinion relates only to the acceptability of the form of
the plan under the Internal Revenue Code. It is not an opinion of the effect of
other Federal or local statutes.
You must furnish a copy of this letter to each employer who adopts this plan.
You are also required to send a copy of the approved Form of the plan, any
approved amendments and related documents to each Key District Director of
Internal Revenue Service in whose jurisdiction there are adopting employers.
Our opinion on the acceptability of the form of the plan is not a ruling or
determination as to whether an employer's plan qualifies under Code section
401(a). Therefore, an employer adopting the form of the plan should apply for a
determination letter by filing an application with the Key District Director of
Internal Revenue Service on Form 5307, Short Form Application for Determination
for Employee Benefit Plan.
If you, the sponsoring organization, have any questions concerning the IRS
processing of this case, please call the above telephone number. This number is
only for use of the sponsoring organization. Individual participants and/or
adopting employers with questions concerning the plan should contact the
sponsoring organization. The plan's adoption agreement must include the
sponsoring organization's address and telephone number for inquiries by adopting
employers.
If you write to the IRS regarding this plan, please provide your telephone
number and the most convenient time for us to call in case we need more
information. Whether you call or write, please refer to the Letter Serial
Number and File Folder Number shown in the heading of this letter.
You should keep this letter as a permanent record. Please notify us if you
modify or discontinue sponsorship of this plan.
Sincerely yours,
/s/ John Diveca
Chief, Employee Plans Qualifications Branch
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NON-STANDARDIZED
401(k) SALARY REDUCTION PLAN AND TRUST PROTOTYPE PLAN
ADOPTION AGREEMENT
PLAN #007
IRS SERIAL #D359971A DATE APRIL 30, 1992
The De Crane Aircraft Holdings, Inc. oka DAH, Inc.
---------------------------------------------------------------------------
(exact legal name of Employer)
(hereinafter referred to as the Employer), having its principal place of
business in El Segundo, California
-------------------------------------------------------------------
(City) (State)
hereby adopts The Lincoln National Life Insurance Company Non-Standardized
401(k) Salary Reduction Plan and Trust Prototype Plan, and further appoints as:
Trustee(s), Robert A. Rankin
-------------------------------------------------------------------
------------------------------------------------------------------;
Named Fiduciary*, Same
------------------------------------------------------------;
Plan Administrator*, Same
------------------------------------------------------; and
Agent for Legal Service of Process*, Same
-----------------------------------------;
* If same as Employer, write 'Same'.
The Employer's Tax Year begins January 1 and ends December 31 .
-------------------- --------------------
Employer Telephone Number (310) 536-0444 .
-------------------------
Business Code Number (same as shown on 1120) 3725 .
-------------------
Date Business Commenced December 15, 1989 .
------------------------
In connection herewith, the Employer makes the following statements and
selections:
This Plan shall be known as DAR Retirement Plan
-----------------------------------------
(name of Employer)
401(k) Salary Reduction Plan and
-----------------------------------
Trust which shall be identified by Employer I.D. # 34-1645569
-------------------
and Plan Serial # 001 (001, 002, etc. - assign sequentially).
--------------
<PAGE>
The employer maintains, or has maintained, the following qualified plans: (List
all plans, including this Plan, ever maintained by the Employer starting with
Plan Serial #001.)
Status
Plan ------
Serial # Type of Plan In Force Terminated
--------- ------------ -------- ----------
001 401(k) [X] [ ]
--------- ------------------------------------
002 [ ] [ ]
--------- ------------------------------------
003 [ ] [ ]
--------- ------------------------------------
004 [ ] [ ]
--------- ------------------------------------
005 [ ] [ ]
--------- ------------------------------------
This Employer is: Sole Proprietor
----
Partnership
----
X Corporation
----
S Corporation
----
Professional Corporation
----
Non Profit Corporation
[X] Yes [ ] No Is the Employer a member of a Controlled Group of
Corporations, a group of businesses under common control, or
an Affiliated Service Group as defined below. This question
must be answered "yes" or "no". If yes, complete the rest
of this section.
In the case of a group of employers which constitutes a Controlled Group of
Corporations, or an Affiliated Service Group [as defined in Sections 414(b) and
414(m), respectively, of the Internal Revenue Code], or which constitutes one or
more trades or businesses whether or not incorporated which are under common
control [as defined in Section 414(c)], all such employers shall be considered a
single employer for purposes of determining plan qualification, minimum
participation, benefit accrual, vesting standards, and limitations on benefits
and contributions. The employers listed below are required to be aggregated
with the adopting employer under Code Sections 414(b), (c), (m) or (o), and
shall participate in this Plan to the extent indicated as evidenced by written
resolution adopting this Plan. (If there are no affiliated employers, indicate
None.)
- ----
Employer Employer Participating Participation
Name I.D. # Employer Effective Date
-------- -------- ------------- --------------
Tri-Star Electronics
International, Inc. 34-1687242 [X] Yes [ ] No
- ----------------------------- ---------- --------------
Cory Components 95-3938746 [X] Yes [ ] No
- ----------------------------- ---------- --------------
Hollingsead International 95-2500766 [X] Yes [ ] No
- ----------------------------- ---------- --------------
- ----------------------------- ---------- --------------
- ----------------------------- ---------- --------------
If this Plan and Trust is adopted by more than one member of the aggregation
group, this Plan
[X] (a) shall be administered as one plan (i.e., contributions, and
forfeitures shall not be separated for each participating Employer).
[ ] (b) shall be administered as a single employer plan for each participating
Employer [i.e., contributions shall be made by each Employer only for
those Participants employed by such Employer and forfeitures shall be
used to reduce the contribution made by the applicable Employer - each
asset pool shall be considered a separate plan which must
independently satisfy Code Section 401(a) (26)].
[ ] (c) N/A
2
<PAGE>
Any Employee of a participating Employer must receive credit for service while
employed by any member of the aggregation group (including non-participating
employers) for purposes of vesting and eligibility under this Plan from the date
such Employer became a member of the aggregation group.
A-1.22 The adoption of this Plan constitutes: (check appropriate statement
and provide information)
[ ] (a) The initial adoption of this Plan and Trust by the
Employer. The Effective Date of this Plan is
--------------
-----------------------------------------.
(month/day/year)
[X] (b) An [X] amendment and restatement, or [ ] merger of the
following Plan(s) known as DAH Retirement Plan ,
------------------------------
---------------------------------------------------------
---------------------------------------------------------
(name of Plans and Trusts)
with the original effective date(s) of
January 1, 1993
---------------------------------------------------------
(month/day/year)
The effective date of this amendment and restatement is
January 1, 1996
---------------------------------------------------------
(month/day/year)
I. DEFINITIONS
A-1.38 Hours of Service: Hours of Service shall be determined on the
basis of the method selected below. The method selected shall be
applied to all Employees. If the Elapsed Time Method is selected
in A-1.74, Hours of Service as designated below shall be
applicable for eligibility purposes only. (Select one)
[X] (a) On the basis of actual hours for which an Employee is
paid or entitled to payment.
[ ] (b) On the basis of days worked. An Employee shall be
credited with ten (10) Hours of Service if, under
Section 1.38 of the Plan, such Employee would be
credited with at least one (1) Hour of Service during
such day.
[ ] (c) On the basis of weeks worked. An Employee shall be
credited with 45 Hours of Service if, under Section
1.38 of the Plan, such Employee would be credited with
at least one (1) Hour of Service during such week.
3
<PAGE>
[ ] (d) On the basis of semi-monthly payroll periods. An Employee
shall be credited with 95 Hours of Service if, under Section
1.38 of the Plan, such Employee would be credited with at
least one (1) Hour of Service during such semi-monthly
period.
[ ] (e) On the basis of months worked. An Employee shall be
credited with 190 Hours of Service if under Section 1.38 of
the Plan such Employee would be credited with at least one
(1) Hour of Service during such month.
A-1.54 Plan Year: (Select one and complete)
[X] (a) Shall be the consecutive 12 month period for which records
for this Plan shall be maintained beginning each
January 1 and ending each December 31.
[ ] (b) There shall be a short Plan Year beginning and
ending . (The Plan must retain its qualified
status during this period.)
All subsequent Plan Years shall begin each and
end each .
The previous Plan Year prior to this amendment began
and ended each .
Adjustments for eligibility and vesting shall be made as
required by Section 11.04 if the Plan Year is changed.
A-1.55 For purposes of establishing Present Value to compute the Top-Heavy
Ratio, any benefit (under a Defined Benefit Plan) shall be discounted
for mortality and interest based on the following: (If the Employer
maintains a Defined Benefit plan, this section must be completed.)
Interest Rate % Mortality Table
[X] N/A The Employer has no Defined Benefit plan.
A-1.64 Years of Service with predecessor employer:
Years of Service with , for whom
this Employer does not maintain a predecessor plan shall be considered
under the Plan for purposes of: (select as desired)
[ ] (a) Vesting
[ ] (b) Eligibility
[X] (c) None of the above
A-1.71 For purposes of computing the Top-Heavy Ratio, the Valuation Date
shall be 12-31 of each year.
4
<PAGE>
A-1.73 Vesting Years of Service: Years of Service credited for vesting shall
exclude the years checked below subject to Section 11.03: (select as
desired)
[ ] (a) Years of Service before the Employee's (cannot exceed
18) birthday. (If Regular Method is used, the Plan Year in
which the Employee attains age 18 shall not be excluded.)
[ ] (b) Years of Service prior to the original Effective Date of
this Plan or a predecessor plan.
[ ] (c) Years of Service prior to . (Date selected
may not be later than the original effective date of this
Plan or a predecessor plan.)
[ ] (d) Years of Service during a period for which the Employee
declined to contribute to a plan requiring Employee
Contributions. In the case of a plan using the elapsed time
method, the Service which shall be disregarded is the period
with respect to which the mandatory contribution is not
made.
[X] (e) No exclusions.
Note: In general, a predecessor plan is a plan which terminates
within the five (5) year period immediately preceding or
following the establishment of this Plan.
A-1.74 Years of Service shall be computed under the following method:
(select one)
[X] (a) Regular Method--based on Hours of Service credited under the
method selected in A-1.38.
[ ] (b) Elapsed Time Method--based on total time an Employee is
employed without regard to actual hours credited as
explained in Section 1.74 of this Plan.
II. ELIGIBILITY
A-2.01 (a) For purposes of plan coverage and benefits, employees of
affiliated employers required to be aggregated with the Employer
under Section 414(b), (c), (m) or (o) of the Code shall NOT be
treated as Employees of the Employer unless such affiliated
employers are identified as Participating Employers on page 2 of
this Adoption Agreement.
For purposes of plan coverage and benefits, the term "Employee"
[ ] (1) shall include
[X] (2) shall not include
[ ] (3) N/A (Employer has no "leased employees.")
"leased employees" who are required to be considered employees
of the Employer under Code Section 414(n) or (o).
5
<PAGE>
(b) The following classes of Employees of the Employer shall be
eligible to participate in the Plan:
[X] (1) All Employees
[ ] (2) Hourly paid Employees
[ ] (3) Salaried Employees
[ ] (4) All Employees except Employees included in a unit of
Employees covered by a collective bargaining
agreement between the Employer and Employee
representatives, if retirement benefits were the
subject of good faith bargaining and if two percent
or less of the Employees of the Employer who are
covered pursuant to that agreement are professionals
as defined in Section 1.410(b)-9(g) of the
Regulations. For this purpose, the term "employee
representatives" does not include any organization
more than half of whose members are Employees who are
owners, officers, or executives of the Employer.
[ ] (5) Other
-------------------------------------------
-------------------------------------------
The above classes of Employees
[ ] (6) shall
[X] (7) shall not
include Employees who are non-resident aliens
[within the meaning of Section 7701(b)(1)(B)] and who receive
no earned income (within the meaning of Section 911(d)(2)] from
the Employer which constitutes income from sources within the
United States (within the meaning of Section 861(a)(3)].
(c) Minimum age and service requirements: (select one)
[X] (1) An Employee shall become a Participant on the Entry
Date coincident with or next following Age 21 (cannot
exceed 21) and the completion of 3 MOS. (cannot
exceed 1 year) Eligibility Year of Service. MUST HAVE
AT LEAST 2 ENTRY DATES, I.E., CANNOT ELECT (e)(1)
BELOW.
If the Eligibility Year of Service includes a
fractional year, an Employee shall not be required to
complete any specified number of Hours of Service to
receive credit for such fractional year.
[X] (2) An Employee shall become a Participant on the Entry
Date coincident with or next following Age _____ (cannot
exceed 20 1/2) and the completion of _____ [cannot
exceed 1/2 year (6 months)] Eligibility Year of
Service. USE THIS PROVISION ONLY WHEN (e)(1) (ONE
ENTRY DATE) IS ELECTED BELOW.
6
<PAGE>
If the Eligibility Year of Service includes a
fractional year, an Employee shall not be required to
complete any specified number of Hours of Service to
receive credit for such fractional year.
(d) The preceding election in A-2.01(o) notwithstanding, Employees
who are actively employed on shall be deemed to
have satisfied the
[ ] (1) Age requirement as of the Effective Date.
[ ] (2) Service requirement as of the Effective Date.
[ ] (3) Age and service requirements as of the Effective Date.
[X] (4) N/A (Age and Service requirements in A-2.01(c) apply
to all Employees.)
(e) Entry Date: Shall mean: (select one)
[ ] (1) First day of Plan Year.
[X] (2) First day of Plan Year and the date 6 months after the
first day of the Plan Year.
[ ] (3) The first day of the Plan Year and the dates which
are 3, 6 and 9 months after the first day of the
Plan Year. (Not Recommended)
[ ] (4) First day of each month. (Not recommended.)
III. PROFIT SHARING CONTRIBUTIONS AND ALLOCATIONS
A-3.01 Contributions
(a) The Employer shall contribute [select (1), (2) or (3)]
[ ] (1) out of current or accumulated profits.
[X] (2) without regard to current or accumulated profits.
[ ] (3) N/A [A-3.01(a)(6) is elected]
The amount of such contribution shall be: [select (4),(5) or (6)]
[X] (4) As determined by the Board of Directors each year.
[ ] (5) Other
-----------------------------------------------
-----------------------------------------------
[ ] (6) The Employer will make no contribution under this
Section A-3.01(a). [Do not complete Sections
A-3.01(b), (d) and (e). Section A-3.01(c) must still
be completed.]
7
<PAGE>
(b) Allocation of contributions under A-3.01(a), above, shall be made
for all Participants who are credited with at least [select (1),
(2), or (3)]
[X] (1) 1,000 Hours of Service
[ ] (2) 500 Hours of Service
[ ] (3) one Hour of Service
during the Plan Year and [select (4) or (5)]
[ ] (4) regardless of employment on the last day of the Plan
Year.
[X] (5) who is employed with the Employer on the last day of
the Plan Year.
The preceding notwithstanding, for Plan Years beginning after
December 31, 1989, if the Plan would otherwise fail to satisfy
the requirements of Code Sections 401(a)(26) or 410(b) because
the Employer contributions have not been allocated to a
sufficient number of percentage of Participants for a Plan Year,
then the following rules shall apply:
(6) The group of Participants eligible to share in the
Employer's contribution shall be expanded to include
all Participants who are employed on the last day of
the Plan Year and who are credited with at least 500
Hours of Service.
(7) If after the application of paragraph (6) above, the
applicable test is still not satisfied, then the group
of Participants eligible to share in the Employer's
contribution shall be further expanded to include all
Participants who are credited with at least 500 Hours
of Service regardless of employment on the last day of
the Plan year.
Note: Employer includes all employers who are required to
be aggregated with the Employer under Code Sections
414(b), (c), (m) or (o)
(c) If a participant dies, retires, or becomes disabled during the
Plan Year and does not complete the hours requirement for a
contribution, an allocation
[X] (1) shall not be made on such Participant's behalf for
such Plan Year.
[ ] (2) shall be made on such Participant's behalf for such
Plan Year regardless of any last day requirement
elected under A-301(b)(5).
Note: The above election applies to Profit Sharing
Contributions under Section A-3.01(a), Matching
Contributions under A-4.02 and Qualified Non-elective
Contributions under A-4.03.
8
<PAGE>
(d) Employer contributions under this Section and forfeitures, if
applicable, shall be allocated to Participant's Accounts as
follows:
[X] (1) NON-INTEGRATED FORMULA
On a pro-rata basis to all Participants in the
proportion that a Participant's Compensation bears to
the total of all Participant's Compensation.
[ ] (2) INTEGRATED FORMULA (INTEGRATED WITH SOCIAL SECURITY)
Note: This Plan may not provide for permitted
disparity (integration with Social Security) if the
Employer maintains any other plan that provides for
permitted disparity and benefits any of the same
Participants.
STEP ONE: In any Plan Year the Plan is Top-Heavy
contributions and forfeitures (if applicable) shall be
allocated to all Participants in the ratio that each
Participant's Compensation bears to all Participant's
Compensation, but not in excess of 3% of such
compensation.
(If the plan is not top-heavy, proceed to step two.)
STEP TWO: Any contributions and forfeitures not
allocated in STEP ONE shall be allocated to each
Participant's Account in the ratio that the sum of each
Participant's total Compensation plus Compensation in
excess of the integration level bears to the sum of all
Participants total Compensation plus Compensation in
excess of the integration level, but not in excess of
the maximum disparity rate.
STEP THREE: Any remaining Employer contributions or
forfeitures shall be allocated to each Participant's
Account in the ratio that each Participant's total
Compensation for the Plan Year bears to all
Participants' total Compensation for that year.
For the purpose of this Section, Compensation shall
mean Compensation as defined in Section 1.13 of the
Plan.
The integration level shall be:
[ ] (i) The Taxable Wage Base [The maximum amount of
earnings which may be considered wages for a
year under Section 3121(a)(1) of the Code in
effect as of the first day of the Plan Year.]
[ ] (ii) $____________(Must be less than the Taxable
Wage Base.)
9
<PAGE>
The maximum profit sharing disparity rate is equal to
the lesser of:
(a) 5.7%, or
(b) The applicable percentage determined in accordance
with the table below:
If the integration level:
Is more But not more The applicable
than than percentage is
------- ------------ --------------
$0.00 $X* 5.7%
X* 80% of TWB*** 4.3%
80% of TWB*** Y** 5.4%
* X = the greater of $10,000 or 20% of the
TWB.
** Y = any amount more than 80% of the TWB but
less than 100% of the TWB.
***TWB = Taxable Wage Base at the beginning of the
Plan Year. The TWB for 1989 is $48,000.
The TWB for 1990 is $51,300.
(e) Is any Employee who is eligible to participate under this Plan
covered by any other plan [including plans of non-participating
employers required to be aggregated under Section 414(b), (c),
(m) or (o) of the Code] which is integrated with Social Security?
[X] (1) No
[ ] (2) Yes [may not elect A-3.01(d)(2)]
A-3.03 (a) Rollover contributions:
[ ] (1) shall not be permitted under this Plan.
[X] (2) shall be permitted under this Plan.
(b) Rollover contributions shall be accepted from:
[ ] (1) Participants only.
[X] (2) Participants and non-Participants (otherwise eligible
Employee who have not yet satisfied the age and/or service
requirements for participation).
A-3.07 ALLOCATION OF EARNINGS shall be based on the Account balance as of the
beginning of the allocation period plus 1/2 of the contribution
allocated at the end of the allocation period, less all withdrawals,
plus investment transfers in, and less investment transfers out,
unless otherwise specified.
This plan utilizes daily accounting.
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
10
<PAGE>
A-3.08 ALL FORFEITURES occurring at the end of Plan Year: (select one)
[X] (a) shall be used to reduce the Employer's contribution for the
current Plan Year. If the Employer does not make a
contribution for a Plan Year, any available forfeitures
shall be treated as Employer Contributions.
[ ] (b) shall be allocated in the same manner as Employer
contributions under Section 3.01 for the current Plan Year.
However, forfeitures shall not be allocated to Participants
who are not employed on the last day of the Plan Year unless
such allocation is required to satisfy the requirements of
Code Sections 401(a) (26) and/or 410(b). (Do not elect if no
Profit Sharing contribution is specified in A-3.01).
IV. CASH OR DEFERRED ARRANGEMENT (CODA)
A-4.01 ELECTIVE DEFERRALS
(a) An eligible Employee may elect to have his or her annual
Compensation reduced by
[X] (1) from 1 % to 20 %
---------- ------------
[ ] (2)
-------------------------------------------------------
(Specify)
Such election shall be in writing and in a form and manner
specified by the Plan Administrator.
(b) A participant may elect to commence, or to modify the amount of,
Elective Deferrals as of:
[ ] (1) the first day of each Plan Year.
[X] (2) the first day of each Plan Year and the date 6
months after the first day of each Plan Year.
[ ] (3) the first day of each Plan Year quarter.
The Plan Administrator may permit an additional election in the
event an Actual Deferral Percentage Test, performed during the
Plan Year, permits or requires an adjustment in the deferral
percentages.
A-4.02 MATCHING CONTRIBUTIONS
(a) The Employer [select (1) or (2)]
[X] (1) shall
[ ] (2) shall not
make Matching Contributions to the Plan on behalf of all
Participants who elect to have Elective Deferrals made under the
Plan and who are credited with at least [select (3), (4) or (5)]
[X] (3) 1,000 Hours of Service
11
<PAGE>
[ ] (4) 500 Hours of Service
[ ] (5) one Hour of Service
during the Plan Year and [select (6) or (7)]
[ ] (6) regardless of employment on the last day of the Plan
Year.
[X] (7) who is employed with the Employer on the last day of
the Plan Year.
The preceding notwithstanding, for Plan Years beginning after
December 31, 1989, if the Plan would otherwise fail to satisfy
the requirements of Code Section 401(a)(26) or 410(b) because the
Employer contributions have not been allocated to a sufficient
number or percentage of Participants for a Plan Year, then the
following rules shall apply:
(1) The group of Participants eligible to share in the
Employer's contribution shall be expanded to include
all Participants who are employed on the last day of
the Plan Year and who are credited with at least 500
Hours of Service.
(2) If after the application of paragraph (1) above, the
applicable test is still not satisfied, then the group
of Participants eligible to share in the Employer's
contribution shall be further expanded to include all
Participants who are credited with at least 500 Hours
of Service regardless of employment on the last day of
the Plan year.
Note: Employer includes all employers which are required to
be aggregated with the Employer under Code Sections
414(b), (c), (m) or (o).
(b) The employer shall contribute and allocate to each Participant's
Matching Contribution Account:
[ ] (1) an amount equal to ___________ percent of the
Participant's Elective Deferrals.
[X] (2) a discretionary matching contribution equal to a
percentage (to be determined each year by the Employer)
of each Participant's Elective Deferrals.
(c) The Employer shall not match Elective Deferrals in excess of
6.0 percent of a Participant's
-----------
[ ] (1) compensation per pay period.
[X] (2) annual compensation.
(d) The Matching Contribution allocated to any Participant's account
for the Plan Year shall not exceed
[ ] (1) $
--------------
[X] (2) N/A
12
<PAGE>
(e) Matching Contributions shall be vested in accordance with the
following schedule:
[ ] (1) 100% vested at all times.
[X] (2) The vesting schedule as elected in A-11.02 of the
Adoption Agreement.
(f) Matching contributions shall be made
[ ] (1) only from current or accumulated profits.
[X] (2) without regard to current or accumulated profits.
A-4.03 (a) Qualified Non-elective Contributions shall be allocated to the
accounts of Non-highly Compensated Participants who are credited
with at least [select (1), (2) or (3)]
[X] (1) 1,000 Hours of Service
[ ] (2) 500 Hours of Service
[ ] (3) one Hour of Service
during the Plan Year and [select (4) or (5)]
[ ] (4) regardless of employment on the last day of
the Plan Year.
[X] (5) who is employed with the Employer on the last day of
the Plan Year.
The preceding notwithstanding, for Plan Years beginning after
December 31, 1989, if the Plan would otherwise fail to satisfy
the requirements of Code Sections 401(a)(26) or 410(b) because
the Employer contributions have not been allocated to a
sufficient number or percentage of Participants for a Plan Year,
then the following rules shall apply:
(1) The group of Participants eligible to share in the
Employer's contribution shall be expanded to include
all Participants who are employed on the last day of
the Plan Year and who are credited with at least 500
Hours of Service.
(2) If after the application of paragraph (1) above, the
applicable test is still not satisfied, then the group
of Participants eligible to share in the Employer's
contribution shall be further expanded to include all
Participants who are credited with at least 500 Hours
of Service regardless of employment on the last day of
the Plan year.
Note: Employer includes all employers required to be
aggregated with the Employer under Code Sections
414(b), (c), (m) or (o).
13
<PAGE>
A-4.13 Pre-retirement distributions of a Participant's entire Account
balance, including Elective Deferrals and Qualified Non-elective
Contributions, upon attainment of age 59 1/2 (may not be less than 59
1/2)
[X] (a) shall
[ ] (b) shall not
be permitted provided the Participant is 100% vested, and the balance
in the Participant's Account has accumulated for at least two (2)
years or the Participant has completed five (5) years of participation
in the Plan.
A-4.14 Distributions on account of financial hardship
[X] (a) shall
[ ] (b) shall not
be permitted to the extent provided in Section 4.14, and subject to
applicable regulations.
Distributions on account of financial hardship shall be made only
from:
[X] (c) Elective Deferrals (and any earnings credited to a
Participant's Elective Deferral account as of the end of the
last Plan Year ending before July 1, 1989.) The amount
available for distribution shall include the amount credited
to the Participant's Qualified Matching Contribution and
Qualified Non-elective Contribution accounts as of the end
of the last Plan Year ending before July 1, 1989.
[X] (d) Account balances which are not subject to the withdrawal
restrictions of Section 4.13 provided the Participant is
100% vested, and the funds have accumulated for at least two
(2) years or the Participant has completed five (5) years of
participation in the Plan.
Note: Hardship withdrawal provisions for funds described in (d)
above, are protected benefits under Code Section 411(d)(6).
If the conditions described in Section 4.14 are more
restrictive than those in effect immediately prior to the
adoption of this Plan, the prior conditions shall continue
to apply to all such funds including those which have
accrued after the date this Plan is adopted, and the
Employer should attach to this Adoption Agreement a hardship
withdrawal policy statement fully describing the objective
and nondiscriminatory conditions applicable to such
withdrawals.
14
<PAGE>
V. LIMITATIONS ON ALLOCATIONS
If the Employer maintains or ever maintained another qualified plan in which any
Participant in this Plan is (or was) a Participant or could become a
Participant, the Employer must complete this Section. The Employer must also
complete this Section if it maintains a welfare benefit fund, as defined in
Section 419(e) of the Code, or an individual medical account, as defined in
Section 415(l)(2) of the Code, under which amounts are treated as Annual
Additions with respect to any Participant in this Plan.
A-5.11 If the Participant is covered under another qualified Defined
Contribution plan maintained by the Employer, other than a Master or
Prototype plan:
[ ] (a) The provisions of Sections 5.05 through 5.10 of Article V
shall apply as if the other plan were a Master or Prototype
plan.
[ ] (b) Provide the method under which the plans shall limit total
Annual Additions to the Maximum Permissible Amount, and
shall properly reduce any excess amounts, in a manner that
precludes Employer discretion.
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
[X] (c) N/A The Employer maintains no other plan which provides an
Annual Addition as defined under Section 5.13(a).
A-5.12 If the participant is or has ever been a participant in a Defined
Benefit plan maintained by the Employer:
[ ] (a) The Annual Additions which may be credited to the
Participant's Account under this Plan shall not be limited
other than by the Maximum Permissible Amount as defined in
Section 5.13(k). If the sum of the Defined Benefit Fraction
and the Defined Contribution Fraction would otherwise exceed
1.0, such sum shall be reduced to not exceed 1.0 by
adjusting the Participant's Projected Annual Benefit under
the Defined Benefit plan.
[ ] (b) Provide language which shall satisfy the 1.0 limitation of
Section 415(e) of the Code. Such language must preclude
Employer discretion.
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
[X] (c) N/A The Employer does not and has never maintained a Defined
Benefit plan.
15
<PAGE>
VI. INVESTMENT OF CONTRIBUTIONS
A-6.02 Life Insurance: The Trustee may, at the direction of the Participant
and subject to the requirements of Section 6.02, use a portion of each
contribution to purchase life insurance.
[ ] (a) Yes, subject to the guidelines outlined below, if any.
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
[X] (b) No
A-6.03 Participants may direct the Trustee as to the investment of their
individual Account balances which are attributable to: (check all
which apply)
[ ] (a) Elective Deferrals
[ ] (b) Employer Matching Contributions
[ ] (c) Rollovers
[X] (d) All contributions regardless of source
[ ] (e) None of the above--Participants may not direct the
investment of their accounts
A-6.05 Participant Loans
[X} (a) shall be permitted in accordance with the Employer's written
loan policy.
[ ] (b) shall not be permitted.
VIII. BENEFITS
A-8.01 Normal Retirement Date: (select one)
[X] (a) The later of the first day of the month (select one)
[ ] nearest
[X] on or following
a Participant's 65th (cannot be less than 55) birthday
or the first day of the month on or following the 5th
(1st - 7th or N/A) anniversary in which (select one)
[ ] participation commenced
[X] the Employee first performed an Hour of Service
but in no event later than the first day of the month
on or following a Participant's N/A birthday.
16
<PAGE>
[ ] (b) The later of the first day of the Plan Year nearest a
Participant's _________________ (cannot be less than 55)
birthday, or the first day of the Plan Year nearest the
________________ (1st-7th or N/A) anniversary in which
(select one)
[ ] participation commenced
[ ] the Employee first performed an Hour of Service
but in no event later than the first day of the Plan Year
nearest a Participant's _____________________ birthday.
A-8.02 (a) Early Retirement Date: Shall mean: (select one)
[ ] (1) None--no Early Retirement Date.
[X] (2) First day of any [X] month [ ] Plan Year on or
following a Participant's 55th (cannot be less than 55)
birthday or after 57 (1-7 or N/A) [X] Vesting Years of
Service [ ] years of participation in the Plan,
whichever date is later.
(b) Early Retirement Benefit: Upon satisfaction of the age and
service requirements for Early Retirement, a Participant shall:
(select one)
[ ] (1) automatically become 100% vested in the Account.
[X] (2) be entitled to the vested Account based on the vesting
schedule designated in the Adoption Agreement.
A-8.04 Disability Retirement Benefit:
(a) In the event of total and permanent disability, a Participant
shall: (select one)
[ ] (1) automatically become 100% vested in the Account.
[ ] (2) be entitled to the vested Account based on the vesting
schedule designated in the Adoption Agreement.
(b) Disability shall mean a physical or mental impairment which is
expected to result in death or blindness or which can be expected
to last for a continuous period of not less than 12 months
resulting in: (select one)
[X] (1) an inability to engage in any substantial gainful
activity for which the Participant is reasonably suited
by reason of training, education and experience as
determined by the Plan Administrator. The Plan
Administrator may require that the Participant be
examined by physician(s) selected by the Plan
Administrator.
[ ] (2) the Participant being entitled to Social Security
Disability Benefits. In the event a Participant has
applied for Social Security Disability Benefits, the
disability benefits provided by this Plan shall
commence upon qualifying for Social Security Disability
Benefits.
17
<PAGE>
[ ] (3) an inability to perform the normal duties for the
Employer as determined by the Plan Administrator. The
Plan Administrator may require that the Participant be
examined by physician(s) selected by the Plan
Administrator.
A-8.09 Benefits shall be distributed:
[ ] (a) only in the form of a single lump-sum payment. (May not
elect if other forms were available immediately preceding
the adoption of this Plan.)
[X] (b) in accordance with the provisions of Section 8.08.
XI. TERMINATION OF SERVICE
A-11.02 The vesting schedule for benefits (derived from the Employer's
contributions pursuant to Article III) upon termination of employment
shall be determined according to the selection based on Vesting Years
of Service as credited in accordance with A-1.73: (select one)
[ ] (a) 100% vested at all times
[ ] (b) 100% vested after ______ (not to exceed 5) years of service.
[ ] (c) 20% vested after 2 years of service
40% vested after 3 years of service
60% vested after 4 years of service
80% vested after 5 years of service
100% vested after 6 years of service
[ ] (d) 20% vested after 3 years of service
40% vested after 4 years of service
60% vested after 5 years of service
80% vested after 6 years of service
100% vested after 7 years of service
[X] (e) Specify: (Must in all years be as favorable as the schedule
in (b) above, or as favorable as the schedule in (d) above.)
20 % vested after 1 years of service
---- ---
40 % vested after 2 years of service
---- ---
60 % vested after 3 years of service
---- ---
80 % vested after 4 years of service
---- ---
100 % vested after 5 years of service
---- ---
% vested after years of service
---- ---
% vested after years of service
---- ---
Note: If this is a restated plan and the vesting schedule has been
amended, enter the pre-amended schedule below:
[X] (f) 20 % vested after 3 years of service
---- ---
40 % vested after 4 years of service
---- ---
60 % vested after 5 years of service
---- ---
80 % vested after 6 years of service
---- ---
100 % vested after 7 years of service
---- ---
% vested after years of service
---- ---
% vested after years of service
---- ---
[ ] (g) Vesting schedule has not been amended.
18
<PAGE>
A-11.05 Distributions upon termination of Service shall be made as soon as
administratively feasible following:
[X] (a) Termination of employment.
[ ] (b) The end of the Plan Year following termination of
employment.
[ ] (c) The end of the Plan Year during which a One-Year Break in
Service occurs.
[ ] (d) Early or Normal Retirement Date, Death, or Disability.
Note: May not be more restrictive than the provision in effect
immediately preceding the adoption of this Plan.
A-11.09 Benefits which are no longer immediately distributable
[ ] (a) shall not be distributed without the consent of the
Participant and/or Beneficiary prior to the time required by
Article X.
[X] (b) shall, subject to the requirements of Article IX, be
distributed as soon as administratively feasible following
the date on which they cease to be immediately
distributable.
Note: An Account balance is immediately distributable if any
part of the Account balance could be distributed to the
Participant (or Surviving Spouse) before the Participant
attains (or would have attained if not deceased) the later
of Normal Retirement Age or age 62.
XV. TOP-HEAVY
Before completing this Section of the Adoption Agreement, the Employer should
carefully read Article XV of the Basic Plan Document paying particular attention
to Sections 15.03 thru 15.05.
A-15.02 Minimum Top-heavy Allocations: The purpose of this Section A-15.02 is
to coordinate Top-Heavy minimum contributions or benefits when two or
more plans of the Employer are involved. If the Employer maintains
only this plan, and has never maintained a Defined Benefit plan, the
Employer is required to complete only Section (d). If the Employer
maintains (or has maintained) a Defined Benefit plan, this Section
should be completed only with the advice of that plan's actuary. If
the Employer maintains two Defined Contribution plans, and has never
maintained a Defined Benefit plan, the Employer is required to
complete only Sections (c) or (d).
(a) If the Employer maintains a Defined Benefit plan, this Section or
--------- - ------- ------- ----
Section (d) below must be completed.
If a non-key Employee participates in both a Defined Benefit plan
and a Defined Contribution plan which are part of a Required
Aggregation Group or a Permissive Aggregation Group and the
Top-Heavy Ratio exceeds 60% (but does not exceed 90%), Top-Heavy
minimum benefits shall be provided as follows:
19
<PAGE>
[ ] (1) In the Defined Contribution Plan, with a minimum
allocation of:
[ ] (i) 5% of total compensation (Defined Benefit
and Defined Contribution Fractions
computed using 100% of the dollar
limitation)
[ ] (ii) 7.5% of total compensation (Defined Benefit
and Defined Contribution Fractions
computed using 125% of the dollar
limitation)
[ ] (2) In the Defined Benefit Plan, with a minimum annual
accrual of:
[ ] (i) 2% of the highest 5 consecutive year
average compensation (Defined Benefit
and Defined Contribution fractions
computed using 100% of the dollar
limitation)
[ ] (ii) 3% of the highest 5 consecutive year
average compensation (Defined Benefit
and Defined Contribution Fractions
computed using 125% of the dollar
limitation)
If the Top-Heavy Ratio exceeds 90%, the minimum benefit shall be
provided in:
[ ] (3) the Defined Contribution plan with a minimum allocation
of 5% of total compensation.
[ ] (4) the Defined Benefit plan with a minimum accrual of 2%
of the highest 5 consecutive year average compensation
Note: When the Top-Heavy Ratio exceeds 90%, the Defined
Benefit and Defined Contribution Fractions shall be
computed using 100% of the dollar limitation.
(b) If the Employer maintains (or has maintained) a Defined Benefit
--------- -- --- ---------- - ------- -------
plan, this Section or Section (d) below must be completed.
If the Employer maintains both a Defined Benefit plan and a
Defined Contribution plan which are part of a Required
Aggregation Group or a Permissive Aggregation Group and the
Top-Heavy Ratio exceeds 60% (but does not exceed 90%), a non-key
Employee who participates only in the Defined Contribution plan
shall receive a minimum allocation of:
[ ] (1) 3% of total compensation (Defined Benefit and Defined
Contribution Fractions computed using 100% of the
dollar limitation)
[ ] (2) 4% of total compensation (Defined Benefit and Defined
Contribution Fractions computed using 125% of the
dollar limitation)
If the Top-Heavy Ratio exceeds 90% each non-key Employee who
participates only in the Defined Contribution plan shall receive
20
<PAGE>
a minimum allocation of 3% of total compensation.
(c) If the Employer maintains two Defined Contribution plans, this
--------- --- ------- ------------
Section or Section (d) below must be completed.
If a non-key Employee participates in two Defined Contribution
plans maintained by the Employer, the Defined Contribution
minimum allocation requirement shall be met
[ ] (1) in this plan.
[ ] (2) in the other plan.
----------------------------------
(Name of Plan)
(d) Complete this Section only if (a), (b) and/or (c) have not been
-------- ---- ------- ---- -- --- --- ------ --- ---- --- ----
completed.
---------
[ ] (1) Specify how the plans shall provide Top-Heavy minimum
benefits for non-key Employees precluding Employer
discretion and avoiding inadvertent omissions.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
[X] (2) The Employer maintains only this Plan and has never
maintained a Defined Benefit Plan.
A-15.06 TOP HEAVY VESTING...If this Plan becomes a Top-Heavy Plan, the
following vesting schedule for such Plan Year and each succeeding Plan
Year, whether or not Top-Heavy, shall be effective and shall be
treated as a Plan amendment pursuant to this Agreement.
[ ] (a) 100% vested after (not to exceed 3) years of service.
-------
[ ] (b) 20% vested after 2 years of service
40% vested after 3 years of service
60% vested after 4 years of service
80% vested after 5 years of service
100% vested after 6 years of service
[ ] (c) Specify: (Must in all years be as favorable as the schedule
in (a) above, or as favorable as the schedule in (b) above.)
% vested after years of service
------ -----
% vested after years of service
------ -----
% vested after years of service
------ -----
% vested after years of service
------ -----
% vested after years of service
------ -----
% vested after years of service
------ -----
[X] (d) N/A, Vesting schedule in A-11.02 is equal to or more
favorable than (a) or (b) above.
However, this Section does not apply to the Account balances of any
Participant who does not have an Hour of Service after the Plan has
initially become Top-Heavy. Such Participant's Account balance
attributable to Employer contributions and forfeitures shall be
determined without regard to this section.
21
<PAGE>
The adopting Employer may not rely on an Opinion Letter issued by the National
Office of the Internal Revenue Service as evidence that the Plan is qualified
under Section 401 of the Internal Revenue Code. In order to obtain reliance
with respect to plan qualification, the Employer must apply to the appropriate
key district office for a Determination Letter.
This adoption agreement may not be used only in conjunction with basic plan
document #01.
Provided the adoption of this Plan is properly registered with the Prototype
Sponsor, the Prototype Sponsor shall inform the adopting Employer of any
amendments made to the Plan or of the discontinuance or abandonment of the
Plan. The adoption of the Plan is not properly registered unless the attached
registration form along with the applicable registration fee is returned to:
Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box #2248
Ft. Wayne, IN 46801-2248
Inquiries by adopting Employers regarding the adoption of this Plan, the
intended meaning of any Plan provisions, or the effect of the Opinion Letter may
be directed to the Prototype Sponsor at the above address or phone
(219) 455-4940.
22
<PAGE>
Use of this Plan Document without proper registration and payment of the
applicable registration fee constitutes an unauthorized use.
The Employer represents that it has consulted with its attorney with respect to
its adoption of this Plan, and agrees to the provisions of the Plan and Trust.
IN WITNESS HEREOF, the Employer has caused this Agreement to be signed by its
duly authorized Officer and the Trustee(s) have accepted the appointment and
signed this Agreement.
De Crane Aircraft Holdings, Inc. oka
---------------------------------
(Legal Name of Employer) DAH, Inc.
BY:
/s/ Robert A. Rankin
---------------------------------
(Signature of Officer)
3-29-96 Robert A. Rankin, CFO
- ----------------------------------- ---------------------------------
(Date) (Typed or Printed Name
and Title of Officer)
Accepted By:
- ----------------------------------- ---------------------------------
(Date) (Signature of Trustee) Robert A. Rankin
- ----------------------------------- ---------------------------------
(Date) (Signature of Trustee)
- ----------------------------------- ---------------------------------
(Date) (Signature of Trustee)
Participating Employer Authorized Signature Date
- ---------------------- -------------------- ----
Tri-Star Electronics, Int'l, Inc. /s/ Robert A. Rankin 3/29/96
- ------------------------------- ------------------------ ---------------
Cory Components /s/ Robert A. Rankin 3/29/96
- ------------------------------- ------------------------ ---------------
Hollingsead, Int'l. /s/ Robert A. Rankin 3/29/96
- ------------------------------- ------------------------ ---------------
- ------------------------------- ------------------------ ---------------
Failure to properly complete this Adoption Agreement may result in
disqualification of the Plan.
23
<PAGE>
REGISTRATION
OF
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NON-STANDARDIZED
401(k) SALARY REDUCTION PLAN AND TRUST PROTOTYPE PLAN
PLAN #007 IRS SERIAL #D359971a
Adopting Employer: De Crane Aircraft Holdings, Inc. oka DAH, Inc.
------------------------------------------------------------
Address: 2201 Rosecrans Avenue
------------------------------------------------------------
El Sequndo, CA 90245
------------------------------------------------------------
------------------------------------------------------------
Telephone: (310) 536-0444 FAX (310) 536-9322
---------------------
List all investment contract and plan numbers assigned by Lincoln, if any:
GSA #52212 PL-45374
- --------------------------------------------------------------------------------
The Adopting Employer agrees to provide Lincoln with any changes to its current
mailing address and to give Lincoln written notification of any plan amendment
(as outlined in Section 12.02 of the Defined Contribution Prototype Plan Basic
Plan #01), restatement or termination.
In consideration of the above, and of the registration fee of $150, Lincoln
agrees to:
*provide the Adopting Employer with a copy of the current Defined
Contribution Prototype Plan Basic Plan #01 and Adoption Agreement; and
*advise the Adopting Employer of any amendments made to the Prototype
Plan; and
*inform the Adopting Employer of any changes in the Prototype Plan's
qualified status; and
*inform the Adopting Employer of any discontinuance or abandonment of
the Prototype Plan.
This registration does not effect the rights and obligations of Lincoln or the
Adopting Employer under any other arrangement, including (but not limited to)
Lincoln's right to charge an additional fee for providing an updated Prototype
Plan and/or Adoption Agreement.
Continued reliance by the Adopting Employer upon the Prototype Plan's favorable
Opinion Letter from the IRS is dependant upon the Adopting Employer adopting the
current version of the Prototype Plan.
Please sign and return this registration form, together with the registration
fee, to:
Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 2248
Fort Wayne, IN 46801-2248
Attention: Kathy Spillson
/s/ Robert A. Rankin CFO 3/29/96
- --------------------------------------------------------------------------------
(Signature of Adopting Employer) (Title) (Date)
Robert A. Rankin CFO
24
<PAGE>
LOAN POLICY
Plan # PS-45374 Plan Name DAH Retirement Plan
------------ --------------------------------------------------
1) Name of fiduciary responsible for the loan program
------------------------
(Specific person or position responsible for overseeing program)
2) Loan application procedures:
(*) Participation must fill out appropriate loan application (Lincoln
National form #223598) including required spousal consent.
(*) Participant must sign promissory note (SAMPLE attached).
(*) Trustee or fiduciary must sign application, assign reasonable rate and
keep promissory note on file.
(*) Application must be submitted to Lincoln National for processing.
Loans will be funded first from the source of money containing the
largest dollar balance in the participant's account.
3) Basis for approval or denial of loans:
(*) Loans will be approved if all policy specifications are met and
requested loan amount is available.
(*) Loans will be denied if any policy specifications are not met. It
is the Trustee's responsibility to notify the participant if a loan
is denied.
4) Limitations on types and amounts of loans:
a. Loans will be granted for the following reasons:
Financial Hardship
-----
Purchase of a Primary Residence
-----
Other (please specify):
----- -------------------------------------
------------------------------------------------------------
b. Loan amounts will be limited as follows:
(*) 1,000 minimum loan amount.
50% Maximum loan amount is 50% of vested account balance unless
--- otherwise specified below. Please note: if over 50%, it is
the responsibility of the fiduciary named in #1 above to
obtain collateral, process foreclosures (as necessary), and
make the participant aware of possible immediate taxation
penalties.
-------------------------------------------------
------------------------------------------------------------
c. Other loan provisions:
(*) Participant may have one loan outstanding at any time.
Exception: a second loan may be granted provided one of the
loans is a home mortgage.
(*) A period of one month from the date the original loan is
repaid in full is required before applying for a subsequent
loan.
(*) Loans may not be renegotiated (e.g. loan amount, interest
rate or repayment period).
(*) Length of loan may not exceed 5 years (except for purchase
of primary residence).
Page 5
<PAGE>
(*) Loans for active participants must be repaid through payroll
deduction at least monthly.
(*) Loans for participants on leave of absence must be repaid by
personal check at least monthly.
(*) Loans for terminated participants or beneficiaries with
deferred vested balances must be paid by personal check at
least monthly.
Other (i.e. administrative fees, higher rates, credit
--- reports, etc.):
---------------------------------------------
5) Procedure for determining a reasonable rate of interest:
(*) Rate must be commensurate with interest rates currently charges at
commercial institutions for similar loans at that time.
--- Rate of interest charged will take into effect "appropriate regional
factors" and reflect rates of local or regional commercial
institutions (i.e. banks, credit unions, savings & loan associations,
etc.).
--- Other (list any specific formulas for determining reasonable rate):
----------------------------------------------------------------------
----------------------------------------------------------------------
6) Types of collateral acceptable for a loan:
(*) Up to 50% of the participant's vested account balance.
Other (please specify type of collateral acceptable and required
---
paperwork, i.e. home mortgages, certificates of deposit, etc.).
Fiduciaries are responsible for obtaining and holding all collateral
other than vested account balances.
-----------------------------------
----------------------------------------------------------------------
7) Events constituting default of a loan and procedures which will be taken to
preserve plan assets in the event of default:
(*) For loans collateralized by vested account balances: if three (3)
months transpire and a loan payment remains due and unpaid, the loan
is in default and a taxable event occurs. The outstanding loan
balance will be reported as income on Form 1099R to the participant
and the IRS. No interest will be accrued following the default. The
defaulted loan remains an obligation of the participant and still
needs to be repaid.
(*) If a participant has a defaulted loan, another loan will not be
granted.
For loans collateralized by other means of collateral: if three (3)
---
months transpire and a loan payment remains due and unpaid, the loan
is in default and the trustee will (please specify steps to be taken):
----------------------------------------------------------------------
----------------------------------------------------------------------
Other (please specify):
--- -----------------------------------------------
----------------------------------------------------------------------
Page 6
<PAGE>
Please note, if you are using the Defined Contribution Prototype Plan Document
sponsored by the Lincoln National Life Insurance Company, a 5% or more owner-
employee of an S corporation, a sole proprietor, a more than 10% owner of a
partnership, and a 10% or more stockholder owner in a corporation, unless the
stockholder is also a plan participant, (and their spouses and certain other
relatives) are ineligible to receive loans from this qualified plan.
The above policy is designed to meet DOL requirements as specified under Section
2550.408b-1, as modified by DOL Advisory Opinion 89-30A, regarding written loan
policies. Any changes in this policy must be submitted in writing prior to
being considered for the approval of a loan.
Effective Date: (first day of the current Plan Year
-------------------------
unless otherwise specified)
Date 3/29/96 Trustee(s) signature(s) /s/ Robert A. Rankin
-------------- -----------------------------------
-----------------------------------
Page 7
<PAGE>
AGREEMENT #1 AMENDING
DAH Retirement Plan
401(k) Salary Reduction Plan and Trust
THIS AGREEMENT, made and entered into this 25th day of September, 1996, by and
---- ----------
between DeCrane Aircraft Holdings, Inc. oka DAH, Inc. organized under the laws
of California with principal offices at El Segundo, California (hereinafter
called the "Employer" or the "Company") and Robert A. Rankin (hereinafter
referred to as the Trustee);
W I T N E S S E T H:
- - - - - - - - - -
That at a meeting of the Board of Directors of the Company held on the 25th
day of September, 1996, certain amendments to the 401(k) Salary Reduction
Prototype Plan were authorized and directed;
Now, therefore, it is agreed by and between the parties hereto that the
aforementioned 401(k) Salary Reduction Plan and Trust Agreement be and it is
hereby amended effective September 19, 1996 as follows:
Section A-1.64 shall be amended to read as follows:
"Years of Service with a predecessor employer: Years of Service with
any Company acquired by DeCrane Aircraft Holdings, Inc. through
acquisition, for whom this Employer does not maintain a predecessor
plan shall be considered under the Plan for purposes of vesting and
eligibility."
Section A-2.01(e) shall be amended to read as follows:
"Entry Date: Shall mean: The first day of the Plan Year and the dates
which are 3, 6 and 9 months after the Plan Year."
IN WITNESS WHEREOF, the employer has caused this agreement to be signed by its
duly authorized officer and the Trustees have also signed this amendment.
DeCrane Aircraft Holdings, Inc. oka DAH, Inc.
---------------------------------------------
Name of Employer
BY: /s/ Robert Rankin
--------------------------------------
Signature of Officer
9-25-96
- -------- --------------------------------------
Date Typed or Printed Name and
Title of Officer
Accepted By:
9-25-96 /s/ Robert Rankin
- ------- ----------------------------------------
Date Signature of Trustee
Participating Employer Authorized Signature Date
- ----------------------- --------------------- -----
Tri-Star Electronics
- --------------------
International, Inc. /s/ Robert Rankin 9-25-96
- -------------------- --------------------- -------
Cory Components /s/ Robert Rankin 9-25-96
- -------------------- --------------------- --------
Hollingsead International /s/ Robert Rankin 9-25-96
- -------------------------- ----------------------- --------
<PAGE>
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT (this "AGREEMENT") dated as of December 8, 1998,
by and among DeCrane Holdings Co., a Delaware corporation (the "COMPANY") and
[ ] (the "INVESTOR").
WHEREAS, the Investor desires to subscribe for, and the Company desires
to issue to the Investor, the number of shares of common stock, par value
$0.01 per share (the "COMMON STOCK"), and the number of shares of preferred
stock, par value $0.01 per share (the "PREFFERED STOCK"), of the Company set
forth on Exhibit A hereto (such shares of Common Stock and Preferred Stock to
be subscribed for by the Investor and issued to the Investor by the Company,
the "SHARES").
NOW, THEREFORE, IT IS AGREED:
ARTICLE I
ISSUANCE OF SHARES; CONSIDERATION
Section 1.01. ISSUANCE OF SHARES. Upon the terms set forth in this
Agreement, the Company hereby agrees to issue to the Investor, and the
Investor hereby subscribes for, the Shares.
Section 1.02. SUBSCRIPTION. In consideration for the issuance by the
Company of the Shares, the Investor shall:
(a) pay to the Company, by wire transfer of immediately
available funds to an account specified by the Company, an amount equal
to 50% of the aggregate subscription price set forth on Exhibit A
hereto; and
(b) execute and deliver to the Company a Promissory Note and
Pledge Agreement (the "PROMISSORY NOTE AND PLEDGE") in the form of
Exhibit C hereto in a principal amount equal to 50% of the aggregate
subscription price set forth on Exhibit A hereto.
Section 1.03. INVESTORS' AGREEMENT. As a condition to the issuance of
the Shares, the Investor shall execute and deliver to the Company an
agreement in the form of Exhibit B hereto, pursuant to which the Investor
agrees to be bound by the terms of the Amended and Restated Investors'
Agreement, dated as of October 2, 1998, by and among the Company and the
stockholders of the Company named therein (the "DLJ ENTITIES").
<PAGE>
ARTICLE II
REPRESENTATIONS OF THE COMPANY
Section 2.01. CORPORATE EXISTENCE AND POWER. The Company is a
corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware. The company has all corporate power to own
its properties and to carry on its business as now conducted.
Section 2.02. AUTHORITY AND APPROVAL. The execution and delivery of this
Agreement are within the corporate powers of the Company and have been duly
authorized by all necessary corporate action on the part of the Company. This
Agreement constitutes a legal, valued and binding agreement of the Company,
enforceable against it in accordance with its terms, except to the extent that
its enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
Section 2.03. SHARES. When issued to the Investor in accordance with the
terms hereof, the Shares will be duly authorized, validly issued, fully paid
and non-assessable.
Section 2.04. CAPITALIZATION. As of November 9, 1998, the authorized
capital stock of the Company consisted of (i) 3,500,00 shares of Common Stock,
of which 2,826,087 shares were issued and outstanding as of such date, and
(ii) 2,500,000 shares of Preferred Stock, of which 340,000 shares were issued
and outstanding as of such date. Except for (i) the Preferred Stock, and (ii)
warrants to purchase an aggregate of 155,000 shares of Common Stock issued to
the DLJ Entities on October 2, 1998 and warrants to purchase an aggregate of
155,000 shares of Common Stock issued in connection with the Company's 12%
Senior Subordinated Notes due 2008 on October 5, 1998, as of November 9, 1998
there were no outstanding securities convertible into or exchangeable for the
capital stock of the Company and no outstanding options, rights or warrants
to purchase or subscribe for any shares of the capital stock of the Company.
2
<PAGE>
ARTICLE III
REPRESENTATIONS OF THE INVESTOR
Section 3.01. AUTHORIZATION. The Investor has full power and authority
to enter into this Agreement and the Promissory Note and Pledge and to
perform his obligations hereunder and thereunder.
Section 3.02. ENFORCEABILITY. Each of this Agreement and the Promissory
Note and Pledge has been duly executed and delivered by the Investor and
constitutes a legal, valid and binding obligation of the Investor,
enforceable against the Investor in accordance with its terms, except to the
extent that its enforceability may be subject to applicable bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles.
Section 3.03. PRIVATE PLACEMENT. (a) The Investor understands that the
offering and sale of the Shares to the Investor as contemplated hereby is
intended to be exempt from registration under the Securities Act of 1933, as
amended (the "1933 ACT") pursuant to Regulation D and Section 4(2) thereunder.
(b) The Shares to be acquired by the Investor pursuant to this
Agreement are being acquired for his own account for investment and
without a view to the public distribution of the shares or any interest
therein. The Investor understands that the Shares may not be transferred
or sold unless registered under the 1933 Act or an exemption from such
registration becomes available.
(c) The Investor has sufficient knowledge and experience in
financial and business matters so as to be capable of evaluating the
merits and risks of his investment in the Shares and the Investor is
capable of bearing the economic risks of such investment, including a
complete loss of his investment in the Shares.
(d) The Investor has been given the opportunity to ask questions
of and receive answers from the Company concerning the Company, the
Shares and other related matters. The Investor further represents and
warrants to the Company that he has been furnished with all information
he deems necessary or desirable to evaluate the merits and risks of the
acquisition of the Shares and that the Company has made available to the
Investor or his agents all documents and information relating to an
investment in the Shares requested by or on behalf of the Investor. In
evaluating the suitability of an investment in the Shares, the Investor
has not relied upon any other representations or other information
(other than
3
<PAGE>
as contemplated by the preceding sentences) whether oral or written made
by or on behalf of the Company.
(e) The Investor is an "Accredited Investor" as such term is
defined in Regulation D under the 1933 Act.
ARTICLE IV
MISCELLANEOUS
Section 4.01. NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmission to
the recipient's then current facsimile number) and shall be given,
if to the Investor, to:
[ ]
c/o Global Technology Partners, LLC
1300 I Street, N.W.
Suite 220 East
Washington, D.C. 20005
Fax: (202) 289-3222
if to the Company, to:
DeCrane Holdings Co.
2361 Rosecrans Avenue
Suite 180
El Segundo, Ca 90245
Attn: R. Jack DeCrane
Fax: (310) 643-0746
Section 4.02. AMENDMENTS AND WAIVERS. Any provision of this Agreement
may be amended modified, supplemented or waived if, but only if, such
amendment or waiver is in writing and is signed, in the case of an amendment,
by each party to this Agreement, or in the case of a waiver, by the party
against whom the waiver is to be effective.
Section 4.03. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns; PROVIDED that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of each other party hereto.
4
<PAGE>
Section 4.05. COUNTERPARTS; THIRD PARTY BENEFICIARIES. This Agreement
may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement shall become effective when each
party hereto shall have received a counterpart hereof signed by the other
party hereto. No provision of this Agreement is intended to confer upon any
person other than the parties hereto any rights or remedies hereunder.
Section 4.06. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of this
AGreement and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement.
Section 4.04. CAPTIONS. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof.
Section 4.08. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with laws of the State of New York.
IN WITNESS WHEREOF, the Investor has executed this Agreement and the
Company has caused its corporate name to be hereunto subscribed by its
officers thereunto duly authorized, all as of the day and year first above
written.
DECRANE HOLDINGS. CO.
By:
--------------------------------
Name:
Title:
INVESTOR
By:
-------------------------------
Name:
5
<PAGE>
DECRANE FINANCE CO.
CREDIT AGREEMENT
This CREDIT AGREEMENT is dated as of August 28, 1998, and entered into by
and among DECRANE FINANCE CO., a Delaware corporation ("FINANCE CO."), THE
LENDERS LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred to
herein as a "LENDER" and collectively as "LENDERS"), DLJ CAPITAL FUNDING, INC.
("DLJ"), as syndication agent hereunder for Lenders (in such capacity,
"SYNDICATION AGENT"), and THE FIRST NATIONAL BANK OF CHICAGO, as administrative
agent for Lenders (in such capacity, "ADMINISTRATIVE AGENT").
R E C I T A L S
WHEREAS, DLJMB has formed Parent, Finance Co. and Acquisition Co. for the
purpose of tendering in the Tender Offer for the purchase of all the outstanding
DAH Common Stock and to acquire any DAH Common Stock not so purchased in the
Tender Offer in the Merger (capitalized terms used herein without definition
shall have the meanings set forth therefor in subsection 1.1 of this Agreement);
WHEREAS, as soon after the consummation of the Tender Offer as practical,
Acquisition Co. and DAH will consummate the Merger and as soon thereafter as
practical Finance Co. and DAH will consummate the Second Merger, all with the
effect that DLJMB and management of DAH and its Subsidiaries will indirectly own
all of the outstanding capital stock of DAH;
WHEREAS, Lenders have agreed to extend certain credit facilities to
Company to be used for the purposes of providing funds for (x) the Acquisition
Financing Requirements, (y) working capital and/or other general purposes of
Company and its Subsidiaries and (z) financing Permitted Acquisitions;
WHEREAS, Parent and Acquisition Co. have agreed to guarantee the
Obligations hereunder and under the other Loan Documents and Parent has agreed
to secure its guaranty by granting to Administrative Agent on behalf of Lenders,
a first priority Lien on all of the capital stock of Company;
WHEREAS, upon consummation of the Merger and the Second Merger, Company
will secure all of the Obligations hereunder and under the other Loan Documents
by granting to Administrative Agent, on behalf of Lenders, a first priority Lien
on substantially all of its personal property and its real property, including a
pledge of all of the capital stock of its Domestic Subsidiaries and a pledge of
65% of the capital stock of its Foreign Subsidiaries that are owned by Company
or a Domestic Subsidiary;
WHEREAS, upon consummation of the Merger and the Second Merger, each of
Company's Domestic Subsidiaries will guarantee the Obligations hereunder and
under the other Loan Documents and secure its guaranty by granting to
Administrative Agent on behalf of Lenders, a first priority Lien on
substantially all of its personal property and real property,
1
<PAGE>
including a pledge of all of the capital stock of each of its Domestic
Subsidiaries and 65% of the capital stock of each of its direct Foreign
Subsidiaries;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Company, Lenders, Syndication Agent
and Administrative Agent agree as follows:
SECTION 1. DEFINITIONS
1.1 DEFINED TERMS.
The following terms used in this Agreement shall have the following meanings:
"ACQUIRED CONTROLLED PERSON" means any Person (i) in which Company or
any of its Subsidiaries has made an Investment permitted under subsection
7.3(viii) and (ii) as to which Company or such Subsidiary exercises control.
For purposes hereof, "control" means the power to appoint a majority of the
board of directors (or other equivalent governing body) of such Person or to
otherwise direct or cause the direction of the management or policies of such
Person, whether by contractual arrangement or otherwise.
"ACQUISITION CO." means DeCrane Acquisition Co., a Delaware corporation.
"ACQUISITION CO. GUARANTY" means the Acquisition Co. Guaranty executed
and delivered by Acquisition Co. on the Closing Date, substantially in the
form of EXHIBIT XVII hereto, as such Acquisition Co. Guaranty may be amended,
supplemented or otherwise modified from time to time.
"ACQUISITION FINANCING REQUIREMENTS" means the aggregate of all amounts
necessary (i) to finance the purchase price of the DAH Common Stock in the
Tender Offer and the Merger, (ii) to repay in full the Existing DAH Debt and
(iii) to pay Transaction Costs.
"ACQUISITION LENDER" means a Lender having an Acquisition Loan
Commitment.
"ACQUISITION LOANS" means the Loans made by Acquisition Lenders to
Company pursuant to subsection 2.1A(v).
"ACQUISITION LOAN COMMITMENT" means the commitment of an Acquisition
Lender to make Acquisition Loans to Company pursuant to subsection 2.1A(v),
and "ACQUISITION LOAN COMMITMENTS" means such commitments of all Lenders in
the aggregate.
"ACQUISITION LOAN COMMITMENT TERMINATION DATE" means September 30, 2004.
"ACQUISITION LOAN EXPOSURE" means, with respect to any Acquisition Lender
as of any date of determination (i) prior to the termination of the Acquisition
Loan Commitments, that Acquisition Lender's Acquisition Loan Commitment and
(ii) after the termination of the Acquisition Loan Commitments, the aggregate
outstanding principal amount of the Acquisition Loans of that Acquisition
Lender.
2
<PAGE>
"ACQUISITION NOTES" means (i) the promissory notes of Company issued
pursuant to subsection 2.1D(v) on the Closing Date and (ii) any promissory
notes issued by Company pursuant to the last sentence of subsection 10.1B(i)
in connection with assignments of the Acquisition Loan Commitments and
Acquisition Loans of any Acquisition Lenders, in each case substantially in
the form of EXHIBIT VIII annexed hereto, as they may be amended, supplemented
or otherwise modified from time to time.
"ADJUSTED EURODOLLAR RATE" means, with respect to a Eurodollar Rate
Loan for the relevant Interest Period, the sum of (i) the quotient of (a) the
Eurodollar Base Rate applicable to such Interest Period, divided by (b) one
minus the Reserve Requirement (expressed as a decimal) applicable to such
Interest Period. The Eurodollar Rate shall be rounded to the next higher
multiple of 1/100 of 1% if the rate is not such a multiple.
"ADMINISTRATIVE AGENT" has the meaning assigned to that term in the
introduction to this Agreement and also means and includes any successor
Administrative Agent appointed pursuant to subsection 9.3A.
"AFFECTED LENDER" has the meaning assigned to that term in subsection
2.6C.
"AFFILIATE", as applied to any Person, means any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under
common control with"), as applied to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through the ownership of
voting securities or by contract or otherwise.
"AFFILIATED FUND" means, with respect to any Lender that is a fund
that invests in commercial loans, any other fund that invests in commercial
loans and is managed by the same investment advisor as such Lender or by an
Affiliate of such investment advisor.
"AGENTS" means, collectively, the Syndication Agent and the
Administrative Agent.
"AGREEMENT" means this Credit Agreement dated as of August 28, 1998,
as it may be amended, supplemented or otherwise modified from time to time.
"ANNUALIZED" means (i) with respect to the Fiscal Quarter of Company
ending December 31, 1998, the applicable amount for such Fiscal Quarter
multiplied by four, (ii) with respect to the Fiscal Quarter of Company ending
March 31, 1999, the applicable amount for such Fiscal Quarter and the
immediately preceding Fiscal Quarter multiplied by two, and (iii) with
respect to the Fiscal Quarter of Company ending June 30, 1999, the applicable
amount for such Fiscal Quarter and the immediately preceding two Fiscal
Quarters multiplied by one and one-third.
"ARRANGER" means Donaldson, Lufkin & Jenrette Securities Corporation,
as arranger of the credit facilities described herein.
"ASSET SALE" means the sale, lease, assignment or other transfer
(whether voluntary or involuntary) for value (collectively, a "transfer") by
Company or any of its Subsidiaries to any Person other than Company or any of
its Wholly-Owned Subsidiaries of (i) any of the equity
3
<PAGE>
ownership of any of Company's Subsidiaries, (ii) substantially all of the
assets of any division or line of business of Company or any of its
Subsidiaries, or (iii) any other assets (whether tangible or intangible) of
Company or any of its Subsidiaries (other than (a) inventory and obsolete or
worn out equipment sold in the ordinary course of business, (b) Cash
Equivalents, and (c) any such other assets to the extent that the aggregate
value of such assets transferred in any single transaction or related series
of transactions is equal to $250,000 or less).
"ASSIGNMENT AGREEMENT" means an Assignment Agreement in substantially
the form of EXHIBIT XII annexed hereto.
"ASSUMED INDEBTEDNESS" means Indebtedness of a Person which (i) is in
existence at the time such Person becomes a Subsidiary of Company, or (ii) is
assumed in connection with an Investment in or acquisition of such Person,
and has not been incurred or created by such Person in connection with, or in
anticipation or contemplation of, such Person becoming a Subsidiary of
Company.
"AUTHORIZED OFFICER" means, relative to any Loan Party, its chief
executive officer, president, treasurer, chief financial officer or chief
accounting officer and any of its other officers whose signatures and
incumbency shall have been certified to Administrative Agent and the Lenders
pursuant to Sections 4.1A(iv) and 4.2A(iv).
"AVTECH" means Avtech corporation, a Washington corporation, and its
successors.
"BANKRUPTCY CODE" means Title 11 of the United States Code entitled
"Bankruptcy", as now and hereafter in effect, or any successor statute.
"BASE RATE" means, for any day, a rate of interest per annum equal to
the higher of (i) the Corporate Base Rate for such day and (ii) the sum of
the Federal Funds Effective Rate for such day plus 1/2% per annum.
"BASE RATE LOANS" means Loans bearing interest at rates determined by
reference to the Base Rate as provided in subsection 2.2A.
"BUSINESS DAY" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Base Rate, a day (other than a Saturday or Sunday) on
which banks generally are open in Chicago, New York and Los Angeles for the
conduct of substantially all of their commercial lending activities and on which
dealings in United States dollars are carried on in the London interbank market
and (ii) for all other purposes, a day (other than a Saturday or Sunday) on
which banks generally are open in Chicago and Los Angeles for the conduct of
substantially all of their commercial lending activities.
"CAPITAL LEASE", as applied to any Person, means any lease of any
property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is accounted for as a capital lease on the balance
sheet of that Person and the stated maturity thereof shall be the date of the
last 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.
4
<PAGE>
"CASH" means money, currency or a credit balance in a Deposit Account.
"CASH EQUIVALENTS" means, as at any date of determination, (i)
marketable securities (a) issued or directly and unconditionally guaranteed
as to interest and principal by the United States Government or (b) issued by
any agency of the United States the obligations of which are backed by the
full faith and credit of the United States, in each case maturing within one
year after such date; (ii) marketable direct obligations issued by any state
of the United States of America or any political subdivision of any such
state or any public instrumentality thereof, in each case maturing within one
year after such date and having, at the time of the acquisition thereof, the
highest rating obtainable from either Standard & Poor's Ratings Group ("S&P")
or Moody's Investors Service, Inc. ("MOODY'S"); (iii) commercial paper
maturing no more than 270 days from the date of creation thereof and having,
at the time of the acquisition thereof, a rating of at least A-1 from S&P or
at least P-1 from Moody's; (iv) certificates of deposit or bankers'
acceptances maturing within one year after such date and issued or accepted
by any Lender or by any commercial bank (including a U.S. branch of a foreign
bank) that is a member of the Federal Reserve and has a combined capital and
surplus and undivided profits of at least $500,000,000); (v) repurchase
agreements which (a) are entered into with any entity referred to in clauses
(iii) or (iv) above or any other financial institution whose unsecured
long-term debt (or the unsecured long-term debt of whose holding company) is
rated at least A- or better by S&P or A3 or better by Moody's and maturing
not more than one year after such time; and (b) are secured by a fully
perfected security interest in securities of a type referred to in clauses
(i) or (ii) above and which have a market value at the time such repurchase
agreement is entered into of not less than 100% of the repurchase obligation
of such counterparty entity with whom such repurchase agreement has been
entered into; (vi) short-term tax exempt securities that are rated not lower
than MIG-1/1+ or either Moody's or S&P with provisions for liquidity or
maturity accommodations of 183 days or less; (vii) shares of any money
market mutual fund that (a) has at least 95% of its assets invested
continuously in the types of investments referred to in clauses (i) through
(vi) and as to which withdrawals are permitted at least every 90 days and
(viii) in the case of any Subsidiary of the Company organized or having its
principal place of business outside the United States, investments
denominated in the currency of the jurisdiction in which such Subsidiary is
organized or has its principal place of business which are similar to the
items specified in clauses (i) through (vii) above.
"CERTIFICATE RE NON-BANK STATUS" means a certificate substantially in
the form of EXHIBIT XIII annexed hereto delivered by a Lender to
Administrative Agent pursuant to subsection 2.7B(iv).
"CHANGE IN CONTROL" means (i) the failure of Parent at any time to
own, directly or indirectly, free and clear of all Liens and encumbrances
(other than Liens created under the Loan Documents and Liens described in
clauses (i) and (iv) of the definition of "Permitted Encumbrances"), all
right, title and interest in 100% of the capital stock of the Company; (ii)
the failure of the DLJMB and the Affiliates of any entity included in the
definition of "DLJMB" to own at least 51% (on a fully diluted basis) of the
economic and voting interest in the voting stock of Parent; (iii) the failure
of DLJMB and the Affiliates of any entity included in the definition of
"DLJMB" at any time to have the right to designate or nominate at least 51%
of the Board of Directors of Parent; or (iv) the occurrence of a "Change of
Control" as defined under any
5
<PAGE>
agreement governing any Subordinated Indebtedness issued by Company or the
PIK Preferred Stock or PIK Notes issued by Parent.
"CLOSING DATE" means the date on or before October 31, 1998 on which
the Tranche B Term Loans are made.
"CO" means the United States Copyright Office or any successor or
substitute office in which filings are necessary or, in the opinion of
Administrative Agent, desirable in order to create or perfect Liens on any IP
Collateral.
"COLLATERAL" means, collectively, all of the real, personal and mixed
property (including capital stock) in which Liens are purported to be granted
pursuant to the Collateral Documents as security for the Obligations.
"COLLATERAL ACCOUNT" has the meaning assigned to that term in the
Collateral Account Agreement.
"COLLATERAL ACCOUNT AGREEMENT" means the Collateral Account Agreement
executed and delivered by Company and Administrative Agent on the Closing Date,
substantially in the form of EXHIBIT XXIII annexed hereto, as such Collateral
Account Agreement may hereafter be amended, supplemented or otherwise modified
from time to time.
"COLLATERAL DOCUMENTS" means (i) prior to the consummation of the Merger
and the Second Merger, the Parent Pledge Agreement, the Finance Co. Pledge
Agreement, the Collateral Account Agreement and the Investment Account Agreement
and (ii) from and after the consummation of the Merger and the Second Merger,
the Parent Pledge Agreement, the Security Agreement, the DAH Pledge Agreement,
the Subsidiary Pledge Agreements and the Mortgages, and all other instruments or
documents delivered by any Loan Party pursuant to this Agreement or any of the
other Loan Documents in order to grant to Administrative Agent, on behalf of
Lenders, a Lien on any real, personal or mixed property of that Loan Party as
security for the Obligations.
"COMMITMENTS" means the commitments of Lenders to make Loans as set forth
in subsection 2.1A.
"COMPANY" means (i) until the consummation of the Second Merger, Finance
Co. and (ii) upon and after the consummation of the Second Merger, DAH.
"COMPANY EXCESS CASH FLOW AMOUNT" means, at any date, the portion of
Consolidated Excess Cash Flow for each Fiscal Year ending prior to such date
(commencing with the Fiscal Year Ending December 31, 1999) not required to be
applied to prepay the Loans in accordance with subsection 2.4B(iii)(d).
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form of
EXHIBIT IX annexed hereto delivered to Agents and Lenders by Company pursuant to
subsection 6.1(iii).
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the sum of the
aggregate of all expenditures (whether paid in cash or other consideration or
accrued as a liability and
6
<PAGE>
including that portion of Capital Leases which is capitalized on the
consolidated balance sheet of Company and its Subsidiaries) by Company and
its Subsidiaries during that period that, in conformity with GAAP, are
included in "additions to property, plant or equipment" or comparable items
reflected in the consolidated statement of cash flows of Company and its
Subsidiaries; PROVIDED that Consolidated Capital Expenditures shall not
include any such expenditures (x) made from the proceeds of (i) Net
Insurance/Condemnation Proceeds as permitted under Section 7.7(ix) or (ii)
proceeds from Assets Sales permitted pursuant to Section 7.7(xi) or (iii)
proceeds from assets dispositions permitted by subsection 7.7(iii) , or
dispositions of assets excluded from the definition of Asset Sales pursuant
to clause (c) of the definition of "Asset Sale" or (y) that constitute an
Investment made under subsection 7.3 (other than subsection 7.3(vii)).
"CONSOLIDATED CURRENT ASSETS" means, as at any date of determination, the
total assets of Company and its Subsidiaries on a consolidated basis which may
properly be classified as current assets in conformity with GAAP, excluding Cash
and Cash Equivalents.
"CONSOLIDATED CURRENT LIABILITIES" means, as at any date of
determination, the total liabilities of Company and its Subsidiaries on a
consolidated basis which may properly be classified as current liabilities in
conformity with GAAP, excluding the current portion of any Indebtedness that by
its terms or by the terms of any instrument or agreement relating thereto
matures more than one year from, or is renewable or extendable at the option of
Company or a Subsidiary from, the date of creation thereof.
"CONSOLIDATED EBITDA" means, for any period, subject to subsections
1.2(b) and 1.2(c), the sum (without duplication) of the amounts for such
period of (i) Consolidated Net Income, (ii) any amount deducted on account of
minority interests in determining Consolidated Net Income, (iii) Consolidated
Interest Expense, (iv) any non-capitalized transaction costs incurred in
connection with actual or proposed financings, acquisitions or divestitures
(including, but not limited to, financing and refinancing fees and costs
incurred in connection with the Transaction), (v) all amounts deducted on
account of income taxes in determining Consolidated Net Income, (vi) total
depreciation expense, (vii) total amortization expense, (viii) the amount
deducted in determining Consolidated Net Income representing any net loss (or
less any net gain) realized in connection with any sale, lease, conveyance or
other disposition of any asset (other than in the ordinary course of business
and other than from Company or any of its Subsidiaries to Company or any of
its Subsidiaries), (ix) the amount deducted in determining Consolidated Net
Income representing any extraordinary or non-recurring loss, (x) foreign
currency translation and transaction losses (or minus foreign currency
translation and transaction gains) and (xi) any other non-cash items reducing
Consolidated Net Income LESS (a) other items increasing Consolidated Net
Income constituting extraordinary gains and (b) Restricted Junior Payments of
the type referred to in clause (iii)(x) of Subsection 7.5 made during such
period, all of the foregoing as determined on a consolidated basis for
Company and its Subsidiaries in conformity with GAAP.
"CONSOLIDATED EXCESS CASH FLOW" means, for any period, an amount (if
positive) equal to (i) the sum, without duplication, of the amounts for such
period of (a) Consolidated EBITDA and (b) the Consolidated Working Capital
Adjustment MINUS (ii) the sum, without duplication, of the amounts for such
period of (a) mandatory and scheduled repayments of the Loans and scheduled,
mandatory and optional repayments of other Consolidated Total Debt (excluding
7
<PAGE>
repayments of Working Capital Loans and Acquisition Loans except to the
extent the Working Capital Loan Commitments or the Acquisition Loan
Commitments, as the case may be, are permanently reduced in connection with
such repayments) in each case to the extent actually made during such period,
(b) Consolidated Capital Expenditures paid in cash (without duplication, net
of any proceeds of any related financings with respect to such expenditures),
(c) Consolidated Interest Expense paid in cash, (d) the amount of taxes based
on income of Company and its Subsidiaries paid or payable in cash during such
period, (e) the amount paid for Permitted Acquisitions permitted and actually
made under subsection 7.7(viii) and Investments permitted and actually made
under subsection 7.3(xiii) but only to extent paid in cash from Company's or
its Subsidiaries cash balances; (f) any payments with respect to Earn-Outs
actually paid during such period, (g) gains on any sale, lease, conveyance,
or other disposition of any asset (other than in the ordinary course of
business), and (h) any distributions with respect to minority interests made
during such period.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, at the end of any
Fiscal Quarter, subject to subsections 1.2(b) and 1.2(c), the ratio computed
for the period consisting of such Fiscal Quarter and each of the three
immediately preceding Fiscal Quarters of Consolidated EBITDA to Consolidated
Fixed Charges; PROVIDED that with respect to Consolidated Fixed Charges for
the Fiscal Quarters ending December 31, 1998, March 31, 1999 and June 30,
1999, Consolidated Interest Expense and scheduled principal payments on
Consolidated Total Debt shall be determined on an Annualized basis.
"CONSOLIDATED FIXED CHARGES" means, for any period, the sum (without
duplication) of the amounts for such period of (i) the cash portion of
Consolidated Interest Expense (net of cash interest income), (ii) taxes
based on income actually paid or payable, (iii) scheduled principal payments
in respect of Consolidated Total Debt, (iv) Consolidated Capital Expenditures
actually made pursuant to clause (i) of subsection 7.8 (excluding the portion
of such Consolidated Capital Expenditures constituting Indebtedness under a
Capital Lease or purchase money Indebtedness and excluding the portion of
such Consolidated Capital Expenditures made pursuant to clause (i) of
subsection 7.8 in reliance on the $10,000,000 incremental basket provided
therein), and (v) dividend payments made by Company to Parent to enable
Parent to pay cash interest or dividends on the Parent P-I-K Securities
pursuant to subsection 7.5(iv), all of the foregoing as determined on a
consolidated basis for Company and its Subsidiaries in conformity with GAAP.
"CONSOLIDATED INTEREST COVERAGE RATIO" means, at the end of any Fiscal
Quarter, subject to subsections 1.2(b) and 1.2(c), the ratio computed for the
period consisting of such Fiscal Quarter and each of the three immediately
preceding Fiscal Quarters of Consolidated EBITDA to the cash portion of
Consolidated Interest Expense other than commitment fees to the extent
included therein (net of cash interest income); PROVIDED that for the Fiscal
Quarters ending December 31, 1998, March 31, 1999 and June 30, 1999,
Consolidated Interest Expense shall be determined on an Annualized basis.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, total interest
expense (including that portion attributable to Capital Leases in accordance
with GAAP and capitalized interest) of Company and its Subsidiaries on a
consolidated basis with respect to all outstanding Indebtedness of Company and
its Subsidiaries, including all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance financing
and net
8
<PAGE>
costs under Interest Rate Agreements determined in accordance with GAAP, but
excluding, to the extent included in such total interest expense, up-front
fees and expenses and the amortization of all deferred financing costs.
"CONSOLIDATED LEVERAGE RATIO" means, at the end of any Fiscal Quarter,
subject to subsections 1.2(b) and 1.2(c), the ratio of (a) Consolidated Total
Debt (less Cash and Cash Equivalents) as of the last day of such Fiscal
Quarter to (b) Consolidated EBITDA for the consecutive four Fiscal Quarters
ending on the last day of such Fiscal Quarter.
"CONSOLIDATED NET INCOME" means, for any period, the net income (or
loss) of Company and its Subsidiaries on a consolidated basis for such period
taken as a single accounting period determined in conformity with GAAP.
"CONSOLIDATED TOTAL DEBT" means, as at any date of determination, the
aggregate stated balance sheet amount of all Indebtedness and Contingent
Obligations with respect to letters of credit (other than letters of credit
issued in connection with trade payables) of Company and its Subsidiaries,
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED WORKING CAPITAL" means, as at any date of determination,
the excess (or deficit) of Consolidated Current Assets over Consolidated
Current Liabilities.
"CONSOLIDATED WORKING CAPITAL ADJUSTMENT" means, for any period on a
consolidated basis, the amount (which may be a negative number) by which
Consolidated Working Capital as of the beginning of such period exceeds (or
is less than) Consolidated Working Capital as of the end of such period.
"CONTINGENT OBLIGATION", as applied to any Person, means any direct or
indirect liability, contingent or otherwise, of that Person (i) with respect
to any Indebtedness of another if the primary purpose or intent thereof by
the Person incurring the Contingent Obligation is to provide assurance to the
obligee of such Indebtedness of another that such Indebtedness of another
will be paid or discharged, or that any agreements relating thereto will be
complied with, or that the holders of such Indebtedness will be protected (in
whole or in part) against loss in respect thereof, (ii) with respect to any
letter of credit issued for the account of that Person or as to which that
Person is otherwise liable for reimbursement of drawings, or (iii) under
Hedge Agreements. Contingent Obligations shall include (a) the direct or
indirect guaranty, endorsement (otherwise than for collection or deposit in
the ordinary course of business), co-making, discounting with recourse or
sale with recourse by such Person of the obligation of another, (b) the
obligation to make take-or-pay or similar payments if required regardless of
non-performance by any other party or parties to an agreement, and (c) any
liability of such Person for the obligation of another through any agreement
(contingent or otherwise) (X) to purchase, repurchase or otherwise acquire
such obligation or any security therefor, or to provide funds for the payment
or discharge of such obligation (whether in the form of loans, advances,
stock purchases, capital contributions or otherwise) or (Y) to maintain the
solvency or any balance sheet item, level of income or financial condition of
another if, in the case of any agreement described under subclauses (X) or
(Y) of this sentence, the primary purpose or intent thereof is as described
in the preceding sentence. The amount of any Contingent Obligation shall be
equal to
9
<PAGE>
the amount of the obligation so guaranteed or otherwise supported or, if
less, the amount to which such Contingent Obligation is specifically limited.
"CONTRACTUAL OBLIGATION", as applied to any Person, means any
provision of any Security issued by that Person or of any material indenture,
mortgage, deed of trust, contract, undertaking, agreement or other instrument
to which that Person is a party or by which it or any of its properties is
bound or to which it or any of its properties is subject.
"CORPORATE BASE RATE" means a rate per annum equal to the corporate
base rate of interest announced by First Chicago from time to time, changing
when and as said corporate base rate changes.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency
swap agreement, futures contract, option contract, synthetic cap or other
similar agreement or arrangement to which Company or any of its Subsidiaries
is a party.
"DAH" means DeCrane Aircraft Holdings, Inc., a Delaware corporation.
"DAH COMMON STOCK" means the common stock, $0.01 par value, of DAH.
"DAH PLEDGE AGREEMENT" means the DAH Pledge Agreement executed and
delivered by DAH on the Merger Date with respect to DAH's Subsidiaries on the
Merger Date, substantially in the form of EXHIBIT XV annexed hereto, as such
DAH Pledge Agreement may thereafter be amended, supplemented or otherwise
modified from time to time.
"DEPOSIT ACCOUNT" means a demand, time, savings, passbook or like
account with a bank, savings and loan association, credit union or like
organization, other than an account evidenced by a negotiable certificate of
deposit.
"DLJ" has the meaning assigned to that term in the introduction to
this Agreement.
"DLJMB" means DLJ Merchant Banking Partners II, L.P., certain
affiliated funds and entities described in the Tender Offer Materials and
shall include Global Technology Partners, L.L.C.
"DOLLARS" and the sign "$" mean the lawful money of the United States
of America.
"DOMESTIC SUBSIDIARY" means a Subsidiary organized under the laws of
the United States or any state or territory thereof or the District of
Columbia.
"EARN-OUTS" means any obligations by Company or any of its
Subsidiaries to pay any amounts constituting the payment of deferred purchase
price with respect to any acquisition of a business (whether through the
purchase of assets or shares of capital stock), the amount of which payments
is calculated on the basis of, or by reference to, bona fide financial or
other operating performance of such business or specified portion thereof or
any other similar arrangement.
"ELIGIBLE ASSIGNEE" means (A) (i) a commercial bank organized under
the laws of the United States or any state thereof; (ii) a savings and loan
association or savings bank organized
10
<PAGE>
under the laws of the United States or any state thereof; (iii) a commercial
bank organized under the laws of any other country or a political subdivision
thereof; PROVIDED that (x) such bank is acting through a branch or agency
located in the United States or (y) such bank is organized under the laws of
a country that is a member of the Organization for Economic Cooperation and
Development or a political subdivision of such country; and (iv) any other
entity which extends credit or buys or invests in loans as one of its
businesses including insurance companies, mutual funds and lease financing
companies; and (B) any Lender, any Affiliate of any Lender and any Affiliated
Fund of any Lender; PROVIDED that no Affiliate of Company shall be an
Eligible Assignee.
"EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as defined
in Section 3(3) of ERISA which is or was maintained or contributed to by
Company, any of its Subsidiaries or any of their respective ERISA Affiliates.
"ENVIRONMENTAL CLAIM" means any investigation, notice, notice of
violation, claim, action, suit, proceeding, demand, abatement order or other
order or directive, by any governmental authority or any other Person,
arising (i) pursuant to or in connection with any actual or alleged violation
of any Environmental Law, (ii) in connection with any Hazardous Materials or
any actual or alleged Hazardous Materials Activity, or (iii) in connection
with any actual or alleged damage, injury, threat or harm to natural
resources or the environment.
"ENVIRONMENTAL LAWS" means any and all current or future statutes,
ordinances, orders, rules, regulations, judgments, Governmental Authorizations,
or any other requirements of governmental authorities relating to
(i) environmental matters, including those relating to any Hazardous Materials
Activity, (ii) the generation, use, storage, transportation or disposal of
Hazardous Materials, or (iii) the effect of the environment on human, plant or
animal health or welfare, in any manner applicable to Company or any of its
Subsidiaries or any Facility, including the Comprehensive Environmental
Response, Compensation, and Liability Act (42 U.S.C. Section 9601 ET SEQ.), the
Hazardous Materials Transportation Act (49 U.S.C. Section 1801 ET SEQ.), the
Resource Conservation and Recovery Act (42 U.S.C. Section 6901 ET SEQ.), the
Federal Water Pollution Control Act (33 U.S.C. Section 1251 ET SEQ.), the Clean
Air Act (42 U.S.C. Section 7401 ET SEQ.), the Toxic Substances Control Act (15
U.S.C. Section 2601 ET SEQ.), the Federal Insecticide, Fungicide and Rodenticide
Act (7 U.S.C. Section 136 ET SEQ.), the Oil Pollution Act (33 U.S.C. Section
2701 ET SEQ.) and the Emergency Planning and Community Right-to-Know Act (42
U.S.C. Section 11001 ET SEQ.), each as amended or supplemented, any analogous
present or future state or local statutes or laws, and any regulations
promulgated pursuant to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor thereto.
"ERISA AFFILIATE" means, as applied to any Person, (i) any corporation
which is a member of a controlled group of corporations within the meaning of
Section 414(b) of the Internal Revenue Code of which that Person is a member;
(ii) any trade or business (whether or not incorporated) which is a member of a
group of trades or businesses under common control within the meaning of Section
414(c) of the Internal Revenue Code of which that Person is a member; and
(iii) any member of an affiliated service group within the meaning of Section
414(m) or (o) of the Internal Revenue Code of which that Person, any corporation
described in
11
<PAGE>
clause (i) above or any trade or business described in clause (ii) above is a
member. Any former ERISA Affiliate of Company or any of its Subsidiaries
shall continue to be considered an ERISA Affiliate of Company or such
Subsidiary within the meaning of this definition with respect to the period
such entity was an ERISA Affiliate of Company or such Subsidiary and with
respect to liabilities arising after such period for which Company or such
Subsidiary could be liable under the Internal Revenue Code or ERISA.
"ERISA EVENT" means (i) a "reportable event" within the meaning of
Section 4043 of ERISA and the regulations issued thereunder with respect to
any Pension Plan (excluding those for which the provision for 30-day notice
to the PBGC has been waived by regulation); (ii) the failure to meet the
minimum funding standard of Section 412 of the Internal Revenue Code with
respect to any Pension Plan (whether or not waived in accordance with Section
412(d) of the Internal Revenue Code) or the failure to make by its due date a
required installment under Section 412(m) of the Internal Revenue Code with
respect to any Pension Plan or the failure to make any required contribution
to a Multiemployer Plan; (iii) the provision by the administrator of any
Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to
terminate such plan in a distress termination described in Section 4041(c) of
ERISA; (iv) the withdrawal by Company, any of its Subsidiaries or any of
their respective ERISA Affiliates from any Pension Plan with two or more
contributing sponsors or the termination of any such Pension Plan resulting
in liability pursuant to Section 4063 or 4064 of ERISA; (v) the institution
by the PBGC of proceedings to terminate any Pension Plan, or the occurrence
of any event or condition which could reasonably constitute grounds under
ERISA for the termination of, or the appointment of a trustee to administer,
any Pension Plan; (vi) the imposition of liability on Company, any of its
Subsidiaries or any of their respective ERISA Affiliates pursuant to Section
4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c)
of ERISA; (vii) the withdrawal of Company, any of its Subsidiaries or any of
their respective ERISA Affiliates in a complete or partial withdrawal (within
the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan
if there is any potential liability therefor, or the receipt by Company, any
of its Subsidiaries or any of their respective ERISA Affiliates of notice
from any Multiemployer Plan that it is in reorganization or insolvency
pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or
has terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence of
an act or omission which could reasonably give rise to the imposition on
Company, any of its Subsidiaries or any of their respective ERISA Affiliates
of fines, penalties, taxes or related charges under Chapter 43 of the
Internal Revenue Code or under Section 409, Section 502(c), (i) or (l), or
Section 4071 of ERISA in respect of any Employee Benefit Plan; (ix) the
assertion of a material claim (other than routine claims for benefits)
against any Employee Benefit Plan other than a Multiemployer Plan or the
assets thereof, or against Company, any of its Subsidiaries or any of their
respective ERISA Affiliates in connection with any Employee Benefit Plan; (x)
receipt from the Internal Revenue Service of notice of the failure of any
Pension Plan (or any other Employee Benefit Plan intended to be qualified
under Section 401(a) of the Internal Revenue Code) to qualify under Section
401(a) of the Internal Revenue Code, or the failure of any trust forming part
of any Pension Plan to qualify for exemption from taxation under Section
501(a) of the Internal Revenue Code; or (xi) the imposition of a Lien
pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or
pursuant to ERISA with respect to any Pension Plan.
12
<PAGE>
"EURODOLLAR BASE RATE" means, with respect to a Eurodollar Rate Loan
for the relevant Interest Period, the rate determined by Administrative Agent
to be the rate at which First Chicago offers to place deposits in U.S.
dollars with first-class banks in the London interbank market at
approximately 11:00 A.M. (London time) two Business Days prior to the first
day of such Interest Period, in the approximate amount of First Chicago's
relevant Eurodollar Rate Loan and having a maturity equal to such Interest
Period.
"EURODOLLAR RATE LOANS" means Loans bearing interest at rates
determined by reference to the Adjusted Eurodollar Rate as provided in
subsection 2.2A.
"EVENT OF DEFAULT" means each of the events set forth in Section 8.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time, and any successor statute.
"EXCLUDED EQUITY PROCEEDS" means any proceeds received by Parent,
Company or any of its Subsidiaries from the issuance or sale or exercise of
their respective equity Securities, in each case pursuant to any such sale or
issuance or exercise constituting or resulting from (i) capital contributions
to Company, or equity Securities issuances by Parent, Company or any of its
Subsidiaries, including without limitation, the issuance of the PIK Preferred
Stock and any such issuances as payment of accrued dividends on the PIK
Preferred Stock (excluding any such contributions or issuance resulting from
a public offering or a widely distributed private offering of common equity
exempted from the registration requirements of Section 5 of the Securities
Act of 1933, as amended ("Section 5") other than any such issuances (A) the
proceeds of which are required to be and are applied to refinance the Senior
Subordinated Bridge Notes then outstanding, in accordance with their terms or
(B) resulting from or in connection with any resale by DLJMB of the PIK
Preferred Stock, or any subsequent registration thereof under Section 5),
(ii) any subscription agreements, incentive plan or similar arrangements with
any officer, employee or director of Parent, the Company or any of its
Subsidiaries, (iii) any loan made by the Company or any of its Subsidiaries
pursuant to Section 7.3(xi), (iv) the sale of any equity Securities of Parent
to any officer, director or employee of Parent, the Company or any of their
Subsidiaries; PROVIDED such proceeds do not exceed $5,000,000 in the
aggregate, (v) the exercise of any options or warrants issued to any officer,
employee or director of Parent, the Company or any of its Subsidiaries or to
any purchasers of the PIK Preferred Stock, or (vi) issuances by any
Subsidiary of Company to Company or any other Subsidiary of Company or by
Company to Parent or any Subsidiary of Company.
"EXISTING DAH DEBT" means the Loan and Security Agreement dated as of
April 15, 1997, as amended, among DAH, Bank of America Illinois, as Agent and
the lenders signatory thereto.
"FACILITIES" means any and all real property (including all buildings,
fixtures or other improvements located thereon) now, hereafter or heretofore
owned, leased, operated or used by Company or any of its Subsidiaries or any of
their respective predecessors.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the
13
<PAGE>
Federal Reserve System arranged by Federal funds brokers on such day, as
published for such day (or, if such day is not a Business Day, for the
immediately preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day, the
average of the quotations at approximately 10:00 A.M. (Chicago time) on such
day on such transactions received by Administrative Agent from three Federal
funds brokers of recognized standing selected by Administrative Agent in its
sole discretion.
"FINANCE CO." means DeCrane Finance Co., a Delaware corporation.
"FINANCE CO. PLEDGE AGREEMENT" means the Finance Co. Pledge Agreement
executed and delivered by Finance Co. on the Closing Date with respect to
Acquisition Co, substantially in the form of EXHIBIT XIV annexed hereto, as such
Finance Co. Pledge Agreement may be amended, supplemented or otherwise modified
from time to time.
"FINANCIAL PLAN" has the meaning assigned to that term in subsection
6.1(xi).
"FIRST CHICAGO" means The First National Bank of Chicago in its
individual capacity, and its successors.
"FIRST PRIORITY" means, with respect to any Lien purported to be created
in any Collateral pursuant to any Collateral Document, that (i) such Lien has
priority over any other Lien on such Collateral (other than Permitted
Encumbrances and other Liens permitted pursuant to subsections 7.2A(iii), (iv),
(vi), (vii), (viii), (ix) and (to the extent arising in connection with Capital
Leases and purchase money Indebtedness and applying to the assets whose
acquisition or improvement was financed therewith) (x) and (ii) such Lien is the
only Lien (other than Permitted Encumbrances and Liens permitted pursuant to
subsection 7.2A) to which such Collateral is subject.
"FISCAL QUARTER" means a fiscal quarter of any Fiscal Year.
"FISCAL YEAR" means the fiscal year of Company and its Subsidiaries
ending on December 31 of each calendar year.
"FLOOD HAZARD PROPERTY" means a Mortgaged Property located in an area
designated by the Federal Emergency Management Agency as having special flood or
mud slide hazards.
"FOREIGN SUBSIDIARY" means any Subsidiary that is not a Domestic
Subsidiary.
"FUNDING AND PAYMENT OFFICE" means (i) the office of Administrative Agent
and Swing Line Lender located at One First National Plaza, Chicago, Illinois,
60670 or (ii) such other office of Administrative Agent and Swing Line Lender as
may from time to time hereafter be designated as such in a written notice
delivered by Administrative Agent and Swing Line Lender to Company and each
Lender.
"FUNDING DATE" means the date of the funding of a Loan.
"GAAP" means, subject to the limitations on the application thereof set
forth in subsection 1.2, generally accepted accounting principles set forth in
opinions and
14
<PAGE>
pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board, in each case as the same are applicable
to the circumstances as of the date of determination.
"GOVERNMENTAL AUTHORIZATION" means any permit, license, authorization,
plan, directive, consent order or consent decree of or from any federal, state
or local governmental authority, agency or court.
"GUARANTIES" means the Parent Guaranty, the Acquisition Co. Guaranty and
the Subsidiary Guaranty.
"HAZARDOUS MATERIALS" means (i) any chemical, material or substance at
any time defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous waste", "acutely
hazardous waste", "radioactive waste", "biohazardous waste", "pollutant", "toxic
pollutant", "contaminant", "restricted hazardous waste", "infectious waste",
"toxic substances", or any other term or expression intended to define, list or
classify substances by reason of properties harmful to health, safety or the
indoor or outdoor environment (including harmful properties such as
ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive
toxicity, "TCLP toxicity" or "EP toxicity" or words of similar import under any
applicable Environmental Laws); (ii) any oil, petroleum, petroleum fraction or
petroleum derived substance; (iii) any drilling fluids, produced waters and
other wastes associated with the exploration, development or production of crude
oil, natural gas or geothermal resources; (iv) any flammable substances or
explosives; (v) any radioactive materials; (vi) any asbestos-containing
materials; (vii) urea formaldehyde foam insulation; (viii) electrical equipment
which contains any oil or dielectric fluid containing polychlorinated biphenyls;
(ix) pesticides; and (x) any other chemical, material or substance, exposure to
which is prohibited, limited or regulated by any governmental authority or which
may or could pose a hazard to the health and safety of the owners, occupants or
any Persons at the Facilities or to the indoor or outdoor environment.
"HAZARDOUS MATERIALS ACTIVITY" means any activity, event or occurrence
involving any Hazardous Materials, including the use, manufacture, possession,
storage, holding, presence, Release, discharge, generation, transportation,
processing, construction, treatment, abatement, removal, remediation, disposal,
disposition or handling of any Hazardous Materials, and any corrective action or
response action with respect to any of the foregoing.
"HEDGE AGREEMENT" means an Interest Rate Agreement or a Currency
Agreement designed to hedge against fluctuations in interest rates or currency
values, respectively.
"IMMATERIAL SUBSIDIARY" means each Subsidiary of Company that (a)
accounted for no more than 3% of the consolidated gross revenues of Company
and its Subsidiaries for the most recently completed Fiscal Quarter with
respect to which, pursuant to Section 6.1(i) or 6.1(ii), financial statements
have been, or are required to have been, delivered by Company on or before
the date as of which any such determination is made, as reflected in such
financial statements; and (b) has assets which represent no more than 3% of
the consolidated gross assets of Company and its Subsidiaries as of the last
day of the most recently completed Fiscal Quarter with respect to which,
pursuant to Section 6.1(i) or 6.1(ii), financial statements have been, or are
required to
15
<PAGE>
have been, delivered by Company on or before the date as of which any such
determination is made, as reflected in such financial statements.
"IMPERMISSIBLE QUALIFICATION" means, relative to the opinion or
certification of any independent public accountant as to any financial
statement of Company, any qualification or exception to such opinion or
certification (i) which is of a "going concern" or similar nature, (ii) which
relates to the limited scope of examination of matters relevant to such
financial statement (except, in the case of matters relating to any acquired
business or assets, in respect of the period prior to the acquisition by Company
of such business or asset), or (iii) which relates to the treatment or
classification of any item in such financial statement and which, as a condition
to its removal, would require an adjustment to such item the effect of which
would be to cause Company to be in default of any of its obligations under
Section 7.6.
"INDEBTEDNESS", as applied to any Person, means (i) all indebtedness for
borrowed money, (ii) that portion of obligations with respect to Capital Leases
that is properly classified as a liability on a balance sheet in conformity with
GAAP, (iii) notes payable and drafts accepted representing extensions of credit
whether or not representing obligations for borrowed money, (iv) any obligation
owed for all or any part of the deferred purchase price of property or services
(excluding any such obligations incurred under ERISA), which purchase price is
(a) except in the case of accounts payable arising in the ordinary course of
business, due more than six months from the date of incurrence of the obligation
in respect thereof or (b) evidenced by a note or similar written instrument
(including in respect of Earn-Outs, but solely to the extent included as
liabilities in accordance with GAAP), and (v) all obligations of the types
referred to in clauses (i) through (iv) above, secured by any Lien on any
property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is
nonrecourse to the credit of that Person. Obligations under Interest Rate
Agreements and Currency Agreements constitute (X) in the case of Hedge
Agreements, Contingent Obligations, and (Y) in all other cases, Investments, and
in neither case constitute Indebtedness.
"INDEMNITEE" has the meaning assigned to that term in subsection 10.3.
"INTELLECTUAL PROPERTY" means all patents, trademarks, tradenames,
copyrights, technology, know-how and processes used in or necessary for the
conduct of the business of Company and its Subsidiaries as currently conducted
that are material to the condition (financial or otherwise), business or
operations of Company and its Subsidiaries, taken as a whole.
"INTERCOMPANY NOTE RELATING TO TRANCHE A TERM LOANS AND WORKING CAPITAL
LOANS" means the Promissory Note executed by DAH in favor of Finance Co. on the
Closing Date, substantially in the form of EXHIBIT XXVIII annexed hereto,
evidencing the borrowings made by DAH from Finance Co. from time to time (other
than borrowings evidenced by the Intercompany Note Relating to Tranche B Term
Loans), as such Intercompany Note may be amended, supplemented or otherwise
modified from time to time.
"INTERCOMPANY NOTE RELATING TO TRANCHE B TERM LOANS" means the Promissory
Note executed by DAH in favor of Finance Co. on the Closing Date, substantially
in the form of EXHIBIT XXIV annexed hereto, evidencing the borrowings made by
DAH from Finance Co. from
16
<PAGE>
the proceeds of Tranche B Term Loans, as such Intercompany Note Relating to
Tranche B Term Loans may be amended, supplemented or otherwise modified from
time to time.
"INTERCOMPANY NOTES" means, collectively, the Intercompany Note Relating
to Tranche A Term Loans and Working Capital Loans and the Intercompany Note
Relating to Tranche B Term Loans.
"INTEREST PAYMENT DATE" means (i) with respect to any Base Rate Loan,
each Quarterly Date, commencing on the first such Quarterly Date to occur after
the Closing Date, and (ii) with respect to any Eurodollar Rate Loan, the last
day of each Interest Period applicable to such Loan; PROVIDED that in the case
of each Interest Period of longer than three months "Interest Payment Date"
shall also include each date that is three months, or an multiple thereof, after
the commencement of such Interest Period.
"INTEREST PERIOD" has the meaning assigned to that term in subsection
2.2B.
"INTEREST RATE AGREEMENT" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement or arrangement to which Company or any of its Subsidiaries is a party.
"INTEREST RATE DETERMINATION DATE" means, with respect to any Interest
Period, the second Business Day prior to the first day of such Interest Period.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter, and any successor
statute.
"INVESTMENT" means (i) any direct or indirect purchase or other
acquisition by Company or any of its Subsidiaries of, or of a beneficial
interest in, any Securities of any other Person (including any Subsidiary of
Company), (ii) any direct or indirect redemption, retirement, purchase or
other acquisition for value, by any Subsidiary of Company from any Person
other than Company or any of its Subsidiaries, of any equity Securities of
such Subsidiary, or (iii) any direct or indirect loan, advance (other than
advances to employees for moving, entertainment and travel expenses, drawing
accounts and similar expenditures in the ordinary course of business) or
capital contribution by Company or any of its Subsidiaries to any other
Person (other than a wholly-owned Subsidiary of Company). The amount of any
Investment shall be the original cost of such Investment PLUS the cost of all
additions thereto, without any adjustments for increases or decreases in
value, or write-ups, write-downs or write-offs with respect to such
Investment.
"INVESTMENT ACCOUNT AGREEMENT" means the Investment Account Agreement
executed and delivered by Company and Administrative Agent on the Closing Date,
substantially in the form of EXHIBIT XXVII annexed hereto, as such Investment
Account Agreement may hereafter be amended, supplemented or otherwise modified
from time to time.
"INVESTMENT ACCOUNTS" means the "Investments Accounts" as defined in the
Investment Account Agreement.
17
<PAGE>
"IP COLLATERAL" means, collectively, the Intellectual Property
Collateral under the Security Agreement.
"ISSUING LENDER" means, First Chicago in its capacity as issuer of a
Letter of Credit or, if First Chicago declines to issue such Letter of Credit
in accordance with subsection 3.1B(ii), then any other Working Capital Lender
that at the request of Company agrees to issue a Letter of Credit pursuant to
subsection 3.1B(ii).
"LC REFUNDING LOAN" has the meaning assigned to that term in
subsection 2.1B.
"LEASEHOLD PROPERTY" means any leasehold interest of any Loan Party as
lessee under any lease of real property.
"LENDER" and "LENDERS" means the persons identified as "Lenders" and
listed on the signature pages of this Agreement, together with their
successors and permitted assigns pursuant to subsection 10.1, and the term
"Lenders" shall include Swing Line Lender unless the context otherwise
requires.
"LETTER OF CREDIT" or "LETTERS OF CREDIT" means Letters of Credit
issued or to be issued by Issuing Lenders for the account of Company pursuant
to subsection 3.1.
"LETTER OF CREDIT USAGE" means, as at any date of determination, the
sum of (i) the maximum aggregate amount which is available for drawing under
all Letters of Credit then outstanding (whether or not any conditions to any
such drawing can then be met), PLUS (ii) the aggregate amount of all drawings
under Letters of Credit honored by Issuing Lenders and not theretofore
reimbursed by Company.
"LIEN" means any lien, mortgage, pledge, assignment, security
interest, charge or encumbrance of any kind (including any conditional sale
or other title retention agreement, any lease in the nature thereof, and any
agreement to give any security interest) and any option, trust or other
preferential arrangement having the practical effect of any of the foregoing.
"LOAN" or "LOANS" means one or more of the Tranche A Term Loans,
Tranche B Term Loans, Working Capital Loans, Swing Line Loans or Acquisition
Loans or any combination thereof.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Letters of
Credit (and any applications for, or reimbursement agreements or other
documents or certificates executed by Company in favor of an Issuing Lender
relating to, the Letters of Credit), the Guaranties and the Collateral
Documents.
"LOAN PARTY" means each of Parent, Acquisition Co., Company and any of
Company's Subsidiaries from time to time executing a Loan Document, and "LOAN
PARTIES" means all such Persons, collectively.
"MARGIN DETERMINATION CERTIFICATE" means an Officer's Certificate of
Company delivered pursuant to subsection 6.1(iv) setting forth in reasonable
detail, and calculating in accordance with subsections 1.2(b) and 1.2(c), the
Consolidated Leverage Ratio for the
18
<PAGE>
four-Fiscal Quarter period ending as of the last day of the Fiscal Quarter
with respect to which such Officer's Certificate is delivered.
"MARGIN STOCK" has the meaning assigned to that term in Regulation U
of the Board of Governors of the Federal Reserve System as in effect from
time to time.
"MATERIAL ADVERSE EFFECT" means (i) a material adverse effect upon the
business, operations, properties, assets, financial condition or prospects of
Company and its Subsidiaries taken as a whole or of DAH and its Subsidiaries
taken as a whole or (ii) the material impairment of the ability of the Loan
Parties to perform, or of Agents or Lenders to enforce, the Obligations.
"MATERIAL CONTRACT" means any contract or other arrangement to which
Company or any of its Subsidiaries is a party (other than the Loan Documents)
for which breach, nonperformance, cancellation or failure to renew could
reasonably be expected to have a Material Adverse Effect.
"MERGER" means the merger of Acquisition Co. with and into DAH
pursuant to the Merger Agreement.
"MERGER AGREEMENT" means the Agreement and Plan of Merger dated as of
July 16, 1998 between Acquisition Co. and DAH, as in effect on the date
hereof and as such agreement may be amended from time to time to the extent
permitted under subsection 7.15.
"MERGER DATE" means the date upon which the Merger and the Second
Merger are consummated.
"MERGER DATE FEE MORTGAGED PROPERTY" means each owned property listed
on Schedule 6.8.
"MERGER DATE LEASEHOLD MORTGAGED PROPERTY" means each leased property
listed on Schedule 6.8 to the extent that DAH or the applicable Subsidiary is
able to obtain the agreement of the applicable lessor referred to in
subsection 6.8C.
"MERGER DATE MORTGAGED PROPERTY" means, collectively, the Merger Date
Fee Mortgaged Properties and the Merger Date Leasehold Mortgaged Properties.
"MINIMUM SHARES" means, at the date of determination, a majority of
the total number of shares of DAH Common Stock outstanding on a fully diluted
basis but not less than a sufficient number of such shares to permit
Acquisition Co. acting alone to cause the Merger to be approved by the
stockholders of DAH.
"MORTGAGE" means (i) a security instrument (whether designated as a
deed of trust or a mortgage or by any similar title) executed and delivered
by any Loan Party, substantially in such form as may be reasonably approved
by Agents in their sole discretion, in each case with such changes thereto as
may be recommended by Administrative Agent's local counsel based on local
laws or customary local mortgage or deed of trust practices, or (ii) at the
option of Agents, in the case of any future Mortgaged Property, an amendment
to an existing Mortgage or a new Mortgage, in form satisfactory to Agents,
adding such future Mortgaged Property to the Real Property Assets encumbered
by such existing Mortgage, in either case as such security
19
<PAGE>
instrument or amendment may be amended, supplemented or otherwise modified
from time to time. "MORTGAGES" means all such instruments, including any
future Mortgages, collectively.
"MORTGAGED PROPERTY" means a Merger Date Mortgaged Property (as
defined in subsection 6.13) or a property mortgaged in the future pursuant to
subsection 6.8.
"MULTIEMPLOYER PLAN" means any Employee Benefit Plan which is a
"multiemployer plan" as defined in Section 3(37) of ERISA.
"NET ASSET SALE PROCEEDS" means, with respect to any Asset Sale, Cash
payments (including any Cash received by way of deferred payment pursuant to,
or by monetization of, a note receivable or otherwise, but only as and when
so received) received from such Asset Sale, net of any bona fide direct costs
incurred in connection with such Asset Sale, including (i) income taxes and
all other governmental costs and expenses reasonably estimated to be actually
payable in connection with such Asset Sale (including, in the event of any
Asset Sale with respect to non-U.S. assets, any such taxes, costs, and
expenses resulting from repatriating such proceeds to the U.S.), (ii) payment
of the outstanding principal amount of, premium or penalty, if any, and
interest on any Indebtedness (other than the Loans) that is secured by a Lien
on the stock or assets in question and that is required to be repaid under
the terms thereof as a result of such Asset Sale, (iii) all reasonable and
customary fees and expenses with respect to legal, investment banking,
brokerage, accounting and other professional fees, sales commissions and
disbursements, (iv) reserves for purchase price adjustments and retained
liabilities reasonably expected to be payable by Company and its Subsidiaries
in cash in connection therewith and (v) solely with respect to any Asset Sale
consummated by a Subsidiary, the pro rata portion of any such Cash payments
required to be distributed to any shareholders of such Subsidiary or any
other Subsidiary that, directly or indirectly, holds the capital stock of
such Subsidiary (but excluding in each case Company and its Subsidiaries).
"NET INSURANCE/CONDEMNATION PROCEEDS" means any Cash payments or
proceeds received by Company or any of its Subsidiaries (i) under any
casualty insurance policy in respect of a covered loss thereunder or (ii) as
a result of the taking of any assets of Company or any of its Subsidiaries by
any Person pursuant to the power of eminent domain, condemnation or
otherwise, or pursuant to a sale of any such assets to a purchaser with such
power under threat of such a taking, in each case net of any actual and
reasonable documented costs incurred by Company or any of its Subsidiaries in
connection with the adjustment or settlement of any claims of Company or such
Subsidiary in respect thereof, but excluding (x) any such payments or
proceeds thereunder required to be paid to a creditor (other than the holders
of the Loans) secured by such assets that is required to be repaid under the
terms thereof as a result of the relevant covered loss or taking, (y) any
income taxes and all other taxes, governmental costs and expenses reasonably
estimated to be actually payable in connection with the receipt of such Net
Insurance/Condemnation Proceeds and (z) solely with respect to any Net
Insurance/Condemnation Proceeds received by a Subsidiary, the pro rata
portion of any such Cash payments required to be distributed to any
shareholders of such Subsidiary or any other Subsidiary that, directly or
indirectly, holds the capital stock of such Subsidiary (but excluding in each
case Company and its Subsidiaries).
20
<PAGE>
"NET SECURITIES PROCEEDS " has the meaning set forth in subsection
2.4B(iii)(c).
"NON-CONSENTING LENDER" means any Lender that, in response to any
request by Company or Administrative Agent to a departure from, waiver of or
amendment to any provision of any Loan Document that requires the agreement
of all Lenders or all Lenders holding Commitments or Loans (and , if
applicable, participations in letters of credit) of a particular type, which
departure , waiver or amendment received the consent of the Required Lenders
or the holders of a majority of the Commitments or (if the applicable
Commitments of such type shall have expired or been terminated) outstanding
Loans of such type, and, if applicable, participations in letters of credit,
as the case may be, shall not have given its consent to such departure,
waiver or amendment.
"NON-FUNDING LENDER" means a Lender that shall have failed to fund any
Loan hereunder that it was required to have funded in accordance with the
terms hereof, which Loan was included in any borrowings in respect of which a
majority of the aggregate amount of all Loans included in such borrowings
were funded by the Lenders party hereto (other than any Lender not required
to do so as a result of the provisions of Section 2.6C or 2.6D being
applicable to such Lender with respect to such borrowing).
"NON-WHOLLY-OWNED SUBSIDIARY" means any Subsidiary of Company that is
not a Wholly-Owned Subsidiary.
"NOTES" means one or more of the Tranche A Term Notes, Tranche B Term
Notes, Working Capital Notes, Swing Line Notes or Acquisition Notes or any
combination thereof.
"NOTICE OF BORROWING" means a notice substantially in the form of
EXHIBIT I annexed hereto delivered by Company to Administrative Agent
pursuant to subsection 2.1B with respect to a proposed borrowing.
"NOTICE OF CONVERSION/CONTINUATION" means a notice substantially in
the form of EXHIBIT II annexed hereto delivered by Company to Administrative
Agent pursuant to subsection 2.2D with respect to a proposed conversion or
continuation of the applicable basis for determining the interest rate with
respect to the Loans specified therein.
"NOTICE OF ISSUANCE OF LETTER OF CREDIT" means a notice substantially
in the form of EXHIBIT III annexed hereto delivered by Company to
Administrative Agent pursuant to subsection 3.1B(i) with respect to the
proposed issuance of a Letter of Credit.
"OBLIGATIONS" means all obligations of every nature of each Loan Party
from time to time owed to Agents, Lenders or any of them under the Loan
Documents, whether for principal, interest, reimbursement of amounts drawn
under Letters of Credit, fees, expenses, indemnification or otherwise.
"OFFICER'S CERTIFICATE" means, as applied to any corporation, a
certificate executed on behalf of such corporation by its chief executive
officer, president, treasurer or its chief financial officer (or if there is
no chief financial officer, its chief accounting officer).
21
<PAGE>
"OPERATING LEASE" means, as applied to any Person, any lease
(including leases that may be terminated by the lessee at any time) of any
property (whether real, personal or mixed) that is not a Capital Lease in
accordance with GAAP other than any such lease under which that Person is the
lessor.
"PARENT" means DeCrane Holdings Co., a Delaware corporation.
"PARENT GUARANTY" means the Parent Guaranty executed and delivered by
Parent on the Closing Date, substantially in the form of EXHIBIT XXI annexed
hereto, as such Parent Guaranty may be amended, supplemented or otherwise
modified from time to time.
"PARENT P-I-K SECURITIES" means the PIK Notes and the PIK Preferred
Stock.
"PARENT PLEDGE AGREEMENT" means the Pledge Agreement executed and
delivered by Parent on the Closing Date, substantially in the form of EXHIBIT
XX annexed hereto, as such Parent Pledge Agreement may be amended,
supplemented or otherwise modified from time to time.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
"PENSION PLAN" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to Section 412 of the Internal Revenue
Code or Section 302 of ERISA.
"PERMITTED ACQUISITION" means the acquisition of a business (whether
through the purchase of assets or of shares of capital stock) by Company or
one of its Subsidiaries (w) which is in a line of business similar or related
to the lines of business of Company and its Subsidiaries, (x) for total
consideration (including without limitation, cash purchase price, deferred or
financed purchase price and the assumption of Indebtedness, including Assumed
Indebtedness, and other liabilities) of not more than $25,000,000 for any
single acquisition or series of related acquisitions and, which
consideration, when aggregated with the consideration for all other Permitted
Acquisitions, does not exceed $50,000,000; PROVIDED that such aggregate total
consideration for Permitted Acquisitions of or by Subsidiaries that are not
Subsidiary Guarantors shall not exceed an aggregate of $30,000,000 plus the
Company Excess Cash Flow Amount; AND PROVIDED FURTHER that such aggregate
total consideration for Permitted Acquisitions of or by Non-Wholly-Owned
Subsidiaries that are not Subsidiary Guarantors shall not exceed an aggregate
of $10,000,000 plus the Company Excess Cash Flow Amount, (y) at a time at
which no Event of Default or Potential Event of Default shall exist or shall
occur as a result of giving effect to such proposed acquisition, and (z)
after giving effect to such acquisition, including without limitation giving
effect to the incurrence or assumption of any Indebtedness or any other costs
and expenditures or the making of any distributions and other payments in
connection with or otherwise relating to such Permitted Acquisition, Company
shall be in pro forma compliance with each of the financial covenants set
forth in subsection 7.6 for the immediately preceding four Fiscal Quarter
period prior to such date of determination.
22
<PAGE>
"PERMITTED ACQUISITION COMPLIANCE CERTIFICATE" means an Officer's
Certificate substantially in the form of EXHIBIT XXVI annexed hereto
delivered to Administrative Agent by Company pursuant to subsection 7.7(vii).
"PERMITTED ENCUMBRANCES" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
the payment of which is not, at the time, required by subsection 6.3;
(ii) Liens of landlords (except as may be waived or released as more
particularly described in subsection 6.8), Liens of banks and rights of
set-off, statutory Liens of carriers, warehousemen, mechanics, repairmen,
workmen, contractors and materialmen, and other Liens imposed by law, in each
case incurred in the ordinary course of business (a) for amounts not yet
overdue or (b) for amounts that are overdue and that (in the case of any such
amounts overdue for a period in excess of 30 days) are being contested in
good faith by appropriate proceedings, so long as such reserves or other
appropriate provisions, if any, as shall be required by GAAP shall have been
made for any such contested amounts;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, trade contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money), so long as no foreclosure, sale or similar proceedings have been
commenced with respect to any portion of the Collateral on account thereof;
(iv) any attachment or judgment Lien not constituting an Event of
Default under subsection 8.8;
(v) leases or subleases granted to third parties and not
interfering in any material respect with the ordinary conduct of the business
of Company or any of its Subsidiaries;
(vi) easements, rights-of-way, restrictions, encroachments, and
other minor defects or irregularities in title, in each case which do not and
will not materially detract from the value or impair the use by the Company
or any of its Subsidiaries in the ordinary conduct of the business of Company
or any of its Subsidiaries;
(vii) any (a) interest or title of a lessor or sublessor under any
permitted lease, (b) restriction or encumbrance to which the interest or
title of such lessor or sublessor may be subject to, or (c) subordination of
the interest of the lessee or sublessee under such lease to any restriction
or encumbrance referred to in the preceding clause (b);
(viii) Liens arising from filing UCC financing statements relating
solely to leases not prohibited by this Agreement;
(ix) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
23
<PAGE>
(x) any zoning or similar law or right reserved to or vested in any
governmental office or agency to control or regulate the use of any real
property;
(xi) Liens securing obligations (other than obligations representing
Indebtedness for borrowed money) under operating, reciprocal easement or
similar agreements entered into in the ordinary course of business of Company
and its Subsidiaries;
(xii) licenses of patents, trademarks and other intellectual property
rights granted by Company or any of its Subsidiaries in the ordinary course
of business and not interfering in any material respect with the ordinary
conduct of the business of Company or such Subsidiary; and
(xiii) the general and special exceptions approved by Agents, which
exceptions appear on the mortgagee title insurance policies with respect to
the owned and leased properties to be encumbered by a Mortgage, pursuant to
subsections 6.8B, 6.8C and 6.13.
"PERSON" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint stock companies, associations, companies,
trusts, banks, trust companies, land trusts, business trusts or other
organizations, whether or not legal entities, and governments (whether
federal, state or local, domestic or foreign, and including political
subdivisions thereof) and agencies or other administrative or regulatory
bodies thereof.
"PIK NOTES" means Senior Pay-in-Kind Notes, if any, issued by Parent,
in exchange for PIK Preferred Stock which notes shall (i) provide for the
payment of interest by accretion of the original face amount thereof or by
the issuance of additional PIK Notes for a period of not less than five years
after the Closing Date, (ii) not provide for any scheduled redemptions or
prepayments or any sinking fund installment payments or maturities prior to a
date which is seven and one-half years after the Closing Date, and (iii) have
terms and conditions not less favorable to Parent and Lenders than those set
forth in the draft "Description of Exchange Debentures" dated August 27,
1998, a copy of which has been distributed to the Lenders.
"PIK PREFERRED STOCK" means Pay-in-Kind Preferred Stock issued by
Parent, the face amount thereof to be issued on the Closing date being not
less than $34,000,000, providing for the payment of dividends thereon by the
issuance of additional shares of such Pay-in-Kind Preferred Stock or by
accretion of the original face amount thereof for a period of not less than
five years from the Closing Date, which Pay-in-Kind Preferred Stock shall be
unsecured and unguaranteed, shall not provide for any scheduled redemptions
or prepayments prior to a date which is seven-and-a-half years after the
Closing Date, as amended from time to time to the extent permitted under the
Parent Guaranty.
"PLEDGED COLLATERAL" means, collectively, at any time, the "Pledged
Collateral" as defined in any of the Finance Co. Pledge Agreement, the DAH
Pledge Agreement, the Parent Pledge Agreement and the Subsidiary Pledge
Agreements as is a Collateral Document at such time.
24
<PAGE>
"POTENTIAL EVENT OF DEFAULT" means a condition or event that, after
notice or lapse of time or both, would constitute an Event of Default.
"PROPERTY REINVESTMENT APPLICATION" means the application of Net
Asset Sale Proceeds or Net Insurance/Condemnation Proceeds, as the case may
be, to the acquisition by Company or its Subsidiaries of tangible or
intangible property or assets (other than property or assets that constitute
current assets under GAAP, unless the acquisition thereof is incidental to
the acquisition of a materially greater amount of non-current assets) that is
to be used in the business of Company and its Subsidiaries.
"PRO RATA SHARE" means (i) with respect to all payments, computations
and other matters relating to the Tranche A Term Loan Commitment or the
Tranche A Term Loan of any Lender, the percentage obtained by DIVIDING (x)
the Tranche A Term Loan Exposure of that Lender BY (y) the aggregate Tranche
A Term Loan Exposure of all Lenders, (ii) with respect to all payments,
computations and other matters relating to the Tranche B Term Loan Commitment
or the Tranche B Term Loan of any Lender, the percentage obtained by DIVIDING
(x) the Tranche B Term Loan Exposure of that Lender BY (y) the aggregate
Tranche B Term Loan Exposure of all Lenders, (iii) with respect to all
payments, computations and other matters relating to the Working Capital Loan
Commitment or the Working Capital Loans of any Lender or any Letters of
Credit issued or participations therein purchased by any Lender or any
participations in any Swing Line Loans purchased or deemed purchased by any
Working Capital Lender, the percentage obtained by DIVIDING (x) the Working
Capital Loan Exposure of that Lender BY (y) the aggregate Working Capital
Loan Exposure of all Lenders, (iv) with respect to all payments, computations
and other matters relating to the Acquisition Loan Commitment or the
Acquisition Loans of any Lender, the percentage obtained by DIVIDING (x) the
Acquisition Loan Exposure of that Acquisition Lender BY (y) the aggregate
Acquisition Loan Exposure of all Lenders, and (v) for all other purposes with
respect to each Lender, the percentage obtained by DIVIDING (x) the sum of
the Tranche A Term Loan Exposure of that Lender PLUS the Tranche B Term Loan
Exposure of that Lender PLUS the Working Capital Loan Exposure of that Lender
plus the Acquisition Loan Exposure of that Lender BY (y) the sum of the
aggregate Tranche A Term Loan Exposure of all Lenders PLUS the aggregate
Tranche B Term Loan Exposure of all Lenders PLUS the aggregate Working
Capital Loan Exposure of all Lenders PLUS the aggregate Acquisition Loan
Exposure of all Lenders, in any such case as the applicable percentage may be
adjusted by assignments permitted pursuant to subsection 10.1. The initial
Pro Rata Share of each Lender for purposes of each of clauses (i), (ii),
(iii) and (iv) of the preceding sentence is set forth opposite the name of
that Lender in SCHEDULE 2.1 annexed hereto.
"PTO" means the United States Patent and Trademark Office or any
successor or substitute office in which filings are necessary or, in the
opinion of Administrative Agent, desirable in order to create or perfect
Liens on any IP Collateral.
"QUARTERLY DATE" means each March 31, June 30, September 30 and
December 31.
"REAL PROPERTY ASSET" means, at any time of determination, any
interest then owned by any Loan Party in any real property.
25
<PAGE>
"REFUNDED SWING LINE LOANS" has the meaning assigned to that term in
subsection 2.1A(iv).
"REGULATION D" means Regulation D of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"REIMBURSEMENT DATE" has the meaning assigned to that term in
subsection 3.3B.
"RELATED AGREEMENTS" means, collectively, the Intercompany Notes, the
Merger Agreement, the Senior Subordinated Bridge Note Agreement, if any, the
Senior Subordinated Bridge Notes, if any, any guaranties related thereto and,
if and when executed, the Senior Subordinated Note Indenture and the Senior
Subordinated Notes and any guaranties related to any of the foregoing, the
Parent PIK Securities and the agreements or other instruments pursuant to
which the Parent PIK Securities have been issued or are governed, including
without limitation any note purchase agreement, any indenture or any
certificate of designation and all other agreements or instruments delivered
pursuant to or in connection with any of the foregoing including any
registration rights agreement.
"RELEASE" means any release, spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge, dispersal,
dumping, leaching or migration of Hazardous Materials into the indoor or
outdoor environment (including the abandonment or disposal of any barrels,
containers or other closed receptacles containing any Hazardous Materials),
including the movement of any Hazardous Materials through the air, soil,
surface water or groundwater.
"REQUISITE LENDERS" means on any date, Lenders having or holding more
than 50% of the sum of (i) the aggregate Tranche A Term Loan Exposure of all
Lenders PLUS (ii) the aggregate Tranche B Term Loan Exposure of all Lenders
PLUS (iii) the aggregate Working Capital Loan Exposure of all Lenders PLUS
(iv) the aggregate Acquisition Loan Exposure of all Lenders, in each case on
such date.
"RESERVE REQUIREMENT" means, with respect to an Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on
Eurocurrency liabilities.
"RESTRICTED JUNIOR PAYMENT" means (i) any distribution, direct or
indirect, on account of any class of stock of Company now or hereafter
outstanding, except a distribution payable solely in shares of that class or
a junior class of stock payable solely to holders of that class, (ii) any
redemption, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any class of stock of Company
now or hereafter outstanding, (iii) any payment made to retire, or to obtain
the surrender of, any outstanding warrants, options or other rights to
acquire shares of any class of stock of Company now or hereafter outstanding,
and (iv) any payment or prepayment of principal of, premium, if any, or
interest on, or redemption, purchase, retirement, defeasance (including
in-substance or legal defeasance), sinking fund or similar payment with
respect to, any Subordinated Indebtedness.
"SECOND MERGER" means the merger of Finance Co. with and into DAH.
26
<PAGE>
"SECURITIES" means any stock, shares, partnership interests, voting
trust certificates, certificates of interest or participation in any
profit-sharing agreement or arrangement, options, warrants, bonds,
debentures, notes, or other evidences of indebtedness, secured or unsecured,
convertible, subordinated or otherwise, or in general any instruments
commonly known as "securities" or any certificates of interest, shares or
participations in temporary or interim certificates for the purchase or
acquisition of, or any right to subscribe to, purchase or acquire, any of the
foregoing.
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time, and any successor statute.
"SECURITY AGREEMENT" means the Security Agreement executed and
delivered on the Merger Date by Company and each then existing Subsidiary
Guarantor on the Merger Date or executed and delivered by any additional
Subsidiary Guarantor from time to time thereafter in accordance with
subsection 6.7, substantially in the form of EXHIBIT XVI annexed hereto, as
such Security Agreement may thereafter be amended, supplemented or otherwise
modified from time to time.
"SENIOR SUBORDINATED BRIDGE NOTE AGREEMENT" means that certain
Securities Purchase Agreement, if any, pursuant to which the Senior
Subordinated Bridge Notes, if any, are issued, as in effect on the date of
execution of this Agreement and as such agreement may be amended from time to
time thereafter to the extent permitted under subsection 7.15.
"SENIOR SUBORDINATED BRIDGE NOTES" means the senior subordinated
increasing rate notes, if any, issued by Company on the Closing Date, which
notes (i) are unsecured and subordinated to the Obligations, (ii) mature at
least one year after the Closing Date; and (iii) provide that the maturity
thereof will be automatically extended to the date which is seven and
one-half years after the Closing Date, subject to satisfaction of certain
conditions, as such notes may be amended from time to time thereafter to the
extent permitted under subsection 7.15.
"SENIOR SUBORDINATED NOTE INDENTURE" means the senior subordinated
note indenture, if any, executed by Company and a trustee named thereunder
pursuant to which the Senior Subordinated Notes, if any, are issued, as such
indenture may be amended from time to time to the extent permitted under
subsection 7.15.
"SENIOR SUBORDINATED NOTES" means the senior subordinated notes, if
any, issued by Company which notes shall be unsecured and shall not provide
for any scheduled redemptions or prepayments or any sinking fund installment
payments or maturities prior to a date which is seven and one-half years
after the Closing Date, which shall have terms and conditions substantially
as set forth in the Preliminary Offering Memorandum dated August 12, 1998 or
otherwise in form and substance satisfactory to Agents, as such notes may be
amended from time to time to the extent permitted under subsection 7.15.
"Senior Subordinated Notes" shall also refer to the registered Securities, if
any, having the same terms and conditions as the notes described above which
are issued by Company in exchange for such notes upon exercise of the
customary registration rights accompanying such notes.
27
<PAGE>
"SOLVENCY CERTIFICATE" means an Officer's Certificate substantially
in the form of EXHIBIT XXII annexed hereto.
"SOLVENT" means, with respect to any Person, that as of the date of
determination (i) the then fair value of the property of such Person is
greater than the total amount of liabilities (including contingent
liabilities) of such Person and (ii) the then fair saleable value of the
property of such Person is not less than the amount that will be required to
pay the probable liabilities on such Person's then existing debts as they
become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to such Person; (iii) such
Person's capital is not unreasonably small in relation to its business; and
(iv) such Person does not intend to incur, or believe (nor should it
reasonably believe) that it will incur, debts beyond its ability to pay such
debts as they become due. For purposes of this definition, the amount of any
contingent liability at any time shall be computed as the amount that, in
light of all of the facts and circumstances existing at such time, represents
the amount that can reasonably be expected to become an actual or matured
liability.
"STANDBY LETTER OF CREDIT" means any standby letter of credit or
similar instrument issued for the purpose of supporting (i) Indebtedness of
Company or any of its Subsidiaries, (ii) workers' compensation liabilities of
Company or any of its Subsidiaries, (iii) the obligations of third party
insurers of Company or any of its Subsidiaries, (iv) obligations with respect
to Capital Leases or Operating Leases of Company or any of its Subsidiaries,
and (v) performance, payment, deposit, surety or other obligations of Company
or any of its Subsidiaries.
"SUBORDINATED INDEBTEDNESS" means Indebtedness of Company subordinated
in right of payment to the Obligations pursuant to documentation containing
maturities, amortization schedules, covenants, defaults, remedies,
subordination provisions and other material terms in form and substance
satisfactory to Agents and Requisite Lenders.
"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, limited liability company, association, joint venture or other
business entity of which more than 50% of the total voting power of shares of
stock or other ownership interests entitled (without regard to the occurrence
of any contingency) to vote in the election of the Person or Persons (whether
directors, managers, trustees or other Persons performing similar functions)
constituting members of the governing body of such entity is at the time
owned and controlled, directly or indirectly, by that Person or one or more
of the other Subsidiaries of that Person or a combination thereof. For
purposes of this Agreement and the other Loan Documents, any Acquired
Controlled Person shall be deemed to be a "Subsidiary" of Company for
purposes of subsections 5.1, 5.5, 5.6, 5.7, 5.9, 5.10, 6.4A and the first
sentence of 6.4B, 6.6, 6.9, 7.1, 7.2A, 7.2C, 7.3, 7.4, 7.5, 7.7, 7.10, 7.11,
7.12 and 7.14 and, to the extent (and only to the extent) that it relates to
any of the foregoing subsections, Section 8.
"SUBSIDIARY GUARANTOR" means (i) at any time prior to the consummation
of the Merger, Acquisition Co. and (ii) any time upon and after the
consummation of the Merger, any Subsidiary of Company that executes and
delivers a counterpart of the Subsidiary Guaranty on the Merger Date or from
time to time thereafter pursuant to subsection 6.7; PROVIDED that prior to
28
<PAGE>
the consummation of the Merger, DAH and the Wholly-Owned Domestic
Subsidiaries of DAH shall be deemed to be Subsidiary Guarantors.
"SUBSIDIARY GUARANTY" means the Subsidiary Guaranty executed and
delivered by Acquisition Co. on the Closing Date and by existing Subsidiaries
of Company on the Merger Date and to be executed and delivered by additional
Subsidiaries of Company from time to time thereafter in accordance with
subsection 6.7, substantially in the form of EXHIBIT XVIII annexed hereto, as
such Subsidiary Guaranty may hereafter be amended, supplemented or otherwise
modified from time to time.
"SUBSIDIARY PLEDGE AGREEMENT" means each Subsidiary Pledge Agreement
executed and delivered by an existing Subsidiary Guarantor on the Merger Date
or executed and delivered by any additional Subsidiary Guarantor from time to
time thereafter in accordance with subsection 6.7, in each case substantially
in the form of EXHIBIT XIX annexed hereto, as such Subsidiary Pledge
Agreement may be amended, supplemented or otherwise modified from time to
time, and "SUBSIDIARY PLEDGE AGREEMENTS" means all such Subsidiary Pledge
Agreements, collectively.
"SUPPLEMENTAL COLLATERAL AGENT" has the meaning assigned to that term
in subsection 9.1B.
"SWING LINE LENDER" means First Chicago, or any Person serving as a
successor Administrative Agent hereunder, in its capacity as Swing Line
Lender hereunder.
"SWING LINE LOAN COMMITMENT" means the commitment of Swing Line Lender
to make Swing Line Loans to Company pursuant to subsection 2.1A(iv).
"SWING LINE LOANS" means the Loans made by Swing Line Lender to
Company pursuant to subsection 2.1A(iv).
"SWING LINE NOTE" means (i) the promissory note of Company issued
pursuant to subsection 2.1D(iv) on the Closing Date and (ii) any promissory
note issued by Company to any successor Administrative Agent and Swing Line
Lender pursuant to the last sentence of subsection 9.3B, in each case
substantially in the form of EXHIBIT VII annexed hereto, as it may be
amended, supplemented or otherwise modified from time to time.
"SYNDICATION AGENT" has the meaning assigned to that term in the
introduction to this Agreement.
"TAX" or "TAXES" means any present or future tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature and whatever called, imposed
by any taxing authority, from or through which payments originate or are made or
deemed made by or to the Company, but excluding any income, excise, stamp or
franchise taxes and other similar taxes, fees, duties, withholdings or other
charges imposed on any Lender or any Agent as a result of a present or former
connection between the applicable lending office (or, in the case of any Agent,
the office through which it performs any of its actions as Agent) of such Lender
or Agent, and the jurisdiction of the governmental authority imposing such tax
or any political subdivision or
29
<PAGE>
taxing authority thereof or therein (other than any such connection arising
solely from such Agent or such Lender having executed, delivered or performed
its obligations or received a payment under, or taken any action to enforce,
this Agreement or the other Loan Documents).
"TENDER OFFER" means the offer by Acquisition Co. to purchase for
$23.00 per share in cash all of the outstanding shares of DAH Common Stock
pursuant to the Tender Offer Materials.
"TENDER OFFER MATERIALS" means the Tender Offer Statement on Schedule
14D-1 filed by Acquisition Co. on July 22, 1998 with the Securities and
Exchange Commission pursuant to Section 14(d)(1) of the Exchange Act,
together with all exhibits, supplements and amendments thereto entered into
on or prior to the date hereof and any amendments entered into after the date
hereof that relate only to any extension of time during which the offer to
purchase set forth therein remains outstanding and other amendments that are
approved by Requisite Lenders.
"TERM LOANS" means, collectively, the Tranche A Term Loans and the
Tranche B Term Loans.
"TITLE COMPANY" means one or more title insurance companies selected
by Company and reasonably satisfactory to Agents.
"TOTAL UTILIZATION OF WORKING CAPITAL LOAN COMMITMENTS" means, as at
any date of determination, the sum of (i) the aggregate principal amount of
all outstanding Working Capital Loans PLUS (ii) the aggregate principal
amount of all outstanding Swing Line Loans PLUS (iii) the Letter of Credit
Usage.
"TRADE LETTERS OF CREDIT" means Letters of Credit issued for the
purpose of providing the principal payment mechanism for the purchase of
goods through the presentation of documents to the Issuing Lender.
"TRANCHE A TERM LOAN COMMITMENT" means the commitment of a Lender to
make Tranche A Term Loans to Company pursuant to subsection 2.1A(i), and
"TRANCHE A TERM LOAN COMMITMENTS" means such commitments of all Lenders in
the aggregate.
"TRANCHE A TERM LOAN EXPOSURE" means, with respect to any Tranche A
Term Loan Lender as of any date of determination the sum, without
duplication, of (i) that Lender's unused Tranche A Term Loan Commitment and
(ii) the outstanding principal amount of the Tranche A Term Loans of that
Lender.
"TRANCHE A TERM LOAN LENDER" means any Lender who holds a Tranche A
Term Loan Commitment, or who has made a Tranche A Term Loan hereunder and any
assignee of such Lender pursuant to subsection 10.1B.
"TRANCHE A TERM LOANS" means the Tranche A Term Loans made by Tranche
A Term Loan Lenders to Company pursuant to subsection 2.1A(i).
"TRANCHE A TERM NOTES" means (i) the promissory notes of Company
issued pursuant to subsection 2.1D(i) on the Closing Date and (ii) any
promissory notes issued by Company
30
<PAGE>
pursuant to the last sentence of subsection 10.1B(i) in connection with
assignments of the Tranche A Term Loan Commitments or Tranche A Term Loans of
any Tranche A Term Loan Lenders, in each case substantially in the form of
EXHIBIT IV annexed hereto, as they may be amended, supplemented or otherwise
modified from time to time.
"TRANCHE B TERM LOAN COMMITMENT" means the commitment of a Lender to
make a Tranche B Term Loan to Company pursuant to subsection 2.1A(ii), and
"TRANCHE B TERM LOAN COMMITMENTS" means such commitments of all Lenders in
the aggregate.
"TRANCHE B TERM LOAN EXPOSURE" means, with respect to any Tranche B
Term Loan Lender as of any date of determination (i) prior to the funding of
the Tranche B Term Loans, that Lender's Tranche B Term Loan Commitment and
(ii) after the funding of the Tranche B Term Loans, the outstanding principal
amount of the Tranche B Term Loan of that Lender.
"TRANCHE B TERM LOAN LENDER" means any Lender who holds a Tranche B
Term Loan Commitment or who has made a Tranche B Term Loan hereunder, and any
assignee of such Lender pursuant to subsection 10.1B.
"TRANCHE B TERM LOANS" means the Tranche B Term Loans made by Tranche
B Term Loan Lenders to Company pursuant to subsection 2.1A(ii).
"TRANCHE B TERM NOTES" means (i) the promissory notes of Company
issued pursuant to subsection 2.1D(ii) on the Closing Date and (ii) any
promissory notes issued by Company pursuant to the last sentence of
subsection 10.1B(i) in connection with assignments of the Tranche B Term Loan
Commitments or Tranche B Term Loans of any Tranche B Term Loan Lenders, in
each case substantially in the form of EXHIBIT V annexed hereto, as they may
be amended, supplemented or otherwise modified from time to time.
"TRANSACTION" means the Tender Offer, the Merger, the Second Merger
and the financings thereof pursuant to this Agreement, the Senior
Subordinated Bridge Notes, if any, the Senior Subordinated Notes, if any, and
the PIK Preferred Stock.
"TRANSACTION COSTS" means the fees, costs and expenses payable by any
Loan Party in connection with the Tender Offer, the Mergers and the related
financing and other transactions contemplated hereby.
"UCC" means the Uniform Commercial Code (or any similar or equivalent
legislation) as in effect in any applicable jurisdiction.
"WHOLLY-OWNED SUBSIDIARY" means any Subsidiary of Company all of the
equity interests (except directors' qualifying shares) and voting interests
of which are owned by Company and/or one or more of Company's other
Wholly-Owned Subsidiaries.
"WORKING CAPITAL LENDER" means a Lender having a Working Capital Loan
Commitment.
31
<PAGE>
"WORKING CAPITAL LOAN COMMITMENT" means the commitment of a Lender to
make Working Capital Loans to Company pursuant to subsection 2.1A(iii), and
"WORKING CAPITAL LOAN COMMITMENTS" means such commitments of all Lenders in
the aggregate.
"WORKING CAPITAL LOAN COMMITMENT" means the commitment of a Working
Capital Lender to make Working Capital Loans to Company pursuant to
subsection 2.1A(iii), and "WORKING CAPITAL LOAN COMMITMENTS" means such
commitments of all Working Capital Lenders in the aggregate.
"WORKING CAPITAL LOAN COMMITMENT TERMINATION DATE" means September 30,
2004.
"WORKING CAPITAL LOAN EXPOSURE" means, with respect to any Working
Capital Lender as of any date of determination (i) prior to the termination
of the Working Capital Loan Commitments, that Working Capital Lender's
Working Capital Loan Commitment and (ii) after the termination of the Working
Capital Loan Commitments, the sum of (a) the aggregate outstanding principal
amount of the Working Capital Loans of that Working Capital Lender PLUS (b)
in the event that Working Capital Lender is an Issuing Lender, the aggregate
Letter of Credit Usage in respect of all Letters of Credit issued by that
Working Capital Lender (in each case net of any participations purchased by
other Working Capital Lenders in such Letters of Credit or any unreimbursed
drawings thereunder) PLUS (c) the aggregate amount of all participations
purchased by that Working Capital Lender in any outstanding Letters of Credit
or any unreimbursed drawings under any Letters of Credit PLUS (d) in the case
of Swing Line Lender, the aggregate outstanding principal amount of all Swing
Line Loans (net of any participations therein purchased by other Working
Capital Lenders) PLUS (e) the aggregate amount of all participations
purchased by that Working Capital Lender in any outstanding Swing Line Loans.
"WORKING CAPITAL LOANS" means the Loans made by Working Capital
Lenders to Company pursuant to subsection 2.1A(iii).
"WORKING CAPITAL NOTES" means (i) the promissory notes of Company
issued pursuant to subsection 2.1D(iii) on the Closing Date and (ii) any
promissory notes issued by Company pursuant to the last sentence of
subsection 10.1B(i) in connection with assignments of the Working Capital
Loan Commitments and Working Capital Loans of any Working Capital Lenders, in
each case substantially in the form of EXHIBIT VI annexed hereto, as they may
be amended, supplemented or otherwise modified from time to time.
1.2 ACCOUNTING TERMS; UTILIZATION OF GAAP FOR PURPOSES OF CALCULATIONS
UNDER AGREEMENT.
(a) Unless otherwise specified, all accounting terms used herein or
in any other Loan Document shall be interpreted, all accounting
determinations and computations hereunder or thereunder shall be made, and
all financial statements required to be delivered hereunder or thereunder
(including under subsection 7.6) shall be prepared, in accordance with GAAP,
as in effect in the United States on December 31, 1997 and, unless expressly
provided herein, shall be computed or determined on a consolidated basis and
without duplication.
(b) For purposes of computing the Consolidated Fixed Charge Coverage
Ratio,
32
<PAGE>
Consolidated Interest Coverage Ratio and Consolidated Leverage Ratio (and any
financial calculations required to be made or included within such ratios)
as of the end of any Fiscal Quarter and for purposes of computing
Consolidated EBITDA in connection with subsection 7.6C (but not for purposes
of computing Consolidated Excess Cash Flow for any period), as at the end of
any Fiscal Quarter, all components of such ratios (other than Consolidated
Capital Expenditures) or Consolidated EBITDA for the period of four Fiscal
Quarters ending at the end of such Fiscal Quarter shall include or exclude,
as the case may be, without duplication, such components of such ratios or
Consolidated EBITDA attributable to any business or assets that have been
acquired or disposed of by the Company or any of its Subsidiaries (including
through mergers or consolidations) after the first day of such period of four
Fiscal Quarters and prior to the end of such period, as determined in good
faith by the Company on a pro forma basis for such period of four Fiscal
Quarters as if such acquisition or disposition had occurred on such first day
of such period (including, whether or not such inclusion would be permitted
under GAAP or Regulation S-X of the Securities and Exchange Commission, cost
savings that would have been realized had such acquisition occurred on such
day.
(c) All calculations of Consolidated EBITDA, Consolidated Fixed
Charge Coverage Ratio and Consolidated Interest Coverage Ratio (and related
definitions) for any period ending prior to or including the Merger Date
shall be made on a pro-forma basis assuming the Tender Offer and the Merger
were consummated on the first day of such period and all calculations of
Consolidated Interest Expense and interest expense included in the
calculation of Consolidated Interest Coverage Ratio and Consolidated Fixed
Charge Coverage Ratio shall be calculated on a pro forma basis as if the
Merger were consummated on the Closing Date and Annualized as set forth in
the definitions of Consolidated Interest Coverage Ratio and Consolidated
Fixed Charge Coverage Ratio. All calculations of Consolidated Total Debt on
any date prior to the Merger Date shall be made on a pro forma basis assuming
the Merger was consummated on such date.
1.3 OTHER DEFINITIONAL PROVISIONS AND RULES OF CONSTRUCTION.
A. Any of the terms defined herein may, unless the context
otherwise requires, be used in the singular or the plural, depending on the
reference.
B. References to "Sections" and "subsections" shall be to Sections
and subsections, respectively, of this Agreement unless otherwise
specifically provided.
C. The use in any of the Loan Documents of the word "include" or
"including", when following any general statement, term or matter, shall not
be construed to limit such statement, term or matter to the specific items or
matters set forth immediately following such word or to similar items or
matters, whether or not nonlimiting language (such as "without limitation" or
"but not limited to" or words of similar import) is used with reference
thereto, but rather shall be deemed to refer to all other items or matters
that fall within the broadest possible scope of such general statement, term
or matter.
33
<PAGE>
SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS
2.1 Commitments; Making of Loans; Notes.
A. COMMITMENTS. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of Company
herein set forth, each Tranche A Term Loan Lender hereby severally agrees to
make the Tranche A Term Loans described in subsection 2.1A(i), each Tranche B
Term Loan Lender hereby severally agrees to make the Tranche B Term Loans
described in subsection 2.1A(ii), each Working Capital Lender hereby
severally agrees to make the Working Capital Loans described in subsection
2.1A(iii), Swing Line Lender hereby agrees to make the Swing Line Loans
described in subsection 2.1A(iv) and each Acquisition Lender hereby severally
agrees to make the Acquisition Loans described in subsection 2.1A(v).
(i) TRANCHE A TERM LOANS. Each Tranche A Term Loan Lender
severally agrees to lend to Company on the Closing Date and on the Merger
Date an aggregate amount not exceeding its Pro Rata Share of the
aggregate amount of the Tranche A Term Loan Commitments to be used for
the purposes identified in subsection 2.5A; PROVIDED that prior to, or
simultaneously with the funding of the initial Tranche A Term Loans, the
Tranche B Term Loans shall have been funded in full. The amount of each
Tranche A Term Loan Lender's Tranche A Term Loan Commitment is set forth
opposite its name on SCHEDULE 2.1 annexed hereto and the aggregate amount
of the Tranche A Term Loan Commitments is $35,000,000; PROVIDED that the
Tranche A Term Loan Commitments of the Tranche A Term Loan Lenders shall
be adjusted to give effect to any assignments of the Tranche A Term Loan
Commitments pursuant to subsection 10.1B and to any reductions thereof
pursuant to Section 2.4B(ii). Each Tranche A Term Loan Lender's Term
Loan Commitment (i) shall expire immediately and without further action
on October 31, 1998, if the initial Tranche A Term Loans are not made on
or before that date, (ii) shall be reduced by an amount equal to the
principal amount of the Tranche A Term Loan, if any, made by such Tranche
A Term Loan Lender on the Closing Date, immediately after giving effect
thereto on the Closing Date, and (iii) to the extent unused, shall expire
on the close of business on the Merger Date. Company may make a
borrowing under the Tranche A Term Loan Commitments on the Closing Date
and on the Merger Date. Amounts borrowed under this subsection 2.1A(i)
and subsequently repaid or prepaid may not be reborrowed.
(ii) TRANCHE B TERM LOANS. Each Tranche B Term Loan Lender
severally agrees to lend to Company on the Closing Date an amount not
exceeding its Pro Rata Share of the aggregate amount of the Tranche B
Term Loan Commitments to be used for the purposes identified in
subsection 2.5A. The amount of each Tranche B Term Loan Lender's Tranche
B Term Loan Commitment is set forth opposite its name on SCHEDULE 2.1
annexed hereto and the aggregate amount of the Tranche B Term Loan
Commitments is $45,000,000; PROVIDED that the Tranche B Term Loan
Commitments of Tranche B Term Loan Lenders shall be adjusted to give
effect to any assignments of the Tranche B Term Loan Commitments pursuant
to subsection 10.1B. Each Tranche B Term Loan Lender's Tranche B Term
Loan Commitment shall expire immediately and without further action on
the earlier of (i) October 31, 1998, if the Tranche B Term Loans are not
made on or before that date and (ii) at the close of business on the
Closing Date.
34
<PAGE>
Company may make only one borrowing under the Tranche B Term Loan
Commitments. Amounts borrowed under this subsection 2.1A(ii) and
subsequently repaid or prepaid may not be reborrowed.
(iii) WORKING CAPITAL LOANS. Each Working Capital Lender
severally agrees, subject to the limitations set forth below with respect
to the maximum amount of Working Capital Loans permitted to be
outstanding from time to time, to lend to Company from time to time
during the period from the Closing Date to but excluding the Working
Capital Loan Commitment Termination Date an aggregate amount not
exceeding its Pro Rata Share of the aggregate amount of the Working
Capital Loan Commitments to be used for the purposes identified in
subsection 2.5B. The original amount of each Working Capital Lender's
Working Capital Loan Commitment is set forth opposite its name on
SCHEDULE 2.1 annexed hereto and the aggregate original amount of the
Working Capital Loan Commitments is $25,000,000; PROVIDED that the
Working Capital Loan Commitments of the Working Capital Lenders shall be
adjusted to give effect to any assignments of the Working Capital Loan
Commitments pursuant to subsection 10.1B; PROVIDED FURTHER the Working
Capital Loan Commitments may be increased pursuant to the immediately
succeeding paragraph of this subsection 2.1A(iii); and PROVIDED STILL
FURTHER that the amount of the Working Capital Loan Commitments shall be
reduced from time to time by the amount of any reductions thereto made
pursuant to subsection 2.4B(ii). Each Working Capital Lender's Working
Capital Loan Commitment shall expire on the Working Capital Loan
Commitment Termination Date and all Working Capital Loans and all other
amounts owed hereunder with respect to the Working Capital Loans and the
Working Capital Loan Commitments shall be paid in full no later than that
date; PROVIDED that each Working Capital Lender's Working Capital Loan
Commitment shall expire immediately and without further action on
October 31, 1998, if the Tranche B Term Loans are not made on or before
that date. Amounts borrowed under this subsection 2.1A(iii) may be
repaid and, at any time to but excluding the Working Capital Loan
Commitment Termination Date, reborrowed.
At any time that no Potential Event of Default or Event of Default
has occurred and is continuing, the Company may, by notice to the Agents,
request that, on the terms and subject to the conditions contained in
this Agreement, the Lenders and/or other financial institutions not then
a party to this Agreement that are satisfactory to the Agents provide up
to an aggregate amount of $20,000,000 in additional Working Capital Loan
Commitments. Upon receipt of such notice, the Syndication Agent shall
use all commercially reasonable efforts to arrange for the Lenders or
other financial institutions to provide such additional Working Capital
Loan Commitments; PROVIDED that the Syndication Agent will first offer
each of the Lenders that then has a Pro Rata Share of any Working Capital
Loan Commitments a pro rata portion (based upon the aggregate amount of
the Working Capital Loan Commitments at such time) of any such additional
Working Capital Loan Commitment. Alternatively, any Lender may commit to
provide the full amount of the requested additional Working Capital Loan
Commitments and then offer portions of such additional Working Capital
Loan Commitments to the other Lenders or other financial institutions,
subject to the proviso in the immediately preceding sentence. Nothing
contained in this paragraph or otherwise in this Agreement
35
<PAGE>
is intended to commit any Lender or any Agent to provide any portion
of any such additional Working Capital Loan Commitments. If and to
the extent that any Lenders and/or other financial institutions agree,
in their sole discretion, to provide any such additional Working
Capital Loan Commitments, (i) the aggregate amount of the Working
Capital Loan Commitments shall be increased by the amount of the
additional Working Capital Loan Commitments agreed to be so provided,
(ii) the Pro Rata Shares of the respective Lenders in respect of the
Working Capital Loan Commitments shall be proportionally adjusted,
(iii) at such time and in such manner as Company and the Syndication
Agent shall agree (it being understood that Company and the Agents
will use all commercially reasonable efforts to avoid the prepayment
or assignment of any Eurodollar Rate Loan on a day other than the last
day of the Interest Period applicable thereto), the Lenders shall
assign and assume outstanding Working Capital Loans and participations
in outstanding Letters of Credit so as to cause the amount of such
Working Capital Loans and participations in Letters of Credit held by
each Lender to conform to the respective percentages of the applicable
Working Capital Loan Commitments of the Lenders and (iv) Company shall
execute and deliver any additional Notes or other amendments or
modifications to this Agreement or any other Loan Document as the
Agents may reasonably request.
Anything contained in this Agreement to the contrary notwithstanding, in
no event shall the Total Utilization of Working Capital Loan Commitments
at any time exceed the Working Capital Loan Commitments then in effect.
(iv) SWING LINE LOANS. Swing Line Lender hereby agrees, subject
to the limitations set forth below with respect to the maximum amount of
Swing Line Loans permitted to be outstanding from time to time, to make a
portion of the Working Capital Loan Commitments available to Company from
time to time during the period from the Closing Date to but excluding the
Working Capital Loan Commitment Termination Date by making Swing Line
Loans to Company in an aggregate amount not exceeding the amount of the
Swing Line Loan Commitment to be used for the purposes identified in
subsection 2.5B, notwithstanding the fact that such Swing Line Loans,
when aggregated with Swing Line Lender's outstanding Working Capital
Loans and Swing Line Lender's Pro Rata Share of the Letter of Credit
Usage then in effect, may exceed Swing Line Lender's Working Capital Loan
Commitment. The original amount of the Swing Line Loan Commitment is
$5,000,000; PROVIDED that any reduction of the Working Capital Loan
Commitments made pursuant to subsection 2.4B(ii) which reduces the
aggregate Working Capital Loan Commitments to an amount less than the
then current amount of the Swing Line Loan Commitment shall result in an
automatic corresponding reduction of the Swing Line Loan Commitment to
the amount of the Working Capital Loan Commitments, as so reduced,
without any further action on the part of Company, Administrative Agent
or Swing Line Lender. The Swing Line Loan Commitment shall expire on the
Working Capital Loan Commitment Termination Date and all Swing Line Loans
and all other amounts owed hereunder with respect to the Swing Line Loans
shall be paid in full no later than that date; PROVIDED that the Swing
Line Loan Commitment shall expire immediately and without further action
on October 31, 1998, if the Tranche B Term Loans are not made on or
before that date. Amounts borrowed under this
36
<PAGE>
subsection 2.1A(iv) may be repaid and, at any time to but excluding
the Working Capital Loan Commitment Termination Date, reborrowed.
Anything contained in this Agreement to the contrary
notwithstanding, the Swing Line Loans and the Swing Line Loan Commitment
shall be subject to the limitation that in no event shall the Total
Utilization of Working Capital Loan Commitments at any time exceed the
Working Capital Loan Commitments then in effect.
With respect to any Swing Line Loans which have not been
voluntarily prepaid by Company pursuant to subsection 2.4B(i), Swing Line
Lender may, at any time in its sole and absolute discretion, deliver to
Administrative Agent (with a copy to Company), no later than 9:00 A.M.
(Chicago time) on the first Business Day in advance of the proposed
Funding Date, a notice (which shall be deemed to be a Notice of Borrowing
given by Company) requesting Working Capital Lenders to make Working
Capital Loans that are Base Rate Loans on such Funding Date in an amount
equal to the amount of such Swing Line Loans (the "REFUNDED SWING LINE
LOANS") outstanding on the date such notice is given which Swing Line
Lender requests Working Capital Lenders to prepay. Anything contained in
this Agreement to the contrary notwithstanding, (i) the proceeds of such
Working Capital Loans made by Working Capital Lenders other than Swing
Line Lender shall be immediately delivered by Administrative Agent to
Swing Line Lender (and not to Company) and applied to repay a
corresponding portion of the Refunded Swing Line Loans and (ii) on the
day such Working Capital Loans are made, Swing Line Lender's Pro Rata
Share of the Refunded Swing Line Loans shall be deemed to be paid with
the proceeds of a Working Capital Loan made by Swing Line Lender, and
such portion of the Swing Line Loans deemed to be so paid shall no longer
be outstanding as Swing Line Loans and shall no longer be due under the
Swing Line Note of Swing Line Lender but shall instead constitute part of
Swing Line Lender's outstanding Working Capital Loans and shall be due
under the Working Capital Note of Swing Line Lender and the
participations of each Working Capital Lender in such Refunded Swing Line
Loan shall be extinguished without further action. Company hereby
authorizes Administrative Agent and Swing Line Lender to charge Company's
accounts with Administrative Agent and Swing Line Lender (up to the
amount available in each such account) in order to immediately pay Swing
Line Lender the amount of the Refunded Swing Line Loans to the extent the
proceeds of such Working Capital Loans made by Working Capital Lenders,
including the Working Capital Loan deemed to be made by Swing Line
Lender, are not sufficient to repay in full the Refunded Swing Line
Loans. If any portion of any such amount paid (or deemed to be paid) to
Swing Line Lender should be recovered by or on behalf of Company from
Swing Line Lender in bankruptcy, by assignment for the benefit of
creditors or otherwise, the loss of the amount so recovered shall be
ratably shared among all Working Capital Lenders in the manner
contemplated by subsection 10.5.
Immediately upon funding of any Swing Line Loan, each Working
Capital Lender shall be deemed to, and hereby agrees to, have purchased a
participation in such outstanding Swing Line Loans in an amount equal to
its Pro Rata Share of the principal amount of such Swing Line Loans.
Upon one Business Day's notice from Swing Line Lender, each Working
Capital Lender shall deliver to Swing Line Lender an amount
37
<PAGE>
equal to its respective participation in any outstanding Swing Line
Loans in same day funds at the Funding and Payment Office. Each such
amount so delivered by any Working Capital Lender shall be deemed to
be a Base Rate Working Capital Loan of such Working Capital Lender,
and the Swing Line Lender's participation, in its capacity as a
Working Capital Lender, in any outstanding Swing Line Loans shall be
deemed to be converted to a Working Capital Loan of the Swing Line
Lender made in its capacity as a Working Capital Lender. In the event
any Working Capital Lender fails to make available to Swing Line
Lender the amount of such Working Capital Lender's participation as
provided in this paragraph, Swing Line Lender shall be entitled to
recover such amount on demand from such Working Capital Lender
together with interest thereon at the rate customarily used by Swing
Line Lender for the correction of errors among banks for three
Business Days and thereafter at the Base Rate. In the event Swing
Line Lender receives a payment of any amount in which other Working
Capital Lenders have purchased participations as provided in this
paragraph, Swing Line Lender shall promptly distribute to each such
other Working Capital Lender its Pro Rata Share of such payment.
Anything contained herein to the contrary notwithstanding, each
Working Capital Lender's obligation to make Working Capital Loans for the
purpose of repaying any Refunded Swing Line Loans pursuant to the second
preceding paragraph and each Working Capital Lender's obligation to
purchase a participation in Swing Line Loans pursuant to the immediately
preceding paragraph shall be absolute and unconditional and shall not be
affected by any circumstance, including (a) any set-off, counterclaim,
recoupment, defense or other right which such Working Capital Lender may
have against Swing Line Lender, Company or any other Person for any
reason whatsoever; (b) the occurrence or continuation of an Event of
Default or a Potential Event of Default (subject to the proviso set forth
below); (c) any adverse change in the business, operations, properties,
assets, condition (financial or otherwise) or prospects of Company or any
of its Subsidiaries; (d) any breach of this Agreement or any other Loan
Document by any party thereto; or (e) any other circumstance, happening
or event whatsoever, whether or not similar to any of the foregoing;
PROVIDED that such obligations of each Working Capital Lender are subject
to satisfaction of one of the following conditions (X) Swing Line Lender
believed in good faith that all conditions under Section 4 to the making
of the applicable Refunded Swing Line Loans were satisfied at the time
such Refunded Swing Line Loans or unpaid Swing Line Loans were made or
(Y) the satisfaction of any such condition not satisfied had been waived
in accordance with subsection 10.6.
(v) ACQUISITION LOANS. Each Acquisition Lender severally
agrees, subject to the limitations set forth below with respect to the
maximum amount of Acquisition Loans permitted to be outstanding from
time to time, to lend to Company from time to time during the period
from the Merger Date to but excluding the Acquisition Loan Commitment
Termination Date an aggregate amount not exceeding its Pro Rata Share
of the aggregate amount of the Acquisition Loan Commitments to be used
for the purposes identified in subsection 2.5C. The original amount
of each Acquisition Lender's Acquisition Loan Commitment is set forth
opposite its name on SCHEDULE 2.1 annexed hereto and the aggregate
original amount of the Acquisition Loan Commitments is $25,000,000;
PROVIDED that the Acquisition Loan Commitments of the Acquisition
38
<PAGE>
Lenders shall be adjusted to give effect to any assignments of the
Acquisition Loan Commitments pursuant to subsection 10.1B; PROVIDED
FURTHER that the amount of the Acquisition Loan Commitments shall be
reduced from time to time by the amount of any reductions thereto made
pursuant to subsections 2.4B(ii) and 2.4B(iii). Each Acquisition
Lender's Acquisition Loan Commitment shall expire on the Acquisition
Loan Commitment Termination Date and all Acquisition Loans and all
other amounts owed hereunder with respect to the Acquisition Loans and
the Acquisition Loan Commitments shall be paid in full no later than
that date; PROVIDED that each Acquisition Lender's Acquisition Loan
Commitment shall expire immediately and without further action on
October 31, 1998, if the Tranche B Term Loans are not made on or
before that date. Amounts borrowed under this subsection 2.1A(v) may
be repaid and reborrowed to but excluding the Acquisition Loan
Commitment Termination Date.
B. BORROWING MECHANICS. Loans made on any Funding Date (other than
Working Capital Loans deemed made pursuant to a request by Swing Line Lender
pursuant to subsection 2.1A(iv) for the purpose of repaying any Refunded
Swing Line Loans or Working Capital Loans made pursuant to subsection 3.3B
for the purpose of reimbursing any Issuing Lender for the amount of a drawing
under a Letter of Credit issued by it ("LC REFUNDING LOANS")) shall be in an
aggregate minimum amount of $1,000,000 and multiples of $100,000 in excess of
that amount. Swing Line Loans made on any Funding Date shall be in an
aggregate minimum amount of $250,000 and multiples of $10,000 in excess of
that amount. Whenever Company desires that Lenders make Loans (other than
Swing Line Loans or LC Refunding Loans) it shall deliver to Administrative
Agent a Notice of Borrowing no later than 12:00 Noon (Chicago time) at least
three Business Days in advance of the proposed Funding Date (in the case of a
Eurodollar Rate Loan, other than Eurodollar Loans to be made on the Closing
Date or the Merger Date, if the Merger Date occurs on or prior to three
Business Days after the Closing Date) or 12:00 Noon (Chicago time) on the
proposed Funding Date (in the case of a Base Rate Loan). Whenever Company
desires that Swing Line Lender make a Swing Line Loan, it shall deliver to
Administrative Agent a Notice of Borrowing no later than 12:00 Noon (Chicago
time) on the proposed Funding Date. The Notice of Borrowing shall specify
(i) the proposed Funding Date (which shall be a Business Day), (ii) the
amount and type of Loans requested, (iii) in the case of Swing Line Loans,
that such Loans shall be Base Rate Loans, (iv) in the case of any other
Loans, whether such Loans shall be Base Rate Loans or Eurodollar Rate Loans,
and (v) in the case of any Loans requested to be made as Eurodollar Rate
Loans, the initial Interest Period requested therefor. Term Loans and Working
Capital Loans may be continued as or converted into Base Rate Loans and
Eurodollar Rate Loans in the manner provided in subsection 2.2D. In lieu of
delivering the above-described Notice of Borrowing, Company may give
Administrative Agent telephonic notice by the required time of any proposed
borrowing under this subsection 2.1B; PROVIDED that such notice shall be
promptly confirmed in writing by delivery of a Notice of Borrowing to
Administrative Agent on or before the applicable Funding Date. Any Loans
made on the Closing Date and on the Merger Date (if the Merger Date occurs on
or prior to three Business Days after the Closing Date) may be Eurodollar
Loans regardless of whether this Agreement has been executed at least three
Business Days prior to such date and so long as Company has delivered a
Notice of Borrowing with respect thereto on or prior to three Business
39
<PAGE>
Days prior to such date and has also delivered an indemnity
agreement covering broken funding losses in form and substance reasonably
satisfactory to Agents.
Neither Administrative Agent nor any Lender shall incur any
liability to Company in acting upon any telephonic notice referred to above
that Administrative Agent believes in good faith to have been given by a duly
authorized officer or other person authorized to borrow on behalf of Company
or for otherwise acting in good faith under this subsection 2.1B, and upon
funding of Loans by Lenders in accordance with this Agreement pursuant to any
such telephonic notice Company shall have borrowed Loans hereunder.
Company shall notify Administrative Agent prior to the funding
of any Loans in the event that any of the matters to which Company is
required to certify in the applicable Notice of Borrowing as being true and
correct on any applicable Funding Date is not true and correct as of the
applicable Funding Date, and the acceptance by Company of the proceeds of any
Loans shall constitute a certification by Company, as of the applicable
Funding Date, as to the matters to which Company is required to certify in
the applicable Notice of Borrowing as being true and correct on such Funding
Date.
Except as otherwise provided in subsections 2.6B, 2.6C and
2.6G, a Notice of Borrowing for a Eurodollar Rate Loan (or telephonic notice
in lieu thereof) shall be irrevocable on and after the related Interest Rate
Determination Date, and Company shall be bound to make a borrowing in
accordance therewith or to pay the amounts payable pursuant to Section 2.6D
as a result of the failure to make such borrowing.
C. DISBURSEMENT OF FUNDS. All Loans (other than Swing Line Loans)
under this Agreement shall be made by Lenders simultaneously and proportionately
to their respective Pro Rata Shares of the Tranche A Term Loan Commitment, the
Tranche B Term Loan Commitment, the Working Capital Loan Commitment and the
Acquisition Loan Commitment, as the case may be, it being understood that no
Lender shall be responsible for any default by any other Lender in that other
Lender's obligation to make a Loan requested hereunder nor shall the Commitment
of any Lender to make the particular type of Loan requested be increased or
decreased as a result of a default by any other Lender in that other Lender's
obligation to make a Loan requested hereunder. Promptly after receipt by
Administrative Agent of a Notice of Borrowing pursuant to subsection 2.1B (or
telephonic notice in lieu thereof), Administrative Agent shall notify each
Lender or Swing Line Lender, as the case may be, of the proposed borrowing.
Each Lender shall make the amount of its Loan available to Administrative Agent
not later than 1:00 P.M. (Chicago time) on the applicable Funding Date, in each
case in same day funds in Dollars, at the Funding and Payment Office. Except as
provided in subsection 2.1A(iv) or subsection 3.3B with respect to Working
Capital Loans used to repay Refunded Swing Line Loans or to reimburse any
Issuing Lender for the amount of a drawing under a Letter of Credit issued by
it, upon satisfaction or waiver of the conditions precedent specified in
subsections 4.1 (in the case of Loans made on the Closing Date), 4.2 (in the
case of Loans made on the Merger Date), 4.3 (in the case of Acquisition Loans)
and 4.4 (in the case of all Loans (other than Tranche A Term Loans made on the
Merger Date)), Administrative Agent shall make the proceeds of such Loans
available to Company on the applicable Funding Date by 2:00 P.M. (Chicago time),
by causing an amount of same day funds in Dollars equal to the proceeds of all
such Loans received by Administrative
40
<PAGE>
Agent from Lenders or Swing Line Lender, as the case may be, to be credited
to the account of Company at the Funding and Payment Office.
Unless Administrative Agent shall have been notified by any
Lender prior to the Funding Date for any Loans that such Lender does not
intend to make available to Administrative Agent the amount of such Lender's
Loan requested on such Funding Date, Administrative Agent may assume that
such Lender has made such amount available to Administrative Agent on such
Funding Date and Administrative Agent may, in its sole discretion, but shall
not be obligated to, make available to Company a corresponding amount on such
Funding Date. If such corresponding amount is not in fact made available to
Administrative Agent by such Lender, Administrative Agent shall be entitled
to recover such corresponding amount on demand from such Lender together with
interest thereon, for each day from such Funding Date until the date such
amount is paid to Administrative Agent, at the Federal Funds Effective Rate
for three Business Days and thereafter at the interest rate applicable to the
relevant Loan. If such Lender does not pay such corresponding amount
forthwith upon Administrative Agent's demand therefor, Administrative Agent
shall promptly notify Company and Company shall immediately pay such
corresponding amount to Administrative Agent together with interest thereon,
for each day from such Funding Date until the date such amount is paid to
Administrative Agent, at the rate payable under this Agreement for Loans of
the type made on the Funding Date on which, and with respect to which,
Administrative Agent made available such amount. Nothing in this subsection
2.1C shall be deemed to relieve any Lender from its obligation to fulfill its
Commitments hereunder or to prejudice any rights that Company may have
against any Lender as a result of any default by such Lender hereunder.
Unless Administrative Agent shall have been notified by Company
prior to the date on which it is scheduled to make payment to Administrative
Agent of a payment of principal, interest or fees to Administrative Agent for
the account of Lenders that Company does not intend to make available to
Administrative Agent such amount on such date, Administrative Agent may
assume that Company has made such amount available to Administrative Agent on
such date and Administrative Agent may, in its sole discretion, but shall not
be obligated to, make available to Lenders a corresponding amount on such
date. If such corresponding amount is not in fact made available to
Administrative Agent by Company, Administrative Agent shall be entitled to
recover such corresponding amount on demand from Company together with
interest thereon, for each day from such scheduled payment until the date
such amount is paid to Administrative Agent, at the interest rate applicable
to the relevant Loan. If Company does not pay such corresponding amount
forthwith upon Administrative Agent's demand therefor, Administrative Agent
shall promptly notify Lenders and Lenders shall immediately pay such
corresponding amount to Administrative Agent together with interest thereon,
for each day from the scheduled payment date until the date such amount is
paid to Administrative Agent, at the rate payable under this Agreement for
Loans of the type made on such scheduled payment date on which, and with
respect to which, Administrative Agent made available such amount.
D. NOTES. Company shall execute and deliver on the Closing Date
(i) to each Tranche A Term Loan Lender (or to Administrative Agent for that
Lender) that has so requested at least one Business Day prior to the Closing
Date a Tranche A Term Note substantially in the form of EXHIBIT IV annexed
hereto to evidence that Lender's Tranche A Term Loan, in the principal amount of
that Lender's Tranche A Term Loan Commitment and with other appropriate
41
<PAGE>
insertions, (ii) to each Tranche B Term Loan Lender (or to Administrative
Agent for that Lender) that has so requested at least one Business Day prior
to the Closing Date a Tranche B Term Note substantially in the form of
EXHIBIT V annexed hereto to evidence that Lender's Tranche B Term Loan, in
the principal amount of that Lender's Tranche B Term Loan and with other
appropriate insertions, (iii) to each Working Capital Lender (or to
Administrative Agent for that Lender) that has so requested at least one
Business Day prior to the Closing Date a Working Capital Note substantially
in the form of EXHIBIT VI annexed hereto to evidence that Lender's Working
Capital Loans, in the principal amount of that Lender's Working Capital Loan
Commitment and with other appropriate insertions, (iv) to Swing Line Lender
(or to Administrative Agent for Swing Line Lender) if the Swing Line Lender
has so requested at least one Business Day prior to the Closing Date a Swing
Line Note substantially in the form of EXHIBIT VII annexed hereto to evidence
Swing Line Lender's Swing Line Loans, in the principal amount of the Swing
Line Loan Commitment and with other appropriate insertions and (v) to each
Acquisition Lender (or to Administrative Agent for that Lender) that has so
requested at least one Business Day prior to the Closing Date an Acquisition
Note substantially in the form of EXHIBIT VIII annexed hereto to evidence
that Lender's Acquisition Loan, in the principal amount of that Lender's
Acquisition Loan Commitment and with other appropriate insertions.
E. REGISTER. (a) Each Lender may maintain in accordance with its
usual practice an account or accounts evidencing the Indebtedness of Company
to such Lender resulting from each Loan made by such Lender to Company,
including the amounts of principal and interest payable and paid to such
Lender from time to time hereunder. In the case of a Lender that does not
request, pursuant to the preceding paragraph, execution and delivery of a
Note or Notes evidencing the Loans made by such Lender to Company, such
account or accounts shall, to the extent not inconsistent with the notations
made by Administrative Agent in the Register (as defined below), be
conclusive and binding on Company absent manifest error; PROVIDED, HOWEVER,
that the failure of any Lender to maintain such account or accounts shall not
limit or otherwise affect any Obligations of Company or any other Loan Party.
(b)(i) Company hereby designates Administrative Agent to serve as
its agent, solely for the purpose of this subsection (b)(i), to maintain
a register (the "REGISTER") on which Administrative Agent will record
each Lender's Commitments, the Loans made by each Lender to Company, the
Interest Period, if any, with respect thereto and each repayment in
respect of the principal amount of the Loans of each Lender to Company
and annexed to which Administrative Agent shall retain a copy of each
Assignment Agreement delivered to Administrative Agent pursuant to
Section 10.1. Failure to make any recordation, or any error in such
recordation, shall not affect Company's obligations in respect of such
Loans. The entries in the Register shall be conclusive, in the absence
of manifest error, and Company, Administrative Agent and the Lenders
shall treat each Person in whose name a Loan (and as provided in
subsection (b)(ii), the Note evidencing such Loan, if any) is registered
as the owner thereof for all purposes of this Agreement notwithstanding
notice or any provision herein to the contrary. Any Commitment of any
Lender and the Loans made pursuant thereto may be assigned or otherwise
transferred in whole or in part only by registration of such assignment
or transfer in the Register. Any assignment or transfer of any
Commitment of any Lender or the Loans made pursuant thereto shall be
registered in the Register only upon delivery to Administrative Agent of
42
<PAGE>
an Assignment Agreement duly executed by the assignor thereof. No
assignment or transfer of any Commitment of any Lender or the Loans made
pursuant thereto shall be effective, unless such assignment or transfer
shall have been recorded in the Register by Administrative Agent as
provided in this Section.
(ii) Company agrees that, upon the request by any Lender which
becomes a party to this Agreement after the date hereof to Administrative
Agent, Company will execute and deliver to such Lender a Note evidencing
the Loans made by such Lender to Company. Company authorizes each Lender
to make (or cause to be made) appropriate notations on the grid attached
to such Lender's Notes (or on any continuation of such grid), which
notations, if made, shall evidence, INTER ALIA, the date of, the
outstanding principal amount of, and the interest rate and Interest
Period applicable to the Loans evidenced thereby. Such notations shall,
to the extent not consistent with the notations made by Administrative
Agent in the Register, be conclusive and binding on Company absent
manifest error; PROVIDED, HOWEVER, that the failure of any Lender to make
any such notations or any error in any such notations shall not limit or
otherwise affect any Obligations of Company or any other Loan Party. The
Loans evidenced by any such Note and interest thereon shall at all times
(including after assignment pursuant to Section 10.1) be represented by
one or more Notes payable to the order of the payee named therein and its
registered assigns. A Note and the obligations evidenced thereby may be
assigned or otherwise transferred in whole or in part only by
registration of such assignment or transfer of such Note and the
obligation evidenced thereby in the Register (and each Note shall
expressly so provide). Any assignment or transfer of all or part of an
obligation evidenced by a Note shall be registered in the Register only
upon surrender for registration of assignment or transfer of the Note
evidencing such obligation, accompanied by an Assignment Agreement duly
executed by the assignor thereof, and thereupon, if requested by the
assignee, one or more new Notes shall be issued by Company to the
designated assignee marked "exchanged". No assignment of a Note and the
obligation evidenced thereby shall be effective unless it shall have been
recorded in the Register by Administrative Agent as provided in this
Section.
2.2 INTEREST ON THE LOANS.
A. RATE OF INTEREST. Subject to the provisions of subsection 2.6,
each Loan shall bear interest on the unpaid principal amount thereof from the
date made through maturity (whether by acceleration or otherwise) at a rate
determined by reference to the Base Rate or the Adjusted Eurodollar Rate.
Each Swing Line Loan shall bear interest on the unpaid principal amount
thereof from the date made through maturity (whether by acceleration or
otherwise) at a rate determined by reference to the Base Rate. The
applicable basis for determining the rate of interest with respect to any
Loan shall be selected by Company initially at the time a Notice of Borrowing
is given with respect to such Loan pursuant to subsection 2.1B, and the basis
for determining the interest rate with respect to any Loan may be changed
from time to time pursuant to subsection 2.2D.
43
<PAGE>
(i) (a) Subject to the provisions of subsection 2.2E, the
Tranche A Term Loans, the Working Capital Loans and the Acquisition Loans
shall bear interest through maturity as follows:
(1) if a Base Rate Loan, then at the sum of the
Base Rate PLUS the Base Rate Margin set forth in the table
below opposite the Consolidated Leverage Ratio as set forth
in the most recent Margin Determination Certificate
delivered pursuant to subsection 6.1(iv); or
(2) if a Eurodollar Rate Loan, then at the sum of
the Adjusted Eurodollar Rate for the Interest Period
applicable to such Loan PLUS the Eurodollar Rate Margin set
forth in the table below opposite the Consolidated Leverage
Ratio as set forth in the most recent Margin Determination
Certificate delivered pursuant to subsection 6.1(iv):
<TABLE>
<CAPTION>
Applicable
Eurodollar Rate Applicable Base
Consolidated Leverage Ratio Margin Rate Margin
--------------------------- -------- -------------
<S> <C> <C>
Greater than or equal to 2.25% 1.00%
5.00:1.00
Greater than or equal to 2.00% 0.75%
4.00:1.00 but less than
5.00:1.00
Greater than or equal to 1.50% 0.25%
3.00:1.00 but less than
4.00:1.00
Less than 3.00:1.00 1.00% 0.00%
</TABLE>
PROVIDED that until the delivery of the first Margin Determination
Certificate pursuant to subsection 6.1(iv) after the six-month anniversary of
the Closing Date, the applicable margin for Tranche A Term Loans, Working
Capital Loans and Acquisition Loans that are Eurodollar Rate Loans shall be
2.25% per annum and for Tranche A Term Loans, Working Capital Loans, Swing
Line Loans and Acquisition Loans that are Base Rate Loans shall be 1.00% per
annum; PROVIDED FURTHER in the event that at any time during the period from
the Closing Date until the consummation of the Merger, Acquisition Co. shall
own less than the Minimum Shares, then for each day or part of a day that
Acquisition Co. owns less than the Minimum Shares, the applicable margins
shall be increased by an additional 1.00% per annum.
Changes in the applicable margin for Tranche A Term Loans, Working
Capital Loans and Acquisition Loans resulting from a change in the
Consolidated Leverage Ratio shall become effective as provided in subsection
2.3C.
44
<PAGE>
If at any time a Margin Determination Certificate is not delivered at
the time required pursuant to subsection 6.1(iv), from the time such Margin
Determination Certificate was required to be delivered until delivery of such
Margin Determination Certificate, such applicable margins shall be the
maximum percentage amount for the relevant Loan set forth above.
(b) Subject to the provisions of subsection 2.2E, the
Tranche B Term Loans shall bear interest through maturity as
follows:
(1) if a Base Rate Loan, then at the sum of the
Base Rate PLUS 1.25% per annum; or
(2) if a Eurodollar Rate Loan, then at the sum of
the Adjusted Eurodollar Rate for the Interest Period
applicable to such Loan PLUS 2.50% per annum;
PROVIDED that in the event that at any time during the period from the
Closing Date until the consummation of the Merger, Acquisition Co. shall own
less than the Minimum Shares, then for each day or part of a day that
Acquisition Co. owns less than the Minimum Shares, the applicable margins
shall be increased by an additional 1.00% per annum.
(ii) Subject to the provisions of subsection 2.2E, the Swing
Line Loans shall bear interest through maturity at the sum of the Base
Rate PLUS the Base Rate Margin for Working Capital Loans minus the
commitment fee percentage then in effect for Working Capital Loans as
determined pursuant to subsection 2.3A(i).
B. INTEREST PERIODS. In connection with each Eurodollar Rate
Loan, Company may, pursuant to the applicable Notice of Borrowing or Notice
of Conversion/Continuation, as the case may be, select an interest period
(each an "INTEREST PERIOD") to be applicable to such Loan, which Interest
Period shall be, at Company's option, either a one, two, three, six, or, if
available, nine or twelve month period; PROVIDED that:
(i) the initial Interest Period for any Eurodollar Rate Loan
shall commence on the Funding Date in respect of such Loan, in the case
of a Loan initially made as a Eurodollar Rate Loan, or on the date
specified in the applicable Notice of Conversion/Continuation, in the
case of a Loan converted to a Eurodollar Rate Loan;
(ii) in the case of immediately successive Interest Periods
applicable to a Eurodollar Rate Loan continued as such pursuant to a
Notice of Conversion/Continuation, each successive Interest Period shall
commence on the day on which the next preceding Interest Period expires;
(iii) if an Interest Period would otherwise expire on a day that
is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; PROVIDED that, if any Interest Period would
otherwise expire on a day that is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
45
<PAGE>
(iv) any Interest Period that begins on the last Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (v) of this subsection 2.2B, end on the
last Business Day of a calendar month;
(v) no Interest Period with respect to any portion of the
Tranche A Term Loans shall extend beyond September 30, 2004, no Interest
Period with respect to any portion of the Tranche B Term Loans shall
extend beyond September 30, 2005, no Interest Period with respect to any
portion of the Working Capital Loans shall extend beyond the Working
Capital Loan Commitment Termination Date and no Interest Period with
respect to any portion of the Acquisition Loans shall extend the
Acquisition Loan Commitment Termination Date;
(vi) no Interest Period with respect to any portion of the
Tranche A Term Loans or the Tranche B Term Loans shall extend beyond a
date on which Company is required to make a scheduled payment of
principal of the Tranche A Term Loans or the Tranche B Term Loans, as the
case may be, unless the sum of (a) the aggregate principal amount of
Tranche A Term Loans or Tranche B Term Loans, as the case may be, that
are Base Rate Loans PLUS (b) the aggregate principal amount of Tranche A
Term Loans or Tranche B Term Loans, as the case may be, that are
Eurodollar Rate Loans with Interest Periods expiring on or before such
date equals or exceeds the principal amount required to be paid on the
Tranche A Term Loans or Tranche B Term Loans, as the case may be, on such
date;
(vii) there shall be outstanding at any time no more than four
Interest Periods with respect to the Tranche A Term Loans, four Interest
Periods with respect to the Tranche B Term Loans, six Interest Periods
with respect to the Working Capital Loans and four Interest Periods with
respect to the Acquisition Loans; and
(viii) in the event Company fails to specify an Interest Period
for any Eurodollar Rate Loan in the applicable Notice of Borrowing or
Notice of Conversion/Continuation, Company shall be deemed to have
selected an Interest Period of one month
; PROVIDED that with respect to each Term Loan made on the Closing Date or
the Merger Date, the initial Interest Period will commence on the Business
Day on which such Term Loan is made (or, if such Term Loan is made as a Base
Rate Loan, the initial Interest Period will commence on the date specified in
the Notice of Conversion delivered with respect thereto) and shall end on the
last Business Day of the month following the month in which such Term Loan is
made.
C. INTEREST PAYMENTS. Subject to the provisions of subsection
2.2E, interest on each Loan shall be payable in arrears on and to each
Interest Payment Date applicable to that Loan, upon any prepayment of that
Loan (to the extent accrued on the amount being prepaid) and at maturity
(including final maturity); PROVIDED that in the event any Swing Line Loans
or any Working Capital Loans or any Acquisition Loans that are Base Rate
Loans are prepaid pursuant to subsection 2.4B(i), interest accrued on such
Swing Line Loans or Working Capital Loans or
46
<PAGE>
Acquisition Loans through the date of such prepayment shall be payable on the
next succeeding Interest Payment Date applicable to Base Rate Loans (or, if
earlier, at final maturity).
D. CONVERSION OR CONTINUATION. Subject to the provisions of
subsection 2.6, Company shall have the option (i) to convert at any time all
or any part of its outstanding Loans equal to $1,000,000 and multiples of
$100,000 in excess of that amount from Loans bearing interest at the Base
Rate to Loans bearing interest at the Eurodollar Rate or all or any part of
its outstanding Loans equal to $1,000,000 and multiples of $100,000 in excess
of that amount from Loans bearing interest at the Eurodollar Rate to Loans
bearing interest at the Base Rate or (ii) upon the expiration of any Interest
Period applicable to a Eurodollar Rate Loan, to continue all or any portion
of such Loan equal to $1,000,000 and multiples of $100,000 in excess of that
amount as a Eurodollar Rate Loan.
Company shall deliver a Notice of Conversion/Continuation to
Administrative Agent no later than 10:00 A.M. (Chicago time) on the proposed
conversion date (in the case of a conversion to a Base Rate Loan) and at
least three Business Days in advance of the proposed conversion/continuation
date (in the case of a conversion to, or a continuation of, a Eurodollar Rate
Loan). Notice of Conversion/Continuation shall specify (i) the proposed
conversion/continuation date (which shall be a Business Day), (ii) the amount
and type of the Loan to be converted/continued, (iii) the nature of the
proposed conversion/continuation, (iv) in the case of a conversion to, or a
continuation of, a Eurodollar Rate Loan, the requested Interest Period, and
(v) in the case of a conversion to, or a continuation of, a Eurodollar Rate
Loan, that no Potential Event of Default or Event of Default has occurred and
is continuing as of the date of the proposed conversion/continuation. In
lieu of delivering the above-described Notice of Conversion/Continuation,
Company may give Administrative Agent telephonic notice by the required time
of any proposed conversion/continuation under this subsection 2.2D; PROVIDED
that such notice shall be promptly confirmed in writing by delivery of a
Notice of Conversion/Continuation to Administrative Agent on or before the
proposed conversion/continuation date. Upon receipt of written or telephonic
notice of any proposed conversion/continuation under this subsection 2.2D,
Administrative Agent shall promptly transmit such notice by telefacsimile or
telephone to each Lender.
Neither Administrative Agent nor any Lender shall incur any
liability to Company in acting upon any telephonic notice referred to above
that Administrative Agent believes in good faith to have been given by a duly
authorized officer or other person authorized to act on behalf of Company or
for otherwise acting in good faith under this subsection 2.2D, and upon
conversion or continuation of the applicable basis for determining the
interest rate with respect to any Loans in accordance with this Agreement
pursuant to any such telephonic notice Company shall have effected a
conversion or continuation, as the case may be, hereunder.
Except as otherwise provided in subsections 2.6B, 2.6C and
2.6G, a Notice of Conversion/Continuation for conversion to, or continuation
of, a Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be
irrevocable on and after the related Interest Rate Determination Date, and
Company shall be bound to effect a conversion or continuation in accordance
therewith or to pay the amounts payable pursuant to Section 2.6D as a result
of the failure to effect such continuation/conversion.
47
<PAGE>
E. DEFAULT RATE. Upon the occurrence and during the continuation
of any Event of Default, at the request of Administrative Agent, the
outstanding principal amount of all Loans and, to the extent permitted by
applicable law, any interest payments thereon not paid when due and any fees
and other amounts then due and payable hereunder, shall thereafter bear
interest (including post-petition interest in any proceeding under the
Bankruptcy Code or other applicable bankruptcy laws) payable upon demand at a
rate that is 2% per annum in excess of the interest rate otherwise payable
under this Agreement with respect to the applicable Loans (or, in the case of
any such fees and other amounts, at a rate which is 2% per annum in excess of
the interest rate otherwise payable under this Agreement for Base Rate Loans
that are Working Capital Loans); PROVIDED that, in the case of Eurodollar
Rate Loans, upon the expiration of the Interest Period in effect at the time
any such increase in interest rate is effective such Eurodollar Rate Loans
shall thereupon become Base Rate Loans and shall thereafter bear interest
payable upon demand at a rate which is 2% per annum in excess of the interest
rate otherwise payable under this Agreement for Base Rate Loans. Payment or
acceptance of the increased rates of interest provided for in this subsection
2.2E is not a permitted alternative to timely payment and shall not
constitute a waiver of any Event of Default or otherwise prejudice or limit
any rights or remedies of any Agent or any Lender.
F. COMPUTATION OF INTEREST. Interest on the Loans shall be
computed (i) in the case of Base Rate Loans, on the basis of a 365-day or
366-day year, as the case may be, and (ii) in the case of Eurodollar Rate
Loans, on the basis of a 360-day year, in each case for the actual number of
days elapsed in the period during which it accrues. In computing interest on
any Loan, the date of the making of such Loan or the first day of an Interest
Period applicable to such Loan or, with respect to a Base Rate Loan being
converted from a Eurodollar Rate Loan, the date of conversion of such
Eurodollar Rate Loan to such Base Rate Loan, as the case may be, shall be
included, and the date of payment of such Loan (if payment is received prior
to 2:00 P.M. (Chicago time)) or the expiration date of an Interest Period
applicable to such Loan or, with respect to a Base Rate Loan being converted
to a Eurodollar Rate Loan, the date of conversion of such Base Rate Loan to
such Eurodollar Rate Loan, as the case may be, shall be excluded, provided
that if a Loan is repaid on the same day on which it is made, one day's
interest shall be paid on that Loan.
2.3 FEES.
A. COMMITMENT FEES.
(i) WORKING CAPITAL COMMITMENTS. Company agrees to pay to
Administrative Agent, for distribution to each Working Capital Lender in
proportion to that Lender's Pro Rata Share of the Working Capital Loan
Commitments, commitment fees for each day during the period from and
including the Closing Date to and excluding the Working Capital Loan
Commitment Termination Date (or, if earlier, the date of termination of
the Working Capital Loan Commitments in their entirety) on the excess on
such day of the Working Capital Loan Commitments over the sum of (i) the
aggregate principal amount of outstanding Working Capital Loans on such
day plus (ii) the Letter of Credit Usage (but not including any
outstanding Swing Line Loans) on such day at a rate per annum equal to
the commitment fee percentage set forth below opposite the
48
<PAGE>
Consolidated Leverage Ratio as set forth in the most recent Margin
Determination Certificate delivered pursuant to subsection 6.1(iv):
<TABLE>
<CAPTION>
Working Capital Loan
Consolidated Leverage Ratio Commitment Fee Percentage
---------------------------------------------------------------------
<S> <C>
Greater than or equal to 5.00:1.00 0.500%
Greater than or equal to 4.00:1.00 0.375%
but less than 5.00:1.00
Greater than or equal to 3.00:1.00 0.300%
but less than 4.00:1.00
Less than 3.00:1.00 0.250%
</TABLE>
such commitment fees to be calculated on the basis of a 360-day year
and the actual number of days elapsed and to be payable quarterly in
arrears on each Quarterly Date of each year, commencing on the first
such date to occur after the Closing Date, and on the Working Capital
Loan Commitment Termination Date; PROVIDED that until the delivery of
the first Margin Determination Certificate pursuant to subsection
6.1(iv) after the six-month anniversary of the Closing Date the
applicable commitment fee percentage for the Working Capital Loan
Commitments shall be 0.50%. Changes in the applicable commitment fee
rate for Working Capital Loan Commitments resulting from a change in
the Consolidated Leverage Ratio shall become effective as provided in
subsection 2.3C. In the event that Company fails to deliver a Margin
Determination Certificate timely in accordance with the provisions of
subsection 6.1(iv), from the time such Margin Determination
Certificate was required to be delivered until such date as such a
Margin Determination Certificate is actually delivered, the applicable
commitment fee percentage shall be the maximum percentage amount set
forth above per annum.
(ii) ACQUISITION LOAN COMMITMENTS. Company agrees to pay to
Administrative Agent, for distribution to each Acquisition Lender in
proportion to that Acquisition Lender's Pro Rata Share of the
Acquisition Loan Commitments, commitment fees for each day during the
period from and including the Closing Date to and excluding the
Acquisition Loan Commitment Termination Date (or, if earlier, the date
of termination of the Acquisition Loan Commitments in their entirety)
on the excess on such day of the Acquisition Loan Commitments over the
aggregate principal amount of outstanding Acquisition Loans on such
date, (the "Unused Acquisition Loan Commitment Amount") at a rate per
annum equal to the commitment fee percentage set out below opposite
the Consolidated Leverage Ratio as set forth in the most recent Margin
Determination Certificate delivered pursuant to subsection 6.1(iv),
PROVIDED that on any date prior to the date of the delivery of the
first Margin Determination Certificate after the six month anniversary
of the Closing Date, if the Unused Acquisition Loan Commitment Amount
on such date is less than 50% of the aggregate Acquisition Loan
49
<PAGE>
Commitments, the applicable commitment fee percentage on such date
shall be 0.75% per annum and if the Unused Acquisition Loan Commitment
Amount on such date is equal to or greater than 50% of the aggregate
Acquisition Loan Commitments, the applicable commitment fee percentage
on such date shall be 0.50% per annum:
<TABLE>
<CAPTION>
Acquisition Loan
Commitment Fee Percentage
------------------------------------
Consolidated Leverage Ratio Utilization
Utilization GREATER OR EQUAL
LESS THAN 50% TO 50%
--------------------------------------------------------------------------------
<S> <C> <C>
Greater than or equal to 5.00:1.00 0.750% 0.500%
Greater than or equal to 4.00:1.00 0.625% 0.375%
but less than 5.00:1.00
Greater than or equal to 3.00:1.00 0.550% 0.300%
but less than 4.00:1.00
Less than 3.00:1.00 0.500% 0.250%
</TABLE>
such commitment fees to be calculated on the basis of a 360-day year and
the actual number of days elapsed and to be payable quarterly in arrears
on each Quarterly Date of each year, commencing on the first such date to
occur after the Closing Date, and on the Acquisition Loan Commitment
Termination Date. Changes in the applicable commitment fee rate for
Acquisition Loan Commitments resulting from a change in the Consolidated
Leverage Ratio shall become effective as provided in Subsection 2.3c..
In the event that Company fails to deliver a Margin Determination
Certificate timely in accordance with the provisions of subsection
6.1(iv), from the time such Margin Determination Certificate was required
to be delivered until such date as such a Margin Determination
Certificate is actually delivered, the applicable commitment fee
percentage shall be the maximum percentage amount set forth above per
annum.
(iii) TRANCHE A TERM LOAN COMMITMENTS. Company agrees to pay to
Administrative Agent, for distribution to each Tranche A Term Loan Lender
in proportion to that Tranche A Term Loan Lender's Pro Rata Share of the
Tranche A Term Loan Commitments, commitment fees for the period from and
including the Closing Date to and excluding the Merger Date (or, if
earlier, the date of termination of the Tranche A Term Loan Commitments
in their entirety) on the daily average unused Tranche A Term Loan
Commitments during such period at a rate per annum equal to 2.25%; such
commitment fees to be calculated on the basis of a 360-day year and the
actual number of days elapsed and to be payable quarterly on each
Quarterly Date, commencing on the first such date to occur after the
Closing Date and on the Merger Date.
50
<PAGE>
B. OTHER FEES. Company agrees to pay to Arranger and Agents such
other fees in the amounts and at the times separately agreed upon between
Company, Agents and Arranger.
C. DETERMINATION OF APPLICABLE MARGINS.
Subject to the last sentence of subsection 2.2A(i)(a), the last
sentence of subsection 2.3A(i) and the last sentence of subsection 2.3A(ii), the
Consolidated Leverage Ratio used to compute the applicable margin for Tranche A
Term Loans, Working Capital Loans and Acquisition Loans for purposes of
subsection 2.2A(i) and subsection 3.2 and the applicable commitment fee rates
for the Working Capital Loan Commitments and the Acquisition Loan Commitments
for purposes of subsection 2.3A (such applicable margins and commitment fee
rates being referred to in this subsection 2.3C as the "APPLICABLE MARGINS") for
any day shall be the Consolidated Leverage Ratio set forth in the Margin
Determination Certificate most recently delivered by Company to Administrative
Agent on or prior to such day pursuant to subsection 6.1(iv). Changes in the
Applicable Margins resulting from a change in the Consolidated Leverage Ratio
shall become effective on the first Business Day following delivery by Company
to Administrative Agent of a new Margin Determination Certificate pursuant to
subsection 6.1(iv). Notwithstanding the foregoing, Company may, in its sole
discretion, within ten Business Days following the end of any Fiscal Quarter,
deliver to Administrative Agent a written estimate (the "LEVERAGE RATIO
ESTIMATE") setting forth Company's good faith estimate of the Consolidated
Leverage Ratio (based on calculations contained in a Margin Determination
Certificate) that will be set forth in the next Margin Determination Certificate
required to be delivered by Company to Administrative Agent pursuant to
subsection 6.1(iv). In the event that the Leverage Ratio Estimate indicates
that there would be a change in the Applicable Margins resulting from a change
in the Consolidated Leverage Ratio, such change will become effective on the
first Business Day following delivery of the Leverage Ratio Estimate. In the
event that, once the next Margin Determination Certificate is delivered, the
Consolidated Leverage Ratio as set forth in such Margin Determination
Certificate differs from that calculated in the Leverage Ratio Estimate
delivered for the Fiscal Quarter with respect to which such Margin Determination
Certificate has been delivered, and such difference results in Applicable
Margins which are greater or lesser than the Applicable Margins theretofore in
effect, then (A) such greater or lesser Applicable Margins shall be deemed to be
in effect for all purposes of this Agreement from the first Business Day
following the delivery of the Leverage Ratio Estimate and (B) if Company shall
have theretofore made any payment of interest, commitment fees or letter of
credit fees in respect of the period from the first Business Day following the
delivery of the Leverage Ratio Estimate to the Business Day following actual
date of delivery of the Margin Determination Certificate, then, on the next
Quarterly Date, either (x) if the new Applicable Margins are greater than the
Applicable Margins theretofore in effect, Company shall pay as a supplemental
payment of interest, commitment fees and/or letter of credit fees, as
applicable, an amount which equals the difference between the amount of
interest, commitment fees and/or letter of credit fees that would otherwise have
been paid based on such new Consolidated Leverage Ratio and the amount of
interest, commitment ees and/or letter of credit fees, as applicable, actually
so paid, or (y) if the new Applicable Margins are less than the Applicable
Margins theretofore in effect, an amount shall be deducted from the interest,
commitment fees and/or letter of credit fees, as applicable, then otherwise
payable in an amount which equals the difference between the amount of interest,
commitment fees and/or letter of credit fees, as applicable, so paid and the
amount of
51
<PAGE>
interest, commitment fees and/or letter of credit fees, as applicable,
that would otherwise have been paid based on such new Consolidated Leverage
Ratio (or, if no such payment is owed by Company to the applicable Lenders on
such next Quarterly Date, or if such amount owed by Company is less than such
difference, the applicable Lenders shall pay to Company on such next Quarterly
Date the amount of such difference less the amount, if any, owed by Company to
such Lenders on such Quarterly Date).
2.4 REPAYMENTS, PREPAYMENTS AND REDUCTIONS IN LOAN COMMITMENTS; GENERAL
PROVISIONS REGARDING PAYMENTS.
A. SCHEDULED PAYMENTS OF TRANCHE A TERM LOANS AND TRANCHE B TERM
LOANS.
(i) SCHEDULED PAYMENTS OF TRANCHE A TERM LOANS. Company shall
make principal payments on the Tranche A Term Loans on each of the
following dates in the aggregate amount, expressed as a percentage of the
Tranche A Term Loan Lenders' aggregate original Tranche A Term Loan
Commitments, set forth opposite such date in the table set forth below:
<TABLE>
<CAPTION>
---------------------------------------------------------
Scheduled Repayment Date Scheduled Repayment
of Tranche A Term Loans
----------------------------------------------------------
----------------------------------------------------------
<S> <S>
December 31, 1999 1.25%
March 31, 2000 1.25%
June 30, 2000 1.25%
September 30, 2000 1.25%
December 31, 2000 2.50%
March 31, 2001 2.50%
June 30, 2001 2.50%
September 30, 2001 2.50%
December 31, 2001 5.00%
March 31, 2002 5.00%
June 30, 2002 5.00%
September 30, 2002 5.00%
December 31, 2002 6.25%
March 31, 2003 6.25%
June 30, 2003 6.25%
September 30, 2003 6.25%
December 31, 2003 10.00%
March 31, 2004 10.00%
June 30, 2004 10.00%
September 30, 2004 10.00%
------------
Total 100.00%
------------
</TABLE>
52
<PAGE>
; PROVIDED that the scheduled installments of principal of the Tranche A
Term Loans set forth above shall be reduced by an amount equal to the
aggregate principal amount of any voluntary or mandatory prepayments of
the Tranche A Term Loans in accordance with subsection 2.4B(iv); and
PROVIDED, FURTHER that the Tranche A Term Loans and all other amounts
owed hereunder with respect to the Tranche A Term Loans shall be paid in
full no later than September 30, 2004, and the final installment payable
by Company in respect of the Tranche A Term Loans on such date shall be
in an amount, if such amount is different from that specified above,
sufficient to repay all amounts owing by Company under this Agreement
with respect to the Tranche A Term Loans.
(ii) SCHEDULED PAYMENTS OF TRANCHE B TERM LOANS. Company shall
make principal payments on the Tranche B Term Loans in installments on
each of the following dates in the aggregate amount set forth opposite
such date in the table set forth below:
53
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------
Scheduled Repayment Date Scheduled Repayment
of Tranche B Term Loans
---------------------------------------------------------
<S> <C>
December 31, 1998 $112,500
March 31, 1999 $112,500
June 30, 1999 $112,500
September 30, 1999 $112,500
December 31, 1999 $112,500
March 31, 2000 $112,500
June 30, 2000 $112,500
September 30, 2000 $112,500
December 31, 2000 $112,500
March 31, 2001 $112,500
June 30, 2001 $112,500
September 30, 2001 $112,500
December 31, 2001 $112,500
March 31, 2002 $112,500
June 30, 2002 $112,500
September 30, 2002 $112,500
December 31, 2002 $112,500
March 31, 2003 $112,500
June 30, 2003 $112,500
September 30, 2003 $112,500
December 31, 2003 $112,500
March 31, 2004 $112,500
June 30, 2004 $112,500
September 30, 2004 $112,500
December 31, 2004 $10,575,000
March 31, 2005 $10,575,000
June 30, 2005 $10,575,000
September 30, 2005 $10,575,000
--------------------
Total $45,000,000
--------------------
</TABLE>
; PROVIDED that the scheduled installments of principal of the Tranche B Term
Loans set forth above shall be reduced by an amount equal to the aggregate
principal amount of any voluntary or mandatory prepayments of the Tranche B Term
Loans in accordance with subsection 2.4B(iv); and PROVIDED, FURTHER that the
Tranche B Term Loans and all other amounts owed hereunder with respect to the
Tranche B Term Loans shall be paid in full no later than September 30, 2005, and
the final installment payable by Company in respect of the Tranche B Term Loans
on such date
54
<PAGE>
shall be in an amount, if such amount is different from that specified above,
sufficient to repay all amounts owing by Company under this Agreement with
respect to the Tranche B Term Loans.
B. PREPAYMENTS AND UNSCHEDULED REDUCTIONS IN COMMITMENTS.
(i) VOLUNTARY PREPAYMENTS. Company may, upon written or
telephonic notice to Administrative Agent on or prior to 2:00 PM (Chicago
time) on the date of prepayment, which notice, if telephonic, shall be
promptly confirmed in writing, at any time and from time to time prepay
any Swing Line Loan on any Business Day in whole or in part in an
aggregate minimum amount of $250,000 and multiples of $10,000 in excess
of that amount. Company may, upon one Business Day's prior written or
telephonic notice by 12:00 Noon (Chicago time), in the case of Base Rate
Loans (other than Swing Line Loans), and three Business Days' prior
written or telephonic notice, in the case of Eurodollar Rate Loans, in
each case given to Administrative Agent by 11:00 A.M. (Chicago time) on
the date required and, if given by telephone, promptly confirmed in
writing to Administrative Agent (which original written or telephonic
notice Administrative Agent will promptly transmit by telefacsimile or
telephone to each Lender), at any time and from time to time prepay any
such Loans on any Business Day in whole or in part in an aggregate
minimum amount of $1,000,000 and multiples of $100,000 in excess of that
amount, subject in the case of prepayments of Eurodollar Loans to
compliance with subsection 2.6D if such prepayment is made on a date
prior to the expiration of the applicable Interest Period. Notice of
prepayment having been given as aforesaid, the principal amount of the
Loans specified in such notice shall become due and payable on the
prepayment date specified therein. Any such voluntary prepayment shall
be applied as specified in subsection 2.4B(iv).
(ii) VOLUNTARY REDUCTIONS OF LOAN COMMITMENTS. Company may,
upon not less than one Business Day's prior written or telephonic notice
confirmed in writing to Administrative Agent (which original written or
telephonic notice Administrative Agent will promptly transmit by
telefacsimile or telephone to each Working Capital Lender or Acquisition
Loan Lender, as the case may be), at any time and from time to time
terminate in whole or permanently reduce in part, without premium or
penalty, (a) the Working Capital Loan Commitments in an amount up to the
amount by which the Working Capital Loan Commitments exceed the Total
Utilization of Working Capital Loan Commitments at the time of such
proposed termination or reduction, (b) the Acquisition Loan Commitments
in an amount up to the amount by which the Acquisition Loan Commitments
exceed the outstanding Acquisition Loans at the time of such proposed
termination or reduction; PROVIDED that any such partial reduction shall
be in an aggregate minimum amount of $1,000,000 and multiples of $100,000
in excess of that amount. Company's notice to Administrative Agent shall
designate the date (which shall be a Business Day) of such termination or
reduction and the amount of any partial reduction, and such termination
or reduction of the Working Capital Loan Commitments and/or the
Acquisition Loan Commitments, as the case may be, shall be effective on
the date specified in Company's notice and shall reduce the Working
Capital Loan Commitment of each Working Capital Lender and/or the
Acquisition Loan
55
<PAGE>
Commitments, as the case may be, of each Acquisition Loan Lender
proportionately to its Pro Rata Share.
(iii) MANDATORY PREPAYMENTS AND MANDATORY REDUCTIONS OF LOAN
COMMITMENTS. Upon and after the Merger Date, the Loans shall be prepaid
and/or the Acquisition Loan Commitments shall be permanently reduced in
the amounts and under the circumstances set forth below, all such
prepayments and/or reductions to be applied as set forth below or as more
specifically provided in subsection 2.4B(iv):
(a) PREPAYMENTS AND REDUCTIONS FROM NET ASSET SALE
PROCEEDS. No later than 30 calendar days following the date of
receipt by Company or any of its Subsidiaries of any Net Asset
Sale Proceeds in respect of any Asset Sale consummated after the
consummation of the Merger (other than any Asset Sale permitted
under subsections 7.7(iv) and 7.7(x) or an Asset Sale to Company
or a Subsidiary Guarantor), Company shall prepay the Loans and/or
the Acquisition Loan Commitments shall be permanently reduced in
an aggregate amount equal to such Net Asset Sale Proceeds;
PROVIDED that if Company states in the Officers' Certificate
delivered pursuant to subsection 2.4B(iii)(e) that Company or the
applicable Subsidiary intends to apply, within 365 days after the
receipt of such Net Asset Sale Proceeds, all or a portion (as
specified in such Officers' Certificate) of such Net Asset Sale
Proceeds to a Property Reinvestment Application Company shall not
be required to prepay the Loans and/or the Acquisition Loan
Commitments shall not be reduced by such amount to be applied to a
Property Reinvestment Application; provided further that to the
extent such amount of Net Asset Sale Proceeds is not applied to a
Property Reinvestment Application within such 365-day period,
Company shall, on the last day of such 365-day period prepay the
Loans and/or the Acquisition Loan Commitments shall be permanently
reduced by the aggregate amount equal to such amount of Net Asset
Sale Proceeds not so applied to Property Reinvestment Application.
(b) PREPAYMENTS AND REDUCTIONS FROM NET
INSURANCE/CONDEMNATION PROCEEDS. No later than the first Business
Day following the date of receipt by Administrative Agent or by
Company or any of its Subsidiaries after the Merger Date of any
Net Insurance/Condemnation Proceeds in excess of $250,000 with
respect to any loss or taking or series of related losses or
takings, Company shall prepay the Loans and/or the Acquisition
Loan Commitments shall be permanently reduced in an aggregate
amount equal to the amount of such Net Insurance/Condemnation
Proceeds; PROVIDED, HOWEVER, that (i) no such prepayment and/or
reduction shall be required to the extent under the terms of any
lease or other agreement existing on the date hereof such Net
Insurance/Condemnation Proceeds are required to be used to
replace, rebuild or repair the asset so damaged, destroyed or
taken and (ii) if Company states in the Officers' Certificate
delivered pursuant to subsection 2.4B(iii)(e) that Company or the
applicable Subsidiary intends to apply, within 365 days after the
receipt of such Net Insurance/Condemnation Proceeds, all or a
portion (as specified in such Officers' Certificate) of such Net
Insurance/Condemnation Proceeds to a Property
56
<PAGE>
Reinvestment Application, Company shall not be required to
prepay Loans and/or the Acquisition Loan Commitments shall not
be reduced by such amount to be applied to a Property
Reinvestment Application; PROVIDED FURTHER that to the extent
such amount of Net Insurance/Condemnation Proceeds is not applied
to a Property Reinvestment Application within such 365-day
period, Company shall, on the last day of such 365-day period
prepay the Loans and/or the Acquisition Loan Commitments shall
be permanently reduced by the aggregate amount equal to such
amount of such Net Insurance/Condemnation Proceeds not so
applied to a Property Reinvestment Application.
(c) PREPAYMENTS AND REDUCTIONS DUE TO ISSUANCE OF DEBT
OR EQUITY SECURITIES. On the date of receipt by Parent, Company
or any of its Subsidiaries of the cash proceeds (any such cash
proceeds, net of underwriting discounts and commissions and other
reasonable costs and expenses associated therewith, including
investment banking, legal, brokerage, accounting fees and
expenses, being "Net Securities Proceeds"), from the issuance of
equity Securities of Parent, Company or any of its Subsidiaries
after the Merger Date (other than Excluded Equity Proceeds) or of
debt Securities of Company or any of its Subsidiaries after the
Merger Date (other than the proceeds of the issuance of
Indebtedness permitted by subsection 7.1 (including without
limitation the proceeds from the sale of the Senior Subordinated
Notes)), Company shall prepay the Loans and/or the Acquisition
Loan Commitments shall be permanently reduced in an aggregate
amount equal to such Net Securities Proceeds in the case of the
proceeds of debt Securities and in an aggregate amount equal to
50% of such Net Securities Proceeds in the case of the proceeds of
equity Securities; PROVIDED the amount of such prepayment
hereunder in respect of Net Securities Proceeds constituting the
proceeds of the issuance and sale of equity Securities shall be
limited to the amount necessary to reduce the amount of
Indebtedness included in the calculation of the Consolidated
Leverage Ratio to the amount that would result, on a pro forma
basis after giving effect to such prepayment, in a Consolidated
Leverage Ratio of 3.50:1.00 or less at the end of the Fiscal
Quarter then most recently ended and (ii) no such prepayment in
respect of Net Securities Proceeds constituting the proceeds of
the issuance and sale of Equity Securities shall be required to be
made at such times as the Consolidated Leverage Ratio at the end
of the most recent Fiscal Quarter (as evidenced by a Margin
Determination Certificate delivered to Administrative Agent
pursuant to subsection 6.1(iv)) is equal to or less than
3.50:1.00.
(d) PREPAYMENTS AND REDUCTIONS FROM CONSOLIDATED EXCESS
CASH FLOW. In the event that there shall be Consolidated Excess
Cash Flow for any Fiscal Year (commencing with the Fiscal Year
ending December 31,1999), Company shall, no later than the fifth
Business Day after the delivery of financial statements for such
Fiscal Year, prepay the Loans and/or the Acquisition Loan
Commitments shall be permanently reduced in an aggregate amount
equal to 50% of such Consolidated Excess Cash Flow less the
aggregate amount of all voluntary prepayments of Term Loans
actually made in such Fiscal Year pursuant to subsection 2.4B(i);
57
<PAGE>
PROVIDED that (i) the amount of such prepayment hereunder in
respect of Excess Cash Flow shall be limited to the amount
necessary to reduce the amount of Indebtedness included in the
calculation of the Consolidated Leverage Ratio to the amount that
would result, on a pro forma basis after giving effect to such
prepayment, in a Consolidated Leverage Ratio of 3.50:1 or less at
the end of the Fiscal Quarter then most recently ended and (ii) if
as of the last day of such Fiscal Year, the Consolidated Leverage
Ratio (as evidenced by a Margin Determination Certificate
delivered to Administrative Agent pursuant to subsection 6.1(iv))
is equal to or less than 3.50:1.00, no prepayments of any Loans
and no reduction of the Acquisition Loan Commitments or amount of
Consolidated Excess Cash Flow need be made.
(e) CALCULATIONS OF NET PROCEEDS AMOUNTS; ADDITIONAL
PREPAYMENTS AND REDUCTIONS BASED ON SUBSEQUENT CALCULATIONS.
Concurrently with any prepayment of the Loans and/or reduction of
the Acquisition Loan Commitments pursuant to subsections
2.4B(iii)(a)-(d) and on the date any such prepayment and/or
reduction would have been required to be made pursuant to
subsections 2.4B(iii)(a) or 2.4B(iii)(b) but for the application
of the provisos to such subsections, Company shall deliver to
Administrative Agent an Officer's Certificate demonstrating the
calculation of the amount (the "NET PROCEEDS AMOUNT") of the
applicable Net Asset Sale Proceeds or Net Insurance/Condemnation
Proceeds, or Net Securities Proceeds (as such term is defined in
subsection 2.4B(iii)(c)), or the applicable Consolidated Excess
Cash Flow, as the case may be (and which, in the case of
Consolidated Excess Cash Flow, may be the Officer's Certificate
delivered pursuant to subsection 6.1(iii) with respect to the
financial statements for the Fiscal Year to which such excess cash
flow relates if such Officer's Certificate contains the required
information). In the event that Company shall subsequently
determine that the actual Net Proceeds Amount was greater than the
amount set forth in such Officer's Certificate, Company shall
promptly make an additional prepayment of the Loans (and/or, if
applicable, the Acquisition Loan Commitments shall be permanently
reduced) in an amount equal to the amount of such excess, and
Company shall concurrently therewith deliver to Administrative
Agent an Officer's Certificate demonstrating the derivation of the
additional Net Proceeds Amount resulting in such excess.
(f) Company shall not be required to make any prepayment
of Loans otherwise required by subsections 2.4B(iii)(a), (b), (c)
or (d) (and no reduction of the Acquisition Loan Commitments shall
take effect) unless and until the aggregate principal amount of
the Loans to be prepaid and/or Acquisition Loan Commitments to be
reduced is at least equal to $250,000.
(iv) APPLICATION OF PREPAYMENTS.
(a) APPLICATION OF VOLUNTARY PREPAYMENTS BY TYPE OF
LOANS AND ORDER OF MATURITY. Any voluntary prepayments pursuant
to subsection 2.4B(i) shall be applied to the Loans as specified
by Company in the applicable notice of
58
<PAGE>
prepayment; PROVIDED that in the event Company fails to
specify the Loans to which any such prepayment shall be
applied, such prepayment shall be applied FIRST to repay
outstanding Swing Line Loans to the full extent thereof,
SECOND to repay outstanding Term Loans to the full extent
thereof and THIRD to repay outstanding Acquisition Loans to the
full extent thereof and FOURTH to repay outstanding Working
Capital Loans to the full extent thereof. Any voluntary
prepayments of the Term Loans pursuant to subsection 2.4B(i)
(whether the application thereof is specified by Company or not)
shall be applied to prepay the Tranche A Term Loans and the
Tranche B Term Loans on a pro rata basis (in accordance with the
respective outstanding principal amounts thereof) and to reduce
the scheduled installments of principal of the Tranche A Term
Loans and Tranche B Term Loans set forth in subsection 2.4A(i) and
2.4A(ii) in forward order of maturity.
(b) APPLICATION OF MANDATORY PREPAYMENTS BY TYPE OF
LOANS. Any amount (the "Applied Amount") required to be applied
as a mandatory prepayment of the Loans and/or a reduction of the
Acquisition Loan Commitments pursuant to subsections
2.4B(iii)(a)-(d) shall be applied FIRST to prepay the Term Loans
to the full extent thereof, SECOND, to the extent of any
remaining portion of the Applied Amount, to prepay the
Acquisition Loans to the full extent thereof and to permanently
reduce the Acquisition Loan Commitments by the amount of such
prepayment, and THIRD, to the extent of any remaining portion of
the Applied Amount, to prepay the Swing Line Loans and thereafter
to prepay Working Capital Loans to the full extent thereof but in
either case without permanently reducing the Working Capital Loan
Commitments by the amount of such prepayments.
(c) APPLICATION OF MANDATORY PREPAYMENTS OF TERM LOANS
TO TRANCHE A TERM LOANS AND TRANCHE B TERM LOANS AND THE SCHEDULED
INSTALLMENTS OF PRINCIPAL THEREOF. Any mandatory prepayments of
the Term Loans pursuant to subsection 2.4B(iii) shall be applied
to prepay the Tranche A Term Loans and the Tranche B Term Loans on
a pro rata basis (in accordance with the respective outstanding
principal amounts thereof) and to reduce the scheduled
installments of principal of the Tranche A Term Loans and Tranche
B Term Loans set forth in subsection 2.4A(i) and 2.4A(ii) in
forward order of maturity. Notwithstanding the foregoing, in the
case of any mandatory prepayment of the Tranche B Term Loans,
Company may elect to offer the Tranche B Term Loan Lenders the
option to waive the right to receive the amount of such mandatory
prepayment of the Tranche B Term Loans. If any Term B Lender or
Lenders elect to waive the right to receive the amount of such
mandatory prepayment, 50% of the amount that otherwise would have
been applied to mandatorily prepay the Tranche B Term Loans of
such Lender or Lenders shall be applied instead to the further
prepayment of the Tranche A Term Loans (and any such prepayment
shall reduce scheduled installments of principal of the Tranche A
Term Loans set forth in subsection 2.4A(i) in forward order of
maturity) to the extent any are then outstanding and the remaining
amount shall be retained by Company.
59
<PAGE>
(d) APPLICATION OF PREPAYMENTS TO BASE RATE LOANS AND
EURODOLLAR RATE LOANS. Considering Tranche A Term Loans,
Tranche B Term Loans, Working Capital Loans and Acquisition Loans
being prepaid separately, any prepayment thereof shall be applied
as specified by Company to Administrative Agent on or prior to the
date of the relevant prepayment or, absent such specification,
first to Base Rate Loans to the full extent thereof before
application to Eurodollar Rate Loans, in each case in a manner
which minimizes the amount of any payments required to be made by
Company pursuant to subsection 2.6D.
C. GENERAL PROVISIONS REGARDING PAYMENTS.
(i) MANNER AND TIME OF PAYMENT. All payments by Company of
principal, interest, fees and other Obligations hereunder and under the
Notes shall be made in Dollars in same day funds, without defense, setoff
or counterclaim, free of any restriction or condition, and delivered to
Administrative Agent not later than 2:00 P.M. (Chicago time) on the date
due at the Funding and Payment Office for the account of Lenders; funds
received by Administrative Agent after that time on such due date shall
be deemed to have been paid by Company on the next succeeding Business
Day.
(ii) APPLICATION OF PAYMENTS TO PRINCIPAL AND INTEREST. Except
as provided in subsection 2.2C, all payments in respect of the principal
amount of any Loan shall include payment of accrued interest on the
principal amount being repaid or prepaid, and all such payments (and, in
any event, any payments in respect of any Loan on a date when interest is
due and payable with respect to such Loan) shall be applied to the
payment of interest before application to principal.
(iii) APPORTIONMENT OF PAYMENTS. Aggregate principal and
interest payments in respect of Loans shall be apportioned among all
outstanding Loans to which such payments relate, in each case
proportionately to Lenders' respective Pro Rata Shares. Administrative
Agent shall promptly distribute to each Lender, at its primary address
set forth below its name on the appropriate signature page hereof or at
such other address as such Lender may request, its Pro Rata Share of all
such payments received by Administrative Agent and the commitment fees of
such Lender when received by Administrative Agent pursuant to
subsection 2.3. Notwithstanding the foregoing provisions of this
subsection 2.4C(iii), if, pursuant to the provisions of subsection 2.6C,
any Notice of Conversion/Continuation is withdrawn as to any Affected
Lender or if any Affected Lender makes Base Rate Loans in lieu of its Pro
Rata Share of any Eurodollar Rate Loans, Administrative Agent shall give
effect thereto in apportioning payments received thereafter.
(iv) PAYMENTS ON BUSINESS DAYS. Whenever any payment to be made
hereunder shall be stated to be due on a day that is not a Business Day,
such payment shall be made on the next succeeding Business Day and such
extension of time shall be included in the computation of the payment of
interest hereunder or of the commitment fees hereunder, as the case may
be.
60
<PAGE>
D. APPLICATION OF PROCEEDS OF COLLATERAL AND PAYMENTS UNDER
GUARANTIES
(i) APPLICATION OF PROCEEDS OF COLLATERAL. Except as provided
in subsection 2.4B(iii)(a) with respect to prepayments from Net Asset
Sale Proceeds or utilization thereof by Company, or subsection
2.4B(iii)(b) with respect to prepayments from Net Insurance/Condemnation
Proceeds or utilization thereof by Company, all proceeds received by
Administrative Agent in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral under any Collateral
Document shall be applied, upon the occurrence and during the continuance
of an Event of Default, against, the applicable Secured Obligations (as
defined in such Collateral Document) in the following order of priority:
(a) To the payment of all costs and expenses of such
sale, collection or other realization, including reasonable fees
and expenses of Administrative Agent and its agents and counsel,
and all other expenses and liabilities made or incurred by
Administrative Agent in connection therewith, and all amounts for
which Administrative Agent is entitled to indemnification under
such Collateral Document and all advances made by Administrative
Agent thereunder for the account of the applicable Loan Party, and
to the payment of all costs and expenses paid or incurred by
Administrative Agent in connection with the exercise of any right
or remedy under such Collateral Document, all in accordance with
the terms of this Agreement and such Collateral Document;
(b) thereafter, to the extent of any excess such proceeds,
to the payment of all other such Secured Obligations then due
and payable for the ratable benefit of the holders thereof;
(c) thereafter, to the extent of any excess such proceeds,
to the payment of cash collateral for Letters of Credit for the
ratable benefit of the Issuing Lenders thereof and holders of
participations therein; and
(d) thereafter, to the extent of any excess such proceeds,
to the payment to or upon the order of such Loan Party or to
whosoever may be lawfully entitled to receive the same or as
a court of competent jurisdiction may direct.
(ii) APPLICATION OF PAYMENTS UNDER GUARANTIES. All payments
received by Administrative Agent under any of the Guaranties at any time
at which an Event of Default has occurred and is continuing, shall be
applied promptly from time to time by Administrative Agent in the
following order of priority:
(a) to the payment of the costs and expenses of any
collection or other realization under the Guaranties, including
reasonable fees and expenses of Administrative Agent and its
agents and counsel, and all expenses, liabilities and advances
made or incurred by Administrative Agent in connection therewith,
all in accordance with the terms of this Agreement and such
Guaranty;
61
<PAGE>
(b) thereafter, to the extent of any excess such payments,
to the payment of all other Guarantied Obligations (as defined
in such Guaranty) then due and payable for the ratable benefit
of the holders thereof;
(c) thereafter, to the extent of any excess such payments,
to the payment of cash collateral for Letters of Credit for the
ratable benefit of the Issuing Lenders thereof and holders of
participations therein; and
(d) thereafter, to the extent of any excess such payments,
to the payment to Parent or to the applicable Subsidiary
Guarantor or to whosoever may be lawfully entitled to receive
the same or as a court of competent jurisdiction may direct.
2.5 USE OF PROCEEDS.
A. TERM LOANS. The proceeds of the Term Loans, together with other
funds available to Company, shall be applied by Company to pay the
Acquisition Financing Requirements. To the extent Company advances to DAH
proceeds of the Term Loans on the Closing Date to repay the Existing DAH
Debt, such advances shall be evidenced by the Intercompany Note Relating to
Tranche A Term Loans and Working Capital Loans and /or the Intercompany Note
Relating to Tranche B Term Loans, as the case may be, which notes shall be
pledged by Company to Administrative Agent pursuant to the Finance Co. Pledge
Agreement. To the extent the proceeds of the Tranche B Term Loans are not
utilized on the Closing Date, the excess proceeds shall be deposited by
Company into the Investment Accounts for the benefit of the Lenders and
invested in Cash Equivalents specified in the Investment Account Agreement,
as directed by Company, until the Merger Date.
B. WORKING CAPITAL LOANS; SWING LINE LOANS. The proceeds of the Working
Capital Loans and any Swing Line Loans may be applied by Company for working
capital and general and other corporate purposes, including the making of
advances to DAH as described below. Up to $10,600,000 of Working Capital
Loans made on the Closing Date and/or the Merger Date may be used to pay the
Acquisition Financing Requirements. The Working Capital Loans may be
advanced by Company to DAH during the period from and including the Closing
Date to and including the Merger Date for working capital and general and
other corporate purposes. To the extent Company advances to DAH proceeds of
the Working Capital Loans during such period, such advances shall be
evidenced by the Intercompany Note Relating to Tranche A Term Loans and
Working Capital Loans which note shall be pledged by Company to
Administrative Agent pursuant to the Finance Co. Pledge Agreement.
C. ACQUISITION LOANS. The proceeds of the Acquisition Loans shall be
applied by Company to finance directly or indirectly the costs of Permitted
Acquisitions.
D. MARGIN REGULATIONS. No borrowing and no portion of the proceeds of
any borrowing under this Agreement shall be used by Company or any of its
Subsidiaries in any manner that is in violation of Regulation U or Regulation
X of the Board of Governors of the Federal Reserve System in effect on the
date or dates of such borrowing and such use of proceeds.
62
<PAGE>
2.6 SPECIAL PROVISIONS GOVERNING EURODOLLAR RATE LOANS.
Notwithstanding any other provision of this Agreement to the
contrary, the following provisions shall govern with respect to Eurodollar Rate
Loans as to the matters covered:
A. DETERMINATION OF APPLICABLE INTEREST RATE. As soon as practicable
after 11:00 A.M. (London time) on each Interest Rate Determination Date,
Administrative Agent shall determine (which determination shall, absent manifest
error, be final, conclusive and binding upon all parties) the interest rate that
shall apply to the Eurodollar Rate Loans for which an interest rate is then
being determined for the applicable Interest Period and shall promptly give
notice thereof (in writing or by telephone confirmed in writing) to Company and
each Lender.
B. INABILITY TO DETERMINE APPLICABLE INTEREST RATE. In the event that
Administrative Agent shall have determined (which determination shall be
final and conclusive and binding upon all parties hereto), on any Interest
Rate Determination Date with respect to any Eurodollar Rate Loans, that
deposits in U.S. Dollars for the relevant Interest Period are not available
to Administrative Agent in the London interbank market or by reason of
circumstances affecting the London interbank market adequate and fair means
do not exist for ascertaining the interest rate applicable to such Loans on
the basis provided for in the definition of Adjusted Eurodollar Rate,
Administrative Agent shall on such date give notice (by telefacsimile or by
telephone confirmed in writing) to Company and each Lender of such
determination, whereupon (i) no Loans may be made as, or converted to,
Eurodollar Rate Loans until such time as Administrative Agent notifies
Company and Lenders that the circumstances giving rise to such notice no
longer exist and (ii) any Notice of Borrowing or Notice of
Conversion/Continuation given by Company with respect to the Loans in respect
of which such determination was made shall be deemed to be rescinded by
Company or, at the sole option of Company, the proposed Loans requested to be
made in such Notice of Borrowing or Notice of Conversion, Continuation, as
the case may be, shall instead be made as, or converted to or continued as,
Base Rate Loans.
C. ILLEGALITY OR IMPRACTICABILITY OF EURODOLLAR RATE LOANS. In the
event that on any date any Lender shall have determined (which determination
shall be final and conclusive and binding upon all parties hereto but shall be
made only after consultation with Company and Administrative Agent) that the
making, maintaining or continuation of its Eurodollar Rate Loans has become
unlawful as a result of the introduction of, or any change in or in the
interpretation of, any law, treaty, governmental rule, regulation, guideline or
order (whether or not having the force of law even though the failure to comply
therewith would not be unlawful), in each case after the date hereof, then, and
in any such event, such Lender shall be an "AFFECTED LENDER" and it shall on
that day give notice (by telefacsimile or by telephone confirmed in writing) to
Company and Administrative Agent of such determination (which notice
Administrative Agent shall promptly transmit to each other Lender). Thereafter
(a) the obligation of the Affected Lender to make Loans as, or to convert Loans
to, Eurodollar Rate Loans shall be suspended until such notice shall be
withdrawn by the Affected Lender (which such Affected Lender shall do promptly
upon obtaining actual knowledge that the circumstance giving rise to such
suspension no longer exist), (b) to the extent such determination by the
Affected Lender relates to a Eurodollar Rate Loan then being requested by
Company pursuant to a Notice of Borrowing or a Notice of
Conversion/Continuation, the Affected Lender shall make such Loan as (or convert
63
<PAGE>
such Loan to, as the case may be) a Base Rate Loan (with interest thereon being
payable on the same date or dates on which interest is payable in respect of the
corresponding Loans of Lenders that are not Affected Lenders), (c) the Affected
Lender's obligation to maintain its outstanding Eurodollar Rate Loans (the
"AFFECTED LOANS") shall be terminated at the earlier to occur of the expiration
of the Interest Period then in effect with respect to the Affected Loans or when
required by law, and (d) the Affected Loans shall automatically convert into
Base Rate Loans on the date of such termination (with interest thereon being
payable on the same date or dates on which interest is payable in respect of the
corresponding Loans of Lenders that are not Affected Lenders). Notwithstanding
the foregoing, to the extent a determination by an Affected Lender as described
above relates to a Eurodollar Rate Loan then being requested by Company pursuant
to a Notice of Borrowing or a Notice of Conversion/Continuation, Company shall
have the option, subject to the provisions of subsection 2.6D, to rescind such
Notice of Borrowing or Notice of Conversion/Continuation as to all Lenders by
giving notice (by telefacsimile or by telephone confirmed in writing) to
Administrative Agent of such rescission on the date on which the Affected Lender
gives notice of its determination as described above (which notice of rescission
Administrative Agent shall promptly transmit to each other Lender). Except as
provided in the immediately preceding sentence, nothing in this subsection 2.6C
shall affect the obligation of any Lender other than an Affected Lender to make
or maintain Loans as, or to convert Loans to, Eurodollar Rate Loans in
accordance with the terms of this Agreement.
D. COMPENSATION FOR BREAKAGE OR NON-COMMENCEMENT OF INTEREST PERIODS.
Company shall compensate each Lender, upon written request by that Lender (which
request shall set forth the basis for requesting such amounts), for all
reasonable losses, expenses and liabilities (including any interest paid by that
Lender to lenders of funds borrowed by it to make or carry its Eurodollar Rate
Loans and any loss, expense or liability sustained by that Lender in connection
with the liquidation or re-employment of such funds but excluding any loss of
margin for any period after any failure to borrow, continue or convert any
Eurodollar Loans, or any prepayment of Eurodollar Loans described below) which
that Lender may sustain: (i) if for any reason (other than a default by that
Lender) a borrowing of any Eurodollar Rate Loan does not occur on a date
specified therefor in a Notice of Borrowing or a telephonic request for
borrowing, or a conversion to or continuation of any Eurodollar Rate Loan does
not occur on a date specified therefor in a Notice of Conversion/Continuation or
a telephonic request for conversion or continuation, (ii) if any prepayment
(including any prepayment pursuant to subsection 2.4B(i)) or other principal
payment or any conversion of any of its Eurodollar Rate Loans occurs on a date
prior to the last day of an Interest Period applicable to that Loan, or (iii) if
any prepayment of any of its Eurodollar Rate Loans is not made on any date
specified in a notice of prepayment given by Company.
E. BOOKING OF EURODOLLAR RATE LOANS. Any Lender may make, carry or
transfer Eurodollar Rate Loans at, to, or for the account of any of its branch
offices or the office of an Affiliate of that Lender; provided that Company
shall not be liable for any additional amounts pursuant to subsection 2.7 as a
result thereof nor shall any such action, by itself, cause such Lender to become
an Affected Lender.
F. ASSUMPTIONS CONCERNING FUNDING OF EURODOLLAR RATE LOANS. Calculation
of all amounts payable to a Lender under this subsection 2.6 and under
subsection 2.7A shall be made as though that Lender had actually funded each
of its relevant Eurodollar Rate Loans through the
64
<PAGE>
purchase of a Eurodollar deposit bearing interest at the rate obtained
pursuant to clause (i) of the definition of Adjusted Eurodollar Rate in an
amount equal to the amount of such Eurodollar Rate Loan and having a maturity
comparable to the relevant Interest Period and through the transfer of such
Eurodollar deposit from an offshore office of that Lender to a domestic
office of that Lender in the United States of America; PROVIDED, HOWEVER,
that each Lender may fund each of its Eurodollar Rate Loans in any manner it
sees fit and the foregoing assumptions shall be utilized only for the
purposes of calculating amounts payable under this subsection 2.6 and under
subsection 2.7A.
G. EURODOLLAR RATE LOANS AFTER DEFAULT. After the occurrence of
and during the continuation of a Potential Event of Default or an Event of
Default, Company may not elect to have a Loan be made or maintained as, or
converted to, a Eurodollar Rate Loan after the expiration of any Interest
Period then in effect for that Loan.
2.7 INCREASED COSTS; TAXES; CAPITAL ADEQUACY.
A. COMPENSATION FOR INCREASED COSTS AND TAXES. Subject to the
provisions of subsection 2.7B (which shall be controlling with respect to the
matters covered thereby), in the event that any Lender shall determine (which
determination shall, absent manifest error, be final and conclusive and
binding upon all parties hereto) that any law, treaty or governmental rule,
regulation or order, or any change therein or in the interpretation,
administration or application thereof (including the introduction of any new
law, treaty or governmental rule, regulation of order), or any determination
of a court or governmental authority, in each case that becomes effective
after the date hereof (in the case of each Lender listed on the signature
pages hereof and in the case of any other Lender if such change shall have
affected a class of Lenders generally) or after the date of the Assignment
Agreement pursuant to which such Lender became a Lender (in the case of any
other Lender if such change shall not have affected a class of Lenders
generally), or compliance by such Lender with any guideline, request or
directive issued or made after the date hereof by any central bank or other
governmental or quasi-governmental authority (whether or not having the force
of law):
(i) imposes, modifies or holds applicable any reserve
(including any marginal, emergency, supplemental, special or other
reserve), special deposit, compulsory loan, FDIC insurance or similar
requirement against assets held by, or deposits or other liabilities in
or for the account of, or advances or loans by, or other credit extended
by, or any other acquisition of funds by, any office of such Lender
(other than any such reserve or other requirements with respect to
Eurodollar Rate Loans that are reflected in the definition of Adjusted
Eurodollar Rate); or
(ii) imposes any other condition (other than with respect to a
tax matter) on or affecting such Lender (or its applicable lending
office) or its obligations hereunder or the London interbank market;
and the result of any of the foregoing is to increase the cost to such Lender of
agreeing to make, making or maintaining Eurodollar Rate Loans hereunder or to
reduce any amount received or receivable by such Lender (or its applicable
lending office) with respect thereto; then, in any such case, Company shall pay
to such Lender, within 15 days after receipt of the statement
65
<PAGE>
referred to in the next sentence, such additional amount or amounts as may be
necessary to compensate such Lender for any such increased cost or reduction
in amounts received or receivable hereunder. Such Lender shall promptly
deliver to Company (with a copy to Administrative Agent) a written statement,
setting forth in reasonable detail the basis for calculating the additional
amounts owed to such Lender under this subsection 2.7A, which statement shall
be conclusive and binding upon all parties hereto absent manifest error.
B. WITHHOLDING OF TAXES.
(i) PAYMENTS TO BE FREE AND CLEAR. All sums payable by Company
under this Agreement and the other Loan Documents shall (except to the
extent required by law) be paid free and clear of, and without any
deduction on account of, any Tax .
(ii) GROSSING-UP OF PAYMENTS. If Company is required by law to
make any deduction or withholding on account of any such Tax from any sum
paid or payable by Company to Administrative Agent or any Lender under
any of the Loan Documents:
(a) Company shall pay any such Tax before the date on
which penalties attach thereto, such payment to be made for its
own account;
(b) the sum payable by Company in respect of which the
relevant deduction, withholding or payment is required shall be
increased to the extent necessary to ensure that, after the making
of that deduction, withholding or payment, Administrative Agent or
such Lender, as the case may be, receives on the due date a net
sum equal to what it would have received had no such deduction,
withholding or payment been required or made; and
(c) within 30 days after paying any sum from which it is
required by law to make any deduction or withholding, or within 30
days after the due date of payment of any Tax which it is required
by clause (a) above to pay (whichever is later), Company shall
deliver to Administrative Agent evidence available to the Company
reasonably satisfactory to Administrative Agent of such deduction,
withholding or payment and of the remittance thereof to the
relevant taxing or other authority;
PROVIDED that no such additional amount shall be required to be paid to
any Lender or Agent under clause (b) above except to the extent that any
change after the date hereof (in the case of each Lender and Agent listed
on the signature pages hereof) or after the date of the Assignment
Agreement pursuant to which such Lender became a Lender (in the case of
each other Lender) in any such requirement for a deduction, withholding
or payment as is mentioned therein shall result in an increase in the
rate of such deduction, withholding or payment from that in effect at the
date of this Agreement or at the date of such Assignment Agreement, as
the case may be, in respect of payments to such Lender or Agent.
(iii) If any Taxes are directly asserted against either of the
Agents or any Lender with respect to any payment received by such Agents
or such Lender under the
66
<PAGE>
Agreement, such Agents or such Lender may pay such Taxes and the Company
will promptly pay to such Person such additional amount (including any
penalties, interest or expenses) as is necessary in order that the net
amount received by such Person shall equal the amount of such Taxes paid
by such Person; PROVIDED, HOWEVER, that the Company shall not be
obligated to make payment to the Lenders or the Agents (as the case may
be) pursuant to this sentence in respect of penalties or interest
attributable to any Taxes, if written demand therefor has not been made
by such Lenders or the Agents within 60 days from the date on which such
Lenders or the Agents knew of the imposition of Taxes by the relevant
taxing authority or for any additional imposition which may arise from
the failure of the Lenders or Agents to apply payments in accordance
with the applicable tax law after the Company has made the payments
required hereunder; PROVIDED, FURTHER, HOWEVER, that the Company shall
not be required to pay any such additional amounts except to the extent
that any change after the date hereof (in the case of each Lender and
Agent listed on the signature pages hereof) or after the date of the
Assignment Agreement pursuant to which such Lender became a Lender (in
the case of each other Lender) in any such requirement for the deduction,
withholding or payment of Taxes shall result in an increase in the rate
of such deduction, withholding or payment from that in effect at the
date of this Agreement or at the date of such Assignment Agreement, as
the case may be, in respect of payments to such Lender or Agent. After
a Lender or an Agent (as the case may be) learns of the imposition of
Taxes, such Lender or Agent will act in good faith to notify the Company
of their obligations hereunder as soon as reasonably possible.
(iv) EVIDENCE OF EXEMPTION FROM U.S. WITHHOLDING TAX.
(a) Each Lender and Agent that is not (i) a citizen or
resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the
United States, or any state or other political subdivision
thereof, (iii) an estate that is subject to U.S. federal income
taxation regardless of the source of its income or (iv) a trust,
if any only if (A) a court within the United States is able to
exercise primary supervision over the administration of the trust
and (B) one or more U.S. persons has the authority to control all
substantial decisions of the trust (for purposes of this
subsection 2.7B(iv), any such Person referred to in clauses (i)
through (iv) being a "NON-US LENDER OR AGENT") shall deliver to
Administrative Agent (which shall promptly deliver an original
copy to Company) on or prior to the Closing Date (in the case of
each Lender and Agent listed on the signature pages hereof) or on
or prior to the date of the Assignment Agreement pursuant to which
it becomes a Lender (in the case of each other Lender), and at
such other times as may be necessary in the determination of
Company or Administrative Agent (each in the reasonable exercise
of its discretion), (1) two or more (as Company or Administrative
Agent reasonably request) original copies of Internal Revenue
Service Form 1001 or 4224 (or any successor forms), properly
completed and duly executed by such Lender, together with any
other certificate or statement of exemption required under the
Internal Revenue Code or the regulations issued thereunder to
establish that such Lender is not subject to deduction or
withholding of United States federal income tax with respect to
any payments to such Lender of principal, interest, fees or other
67
<PAGE>
amounts payable under any of the Loan Documents or (2) if such
Lender is not a "bank" or other Person described in
Section 881(c)(3) of the Internal Revenue Code and cannot deliver
either Internal Revenue Service Form 1001 or 4224 pursuant to
clause (1) above, a Certificate re Non-Bank Status together with
two or more (as Company or Administrative Agent reasonably
request) original copies of Internal Revenue Service Form W-8 (or
any successor form), properly completed and duly executed by such
Lender, together with any other certificate or statement of
exemption required under the Internal Revenue Code or the
regulations issued thereunder to establish that such Lender is not
subject to deduction or withholding of United States federal
income tax with respect to any payments to such Lender of interest
payable under any of the Loan Documents.
(b) Each Lender required to deliver any forms,
certificates or other evidence with respect to United States
federal income tax withholding matters pursuant to subsection
2.7B(iv)(a) hereby agrees, from time to time after the initial
delivery by such Lender of such forms, certificates or other
evidence, whenever a lapse in time or change in circumstances
renders such forms, certificates or other evidence obsolete or
inaccurate in any material respect, that such Lender shall on or
before the date that any such form, certification or other
evidence becomes obsolete or inaccurate (1) deliver to
Administrative Agent (which shall promptly deliver an original
copy to Company) two or more (as Company or Administrative Agent
may reasonably request) new original copies of Internal Revenue
Service Form 1001 or 4224, or a Certificate re Non-Bank Status and
two or more (as Company or Administrative Agent may reasonably
request) new original copies of Internal Revenue Service Form W-8,
as the case may be, properly completed and duly executed by such
Lender, together with any other certificate or statement of
exemption required in order to confirm or establish that such
Lender is not subject to deduction or withholding of United States
federal income tax with respect to payments to such Lender under
the Loan Documents or (2) notify Administrative Agent and Company
of its inability to deliver any such forms, certificates or other
evidence. Each Lender and each Agent agrees, to the extent
reasonable and without material cost to it, to provide to Company
and Administrative Agent such other applicable forms or
certificates that would reduce or eliminate any Tax.
(c) Company shall not be required to pay any additional
amount to any Non-US Lender or Agent under subsection 2.7B(ii) or
2.7B(iii)if such Lender or Agent shall have failed to satisfy the
requirements of clause (a) or (b)(1) of this subsection 2.7B(iv);
PROVIDED that if such Lender shall have satisfied the requirements
of subsection 2.7B(iv)(a) on the Closing Date (in the case of each
Lender listed on the signature pages hereof) or on the date of the
Assignment Agreement pursuant to which it became a Lender (in the
case of each other Lender), nothing in this subsection 2.7B(iv)(c)
shall relieve Company of its obligation to pay any additional
amounts pursuant to subsection 2.7B(ii) in the event that, as a
result of any change in any applicable law, treaty or governmental
rule, regulation or order, or any change in the interpretation,
administration or
68
<PAGE>
application thereof, such Lender is no longer properly entitled to
deliver forms, certificates or other evidence at a subsequent
date establishing the fact that such Lender is not subject to
withholding as described in subsection 2.7B(iv)(a).
(v) If Company determines in good faith that a reasonable basis
exists for contesting the imposition of a Tax with respect to a Lender or
either of the Agents, if requested by Company, the relevant Lender or
Agent, as the case may be, shall reasonably cooperate with Company in
challenging such Tax at Company's expense; PROVIDED, HOWEVER, that
nothing in this subsection 2.7B(v) shall require any Lender to submit to
Company or any other Person any tax returns or any part thereof, or to
prepare or file any tax returns other than as such Lender in its sole
discretion shall determine.
(vi) If a Lender or an Agent shall receive a refund (including
any offset or credits) from a taxing authority (as a result of any error
in the imposition of Taxes by such taxing authority) of any Taxes paid by
Company pursuant to subsection 2.7B(ii) and 2.7B(iii) above, such Lender
or the Agent (as the case may be) shall promptly pay Company the amount
so received, with interest, if any, from the taxing authority with
respect to such refund, net of any tax liability incurred by such Lender
or Agent that is attributable to the receipt of such refund and such
interest; PROVIDED that such Lender or Agent, as the case may be, shall
be entitled to use reasonable methods to calculate the allocation of any
such refund payable to Company so long as such method does not result in
a materially reduced amount being paid to Company as compared to
similarly situated borrowers.
(vii) Each Lender and each Agent agrees, to the extent reasonable
and without material cost to it, to cooperate with the Company to
minimize any amounts payable by the Company under this Section 2.7B;
PROVIDED, HOWEVER, that nothing in this Section 2.7B shall require any
Lender to take any action which, in the sole discretion of such Lender,
is inconsistent with its internal policy and legal and regulatory
restrictions.
C. CAPITAL ADEQUACY ADJUSTMENT. If any Lender shall have determined
that the adoption, effectiveness, phase-in or applicability after the date
hereof (in the case of each Lender listed on the signature pages hereof and in
the case of any other Lender if such change shall have affected a class of
Lenders generally) or after the date of the Assignment Agreement pursuant to
which such Lender became a Lender (in the case of any other Lender if such
change shall not have affected a class of Lenders generally) of any law, rule or
regulation (or any provision thereof) regarding capital adequacy, or any change
after such date therein or in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or its
applicable lending office) with any guideline, request or directive regarding
capital adequacy (whether or not having the force of law) of any such
governmental authority, central bank or comparable agency issued after such
date, has or would have the effect of reducing the rate of return on the capital
of such Lender or any corporation controlling such Lender as a consequence of,
or with reference to, such Lender's Loans or Commitments or Letters of Credit or
participations therein or other obligations hereunder with respect to the Loans
or the Letters of Credit to a level below that which such Lender or such
controlling corporation could have achieved but for such adoption,
effectiveness, phase-in, applicability, change or compliance
69
<PAGE>
(taking into consideration the policies of such Lender or such controlling
corporation with regard to capital adequacy), then from time to time, within
15 days after receipt by Company from such Lender of the statement referred
to in the next sentence, Company shall pay to such Lender such additional
amount or amounts as will compensate such Lender or such controlling
corporation for such reduction. Such Lender shall deliver to Company (with a
copy to Administrative Agent) a written statement, setting forth in
reasonable detail the basis of the calculation of such additional amounts,
which statement shall be conclusive and binding upon all parties hereto
absent manifest error; provided that such Lender may not impose materially
greater costs on Company than on similarly situated borrowers by the virtue
of the methodology applied to calculate such additional amounts.
D. PERIOD OF RECOVERY. Company shall not be obligated to compensate
any Lender for any costs or additional amounts with respect to which such Lender
may request compensation pursuant to this subsection 2.7 or subsection 3.6 to
the extent such costs have accrued, or have been incurred, prior to 180 days
prior to the date on which such Lender demands compensation therefor hereunder.
2.8 OBLIGATION OF LENDERS AND ISSUING LENDERS TO MITIGATE; REPLACEMENT OF
LENDER.
A. MITIGATION. Each Lender and Issuing Lender agrees that, as
promptly as practicable after the officer of such Lender or Issuing Lender
responsible for administering the Loans or Letters of Credit of such Lender or
Issuing Lender, as the case may be, becomes aware of the occurrence of an event
or the existence of a condition that would cause such Lender to become an
Affected Lender or that would entitle such Lender or Issuing Lender to receive
payments under subsection 2.7 or subsection 3.6, it will, to the extent not
inconsistent with the internal policies of such Lender or Issuing Lender and any
applicable legal or regulatory restrictions, use reasonable efforts (i) to make,
issue, fund or maintain the Commitments of such Lender or the affected Loans or
Letters of Credit of such Lender or Issuing Lender through another lending or
letter of credit office of such Lender or Issuing Lender, or (ii) take such
other measures as such Lender or Issuing Lender may deem reasonable, if as a
result thereof the circumstances which would cause such Lender to be an Affected
Lender would cease to exist or the additional amounts which would otherwise be
required to be paid to such Lender or Issuing Lender pursuant to subsection 2.7
or subsection 3.6 would be reduced and if, as determined by such Lender or
Issuing Lender in its sole discretion, the making, issuing, funding or
maintaining of such Commitments or Loans or Letters of Credit through such other
lending or letter of credit office or in accordance with such other measures, as
the case may be, would not otherwise materially adversely affect such
Commitments or Loans or Letters of Credit or the interests of such Lender or
Issuing Lender; PROVIDED that such Lender or Issuing Lender will not be
obligated to utilize such other lending or letter of credit office pursuant to
this subsection 2.8 unless Company agrees to pay all incremental expenses
incurred by such Lender or Issuing Lender as a result of utilizing such other
lending or letter of credit office as described in clause (i) above. A
certificate as to the amount of any such expenses payable by Company pursuant to
this subsection 2.8 (setting forth in reasonable detail the basis for requesting
such amount) submitted by such Lender or Issuing Lender to Company (with a copy
to Administrative Agent) shall be conclusive absent manifest error.
70
<PAGE>
B. REPLACEMENT OF LENDER. If Company receives a notice of amounts
due pursuant to subsection 2.7A, subsection 2.7B or subsection 2.7C or
subsection 3.6 from a Lender or a Lender becomes an Affected Lender, a
Non-Funding Lender or a Non-Consenting Lender (any such Lender, a "Subject
Lender"), so long as (i) Company has obtained a commitment from another
Lender or an Eligible Assignee to purchase at par the Subject Lender's Loans
and assume the Subject Lender's Commitments and all other obligations of the
Subject Lender hereunder, and (ii) such Lender is not an Issuing Lender with
respect to any Letters of Credit outstanding (unless all such Letters of
Credit are terminated or arrangements acceptable to such Issuing Lender (such
as a "back-to-back" letter of credit) are made, it being understood that a
Standby Letter of Credit issued hereunder shall constitute such an
arrangement acceptable to such Issuing Lender) upon written notice to the
Subject Lender and Administrative Agent, Company may require the Subject
Lender to assign all of its Loans and Commitments to such other Lender or
Eligible Assignee pursuant to the provisions of subsection 10.1B; PROVIDED
that, prior to or concurrently with such replacement (i) Company has paid to
the Lender giving such notice all amounts under subsections 2.6D, 2.7 (if
applicable) and 3.6 (if applicable) through such date of replacement, (ii)
Company or the applicable assignee has paid to Administrative Agent the
processing fee required to be paid by subsection 10.1B(i) and (iii) all of
the requirements for such assignment contained in subsection 10.1B,
including, without limitation, the consent of Agents (if required) and the
receipt by Administrative Agent of an executed Assignment Agreement and other
supporting documents, have been fulfilled.
SECTION 3. LETTERS OF CREDIT
3.1 ISSUANCE OF LETTERS OF CREDIT AND LENDERS' PURCHASE OF PARTICIPATIONS
THEREIN.
A. LETTERS OF CREDIT. In addition to Company requesting that Working
Capital Lenders make Working Capital Loans pursuant to subsection 2.1A(iii) and
that Swing Line Lender make Swing Line Loans pursuant to subsection 2.1A(iv),
Company may request, in accordance with the provisions of this subsection 3.1,
from time to time during the period from the Closing Date to but excluding the
Working Capital Loan Commitment Termination Date, that Issuing Lender issue
Letters of Credit for the account of Company or any of its Subsidiaries
(provided that Company shall be deemed to be the account party hereunder and
shall be fully liable under this Section 3 with respect to all Letters of Credit
issued for the account of its Subsidiaries) for the purposes specified in the
definitions of Standby Letters of Credit and Trade Letters of Credit. Subject
to the terms and conditions of this Agreement and in reliance upon the
representations and warranties of Company herein set forth, Issuing Lender
shall, subject to subsection 3.1B(ii), issue such Letters of Credit in
accordance with the provisions of this subsection 3.1; PROVIDED that Company
shall not request that Issuing Lender issue (and Issuing Lender shall not
issue):
(i) any Letter of Credit if, after giving effect to such
issuance, the Total Utilization of Working Capital Loan Commitments would
exceed the Working Capital Loan Commitments then in effect;
(ii) any Letter of Credit if, after giving effect to such
issuance, the Letter of Credit Usage would exceed $5,000,000;
71
<PAGE>
(iii) any Standby Letter of Credit having an expiration date
later than the earlier of (a) the Working Capital Loan Commitment
Termination Date and (b) the date that is one year from the date of
issuance of such Standby Letter of Credit; PROVIDED that the immediately
preceding clause (b) shall not prevent Company from requesting and any
Issuing Lender from agreeing that a Standby Letter of Credit will
automatically be extended for one or more successive periods not to
exceed one year each unless such Issuing Lender elects not to extend for
any such additional period (such Issuing Lender hereby agreeing that it
shall only elect not to extend such Standby Letter of Credit if, but only
if, it has knowledge that an Event of Default has occurred and is
continuing); or
(iv) any Letter of Credit denominated in a currency other than
Dollars.
B. MECHANICS OF ISSUANCE.
(i) NOTICE OF ISSUANCE. Whenever Company desires the issuance
of a Letter of Credit, it shall deliver to Administrative Agent a Notice
of Issuance of Letter of Credit substantially in the form of EXHIBIT III
annexed hereto no later than 11:00 A.M. (Chicago time) at least three
Business Days, or such shorter period as may be agreed to by the Issuing
Lender in any particular instance, in advance of the proposed date of
issuance. The Notice of Issuance of Letter of Credit shall specify
(a) the proposed date of issuance (which shall be a Business Day), (b)
the face amount of the Letter of Credit, (c) the expiration date of the
Letter of Credit, (d) the name and address of the beneficiary, and
(e) either the verbatim text of the proposed Letter of Credit or the
proposed terms and conditions thereof, including a precise description of
any documents to be presented by the beneficiary which, if presented by
the beneficiary prior to the expiration date of the Letter of Credit,
would require the Issuing Lender to make payment under the Letter of
Credit; PROVIDED that the Issuing Lender, in its reasonable discretion,
may require changes in the text of the proposed Letter of Credit or any
such documents; and PROVIDED, FURTHER that no Letter of Credit shall
require payment against a conforming draft to be made thereunder on the
same business day (under the laws of the jurisdiction in which the office
of the Issuing Lender to which such draft is required to be presented is
located) that such draft is presented if such presentation is made after
10:00 A.M. in the time zone of such office of the Issuing Lender) on such
business day.
Company shall notify the applicable Issuing Lender (and Administrative
Agent, if Administrative Agent is not such Issuing Lender) prior to the issuance
of any Letter of Credit in the event that any of the matters to which Company is
required to certify in the applicable Notice of Issuance of Letter of Credit as
being true and correct on the proposed date of issuance is not true and correct
as of the proposed date of issuance of such Letter of Credit, and upon the
issuance of any Letter of Credit Company shall be deemed to have re-certified,
as of the date of such issuance, as to the matters to which Company is required
to certify in the applicable Notice of Issuance of Letter of Credit as being
true and correct on the proposed date of issuance.
(ii) If Administrative Agent in its capacity as Issuing Lender
determines that the issuance of such Letter of Credit would violate
applicable law or Administrative Agent's internal policies relating to
Letters of Credit, Administrative Agent shall not be obligated to issue
such Letter of Credit, and Company may request any other Working
72
<PAGE>
Capital Lender to issue the Letter of Credit. If such Working Capital
Lender agrees to issue such Letter of Credit, such Working Capital Lender
shall be the Issuing Lender of such Letter of Credit.
(iii) ISSUANCE OF LETTER OF CREDIT. Upon satisfaction or waiver
(in accordance with subsection 10.6) of the conditions set forth in
subsection 4.5, the applicable Issuing Lender shall issue the requested
Letter of Credit in accordance with the such Issuing Lender's standard
operating procedures.
(iv) NOTIFICATION TO WORKING CAPITAL LENDERS. Upon the issuance
of any Letter of Credit the applicable Issuing Lender shall promptly
notify Administrative Agent of such issuance, which notice shall be
accompanied by a copy of such Letter of Credit. Promptly after receipt
of such notice (or, if Administrative Agent is the Issuing Lender, upon
issuance of such Letter of Credit), Administrative Agent shall notify
each Working Capital Lender of the amount of such Lender's respective
participation in such Letter of Credit, determined in accordance with
subsection 3.1B(vi).
(v) REPORTS TO WORKING CAPITAL LENDERS. Within 15 days after
the end of each calendar quarter ending after the Closing Date, so long
as any Letter of Credit shall have been outstanding during such calendar
quarter, each Issuing Lender shall deliver to Administrative Agent a
report setting forth for such calendar quarter the daily aggregate amount
available to be drawn under the Letters of Credit issued by such Issuing
Lender that were outstanding during such calendar quarter.
Administrative Agent will promptly send copies of such reports to the
Working Capital Lenders.
(vi) WORKING CAPITAL LENDERS' PURCHASE OF PARTICIPATIONS IN
LETTERS OF CREDIT. Immediately upon the issuance of each Letter of
Credit, each Working Capital Lender shall be deemed to, and hereby agrees
to, have irrevocably purchased from the Issuing Lender a participation in
such Letter of Credit and any drawings honored thereunder in an amount
equal to such Working Capital Lender's Pro Rata Share of the maximum
amount which is or at any time may become available to be drawn
thereunder.
3.2 LETTER OF CREDIT FEES.
Company agrees to pay the following amounts with respect to
Letters of Credit issued hereunder:
(i) (a) a fronting fee, payable directly to the applicable
Issuing Lender for its own account, equal to 0.125% per annum of the
daily amount available to be drawn under such Letter of Credit and (b) a
letter of credit fee, payable to Administrative Agent for the account of
Working Capital Lenders (based upon their respective Pro Rata Shares),
equal to (x) (1) in the case of Standby Letters of Credit, the applicable
Eurodollar Rate Margin set forth in subsection 2.2A hereof for Working
Capital Loans which are Eurodollar Rate Loans and (2) in the case of
Trade Letters of Credit, 1.25%, in each case MULTIPLIED BY (y) the daily
amount available from time to time to be drawn under such Letter of
Credit, each such fronting fee or letter of credit fee to be payable in
arrears on and to (but
73
<PAGE>
excluding) each Quarterly Date and computed on the basis of a 360-day
year for the actual number of days elapsed; and
(ii) with respect to the issuance, amendment or transfer of each
Letter of Credit and each payment of a drawing made thereunder (without
duplication of the fees payable under clause (i) above), documentary and
processing charges payable directly to the applicable Issuing Lender for
its own account in accordance with such Issuing Lender's standard
schedule for such charges in effect at the time of such issuance,
amendment, transfer or payment, as the case may be or as otherwise agreed
upon between Company and such Issuing Lender.
For purposes of calculating any fees payable under clause (i) of this subsection
3.2, the daily amount available to be drawn under any Letter of Credit shall be
determined as of the close of business on any date of determination. Promptly
upon receipt by Administrative Agent of any amount described in clause (i)(b) of
this subsection 3.2, Administrative Agent shall distribute to each Working
Capital Lender its Pro Rata Share of such amount.
3.3 DRAWINGS AND REIMBURSEMENT OF AMOUNTS PAID UNDER LETTERS OF CREDIT.
A. RESPONSIBILITY OF ISSUING LENDER WITH RESPECT TO DRAWINGS. In
determining whether to honor any drawing under any Letter of Credit by the
beneficiary thereof, the Issuing Lender shall be responsible only to examine the
documents delivered under such Letter of Credit with reasonable care so as to
ascertain whether they appear on their face to be in accordance with the terms
and conditions of such Letter of Credit.
B. REIMBURSEMENT BY COMPANY OF AMOUNTS PAID UNDER LETTERS OF CREDIT.
In the event an Issuing Lender has determined to honor a drawing under a Letter
of Credit issued by it, such Issuing Lender shall immediately notify Company and
Administrative Agent of the date payment thereunder shall be made (the
"Reimbursement Date"), and Company shall reimburse such Issuing Lender on the
Reimbursement Date in an amount in Dollars and in same day funds equal to the
amount of such honored drawing; PROVIDED that, anything contained in this
Agreement to the contrary notwithstanding, (i) unless Company shall have
notified Administrative Agent and such Issuing Lender prior to 11:00 A.M.
(Chicago time) on the Reimbursement Date that Company intends to reimburse such
Issuing Lender for the amount of such honored drawing with funds other than the
proceeds of Working Capital Loans, Company shall be deemed to have given a
timely Notice of Borrowing to Administrative Agent requesting Lenders to make
Working Capital Loans that are Base Rate Loans on the Reimbursement Date in an
amount in Dollars equal to the amount of such honored drawing and (ii) subject
to satisfaction or waiver of the conditions specified in subsection 4.4, Working
Capital Lenders shall, on the Reimbursement Date, make Working Capital Loans
that are Base Rate Loans in the amount of such honored drawing, the proceeds of
which shall be applied directly by Administrative Agent to reimburse such
Issuing Lender for the amount of such honored drawing; and PROVIDED, FURTHER
that if for any reason proceeds of Working Capital Loans are not received by
such Issuing Lender on the Reimbursement Date in an amount equal to the amount
of such honored drawing, Company shall reimburse such Issuing Lender, on demand,
but no earlier than one Business Day following the Reimbursement Date, in an
amount in same day funds equal to the excess of the amount of such honored
drawing over the aggregate amount of such Working Capital Loans, if
74
<PAGE>
any, which are so received. Nothing in this subsection 3.3B shall be deemed
to relieve any Working Capital Lender from its obligation to make Working
Capital Loans on the terms and conditions set forth in this Agreement, and
Company shall retain any and all rights it may have against any Working
Capital Lender resulting from the failure of such Lender to make such Working
Capital Loans under this subsection 3.3B.
C. PAYMENT BY WORKING CAPITAL LENDERS OF UNREIMBURSED AMOUNTS PAID
UNDER LETTERS OF CREDIT.
(i) PAYMENT BY WORKING CAPITAL LENDERS. In the event that
Company shall fail for any reason to reimburse any Issuing Lender as
provided in subsection 3.3B in an amount equal to the amount of any
drawing honored by such Issuing Lender under a Letter of Credit issued by
it, such Issuing Lender shall promptly notify each other Working Capital
Lender of the unreimbursed amount of such honored drawing and of such
other Working Capital Lender's respective participation therein based on
such Working Capital Lender's Pro Rata Share. Each Working Capital
Lender shall make available to such Issuing Lender an amount equal to its
respective participation, in Dollars and in same day funds, at the office
of such Issuing Lender specified in such notice, not later than 11:00
A.M. (Chicago time) on the first business day (under the laws of the
jurisdiction in which such office of such Issuing Lender is located)
after the date notified by such Issuing Lender. In the event that any
Working Capital Lender fails to make available to such Issuing Lender on
such business day the amount of such Working Capital Lender's
participation in such Letter of Credit as provided in this subsection
3.3C, such Issuing Lender shall be entitled to recover such amount on
demand from such Working Capital Lender together with interest thereon at
the Federal Funds Effective Rate for three Business Days and thereafter
at the Base Rate. Nothing in this subsection 3.3C shall be deemed to
prejudice the right of any Working Capital Lender to recover from any
Issuing Lender any amounts made available by such Working Capital Lender
to such Issuing Lender pursuant to this subsection 3.3C in the event that
it is determined by the final judgment of a court of competent
jurisdiction that the payment with respect to a Letter of Credit by such
Issuing Lender in respect of which payment was made by such Working
Capital Lender constituted gross negligence or willful misconduct on the
part of such Issuing Lender.
(ii) DISTRIBUTION TO WORKING CAPITAL LENDERS OF REIMBURSEMENTS
RECEIVED FROM COMPANY. In the event any Issuing Lender shall have been
reimbursed by other Working Capital Lenders pursuant to subsection
3.3C(i) for all or any portion of any drawing honored by such Issuing
Lender under a Letter of Credit issued by it, such Issuing Lender shall
distribute to each other Working Capital Lender which has paid all
amounts payable by it under subsection 3.3C(i) with respect to such
honored drawing such other Working Capital Lender's Pro Rata Share of all
payments subsequently received by such Issuing Lender from Company in
reimbursement of such honored drawing when such payments are received.
Any such distribution shall be made to a Working Capital Lender at its
primary address set forth below its name on the appropriate signature
page hereof or at such other address as such Working Capital Lender may
request.
75
<PAGE>
D. INTEREST ON AMOUNTS PAID UNDER LETTERS OF CREDIT.
(i) PAYMENT OF INTEREST BY COMPANY. Company agrees to pay to
each Issuing Lender, with respect to drawings honored under any Letters
of Credit issued by it, interest on the amount paid by such Issuing
Lender in respect of each such honored drawing from the date such drawing
is honored to but excluding the date such amount is reimbursed by Company
(including any such reimbursement out of the proceeds of Working Capital
Loans pursuant to subsection 3.3B) at a rate equal to (a) for the period
from the date such drawing is honored to but excluding the Business Day
following the Reimbursement Date, the rate then in effect under this
Agreement with respect to Working Capital Loans that are Base Rate Loans
and (b) thereafter, a rate which is 2% per annum in excess of the rate of
interest otherwise payable under this Agreement with respect to Working
Capital Loans that are Base Rate Loans. Interest payable pursuant to
this subsection 3.3D(i) shall be payable on demand or, if no demand is
made, on the date on which the related drawing under a Letter of Credit
is reimbursed in full.
(ii) DISTRIBUTION OF INTEREST PAYMENTS BY ISSUING LENDER.
Promptly upon receipt by any Issuing Lender of any payment of interest
pursuant to subsection 3.3D(i) with respect to a drawing honored under a
Letter of Credit issued by it, (a) such Issuing Lender shall distribute
to each other Working Capital Lender, out of the interest received by
such Issuing Lender in respect of the period from the date such drawing
is honored to but excluding the date on which such Issuing Lender is
reimbursed for the amount of such drawing (including any such
reimbursement out of the proceeds of Working Capital Loans pursuant to
subsection 3.3B), the amount that such other Working Capital Lender would
have been entitled to receive in respect of the letter of credit fee that
would have been payable in respect of such Letter of Credit for such
period pursuant to subsection 3.2 if no drawing had been honored under
such Letter of Credit, and (b) in the event such Issuing Lender shall
have been reimbursed by other Working Capital Lenders pursuant to
subsection 3.3C(i) for all or any portion of such honored drawing, such
Issuing Lender shall distribute to each other Working Capital Lender
which has paid all amounts payable by it under subsection 3.3C(i) with
respect to such honored drawing such other Working Capital Lender's Pro
Rata Share of any interest received by such Issuing Lender in respect of
that portion of such honored drawing so reimbursed by other Working
Capital Lenders for the period from the date on which such Issuing Lender
was so reimbursed by other Working Capital Lenders to but excluding the
date on which such portion of such honored drawing is reimbursed by
Company. Any such distribution shall be made to a Working Capital Lender
at its primary address set forth below its name on the appropriate
signature page hereof or at such other address as such Working Capital
Lender may request.
3.4 OBLIGATIONS ABSOLUTE.
The obligation of Company to reimburse each Issuing Lender for
drawings honored under the Letters of Credit issued by it and the obligations of
Working Capital Lenders under subsection 3.3C(i) shall be unconditional and
irrevocable and shall, to the fullest extent
76
<PAGE>
permitted under applicable law, be paid strictly in accordance with the terms
of this Agreement under all circumstances, including any of the following
circumstances:
(i) any lack of validity or enforceability of any Letter of
Credit;
(ii) the existence of any claim, set-off, defense or other right
which Company or any Working Capital Lender may have at any time against
a beneficiary or any transferee of any Letter of Credit (or any Persons
for whom any such transferee may be acting), any Issuing Lender or other
Lender or any other Person or, in the case of a Lender, against Company,
whether in connection with this Agreement, the transactions contemplated
herein or any unrelated transaction (including any underlying transaction
between Company or one of its Subsidiaries and the beneficiary for which
any Letter of Credit was procured);
(iii) any draft or other document presented under any Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any
respect;
(iv) payment by the applicable Issuing Lender under any Letter
of Credit against presentation of a draft or other document which does
not substantially comply with the terms of such Letter of Credit;
(v) any adverse change in the business, operations, properties,
assets, condition (financial or otherwise) or prospects of Company or any
of its Subsidiaries;
(vi) any breach of this Agreement or any other Loan Document by
any party thereto;
(vii) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing; or
(viii) the fact that an Event of Default or a Potential Event of
Default shall have occurred and be continuing;
PROVIDED, in each case, that payment by the applicable Issuing Lender under the
applicable Letter of Credit shall not have constituted gross negligence or
willful misconduct of such Issuing Lender under the circumstances in question.
3.5 INDEMNIFICATION; NATURE OF ISSUING LENDERS' DUTIES.
A. INDEMNIFICATION. In addition to amounts payable as provided in
subsection 3.6, Company hereby agrees to protect, indemnify, pay and save
harmless each Issuing Lender from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including
reasonable fees, expenses and disbursements of counsel) which such Issuing
Lender may incur or be subject to as a consequence, direct or indirect, of
(i) the issuance of any Letter of Credit by such Issuing Lender, other than
as a result of (a) the gross negligence or willful misconduct of such Issuing
Lender as determined by a final judgment of a court of competent jurisdiction
or (b) subject to the following clause (ii), the wrongful dishonor by such
Issuing
77
<PAGE>
Lender of a proper demand for payment made under any Letter of Credit
issued by it or (ii) the failure of such Issuing Lender to honor a drawing
under any such Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto government
or governmental authority (all such acts or omissions herein called
"GOVERNMENTAL ACTS").
B. NATURE OF ISSUING LENDERS' DUTIES. As between Company and any
Issuing Lender, Company assumes all risks of the acts and omissions of, or
misuse of the Letters of Credit issued by such Issuing Lender by, the respective
beneficiaries of such Letters of Credit. In furtherance and not in limitation
of the foregoing, such Issuing Lender shall not be responsible for (except to
the extent of its gross negligence or willful misconduct): (i) the form,
validity, sufficiency, accuracy, genuineness or legal effect of any document
submitted by any party in connection with the application for and issuance of
any such Letter of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any such Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove to
be invalid or ineffective for any reason; (iii) failure of the beneficiary of
any such Letter of Credit to comply fully with any conditions required in order
to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph,
telex or otherwise, whether or not they be in cipher; (v) errors in
interpretation of technical terms; (vi) any loss or delay in the transmission or
otherwise of any document required in order to make a drawing under any such
Letter of Credit or of the proceeds thereof; (vii) the misapplication by the
beneficiary of any such Letter of Credit of the proceeds of any drawing under
such Letter of Credit; or (viii) any consequences arising from causes beyond the
control of such Issuing Lender, including any Governmental Acts, and none of the
above shall affect or impair, or prevent the vesting of, any of such Issuing
Lender's rights or powers hereunder.
In furtherance and extension and not in limitation of the specific
provisions set forth in the first paragraph of this subsection 3.5B, any action
taken or omitted by any Issuing Lender under or in connection with the Letters
of Credit issued by it or any documents and certificates delivered thereunder,
if taken or omitted in good faith, shall not put such Issuing Lender under any
resulting liability to Company.
Notwithstanding anything to the contrary contained in this
subsection 3.5, Company shall retain any and all rights it may have against any
Issuing Lender for any liability arising solely out of the gross negligence or
willful misconduct of such Issuing Lender or, subject to subsection 3.4, the
failure of such Issuing Lender to make payment upon the proper presentation to
it of documents strictly complying with the terms of any Letter of Credit.
3.6 INCREASED COSTS AND TAXES RELATING TO LETTERS OF CREDIT.
Subject to the provisions of subsection 2.7B (which shall be
controlling with respect to the matters covered thereby), in the event that any
Issuing Lender or Working Capital Lender shall determine (which determination
shall, absent manifest error, be final and conclusive and binding upon all
parties hereto) that any law, treaty or governmental rule, regulation or order,
or any change therein or in the interpretation, administration or application
thereof (including the
78
<PAGE>
introduction of any new law, treaty or governmental rule, regulation or
order), or any determination of a court or governmental authority, in each
case that becomes effective after the date hereof (in the case of each Lender
listed on the signature pages hereof and in the case of any other Lender if
such change shall have affected a class of Lenders generally) or after the
date of the Assignment Agreement pursuant to which such Lender became a
Lender (in the case of any other Lender if such change shall not have
affected a class of Lenders generally), or compliance by any Issuing Lender
or Working Capital Lender with any guideline, request or directive issued or
made after the date hereof by any central bank or other governmental or
quasi-governmental authority (whether or not having the force of law):
(i) imposes, modifies or holds applicable any reserve
(including any marginal, emergency, supplemental, special or other
reserve), special deposit, compulsory loan, FDIC insurance or similar
requirement in respect of any Letters of Credit issued by any Issuing
Lender or participations therein purchased by any Working Capital Lender;
or
(ii) imposes any other condition (other than with respect to a
Tax matter) on or affecting such Issuing Lender or Working Capital Lender
(or its applicable lending or letter of credit office) regarding this
Section 3 or any Letter of Credit or any participation therein;
and the result of any of the foregoing is to increase the cost to such Issuing
Lender or Working Capital Lender of agreeing to issue, issuing or maintaining
any Letter of Credit or agreeing to purchase, purchasing or maintaining any
participation therein or to reduce any amount received or receivable by such
Issuing Lender or Working Capital Lender (or its applicable lending or letter of
credit office) with respect thereto; then, in any case, Company shall pay to
such Issuing Lender or Working Capital Lender, within 15 days after receipt of
the statement referred to in the next sentence, such additional amount or
amounts as may be necessary to compensate such Issuing Lender or Working Capital
Lender for any such increased cost or reduction in amounts received or
receivable hereunder. Such Issuing Lender or Working Capital Lender shall
deliver to Company a written statement, setting forth in reasonable detail the
basis for calculating the additional amounts owed to such Issuing Lender or
Working Capital Lender under this subsection 3.6, which statement shall be
conclusive and binding upon all parties hereto absent manifest error.
SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT
The obligations of Lenders to make Loans and the issuance of
Letters of Credit hereunder are subject to the satisfaction of the following
conditions:
4.1 CONDITIONS TO INITIAL LOANS.
The obligations of Lenders to make the initial Loans to be made on
the Closing Date are, in addition to the conditions precedent specified in
subsection 4.4, subject to prior or concurrent satisfaction of the following
conditions:
79
<PAGE>
A. LOAN PARTY DOCUMENTS. On or before the Closing Date, Company
shall, and shall cause Parent and Acquisition Co. to, deliver to Lenders (or to
Administrative Agent for Lenders with sufficient originally executed copies,
where appropriate, for each Lender) the following with respect to Company or
such Loan Party, as the case may be, each, unless otherwise noted, dated the
Closing Date:
(i) Certified copies of the Certificate or Articles of
Incorporation of such Person, together with a good standing certificate
from the Secretary of State of its jurisdiction of incorporation and each
other state in which such Person does a material amount of business and
is qualified as a foreign corporation to do business and, to the extent
applicable and generally available, a certificate or other evidence of
good standing as to payment of any applicable franchise or similar taxes
from the appropriate taxing authority of each of such jurisdictions, each
dated a recent date prior to the Closing Date;
(ii) Copies of the Bylaws of such Person, certified as of the
Closing Date by an Authorized Officer of such Person or such Person's
corporate secretary or assistant secretary;
(iii) Resolutions of the Board of Directors of such Person
approving and authorizing the execution, delivery and performance of the
Loan Documents and the Related Agreements to which it is a party, and the
consummation of the transactions contemplated by the foregoing, certified
as of the Closing Date by an Authorized Officer of such Person or such
Person's corporate secretary or assistant secretary as being in full
force and effect without modification or amendment;
(iv) Signature and incumbency certificates with respect to each
Authorized Officer of such Person executing any Loan Document or
authorized to execute any notice, request or other document that may be
delivered pursuant thereto;
(v) Executed originals of the Credit Agreement, any Notes
requested by any Lender at least one Business Day prior to the Closing
Date, the Parent Guaranty, the Parent Pledge Agreement, the Finance Co.
Pledge Agreement, the Acquisition Co. Guaranty, the Collateral Account
Agreement and the Investment Account Agreement; and
(vi) Such other documents as Agents may reasonably request.
B. PARENT CAPITALIZATION. Parent shall have received gross proceeds
of not less than $65,000,000 from the sales of its common stock to DLJMB and its
Subsidiaries and not less than $34,000,000 in gross proceeds from the sale of
the Parent P-I-K Securities and Parent shall have contributed all such proceeds
to Finance Co. as common equity.
C. SUBORDINATED DEBT; CAPITAL CONTRIBUTIONS. Finance Co. shall have
received gross proceeds of not less than $100,000,000 from the sale of the
Senior Subordinated Bridge Notes or the Senior Subordinated Notes.
80
<PAGE>
Finance Co. shall have contributed a portion of the proceeds received
from Parent from the issuance and the sale of its common stock and the Parent
PIK Securities, and the proceeds from the issuance and sale of the Senior
Subordinated Bridge Notes or the Senior Subordinated Notes, as the case may be,
together with the proceeds of the Term Loans made on the Closing Date, to
Acquisition Co. and shall have made a loan to DAH with the balance of such
proceeds, other than proceeds of Tranche B Term Loans deposited into the
Investment Accounts, if any, and proceeds applied to pay transaction costs on
the Closing Date, such loan to be evidenced by the Intercompany Notes which
shall be pledged by Company to Administrative Agent pursuant to the Finance Co.
Pledge Agreement), to be applied by DAH to repay in full the Existing DAH Debt
(together with accrued interest and fees thereon and expenses incurred in
connection therewith). To the extent the proceeds of the Tranche B Term Loans
are not so utilized on the Closing Date, the excess proceeds shall be deposited
by Company into the Investment Accounts pursuant to the Investment Account
Agreement and invested in Cash Equivalents specified in the Investment Account
Agreement as directed by Company until the Merger Date.
D. TENDER OFFER MATTERS.
(i) TENDER OFFER MATERIALS. Agents shall have received copies
of all Tender Offer Materials and other documents in connection therewith
filed with the Securities and Exchange Commission and the Tender Offer
Materials shall be reasonably satisfactory in form and substance to
Agents and Requisite Lenders (it being understood that the Tender Offer
Materials as in effect on August 28, 1998 are so satisfactory).
(ii) MERGER AGREEMENT IN FULL FORCE AND EFFECT. Agents shall
have received copies of the Merger Agreement and the Merger Agreement
shall be in full force and effect and no provision thereof shall have
been modified or waived in any material respect (including, without
limitation, any increase in the price to be paid for the DAH Common Stock
to an amount in excess of $23.00 per share after the date hereof), in
each case without the consent of Agents and Requisite Lenders, such
consent not to be unreasonably withheld.
(iii) CONSUMMATION OF TENDER OFFER; MINIMUM SHARES.
Contemporaneously with the application of the proceeds of the initial
Loans to be made on the Closing Date, the Tender Offer shall have been
consummated in all material respects in accordance with the Tender Offer
Materials and no condition to the Tender Offer shall have been waived
without the consent of Agents. Not less than the Minimum Shares shall
have been tendered and accepted for payment in the Tender Offer; the
depository shall have delivered a certificate as to the number of shares
of DAH Common Stock being held by it that have been validly tendered and
not withdrawn as of the Closing Date and Company shall have delivered an
Officer's Certificate as to the total number of shares of DAH Common
Stock outstanding on a fully diluted basis as of the Closing Date.
(iv) USE OF OTHER FUNDS. Acquisition Co. shall have deposited
with the depository not less than the purchase price for the DAH Common
Stock to be purchased in the Tender Offer in immediately available funds
contemporaneously with the application of the Term Loans to be made on
the Closing Date.
81
<PAGE>
(v) OFFICER'S CERTIFICATES. Agents shall have an Officer's
Certificate from Company to the effect that, to the best knowledge of
Company, the representations and warranties of Acquisition Co. and DAH in
the Merger Agreement are true, correct and complete in all material
respects on and as of the date thereof. Agents shall have received
Officer's Certificates from Company to the effect that (a) the Merger
Agreement is in full force and effect and no provision thereof has been
modified or waived in any respect without the consent of Agents and
Requisite Lenders and (b) to the best knowledge of Company, each of the
parties to the Merger Agreement has complied with all agreements and
conditions contained in the Merger Agreement and any agreements or
documents referred to therein required to be performed or complied with
by each of them on or before the Closing Date and none of such Persons
are in default in their performance or compliance with any of the terms
or provisions thereof.
(vi) NO MATERIAL LITIGATION. Except as set forth on Schedule
5.6 there shall be no material litigation pending which challenges the
Tender Offer or the Merger in any respect.
(vii) REPAYMENT OF EXISTING DAH DEBT. Contemporaneously with the
application of the proceeds of the Loans to be made on the Closing Date,
(a) Company shall have made an advance to DAH in an amount sufficient to,
and DAH and its Subsidiaries shall have used the proceeds of such advance
to, repay in full all Existing DAH Debt and Transaction Costs payable by
DAH, (b) DAH and its Subsidiaries shall have terminated any commitments
to lend or make other extensions of credit under the Existing DAH Debt
and (c) DAH and its Subsidiaries shall have taken all action necessary to
terminate or release all Liens securing the Existing DAH Debt in
connection therewith, in each case on terms satisfactory to the Agents,
or arrangements satisfactory to the Agents for the making of such
advance, the repayment of such Existing DAH Debt, the termination of such
commitments and the release of such Liens shall have been made. There
shall be no existing Indebtedness of Company or its Subsidiaries
outstanding after consummation of the Closing Date transactions other
than Indebtedness permitted under subsection 7.1.
(viii) COMPLIANCE WITH LAWS. The making of the Loans requested on
the Closing Date shall not violate Regulation U or Regulation X of the
Board of Governors of the Federal Reserve System.
E. RELATED AGREEMENTS. The Agents shall have received copies of the
Related Agreements in effect on the Closing Date. No provision of the Senior
Subordinated Bridge Note Agreement or the Senior Subordinated Note Indenture, as
the case may be, shall have been amended, modified or waived, from the most
recent version thereof provided to the Agents prior to their execution hereof,
in any respect determined by Agents to be material without the consent of Agents
and Requisite Lenders, except in accordance with subsection 7.15.
F. SECURITY INTERESTS IN SHARES OF FINANCE CO. AND ACQUISITION CO.
Agents shall have received evidence satisfactory to each of them that Parent and
Company shall have taken or caused to be taken all such actions, executed and
delivered or caused to be made all such filings and agreements, documents and
instruments, and made or caused to be made all such filings and
82
<PAGE>
recordings that may be necessary or, in the opinion of Agents, desirable in
order to create in favor of Administrative Agent, for the benefit of Lenders,
a valid and perfected First Priority security interest in all outstanding
shares of the Finance Co. and Acquisition Co. pursuant to the Parent Pledge
Agreement and the Finance Co. Pledge Agreement, respectively. Such actions
shall include the following:
(i) SCHEDULES TO COLLATERAL DOCUMENTS. Delivery to
Administrative Agent of accurate and complete schedules to all of the
applicable Collateral Documents; and
(ii) STOCK CERTIFICATES AND INSTRUMENTS. Delivery to
Administrative Agent of (a) certificates (which certificates shall be
accompanied by irrevocable undated stock powers, duly endorsed in blank
and otherwise satisfactory in form and substance to Agents) representing
all capital stock pledged pursuant to the Parent Pledge Agreement and the
Finance Co. Pledge Agreement and (b) all promissory notes or other
instruments (duly endorsed, where appropriate, in a manner satisfactory
to Agents) evidencing any Collateral.
G. NO MATERIAL ADVERSE CHANGE. No material adverse change in the
financial condition, operations, assets, business, properties or prospects of
DAH and its Subsidiaries (excluding Avtech and its Subsidiaries), taken as a
whole, since December 31, 1997, and of Avtech and its Subsidiaries, taken as a
whole, since September 30, 1997, shall have occurred. There shall exist no
pending or threatened material litigation, proceedings or investigations which
could reasonably be expected to have a Material Adverse Effect.
H. LIEN SEARCHES. Delivery to Administrative Agent of the results of
a recent search of all effective UCC financing statements and fixture filings
and all judgment and tax lien filings which may have been made with respect to
any personal or mixed property of DAH and any of its Domestic Subsidiaries,
together with copies of all such filings disclosed by such search.
I. OPINIONS OF COUNSEL TO LOAN PARTIES. Lenders shall have received
(i) originally executed copies of one or more favorable written opinions of
Davis Polk & Wardwell, special New York counsel for Loan Parties, and of Spolin
& Silverman, counsel for Loan Parties, dated as of the Closing Date in the form
of EXHIBIT X-1 and X-2 annexed hereto and as to such other matters as Agents
acting on behalf of Lenders may reasonably request.
J. OPINIONS OF SYNDICATION AGENT'S COUNSEL. Lenders shall have
received originally executed copies of one or more favorable written opinions of
O'Melveny & Myers LLP, counsel to Syndication Agent, dated as of the Closing
Date, substantially in the form of EXHIBIT XI annexed hereto and as to such
other matters as Syndication Agent acting on behalf of Lenders may reasonably
request.
K. SOLVENCY CERTIFICATE. Company shall have delivered to Arranger
and Agents a Solvency Certificate dated the Closing Date.
L. REPRESENTATIONS AND WARRANTIES. Company shall have delivered to
Agents an Officer's Certificate, in form and substance reasonably satisfactory
to Agents, to the effect that the representations and warranties in Section 5
hereof are true, correct and complete in all
83
<PAGE>
material respects on and as of the Closing Date to the same extent as though
made on and as of that date (or, to the extent such representations and
warranties specifically relate to an earlier date, that such representations
and warranties were true, correct and complete in all material respects on
and as of such earlier date).
M. NECESSARY GOVERNMENTAL AUTHORIZATIONS AND CONSENTS; EXPIRATION OF
WAITING PERIODS, ETC. Company shall have obtained all Governmental
Authorizations and all consents of other Persons, in each case that are
necessary or advisable in connection with all transactions contemplated by the
Loan Documents and each of the foregoing shall be in full force and effect, in
each case other than those the failure to obtain or maintain which, either
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect. All applicable waiting periods shall have expired
without any action being taken or threatened by any competent authority which
would restrain, prevent or otherwise impose adverse conditions on all
transactions contemplated by the Loan Documents. No action, request for stay,
petition for review or rehearing, reconsideration, or appeal with respect to any
of the foregoing shall be pending.
N. FINANCIAL STATEMENTS. Lenders shall have received (i) unaudited
financial statements of DAH and its Subsidiaries for the Fiscal Quarter ended
June 30, 1998, (ii) pro forma consolidated balance sheets of DAH and its
Subsidiaries as of June 30, 1998, giving pro forma effect to the Closing Date
transactions and the Merger and (iii) projected financial statements (including
balance sheets and statements of operations and cash flows) of DAH and its
Subsidiaries through and including December 31, 2005.
O. FEES. Company shall have paid to Agents, Lenders and Arranger the
fees payable on the Closing Date.
P. COMPLETION OF PROCEEDINGS. All documents executed or submitted
pursuant hereto by or on behalf of Company or any of its Subsidiaries or any
other Loan Parties shall be reasonably satisfactory in form and substance to
Agents and their counsel; Agents and their counsel shall have received all
information, approvals, opinions, documents or instruments that Agents or their
counsel shall have reasonably requested.
Each Lender hereby agrees that by its execution and delivery of
its signature page hereto and by the funding of its Loans to be made on the
Closing Date, such Lender approves of and consents to each of the matters set
forth in this subsection 4.1 which must be approved by, or satisfactory to,
Requisite Lenders, provided that, in the case of any agreement or document which
must be approved by, or which must be satisfactory to, Requisite Lenders, a copy
of such agreement or document shall have been delivered to such Lender on or
prior to the Closing Date.
4.2 CONDITIONS TO LOANS MADE ON MERGER DATE.
The obligations of Lenders to make the Loans to be made on the
Merger Date are, in addition to the conditions precedent specified in subsection
4.4 (to the extent applicable in the case of such Loans), subject to the prior
or concurrent satisfaction of the following conditions:
84
<PAGE>
A. DAH DOCUMENTS. On or before the Merger Date, Company shall, or
shall cause DAH and its Domestic Subsidiaries to, as the case may be, deliver to
Lenders (or to Administrative Agent for Lenders with sufficient originally
executed copies, where appropriate, for each Lender) the following, each, unless
otherwise noted, dated the Merger Date:
(i) Certified copies of the Certificate or Articles of
Incorporation of each of DAH and its Domestic Subsidiaries, together with
a good standing certificate from the Secretary of State of its
jurisdiction of incorporation and each other state in which DAH or any of
its Domestic Subsidiaries does a material amount of business and is
qualified as a foreign corporation to do business and, to the extent
applicable and generally available, a certificate or other evidence of
good standing as to payment of any applicable franchise or similar taxes
from the appropriate taxing authority of each of such jurisdictions, each
dated a recent date prior to the Merger Date;
(ii) Copies of the Bylaws of each of DAH and its Domestic
Subsidiaries, certified as of the Merger Date by an Authorized Officer of
such Person or such Person's corporate secretary or an assistant
secretary;
(iii) Resolutions of the Board of Directors of DAH and its
Domestic Subsidiaries approving and authorizing the execution, delivery
and performance of the Loan Documents to which it is a party and the
consummation of the transactions contemplated by the foregoing, each
certified as of the Merger Date by an Authorized Officer of such Person
or the corporate secretary or an assistant secretary of such Person as
being in full force and effect without modification or amendment;
(iv) Signature and incumbency certificates of the officers of
DAH and its Domestic Subsidiaries executing the Loan Documents to which
it is a party or authorized to execute any notice, request or other
document that may be delivered pursuant thereto;
(v) Originals of the DAH Pledge Agreement, the Security
Agreement, the Subsidiary Guaranty and the Subsidiary Pledge Agreements,
executed by Company and each of its Domestic Subsidiaries; and
(vi) Such other documents as Agent may reasonably request at
least one Business Day prior to the Merger Date.
B. SATISFACTION OF CONDITIONS IN SUBSECTION 4.1. Lenders shall have
made the initial Loans on the Closing Date.
C. CONSUMMATION OF MERGER.
(i) All conditions to the Merger set forth in the Merger
Agreement as in effect on the Merger Date shall have been satisfied or
the fulfillment of any such conditions shall have been waived with the
consent of Agents and Requisite Lenders;
(ii) the Merger shall have become effective in accordance with
the terms of the Merger Agreement and the Delaware General Corporation
Law;
85
<PAGE>
(iii) Administrative Agent shall have received satisfactory
evidence of the filing of the documents with the Secretary of State of
the State of Delaware effecting the Merger on the Merger Date;
(iv) the aggregate cash consideration for the shares of DAH
Common Stock to be acquired in any manner whatsoever in connection with
the Tender Offer and the Merger shall not exceed $182,100,000;
(v) Transaction Costs incurred as of the Merger Date (including
any such amounts incurred on or before the Closing Date) shall not exceed
$16,300,000;
(vi) Administrative Agent shall have received satisfactory
evidence that the Second Merger will occur immediately after the Merger
on the Merger Date; and
(vii) Administrative Agent shall have received an Officers'
Certificate of Company to the effect set forth in clauses (i)-(vi) above.
D. SECURITY INTERESTS IN PERSONAL AND MIXED PROPERTY. To the extent
not otherwise satisfied pursuant to subsection 4.1F, Administrative Agent shall
have received evidence satisfactory to each of them that Company and Subsidiary
Guarantors shall have taken or caused to be taken all such actions, executed and
delivered or caused to be executed and delivered all such agreements, documents
and instruments, and made or caused to be made all such filings and recordings
(other than the filing or recording of items described in clauses (iii), (iv)
and (v) below) that may be necessary or, in the opinion of Agents, desirable in
order to create in favor of Administrative Agent, for the benefit of Lenders, a
valid and (upon such filing and recording) perfected First Priority security
interest in the entire personal and mixed property Collateral. Such actions
shall include the following:
(i) SCHEDULES TO COLLATERAL DOCUMENTS. Delivery to
Administrative Agent of accurate and complete schedules to all of the
applicable Collateral Documents;
(ii) STOCK CERTIFICATES AND INSTRUMENTS. Delivery to
Administrative Agent of (a) certificates (which certificates shall be
accompanied by irrevocable undated stock powers, duly endorsed in blank
and otherwise satisfactory in form and substance to Agents) representing
all capital stock pledged pursuant to the DAH Pledge Agreement and the
Subsidiary Pledge Agreements and (b) all promissory notes or other
instruments (duly endorsed, where appropriate, in a manner satisfactory
to Agents) evidencing any Collateral;
(iii) UCC FINANCING STATEMENTS AND FIXTURE FILINGS. Delivery to
Administrative Agent of UCC financing statements and, where appropriate,
fixture filings, duly executed by Company or any Subsidiary Guarantor, as
applicable, with respect to all personal and mixed property Collateral of
such Loan Party, for filing in all jurisdictions as may be necessary or,
in the opinion of Administrative Agent, desirable to perfect the security
interests created in such Collateral pursuant to the Collateral
Documents; and
86
<PAGE>
(iv) OPINIONS OF LOCAL COUNSEL. Delivery to Agents of an
opinion of counsel (which counsel shall be reasonably satisfactory to
Agents) under the laws of the states of California, Washington, Arkansas
and Pennsylvania with respect to the creation and perfection of the
security interests in favor of Administrative Agent in such Collateral,
in each case in form and substance reasonably satisfactory to Agents
dated as of the Merger Date and setting forth substantially the matters
in the form of opinion annexed hereto as EXHIBIT XXV.
E. OPINIONS OF COUNSEL TO LOAN PARTIES. Lenders and their respective
counsel shall have received (i) originally executed copies of a written opinion
of Davis Polk & Wardwell, special New York counsel for Loan Parties, and Spolin
& Silverman, counsel for Loan Parties, in form and substance reasonably
satisfactory to Agents and Lenders, dated as of the Merger Date and setting
forth substantially the matters in the opinions designated in EXHIBITS XXIV-1
and XXIV-2 annexed hereto.
F. COMPANY SHALL HAVE PAID TO AGENTS, LENDERS AND ARRANGER THE FEES
PAYABLE ON THE MERGER DATE.
4.3 CONDITIONS TO ACQUISITION LOANS.
The obligation of Acquisition Lenders to make Acquisition Loans on
each Funding Date are subject to the following further condition precedent that
Company delivers a Permitted Acquisition Compliance Certificate and is otherwise
in compliance subsection 7.7(vi).
4.4 CONDITIONS TO LOANS MADE ON EACH FUNDING DATE.
The obligations of Lenders to make Loans on each Funding Date
(other than, as to subsection B below, any Tranche A Term Loans made on the
Merger Date) are subject to the following further conditions precedent:
A. Administrative Agent shall have received, in accordance with the
provisions of subsection 2.1B, an executed Notice of Borrowing signed by an
Authorized Officer of Company.
B. AS OF THAT FUNDING DATE:
(i) The representations and warranties contained herein and in
the other Loan Documents (other than, at any Funding Date other than the
Closing Date, any such representations and warranties in subsection 5.2,
to the extent they relate to the Related Agreements) shall be true,
correct and complete in all material respects on and as of that Funding
Date to the same extent as though made on and as of that date, except to
the extent such representations and warranties specifically relate to an
earlier date, in which case such representations and warranties shall
have been true, correct and complete in all material respects on and as
of such earlier date; and
(ii) No event shall have occurred and be continuing or would
result from the consummation of the borrowing contemplated by such Notice
of Borrowing that would constitute an Event of Default or a Potential
Event of Default.
87
<PAGE>
4.5 CONDITIONS TO LETTERS OF CREDIT.
The issuance of any Letter of Credit hereunder (whether or not the
applicable Issuing Lender is obligated to issue such Letter of Credit) is
subject to the following conditions precedent:
A. On or before the date of issuance of the initial Letter of Credit
pursuant to this Agreement, the initial Loans shall have been made.
B. On or before the date of issuance of such Letter of Credit,
Administrative Agent shall have received, in accordance with the provisions of
subsection 3.1B(i), a Notice of Issuance of Letter of Credit signed by an
Authorized Officer of Company, together with all other information specified in
subsection 3.1B(i) and such other documents or information as the applicable
Issuing Lender may reasonably require in connection with the issuance of such
Letter of Credit.
C. On the date of issuance of such Letter of Credit, all conditions
precedent described in subsection 4.4B shall be satisfied to the same extent as
if the issuance of such Letter of Credit were the making of a Loan and the date
of issuance of such Letter of Credit were a Funding Date.
SECTION 5. COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders and the Agents to enter into this
Agreement and to make the Loans, to induce Issuing Lenders to issue Letters of
Credit and to induce other Lenders to purchase participations therein, Company
represents and warrants to each Lender and the Agents, on the Closing Date, on
each Funding Date and on the date of issuance of each Letter of Credit, that the
following statements are true, correct and complete:
5.1 ORGANIZATION, POWERS, QUALIFICATION, GOOD STANDING, BUSINESS AND
SUBSIDIARIES.
A. ORGANIZATION AND POWERS. Each Loan Party is a corporation or
partnership duly organized, validly existing and, to the extent applicable, in
good standing under the laws of its jurisdiction of incorporation or
organization as specified in Schedule 5.1 annexed hereto except to the extent
that the failure to be in good standing has not had and will not have a Material
Adverse Effect. Each Loan Party has all requisite corporate or partnership
power and authority to own and operate its properties, to carry on its business
as now conducted and as proposed to be conducted, to enter into the Loan
Documents and the Related Agreements to which it is a party and to carry out the
transactions contemplated thereby.
B. QUALIFICATION AND GOOD STANDING. Each Loan Party is qualified to
do business and in good standing in every jurisdiction where its assets are
located and wherever necessary to carry out its business and operations, except
in jurisdictions where the failure to be so qualified or in good standing has
not had and will not have a Material Adverse Effect.
C. SUBSIDIARIES. All of the Subsidiaries of Company as of the
Closing Date, after giving effect to the consummation of the Tender Offer and
pro forma effect to the consummation of the Merger and the Second Merger, are
identified in SCHEDULE 5.1 annexed hereto, as said SCHEDULE 5.1 may be
supplemented from time to time pursuant to the provisions of subsection
6.1(xii). Each of the Subsidiaries of Company identified in SCHEDULE 5.1 is a
corporation (or, in the case
88
<PAGE>
of Tri-Star Technologies, a general partnership) duly organized, validly
existing and in good standing under the laws of its respective jurisdiction
of incorporation or organization set forth therein, has all requisite
corporate power and authority to own and operate its properties and to carry
on its business as now conducted and as proposed to be conducted, and is
qualified to do business and in good standing in every jurisdiction where its
assets are located and wherever necessary to carry out its business and
operations, in each case except where failure to be so qualified or in good
standing or a lack of such corporate power and authority has not had and will
not have a Material Adverse Effect. Schedule 5.1 correctly sets forth the
ownership interest of Company and each of its Subsidiaries as of the Closing
Date, after giving effect to the consummation of the Tender Offer and pro
forma effect to the consummation of the Merger and the Second Merger, in each
of the Subsidiaries of Company identified therein.
5.2 AUTHORIZATION OF BORROWING, ETC.
A. AUTHORIZATION OF BORROWING. The execution, delivery and
performance of the Loan Documents and the Related Agreements have been duly
authorized by all necessary actions on the part of each Loan Party that is a
party thereto.
B. NO CONFLICT. The execution, delivery and performance by Loan
Parties of the Loan Documents and the Related Agreements and the consummation of
the transactions contemplated by the Loan Documents and the Related Agreements
do not and will not (i) violate any provision of (x) any law or any governmental
rule or regulation applicable to Company or any of its Subsidiaries where such
violations in the aggregate have had or could reasonably be expected to have a
Material Adverse Effect, (y) the Certificate or the Articles of Incorporation or
Bylaws of Company or any of Company's Subsidiaries or (z) any order, judgment or
decree of any court or other agency of government binding on Company or any of
Company's Subsidiaries where such violations in the aggregate have had or could
reasonably be expected to have a Material Adverse Effect, (ii) conflict with,
result in a breach of or constitute a default under any Contractual Obligation
of Company or any of its Subsidiaries where such conflict, breach or default in
the aggregate have had or could reasonably be expected to have a Material
Adverse Effect, (iii) result in or require the creation or imposition of any
Lien upon any of the properties or assets of Company or any of Company's
Subsidiaries (other than any Liens created under any of the Loan Documents in
favor of Administrative Agent on behalf of Lenders), or (iv) require any
approval of or consent of any Person under any Contractual Obligation of Company
or any of Company's Subsidiaries, except for such approvals or consents which
will be obtained on or before the Merger Date or such approvals or consents the
failure of which to obtain has not had and could not reasonably be expected to
have a Material Adverse Effect.
C. GOVERNMENTAL CONSENTS. The execution, delivery and performance by
Loan Parties of the Loan Documents and the Related Agreements and the
consummation of the transactions contemplated by the Loan Documents and the
Related Agreements do not and will not require any registration with, consent or
approval of, or notice to, or other action to, with or by, any federal, state or
other governmental authority or regulatory body other than any such
registrations, consents, approvals, notices or other actions (x) that have been
made, obtained or taken on or prior to the date on which such registrations,
consents, approvals, notices or other actions are required to be made, obtained
or taken, as the case may be, and are in full force and
89
<PAGE>
effect or (y) the failure of which to make, obtain or take has not had and
could not reasonably be expected to have a Material Adverse Effect.
D. BINDING OBLIGATION. Each of the Loan Documents and the Related
Agreements has been duly executed and delivered by each Loan Party that is a
party thereto and is the legally valid and binding obligation of such Loan
Party, enforceable against such Loan Party in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing.
5.3 FINANCIAL CONDITION.
Company has heretofore delivered to Lenders, at Lenders' request,
the following financial statements and information: (i) the audited
consolidated balance sheets of DAH and its Subsidiaries as at December 31, 1997
and 1996, and the related consolidated statements of income, stockholders'
equity and cash flows of DAH and its Subsidiaries for the Fiscal Years ended
December 31, 1997, 1996 and 1995, (ii) the unaudited consolidated balance sheet
of DAH and its Subsidiaries as of June 30, 1998 and the related unaudited
consolidated statements of income, stockholders' equity and cash flows of DAH
and its Subsidiaries for the six months then ended and (iii) the audited
consolidated balance sheets of Avtech Corporation and its Subsidiaries as at
September 30, 1997 and 1996, and the related consolidated statements of income,
stockholders' equity and cash flows of Avtech Corporation and its Subsidiaries
for the fiscal years ended September 30, 1997, 1996, and 1995, and (iv) the
unaudited consolidated balance sheet of Avtech Corporation and its Subsidiaries
as of June 25, 1998 and the related unaudited consolidated statements of income,
stockholders' equity and cash flows of Avtech Corporation and its Subsidiaries
for the period since October 1, 1997 then ended. All such statements were
prepared in conformity with GAAP and fairly present, in all material respects,
the financial position (on a consolidated basis) of the entities described in
such financial statements as at the respective dates thereof and the results of
operations and cash flows (on a consolidated basis) of the entities described
therein for each of the periods then ended, subject, in the case of any such
unaudited financial statements, to no footnote disclosure and changes resulting
from normal year-end adjustments.
5.4 NO MATERIAL ADVERSE CHANGE; NO RESTRICTED JUNIOR PAYMENTS.
Since December 31, 1997, no event or change has occurred which
constitutes, either in any case or in the aggregate, a Material Adverse Effect.
Neither Company nor any of its Subsidiaries has directly or indirectly declared,
ordered, paid or made, or set apart any sum or property for, any Restricted
Junior Payment except as permitted by subsection 7.5.
5.5 TITLE TO PROPERTIES; LIENS; REAL PROPERTY.
A. TITLE TO PROPERTIES; LIENS. Except to the extent that failure to
do so has not had and could not reasonably be expected to have a Material
Adverse Effect, Company and its Subsidiaries have (i) good, sufficient and legal
title to (in the case of fee interests in real property), (ii) valid leasehold
interests in (in the case of leasehold interests in real or personal
90
<PAGE>
property), or (iii) good title to (in the case of all other personal
property), all of their respective properties and assets. Except as
permitted by this Agreement, all such properties and assets are free and
clear of Liens.
B. REAL PROPERTY. As of the Closing Date, SCHEDULE 5.5 annexed
hereto contains a true, accurate and complete list of (i) all real property
owned by Company or any Domestic Subsidiary and (ii) all material leases,
subleases or assignments of leases (together with all amendments, modifications,
supplements, renewals or extensions of any thereof) affecting each Real Property
Asset of any Loan Party, regardless of whether such Loan Party is the landlord
or tenant (whether directly or as an assignee or successor in interest) under
such lease, sublease or assignment.
5.6 LITIGATION; ADVERSE FACTS.
Except as set forth in SCHEDULE 5.6 annexed hereto, there are no
actions, suits, proceedings, arbitrations or governmental investigations
(whether or not purportedly on behalf of Company or any of its Subsidiaries) at
law or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign (including any Environmental Claims) that are pending or, to
the knowledge of Company, threatened against or affecting Company or any of its
Subsidiaries or any property of Company or any of its Subsidiaries and that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect or could reasonably be expected to prevent or unduly
delay the Merger or the consummation of the Tender Offer. Neither Company nor
any of its Subsidiaries is in violation of any applicable laws (including
Environmental Laws) which violations, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect.
5.7 PAYMENT OF TAXES.
Except to the extent permitted by subsection 6.3, all tax returns
and reports of Company and its Subsidiaries required to be filed by any of them
have been timely filed, and all taxes shown on such tax returns to be due and
payable and all assessments, fees and other governmental charges upon Company
and its Subsidiaries and upon their respective properties, assets, income,
businesses and franchises which are due and payable have been paid when due and
payable, except any such taxes or charges which are being contested in good
faith by appropriate proceedings and for which adequate reserves in accordance
with GAAP have been established.
5.8 GOVERNMENTAL REGULATION.
Neither Company nor any of its Subsidiaries is subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act or the Investment Company Act of 1940.
91
<PAGE>
5.9 SECURITIES ACTIVITIES.
Neither Company nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any Margin Stock.
5.10 EMPLOYEE BENEFIT PLANS.
A. Company, each of its Subsidiaries and each of their respective
ERISA Affiliates are in substantial compliance with all applicable material
provisions and requirements of ERISA and the regulations and published
interpretations thereunder with respect to each Employee Benefit Plan, and have
performed all their obligations under each Employee Benefit Plan except to the
extent that any such noncompliance or nonperformance could not reasonably be
expected to have a Material Adverse Effect. Each Employee Benefit Plan which is
intended to qualify under Section 401(a) of the Internal Revenue Code is so
qualified except as could not reasonably be expected to have a Material Adverse
Effect.
B. No ERISA Event has occurred or is reasonably expected to occur
that could reasonably be expected to result in a Material Adverse Effect.
C. Except to the extent required under Section 4980B of the Internal
Revenue Code, no Employee Benefit Plan provides health or welfare benefits
(through the purchase of insurance or otherwise) for any retired or former
employee of Company, any of its Subsidiaries or any of their respective ERISA
Affiliates, except as could not reasonably be expected to result in a Material
Adverse Effect.
D. As of the most recent valuation date for any Pension Plan, the
amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of
ERISA), individually or in the aggregate for all Pension Plans (excluding for
purposes of such computation any Pension Plans with respect to which assets
exceed benefit liabilities) could not reasonably be expected to have a Material
Adverse Effect
E. As of the most recent valuation date for each Multiemployer Plan
for which the actuarial report is available, the potential liability of Company,
its Subsidiaries and their respective ERISA Affiliates for a complete withdrawal
from such Multiemployer Plan (within the meaning of Section 4203 of ERISA), when
aggregated with such potential liability for a complete withdrawal from all
Multiemployer Plans, based on information available pursuant to Section 4221(e)
of ERISA could not reasonably be expected to have a Material Adverse Effect.
5.11 ENVIRONMENTAL PROTECTION.
Except as set forth in SCHEDULE 5.11 annexed hereto and except as
to matters that, in the aggregate, would not reasonably be expected to have a
Material Adverse Effect:
(i) neither Company nor any of its Subsidiaries nor any of
their respective Facilities or operations are subject to any outstanding
written order, consent decree or
92
<PAGE>
settlement agreement with any Person relating to (a) any current
Environmental Law, (b) any Environmental Claim, or (c) any Hazardous
Materials Activity;
(ii) neither Company nor any of its Subsidiaries has
received any letter or request for information under Section 104 of the
Comprehensive Environmental Response, Compensation, and Liability Act (42
U.S.C. Section 9604) or any comparable state law;
(iii) there are and, to Company's knowledge, have been no
conditions, occurrences, or Hazardous Materials Activities at the
Facilities or otherwise relating to the operation of the Company or any
of its Subsidiaries which could reasonably be expected to form the basis
of an Environmental Claim against Company or any of its Subsidiaries;
(iv) neither Company's nor its Subsidiaries' operations involve
the transportation, storage or disposal of Hazardous Materials so as to
require a permit for such operations under RCRA Part B (42 U.S.C. Section
6925 and 40 C.F.R. 270.1 et seq.) or involve transporting hazardous
materials generated by a third party for disposal; and
(v) compliance with all current requirements pursuant to or
under Environmental Laws will not, individually or in the aggregate, have
a reasonable possibility of giving rise to a Material Adverse Effect.
5.12 EMPLOYEE MATTERS.
There is no strike or work stoppage in existence or threatened
affecting Company or any of its Subsidiaries that could reasonably be expected
to have a Material Adverse Effect.
5.13 SOLVENCY.
On the Closing Date and on the Merger Date, after giving effect to
the consummation of the Tender Offer and the Mergers, respectively, each Loan
Party is Solvent.
5.14 MATTERS RELATING TO COLLATERAL.
A. CREATION, PERFECTION AND PRIORITY OF LIENS. The execution and
delivery of the Collateral Documents by Loan Parties, together with actions
taken pursuant to subsections 4.1F, 4.2F, 4.2G, 6.8 and 6.9 are effective or, in
the case of subsections 4.2F and 4.2G as of the Merger Date, will be effective,
or in the case of subsections 6.8 and 6.9 at the time of the taking of such
actions, will be effective, once taken, to create in favor of Administrative
Agent for the benefit of Lenders, as security for the respective Secured
Obligations (as defined in the applicable Collateral Document in respect of any
Collateral), a valid and perfected First Priority Lien on the Collateral covered
thereby.
B. GOVERNMENTAL AUTHORIZATIONS. No authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) the pledge or grant by any Loan Party
of the Liens purported to be created in favor of Administrative Agent pursuant
to any of the Collateral Documents or (ii) the exercise by
93
<PAGE>
Administrative Agent of any rights or remedies in respect of any Collateral
(whether specifically granted or created pursuant to any of the Collateral
Documents or created or provided for by applicable law), except for filings
or recordings contemplated by subsection 5.14A and except as may be required,
in connection with the disposition of any Pledged Collateral, by laws
generally affecting the offering and sale of securities.
C. ABSENCE OF THIRD-PARTY FILINGS. On and after the Closing Date,
except (a) such as may have been filed in favor of Administrative Agent or with
respect to Liens permitted by this Agreement or (b) precautionary filings in
respect of operating leases, (i) no effective UCC financing statement, fixture
filing or other instrument similar in effect covering all or any part of the
Collateral is on file in any filing or recording office and (ii) no effective
filing covering all or any part of the IP Collateral is on file in the PTO, in
each case other than filings in respect of which Administrative Agent shall have
received appropriate termination statements or releases.
D. MARGIN REGULATIONS. The pledge of the Pledged Collateral pursuant
to the Collateral Documents does not violate Regulation U or X of the Board of
Governors of the Federal Reserve System.
E. INFORMATION REGARDING COLLATERAL. All information supplied to
Administrative Agent by or on behalf of any Loan Party with respect to any of
the Collateral (in each case taken as a whole with respect to all Collateral) is
accurate and complete in all material respects.
5.15 DISCLOSURE.
A. LOAN DOCUMENTS. No representation or warranty of any Loan
Party contained in any Loan Document or in any other document, certificate or
written statement furnished to Lenders by or on behalf of Company or any of
its Subsidiaries for use in connection with the transactions contemplated by
this Agreement contains any untrue statement of a material fact or omits to
state a material fact (known to Company, in the case of any document not
furnished by it) necessary in order to make the statements contained herein
or therein not materially misleading in light of the circumstances in which
the same were made. Any term or provision of this Section to the contrary
notwithstanding, insofar as any of the representations and warranties
described above includes assumptions, estimates, projections or opinions, no
representation or warranty is made herein with respect thereto; PROVIDED,
HOWEVER, that to the extent any such assumptions, estimates, projections or
opinions are based on factual matters, Company has reviewed such factual
matters and nothing has come to its attention in the context of such review
which would lead it to believe that such factual matters were not or are not
true and correct in all material respects or that such factual matters omit
to state any material fact necessary to make such assumptions, estimates,
projections or opinions not misleading in any material respect.
B. TENDER OFFER MATERIALS. The Tender Offer Materials, taken as a
whole, do not contain any untrue statement of a material fact or omit to state
a material fact (known to Company or any of its Subsidiaries, in the case of any
document not furnished by it) necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances in
which the same were made.
94
<PAGE>
5.16 YEAR 2000 COMPLIANCE.
Company has (i) initiated a review and assessment of its and
its Subsidiaries' business and operations (including those affected by
suppliers and vendors) that Company believes could be adversely affected by
the "Year 2000 Problem" (that is, the risk that computer applications used by
Company or Subsidiaries may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999), (ii) developed a plan and timeline for addressing the
Year 2000 Problem on a timely basis, and (iii) to date, implemented that plan
substantially in accordance with that timetable. Company believes that its
own computer applications that are material to its or its Subsidiaries'
business and operations will on a timely basis be able to perform properly
date-sensitive functions for all dates before and after January 1, 2000 (that
is, be "Year 2000 compliant") except to the extent that a failure to do so
could not reasonably be expected to have Material Adverse Effect.
SECTION 6. COMPANY'S AFFIRMATIVE COVENANTS
Company covenants and agrees that, so long as any of the
Commitments hereunder shall remain in effect and until payment in full of all
of the Loans and other Obligations and the cancellation or expiration of all
Letters of Credit, unless Requisite Lenders shall otherwise give prior
written consent, Company shall perform, and shall cause each of its
Subsidiaries to perform, all covenants in this Section 6.
6.1 FINANCIAL STATEMENTS AND OTHER REPORTS.
Company will maintain, and cause each of its Subsidiaries to
maintain, a system of accounting established and administered in accordance
with sound business practices to permit preparation of financial statements
in conformity with GAAP. Company will deliver to Agents and Lenders:
(i) QUARTERLY FINANCIALS: as soon as available and in any
event within 60 days after the end of each Fiscal Quarter, the
consolidated balance sheet of Company and its Subsidiaries as at the end
of such Fiscal Quarter and the related consolidated statements of income
and stockholders equity of Company and its Subsidiaries for such Fiscal
Quarter and statements of income, stockholders equity and cash flows for
the period from the beginning of the then current Fiscal Year to the end
of such Fiscal Quarter, setting forth in each case in comparative form
the corresponding figures for the corresponding periods of the previous
Fiscal Year (it being understood that the foregoing requirement may be
satisfied by delivery of the Company's report to the Securities and
Exchange Commission on Form 10-Q, if any), together with, if any pro
forma financial information has been used in connection with determining
compliance with this Agreement, a reconciliation of such pro forma
financial information with the financial information contained in such
financial statements, all in reasonable detail and certified by the
president, chief executive officer, treasurer, or chief financial officer
of Company that they fairly present, in all material respects, the
financial condition of Company and its Subsidiaries as at the dates
indicated and the results of their operations and their cash
95
<PAGE>
flows for the periods indicated, subject to changes resulting from
audit and normal year-end adjustments;
(ii) YEAR-END FINANCIALS: as soon as available and in any event
within 105 days after the end of each Fiscal Year, (a) the consolidated
balance sheet of Company and its Subsidiaries as at the end of such
Fiscal Year and the related consolidated statements of income,
stockholders equity and cash flows of Company and its Subsidiaries for
such Fiscal Year, setting forth in each case in comparative form the
corresponding figures for the previous Fiscal Year (it being understood
that the foregoing requirement may be satisfied by delivery of the
Company's report to the Securities and Exchange Commission on Form 10-K,
if any) together with, if any pro forma financial information has been
used in connection with determining compliance with this Agreement, a
reconciliation of such pro forma financial information with the financial
information contained in such financial statements, all in reasonable
detail and reported on by one of the Big Five accounting firms or other
independent certified public accountants of recognized national standing
selected by Company and satisfactory to Agents, which report shall state
(without Impermissible Qualification) that such consolidated financial
statements fairly present, in all material respects, the consolidated
financial position of Company and its Subsidiaries as at the dates
indicated and the results of their operations and their cash flows for
the periods indicated in conformity with GAAP applied on a basis
consistent with prior years (except as otherwise disclosed in such
financial statements) and that the examination by such accountants in
connection with such consolidated financial statements has been made in
accordance with generally accepted auditing standards;
(iii) OFFICER'S AND COMPLIANCE CERTIFICATES: together with each
delivery of financial statements pursuant to subdivisions (i) and (ii)
above, (a) an Officer's Certificate of Company stating that the signers
have reviewed the relevant terms of this Agreement and that no condition
or event that constitutes an Event of Default or Potential Event of
Default exists, or, if any such condition or event existed or exists,
specifying the nature and period of existence thereof and what action
Company has taken, is taking and proposes to take with respect thereto
and (b) a Compliance Certificate executed by the president, chief
executive officer, treasurer, or chief financial officer of Company;
(iv) MARGIN DETERMINATION CERTIFICATE: together with each
delivery of financial statements pursuant to subdivisions (i) and (ii)
above, a Margin Determination Certificate demonstrating in reasonable
detail, and calculating in accordance with subsections 1.2(b) and 1.2(c),
the Consolidated Leverage Ratio on the last day of the accounting period
covered by such financial statements;
(v) ACCOUNTANTS' CERTIFICATION: together with each delivery
of consolidated financial statements of Company and its Subsidiaries
pursuant to subdivision (ii) above, a written statement by the
independent certified public accountants giving the report thereon (a)
stating that their audit examination has included a review of the
terms of subsections 7.1, 7.2, 7.3, 7.4, 7.5, 7.6, 7.7 and 7.8 of this
Agreement as they relate to accounting matters, and (b) stating
whether, in connection with their audit examination, any condition or
event that constitutes an Event of Default or Potential Event of
Default
96
<PAGE>
has come to their attention and, if such a condition or event has come
to their attention, specifying the nature and period of existence
thereof; PROVIDED that such accountants shall not be liable by reason
of any failure to obtain knowledge of any such Event of Default or
Potential Event of Default that would not be disclosed in the course
of their audit examination;
(vi) SEC FILINGS AND PRESS RELEASES: promptly upon their
becoming available, copies of (a) all financial statements, reports,
notices and proxy statements sent or made available generally by Parent
or the Company to its security holders (other than DLJMB or Parent,
respectively), and (b) all regular and periodic reports and all
registration statements (other than on Form S-8 or a similar form) and
prospectuses, if any, filed by Parent or any of its Subsidiaries with any
national securities exchange or with the Securities and Exchange
Commission;
(vii) EVENTS OF DEFAULT, ETC.: promptly and in any event within
seven (7) Business Days after the president, chief executive officer,
treasurer, assistant treasurer, controller, chief financial officer or
any other Authorized Officer of Company obtains knowledge of any
condition or event that constitutes an Event of Default or Potential
Event of Default, an Officer's Certificate specifying the nature and
period of existence of such Event of Default or Potential Event of
Default and what action Company has taken, is taking and proposes to take
with respect thereto;
(viii) LITIGATION OR OTHER PROCEEDINGS: (a) promptly upon the
president, chief executive officer, treasurer, assistant treasurer,
controller, chief financial officer or any other Authorized Officer of
Company obtaining knowledge of (X) the institution of, or non-frivolous
threat of, any action, suit, proceeding (whether administrative, judicial
or otherwise), governmental investigation or arbitration against or
affecting Company or any of its Subsidiaries or any property of Company
or any of its Subsidiaries (collectively, "PROCEEDINGS") not previously
disclosed in writing by Company to Lenders or (Y) any material
development in any Proceeding that, in any case:
(1) has a reasonable possibility of giving rise to a
Material Adverse Effect; or
(2) seeks to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a
result of, the transactions contemplated hereby;
written notice thereof and promptly after request by Agents such other
information as may be reasonably requested by Agents to enable Agents and
their respective counsel to evaluate any of such Proceedings;
(ix) ERISA EVENTS: promptly upon becoming aware of the
occurrence of or forthcoming occurrence of any ERISA Event that could
reasonably be expected to result in a Material Adverse Effect, a written
notice specifying the nature thereof, what action Company, any of its
Subsidiaries or any of their respective ERISA Affiliates has taken, is
taking or proposes to take with respect thereto and, when known, any
action taken or
97
<PAGE>
threatened by the Internal Revenue Service, the Department of Labor or
the PBGC with respect thereto;
(x) ERISA NOTICES: with reasonable promptness, copies of all
notices received by Company, any of its Subsidiaries or any of their
respective ERISA Affiliates from a Multiemployer Plan sponsor concerning
an ERISA Event that could reasonably be expected to result in a Material
Adverse Effect;
(xi) FINANCIAL PLANS: as soon as practicable and in any event
no later than 30 days after the beginning of each Fiscal Year, a
consolidated budget for such Fiscal Year, in the form prepared by Company
consistent with its past practices (the "FINANCIAL PLAN");
(xii) NEW SUBSIDIARIES: promptly upon any Person becoming a
Subsidiary of Company, a written notice setting forth with respect to
such Person (a) the date on which such Person became a Subsidiary of
Company and (b) all of the data required to be set forth in SCHEDULE 5.1
with respect to all Subsidiaries of Company (it being understood that
such written notice shall be deemed to supplement SCHEDULE 5.1 for all
purposes of this Agreement);
(xiii) UCC SEARCH REPORT: As promptly as practicable after the
date of delivery to Administrative Agent of any UCC financing statement
executed by any Loan Party pursuant to subsection 4.2D(iii) or 6.8A,
copies of completed UCC searches evidencing the proper filing, recording
and indexing of all such UCC financing statement and listing all other
effective financing statements that name such Loan Party as debtor,
together with copies of all such other financing statements not
previously delivered to Administrative Agent by or on behalf of Company
or such Loan Party;
(xiv) OTHER INFORMATION: with reasonable promptness, such other
information and data with respect to Company or any of its Subsidiaries
as from time to time may be reasonably requested by any Lender.
6.2 LEGAL EXISTENCE, ETC.
Except as permitted under subsection 7.7, Company will, and
will cause each of its Subsidiaries to, at all times preserve and keep in
full force and effect its legal existence and all rights and franchises
material to its business except where failure to keep in full force and
effect such rights and franchises could not reasonably be expected to have a
Material Adverse Effect; PROVIDED, HOWEVER that neither Company nor any of
its Subsidiaries shall be required to preserve the existence of any
Subsidiary if Company shall determine that the preservation thereof is no
longer desirable in the conduct of the business of Company and its
Subsidiaries, and that the loss thereof is not disadvantageous in any
material respect to Company or Lenders.
6.3 PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION.
Company will, and will cause each of its Subsidiaries to, pay
all material taxes, assessments and other governmental charges imposed upon
it or any of its properties or assets or
98
<PAGE>
in respect of any of its income, businesses or franchises before any penalty
accrues thereon, and all material claims (including claims for labor,
services, materials and supplies) for sums that have become due and payable
and that by law have or may become a Lien upon any of its properties or
assets, prior to the time when any penalty or fine shall be incurred with
respect thereto; PROVIDED that no such charge or claim need be paid if it is
being contested in good faith by appropriate proceedings promptly instituted
and diligently conducted, so long as such reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have
been made therefor.
6.4 MAINTENANCE OF PROPERTIES; INSURANCE; APPLICATION OF NET
INSURANCE/CONDEMNATION PROCEEDS.
A. MAINTENANCE OF PROPERTIES. Except to the extent that the
failure to do so would not reasonably be expected to have a Material Adverse
Effect, Company will, and will cause each of its Subsidiaries to, maintain or
cause to be maintained in good repair, working order and condition, ordinary
wear and tear excepted, all material properties used or useful in the
business of Company and its Subsidiaries (including all Intellectual
Property) and from time to time will make or cause to be made all appropriate
repairs, renewals and replacements thereof unless Company determines in good
faith that the continued maintenance of any of its Properties is no longer
economically desirable.
B. INSURANCE. Company will maintain or cause to be maintained,
with financially sound and reputable insurers, such public liability
insurance, third party property damage insurance, business interruption
insurance and casualty insurance with respect to liabilities, losses or
damage in respect of the assets, properties and businesses of Company and its
Subsidiaries as may customarily be carried or maintained under similar
circumstances by corporations of established reputation engaged in similar
businesses, in each case in such amounts (giving effect to self-insurance),
with such deductibles, covering such risks and otherwise on such terms and
conditions as shall be customary for corporations similarly situated in the
industry. Without limiting the generality of the foregoing, Company will
maintain or cause to be maintained (i) flood insurance with respect to each
Flood Hazard Property that is located in a community that participates in the
National Flood Insurance Program, in each case in compliance with any
applicable regulations of the Board of Governors of the Federal Reserve
System, and (ii) replacement value casualty insurance on the Collateral under
such policies of insurance, with such insurance companies, in such amounts,
with such deductibles, and covering such risks as are at all times
satisfactory to Agents in their commercially reasonable judgment. Each such
policy of insurance shall (a) name Administrative Agent for the benefit of
Lenders as an additional insured thereunder as its interests may appear and
(b) in the case of each casualty insurance policy, contain a loss payable
clause or endorsement, satisfactory in form and substance to Agents, that
names Administrative Agent for the benefit of Lenders as the loss payee
thereunder for any covered loss in excess of $250,000 and provides for at
least 30 days prior written notice to Agents of any modification or
cancellation of such policy.
C. EVIDENCE OF INSURANCE. Upon request of Administrative Agent,
Company shall deliver to Administrative Agent a certificate from Company's
insurance broker or other evidence satisfactory to it that all insurance
required to be maintained pursuant to subsection 6.4B is in full
99
<PAGE>
force and effect and that Administrative Agent on behalf of Lenders has been
named as additional insured and/or loss payee thereunder to the extent
required under subsection 6.4B.
6.5 INSPECTION RIGHTS.
Company shall, and shall cause each of its Subsidiaries to,
permit any authorized representatives designated by any Lender to visit and
inspect any of the properties of Company or of any of its Subsidiaries, to
inspect, copy and take extracts from its and their financial and accounting
records, and to discuss its and their affairs, finances and accounts with its
and their officers and, after notice to the Company and provision of an
opportunity to participate in such discussions, independent public
accountants, all upon reasonable notice and at such reasonable times and
intervals during normal business hours and as often as may reasonably be
requested, but, unless an Event of Default shall have occurred and be
continuing not more frequently than once in each Fiscal Year. Subject to
subsection 10.2, the cost and expenses of each such visit shall be borne by
the applicable Lender.
6.6 COMPLIANCE WITH LAWS, ETC.
A. GENERAL. Company shall comply, and shall cause each of its
Subsidiaries to comply, in all material respects, with the requirements of
all applicable laws, rules, regulations and orders of any governmental
authority (including all Environmental Laws), noncompliance with which could
reasonably be expected to cause, individually or in the aggregate, a Material
Adverse Effect.
B. ENVIRONMENTAL COVENANT.
The Company will and will cause each of its Subsidiaries to:
(i) Use and operate all of its Facilities and properties in
compliance with all Environmental Laws, keep all necessary permits,
approvals, certificates, licenses and other Governmental Authorizations
relating to environmental matters in effect and remain in compliance
therewith, and handle all Hazardous Materials in compliance with all
applicable Environmental Laws, in each case except where the failure to
comply with the terms of this clause would not reasonably be expected to
have a Material Adverse Effect;
(ii) Promptly notify the Agents and provide copies of all
written claims, complaints, notices or inquiries relating to the
condition of its Facilities or relating to compliance with Environmental
Laws which relate to environmental matters which would have, or would
reasonably be expected to have, a Material Adverse Effect, and promptly
cure and have dismissed with prejudice any material actions and
proceedings relating to compliance with Environmental Laws, except to the
extent being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP have
been set aside on its books; and
(iii) Provide such information and certificates which the Agents
may reasonably request from time to time to evidence compliance with this
SECTION 6.7.
100
<PAGE>
6.7 EXECUTION OF SUBSIDIARY GUARANTY AND PERSONAL PROPERTY COLLATERAL
DOCUMENTS BY CERTAIN SUBSIDIARIES AND FUTURE SUBSIDIARIES; IP COLLATERAL.
A. EXECUTION OF SUBSIDIARY GUARANTY AND PERSONAL PROPERTY
COLLATERAL DOCUMENTS. In the event that any Person becomes a Subsidiary of
Company after the Merger Date (other than a Foreign Subsidiary and other than
a Domestic Subsidiary that is a Non-Wholly-Owned Subsidiary), Company will
promptly notify Administrative Agent of that fact and cause such Subsidiary
to execute and deliver to Administrative Agent a Subsidiary Pledge Agreement,
a counterpart of the Subsidiary Guaranty and an acknowledgement to the
Security Agreement and to take all such further actions and execute all such
further documents and instruments (including actions, documents and
instruments comparable to those described in subsection 4.2D) as may be
necessary or, in the opinion of Agents, desirable to create in favor of
Administrative Agent, for the benefit of Lenders, a valid and perfected First
Priority Lien on all of the personal and mixed property assets of such
Subsidiary described in the applicable forms of Collateral Documents;
PROVIDED that no such Subsidiary shall be required to pledge pursuant to a
Subsidiary Pledge Agreement more than 65% of the total combined voting power
of all classes of securities of any Foreign Subsidiary held by such
Subsidiary entitled to vote.
B. SUBSIDIARY CHARTER DOCUMENTS, LEGAL OPINIONS, ETC. Company
shall deliver to Administrative Agent, together with such Loan Documents, (i)
certified copies of such Subsidiary's Certificate or Articles of
Incorporation, together with a good standing certificate from the Secretary
of State of the jurisdiction of its incorporation and each other state in
which such Person is qualified as a foreign corporation to do business and,
to the extent generally available, a certificate or other evidence of good
standing as to payment of any applicable franchise or similar taxes from the
appropriate taxing authority of each of such jurisdictions, each to be dated
a recent date prior to their delivery to Administrative Agent, (ii) a copy of
such Subsidiary's Bylaws certified by its secretary or an assistant secretary
as of a recent date prior to their delivery to Administrative Agent, (iii) a
certificate executed by the secretary or an assistant secretary of such
Subsidiary as to (a) the fact that the attached resolutions of the Board of
Directors of such Subsidiary approving and authorizing the execution,
delivery and performance of such Loan Documents are in full force and effect
and have not been modified or amended and (b) the incumbency and signatures
of the officers of such Subsidiary executing such Loan Documents, and (iv) a
favorable opinion of counsel to such Subsidiary, in form and substance
satisfactory to Agents and their respective counsel, as to (a) the due
organization and good standing of such Subsidiary, (b) the due authorization,
execution and delivery by such Subsidiary of such Loan Documents, (c) the
enforceability of such Loan Documents against such Subsidiary, (d) such other
matters (including matters relating to the creation and perfection of Liens
in any Collateral pursuant to such Loan Documents) as Agents may reasonably
request, all of the foregoing to be satisfactory in form and substance to
Agents and their respective counsel.
C. IP COLLATERAL. If any Subsidiary (other than a Foreign Subsidiary
and Domestic Subsidiaries that are Non-Wholly-Owned Subsidiaries) becomes an
owner of any Intellectual Property after the Merger Date, Company shall cause
such Subsidiary to promptly execute and deliver to Administrative Agent an
acknowledgement to the Security Agreement and all cover sheets and executed
grants of trademark security interest, grants of patent security interest and
grants of copyright security interest and such other documents or instruments
required to be filed with the PTO and the CO as Administrative Agent shall deem
appropriate and take such further
101
<PAGE>
action and execute such further documents and instruments as may be
necessary, or in the opinion of Administrative Agent, desirable to create in
favor of Administrative Agent, for the benefit of Lenders, a valid and
perfected First Priority Lien on such Intellectual Property.
6.8 FUTURE LEASED PROPERTY AND FUTURE ACQUISITIONS OF REAL PROPERTY:
FUTURE ACQUISITION OF OTHER PROPERTY.
A. In connection with any Leasehold Property, Company shall, and
shall cause each of its Subsidiaries (other than Foreign Subsidiaries and
Domestic Subsidiaries that are Non-Wholly Owned Subsidiaries) to use its (and
their) commercially reasonable efforts (which shall not require the
expenditure of cash (other than the payment of the respective attorneys fees
of Company and the lessor) or the making of any material concessions under
the relevant lease) to deliver to Administrative Agent a waiver for the
benefit of Administrative Agent in form and substance reasonably satisfactory
to Administrative Agent executed by the lessor of any real property that is
to be leased by Company or such Subsidiary for a term in excess of one year
in any state which by statute grants such lessor a "landlord's" (or similar)
Lien which is superior to Administrative Agent's and which grants to
Administrative Agent a license to enter the leased property and remove any
and all personal property, if the value of such personal property of Company
or its Subsidiaries to be held at such leased property exceeds (or it is
anticipated that the value of such personal property will, at any point in
time during the term of such leasehold term, exceed) $2,000,000.
B. In the event that Company or any of its Subsidiaries (other
than Foreign Subsidiaries or Domestic Subsidiaries that are Non-Wholly-Owned
Subsidiaries) shall acquire any real property having a value as determined in
good faith by Administrative Agent in excess of $2,000,000 (or in the case of
leased property, in the event that Company is able to deliver the waivers and
consents described in subsection 6.8C in connection with the leases described
therein), Company or the applicable Subsidiary shall, promptly after such
acquisition or consent, execute a Mortgage and provide Administrative Agent
with (i) evidence of the completion (or satisfactory arrangements for the
completion) of all recordings and filings of such Mortgage as may be
necessary or, in the reasonable opinion of Administrative Agent, desirable
effectively to create a valid, perfected, First Priority Lien, subject to the
Liens permitted by subsection 7.2, against the property purported to be
covered thereby, (ii) mortgagee's title insurance policy or policies in favor
of Administrative Agent and the Lenders in amounts and in form and substance
and issued by insurers, reasonably satisfactory to the Agents, with respect
to the property purported to be covered by such Mortgage, insuring that title
to such property is indefeasible and that the interests created by the
Mortgage constitute valid first Liens thereon free and clear of all defects
and encumbrances other than as permitted by Section 7.2 or as approved by the
Agents, and such policies shall also include, to the extent available, a
revolving credit endorsement and such other endorsements as the Agents shall
reasonably request and shall be accompanied by evidence of the payment in
full of all premiums thereon, and (iii) such other approvals, opinions, or
documents as the Agents may reasonably request.
C. As soon as reasonably practical after the consummation of the
Merger, Company or its applicable Subsidiary shall, in respect of each of the
leased properties listed on Schedule 6.8, and in the event Company or any of its
Subsidiaries (other than Foreign Subsidiaries or Domestic Subsidiaries that are
Non-Wholly-Owned Subsidiaries) shall become a lessee under any lease of
102
<PAGE>
real property covering 10,000 square feet of building space and having an
unexpired lease term (including options to extend such lease term) of three
years or longer, Company or the applicable Subsidiary shall, use its
commercially reasonable efforts (which shall not require the expenditure of
cash (other than the payment of the respective attorneys fees of Company and
the lessor) or the making of any material concessions under the relevant
lease) to cause the lessor to agree (during the negotiation of such lease if
such lease is entered into after the Merger Date), for the benefit of
Administrative Agent (i) to the matters set forth in subsection 6.8A, (ii)
that without any further consent of such lessor or any further action on the
part of the Loan Party holding the lessee's interest in such property, such
lessee's interest in such property may be encumbered pursuant to a Mortgage
and may be assigned to the purchaser at a foreclosure sale or in a transfer
in lieu of such a sale (and to a subsequent third party assignee if any
Agent, any Lender, or an Affiliate of either so acquires such lessee's
interest in such property), and (iii) that such lessor shall not terminate
such lease as a result of a default by such Loan Party thereunder without
first giving Agents notice of such default and at least 60 days (or, if such
default cannot reasonably be cured by Agents within such period, such longer
period as may reasonably be required) to cure such default.
6.9 MERGER.
Company shall cause Acquisition Co. and DAH to comply with all
material covenants set forth in the Merger Agreement applicable prior to the
consummation of the Merger. Company shall cause the Merger to be consummated
in accordance with the terms and conditions of the Merger Agreement and the
Tender Offer Materials and shall cause each of the conditions set forth in
subsection 4.2 to be fulfilled as soon as practicable and, in any event, no
later than 150 calendar days after the Closing Date. In the event that the
DAH Common Stock to be purchased concurrently with receipt of the proceeds of
the Loans on the Closing Date shall represent, in the aggregate, not less
than 90% of the outstanding shares of DAH Common Stock so as to permit
Company to cause the Merger to occur in accordance with the terms of the
Merger Agreement and Section 253 of the Delaware General Corporation Law,
Company shall promptly cause the Merger to occur.
6.10 SECOND MERGER.
Company shall cause the Second Merger to be consummated on the Merger
Date immediately after the Merger.
6.11 YEAR 2000 COMPLIANCE.
Company will promptly notify Administrative Agent in the event Company
discovers or determines that any computer application (including those of its
suppliers and vendors) that is material to its or its Subsidiaries' business
and operations will not be Year 2000 compliant as of January 1, 2000, except
to the extent that such failure could not reasonably be expected to have a
Material Adverse Effect.
103
<PAGE>
6.12 PTO AND CO COVER SHEETS, ETC.
Company will deliver to Agents no later than 7 days after the Merger
Date instruments or documents, in appropriate form for filing with the PTO
and/or the CO, sufficient to create and perfect a security interest in all IP
Collateral owned as of the Merger Date by Company and its Subsidiaries (other
than Foreign Subsidiaries and Domestic Subsidiaries that are Non-Wholly-Owned
Subsidiaries).
6.13 MORTGAGES.
A. With respect to the Merger Date Leasehold Mortgaged Properties,
as soon as practicable after Company or the applicable Subsidiary is able to
obtain the agreement of the applicable lessor referred to in subsection 6.8C,
and with respect to the Merger Date Fee Mortgaged Properties, as soon as
practicable after the Merger Date but in no event later than 7 days after the
Merger Date, Company shall deliver to Agents counterparts of the Mortgages
covering such Merger Date Leasehold Mortgaged Properties or Merger Date Fee
Mortgaged Properties, as the case may be, each dated as of the date of such
delivery, duly executed by Company or the applicable Subsidiary in
appropriate form for recording, together with such other documents and
instruments in appropriate form for filing of such Mortgage as may be
necessary or, in the reasonable opinion of Administrative Agent, desirable
effectively to create a valid, perfected, First Priority Lien, subject to
Liens permitted by Section 7.2, against the properties purported to be
covered thereby.
B. As soon as practicable after delivery of each Mortgage pursuant
to subsection 6.13A, Company shall deliver to Agents (i) mortgagee's title
insurance policies in favor of the Agents and the Lenders in amounts and in
form and substance and issued by insurers, reasonably satisfactory to the
Agents, with respect to the property purported to be covered by such
Mortgage, insuring that title to such property is indefeasible and that the
interests created by such Mortgage constitute valid First Priority Liens
thereon free and clear of all defects and encumbrances other than as
permitted by Section 7.2 or as approved by the Agents, and such policies
shall also include, to the extent available, a revolving credit endorsement
and such other endorsements as Administrative Agent shall reasonably request
and shall be accompanied by evidence of the payment in full of all premiums
thereon and (ii) and such other approvals, opinions or documents as the
Agents may reasonably request.
Section 7. COMPANY'S NEGATIVE COVENANTS
Company covenants and agrees that, so long as any of the
Commitments hereunder shall remain in effect and until payment in full of all
of the Loans and other Obligations and the cancellation or expiration of all
Letters of Credit, unless Requisite Lenders shall otherwise give prior
written consent, Company shall perform, and shall cause each of its
Subsidiaries to perform, all covenants in this Section 7.
104
<PAGE>
7.1 INDEBTEDNESS.
Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create, incur, assume or otherwise become or
remain liable with respect to, any Indebtedness, except:
(i) Company may become and remain liable with respect to the
Obligations;
(ii) Company and its Subsidiaries may become and remain liable
with respect to any obligations constituting Indebtedness and actually
arising pursuant to Contingent Obligations permitted pursuant to Section
7.4;
(iii) Company and its Subsidiaries may become and remain liable
with respect to Indebtedness in respect of Capital Leases and other
purchase money Indebtedness incurred to finance the acquisition or
improvement of fixed assets, in an aggregate amount not exceeding
$7,500,000;
(iv) Intercompany Indebtedness (i) of Company or any Domestic
Subsidiary of Company owing to Company or any Subsidiary of Company, and
(ii) of any Foreign Subsidiary of Company owing to (x) any other Foreign
Subsidiary or (y) Company or any Domestic Subsidiary of Company; PROVIDED
that in respect of any such Indebtedness (other than any such
Indebtedness incurred to finance a Permitted Acquisition) described in
this CLAUSE (ii)(y), the aggregate principal amount of such Indebtedness,
when taken together with the aggregate amount at such time of all
outstanding Investments in Foreign Subsidiaries made pursuant to
subsection 7.3(xiii), shall not exceed at any time outstanding
$10,000,000; PROVIDED that (a) if requested by Administrative Agent, all
intercompany Indebtedness shall be evidenced by promissory notes which
shall be delivered to Administrative Agent as Collateral hereunder,
(b) all intercompany Indebtedness owed by Company or by a Subsidiary
Guarantor to any Subsidiary of Company that is not a Subsidiary Guarantor
shall be subordinated in right of payment to the payment in full of the
Obligations pursuant to the terms of an intercompany subordination
agreement in the form of Exhibit XXX attached hereto;
(v) Company and its Subsidiaries, as applicable, may remain
liable with respect to Indebtedness described in SCHEDULE 7.1 annexed
hereto and refinancings and replacements thereof in a principal amount
not exceeding the principal amount of the indebtedness so refinanced or
replaced and with an average life to maturity of not less than the then
average life to maturity of the Indebtedness so refinanced or replaced;
(vi) Company may become and remain liable with respect to up to
$100,000,000 in aggregate principal amount of Indebtedness evidenced by
the Senior Subordinated Bridge Notes (as well as any payment-in-kind
Senior Subordinated Bridge Notes issued in lieu of cash interest thereon)
and Indebtedness evidenced by the Senior Subordinated Notes, so long as,
if Company issued the Senior Subordinated Bridge Notes on the Closing
Date, all of the net proceeds of the Senior Subordinated Notes are used
to
105
<PAGE>
refinance in whole or in part an equal principal amount of the Senior
Subordinated Bridge Notes then outstanding;
(vii) Indebtedness of Tri-Star Electronics Europe SA incurred
pursuant to a working capital facility not to exceed U.S.$2,000,000 (of
the equivalent thereof in Swiss Francs) at any time outstanding (except
if such excess is caused solely by changes in exchange rates and is
eliminated within five Business Days of its occurrence) and other
Indebtedness of Foreign Subsidiaries in an aggregate outstanding
principal amount which does not exceed $10,000,000 at any time
outstanding;
(viii) Assumed Indebtedness of Company and its Subsidiaries in an
aggregate principal amount at any time outstanding not to exceed
$5,000,000; and
(ix) Company and its Subsidiaries may become and remain liable
with respect to other Indebtedness in an aggregate principal amount not
to exceed $10,000,000 at any time outstanding.
7.2 LIENS AND RELATED MATTERS.
A. PROHIBITION ON LIENS. Company shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly, create, incur, assume or
permit to exist any Lien on or with respect to any property or asset of any
kind (including any document or instrument in respect of goods or accounts
receivable) of Company or any of its Subsidiaries, whether now owned or
hereafter acquired, or any income or profits therefrom, except:
(i) Permitted Encumbrances;
(ii) Liens granted pursuant to the Collateral Documents,
including Liens securing payment of any Hedging Obligations owed to any
Person that, at the time such Hedging Obligation was contracted for, was
a Lender or an Affiliate of any Lender;
(iii) Liens described in Schedule 7.2 annexed hereto and Liens
securing extensions, renewals or replacements of the Indebtedness or
other obligations which such identified Liens secure; PROVIDED that no
such extension, renewal or replacement shall increase the obligations
secured by such Lien or extend such Lien to additional assets;
(iv) Liens securing Indebtedness permitted pursuant to
subsection 7.1(iii); provided that the principal amount of such
Indebtedness does not exceed at the time of acquisition or leasing of the
related asset the fair market value of the asset so acquired or leased
and that such Lien is limited solely to the asset so acquired or leased
in connection with the incurrence of such Indebtedness;
(v) Liens on the assets of any Foreign Subsidiary securing the
repayment of the Indebtedness permitted pursuant to subsection
7.1(iv)(ii), 7.1(vii) or 7.1(ix);
(vi) Liens in the nature of trustees' Liens granted pursuant to
any indenture governing any Indebtedness permitted by Section 7.1, in
each case in favor of the trustee
106
<PAGE>
under such indenture and securing only obligations to pay compensation to
such trustee, to reimburse its expenses and to indemnify it under the
terms thereof;
(vii) Liens of sellers of goods to Company and any of its
Subsidiaries arising solely under Article 2 of the UCC or similar
provisions of applicable law in the ordinary course of business, covering
only the goods sold and securing only the unpaid purchase price for such
goods and related expenses;
(viii) Liens securing Assumed Indebtedness of Company and its
Subsidiaries permitted pursuant to Section 7.1(viii), provided, however,
that (i) any such Liens attach only to the property of the Subsidiary
acquired, or the property acquired, in connection with such Assumed
Indebtedness and shall not attach to any assets of Company or any of its
Subsidiaries theretofore existing and (ii) the Assumed Indebtedness and
other secured Indebtedness of Company and its Subsidiaries secured by any
such Lien shall not exceed 100% of the fair market value of the assets
being acquired in connection with such Assumed Indebtedness;
(ix) Liens securing reimbursement obligations in respect of
trade letters of credit, which Liens are limited to the goods purchased
with, or whose purchase was supported by, such letters of credit; and
(x) Other Liens securing Indebtedness and other obligations in
an aggregate amount not to exceed $7,500,000 at any time outstanding.
Nothing in this subsection 7.2 shall prohibit the sale, assignment,
transfer, conveyance or other disposition of any Margin Stock owned by
Company or any of its Subsidiaries at its fair value (as determined in good
faith by its Board of Directors) so long as proceeds are held as Cash or Cash
Equivalents or the creation, incurrence, assumption or existence of any Lien
on or with respect to any Margin Stock.
B. NO FURTHER NEGATIVE PLEDGES. Except (x) with respect to
specific property encumbered to secure payment of particular Indebtedness or
to be sold pursuant to an executed agreement with respect to an Asset Sale
and (y) customary limitations in respect of the Company and its Subsidiaries
contained in any agreement with respect to Indebtedness incurred in reliance
on subsections 7.1(ii), (iv), (vi), (vii) or (viii), and (z) restrictions or
limitations contained in any partnership agreement or joint venture agreement
to which Company or any of its Subsidiaries are a party on the ability to
create or assume Liens on any assets of the relevant partnership or joint
venture, neither Company nor any of its Subsidiaries shall enter into any
agreement (other than an agreement prohibiting only the creation of Liens
securing Subordinated Indebtedness) prohibiting the creation or assumption of
any Lien upon any of its properties or assets, whether now owned or hereafter
acquired.
C. NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO COMPANY OR OTHER
SUBSIDIARIES. Except (x) as provided herein, (y) customary limitations and
prohibitions in any agreement with respect to Indebtedness incurred in
reliance on Section 7.1(iv)(ii)(x), (vii), or (viii) and (z) any such
encumbrance or restriction contained in any partnership or joint venture
agreement to which Company or any of its Subsidiaries is a party, Company
will not, and will not permit any of its
107
<PAGE>
Subsidiaries to, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the
ability of any such Subsidiary to (i) pay dividends or make any other
distributions on any of such Subsidiary's capital stock owned by Company or
any other Subsidiary of Company, (ii) repay or prepay any Indebtedness owed
by such Subsidiary to Company or any other Subsidiary of Company, or (iii)
make loans or advances to Company or any other Subsidiary of Company.
7.3 INVESTMENTS.
Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, make or own any Investment in any Person, except:
(i) Company and its Subsidiaries may make and own Investments
in Cash Equivalents (as determined on the date of acquisition thereof);
(ii) (a) Company and its Subsidiaries may continue to own the
Investments owned by them as of the Closing Date in any Subsidiaries of
Company; (b) Company and its Domestic Subsidiaries may make additional
Investments in Company or Subsidiary Guarantors (including without
limitation any such Investments necessary in order to consummate the
Tender Offer in accordance with the Tender Offer Materials, the Merger in
accordance with the Merger Agreement and the Second Merger) subject to
compliance with subsections 6.7 and 6.8; (c) any Foreign Subsidiary may
make additional Investments in any other Foreign Subsidiary; and (d)
Acquisition Co. may purchase the DAH Common Stock pursuant to the Tender
Offer in accordance with the Tender Offer Materials;
(iii) Company and its Subsidiaries may make intercompany loans to
the extent permitted under subsection 7.1(iv) and incur Contingent
Obligations permitted by subsection 7.4;
(iv) Company and its Subsidiaries may make Investments in
Wholly-Owned Subsidiaries that are Domestic Subsidiaries in an aggregate
amount not exceeding $22,000,000 in order to consummate an acquisition
substantially on the terms described to the Syndication Agent prior to
the date hereof.
(v) Company and its Subsidiaries may continue to own the
Investments owned by them as of the Closing Date and described in
Schedule 7.3 annexed hereto and extensions or renewals thereof, provided
that no such extension or renewal shall be made in reliance on this
clause (v) if it would (x) increase the amount of such Investment at the
time of such renewal or extension or (y) result in a Potential Event of
Default or an Event of Default hereunder;
(vi) Company and its Subsidiaries may make and own Investments
received in connection with Asset Sales permitted pursuant to subsection
7.7(xii);
108
<PAGE>
(vii) Investments constituting Consolidated Capital Expenditures
(and any capital expenditures excluded from the definition of
Consolidated Capital Expenditures pursuant to clause (y) thereof);
(viii) Investments made by Company or any of its Subsidiaries in
Permitted Acquisitions in accordance with subsection 7.7(viii);
(ix) Investments arising under or in connection with Interest
Rate Agreements and Currency Agreements entered into in the ordinary
course of business and not for speculative purposes;
(x) Company and its Subsidiaries may make and own Investments
received in connection with the bankruptcy or reorganization or suppliers
and customers and in settlement of delinquent obligations of and other
disputes with customers and suppliers arising in the ordinary course of
business;
(xi) Company and its Subsidiaries may make and own Investments
in the form of loans (x) to officers, directors and employees of the
Company and its Subsidiaries for the sole purpose of purchasing common
stock of Parent (or purchases of such loans made by others) in an
aggregate principal amount at any time outstanding not to exceed
$5,000,000, so long as immediately before and after giving effect
thereto, no Potential Event of Default or Event of Default has occurred
and is continuing and (y) to Global Technology Partners in an aggregate
principal amount not to exceed $1,000,000 for the sole purpose of
purchasing common stock of Parent;
(xii) Company and its Subsidiaries may make and own Investments
solely from the proceeds of capital contributions by Parent to the
Company or sales of equity Securities by the Company to Parent, in each
case only to the extent proceeds from such capital contribution or sale
(x) are not required to be applied to repay the Term Loans or to reduce
the Acquisition Loan Commitments pursuant to subsection 2.4(B)(iii)(c),
(y) arise from the issuance by Parent of its equity Securities, and (z)
are received after the Closing Date for the purpose of making an
Investment identified in a notice delivered to the Agents on or prior to
the date such capital contribution or sale or repayment is made, so long
as immediately before and after giving effect to any such Investment, no
Potential Event of Default or Event of Default has occurred and is
continuing; and
(xiii) Company and its Subsidiaries may make and own other
Investments in an aggregate amount not to exceed at any time $10,000,000.
7.4 CONTINGENT OBLIGATIONS.
Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create or become or remain liable with respect to
any Contingent Obligation, except:
(i) Company and its Subsidiaries of Company may become and
remain liable with respect to Contingent Obligations in respect of the
Obligations;
109
<PAGE>
(ii) Company may become and remain liable with respect to
Contingent Obligations in respect of Letters of Credit and Company and
its Subsidiaries may become and remain liable with respect to Contingent
Obligations in respect of other letters of credit in an aggregate amount
at any time not to exceed $2,000,000 for Company and its Domestic
Subsidiaries and $2,000,000 for Company's Foreign Subsidiaries;
(iii) Company and its Subsidiaries may become and remain liable
with respect to Contingent Obligations under Interest Rate Agreements and
Currency Agreements entered into in the ordinary course of business and
not for speculative purposes;
(iv) Company and its Domestic Subsidiaries may become and remain
liable with respect to Contingent Obligations in respect of any
Indebtedness of Company or any of its Domestic Subsidiaries permitted by
subsection 7.1; PROVIDED that any such Contingent Obligations in respect
of the Subordinated Indebtedness permitted pursuant to subsection 7.1(vi)
are subordinated to the payment of the Obligations to the same extent as
such Subordinated Indebtedness;
(v) Company and its Subsidiaries, as applicable, may remain
liable with respect to Contingent Obligations described in Schedule 7.4
annexed hereto and extensions or renewals thereof, so long as such
extension or renewal does not increase the amount of the Contingent
Obligation being renewed or extended, as the case may be;
(vi) Company and its Subsidiaries may become and remain liable
with respect to other Contingent Obligations; PROVIDED that the maximum
aggregate liability, contingent or otherwise, of Company and its
Subsidiaries in respect of all such Contingent Obligations shall at no
time exceed $2,000,000.
7.5 RESTRICTED JUNIOR PAYMENTS.
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, declare, order, pay, make or set apart any sum for
any Restricted Junior Payment; PROVIDED that so long as no Potential Event of
Default or Event of Default shall have occurred and be continuing or would
occur as a result thereof (except in the case of Restricted Junior Payments
permitted by subsections 7.5(i), (iii), (v) and (vi) below):
(i) Company may (a) make payments of regularly scheduled interest
in respect of the Senior Subordinated Bridge Notes and the Senior
Subordinated Notes, in each case in accordance with the terms of and to the
extent required by (and subject to the subordination provisions contained
therein) the Senior Subordinated Bridge Note Agreement or the Senior
Subordinated Indenture, (b) refinance the Senior Subordinated Bridge Notes
with the proceeds of the Senior Subordinated Notes and (c) to make payments
to the holders of the Senior Subordinated Bridge Notes or of the Senior
Subordinated Notes in the form of equity Securities that the subordination
provisions applicable thereto permit such holders to accept prior to the
repayment in full of the Obligations;
(ii) so long as (A) after giving effect to the making of such
Restricted Junior Payment, Company shall be in PRO FORMA compliance with the
covenant set forth in Section 7.6B
110
<PAGE>
for the most recent full Fiscal Quarter immediately preceding the date of the
making of such Restricted Payment for which the relevant financial statements
have been delivered pursuant to subsections 6.1(i) or (ii) and (B) an
Authorized Officer of Company shall have delivered a certificate to
Administrative Agent in form and substance reasonably satisfactory to
Administrative Agent (including a calculation of Company's PRO FORMA
compliance with the covenant set forth in Section 7.6B in reasonable detail)
certifying as to the accuracy of clause (ii)(A) above, Company may make
dividend payments to Parent the proceeds of which will be used by Parent to
repurchase, redeem or otherwise acquire or retire for value any equity
Securities of Parent, or any warrant, option or other right to acquire any
such equity Securities, in each case held by any member of management or an
employee of Parent, Company or any of its Subsidiaries pursuant to any
employment agreement, management equity subscription agreement, restricted
stock plan, stock option agreement or other similar arrangements so long as
the total amount of such repurchases, redemptions, acquisitions, retirements
and payments shall not exceed (I) $3,000,000 in any calendar year (with
unused amounts in any calendar year being carried forward to succeeding
calendar years subject to a maximum (without giving effect to the following
clause (II)) of $8,000,000 in any calendar year) PLUS (II) the aggregate cash
proceeds received by Company during such calendar year from any reissuance of
equity Securities of Parent and warrants, options and other rights to acquire
equity Securities of Parent, by Parent or Company to members of management
and employees of Company and its Subsidiaries (to the extent such proceeds
are not otherwise required to be applied pursuant to subsection 2.4B(iii) and
have not been used to make Investments pursuant to subsection 7.3(xii) or
Consolidated Capital Expenditures pursuant to subsection 7.8(ii));
(iii) Company may make dividend payments to Parent to the extent
necessary to permit Parent to (x) pay corporate and other general
administrative expenses (including fees in respect to advisors services) in
an aggregate amount which does not exceed $1,000,000 in any Fiscal Year and
(y) to make payments in respect of taxes imposed on Company and its
Subsidiaries;
(iv) on and after the fifth anniversary of the Closing Date, Company
may make dividend payments to Parent to enable Parent to pay cash interest or
dividends on the Parent P-I-K Securities in accordance with the terms of such
Parent P-I-K Securities; PROVIDED that after giving effect to such payment,
Company would be in compliance with subsection 7.6;
(v) the Company shall be permitted to make payments in respect of
statutory appraisal rights (and any settlement thereof) exercised by holders
of outstanding DAH Common Stock in connection with the Merger; and
(vi) Company may make any Restricted Junior Payment necessary in
order to consummate the Tender Offer in accordance with the Tender Offer
Materials, the Merger in accordance with the Merger Agreement and the Second
Merger.
7.6 FINANCIAL COVENANTS.
A. MINIMUM FIXED CHARGE COVERAGE RATIO. Company shall not permit the
Consolidated Fixed Charge Coverage Ratio as of the last day of any Fiscal
Quarter, beginning
111
<PAGE>
with the Fiscal Quarter ending December 31, 1998, occurring during any period
set forth below to be less than the correlative ratio indicated:
<TABLE>
<CAPTION>
MINIMUM FIXED
PERIOD CHARGE COVERAGE RATIO
------------------------------------ ---------------------
<S> <C>
4th Fiscal Quarter, 1998 through 4th
Fiscal Quarter, 2001 1.10 x
1st Fiscal Quarter, 2002 and
thereafter 1.20 x
</TABLE>
B. MAXIMUM LEVERAGE RATIO. Company shall not permit the
Consolidated Leverage Ratio as of the last day of any Fiscal Quarter,
beginning with the Fiscal Quarter ending December 31, 1998, occurring during
any period set forth below to exceed the correlative ratio indicated:
<TABLE>
<CAPTION>
MAXIMUM CONSOLIDATED
PERIOD LEVERAGE RATIO
--------------------------- ------------------------
<S> <C>
4th Fiscal Quarter, 1998 6.00 x
1st Fiscal Quarter, 1999 5.90 x
2nd Fiscal Quarter, 1999 5.75 x
3rd Fiscal Quarter, 1999 5.60 x
4th Fiscal Quarter, 1999 5.50 x
1st Fiscal Quarter, 2000 5.40 x
2nd Fiscal Quarter, 2000 5.25 x
3rd Fiscal Quarter, 2000 5.10 x
4th Fiscal Quarter, 2000
through 3rd Fiscal
Quarter, 2001 5.00 x
4th Fiscal Quarter, 2001
through 3rd Fiscal
Quarter, 2002 4.50 x
4th Fiscal Quarter, 2002
through 3rd Fiscal
Quarter, 2003 4.00 x
4th Fiscal Quarter, 2003
through 3rd Fiscal
Quarter, 2004 3.50 x
4th Fiscal Quarter, 2004 and
thereafter 3.00 x
</TABLE>
C. MINIMUM CONSOLIDATED EBITDA. Company shall not permit
Consolidated EBITDA for the consecutive four-Fiscal-Quarter period ending on
the last day of any Fiscal Quarter, beginning with the Fiscal Quarter ending
December 31, 1998, occurring during any period set forth below to be less
than the correlative amount (the "MINIMUM EBITDA AMOUNT") indicated:
112
<PAGE>
<TABLE>
<CAPTION>
MINIMUM EBITDA
QUARTER ENDED AMOUNT
--------------------------- ---------------------
<S> <C>
4th Fiscal Quarter, 1998 $ 30,000,000
1st Fiscal Quarter, 1999 31,000,000
2nd Fiscal Quarter, 1999 32,000,000
3rd Fiscal Quarter, 1999 33,000,000
4th Fiscal Quarter, 1999 34,000,000
1st Fiscal Quarter, 2000 35,000,000
2nd Fiscal Quarter, 2000 36,000,000
3rd Fiscal Quarter, 2000 37,000,000
4th Fiscal Quarter, 2000
through 3rd Fiscal
Quarter 2001 38,000,000
4th Fiscal Quarter, 2001
through 3rd Fiscal
Quarter 2002 42,000,000
4th Fiscal Quarter, 2002
through 3rd Fiscal
Quarter 2003 46,000,000
4th Fiscal Quarter, 2003 and
thereafter 50,000,000
</TABLE>
; PROVIDED that
(x) the Minimum EBITDA Amount for the consecutive
four-Fiscal-Quarter period ending at the last day of any Fiscal
Quarter during any period set forth above shall be increased by an
amount equal to 80% of the Acquired Business EBITDA of each Acquired
Business whose Acquired Business Date falls during the period from and
including the Closing Date to and including the last day of such
Fiscal Quarter; and
(y) to the extent the amount of Consolidated EBITDA for the
immediately preceding consecutive four-Fiscal-Quarter period exceeds
the amount of EBITDA required to be maintained for such consecutive
four-Fiscal-Quarter period pursuant to this subsection, an amount
equal to 50% of such excess amount may be carried forward to (but only
to) the then current Fiscal Quarter (any such amount to be certified
to Administrative Agent in the Compliance Certificate delivered for
the last Fiscal Quarter of such consecutive four-Fiscal-Quarter
period).
For purposes of this subsection 7.6C, the following terms have
the following meanings:
"ACQUIRED BUSINESS" means any business acquired (whether
through the purchase of assets or shares of capital stock) by Company
or any of its Subsidiaries after the Closing Date.
"ACQUIRED BUSINESS DATE" means, with respect to any Acquired
Business, the date of consummation of the acquisition thereof by
Company or any of its Subsidiaries.
"ACQUIRED BUSINESS EBITDA" means, with respect to any Acquired
Business,
113
<PAGE>
(x) the consolidated net income of such Acquired Business for the
consecutive four-Fiscal-Quarter period ended on or most recently prior
to its Acquired Business Date and with respect to which financial
statements are available on the Acquired Business Date PLUS (y) to the
extent deducted in determining such consolidated net income for such
period, the sum of (i) consolidated interest expense, (ii) income
taxes, (iii) depreciation, (iv) amortization, (v) any extraordinary or
non-recurring losses, and (vi) any non-cash items MINUS (z) to the
extent included in such consolidated net income, extraordinary gains.
D. MINIMUM INTEREST COVERAGE RATIO. Company shall not permit the
Consolidated Interest Coverage Ratio as of the last day of any Fiscal Quarter,
beginning with the Fiscal Quarter ending December 31, 1998, occurring during any
period set forth below to be less than the correlative ratio indicated:
<TABLE>
<CAPTION>
MINIMUM INTEREST
PERIOD COVERAGE RATIO
---------------------------- -------------------
<S> <C>
4th Fiscal Quarter, 1998 1.65 x
1st Fiscal Quarter, 1999 1.65 x
2nd Fiscal Quarter, 1999 1.70 x
3rd Fiscal Quarter, 1999 1.75 x
4th Fiscal Quarter, 1999 1.80 x
1st Fiscal Quarter, 2000 1.85 x
2nd Fiscal Quarter, 2000 1.90 x
3rd Fiscal Quarter, 2000 1.95 x
4th Fiscal Quarter, 2000
through 3rd Fiscal
Quarter, 2001 2.00 x
4th Fiscal Quarter, 2001
through 3rd Fiscal
Quarter, 2002 2.25 x
4th Fiscal Quarter, 2002
through 3rd Fiscal
Quarter, 2003 2.50 x
4th Fiscal Quarter, 2003
through 3rd Fiscal
Quarter, 2004 2.75 x
4th Fiscal Quarter, 2004 and
thereafter 3.00 x
</TABLE>
7.7 RESTRICTION ON FUNDAMENTAL CHANGES; ASSET SALES AND ACQUISITIONS.
Company shall not, and shall not permit any of Company's
Subsidiaries to, enter into any transaction of merger or consolidation, or
liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, lease or sub-lease (as lessor or sublessor),
transfer or otherwise dispose of, in one transaction or a series of
transactions, all or any part of its business, property or assets, whether now
owned or hereafter acquired, or acquire by purchase or otherwise all or
substantially all the business, property or fixed assets of, or stock or other
evidence of beneficial ownership of, any Person or any division or line of
business of any Person, except:
114
<PAGE>
(i) (a) any Domestic Subsidiary of Company may be merged with
or into Company or any Subsidiary Guarantor, or be liquidated, wound up
or dissolved, or all or any part of its business, property or assets may
be conveyed, sold, leased, transferred or otherwise disposed of, in one
transaction or a series of transactions, to Company or any Subsidiary
Guarantor; PROVIDED that, in the case of such a merger, Company or such
Subsidiary Guarantor shall be the continuing or surviving corporation and
(b) any Foreign Subsidiary may be merged with or into another Foreign
Subsidiary or, so long as the surviving corporation of such merger is
Company or a Domestic Subsidiary, with or into the Company or any
Domestic Subsidiary, or be liquidated, wound up or dissolved, or all or
any part of its business, property or assets may be conveyed, sold,
leased, transferred or otherwise disposed of in one transaction or a
series of transactions, to Company, a Subsidiary Guarantor or another
Foreign Subsidiary, PROVIDED, that notwithstanding the above, a
Subsidiary may only liquidate or dissolve into, or merge with and into,
another Subsidiary if, after giving effect to such combination or merger,
Company continues to own (directly or indirectly), and Administrative
Agent continues to have pledged to it pursuant to the DAH Pledge
Agreement or Subsidiary Pledge Agreement, a percentage of the issued and
outstanding equity Securities (on a fully diluted basis) of the
Subsidiary surviving such combinations or merger that is equal to or in
excess of the percentage of the issued and outstanding shares of equity
Securities (on a fully diluted basis) of the Subsidiary that does not
survive such combinations or merger that was (immediately prior to the
combination or merger) owned by the Company or pledged to Administrative
Agent;
(ii) Company and its Subsidiaries may make Consolidated Capital
Expenditures permitted under subsection 7.8;
(iii) Company and its Subsidiaries may dispose of obsolete, worn
out or surplus property in the ordinary course of business;
(iv) Company and its Subsidiaries may consummate any transfer,
conveyance or other disposal that constitutes (a) an Investment permitted
under subsection 7.3, (b) a Lien permitted under subsection 7.2, (c) a
Restricted Junior Payment permitted under subsection 7.5 or (d) a sale
and leaseback transaction permitted by subsection 7.10;
(v) Company and its Subsidiaries may sell or otherwise dispose
of assets in transactions that do not constitute Asset Sales;
(vi) Finance Co., Acquisition Co. and DAH may consummate the
Merger and the Second Merger;
(vii) (x) Company and its Subsidiaries may make Permitted
Acquisitions; PROVIDED that such Permitted Acquisitions result in the
Company or the relevant Subsidiary acquiring a majority controlling
interest in the Person (or its assets and businesses) acquired, or
increasing any such controlling interest maintained by it in such Person
or result in the Person acquired becoming an Acquired Controlled Person
with respect to Company and its Subsidiaries; and (y) no later than five
Business Days prior to the consummation thereof, Company delivers to
Agents a Permitted Acquisition
115
<PAGE>
Compliance Certificate demonstrating compliance with the requirements
of the definition of "Permitted Acquisition" and copies of all
acquisition agreements executed and delivered in connection therewith
to the extent available and requested by Administrative Agent; and
PROVIDED FURTHER that reasonably promptly following the consummation
of such Permitted Acquisition, Company shall have complied with the
provisions of subsections 6.8 and 6.9 with respect thereto to the
extent applicable;
(viii) Prior to the consummation of the Merger, Company or any of
its Subsidiaries may convey, sell, transfer or otherwise dispose of any
Margin Stock, whether now owned or hereafter acquired; PROVIDED that such
disposition is for fair value and the proceeds are held in Cash or Cash
Equivalents;
(ix) Company and its Subsidiaries may sell or otherwise dispose
of assets as a result of any taking of assets described in clause (ii) of
the definition of "Net Insurance/Condemnation Proceeds", so long as the
Net Insurance/Condemnation Proceeds resulting therefrom are applied or
reinvested as required by subsection 2.4B(iii)(b);
(x) Company and its Subsidiaries may sell or discount overdue
accounts receivable in the ordinary course of business, but only in
connection with the compromise or collection thereof;
(xi) Company and its Subsidiaries may make Asset Sales to
Non-Wholly-Owned Subsidiaries that are not Subsidiary Guarantors of
assets having a fair market value of not in excess of $10,000,000 over
the term of this Agreement; provided that (x) the consideration for
such assets shall be in an amount at least equal to the fair market
value thereof, and (y) any Investment in such Non-Wholly-Owned
Subsidiaries resulting from such Asset Sale shall be permitted by
subsection 7.3(xiii) or as a Permitted Acquisition pursuant to
subsection 7.3 (viii); and
(xii) Company and its Subsidiaries may make Asset Sales not
permitted by the foregoing clauses of assets having a fair market
value of not in excess of $5,000,000 in any Fiscal Year or of
$10,000,000 in the aggregate for all such Asset Sales made after the
Closing Date; PROVIDED that (x) the consideration received for such
assets shall be in an amount at least equal to the fair market value
thereof; (y) at least 75% of the consideration received therefor is in
the form of cash; and (z) the proceeds of such Asset Sale are applied
or reinvested as required by subsection 2.4B(iii)(a).
7.8 CONSOLIDATED CAPITAL EXPENDITURES.
(i) Company will not, and will not permit any of its
Subsidiaries to, make or commit to make Consolidated Capital
Expenditures in any Fiscal year, except Consolidated Capital
Expenditures which do not aggregate in excess of $8,000,000 in such
Fiscal Year PLUS an additional aggregate amount equal to $10,000,000
over the term of this Agreement; PROVIDED that (a) if the aggregate
amount of Consolidated Capital Expenditures actually made in any such
Fiscal Year shall be less than the limit with respect thereto set
forth above (before giving effect to any increase therein pursuant to
116
<PAGE>
this proviso) (the "BASE AMOUNT"), then the amount of such shortfall
(up to an amount equal to 50% of the Base Amount for such Fiscal Year,
without giving effect to this proviso) may be added to the amount of
such Consolidated Capital Expenditures permitted for the immediately
succeeding Fiscal Year and any such amount carried forward to a
succeeding Fiscal Year shall be deemed to be used prior to Company and
its Subsidiaries using the amount of capital expenditures permitted by
this section in such succeeding Fiscal Year, without giving effect to
such carryforward and (b) for any Fiscal Year (or portion thereof)
following any acquisition of a business (whether through the purchase
of assets or of shares of capital stock) permitted under Article 7,
the Base Amount for such Fiscal Year (or portion) shall be increased,
for each such acquisition, by an amount equal to the product of (A)
the lesser of (x) $5,000,000 and (y) 4% of revenues of the business
acquired in such acquisition for the period of four Fiscal Quarters
most recently ended on or prior to the date of such Business
Acquisition multiplied by (B) (x) in the case of any partial Fiscal
Year, a fraction, the numerator of which is the number of days
remaining in such Fiscal Year after the date of such Business
Acquisition and the denominator of which is 365 (or 366 in a leap
year), and (y) in the case of any full Fiscal Year, 1.
(ii) The parties acknowledge and agree that the permitted
Consolidated Capital Expenditure level set forth in clause (i) above
shall be exclusive of the amount of Consolidated Capital Expenditures
actually made with the proceeds of a cash capital contribution to
Company (including the proceeds of issuance of equity securities) made,
by Parent from the issuance by Parent of its equity Securities after the
Closing Date and specifically identified in a certificate delivered by an
Authorized Officer of Company to Administrative Agent on or about the
time such capital contribution is made; PROVIDED that, to the extent any
such cash capital contributions constitute Net Securities Proceeds after
the Merger Date, only that portion of such Net Securities Proceeds which
is not required to be applied as a prepayment pursuant to
Section 2.4B(iii)(c) may be used for Consolidated Capital Expenditures
pursuant to this clause (ii).
7.9 FISCAL YEAR.
Company shall not change its Fiscal Year-end from December 31
of each calendar year.
7.10 SALES AND LEASE-BACKS.
Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, become or remain liable as lessee or as a
guarantor or other surety with respect to any lease, whether an Operating
Lease or a Capital Lease, of any property (whether real, personal or mixed),
whether now owned or hereafter acquired, (i) which Company or any of its
Subsidiaries has sold or transferred or is to sell or transfer to any other
Person (other than Company or any of its Subsidiaries) or (ii) which Company
or any of its Subsidiaries intends to use for substantially the same purpose
as any other property which has been or is to be sold or transferred by
Company or any of its Subsidiaries to any Person (other than Company or any
of its Subsidiaries) in connection with such lease; PROVIDED that Company and
its Subsidiaries may become and remain liable as lessee, guarantor or other
surety with respect to any such lease if the
117
<PAGE>
property which is subject to such lease was acquired by Company or any of its
Subsidiaries within 180 days of such sale or transfer of such property by the
Company or any of its Subsidiaries.
7.11 SALE OR DISCOUNT OF RECEIVABLES.
Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, sell with recourse, or discount or otherwise sell
for less than the face value thereof, any of its notes or accounts
receivable; provided that Company and its Subsidiaries may sell or discount
overdue accounts receivable in the ordinary course business, but only in
connection with the compromise or collection thereof.
7.12 TRANSACTIONS WITH STOCKHOLDERS AND AFFILIATES.
Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, enter into or permit to exist any transaction
(including the purchase, sale, lease or exchange of any property or the
rendering of any service) with any holder of 10% or more of the voting
Securities of Parent or Company or with any Affiliate of Parent or Company on
terms that are less favorable to Company or that Subsidiary, as the case may
be, than those that might be obtained at the time from Persons who are not
such a holder or Affiliate; PROVIDED that the foregoing restriction shall not
apply to (i) any transaction between Company and any of its Wholly-Owned
Subsidiaries or between any of its Wholly-Owned Subsidiaries; (ii) reasonable
and customary fees paid to members of the Boards of Directors of Company and
its Subsidiaries; (iii) any Restricted Junior Payment permitted under
subsection 7.5; (iv) the entry into and performance of obligations under
arrangements with DLJ and its Affiliates for underwriting, investment banking
and advisory services on usual and customary terms (including payments of the
fee in respect of advisory services contemplated in subsection 7.5(iii)); (v)
the payment of reasonable and customary fees and reimbursement of expenses
payable to directors of Parent; (vi) employment arrangements with respect to
the procurement of services of directors, officers and employees in the
ordinary course of business and the payment of reasonable fees in connection
therewith; (vii) the issuance of equity Securities to Global Technology
Partners, L.L.C. described in subsection 7.3; (viii) the execution, delivery
and performance of the Merger Agreement and the consummation of the Tender
Offer and the other transactions contemplated by the Tender Offer Materials;
and (ix) the execution, delivery and performance of the agreements listed on
Schedule 7.12.
7.13 ISSUANCE OF SUBSIDIARY EQUITY.
Company shall not permit any of its Subsidiaries directly or
indirectly to issue any shares of its capital stock or other equity
Securities except to Company, another Subsidiary of Company, to qualify
directors if required by applicable law or in proportion to its existing
equity Securities of any class. Company shall not permit DAH on and after the
Closing Date to issue any options, warrants or other rights to purchase or
acquire any equity interest in DAH if after giving effect thereto, Company
would own less than the Minimum Shares.
118
<PAGE>
7.14 CONDUCT OF BUSINESS.
From and after the Closing Date, Company shall not, and shall not
permit any of its Subsidiaries to, engage in any business other than (i) the
businesses engaged in by Company and its Subsidiaries on the Closing Date and
similar or related businesses and (ii) such other lines of business as may be
consented to by Requisite Lenders.
7.15 AMENDMENTS OR WAIVERS OF MERGER AGREEMENT; AMENDMENTS OF DOCUMENTS
RELATING TO SUBORDINATED INDEBTEDNESS.
A. Neither Company nor any of its Subsidiaries will agree to any
material amendment to, or waive any of its material rights under, the Merger
Agreement, or terminate or agree to terminate the Merger Agreement without in
each case obtaining the prior written consent of Requisite Lenders to such
amendment, waiver or termination.
B. Company shall not, and shall not permit any of its Subsidiaries
to, amend or otherwise change the terms of any Subordinated Indebtedness, or
make any payment consistent with an amendment thereof or change thereto, if
the effect of such amendment or change is to increase the interest rate on
such Subordinated Indebtedness, change (to earlier dates) any dates upon
which payments of principal or interest are due thereon, change any event of
default or condition to an event of default with respect thereto (other than
to eliminate any such event of default or increase any grace period related
thereto), change the redemption, prepayment or defeasance provisions thereof,
change the subordination provisions thereof (or of any guaranty thereof), or
change any collateral therefor (other than to release such collateral), or if
the effect of such amendment or change, together with all other amendments or
changes made, is to increase materially the obligations of the obligor
thereunder to the detriment of Lenders or to confer any additional rights on
the holders of such Subordinated Indebtedness (or a trustee or other
representative on their behalf) which would be adverse to Lenders.
C. Company shall not, and shall not permit any of its Subsidiaries
to, designate any Indebtedness as "Designated Senior Debt" (as defined in any
of the Senior Subordinated Bridge Note Agreement or the Senior Subordinated
Note Indenture) without the prior written consent of Requisite Lenders.
Section 8. EVENTS OF DEFAULT
If any of the following conditions or events ("Events of
Default") shall occur:
8.1 FAILURE TO MAKE PAYMENTS WHEN DUE.
Failure by Company to pay any installment of principal of any
Loan when due, whether at stated maturity, by acceleration, by notice of
voluntary prepayment, by mandatory prepayment or otherwise; failure by
Company to pay when due any amount payable to an Issuing Lender in
reimbursement of any drawing under a Letter of Credit; or failure by Company
to pay any interest on any Loan or any fee or any other amount due under this
Agreement within five days after the date due; or
119
<PAGE>
8.2 DEFAULT IN OTHER AGREEMENTS.
(i) Failure of Company or any of its Subsidiaries to pay when
due any principal of or interest on or any other amount payable in respect of
one or more items of Indebtedness (other than Indebtedness referred to in
subsection 8.1) or Contingent Obligations in either an individual or an
aggregate principal amount of $5,000,000 or more, in each case beyond the end
of any grace period provided therefor; or (ii) breach or default by Company
or any of its Subsidiaries with respect to any other material term of (a) one
or more items of Indebtedness or Contingent Obligations in the individual or
aggregate principal amounts referred to in clause (i) above or (b) any loan
agreement, mortgage, indenture or other agreement relating to such item(s) of
Indebtedness or Contingent Obligation(s), if the effect of such breach or
default is to cause, or to permit the holder or holders of that Indebtedness
or Contingent Obligation(s) (or a trustee on behalf of such holder or
holders) to cause, that Indebtedness or Contingent Obligation(s) to become or
be declared due and payable prior to its stated maturity or the stated
maturity of any underlying obligation, as the case may be; or
8.3 BREACH OF CERTAIN COVENANTS.
Failure of Company to perform or comply with any term or
condition contained in subsection 2.5, 6.2 (solely with respect to the
continued existence of Company) or 6.1(vii) or Section 7 of this Agreement; or
8.4 BREACH OF WARRANTY.
Any representation, warranty, certification or other statement
made by Company or any of its Subsidiaries in any Loan Document or in any
statement or certificate at any time given by Company or any of its
Subsidiaries in writing pursuant hereto or thereto or in connection herewith
or therewith shall be false in any material respect on the date as of which
made; or
8.5 OTHER DEFAULTS UNDER LOAN DOCUMENTS.
Any Loan Party shall default in the performance of or
compliance with any term contained in this Agreement or any of the other Loan
Documents, other than any such term referred to in any other subsection of
this Section 8, and such default shall not have been remedied or waived
within 30 days after receipt by Company and such Loan Party of notice from
Administrative Agent at the direction of the Requisite Lenders of such
default; or
8.6 INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
(i) A court having jurisdiction in the premises shall enter a
decree or order for relief in respect of Company or any of its Subsidiaries
(other than any Immaterial Subsidiary) in an involuntary case under the
Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar
law now or hereafter in effect, which decree or order is not stayed; or any
other similar relief shall be granted under any applicable federal or state law;
or (ii) an involuntary case shall be commenced against Company or any of its
Subsidiaries (other than any Immaterial Subsidiary) under the Bankruptcy Code or
under any other applicable bankruptcy,
120
<PAGE>
insolvency or similar law now or hereafter in effect; or a decree or order of
a court having jurisdiction in the premises for the appointment of a
receiver, liquidator, sequestrator, trustee, custodian or other officer
having similar powers over Company or any of its Subsidiaries (other than any
Immaterial Subsidiary), or over all or a substantial part of its property,
shall have been entered; or there shall have occurred the involuntary
appointment of an interim receiver, trustee or other custodian of Company or
any of its Subsidiaries (other than any Immaterial Subsidiary) for all or a
substantial part of its property; or a warrant of attachment, execution or
similar process shall have been issued against any substantial part of the
property of Company or any of its Subsidiaries (other than any Immaterial
Subsidiary), and any such event described in clauses (i) or (ii) shall
continue for 60 days unless dismissed, bonded or discharged; or
8.7 VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
(i) Company or any of its Subsidiaries (other than any
Immaterial Subsidiary) shall have an order for relief entered with respect to
it or commence a voluntary case under the Bankruptcy Code or under any other
applicable bankruptcy, insolvency or similar law now or hereafter in effect,
or shall consent to the entry of an order for relief in an involuntary case,
or to the conversion of an involuntary case to a voluntary case, under any
such law, or shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of its
property; or Company or any of its Subsidiaries (other than any Immaterial
Subsidiary) shall make any assignment for the benefit of creditors; or (ii)
Company or any of its Subsidiaries (other than any Immaterial Subsidiary)
shall be unable, or shall fail generally, or shall admit in writing its
inability, to pay its debts as such debts become due; or the Board of
Directors of Company or any of its Subsidiaries (other than any Immaterial
Subsidiary) (or any committee thereof) shall adopt any resolution or
otherwise authorize any action to approve any of the actions referred to in
clause (i) above or this clause (ii); or
8.8 JUDGMENTS AND ATTACHMENTS.
Any money judgment, writ or warrant of attachment involving
either in any individual case or in the aggregate at any time an amount in
excess of $5,000,000 (in either case not adequately covered by insurance as
to which a responsible insurance company is not denying its liability with
respect thereto) shall be entered or filed against Company or any of its
Subsidiaries or any of their respective assets and shall remain undischarged,
unvacated, unbonded or unstayed for a period of 60 days; or
8.9 DISSOLUTION.
Any order, judgment or decree shall be entered against Company
or any of its Subsidiaries (other than any Immaterial Subsidiary) decreeing
the dissolution or split up of Company or that Subsidiary (except as
permitted under Sections 6.2 and 7.7 and such order shall remain undischarged
or unstayed for a period in excess of 60 days; or
8.10 EMPLOYEE BENEFIT PLANS.
There shall occur one or more ERISA Events which individually
or in the aggregate results in or might reasonably be expected to result in
liability of Company, any of its
121
<PAGE>
Subsidiaries or any of their respective ERISA Affiliates in excess of
$5,000,000 during the term of this Agreement; or there shall exist an amount
of unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA),
individually or in the aggregate for all Pension Plans (excluding for
purposes of such computation any Pension Plans with respect to which assets
exceed benefit liabilities), which exceeds $5,000,000; or
8.11 CHANGE IN CONTROL.
Any Change in Control shall occur; or
8.12 INVALIDITY OF GUARANTIES; FAILURE OF SECURITY; REPUDIATION OF
OBLIGATIONS.
At any time after the execution and delivery thereof, (i) any
Guaranty for any reason, other than the satisfaction in full of all
Obligations, shall cease to be in full force and effect (other than in
accordance with its terms) or shall be declared to be null and void, (ii) any
Collateral Document shall cease to be in full force and effect (other than by
reason of a release of Collateral thereunder in accordance with the terms
hereof or thereof, the satisfaction in full of the Obligations or any other
termination of such Collateral Document in accordance with the terms hereof
or thereof) or shall be declared null and void, or Administrative Agent shall
not have or shall cease to have a valid and perfected First Priority Lien in
any Collateral purported to be covered thereby, in each case for any reason
other than the failure of any Agent or any Lender to take any action within
its control or except to the extent that any such event is covered by a
lender's title insurance policy and the relevant insurer promptly after the
occurrence thereof shall have acknowledged in writing that the same is
covered by such title insurance policy, or (iii) any Loan Party shall contest
the validity or enforceability of any Loan Document in writing; or
8.13 MERGERS.
The Mergers shall be unwound, reversed or otherwise rescinded
in whole or in part for any reason or, prior to the Merger Date, the Merger
Agreement shall be terminated or the Merger shall not occur on or prior to
the 150th day after the Closing Date;
THEN (i) upon the occurrence of any Event of Default described in subsection
8.6 or 8.7 (with respect to Company or any Subsidiary Guarantor and, prior to
the Merger, DAH), each of (a) the unpaid principal amount of and accrued
interest on the Loans, (b) an amount equal to the maximum amount that may at
any time be drawn under all Letters of Credit then outstanding (whether or
not any beneficiary under any such Letter of Credit shall have presented, or
shall be entitled at such time to present, the drafts or other documents or
certificates required to draw under such Letter of Credit), and (c) all other
Obligations shall automatically become immediately due and payable, without
presentment, demand, protest or other requirements of any kind, all of which
are hereby expressly waived by Company, and the obligation of each Lender to
make any Loan, the obligation of any Issuing Lender to issue any Letter of
Credit and the right of any Issuing Lender to issue any Letter of Credit
hereunder shall thereupon terminate, and (ii) upon the occurrence and during
the continuation of any other Event of Default, Administrative Agent shall,
upon the written request or with the written consent of Requisite Lenders, by
written notice to Company, declare all or any portion of the amounts
described in clauses (a) through (c) above to be, and the same shall
forthwith become, immediately due and
122
<PAGE>
payable, and the obligation of each Lender to make any Loan, the obligation
of any Issuing Lender to issue any Letter of Credit and the right of any
Issuing Lender to issue any Letter of Credit hereunder shall thereupon
terminate; PROVIDED that the foregoing shall not affect in any way the
obligations of Working Capital Lenders under subsection 3.3C(i) or the
obligations of Working Capital Lenders to purchase participations in any
unpaid Swing Line Loans as provided in subsection 2.1A(iv).
Any amounts described in clause (b) above, when received by
Administrative Agent, shall be held by Administrative Agent and applied as
follows:
If for any reason the aggregate amount delivered by Company as aforesaid is
less than the amount described in clause (b) above (the "AGGREGATE AVAILABLE
AMOUNT"), the aggregate amount so delivered shall be apportioned among all
outstanding Letters of Credit in accordance with the ratio of the maximum
amount available for drawing under each such Letter of Credit (as to such
Letter of Credit, the "MAXIMUM AVAILABLE AMOUNT") to the Aggregate Available
Amount. Upon any drawing under any outstanding Letters of Credit in respect
of which Company has delivered to Administrative Agent any amounts described
above, Administrative Agent shall apply such amounts to reimburse the Issuing
Lender for the amount of such drawing. In the event of cancellation or
expiration of any Letter of Credit in respect of which Company has delivered
any amounts described above, or in the event of any reduction in the Maximum
Available Amount under such Letter of Credit, Administrative Agent shall
apply the amount then on deposit with it in respect of such Letter of Credit
(LESS, in the case of such a reduction, the Maximum Available Amount under
such Letter of Credit immediately after such reduction) first, to the extent
of any excess, to the cash collateralization of any outstanding Letters of
Credit in respect of which Company has failed to pay all or a portion of the
amounts described above (such cash collateralization to be apportioned among
all such Letters of Credit in the manner described above), second, to the
extent of any further excess, to the payment of any other outstanding
Obligations in such order as Administrative Agent shall elect, and third, to
the extent of any further excess, to the payment to whomsoever shall be
lawfully entitled to receive such funds.
Notwithstanding anything contained in the second preceding
paragraph, if at any time within 60 days after an acceleration of the Loans
pursuant to clause (ii) of such paragraph Company shall pay all arrears of
interest and all payments on account of principal which shall have become due
otherwise than as a result of such acceleration (with interest on principal and,
to the extent permitted by law, on overdue interest, at the rates specified in
this Agreement) and all Events of Default and Potential Events of Default (other
than non-payment of the principal of and accrued interest on the Loans, in each
case which is due and payable solely by virtue of acceleration) shall be
remedied or waived pursuant to subsection 10.6, then Requisite Lenders, by
written notice to Company, may at their option rescind and annul such
acceleration and its consequences; but such action shall not affect any
subsequent Event of Default or Potential Event of Default or impair any right
consequent thereon. The provisions of this paragraph are intended merely to
bind Lenders to a decision which may be made at the election of Requisite
Lenders and are not intended, directly or indirectly, to benefit Company, and
such provisions shall not at any time be construed so as to grant Company the
right to require Lenders to rescind or annul any acceleration hereunder or to
preclude Administrative Agent or Lenders from exercising any of
123
<PAGE>
the rights or remedies available to them under any of the Loan Documents,
even if the conditions set forth in this paragraph are met.
SECTION 9. THE AGENTS
9.1 APPOINTMENT.
A. APPOINTMENT OF AGENTS. First Chicago is hereby appointed
Administrative Agent hereunder and under the other Loan Documents and each
Lender hereby authorizes Administrative Agent to act as its contractual
representative in accordance with the terms of this Agreement and the other
Loan Documents. DLJ is hereby appointed Syndication Agent hereunder and
under the other Loan Documents and each Lender hereby authorizes Syndication
Agent to act as its contractual representative in accordance with the terms
of this Agreement and the other Loan Documents. Each of Syndication Agent
and Administrative Agent agrees to act upon the express conditions contained
in this Agreement and the other Loan Documents, as applicable. The
provisions of this Section 9 are solely for the benefit of each of
Syndication Agent and Administrative Agent, and Lenders and Company shall
have no rights as a third party beneficiary of any of the provisions thereof.
Notwithstanding the use of the defined term "Agent," it is expressly
understood and agreed that the no Agent shall have any fiduciary
responsibilities to any Lender by reason of this Agreement or any other Loan
Document and that the Agents are merely acting as the contractual
representatives of the Lenders with only those duties as are expressly set
forth in this Agreement and the other Loan Documents. In their respective
capacities as the Lenders' contractual representatives, the Agents (i) do not
hereby assume any fiduciary duties to any of the Lenders, (ii) are
"representatives" of the Lenders within the meaning of Section 9-105 of the
Uniform Commercial Code and (iii) are acting as independent contractors, the
rights and duties of which are limited to those expressly set forth in this
Agreement and the other Loan Documents. Each of the Lenders hereby agrees to
assert no claim against the Agents on any agency theory or any other theory
of liability for breach of fiduciary duty, all of which claims each Lender
hereby waives.
B. APPOINTMENT OF SUPPLEMENTAL COLLATERAL AGENTS. It is the purpose of
this Agreement and the other Loan Documents that there shall be no violation
of any law of any jurisdiction denying or restricting the right of banking
corporations or associations to transact business as agent or trustee in such
jurisdiction. It is recognized that in case of litigation under this
Agreement or any of the other Loan Documents, and in particular in case of
the enforcement of any of the Loan Documents, or in case Administrative Agent
deems that by reason of any present or future law of any jurisdiction it may
not exercise any of the rights, powers or remedies granted herein or in any
of the other Loan Documents or take any other action which may be desirable
or necessary in connection therewith, it may be necessary that Administrative
Agent appoint an additional individual or institution as a separate trustee,
co-trustee, collateral agent or collateral co-agent (any such additional
individual or institution being referred to herein individually as a
"SUPPLEMENTAL COLLATERAL AGENT" and collectively as "SUPPLEMENTAL COLLATERAL
AGENTS").
In the event that Administrative Agent appoints a Supplemental
Collateral Agent with respect to any Collateral, (i) each and every right,
power, privilege or duty expressed or intended by this Agreement or any of the
other Loan Documents to be exercised by or vested in
124
<PAGE>
or conveyed to Administrative Agent with respect to such Collateral shall be
exercisable by and vest in such Supplemental Collateral Agent to the extent,
and only to the extent, necessary to enable such Supplemental Collateral
Agent to exercise such rights, powers and privileges with respect to such
Collateral and to perform such duties with respect to such Collateral, and
every covenant and obligation contained in the Loan Documents and necessary
to the exercise or performance thereof by such Supplemental Collateral Agent
shall run to and be enforceable by either Administrative Agent or such
Supplemental Collateral Agent, and (ii) the provisions of this Section 9 and
of subsections 10.2 and 10.3 that refer to Administrative Agent shall inure
to the benefit of such Supplemental Collateral Agent and all references
therein to Administrative Agent shall be deemed to be references to
Administrative Agent and/or such Supplemental Collateral Agent, as the
context may require.
Should any instrument in writing from Company or any other Loan
Party be required by any Supplemental Collateral Agent so appointed by
Administrative Agent for more fully and certainly vesting in and confirming
to him or it such rights, powers, privileges and duties, Company shall, or
shall cause such Loan Party to, execute, acknowledge and deliver any and all
such instruments promptly upon request by Administrative Agent. In case any
Supplemental Collateral Agent, or a successor thereto, shall die, become
incapable of acting, resign or be removed, all the rights, powers, privileges
and duties of such Supplemental Collateral Agent, to the extent permitted by
law, shall vest in and be exercised by Administrative Agent until the
appointment of a new Supplemental Collateral Agent.
9.2 POWERS AND DUTIES; GENERAL IMMUNITY.
A. POWERS. Each Agent shall have and may exercise such powers under
the Loan Documents as are specifically delegated to such Agent by the terms
thereof, together with such powers as are reasonably incidental thereto. No
Agent shall have any implied duties to the Lenders, or any obligation to the
Lenders to take any action thereunder except any action specifically provided by
the Loan Documents to be taken by such Agent.
B. GENERAL IMMUNITY. No Agent nor any of their respective directors,
officers, agents or employees shall be liable to Company, the Lenders or any
Lender for any action taken or omitted to be taken by it or them hereunder or
under any other Loan Document or in connection herewith or therewith except to
the extent such action or inaction has arisen from the gross negligence or
willful misconduct of such Person.
C. NO RESPONSIBILITY FOR LOANS, RECITALS, ETC. No Agent nor any of
their respective directors, officers, agents or employees shall be responsible
for or have any duty to ascertain, inquire into, or verify (a) any statement,
warranty or representation made in connection with any Loan Document or any
borrowing hereunder; (b) the performance or observance of any of the covenants
or agreements of any obligor under any Loan Document, including, without
limitation, any agreement by an obligor to furnish information directly to each
Lender; (c) the satisfaction of any condition specified in Section 4, except
receipt of items required to be delivered solely to Administrative Agent or
Syndication Agent, as the case may be; (d) the existence or possible existence
of any Event of Default or Potential of Default; (e) the validity,
enforceability, effectiveness, sufficiency or genuineness of any Loan Document
or any other instrument or writing furnished in connection therewith; (f) the
value, sufficiency, creation, perfection or
125
<PAGE>
priority of any Lien in any collateral security; or (g) the financial
condition of Company or any guarantor of any of the Obligations or of any of
Company's or any such guarantor's respective Subsidiaries. No Agent shall
have any duty to disclose to the Lenders information that is not required to
be furnished by Company to such Agent at such time, but is voluntarily
furnished by Company to such Agent (either in its capacity as Administrative
Agent or Syndication Agent, as the case may be, or in its individual
capacity). Anything contained in this Agreement to the contrary
notwithstanding, Administrative Agent shall not have any liability arising
from confirmations of the amount of outstanding Loans or the Letter of Credit
Usage or the component amounts thereof.
D. ACTION ON INSTRUCTIONS OF LENDER. Each Agent shall in all cases
be fully protected in acting, or in refraining from acting, hereunder and under
any other Loan Document in accordance with written instructions signed by the
Requisite Lenders (or if required by the terms of subsection 10.6, all of the
Lenders), and such instructions and any action taken or failure to act pursuant
thereto shall be binding on all of the Lenders. The Lenders hereby acknowledge
that each Agent shall be under no duty to take any discretionary action
permitted to be taken by it pursuant to the provisions of this Agreement or any
other Loan Document unless it shall be requested in writing to do so by the
Requisite Lenders. Each Agent shall be fully justified in failing or refusing
to take any action hereunder and under any other Loan Document unless it shall
first be indemnified to its satisfaction by the Lenders in proportion to their
Pro Rata Share against any and all liability, cost and expense that it may incur
by reason of taking or continuing to take any such action.
E. EMPLOYMENT OF AGENTS AND COUNSEL. Each Agent may execute any of
its duties as Administrative Agent or Syndication Agent, as the case may be,
hereunder and under any other Loan Document by or through employees, agents, and
attorneys-in-fact and shall not be answerable to the Lenders, except as to money
or securities received by it or its authorized agents, for the default or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care. Each Agent shall be entitled to advice of counsel concerning
the contractual arrangement between the Agents and the Lenders and all matters
pertaining to each Agent's duties hereunder and under any other Loan Document.
F. RELIANCE ON DOCUMENTS; COUNSEL. Each Agent shall be entitled to
rely upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by any Agent, which counsel
may be employees of any Agent.
G. AGENTS' REIMBURSEMENT AND INDEMNIFICATION. The Lenders agree to
reimburse and indemnify each Agent ratably in proportion to their respective
Commitments (or, if the Commitments have been terminated, in proportion to their
Commitments immediately prior to such termination) (i) for any amounts not
reimbursed by Company for which any Agent is entitled to reimbursement by
Company under the Loan Documents, (ii) for any other expenses incurred by any
Agent on behalf of the Lenders, in connection with the preparation, execution,
delivery, administration and enforcement of the Loan Documents (including,
without limitation, for any expenses incurred by any Agent in connection with
any dispute between the Agents, the Agents and any Lender or between two or
more of the Lenders) and (iii) for any liabilities,
126
<PAGE>
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever which may be
imposed on, incurred by or asserted against any Agent in any way relating to
or arising out of the Loan Documents or any other document delivered in
connection therewith or the transactions contemplated thereby (including,
without limitation, for any such amounts incurred by or asserted against any
Agent in connection with any dispute between the Agents, the Agents and any
Lender or between two or more of the Lenders), or the enforcement of any of
the terms of the Loan Documents or of any such other documents; PROVIDED that
(i) no Lender shall be liable for any of the foregoing to the extent any of
the foregoing is found in a final non-appealable judgment by a court of
competent jurisdiction to have resulted from the gross negligence or willful
misconduct of any Agent and (ii) any indemnification required pursuant to
subsection 2.7 shall, notwithstanding the provisions of this subsection, be
paid by the relevant Lender in accordance with the provisions thereof. The
obligations of the Lenders under this subsection shall survive payment of the
Obligations and termination of this Agreement.
H. NOTICE OF DEFAULT. No Agent shall be deemed to have knowledge or
notice of the occurrence of any Event of Default or Potential Event of Default
hereunder unless such Agent has received written notice from a Lender or Company
referring to this Agreement describing such Event of Default or Potential Event
of Default and stating that such notice is a "notice of default". In the event
that any Agent receives such a notice, such Agent shall give prompt notice
thereof to the Lenders.
I. RIGHTS AS A LENDER. In the event any Agent is a Lender, such Agent
shall have the same rights and powers hereunder and under any other Loan
Document with respect to its Commitment and its Loans as any Lender and may
exercise the same as though it were not such Agent, and the term "Lender" or
"Lenders" shall, at any time when any Agent is a Lender, unless the context
otherwise indicates, include such Agent in its individual capacity. Each
Agent and its Affiliates may accept deposits from, lend money to, and
generally engage in any kind of trust, debt, equity or other transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with Company or any of its Subsidiaries in which Company or such Subsidiary
is not restricted hereby from engaging with any other Person.
J. LENDER CREDIT DECISION. Each Lender acknowledges that it has,
independently and without reliance upon any Agent, the Arranger or any other
Lender and based on financial statements prepared by Company and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and the other Loan
Documents. Each Lender also acknowledges that it will, independently and
without reliance upon any Agent, the Arranger or any other Lender and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under this Agreement and the other Loan Documents.
K. DELEGATION TO AFFILIATES. Company and the Lenders agree that any
Agent may delegate any of its duties under this Agreement to any of its
Affiliates. Any such Affiliate (and such Affiliate's directors, officers,
agents and employees) which performs duties in connection with this Agreement
shall be entitled to the same benefits of the indemnification, waiver and other
protective provisions to which such Agent is entitled under Sections 9 and 10.
127
<PAGE>
9.3 SUCCESSOR AGENTS AND SWING LINE LENDER.
A. SUCCESSOR AGENTS. The Syndication Agent may resign at any time
upon one Business Day's prior notice thereof to Company and Administrative
Agent, and the Administrative Agent may resign at any time by giving written
notice thereof to the Syndication Agent, the Lenders and Company, such
resignations to be effective upon the appointment of a successor Administrative
Agent or Syndication Agent, as the case may be, or, if no successor
Administrative Agent or Syndication Agent has been appointed, forty-five days
after the retiring Administrative Agent or Syndication Agent gives notice of its
intention to resign. Administrative Agent may be removed at any time with or
without cause by written notice received by Administrative Agent from the
Requisite Lenders, such removal to be effective on the date specified by the
Requisite Lenders. Upon any such resignation or removal, the Requisite Lenders
shall have the right to appoint, on behalf of Company and the Lenders, and, if
no Event of Default has occurred and is continuing, subject to the consent of
Company, a successor Administrative Agent or Syndication Agent, as the case may
be. If no successor Administrative Agent or Syndication Agent shall have been
so appointed by the Requisite Lenders within thirty days after the resigning
Administrative Agent's or Syndication Agent's giving notice of its intention to
resign, then the resigning Administrative Agent or Syndication Agent, as the
case may be, may appoint, on behalf of Company and the Lenders, a successor
Administrative Agent or Syndication Agent, as the case may be. Notwithstanding
the previous sentence, Administrative Agent or Syndication Agent may at any time
without the consent of Company or any Lender, appoint any of its Affiliates
which is a commercial bank as the successor Administrative Agent or Syndication
Agent hereunder. If Administrative Agent or Syndication Agent has resigned or
been removed and no successor Administrative Agent or Syndication Agent has been
appointed, the Lenders may perform all the duties of Administrative Agent or
Syndication Agent hereunder and Company shall make all payments in respect of
the Obligations to the applicable Lender and for all other purposes shall deal
directly with the Lenders. No successor Administrative Agent or Syndication
Agent shall be deemed to be appointed hereunder until such successor
Administrative Agent or Syndication Agent has accepted the appointment. Any
such successor Administrative Agent or Syndication Agent shall be a commercial
bank having capital and retained earnings of at least $100,000,000. Upon the
acceptance of any appointment as Administrative Agent or Syndication Agent
hereunder by a successor Administrative Agent or Syndication Agent, such
successor Administrative Agent or Syndication Agent shall thereupon succeed to
and become vested with all the rights, power, privileges and duties of the
resigning or removed Administrative Agent or Syndication Agent. Upon the
effectiveness of the resignation or removal of the Administrative Agent or
Syndication Agent, the resigning or removed Administrative Agent or Syndication
Agent shall be discharged from its duties and obligations hereunder and under
the Loan Documents. After the effectiveness of the resignation or removal of
the Administrative Agent or the Syndication Agent, as the case may be, the
provisons of this Section 9 shall continue in effect for the benefit of such
Administrative Agent or Syndication Agent in respect of any actions taken or
omitted to be taken by it while it was acting as Administrative Agent or
Syndication Agent hereunder and under the other Loan Documents. In the event
that there is a successor to the Administrative Agent by merger, or the
Administrative Agent assigns its duties and obligations to an Affiliate pursuant
to this
128
<PAGE>
subsection, then the term "Corporate Base Rate" as used in this Agreement
shall mean the prime rate, base rate or other analogous rate of the new
Administration Agent.
B. SUCCESSOR SWING LINE LENDER. Any resignation or removal of
Administrative Agent pursuant to subsection 9.3A shall also constitute the
resignation or removal of First Chicago or its successor as Swing Line
Lender, and any successor Administrative Agent appointed pursuant to
subsection 9.3A shall, upon its acceptance of such appointment, become the
successor Swing Line Lender for all purposes hereunder. In such event (i)
the resigning or removed Swing Line Lender shall assign all of its rights and
obligations with respect to the Swing Line Loans to the successor Swing Line
Lender pursuant to an Assignment Agreement and such successor Swing Line
Lender shall be entitled thereafter to all of the rights and immunities of
the resigning or removed Swing Line Lender pursuant to subsection 2.1, (ii)
the retiring or removed Administrative Agent and Swing Line Lender shall
surrender the Swing Line Note held by it to Company for cancellation, and
(iii) Company shall issue a new Swing Line Note to the successor
Administrative Agent and Swing Line Lender substantially in the form of
EXHIBIT VII annexed hereto, in the principal amount of the Swing Line Loan
Commitment then in effect and with other appropriate insertions.
9.4 COLLATERAL DOCUMENTS AND GUARANTIES.
A. EXECUTION OF COLLATERAL DOCUMENTS. The Lenders hereby empower and
authorize Administrative Agent to execute and deliver to Company on their
behalf the Collateral and all related financing statements and any financing
statements, agreements, documents or instruments as shall be necessary or
appropriate to effect the purposes of the Collateral Documents and to be the
agent for and representative of Lenders under each Guaranty, and each Lender
agrees to be bound by the terms of each Collateral Document and Guaranty.
Anything contained in any of the Loan Documents to the contrary
notwithstanding, Company, each Agent and each Lender hereby agree that (X) no
Lender shall have any right individually to realize upon any of the
Collateral under any Collateral Document or to enforce any Guaranty, it being
understood and agreed that all rights and remedies under the Collateral
Documents and the Guaranties may be exercised solely by Administrative Agent
for the benefit of Lenders in accordance with the terms thereof, and (Y) in
the event of a foreclosure by Administrative Agent on any of the Collateral
pursuant to a public or private sale, any Agent or any Lender may, to the
fullest extent that the same may be permitted under applicable law, be the
purchaser of any or all of such Collateral at any such sale and
Administrative Agent, as agent for and representative of Lenders (but not any
Lender or Lenders in its or their respective individual capacities unless
Requisite Lenders shall otherwise agree in writing) shall be entitled, for
the purpose of bidding and making settlement or payment of the purchase price
for all or any portion of the Collateral sold at any such public sale, to use
and apply any of the Obligations as a credit on account of the purchase price
for any collateral payable by Administrative Agent at such sale.
B. COLLATERAL RELEASES. The Lenders hereby empower and authorize
Administrative Agent to execute and deliver to Company on their behalf any
agreements, documents or instruments as shall be necessary or appropriate to
effect any releases of Collateral which shall be permitted by the terms hereof
or of any other Loan Document or which shall otherwise have been
129
<PAGE>
approved by the Requisite Lenders (or, if required by the terms of subsection
10.6, all of the Lenders) in writing.
Section 10. MISCELLANEOUS
10.1 ASSIGNMENTS AND PARTICIPATIONS IN LOANS AND LETTERS OF CREDIT.
A. GENERAL. Subject to subsection 10.1B, each Lender shall have the
right at any time to (i) sell, assign or transfer to any Eligible Assignee, or
(ii) sell participations to any Person in, all or any part of its Commitments or
any Loan or Loans made by it or participations in Letters of Credit hereunder or
any other interest herein or in any other Obligations owed to it; PROVIDED that
no such sale, assignment, transfer or participation shall, without the consent
of Company, require Company to file a registration statement with the Securities
and Exchange Commission or apply to qualify such sale, assignment, transfer or
participation under the securities laws of any state; PROVIDED, FURTHER that no
such sale, assignment, transfer or participation of any participation in Letters
of Credit hereunder may be made separately from a sale, assignment, transfer or
participation of a corresponding interest in the Working Capital Loan Commitment
and the Working Capital Loans of the Working Capital Lender effecting such sale,
assignment, transfer or participation; and PROVIDED, FURTHER that, anything
contained herein to the contrary notwithstanding, the Swing Line Loan Commitment
and the Swing Line Loans of Swing Line Lender may not be sold, assigned or
transferred as described in clause (i) above to any Person other than a
successor Administrative Agent and Swing Line Lender to the extent contemplated
by subsection 9.3. Except as otherwise provided in this subsection 10.1, no
Lender shall, as between Company and such Lender, be relieved of any of its
obligations hereunder as a result of any sale, assignment or transfer of, or any
granting of participations in, all or any part of its Commitments or the Loans,
the Letters of Credit or participations therein, or the other Obligations owed
to such Lender.
B. ASSIGNMENTS.
(i) AMOUNTS AND TERMS OF ASSIGNMENTS. Each Commitment, Loan or
participation in Letters of Credit hereunder, or other Obligation may
(a) be assigned in any amount to another Lender, or to an Affiliate or
Affiliated Fund of the assigning Lender or another Lender, with the
giving of notice to Company and Administrative Agent, or (b) be assigned
in an aggregate amount of not less than $3,000,000 (or such lesser amount
as shall constitute the aggregate amount of the Commitments, Loans, and
participations in Letters of Credit, and other Obligations of the
assigning Lender or as may be consented to by Company and Agents) to any
other Eligible Assignee with the consent of Company (which consent shall
only be required if no Event of Default has occurred and is continuing)
and, with respect to all Lenders other than Syndication Agent,
Administrative Agent (which consent of Company and Administrative Agent
shall not be unreasonably withheld or delayed). To the extent of any
such assignment in accordance with either clause (a) or (b) above, the
assigning Lender shall be relieved of its obligations with respect to its
Commitments, Loans or participations in Letters of Credit, or other
Obligations or the portion thereof so assigned. The parties to each such
assignment shall execute and deliver to Administrative Agent, for its
acceptance, an Assignment Agreement (which shall contain a representation
by the Assignee to the
130
<PAGE>
effect that none of the consideration used to make the purchase of the
Commitment, Loan or participation in Letters of Credit under the
applicable Assignment Agreement are "plan assets" as defined under
ERISA and that the rights and interests of the Assignee in and under
the Loan Documents will not be "plan assets" under ERISA), together
with a processing fee of $3,500 (or such other amount as may be agreed
to by Administrative Agent) and such forms, certificates or other
evidence, if any, with respect to United States federal income tax
withholding matters as the assignee under such Assignment Agreement may
be required to deliver to Administrative Agent pursuant to subsection
2.7B(iii)(a). Upon such execution, delivery and acceptance from and
after the effective date specified in such Assignment Agreement, (y) the
assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to
such Assignment Agreement, shall have the rights and obligations of a
Lender hereunder and (z) the assigning Lender thereunder shall, to the
extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment Agreement, relinquish its rights (other than
any rights which survive the termination of this Agreement under
subsection 10.9B) and be released from its obligations under this
Agreement (and, in the case of an Assignment Agreement covering all or
the remaining portion of an assigning Lender's rights and obligations
under this Agreement, such Lender shall cease to be a party hereto;
PROVIDED that, anything contained in any of the Loan Documents to the
contrary notwithstanding, if such Lender is the Issuing Lender with
respect to any outstanding Letters of Credit such Lender shall continue
to have all rights and obligations of an Issuing Lender with respect to
such Letters of Credit until the cancellation or expiration of such
Letters of Credit and the reimbursement of any amounts drawn thereunder).
The Commitments hereunder shall be modified to reflect the Commitment of
such assignee and any remaining Commitment of such assigning Lender and,
if any such assignment occurs after the issuance to the assigning Lender
of Notes hereunder, the assigning Lender shall, upon the effectiveness of
such assignment or as promptly thereafter as practicable, surrender its
applicable Notes to Administrative Agent for cancellation, and thereupon
new Notes shall be issued to the assignee and to the assigning Lender,
substantially in the form of EXHIBIT IV, EXHIBIT V, EXHIBIT VI,
EXHIBIT VII or EXHIBIT VIII annexed hereto, as the case may be, with
appropriate insertions, to reflect the new Commitments and/or outstanding
Term Loans, as the case may be, of the assignee and the assigning Lender.
(ii) ACCEPTANCE BY ADMINISTRATIVE AGENT. Upon its receipt of an
Assignment Agreement executed by an assigning Lender and an assignee
representing that it is an Eligible Assignee, together with the
processing fee referred to in subsection 10.1B(i) and any forms,
certificates or other evidence with respect to United States federal
income tax withholding matters that such assignee may be required to
deliver to Administrative Agent pursuant to subsection 2.7B(iii)(a),
Administrative Agent shall, if Administrative Agent and Company have
consented to the assignment evidenced thereby (in each case to the extent
such consent is required pursuant to subsection 10.1B(i)), (a) accept
such Assignment Agreement by executing a counterpart thereof as provided
therein (which acceptance shall evidence any required consent of
Administrative Agent to such assignment) and (b) give prompt notice
thereof to Company. Administrative Agent shall
131
<PAGE>
maintain a copy of each Assignment Agreement delivered to and accepted
by it as provided in this subsection 10.1B(ii).
C. PARTICIPATIONS. The holder of any participation, other than an
Affiliate of the Lender granting such participation, shall not be entitled to
require the Lender that shall have granted such participation to it to take or
omit to take any action hereunder except action directly affecting (i) the
extension of the scheduled final maturity date of any Loan allocated to such
participation or (ii) a reduction of the principal amount of or the rate of
interest payable on any Loan allocated to such participation, and all amounts
payable by Company hereunder (including amounts payable to such Lender pursuant
to subsections 2.6D, 2.7 and 3.6) shall be determined as if such Lender had not
sold such participation. Company and each Lender hereby acknowledge and agree
that, solely for purposes of subsections 10.4 and 10.5, to the fullest extent
permitted under applicable law, (a) any participation will give rise to a direct
obligation of Company to the participant and (b) the participant shall be
considered to be a "Lender".
D. ASSIGNMENTS TO FEDERAL RESERVE BANKS. In addition to the
assignments and participations permitted under the foregoing provisions of this
subsection 10.1, any Lender may assign and pledge all or any portion of its
Loans, the other Obligations owed to such Lender, and its Notes to any Federal
Reserve Bank as collateral security pursuant to Regulation A of the Board of
Governors of the Federal Reserve System and any operating circular issued by
such Federal Reserve Bank; PROVIDED that (i) no Lender shall, as between Company
and such Lender, be relieved of any of its obligations hereunder as a result of
any such assignment and pledge and (ii) in no event shall such Federal Reserve
Bank be considered to be a "Lender" or be entitled to require the assigning
Lender to take or omit to take any action hereunder.
E. INFORMATION. Each Lender may furnish any information concerning
Company and its Subsidiaries in the possession of that Lender from time to time
to assignees and participants (including prospective assignees and
participants), subject to subsection 10.19.
F. REPRESENTATIONS OF LENDERS. Each Lender listed on the signature
pages hereof hereby represents and warrants (i) that it is an Eligible Assignee
described in clause (A) of the definition thereof; (ii) that it has experience
and expertise in the making of loans such as the Loans; and (iii) that it will
make its Loans for its own account in the ordinary course of its business and
without a view to distribution of such Loans within the meaning of the
Securities Act or the Exchange Act or other federal securities laws (it being
understood that, subject to the provisions of this subsection 10.1, the
disposition of such Loans or any interests therein shall at all times remain
within its exclusive control). Each Lender that becomes a party hereto pursuant
to an Assignment Agreement shall be deemed to agree that the representations and
warranties of such Lender contained in Section 2(c) of such Assignment Agreement
are incorporated herein by this reference.
10.2 EXPENSES.
Whether or not the transactions contemplated hereby shall be
consummated, Company agrees to pay promptly (i) all the actual and reasonable
costs and expenses of the Agents with respect to the preparation of the Loan
Documents and any consents, amendments, waivers or other modifications thereto;
(ii) the reasonable fees, expenses and disbursements of a
132
<PAGE>
single counsel to Agents and Arranger (including the costs of local or
foreign counsel, to the extent required) in connection with the negotiation,
preparation, execution and administration of the Loan Documents and any
consents, amendments, waivers or other modifications thereto and any other
documents or matters requested by Company; (iii) all the actual costs and
reasonable expenses of creating and perfecting Liens in favor of
Administrative Agent on behalf of Lenders pursuant to any Collateral
Document, including filing and recording fees, expenses and taxes, stamp or
documentary taxes, search fees, title insurance premiums, and reasonable
fees, expenses and disbursements of counsel to Agents and of counsel
providing any opinions that Syndication Agent, Administrative Agent or
Requisite Lenders may request in respect of the Collateral Documents or the
Liens created pursuant thereto; (iv) the custody or preservation of any of
the Collateral; (v) all other actual and reasonable costs and expenses
incurred by Arranger, Syndication Agent or Administrative Agent (including
the reasonable fees, expenses and disbursements of any auditors, accountants
or appraisers and any environmental or other consultants, advisors and agents
employed or retained by Syndication Agent, Administrative Agent or their
respective counsel) in connection with the syndication of the Commitments and
the negotiation, preparation and execution of the Loan Documents and any
consents, amendments, waivers or other modifications thereto and the
transactions contemplated thereby; and (vi) after the occurrence of an Event
of Default, all costs and expenses, including reasonable attorneys' fees and
costs of settlement, incurred by Agents and Lenders in enforcing any
Obligations of or in collecting any payments due from any Loan Party
hereunder or under the other Loan Documents by reason of such Event of
Default (including in connection with the sale of, collection from, or other
realization upon any of the Collateral or the enforcement of the Guaranties
or in connection with any refinancing or restructuring of the credit
arrangements provided under this Agreement in the nature of a "work-out" or
pursuant to any insolvency or bankruptcy proceedings).
10.3 INDEMNITY.
In addition to the payment of expenses pursuant to subsection
10.2, whether or not the transactions contemplated hereby shall be consummated,
Company agrees to defend (subject to Indemnitees' selection of counsel),
indemnify, pay and hold harmless Arranger, Agents and Lenders, and the officers,
directors, trustees, employees, agents and affiliates of Arranger, Agents and
Lenders (collectively called the "INDEMNITEES"), from and against any and all
Indemnified Liabilities (as hereinafter defined); PROVIDED that Company shall
not have any obligation to any Indemnitee hereunder with respect to any
Indemnified Liabilities to the extent such Indemnified Liabilities arise from
the gross negligence or willful misconduct of that Indemnitee as determined by a
final judgment of a court of competent jurisdiction or to the extent that such
Indemnified Liabilities are Environmental Liabilities that arise solely out of
the actions of Administrative Agent or Lenders occurring after Administrative
Agent or Lenders shall have foreclosed on, or otherwise dispossessed Company and
its Subsidiaries of, the applicable Facility.
As used herein, "INDEMNIFIED LIABILITIES" means, collectively, any
and all liabilities, obligations, losses, damages (including natural resource
damages), penalties, actions, judgments, suits, claims (including Environmental
Claims), costs (including the costs of any investigation, study, sampling,
testing, abatement, cleanup, removal, remediation or other response action
necessary to remove, remediate, clean up or abate any Hazardous Materials
133
<PAGE>
Activity), expenses and disbursements of any kind or nature whatsoever
(including the reasonable fees and disbursements of counsel for Indemnitees
in connection with any investigative, administrative or judicial proceeding
commenced or threatened by any Person, whether or not any such Indemnitee
shall be designated as a party or a potential party thereto, and any fees or
expenses incurred by Indemnitees in enforcing this indemnity), whether
direct, indirect or consequential and whether based on any federal, state or
foreign laws, statutes, rules or regulations (including securities and
commercial laws, statutes, rules or regulations and Environmental Laws), on
common law or equitable cause or on contract or otherwise, that may be
imposed on, incurred by, or asserted against any such Indemnitee, in any
manner relating to or arising out of (i) this Agreement or the other Loan
Documents or the transactions contemplated hereby or thereby (including
Lenders' agreement to make the Loans hereunder or the use or intended use of
the proceeds thereof or the issuance of Letters of Credit hereunder or the
use or intended use of any thereof, or any enforcement of any of the Loan
Documents (including any sale of, collection from, or other realization upon
any of the Collateral or the enforcement of the Guaranties) or (ii) any
Environmental Claim or any Hazardous Materials Activity relating to or
arising from, directly or indirectly, any past or present activity,
operation, land ownership, or practice of Company or any of its Subsidiaries.
To the extent that the undertakings to defend, indemnify, pay and
hold harmless set forth in this subsection 10.3 may be unenforceable in whole or
in part because they are violative of any law or public policy, Company shall
contribute the maximum portion that it is permitted to pay and satisfy under
applicable law to the payment and satisfaction of all Indemnified Liabilities
incurred by Indemnitees or any of them.
10.4 SET-OFF; SECURITY INTEREST IN DEPOSIT ACCOUNTS.
In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default referred to in Sections 8.6 or 8.7 or, with
the consent of the Requisite Lenders, upon the occurrence of any other Event of
Default, each Lender is, to the fullest extent permitted by applicable law,
hereby authorized by Company at any time or from time to time, without notice to
Company or to any other Person, any such notice being hereby expressly waived,
to set off and to appropriate and to apply any and all deposits (general or
special, including Indebtedness evidenced by certificates of deposit, whether
matured or unmatured, but not including trust accounts) and any other
Indebtedness at any time held or owing by that Lender to or for the credit or
the account of Company against and on account of the obligations and liabilities
then due of Company to that Lender under this Agreement, the Letters of Credit
and participations therein and the other Loan Documents, including all claims of
any nature or description arising out of or connected with this Agreement, the
Letters of Credit and participations therein or any other Loan Document,
irrespective of whether or not that Lender shall have made any demand hereunder.
Company hereby further grants to each Agent and each Lender a security interest
in all deposits and accounts maintained with such Agent or such Lender as
security for the Obligations.
10.5 RATABLE SHARING.
Lenders hereby agree among themselves that if any of them shall,
whether by voluntary payment (other than a voluntary prepayment of Loans made
and applied in accordance
134
<PAGE>
with the terms of this Agreement), by realization upon security, through the
exercise of any right of set-off or banker's lien, by counterclaim or cross
action or by the enforcement of any right under the Loan Documents or
otherwise, or as adequate protection of a deposit treated as cash collateral
under the Bankruptcy Code, receive payment or reduction of a proportion of
the aggregate amount of principal, interest, amounts payable in respect of
Letters of Credit, fees and other amounts then due and owing to that Lender
hereunder or under the other Loan Documents (collectively, the "AGGREGATE
AMOUNTS DUE" to such Lender) which is greater than the proportion received by
any other Lender in respect of the Aggregate Amounts Due to such other
Lender, then the Lender receiving such proportionately greater payment shall
(i) notify Administrative Agent and each other Lender of the receipt of such
payment and (ii) apply a portion of such payment to purchase participations
(which it shall be deemed to have purchased from each seller of a
participation simultaneously upon the receipt by such seller of its portion
of such payment) in the Aggregate Amounts Due to the other Lenders so that
all such recoveries of Aggregate Amounts Due shall be shared by all Lenders
in proportion to the Aggregate Amounts Due to them; PROVIDED that if all or
part of such proportionately greater payment received by such purchasing
Lender is thereafter recovered from such Lender upon the bankruptcy or
reorganization of Company or otherwise, those purchases shall be rescinded
and the purchase prices paid for such participations shall be returned to
such purchasing Lender ratably to the extent of such recovery, but without
interest. Company expressly consents to the foregoing arrangement and
agrees, to the fullest extent that it may do so under applicable law, that
any holder of a participation so purchased may exercise any and all rights of
banker's lien, set-off or counterclaim with respect to any and all monies
owing by Company to that holder with respect thereto as fully as if that
holder were owed the amount of the participation held by that holder.
10.6 AMENDMENTS AND WAIVERS.
No amendment, modification, termination or waiver of any provision
of this Agreement or of the Notes, and no consent to any departure by Company
therefrom, shall in any event be effective without the written concurrence of
Requisite Lenders; PROVIDED that no such amendment, modification, termination,
waiver or consent which would:
(a) modify any requirement hereunder that any particular action
be taken by all the Lenders or by Requisite Lenders shall be effective
unless consented to by each Lender;
(b) modify this subsection 10.6, change the definitions of
"Requisite Lenders" or "Pro Rata Share", increase any Commitments (other
than pursuant to the second paragraph of subsection 2.4A(iii)), reduce
any fees described in subsection 2.3 (other than the fees to Agents
referred to in subsection 2.3B), release any material Subsidiary
Guarantor from its obligations under the Guaranty, Parent from its
obligations under the Parent Guaranty, or all or substantially all of the
collateral security (except in each case as otherwise specifically
provided for in the Loan Documents), or extend the Working Capital Loan
Commitment Termination Date or the Acquisition Loan Commitment
Termination Date, shall be made without the consent of each Lender
adversely affected thereby;
135
<PAGE>
(c) extend the due date for, or reduce the amount of, any
scheduled repayment of principal of or interest on or fees payable in
respect of any Loan or reduce the principal amount of or rate of interest
on or fees payable in respect of any Loan or any reimbursement obligation
in respect of any Letter of Credit (which shall in each case include the
conversion of all or any part of the Obligations into equity of any Loan
Party), shall be made without the consent of the Lender which has made
such Loan or, in the case of a reimbursement obligation in respect of any
Letter of Credit, the Issuer owed, and those Lenders participating in,
such reimbursement obligation;
(d) affect adversely the interests, rights or obligations of any
Agent, any Issuer or the Swing Line Lender (in its capacity as Agent,
Issuer or Swing Line Lender), unless consented to by such Agent, Issuer
or Swing Line Lender, as the case may be; or
(e) effect any amendment, modification or waiver that by its
terms adversely affects the rights of Lenders participating in any
tranche differently from those of Lenders participating in other
tranches, without the consent of the holders of at least 51% of the
aggregate amount of Loans or Commitments, as the case may be, outstanding
under the tranche or tranches affected by such amendment, modification or
waiver.
Administrative Agent may, but shall have no obligation to, with
the concurrence of any Lender, execute amendments, modifications, waivers or
consents on behalf of that Lender. Any waiver or consent shall be effective
only in the specific instance and for the specific purpose for which it was
given. No notice to or demand on Company in any case shall entitle Company to
any other or further notice or demand in similar or other circumstances. Any
amendment, modification, termination, waiver or consent effected in accordance
with this subsection 10.6 shall be binding upon each Lender at the time
outstanding, each future Lender and, if signed by Company, on Company.
10.7 INDEPENDENCE OF COVENANTS.
All covenants hereunder shall be given independent effect so that
if a particular action or condition is not permitted by any of such covenants,
the fact that it would be permitted by an exception to, or would otherwise be
within the limitations of, another covenant shall not avoid the occurrence of an
Event of Default or Potential Event of Default if such action is taken or
condition exists.
10.8 NOTICES.
Unless otherwise specifically provided herein, any notice or other
communication herein required or permitted to be given shall be in writing and
may be personally served, telexed or sent by telefacsimile or United States mail
or courier service and shall be deemed to have been given when delivered in
person or by courier service, upon receipt of telefacsimile or telex, or three
Business Days after depositing it in the United States mail with postage prepaid
and properly addressed; PROVIDED that notices to Agents shall not be effective
until received. For the purposes hereof, the address of each party hereto shall
be as set forth under such party's name on the signature pages hereof or (i) as
to Company and Agents, such other address as shall be designated by such Person
in a written notice delivered to the other parties hereto and (ii) as to
136
<PAGE>
each other party, such other address as shall be designated by such party in
a written notice delivered to Administrative Agent.
10.9 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
A. All representations, warranties and agreements made herein shall
survive the execution and delivery of this Agreement and the making of the Loans
and the issuance of the Letters of Credit hereunder.
B. Notwithstanding anything in this Agreement or implied by law to
the contrary, the agreements of Company set forth in subsections 2.6D, 2.7,
3.5A, 3.6, 10.2, 10.3 and 10.4 and the agreements of Lenders set forth in
subsections 9.2C, 9.4 and 10.5 shall survive the payment of the Loans, the
cancellation or expiration of the Letters of Credit and the reimbursement of any
amounts drawn thereunder, and the termination of this Agreement.
10.10 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
No failure or delay on the part of any Agent or any Lender in the
exercise of any power, right or privilege hereunder or under any other Loan
Document shall impair such power, right or privilege or be construed to be a
waiver of any default or acquiescence therein, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other power, right or privilege. All rights and
remedies existing under this Agreement and the other Loan Documents are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
10.11 MARSHALLING; PAYMENTS SET ASIDE.
None of Agents or Lenders shall be under any obligation to marshal
any assets in favor of Company or any other party or against or in payment of
any or all of the Obligations. To the extent that Company makes a payment or
payments to Administrative Agent or Lenders (or to Administrative Agent for the
benefit of Lenders), or any of Agents or Lenders enforce any security interests
or exercise their rights of setoff, and such payment or payments or the proceeds
of such enforcement or setoff or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law, any
other state or federal law, common law or any equitable cause, then, to the
extent of such recovery, the obligation or part thereof originally intended to
be satisfied, and all Liens, rights and remedies therefor or related thereto,
shall be revived and continued in full force and effect as if such payment or
payments had not been made or such enforcement or setoff had not occurred.
10.12 SEVERABILITY.
In case any provision in or obligation under this Agreement or the
Notes shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
137
<PAGE>
10.13 OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS.
The obligations of Lenders hereunder are several and no Lender
shall be responsible for the obligations or Commitments of any other Lender
hereunder. Nothing contained herein or in any other Loan Document, and no
action taken by Lenders pursuant hereto or thereto, shall be deemed to
constitute Lenders as a partnership, an association, a joint venture or any
other kind of entity. The amounts payable at any time hereunder to each
Lender shall be a separate and independent debt, and each Lender shall be
entitled to protect and enforce its rights arising out of this Agreement and
it shall not be necessary for any other Lender to be joined as an additional
party in any proceeding for such purpose.
10.14 HEADINGS.
Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
10.15 APPLICABLE LAW.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING
SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK),
WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
10.16 SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon the parties hereto and
their respective successors and assigns and shall inure to the benefit of the
parties hereto and the successors and assigns of Lenders (it being understood
that Lenders' rights of assignment are subject to subsection 10.1). Neither
Company's rights or obligations hereunder nor any interest therein may be
assigned or delegated by Company without the prior written consent of all
Lenders.
10.17 CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST COMPANY ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OBLIGATIONS
THEREUNDER, MAY, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, BE BROUGHT IN
ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND
CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, COMPANY, FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY
138
<PAGE>
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND TO THE EXTENT PERMITTED UNDER APPLICABLE LAW
VENUE OF SUCH COURTS;
(II) TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, WAIVES ANY
DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING
IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL,
RETURN RECEIPT REQUESTED, TO COMPANY AT ITS ADDRESS PROVIDED IN
ACCORDANCE WITH SUBSECTION 10.8;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER COMPANY IN ANY
SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES
EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST
COMPANY IN THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 10.17
RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND
ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK
GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE.
10.18 WAIVER OF JURY TRIAL.
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE
LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this
waiver is intended to be all-encompassing of any and all disputes that may be
filed in any court and that relate to the subject matter of this transaction,
including contract claims, tort claims, breach of duty claims and all other
common law and statutory claims. Each party hereto acknowledges that this
waiver is a material inducement to enter into a business relationship, that each
has already relied on this waiver in entering into this Agreement, and that each
will continue to rely on this waiver in their related future dealings. Each
party hereto further warrants and represents that it has reviewed this waiver
with its legal counsel and that it knowingly and voluntarily waives its jury
trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR
139
<PAGE>
IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO
THIS SUBSECTION 10.18 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS
WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY
OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the
event of litigation, this Agreement may be filed as a written consent to a
trial by the court.
10.19 CONFIDENTIALITY.
Each Lender, Issuing Lender, Agent and Arranger shall hold all
non-public information obtained in connection with this Agreement or obtained
by it based on a review of the books and records of the Company or any of its
Subsidiaries in accordance with such Lender's, Issuing Lender's, Agent's or
Arranger's customary procedures for handling confidential information of this
nature and in accordance with safe and sound banking practices, it being
understood and agreed by Company that in any event a Lender may make
disclosures to Affiliates and professional advisors of such Lender or
disclosures reasonably required by (a) any bona fide assignee, transferee or
participant in connection with the contemplated assignment or transfer by
such Lender of any Loans or any participations therein or (b) by any direct
or indirect contractual counterparties in swap agreements or such contractual
counterparties' professional advisors provided that such contractual
counterparty or professional advisor to such contractual counterparty agrees
in writing to keep such information confidential to the same extent required
of the Lenders hereunder, or disclosures required or requested by any
governmental agency or representative thereof or pursuant to legal process;
PROVIDED that, (x) unless specifically prohibited by applicable law or court
order, each Lender, Issuing Lender, Agent and Arranger shall promptly notify
Company of any request by any governmental agency or representative thereof
(other than any request by the National Association of Insurance
Commissioners or any request in connection with any examination of the
financial condition of such Lender by any governmental agency) for disclosure
of any such non-public information prior to disclosure of such information
and (y) prior to any such disclosure pursuant to this Section 10.19 each
Lender, each Issuing Lender, each Agent and the Arranger, as the case may be,
shall require any such BONA FIDE transferee, participant and assignee to
agree to be bound by this Section 10.19 and to require such Person to require
any other Person to whom such Person discloses any such non-public
information to be similarly bound by this Section 10.19; and PROVIDED,
FURTHER that in no event shall any Lender be obligated or required to return
any materials furnished by Company or any of its Subsidiaries except as may
be required by an order of a court of competent jurisdiction and to the
extent set forth therein.
10.20 COUNTERPARTS; EFFECTIVENESS.
This Agreement and any amendments, waivers, consents or
supplements hereto or in connection herewith may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document. This Agreement shall become effective upon the execution of
a counterpart hereof by each of the
140
<PAGE>
parties hereto and receipt by Company and Agents of written or telephonic
notification of such execution and authorization of delivery thereof.
[Remainder of page intentionally left blank]
141
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
COMPANY:
DECRANE FINANCE CO.
By:
--------------------------------
President and
Chief Executive Officer
Notice Address:
--------------------------------
--------------------------------
Attention:
-----------------
LENDERS:
THE FIRST NATIONAL BANK OF CHICAGO,
individually and as Administrative Agent
By:
--------------------------------
Title:
--------------------------------
Notice Address:
One First National Plaza
Chicago, Illinois 60670
Attention:
-----------------
DLJ CAPITAL FUNDING, INC., individually and as
Syndication Agent
By:
--------------------------------
Title:
--------------------------------
Notice Address:
2121 Avenue of the Stars
Los Angeles, CA 90067-5014
Attention:
------------------
142
<PAGE>
[Lenders Signature Blocks and Notice Addresses]
143
<PAGE>
U.S. $130,000,000
CREDIT AGREEMENT
DATED AS OF AUGUST 28, 1998
AMONG
DECRANE FINANCE CO.,
AS BORROWER,
THE LENDERS LISTED HEREIN,
AS LENDERS,
DLJ CAPITAL FUNDING, INC.,
AS SYNDICATION AGENT,
AND
THE FIRST NATIONAL BANK OF CHICAGO,
AS ADMINISTRATIVE AGENT,
ARRANGED BY:
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
<PAGE>
DECRANE FINANCE CO.
CREDIT AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
Section 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.1 Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.2 Accounting Terms; Utilization of GAAP for Purposes
of Calculations Under Agreement . . . . . . . . . . . . . . . . 32
1.3 Other Definitional Provisions and Rules of
Construction. . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS . . . . . . . . . . . . . 34
2.1 Commitments; Making of Loans; Notes. . . . . . . . . . . . . . . . . 34
2.2 Interest on the Loans. . . . . . . . . . . . . . . . . . . . . . . . 43
2.3 Fees.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
2.4 Repayments, Prepayments and Reductions in Loan Commitments; General
Provisions Regarding Payments . . . . . . . . . . . . . . . . . 52
2.5 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . 62
2.6 Special Provisions Governing Eurodollar Rate Loans.. . . . . . . . . 63
2.7 Increased Costs; Taxes; Capital Adequacy.. . . . . . . . . . . . . . 65
2.8 Obligation of Lenders and Issuing Lenders to
Mitigate; Replacement of Lender . . . . . . . . . . . . . . . . 70
Section 3. LETTERS OF CREDIT. . . . . . . . . . . . . . . . . . . . . . . . . . 71
3.1 Issuance of Letters of Credit and Lenders' Purchase
of Participations Therein . . . . . . . . . . . . . . . . . . . 71
3.2 Letter of Credit Fees. . . . . . . . . . . . . . . . . . . . . . . . 73
3.3 Drawings and Reimbursement of Amounts Paid Under
Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . 74
3.4 Obligations Absolute.. . . . . . . . . . . . . . . . . . . . . . . . 76
3.5 Indemnification; Nature of Issuing Lenders' Duties.. . . . . . . . . 77
3.6 Increased Costs and Taxes Relating to Letters of
Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT. . . . . . . . . . . . . . 79
4.1 Conditions to Initial Loans. . . . . . . . . . . . . . . . . . . . . 79
4.2 Conditions to Loans Made on Merger Date. . . . . . . . . . . . . . . 84
4.3 Conditions to Acquisition Loans. . . . . . . . . . . . . . . . . . . 87
i
<PAGE>
4.4 Conditions to Loans Made on Each Funding Date. . . . . . . . . . . . 87
4.5 Conditions to Letters of Credit. . . . . . . . . . . . . . . . . . . 88
Section 5. COMPANY'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . 88
5.1 Organization, Powers, Qualification, Good Standing,
Business and Subsidiaries . . . . . . . . . . . . . . . . . . . 88
5.2 Authorization of Borrowing, etc. . . . . . . . . . . . . . . . . . . 89
5.3 Financial Condition. . . . . . . . . . . . . . . . . . . . . . . . . 90
5.4 No Material Adverse Change; No Restricted Junior
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
5.5 Title to Properties; Liens; Real Property. . . . . . . . . . . . . . 90
5.6 Litigation; Adverse Facts. . . . . . . . . . . . . . . . . . . . . . 91
5.7 Payment of Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . 91
5.8 Governmental Regulation. . . . . . . . . . . . . . . . . . . . . . . 91
5.9 Securities Activities. . . . . . . . . . . . . . . . . . . . . . . . 92
5.10 Employee Benefit Plans.. . . . . . . . . . . . . . . . . . . . . . . 92
5.11 Environmental Protection.. . . . . . . . . . . . . . . . . . . . . . 92
5.12 Employee Matters.. . . . . . . . . . . . . . . . . . . . . . . . . . 93
5.13 Solvency.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
5.14 Matters Relating to Collateral.. . . . . . . . . . . . . . . . . . . 93
5.15 Disclosure.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
5.16 Year 2000 Compliance.. . . . . . . . . . . . . . . . . . . . . . . . 95
Section 6. COMPANY'S AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . 95
6.1 Financial Statements and Other Reports.. . . . . . . . . . . . . . . 95
6.2 Legal Existence, etc.. . . . . . . . . . . . . . . . . . . . . . . . 98
6.3 Payment of Taxes and Claims; Tax Consolidation.. . . . . . . . . . . 98
6.4 Maintenance of Properties; Insurance; Application of
Net Insurance/Condemnation Proceeds. . . . . . . . . . . . . . 99
6.5 Inspection Rights. . . . . . . . . . . . . . . . . . . . . . . . . .100
6.6 Compliance with Laws, etc. . . . . . . . . . . . . . . . . . . . . .100
6.7 Execution of Subsidiary Guaranty and Personal Property Collateral
Documents by Certain Subsidiaries and Future Subsidiaries;
IP Collateral. . . . . . . . . . . . . . . . . . . . . . . . .101
6.8 Future Leased Property and Future Acquisitions of
Real Property: Future Acquisition of
Other Property.. . . . . . . . . . . . . . . . . . . . . . . .102
ii
<PAGE>
6.9 Merger.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103
6.10 Second Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . .103
6.11 Year 2000 Compliance.. . . . . . . . . . . . . . . . . . . . . . . .103
6.12 PTO and CO Cover Sheets, Etc.. . . . . . . . . . . . . . . . . . . .104
6.13 Mortgages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104
Section 7. COMPANY'S NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . .104
7.1 Indebtedness.. . . . . . . . . . . . . . . . . . . . . . . . . . . .105
7.2 Liens and Related Matters. . . . . . . . . . . . . . . . . . . . . .106
7.3 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . .108
7.4 Contingent Obligations.. . . . . . . . . . . . . . . . . . . . . . .109
7.5 Restricted Junior Payments.. . . . . . . . . . . . . . . . . . . . .110
7.6 Financial Covenants. . . . . . . . . . . . . . . . . . . . . . . . .111
7.7 Restriction on Fundamental Changes; Asset Sales and
Acquisitions.. . . . . . . . . . . . . . . . . . . . . . . . .114
7.8 Consolidated Capital Expenditures. . . . . . . . . . . . . . . . . .116
7.9 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . .117
7.10 Sales and Lease-Backs. . . . . . . . . . . . . . . . . . . . . . . .117
7.11 Sale or Discount of Receivables. . . . . . . . . . . . . . . . . . .118
7.12 Transactions with Stockholders and Affiliates. . . . . . . . . . . .118
7.13 Issuance of Subsidiary Equity. . . . . . . . . . . . . . . . . . . .118
7.14 Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . .119
7.15 Amendments or Waivers of Merger Agreement; Amendments of Documents
Relating to Subordinated Indebtedness. . . . . . . . . . . . .119
Section 8. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . .119
8.1 Failure to Make Payments When Due. . . . . . . . . . . . . . . . . .119
8.2 Default in Other Agreements. . . . . . . . . . . . . . . . . . . . .120
8.3 Breach of Certain Covenants. . . . . . . . . . . . . . . . . . . . .120
8.4 Breach of Warranty.. . . . . . . . . . . . . . . . . . . . . . . . .120
8.5 Other Defaults Under Loan Documents. . . . . . . . . . . . . . . . .120
8.6 Involuntary Bankruptcy; Appointment of Receiver,
etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .120
8.7 Voluntary Bankruptcy; Appointment of Receiver, etc.. . . . . . . . .121
8.8 Judgments and Attachments. . . . . . . . . . . . . . . . . . . . . .121
8.9 Dissolution. . . . . . . . . . . . . . . . . . . . . . . . . . . . .121
iii
<PAGE>
8.10 Employee Benefit Plans.. . . . . . . . . . . . . . . . . . . . . . .121
8.11 Change in Control. . . . . . . . . . . . . . . . . . . . . . . . . .122
8.12 Invalidity of Guaranties; Failure of Security;
Repudiation of Obligations.. . . . . . . . . . . . . . . . . .122
8.13 Mergers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .122
Section 9. THE AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .124
9.1 Appointment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .124
9.2 Powers and Duties; General Immunity. . . . . . . . . . . . . . . . .125
9.3 Successor Agents and Swing Line Lender.. . . . . . . . . . . . . . .128
9.4 Collateral Documents and Guaranties. . . . . . . . . . . . . . . . .129
Section 10. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . .130
10.1 Assignments and Participations in Loans and Letters
of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . .130
10.2 Expenses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132
10.3 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133
10.4 Set-Off; Security Interest in Deposit Accounts.. . . . . . . . . . .134
10.5 Ratable Sharing. . . . . . . . . . . . . . . . . . . . . . . . . . .134
10.6 Amendments and Waivers.. . . . . . . . . . . . . . . . . . . . . . .135
10.7 Independence of Covenants. . . . . . . . . . . . . . . . . . . . . .136
10.8 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .136
10.9 Survival of Representations, Warranties and Agreements . . . . . . .137
10.10 Failure or Indulgence Not Waiver; Remedies Cumulative. . . . . . . .137
10.11 Marshalling; Payments Set Aside. . . . . . . . . . . . . . . . . . .137
10.12 Severability.. . . . . . . . . . . . . . . . . . . . . . . . . . . .137
10.13 Obligations Several; Independent Nature of Lenders' Rights . . . . .138
10.14 Headings.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .138
10.15 Applicable Law.. . . . . . . . . . . . . . . . . . . . . . . . . . .138
10.16 Successors and Assigns.. . . . . . . . . . . . . . . . . . . . . . .138
10.17 Consent to Jurisdiction and Service of Process.. . . . . . . . . . .138
10.18 Waiver of Jury Trial.. . . . . . . . . . . . . . . . . . . . . . . .139
10.19 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . .140
10.20 Counterparts; Effectiveness. . . . . . . . . . . . . . . . . . . . .140
Signature pages S-1
</TABLE>
iv
<PAGE>
EXHIBITS
<TABLE>
<S> <C>
I. FORM OF NOTICE OF BORROWING
II. FORM OF NOTICE OF CONVERSION/CONTINUATION
III. FORM OF NOTICE OF ISSUANCE OF LETTER OF CREDIT
IV. FORM OF TRANCHE A TERM NOTE
V. FORM OF TRANCHE B TERM NOTE
VI. FORM OF WORKING CAPITAL NOTE
VII. FORM OF SWING LINE NOTE
VIII. FORM OF ACQUISITION NOTE
IX. FORM OF COMPLIANCE CERTIFICATE
X-1. FORM OF CLOSING DATE OPINION OF DAVIS POLK & WARDWELL
X-2 FORM OF CLOSING DATE OPINION OF SPOLIN & SILVERMAN
XI. FORM OF OPINION OF O'MELVENY & MYERS LLP
XII. FORM OF ASSIGNMENT AGREEMENT
XIII. FORM OF CERTIFICATE RE NON-BANK STATUS
XIV. FORM OF FINANCE CO. PLEDGE AGREEMENT
XV. FORM OF DAH PLEDGE AGREEMENT
XVI. FORM OF SECURITY AGREEMENT
XVII FORM OF ACQUISITION CO. GUARANTY
XVIII. FORM OF SUBSIDIARY GUARANTY
XIX. FORM OF SUBSIDIARY PLEDGE AGREEMENT
XX. FORM OF PARENT PLEDGE AGREEMENT
XXI. FORM OF PARENT GUARANTY
v
<PAGE>
XXII. FORM OF SOLVENCY CERTIFICATE
XXIII. FORM OF COLLATERAL ACCOUNT AGREEMENT
XXIV-1. FORM OF MERGER DATE OPINION OF DAVIS POLK & WARDWELL
XXIV-2. FORM OF MERGER DATE OPINION OF SPOLIN & SILVERMAN
XXV. FORM OF MERGER DATE OPINION OF COMPANY LOCAL COUNSEL
XXVI. FORM OF PERMITTED ACQUISITION COMPLIANCE CERTIFICATE
XXVII. FORM OF INVESTMENT ACCOUNT AGREEMENT
XXVIII. FORM OF INTERCOMPANY NOTE RELATING TO TRANCHE A TERM LOANS AND
WORKING CAPITAL LOANS
XXIX. FORM OF INTERCOMPANY NOTE RELATING TO TRANCHE B TERM LOANS
XXX. FORM OF INTERCOMPANY DEBT SUBORDINATION AGREEMENT
</TABLE>
vi
<PAGE>
SCHEDULES
<TABLE>
<S> <C>
2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES
5.1 SUBSIDIARIES OF COMPANY
5.5 REAL PROPERTY
5.6 LITIGATION
5.11 ENVIRONMENTAL MATTERS
6.8 MERGER DATE MORTGAGED PROPERTIES
7.1 CERTAIN EXISTING INDEBTEDNESS
7.2 CERTAIN EXISTING LIENS
7.3 CERTAIN EXISTING INVESTMENTS
7.4 CERTAIN EXISTING CONTINGENT OBLIGATIONS
7.12 CERTAIN AGREEMENTS WITH AFFILIATES
</TABLE>
vii
<PAGE>
SECOND AMENDMENT TO OFFICE LEASE
THIS AGREEMENT made this 15th day of December, 1993, by and between
CONTINENTAL DEVELOPMENT CORPORATION, a California corporation, hereinafter
referred to as ("Lessor"), and TRI STAR ELECTRONICS INTERNATIONAL, INC., an
Ohio corporation, and CORY COMPONENTS, INC., a California corporation,
hereinafter referred to collectively as ("Lessee").
W I T N E S S E T H
WHEREAS, Lessor and Lessee entered into that certain Office Lease
("Lease"), dated September 15, 1989, whereby Lessor leased to Lessee and Lessee
hired from Lessor a certain office building, commonly known as 2201 Rosecrans
Avenue, El Segundo, California, together with all improvements therein and
appurtenances thereto; and,
WHEREAS, Lessee is the successor in interest of such Lease by assignment
from the original Lessee, Tri Star Electronics, Inc., by assignment dated
September 30, 1991; and,
WHEREAS, Lessor and Lessee are desirous of amending said Lease by this
Second Amendment to Office Lease in the manner set forth below.
NOW, THEREFORE, in consideration of the mutual covenants, terms and
conditions contained herein, and of other good and valuable consideration, it is
agreed as follows:
1. LATE CHARGES
Paragraph 13.4 Late Charges is amended by deleting "ten (10) days" in
line 5 of such paragraph and adding in its place "one (1) day".
2. EFFECTIVE DATE
This amendment shall take effect as of May 1, 1994, and shall continue
in effect for the duration of the Lease.
3. GENERAL TERMS
All of the terms, covenants, conditions, provisions, and agreements of
the Lease, except as amended herein, shall remain in full force and effect and
shall apply to the premises described in Paragraph 1 of this Amendment.
LESSOR: LESSEE:
CONTINENTAL DEVELOPMENT TRI STAR ELECTRONICS,
CORPORATION, INTERNATIONAL, INC.,
a California corporation an Ohio corporation
By: /s/ Richard C. Lundquist By: /s/ R G MacDonald
------------------------------- -------------------------------
Richard C. Lundquist Its: President
President ------------------------------
By: /s/ Leonard E. Blakesley, Jr. By: /s/ Robert Rank
------------------------------- -------------------------------
Leonard E. Blakesley, Jr. Its: CFO
Secretary -------------------------------
CORY COMPONENTS, INC.
a California corporation
By: /s/ R G MacDonald
-------------------------------
Its: C.E.O.
------------------------------
By:
-------------------------------
Its:
------------------------------
<PAGE>
STANDARD INDUSTRIAL LEASE - NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. PARTIES. This Lease, dated, for reference purposes only, September 15,
1989, is made by and between Continental Development Corporation, a California
corporation (herein called "Lessor") and Tri-Star Electronics, Inc., a
California corporation and Cory Components Incorporated, a California
corporation (herein called "Lessee").
2. PREMISES. Lessor hereby leases to Lessee and Lessee lease from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
that certain real property situated in the County of Los Angeles State of
California commonly known as 2201 Rosecrans Avenue, El Segundo and as
described in the Legal Description attached as Exhibit A. Said real property
including the land and all improvements therein, is herein called "the
Premises".
3. TERM.
3.1 TERM. The term of this lease shall be for ten years commencing on
March 1, 1990 and ending on February 29, 2000 unless sooner terminated pursuant
to any provision hereof.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Lessee
hereunder or extend the term hereof, but in such case, Lessee shall not be
obligated to pay rent until possession of the Premises is tendered to Lessee.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall pay
rent for such period at the initial monthly rates set forth below.
4. RENT. Lessee shall pay to Lessor as rent for the Premises, monthly
payments of $58,536, in advance, on the 1 day of each month of the term
hereof. Lessee shall pay Lessor upon the execution hereof $58,536 as rent
for the first month of occupancy. At the commencement of the 31st, 61st and
91st months of the lease, the base rent shall be adjusted as provided in
Section 53 of the Addendum. Rent for any period during the term hereof which
is for less than one month shall be a pro rata portion of the monthly
installment. Rent shall be payable in lawful money of the United States to
Lessor at the address stated herein or to such other persons or at such other
places as Lessor may designate in writing.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof $60,000 as security for Lessee's faithful performance of Lessee's
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provisions of this
Lease, Lessor may use, apply or retain all or any portion of said deposit for
the payment of any rent or other charge in default or for the payment of any
other sum to which Lessor may become obligated by reason of Lessee's default,
or to compensate Lessor for any loss or damage which Lessor may suffer
thereby. If Lessor so uses or applies all or any portion of said deposit,
Lessee shall within ten (10) days after written demand therefor deposit cash
with Lessor in a amount sufficient to restore said deposit to the full amount
herein above stated and Lessee's failure to do so shall be a material breach
of this Lease. If the monthly rent shall, from time to time, increase during
the term of this Lease, Lessee shall thereupon deposit with Lessor additional
security deposit so that the amount of security deposit held by Lessor shall
at all times bear the same proportion to current rent as the original
security deposit bears to the original monthly rent set forth in paragraph 4
hereof. Lessor shall not be required to keep said deposit separate from its
general accounts. If Lessee performs all of Lessee's obligations hereunder,
said deposit, or so much thereof as has not theretofore been applied by
Lessor, shall be returned, without payment of interest or other increment for
its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of
Lessee's interest hereunder) at the expiration of the term hereof, and after
Lessee has vacated the Premises. No trust relationship is created herein
between Lessor and Lessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for light
manufacturing and assembly of electronic components and offices incidental to
this use or any other use which is reasonably comparable and for no other
purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in its state
existing on the date that the Lease term commences, but without regard to the
use for which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or
ordinance in effect on such Lease term commencement date. In the event it is
determined that this warranty has been violated, then it shall be the
obligation of the Lessor, after written notice from Lessee, to promptly, at
Lessor's sole cost and expense, rectify any such violation. In the event
Lessee does not give to Lessor written notice of the violation of this
warranty within six months from the date that the Lease term commences, the
correction of same shall be the obligation of the Lessee at Lessee's sole
cost. The warranty contained in this paragraph 6.2 (a) shall be of no force
or effect if, prior to the date of this Lease, Lessee was the owner or
occupant of the Premises, and in such event, Lessee shall correct any such
violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at
Lessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements in effect during the term or any part of the term hereof,
regulating the use by Lessee of the Premises. Lessee shall not use nor
permit the use of the Premises in any manner that will tend to create waste
or a nuisance or, if there shall be there more than one tenant in the
building containing the Premises, shall tend to disturb such other tenants.
6.3 CONDITIONS OF PREMISES. Lessor warrants for a period of one (1) year
all construction performed pursuant to the [COPY RAN OFF PAGE]
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on Lease commencement date (unless Lessee is already in possession) and
Lessor further warrants to Lessee that the plumbing, lighting, air conditioning,
heating, and loading doors in the Premises shall be in good operating condition
on the Lease commencement date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Lessor, after
receipt of written notice from Lessee setting forth with specificity the nature
or the violation, to promptly, at Lessor's sole cost, rectify such violation.
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of Lessor's obligations hereunder. The warranty
contained in this paragraph 6.3(a) shall be of no force or effect if prior to
the date of this Lease, Lessee was the owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises in their condition existing as of the Lease commencement date or
the date that Lessee takes possession of the Premises, whichever is earlier,
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises, and any
covenants or restrictions of record, and accepts this Lease subject thereto and
to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS. Lessee shall keep in good order, condition and
repair the Premises and every part thereof, structural and non structural,
(whether or not such portion of the Premises requiring repair, or the means of
repairing the same are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises) including,
without limiting the generality of the foregoing, all plumbing, heating, air
conditioning, (Lessee shall procure and maintain, at Lessee's expense, an air
conditioning system maintenance contract) ventilating, electrical, lighting
facilities and equipment within the Premises, fixtures, walls (interior and
exterior), foundations, ceilings, roofs (interior and exterior), floors,
windows, doors, plate glass and skylights located within the Premises, and all
landscaping, driveways, parking lots, fences and signs located on the Premises
and sidewalks and parkways adjacent to the Premises. See Addendum paragraph 49
for additional terms.
7.2 SURRENDER. On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same
condition as when received, ordinary wear and tear excepted, clean and free of
debris. Lessee shall repair any damage to the Premises occasioned
Initials: [illegible]
-----------
NET [illegible]
-----------
<PAGE>
by the installation or removal of Lessee's trade fixtures, furnishings and
equipment. Notwithstanding anything to the contrary otherwise stated in this
Lease, Lessee shall leave the air lines, power panels, electrical distribution
systems, lighting fixtures, space heaters, air conditioning, plumbing and
fencing on the premises in good operating condition.
7.3 LESSOR'S RIGHTS. If Lessee fails to perform Lessee's obligations
under this Paragraph 7, or under any other paragraph of this Lease, Lessor
may at its option (but shall not be required to) enter upon the Premises
after ten (10) days prior written notice to Lessee (except in the case of an
emergency, in which case no notice shall be required), perform such
obligations on Lessee's behalf and put the same in good order, condition and
repair, and the cost thereof together with interest thereon at the maximum
rate then allowable by law shall become due and payable as additional rental
to Lessor together with Lessee's next rental installment.
7.4 LESSOR'S OBLIGATIONS. Except for the obligations of Lessor under
Paragraph 6.2(a) and 6.3(a) (relating to Lessor's warranty), Paragraph 9
(relating to destruction of the Premises) and under Paragraph 14 (relating to
condemnation of the Premises), it is intended by the parties hereto that
Lessor have no obligation, in any manner whatsoever, to repair and maintain
the Premises nor the building located thereon nor the equipment therein,
whether structural or non structural, all of which obligations are intended
to be that of the Lessee under Paragraph 7.1 hereof. Lessee expressly waives
the benefit of any statute now or hereinafter in effect which would otherwise
afford Lessee the right to make repairs at Lessor's expense or to terminate
this Lease because of Lessor's failure to keep the premises in good,
condition and repair.
7.5 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make
any alterations, improvements, additions, or Utility Installations in, on or
about the Premises, except for nonstructural alterations not exceeding
$10,000 in cumulative costs during the term of this Lease. In any event,
whether or not in excess of $10,000 in cumulative cost, Lessee shall make no
change or alteration to the exterior of the Premises nor the exterior of the
building(s) on the Premises without Lessor's prior written consent. As used
in this Paragraph 7.5 the term "Utility Installation" shall mean carpeting,
window coverings, air lines, power panels, electrical distribution systems,
lighting fixtures, space heaters, air conditioning, plumbing, and fencing.
Lessor may require that Lessee remove any or all of said alterations,
improvements, additions or Utility Installations at the expiration of the
term, and restore the Premises to their prior condition. Lessor may require
Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and
completion bond in an amount equal to one and one-half times the estimated
cost of such improvements, to insure Lessor against any liability for
mechanic's and materialmen's liens and to insure completion of the work.
Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, Lessor may require that
Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility Installations
in, or about the Premises that Lessee shall desire to make and which requires
the consent of the Lessor shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent, the consent shall be
deemed conditioned upon Lessee acquiring a permit to do so from appropriate
governmental agencies, the furnishing of a copy thereof to Lessor prior to the
commencement of the work and the compliance by Lessee of all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of
any work in the Premises, and Lessor shall have the right to post notices of
non-responsibility in or on the Premises as provided by law. If Lessee
shall, in good faith, contest the validity of any such lien, claim or demand,
then Lessee shall, at its sole expense defend itself and Lessor against the
same and shall pay and satisfy any such adverse judgment that may be rendered
thereon before the enforcement thereof against the Lessor or the Premises,
upon the condition that if Lessor shall require, Lessee shall furnish to
Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's attorneys fees and costs
in participating in such action if Lessor shall decide it is to its best
interest to do so.
(d) Unless Lessor requires their removal, as set forth in Paragraph
7.5(a), all alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of
Lessee), which may be made on the Premises, shall become the property of
Lessor and remain upon and be surrendered with the Premises at the expiration
of the term. Notwithstanding the provisions of this Paragraph 7.5(d).
Lessee's machinery and equipment, other than that which is affixed to the
Premises so that it cannot be removed without material damage to the
Premises, shall remain the property of Lessee and may be removed by Lessee
subject to the provisions of Paragraph 7.2.
8. INSURANCE INDEMNITY.
8.1 INSURING PARTY. As used in this Paragraph 8, the term "insuring
party" shall mean the party who has the obligation to obtain the Property
Insurance required hereunder. The insuring party shall be designated in
Paragraph 46 hereof. In the event Lessor is the insuring party, Lessor shall
also maintain the liability insurance described in paragraph 8.2 hereof, in
addition to, and not in lieu of, the insurance required to be maintained by
Lessee under said paragraph 8.2, but Lessor shall not be required to name
Lessee as an additional insured on such policy. Whether the insuring party
is the Lessor or the Lessee, Lessee shall, as additional rent for the
Premises, pay the cost of all insurance required hereunder. If Lessor is the
insuring party Lessee shall, within ten (10) days following demand by Lessor,
reimburse Lessor for the cost of the insurance so obtained.
8.2 LIABILITY INSURANCE. Lessee shall, at Lessee's expense obtain and
keep in force during the term of this Lease a policy of Combined Single Limit,
Bodily Injury and Property Damage insurance insuring Lessor and Lessee against
any liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be a combined
single limit policy in an amount not less than $1,000,000 per occurrence. The
policy shall insure performance by Lessee of the indemnity provisions of this
Paragraph 8. The limits of said insurance shall not, however, limit the
liability of Lessee hereunder.
8.3 PROPERTY INSURANCE.
(a) The insuring party shall obtain and keep in force during the
term of this Lease a policy or policies of insurance covering loss or damage
to the Premises, in the amount of the full replacement value thereof, as the
same may exist from time to time, which replacement value is now $6,000,000,
but in no event less than the total amount required by lenders having liens
on the Premises, against all perils included within the classification of
fire, extended coverage, vandalism, malicious mischief, flood (in the event
same is required by a lender having a lien on the Premises), and special
extended perils ("all risk" as such term is used in the insurance industry).
Said insurance shall provide for payment of loss thereunder to Lessor or to
the holders of mortgages or deeds of trust on the Premises. The insuring
party shall, in addition, obtain and keep in force during the term of this
Lease a policy of rental value insurance covering a period of one year, with
loss payable to Lessor, which insurance shall also cover all real estate
taxes and insurance costs for said period. A stipulated value or agreed
amount endorsement deleting the coinsurance provision of the policy shall be
procured with said insurance as well as an automatic increase in insurance
endorsement causing the increase in annual property insurance coverage by 2%
per quarter. If the insuring party shall fail to procure and maintain said
insurance the other party may, but shall not be required to, procure and
maintain the same, but at the expense of Lessee. If such insurance coverage
has a deductible clause, the deductible amount shall not exceed $1,000 per
occurrence, and Lessee shall be liable for such deductible amount.
(b) If the Premises are part of a larger building, or if the
Premises are part of a group of buildings owned by Lessor which are adjacent
to the Premises, then Lessee shall pay for any increase in the property
insurance of such other building or buildings if said increase is caused by
Lessee's acts, omissions, use or occupancy of the Premises.
(c) If the Lessor is the insuring party the Lessor will not insure
Lessee's fixtures, equipment or tenant improvements unless the tenant
improvements have become a part of the Premises under paragraph 7 hereof. But
if Lessee is the insuring party the Lessee shall insure its fixtures, equipment
and tenant improvements.
8.4 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current issue of "Best's Insurance Guide". The insuring
party shall deliver to the other party copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses as required by this paragraph 8. No such policy shall be
cancellable or subject to reduction of coverage or other modification except
after thirty (30) days' prior written notice to Lessor. If Lessee is the
insuring party Lessee shall, at least thirty (30) days prior to the expiration
of such policies, furnish Lessor with renewals or "binders" thereof, or Lessor
may order such insurance and charge the cost thereof to Lessee, which amount
shall be payable by Lessee upon demand. Lessee shall not do or permit to be
done anything which shall invalidate the insurance policies referred to in
Paragraph 8.3. If Lessee does or permits to be done anything which shall
increase the cost of the insurance policies referred to in Paragraph 8.3, then
Lessee shall forthwith upon Lessor's demand reimburse Lessor for any additional
premiums attributable to any act or omission or operation of Lessee causing such
increase in the cost of insurance if Lessor is the insuring party, and if the
insurance policies maintained hereunder cover other improvements in addition to
the Premises, Lessor shall deliver to Lessee a written statement setting forth
the amount of any such insurance cost increase and showing in reasonable detail
the manner in which it has been computed.
8.5 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
under paragraph 8.3, which perils occur in, on or about Premises, whether due
to the negligence of Lessor or Lessee or their agents, employees, contractors
and/or invitees. Lessee and Lessor shall, upon obtaining the policies of
insurance required hereunder, give notice to the insurance carrier or
carriers that the foregoing mutual waiver of subrogation is contained in this
Lease.
8.6 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and
shall further indemnify and hold harmless Lessor from and against any and all
claims arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any negligence of the Lessee, or any of Lessee's agents,
contractors, or employees, and from and against all costs, attorney's fees,
expenses and liabilities incurred in the defense of any such claim or any
action or proceeding brought thereon; and in case any action or proceeding be
brought against Lessor by reason of any such claim, Lessee upon notice from
Lessor shall defend the same at Lessee's expense by counsel satisfactory to
Lessor. Lessee, as a material part of the consideration to Lessor, hereby
assumes all risk of damage to property or injury to persons, in, upon or
about the Premises arising from any cause and Lessee hereby waives all claims
in respect thereof against Lessor.
8.7 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of
income therefrom or for damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other
person in or about the Premises, nor shall Lessor be liable for injury to the
person of Lessee, Lessee's employees, agents or contractors, whether such
damage or injury is caused by or results from fire, steam, electricity, gas,
water or rain, or from the breakage, leakage, obstruction or other defects of
pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether the said damage or injury results
from conditions arising upon the Premises or upon other portions of the
building of which the Premises are a part, or from other sources or places
and regardless of whether the cause of such damage or injury or the means of
repairing the same is inaccessible to Lessee. Lessor shall not be liable for
any damages arising from any act or neglect of any other tenant, if any, of
the building in which the Premises are located.
Initials: [illegible]
-----------
NET -2- [illegible]
-----------
<PAGE>
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is less
than 50% of the then replacement cost of the Premises. "Premises Building
Partial Damage" shall herein mean damage or destruction to the building of
which the Premises are a part to the extent that the cost of repair is less
than 50% of the then replacement cost of such building as a whole.
(b) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is 50% or
more of the then replacement cost of the Premises. "Premises Building Total
Destruction" shall herein mean damage or destruction to the building of which
the Premises are a part to the extent that the cost of repair is 50% or more
of the then replacement cost of such building as a whole.
(c) "Insured Loss" shall herein mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8.
9.2 PARTIAL DAMAGE - INSURED LOSS. Subject to the provisions of
paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease
there is damage which is an Insured Loss and which falls into the
classification of Premises Partial Damage or Premises Building Partial
Damage, then Lessor shall, at Lessor's expense, repair such damage, but not
Lessee's fixtures, equipment or tenant improvements unless the same have
become a part of the Premises pursuant to Paragraph 7.5 hereof as soon as
reasonably possible and this Lease shall continue in full force and effect.
Notwithstanding the above, if the Lessee is the insuring party, and if the
insurance proceeds received by Lessor are not sufficient to effect such
repair, Lessor shall give notice to Lessee of the amount required in addition
to the insurance proceeds to effect such repair. Lessee shall contribute the
required amount to Lessor within ten days after Lessee has received notice
from Lessor of the shortage in the insurance. When Lessee shall contribute
such amount to Lessor, Lessor shall make such repairs as soon as reasonably
possible and this Lease shall continue in full force and effect. Lessee
shall in no event have any right to reimbursement for any such amounts so
contributed.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. Subject to the provisions of
Paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease
there is damage which is not an Insured Loss and which falls within the
classification of Premises Partial Damage or Premises Building Partial
Damage, unless caused by a negligent or willful act of Lessee (in which event
Lessee shall make the repairs at Lessee's expense), Lessor may at Lessor's
option either (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) give written notice to Lessee within thirty (30) days after
the date of the occurrence of such damage of Lessor's intention to cancel and
terminate this Lease, as of the date of the occurrence of such damage. In the
event Lessor elects to give such notice of Lessor's intention to cancel and
terminate this Lease, Lessee shall have the right within ten (10) days after
the receipt of such notice to give written notice to Lessor of Lessee's
intention to repair such damage at Lessee's expense, without reimbursement
from Lessor, in which event this Lease shall continue in full force and
effect, and Lessee shall proceed to make such repairs as soon as reasonably
possible. If Lessee does not give such notice within such 10-day period this
Lease shall be canceled and terminated as of the date of the occurrence of
such damage.
9.4 TOTAL DESTRUCTION. If at any time during the term of this Lease
there is damage, whether or not an Insured Loss, (including destruction
required by any authorized public authority), which falls into the
classification of Premises Total Destruction or Premises Building Total
Destruction, this Lease shall automatically terminate as of the date of such
total destruction.
9.5 DAMAGE NEAR END OF TERM.
(a) If at any time during the last one (1) year of the term of this
Lease there is damage, whether or not an Insured Loss, which falls within the
classification of Premises Partial Damage, Lessor may at Lessor's option cancel
and terminate this Lease as of the date of occurrence of such damage by giving
written notice to Lessee of Lessor's election to do so within 30 days after the
date of occurrence of such damage.
(b) Notwithstanding paragraph 9.5(a), in the event that Lessee has
an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such
option, if it is to be exercised at all, no later than 20 days after the
occurrence of an Insured Loss falling within the classification of Premises
Partial Damage during the last six months of the term of this Lease. If
Lessee duly exercises such option during said 20 day period, then Lessor may
at Lessor's option terminate and cancel this Lease as of the expiration of
said 20 day period, then Lessor may at Lessor's option terminate and cancel
this Lease as of the expiration of said 20 day period by giving written
notice to Lessee of Lessor's election to do so within 10 days after the
expiration of said 20 day period, notwithstanding any term or provision in
the grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in paragraphs 9.2 or 9.3, and
Lessor or Lessee repairs or restores the Premises pursuant to the provisions of
this Paragraph 9, the rent payable hereunder for the period during which such
damage, repair or restoration continues shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired. Except for abatement
of rent, if any, Lessee shall have no claim against Lessor for any damage
suffered by reason of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence such repair
or restoration within 90 days after such obligations shall accure, Lessee may
at Lessee's option cancel and terminate this Lease by giving Lessor written
notice of Lessee's election to do so at any time prior to the commencement of
such repair or restoration. In such event this Lease shall terminate as of
the date of such notice.
9.7 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made
concerning advance rent and any advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's security
deposit as has not theretofore been applied by Lessor.
9.8 WAIVER. Lessor and Lessee waive the provisions of any statutes which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessee shall pay to Lessor the real property tax,
as defined in paragraph 10.2, applicable to the Premises during the term of this
Lease. All such payments shall be made at least ten (10) days prior to the
delinquency date of such payment. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes paid by
Lessee shall cover any period of time prior to or after the expiration of the
term hereof, Lessee's share of such taxes shall be equitably prorated by
Lessor, to cover only the period of time within the tax fiscal year during which
this Lease shall be in effect, and Lessor shall reimburse Lessee to the extent
required. If Lessee shall fail to pay any such taxes, Lessor shall have the
right to pay the same, in which case Lessee shall repay such amount to Lessor
with Lessee's next rent installment together with interest at the maximum rate
then allowable by law.
10.2 DEFINITION OF "REAL PROPERTY TAX" . As used herein, the term "real
property tax" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed on the Premises by any authority
having the direct or indirect power to tax, including any city, state or
federal government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, as against any legal or
equitable interest of Lessor in the Premises or in the real property of which
the Premises are a part, as against Lessor's right to rent or other income
therefrom, and as against Lessor's business of leasing the Premises. The
term "real property tax" shall also include any tax, fee, levy, assessment or
charge (i) in substitution of, partially or totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
property tax," or (ii) the nature of which was hereinbefore included within
the definition of "real property tax," or (iii) which is imposed for a
service or right not charged prior to June 1, 1978, or, if previously
charged, has been increased since June 1, 1978, or (iv) which is imposed as a
result of a transfer, either partial or total, of Lessor's interest in the
Premises or which is added to a tax or charge hereinbefore included within
the definition of real property tax by reason of such transfer, or (v) which
is imposed by reason of this transaction, any modifications or changes
hereto, or any transfers hereof.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property
taxes for all of the land and improvements included within the tax parcel
assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information
as may be reasonably available. Lessor's reasonable determination thereof, in
good faith, shall be conclusive.
10.4 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible,
Lessee shall cause said trade fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property of
Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee
within 10 days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor
of all charges jointly metered with other premises.
Initials: [illegible]
-----------
NET -3- [illegible]
-----------
<PAGE>
13. DEFAULT; REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(c) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed
by Lessee, other than described in paragraph (b) above, where such failure
shall continue for a period of 30 days after written notice thereof from
Lessor to Lessee; provided, however, that if the nature of Lessee's default
is such that more than 30 days are reasonably required for its cure, then
Lessee shall not be deemed to be in default if Lessee commenced such cure
within said 30-day period and thereafter diligently prosecutes such cure to
completion.
(d) (i) The making by Lessee of any general arrangement or
assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. Section 101 any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within 60
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within 30
days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within 30 days.
Provided, however, in the event that any provision of this paragraph 13.1 (d)
is contrary to any applicable law, such provision shall be of no force or
effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, and any of them, was materially false.
13.2 REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand
and without limiting Lessor in the exercise of any right or remedy which
Lessor may have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee's default including, but not limited to, the cost
of recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's
fees, and any real estate commission actually paid; the worth at the time of
award by the court having jurisdiction thereof of the amount by which the
unpaid rent for the balance of the term after the time of such award exceeds
the amount of such rental loss for the same period that Lessee proves could
be reasonably avoided; that portion of the leasing commission paid by Lessor
pursuant to Paragraph 15 applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations
of Lessee under the terms of this Lease shall bear interest from the date due
at the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but
in no event later than thirty (30) days after written notice by Lessee to
Lessor and to the holder of any first mortgage or deed of trust covering the
Premises whose name and address shall have theretofore been furnished to
Lessee in writing, specifying wherein Lessor has failed to perform such
obligation; provided, however, that if the nature of Lessor's obligation is
such that more than thirty (30) days are required for performance then Lessor
shall not be in default if Lessor commences performance within such 30-day
period and thereafter diligently prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within ten (10) days after such amount shall be
due, then, without any requirement for notice to Lessee, Lessee shall pay to
Lessor a late charge equal to 4.5% of such overdue amount. The parties hereby
agree that such late charge represents a fair and reasonable estimate of the
costs Lessor will incur by reason of late payment by Lessee. Acceptance of
such late charge by Lessor shall in no event constitute a waiver of Lessee's
default with respect to such overdue amount, nor prevent Lessor from exercising
any of the other rights and remedies granted hereunder. In the event that a
late charge is payable hereunder, whether or not collected, for three (3)
consecutive installments of rent, then rent shall automatically become due and
payable quarterly in advance, rather than monthly, notwithstanding paragraph 4
or any other provision of this Lease to the contrary.
13.5 IMPOUNDS. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Lessee under the terms of this Lease, Lessee shall pay
to Lessor, if Lessor shall so request, in addition to any other payments
required under this Lease, a monthly advance installment, payable at the same
time as the monthly rent, as estimated by Lessor, for real property tax and
insurance expenses on the Premises which are payable by Lessee under the
terms of this Lease. Such fund shall be established to insure payment when
due, before delinquency, of any or all such real property taxes and insurance
premiums. If the amounts paid to Lessor by Lessee under the provisions of
this paragraph are insufficient to discharge the obligations of Lessee to pay
such real property taxes and insurance premiums as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums
necessary to pay such obligations. All moneys paid to Lessor under this
paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a default in the obligations of Lessee to perform
under this Lease, then any balance remaining from funds paid to Lessor under
the provisions of this paragraph may, at the option of Lessor, be applied to
the payment of any monetary default of Lessee in lieu of being applied to the
payment of real property tax and insurance premiums.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority
takes title or possession, whichever first occurs. If more than 10% of the
floor area of the building on the Premises, or more than 25% of the land area
of the Premises which is not occupied by any building, is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in writing only
within twenty (20) days after Lessor shall have given Lessee written notice
of such taking (or in the absence of such notice, within ten (10) days after
the condemning authority shall have taken possession) terminate this Lease as
of the date the condemning authority takes such possession. If Lessee does
not terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the Premises remaining,
except that the rent shall be reduced in the proportion that the floor area
of the building taken bears to the total floor area of the building situated
on the Premises. No reduction of rent shall occur if the only area taken is
that which does not have a building located thereon. Any award for the taking
of all or any part of the Premises under the power of eminent domain or any
payment made under threat of the exercise of such power shall be the property
of Lessor, whether such award shall be made as compensation for diminution in
value of the leasehold or for the taking of the fee, or as severance damages;
provided, however, that Lessee shall be entitled to any award for loss of or
damage to Lessee's trade fixtures and removable personal property. In the
event that this Lease is not terminated by reason of such condemnation,
Lessor shall to the extent of severance damages received by Lessor in
connection with such condemnation, repair any damage to the Premises caused
by such condemnation except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall pay any amount in excess
of such severance damages required to complete such repair.
15. BROKER'S FEE.
(a) Upon execution of this Lease by both parties, Lessor shall pay
to Leonard & Ohren Licensed real estate broker(s), a fee as set forth in a
separate agreement between Lessor and said broker(s), or in the event there
is no separate agreement between Lessor and said broker(s), the sum of
$219,931.20, for brokerage services rendered by said broker(s) to Lessor in
this transaction.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but
also on behalf of any person, corporation, association, or other entity having
an ownership interest in said real property or any part thereof, when such fee
is due hereunder. Any transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Said broker shall be a
third party beneficiary of the provisions of this Paragraph 15.
16. ESTOPPEL CERTIFICATE
(a) Either party hereto shall at any time upon not less than twenty
(20) days' prior written notice from the other party execute, acknowledge and
deliver to the requesting party a statement in writing (i) certifying that this
Lease is unmodified and in full force and effect (or, if modified, stating the
nature of such modification and certifying that this Lease, as so modified, is
in full force and effect) and the date to which the rent and other charges are
paid in advance, if any, and (ii) acknowledging that there are not, to such
party's knowledge, any uncured defaults on the part of the other party
hereunder, or specifying such defaults if any are claimed. Any such statement
may be conclusively relied upon by any prospective purchaser or encumbrancer of
the Premises.
(b) At either party's option, the failure to deliver such statement
within such time shall be a material breach of this Lease or shall be
Initials: [illegible]
-----------
-4- LEB
-----------
<PAGE>
conclusive upon such party (i) that this Lease is in full force and effect,
without modification except as may be represented by the party, (ii) that there
are no uncured defaults in the other party's performance, and (iii) that not
more than one month's rent has been paid in advance or such failure may be
considered a default under this Lease.
(c) If Lessor desires to finance, refinance, or sell the Premises, or
any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three years' financial statements of Lessee. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence and shall
be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only
the owner or owners at the time in question of the fee title or a lessee's
interest in a ground lease of the Premises, and except as expressly provided
in Paragraph 15, in the event of any transfer of such title or interest,
Lessor herein named (and in case of any subsequent transfers then the
grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed,
provided that any funds in the hands of Lessor or the then grantor at the
time of such transfer, in which Lessee has an interest, shall be delivered to
the grantee. The obligations contained in this Lease to be performed by
Lessor shall, subject as aforesaid, be binding on Lessor's successors and
assigns, only during their respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence.
21. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor under the
terms of this Lease shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification. Except as otherwise stated in this Lease, Lessee
hereby acknowledges that neither the real estate broker listed in Paragraph 15
hereof nor any cooperating broker on this transaction nor the Lessor or any
employees or agents of any of said persons has made any oral or written
warranties or representations to Lessee relative to the condition or use by
Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable
laws and regulations in effect during the term of this Lease except as otherwise
specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified mail, and if
given personally or by mail, shall be deemed sufficiently given if addressed
to Lessee or to Lessor at the address noted below the signature of the
respective parties, as the case may be. Either party may by notice to the
other specify a different address for notice purposes except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for notice purposes. A copy of all notices required or
permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder
by Lessor shall not be a waiver of any preceding breach by Lessee of any
provision hereof, other than the failure of Lessee to pay the particular rent so
accepted, regardless of Lessor's knowledge of such preceding breach at the time
of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all options and rights of
first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, whenever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment of subletting by Lessee and subject to the provisions of Paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located.
30. SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate to any
ground lease, mortgage, deed of trust, or any other hypothecation or security
now or hereafter placed upon the real property of which the Premises are a
part and to any and all advances made on the security thereof and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of
this Lease, unless this Lease is otherwise terminated pursuant to its terms.
If any mortgagee, trustee or ground lessor shall elect to have this Lease
prior to the lien of its mortgage, deed of trust or ground lease, and shall
give written notice thereof to Lessee, this Lease shall be deemed prior to
such mortgage, deed of trust, or ground lease, whether this Lease is dated
prior or subsequent to the date of said mortgage, deed or trust of ground
lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate
an attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Lessee's
failure to execute such documents within twenty (20) days after written
demand shall constitute a material default by Lessee hereunder, or, at
Lessor's option, Lessor shall execute such documents on behalf of Lessee as
Lessee's attorney-in-fact. Lessee does hereby make, constitute and
irrevocably appoint Lessor as Lessee's attorney-in-fact and in Lessee's name,
place and stead, to execute such documents in accordance with this paragraph
30(b).
31. ATTORNEY'S FEES. If either party or the broker named herein brings an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the court.
The provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to
enter the Premises at reasonable times and with reasonable notice for the
purpose of inspecting the same, showing the same to prospective purchasers,
lenders, or lessees, and making such alterations, repairs, improvements or
additions to the Premises or to the building of which they are a part as
Lessor may deem necessary or desirable. Lessor may at any time place on or
about the Premises any ordinary "For Sale" signs and Lessor may at any time
during the last 120 days of the term hereof place on or about the Premises
any ordinary "For Lease" signs, all without rebate of rent or liability to
Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to
the contrary in this Lease, Lessor shall not be obligated to exercise any
standard of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises without
Lessor's prior written consent.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent
shall not be unreasonably withheld.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Premises.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Options" has the
following meaning: (1) the right or option to extend the term of this Lease
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of
first refusal to lease other property of Lessor or the right of first offer
to lease other property of Lessor; (3) the right or option to purchase the
Premises, or the right of first refusal to purchase the Premises, or the
right of first offer to purchase the Premises or the right or option to
purchase other property of Lessor, or the right of first refusal to purchase
other property of Lessor or the right of first offer to purchase other
property of Lessor.
Initials: [illegible]
-----------
-5- LEB
-----------
<PAGE>
39.2 OPTIONS PERSONAL. The Options herein granted to Lessee are not
assignable separate and apart from this Lease.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i)
during the time commencing from the date Lessor gives to Lessee a notice of
default pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the
default alleged in said notice of default is cured, or (ii) during the period
of time commencing on the day after a monetary obligation to Lessor is due
from Lessee and unpaid (without any necessity for notice thereof to Lessee)
continuing until the obligation is paid, or (iii) at any time after an event
of default described in paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any
necessity of Lessor to give notice of such default to Lessee), or (iv) in the
event that Lessor has given to Lessee three or more notices of default under
paragraph 13.1(b), where a late charge has become payable under paragraph
13.4 for each of such defaults, or paragraph 13.1(c), whether or not the
defaults are cured, during the 12 month period prior to the time that Lessee
intends to exercise the subject Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise
an Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation
of Lessee for a period of 30 days after such obligation becomes due (without
any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee
fails to commence to cure a default specified in paragraph 13.1(c) within 30
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion , or
(iii) Lessee commits a default described in paragraph 13.1(a), 13.1(d) or
13.1(e) (without any necessity of Lessor to give notice of such default to
Lessee), or (iv) Lessor gives to Lessee three or more notices of default
under paragraph 13.1(b), where a late charge becomes payable under paragraph
13.4 for each such default, or paragraph 13.1(c), whether or not the defaults
are cured.
40. MULTIPLE TENANT BUILDING. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make from
time to time for the management, safety, care, and cleanliness of the building
and grounds, the parking of vehicles and the preservation of good order therein
as well as for the convenience of other occupants and tenants of the building.
The violations of any such rules and regulations shall be deemed a material
breach of this Lease by Lessee.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
42. EASEMENTS. Lessor reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Lessor deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions, so
long as such easements, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall
sign any of the aforementioned documents upon request of Lessor and failure
to do so shall constitute a material breach of this Lease.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
44. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and
deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution
of this Lease, deliver to Lessor evidence of such authority satisfactory to
Lessor.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. INSURING PARTY. The insuring party under this lease shall be the Lessor.
47. ADDENDUM. Attached hereto is an addendum or addenda containing
paragraphs 48 through 54 which constitutes a part of this Lease.
See attached Exhibit A - Legal Description
Exhibit B - Building Floor Plan
Exhibit C - Work Letter
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL
ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING
THERETO. THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
THE PARTIES HERETO HAVE EXECUTED THIS LEASE AT THE PLACE ON THE DATES SPECIFIED
IMMEDIATELY ADJACENT TO THEIR RESPECTIVE SIGNATURES.
Executed at El Segundo, California Continental Development Corporation
------------------------------- -------------------------------------
on By /s/ Richard C. Lundquist
--------------------------------- ------------------------------------
Richard C. Lundquist, President
Address 2041 Rosecrans Avenue, Suite 265 By /s/ Leonard E. Blakesley, Jr.
-------------------------------- ------------------------------------
Leonard E. Blakesley, Jr., Secretary
- --------------------------------------- "LESSOR" (Corporate Seal)
Executed at El Segundo, California Tri-Star Electronics, Inc. and
---------------------------- Cory Components Incorporated
-------------------------------------
on By /s/ Neal J. Castleman
------------------------------------- ----------------------------------
Neal J. Castleman,
President of Tri-Star Electronics
Address 2201 Rosecrans Avenue By /s/ Neal J. Castleman
-------------------------------- ----------------------------------
Neal J. Castleman,
Chairman of Cory Components
- ---------------------------------------- "LESSEE" (Corporate seal)
For these forms write or call the American Industrial Real Estate Association,
345 South Figueroa St., M-1, Los Angeles, CA 90071 (213)687-8777
- -C- 1980--By American Industrial Real Estate Association. All rights
reserved. No part of these words may be reproduced in any form without
permission in writing.
<PAGE>
PARCEL A:
The surface and all rights above the subsurface and that portion of the
subsurface lying above a depth of 500.00 feet measured vertically from the
surface of that portion of Parcel 2, in the city of El Segundo, in the county of
Los Angeles, state of California, as shown on a record of survey filed in Book
77 pages 51 and 52 of Record of Surveys, in the office of the County Recorder of
said county, described as follows:
Beginning at the intersection of the westerly line of said Parcel 2, with a
line that is parallel with and distant northerly 30.00 feet measured at right
angles from the most southerly line of said Parcel 2; thence along said
parallel line, South 89DEG.57'34" East 250.00 feet to the easterly line of
said Parcel 2; thence along said easterly line, North 0DEG.00'04" West 405.00
feet to the westerly terminus of that certain course in the southerly
boundary of said Parcel 2, shown on the map of said Record of Survey as
having a bearing and length of North 89DEG.57'34" West 400.00 feet; thence
along the westerly prolongation of said last-mentioned certain course, North
89DEG57'34" West 250.00 feet to the westerly line of said Parcel 2; thence
along said westerly line South 0DEG.00'04" East 405.00 feet to the point of
beginning.
Except from the southerly 13.5 feet of said land, all oil, gas, asphaltum and
other hydrocarbons and other minerals that may be produced from said land,
provided, however, that the surface of said property shall never be used for
the exploration, development, extraction, removal or storage of said oil,
gas, asphaltum or other hydrocarbons and other minerals and provided further
that the exercise of such excepted and reserved rights shall be conducted in
such a manner as not to interfere with or endanger the use of the surface of
said property, as reserved by Standard Oil Company of California, a
corporation, in deed recorded April 22, 1939, in Book D-441 Page 942,
Official Records.
Lessor reserves unto itself, its successors, assigns and designated lessees, a
non-exclusive right of vehicular and pedestrian access to, upon and over the
westerly 22.00 feet of the above described land.
PARCEL B:
A non-exclusive easement appurtenant to said Parcel A for vehicular and
pedestrian access to and from said Parcel A in, to, upon and over those portions
of Parcels 1, 2 and 3, in the city of El Segundo, Count of Los Angeles, state of
California, as shown on Parcel Map No. 8721 filed in Book 107, Page 2 of Parcel
Maps in the office of the County Recorder of said county, TOGETHER with that
portion of the southeast quarter of Section 18, T. 3 S., R. 14W., in said city,
county and state, as shown on map of subdivision of part of the Sausal Redondo
Rancho, filed in Superior Court Case No. 11629 of the state of California in and
for the county of Los Angeles, included within a strip of land 38.00 feet wide,
lying 16.00 feet westerly and 22.00 feet easterly of the easterly line of said
Parcels 1, 2 and 3; excepting therefrom that portion of said 38.00-foot-wide
strip of land lying within said Parcel A. Said Parcel B lies within, and is a
portion of, the private street known as Continental Way.
EXHIBIT "A"
<PAGE>
[MAP/BLUEPRINT]
PARKING STRUCTURE
-----------------
2201 ROSECRANS AVE.
TWO FLOORS
81,300 sq. ft.
SEPT. 19, 1989
EXHIBIT B
<PAGE>
WORK LETTER TO STANDARD OFFICE LEASE
Dated: September 19, 1989
By and between: Continental Development Corporation, Lessor, and Tri-Star
Electronics, Inc., Lessee
Except for the work to be performed according to Lessee's plans and
specifications (Specs), the tenant improvements in the Premises shall be
constructed in accordance with Lessor's building standard improvements using
building standard materials at Lessor's cost. All work to be performed in
accordance with Lessee's Specs shall be performed by Lessors at Lessee's
expense. In addition to the cost of Lessee's work performed in accordance
with Lessee's Specs, Lessee shall pay Lessor 10% of the total cost of such
work as administrative overhead and an additional 5% of the sum of such work
and administrative overhead as a reasonable profit.
1. Partitions
All existing partitions except bathrooms, stairwells and air chambers to be
removed. All new partitions installed in accordance with the Specs shall be
at the sole cost of the Lessee.
2. Wall Surfaces
All bathrooms, stairwells, air chambers and perimeter walls to be painted
with Zolatone paint of Lessee's choice. Patch as necessary.
3. Wall Coverings
N/A
4. Carpeting & Flooring
Lessor shall install: (1) 7,000 square feet of Stonehard Composition
flooring in a location to be specified by Lessee in the Specs; (2) 10,000
square feet of carpet, the cost of which shall not exceed $20/yard installed
(inclusive of padding and other materials necessary to install) on the 2nd
floor of the Premises; Lessee shall specify location; (3) building standard
vinyl tile with graphic motif using uncut tiles throughout balance of the 1st
and 2nd floors of the Premises; (4) building standard vinyl cove baseboard
on perimeter, bathroom, stairwell and air chamber walls by Lessor. All other
vinyl cove baseboard at expense of Lessee.
5. Doors
Remove all doors coincidental with the demolition of interior partitions
described above in item 1. All existing doors that are not removed (bathrooms,
janitor closets, stairwells, entrance and exit doors) to be refurbished. All new
doors installed in new partitions according to Lessee's Specs shall be at
Lessee's expense.
6. Electrical and Telephone Outlets
All existing perimeter wall outlets shall remain as is. Any additional such
outlets shall be installed per Code. All outlets in all removed partitions
shall be disconnected at the junction box by Lessor. Any and all new outlets
and all electrical power required by Lessee for the installation of Lessees
pre-fab type office systems, and industrial equipment shall be constructed by
Lessor in a "roughed-out" condition ready for final hook-up to said office
systems and industrial equipment at Lessee's expense.
7. Ceiling
To be removed and replaced with new 2'x2' acoustic tile building standard
ceiling throughout. Drywall ceilings shall be repainted. Any reconfiguration
required by Lessee's Specs shall be at Lessee's expense (including diagonal
orientation). As Lessee does not require a ceiling for the 1st floor, Lessor's
savings therefrom shall be applied against Lessee's cost to adequately ventilate
and light the 1st floor area and against Lessee's remodel of all the building
restrooms.
8. Lighting
Furnish and install new fixtures and lenses throughout to achieve a building
standard open area reflected ceiling plan which shall be one 2'x2' fixture per
code requirement. Any additional fixtures or fixtures of a grade higher than
building standard required by Lessee's Specs shall be at Lessee's expense, and
Lessee shall receive a credit for the standard fixtures not used.
9. Heating and Air Conditioning Ducts
Registers and grills to be refurbished to like-new condition or replaced with
new. Reinstall to pattern per building standard open area reflected ceiling
plan. Any additional ducting or zoning required by Lessee's Specs shall be at
Lessee's expense.
10. Miscellaneous
Lessor shall construct or install as may be required by the Specs a lunch room
lineup with required utility connections and mechanical work; a nitrogen tank
(all above ground); a tank enclosure (approximately 8'x10') installed in the
parking structure for the building all at the sole expense of Lessee. Lessor to
provide watertight roof and new visual block screen at roof; repaint entry
loading ramp and entrance; furnish and install a roll-up utility door in
exterior wall approximately 9' wide x 10' high.
11. Plumbing
Detail type cleaning throughout all bathrooms. Convert one men's facility to
a women's facility, changing urinals to water closets, and bring bathrooms
into compliance with Title 24 Accessibility Requirements, (handicapped)
including changing fixtures as necessary for compliance. Replacement of all
faucets, knobs and any cracked or damaged fixtures and tile. Repaint all
metal partitions. Add one executive building standard bathroom including
shower stall. The existing fire sprinkler system shall be modified to comply
with the applicable Building and Fire Safety Codes. Any reconfiguration
required by Lessee's Specs shall at Lessee's expense.
Initials: [illegible]
-----------
FULL SERVICE - GROSS [illegible]
-----------
EXHIBIT C
PAGE 1 OF 2 PAGES
<PAGE>
12. Entrance Doors
N/A
13. Completion of Improvements
At the Lessee's expense, Lessor shall construct and complete the
improvements to the Premises in accordance with the Specs provided to
Lessor by Lessee. Said Specs are to be provided to Lessor by November 1,
1989, in order to permit Lessor sufficient time to complete such
improvements by March 1, 1990. These improvements shall be of building
standard type materials readily available in the area in which the
Premises are located and shall require no unreasonable lead times for
procurement. Notwithstanding the provisions of paragraph 3.2 of the
Lease, if Lessee fails to provide said Specs by such date and such
failure results in the Lessor's inability to complete said improvements
by March 1, 1990 without extraordinary efforts, such events shall not
cause a delay in the commencement of the Lease nor a delay in the
commencement of the accrual of rent.
16. Completion
16.1 Lessor shall obtain a building permit to construct the improvements
as soon as possible.
16.2 Lessor shall complete the construction of the improvements as soon as
reasonably possible after the obtaining of necessary building permits.
16.3 The term "Completion," as used in this Work Letter, is hereby
defined to mean the date the building department of the municipality having
jurisdiction of the Premises shall have made a final inspection of the
improvements and authorized a final release of restrictions on the use of
public utilities in connection therewith and the same are in a broom-clean
condition.
16.4 Lessor shall use its best efforts to achieve Completion of the
Improvements on or before the Commencement Date set forth in paragraph 1.5 of
the Basic Lease Provisions or within one hundred eighty (180) days after Lessor
obtains the building permit from the applicable building department, whichever
is later.
16.5 In the event that the improvements or any portion thereof have not
reached Completion by the Commencement Date, this Lease shall not be invalid,
but rather Lessor shall complete the same as soon thereafter as is possible and
Lessor shall not be liable to Lessee for damages in any respect whatsoever.
16.6 If Lessor shall be delayed at any time in the progress of the
construction of the improvements or any portion thereof by extra work, changes
in construction ordered by Lessee, or by strikes, lockouts, fire, delay in
transportation, unavoidable casualties, rain or weather conditions,
governmental procedures or delay, or by any other cause beyond Lessor's control,
then the Commercial Date established in paragraph 1.5 of the Lease shall be
extended by the period of such delay.
17. Term
Upon Completion of the improvements as defined in paragraph 16.3, above,
Lessor and Lessee shall execute an amendment to the Lease setting forth the
date of Tender of Possession as defined in paragraph 3.2.1 or the Lease or of
actual taking of possession, whichever first occurs, as the Commencement Date
of this Lease.
18. Work Done by Lessee
Any work done by Lessee shall be done only with Lessor's prior written
consent and in conformity with a valid building permit and all applicable
rules, regulations, laws and ordinances, and be done in a good and
workmanlike manner with good and sufficient materials. All work shall be done
only with union labor and only by contractors approved by Lessor, it being
understood that all plumbing, mechanical, electrical wiring and ceiling work
are to be done only by contractors designated by Lessor.
19. Taking of Possession of Premises
Lessor shall notify Lessee of the Estimated Completion Date at least ten
(10) days before said date. Lessee shall thereafter have the right to enter the
Premises to commence construction of any improvements Lessee is to construct and
to equip and fixturize the Premises, as long as such entry does not interfere
with Lessor's work. Lessee shall take possession of the Premises upon the
tender thereof as provided in paragraph 3.2.1 of the Lease to which this Work
Letter is attached. Any entry by Lessee of the Premises under this paragraph
shall be under all of the terms and provisions of the Lease to which this Work
Letter is attached.
20. Acceptance of Premises
Lessee shall notify Lessor in writing of any items that Lessee deems
incomplete or incorrect in order for the Premises to be acceptable to Lessee
within ten (10) days following Tender of Possession as set forth in paragraph
3.2.1 of the Lease to which this Work Letter is attached. Lessee shall be
deemed to have accepted the Premises and approved construction if Lessee does
not deliver such a list to Lessor within said number of days.
21. Payment
Lessee shall pay Lessor for work done hereunder on a monthly basis, within
10 days of the presentation of the invoice. Failure to pay within said period
shall result in a cessation of work by Lessor but shall not alter the
commencement date of the Lease or the accrual of rent.
Initials:
-----------
FULL SERVICE - GROSS [illegible]
-----------
EXHIBIT C
PAGE 2 OF 2 PAGES
<PAGE>
LEASE ADDENDUM
This Addendum is dated this 15th day of September 1989 and shall be operative as
of this date unless otherwise stated herein. It is intended to supplement that
certain lease by and between Continental Development Corporation (Lessor) and
Tri-Star Electronics, Inc., a California corporation, and Cory Components,
Incorporated, a California corporation, (Lessee) dated the 15th day of
September 1989 (the Lease). Lessor and Lessee hereby agree to the matters
hereinafter set forth. This Addendum shall be attached to the Lease and shall
incorporate all relevant terms of the Lease as if set forth verbatim. If there
are any conflicts between this Addendum and any provisions of the Lease, the
Addendum shall be controlling as to matters specifically set forth herein. As
to matters not specifically set forth herein, the Lease shall be controlling.
The following paragraphs are hereby added to the Lease as if set forth therein:
48. HAZARDOUS SUBSTANCES
48.1 Definitions.
The term "Hazardous Substances," as used in this Lease, shall include,
without limitation, flammables, explosives, radioactive materials, asbestos,
polychlorinated biphenyls (PCBs), chemicals known to cause cancer or
reproductive toxicity, pollutants, contaminants, hazardous wastes, toxic
substances or related materials, petroleum and petroleum products, and any
material or substance which is (i) defined as a "hazardous waste," "extremely
hazardous waste" or "restricted hazardous waste" under Sections 25115, 25117 or
15122.7, or listed pursuant to Section 25140, of the California Health and
Safety Code, Division 20, Chapter 6.5 (Hazardous Waste Control Law), (ii)
defined as a "hazardous substance" under Section 25316 of the California Health
and Safety Code, Division 20, Chapter 6.8 (Carpenter-Presley-Tanner Hazardous
Substance Account Act), (iii) defined as a "hazardous material," "hazardous
substance," or "hazardous waste" under Section 25501 of the California Health
and Safety Code, Division 20, Chapter 6.95 (Hazardous Materials Release Response
Plans and Inventory), (iv) defined as a "hazardous substance" under Section
25281 of the California Health and Safety Code, Division 20, Chapter 6.7
(Underground Storage of Hazardous Substance), (v) petroleum, (vi) asbestos,
(vii) listed under Article 9 or defined as hazardous or extremely hazardous
pursuant to Article 11 of Title 22 of the California Administrative Code,
Division 4, Chapter 20, (viii) designated as a "hazardous substance" pursuant to
Section 311 of the Federal Water Pollution Control Act 33 U.S.C. 1317, (ix)
defined as a "hazardous waste" pursuant to Section 1004 of the Federal Resource
Conservation and Recovery Act, 42 U.S.C. 6901 et seq. 42 U.S.C. 6903, or (x)
defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq.
and substances declared to be hazardous or toxic under any law or regulations
now or hereafter enacted or promulgated by any governmental authority.
48.2 Lessee's Restrictions.
Lessee shall not cause or permit to occur:
(a) Any violation of any federal, state, or local law, ordinance, or
regulations now or hereafter enacted, related to environmental conditions on,
under, or about the Premises, or arising from Lessee's use or occupancy of the
Premises, including, but not limited to, soil and ground water conditions; or
1
<PAGE>
(b) In the event Lessee proposes to alter in any manner its current use,
generation, release. manufacture, refining, production, processing, storage, or
disposal of any Hazardous Substance on, under, or about the Premises, or the
transportation to or from the Premises of any Hazardous Substance, Lessee shall
first obtain written consent of Lessor. Lessee shall remove all Hazardous
Substances generated by Lessee's activities on the Premises in a manner which
complies with all Laws.
48.3 Environmental Clean-up.
(a) Lessee shall, at Lessee's own expense, comply with all laws regulating
the use, generation, storage, transportation, or disposal of Hazardous
Substances (Laws).
(b) Lessee shall, at Lessee's own expense, make all submissions to,
provide all information required by, and comply with all requirements of all
governmental authorities (the "Authorities") under the Laws.
(c) Lessee shall provide Lessor, at least annually, with copies of all
required licenses, permits, or other forms of compliance with all Laws as are
required by Authorities.
(d) Should any Authority or any third party demand that a cleanup plan be
prepared and that a clean-up be undertaken because of any deposit, spill,
discharge, or other release of Hazardous Substances that occurs during the term
of this Lease, at or from the Premises, or which arises at any time from
Lessee's use or occupancy of the Premises, then Lessee shall, at Lessee's own
expense, prepare and submit the required plans and all related bonds and other
financial assurances; and Lessee shall carry out all such cleanup plans.
(e) Lessee shall promptly provide all information regarding the use,
generation, storage, transportation, or disposal of Hazardous Substances that is
reasonably requested by Owner. If Lessee fails to fulfill any duty imposed
under this paragraph within a reasonable time, Lessor may do so; and in such
case, Lessee shall cooperate with Lessor in order to prepare all documents
Lessor deems necessary or appropriate to determine the applicability of the Laws
to the Premises and Lessee's use thereof, and for compliance therewith, and
Lessee shall execute all documents promptly upon Lessor's request. No such
action by Lessor and no attempt made by Lessor to mitigate damages under any Law
shall constitute a waiver of any of Lessee's obligations under this Paragraph.
(f) Lessee shall pay the full cost of any clean-up work performed on or
about the Premises as required by any such governmental authority in order to
remove, neutralize or otherwise treat materials of any type whatsoever directly
or indirectly placed by Lessee or its agents, employees or contractors on or
about the Premises or the land under or about the Premises.
(g) At the end of the Lease term or any extension, Lessee shall surrender
the Premises in a good and clean condition, normal wear and tear excepted, ready
for occupancy by any subsequent tenant. Should Lessee fail to so surrender at
the end of such term then and in that event Lessee shall be deemed a Holdover
pursuant to the terms and conditions of Paragraph 26 of the Lease.
(h) Lessee's obligations and liabilities under this Paragraph shall
survive the expiration of this Lease.
48.4 Disclosure of Violations.
Lessee shall, within five (5) days of the occurrence thereof, notify Lessor
in writing of any violation, citation, report, notice, or any other form of
communication from any
2
<PAGE>
governmental authority regarding non-compliance with any and all Laws.
Furthermore, as a condition precedent to the effectiveness of this Lease, Lessee
shall provide to Lessor, at least five (5) days prior to the commencement
hereof, a written certification, signed by an authorized officer of Lessee,
setting forth, in detail, Lessee's record with regard to compliance with all
Laws.
48.5 Lessee's Indemnity.
(a) Lessee shall release, indemnify, defend, protect and hold harmless
Lessor, the manager of the property, and their respective officers, directors,
beneficiaries, shareholders, partners, agents, and employees from all fines,
suits, procedures, claims, and actions of every kind from or by any third party
or governmental authority, and all costs associated therewith (including
attorneys' and consultants' fees and expenses) arising out of or in any way
connected with any residue, deposit, spill, discharge, or other release of
Hazardous Substances that occurs during the term of this Lease, at or from the
Premises, or from Lessee's failure to provide all information, make all
submissions, and take all steps required by all Authorities under the Laws and
all other environmental laws.
(b) Lessee's obligations and liabilities under this Paragraph shall
survive the expiration of this Lease.
49. MAINTENANCE AND REPAIRS
49.1 The Lessor shall contract for and manage the maintenance and repair
of the building's HVAC System, the roof, the parking structure, the exterior
lighting of the building, and all landscaping or hard surface areas of the
Premises (Maintenance and Management Services).
The Lessee shall pay monthly, as additional rent, an estimate of the cost
of such Maintenance and Management Services. At the end of each calendar year
the actual cost of the Maintenance and Management Services for the preceding
year shall be calculated. If the actual maintenance costs exceed the estimated
payment, Lessee shall pay to Lessor the full amount of such shortfall in
addition to the monthly rental due. If the estimated payment is in excess of the
actual costs, Lessor shall credit such overpayment to Lessee's next occurring
rental obligation. The estimated payment for the then current calendar year
shall be adjusted to approximate the average monthly cost for the previous
year's expenses.
The monthly costs of Maintenance and Management Services for the calendar
year 1990 shall be based on the following estimates:
Building Insurance 200
Parking structure sweeping service 300
HVAC maintenance service contract 522
HVAC repair estimate 500
Landscape 393
Building exterior/parking structure lights/fixtures 267
Maintenance department allocation (2% of total allocation) 500
Property management allocation (2% of total allocation) 360
-----
TOTAL monthly estimate $3042
49.2 The buildings in Continental Park are painted every five years. The
Premises are scheduled to be painted in years three (3) and Eight (8) during
the lease term.
50. OPTIONS TO EXTEND.
50.1 Lessee shall have one (1) five-year option to extend the term of this
Lease (Extension Option). Lessee shall be required to give Lessor written
notice of its election to
3
<PAGE>
exercise the Extension Option at least one (1) year prior to the commencement of
the term of the Extension Option.
50.2 In the Event Lessee elects to exercise the Extension Option, the Base
Rent during the Option term shall be Ninety-Five Percent (95%) of the then fair
market Base Rent (New Base Rent) for comparable vacant space in Continental Park
(Park), taking into account the Commencement Date of the Option term, the terms
and conditions of the lease form that Lessor is then using in the Park,
including periodic automatic increases in Base Rent, if any, but not less than
the Base Rent payable during the last month of the term preceding the term of
the Extension Option in question. Should there be no comparable vacant space in
the Park. The term fair market Base Rent shall mean the Base Rent for that
space which would be paid by a willing Lessee to a willing Lessor, neither of
whom is compelled to rent, for a term of five years, disregarding such
inducements as free rent, free parking, over-standard lessee improvements, and
Lessor's assumption of existing leases.
51. ASSIGNMENT AND SUBLETTING
51.1 Consent Required
(a) Lessee shall not assign or transfer this Lease, or any interest
therein, and shall not sublet the Premises or any part thereof, or any right or
privilege appurtenant thereto, or suffer any other person (the invitees, agents
and servants of Lessee excepted ) to occupy or use the Premises, or any portion
thereof, or agree to any of the foregoing, without in each case first obtaining
the written consent of Lessor, in accordance with subsection (a), below.
Neither this Lease nor any interest therein shall be assignable as to the
interest of Lessee by operation of law, without the written consent of Lessor.
Lessee shall not pledge, hypothecate or encumber this Lease, or any interest
therein, without in each case first obtaining the written consent of Lessor,
which consent shall not unreasonably be withheld. Any such assignment,
transfer, pledge, hypothecation, encumbrance sublease or occupation of, or the
use of the Premises by any other person without such consent, shall be void and
shall make this Lease voidable at the option of Lessor. Any consent to any
assignment, transfer, pledge, hypothecation, encumbrance, sublease or occupation
or use of the Premises by any other person which may be given by Lessor shall
not constitute a waiver by Lessor of the provisions of this Section or a
release of Lessee from the full performance by it of the covenants herein
contained.
(b) If Lessee desires at any time to assign this Lease or sublet all or
any portion of the Premises, Lessee shall first notify Lessor at least sixty
(60) days prior to the proposed effective date of the assignment or sublease, in
writing, of its desire to do so and shall submit in writing to Lessor (1) the
name of the proposed sub-tenant or assignee, (2) the nature of the proposed
sub-tenant's or assignee's business to be carried on in the Premises, (3) the
terms and conditions of the proposed sublease or assignment and (4) financial
statements for the two most recent completed fiscal years of the proposed
sub-tenant or assignee, and a bank reference. Thereafter, Lessee shall furnish
such supplemental information as Lessor may reasonably request concerning the
proposed sub-tenant or assignee. At any time within (15) days after Lessor's
receipt of the information specified above, Lessor may by written notice to
Lessee elect to (1) consent to the sublease or assignment, or (2) reasonably
disapprove of the sublease or assignment, setting forth in writing Lessor's
grounds for doing so. Such grounds may include, without limitation, a material
increase in the impact upon the Building Services and common areas of the
Building or the parking facilities, a material increase in the demands upon
utilities and services supplied by Lessor, a possible material adverse effect
upon the reputation of the Building from the nature of the business to be
conducted, or a reputation for financial reliability on the
4
<PAGE>
part of the proposed sub-tenant or assignee which is unsatisfactory in the
reasonable judgment of Lessor. If Lessor consents to the sublease or assignment
within the fifteen (15) day period, Lessee may thereafter enter into such
assignment or sublease of the Premises, or a portion thereof, upon the terms and
conditions and as of the effective date set forth in the information furnished
by Lessee to Lessor.
51.2 Applicable Terms and Conditions
(a) Regardless of Lessor's consent, no assignment or subletting shall
release Lessee of Lessee's obligations hereunder or alter the primary liability
of Lessee to pay the rent and other sums due Lessor hereunder including Lessee's
Share of Operating Expense Increase, and to perform all other obligations to be
performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such assignment or
subletting, nor the acceptance of rent, shall constitute a waiver or estoppel of
Lessor's right to exercise its remedies for the breach of any of the terms or
conditions of this paragraph 51 or this Lease.
(d) If Lessee's obligations under this Lease have been guaranteed by
third parties, then an assignment or sublease and Lessor's consent thereto shall
not be effective unless said guarantors give their written consent to such
sublease and the terms thereof.
(e) The consent by Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent
and such action shall not relieve such persons from liability under this Lease
or said sublease; however, such persons shall not be responsible to the extent
any such amendment or modification enlarges or increases the obligations of the
Lessee or sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgment that no default then
exists under this Lease of the obligations to be performed by Lessee nor shall
such consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.
(h) The discovery of a material fact that any financial statement relied
upon by Lessor in giving its consent to an assignment or subletting was false
shall, at Lessor's election, render Lessor's said consent null and void.
51.3 Additional Applicable Terms and Conditions
Regardless of Lessor's consent, the following terms and conditions shall
apply to any subletting by Lessee of all or any part of the Premises and shall
be deemed included in all subleases under this Lease whether or not expressly
incorporated therein:
5
<PAGE>
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest
in all rentals and income arising from any sublease heretofore or hereafter made
by Lessee, and Lessor may collect such rent and income and apply same toward
Lessee's obligations under this Lease; provided, however, that until a default
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may receive, collect and enjoy the rents accruing under such sublease. Lessor
shall not, by reason of this or any other assignment of such sublease to Lessor
nor by reason of the collection of the rents from a sublessee be deemed liable
to the sublessee for any failure of Lessee to perform and comply with any of
Lessee's obligations to such sublessee under such sublease. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a written
notice from Lessor stating that a default exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor the rents due and to become due
under the sublease. Lessee agrees that such sublessee shall have the right to
rely upon any such statement and request from Lessor, and that such sublessee
shall pay such rents to Lessor without any obligation or right to inquire as to
whether such default exists and notwithstanding any notice from or claim from
Lessee to the contrary. Lessee shall have no right or claim against said
sublessee or Lessor for any such rents so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and until
it has been approved in writing by Lessor. Any sublease shall, by reason of
entering into a sublease under this Lease, be deemed, for the benefit of Lessor,
to have assumed and agreed to conform and comply with each and every obligation
herein to be performed by Lessee other than such obligations as are contrary to
or inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor at its option and without any obligation to
do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee under
such sublease.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Each permitted assignee, transferee or sublessee, other than Lessor,
shall assume and be deemed to have assumed this Lease and shall be and remain
liable jointly and severally with Lessee for the payment of the rent and for the
due performance or satisfaction of all of the provisions, covenants, conditions
and agreements herein contained on Lessee's part to be performed or satisfied.
No permitted assignment shall be binding on Lessor unless such assignee or
Lessee shall deliver to Lessor a counterpart of such assignment which contains a
covenant of assumption by the assignee, but the failure or refusal of the
assignee to execute such instrument of assumption shall not release or discharge
the assignee from its liability as set forth above.
(f) If Lessee is a partnership, a transfer of any interest of a general
partner, a withdrawal of any general partner from the partnership, or the
dissolution of the partnership, shall be deemed to be an assignment of this
Lease.
(g) If Lessee is a corporation, unless Lessee is a public corporation,
viz, whose stock is regularly traded on a national stock exchange, or is
regularly traded in the over-the-counter market and quoted on NASDAQ, any
dissolution, merger,
6
<PAGE>
consolidation or other reorganization of Lessee or sale or other transfer of a
percentage of capital stock of Lessee which results in a change of controlling
persons, or the sale or other transfer of substantially all of the assets of
Lessee, shall be deemed to be an assignment of this Lease. Understanding the
foregoing, Lessee shall be permitted to assign this Lease without Lessor's prior
written consent (or the payment of any fee) to AVX Corporation so long as
Lessee gives Lessor written notice ten (10) days after such assignment has
occurred.
(h) Any notice by Lessee to Lessor pursuant to Section 51.1(b) of a
proposed assignment or subletting shall be accompanied by a payment of One
Thousand Dollars ($1000) as a fee for Lessor's time and the processing of
Lessee's request for Lessor's consent. Should Lessor approve any such assignment
or sublease, said $1000 shall be non-refundable. If Lessor disapproves any such
assignment or sublease, Lessor shall refund only that portion of the $1000 which
is not used to cover Lessor's General and Administrative costs and other
expenses attributable to processing Lessee's proposal of assignment or sublease.
51.4. Involuntary Assignment and Bankruptcy
(a) In the event this Lease is assigned to any person or entity pursuant
to provisions of the Bankruptcy Code, 11 USC S101, et seq., (the "Bankruptcy
Code"), any and all monies or other consideration payable or otherwise to be
delivered in connection with such assignment shall be paid or delivered to
Lessor, shall remain the exclusive property of Lessor, and shall not constitute
property of Lessee or of the estate of Lessee within the meaning of the
Bankruptcy Code. Any and all monies or other consideration constituting
Lessor's property under the preceding sentence not paid or delivered to Lessor
shall be held in trust for the benefit of Lessor and be promptly paid to or
turned over to Lessor.
(b) If Lessee, pursuant to this Lease, proposed to assign the same
pursuant to the provisions of the Bankruptcy Code, to any person or entity who
shall have made a bona fide offer to accept an assignment of this Lease on terms
acceptable to Lessee, then notice of the proposed assignment setting forth (i)
the name and address of such person, (ii) all of the terms and conditions of
such offer, and (iii) the assurances referred to in Section 365(b)(3) of the
Bankruptcy Code, shall be given to the Lessor by the Lessee no later than twenty
(20) days after receipt of such offer by the Lessee, but in any event no later
than ten (10) days prior to the date that Lessee shall make application to a
court of competent jurisdiction for authority and approval to enter into such
assignment and assumption, to be exercised by notice to the Lessee given at any
time prior to the effective date of such proposed assignment, to accept an
assignment of this Lease upon the same terms and conditions and for the same
consideration, if any, as the bona fide offer made by such person, less any
brokerage commissions which may be payable out of the consideration to be paid
such person for the assignment of this Lease.
(c) Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code shall be deemed without further act or deed to
have assumed all of the obligations arising under this Lease on or after the
date of such assignment. Any such assignee shall, upon demand, execute and
deliver to Lessor an instrument confirming such assumption.
(d) Lessor may consider the adequacy of a security deposit and the net
worth and other financial elements of the proposed assignee in determining
whether or not the proposed assignee has furnished Lessor with adequate
assurances of its ability to perform the obligations of this Lease.
7
<PAGE>
(e) In the event Lessor rejects the proposed assignee, the rights and
obligations of the parties hereto shall continue to be governed by the terms of
this Lease, and Lessee shall have all the rights of a tenant under applicable
California law.
52. PARKING
52.1 Lessee shall have the right to park 250 cars in the parking structure
which is attached to the Premises. The 250 spaces will be assigned to the
several levels of the parking structure as follows: 13 spaces shall be on the
first (lower) level against the south (or Building) wall, 35 spaces shall be on
the second level adjacent to the Building entrance, the remaining spaces shall
be located on the third level (98 spaces) and the fourth level (104 spaces).
52.2 Unless specifically stated otherwise, any and all parking rights
and/or privileges granted to Lessee hereby shall only be enforceable by Lessee
or Lessor for Lessee's benefit during Lessee's regular hours of business if
specified. If not so specified, regular business hours are deemed to be 7:00
a.m. until 5:00 p.m. During the period from 5:01 p.m. to 6:59 a.m. Lessor has
the right to permit others to use any and all vacant parking spaces to which
this lease applies, as Lessor sees fit.
53. RENT INCREASE
53.1 At the times set forth in Section 4. (Rent) of the Basic Lease
Provisions, the monthly Rent payable under Section 4 of this Lease shall be
adjusted by the Increase, if any, in the Consumer Price Index of the Bureau of
Labor Statistics of the Department of Labor for All Urban Consumers (1982-84 =
100), "All Items," for Los Angeles-Anaheim-Riverside (CPI) since the date of
this Lease.
53.2 The monthly Rent payable pursuant to Section 4 shall be calculated as
follows; the Rent payable for the first month of the term of this Lease shall
be multiplied by a fraction the numerator of which shall be the CPI of the
calendar month during which the adjustment is to take effect, and the
denominator of which shall be the CPI for the calendar month in which the
original Lease term commences. The sum so calculated shall constitute the new
monthly Rent hereunder, but, in no event, shall such new monthly Rent be less
than the Rent payable for the month immediately preceding the date for the rent
adjustment.
53.3 In the event the compilation and/or publication of the CPI shall be
transferred to any other governmental department or bureau or agency or shall
be discontinued, then the index most nearly the same as the CPI shall be used
to make such calculations. In the event that Lessor and Lessee cannot agree on
such alternative index, then the matter shall be submitted for decision to the
American Arbitration Association in the County in which the Premises are
located, in accordance with the then rules of said association and the decision
of the arbitrators shall be binding upon the parties, notwithstanding one party
failing to appear after due notice of the proceeding. The cost of said
Arbitrators shall be paid equally by Lessor and Lessee.
53.4 Lessee shall continue to pay the rent at the rate previously in
effect until the increase, if any, is determined. Within five (5) days following
the date on which the increase is determined, Lessee shall make such payment to
Lessor as will bring the increased rental current, commencing with the effective
date of such increase through the date of any rental installments then due.
Thereafter the rental shall be paid at the increased rate.
8
<PAGE>
54. LENDER MODIFICATION
Lessee agrees to make such reasonable modifications to this Lease as may be
reasonably required by an institutional lender in connection with the obtaining
of normal financing or refinancing of the Office Building Project.
55. PARKING OR PLAYGROUND EASEMENT
Notwithstanding the description of the Premises contained in Paragraph 2
and Exhibit A of this lease, Lessee acknowledges that the portion of the
described Parcel easterly of the building and parking structure is subject to
the following uses and hereby consents thereto so long as such use does not
materially interfere with Lessee's business operation:
(a) The lessees and their invitees of 2221 Rosecrans have the exclusive
right to park in designated parking areas so long as Lessee shall have
reasonable and unfettered access to the loading dock of the Premises to make
deliveries and shipments as may be necessary to Lessee' business operations. In
addition lessor may modify the access to the loading dock and eliminate any
parking on the east side of the building for the purpose of constructing a child
care facility play area.
56. CHILD CARE FACILITY
Lessee acknowledges that Lessor is contemplating the development,
construction and/or operation of a child care facility which is to be located
within Continental Park of which these Premises comprise one portion. Lessee
agrees that since such a facility would confer a benefit on Lessee, as well as
other Lessees of Continental Park, Lessee will make all reasonable efforts to
cooperate with Lessor to accommodate the development and construction of such
facility. These efforts shall include but are not limited to the taking of
reasonable steps to comply with all local state and federal laws and other
regulations which apply to Lessees operation of its business with regard to the
placement of a child care facility in close proximity to the Premises or to
reasonably modify Lessee's operations so as not to prohibit such placement so
long as such action does not materially interfere with Lessee's business
operation.
LESSOR LESSEE
CONTINENTAL DEVELOPMENT TRI-STAR ELECTRONICS, INC.
CORPORATION
Date 9/15/89 Date
------------------------------ ----------------------------
By /s/ Richard C. Lundquist By /s/ Neal J. Castleman
-------------------------------- --------------------------------
Richard C. Lundquist Neal J. Castleman
Its President Its President
By /s/ Leonard E. Blakesley, Jr. CORY COMPONENTS INCORPORATED
--------------------------------
Leonard E. Blakesley, Jr.
Its Secretary
By /s/ Neal J. Castleman
--------------------------------
Neal J. Castleman
Its Chairman
9
<PAGE>
Exhibit 10.38
KILROY REALTY, L.P.
MODIFIED NET
INDUSTRIAL BUILDING LEASE
THIS MODIFIED NET INDUSTRIAL BUILDING LEASE (this "Lease") is executed
this ____ day of ____________, 1997, between KILROY REALTY, L.P., a Delaware
Limited Partnership, KILROY REALTY CORPORATION, a Maryland Corporation, General
Partner (hereafter called "Lessor") and HOLLINGSEAD INTERNATIONAL, a California
Corporation (hereinafter called "Lessee").
W I T N E S S E T H:
Lessor hereby leases to Lessee, and Lessee hires from Lessor, that certain
real property ("Real Property") with the improvements comprising approximately
fifty-eight thousand three hundred three (58,303) rentable square feet,
structures, buildings and fixtures located therein or thereon and all
appurtenances thereto (the "Improvements"), with the street address of 12442
Knott Avenue, City of Garden Grove, State of California and more particularly
described on Exhibit "A" attached hereto and by this reference made a part
hereof, subject to governmental regulations and matters of record, for and
during the term of seven (7) years, commencing on November 1, 1997 ("the
Commencement Date") and ending on October 31, 2004. The Real Property and the
Improvements shall sometimes hereinafter be collectively referred to as the
"Premises."
It is further mutually agreed between the parties as follows:
1. RENT. Lessee agrees to pay to Lessor as rent for the Premises, payable at
such place as may be designated by Lessor in writing, in lawful money of the
United States of America, the sum of Thirty-One Thousand Four Hundred
Eighty-Three and 62/100 ($31,483.62) Dollars ($0.54 per rentable square foot)
per month, in advance, on the lst day of each calendar month occurring after the
Commencement Date through April 30, 2001 and the sum of Thirty-Seven Thousand
Six Hundred Five and 44/100 ($37,605.44) per month ($0.645 per rentable square
foot) from May 1, 2001 through October 31, 2004, as said term is fixed under the
preceding paragraph hereof. Lessee's obligation hereunder for the first and last
month shall be prorated on the basis of the commencement and expiration,
respectively, of Lessee's right of occupancy.
2. SECURITY DEPOSIT. Lessee further agrees to pay to Lessor Thirty-One
Thousand Four Hundred Eighty-Three and 62/100 ($31,483.62) Dollars as a security
deposit to be held by Lessor as security for the faithful performance by Lessee
of all the terms, covenants and conditions of this Lease to be kept and
performed by Lessee during the term hereof. If Lessee defaults with respect to
any provision of this Lease, including, but not limited to the provisions
relating to the payment of rent, Lessor may (but shall not be required to) use,
apply or retain all or any part of this security deposit for the payment of rent
or any other sum in default, or for the payment of any amount which Lessor may
spend or become obligated to spend by reason of Lessee's default, or to
compensate Lessor for any other loss or damage which Lessor may suffer by reason
of Lessee's default. If any portion of said deposit is so used or applied,
Lessee shall within ten (10) days after written demand therefor, deposit cash
with Lessor in an amount sufficient to restore the security deposit to its
original amount and Lessee's failure to do so shall be a material breach of
this Lease. Lessor shall not be required to keep this security deposit separate
from its general funds, and Lessee shall not be entitled to interest on such
deposit. If Lessee shall fully and faithfully perform every provision of this
Lease to be performed by it, the security deposit or any balance thereof shall
be
-1-
<PAGE>
returned to Lessee or, at Lessee's option, to the last assignee of Lessee's
interest hereunder at the expiration of the Lease term. In the event of
termination of Lessor's interest in this Lease, Lessor shall transfer said
deposit to Lessor's successor-in-interest.
If the monthly rent shall, from time to time, increase during the term of
this Lease, Lessee shall thereupon deposit with Lessor additional security so
that the amount of deposit held by Lessor shall at all times bear the same
proportion to the then current rent as the original security deposit bears to
the original monthly rent set forth in paragraph 1, hereof.
3. USE. The Premises are leased to Lessee for the purpose of conducting
therein light manufacturing, assembly and distribution of avionic equipment and
for any other use which is reasonably comparable and for no other purpose.
Lessee covenants and agrees that it shall not use the Premises in a manner which
would constitute a nuisance or cause an unreasonable annoyance to any other
lessee of Lessor or to Lessor, and that if Lessee violates this covenant, Lessee
shall immediately cease and refrain from engaging in such use upon notice from
Lessor.
4. EARLY/DELAY IN POSSESSION. Lessee shall be permitted early access to the
Premises on October 1, 1997 for the purposes of preparing the building located
thereon for occupancy and use by Lessee, including without limitation the
installation and electrical hookup of machinery and equipment used in Tenant's
business; provided, however, that Lessee's preparation for occupancy and use
shall not unreasonably interfere with any ongoing construction of tenant
improvements in, and/or the refurbishing of, the building comprising a portion
of the Premises. If Lessee occupies the Premises prior to said Commencement
Date, such occupancy shall be subject to all provisions hereof but such
occupancy shall not advance the Commencement Date or the termination date, and
Lessee shall not be required to pay rent for such period of early occupancy.
Notwithstanding said Commencement Date, if for any reason Lessor cannot deliver
possession of the Premises to Lessee on said date, Lessor shall not be subject
to any liability therefor, nor shall such failure affect the validity of this
Lease or the obligations of Lessee hereunder or extend the term hereof, but in
such case, Lessee shall not be obligated to pay rent until possession of the
Premises is tendered to Lessee; provided, however, that if Lessor shall not have
delivered possession of the Premises within one hundred twenty (120) days from
said Commencement Date, Lessee may, at Lessee's option, by notice in writing to
Lessor within thirty (30) days thereafter, but not subsequent to the date
possession of the Premises is tendered to Lessee, cancel this Lease, in which
event the parties shall be discharged from all obligations hereunder; provided
further, however, that if such written notice of Lessee is not received by
Lessor within said thirty (30) day period, Lessee's right to cancel this Lease
hereunder shall terminate and be of no further force or effect.
5. WASTE. Lessee shall not commit, or suffer to be committed, any waste upon
said Premises, or any nuisance, or other act or thing which may disturb the
quiet enjoyment of any other lessee in the building in which the Premises may be
located.
6. COMPLIANCE WITH LAW. Lessor warrants to Lessee that the Premises, in its
state existing on the date that the Lease term commences, but without regard to
the use for which Lessee will use the Premises, does not violate any covenants
or restrictions of record, or any applicable building code, regulation or
ordinance in effect on such Lease term Commencement Date. In the event it is
determined that this warranty has been violated, then after written notice from
Lessee, Lessor's sole obligation with regard to such warranty is to promptly, at
Lessor's sole cost and expense, rectify any such violation. In the event Lessee
does not
-2-
<PAGE>
give to Lessor written notice of the violation of this warranty within six (6)
months from the later of (a) Lease Commencement Date, or (b) the date Lessee
takes actual possession of the Premises, the correction of same shall be the
obligation of Lessee at Lessee's sole cost. The warranty contained in this
paragraph shall be of no force or effect if, prior to the date of this Lease,
Lessee was the owner or occupant of the Premises, and, in such event, Lessee
shall correct any such violation at Lessee's sole cost.
Lessee shall at its sole cost, comply with all covenants, conditions and
restrictions of record or later recorded, and all ordinances, statutes, rules
and regulations of any lawful authority (including without limitation the
Americans With Disabilities Act) having jurisdiction over Lessee or the Premises
now in force or which may thereafter be in force, relating to the use, condition
or occupancy of said Premises, and with the requirements of any board of fire
insurance underwriters or other similar bodies now or hereafter constituted,
relating to, or affecting the condition, use or occupancy of the Premises. If
Lessor gives Lessee notice of Lessee's noncompliance with any of the matters or
requirements set forth in this paragraph, Lessee shall within a reasonable time
period cause said Premises to comply. In the event Lessee does not bring its
use, occupancy or the condition of the Premises into compliance within such
reasonable time period, Lessor reserves the right, at its option, to do so, and
charge the cost and expense thereof to Lessee together with the maximum
permissible interest from the date of Lessor's payments, and Lessee promises to
and agrees to pay the cost and expense thereof.
7. ALTERATIONS. Except in the event of an emergency, Lessee shall not make
or suffer to be made, any alterations, additions or utility installations
("an Alteration") on or about said Premises which violate any ordinance,
statute law, rule or regulation (including without limitation the Americans
With Disabilities Act). Further, any Alteration on or to the Premises shall
not be made without the prior written consent of Lessor. Lessor's prior
written consent shall not be necessary for emergency repairs. Unless
otherwise agreed in writing by Lessor and Lessee, any Alterations of said
Premises, except movable furniture and trade fixtures, shall become at once a
part of the realty and belong to Lessor. Lessor shall have the right to
increase the security deposit under paragraph 2 hereof in an amount
reasonably calculated in good faith by Lessor to cover the cost to repair the
altered portion of the Premises to its original condition, and Lessee
covenants to immediately remit to Lessor such increased security deposit.
Lessee shall furnish Lessor with plans and specifications or other detailed
information covering such work, and, upon Lessor's written request, furnish
Lessor with a lien and completion bond to insure payment of the costs
thereof. Any and all costs of such Alterations, additions or installation
shall be borne and paid, on or before the due date, by Lessee. Upon the
termination of this Lease for any reason, Lessee shall be required at
Lessor's option (to be exercised at any time) to remove said Alterations from
the Premises and to restore said Premises to their original condition at the
sole cost of Lessee. Upon the failure of Lessee to restore the Premises to
their original condition, Lessor may utilize the security deposit or any
portion thereof to restore the Premises or correct any loss or damage to the
Premises at the sole cost of Lessee. Notwithstanding the foregoing sentence,
if Lessee anticipates that it would prefer to leave in place as a part of the
Premises any Alteration, then concurrently with Lessee's request for approval
of such Alteration, Lessee shall request of Lessor that Lessor consent to
such Alteration remaining as a part of the Premises upon the termination of
this Lease. Lessor may give or withhold such consent, in whole or part,
acting in a commercially reasonable manner. If Lessor does not so consent
then Lessee shall comply with the preceding provisions of this paragraph 7.
-3-
<PAGE>
8. FIXTURES. All signs and all trade fixtures and trade equipment which
have been or may be installed, placed or attached in or about the Premises by
Lessee shall always remain the property of Lessee and upon termination by
expiration of time or otherwise of this Lease, or at any prior time, Lessee
shall remove all or any of said signs, trade fixtures and trade equipment so
installed, placed or attached provided, however, that any damage caused to
the Premises by reason of such removal shall be repaired and paid by Lessee.
Lessor may at the termination of this Lease at its option require the removal
by Lessee at the expense of Lessee of any signs, trade fixtures, trade
equipment or other property installed, placed or attached to, in or about the
Premises by Lessee. Any property of Lessee not removed from the said Premises
upon the termination of this Lease or within a reasonable time thereafter
shall at the option of Lessor be deemed abandoned by Lessee and become the
property of Lessor. Any consents to the filing of UCC Financing Statements or
similar security instruments may be unreasonably withheld by Lessor in its
sole discretion. In the event Lessor consents to any such security instrument
being filed with the applicable governmental entity, Lessee shall pay all of
Lessor's legal fees incurred in connection therewith.
9. TAXES AND ASSESSMENTS. In addition to the rental hereinbefore provided to
be paid, Lessee covenants and agrees to timely reimburse Lessor for all taxes
which may be imposed upon the Premises, including the land and improvements
constituting the same. Such payment shall be made by Lessee within thirty (30)
days after receipt of Lessor's written statement setting forth the amount and
the reasonable computation thereof but in no event shall Lessee be required to
tender payment for taxes more than thirty (30) days prior to the due date
therefor. Lessee's obligation hereunder for the first year and the last year
shall be prorated on the basis of the commencement and expiration, respectively,
of Lessee's right of occupancy.
a. The term "real property tax" shall mean and include any form of
assessment, license fee, license tax, business license fee, business license
tax, commercial rental tax, levy, charge, penalty, tax or similar imposition,
imposed by any authority having the direct or indirect power to tax, including
any city, county, state or federal government, or any school, agricultural,
lighting, drainage or other improvement or special assessment district thereof,
as against any legal or equitable interest of Lessor in the Premises, including,
but not limited to, the following: (i) any tax on Lessor's right to rent or
other income from the Premises or against Lessor's business of leasing the
Premises; (ii) any assessment, tax, fee, levy or charge in substitution,
partially or totally of any assessments tax, fee, levy or charge previously
included within the definition of real property tax, it being recognized by
Lessee and Lessor that several modifications of the property law enacted by the
voters of the State of California have restricted revenues raised through the
property tax and that assessments, taxes, fees, levies and charges may be
imposed by governmental agencies for such services as fire protection, street,
sidewalk and road maintenance, refuse removal and for other governmental
services formerly provided without charge to property owners or occupants. It is
the intention of Lessee and Lessor that all new and increased assessments,
taxes, fees, levies and charges and all similar assessments, taxes, fees, levies
and charges be included within the definition of "real property tax" for the
purpose of this Lease; (iii) any assessment, tax, fee, levy or charge allocable
to or measured by the area of the Premises or the rent payable hereunder,
including, without limitation, any tax on Lessor's right to receive, or the
receipt of, rent or income from the Premises or against Lessor's business of
leasing the Premises levied by the state, city or federal government, or any
political subdivision thereof, with respect to the receipt of such rent, or upon
or with respect to the possession, leasing, operating, management, maintenance,
alteration, repair, use or occupancy by
-4-
<PAGE>
Lessor or Lessee of the Premises, or any portion thereof; and (iv) any
assessment, tax, fee, levy or charge upon this transaction or any document to
which Lessee is a party, creating or transferring an interest or an estate in
the Premises. "Real Property tax" shall not include Lessor's federal or state
income, franchise, inheritance, gift or estate taxes.
b. If the Premises are not separately assessed, Lessee's liability
shall be an equitable proportion of the real property taxes for all of the land
and improvements included within the tax parcel or other basis assessed, tax
levied or charged, such proportion to be reasonably determined in good faith by
Lessor from the respective valuations assigned in the taxing entity's work
sheets or such other information as may be reasonably available. Lessor's
reasonable determination thereof, in good faith, shall be conclusive.
c. Lessee shall pay prior to delinquency or reimburse Lessor for all
taxes assessed against and levied upon trade fixtures, furnishings, equipment
and all other personal property of Lessee contained in the Premises or
elsewhere, which taxes shall include taxes of every kind and nature levied and
assessed in lieu of, in substitution in whole or in part for, or in addition
to, existing or additional personal property taxes, whether or not now customary
or within the contemplation of the Lessor or the Lessee. When possible, Lessee
shall cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's personal property.
10. UTILITIES. Lessee shall pay for all sewer, water, gas, heat, light, power,
telephone and other utilities and services of every kind supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion (to be
determined by Lessor) of all charges jointly metered with other Premises.
11. ACCEPTANCE OF PREMISES. Subject to subparagraphs 37a and 37b below, by
entry hereunder, Lessee hereby accepts the Premises in their condition existing
as of the Commencement Date or the date that Lessee takes possession of the
Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any covenants or restrictions of record, and accepts
this Lease subject thereto and to all matters disclosed thereby and by any
exhibits attached hereto. Lessee acknowledges that neither Lessor nor Lessor's
agent has made any representation or warranty as to the present or future
suitability of the Premises for the conduct of Lessee's business.
12. MAINTENANCE. Lessee shall at its sole cost keep and maintain the Premises
and appurtenances and every part thereof (except foundations which Lessor agrees
to repair), including windows and skylights, if any, sidewalks adjacent to said
Premises, the exterior roof and exterior walls, and any storefront and interior
of the Premises in good, safe and sanitary order, condition and repair, hereby
waiving all right to make repairs at the expense of Lessor whether or not such
right arises by operation of law or otherwise. In the event it becomes necessary
to repair or replace the exterior roof, any such work shall be performed in
accordance with Lessor's specifications then in effect. Lessor shall have the
responsibility to paint the exterior walls of the Premises, at Lessee's sole
cost and expense, no more often than every five (5) years from the date of the
last such painting. Lessee agrees to promptly reimburse Lessor for all
reasonable costs incurred in connection with such painting activity after Lessor
shall have
-5-
<PAGE>
given within notice of such costs to Lessee but in no event shall such
reimbursement be later than the due date of Lessee's next installment of rent.
Except as expressly provided in this Lease, Lessor shall have no duty,
obligation or liability whatsoever to care for or maintain the Premises or
the building of which the Premises may be a portion, including but not
limited to structural or nonstructural portions of the Premises and all
adjacent sidewalks, landscaping maintenance, driveways, parking lots, fences
and signs located in the areas which are adjacent to and included with the
Premises. In the event that by any express provision of this Lease, Lessor
agrees to care for, repair or maintain all, or any part of the Premises or
the building of which it is a part, such agreement on the part of Lessor
shall constitute a covenant only, and no obligation or liability whatsoever
shall exist on the part of Lessor to Lessee or any other person by reason
thereof unless and until Lessee shall have first served upon Lessor
personally a prior thirty (30) day notice in writing specifying with
particularity the provision of this Lease whereunder said duty on the part of
Lessor is claimed to exist, together with the repairs required to be made by
Lessor in the performance of such duty.
In the event Lessor fails to make the repairs required to be made by Lessor
under the terms of this Lease, Lessee may (but shall be under no obligation to
do so) make said repairs and offset the cost thereof against the next
installment of rent together with interest at the rate set forth in paragraph 34
below, from the date of Lessee's payments.
In the event Lessee fails to make the repairs required to be made by Lessee
under the terms of this Lease, Lessor may (but shall be under no obligation to
do so) enter upon the Premises and make said repairs and charge the cost thereof
to Lessee as part of the next installment of rent together with interest at the
rate set forth in paragraph 34 below, from the date of Lessor's payments, and
Lessee promises and agrees to pay the cost thereof.
13. CONDITION UPON TERMINATION. On the last day of the term hereof, or on any
sooner termination, Lessee shall surrender the Premises to Lessor in the same
condition as when received, ordinary wear and tear excepted, clean and free of
debris. Lessee shall repair any damage to the Premises occasioned by the
installation or removal of Lessee's trade fixtures, furnishings and equipment.
Notwithstanding anything to the contrary otherwise stated in this Lease, Lessee
shall leave the air lines, power panels, electrical distribution systems,
lighting fixtures, space heaters, air conditioning, plumbing and fencing on the
Premises in good operating condition.
In the event Lessee terminates this Lease for any reason whatsoever prior
to the expiration of the term hereof, Lessee shall pay Lessor the full cost it
would incur in order to return the Premises to its original condition, including
repainting, replacement of carpeting and other floor surfaces, replacement of
ceiling tile and plumbing fixtures, replacement of landscaping, and any and all
additional replacement costs it would incur in restoring the Premises to its
original condition, ordinary wear and tear excepted. Any decision to replace or
repair any item referenced above shall be made solely at Lessor's reasonable,
good faith discretion.
14. LIENS. Lessee shall keep said Premises free of all liens arising out of
work done for or debts or taxes incurred by or assessed to Lessee and agrees to
hold Lessor harmless therefrom. If Lessor discharges any such lien, Lessee
agrees to save Lessor harmless therefrom and to pay Lessor thereon the cost of
discharging such lien together with interest at the rate set forth in paragraph
34 below, from the date Lessor discharges such lien together with Lessor's costs
and reasonable attorney's fees in
-6-
<PAGE>
connection with the settlement, trial or appeal of any such lien matter, which
sum shall be payable with the next installation of rent due.
15. LIABILITY AND INDEMNITY. Lessee covenants and agrees to indemnify, hold
harmless, save and defend Lessor from and against any and all loss, damage,
claim, cost, charge or expense arising or resulting from: (i) Lessee's use of
the Premises; (ii) the conduct of Lessee's business or anything else done or
permitted by Lessee to be done in or about the Premises; (iii) any breach or
default in the performance of Lessee's obligations under this Lease; or (iv)
other acts or omissions of Lessee. Lessee shall defend Lessor against any such
loss, damage, claim, cost, charge or expense at Lessee's sole cost and expense
with counsel reasonably acceptable to Lessor or, at Lessor's election, Lessee
shall reimburse Lessor for any legal fees or costs incurred by Lessor in
connection with any such claim. As a material part of the consideration to be
rendered to Lessor, Lessee hereby assumes all risk of damage to property or
injury to persons in or about the Premises from any cause other than Lessor's
negligence or willful misconduct and Lessee hereby waives all claims against
Lessor and agrees to indemnify Lessor against all claims in respect thereof,
except for any claim arising out of Lessor's negligence or willful misconduct.
Lessee further covenants and agrees to indemnify, hold harmless, save and
defend Lessor from and against any and all claims, liens, liability, loss or
damage, including, but not limited to, costs, expenses, and attorneys' fees
arising out of Lessee's obligations under the California Occupational Safety and
Health Act or any similar laws or statutes pertaining to the provision of a safe
place or safe equipment to employees.
Lessee hereby agrees that Lessor shall not be liable for injury to Lessee's
business or any loss of income therefrom or for damage to the goods, wares,
merchandise or other property of Lessee, Lessee's employees, invitees,
customers, or any other person in or about the Premises, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether the said
damage or injury results from conditions arising upon the Premises or upon other
portions of the building of which the Premises are a part, or from other sources
or places and regardless of whether the cause of such damage or injury or the
means of repairing the same is inaccessible to Lessee. Lessor shall not be
liable for any damages arising from any act or neglect of any other lessee, if
any, of the building in which the Premises are located.
16. INSURANCE. No use shall be made or permitted to be made of said Premises,
nor acts done, which will increase the existing rate of insurance upon the
building in which said Premises may be located, or cause a cancellation of any
insurance policy covering said building, or any part thereof, nor shall Lessee
sell, or permit to be kept, used or sold, in or about said Premises, any article
which may be prohibited by standard form of fire insurance policies. Lessee
shall at its sole cost assume any increase of fire insurance premiums on the
entire building necessitated by reason of the Lessee's occupancy. Lessee shall,
at its sole cost, comply with any and all requirements pertaining to the use of
said Premises of any insurance organization or company necessary for maintenance
of reasonable fire and public liability insurance, covering said building and
appurtenances.
Lessee hereby waives any and all rights of action or recovery against
Lessor for loss of, damage to or destruction of property of Lessee or property
of others in custody of Lessee on the Premises occasioned by perils insured in
standard fire and extended coverage insurance policies.
-7-
<PAGE>
Lessee shall procure and supply to Lessor a written waiver of subrogation
for the benefit of Lessor on all fire and extended coverage insurance policies
carried by Lessee insuring Lessee's property at the Premises.
Lessee agrees to maintain at its sole cost during the term hereof the
following insurance with respect to the Premises and the use thereof, namely:
a. Comprehensive public liability and property damage liability
insurance (including contractual liability insurance for liabilities assumed
under this Lease, and including products and completed operations insurance)
with limits of not less than $1,000,000.00 for injuries to or death to any one
person and $1,000,000.00 for injuries to or deaths arising out of any one
occurrence, and $1,000,000.00 for injury to or destruction of property arising
out of any one occurrence, and $3,000,000.00 cumulative from all events. If such
insurance coverage has a deductible clause, the deductible amount shall not
exceed $10,000.00 per occurrence, and the Lessee shall be liable for such
deductible amount.
b. Fire and extended coverage insurance covering the Premises in the
principal amount of $1,000,000.00. Lessor shall have the option of procuring and
providing this fire and extended coverage insurance by written notification to
Lessee at the time of execution of this Lease or of execution of any extension
thereof in which event Lessee agrees to pay the cost of such insurance in
addition to the rental and other costs and considerations set forth elsewhere in
this Lease. If such insurance coverage has a deductible clause, the deductible
amount shall not exceed $10,000.00 per occurrence, and Lessee shall be liable
for such deductible amount.
c. Rental value insurance with loss payable to Lessor and any
lender(s), insuring the loss of the full rental and other charges payable by
Lessee to Lessor for one (1) year (including all real property taxes, insurance
costs and any scheduled rental increases). Said insurance shall provide for one
(1) full year's loss of rental revenues from the date of any such loss, and the
amount of coverage shall be adjusted annually to reflect the projected rental
income, real property taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next twelve (12) month period.
d. Boiler and Machinery Insurance in the event pressure vessels are
used on the Premises which do not fall within the scope of the extended coverage
provisions of the fire insurance policy.
Lessor shall have the right to review the amount of insurance coverage
annually and to require a higher principal amount of insurance if such a higher
limit is recommended by the insurance company or required by a lender whose loan
is secured by the Premises.
If Lessee fails to procure or maintain the insurance required of Lessee,
Lessor may obtain such insurance at Lessor's option and charge Lessee the costs
thereof.
Each policy of insurance to be obtained by Lessee shall be placed with a
company reasonably acceptable to Lessor and shall provide that Lessor is a named
insured, and no such policy may be cancelled or coverage reduced without thirty
(30) days prior written notice to Lessor and Lessee. Lessee shall furnish
Lessor with written evidence satisfactory to Lessor of such insurance prior to
occupancy of the Premises and shall deliver to Lessor a renewal certificate of
such insurance on or before fifteen (15) days prior to its expiration.
-8-
<PAGE>
17. WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and relieve
the other, and waive their entire right of recovery against the other for loss
or damage arising out of or incident to the perils insured against under this
Agreement, which perils occur in, on or about the Premises, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. Lessee and Lessor shall, upon obtaining the policies of insurance
required hereunder, give notice to the insurance carrier or carriers that the
foregoing mutual waiver of subrogation is contained in this Lease.
18. LESSOR'S RIGHT OF ENTRY. Lessee shall permit Lessor and its agents to enter
into and upon said Premises at all reasonable times to show said Premises to
prospective purchasers, lenders or lessees or for the purpose of inspecting the
same or for the purpose of maintaining the building in which said Premises are
situated, or for the purpose of making repairs, alterations or additions to any
other portion of said building, including the erection and maintenance of such
scaffolding, canopies, fences and props as may be required, or for the purpose
of posting notices of non-liability for alterations, additions, or repairs, or
for the purpose of placing upon the property in which the said Premises are
located any usual or ordinary "for sale" signs, without any abatement of rent
and without any liability to Lessee for any loss of occupation or quiet
enjoyment of the Premises thereby occasioned; and shall permit Lessor, at any
time within one hundred eighty (180) days prior to the expiration of this Lease,
to place upon said Premises any usual or ordinary "to let" or "to lease" signs,
also without abatement of rent or liability to Lessee.
19. SIGNS. Lessor has reserved the exclusive right to the exterior front walls,
sidewalls, rear walls, and roof of said Premises, and Lessee shall not place or
permit to be placed upon said sidewalls, real wall, or roof, any sign,
advertisement, or notice without the prior written consent of Lessor, in its
sole but reasonable discretion.
20. ABANDONMENT. Lessee shall not vacate or abandon the Premises at any time
during the term hereof.
21. PARTIAL AND TOTAL DESTRUCTION. In the event of (i) a partial destruction of
said Premises or the building containing same during said term which requires
repairs to either said Premises or said building, or (ii) said Premises or said
building being declared unsafe or unfit for occupancy by any authorized public
authority for any reason other than Lessee's act, use or occupation, which
declaration requires repairs to either said Premises or said building, Lessor
shall forthwith make such repairs required, provided such repairs can be made
within one hundred twenty (120) days under the laws and regulations of
authorized public authorities, but such partial destruction (including any
destruction necessary in order to make repairs required by any such declaration)
shall in no way annul or void this Lease, except that Lessee shall be entitled
to a proportionate reduction of the rent while such repairs are being made, such
proportionate reduction to be based upon the extent to which the making of such
repairs shall reasonably interfere with the business carried on by Lessee in
said Premises. If such repairs cannot be made within one hundred twenty (120)
days, Lessor may, at its option, make same within a reasonable time, this Lease
continuing in full force and effect and the rent to be proportionately abated,
as in this paragraph provided. In the event that Lessor does not so elect to
make such repairs which cannot be made within one hundred twenty (120) days, or
such repairs cannot be made under such laws and regulations, this Lease may be
terminated at the option of either party. In respect to any partial destruction
(including any destruction necessary in order to make repairs required by any
such declaration) which Lessor is obligated to repair or may elect to repair
under the terms of this paragraph, the provision of Section 1932,
-9-
<PAGE>
Subdivision (2), and Section 1933, Subdivision (4) of the Civil Code of the
State of California are waived by Lessee. In the event said destruction or
damage is substantial and occurs during the last six (6) months of the term of
this Lease, Lessor, at its option, may terminate and cancel this Lease. A total
destruction (including any destruction required by an authorized public
authority) of either said Premises or said building shall terminate this Lease.
22. CONDEMNATION. If said Premises or any part thereof are taken under the
power of eminent domain, this Lease shall terminate as to the part so taken as
of the date the condemning authority takes possession thereof. In such event the
rent shall be reduced in the proportion that the floor area taken relates to the
total floor area prior to the taking. If more than ten (10%) percent of the
floor area of the building located on said Premises or more than fifteen (15%)
percent of the area leased hereunder but not occupied by any building is taken
by condemnation only then, may Lessee, at Lessee's option, terminate this Lease
as of the date the condemning authority takes possession of said condemned
portion by giving written notice of termination to Lessor within ten (10) days
after receiving notice from Lessor that the condemning authority is taking such
possession. If Lessee does not terminate this Lease as hereinabove immediately
provided, then the rent payable shall be reduced as set forth above. Any
compensation awarded as damages for the taking of said Premises or the
appurtenances thereto together with any severance damages shall be the sole
property of Lessor, except to the extent that any award is made for trade
fixtures or equipment of Lessee which are not part of said real property and
except to the extent that Lessee may be paid for moving costs.
23. ASSIGNMENT OR SUBLETTING. Lessee shall not, voluntarily or by operation of
law, assign, transfer, mortgage, sublet, or otherwise transfer or encumber all
or any part of Lessee's interest in this Lease or in the Premises, or suffer any
other person (with the exception of the agents, employees and business invitees
of Lessee) to occupy or use the Premises, or any portion thereof, without the
prior written consent of Lessor, which consent Lessor may not unreasonably
withhold. Any attempted assignment, transfer, mortgage, encumbrance, subletting,
occupation or use without such consent first had and obtained, shall be void and
shall, at the option of Lessor, terminate this Lease. Any cumulative transfer
of, in excess of twenty percent (20%) of interests in the partnership, if Lessee
is a partnership, or in excess of fifty percent (50%) of the voting power of the
corporation, if Lessee is a corporation, shall constitute a transfer for the
purpose of this paragraph. Except that in the event that the assignee under an
assignment approved by Lessor and/or such assignee's guarantor, is equally
financially responsible as Lessee and the Guarantor of this Lease, and such
assignee assumes the covenants and conditions of Lessee pursuant to this Lease,
then Lessor shall release Lessee and the Guarantor of Lessee's obligations
hereunder of their obligations hereunder and under such guaranty. Lessee shall
remain obligated under the covenants and conditions of this Lease
notwithstanding any such assignment or subletting.
A consent to one assignment, transfer, encumbrance, or subletting to, or
occupation or use by one person, is not deemed to be a consent to any subsequent
assignment, transfer, encumbrance, subletting, occupation or use.
Any assignment, transfer, mortgage, encumbrance, or subletting, occupation
or use, whether with or without the consent of Lessor, shall automatically
terminate any option to extend this Lease, whether or not such option shall have
been exercised at the date of such assignment, transfer, mortgage, encumbrance,
subletting, occupation or use, provided the extended term resulting from the
exercise of such option shall not already have commenced.
-10-
<PAGE>
Lessor and Lessee hereby acknowledge that this Lease shall only confer
upon Lessee the right to possess the Premises in accordance with the terms and
conditions of this Lease and that Lessee shall not be entitled to any extra
rents, charges, profits or other compensation for the assignment upon an
assignment or subletting of Lessee's interest in the Premises. Any extra rents,
charges, profits, or other compensation for the assignment payable by an
assignee or subtenant of Lessee, or of Lessee's successor, shall become the
property of, and be payable to, Lessor; but only in the event that the
obligations of Lessee hereunder are released by Lessor and Lessee shall no
longer be obligated under the covenants and conditions of this Lease.
If Lessee shall request the consent of Lessor for any assignment,
encumbrance, or subletting or any act Lessee proposes to do, and Lessor in its
sole discretion deems it necessary to consult legal counsel in connection
therewith, then Lessee shall pay all of Lessor's reasonable attorney's fees
actually incurred and paid in connection therewith.
24. LESSEE'S BREACH. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee:
a. The abandonment of the Premises by Lessee;
b. The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of ten (10) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph;
c. The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee,
other than described in paragraph b above, where such failure shall continue for
a period of thirty (30) days after written notice hereof from Lessor to Lessee;
provided, however that if the nature of Lessee's default is such that more than
thirty (30) days are reasonably required for its cure, then Lessee shall not
deemed to be in default if Lessee commenced such cure within said thirty (30)
day period and thereafter diligently prosecutes such cure to completion;
d. (i) the making by Lessee of any general arrangement or assignment
for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11
U.S.C. Section 101 or any successor statute thereto (unless, in the case of a
petition filed against Lessee, the same is dismissed within sixty (60) days);
(iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. Provided, however, in the event that any provision of this paragraph is
contrary to any applicable law, such provision shall be of no force or effect.
e. The discovery by Lessor that any financial statement given to
Lessor by Lessee, or any guarantor of Lessee's obligation hereunder was
materially false.
In the event of any breach by Lessee in the payment of rent or any material
breach of any other covenant or condition of this Lease by Lessee not cured
prior to the expiration of any applicable cure period, then Lessor besides other
rights or remedies it may have, shall have the immediate right of reentry
-11-
<PAGE>
and may remove all personal property from the Premises; such property to be
removed and stored in a public warehouse or elsewhere at the cost of, and for
the account of, Lessee. Should Lessor elect to reenter, as herein provided, or
should it take possession pursuant to legal proceedings or pursuant to any
notice provided for by law, it may either terminate this Lease or it may from
time to time, without terminating this Lease, relet said Premises or any part
thereof for such term or terms and at such rental or rentals and upon such other
terms and conditions as Lessor in its sole discretion may deem advisable with
the right to make alterations and repairs to said Premises. Rental received by
Lessor from such reletting shall be applied: first, to the payment of any cost
of such reletting; second, to the payment of the cost of any necessary
alterations and repairs to the Premises; third, to the payment of any
indebtedness other than rent due hereunder from Lessee to Lessor; fourth, to the
payment of any rent due and unpaid hereunder; and the residue, if any, shall be
held by Lessor and applied in payment of future rent as the same may become due
and payable hereunder. Should such rentals received from such reletting during
any month be less than that agreed to be paid during that month by Lessee
hereunder, then Lessee shall pay such deficiency to Lessor. Such deficiency
shall be calculated and paid monthly. Lessee shall also pay to Lessor, as soon
as ascertained, the costs and expenses incurred by Lessor in such reletting or
in making such alterations and repairs. No such reentry or taking possession of
said Premises by Lessor shall be construed as an election on its part to
terminate this Lease unless a written notice of such intention be given to
Lessee or unless a termination thereof be decreed by a court of competent
jurisdiction. Notwithstanding any such reletting without termination, Lessor may
at any time thereafter elect to terminate this Lease for any breach in the
payment of rent and any material breach of any other covenant or condition of
this Lease which is not cured prior to the expiration of any applicable cure
period. In addition to any other remedy Lessor may have, if Lessee breaches this
Lease and abandons the Premises before the end of the term, or if Lessee's right
to possession is terminated by Lessor because of a breach in the payment of rent
and any material breach of any other covenant or condition of this Lease which
is not cured prior to the expiration of any applicable cure period, then in
either such case Lessor may recover from Lessee all damages suffered by Lessor
as the result of Lessee's failure to perform its obligations hereunder,
including but not limited to the cost of recovering the Premises, and the worth
at the time of the award (computed in accordance with paragraph (b) of Section
1951.2 of the California Civil Code) of the amount by which the rent then unpaid
hereunder for the balance of the Lease term exceeds the amount of such rental
loss for the same period which Lessee proves, could be reasonably avoided by
Lessor. The remedies given Lessor under the terms of this Lease shall be
cumulative and in addition to any other rights or remedies which Lessor may have
at law or otherwise.
Lessor reserves the right to continue this Lease in effect for so long as
Lessor does not terminate Lessee's right to possession and to enforce all its
rights and remedies under this Lease including the right to recover the rent as
it becomes due under this Lease in accordance with the provisions of Section
1951.4 of the Civil Code.
25. SUBORDINATION, NONDISTURBANCE AND ATTORNMENT. This Lease is subject and
subordinate to:
a. The lien of any mortgages, deeds of trust, or other encumbrances
("Encumbrances") of the Improvements and Property;
b. All renewals, extensions, modifications, consolidations and
replacements of the Encumbrances; and
c. All advances made or hereafter to be made on the security of the
Encumbrances.
-12-
<PAGE>
Despite any other provision of this paragraph 25, any Encumbrance
holder may elect that this Lease shall be senior to and have priority over that
Encumbrance whether this Lease is dated before or after the date of the
Encumbrance. However, no such subordination shall be effective unless and until
Lessor obtains from the holder of the Encumbrance placed against the Premises a
nondisturbance agreement in recordable form, providing that in the event of any
foreclosure, sale under a power of sale, ground or master lease termination, or
transfer in lieu of any of the foregoing, or the exercise of any other remedy
under any such Encumbrance:
(i) Lessee's use, possession and enjoyment of the Premises shall
not be disturbed and this Lease shall continue in full force and effect as long
as Lessee is not in default; and
(ii) this Lease shall automatically become a lease directly
between any successor to Lessor's interest, as Lessor, and Lessee, as if that
successor were the Lessor originally named in the Lease.
d. If Lessee has received the nondisturbance agreement referred to
in the paragraph immediately following 25c, above, Lessee shall, within ten (10)
business days after Lessor's request, execute any further instruments or
assurances in recordable form that Lessor reasonably considers necessary to
evidence or confirm the subordination or superiority of this Lease to any such
Encumbrances. Such subordination instrument(s) shall be strictly limited to
matters contained in the nondisturbance agreement, and no such instrument may
materially increase any of Lessee's obligations or materially decrease any
Lessee's rights under this Lease. Lessee's failure to execute and deliver such
instrument(s) shall constitute a default under this Lease only if Lessor has
first delivered the nondisturbance agreement to Lessee. Lessee covenants and
agrees to attorn to the transferee of Lessor's interest in the Premises by
foreclosure, deed in lieu of foreclosure, exercise of any remedy provided in any
Encumbrance, or operation of law (without any deductions or setoffs) except as
expressly provided in this Lease or in any nondisturbance agreement, if
requested to do so by the transferee, and to recognize the transferee as the
Lessor under this Lease. The transferee shall not be liable for:
(i) any acts, omissions, or defaults of Lessor that occurred
before the sale or conveyance; or
(ii) the return of any security deposit except for deposits
actually paid to the transferee and except as expressly provided in this Lease
or in any nondisturbance agreement.
f. Lessee agrees to give written notice of any default by Lessor to
the holder of any Encumbrance. Lessee agrees that, before it exercises any
rights or remedies under the Lease, the lienholder or successorlessor shall have
the right, but not the obligation, to cure the default within the same time, if
any, given to Lessor to cure the default, plus an additional thirty (30) days.
Lessee agrees that this cure period shall be extended by the time necessary for
the lienholder to begin foreclosure proceedings and to obtain possession of the
building or Premises, as applicable.
26. SURRENDER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, shall not work a merger, and shall, at the option
of Lessor, terminate all or any existing sublease or subtenancies or may, at the
option of Lessor, operate as an assignment to Lessor of any or all of such
subleases or subtenancies.
-13-
<PAGE>
27. ATTORNEYS' FEES. If either party to this Lease brings an action to enforce
the terms hereof or declare rights hereunder the prevailing party in any such
action shall be entitled to reasonable attorneys' fees as fixed by the Court
incurred in the trial or appeal of such matter.
28. NOTICES. All notices shall be in writing. Notice shall be sufficiently
given for all purposes as follows:
a. When personally delivered to the recipient, notice is effective
on delivery.
b. When mailed by certified mail with return receipt requested,
notice is effective on receipt if delivery is confirmed by a return receipt.
c. When delivered by overnight delivery Federal
Express/Airborne/United Parcel Service/DHL Worldwide Express or other commercial
delivery service, with charges prepaid or charged to the sender's account,
notice is effective on delivery if delivery is confirmed by the delivery
service.
d. When sent by telex or fax or electronic mail (also known as
E-mail, and only available if the recipient has an E-mail address) to the last
telex or fax or E-mail number of the recipient known to the party giving notice,
notice is effective on receipt as long as (i) a duplicate copy of the notice is
promptly given by certified mail or by overnight delivery or (ii) the receiving
party or the sending equipment delivers a written confirmation of receipt. Any
notice given by telex, fax number or E-mail shall be considered to have been
received on the next business day if it is received after 5:00 p.m. (recipient's
time) or on a nonbusiness day.
e. Any correctly addressed notice that is refused, unclaimed or
undeliverable because of an act or omission of the party to be notified shall be
considered to be effective as of the first date that the notice was refused,
unclaimed or considered undeliverable by the postal authorities, messenger or
overnight delivery service.
f. Addresses for purposes of giving notice are set forth at the end
of this Lease opposite the signatories of the parties hereto. Either party may
change its address or telex, fax number, or E-mail address by giving the other
party notice of the change in any manner permitted by this paragraph 28.
29. SECURITY. If any security be given by Lessee to secure the faithful
performance Of all or any of the covenants of this Lease on the part of Lessee,
Lessor may transfer and/or deliver the security, as such, to the purchaser of
the reversion, in the event that the reversion be sold, and Lessor shall be
discharged from any further liability in reference there to upon such
transferees written assumption of liability therefor.
30. WAIVER. The waiver by Lessor or Lessee of any breach of any term, covenant
or condition herein contained shall not be deemed to be a waiver of such term,
covenant or condition or any subsequent breach of the same or any other term,
covenant or condition herein contained.
31. AUCTIONS. Lessee shall not conduct or cause to be conducted any auction,
fire, closing out, going out of, business or bankruptcy sale on said Premises or
the appurtenances thereto without the prior written consent of Lessor.
32. BINDING, MODIFICATION, ETC. This Lease shall inure to the benefit of and be
binding upon the parties hereto, their heirs, executors, administrators,
successors and assigns; provided that no assignee for the benefit of creditors,
trustee, receiver or
-14-
<PAGE>
referee in bankruptcy shall acquire any rights under this Lease by virtue of
this paragraph; this Lease may be modified in writing only. This Lease
constitutes the entire agreement of the parties who acknowledge that no oral or
other representations have been made by themselves or any agent of either of
them with respect to the condition of said Premises or any obligation of the
Lessor hereunder or otherwise. The parties agree to execute any documents
necessary to carry this Lease into effect.
33. OVERDUE RENT. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Lessor by the
term of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within ten (10) days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
late charge equal to six percent (6%) of such overdue amount. The parties hereby
agree that such late charge represents a fair and reasonable estimate of the
costs Lessor will incur by reason of late payment by Lessee. Acceptance of such
late charge by Lessor shall in no event constitute a waiver of Lessee's default
with respect to such overdue amount, nor prevent Lessor from exercising any of
the other rights and remedies granted hereunder. In the event that a late charge
is payable hereunder, whether or not collected, for three (3) consecutive
installments of rent, then rent shall automatically become due and payable
quarterly in advance, rather than monthly, notwithstanding any other provision
of this Lease to the contrary.
34. INTEREST ON PAST DUE OBLIGATIONS. Any amount owed by Lessee to Lessor which
is not paid when due shall bear interest at the rate of twelve percent (12%) per
annum from the due date of such amount. However, interest shall not be payable
on late charges to be paid by Lessee under this Lease. The payment of interest
on such past due obligations shall not excuse or cure any default by Lessee
under this Lease. In the event the interest rate specified in this Lease is
greater than the rate permitted by law, then the interest rate is hereby
decreased to the maximum legal interest rate permitted by law.
35. ESTOPPEL CERTIFICATE.
a. Lessee shall at any time upon not less than ten (10) days' prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the part of Lessee or Lessor hereunder, or specifying such defaults if any are
claimed; and (iii) such other information reasonably requested by Lessor or a
lender to or purchaser from Lessor. Any such statement may be conclusively
relied upon by any prospective purchaser or encumbrancer of the Premises.
b. If Lessee fails to deliver such statement within such time, such
failure shall be conclusive upon Lessee (i) that this Lease is in full force and
effect, without modification except as may be represented by Lessor, (ii) that
there are no uncured defaults in Lessor's performance, and (iii) that not more
than one (1) month's rent has been paid in advance.
-15-
<PAGE>
c. If Lessor desires to finance, refinance or sell the Premises, or
any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three (3) years' financial statements of Lessee. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence and shall
be used only for the purposes herein set forth.
d. Lessee shall be responsible for any and all damages Lessor can
reasonably show were caused by or related to Lessee's failure to comply with the
time periods set forth in this paragraph 35.
36. UNDERGROUND TANKS. Lessor represents to Lessee that to the best of Lessor's
actual knowledge without independent investigation or inquiry, as of the date of
this Lease, there are no underground storage tanks upon the Property.
Notwithstanding anything to the contrary set forth herein, Lessee shall not
install underground or above ground storage tanks as defined by any and all
applicable laws of any size or shape in the Premises without the prior consent
of Lessor. Lessor shall have the right to condition its consent upon Lessee
giving Lessor such assurances that Lessor, in its absolute discretion, deems
reasonably necessary to protect itself against potential problems concerning the
installation, use, removal and contamination of the Premises as a result of the
installation and/or use of said tanks. Upon termination of this Lease, Lessee
shall at its sole cost and expenses, remove the tanks from the Premises, remove
and replace any contaminated soil (and compact the same as then required by law)
and repair any damage to the Premises caused by said installation and/or
removal, pursuant to all applicable laws, and the supervisions and approval of
Lessor.
37. HAZARDOUS WASTE; ENVIRONMENTAL AND RELATED MATTERS.
a. Lessor shall promptly furnish or shall have furnished to Lessee
prior to the date hereof copies of any and all environmental site assessments or
hazardous substance reports of the Premises prepared by or for Lessor or others
within the possession of control of Lessor (the "Reports"). Notwithstanding any
of the foregoing, Lessee's obligations hereunder shall be contingent upon
Lessee's satisfaction with and approval of the Reports and the environmental
condition of the Premises as described in the Reports. If Lessee shall fail to
disapprove the Reports and the Premises in writing to be delivered to Lessor
within the latter to occur of ten (10) days of the receipt by Lessee of the
Reports, or July 11, 1997, then Lessee conclusively shall have been deemed to
have approved the Reports and the Premises, and this Lease shall be and remain
in full force and effect. If Lessee shall, within the latter of said time
periods to disapprove the Reports or the environmental condition of the Premises
as described in the Reports, by notice in writing to Lessor, then this Lease
shall immediately terminate and neither party shall have any further obligation
or liability to the other party hereunder.
b. During Lessee's inspection of the Premises prior to the date of
execution of this Lease, an objectionable odor existed near the street in front
of the building. Representatives of the City of Garden Grove performed
maintenance work to the storm drain in front of the building and within the
street right of way and a missing cover to a sewer line was installed. Lessee
shall have until on or before July 11, 1997 within which to satisfy itself that
the objectionable odor problem has been corrected to the satisfaction of Lessee.
If Lessee shall fail to disapprove the status of the correction to the odor
problem in writing to be delivered to Lessor no later than July 11, 1997, then
Lessee conclusively shall have been deemed to have approved the status of the
correction of the odor problem, and this Lease shall be and
-16-
<PAGE>
remain in full force and effect. If Lessee shall, on or before July 11, 1997
disapprove the status of correction of the odor problem, by notice in writing to
Lessor, then this Lease shall immediately terminate and neither party shall have
any further obligation or liability to the other party hereunder. Lessee shall
cooperate with Lessor and Lessor shall use Lessor's commercially reasonable best
efforts to cause the City of Garden Grove to take such action as may be
necessary to correct the said odor problem.
c. Lessor warrants and represents to Lessee that, to the best of
Lessor's actual knowledge without independent investigation or inquiry, as of
the date of this Lease:
(i) there has been no release onto our under the Premises or
the building of any Hazardous Materials (as defined below) in violation of
any Environmental Law;
(ii) the Improvements contain no PCBs, PCB-contaminated
electrical equipment, or asbestos-containing materials;
(iii) Lessor has received no notice that the Premises or the
Improvements are in violation of any Environmental Law.
d. Lessee, at Lessee's sole cost and expense, shall comply with, and
shall not use the Premises or suffer or permit anything to be done in, on, or
about the Premises which will in any way conflict with any applicable federal,
state and local laws, regulations, ordinances, orders or requirements pertaining
to Hazardous Materials, waste disposal, air or water quality, and other
environmental and health and safety matters (collectively, "Hazardous Materials
Laws"). For purposes of this Lease, the term "Hazardous Materials" means any
substance, material, waste, contaminant or pollutant (i) determined by any
federal, state or local government agency, court, judicial or quasi-judicial
body or legislative or quasi-legislative body to be hazardous, toxic,
infectious, radioactive, persistent or bioaccumulative, or to require removal,
treatment or remediation; (ii) which results in liability to any person or
entity for exposure to or discharge of such substance; or (iii) which becomes
subject to any Hazardous Materials Law.
e. Lessee shall not cause, suffer or permit any Hazardous Materials
to be brought upon, stored, used, generated, released into the environment or
disposed of on, under, from, or about the Premises (which for purposes of the
Lease includes, but is not limited to, subsurface soil and groundwater), without
the prior written consent of Lessor. Excluded from the prohibition contained in
this subparagraph are such Hazardous Materials as are necessary or useful to
Lessee's business, provided that such Hazardous Materials are generated, stored,
used and disposed of in compliance with all applicable Hazardous Materials Laws.
f. Promptly upon request therefor, Lessee will provide Lessor with
true, correct, complete and legible copies of any environmental site assessments
pertaining to the Premises prepared by or on behalf of Lessee; reports filed
pursuant to self-reporting requirements under any Hazardous Materials Laws;
permits, permit applications, monitoring reports, workplace exposure and
community exposure warnings or notices reports, plans or documents in Lessee's
possession or control relating to Hazardous Materials on, under or about the
Premises.
g. Lessee shall notify Lessor in writing immediately upon becoming
aware of: (i) any enforcement, cleanup, remediation or other action threatened,
instituted or completed by anyone with respect to Hazardous Materials on, under
or about the Premises; (ii) any claim threatened or made by any person against
Lessee for
-17-
<PAGE>
personal injury, property damage, other losses, contribution, cost recovery,
compensation or any other matter relating to Hazardous Materials and the
Premises; or (iii) any spilling, leaking, dumping or releasing of Hazardous
Materials in, on, under or about the Premises that triggers reporting,
disclosure, investigation or cleanup obligations under any Hazardous Materials
Law. Lessee shall provide to Lessor as promptly as possible, and in any event
within five (5) business days after Lessee first receive or sends the same,
copies of all claims, reports, complaints, notices, warnings, correspondence or
other documents relating in any way to the foregoing.
h. If Hazardous Materials contamination caused, suffered or
permitted by Lessee is discovered on, under or about the Premises, Lessee shall,
as its sole cost and expense, promptly (i) notify Lessor; (ii) undertake site
investigation activities necessary to characterize the nature and extent of such
contamination; (iii) prepare and provide to Lessor a cleanup plan to remove or
remediate the contamination; and (iv) upon Lessor's approval (and upon the
approval of any governmental or regulatory agency overseeing the site
investigation or cleanup activities), promptly implement the cleanup plan in
accordance with applicable Hazardous Materials Laws. In the event that Lessee
fails, after reasonable notice and request therefor by Lessor, to take any of
the actions required hereunder Lessor may itself take such action and Lessee
shall promptly reimburse Lessor for all costs and expenses Lessor incurs in
connection with such action.
i. To the fullest extent permitted by law, Lessee will indemnify,
hold harmless, protect and defend (with attorneys acceptable to Lessor) Lessor
and Lessor's officers, directors, shareholders, employees and agents, and any
successors to all or any portion of Lessor's interest in the Premises and their
directors, officers, partners, employees, authorized agents, representatives,
affiliates and mortgagees, from and against any and all liabilities, losses,
damages (including, without limitation, damages for the loss or restriction on
use of rentable or usable space or any amenity of the Premises or damages
arising from any adverse impact on marketing of space in the Premises),
diminution in the value of the Premises, judgments, fines, demands, claims,
recoveries, deficiencies, costs and expenses (including, but not limited to,
reasonable attorneys' fees and disbursements and court costs and all other
professional or consultant's expenses), whether foreseeable or unforeseeable,
arising directly or indirectly out of the presence, use, generation, storage,
treatment, on or off-site disposal, or transportation of Hazardous Materials on,
into, from, under, or about the Premises by Lessee, its agents, employees,
contractors, licensees or invitees.
j. To the fullest extent permitted by law, Lessor will indemnify,
hold harmless, protect and defend (with attorneys acceptable to Lessee) Lessee
and Lessee's officers, directors, shareholders, employees and agents, and any
successors to all or any portion of Lessee's interest in the Premises and their
directors, officers, partners, employees, authorized agents, representatives,
affiliates and mortgagees, from and against any and all liabilities, losses,
damages, judgments, fines, demands, claims, recoveries, deficiencies, costs and
expenses (including, but not limited to, reasonable attorneys' fees and
disbursements and court costs and all other professional or consultants'
expenses), whether foreseeable or unforeseeable, arising directly or indirectly
out of the breach of the warranty and representation set forth in paragraph 37a,
above, or the presence, prior to the date of this Lease of hazardous substances
upon or under the Premises.
k. Upon the expiration or termination of this Lease, Lessee shall
cause to be removed from the Premises all Hazardous Materials brought upon,
used, kept or stored in, on, under or about the Premises by Lessee, as well as
all receptacles or
-18-
<PAGE>
containers therefor, and shall cause such Hazardous Materials and such
receptacles or containers to be stored, treated, transported and/or disposed of
in compliance with all applicable Hazardous Materials Laws. Lessee shall, at its
sole cost and expense, repair any damage to the Premises resulting from
Lessee's removal of such Hazardous Materials and receptacle or containers
therefor. Lessee's obligation to pay rent shall continue until such removal by
Lessee has been completed to Lessor's satisfaction, notwithstanding the
expiration or early termination or cancellation of the term of this Lease. To
ensure performance of Lessee's obligations hereunder, Lessor may, at any time
within one (1) year of the expiration of this Lease, or upon the occurrence of a
material default under this Lease by Lessee, require that Lessee promptly
commence and diligently prosecute to completion an environmental evaluation of
the Premises. In connection therewith, Lessor may require Lessee, at Lessee's
sole cost and expense, to hire an outside consultant satisfactory to Lessor to
perform a complete environmental audit of the Premises, an executed copy of
which audit shall be delivered to Lessor within thirty (30) days after Lessor's
request therefor. If Lessee or the environmental audit discloses the existence
of Hazardous Materials on, under, or about the Premises, Lessee will, at
Lessor's request, prepare and submit to Lessor within thirty (30) days after
such request a comprehensive clean-up plan, subject to Lessor's approval,
specifying the actions to be taken by Lessee to return the Premises to the
condition existing prior to the introduction of such Hazardous Materials. Upon
Lessor's approval of such clean-up plan, Lessee will, at Lessee's sole cost and
expense, without limitation on any rights and remedies of Lessor under this
Lease, immediately implement such plan and proceed to clean up such Hazardous
Materials in accordance with all Hazardous Materials Laws as required by such
plan and this Lease.
l. The obligations in this paragraph 37 shall survive the expiration
or earlier termination of this Lease. No termination, cancellation or release
agreement entered into by Lessor and Lessee shall release Lessee from its
obligations hereunder unless it specifically states Lessor's intentions to
release Lessee with respect thereto.
38. RECORDATION OF SHORT FORM. Either party may record a short form of this
Lease stating only that the Premises have been leased on the date hereof and
that any subsequent purchaser of the Premises or any part thereof shall be bound
by all the terms hereof.
39. GOVERNING LAW. This Lease shall be governed by and enforced in accordance
with the laws of the State of California.
40. HEADINGS. Paragraph headings are not a part of this Lease.
41. LESSEE'S BUILDING IMPROVEMENTS PROVIDED BY LESSOR
a. Lessor agrees, at Lessor's expense, as soon as practical after
executing this Lease, to cause the preparation of construction drawings and
specifications, to secure requisite building permits, and to construct the
following tenant improvements:
(i) Enclosed and air-condition the warehouse area under and
above the mezzanine by constructing a dry wall at and above the
mezzanine line, across the entire width of the building. Said wall to
provide for appropriate man door access and interior windows at
mutually agreeable locations. Interior walls and t-bar ceiling of
these areas to be painted white. First floor area to be dust sealed
and second floor area to be covered with industrial grade tile.
-19-
<PAGE>
(ii) Refurbish existing office area including:
1. New carpet and tile. (Lessee's choice of color)
2. New paint. (Lessee's choice of color)
3. Repair or replace damaged ceiling tiles and vents where
necessary; but the replacement or repair of individual
tiles will not result in a color mismatch between
existing and new or replaced tiles.
(iii) Duplicate existing restroom in warehouse area as shown on
the attached Exhibit "A."
b. Lessor agrees to pursue such construction diligently to
completion but shall be under no liability for damage, costs or expense
resulting from delays occasioned by acts of God, of the government, of the
elements, public enemy, or by fire, flood, storm, earthquake, freight embargoes,
inability to obtain labor or materials, strikes, boycotts, delays by contractors
or subcontractors for any of the above or any other causes, delays by Lessee in
approving either materials or colors which Lessee has the right to approve, or
by other causes beyond Lessor's control.
c. Upon the termination or cancellation of this Lease for any
reason, expiration, failure to extend or default by Lessee, the building
improvements shall remain the property of Lessor and Lessee shall not be
obligated or entitled to remove them unless notified, in writing prior to
construction, by Lessor to the contrary.
42. OPTION TO EXTEND LEASE. In the event that Lessee shall not be in default in
the performance of any term or condition of this Lease, then upon the expiration
of the Lease term, Lessee shall have the option to extend the Lease for an
additional term of five (5) years. Lessee's rights to exercise the option are
contingent upon Lessee not being in default in the performance of any term or
condition of this Lease or if in default, Lessee shall have cured the same prior
to the deadline for exercising the extension option. During the extension
period, all the terms and conditions of this Lease shall remain in effect except
that the base rental for the extension period will be determined as set forth in
paragraph 43, entitled "Rent Determination for Extended Period," and the rental
commencing on the thirty-first (31st) month of the extended period will be
adjusted as provided in paragraph 44, entitled "Rental Escalations."
The option must be exercised by Lessee, if at all, prior to a date which
shall be six (6) months prior to the expiration of the Lease term, by notice to
Lessor stating that Lessee is exercising its option to extend. Such exercise of
the option shall automatically extend the term of the Lease upon the terms and
conditions herein set forth, and no further writing need be executed by Lessee
or Lessor, except that no term extension shall occur or take effect if, prior to
its commencement, Lessee shall have assigned or sublet (by operation of law or
otherwise and with or without Lessor's consent) this Lease or the Premises. Once
exercised, Lessee shall not have the right to revoke its election to exercise
the option. In the event that the option is not exercised as provided for herein
within the time provided for, the option shall expire, and Lessee shall have no
further right to renew or extend the Lease.
43. REM DETERMINATION FOR EXTENDED PERIOD. Prior to the commencement of the
extended period, the base rental initially payable for such period shall be
determined as follows:
a. Lessee shall, not less than six (6) months nor more than one (1)
year before expiration of the initial term, give Lessor written notice of its
desire to determine Rent for the
-20-
<PAGE>
extended period. Lessor and Lessee shall have thirty (30) days after Lessor
receives such notice to agree in writing to said Rent, which writing signed by
each party shall constitute an amendment to this Lease determining the Rent and
extending the term in conformity with this Lease.
b. If Lessor and Lessee shall fail to reach an agreement as provided
in subparagraph 43a, the option to extend shall terminate unless within ten (10)
business days after the expiration of the thirty (30) day notice specified in
paragraph 43a, Lessee shall give Lessor a notice of its desire to determine the
such Rent by appraisement, designating a qualified appraiser for the purpose.
Unless, within ten (10) business days after receipt of such notice, Lessor shall
designate a qualified appraiser, it shall be deemed to have accepted the
qualified appraiser designated by Lessee. For purposes hereof, the term
"qualified appraiser" shall mean a Member of the Appraisal Institute with not
less than five (5) years' experience in appraising commercial rental properties
in Orange County in the State of California and without financial, family, or
business connections with either Lessor or Lessee, or any affiliate of Lessor or
Lessee, or the officers, directors or employees of any of them.
The appraiser or appraisers so appointed shall, within forty-five (45) days
of his appointment or of the later of the appointments, submit to Lessor and
Lessee appraisal(s) of the Rent for the Extended Term, expressed in terms of a
fair monthly rental value in the context of a five (5) year lease, on
substantially the terms made herein applicable to the extended term for the then
use of the Premises.
The Rent for the Extended Term shall be either (i) the amount of the
appraisal of the single appraiser; or (ii) where there are two appraisers, the
agreed appraisal, if both appraisers are in agreement, or, if they are not in
agreement, the average of the two appraisals if the higher does not exceed the
lower by more than five percentage (5%) of the lower. If the appraisals
determined by the two appraisers hereinbefore appointed differ by more than five
percent (5%), then the two appraisers shall appoint a third qualified appraiser
who shall submit to Lessor and Lessee within the next ensuing forty-five (45)
days an appraisal of the fair rental value of the Premises. The Rent for the
Extended Term shall be the average of all three appraisals, unless one appraisal
exceeds or is less than an average of the two closer appraisals by more than ten
percent (10%), in which case such appraisal will be discarded and the Rent for
the Extended Term shall be the average of the two closer appraisals.
c. When the Rent for the Extended Term shall have been determined as
aforesaid, the Lease shall be amended to reflect said monthly rent payable for
the extended term.
d. The cost of the appraisal procedure shall be divided equally
between the parties.
e. Time is of the essence as to the exercise of the extension option
by Lessee and of the appraisal procedures specified in this paragraph 43; any
failure by Lessee to meet the deadlines herein specified, unless the delay shall
have been contributed to by Lessor's actions or omissions, shall terminate this
option to extend.
f. In no event shall such adjusted monthly rent be less than the
rent payable for the month immediately preceding the date of such rent
adjustment.
44. RENTAL ESCALATIONS. The amount of the rental payable during the extension
period of this Lease shall be subject to adjustment effective the first day of
the thirty-first (31st) month of the
-21-
<PAGE>
extension period. Such adjustment will be made by dividing the amount of monthly
rental payable on the first day of the extension period by the figure shown in
the Consumer's Price Index for All Urban Consumers for the Los
Angeles-Anaheim-Riverside area (1982-84 = 100), published monthly in the Monthly
Labor Review of the Bureau of Labor Statistics of the United States Department
of Labor (or the successor which most closely resemble such Index) for the third
month prior to the month in which the extension period commenced, and
multiplying the result by the corresponding Index figure for the third month
prior to the thirty-first (31st) month of such term or period; provided,
however, no reduction in the amount of rent then in effect resulting from such
calculation shall occur; provided, however, that the excalated rent shall not be
less than four percent (4%) and not greater than eight percent (8%) more than
the rent for the first thirty (30) months of the extended term, determined in
accordance with paragraph 43, above.
45. HOLDING OVER. Any holding over after the expiration of the initial term,
with the consent of Lessor, shall be construed to be a tenancy from month to
month, at a rental of Fifty-Six Thousand Four Hundred Eight and 16/100
($56,408.16) Dollars per month and shall otherwise be on the terms and
conditions herein specified so far as applicable. Any holding over at the end of
the extended term, if applicable, shall be subject to the same provisions,
except that the hold over rental shall be increased by twenty-five percent (25%)
over the rent immediately prior to the hold over.
46. COUNTERPARTS. This Lease may be executed in multiple counterparts, each of
which shall be an original and all of which, taken together, shall constitute
one and the same instrument.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease on the date
set forth opposite their signatures.
Dated: 20 June 1997 KILROY REALTY, L.P.,
----------------------- A Delaware Limited Partnership
ADDRESS FOR NOTICES: By: KILROY REALTY CORPORATION,
A Maryland Corporation,
2250 E. Imperial Highway General Partner
Suite 1200
El Segundo, CA 90245
Telex: By: /s/ Illegible
----------------------- --------------------------
Fax: (310) 322-5981
-----------------------
E-mail: Title: EVP-COO
----------------------- -----------------------
with a copy to: "LESSOR"
- ------------------------------
- ------------------------------
- ------------------------------
Dated: HOLLINGSEAD INTERNATIONAL,
----------------------- A California Corporation
Address for Notices:
2361 Rosecrans Avenue By: /s/ RJ MacDonald
Suite 180 ------------------------
El Segundo, CA 90245 Title: Vice-Chairman
Telex: ----------------------
------------------------
Fax: (310) 643-0746 "LESSEE"
-------------------------
E-mail:
----------------------
-22-
<PAGE>
EXHIBIT 10.14
GENERAL TERMS AGREEMENT
between
THE BOEING COMPANY
and
CORY COMPONENTS
Number 6-5752-0002
i
<PAGE>
GENERAL TERMS AGREEMENT
TABLE OF CONTENTS
SECTION TITLE
- ------- ------
1.0 DEFINITIONS
2.0 ISSUANCE OF PURCHASE ORDERS
AND APPLICABLE TERMS
2.1 Issuance of Purchase Orders
2.2 Acceptance of Purchase Orders
2.3 Written Authorization to Proceed
2.4 Rejection of Purchase Orders
3.0 TITLE AND RISK OF LOSS
4.0 DELIVERY
4.1 Requirements
4.2 Delay
4.3 Notice of Labor Disputes
5.0 ON-SITE REVIEW AND RESIDENT
REPRESENTATIVES
5.1 Review
5.2 Resident Representatives
6.0 INVOICE AND PAYMENT
7.0 PACKING AND SHIPPING
8.0 QUALITY ASSURANCE, INSPECTION
REJECTION AND ACCEPTANCE
8.1 Controlling Document
8.2 Seller's Inspection
8.3 Boeing's Inspection and Rejection
8.4 Federal Aviation Administration or
Equivalent Government Agency Inspection
8.5 Retention of Records
ii
<PAGE>
SECTION TITLE
- ------- -----
8.6 Source Inspection
8.7 Language for Technical Information
9.0 EXAMINATION OF RECORDS
10.0 CHANGES
10.1 General
10.2 Model Mix
11.0 PRODUCT ASSURANCE
12.0 TERMINATION FOR CONVENIENCE
13.0 EVENTS OF DEFAULT AND REMEDIES
14.0 EXCUSABLE DELAY
15.0 SUSPENSION OF WORK
16.0 TERMINATION OR CANCELLATION: INDEMNITY
AGAINST SUBCONTRACTOR'S CLAIMS
17.0 ASSURANCE OF PERFORMANCE
18.0 RESPONSIBILITY FOR PROPERTY
19.0 LIMITATION OF SELLER'S RIGHT TO
ENCUMBER ASSETS
20.0 PROPRIETARY INFORMATION AND
ITEMS
21.0 COMPLIANCE WITH LAWS
22.0 INTEGRITY IN PROCUREMENT
23.0 INFRINGEMENT
24.0 BOEING'S RIGHTS IN SELLER'S, PATENTS
COPYRIGHTS, TRADE SECRETS AND TOOLING
25.0 NOTICES
25.1 Addresses
25.2 Effective Date
25.3 Approval or Consent
iii
<PAGE>
SECTION TITLE
- ------- ------
26.0 PUBLICITY
27.0 PROPERTY INSURANCE
27.1 Insurance
27.2 Certificate of Insurance
27.3 Notice of Damage or Loss
28.0 RESPONSIBILITY FOR PERFORMANCE
28.1 Subcontracting
28.2 Reliance
28.3 Assignment
29.0 NON-WAIVER
30.0 HEADINGS
31.0 PARTIAL INVALIDITY
32.0 APPLICABLE LAW
33.0 AMENDMENT
34.0 LIMITATION
35.0 TAXES
35.1 Inclusion of Taxes in Price
35.2 Litigation
35.3 Rebates
36.0 FOREIGN PROCUREMENT OFFSET
37.0 ENTIRE AGREEMENT/ORDER
OF PRECEDENCE
37.1 Entire Agreement
37.2 Incorporated By Reference
37.3 Order of Precedence
37.4 Disclaimer
iv
<PAGE>
AMENDMENT
AMEND
NUMBER DESCRIPTION DATE APPROVAL
- ------ ----------- ---- --------
v
<PAGE>
GENERAL TERMS AGREEMENT
RELATING TO
BOEING PRODUCTS
THIS GENERAL TERMS AGREEMENT ("Agreement") is entered into as of (DATE), by
and between CORY COMPONENTS, a California corporation, with its principal
office in El Segundo, CA, ("Seller"), and The Boeing Company, a Delaware
corporation with its principal office in Seattle, Washington acting by and
through its division the Boeing Commercial Airplane Group ("Boeing").
RECITALS
A. Boeing produces commercial airplanes.
B. Seller manufactures and sells certain goods and services for use in the
production and support of such aircraft.
C. Seller desires to sell and Boeing desires to purchase certain of Seller's
goods and services in accordance with the terms set forth in this
Agreement.
Now therefore, in consideration of the mutual covenants set forth
herein, the parties agree as follows:
1
<PAGE>
AGREEMENTS
1.0 DEFINITIONS
The definitions set forth below shall apply to the following terms as
they are used in this Agreements, any Order, or any related Special
Business Provisions ("SBP"). Words importing the singular number shall
also include the plural number and vice versa.
(a) "Customer" means any owner, operator or user of Products and any
other individual, partnership, corporation or entity which has or
acquires any interest in the Products from, through or under
Boeing.
(b) "Derivative" means any new model airplane designated by Boeing as
a derivative of an existing Model airplane and which: (1) has the
same number of engines as the existing model airplane; (2)
utilizes essentially the same aerodynamic and propulsion design,
major assembly components, and systems as the existing model
airplane and (3) achieves other payload/range combinations by
changes in body length, engine thrust, or variations in certified
gross weight.
(c) "Drawing" means an automated or manual depiction of graphics or
technical information representing a Product or any part thereof
and which includes the parts list and specifications relating
thereto.
(d) "End Item Assembly" means any Product which is described by a
single part number and which is comprised of more than one
component part.
(e) "FAA" means the United States Federal Aviation Administration or
any successor agency thereto.
(f) "FAR" means the Federal Acquisition Regulations in effect on the
date of this Agreement.
(g) "Material Representative" means the individual designated from
time to time, by Boeing as being primarily responsible for
interacting with Seller regarding this Agreement and any Order.
(h) "Order" means each purchase order issued by Boeing and accepted
by Seller under the terms of this Agreement. Each Order is a
contract between Boeing and Seller.
(i) "Product" means goods, including components and parts thereof,
services, documents, data, software, software documentation and
other information or items furnished or to be furnished to Boeing
under any Order, including Tooling except for Rotating Use Tools.
(j) "Purchased on Assembly Production Detail Part (POA)" means a
component part of an End Item Assembly.
(k) "Shipset" means the total quantity of a given part number or
material necessary for production of one airplane.
2
<PAGE>
(l) "Spare" means any Product, regardless of whether the Product is
an End Item Assembly or a Purchased on Assembly Production Detail
Part, which is intended for use or sale as a spare part or a
production replacement.
(m) "Tooling" means all tooling, as defined in Boeing Document
M31-24, "Boeing Suppliers Tooling Manual," and/or described on
any Order, including but not limited to Boeing-Use Tooling,
Supplier-Use Tooling and Common-Use Tooling as defined in Boeing
Document D6-49004, "Operations General Requirements for
Suppliers," and Rotating-Use Tooling as defined in Boeing
Document M31-13, "Accountability of Inplant/Outplant Special
(Contract) Tools." For purposes of this Agreement, in the
documents named in this subparagraph, the term "Supplier Use
Tooling" shall be changed to Seller Use Tooling.
2.0 ISSUANCE OF ORDERS AND APPLICABLE TERMS
2.1 ISSUANCE OF ORDERS
Boeing may issue Orders to Seller from time to time. Each Order shall
contain a description of the Products ordered, a reference to the
applicable specifications and Drawings, the quantities and prices, the
delivery schedule, the terms and place of delivery and any special
conditions.
Each Order which incorporates this Agreement shall be governed by and
be deemed to include the provisions of this Agreement. Purchase Order
Terms and Conditions, Form D1-4100-4045, Form P252T and any other
purchase order terms and conditions which may conflict with this
Agreement, do not apply to the Orders.
2.2 ACCEPTANCE OF ORDERS
Each Order is Boeing's offer to Seller and acceptance is strictly
limited to its terms. Boeing will not be bound by and specifically
objects to any term or condition which is different from or in
addition to the provisions of the Order, whether or not such term or
condition will materially alter the Order. Seller's commencement of
performance or acceptance of the Order in any manner shall
conclusively evidence Seller's acceptance of the Order as written.
Boeing may revoke any Order prior to Boeing's receipt of Seller's
written acceptance or Seller's commencement of performance.
2.3 WRITTEN AUTHORIZATION TO PROCEED
Boeing's Material Representative may give written authorization to
Seller to commence performance before Boeing issues an Order. If
Boeing in its written authorization specifies that an Order will be
issued, Boeing and Seller shall proceed as if an Order had been
issued. This Agreement, the applicable SBP and the terms stated in the
written authorization shall be deemed to be a part of Boeing's offer
and the parties shall promptly agree on any open Order terms. If
Boeing does not specify in its written authorization that an Order
shall be issued, Boeing's obligation is strictly limited to the terms
of the written authorization. For purposes of this Section 2.3 only,
written authorization includes electronic transmission chosen by
Boeing.
3
<PAGE>
If Seller commences performance before an Order is issued or without
receiving Boeing's prior authorization to proceed, such performance
shall be at Seller's expense.
2.4 REJECTION OF PURCHASE ORDER
Any rejection by Seller of an Order shall specify the reasons for
rejection and any changes or additions that would make the Order
acceptable to Seller; provided, however, that Seller may not reject
any Order for reasons inconsistent with the provisions of this
Agreement or the applicable SBP.
3.0 TITLE AND RISK OF LOSS
Title to and risk of any loss of or damage to the Products shall pass
from Seller to Boeing at the F.O.B. point as specified in the
applicable Order, except for loss or damage thereto resulting from
Seller's fault or negligence. Passage of title on delivery does not
constitute Boeing's acceptance of Products.
4.0 DELIVERY
4.1 REQUIREMENTS
Deliveries shall be strictly in accordance with the quantities, the
schedule and other requirements specified in the applicable Order.
Seller may not make early or partial deliveries without Boeing's prior
written authorization. Deliveries which fail to meet Order
requirements may be returned to Seller at Seller's expense.
4.2 DELAY
Seller shall notify Boeing immediately, of any circumstances that may
cause a delay in delivery, stating the estimated period of delay and
the reasons therefor. If requested by Boeing, Seller shall use
additional effort, including premium effort, and shall ship via air or
other expedited routing to avoid or minimize delay to the maximum
extent possible. All additional costs resulting from such premium
effort or premium transportation shall be borne by Seller with the
exception of such costs attributable to delays caused directly by
Boeing. Nothing herein shall prejudice any of the rights or remedies
provided to Boeing in the applicable Order or by law.
4.3 NOTICE OF LABOR DISPUTES
Seller shall immediately notify Boeing of any actual or potential
labor dispute that may disrupt the timely performance of an Order.
Seller shall include the substance of this Section 4.3, including this
sentence, in any subcontract relating to an Order if a labor dispute
involving the subcontractor would have the potential to delay the
timely performance of such Order. Each subcontractor, however, shall
only be required to give the necessary notice and information to its
next higher-tier subcontractor.
5.0 ON-SITE REVIEW AND RESIDENT REPRESENTATIVES
5.1 REVIEW
At Boeing's request, Seller shall provide at Boeing's facility or at a
place designated by Boeing, a review explaining the status of the
Order, actions taken or planned relating to the Order and any other
relevant information. Nothing herein may be construed as a waiver of
Boeing's rights to proceed against Seller because of any delinquency.
BCAG CONTRACT 07-01-95 4
<PAGE>
Boeing's authorized representatives may enter Seller's plant at all
reasonable times to conduct preliminary inspections and tests of the
Products and work-in-process. Seller shall include in its subcontracts
issued in connection with an Order a like provision giving Boeing the
right to enter the premises of Seller's subcontractors. When requested
by Boeing, Seller shall accompany Boeing to Seller's subcontractors.
5.2 RESIDENT REPRESENTATIVES
Boeing may in its discretion and for such periods as it deems
necessary assign resident personnel at Seller's facilities. Seller
shall furnish, free of charge, all office space, secretarial service
and other facilities and assistance reasonably required by Boeing's
representatives at Seller's plant. The resident team will function
under the guidance of Boeing's manager. The resident team will provide
communication and coordination to ensure timely performance of the
Order. Boeing's resident team shall be allowed access to all work
areas, Order status reports and management review necessary to assure
timely performance and conformance with the requirements of each
Order. Notwithstanding such assistance, Seller remains solely
responsible for performing in accordance with each Order.
6.0 INVOICE AND PAYMENT
Unless otherwise provided in the applicable Order, invoicing and
payment shall be in accordance with SBP Section 7.0.
7.0 PACKING AND SHIPPING
Seller shall (a) prepare for shipment and suitably pack all Products
to prevent damage or deterioration, (b) where Boeing has not
identified a carrier, secure lowest transportation rates, (c) comply
with the appropriate carrier tariff for the mode of transportation
specified by Boeing and (d) comply with any special instructions
stated in the applicable Order.
Boeing shall pay no charges for preparation, packing, crating or
cartage unless stated in the applicable Order. Unless otherwise
directed by Boeing, all standard routing shipments forwarded on one
day must be consolidated. Each container must be consecutively
numbered and marked as set forth below. Container and Order numbers
must be indicated on the applicable bill of lading. Two copies of the
packing sheets must be attached to the No. 1 container of each
shipment and one copy in each individual container. Each pack sheet
must include as a minimum the following: a) Seller's name, address and
phone number; b) Order and item number; c) ship date for the Products;
d) total quantity shipped and quantity in each container, if
applicable; e) legible pack slip number; f) nomenclature; g) unit of
measure; h) ship to if other than Boeing; i) warranty data and
certification, as applicable; j) rejection tag, if applicable; k)
Seller's certification that Products comply with Order requirements;
and, l) identification of optional material used, if applicable.
Products sold F.O.B. place of shipment must be forwarded collect.
Seller may not make any declaration concerning the value of the
Products shipped, except on Products where the tariff rating or rate
depends on the released or declared value, and in such event the value
shall be released or declared at the maximum value for the lowest
tariff rating or rate.
5
<PAGE>
The following markings shall be included on each unit container: a)
Seller's name; b) Seller's part number, if applicable; c) Boeing part
number, if applicable; d) part nomenclature; e) Order number; f)
quantity of Products in container; g) unit of measure; h) serial
number, if applicable; i) date (quarter/year) identified as assembly
or rubber cure date, if applicable; j) precautionary handling
instructions or marking as required.
In addition, the following markings/labels shall be included on each
shipping container: a) Name and address of consignee; b) Name and
address of consigner; c) Order number; d) Part number as shown on the
Order; e) Quantity of Products in container; f) Unit of measure; g)
Box number; h) Total number of boxes in shipment; and, i)
Precautionary handling, labeling or marking as required.
8.0 QUALITY ASSURANCE, INSPECTION, REJECTION, & ACCEPTANCE
8.1 CONTROLLING DOCUMENT
The controlling quality assurance document for Orders shall be as set
forth in the SBP Section 4.0.
8.2 SELLER'S INSPECTION
Seller shall inspect or otherwise verify that all Products and
components thereof, including those procured from or furnished by
subcontractors or Boeing, comply with the requirements of the Order
prior to shipment to Boeing or Customer. Seller shall be responsible
for all tests and inspections of the Product and any component thereof
during receiving, manufacture and Seller's final inspection. Seller
shall include on each packing sheet a certification that the Products
comply with the requirements of the Order.
8.2.1 SELLER'S DISCLOSURE
Seller will immediately notify Boeing when discrepancies in Seller's
processes or Product are discovered or suspected for Products Seller
has delivered.
8.3 BOEING'S INSPECTION AND REJECTION
Unless otherwise specified on an Order, Products shall be subject to
final inspection and acceptance by Boeing at destination,
notwithstanding any payment or prior inspection. Boeing may reject any
Product which does not strictly conform to the requirements of the
applicable Order. Boeing shall by notice, rejection tag or other
communication notify Seller of such rejection. Whenever possible,
Boeing may coordinate with Seller prior to disposition of the rejected
Product(s), however, Boeing shall retain final disposition authority
with respect to all rejections. At Seller's risk and expense, all such
Products will be returned to Seller for immediate repair, replacement
or other correction and redelivery to Boeing; provided, however, that
with respect to any or all of such Products and at Boeing's election
and at Seller's risk and expense, Boeing may: (a) hold, retain, or
return such Products without permitting any repair, replacement or
other correction by Seller; (b) hold or retain such Products for
repair by Seller or, at Boeing's election, for repair by Boeing with
such assistance from Seller as Boeing may require; (c) hold such
Products until Seller has delivered conforming replacements for such
Products; (d) hold such Products until conforming replacements are
obtained from a third party; (e) return such Products with
instructions to Seller as to whether the Products shall be repaired or
replaced and as to the
6
<PAGE>
manner of redelivery or (f) return such Products with instructions
that they be scrapped. Upon final disposition by Boeing that the
non-conforming Product(s) are not subject to repair and prior to the
Products being scrapped. Seller shall render the Product(s) unusable.
Seller shall also maintain, pursuant to their quality assurance
system, records certifying destruction of the applicable Products.
Said certification shall state the method and date of mutilation and
destruction of the subject Product(s). Boeing shall have the right to
review and inspect these records at any time it deems necessary.
Failure to comply with these requirements shall be a material breach
of this Agreement and grounds for default pursuant to GTA Section
13.0. All repair, replacement and other corrections and redelivery
shall be completed within such time as Boeing may require. All costs
and expenses, loss of value and any other damages incurred as a result
of or in connection with nonconformance and repair, replacement or
other correction may be recovered from Seller by an equitable price
reduction, set-off or credit against any amounts that may be owed to
Seller under the applicable Order or otherwise.
Boeing may revoke its acceptance of any Products and have the same
rights with regard to the Products involved as if it had originally
rejected them.
8.4 FEDERAL AVIATION ADMINISTRATION OR EQUIVALENT
GOVERNMENT AGENCY INSPECTION
Representatives of Boeing, the FAA or any equivalent government agency
may inspect and evaluate Seller's plant including, but not limited to,
Seller's and subcontractor's facilities, systems, data, equipment,
inventory holding areas, procedures, personnel, testing, and all work-
in-process and completed Products. For purposes of this Section 8.4,
equivalent government agency shall mean those governmental agencies so
designated by the FAA or those agencies within individual countries
which maintain responsibility for assuring aircraft airworthiness.
8.5 RETENTION OF RECORDS
Quality assurance records shall be maintained on file at Seller's
facility and available to Boeing's authorized representatives. Seller
shall retain such records for a period of not less than seven (7)
years from the date of final payment under the applicable Order.
8.6 SOURCE INSPECTION
If an Order contains a notation that "100% Source Inspection" is
required, the Products shall not be packed for shipment until they
have been submitted to Boeing's quality assurance representative for
inspection. Both the packing list and Seller's invoice must reflect
evidence of this inspection.
8.7 LANGUAGE FOR TECHNICAL INFORMATION
All reports, drawings and other technical information submitted to
Boeing for review or approval shall be in English and shall employ the
units of measure customarily used by Boeing in the U.S.A.
7
<PAGE>
9.0 EXAMINATION OF RECORDS
Seller shall maintain complete and accurate records showing the sales
volume of all Products. Such records shall support all services
performed, allowances claimed and costs incurred by Seller in the
performance of each Order, including but not limited to those factors
which comprise or affect direct labor hours, direct labor rates,
material costs, burden rates and subcontracts. Such records and other
data shall be capable of verification through audit and analysis by
Boeing and be available to Boeing at Seller's facility for Boeing's
examination and audit at all reasonable times from the date of the
applicable Order until three (3) years after final payment under such
Order. Seller shall provide assistance to interpret such data if
requested by Boeing. Such examination shall provide Boeing with
complete information regarding Seller's performance for use in price
negotiations with Seller relating to existing or future orders for
Products, including but not limited to negotiation of equitable
adjustments for changes and termination/obsolescence claims pursuant
to GTA Section 10.0. Boeing shall treat all information disclosed
under this Section as confidential.
10.0 CHANGES
10.1 GENERAL
Boeing's Material Representative may at any time by written change
order make changes within the general scope of an Order in any one or
more of the following: drawings, designs, specifications, shipping,
packing, place of inspection, place of delivery place of acceptance,
adjustments in quantities, adjustments in delivery schedules, or the
amount of Boeing furnished material. Seller shall proceed immediately
to perform the Order as changed. If any such change causes an increase
or decrease in the cost of or the time required for the performance of
any part of the work, whether changed or not changed by the change
order, an equitable adjustment shall be made in the price of or the
delivery schedule for those Products affected, and the applicable
Order shall be modified in writing accordingly. Any claim by Seller
for adjustment under this Section 10.1 must be received by Boeing in
writing no later than (60) days from the date of receipt by Seller of
the written change order or within such further time as the parties
may agree in writing or such claim shall be deemed waived. Nothing in
this Section 10.1 shall excuse Seller from proceeding with an Order as
changed, including failure of the parties to agree on any adjustment
to be made under this Section 10.1.
If Seller considers that the conduct of any of Boeing's employees has
constituted a change hereunder, Seller shall immediately notify
Boeing's Material Representative in writing as to the nature of such
conduct and its effect on Seller's performance. Pending direction from
Boeing's Material Representative, Seller shall take no action to
implement any such change.
10.2 MODEL MIX
In the event any Derivative aircraft(s) is introduced by
Boeing, Boeing may (but is not obligated to) direct Seller
within the scope of the applicable Order and in accordance
with the provisions of GTA Section 10.0 to supply Boeing's
requirements for Products for such Derivative aircraft(s)
which correspond to those Products being produced under the
applicable Order.
8
<PAGE>
11.0 PRODUCT ASSURANCE
Boeing's acceptance of any Product does not alter or affect the
obligations of Seller or the rights of Boeing and its customers under
the document referenced in the SBP Section 6.0 or as provided by law.
12.0 TERMINATION FOR CONVENIENCE
12.1 BASIS FOR TERMINATION; NOTICE
Boeing may, from time to time and at Boeing's sole discretion,
terminate all or part of any Order issued hereunder, by written notice
to Seller. Any such written notice of termination shall specify the
effective date and the extent of any such termination.
12.2 TERMINATION INSTRUCTIONS
On receipt of a written notice of termination pursuant to GTA Section
12.1, unless otherwise directed by Boeing, Seller shall:
A. Immediately stop work as specified in the notice;
B. Immediately terminate its subcontracts and purchase orders
relating to work terminated;
C. Settle any termination claims made by its subcontractors or
suppliers; provided, that Boeing shall have approved the amount
of such termination claims prior to such settlement;
D. Preserve and protect all terminated inventory and Products;
E. At Boeing's request, transfer title (to the extent not previously
transferred) and deliver to Boeing or Boeing's designee all
supplies and materials, work-in-process. Tooling and
manufacturing drawings and data produced or acquired by Seller
for the performance of this Agreement and any Order, all in
accordance with the terms of such request;
F. Take all reasonable steps required to return, or at Boeing's
option and with prior written approval to destroy, all Boeing
Proprietary Information and Items in the possession, custody or
control of Seller;
G. Take such other action as, in Boeing's reasonable opinion, may be
necessary, and as Boeing shall direct in writing, to facilitate
termination of this Order; and
H. Complete performance of the work not terminated.
12.3 SELLER'S CLAIM
If Boeing terminates an Order in whole or in part pursuant to Section
12.1 above, Seller shall have the right to submit a written
termination claim to Boeing in accordance with the terms of this
Section 12.3. Such termination claim shall be submitted to Boeing not
later than six (6) months after Seller's receipt of the termination
notice and shall be in the form prescribed by Boeing. Such claim must
contain sufficient detail to explain the amount claimed, including
detailed inventory schedules and a detailed breakdown of all costs
claimed separated into categories ( e.g., materials, purchased parts,
finished components, labor, burden, general and administrative), and
to explain the basis for allocation of all other costs. Seller shall
be entitled to be compensated in accordance with and to the extent
allowed under the terms of FAR 52-249-2(e)-(m) excluding (i), (as
published in 48 CFR Section 52.249-2) which is incorporated herein by
this reference except "Government" and "Contracting Officer" shall
mean Boeing, "Contractor" shall mean Seller and "Contract" shall mean
Order.
9
<PAGE>
12.4 FAILURE TO SUBMIT A CLAIM
Notwithstanding any other provision of this Section 12.0, if Seller
fails to submit a termination claim within the time period set forth
above, Seller shall be barred from submitting a claim and Boeing shall
have no obligation for payment to Seller under this Section 12.0
except for those Products previously delivered and accepted by Boeing.
12.5 PARTIAL TERMINATION
Any partial termination of an Order shall not alter or affect the
terms and conditions of the Order or any Order with respect to
Products not terminated.
12.6 PRODUCT PRICE
Termination under any of the above paragraphs shall not result in any
change to unit prices for Products not terminated.
12.7 EXCLUSIONS OR DEDUCTIONS
The following items shall be excluded or deducted from any claim
submitted by Seller:
A. All unliquidated advances or other payments made by Boeing to
Seller pursuant to a terminated Order;
B. Any claim which Boeing has against Seller;
C. The agreed price for scrap allowance;
E. Except for normal spoilage and any risk of loss assumed by
Boeing, the agreed fair value of property that is lost,
destroyed, stolen or damaged.
12.8 PARTIAL PAYMENT/PAYMENT
Payment, if any, to be paid under this Section 12.0 shall be made
thirty (30) days after settlement between the parties or as otherwise
agreed to between the parties. Boeing may make partial payments and
payments against costs incurred by Seller for the terminated portion
of the Order, if the total of such payments does not exceed the amount
to which Seller would be otherwise entitled. If the total payments
exceed the final amount determined to be due, Seller shall repay the
excess to Boeing upon demand.
12.9 SELLER'S ACCOUNTING PRACTICES
Boeing and Seller agree that Seller's "normal accounting practices"
used in developing the price of the Product(s) shall also be used in
determining the allocable costs at termination. For purposes of this
Section 12.9, Seller's "normal accounting practices" refers to
Seller's method of charging costs as either a direct charge, overhead
expense, general administrative expense, etc.
12.10 RECORDS
Unless otherwise provided in this Agreement or by law, Seller shall
maintain all records and documents relating to the terminated portion
of the Order for three (3) years after final settlement of Seller's
termination claim.
10
<PAGE>
13.0 EVENTS OF DEFAULT AND REMEDIES
13.1 EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall
constitute an "Event of Default":
A. Any failure by Seller to deliver, when and as required
by this Agreement or any Order, any Product, except as
provided in GTA Section 14.0; or
B. Any failure by Seller to provide an acceptable
Assurance of Performance within the time specified in
GTA Section 17.0, or otherwise in accordance with
applicable law; or,
C. Any failure by Seller to perform or comply with any
obligation set forth in GTA Section 20.0; or
D. Seller is or has participated in the sale, purchase or
manufacture of airplane parts without the required
approval of the FAA.
E. Any failure by Seller to perform or comply with any
obligation (other than as described in the foregoing
Sections 13.1.A, 13.1.B, 13.1.C and 13.1.D) set forth in
this Agreement and such failure shall continue
unremedied for a period of thirty (30) days or more
following receipt by Seller of notice from Boeing
specifying such failure; or
F. (a) the suspension, dissolution or winding-up of Seller's
business, (b) Seller's insolvency, or its inability to pay debts,
or its nonpayment of debts, as they become due, (c) the
institution of reorganization, liquidation or other such
proceedings by or against Seller or the appointment of a
custodian, trustee, receiver or similar Person for Seller's
properties or business, (d) an assignment by Seller for the
benefit of its creditors, or (e) any action of Seller for the
purpose of effecting or facilitating any of the foregoing.
13.2 REMEDIES
If any Event of Default shall occur:
A. CANCELLATION
Boeing may, by giving written notice to Seller,
immediately cancel this Agreement and/or any Order, in
whole or in part, and Boeing shall not be required
after such notice to accept the tender by Seller of any
Products with respect to which Boeing has elected to
cancel this Agreement.
B. COVER
Boeing may manufacture, produce or provide, or may
engage any other persons to manufacture, produce or
provide, any Products in substitution for the Products
to be delivered or provided by Seller hereunder with
respect to which this Agreement or any Order has been
cancelled and, in addition to any other remedies or
damages available to Boeing hereunder or at law or in
equity, Boeing may recover from Seller the difference
between the price for each such Product and the
aggregate expense, including, without limitation,
administrative and other indirect costs, paid or
incurred by Boeing to manufacture, produce or provide,
or engage other persons to manufacture, produce or
provide, each such Product.
C. REWORK OR REPAIR
Boeing may rework or repair any Product in accordance
with GTA Section 8.3;
11
<PAGE>
D. SETOFF
Boeing shall, at its option, have the right to set off
against and apply to the payment or performance of any
obligation, sum or amount owing at any time to Boeing
hereunder or under any Order, all deposits, amounts or
balances held by Boeing for the account of Seller and any
amounts owed by Boeing to Seller, regardless of whether any
such deposit, amount, balance or other amount or payment is
then due and owing.
E. TOOLING AND OTHER MATERIALS
As compensation for the additional costs which Boeing will
incur as a result of the actual physical transfer of
production capabilities from Seller to Boeing or Boeing's
designee, Seller shall upon the request of Boeing, transfer
and deliver to Boeing or Boeing's designee title to any or
all (i) Tooling, (ii) Boeing-furnished material, (iii) raw
materials, parts, work-in-process, incomplete or completed
assemblies, and all other Products or parts thereof in the
possession or under the effective control of Seller or any
of its subcontractors (iv) Proprietary Information and
Materials of Boeing including without limitation planning
data, drawings and other Proprietary Information and
Materials relating to the design, production, maintenance,
repair and use of Tooling, in the possession or under the
effective control of Seller or any of its subcontractors, in
each case free and clear of all liens, claims or other
rights of any person.
Seller shall be entitled to receive from Boeing
reasonable compensation for any item accepted by Boeing
which has been transferred to Boeing pursuant to this
Section 13.2.E (except for any item the price of which
shall have been paid to Seller prior to such transfer);
provided, however, that such compensation shall not be
paid directly to Seller, but shall be accounted for as
a setoff against any damages payable by Seller to
Boeing as a result of any Event of Default.
F. REMEDIES GENERALLY
No failure on the part of Boeing in exercising any right or
remedy hereunder, or as provided by law or in equity, shall
impair, prejudice or constitute a waiver of any such right
or remedy, or shall be construed as a waiver of any Event of
Default or as an acquiescence therein. No single or partial
exercise of any such right or remedy shall preclude any
other or further exercise thereof or the exercise of any
other right or remedy. No acceptance of partial payment or
performance of any of Seller's obligations hereunder shall
constitute a waiver of any Event of Default or a waiver or
release of payment or performance in full by Seller of any
such obligation. All rights and remedies of Boeing hereunder
and at law and in equity shall be cumulative and not
mutually exclusive and the exercise of one shall not be
deemed a waiver of the right to exercise any other. Nothing
contained in this Agreement shall be construed to limit any
right or remedy of Boeing now or hereafter existing at law
or in equity.
12
<PAGE>
14.0 EXCUSABLE DELAY
If delivery of any Product is delayed by unforeseeable circumstances
beyond the control and without the fault or negligence of Seller or of
its suppliers or subcontractors (any such delay being hereinafter
referred to as "Excusable Delay"), the delivery of such Product shall
be extended for a period to be determined by Boeing after an
assessment by Boeing of alternate work methods. Excusable Delays may
include, but are not limited to, acts of God, war, riots, acts of
government, fires, floods, epidemics, quarantine restrictions, freight
embargoes, strikes or unusually severe weather, but shall exclude
Seller's noncompliance with any rule, regulation or order promulgated
by any governmental agency for or with respect to environmental
protection. However, the above notwithstanding, Boeing expects Seller
to continue production, recover lost time and support all schedules as
established under this Agreement or any Order. Therefore, it is
understood and agreed that (i) delays of less than two (2) days'
duration shall not be considered to be Excusable Delays unless such
delays shall occur within thirty (30) days preceding the scheduled
delivery date of any Product and (ii) if delay in delivery of any
Product is caused by the default of any of Seller's subcontractors or
suppliers, such delay shall not be considered an Excusable Delay
unless the supplies or services to be provided by such subcontractor
or supplier are not obtainable from other sources in sufficient time
to permit Seller to meet the applicable delivery schedules. If
delivery of any Product is delayed by any Excusable Delay for more
than three (3) months, Boeing may, without any additional extension,
cancel all or part of any Order with respect to the delayed Products,
and exercise any of its remedies in accordance with GTA Section 13.2
provided however, that Boeing shall not be entitled to monetary
damages or specific performance to the extent Seller's breach is the
result of an Excusable Delay.
15.0 SUSPENSION OF WORK
Boeing may at any time, by written order to Seller, require Seller to
stop all or any part of the work called for by this Agreement
hereafter referred to as a "Stop Work Order" issued pursuant to this
Section 15.0. On receipt of a Stop Work Order, Seller shall promptly
comply with its terms and take all reasonable steps to minimize the
occurrence of costs arising from the work covered by the Stop Work
Order during the period of work stoppage. Within the period covered by
the Stop Work Order (including any extension thereof) Boeing shall
either (i) cancel the Stop Work Order or (ii) terminate or cancel the
work covered by the Stop Work Order in accordance with the provisions
of GTA Section 12.0 or 13.0. In the event the Stop Work Order is
cancelled by Boeing or the period of the Stop Work Order (including
any extension thereof) expires, Seller shall promptly resume work in
accordance with the terms of this Agreement or any applicable Order.
16.0 TERMINATION OR CANCELLATION AND INDEMNITY AGAINST SUBCONTRACTOR CLAIMS
Boeing shall not be liable for any loss or damage resulting from any
termination pursuant to GTA Section 12.1, except as expressly provided
in GTA Section 12.3 or any cancellation under GTA Section 13.0 except
to the extent that such cancellation shall have been determined by
Boeing and Seller to have been wrongful, in which case such wrongful
cancellation shall be deemed a termination pursuant to GTA Section
12.1 and therefore shall be limited to the payment to Seller of the
amount or amounts identified in GTA Section
13
<PAGE>
12.3. As subcontractor claims are included in Seller's termination
claim pursuant to GTA Section 12.3, Seller shall indemnify Boeing and
hold Boeing harmless from and against (i) any and all claims, suits
and proceedings against Boeing by any subcontractor or supplier of
Seller in respect of any such termination and (ii) and any and all
costs, expenses, losses and damages incurred by Boeing in connection
with any such claim, suit or proceeding.
17.0 ASSURANCE OF PERFORMANCE
A. SELLER TO PROVIDE ASSURANCE
If Boeing determines, at any time or from time to time, that it
is not sufficiently assured of Seller's full, timely and
continuing performance hereunder, or if for any other reason
Boeing has reasonable grounds for insecurity, Boeing may request,
by notice to Seller, written assurance (hereafter an "Assurance
of Performance") with respect to any specific matters affecting
Seller's performance hereunder, that Seller is able to perform
all of its respective obligations under this Agreement when and
as specified herein. Each Assurance of Performance shall be
delivered by Seller to Boeing as promptly as possible, but in any
event no later than 15 calendar days following Boeing's request
therefore and each Assurance of Performance shall be accompanied
by any information, reports or other materials, prepared by
Seller, as Boeing may reasonably request. Boeing may suspend all
or any part of Boeing's performance hereunder until Boeing
receives an Assurance of Performance from Seller satisfactory in
form and substance to Boeing.
B. MEETINGS AND INFORMATION
Boeing may request one or more meetings with senior management or
other employees of Seller for the purpose of discussing any
request by Boeing for Assurance of Performance or any Assurance
of Performance provided by Seller. Seller shall make such persons
available to meet with representatives of Boeing as soon as may
be practicable following a request for any such meeting by Boeing
and Seller shall make available to Boeing any additional
information, reports or other materials in connection therewith
as Boeing may reasonably request.
18.0 RESPONSIBILITY FOR PROPERTY
On delivery to Seller or manufacture or acquisition by it of any
materials, parts, Tooling or other property, title to any of which is
in Boeing, Seller shall assume the risk of and shall be responsible
for any loss thereof or damage thereto. In accordance with the
provisions of an Order, but in any event on completion thereof, Seller
shall return such property to Boeing in the condition in which it was
received except for reasonable wear and tear and except to the extent
that such property has been incorporated in Products delivered under
such Order or has been consumed in the normal performance of work
under such Order.
19.0 LIMITATION OF SELLER'S RIGHT TO ENCUMBER ASSETS
Seller warrants to Boeing that it has good title to all
inventory, work-in-process, tooling and materials to be
supplied by Seller in the performance of its obligations
under any Order ("Inventory"), and that pursuant to the
provisions of such Order, it will transfer to Boeing title
to such Inventory, whether transferred separately or as part
of any Product delivered under the Order, free of any liens,
charges, encumbrances or rights of others.
14
<PAGE>
20.0 PROPRIETARY INFORMATION AND ITEMS
Boeing and Seller shall each keep confidential and protect from
disclosure all (a) confidential, proprietary, and/or trade secret
information; (b) tangible items containing, conveying, or embodying
such information; and (c) tooling obtained from and/or belonging to
the other in connection with this Agreement or any Order (collectively
referred to as "Proprietary Information and Materials"). Boeing and
Seller shall each use Proprietary Information and Materials of the
other only in the performance of and for the purpose of this Agreement
and/or any Order. Provided, however, that despite any other
obligations or restrictions imposed by this Section 20.0, Boeing shall
have the right to use and disclose of Seller's Proprietary Information
and Materials for the purposes of testing, certification, use, sale,
or support of any item delivered under this Agreement, an Order, or
any airplane including such an item; and any such disclosure by Boeing
shall, whenever appropriate, include a restrictive legend suitable to
the particular circumstances. The restrictions on disclosure or use of
Proprietary Information and Materials by Seller shall apply to all
materials derived by Seller or others from Boeing's Proprietary
Information and Materials. Upon Boeing's request at any time, and in
any event upon the completion, termination or cancellation of this
Agreement, Seller shall return all of Boeing's Proprietary Information
and Materials, and all materials derived from Boeing's Proprietary
Information and Materials to Boeing unless specifically directed
otherwise in writing by Boeing. Seller shall not, without the prior
written authorization of Boeing, sell or otherwise dispose of (as
scrap or otherwise) any parts or other materials containing,
conveying, embodying, or made in accordance with or by reference to
any Proprietary Information and Materials of Boeing. Prior to
disposing of such parts or materials as scrap, Seller shall render
them unusable. Boeing shall have the right to audit Seller's
compliance with this Section 20.0. Seller may disclose Proprietary
Information and Materials of Boeing to its subcontractors as required
for the performance of an Order, provided that each such subcontractor
first assumes, by written agreement, the same obligations imposed upon
Seller under this Section 20.0 relating to Proprietary Informations
and Materials; and Seller shall be liable to Boeing for any breach of
such obligation by such subcontractor. The provisions of this Section
20.0 are effective in lieu of, and will apply notwithstanding the
absence of, any restrictive legends or notices applied to Proprietary
Informations and Materials; and the provisions of this Section 20.0
shall survive the performance, completion, termination or cancellation
of this Agreement or any Order. This Section 20.0 supersedes and
replaces any and all other prior agreements or understandings between
the parties to the extent that such agreements or understandings
relate to Boeing's obligations relative to confidential, proprietary,
and/or trade secret information, or tangible items containing,
conveying, or embodying such information, obtained from Seller and
related to any Product, regardless of whether disclosed to the
receiving party before or after the effective date of this Agreement.
21.0 COMPLIANCE WITH LAWS
15
<PAGE>
21.1 SELLER'S OBLIGATION
Seller shall be responsible for complying with all laws, including,
but not limited to, any statute, rule, regulation, judgment, decree,
order, or permit applicable to its performance under this Agreement.
Seller further agrees (1) to notify Boeing of any obligation under
this Agreement which is prohibited under applicable environmental law,
at the earliest opportunity but in all events sufficiently in advance
of Seller's performance of such obligation so as to enable the
identification of alternative methods of performance, and (2) to
notify Boeing at the earliest possible opportunity of any aspect of
its performance which becomes subject to additional environmental
regulation or which Seller reasonably believes will become subject to
additional regulation during the performance of this Agreement.
21.2 GOVERNMENT REQUIREMENTS
If any of the work to be performed under this Agreement is performed
in the United States, Seller shall, via invoice or other form
satisfactory to Boeing, certify that the Products covered by the Order
were produced in compliance with Sections 6, 7, and 12 of the Fair
Labor Standards Act (29 U. S. C. 201-291), as amended, and the
regulations and orders of the U. S. Department of Labor issued
thereunder. In addition, the following Federal Acquisition Regulations
are incorporated herein by this reference except "Contractor" shall
mean "Seller":
FAR 52.222-26 "Equal Opportunity"
FAR 52.222-35 "Affirmative Action for Special Disabled and
Vietnam Era Veterans"
FAR 52.222-36 "Affirmative Action for Handicapped Workers".
22.0 INTEGRITY IN PROCUREMENT
Boeing's policy is to maintain high standards of integrity in
procurement. Boeing's employees must ensure that no favorable
treatment compromises their impartiality in the procurement process.
Accordingly, Boeing's employees must strictly refrain from soliciting
or accepting any payment, gift, favor or thing of value which could
improperly influence their judgement with respect to either issuing a
Order or administering this Agreement. Consistent with this policy,
Seller agrees not to provide or offer to provide any employees of
Boeing any payment, gift, favor or thing of value for the purposes of
improperly obtaining or rewarding favorable treatment in connection
with any Order or this Agreement. Seller shall conduct its own
procurement practices and shall ensure that its suppliers conduct
their procurement practices consistent with these standards. If Seller
has reasonable grounds to believe that this policy may have been
violated, Seller shall immediately report such possible violation to
the appropriate Director of Material or Ethics Advisor of Boeing.
23.0 INFRINGEMENT
Seller shall indemnify, defend, and save Boeing and Customers harmless
from all claims, suits, actions, awards (including but not limited to
awards based on intentional infringement of patents known to Seller at
the time of such infringement, exceeding actual damages, and/or
including attorneys' fees and/or costs), liabilities, damages, costs
and attorneys' fees related to the actual or alleged infringement of
any United States or foreign intellectual property right (including
but not limited to any right in a patent, copyright, industrial design
or
16
<PAGE>
semiconductor mask work, or based on misappropriation or wrongful use
of information or documents) and arising out of the manufacture. sale
or use of Products by Boeing or Customers. Boeing and/or Customers
shall duly notify Seller of any such claim, suit or action; and Seller
shall, at its own expense, fully defend such claim, suit or action on
behalf of Boeing and/or Customers. Seller shall have no obligation
under this Section 23.0 with regard to any infringement arising from:
(i) Seller's compliance with formal specifications issued by Boeing
where infringement could not be avoided in complying with such
specifications or (ii) use or sale of Products in combination with
other items when such infringement would not have occurred from the
use or sale of those Products solely for the purpose for which they
were designed or sold by Seller. For purposes of this Section 23.0
only, the term Customer shall not include the United States
Government; and the term Boeing shall include The Boeing Company
(Boeing) and all Boeing subsidiaries and all officers, agents, and
employees of Boeing or any Boeing subsidiary.
24.0 BOEING'S RIGHTS IN SELLER'S PATENTS, COPYRIGHTS, TRADE SECRETS, AND
TOOLING
Seller hereby grants to Boeing an irrevocable, nonexclusive, paid-up
worldwide license to practice and/or use, and license others to
practice and/or use on Boeing's behalf, all of Seller's patents,
copyrights, trade secrets (including, without limitation, designs,
processes, drawings, technical data and tooling), industrial designs,
semiconductor mask works, and tooling (collectively hereinafter
referred to as "Licensed Property") related to the development,
production, maintenance or repair of Products. Boeing hereafter
retains all of the aforementioned license rights in Licensed Property,
but Boeing hereby covenants not to exercise such rights except in
connection with the making, having made, using and selling of Products
or products of the same kind, and then only in the event of any of the
following:
a. Seller discontinues or suspends business operations or the
production of any or all of the Products;
b. Seller is acquired by or transfers any or all of its rights to
manufacture any Product to any third party, whether or not
related;
c. Boeing cancels this Agreement or any Order for cause pursuant to
GTA Section 13.0 herein;
d. in Boeing's judgement it becomes necessary, in order for Seller
to comply with the terms of this Agreement or any Order, for
Boeing to provide support to Seller (in the form of design,
manufacturing, or on-site personnel assistance) substantially in
excess of that which Boeing normally provides to its suppliers;
e. Seller's trustee in bankruptcy (or Seller as debtor in
possession) fails to assume this Agreement and all Orders by
formal entry of an order in the bankruptcy court within sixty
(60) days after entry of an order for relief in a bankruptcy case
of the Seller, or Boeing elects to retain its rights to Licensed
Property under the bankruptcy laws;
17
<PAGE>
f. Seller is at any time insolvent (whether measured under a balance
sheet test or by the failure to pay debts as they come due) or
the subject of any insolvency or debt assignment proceeding under
state or nonbankruptcy law; or
g. Seller voluntarily becomes a debtor in any case under bankruptcy
law or, in the event an involuntary bankruptcy petition is filed
against Seller, such petition is not dismissed within thirty (30)
days.
As a part of the license granted under this Section 24.0, Seller
shall, at the written request of Boeing and at no additional cost to
Boeing, promptly deliver to Boeing any and all Licensed Property
considered by Boeing to be necessary to satisfy Boeing's requirements
for Products and their substitutes.
25.0 NOTICES
25.1 ADDRESSES
Notices and other communications shall be given in writing by personal
delivery, mail, telex, teletype, telegram, facsimile, cable or other
electronic transmission addressed to the respective party as set forth
in the SBP Section 9.0.
25.2 EFFECTIVE DATE
The date on which any such communication is received by the addressee
is the effective date of such communication.
25.3 APPROVAL OR CONSENT
With respect to all matters subject to the approval or consent of
either party, such approval or consent shall be requested in writing
and is not effective until given in writing. With respect to Boeing,
authority to grant approval or consent is limited to Boeing's Material
Representative.
26.0 PUBLICITY
Seller will not, and will require that its subcontractors and
suppliers of any tier will not, (i) cause or permit to be released any
publicity, advertisement, news release, public announcement, or denial
or confirmation of the same, in whatever form, regarding any Order or
Products, or the program to which they may pertain, or (ii) use, or
cause or permit to be used, the Boeing name or any Boeing trademark in
any form of promotion or publicity without Boeing's prior written
approval.
27.0 PROPERTY INSURANCE
27.1 INSURANCE
Seller shall maintain continuously in effect a property insurance
policy covering loss or destruction of or damage to all property in
which Boeing does or could have an insurable interest pursuant to this
Agreement, including but not limited to Tooling, Boeing-furnished
property, raw materials, parts, work-in process, incomplete or
completed assemblies and all other products or parts thereof, and all
drawings, specifications, data and other materials relating to any of
the foregoing in each case to the extent in the possession or under
the effective care, custody or control of Seller, in the amount of
full
18
<PAGE>
replacement value thereof providing protection against all perils
normally covered in an "all risk" property insurance policy (including
without limitation fire, windstorm, explosion, riot, civil commotion,
aircraft, earthquake, flood or other acts of God). Any such policy
shall be in the form and with insurers acceptable to Boeing and shall
(i) provide for payment of loss thereunder to Boeing, as loss payee,
as its interests may appear and (ii) contain a waiver of any rights of
subrogation against Boeing, its subsidiaries, and their respective
directors, officers, employees and agents.
27.2 CERTIFICATE OF INSURANCE
Prior to commencement of this Agreement, Seller shall provide to
Boeing's Material Representative, for Boeing's review and approval,
certificates of insurance reflecting full compliance with the
requirements set forth in GTA Section 27.1. Such certificates shall be
kept current and in compliance throughout the period of this Agreement
and shall provide for thirty (30) days advanced written notice to
Boeing's Material Representative in the event of cancellation, non-
renewal or material change adversely affecting the interests of
Boeing.
27.3 NOTICE OF DAMAGE OR LOSS
Seller shall give prompt written notice to Boeing's Material
Representative of the occurrence of any damage or loss to any property
required to be insured herein. If any such property shall be damaged
or destroyed, in whole or in part, by an insured peril or otherwise,
and if no Event of Default shall have occurred and be continuing, then
Seller may, upon written notice to Boeing, settle, adjust, or
compromise any and all such loss or damage not in excess of Two
Hundred Fifty Thousand Dollars ($250,000) in any one occurrence and
Five Hundred Thousand Dollars ($500,000) in the aggregate. Seller may
settle, adjust or compromise any other claim by Seller only after
Boeing has given written approval, which approval shall not be
unreasonably withheld.
28.0 RESPONSIBILITY FOR PERFORMANCE
Seller shall be responsible for the requirements of this Agreement and
any Order referencing this Agreement. Seller shall bear all risks of
providing adequate facilities and equipment to perform each Order in
accordance with the terms thereof. Seller shall include as part of its
subcontracts those elements of the Agreement which protect Boeing's
rights including but not limited to right of entry provisions,
proprietary information and rights provisions and quality control
provisions. In addition, Seller shall provide to its subcontractors
sufficient information to clearly document that the work being
performed by Seller's subcontractor is to facilitate performance under
this Agreement or any Order. Sufficient information may include but is
not limited to Order number, GTA number or the name of Boeing's
Material Representative. No subcontracting by Seller shall relieve
Seller of its obligation under the applicable Order.
28.1 SUBCONTRACTING
Seller may not procure any Product, as defined in the applicable
Order, from a third party in a completed or a substantially completed
form without Boeing's prior written consent.
19
<PAGE>
Where required by the requirements of the Order, no raw material
and/or material process may be incorporated in a Product unless: (a)
Seller uses an approved source or (b) Boeing has surveyed and
qualified Seller's receiving inspection personnel and laboratories to
test the specified raw materials an/or material process. No waiver of
survey and qualification requirements will be effective unless granted
by Boeing's Engineering and Quality Control Departments. Utilization
of a Boeing-approved raw material source does not constitute a waiver
of Seller's responsibility to meet all specification requirements.
28.2 RELIANCE
Boeing's entering into this Agreement is in part based upon Boeing's
reliance on Seller's ability, expertise and awareness of the intended
use of the Products. Seller agrees that Boeing and Boeing's customers
may rely on Seller as an expert, and Seller will not deny any
responsibility or obligation hereunder to Boeing or Boeing's customers
on the grounds that Boeing or Boeing's customers provided
recommendations or assistance in any phase of the work involved in
producing or supporting the Products, including but not limited to
Boeing's acceptance of specifications, test data or the Products.
28.3 ASSIGNMENT
Each Order shall inure to the benefit of and be binding on each of the
parties hereto and their respective successors and assigns, provided
however, that no assignment of any rights or delegation of any duties
under such Order is binding on Boeing unless Boeing's written consent
has first been obtained. Notwithstanding the above, Seller may assign
claims for monies due or to become due under any Order provided that
Boeing may recoup or setoff any amounts covered by any such assignment
against any indebtedness of Seller to Boeing, whether arising before
or after the date of the assignment or the date of this Agreement, and
whether arising out of any such Order or any other agreement between
the parties.
Boeing may settle all claims arising out of any Order, including
termination claims, directly with Seller. Boeing may unilaterally
assign any rights or title to property under the Order to any wholly-
owned subsidiary of The Boeing Company.
29.0 NON-WAIVER
Boeing's failure at any time to enforce any provision of an Order does
not constitute a waiver of such provision or prejudice Boeing's right
to enforce such provision at any subsequent time.
30.0 HEADINGS
Section and Section headings used in this Agreement are for
convenient reference only and do not affect the
interpretation of the Agreement.
31.0 PARTIAL INVALIDITY
If any provision of any Order is or becomes void or unenforceable by
force or operation of law, the other provisions shall remain valid and
enforceable.
20
<PAGE>
32.0 APPLICABLE LAW; JURISDICTION
Each Order, including all matters of construction, validity and
performance, shall in all respects be governed by, and construed and
enforced in accordance with, the law as set forth in SBP Section 5.0.
33.0 AMENDMENT
Oral statements and understandings are not valid or binding. Except as
otherwise provided in GTA Section 10.0 and SBP Section 12.0, no Order
may be changed or modified except by a writing signed by Seller and
Boeing's Material Representative.
34.0 LIMITATION
Seller may not (except to provide an inventory of Products to support
delivery acceleration and to satisfy reasonable replacement and Spares
requirements) manufacture or fabricate Products or procure any goods
in advance of the reasonable flow time required to comply with the
delivery schedule in the applicable Order. Notwithstanding any other
provision of an Order, Seller is not entitled to any equitable
adjustment or other modification of such Order for any manufacture,
fabrication, or procurement of Products not in conformity with the
requirements of the Order, unless Boeing's written consent has first
been obtained. Nothing in this Section 34.0 shall be construed as
relieving Seller of any of its obligations under the Order.
35.0 TAXES
35.1 INCLUSION OF TAXES IN PRICE
All taxes, including but not limited to federal, state and local
income taxes, value added taxes, gross receipt taxes, property taxes,
and custom duties taxes are deemed to be included in the Order price,
except applicable sales or use taxes on sales to Boeing ("Sales
Taxes") for which Boeing has not supplied a valid exemption
certificate or unless otherwise indicated on the applicable Order.
35.2 LITIGATION
In the event that any taxing authority has claimed or does claim
payment for Sales Taxes, Seller shall promptly notify Boeing, and
Seller shall take such action as Boeing may direct to pay or protest
such taxes or to defend against such claim. The actual and direct
expenses, without the addition of profit and overhead, of such defense
and the amount of such taxes as ultimately determined as due and
payable shall be paid directly by Boeing or reimbursed to Seller. If
Seller or Boeing is successful in defending such claim, the amount of
such taxes recovered by Seller, which had previously been paid by
Seller and reimbursed by Boeing or paid directly by Boeing, shall be
immediately refunded to Boeing.
35.3 REBATES
If any taxes paid by Boeing are subject to rebate or reimbursement,
Seller shall take the necessary actions to secure such rebates or
reimbursement and shall promptly refund to Boeing any amount
recovered.
21
<PAGE>
36.0 FOREIGN PROCUREMENT OFFSET
With respect to work covered by the Order, Seller shall use its best
efforts to cooperate with Boeing in the fulfillment of any foreign
offset program obligation that Boeing may have accepted as a condition
of the sale of Boeing's products. In the event that Seller solicits
bids or proposals for, or procures or offers to procure any goods or
services relating to the work covered by an Order from any source
outside of the United States, Boeing shall be entitled, to the
exclusion of all others, to all industrial benefits and other "offset"
credits which may result from such solicitations, procurements or
offers to procure. Seller agrees to take any actions that may be
required on its part to assure that Boeing receives such credits.
37.0 ENTIRE AGREEMENT/ORDER OF PRECEDENCE
37.1 ENTIRE AGREEMENT
The Order sets forth the entire agreement, and supersedes any and all
other prior agreements understandings and communications between
Boeing and Seller related to the subject matter of an Order. The
rights and remedies afforded to Boeing or Customers pursuant to any
provisions of an Order are in addition to any other rights and
remedies afforded by any other provisions of this Order, by law or
otherwise.
37.2 INCORPORATED BY REFERENCE
In addition to the documents previously incorporated herein by
reference, the documents listed below are by this reference made a
part of this Agreement:
A. Engineering Drawing by Part Number and Related Outside
Production Specification Plan (OPSP).
B. Any other exhibits or documents agreed to by the parties to be a
part of this Agreement.
37.3 ORDER OF PRECEDENCE
In the event of a conflict or inconsistency between any of the terms
of the following documents, the following order of precedence shall
control:
A. SBP (excluding the Administrative Agreement identified in E
below)
B. This General Terms Agreement (excluding the documents identified
in D and F below)
C. Order (excluding the documents identified in A and B above)
D. Engineering Drawing by Part Number and, if applicable, related
Outside Production Specification Plan (OPSP).
E. Administrative Agreement (If Applicable)
F. Any other exhibits or documents the parties agree shall be part
of the Agreement.
22
<PAGE>
37.4 DISCLAIMER
Unless otherwise specified on the face of the applicable Order, any
CATIA Dataset or translation thereof (each or collectively "Data)
furnished by Boeing is furnished as an accommodation to Seller. It is
the Seller's responsibility to compare such Data to the comparable two
dimensional computer aided design drawing to confirm the accuracy of
the Data.
BOEING HEREBY DISCLAIMS, AND SELLER HEREBY WAIVES, ALL WARRANTIES AND
LIABILITIES OF BOEING AND ALL CLAIMS AND REMEDIES OF SELLER, EXPRESS
OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY DEFECT IN
ANY CATIA DATASET OR TRANSLATION THEREOF, INCLUDING, WITHOUT
LIMITATION, ANY (A) IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR
USE OR FOR A PARTICULAR PURPOSE, (B) ANY IMPLIED WARRANTY ARISING FROM
COURSE OF DEALING OR PERFORMANCE OR USAGE OF TRADE, (C) RECOVERY BASED
UPON TORT, WHETHER OR NOT ARISING FROM BOEING'S NEGLIGENCE, AND (D)
ANY RECOVERY BASED UPON DAMAGED PROPERTY, OR OTHERWISE BASED UPON
DAMAGED PROPERTY, OR OTHERWISE BASED UPON LOSS OF USE OR PROFIT OR
OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES.
EXECUTED in duplicate as of the date and year first written above by the duly
authorized representatives of the parties.
THE BOEING COMPANY CORY COMPONENTS
by and through its division
Boeing Commercial Airplane Group
Name: /s/ illegible Name:
-------------------------- ---------------------------
Title: Buyer Title:
-------------------------- ---------------------------
Date: Dec. 1, 95 Date:
--------------------------- --------------------------
23
<PAGE>
37.4 DISCLAIMER
Unless otherwise specified on the face of the applicable Order, any
CATIA Dataset or translation thereof (each or collectively "Data)
furnished by Boeing is furnished as an accommodation to Seller. It is
the Seller's responsibility to compare such Data to the comparable two
dimensional computer aided design drawing to confirm the accuracy of
the Data.
BOEING HEREBY DISCLAIMS, AND SELLER HEREBY WAlVES, ALL WARRANTIES AND
LIABILITIES OF BOEING AND ALL CLAIMS AND REMEDIES OF SELLER, EXPRESS
OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY DEFECT IN
ANY CATIA DATASET OR TRANSLATION THEREOF, INCLUDING, WITHOUT
LIMITATION, ANY (A) IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR
USE OR FOR A PARTICULAR PURPOSE, (8) ANY IMPLIED WARRANTY ARISING FROM
COURSE OF DEALING OR PERFORMANCE OR USAGE OF TRADE, (C) RECOVERY BASED
UPON TORT, WHETHER OR NOT ARISING FROM BOEING'S NEGLIGENCE, AND (D)
ANY RECOVERY BASED UPON DAMAGED PROPERTY, OR OTHERWISE BASED UPON
DAMAGED PROPERTY, OR OTHERWISE BASED UPON LOSS OF USE OR PROFIT OR
OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES.
EXECUTED in duplicate as of the date and year first written above by the duly
authorized representatives of the parties.
THE BOEING COMPANY CORY COMPONENTS
by and through its division
Boeing Commercial Airplane Group
Name: /s/ illegible Name:
-------------------------- ---------------------------
Title: Buyer Title:
-------------------------- ---------------------------
Date: Dec. 1, 95 Date:
--------------------------- --------------------------
23
<PAGE>
Exhibit 10.15
SPECIAL BUSINESS PROVISIONS
SPECIAL BUSINESS PROVISIONS
between
THE BOEING COMPANY
and
CORY COMPONENTS
Number 6-5752-0004
BCAG CONTRACT 11/30/95
<PAGE>
SPECIAL BUSINESS PROVISIONS
SPECIAL BUSINESS PROVISIONS
TABLE OF CONTENTS
Section Item
- ------- ----
1.0 DEFINITIONS
2.0 PURCHASE ORDER NOTE
3.0 PRICES
3.1 Product Pricing
3.2 Manufacturing Configuration Baseline
3.3 Packaging
4.0 GOVERNING QUALITY
ASSURANCE REQUIREMENT
5.0 APPLICABLE LAW/JURISDICTION
6.0 PRODUCT ASSURANCE
7.0 PAYMENT
7.1 Recurring Cost
7.2 Non-Recurring Cost
8.0 ACCEL/DECEL AT NO COST
9.0 NOTICES
9.1 Addresses
10.0 OBLIGATION TO PURCHASE AND SELL
11.0 COST AND FINANCIAL
PERFORMANCE VISIBILITY
12.0 CHANGES
12.1 Changes to the Statement of Work
12.2 Computation of Equitable Adjustment
12.3 Obsolescence
12.4 Change Absorption
12.5 Planning Schedule
12.6 Value Engineering
12.7 Reduction in Quantity to be Delivered
13.0 SPARES AND OTHER PRICING
13.1 Spares
13.2 Short Flow Production Requirements
13.3 Tooling
BCAG CONTRACT 11/30/95
ii
<PAGE>
SPECIAL BUSINESS PROVISIONS
TABLE OF CONTENTS
Section Item
- ------- ----
13.4 Pricing of Boeing's Supporting
Requirements
13.5 Pricing of Requirements for
Modification or Retrofit
13.6 Similar to Pricing
14.0 STATUS REPORTS/REVIEWS
15.0 FOREIGN PROCUREMENT REPORT
16.0 SUPPLIER FURNISHED MATERIAL
17.0 ASSIGNMENT
18.0 INVENTORY AT CONTRACT COMPLETION
19.0 OWNERSHIP OF INTELLECTUAL PROPERTY
19.1 Technical Work Product
19.2 Inventions and Patents
19.3 Works of Authorship and Copyrights
19.4 Pre-Existing Inventions and
Works of Authorship
20.0 ADMINISTRATIVE AGREEMENT
21.0 GUARANTEED WEIGHT REQUIREMENTS
22.0 SUPPLIER DATA REQUIREMENTS
23.0 DEFERRED PAYMENT TERMS
24.0 SOFTWARE PROPRIETARY
INFORMATION RIGHTS
Attachment 1 Work Statement and Pricing
Attachment 2 Foreign Procurement Report
Attachment 3 Rates and Factors
Attachment 4 Boeing AOG Coverage
Attachment 5 Boeing AOG/Critical
Shipping Notification
Attachment 6 Supplier Data Requirements List
Customer Support
Attachment 7 Supplier Data Requirements List
Engineering
BCAG CONTRACT 11/30/95
iii
<PAGE>
SPECIAL BUSINESS PROVISIONS
AMENDMENTS
AMEND
NUMBER DESCRIPTION DATE APPROVAL
- ------ ----------- ---- --------
BCAG CONTRACT 11/30/95
iv
<PAGE>
SPECIAL BUSINESS PROVISIONS
SPECIAL BUSINESS PROVISIONS
THESE SPECIAL BUSINESS PROVISIONS are entered into as of DATE by and between
CORY COMPONENTS, a California corporation with its principal office in El
Segundo, CA ("Seller"), and The Boeing Company, a Delaware corporation with an
office in Seattle, Washington acting by and through its division the Boeing
Commercial Airplane Group ("Boeing").
RECITALS
A. Boeing and Seller entered into a General Terms Agreement GTA #6-5752-0002
dated (DATE) (the "Agreement") which is incorporated herein and made a part
hereof by this reference, for the sale by Seller and purchase by Boeing of
Products.
B. Boeing and Seller desire to include these special business provisions
("SBP") relating to the sale by Seller and purchase by Boeing of Products.
Now, therefore, in consideration of the mutual covenants set forth herein, the
parties agree as follows:
PROVISIONS
1.0 DEFINITIONS
The definitions used herein shall be the same as used in the Agreement.
2.0 PURCHASE ORDER NOTE
The following note shall be contained in any Order to which these SBP are
applicable:
This Order is subject to and incorporates by this reference SBP 6-
5752-0004 between The Boeing Company and Cory Components dated (DATE).
Each Order bearing such note shall be governed by and be deemed to include
the provisions of these SBP.
3.0 PRICES
3.1 PRODUCT PRICING
The prices and applicable period of performance of Products scheduled for
delivery under this SBP are set forth in Attachment 1. Prices are in United
States dollars, F.O.B. El Segundo, CA.
BCAG CONTRACT 11/30/95
1
<PAGE>
SPECIAL BUSINESS PROVISIONS
3.2 MANUFACTURING CONFIGURATION BASELINE
Unit pricing for each Product or part number shown in Attachment 1 is based
on the latest revisions of the engineering drawings or specifications at
the time of the signing of this SBP.
3.3 PACKAGING
The prices shown in Attachment 1 include packaging costs and all materials
and labor required to package Products identified in Attachment 1.
Packaging shall be furnished by the Seller in accordance with Document M6-
1025, Volume II, "Supplier Part Protection Guide" or Document D200-10038-2
"Supplier Packaging Requirements" as applicable. In the case of Products to
be shipped directly to Customers, A.T.A. Specification 300 "Specification
for Packaging of Airline Supplies" shall apply unless otherwise directed by
Boeing.
4.0 GOVERNING QUALITY ASSURANCE REQUIREMENT
(For D1-9000 Suppliers)
All work performed under this SBP shall be in accordance with the following
document which is incorporated herein and made a part hereof by this
reference:
Document D1-9000, "Advanced Quality System for Boeing Suppliers," as
amended from time to time.
5.0 APPLICABLE LAW JURISDICTION
Each Order, including all matters of construction, validity and
performance, shall in all respects be governed by, and construed and
enforced in accordance only with the law of the State of Washington as
applicable to contracts entered into and to be performed wholly within such
State between citizens of such State, without reference to any rules
governing conflicts of law. Seller hereby irrevocably consents to and
submits itself exclusively to the jurisdiction of the applicable courts of
the State and the federal courts therein for the purpose of any suit,
action or other judicial proceeding arising out of or connected with any
Order or the performance or subject matter thereof. Seller hereby waives
and agrees not to assert by way of motion, as a defense, or otherwise, in
any such suit, action or proceeding, any claim that (a) Seller is not
personally subject to the jurisdiction of the above-named courts, (b) the
suit, action or proceeding is brought in an inconvenient forum or (c) the
venue of the suit, action or proceeding is improper.
2
<PAGE>
SPECIAL BUSINESS PROVISIONS
6.0 PRODUCT ASSURANCE
6.1 GOVERNING DOCUMENT
Seller acknowledges that Boeing and Customers must be able to rely on each
Product performing as specified and that Seller will provide all required
support. Accordingly, the following provisions and document(s) are
incorporated herein and made a part hereof:
Seller warrants to Boeing and Customers that Products shall: {a) conform in
all respects to all the requirements of the Order; (b) be free from all
defects in materials and workmanship; and (c) to the extent not
manufactured pursuant to detailed designs furnished by Boeing, be free from
all defects in design and be fit for the intended purposes.
7.0 PAYMENT
7.1 RECURRING PRICE
Unless otherwise provided in the applicable Order, payment of the recurring
price shall be made in accordance with Form X-27981 "Pay From Receipt -
Additional Terms and Conditions Regarding Invoicing and Payment". Payment
terms shall be net thirty (30) days except as otherwise agreed to by the
parties. All payments are subject to adjustment for shortages, credits and
rejections.
7.2 NON-RECURRING PRICE/SPECIAL CHARGES
Unless otherwise provided in the applicable Order, any non-recurring price
payable by Boeing under Attachment 1 shall be paid within the term discount
period or thirty (30) calendar days (whichever is later) after receipt by
Boeing of both acceptable Products and a correct invoice.
8.0 ACCELERATION/DECELERATION AT NO COST
Notwithstanding GTA Section 10.0, Boeing may make changes in the delivery
schedule without additional cost or change to the unit price stated in the
applicable Order if (a) the delivery date of the Product under such Order
is on or before the last date of contract, if applicable, and (b) Boeing
provides Seller with written notice of such changes.
9.0 NOTICES
9.1 ADDRESSES
Notices and other communications shall be given in writing by personal
delivery, United States mail, telex, teletype, telegram, facsimile, cable
or electronic transmission addressed to the respective party as follows:
To Boeing: Attention: Lisa Eng: M/S 38-FX
BOEING COMMERCIAL AIRPLANE GROUP
MATERIAL DIVISION
P.O. Box 3707
Seattle, Washington 98124-2207
To Seller: Attention:
SUPPLIER NAME
ADDRESS
3
<PAGE>
SPECIAL BUSINESS PROVISIONS
10.0 OBLIGATION TO PURCHASE AND SELL
Boeing and Seller agree that in consideration of the prices set forth under
Attachment 1, Boeing shall issue Orders for Products from time to time to
Seller for Boeing's requirements. Such Products shall be shipped at any
scheduled rate of delivery, as determined by Boeing, and Seller shall sell
to Boeing Boeing's requirements of such Products, provided that, without
limitation on Boeing's right to determine its requirements, Boeing shall
not be obligated to issue any Orders for any given Product if:
A. Any of Boeing's customers specify an alternate product;
B. Such Product is, in Boeing's reasonable judgment, not technologically
competitive at any time, for reasons including but not limited to the
availability of significant changes in technology, design, materials,
specifications, or manufacturing processes which result in a reduced
price or weight or improved appearance, functionality, maintainability
or reliability;
C. Boeing gives reasonable notice to Seller of a change in any of
Boeing's aircraft which will result in Boeing no longer requiring such
Product for such aircraft;
D. Seller has materially defaulted in any of its obligations under any
Order, whether or not Boeing has issued a notice of default to Seller
pursuant to GTA Section 13.0; or,
E. Boeing reasonably determines that Seller cannot support Boeing's
requirements for Products in the amounts and within the delivery
schedules Boeing requires.
11.0 COST AND FINANCIAL PERFORMANCE VISIBILITY
Seller shall provide all necessary cost support data, source documents for
direct and indirect costs, and assistance at the Seller's facility for cost
performance reviews performed by Boeing pursuant to any Order.
Furthermore, Seller shall provide financial data, on a quarterly basis, or
as requested, to Boeing's Credit Office and Material Representative for
credit and financial condition reviews. Said data shall include but not be
limited to balance sheets, schedule of accounts payable and receivable,
major lines of credit, creditors, income statements (profit and loss), cash
flow statements, firm backlog, and headcounts. Copies of such data are to
be made available within 72 hours of any written request by Boeing. This
data is required in addition to the cost data provided pursuant to GTA
Section 9.0. All such information shall be treated as confidential in
accordance with GTA Section 20.0.
12.0 CHANGES
12.1 CHANGES TO THE STATEMENT OF WORK
Boeing may direct Seller within the scope of the applicable Order and in
accordance with the provisions of GTA Section 10.0, to increase or decrease
the work to be performed by the Seller in the manufacture of any Product.
4
<PAGE>
SPECIAL BUSINESS PROVISIONS
12.2 COMPUTATION OF EQUITABLE ADJUSTMENT NOT APPLICABLE
The Rates and Factors set forth in Attachment 3, which by this reference is
incorporated herein, shall be used to determine the equitable adjustment,
if any, (including equitable adjustments, if any, in the prices of Products
to be incorporated in Derivative Aircraft), to be paid by Boeing pursuant
to SBP Section 12.1 and GTA Section 10.0 for each individual change.
12.3 OBSOLESCENCE
Claims for obsolete or surplus material and work-in-process created by
change orders issued pursuant to this Section shall be subject to the
procedures set forth in GTA Section 12.0, except that Seller may not submit
a claim for obsolete or surplus material resulting from an individual
change order that has a total claim value of Twenty-Five Hundred Dollars
($2500.00) or less. Payment for obsolete or surplus materials shall be made
by check deposited as first class mail to the address designated by Seller
in SBP Section 9.1. Payment will be made on the tenth (10th) day of the
month following the month of the obsolescence claim settlement.
12.4 CHANGE ABSORPTION
12.4.1 NON-RECURRING AND RECURRING CHANGE ABSORPTION
Notwithstanding the provisions of GTA Section 10.0 and SBP Section 12.1,
Seller will absorb 100% of all changes defined through the completion of
production flight test certification. Provided, that, changes made by
Boeing subsequent to certification which significantly revise the Product
function as defined in the Specification or Specification Control Drawing
(SCD), will be subject to provisions for adjustment of price pursuant to
GTA Section 10.0 and SBP Section 12.1.
12.5 PLANNING SCHEDULE
Any planning schedule or quantity estimate provided by Boeing shall be used
solely for production planning. Boeing may purchase Products in different
quantities and specify different delivery dates as necessary to meet
Boeing's requirements. Such planning schedule and quantity estimate shall
be subject to adjustment from time to time. Any such adjustment is not a
change under GTA Section 10.0.
12.6 VALUE ENGINEERING
Seller may from time to time submit proposals to Boeing to change drawings,
designs, specifications or other requirements that:
a. decrease Seller's performance costs; or
b. produce a net reduction in the cost to Boeing of installation,
operation, maintenance or production of the Product.
Provided, that such change shall not impair any essential functions or
characteristics of the Products or Tooling.
5
<PAGE>
SPECIAL BUSINESS PROVISIONS
12.6.1 SUBMISSION OF PROPOSAL
Proposals shall be submitted to Boeing's Material Representative. Boeing
shall not be liable for any delay in acting upon a proposal. Boeing's
decision to accept or reject any proposal shall be final. If there is a
delay and the net result in savings no longer justifies the investment,
Seller will not be obligated to proceed with the change. Seller has the
right to withdraw, in whole or in part, any proposal not accepted by Boeing
within the time period specified in the proposal. Seller shall submit, as a
minimum, the following information with the proposal:
a. description of the difference between the existing requirement and the
proposed change, and the comparative advantages and disadvantages of
each;
b. the specific requirements which must be changed if the proposal is
adopted;
c. the cost savings and Seller's implementation costs;
d. Each proposal shall include the need dates for engineering release and
the time by which a proposal must be approved so as to obtain the
maximum cost reduction.
12.6.2 ACCEPTANCE AND COST SHARING
Boeing may accept, in whole or in part, any proposal by issuing a change
order. Until such change has been issued, Seller shall remain obligated to
perform in accordance with the terms and requirements of the original Order
as written. Boeing and Seller shall share the savings as follows:
(50%) savings to Boeing;
(50%) savings to Seller.
Seller shall include with each proposal verifiable cost records and other
data as required by Boeing for proposal review and analysis.
Each party shall be responsible for its own implementation costs, including
but not limited to non-recurring costs.
12.6.3 COST SAVINGS COMPUTATION
A change order shall be issued by Boeing and the unit price shall be
reduced in an amount equal to the savings portion attributable to Boeing as
set forth above. The applicable unit price as set forth in Attachment 1
Statement of Work shall be amended to reflect such change.
EXAMPLE:
-------
Current Price: $600.00
Proposed Cost Savings: $100.00/unit
Boeing's Percentage: 50.0%
Seller's Percentage: 50.0%
6
<PAGE>
SPECIAL BUSINESS PROVISIONS
12.6.3 COST SAVINGS COMPUTATION (Continued)
STEP BY STEP COMPUTATION:
l. $100.00 unit savings x 50.0% Boeing's percentage of savings
= $50.00 Boeing savings.
2. $100.00 unit savings x 50.0% Seller's percentage of savings
= $50.00 Seller savings.
3. Net affect to the unit cost = $50.00
New Unit Price For Units = $550.00
12.6.4 WEIGHT REDUCTION PROPOSALS
Seller is encouraged to submit proposals to Boeing that reduce the
Product's weight without impairing any essential functions or
characteristics of the Product.
Seller shall submit such proposals in accordance with SBP Section 12.6.1
above. The amount of any costs or savings that result from a weight
reduction proposal shall be agreed by Boeing and Seller. Seller shall
include with each proposal verifiable cost records and other data as
required by Boeing for proposal review and analysis.
Boeing may accept in whole or in part, any such proposal by issuing a
change order to the applicable Order.
12.7 REDUCTION IN QUANTITY TO BE DELIVERED
Notwithstanding the provisions of GTA Sections 10.0 and 12.0, Boeing's
maximum liability for an equitable adjustment resulting from a decrease in
quantity or termination of Product(s) shall be limited to costs directly
attributable to THREE months worth of scheduled deliveries of the Products.
For purposes of this Section, scheduled deliveries shall be determined by
the applicable schedule in effect at the time Seller commenced work on the
Product(s) that are the subject of the termination or decrease.
13.0 SPARES AND OTHER PRICING
13.1 SPARES
For purposes of this Section, the following definitions shall apply:
A. AIRCRAFT ON GROUND (AOG) - means the highest Spares priority. Seller
will expend best efforts to provide the earliest possible delivery of
any Spare designated AOG by Boeing. Such effort includes but is not
limited to working twenty-four (24) hours a day, seven days a week and
use of premium transportation. Seller shall specify the delivery date
and time of any such AOG Spare within two (2) hours of receipt of an
AOG Spare request.
B. CRITICAL - means an imminent AOG work stoppage. Seller will expend
best efforts to provide the earliest possible delivery of any Spare
designated Critical by Boeing. Such effort includes but is not limited
to working two (2) shifts a day, five (5) days a week and use of
premium transportation. Seller shall specify the delivery date and
time of any such Critical Spare within the same working day of receipt
of a Critical Spare request.
7
<PAGE>
SPECIAL BUSINESS PROVISIONS
13.1 SPARES (Continued)
C. EXPEDITE (CLASS I) - means a Spare required in less than Seller's
normal leadtime. Seller will expend best efforts to meet the
requested delivery date. Such effort includes but is not limited to
working overtime and use of premium transportation.
D. ROUTINE (CLASS III) - means a Spare required in Seller's normal
leadtime.
E. POA REQUIREMENT (POA) - means any detail component needed to replace a
component on an End Item Assembly currently in Boeing's assembly line
process. Seller shall expend best efforts feasible to provide the
earliest possible delivery of any Spare designated as POA by Boeing.
Such effort includes but is not limited to working twenty-four (24)
hours a day, seven days a week and use of premium transportation.
Seller shall specify the delivery date and time of any such POA within
two (2) hours of an AOG Spare request.
F. IN-PRODUCTION - means any Spare with a designation of AOG, Critical,
Expedite, Routine, POA or End Item Assembly which is in the current
engineering configuration for the Product and is used on a model
aircraft currently being manufactured by Boeing.
G. NON-PRODUCTION REQUIREMENTS - means any Spare with a designation of
AOG, Critical, Expedite and Routine requirements which is used on
model aircraft no longer being manufactured by Boeing (Post
Production) or is in a non-current engineering configuration for the
Product (Out of Production).
H. BOEING PROPRIETARY SPARE - means any Spare which is manufactured (i)
by Boeing, or (ii) to Boeing's detailed designs with Boeing's
authorization or (iii) in whole or in part using Boeing's Proprietary
Materials.
13.1.1 SPARES SUPPORT
Seller shall provide Boeing with a written Spares support process
describing Seller's plan for supporting AOG and Critical commitments and
manufacturing support. The process must provide Boeing with the name and
number of a twenty-four (24) hour contact for coordination of AOG and
Critical requirements. Such contact shall be equivalent to the coverage
provided by Boeing to its Customers as outlined in Attachment 4 "Boeing AOG
Coverage" which is incorporated herein and made a part hereof by this
reference.
Seller shall notify Boeing as soon as possible via fax, telecon, or as
otherwise agreed to by the parties of each AOG and Critical requirement
shipment using the form identified in Attachment 5 "Boeing AOG and Critical
Shipping Notification". Such notification shall include time and date
shipped, quantity shipped, Order, pack slip, method of transportation and
air bill if applicable. Seller shall also notify Boeing immediately upon
the discovery of any delays in shipment of any requirement and identify the
earliest revised shipment possible.
8
<PAGE>
SPECIAL BUSINESS PROVISIONS
13.1.2 RECLASSIFICATION OR RE-EXERCISES
Boeing may on occasion, instruct Seller to re-prioritize or reclassify an
existing requirement in order to improve or otherwise change the
established shipping schedule. Seller shall expend the effort required to
meet the revised requirement as set forth above in the definitions of the
requirements. Seller's commitment of a delivery schedule shall be given in
accordance with that set forth above for the applicable classification but
in no case shall it exceed twenty-four (24) hours from notification by
Boeing.
13.1.3 SPARE PRICING
Except as set forth in subsections 13.1.3.1 and 13.1.3.2 below, the price
for Spare(s) shall be the same as the production price for the Products as
listed on Attachment 1, in effect at the time the Spare(s) are ordered. POA
parts shall be priced so that the sum of the prices for all POA parts of an
End Item Assembly equals the applicable recurring portion of the End Item
Assembly.
13.1.3.1 AIRCRAFT ON GROUND (AOG), CRITICAL SPARES AND POA REQUIREMENT
The price for AOG and Critical Spares and POA requirements shall be
the price for such Products listed on Attachment 1.
13.1.3.2 EXPEDITE SPARE (CLASS 1)
The price for Expedite Spares shall be the price for such Products
listed on Attachment 1.
13.1.4 SPECIAL HANDLING
The price for all effort associated with the handling and delivery of
Spare(s) is deemed to be included in the price for such Spare(s). Provided,
that if Boeing directs delivery of Spares to an F.O.B. point other than
Seller's plant, Boeing shall reimburse Seller for shipping charges,
including insurance, paid by Seller from the plant to the designated F.O.B.
point. Such charges shall be shown separately on all invoices.
13.2 SHORT FLOW PRODUCTION REQUIREMENTS
Expedite charges, if any, to be paid for short flow production requirements
shall not exceed the amount payable under SBP Section 13.1.3.1 above for
that portion of the Order which is released short flow except as otherwise
agreed to in writing by Boeing. In the event Boeing agrees to pay an amount
in excess of that set forth in SBP Section 13.1.3.1 above, Seller shall
provide data to verify expedite charges requested. For purposes of this
Section, "Short Flow Production" shall be defined as any requirement
released less than Seller's current Re-Order Leadtime (ROLT). If Seller
fails to meet the required delivery, Boeing shall not be obligated to pay
the agreed upon amount.
9
<PAGE>
SPECIAL BUSINESS PROVISIONS
13.3 TOOLING
13.3.1 RESPONSIBLE PARTY
Seller shall absorb all costs for Tooling manufactured and/or purchased by
Seller necessary for the manufacture and delivery of the Products including
but not limited to rework, repair and maintenance of the Tooling.
13.3.2 BOEING FURNISHED TOOLING
In the event Boeing furnishes Tooling to Seller to support the delivery of
Product(s), Seller shall comply with the Terms and Conditions applicable to
the Blanket Tooling Purchase Control Order established with Seller who
possess or controls Tooling. No repair, replacement or rework required
shall be performed without Boeing's prior written consent. Boeing shall
notify Seller of, what if any, action shall be required for all discrepant
Tooling.
13.4 PRICING OF BOEING'S SUPPORTING REQUIREMENTS
Any Products required to assist Boeing's supporting requirements, including
but not limited to requirements for color and appearance samples, Boeing-
owned simulators, test requirements, factory support, flight test spares
will be provided for not more than the applicable price as set forth in
Attachment 1.
13.5 PRICING OF REQUIREMENTS FOR MODIFICATION OR RETROFIT
Any Products required by Boeing to support a modification or retrofit
program shall be provided for not more than the applicable price as set
forth in Attachment 1.
13.6 SIMILAR PRICING
New Products ordered by Boeing that are similar to or within Product
families of Products currently being manufactured by Seller shall be priced
using the same methodology or basis as that used to price the existing
Product(s).
14.0 STATUS REPORTS/REVIEWS
When requested by Boeing, Seller shall update and submit, as a minimum,
monthly status reports on data requested by Boeing using a method mutually
agreed upon by Boeing and Seller.
When requested by Boeing, Seller shall provide to Boeing a manufacturing
milestone chart identifying the major purchasing, planning and
manufacturing operations for the applicable Product(s).
10
<PAGE>
SPECIAL BUSINESS PROVISIONS
Upon request by Boeing, a program review may be held between the parties.
The location of such review shall be mutually agreed to by the parties. The
purpose of the review is to improve communication and understanding between
the parties to ensure program success.
15.0 PROVISIONS FOR OFFSET/BUSINESS STRATEGIES
FOREIGN PROCUREMENT REPORT
Seller agrees to cooperate with Boeing in identifying possible
subcontractors for work under any Order that support Boeing's offset or
business strategies. Prior to releasing any request for proposal to a
subcontractor to support Boeing's offset or business strategy, Seller shall
coordinate with Boeing.
Seller shall document on Attachment 2 all offers to contract and executed
contracts with such subcontractors including the dollars contracted.
Seller shall provide to Boeing with an updated copy of Attachment 2 for the
six-month periods ending June 30 and December 31 of each year. The reports
shall be submitted on the 1st of August and the 1st of February
respectively.
16.0 BOEING FURNISHED MATERIAL
NOT APPLICABLE
17.0 ASSIGNMENT
Boeing and Seller agree that Boeing may, in its discretion, assign, in part
or in whole, its purchasing obligations under the Agreement or any Order,
as applicable, at the prices set forth in Attachment 1 thereof. Boeing
reserves the right to rescind its assignment at anytime.
Boeing's assignment of purchasing obligation includes scheduling, issuance
of Order(s), receival and inspection of Products, acceptance or rejection
of Products, payment for accepted Products, and ensuring conformance to the
quality assurance system requirements.
Boeing shall retain all other rights and obligations pursuant to the
applicable terms and conditions. In addition, Boeing reserves the right,
where necessary, to coordinate with and mediate between Seller and any
assignee regarding such assignment.
18.0 INVENTORY AT CONTRACT COMPLETION
NOT APPLICABLE
19.0 OWNERSHIP OF INTELLECTUAL PROPERTY
NOT APPLICABLE
19.1 TECHNICAL WORK PRODUCT
NOT APPLICABLE
19.2 INVENTIONS AND PATENTS
NOT APPLICABLE
19.3 WORKS OF AUTHORSHIP AND COPYRIGHTS
NOT APPLICABLE
11
<PAGE>
SPECIAL BUSINESS PROVISIONS
19.4 PRE-EXISTING INVENTIONS AND WORKS OF AUTHORSHIP
NOT APPLICABLE
20.0 ADMINISTRATIVE AGREEMENTS
NOT APPLICABLE
21.0 GUARANTEED WEIGHT REQUIREMENTS
NOT APPLICABLE
22.0 SUPPLIER DATA REQUIREMENTS
NOT APPLICABLE
23.0 DEFERRED PAYMENT
NOT APPLICABLE
24.0 SOFTWARE PROPRIETARY INFORMATION RIGHTS
NOT APPLICABLE
EXECUTED in duplicate as of the date and year first set forth above by the duly
authorized representatives of the parties.
THE BOEING COMPANY
By and Through its Division
Boeing Commercial Airplane Group
Name: /s/ illegible Name: /s/ illegible
------------------------ ------------------------
Title: PRESIDENT Title:
------------------------ ------------------------
Date: Date:
------------------------ ------------------------
12
<PAGE>
ATTACHMENT 1 TO
SPECIAL BUSINESS PROVISIONS
WORK STATEMENT AND PRICING
The price for Products to be delivered on or before December 31, 199, except as
otherwise noted below, shall be as follows:
PART NUMBER LEAD TIME NOMENCLATURE UNIT PRICE
- ----------- --------- ------------ ----------
SEE ENCLOSURE A
1
<PAGE>
Attachment 1 to Special Business Provisions
Work Statement and Pricing
The price for products to be delivered through December 31, 1999 shall be
as follows:
(a) designates new parts added to the contract.
Contract
Part Number/Family Lead Time Nomenclature Price
-------------------- --------- ------------ ----------
(a) CA1044-1 12 Weeks Latch $1.01
(a) CAMA11A1S 12 Weeks Connector $25.39
(a) CAMA11W1P 12 Weeks Connector $11.00
(a) CAMA11W1S 12 Weeks Connector $25.45
(a) CAMA11W1SLF 12 Weeks Connector $37.75
(a) CAMA15S 12 Weeks Connector $11.05
CAMA15S5LF 12 Weeks Connector $55.94
CB004-5P 12 Weeks Contact $1.67
CB005-5P 12 Weeks Contact $1.97
(a) CB008-5P 12 Weeks Contact $4.23
(a) CB009-5P 12 Weeks Contact $3.50
CB02-15P1 12 Weeks Connector $25.50
CB02C-15P 12 Weeks Receptacle $55.48
CB02C-15S 12 Weeks Connector $54.44
CB05-15S 12 Weeks Plug $39.25
(a) CB06-15P 12 Weeks Connector $25.20
(a) CB06-15S 12 Weeks Connector $24.44
CB12P1 12 Weeks Plug $7.75
CBCX12R1A 12 Weeks Receptacle $67.93
(a) CBCX12RP1A 12 Weeks Connector $407.02
(a) CBMA21W1P 12 Weeks Connector $17.75
(a) CBMA21W1S 12 Weeks Connector $18.68
(a) CBX12PM1A 12 Weeks Connector $51.80
(a) CC5791-3 12 Weeks Contact $33.38
CCM25A3P-SP 12 Weeks D-Sub $39.57
(a) CCMA17W5PK87 12 Weeks Connector $40.05
(a) CCMA17W5S 12 Weeks Connector $27.48
(a) CCMA21WA4S 12 Weeks Connector $18.42
(a) CCMA25W3S 12 Weeks Connector $18.55
(a) CCMA37PK87 12 Weeks Connector $18.06
(a) CDMA36W4S 12 Weeks Connector $23.96
(a) CJC200 12 Weeks Connector $315.25
(a) CJC400 12 Weeks Dummy VDU $441.57
(a) CJC600 12 Weeks Switch $275.00
(a) CLPT12SP06 12 Weeks Adapter Connector $592.25
(a) CLPT12SP07 12 Weeks Adapter Connector $592.25
CMP002-P103 12 Weeks Contact $4.82
CMP002-Sl03 12 Weeks Contact $5.11
CMP003-P103 12 Weeks Contact $4.72
1
<PAGE>
Attachment 1 to Special Business Provisions
Work Statement and Pricing
The price for products to be delivered through December 31, 1999 shall be
as follows:
(a) designates new parts added to the contact.
Contract
Part Number/Family Lead Time Nomenclature Price
-------------------- --------- ------------ ----------
CMP003-S103 12 Weeks Contact $5.02
CMP004-P103 12 Weeks Contact $4.72
CMP004-S103 12 Weeks Contact $5.02
(a) CMX006S102 12 Weeks Contact $6.00
(a) CMX006S102E 12 Weeks Contact $15.79
(a) CPIS001 12 Weeks Connector $107.00
(a) CPX3MAB32C4PD106S67P 12 Weeks Connector $447.65
(a) CPX3MAB32C4SD106P67S 12 Weeks Connector $437.40
(a) CPXBMA32-33S0001 12 Weeks Connector $100.00
(a) CQAEM 12 Weeks Connector $23.00
CQAMA11W1P 12 Weeks Connector $41.91
(a) CQAMA11W1S 12 Weeks Connector $48.37
CQAMA15P 12 Weeks Connector $17.50
CQAMA15S 12 Weeks Connector $47.85
CQAPM 12 Weeks Backshell $3.09
(a) CQARA11W1P 12 Weeks Connector $585.18
(a) CQARA11W1S 12 Weeks Connector $195.12
CQASM 12 Weeks Backshell $3.24
(a) CQBMA13W3P 12 Weeks Connector $39.95
(a) CQBMA13W3S 12 Weeks Connector $77.29
(a) CQBMA17W2P 12 Weeks Connector $30.35
(a) CQBMA25P 12 Weeks Connector $116.73
(a) CQBPM 12 Weeks Connector $22.37
(a) CQBSM 12 Weeks Backshell $17.11
CQCMA21WA4S 12 Weeks Connector $51.55
(a) CQCMA25W3P 12 Weeks Connector $331.36
(a) CQCMA25W3S 12 Weeks Connector $39.63
CQCMA2SW3S 12 Weeks Connector $45.25
CQCMA37P 12 Weeks Connector $45.62
CQCPM 12 Weeks Backshell $14.12
CQCRA21WA4P 12 Weeks Connector $193.86
CQCRA21WA4S 12 Weeks Connector $193.83
CQCSM 12 Weeks Backshell $4.09
(a) CQDMA24W7P 12 Weeks Connector $697.54
(a) CQDMA24W7S 12 Weeks Connector $43.75
CQDMA36W4S 12 Weeks Connector $54.73
CQDMA50S 12 Weeks Connector $60.31
CQDPM 12 Weeks Backshell $20.52
CQDRA24SW7S 12 Weeks Connector $697.54
2
<PAGE>
Attachment 1 to Special Business Provisions
Work Statement and Pricing
The price for products to be delivered through December 31, 1999 shall be
as follows:
(a) designates new parts added to the contract.
Contract
Part Number/Family Lead Time Nomenclature Price
-------------------- --------- ------------ ----------
CQDRA50P 12 Weeks D Sub $195.15
CQDSM 12 Weeks Backshell $15.02
CQEEM 12 Weeks Backshell $5.68
CQEMA9P 12 Weeks Connector $32.77
CQEMA9S 12 Weeks Connector $16.87
CQEPM 12 Weeks Backshell $3.35
CQESM 12 Weeks Backshell $6.56
(a) CQMEF200 12 Weeks Contact $19.95
(a) CQMEF316 12 Weeks Contact $22.12
CQMEF501 12 Weeks Contact $8.43
CQMEF501A 12 Weeks Contact $10.45
CQMEF502A 12 Weeks Contact $24.02
(a) CQMEF503 12 Weeks Contact $29.75
(a) CQMEM200 12 Weeks Contact $17.47
(a) CQMEM316 12 Weeks Connector $18.99
CQMEM501 12 Weeks Contact $14.22
CQMEM502 12 Weeks Contact $19.56
(a) CQMEM503 12 Weeks Connector $28.58
(a) CRC280-2 12 Weeks Contact $27.71
(a) CRC280-3 12 Weeks Contact $28.38
(a) CRC280-4 12 Weeks Contact $26.76
(a) CRM280-2 12 Weeks Contact $72.12
(a) CRM280-3 12 Weeks Contact $28.74
(a) CRM280-4 12 Weeks Contact $26.78
(a) CRMEF501 12 Weeks Contact $16.71
(a) CRMEM501 12 Weeks Contact $15.38
CSLT21P1A 12 Weeks Plug $21.70
CT14S 12 Weeks Backshell $0.87
CTB0802 12 Weeks Terminal Block $303.13
CTB8C 12 Weeks Terminal Block Cover $25.96
(a) CTB9000 12 Weeks Terminal Block $542.21
(a) CTB9CS 12 Weeks Terminal Cover $62.61
CTER100 12 Weeks Terminal Assembly $125.00
CTER120 12 Weeks Terminal Assembly $125.00
(a) CTR14S 12 Weeks Backshell $3.45
(a) CTR90SR1S 12 Weeks Backshell $206.86
CTX623-6CH 12 Weeks Telephone Jack $60.33
(a) CTZ623-6CH 12 Weeks Telephone Jack $23.78
(a) CWC01-1210 12 Weeks Connector $59.66
3
<PAGE>
Attachment 1 to Special Business Provisions
Work Statement and Pricing
The price for products to be delivered through December 31, 1999 shall be
as follows:
(a) designates new parts added to the contract.
Contract
Part Number/Family Lead Time Nomenclature Price
-------------------- --------- ------------ ----------
(a) CWC01-2006 12 Weeks Terminal $23.31
(a) CWC01-2010 12 Weeks Terminal $23.34
CWC02-2006 12 Weeks Terminal $56.45
CWC02-2010 12 Weeks Terminal $62.92
(a) DSB3 12 Weeks Backshell $23.83
(a) DSB4 12 Weeks Backshell $23.83
(a) DSB5 12 Weeks Backshell $23.83
(a) K3004-0001-2005 12 Weeks Contact $1.69
(a) K3004-0002-1605 12 Weeks Contact $3.14
(a) K4004-0001-2005 12 Weeks Contact $2.90
(a) K4004-0002-1605 12 Weeks Contact $3.05
4
<PAGE>
ATTACHMENT 2 TO
SPECIAL BUSINESS PROVISIONS
FOREIGN PROCUREMENT REPORT FORM
(Seller to Submit)
(Reference Section 15.0)
COMMODITY/ BID CONTRACTED
SUPPLIER NAME COUNTRY NOMENCLATURE DOLLARS DOLLARS
- ------------- ------- ------------ ------- ----------
2
<PAGE>
ATTACHMENT 3 TO
SPECIAL BUSINESS PROVISIONS
RATES AND FACTORS
(Reference Section 12.2)
3
<PAGE>
ATTACHMENT 4 TO
SPECIAL BUSINESS PROVISIONS
BOEING AOG COVERAGE
- - NORMAL HOURS BOEING'S MATERIAL REPRESENTATIVE(MATERIAL
DIVISION)
Approximately 5:30 a.m. - 6:00 p.m.
- Performs all functions of procurement process.
- Manages formal communication with Seller.
- - SECOND SHIFT - AOG PROCUREMENT SUPPORT (MATERIAL DIVISION)
3:00 p.m. - 11:00 p.m.
- May place order and assist with commitment and shipping information,
working with several suppliers on a priority basis.
- Provides a communication link between Seller and Boeing.
- - 24 HOUR AOG SERVICE - AOG CUSTOMER REPRESENTATIVE
(CUSTOMER SERVICE DIVISION ) 544-9000
- Support commitment information particularly with urgent orders.
- Customer Service Representative needs (if available):
- Part Number
- Boeing Purchase Order
- Airline Customer & customer purchase order number
- Boeing S.I.S. #
If Seller is unable to contact any of the above, please provide AOG/Critical
shipping information notification via FAX using Boeing AOG/Critical shipping
notification form (Attachment 5).
4
<PAGE>
ATTACHMENT 5 TO
SPECIAL BUSINESS PROVISIONS
BOEING
AOG/CRITICAL
SHIPPING NOTIFICATION
- --------------------------------------------------------------------------------
To: FAX: (206) 544-9261 or 544-9262 Phone: (206) 544-9296
-------------------------- ------------------------------
Buyer Name: Phone:
--------------------- ------------------------------
From: Today's Date:
--------------------- ------------------------------
- --------------------------------------------------------------------------------
Part Number: Customer PO:
--------------------- -----------------------
Customer: Ship Date:
--------------------- -----------------------
Qty Shipped: *SIS Number:
--------------------- -----------------------
Boeing PO: Pack Sheet
--------------------- -----------------------
*Airway Bill: or Invoice:
--------------------- -----------------------
Carrier: *Flight #:
--------------------- -----------------------
Freight
Forwarder:
---------------------
* If Applicable
Shipped To:(Check One) Boeing
-----
Direct Ship
to Customer
-----
Direct Ship
to Supplier
-----
Remarks:
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
IF UNABLE TO CONTACT BUYER,
PLEASE USE THIS FORM TO FAX SHIPPING INFORMATION.
5
<PAGE>
ATTACHMENT 6 TO
SPECIAL BUSINESS PROVISIONS
SUPPLIER DATA REQUIREMENTS LIST ("SDRL")
CUSTOMER SUPPORT
(Reference Section 21.0)
NOT APPLICABLE
6
<PAGE>
ATTACHMENT 7 TO
SPECIAL BUSINESS PROVISIONS
SUPPLIER DATA REQUIREMENTS LIST ("SDRL")
ENGINEERING
(Reference Section 21.0)
NOT APPLICABLE
7
<PAGE>
SPECIAL BUSINESS PROVISIONS
19.4 PRE-EXISTING INVENTIONS AND WORKS OF AUTHORSHIP
NOT APPLICABLE
20.0 ADMINISTRATIVE AGREEMENTS
NOT APPLICABLE
21.0 GUARANTEED WEIGHT REQUIREMENTS
NOT APPLICABLE
22.0 SUPPLIER DATA REQUIREMENTS
NOT APPLICABLE
23.0 DEFERRED PAYMENT
NOT APPLICABLE
24.0 SOFTWARE PROPRIETARY INFORMATION RIGHTS
NOT APPLICABLE
EXECUTED in duplicate as of the date and year first set forth above by the duly
authorized representatives of the parties.
THE BOEING COMPANY CORY COMPONENTS
By and Through its Division
Boeing Commercial Airplane Group
Name: /s/ Name: /s/
-------------------- ---------------------
Title: Buyer Title: PRESIDENT
-------------------- ---------------------
Date: December 1, 1995 Date: 2/12/96
-------------------- ---------------------
12
<PAGE>
EXHIBIT 10.16
BOEING
PURCHASE AGREEMENT
9423JC4548
between
BOEING DEFENSE & SPACE-IRVING CO.
3131 STORY ROAD WEST
IRVING, TEXAS 75038
and
CORY COMPONENTS
2201 ROSECRANS AVENUE
EL SEGUNDO, CA 90245
Period of Performance
January 1, 1995 through December 31, 1999
<PAGE>
AGREEMENT #9423JC4548
TABLE OF CONTENTS
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.0 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Products. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Material Representative . . . . . . . . . . . . . . . . . . . 1
1.3 F.O.B . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Specification . . . . . . . . . . . . . . . . . . . . . . . . 2
2.0 ISSUANCE OF ORDERS AND APPLICABLE TERMS. . . . . . . . . . . . . . 2
2.1 Issuance of Orders. . . . . . . . . . . . . . . . . . . . . . 2
2.2 Supplier Scheduling . . . . . . . . . . . . . . . . . . . . . 2
2.3 Acceptance of Orders. . . . . . . . . . . . . . . . . . . . . 2
2.4 Rejection of Orders . . . . . . . . . . . . . . . . . . . . . 3
2.5 Written Authorization to Proceed. . . . . . . . . . . . . . . 3
3.0 TITLE AND RISK OF LOSS . . . . . . . . . . . . . . . . . . . . . . 3
4.0 PRICING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.0 NON-RECURRING COSTS. . . . . . . . . . . . . . . . . . . . . . . . 4
6.0 LEADTIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7.0 DELIVERY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.1 Requirements . . . . . . . . . . . . . . . . . . . . . . . . 5
7.2 Delay . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.3 Expedited Delivery . . . . . . . . . . . . . . . . . . . . . 5
8.0 ON-SITE REVIEW AND RESIDENT REPRESENTATIVES. . . . . . . . . . . . 5
8.1 Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
8.2 Resident Representatives. . . . . . . . . . . . . . . . . . . 6
9.0 PRODUCT CONFORMANCE. . . . . . . . . . . . . . . . . . . . . . . . 6
10.0 QUALITY CONTROL, INSPECTION, REJECTION, AND ACCEPTANCE . . . . . . 6
10.1 Controlling Document. . . . . . . . . . . . . . . . . . . . . 6
i
<PAGE>
10.2 Inspection and Rejection. . . . . . . . . . . . . . . . . . . 6
10.3 SELLER's Notice of Discrepancies. . . . . . . . . . . . . . . 7
10.4 Right of Entry. . . . . . . . . . . . . . . . . . . . . . . . 7
10.5 Certification . . . . . . . . . . . . . . . . . . . . . . . . 8
10.6 Retention of Records. . . . . . . . . . . . . . . . . . . . . 8
10.7 Source Inspection . . . . . . . . . . . . . . . . . . . . . . 8
11.0 PATENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
12.0 EXAMINATION OF RECORDS . . . . . . . . . . . . . . . . . . . . . . 9
13.0 CHANGES TO SPECIFICATIONS. . . . . . . . . . . . . . . . . . . . . 9
14.0 CHANGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
15.0 INVOICE AND PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . 10
16.0 PACKAGING AND SHIPPING . . . . . . . . . . . . . . . . . . . . . . 10
17.0 WARRANTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
18.0 TERMINATION FOR DEFAULT. . . . . . . . . . . . . . . . . . . . . . 11
19.0 TERMINATION FOR CONVENIENCE. . . . . . . . . . . . . . . . . . . . 11
20.0 FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
21.0 RESPONSIBILITY FOR PROPERTY. . . . . . . . . . . . . . . . . . . . 12
22.0 TECHNOLOGICAL DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . 12
22.1 Proprietary Information . . . . . . . . . . . . . . . . . . . 13
23.0 COMPLIANCE WITH FEDERAL, STATE AND LOCAL LAWS. . . . . . . . . . . 13
23.1 Clean Air Act . . . . . . . . . . . . . . . . . . . . . . . . 13
24.0 BUYER'S RIGHTS IN SELLER'S DATA, PATENTS AND TOOLING . . . . . . . 14
25.0 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
25.1 Addresses . . . . . . . . . . . . . . . . . . . . . . . . . . 14
25.2 Effective Date. . . . . . . . . . . . . . . . . . . . . . . . 15
26.0 PUBLICITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
27.0 FACILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ii
<PAGE>
28.0 RELIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
29.0 ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
30.0 SUBCONTRACTING . . . . . . . . . . . . . . . . . . . . . . . . . . 16
31.0 NOTICE OF LABOR DISPUTES . . . . . . . . . . . . . . . . . . . . . 16
32.0 NON-WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
33.0 HEADING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
34.0 PARTIAL INVALIDITY . . . . . . . . . . . . . . . . . . . . . . . . 16
35.0 APPLICABLE LAW; JURISDICTION . . . . . . . . . . . . . . . . . . . 16
36.0 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
36.1 Exclusion of Taxes in Price . . . . . . . . . . . . . . . . . 16
36.2 Tax Claims. . . . . . . . . . . . . . . . . . . . . . . . . . 17
37.0 ENTIRE AGREEMENT; ORDER OF PRECEDENCE. . . . . . . . . . . . . . . 17
ATTACHMENT "A" Specifications and Pricing. . . . . . . . . . . . . . . 19
ATTACHMENT "B" Leadtime. . . . . . . . . . . . . . . . . . . . . . . . 20
ATTACHMENT "C" Supplier Scheduling Program . . . . . . . . . . . . . . 21
ATTACHMENT "D" Supplier Scheduling Report. . . . . . . . . . . . . . . 23
iii
<PAGE>
AGREEMENT NO. 9423JC4548
This Agreement is made this date, February 8, 1995, by and between BOEING
DEFENSE & SPACE - IRVING CO., of 3131 Story Road West, Irving, TX 75038, herein
known as "BUYER", and CORY COMPONENTS, of 2201 Rosecrans Ave., El Segundo, CA
90245, herein known as "SELLER".
This Agreement shall be in effect from January 1, 1995 through December 31, 1999
and for the delivery schedules through June 30, 2000 with option to extend. The
terms of this Agreement may also be extended to compensate for an amount of time
equal to the time the contract is on hold due to quality problems, should any be
encountered.
RECITALS
A. BUYER is currently supporting production of commercial aircraft.
B. SELLER manufactures and sells certain goods and services for use in
the production and support of commercial aircraft.
C. SELLER desires to sell and BUYER desires to purchase certain of
Seller's goods and services for the production and support of
commercial aircraft.
D. SELLER and BUYER desire to enter into an agreement for the sale by
Seller and purchase by BUYER of Products as defined herein.
Now, therefore, in consideration of the mutual covenants set forth
herein, the parties agree as follows:
AGREEMENTS
1.0 DEFINITIONS
1.1 "PRODUCTS" shall mean (a) all goods purchased and described on any
Order and (b) services purchased and described on any Order or
attachments to this Agreement.
1.2 "MATERIAL REPRESENTATIVE" shall mean the employee and his/her
management designated as such by BUYER from time to time, or in the
absence of such designation, BUYER's employee and his/her management
primarily responsible for dealing with SELLER in connection with
administration of the applicable Order.
1.3 "F.O.B." shall mean "Free on Board".
1
<PAGE>
1.4 "ORDER": Each purchase order accepted by SELLER is a contract between
BUYER and SELLER and shall be referred to herein as an "Order". (See
Article 2.2, "Supplier Scheduling").
1.5 "SPECIFICATION": Specifications shall be defined to mean the
document(s) which are referenced and/or attached hereto, and also
include those incorporated as Attachment "A".
2.0 ISSUANCE OF ORDERS AND APPLICABLE TERMS
2.1 ISSUANCE OF ORDERS
BUYER shall issue Orders to SELLER from time to time. Each Order
shall contain a description of the Products ordered, a reference to
the applicable specifications and drawings, the quantities, the
prices, the delivery schedule, the terms and place of delivery, any
special conditions and the following note:
"This Order is placed in accordance with Agreement No. 9423JC4548
between Boeing Defense & Space - Irving Co. and Cory Components.
Period of performance January 1, 1995 through December 31, 1999 with
deliveries through June 30, 2000."
2.2 SUPPLIER SCHEDULING
In the future, this contract may be modified by mutual agreement to
include Supplier Scheduling disciplines and techniques which may
alter leadtimes, Order releases and reschedule policies.
For Supplier Scheduling disciplines and techniques, this Agreement
shall be modified for Orders released by BUYER as agreed to in
Attachments "C" and "D". Leadtimes, minimum production releases and
order policies may be altered as mutually agreed between BUYER and
SELLER.
2.3 ACCEPTANCE OF ORDERS
Each Order is BUYER's offer to SELLER and acceptance is strictly
limited to its terms. BUYER WILL NOT BE BOUND BY AND SPECIFICALLY
OBJECTS TO ANY TERM OR CONDITION WHICH IS DIFFERENT FROM OR IN
ADDITION TO THE PROVISIONS OF THE ORDER, WHETHER OR NOT SUCH TERM OR
CONDITION WILL MATERIALLY ALTER THE ORDER. SELLER's commencement of
performance or acceptance of the Order in any manner shall
conclusively evidence SELLER's acceptance of the Order as written.
BUYER may revoke, at no charge, any Order/release prior to receipt of
SELLER's written acceptance or SELLER's commencement of performance.
2
<PAGE>
2.4 REJECTION OF ORDERS
Any rejection by SELLER of an Order shall specify the reasons for
rejection and any changes or additions that would make the Order
acceptable to SELLER; provided, however, that SELLER may not reject
any Order for reasons inconsistent with the provisions of this
Agreement.
2.5 WRITTEN AUTHORIZATION TO PROCEED
BUYER may give written authorization to SELLER to commence
performance before BUYER issues an Order. If BUYER in its written
authorization specifies that an Order will be issued, BUYER and
SELLER shall proceed as if an Order had been issued. This Agreement
and the terms stated in such written authorization shall be deemed to
be a part of BUYER's offer, and the parties shall promptly agree on
any open Order terms. If BUYER does not specify in its written
authorization that an Order shall be issued, BUYER's obligation is
strictly limited to the terms of the written authorization.
If SELLER commences performance (a) before an Order is issued or (b)
without receiving BUYER's prior written authorization to proceed,
such performance shall be at SELLER's expense.
3.0 TITLE AND RISK OF LOSS
Title to and risk of any loss of or damage to the Products shall pass
from SELLER to BUYER at F.O.B. point El Segundo, CA, except for loss
or damage thereto resulting from SELLER's fault or negligence.
Passage of title on delivery does not constitute BUYER's acceptance
of Products.
4.0 PRICING
Pricing for all product(s) purchased under this Agreement shall not
exceed the prices shown in Attachment "A", and shall remain firm
through December 31, 1999 and for deliveries through June 30, 2000,
unless altered by specification changes outlined in Article 13.0,
"CHANGES TO SPECIFICATIONS". Pricing shall be available to all BOEING
locations and subsidiaries should they elect to participate under the
terms of this Agreement.
If during the term of this Agreement, SELLER, in its sales to other
customers, reduces prices or leadtimes of like quantities of
comparable items, below those stated herein, the lowest prices and
reduced leadtimes will be made available to the BUYER and prevail
under this Agreement. SELLER shall promptly, in writing, notify BUYER
of such reductions as they become known and/or effective.
If, during the term of this Agreement, a qualified Supplier offers
BUYER a qualified product which is comparable to a product herein, at
a price which is more than five percent (5%) lower than the price
specified herein, then SELLER shall be offered the
3
<PAGE>
opportunity to continue providing the product, or comparable product
acceptable to BUYER, under this Agreement at such lower price.
If SELLER is unwilling to meet competition as specified above, then
the product affected may, at BUYER's option, be deleted from this
Agreement and BUYER shall have no further obligations to such product
under this Agreement. Such deletion shall have no effect upon BUYER's
obligation to accept delivery of product already released by BUYER
prior to such deletion. The Agreement, as modified, shall remain in
full force and effect with respect to the remaining products.
All purchases of units shall be made only upon BUYER's standard
Order(s) then in use at its various buying locations. (Reference
Article 2.2 "Supplier Scheduling"). All such Orders shall be
accumulated in calculating quantities. Orders shall specify BUYER's
part numbers, quantities, due dates, and agreement numbers. ESTIMATES
AND REQUIREMENTS USED IN ANY DOCUMENT RELATING TO THIS AGREEMENT ARE
INFORMATIONAL ONLY AND REPRESENT NO COMMITMENT BY BUYER UNTIL A
SPECIFIC ORDER IS RELEASED. BUYER DOES NOT COMMIT TO PURCHASE ALL OR
ANY SPECIFIC PORTION OF ITS TOTAL NEEDS, ESTIMATES, OR REQUIREMENTS
FROM SELLER.
BUYER shall in no event or under any circumstances whatsoever be
liable for raw material, work in process, components, or any other
expenses or damages except as expressly agreed to herein.
BUYER's maximum liability shall not at any time exceed the number of
furnished units for which Orders have been released, times the
furnished unit price specified herein.
Items furnished by SELLER, but not listed on Attachment "A" may be
negotiated and added to this Agreement by written addendum.
5.0 NON-RECURRING COSTS
A. Non-recurring charges, if any, incurred by BUYER in
conjunction with this Agreement shall be an all inclusive,
one-time charge, shown, upon occurrence, in Attachment "A",
to produce the corresponding product(s) listed in Attachment
"A". Such charges shall be itemized and invoiced separately
from product costs.
B. All tooling, jigs, fixtures, drawings, etc. shall become the
property of BUYER at time of payment of the Order invoice for
same, and shall be maintained in an industry acceptable
manner and covered for replacement value by the SELLER while
in SELLER's possession. In the event of termination of this
Agreement BUYER shall provide disposition of such property
to SELLER.
6.0 LEADTIME
SELLER shall maintain "not to exceed" leadtimes as stated in
Attachment "B". BUYER, at its option, may specify longer time
intervals.
4
<PAGE>
7.0 DELIVERY
7.1 REQUIREMENTS
Deliveries shall be strictly in accordance with the quantities, the
schedule and other requirements specified in the applicable Order.
SELLER may not make early deliveries without BUYER's prior written
authorization. All delivery dates shown on the Order(s) are to be
considered BUYER's on DOCK DATES. SELLER agrees to ship in sufficient
time to meet the required date without preceding it by more than five
(5) calendar days or exceeding it by more than zero (0) days provided
that the quantities and schedules are in accordance with the
requirements of this Agreement.
BUYER reserves the right to reschedule for later delivery any item on
the Order(s) at no charge, by giving notice at least fifteen (15)
working days prior to the date of the original scheduled due date of
that item.
BUYER's expectation is 100% On-Time delivery to SELLER's commitment.
SELLER shall maintain a minimum of 96% on-time delivery to SELLER
commitment as measured by BUYER's performance rating system. It is
understood that BUYER's minimum acceptable performance will increase
during the term of this Agreement.
7.2 DELAY
SELLER shall notify BUYER immediately, in writing, upon learning of
any circumstance that may cause a delay in delivery, stating the
period of delay and the reasons therefore. SELLER shall use
reasonable additional effort, including premium effort, and shall
ship via air or other expedited routing to avoid or minimize delay to
the maximum extent possible. All additional costs resulting from such
premium effort or premium transportation shall be borne by SELLER.
Nothing herein may be construed to prejudice any of the rights or
remedies provided to BUYER in the applicable Order or by law.
7.3 EXPEDITED DELIVERY
In the event BUYER has requirements that necessitate an expedited
delivery date, SELLER will strive to meet this need and any premium
charges shall be negotiated at time of Order. In the event SELLER
fails to exert reasonable effort to meet a delivery date for which
premium charges have been authorized, such charges shall become void.
8.0 ON-SITE REVIEW AND RESIDENT REPRESENTATIVES
8.1 REVIEW
At BUYER's request, SELLER shall provide at BUYER's facility, or at a
place designated by BUYER, a review explaining the status of any
Order, actions taken
5
<PAGE>
or planned to be taken relating to such Order and any other relevant
information. Nothing herein may be construed as a waiver of BUYER's
rights to proceed against SELLER because of any delinquency.
8.2 RESIDENT REPRESENTATIVES
BUYER may in its discretion and for such periods as it deems
necessary assign resident personnel at SELLER's facilities in
addition to the resident Quality Control personnel provided for in
Article 10.3, "Right of Entry". The resident team will function under
the guidance of BUYER's manager who will provide program coordination
within the scope of the work authorized by any Order. The resident
team will provide communication and coordination to ensure timely
performance of any Order. BUYER's resident team shall be allowed
access to all work areas, Order status reports and management review
necessary to assure timely coordination and conformance with the
requirements of each Order. SELLER, however, remains fully
responsible for performing in accordance with each Order.
9.0 PRODUCT CONFORMANCE
SELLER shall manufacture Product(s) listed in Attachment "A" to the
requirements set forth in the specifications listed in Attachment "A".
SELLER warrants that Products delivered under this Agreement shall conform
100% to the performance and design parameters of BUYER'S Specifications.
10.0 QUALITY CONTROL, INSPECTION, REJECTION, AND ACCEPTANCE
10.1 CONTROLLING DOCUMENT
All work performed under each Order shall be subject to Document
D1-9000 "Advanced Quality System for Boeing Suppliers", latest
revision as revised from time to time. Such document by this
reference is incorporated herein.
10.2 INSPECTION AND REJECTION
Products shall be subject to final inspection and acceptance by BUYER
at destination, notwithstanding any payment or prior inspection. All
Products from all lots received by BUYER shall either be new and
unused Products or Products authorized by BUYER's reject tag
disposition. Final inspection of a Product will be made within a
reasonable time after receipt of such Product. BUYER may reject any
or all of the Products which do not strictly conform to the
requirements of the applicable Order. BUYER may reject an entire lot
of Product based on discrepancies detected in a sample quantity
selected from the lot. BUYER shall by notice, rejection tag or other
communication notify SELLER of such rejection. At SELLER's risk and
expense, all such Products will be returned to SELLER for immediate
rework, replacement or other correction and redelivery or full credit
to BUYER; provided, however, that with respect to any or all of such
Products and at BUYER's election and at SELLER's risk and expense,
BUYER
6
<PAGE>
may: (a) hold, retain or return such Products without permitting any
rework, replacement or other correction by SELLER; (b) hold or retain
such Products for rework by SELLER or, at BUYER's election, for
rework by BUYER with such assistance from SELLER as BUYER may
require; (c) return such Products for full credit only (d) hold such
Products until SELLER has delivered conforming replacements for such
Products; (e) hold such Products until confirming replacements are
obtained from a third party; or (f) return such Products with
instructions to SELLER as to whether such Products shall be reworked
or replaced and as to the manner of redelivery. Any attempt by SELLER
to salvage Products rejected by BUYER shall be in accordance with the
BUYER's rejection tag disposition. BUYER shall provide rejection tag
documentation to the SELLER to authorize the salvage. Lots delivered
with BUYER's rejection tag deviations shall contain a copy of the
rejection tag authorizing such deviation and must be attached to the
applicable packing sheets. BUYER shall provide a copy of the
rejection tag to the SELLER. SELLER shall strive to complete all
rework, replacement and other corrections and redelivery within
fifteen (15) calendar days. All costs and expenses, loss of value and
any other damages incurred as a result of or in connection with
nonconformance and rework, replacement or other correction may be
recovered from SELLER by a mutually agreeable equitable price
reduction, set-off or credit against any amounts that may be owed to
SELLER under the applicable Order or otherwise.
BUYER may revoke its acceptance of any Products and have the same
rights with regard to the Products involved as if it had originally
rejected them.
10.3 SELLER'S NOTICE OF DISCREPANCIES
The SELLER shall notify BUYER, in writing within five (5) days,
should the SELLER believe and/or have been notified in any manner,
that non-compliant Product has or may have been delivered against
this Agreement. This condition shall survive beyond the performance
period of the Agreement.
10.4 RIGHT OF ENTRY
BUYER's authorized representatives and/or Federal Aviation
Administration may enter SELLER's plant at all reasonable times to
conduct preliminary inspections and tests of the Products and work-
in-process. SELLER shall include in its major subcontracts issued in
connection with an Order a like provision giving BUYER the right to
enter the plants of SELLER's subcontractors. BUYER may assign
representatives at SELLER's plant on a full-time basis. SELLER shall
furnish, free of charge, all office space, secretarial service and
other facilities and assistance reasonably required by BUYER's
representatives at SELLER's plant.
7
<PAGE>
10.5 CERTIFICATION
A certification that materials and/or finished parts have been
controlled and tested in accordance with and will meet specified
Order requirements and applicable specifications and that records are
on file subject to BUYER's examination shall be included on or with
the packing sheet accompanying each shipment. The drawing or
specification revision will be noted on such packing sheet. Such
packing sheet shall note if BUYER has provided materials. Copies of
manufacturing planning, test and inspection results or certifications
shall be furnished to BUYER on request.
10.6 RETENTION OF RECORDS
Quality Control records shall be maintained on file and available to
BUYER's authorized representatives. SELLER shall retain such records
for a period of not less than three (3) years from the date of final
payment under the applicable Order. Prior to disposal of any such
records, BUYER shall be notified and SELLER shall transfer such
records as BUYER may direct.
10.7 SOURCE INSPECTION
If an Order contains a notation that "Source Inspection" is required,
the Products may not be packed for shipment until they have been
submitted to BUYER's Quality Control representative for inspection.
Both the packing list and SELLER's invoice must reflect evidence of
this inspection.
11.0 PATENTS
SELLER shall defend any suit or proceeding brought against BUYER, insofar
as such suit or proceeding is based on a claim that goods manufactured and
supplied to BUYER constitute direct infringement of any patent or
copyright. SELLER must be notified promptly of such claim in writing and
must be given all necessary authority, information and assistance (at
SELLER's expense). SELLER will pay all damages and costs awarded against
BUYER.
If the use of such Product or part is enjoined, SELLER will, in its sole
discretion and expense, procure for BUYER the right to continue using said
Product or part, replace same with an acceptable non-infringing product or
part or modify it so that it becomes non-infringing, in a manner that is
acceptable to the BUYER.
SELLER shall have no liability for any infringement of patents, copyrights,
trademarks or other intellectual property rights resulting from use of said
Product other than as specified in relevant SELLER publications or from use
of said Product with Products not supplied by SELLER.
8
<PAGE>
12.0 EXAMINATION OF RECORDS
SELLER shall maintain complete and accurate records showing the sales
volume of all Products. Such records shall support all services performed,
allowances claimed and costs incurred by SELLER in the performance of each
Order, including but not limited to those factors which comprise or affect
direct labor hours, direct labor rates, material costs, burden rates and
subcontracts. Such records and other data shall be capable of verification
through audit and analysis by BUYER and be available to BUYER at SELLER's
facility for BUYER's examination and audit at all reasonable times from the
date of the applicable Order until three (3) years after final payment
under such Order. SELLER shall provide assistance to interpret such data if
required by BUYER. Such examination shall provide BUYER with complete
information regarding SELLER's performance for use in price negotiations
with SELLER relating to existing or future Orders for Products (including
but not limited to negotiation of equitable adjustments for changes and
termination/obsolescence claims pursuant to Article 14.0, "CHANGES"). BUYER
shall treat such information as confidential.
13.0 CHANGES TO SPECIFICATIONS
With respect to each Product, SELLER shall notify BUYER in writing whenever
SELLER's design or development activities indicate the need for any
configuration detail or function of such Product to differ from the Product
that has been qualification tested or previously delivered or from the
configuration in Seller's approved design. With respect to each Product,
SELLER shall obtain BUYER's approval prior to incorporation of:
a. Changes which alter the form, fit or function of such Product;
b. Changes which affect the repair or replacement interchange ability of
such Product;
c. Changes to processes after construction of the qualification test
Product;
d. Changes involving material or component substitution or finish
changes;
e. Changes that effect the downward compatibility of the Product;
f. Changes which alter the weight, center of gravity or moment of
inertia of such Product.
If BUYER requests, SELLER shall submit a supplement to the applicable
qualification report to document and qualify the above changes.
14.0 CHANGES
BUYER's Material Representative may at any time by written change Order
make reasonable changes within the general scope of an Order in any one or
more of the following: (a) drawings, designs or specifications; (b)
shipping or packing; (c) place of
9
<PAGE>
inspection, delivery or acceptance; (d) adjustments in quantities and
delivery schedules, or both; and (e) the amount of BUYER-furnished
property. SELLER shall proceed immediately to perform the Order as changed.
If any such change causes an increase or decrease in the cost of, or the
time required for, the performance of any part of the work, whether changed
or not changed by the change Order, an equitable adjustment shall be made
in the price of or the delivery schedule for those Products affected, and
the applicable Order and any affected pricing shown in Attachment "A" shall
be modified in writing accordingly. Any claim by SELLER for adjustment
under this Article must be received by BUYER in writing within thirty (30)
days from the date of receipt by SELLER of the written change Order or
within such further time as the parties may agree in writing or such claim
shall be deemed waived. Nothing in this paragraph shall excuse SELLER from
proceeding with an Order as changed, including failure of the parties to
agree on any adjustment to be made under this paragraph.
If SELLER considers that the conduct of any of BUYER's employees has
constituted a change hereunder, SELLER shall immediately notify BUYER in
writing as to the nature of such conduct and its effect on SELLER's
performance. PENDING DIRECTION FROM BUYER'S MATERIAL REPRESENTATIVE, SELLER
SHALL TAKE NO ACTION TO IMPLEMENT ANY SUCH CHANGE.
15.0 INVOICE AND PAYMENT
A separate invoice shall be issued for each shipment of Products. Unless
otherwise specified in the applicable Order, no invoice may be issued prior
to shipment of the Products. Payment shall be Net 30 days. Payment due
dates shall be computed from (a) the date of receipt of the Product, (b)
the date of receipt of a correct invoice or (c) the scheduled delivery date
of such Product, whichever is last, up to and including the date BUYER's
check is mailed. All payments are subject to adjustment for shortages,
credits and rejections. Invoices without this information will be
considered incomplete and return for correction. Mail to:
Boeing Defense & Space - Irving Co.
P.O. Box 152707
Irving, Texas 75015-2707
Attn: Accounts Payable
16.0 PACKAGING AND SHIPPING
SELLER shall prepare for shipment and suitably pack all Products to prevent
damage or deterioration, or comply with any special instructions stated in
the applicable Order. BUYER shall pay no charges for preparation, packing,
crating or cartage unless stated in the applicable Order. BUYER's Order
numbers and part numbers must be indicated on the applicable Bill of Lading
or packing list.
All shipments will be made via UPS GROUND. Any deviation from this method
must be authorized by the BUYER, or the BUYER's Material Representative.
10
<PAGE>
17.0 WARRANTY
It is BUYER's expectation to receive 100% defect-free Product. SELLER
warrants that all Products delivered shall: (a) be free from defects in
material and workmanship; (b) conform to the requirements of the Order
including, but not limited to, the applicable descriptions, specifications
and drawings, and (c) be free from defects in design and fit for the
intended purpose for a period of three (3) years from date of delivery.
Products proved to be in non-conformance with the requirements stated above
shall be returned to SELLER pursuant to Article 10.2, "Inspection and
Rejection".
The warranty does not extend to any Product supplied by SELLER which has
been subjected to misuse, neglect or accident.
18.0 TERMINATION FOR DEFAULT
BUYER and/or SELLER may terminate this Agreement by written notice to the
other party upon the happening of any of the following events:
a. The SELLER and/or SELLER's Agent, or BUYER, seeks relief under any
provision of the bankruptcy or insolvency laws, or is adjudicated
bankrupt or insolvent, or in the event a receiver is appointed for
all, or substantially all, of its property;
b. If the SELLER defaults in the performance of its obligations under
this Agreement and fails to correct such default within thirty (30)
days of written notice by BUYER;
c. If SELLER fails to demonstrate to BUYER's satisfaction the ability to
meet the specifications referenced in Attachment "A".
In the event of BUYER's termination for default, SELLER must be notified of
such default in writing and given thirty (30) days from receipt of notice
of default. SELLER shall be liable for all costs and expenses for non-
delivered finished goods, raw material, work in process, components,
SELLER's commitments to its sources of supply and any damages incurred by
SELLER under this Agreement, or Orders released in conjunction with this
Agreement that occur prior to any cancellation.
19.0 TERMINATION FOR CONVENIENCE
BUYER may terminate the performance of the work under this Agreement in
whole at any time, or from time to time in part, by written notice to
SELLER. Upon receipt of such notice, SELLER shall, unless the notice
directs otherwise, immediately discontinue all work and the placing in all
orders for materials, facilities, and supplies in connection with
performance of this order and shall proceed to cancel promptly all existing
orders and terminate all subcontracts insofar as such orders or
subcontracts are chargeable to this order. Upon the termination of work
under this order, full and complete settlement of
11
<PAGE>
all claims of SELLER with respect to the termination work shall be made as
follows: (Reference Article 12.0 "EXAMINATION OF RECORDS")
a. Shipments due forty-five (45) calendar days or less from date of
notification are not cancelable.
b. Cancellation of shipments for individual part numbers due forty-six
(46) calendar days or more from date of notification will be at no
charge to BUYER.
Under no circumstances shall BUYER'S cancellation liability for all
materials, subassemblies, or finished goods exceed the agreed to unit price
times the quantity of undelivered units.
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR INDIRECT OR CONSEQUENTIAL
DAMAGES.
20.0 FORCE MAJEURE
Neither party shall be liable in damages for delay in delivery due to any
causes beyond the control or without its fault or negligence including,
without limitation, acts of God or the public enemy, acts of the
government, fires, flood, epidemics, quarantine restrictions, strikes,
freight embargo, and unusually severe weather. SELLER and/or BUYER shall
notify the other in writing of such causes within two (2) scheduled working
days after one first learns of same.
21.0 RESPONSIBILITY FOR PROPERTY
On delivery to SELLER or manufacture or acquisition by it of any materials,
parts, tooling or other property, title to any of which is with BUYER,
SELLER shall assume the risk of and be responsible for any loss thereof or
damage thereto. In accordance with the provisions of an Order, but in any
event on completion thereof, SELLER shall return such property to BUYER in
the condition in which it as received except for reasonable wear and tear
and except to the extent that such property has been incorporated in
Products delivered under such Order or has been consumed in the normal
performance of work under such Order.
22.0 TECHNOLOGICAL DEVELOPMENTS
SELLER shall promptly advise BUYER of technological advances which are
known, or become known, to SELLER over the course of performance of its
obligations under this Agreement, which may result in the product(s) having
added value to BUYER. Should BUYER elect to incorporate such advances, it
shall do so pursuant to the conditions of Article 13.0, "CHANGES TO
SPECIFICATIONS".
12
<PAGE>
22.1 PROPRIETARY INFORMATION
Proprietary Information Agreement Number 91-3014 dated October 30,
1991, shall remain in force through the term of this Agreement and is
incorporated, by reference, into this Agreement.
23.0 COMPLIANCE WITH FEDERAL, STATE AND LOCAL LAWS
SELLER warrants that in the performance of each Order it has complied with
and will comply with all applicable federal, state and local laws and
ordinances and all Orders, rules and regulation thereunder. In SELLER's
invoice or other form satisfactory to BUYER, SELLER shall certify that the
Products covered by the applicable Order were produced in compliance with
Sections 6, 7, and 12 of the Fair Labor Standard Act (29 U.S.C. 201-219),
as amended, and the regulations and Orders of the U.S. Department of Labor
issued under Section 14 thereof.
The "Equal Opportunity" clause in FAR 52.222-26,-35, -36 is incorporated
herein by this reference, except "Contractor" shall mean SELLER.
23.1 CLEAN AIR ACT
The item(s) to be delivered under this Agreement may be manufactured
using Class 1 ozone depleting substances and the following warning
statement shall apply to such items(s):
WARNING: MANUFACTURED WITH CFC-11, 12, 13, 111, 112, 113, 114, 115,
211, 212, 213, 214, 215, 216, 217, HALONS 1211, 1301, 2402, CARBON
TETRACHLORIDE OR METHYL CHLOROFORM SUBSTANCES WHICH HARM PUBLIC
HEALTH AND ENVIRONMENT BY DESTROYING OZONE IN THE UPPER STRATOSPHERE.
The item(s) to be delivered under this Agreement may contain Class 1
ozone depleting substances and the following warning statement shall
apply to such item(s):
WARNING: MANUFACTURED WITH CFC-11, 12, 13, 111, 112, 113, 114, 115,
211, 212, 213, 214, 215, 216, 217, HALONS 1211, 1301, 2402, CARBON
TETRACHLORIDE OR METHYL CHLOROFORM SUBSTANCES WHICH HARM PUBLIC
HEALTH AND ENVIRONMENT BY DESTROYING OZONE IN THE UPPER STRATOSPHERE.
It is agreed that the above warning statements satisfy the
requirement of the Clean Air Act Amendments of 1990 (Section 611),
Title 40 CFR Part 82. Accordingly, no method of marking or tagging
items shall be used unless the item is a chemical or chemical
compound.
13
<PAGE>
24.0 BUYER'S RIGHTS IN SELLER'S DATA, PATENTS AND TOOLING
BUYER shall have an irrevocable, nonexclusive, free license to use, and
license others to use on BUYER's behalf, all of SELLER's patents, designs,
processes, drawings, technical data and tooling related to the development,
production, maintenance or rework of any Product; provided, however, that
such license is conditioned upon the occurrence of one or more of the
following events:
a. Institution of reorganization, arrangement or liquidation proceedings
by or against SELLER;
b. Failure of SELLER's trustee in bankruptcy or SELLER as debtor in
possession to assume any Order within sixty (60) days after a
bankruptcy petition was filed;
c. SELLER's insolvency;
d. Appointment of a trustee or receiver for SELLER's property or
business;
e. Assignment for the benefit of creditors of SELLER;
f. SELLER's suspension of production of all or any of such Product;
g. SELLER's suspension of business operations;
h. Cancellation of any Order in whole or in part pursuant to Article
18.0, "TERMINATION FOR DEFAULT"; or
i. The acquisition of SELLER by, or SELLER's sale of any or all of its
rights to manufacture such Product to, a third party, when the sale
of any or all of those rights precludes in any way, shape, or form
the SELLER's ability to manufacture and deliver any or all of those
Products listed on Attachment "A".
In support of the license granted herein, and without further cost to
BUYER, SELLER shall provide all assistance BUYER requires to permit the
immediate transfer of the patents, designs, processes, drawings, technical
data and tooling to BUYER in a manner that satisfies BUYER's production
requirements.
25.0 NOTICES
Notices and other communications shall be given in writing to the
respective party as follows:
25.1 ADDRESSES
To BUYER: BOEING DEFENSE & SPACE - IRVING CO.
3131 STORY ROAD WEST
IRVING, TEXAS 75038
ATTN: PROCUREMENT REPRESENTATIVE
MAIL STOP: TR-41
14
<PAGE>
To SELLER: CORY COMPONENTS
2201 ROSECRANS AVE.
EL SEGUNDO, CALIFORNIA 90245
ATTN: MR. BRIAN GAMBERG
25.2 EFFECTIVE DATE
The date on which any such communication is delivered to the
addressee is the effective date of such communication.
26.0 PUBLICITY
SELLER may not, and shall require that its subcontractors and suppliers of
any tier may not, cause or permit to be released any publicity,
advertisement, news release, public announce, or denial or confirmation of
the same, in whatever form, regarding any aspect of any Order without
BUYER's prior written approval.
27.0 FACILITIES
SELLER shall bear all risk of providing adequate facilities and equipment
to perform each Order in accordance with the terms thereof. If any
contemplated use of government or other facilities or equipment is not
permitted by the government or is not available for any other reason,
SELLER shall be responsible for arranging for equivalent facilities and
equipment at no costs to BUYER. Any failure to do so does not excuse any
deficiencies in SELLER's performance or affect BUYER's right to cancel
under Article 18.0 "TERMINATION FOR DEFAULT", or under any provision of
law.
28.0 RELIANCE
SELLER acknowledges that SELLER is an expert in all phases of the work
involved in producing and supporting the Products, including but not
limited to the designing, testing, developing, manufacturing, improving,
and servicing of the Products. SELLER agrees that BUYER and BUYER's
customers may rely on SELLER as an expert and SELLER will not deny any
responsibility or obligation hereunder to BUYER or BUYER's customers on the
grounds that BUYER or BUYER's customers provided recommendations or
assistance in any phase of the work involved in producing or supporting the
Products, including but not limited to BUYER's acceptance of
specifications, test data or the Products.
29.0 ASSIGNMENT
This Agreement shall insure to the benefit of and be binding on each of the
parties hereto and their respective successors and assigns, provided
however, that no assignment of any rights or delegation of any duties under
such Agreement is binding on either party unless the other party's written
consent has first been obtained. Notwithstanding the above, SELLER may
assign claims for monies due or to become due under any Order provided that
BUYER may recoup or setoff any amounts covered by any such assignment
against any indebtedness of SELLER to BUYER, whether arising before or
after the date of the
15
<PAGE>
assignment or the date of this Agreement, and whether arising out of any such
Order or any other agreement between the parties. BUYER may settle all claims
arising out of any Order, including termination claims, directly with SELLER.
BUYER may unilaterally assign any rights or title to property under this
Agreement to any wholly-owned subsidiary of The Boeing Company.
30.0 SUBCONTRACTING
SELLER may not procure any Product from a third party in a completed or a
substantially completed form without BUYER's prior written consent.
31.0 NOTICE OF LABOR DISPUTES
SELLER shall immediately notify BUYER of any actual or potential labor
dispute that may disrupt the timely performance of an Order. SELLER shall
include the substance of this Article, including this sentence, in any
subcontract relating to an Order if a labor dispute involving the
subcontractor would have the potential to delay the timely performance of
such Order. Each subcontractor, however, shall only be required to give the
necessary notice and information to its next higher-tier subcontractor.
32.0 NON-WAIVER
Neither party's failure at any time to enforce any provision of this
Agreement does not constitute a waiver of such provision or prejudice the
other party's right to enforce such provision at any subsequent time.
33.0 HEADING
Article and paragraph headings used in this Agreement are for convenience
reference only and do not affect the interpretation of the Agreement.
34.0 PARTIAL INVALIDITY
If any provision of this Agreement is or becomes void or unenforceable by
force or operation of law, the other provisions shall remain valid and
enforceable.
35.0 APPLICABLE LAW; JURISDICTION
This Agreement shall be governed by, subject to and construed according to
the laws of the State of Texas. For purposes of applying Texas law, this
Agreement shall be deemed to have been entered into and wholly performed in
Texas.
36.0 TAXES
36.1 EXCLUSION OF TAXES IN PRICE
All items purchased will be exempt from Texas State and local sales
and use taxes under certificate number 1-91-0840170-4.
16
<PAGE>
36.2 TAX CLAIMS
In the event that SELLER invoices and collects a tax for a state or
local taxing authority that SELLER should not have collected from
BUYER because of 36.1 above, SELLER shall promptly refund to BUYER
the amount of tax collected by SELLER.
37.0 ENTIRE AGREEMENT; ORDER OF PRECEDENCE
This Agreement sets forth the entire agreement, and supersedes any and all
other agreements, understandings, representations, and communications
between BUYER and SELLER, whether written or oral, related to the subject
matter of such Order. In addition to the documents previously incorporated
herein by reference, the documents listed below are by this reference made
a part of this Agreement:
A. Specification Control Documents.
B. Any other exhibits or documents agreed to by the parties to be a part
of this Agreement.
In the event of a conflict or inconsistency between any of the terms of the
following documents, the following order of precedence shall control:
A. Purchase Agreement
B. Order
C. Specification Control Drawing (if applicable)
D. Any other exhibits or documents the parties agree shall be part of
this Agreement.
17
<PAGE>
EXECUTED in duplicate as of the date and year first written above by the duly
authorized representatives of the parties.
BUYER: SELLER:
BOEING DEFENSE & SPACE -
IRVING CO. CORY COMPONENTS
/s/ John Chiarello /s/ Brian Gamberg
- ---------------------------- ------------------------------
John Chiarello Brian Gamberg
Contract Administrator/Buyer President
3-21-95 3-15-95
- ---------------------------- ------------------------------
Date Date
/s/ T.D. (Tim) Fehr
- ----------------------------
T.D. (Tim) Fehr
Vice President - CAS
5 May 95
- ----------------------------
Date
18
<PAGE>
ATTACHMENT "A"
SPECIFICATIONS AND PRICING
TO AGREEMENT NO. 9423JC4548
5 YEAR
SPEC NUMBER EST. USAGE PRICE
----------- ---------- -----
S906-70293-111 * 13,800 EA $20.58 EA
S906-70293-112 30,900 EA $16.44 EA
S906-70293-113 * 10,200 EA $45.95 EA
S906-70293-114 * 10,200 EA $23.85 EA
S906-70293-115 30,900 EA $26.55 EA
S906-70293-210 30,900 EA $ 7.77 EA
S906-70297-16 49,500 PR $20.79 EA
S906-70297-28 148,500 PR $ 2.88 PR
S906-70297-29 49,500 EA $22.97 EA
S906-70297-30 49,500 EA $53.22 EA
S906-70293-221 *USAGE EST. $21.58 EA
SHARED WITH
S906-70293-111
S906-70293-222 *USAGE EST. $24.85 EA
SHARED WITH
S906-702093-114
S906-70293-225 * USAGE EST. $46.95 EA
SHARED WITH
S906-70293-113
NOTE:
QUANTITIES SHOWN ARE ESTIMATES FOR PLANNING PURPOSES ONLY AND DO NOT
REPRESENT A FIRM COMMITMENT.
19
<PAGE>
ATTACHMENT "B"
LEADTIME
TO AGREEMENT NO. 9423JC4548
LEADTIME IN WEEKS
SPEC NUMBER 1995 1996 1997 1998 1999
S906-70293-111 10 8 8 8 8
S906-70293-112 10 8 8 8 8
S906-70293-113 10 8 8 8 8
S906-70293-114 10 8 8 8 8
S906-70293-115 10 8 8 8 8
S906-70293-210 10 8 8 8 8
S906-70297-16 10 8 8 8 8
S906-70297-28 10 8 8 8 8
S906-70297-29 10 8 8 8 8
S906-70297-30 10 8 8 8 8
S906-70293-221 10 8 8 8 8
S906-70293-222 10 8 8 8 8
S906-70293-225 10 8 8 8 8
20
<PAGE>
ATTACHMENT "C"
SUPPLIER SCHEDULING PROGRAM
TO AGREEMENT NO. 9423JC4548
BUYER (Irving, Texas Plant) shall implement a Supplier Scheduling Program
("Program") with SELLER based on BUYER's Program's disciplines and techniques.
BUYER and SELLER have agreed to the following terms and conditions relating to
BUYER's Program:
1. BUYER shall provide SELLER with educational training on BUYER's Program.
2. BUYER shall eliminate the processing of formal, individual Purchase Orders.
3. BUYER shall, on a weekly basis, process and provide SELLER with BUYER's
Supplier Scheduling Reports ("Reports"). An example of this Report is
provided in Attachment "D".
4. Each Report provided to SELLER by BUYER shall contain the following
information:
A. Each Report shall identify BUYER's and SELLER's part number.
B. On each report an asterisk ("*"), if any, shall precede each line item
that identifies quantities and specific dates which represents BUYER's
confirmed release requirements, and shall be construed as SELLER's
authorization to manufacture and ship such products to BUYER in the
quantities and in accordance with the dates specified on the Report.
C. Line items that contain quantities and specific dates, and are not
preceded with an asterisk, represent BUYER's offer to purchase such
quantities of product(s). SELLER shall indicate its acceptance,
acceptance with modification or rejection to BUYER's offer within
three (3) business days of receipt of BUYER's Report. If, through no
fault of the BUYER, SELLER fails to respond by the close of business
on the third (3rd) working day after receipt of the BUYER's Report,
BUYER shall proceed as though the SELLER had accepted. ("Silence is
acceptance/approval").
On an existing committed receipt, SELLER shall have three (3) working
days from date of BUYER's notification to SELLER to accept BUYER's
reschedule in, reschedule out or cancellation. If, through no fault of
the BUYER, SELLER fails to respond by the close of business on the
third (3rd) working day after receipt of the BUYER's Report, BUYER
shall proceed as though the SELLER had accepted.
21
<PAGE>
Upon SELLER's verbal or written acceptance to BUYER's offer to
purchase products, BUYER shall immediately modify the Report by adding
an asterisk ("*") to the appropriate line item(s) to signify
confirmation of order release.
D. Those quantities listed in monthly and/or quarterly columns without an
asterisk and/or specific date are to be used by the SELLER for
"PLANNING" purpose ONLY. This information is subject to automatically
change as our Material Requirements Planning (MRP) changes. These
quantities shall be referred to as projected forecasts and/or planned
orders.
5. For Item 4 refer to Attachment "D" which represents an example report.
6. SELLER shall reference the master agreement number and the contract number
(See Attachment "D" on the packing lists and invoices issued under this
Supplier Scheduling Section. See Article 15.0 "Invoice and Payment" and
16.0 "Packaging and Shipping" for additional references required.
7. SELLER agrees to be bound by BUYER's Supplier Scheduling program in the
area of offer and acceptance (Refer to Item 4[C]).
8. SELLER agrees all terms and conditions of this Agreement shall apply to
Supplier Scheduled part numbers, (i.e., selling price, lead-time, payment
terms, FOB, warranties, etc.) as modified in this Supplier Scheduling
section.
9. To the best of BUYER's knowledge, all fields of information on the Report
are correct. If SELLER discovers any discrepancies or errors in the Report,
SELLER shall notify BUYER in within three (3) working days of such
discovery.
22
<PAGE>
ATTACHMENT "D"
AGREEMENT NO. 9423JC4548
<TABLE>
<S> <C> <C> <C> <C>
PMS-SSS-B02 (VERSION: 10/22/92) BOEING AEROSPACE AND ELECTRONIC - IRVING 02/03/95 09:43 PAGE: 1
DELIVER TO: PCR
SUPPLIER SCHEDULE REPORT
FOR: CORY COMPONENTS
Supplier Name
Scheduler
Report
02/03/95
CORY COMPONENTS BA&E-I
2201 ROSECRANS AVENUE 3131 STORY ROAD WEST
EL SEGUNDO, CA 90245 IRVING, TX 75038
9423JC4548 SARAH HART
310-536-0034 214-659-2681
310-536-0206 214-659-4198
REFERENCE: MASTER AGREEMENT 9423JC4548
</TABLE>
23
<PAGE>
ATTACHMENT "D"
BOEING DEFENSE & SPACE - IRVING CO.
SUPPLIER SCHEDULE REPORT
for XYZ CORPORATION
<TABLE>
<S><C>
P/N: DESC: P. O. XX-XXXXX START: 9-1-94 STOP: 8-31-99
SUPPLIER P/N: U/M: EA ABCD: A PRICE: L/T: 30 S/C AA
REL TO DATE: 398 QTY TO STOCK: 298 QTY PAST DUE: 100 QTY ON DOCK: 0 LAST RCVD DATE: 04/24/91
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NEXT NEXT
JUN/91 JUL/91 AUG/91 SEPT/91 OCT/91 NOV/91 DEC/91 JAN/92 FEB/92 MAR/92 APR/92 MAY/92 QTR QTR
- ----------------------------------------------------------------------------------------------------------------------------------
100 150 195 0 0 235 0 0 85 205 0 150 70 55
06/10* 07/15
70 75
100 0 0 0 0 0 0 0 0 0 0 0
06/22 *
- ----------------------------------------------------------------------------------------------------------------------------------
200 150 195 0 0 235 0 0 85 205 0 150 140 130
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
EXTERNAL NOTES: SHP: SPECIAL SHIPPING INSTRUCTIONS
CXL: CANCEL IDENTIFIED SCHEDULE/QUANTITY
R/I: RESCHEDULE-IN REQUEST
R/O: RESCHEDULE-OUT REQUEST
24
<PAGE>
AGREEMENT NO. D&SG/PIA-91-3014
PROPRIETARY INFORMATION AGREEMENT
Effective October 30, 1991, The Boeing Company, Defense & Space Group, acting
through its Electronics Systems Division, having an office at Seattle,
Washington, and Cory Components, having an office at El Segundo, California,
agree as follows:
1. The parties may exchange information, some of which may be Proprietary
Information, as defined below, for the purposes of review, evaluation, new
Boeing parts development and source selection in connection with 777 development
efforts (hereinafter referred to as the "Project"). The parties desire to
protect such Proprietary Information from unauthorized disclosure and use under
the terms and conditions herein.
2. For purposes of this Agreement, Proprietary Information means information
related to connectors and connector technology, including compliant pin
connectors; and which is disclosed hereunder by one party to the other in
connection with the Project; provided that, when disclosed, such information is
in written or other permanent form and is identified as proprietary to the
originating party by clear and conspicuous markings. Information not in written
or other permanent form shall be considered Proprietary Information from time of
disclosure, provided originating Party identifies such information as
proprietary at the time of disclosure and sends receiving Party a detailed
written description of the information, with such clear and conspicuous
markings, within thirty (30) days of the disclosure.
Page 1 of 5
<PAGE>
3. Each party shall preserve Proprietary Information (other than Boeing parts
drawings) received from the other party in confidence for a period of five (5)
years from the effective date of this Agreement. During this period, each party
shall not disclose such Proprietary Information to any third party without
written authorization from the originating party. Proprietary Information in the
form of a Boeing parts drawing shall be preserved in confidence, and shall not
be disclosed to any third party without written authorization from Boeing, until
such time as Boeing gives written notice to the other party that the drawing is
no longer proprietary to Boeing.
4. Until such time as this Agreement shall terminate pursuant to paragraph 9,
each party may use Proprietary Information received from the other party, but
only for the purposes set forth in paragraph 1. Upon the expiration of the
period set forth in paragraph 3, all limitations on use of Proprietary
Information shall cease.
5. The obligations of this Agreement regarding disclosure and use of
Proprietary Information shall be satisfied by each party through the exercise of
the same degree of care (provided the degree of care is reasonable) used to
restrict disclosure and use of its own information of like importance.
6. This Agreement shall not restrict disclosure or use of Proprietary
Information that is:
A. Known to the receiving party without restriction as to further
disclosure when received, or thereafter is developed
independently by the receiving party; or
B. Obtained without restriction as to further disclosure from a
source other than the originating party through no breach of
confidence by such source; or
Page 2 of 5
<PAGE>
C. In the public domain when received, or thereafter enters the
public domain through no fault of the receiving party; or
D. Disclosed by the originating party to a third party, including
the United States Government, without restriction as to further
disclosure.
7. Proprietary Information shall remain the property of the originating party.
Neither this Agreement nor the disclosure of Proprietary Information shall be
construed as granting any right or license under any inventions, patents,
copyrights, or the like, now or hereafter owned or controlled by either party.
Any such disclosure shall not constitute any representation, warranty,
assurance, guaranty or inducement concerning the infringement of any patent or
other rights of others. No warranty of accuracy or completeness of any
Proprietary Information is provided herein.
8. Proprietary Information, as well as notices and authorizations under this
Agreement, shall be transmitted between the parties addressed as follows:
Boeing Defense & Space Group Cory Components
P.O. Box 3999 2201 Rosecrans Ave.
Seattle, WA 98124-2499 El Segundo, CA 90245
Attention: J. Chiarello Attention: Brian Gamberg
M/S OU-34
Telephone: (206) 342-3324 Telephone: (213) 536-0034
A party may change its address or designee by written notice to the other party.
9. This Agreement may be terminated by either party upon thirty (30) days
written notice to the other. Unless thus earlier terminated, this Agreement
shall terminate upon completion of the Project or upon
Page 3 of 5
<PAGE>
expiration of a period of three (3) years from the effective date set forth
above, whichever occurs first. Termination of this Agreement for any reason
shall not relieve either party of any obligation to preserve Proprietary
Information received prior to termination in confidence pursuant to paragraph
3, and all such obligations shall continue until expiration of the period set
forth in paragraph 3.
10. Upon termination, each party shall cease use of Proprietary Information
received from the other party, and shall, upon request, utilize its best efforts
to destroy all Proprietary Information, including copies thereof, then in its
possession or control. Alternatively, at the request of the originating party,
the receiving party shall return all such Proprietary Information and copies to
the originating party. Notwithstanding the other provisions of this paragraph,
each party may retain one copy of such Proprietary Information, but only for
archival purposes.
11. Each party shall bear all costs and expenses incurred by it under or in
connection with this Agreement. Nothing in this Agreement creates an obligation
by either party to enter into a contract, subcontract, or other business
relationship with the other party in connection with the Project.
12. The rights and obligations provided by this Agreement shall take precedence
over specific legends or statements associated with Proprietary Information
when received.
13. This Agreement contains the entire understanding between the parties,
superseding all prior or contemporaneous communications, agreements, and
understandings between the parties with respect to the disclosure and protection
of Proprietary Information in connection
Page 4 of 5
<PAGE>
with the Project. This Agreement shall not be amended except by further written
agreement executed by duly authorized representatives of the parties.
IN WITNESS WHEREOF, the duly authorized representatives of the parties execute
duplicate originals of this Agreement.
THE BOEING COMPANY CORY COMPONENTS
Defense & Space Group
Electronics Systems Division
By /s/ John Chiarello By /s/ Brian Gamberg
---------------------------- ------------------------------
Title Buyer Title President
------------------------- ---------------------------
Date 10-30-91 Date 11/4/91
-------------------------- ----------------------------
Page 5 of 5
<PAGE>
PURCHASE AGREEMENT
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND CORY COMPONENTS INC.
Agreement effective as of October 1, 1998 by and among the VIDEO SYSTEMS
DIVISION OF MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD., having offices at 1-4
Matsuo-Cho, Kadoma, Osaka 571, Japan, and the CORPORATE INTERNATIONAL TRADE
DIVISION OF MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD., having offices at 3-2
Minamisemba 4-Chome, Chuo-Ku, Osaka 542-8588, Japan (collectively, the
"Buyer"), and CORY COMPONENTS INC., having offices at 2201 Rosecrans
Avenue, El Segundo, CA 90245, U.S.A. ("Seller").
1. PURCHASE AND SALE
Buyer may purchase from Seller and Seller may sell to Buyer a variety of
"Products" (manufacturer's part numbers provided per Attachment A) in
accordance with specifications prepared by Buyer.
2. TERM
The term of this Agreement shall be for one (1) year commencing on the
effective date hereof, and shall be renewed automatically for additional one
(1) year periods at the end of the term unless either Seller or Buyer gives
notice to the contrary at least three (3) months prior to the expiration of
this Agreement, unless sooner terminated in accordance with the provisions of
paragraph seven (7) hereof.
If the quantities forecasted in Attachment A of this Agreement are not
consumed by the Buyer during the specified period, and it results in excess
inventory at the Seller, consideration to utilize this inventory must be
given in the next agreement.
3. PRICE
(a) Prices, minimum release quantities, estimated annual quantities, and
lead times for the Products are set forth in Attachment A of this Agreement.
Alterations to Attachment A hereof shall require the written agreement among
the parties hereto. Prices are exclusive of any and all Federal, State and
local sales, use, excise, and similar taxes and charges which shall be the
responsibility of Buyer.
<PAGE>
(b) Any increase in Seller's material cost may be submitted to Buyer for
evaluation. Acceptance of any increase is at the discretion of Buyer and the
acceptance of any decrease in prices shall be at the discretion of Seller.
4. PAYMENT
Payment on all Products purchased by Buyer shall be effected by the wire
transfer in U.S. Dollars by the tenth (10th) day of the month subsequent to
the month during which the corresponding bill of lading or air way bill is
issued.
5. ORDERING OF PRODUCTS/DELIVERY
(a) The purchase of Products pursuant to this Agreement shall be
effected by issuance of Buyer's purchase orders. Such purchase orders shall
reference this Agreement and shall include the part number, description, and
unit quantities of Products, applicable prices, and requested delivery dates.
All orders for Products are subject to Seller's acceptance which acceptance
shall not be unreasonably delayed or withheld. The Products shall be
delivered to Buyer on the delivery term FCA Los Angeles as defined in
Incoterms 1990, and risk of and title to the Products shall pass to Buyer
upon delivery to and receipt of the Products by Buyer. Buyer shall deliver
the Products within the lead times specified in Attachment A unless otherwise
agreed among the parties hereto.
(b) Upon mutual written agreement between Buyer and Seller, additional
Products can be added to this Agreement.
6. CHANGES
At Buyer's option, Buyer may request, in writing, changes to any order,
and may make changes to the specifications of the Products. Seller shall
notify Buyer in writing as to the impact of each such change on the price,
delivery schedule, and any other terms. Such change shall become effective
only upon the signing of both parties of an amendment which incorporates the
agreed upon price and terms of the change. Changes to delivery schedules must
be submitted at least sixty (60) days prior to the scheduled ship date.
7. TERMINATION
(a) This Agreement may be terminated immediately for cause by either
party in the event the other party: (i) shall become insolvent (ii) ceases to
function as a going concern or (iii) fails to perform any of its material
obligations hereunder so as to be in default and fails to cure sure default
within thirty (30) days after written notice thereof.
2
<PAGE>
(b) Notwithstanding termination of this Agreement, Buyer shall be liable
for payment of all Products pursuant to orders accepted by Seller and
delivered prior to the effective date of termination of this Agreement.
Unless otherwise agreed among the parties hereto, and unless the termination
of this Agreement occurs pursuant to Article 7(a) above, all purchase orders
accepted by Seller prior to the termination of this shall be filled in
accordance with this Agreement notwithstanding such termination.
8. SELLER'S LIMITED WARRANTY AND LIMITATION OF LIABILITIES
Seller warrants to Buyer that Products purchased pursuant to this
Agreement will conform to the applicable Buyer's specifications for such
Products and that any value added work performed by Seller on any such
Products will conform to applicable Buyer's specifications relative to such
work.
Buyer is deemed to have accepted the Products unless written notice of
rejection is given within a reasonable time, which is agreed to be thirty
(30) days after receipt. Notwithstanding the foregoing, the passing of such
thirty (30) day period shall not release Seller from its obligation to
promptly replace any defective Products discovered within eighteen (18)
months after the arrival of the Products at Buyer's premises.
No return of Products will be accepted by Seller without a return
material authorization number (RMA No.), which issuance shall not be
unreasonably delayed or withheld. Returned Products must be in acceptable
shipping cartons and must be complete with all packing materials. If Returned
Products are claimed to be defective, a reasonably complete description
regarding the nature of the defect must be included with all Returned
Products.
9. INFRINGEMENT INDEMNITY
Seller shall defend at their expense any suit against Buyer or its
customers based on a claim that any item furnished under this order or the
normal use or sale thereof infringes any third party's patent, copyright,
other than claims under patents covering combinations of such items not
furnished by Seller if such infringement would have been avoided without such
combination, and shall indemnify Buyer from and against any liabilities,
costs and damages arising from any such suit, provided that Seller is
notified in writing of the suit and given authority information and
assistance at Seller's reasonable expense for the defense of same. If the
use or sale of said item is enjoined as a result of such suit, Seller, at
no expense to Buyer or its customers, shall promptly obtain for Buyer and
its customers the right to use and sell said item or shall promptly
substitute equivalent item acceptable to Buyer and its customer.
3
<PAGE>
10. FORCE MAJEURE
Neither party shall be liable for failure to fulfill its obligations
contained herein or for delays in delivery due to causes beyond its
reasonable control including, but not limited to, acts of God, acts or
omissions of the other party, acts or omissions of civil or military
authority, Government priorities, material shortages, fire, strikes, floods,
epidemics, quarantine restrictions, riots, war, and delays in transportation,
but shall not include shortages of parts, materials or funds or the inability
to obtain transportation. The time for performance of any such obligation
shall be extended for the time period lost by reason of the delay.
11. NOTICES
Any notice provided for or permitted in this Agreement will be deemed to
have been given when copy is faxed and a signed copy is returned to the party
sending request for change. A follow-up copy will be mailed to the address
set forth above.
12. QUALITY SURVEILLANCE BY BUYER'S CUSTOMER
Seller shall allow Buyer and Buyer's customer to enter Seller's
facilities to determine and verify the quality of the work and material, at
any stage of production, which will be used in the Buyer's product. Entry
shall also be allowed to representatives of the Federal Aviation
Administration. Such investigations by the Federal Aviation Administration
will be performed with the knowledge of, and jointly with, Buyer.
13. DISPUTE RESOLUTIONS
All disputes under this Agreement shall be resolved as follows:
(a) COOPERATION
The parties agree to cooperate with each other to attempt to settle all
disputes arising under this Agreement without resorting to mediation or
arbitration.
(b) MEDIATION
If the parties are unsuccessful in resolving a dispute within forty-five
(45) days from the date the parties begin attempting to resolve it, either
Party may submit the dispute to mediation in the location of the defending
party. Neither party may initiate arbitration proceedings until mediation is
completed.
(c) ARBITRATION
All disputes which are not resolved through cooperation or mediation
shall be finally resolved by binding arbitration in the location of the
defending party in
4
<PAGE>
accordance with the Rules of Conciliation and Arbitration of the
International Chamber of Commerce in effect at the time. Each party shall
bear its own costs of preparing and presenting its case; the costs of
arbitration, including the fees of the arbitrators, shall be shared equally
by the parties unless the award provides otherwise.
14. GENERAL
(a) This Agreement contains the entire understanding of the parties with
respect to the subject matter hereof and supersedes all prior agreements
relating thereto, written or oral, between the parties. This Agreement may be
modified only by writings signed by authorized representatives of both
parties.
(b) The parties agree that the terms and conditions of this Agreement
shall control, notwithstanding conflicting or additional terms on, any
purchase orders, sales acknowledgement, confirmation or other document issued
by either party. Where the terms and conditions of this Agreement and Exhibit
A hereto conflict, the terms and conditions of this Agreement shall take
precedence.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the Japan.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
effective as of the date first set forth above.
CORY COMPONENTS INC. MATSUSHITA ELECTRIC INDUSTRIAL
CO., LTD, VIDEO SYSTEMS
DIVISION
By: /s/ Christina J. Shiley-Kukuruda By: /s/ K. Yamamoto
-------------------------------- -----------------------
Name: Christina J. Shiley-Kukuruda Name: K. Yamamoto
Title: President Title: Director
MATSUSHITA ELECTRIC INDUSTRIAL
CO., LTD, CORPORATE INTER-
NATIONAL TRADE DIVISION
By: /s/ T. Horinchi
-----------------------
Name: T. Horinchi
Title: Director
5
<PAGE>
GENERAL TERMS AGREEMENT
between
THE BOEING COMPANY
and
TRI-STAR Electronics International, Inc.
Number BCA-6-5632-0032
i
<PAGE>
GENERAL TERMS AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION TITLE
- ------- -----
<S> <C>
1.0 DEFINITIONS
2.0 ISSUANCE OF PURCHASE ORDERS
AND APPLICABLE TERMS
2.1 Issuance of Purchase Orders
2.2 Acceptance of Purchase Orders
2.3 Written Authorization to Proceed
2.4 Rejection of Purchase Orders
3.0 TITLE AND RISK OF LOSS
4.0 DELIVERY
4.1 Requirements
4.2 Delay
4.3 Notice of Labor Disputes
5.0 ON-SITE REVIEW AND RESIDENT
REPRESENTATIVES
5.1 Review
5.2 Resident Representatives
6.0 INVOICE AND PAYMENT
7.0 PACKING AND SHIPPING
8.0 QUALITY ASSURANCE, INSPECTION
REJECTION AND ACCEPTANCE
8.1 Controlling Document
8.2 Seller's Inspection
8.3 Boeing's Inspection and Rejection
8.4 Federal Aviation Administration or
Equivalent Government Agency Inspection
8.5 Retention of Records
ii
<PAGE>
<CAPTION>
SECTION TITLE
- ------- -----
<S> <C>
8.6 Source Inspection
8.7 Language for Technical Information
9.0 EXAMINATION OF RECORDS
10.0 CHANGES
10.1 General
10.2 Model Mix
11.0 PRODUCT ASSURANCE
12.0 TERMINATION FOR CONVENIENCE
13.0 EVENTS OF DEFAULT AND REMEDIES
14.0 EXCUSABLE DELAY
15.0 SUSPENSION OF WORK
16.0 TERMINATION OR CANCELLATION; INDEMNITY AGAINST
SUBCONTRACTOR'S CLAIMS
17.0 ASSURANCE OF PERFORMANCE
18.0 RESPONSIBILITY FOR PROPERTY
19.0 LIMITATION OF SELLER'S RIGHT TO ENCUMBER ASSETS
20.0 PROPRIETARY INFORMATION AND ITEMS
21.0 COMPLIANCE WITH LAWS
22.0 INTEGRITY IN PROCUREMENT
23.0 INFRINGEMENT
24.0 BOEING'S RIGHTS IN SELLER'S, PATENTS COPYRIGHTS, TRADE
SECRETS AND TOOLING
25.0 NOTICES
25.1 Addresses
25.2 Effective Date
25.3 Approval or Consent
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
SECTION TITLE
- ------- -----
<S> <C>
26.0 PUBLICITY
27.0 PROPERTY INSURANCE
27.1 Insurance
27.2 Certificate of Insurance
27.3 Notice of Damage or Loss
28.0 RESPONSIBILITY FOR PERFORMANCE
28.1 Subcontracting
28.2 Reliance
28.3 Assignment
29.0 NON-WAIVER
30.0 HEADINGS
31.0 PARTIAL INVALIDITY
32.0 APPLICABLE LAW
33.0 AMENDMENT
34.0 LIMITATION
35.0 TAXES
35.1 Inclusion of Taxes in Price
35.2 Litigation
35.3 Rebates
36.0 FOREIGN PROCUREMENT OFFSET
37.0 ENTIRE AGREEMENT/ORDER
OF PRECEDENCE
37.1 Entire Agreement
37.2 Incorporated By Reference
37.3 Order of Precedence
37.4 Disclaimer
</TABLE>
iv
<PAGE>
AMENDMENT
<TABLE>
<CAPTION>
AMEND
NUMBER DESCRIPTION DATE APPROVAL
- ------ ----------- ----- --------
<S> <C> <C> <C>
</TABLE>
v
<PAGE>
GENERAL TERMS AGREEMENT
RELATING TO
BOEING PRODUCTS
THIS GENERAL TERMS AGREEMENT ("Agreement") is entered into as of July 1,
1998, by and between Tri-Star Electronics, a Delaware corporation, with its
principal office in El Segundo, California ("Seller"), and The Boeing
Company, a Delaware corporation with its principal office in Seattle,
Washington acting by and through its division the Boeing Commercial Airplane
Group ("Boeing").
RECITALS
A. Boeing produces commercial airplanes.
B. Seller manufactures and sells certain goods and services for use in the
production and support of such airplanes.
C. Seller desires to sell and Boeing desires to purchase certain of Seller's
goods and services in accordance with the terms of this Agreement.
Now therefore, in consideration of the mutual covenants set forth herein,
the parties agree as follows:
1
<PAGE>
AGREEMENTS
1.0 DEFINITIONS
The definitions set forth below shall apply to this Agreement, any
Order, and any related Special Business Provisions ("SBP"). Words
importing the singular number shall also include the plural number and
vice versa.
(a) "Customer" means any owner, operator or user of Products and any
other individual, partnership, corporation or entity which has
or acquires any interest in the Products from, through or under
Boeing.
(b) "Derivative" means any new model airplane designated by Boeing
as a derivative of an existing Model airplane and which: (1) has
the same number of engines as the existing model airplane; (2)
utilizes essentially the same aerodynamic and propulsion design,
major assembly components, and systems as the existing model
airplane and (3) achieves other payload/range combinations by
changes in body length, engine thrust, or variations in
certified gross weight.
(c) "Drawing" means an automated or manual depiction of graphics or
technical information representing a Product or any part thereof
and which includes the parts list and specifications relating
thereto.
(d) "End Item Assembly" means any Product which is described by a
single part number and which is comprised of more than one
component part.
(e) "FAA" means the United States Federal Aviation Administration or
any successor agency thereto.
(f) "FAR" means the Federal Acquisition Regulations in effect on the
date of this Agreement.
(g) "Materiel Representative" means the individual designated from
time to time, by Boeing as being primarily responsible for
interacting with Seller regarding this Agreement and any Order.
(h) "Order" means each purchase order issued by Boeing and accepted
by Seller under the terms of this Agreement. Each Order is a
contract between Boeing and Seller.
(i) "Product" means goods, including components and parts thereof,
services, documents, data, software, software documentation and
other information or items furnished or to be furnished to
Boeing under any Order, including Tooling except for Rotating
Use Tools.
(j) "Purchase on Assembly Production Detail Part (POA)" means a
component part of an End Item Assembly.
(k) "Shipset" means the total quantity of a given part number or
material necessary for production of one airplane.
2
<PAGE>
(l) "Spare" means any Product, regardless of whether the Product is
an End Item Assembly or a Purchased on Assembly Production
Detail Part, which is intended for use or sale as a spare part
of a production replacement.
(m) "Tooling" means all tooling, as defined in Boeing Document
D33200 "Boeing Suppliers' Tooling Document" and/or described on
any Order, including but not limited to Boeing-Use Tooling,
Supplier-Use Tooling and Common-Use Tooling as defined in Boeing
Document D953W001, "General Operations Requirements for
Suppliers," and Rotating-Use Tooling as defined in Boeing
Document M31-13, "Accountability of Inplant/Outplant Special
(Contract) Tools." For purposes of this Agreement, in the
documents named in this subparagraph, the term "Supplier Use
Tooling" shall be changed to Seller Use Tooling.
2.0 ISSUANCE OF ORDERS AND APPLICABLE TERMS
2.1 ISSUANCE OF ORDERS
Boeing may issue Orders to Seller from time to time. Each Order shall
contain a description of the Products ordered, a reference to the
applicable specifications and Drawings, the quantities and prices,
the delivery schedule, the terms and place of delivery and any
special conditions.
Each Order which incorporates this Agreement shall be governed by and
be deemed to include the provisions of this Agreement. Purchase Order
Terms and Conditions, Form D1-4100-4045, Form P252T do not apply. Any
other purchase order terms and conditions which may conflict with
this Agreement, do not apply to the Orders.
2.2 ACCEPTANCE OF ORDERS
Each Order is Boeing's offer to Seller and acceptance is strictly
limited to its terms. Boeing will not be bound by and specifically
objects to any term or condition which is different from or in
addition to the provisions of the Order, whether or not such term or
condition will materially alter the Order. Seller's commencement of
performance or acceptance of the Order in any manner shall
conclusively evidence Seller's acceptance of the Order as written.
Boeing may revoke any Order prior to Seller's acceptance or Seller's
commencement of performance.
2.3 WRITTEN AUTHORIZATION TO PROCEED
Boeing's Materiel Representative may give written authorization to
Seller to commence performance before Boeing issues an Order. If
Boeing in its written authorization specifies that an Order will be
issued, Boeing and Seller shall proceed as if an Order had been
issued. This Agreement, the applicable SBP and the terms stated in
the written authorization shall be deemed to be a part of Boeing's
offer and the parties shall promptly agree on any open Order terms.
If Boeing does not specify in its written authorization that an Order
shall be issued, Boeing's obligation is strictly limited to the terms
of the written authorization. For purposes of this Section 2.3,
written authorization includes electronic transmission chosen by
Boeing.
If Seller commences performance before an Order is issued or without
receiving Boeing's prior authorization to proceed, such performance
shall be at Seller's expense.
3
<PAGE>
2.4 REJECTION OF PURCHASE ORDER
Seller is only required to formally respond to an Order when an
exception is noted and Seller thereby rejects the Order. Any rejection
by Seller of an Order shall specify the reasons for rejection and any
changes or additions that would make the Order acceptable to Seller;
provided, however, that Seller may not reject any Order for reasons
inconsistent with the provisions of this Agreement or the applicable
SBP.
3.0 TITLE AND RISK OF LOSS
Title to and risk of any loss of or damage to the Products shall pass
from Seller to Boeing at the F.O.B. point as specified in the applicable
Order, except for loss or damage thereto resulting from Seller's fault
or negligence.
4.0 DELIVERY
4.1 REQUIREMENTS
Deliveries shall be strictly in accordance with the quantities, the
schedule and other requirements specified in the applicable Order.
Seller may not make early deliveries without Boeing's prior written
authorization. Seller may not make partial deliveries without Boeing's
prior authorization. Deliveries which fail to meet Order requirements
may be returned to Seller at Seller's expense.
4.2 DELAY
Seller shall notify Boeing immediately, of any circumstances that may
cause a delay in delivery, stating the estimated period of delay and
the reasons therefor. If requested by Boeing, Seller shall use
additional effort, including premium effort, and shall ship via air
or other expedited routing to avoid or minimize delay to the maximum
extent possible. All additional costs resulting from such premium
effort or premium transportation shall be borne by Seller with the
exception of such costs attributable to delays caused directly by
Boeing. Nothing herein shall prejudice any of the rights or remedies
provided to Boeing in the applicable Order or by law.
4.3 NOTICE OF LABOR DISPUTES
Seller shall immediately notify Boeing of any actual or potential
labor dispute that may disrupt the timely performance of an Order.
Seller shall include the substance of this Section 4.3, including
this sentence, in any subcontract relating to an Order if a labor
dispute involving the subcontractor would have the potential to delay
the timely performance of such Order. Each subcontractor, however,
shall only be required to give the necessary notice and information
to its next higher-tier subcontractor.
5.0 ON-SITE REVIEW AND RESIDENT REPRESENTATIVES
5.1 REVIEW
At Boeing's request, Seller shall provide at Boeing's facility or at
a place designated by Boeing, a review explaining the status of the
Order, actions taken or planned relating to the Order and any other
relevant information. Nothing herein may be construed as a waiver of
Boeing's rights to proceed against Seller because of any delinquency.
Boeing's authorized representatives may enter Seller's plant at all
reasonable times to conduct preliminary inspections and tests of the
Products and work-in-progress. Seller shall include in its
subcontracts issued in connection with an Order a like provision
giving Boeing the right to enter the premises of Seller's
subcontractors. When requested by Boeing, Seller shall accompany
Boeing to Seller's subcontractors.
4
<PAGE>
5.2 RESIDENT REPRESENTATIVES
Boeing may in its discretion and for such periods as it deems
necessary assign resident personnel at Seller's facilities. Seller
shall furnish, free of charge, all office space, secretarial service
and other facilities and assistance reasonably required by Boeing's
representatives at Seller's plant. The resident team will function
under the guidance of a Boeing manager. The resident team will provide
communication and coordination to ensure timely performance of the
Order. Boeing's resident team shall be allowed access to all work
areas, Order status reports and management review necessary to assure
timely performance and conformance with the requirements of each
Order. Notwithstanding such assistance, Seller remains solely
responsible for performing in accordance with each Order.
6.0 INVOICE AND PAYMENT
Unless otherwise provided in the applicable Order, invoicing and
payment shall be in accordance with SBP Section 7.0.
7.0 PACKING AND SHIPPING
Seller shall (a) prepare for shipment and suitably pack all Products
to prevent damage or deterioration, (b) where Boeing has not
identified a carrier, secure lowest transportation rates, (c) comply
with the appropriate carrier tariff for the mode of transportation
specified by Boeing and (d) comply with any special instructions
stated in the applicable Order.
Boeing shall pay no charges for preparation, packing, crating or
cartage unless stated in the applicable Order. Unless otherwise
directed by Boeing, all standard routing shipments forwarded on one
day must be consolidated. Each container must be consecutively
numbered and marked as set forth below. Container and Order numbers
must be indicated on the applicable bill of lading. Two copies of the
packing sheets must be attached to the No. 1 container of each
shipment and one copy in each individual container. Each pack sheet
must include as a minimum the following: a) Seller's name, address
and phone number; b) Order and item number; c) ship date for the
Products; d) total quantity shipped and quantity in each container,
if applicable; e) legible pack slip number; f) nomenclature; g) unit
of measure; h) ship to if other than Boeing; i) warranty data and
certification, as applicable; j) rejection tag, if applicable; k)
Seller's certification that Products comply with Order requirements;
and, l) identification of optional material used, if applicable.
Products sold F.O.B. place of shipment must be forwarded collect.
Seller may not make any declaration concerning the value of the
Products shipped, except on Products where the tariff rating or rate
depends on the released or declared value, and in such event the
value shall be released or declared at the maximum value for the
lowest tariff rating or rate.
The following markings shall be included on each unit container: a)
Seller's name; b) Seller's part number, if applicable; c) Boeing part
number, if applicable; d) part nomenclature; e) Order number; f)
quantity of Products in container; g) unit of measure; h) serial
number, if applicable; i) date (quarter/year) identified as assembly
or rubber cure date, if applicable; j) precautionary handling
instructions or marking as required.
In addition, the following markings/labels shall be included on each
shipping container: a) Name and address of consignee; b) Name and
address of consigner; c) Order number; d) Part number as shown on the
Order; e) Quantity of Products in container; f) Unit of measure; g)
Box number; h) Total number of boxes in shipment; and, i)
Precautionary handling, labeling or marking as required.
5
<PAGE>
8.0 QUALITY ASSURANCE, INSPECTION, REJECTION, & ACCEPTANCE
8.1 CONTROLLING DOCUMENT
The controlling quality assurance document for Orders shall be as set
forth in the SBP Section 4.0.
8.2 SELLER'S INSPECTION
Seller shall inspect or otherwise verify that all Products and
components thereof, including those procured from or furnished by
subcontractors or Boeing, comply with the requirements of the Order
prior to shipment to Boeing or Customer. Seller shall be responsible
for all tests and inspections of the Product and any component thereof
during receiving, manufacture and Seller's final inspection. Seller
shall include on each packing sheet a certification that the Products
comply with the requirements of the Order.
8.2.1 SELLER'S DISCLOSURE
Seller will immediately notify Boeing when discrepancies in Seller's
processes or Product are discovered or suspected for Products Seller
has delivered.
8.2.2 SELLER'S ACCEPTANCE
Seller shall provide with all shipments the following proof of
acceptance by its Quality Assurance Department: (A) certified
physical and metallurgical test reports where required by controlling
specifications, or (B) a signed, dated statement on the packing sheet
certifying its Quality Assurance Department has inspected the parts
and they adhere to all applicable drawings and/or specifications.
6
<PAGE>
8.3 BOEING'S INSPECTION AND REJECTION
Unless otherwise specified on an Order, Products shall be subject to
inspection by Boeing, notwithstanding any payment or prior inspection.
Boeing may reject any Product which does not strictly conform to the
requirements of the applicable Order. Boeing shall by notice,
rejection tag or other communication notify Seller of such rejection.
Whenever possible, Boeing may coordinate with Seller prior to
disposition of the rejected Product(s), however, Boeing shall retain
final disposition authority with respect to all rejections. At
Seller's risk and expense, all such Products will be returned to
Seller for immediate repair, replacement or other correction and
redelivery to Boeing; provided, however, that with respect to any or
all of such Products and at Boeing's election and at Seller's risk and
expense, Boeing may: (a) return such Products without permitting any
repair, replacement or other correction by Seller; (b) hold or retain
such Products for repair by Seller or, at Boeing's election, for
repair by Boeing with such assistance from Seller as Boeing may
require; (c) hold such Products until Seller has delivered conforming
replacements for such Products; (d) hold such Products until
conforming replacements are obtained from a third party; (e) return
such Products with instructions to Seller as to whether the Products
shall be repaired or replaced and as to the manner of redelivery or
(f) return such Products with instructions that they be scrapped upon
final disposition by Boeing and Seller that the non-conforming
Product(s) are not subject to repair or useable in another application
for which they would be acceptable, and prior to the Products being
scrapped, Seller shall render the Product(s) unusable. Seller shall
also maintain, pursuant to their quality assurance system, records
certifying destruction of the applicable Products. Said certification
shall state the method and date of mutilation and destruction of the
subject Product(s). Boeing shall have the right to review and inspect
these records at any time it deems necessary. Failure to comply with
these requirements shall be a material breach of this Agreement and
grounds for default pursuant to GTA Section 13.0. All repair,
replacement and other corrections and redelivery shall be completed
within such time as Boeing may require. All costs and expenses, loss
of value and any other damages incurred as a result of or in
connection with nonconformance and repair, replacement or other
correction may be recovered from Seller by an equitable price
reduction, set-off or credit against any amounts that may be owed to
Seller under the applicable Order or otherwise.
Boeing may revoke its acceptance of any Products and have the same
rights with regard to the Products involved as if it had originally
rejected them.
7
<PAGE>
8.4 FEDERAL AVIATION ADMINISTRATION OR EQUIVALENT
GOVERNMENT AGENCY INSPECTION
Representatives of Boeing, the FAA or any equivalent government agency
may inspect and evaluate Seller's plant including, but not limited to,
Seller's and subcontractor's facilities, systems, data, equipment,
inventory holding areas, procedures, personnel, testing, and all
work-in-process and completed Products. For purposes of this Section
8.4, equivalent government agency shall mean those governmental
agencies so designated by the FAA or those agencies within individual
countries which maintain responsibility for assuring aircraft
airworthiness.
8.5 RETENTION OF RECORDS
Quality assurance records shall be maintained on file at Seller's
facility and available to Boeing's authorized representatives. Seller
shall retain such records for a period of not less than seven (7)
years from the date of final payment under the applicable Order.
8.6 SOURCE INSPECTION
If an Order contains a notation that "100% Source Inspection" is
required, the Products shall not be packed for shipment until they
have been submitted to Boeing's quality assurance representative for
inspection. Both the packing list and Seller's invoice must reflect
evidence of this inspection.
8.7 LANGUAGE FOR TECHNICAL INFORMATION
All reports, drawings and other technical information submitted to
Boeing for review or approval shall be in English and shall employ the
units of measure customarily used by Boeing in the United States of
America.
8.8 FAA PART MANUFACTURING APPROVAL (PMA) REQUIREMENTS
Where Seller is required to obtain FAA approval to sell Product(s) to
third parties pursuant to Federal Aviation Regulation 21.303, the
following statement shall be included on the pack sheet signed by an
authorized representative of Seller with responsibility for the
conformity of the Product to the FAA type certified engineering
drawing:
"It is hereby certified that, (a) the parts and/or materials reflected
herein were produced under a FAA approved manufacturing and Quality
Assurance system/methods as set forth in Federal Aviation Regulation
21.303, and (b) all parts and/or materials are certified new, conforms
to the design data and are in airworthy condition".
In the event such attestation cannot be made, a copy of the latest
detail drawings must accompany the Product??.
In order to comply with Federal Aviation Regulation 45.15, each Product
must be permanently and legibly marked as follows:
(1) "FAA-PMA"
(2) Name, trademark or symbol of manufacturer
(3) Part number
(4) Name and model of each type certified product on which the
approved part can be used.
If Product is too small to get all the above data on it, a tag may be
used, attached to the Product or container. If usage is extensive,
reference to a specific manual or catalog for the information is
permissible. See regulation for detail.
8
<PAGE>
9.0 EXAMINATION OF RECORDS
Seller shall maintain complete and accurate records showing the sales
volume of all Products. Such records shall support all services
performed, allowances claimed and costs incurred by Seller in the
performance of each Order, including but not limited to those factors
which comprise or affect direct labor hours, direct labor rates,
material costs, burden rates and subcontracts. Such records and other
data shall be capable of verification through audit and analysis by
Boeing and be available to Boeing at Seller's facility for Boeing's
examination and audit at all reasonable times from the date of the
applicable Order until three (3) years after final payment under such
Order. Seller shall provide assistance to interpret such data if
requested by Boeing. Such examination shall provide Boeing with
complete information regarding Seller's performance for use in price
negotiations with Seller relating to existing or future orders for
Products, including but not limited to negotiation of equitable
adjustments for changes and termination/obsolescence claims pursuant
to GTA Section 10.0. Boeing shall treat all information disclosed under
this Section as confidential.
10.0 CHANGES
10.1 GENERAL
Boeing's Materiel Representative may at any time by written change
order make changes within the general scope of an Order in any one or
more of the following: drawings, designs, specifications, shipping,
packing, place of inspection, place of delivery place of acceptance,
adjustments in quantities, adjustments in delivery schedules, or the
amount of Boeing furnished material. For purposes of this Section
10.1, written change includes electronic transmission chosen by
Boeing. Seller shall proceed immediately to perform the Order as
changed. If any such change causes an increase or decrease in the
cost of or the time required for the performance of any part of the
work, whether changed or not changed by the change order, an
equitable adjustment shall be made in the price of or the delivery
schedule for those Products affected, and the applicable Order shall
be modified in writing accordingly. Any claim by Seller for
adjustment under this Section 10.1 must be received by Boeing in
writing no later than (60) days from the date of receipt by Seller of
the written change order or within such further time as the parties
may agree in writing or such claim shall be deemed waived. Nothing in
this Section 10.1 shall excuse Seller from proceeding with an Order
as changed, including failure of the parties to agree on any
adjustment to be made under this Section 10.1.
If Seller considers that the conduct of any of Boeing's employees has
constituted a change hereunder, Seller shall immediately notify
Boeing's Materiel Representative in writing as to the nature of such
conduct and its effect on Seller's performance. Pending direction
from Boeing's Materiel Representative, Seller shall take no action to
implement any such change.
10.2 DERIVATIVE AIRCRAFT
In the event any Derivative aircraft(s) is introduced by Boeing,
Boeing may (but is not obligated to) direct Seller within the scope
of the applicable Order and in accordance with the provisions of GTA
Section 10.0 to supply Boeing's requirements for Products for such
Derivative aircraft(s) which correspond to those Products being
produced under the applicable Order.
11.0 PRODUCT SUPPORT AND ASSURANCE
Boeing's acceptance of any Product does not alter or affect the
obligations of Seller or the rights of Boeing and its customers under
the document referenced in the SBP Section 6.0 or as provided by law.
9
<PAGE>
12.0 TERMINATION FOR CONVENIENCE
12.1 BASIS FOR TERMINATION; NOTICE
Boeing may, from time to time and at Boeing's sole discretion,
terminate all or part of any Order issued hereunder, by written
notice to Seller. Any such written notice of termination shall
specify the effective date and the extent of any such termination.
12.2 TERMINATION INSTRUCTIONS
On receipt of a written notice of termination pursuant to GTA
Section 12.1, unless otherwise directed by Boeing, Seller shall:
A. Immediately stop work as specified in the notice;
B. Immediately terminate its subcontracts and purchase orders relating
to work terminated;
C. Settle any termination claims made by its subcontractors or
suppliers; provided, that Boeing shall have approved the amount of
such termination claims prior to such settlement;
D. Preserve and protect all terminated inventory and Products;
E. At Boeing's request, transfer title (to the extent not
previously transferred) and deliver to Boeing or Boeing's designee
all supplies and materials, work-in-process, Tooling and
manufacturing drawings and data produced or acquired by Seller for
the performance of this Agreement and any Order, for which Boeing
has or will pay for as part of Seller's termination claim pursuant
to Section 12.3 below, all in accordance with the terms of such
request;
F. Take all reasonable steps required to return, or at
Boeing's option and with prior written approval to destroy, all
Boeing Proprietary Information and Items in the possession, custody
or control of Seller;
G. Take such other action as, in Boeing's reasonable
opinion, may be necessary, and as Boeing shall direct in writing,
to facilitate termination of this Order; and
H. Complete performance of the work not terminated.
12.3 SELLER'S CLAIM
If Boeing terminates an Order in whole or in part pursuant to Section
12.1 above, Seller shall have the right to submit a written
termination claim to Boeing in accordance with the terms of this
Section 12.3. Such termination claim shall be submitted to Boeing not
later than six (6) months after Seller's receipt of the termination
notice and shall be in the form prescribed by Boeing. Such claim must
contain sufficient detail to explain the amount claimed, including
detailed inventory schedules and a detailed breakdown of all costs
claimed separated into categories (e.g., materials, purchased parts,
finished components, labor, burden, general and administrative), and
to explain the basis for allocation of all other costs. Seller shall
be entitled to be compensated in accordance with and to the extent
allowed under the terms of FAR 52-249-2(e)-(m) excluding (i), (as
published in 48 CFR Section 52.249-2) which is incorporated herein by
this reference except "Government" and "Contracting Officer" shall
mean Boeing, "Contractor" shall mean Seller and "Contract" shall mean
Order.
10
<PAGE>
12.4 FAILURE TO SUBMIT A CLAIM
Notwithstanding any other provision of this Section 12.0, if Seller
fails to submit a termination claim within the time period set forth
above, Seller shall be barred from submitting a claim and Boeing shall
have no obligation for payment to Seller under this Section 12.0
except for those Products previously delivered and accepted by Boeing.
12.5 PARTIAL TERMINATION
Any partial termination of an Order shall not alter or affect the
terms and conditions of the Order or any Order with respect to
Products not terminated.
12.6 PRODUCT PRICE
Termination under any of the above paragraphs shall not result in any
change to unit prices for Products not terminated.
12.7 EXCLUSIONS OR DEDUCTIONS
The following items shall be excluded or deducted from any claim
submitted by Seller:
A. All unliquidated advances or other payments made by Boeing to
Seller pursuant to a terminated Order;
B. Any claim which Boeing has against Seller;
C. The agreed price for scrap allowance;
D. Except for normal spoilage and any risk of loss assumed by Boeing,
the agreed fair value of property that is lost, destroyed, stolen or
damaged.
12.8 PARTIAL PAYMENT/PAYMENT
Payment, if any, to be paid under this Section 12.0 shall be made
thirty (30) days after settlement between the parties or as otherwise
agreed to between the parties. Boeing may make partial payments and
payments against costs incurred by Seller for the terminated portion
of the Order, if the total of such payments does not exceed the amount
to which Seller would be otherwise entitled. If the total payments
exceed the final amount determined to be due, Seller shall repay the
excess to Boeing upon demand.
12.9 SELLER'S ACCOUNTING PRACTICES
Boeing and Seller agree that Seller's "normal accounting practices"
used in developing the price of the Product(s) shall also be used in
determining the allocable costs at termination. For purposes of this
Section 12.9, Seller's "normal accounting practices" refers to
Seller's method of charging costs as either a direct charge, overhead
expense, general administrative expense, etc.
12.10 RECORDS
Unless otherwise provided in this Agreement or by law, Seller shall
maintain all records and documents relating to the terminated portion
of the Order for three (3) years after final settlement of Seller's
termination claim.
11
<PAGE>
13.0 EVENTS OF DEFAULT AND REMEDIES
13.1 EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall
constitute an "Event of Default":
A. Any failure by Seller to deliver, when and as required by this
Agreement or any Order, any Product, except as provided in GTA
Section 14.0; or
B. Any failure by Seller to provide an acceptable Assurance of
Performance within the time specified in GTA Section 17.0, or
otherwise in accordance with applicable law; or,
C. Any failure by Seller to perform or comply with any obligation
set forth in GTA Section 20.0;
D. Seller is or has participated in the sale, purchase or manufacture
of airplane parts without the required approval of the FAA;
E. Where applicable, Boeing revokes Seller's Quality Assurance System
approval;
F. Any failure by Seller to perform or comply with any obligation
(other than as described in the foregoing Sections 13.1.A, 13.1.B,
13.1.C, 13.1.D and 13.1.E) set forth in this Agreement and such
failure shall continue unremedied for a period of thirty (30) days
or more following receipt by Seller of notice from Boeing
specifying such failure; or
G. (a) the suspension, dissolution or winding-up of Seller's
business, (b) Seller's insolvency, or its inability to pay debts,
or its nonpayment of debts, as they become due, (c) the
institution of reorganization, liquidation or other such
proceedings by or against Seller or the appointment of a
custodian, trustee, receiver or similar Person for Seller's
properties or business, (d) an assignment by Seller for the
benefit of its creditors, or (e) any action of Seller for the
purpose of effecting or facilitating any of the foregoing.
13.2 REMEDIES
If any Event of Default shall occur:
A. CANCELLATION
Boeing may, by giving written notice to Seller, immediately cancel
this Agreement and/or any Order, in whole or in part, and Boeing
shall not be required after such notice to accept the tender by
Seller of any Products with respect to which Boeing has elected to
cancel this Agreement.
B. COVER
Boeing may manufacture, produce or provide, or may engage any
other persons to manufacture, produce or provide, any Products in
substitution for the Products to be delivered or provided by
Seller hereunder with respect to which this Agreement or any Order
has been canceled and, in addition to any other remedies or
damages available to Boeing hereunder or at law or in equity,
Boeing may recover from Seller the difference between the price
for each such Product and the aggregate expense, including,
without limitation, administrative and other indirect costs, paid
or incurred by Boeing to manufacture, produce or provide, or
engage other persons to manufacture, produce or provide, each such
Product.
12
<PAGE>
C. REWORK OR REPAIR
Where allowed by the applicable regulatory authority, Boeing or its
designee may rework or repair any Product in accordance with GTA
Section 8.3.
D. SETOFF
Boeing shall, at its option, have the right to set off against and
apply to the payment or performance of any obligation, sum or amount
owing at any time to Boeing hereunder or under any Order, all
deposits, amounts or balances held by Boeing for the account of
Seller and any amounts owed by Boeing to Seller, regardless of
whether any such deposit, amount, balance or other amount or payment
is then due and owing.
E. TOOLING AND OTHER MATERIALS
As compensation for the additional costs which Boeing will incur as
a result of the actual physical transfer of production capabilities
from Seller to Boeing or Boeing's designee, Seller shall upon the
request of Boeing, transfer and deliver to Boeing or Boeing's
designee title to any or all (i) Tooling, (ii) Boeing-furnished
material, (iii) raw materials, parts, work-in-process, incomplete or
completed assemblies, and all other Products or parts thereof in the
possession or under the effective control of Seller or any of its
subcontractors (iv) Proprietary Information and Materials of Boeing
including without limitation planning data, drawings and other
Proprietary Information and Materials relating to the design,
production, maintenance, repair and use of Tooling, in the
possession or under the effective control of Seller or any of its
subcontractors, in each case free and clear of all liens, claims or
other rights of any person.
Seller shall be entitled to receive from Boeing reasonable
compensation for any item accepted by Boeing which has been
transferred to Boeing pursuant to this Section 13.2.E (except for
any item the price of which shall have been paid to Seller prior to
such transfer); provided, however, that such compensation shall not
be paid directly to Seller, but shall be accounted for as a setoff
against any damages payable by Seller to Boeing as a result of any
Event of Default.
F. REMEDIES GENERALLY
No failure on the part of Boeing in exercising any right or remedy
hereunder, or as provided by law or in equity, shall impair,
prejudice or constitute a waiver of any such right or remedy, or
shall be construed as a waiver of any Event of Default or as an
acquiescence therein. No single or partial exercise of any such
right or remedy shall preclude any other or further exercise thereof
or the exercise of any other right or remedy. No acceptance of
partial payment or performance of any of Seller's obligations
hereunder shall constitute a waiver of any Event of Default or a
waiver or release of payment or performance in full by Seller of any
such obligation. All rights and remedies of Boeing hereunder and at
law and in equity shall be cumulative and not mutually exclusive and
the exercise of one shall not be deemed a waiver of the right to
exercise any other. Nothing contained in this Agreement shall be
construed to limit any right or remedy of Boeing now or hereafter
existing at law or in equity.
13
<PAGE>
14.0 EXCUSABLE DELAY
If delivery of any Product is delayed by unforeseeable circumstances
beyond the control and without the fault or negligence of Seller or of
its suppliers or subcontractors (any such delay being hereinafter
referred to as "Excusable Delay"), the delivery of such Product shall be
extended for a period to be determined by Boeing after an assessment by
Boeing of alternate work methods. Excusable Delays may include, but are
not limited to, acts of God, war, riots, acts of government, fires,
floods, epidemics, quarantine restrictions, freight embargoes, strikes
or unusually severe weather, but shall exclude Seller's noncompliance
with any rule, regulation or order promulgated by any governmental
agency for or with respect to environmental protection. However, the
above notwithstanding, Boeing expects Seller to continue production,
recover lost time and support all schedules as established under this
Agreement or any Order. Therefore, it is understood and agreed that (i)
delays of less than two (2) days' duration shall not be considered to be
Excusable Delays unless such delays shall occur within thirty (30) days
preceding the scheduled delivery date of any Product and (ii) if delay
in delivery of any Product is caused by the default of any of Seller's
subcontractors or suppliers, such delay shall not be considered an
Excusable Delay unless the supplies or services to be provided by such
subcontractor or supplier are not obtainable from other sources in
sufficient time to permit Seller to meet the applicable delivery
schedules. If delivery of any Product is delayed by any Excusable Delay
for more than three (3) months, Boeing may, without any additional
extension, cancel all or part of any Order with respect to the delayed
Products, and exercise any of its remedies in accordance with GTA
Section 13.2 provided however, that Boeing shall not be entitled to
monetary damages or specific performance to the extent Seller's breach
is the result of an Excusable Delay.
15.0 SUSPENSION OF WORK
Boeing may at any time, by written order to Seller, require Seller to
stop all or any part of the work called for by this Agreement for up to
one hundred twenty (120) days hereafter referred to as a "Stop Work
Order" issued pursuant to this Section 15.0. On receipt of a Stop Work
Order, Seller shall promptly comply with its terms and take all
reasonable steps to minimize the occurrence of costs arising from the
work covered by the Stop Work Order during the period of work stoppage.
Within the period covered by the Stop Work Order (including any
extension thereof) Boeing shall either (i) cancel the Stop Work Order or
(ii) terminate or cancel the work covered by the Stop Work Order in
accordance with the provisions of GTA Section 12.0 or 13.0. In the
event the Stop Work Order is canceled by Boeing or the period of the
Stop Work Order (including any extension thereof) expires, Seller shall
promptly resume work in accordance with the terms of this Agreement or
any applicable Order.
16.0 TERMINATION OR CANCELLATION AND INDEMNITY AGAINST SUBCONTRACTOR CLAIMS
Boeing shall not be liable for any loss or damage resulting from any
termination pursuant to GTA Section 12.1, except as expressly provided
in GTA Section 12.3 or any cancellation under GTA Section 13.0 except to
the extent that such cancellation shall have been determined by Boeing
and Seller to have been wrongful, in which case such wrongful
cancellation shall be deemed a termination pursuant to GTA Section 12.1
and therefore shall be limited to the payment to Seller of the amount or
amounts identified in GTA Section 12.3. As subcontractor claims are
included in Seller's termination claim pursuant to GTA Section 12.3,
Seller shall indemnify Boeing and hold Boeing harmless from and against
(i) any and all claims, suits and proceedings against Boeing by any
subcontractor or supplier of Seller in respect of any such termination
and (ii) and any and all costs, expenses, losses and damages incurred by
Boeing in connection with any such claim, suit or proceeding.
14
<PAGE>
17.0 ASSURANCE OF PERFORMANCE
A. SELLER TO PROVIDE ASSURANCE
If Boeing determines, at any time or from time to time, that it
is not sufficiently assured of Seller's full, timely and
continuing performance hereunder, or if for any other reason
Boeing has reasonable grounds for insecurity, Boeing may request,
by notice to Seller, written assurance (hereafter an "Assurance
of Performance") with respect to any specific matters affecting
Seller's performance hereunder, that Seller is able to perform
all of its respective obligations under this Agreement when and
as specified herein. Each Assurance of Performance shall be
delivered by Seller to Boeing as promptly as possible, but in any
event no later than 15 calendar days following Boeing's request
therefore and each Assurance of Performance shall be accompanied
by any information, reports or other materials, prepared by
Seller, as Boeing may reasonably request. Boeing may suspend all
or any part of Boeing's performance hereunder until Boeing
receives an Assurance of Performance from Seller satisfactory in
form and substance to Boeing.
B. MEETINGS AND INFORMATION
Boeing may request one or more meetings with senior management or
other employees of Seller for the purpose of discussing any
request by Boeing for Assurance of Performance or any Assurance
of Performance provided by Seller. Seller shall make such persons
available to meet with representatives of Boeing as soon as may
be practicable following a request for any such meeting by Boeing
and Seller shall make available to Boeing any additional
information, reports or other materials in connection therewith
as Boeing may reasonably request.
18.0 RESPONSIBILITY FOR PROPERTY
On delivery to Seller or manufacture or acquisition by it of any
materials, parts, Tooling or other property, title to any of which is
held by Boeing, Seller shall assume the risk of and shall be
responsible for any loss thereof or damage thereto. In accordance
with the provisions of an Order, but in any event on completion
thereof, Seller shall return such property to Boeing in the condition
in which it was received except for reasonable wear and tear and
except to the extent that such property has been incorporated in
Products delivered under such Order or has been consumed in the
normal performance of work under such Order.
19.0 LIMITATION OF SELLER'S RIGHT TO ENCUMBER ASSETS
Seller warrants to Boeing that it has good title to all inventory,
work-in-process, tooling and materials to be supplied by Seller in
the performance of its obligations under any Order ("Inventory"), and
that pursuant to the provisions of such Order, it will transfer to
Boeing title to such Inventory, whether transferred separately or as
part of any Product delivered under the Order, free of any liens,
charges, encumbrances or rights of others.
20.0 PROPRIETARY INFORMATION AND ITEMS
Boeing and Seller shall each keep confidential and protect from
disclosure all (a) confidential, proprietary, and/or trade secret
information; (b) tangible items containing, conveying, or embodying
such information; and (c) tooling obtained from and/or belonging to
the other in connection with this Agreement or any Order
(collectively referred to as "Proprietary Information and
Materials"). Boeing and Seller shall each use Proprietary Information
and Materials of the other only in the performance of and for the
purpose of this Agreement and/or any Order. Provided, however, that
despite any other obligations or restrictions imposed by this Section
20.0, Boeing shall have the right to use and disclose Seller's
Proprietary Information and Materials for the purposes of testing,
certification, use, sale, or support of any item delivered under this
Agreement, an Order, or any airplane including such an item; and any
such disclosure by Boeing shall, whenever appropriate, include a
restrictive legend
15
<PAGE>
20.0 (cont.)
suitable to the particular circumstances. The restrictions on
disclosure or use of Proprietary Information and Materials by Seller
shall apply to all materials derived by Seller or others from
Boeing's Proprietary Information and Materials. Upon Boeing's request
at any time, and in any event upon the completion, termination or
cancellation of this Agreement, Seller shall return all of Boeing's
Proprietary Information and Materials, and all materials derived from
Boeing's Proprietary Information and Materials to Boeing unless
specifically directed otherwise in writing by Boeing. Seller shall
not, without the prior written authorization of Boeing, sell or
otherwise dispose of (as scrap or otherwise) any parts or other
materials containing, conveying, embodying, or made in accordance
with or by reference to any Proprietary Information and Materials of
Boeing. Prior to disposing of such parts or materials as scrap,
Seller shall render them unusable. Boeing shall have the right to
audit Seller's compliance with this Section 20.0. Seller may disclose
Proprietary Information and Materials of Boeing to its subcontractors
as required for the performance of an Order, provided that each such
subcontractor first assumes, by written agreement, the same
obligations imposed upon Seller under this Section 20.0 relating to
Proprietary Information and Materials; and Seller shall be liable to
Boeing for any breach of such obligation by such subcontractor. The
provisions of this Section 20.0 are effective in lieu of, and will
apply notwithstanding the absence of, any restrictive legends or
notices applied to Proprietary Information and Materials; and the
provisions of this Section 20.0 shall survive the performance,
completion, termination or cancellation of this Agreement or any
Order. This Section 20.0 supersedes and replaces any and all other
prior agreements or understandings between the parties to the extent
that such agreements or understandings relate to Boeing's obligations
relative to confidential, proprietary, and/or trade secret
information, or tangible items containing, conveying, or embodying
such information, obtained from Seller and related to any Product,
regardless of whether disclosed to the receiving party before or
after the effective date of this Agreement.
21.0 COMPLIANCE WITH LAWS
21.1 SELLER'S OBLIGATION
Seller shall be responsible for complying with all laws, including,
but not limited to, any statute, rule, regulation, judgment, decree,
order, or permit applicable to its performance under this Agreement.
Seller further agrees (1) to notify Boeing of any obligation under
this Agreement which is prohibited under applicable environmental
law, at the earliest opportunity but in all events sufficiently in
advance of Seller's performance of such obligation so as to enable
the identification of alternative methods of performance, and (2) to
notify Boeing at the earliest possible opportunity of any aspect of
its performance which becomes subject to additional environmental
regulation of which Seller reasonably believes will become subject to
additional regulation during the performance of this Agreement.
16
<PAGE>
21.0 (cont.)
21.2 GOVERNMENT REQUIREMENTS
If any of the work to be performed under this Agreement is performed in
the United States, Seller shall, via invoice or other form satisfactory
to Boeing, certify that the Products covered by the Order were produced
in compliance with Sections 6, 7, and 12 of the Fair Labor Standards
Act (29 U. S. C. 201-291), as amended, and the regulations and orders
of the U. S. Department of Labor issued thereunder. In addition, the
following Federal Acquisition Regulations are incorporated herein by
this reference except "Contractor" shall mean "Seller":
<TABLE>
<S> <C>
FAR 52.222-26 "Equal Opportunity"
FAR 52.222-35 "Affirmative Action for Special Disabled
and Vietnam Era Veterans"
FAR 52.222-36 "Affirmative Action for Handicapped Workers".
</TABLE>
22.0 INTEGRITY IN PROCUREMENT
Boeing's policy is to maintain high standards of integrity in
procurement. Boeing's employees must ensure that no favorable treatment
compromises their impartiality in the procurement process. Accordingly,
Boeing's employees must strictly refrain from soliciting or accepting
any payment, gift, favor or thing of value which could improperly
influence their judgment with respect to either issuing a Order or
administering this Agreement. Consistent with this policy, Seller
agrees not to provide or offer to provide any employees of Boeing any
payment, gift, favor or thing of value for the purposes of improperly
obtaining or rewarding favorable treatment in connection with any Order
or this Agreement. Seller shall conduct its own procurement practices
and shall ensure that its suppliers conduct their procurement practices
consistent with these standards. If Seller has reasonable grounds to
believe that this policy may have been violated, Seller shall
immediately report such possible violation to the appropriate Director
of Materiel or Ethics Advisor of Boeing.
23.0 INFRINGEMENT
Seller shall indemnify, defend, and save Boeing and Customers harmless
from all claims, suits, actions, awards (including but not limited to
awards based on intentional infringement of patents known to Seller at
the time of such infringement, exceeding actual damages, and/or
including attorneys' fees and/or costs), liabilities, damages, costs
and attorneys' fees, (but excluding consequential damages) related to
the actual or alleged infringement of any United States or foreign
intellectual property right (including but not limited to any right in
a patent, copyright, industrial design or semiconductor mask work, or
based on misappropriation or wrongful use of information or documents)
and arising out of the manufacture, sale or use of Products by Boeing
or Customers. Boeing and/or Customers shall duly notify Seller of any
such claim, suit or action; and Seller shall, at its own expense, fully
defend such claim, suit or action on behalf of Boeing and/or Customers.
Seller shall have no obligation under this Section 23.0 with regard to
any infringement arising from: (i) Seller's compliance with formal
specifications issued by Boeing where infringement could not be avoided
in complying with such specifications or (ii) use or sale of PRODUCTS
in combination with other items when such infringement would not have
occurred from the use or sale of those Products solely for the purpose
for which they were designed or sold by Seller. For purposes of this
Section 23.0 only, the term Customer shall not include the United
States Government; and the term Boeing shall include The Boeing Company
(Boeing) and all Boeing subsidiaries and all officers, agents, and
employees of Boeing or any Boeing subsidiary.
17
<PAGE>
24.0 BOEING'S RIGHTS IN SELLER'S PATENTS, COPYRIGHTS, TRADE SECRETS, AND
TOOLING
Seller hereby grants to Boeing an irrevocable, nonexclusive, paid-up
worldwide license to practice and/or use, and license others to
practice and/or use on Boeing's behalf, all of Seller's patents,
copyrights, trade secrets (including, without limitation, designs,
processes, drawings, technical data and tooling), industrial designs,
semiconductor mask works, and tooling (collectively hereinafter
referred to as "Licensed Property") related to the development,
production, maintenance or repair of Products. Boeing hereafter retains
all of the aforementioned license rights in Licensed Property, but
Boeing hereby covenants not to exercise such rights except in
connection with the making, having made, using and selling of Products
or products of the same kind and then only if such undelivered quantity
of Product cannot, in Boeing's sole determination, be obtained from
commercially available sources (including Boeing) without the use of
Seller's Licensed Property and if one or more of the following
situations occur:
a. Seller discontinues or suspends business operations or the
production of any or all of the Products;
b. Seller is acquired by or transfers all of its rights to manufacture
the Products to any unrelated third party.
c. Boeing cancels this Agreement or any Order for cause pursuant to
GTA Section 13.0 herein;
d. in Boeing's judgment it becomes necessary, in order for Seller to
comply with the terms of this Agreement or any Order, for Boeing to
provide support to Seller (in the form of design, manufacturing, or
on-site personnel assistance) substantially in excess of that which
Boeing normally provides to its suppliers;
e. Seller's trustee in bankruptcy (or Seller as debtor in possession)
fails to assume this Agreement and all Orders by formal entry of
an order in the bankruptcy court within sixty (60) days after entry
of an order for relief in a bankruptcy case of the Seller, or
Boeing elects to retain its rights to Licensed Property under the
bankruptcy laws;
f. Seller is at any time insolvent (whether measured under a balance
sheet test or by the failure to pay debts as they come due) or the
subject of any insolvency or debt assignment proceeding under state
or nonbankruptcy law; or
g. Seller voluntarily becomes a debtor in any case under bankruptcy
law or, in the event an involuntary bankruptcy petition is filed
against Seller, such petition is not dismissed within (30) days.
As a part of the license granted under this Section 24.0, Seller shall,
at the written request of Boeing and at no additional cost to Boeing,
promptly deliver to Boeing any and all Licensed Property considered by
Boeing to be necessary to satisfy Boeing's requirements for Products
and their substitutes.
25.0 NOTICES
25.1 ADDRESSES
Notices and other communications shall be given in writing by personal
delivery, mail, telex, teletype, telegram, facsimile, cable or other
electronic transmission addressed to the respective party as set forth
in the SBP Section 9.0.
18
<PAGE>
25.2 EFFECTIVE DATE
The date on which any such communication is received by the addressee
is the effective date of such communication.
25.3 APPROVAL OR CONSENT
With respect to all matters subject to the approval or consent of
either party, such approval or consent shall be requested in writing and
is not effective until given in writing. With respect to Boeing,
authority to grant approval or consent is limited to Boeing's Materiel
Representative.
26.0 PUBLICITY
Seller will not, and will require that its subcontractors and suppliers
of any tier will not, (i) cause or permit to be released any publicity,
advertisement, news release, public announcement, or denial or
confirmation of the same, in whatever form, regarding any Order or
Products, or the program to which they may pertain, or (ii) use, or
cause or permit to be used, the Boeing name or any Boeing trademark in
any form of promotion or publicity without Boeing's prior written
approval.
27.0 PROPERTY INSURANCE
27.1 INSURANCE
When Boeing has an insurable interest, Seller shall obtain and maintain
continuously in effect a property insurance policy covering loss or
destruction of or damage to all property in which Boeing does or could
have an insurable interest pursuant to this Agreement, including but
not limited to Tooling, Boeing-furnished property, raw materials,
parts, work-in process, incomplete or completed assemblies and all other
products or parts thereof, and all drawings, specifications, data and
other materials relating to any of the foregoing in each case to the
extent in the possession or under the effective care, custody or
control of Seller, in the amount of full replacement value thereof
providing protection against all perils normally covered in an "all
risk" property insurance policy (including without limitation fire,
windstorm, explosion, riot, civil commotion, aircraft, earthquake,
flood or other acts of God). Any such policy shall be with insurers
reasonably acceptable to Boeing and shall (i) provide for payment of
loss thereunder to Boeing, as loss payee, as its interests may appear
and (ii) contain a waiver of any rights of subrogation against Boeing,
its subsidiaries, and their respective directors, officers, employees
and agents.
27.2 CERTIFICATE OF INSURANCE
Upon written request from Boeing, Seller shall provide to Boeing's
Materiel Representative certificates of insurance reflecting full
compliance with the requirements set forth in GTA Section 27.1. Such
certificates shall be kept current and in compliance throughout the
period of this Agreement and shall provide for thirty (30) days
advanced written notice to Boeing's Materiel Representative in the
event of cancellation, non-renewal or material change adversely
affecting the interests of Boeing.
27.3 NOTICE OF DAMAGE OR LOSS
Seller shall give prompt written notice to Boeing's Materiel
Representative of the occurrence of any damage or loss to any property
required to be insured herein. If any such property shall be damaged or
destroyed, in whole or in part, by an insured peril or otherwise, and
if no Event of Default shall have occurred and be continuing, then
Seller may, upon written notice to Boeing, settle, adjust, or compromise
any and all such loss or damage not in excess of Two Hundred Fifty
Thousand Dollars ($250,000) in any one occurrence and Five Hundred
Thousand Dollars ($500,000) in the aggregate. Seller may settle, adjust
or compromise any other claim by Seller only after Boeing has given
written approval, which approval shall not be unreasonably withheld.
19
<PAGE>
28.0 RESPONSIBILITY FOR PERFORMANCE
Seller shall be responsible for the requirements of this Agreement and
any Order referencing this Agreement. Seller shall bear all risks of
providing adequate facilities and equipment to perform each Order in
accordance with the terms thereof. Seller shall include as part of its
subcontracts those elements of the Agreement which protect Boeing's
rights including but not limited to right of entry provisions,
proprietary information and rights provisions and quality control
provisions. In addition, Seller shall provide to its subcontractors
sufficient information to clearly document that the work being
performed by Seller's subcontractor is to facilitate performance under
this Agreement or any Order. Sufficient information may include but is
not limited to Order number, GTA number and the name of Boeing's
Materiel Representative. No subcontracting by Seller shall relieve
Seller of its obligation under the applicable Order.
28.1 SUBCONTRACTING
Where required by the requirements of the Order, no raw material
and/or material process may be incorporated in a Product unless: (a)
Seller uses an approved source or (b) Boeing has surveyed and qualified
Seller's receiving inspection personnel and laboratories to test the
specified raw materials an/or material process. No waiver of survey and
qualification requirements will be effective unless granted by
Boeing's Engineering and Quality Control Departments. Utilization of a
Boeing-approved raw material source does not constitute a waiver of
Seller's responsibility to meet all specification requirements.
Seller shall maintain complete and accurate records regarding all
subcontracted items and/or processes. Seller's use of subcontractors
shall comply with Seller's quality assurance system approval for said
subcontractors.
28.2 RELIANCE
Boeing's entering into this Agreement is in part based upon Boeing's
reliance on Seller's ability, expertise and awareness of the intended
use of the Products. Seller agrees that Boeing and Boeing's customers
may rely on Seller as an expert, and Seller will not deny any
responsibility or obligation hereunder to Boeing or Boeing's customers
on the grounds that Boeing or Boeing's customers provided
recommendations or assistance in any phase of the work involved in
producing or supporting the Products, including but not limited to
Boeing's acceptance of specifications, test data or the Products.
28.3 ASSIGNMENT
Each Order shall inure to the benefit of and be binding on each of the
parties hereto and their respective successors and assigns, provided
however, that no assignment of any rights or delegation of any duties
under such Order is binding on Boeing unless Boeing's written consent
has first been obtained. Notwithstanding the above, Seller may assign
claims for monies due or to become due under any Order provided that
Boeing may recoup or setoff any amounts covered by any such assignment
against any indebtedness of Seller to Boeing, whether arising before or
after the date of the assignment or the date of this Agreement, and
whether arising out of any such Order or any other agreement between
the parties. Boeing may settle all claims arising out of any Order,
including termination claims, directly with Seller.
29.0 NON-WAIVER
Boeing's failure at any time to enforce any provision of an Order
does not constitute a waiver of such provision or prejudice Boeing's
right to enforce such provision at any subsequent time.
20
<PAGE>
30.0 HEADINGS
Section headings used in this Agreement are for convenient reference
only and do not affect the interpretation of the Agreement.
31.0 PARTIAL INVALIDITY
If any provision of any Order is or becomes void or unenforceable by
force or operation of law, the other provisions shall remain valid
and enforceable.
32.0 APPLICABLE LAW; JURISDICTION
Each Order, including all matters of construction, validity and
performance, shall in all respects be governed by, and construed
and enforced in accordance with, the law as set forth in SBP
Section 5.0.
33.0 AMENDMENT
Oral statements and understandings are not valid or binding. Except as
otherwise provided in GTA Section 10.0 and SBP Section 12.0, no Order
may be changed or modified except by a writing signed by Seller and
Boeing's Materiel Representative.
34.0 LIMITATION
Seller may not (except to provide an inventory of Products to support
delivery acceleration and to satisfy reasonable replacement and Spares
requirements) manufacture or fabricate Products or procure any goods in
advance of the reasonable flow time required to comply with the delivery
schedule in the applicable Order. Notwithstanding any other provision of
an Order, Seller is not entitled to any equitable adjustment or other
modification of such Order for any manufacture, fabrication, or
procurement of Products not in conformity with the requirements of the
Order, unless Boeing's written consent has first been obtained. Nothing
in this Section 34.0 shall be construed as relieving Seller of any of
its obligations under the Order.
35.0 TAXES
35.1 INCLUSION OF TAXES IN PRICE
All taxes, including but not limited to federal, state and local
income taxes, value added taxes, gross receipt taxes, property taxes,
and custom duties taxes are deemed to be included in the Order price,
except applicable sales or use taxes on sales to Boeing ("Sales
Taxes") for which Boeing has not supplied a valid exemption
certificate or unless otherwise indicated on the applicable Order.
35.2 LITIGATION
In the event that any taxing authority has claimed or does claim
payment for Sales Taxes, Seller shall promptly notify Boeing, and
Seller shall take such action as Boeing may direct to pay or
protest such taxes or to defend against such claim. The actual and
direct expenses, without the addition of profit and overhead, of
such defense and the amount of such taxes as ultimately determined as
due and payable shall be paid directly by Boeing or reimbursed to
Seller. If Seller or Boeing is successful in defending such claim,
the amount of such taxes recovered by Seller, which had previously
been paid by Seller and reimbursed by Boeing or paid directly by
Boeing, shall be immediately refunded to Boeing.
35.3 REBATES
If any taxes paid by Boeing are subject to rebate or reimbursement,
Seller shall take the necessary actions to secure such rebates or
reimbursement and shall promptly refund to Boeing any amount
recovered.
21
<PAGE>
36.0 FOREIGN PROCUREMENT OFFSET
With respect to work covered by the Order, Seller shall use its best
efforts to cooperate with Boeing in the fulfillment of any foreign
offset program obligation that Boeing may have accepted as a condition
of the sale of Boeing's products. In the event that Seller solicits
bids or proposals for, or procures or offers to procure any goods or
services relating to the work covered by an Order from any source
outside of the United States, Boeing shall be entitled, to the
exclusion of all others, to all industrial benefits and other "offset"
credits which may result from such solicitations, procurements or
offers to procure. Seller agrees to take any actions that may be
required on its part to assure that Boeing receives such credits.
37.0 ENTIRE AGREEMENT/ORDER OF PRECEDENCE
37.1 ENTIRE AGREEMENT
The Order sets forth the entire agreement, and supersedes any and all
other prior agreements understandings and communications between
Boeing and Seller related to the subject matter of an Order. The
rights and remedies afforded to Boeing or Customers pursuant to
any provisions of an Order are in addition to any other rights
and remedies afforded by any other provisions of this Order, by law
or otherwise.
37.2 INCORPORATED BY REFERENCE
In addition to the documents previously incorporated herein by
reference, the documents listed below are by this reference made a part
of this Agreement:
A. Engineering Drawing by Part Number and, if applicable, related
Outside Production Specification Plan (OPSP).
B. Any other exhibits or documents agreed to by the parties to be a
part of this Agreement.
37.3 ORDER OF PRECEDENCE
In the event of a conflict or inconsistency between any of the terms
of the following documents, the following order of precedence shall
control:
A. SBP (excluding the Administrative Agreement identified in E below)
B. This General Terms Agreement (excluding the documents identified in
D and F below)
C. Order (excluding the documents identified in A and B above)
D. Engineering Drawing by Part Number and, if applicable, related
Outside Production Specification Plan (OPSP).
E. Administrative Agreement (If Applicable)
F. Any other exhibits or documents the parties agree shall be part of
the Agreement.
22
<PAGE>
37.4 DISCLAIMER
Unless otherwise specified on the face of the applicable Order, any
CATIA Dataset or translation thereof (each or collectively "Data")
furnished by Boeing is furnished as an accommodation to Seller. It
is the Seller's responsibility to compare such Data to the comparable
two dimensional computer aided design drawing to confirm the accuracy
of the Data.
BOEING HEREBY DISCLAIMS, AND SELLER HEREBY WAIVES, ALL WARRANTIES AND
LIABILITIES OF BOEING AND ALL CLAIMS AND REMEDIES OF SELLER, EXPRESS
OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY DEFECT
IN ANY CATIA DATASET OR TRANSLATION THEREOF, INCLUDING, WITHOUT
LIMITATION, ANY (A) IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS
FOR USE OR FOR A PARTICULAR PURPOSE, (B) ANY IMPLIED WARRANTY
ARISING FROM COURSE OF DEALING OR PERFORMANCE OR USAGE OF TRADE, (C)
RECOVERY BASED UPON TORT, WHETHER OR NOT ARISING FROM BOEING'S
NEGLIGENCE, AND (D) ANY RECOVERY BASED UPON DAMAGED PROPERTY, OR
OTHERWISE BASED UPON DAMAGED PROPERTY, OR OTHERWISE BASED UPON LOSS OF
USE OR PROFIT OR OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES.
EXECUTED in duplicate as of the date and year first written above by the duly
authorized representatives of the parties.
THE BOEING COMPANY TRI-STAR ELECTRONICS
by and through its division
Boeing Commercial Airplane Group
Name: /s/ John Pregent Name: /s/ [illegible]
----------------------------- --------------------------
Title: Contracts Administrator Title: President
---------------------------- -------------------------
Date: 7-14-98 Date: 7-15-98
---------------------------- -------------------------
23
<PAGE>
SPECIAL BUSINESS PROVISIONS
between
THE BOEING COMPANY
and
TRI-STAR ELECTRONICS INTERNATIONAL, INC.
Number STD-6-5632-0097
i
<PAGE>
SPECIAL BUSINESS PROVISIONS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Item
- ------- ----
<C> <S>
1.0 DEFINITIONS
2.0 PURCHASE ORDER NOTE
3.0 PRICES
3.1 Product Pricing
3.2 Manufacturing Configuration Baseline
3.3 Packaging
4.0 GOVERNING QUALITY
ASSURANCE REQUIREMENT
5.0 APPLICABLE LAW/JURISDICTION
6.0 PRODUCT ASSURANCE
7.0 PAYMENT
7.1 Recurring Cost
7.2 Non-Recurring Cost
8.0 ACCEL/DECEL AT NO COST
9.0 NOTICES
9.1 Addresses
10.0 OBLIGATION TO PURCHASE AND SELL
11.0 COST Changes to the Statement of Work
12.2 Computation AND FINANCIAL PERFORMANCE VISIBILITY
12.0 CHANGES
12.1 of Equitable Adjustment
12.3 Obsolescense
12.4 Change Absorption
12.5 Planning Schedule
12.6 Value Engineering
12.7 Reduction in Quantity to be Delivered
13.0 SPARES AND OTHER PRICING
13.1 Spares
13.2 Short Flow Production Requirements
13.3 Tooling
ii
<PAGE>
<CAPTION>
Section Item
<C> <S>
13.4 Pricing of Boeing's Supporting Requirements
13.5 Pricing of Requirements for Modification or
Retrofit
13.6 Similar to Pricing
14.0 STATUS REPORTS/REVIEWS
15.0 FOREIGN PROCUREMENT REPORT
16.0 BOEING FURNISHED MATERIEL
17.0 ASSIGNMENT
18.0 Not Applicable
19.0 Not Applicable
19.1 Not Applicable
19.2 Not Applicable
19.3 Not Applicable
19.4 Not Applicable
20.0 Not Applicable
21.0 Not Applicable
22.0 Not Applicable
23.0 Not Applicable
24.0 Not Applicable
25.0 Not Applicable
26.0 Not Applicable
Attachment 1 Work Statement and Pricing
Attachment 2 Foreign Procurement Report
Attachment 3 Rates and Factors
Attachment 4 Boeing AOG Coverage
Attachment 5 Boeing AOG/Critical Shipping Notification
Attachment 6 Not Applicable
Attachment 7 Not Applicable
Attachment 8 Precious Metals Abnormal Escalation Charges
</TABLE>
iii
<PAGE>
AMENDMENTS
<TABLE>
<CAPTION>
AMEND
NUMBER DESCRIPTION DATE APPROVAL
<S> <C> <C> <C>
</TABLE>
iv
<PAGE>
SPECIAL BUSINESS PROVISIONS
THESE SPECIAL BUSINESS PROVISIONS are entered into as of July 1, 1998 by and
between Tri-Star Electronics, a Delaware corporation with its principal office
in El Segundo, California ("Seller"), and The Boeing Company, a Delaware
corporation with an office in Seattle, Washington, acting by and through its
division the Boeing Commercial Airplane Group ("Boeing").
RECITALS
A. Boeing and Seller entered into a General Terms Agreement GTA
BCA-6-5632-0032 dated July 1, 1998 (the "Agreement") which is
incorporated herein and made a part hereof by this reference, for the
sale by Seller and purchase by Boeing of Products.
B. Boeing and Seller desire to include these special business provisions
("SBP") relating to the sale by Seller and purchase by Boeing of
Products.
Now, therefore, in consideration of the mutual covenants set forth herein, the
parties agree as follows:
SPECIAL BUSINESS PROVISIONS
1.0 DEFINITIONS
The definitions used herein shall be the same as used in the Agreement.
2.0 PURCHASE ORDER NOTE
The following note shall be contained in any Order to which this SBP is
applicable:
This Order is subject to and incorporates by this reference SBP
STD-6-5632-0097 between The Boeing Company and Tri-Star Electronics
dated July 1, 1998.
Each Order bearing such note shall be governed by and be deemed to
include the provisions of this SBP.
3.0 PRICES
3.1 PRODUCT PRICING
The prices and applicable period of performance of Products scheduled
for delivery under this SBP are set forth in Attachment 1. Prices are
in United States dollars, F.O.B. (El Segundo, California).
1
<PAGE>
3.2 MANUFACTURING CONFIGURATION BASELINE
Unit pricing for each Product or part number shown in Attachment 1 is
based on the latest revisions of the engineering drawings or
specifications at the time of the signing of this SBP.
3.3 PACKAGING
The prices shown in Attachment 1 include packaging costs and all
materials and labor required to package Products identified in
Attachment 1. Packaging shall be furnished by the Seller in accordance
with Document M6-1025, Volume II, "Supplier Part Protection Guide" or
Document D200-10038-2 "Supplier Packaging Requirements" as applicable.
In the case of Products to be shipped directly to Customers, A.T.A.
Specification 300 "Specification for Packaging of Airline Supplies"
shall apply unless otherwise directed by Boeing.
4.0 GOVERNING QUALITY ASSURANCE REQUIREMENT
Pick the appropriate governing document for applicable procurement
package
All work performed under this SBP shall be in accordance with the
following applicable documents which are incorporated herein and made a
part hereof by this reference:
Document D1-9000 Rev A., "Advanced Quality System", Basic Quality System
as amended from time to time.
5.0 APPLICABLE LAW JURISDICTION
Each Order, including all matters of construction, validity and
performance, shall in all respects be governed by, and construed and
enforced in accordance only with the law of the State of Washington as
applicable to contracts entered into and to be performed wholly within
such STATE between citizens of such STATE, without reference to any
rules governing conflicts of law. Seller hereby irrevocably consents to
and submits itself exclusively to the jurisdiction of the applicable
courts of the STATE and the federal courts therein for the purpose of
any suit, action or other judicial proceeding arising out of or
connected with any Order or the performance or subject matter thereof.
Seller hereby waives and agrees not to assert by way of motion, as a
defense, or otherwise, in any such suit, action or proceeding, any claim
that (a) Seller is not personally subject to the jurisdiction of the
above-named courts, (b) the suit, action or proceeding is brought in an
inconvenient forum or (c) the venue of the suit, action or proceeding is
improper.
6.0 PRODUCT ASSURANCE
6.1 GOVERNING DOCUMENT
Seller acknowledges that Boeing and Customers must be able to rely on
each Product performing as specified and that Seller will provide all
required support. Accordingly, the following provisions and document(s)
are incorporated herein and made a part hereof:
Seller warrants to Boeing and Customers that Products shall: (a) conform
in all respects to all the requirements of the Order; (b) be free from
all defects in materials and workmanship; and (c) to the extent not
manufactured pursuant to detailed designs furnished by Boeing, be free
from all defects in design and be fit for the intended purposes.
2
<PAGE>
7.0 PAYMENT
7.1 RECURRING PRICE
Unless otherwise provided in the applicable Order, payment of the
recurring price shall be made in accordance with Form X-27981 "Pay From
Receipt - Additional Terms and Conditions Regarding Invoicing and
Payment". Payment terms shall be net thirty (30) days except as
otherwise agreed to by the parties. All payments are subject to
adjustment for shortages, credits and rejections.
7.2 NON-RECURRING PRICE/SPECIAL CHARGES
Unless otherwise provided in the applicable Order, any non-recurring
price payable by Boeing under Attachment 1 shall be paid within the term
discount period or thirty (30) calendar days (whichever is later) after
receipt by Boeing of both acceptable Products and a correct invoice.
8.0 ACCELERATION/DECELERATION AT NO COST
Notwithstanding GTA Section 10.0, Boeing may make changes in the
delivery schedule without additional cost or change to the unit price
stated in the applicable Order if (a) the delivery date of the Product
under such Order is on or before the last date of contract, if
applicable, and (b) Boeing provides Seller with written notice of such
changes.
9.0 NOTICES
9.1 ADDRESSES
Notices and other communications shall be given in writing by personal
delivery, United States mail, express delivery, telegram, facsimile, or
electronic transmission addressed to the respective party as follows:
To Boeing: Attention: Buyer: John Pregent M/S 38-FW
BOEING COMMERCIAL AIRPLANE GROUP
MATERIEL DIVISION
P.O. Box 3707
Seattle, Washington 98124-2207
To Seller: Attention: Ken Thomas
Tri-Star Electronics Int'l Inc.
2201 Rosecrans Avenue
El Segundo, CA 90245
3
<PAGE>
10.0 OBLIGATION TO PURCHASE AND SELL
Boeing and Seller agree that in consideration of the prices set forth
under Attachment 1, Boeing shall issue Orders for Products from time to
time to Seller for Boeing's requirements. Such Products shall be
shipped at any scheduled rate of delivery, as determined by Boeing, and
Seller shall sell to Boeing Boeing's requirements of such Products,
provided that, without limitation on Boeing's right to determine its
requirements, Boeing shall not be obligated to issue any Orders for any
given Product if:
A. Any of Boeing's customers specify an alternate product;
B. Such Product is, in Boeing's reasonable judgment, not
technologically competitive at any time, for reasons including but
not limited to the availability of significant changes in
technology, design, materials, specifications, or manufacturing
processes which result in a reduced price or weight or improved
appearance, functionality, maintainability or reliability;
C. Boeing gives reasonable notice to Seller of a change in any of
Boeing's aircraft which will result in Boeing no longer requiring
such Product for such aircraft;
D. Seller has materially defaulted in any of its obligations under any
Order, whether or not Boeing has issued a notice of default to
Seller pursuant to GTA Section 13.0; or,
E. Boeing reasonably determines that Seller cannot support Boeing's
requirements for Products in the amounts and within the delivery
schedules Boeing requires.
11.0 COST AND FINANCIAL PERFORMANCE VISIBILITY
11.1 COST AND PERFORMANCE VISIBILITY AND REVIEWS
When requested by Boeing, Seller shall provide all necessary cost
support data, source documents for direct and indirect costs, and
assistance at the Seller's facility in support of cost and performance
reviews performed by the parties pursuant to any Order or cost
improvement program.
11.2 FINANCIAL PERFORMANCE VISIBILITY
Seller shall provide financial data, on a quarterly basis, or as
requested, to Boeing's Credit Office for credit and financial condition
reviews. Said data shall include but not be limited to balance sheets,
schedule of accounts payable and receivable, major lines of credit,
creditors, income statements (profit and loss), cash flow statements,
firm backlog, and head counts. Copies of such data are to be made
available within 72 hours of any written request by Boeing. This data
is required in addition to the cost data provided pursuant to GTA
Section 9.0. All such information shall be treated as confidential in
accordance with GTA Section 20.0.
12.0 CHANGES
12.1 CHANGES TO THE STATEMENT OF WORK
Boeing may direct Seller within the scope of the applicable Order and in
accordance with the provisions of GTA Section 10.0, to increase or
decrease the work to be performed by the Seller in the manufacture of
any Product.
12.2 COMPUTATION OF EQUITABLE ADJUSTMENT Not Applicable
4
<PAGE>
12.3 OBSOLESCENCE
Claims for obsolete or surplus material and work-in-process created by
change orders issued pursuant to this Section shall be subject to the
procedures set forth in GTA Section 12.0, except that Seller may not
submit a claim for obsolete or surplus material resulting from an
individual change order that has a total claim value of twenty-five
hundred Dollars ($2,500.00) or less. Payment for obsolete or surplus
materials shall be made by check deposited as first class mail to the
address designated by Seller in SBP Section 9.1. Payment will be made
on the tenth (10th) day of the month following the month of the
obsolescence claim settlement.
12.4 CHANGE ABSORPTION Not Applicable
12.5 PLANNING SCHEDULE
Any planning schedule or quantity estimate provided by Boeing shall be
used solely for production planning. Boeing may purchase Products in
different quantities and specify different delivery dates as necessary
to meet Boeing's requirements. Such planning schedule and quantity
estimate shall be subject to adjustment from time to time. Any such
adjustment is not a change under GTA Section 10.0.
12.6 VALUE ENGINEERING, WEIGHT REDUCTION, LEAN MANUFACTURING AND RAW MATERIAL
COST IMPROVEMENT
12.6.1 VALUE ENGINEERING
Seller may from time to time submit proposals to Boeing to change
drawings, designs, specifications or other requirements that:
a. decrease Seller's performance costs; or
b. produce a net reduction in the cost to Boeing of installation,
operation, maintenance or production of the Product.
Provided, that such change shall not impair any essential functions or
characteristics of the Products or Tooling.
12.6.1.1 SUBMISSION OF PROPOSAL
Proposals shall be submitted to Boeing's Materiel Representative.
Boeing shall not be liable for any delay in acting upon a proposal.
Boeing's decision to accept or reject any proposal shall be final.
If there is a delay and the net result in savings no longer
justifies the investment, Seller will not be obligated to proceed
with the change. Seller has the right to withdraw, in whole or in
part, any proposal not accepted by Boeing within the time period
specified in the proposal. Seller shall submit, as a minimum, the
following information with the proposal:
a. description of the difference between the existing
requirement and the proposed change, and the comparative advantages
and disadvantages of each;
b. the specific requirements which must be changed if the
proposal is adopted;
c. the cost savings and Seller's implementation costs;
d. Each proposal shall include the need dates for engineering
release and the time by which a proposal must be approved so as
to obtain the maximum cost reduction.
5
<PAGE>
12.6.1.2 ACCEPTANCE AND COST SHARING
Boeing may accept, in whole or in part, any proposal by issuing a
change order. Until such change has been issued, Seller shall
remain obligated to perform in accordance with the terms and
requirements of the original Order as written. Boeing and Seller
shall share the savings as follows:
(50%) savings to Boeing;
(50%) savings to Seller.
Seller shall include with each proposal verifiable cost records and
other data as required by Boeing for proposal review and analysis.
Each party shall be responsible for its own implementation costs,
including but not limited to non-recurring costs.
12.6.1.3 COST SAVINGS COMPUTATION
A change order shall be issued by Boeing and the unit price shall be
reduced in an amount equal to the savings portion attributable to
Boeing as set forth above. The applicable unit price as set forth
in Attachment 1 Statement of Work shall be amended to reflect such
change.
<TABLE>
<CAPTION>
EXAMPLE:
--------
<S> <C>
Current Price: $600.00
Proposed Cost Savings: $100.00/unit
Boeing's Percentage: 50.0%
Seller's Percentage: 50.0%
</TABLE>
STEP BY STEP COMPUTATION:
1. $100.00 unit savings x 50.0% Boeing's percentage of savings =
$50.00 Boeing savings.
2. $100.00 unit savings x 50.0% Seller's percentage of savings =
$50.00 Seller savings.
3. Net affect to the unit cost = $50.00
New Unit Price For Units - $550.00
12.6.2 WEIGHT REDUCTION PROPOSALS
Seller is encouraged to submit proposals to Boeing that reduce the
Product's weight without impairing any essential functions or
characteristics of the Product.
Seller shall submit such proposals in accordance with SBP Section 12.6.1
above. The amount of any costs or savings that result from a weight
reduction proposal shall be agreed by Boeing and Seller. Seller shall
include with each proposal verifiable cost records and other data as
required by Boeing for proposal review and analysis.
Boeing may accept in whole or in part, any such proposal by issuing a
change order to the applicable Order.
12.6.3 LEAN MANUFACTURING/PROCESS IMPROVEMENT
Boeing and Seller agree to work together to identify areas of
improvement which affect the manufacturing and assembly process at
Seller's facility and/or Seller's subcontractor's
6
<PAGE>
facilities. Manufacturing and assembly processes include but are not
limited to inventory turn rates, leadtime reductions, contracting
strategies, setup reductions and lot size reductions. Boeing and
Seller agree to use the following metrics to evaluate improvement:
i) Inventory Turns, defined as Annual Costs of Goods Sold/Inventory
Value; ii) Productivity, defined as Annual Sales/Average Employee
Count; and, iii) Asset Turnover, defined as Annual Sales/Total Assets.
Additional metrics may be added and evaluated as agreed to by the
parties. Where Boeing and Seller can identify areas of improvement,
beyond those previously anticipated, identified and documented in
the contract price, the parties will determine the amount of savings
which will result from the improvements and share the savings as set
forth in 12.6.1.2 above. Where a savings is identified and documented,
the parties agree to reduce the Product unit price by that amount
apportioned to Boeing as identified above.
12.6.4 RAW MATERIAL COST IMPROVEMENT
In the event Boeing implements a program to address raw material
issues affecting the subcontractor base, Seller agrees to support
Boeing by identifying areas of improvement involving raw materials.
When requested by Boeing, Seller shall identify usage, leadtime,
contractual impediments or any other factor which may affect
Boeing's ability to implement raw material program improvements.
Boeing's program to improve leadtime and price for raw material is
intended to support all divisions, subsidiaries and affiliates
of The Boeing Company.
Where savings are identified and documented, the parties agree to
reduce the Product's unit price by the corresponding reduction in
raw material price plus the applicable reduction in the corresponding
mark-ups. These reductions shall be incorporated on the first delivery
of applicable Product(s) which incorporate the revised pricing for raw
material or as otherwise agreed to by the parties in writing.
The implementation of these programs by Boeing and Seller's
participation in these programs shall not impair, prejudice or relieve
Seller of its obligations under any applicable Order.
12.7 REDUCTION IN QUANTITY TO BE DELIVERED Not Applicable
13.0 SPARES AND OTHER PRICING
13.1 SPARES
For purposes of this Section, the following definitions shall apply:
A. AIRCRAFT ON GROUND (AOG) - means the highest Spares priority.
Seller will expend best efforts to provide the earliest possible
delivery of any Spare designated AOG by Boeing. Such effort
includes but is not limited to working twenty-four (24) hours a
day, seven days a week and use of premium transportation. Seller
shall specify the delivery date and time of any such AOG Spare
within two (2) hours of receipt of an AOG Spare request.
B. CRITICAL - means an imminent AOG work stoppage. Seller will expend
best efforts to provide the earliest possible delivery of any
Spare designated Critical by Boeing. Such effort includes but is
not limited to working two (2) shifts a day, five (5) days a week
and use of premium transportation. Seller shall specify the
delivery date and time of any such Critical Spare within the same
working day of receipt of a Critical Spare request.
7
<PAGE>
C. EXPEDITE (CLASS I) - means a Spare required in less than Seller's
normal leadtime. Seller will expend best efforts to meet the
requested delivery date. Such effort includes but is not limited
to working overtime and use of premium transportation.
D. ROUTINE (CLASS III) - means a Spare required in Seller's normal
leadtime.
E. POA REQUIREMENT (POA) - means any detail component needed to
replace a component on an End Item Assembly currently in Boeing's
assembly line process. Seller shall expend best efforts feasible
to provide the earliest possible delivery of any Spare designated
as POA by Boeing. Such effort includes but is not limited to
working twenty-four (24) hours a day, seven days a week and use
of premium transportation. Seller shall specify the delivery date
and time of any such POA within two (2) hours of an AOG Spare
request.
F. IN-PRODUCTION - means any Spare with a designation of AOG,
Critical, Expedite, Routine, POA or End Item Assembly which is in
the current engineering configuration for the Product and is used
on a model aircraft currently being manufactured by Boeing.
G. NON-PRODUCTION REQUIREMENTS - means any Spare with a designation
of AOG, Critical, Expedite and Routine requirements which is used
on model aircraft no longer being manufactured by Boeing (Post
Production) or is in a non-current engineering configuration for
the Product (Out of Production).
H. BOEING PROPRIETARY SPARE - means any Spare which is manufactured
(i) by Boeing, or (ii) to Boeing's detailed designs with Boeing's
authorization or (iii) in whole or in p art using Boeing's
Proprietary Materials.
13.1.1 SPARES SUPPORT
Seller shall provide Boeing with a written Spares support process
describing Seller's plan for supporting AOG and Critical commitments
and manufacturing support. The process must provide Boeing with the
name and number of a twenty-four (24) hour contact for coordination
of AOG and Critical requirements. Such contact shall be equivalent to
the coverage provided by Boeing to its Customers as outlined in
Attachment 4 "Boeing AOG Coverage" which is incorporated herein and
made a part hereof by this reference.
Seller shall notify Boeing as soon as possible via fax, telecon, or
as otherwise agreed to by the parties of each AOG and Critical
requirement shipment using the form identified in Attachment 5
"Boeing AOG and Critical Shipping Notification". Such notification
shall include time and date shipped, quantity shipped, Order, pack
slip, method of transportation and air bill if applicable. Seller
shall also notify Boeing immediately upon the discovery of any delays
in shipment of any requirement and identify the earliest revised
shipment possible.
13.1.2 RECLASSIFICATION OR RE-EXERCISES
Boeing may on occasion, instruct Seller to re-prioritize or
reclassify an existing requirement in order to improve or otherwise
change the established shipping schedule. Seller shall expend the
effort required to meet the revised requirement as set forth above in
the definitions of the requirements. Seller's commitment of a
delivery schedule shall be given in accordance with that set forth
above for the applicable classification but in no case shall it
exceed twenty-four (24) hours from notification by Boeing.
8
<PAGE>
SPECIAL BUSINESS PROVISIONS
13.1.3 SPARE PRICING
Except as set forth in subsections 13.1.3.1 and 13.1.3.2 below, the
price for {{Boeing Proprietary}} Spare(s) shall be the same as the
production price for the Products as listed on Attachment 1, in
effect at the time the Spare(s) are ordered. Detail parts shall be
priced so that the sum of the prices for all detail parts of an End
Item Assembly equals the applicable recurring portion of the End
Item Assembly.
13.1.4 SPECIAL HANDLING
The price for all effort associated with the handling and delivery
of Spare(s) is deemed to be included in the price for such Spare(s).
Provided, that if Boeing directs delivery of Spares to an F.O.B.
point other than Seller's plant, Boeing shall reimburse Seller for
shipping charges, including insurance, paid by Seller from the plant
to the designated F.O.B. point. Such charges shall be shown
separately on all invoices.
13.2 SHORT FLOW PRODUCTION REQUIREMENTS
Boeing shall pay no expedite charges for production requirements
released less than Seller's current Re-Order Leadtime (ROLT). Seller
agrees to support Boeing's short flow requirements with its best
effort.
13.3 TOOLING
13.3.1 RESPONSIBLE PARTY
Seller shall absorb all costs for Tooling manufactured and/or
purchased by Seller necessary for the manufacture and delivery of
the Products including but not limited to rework, repair and
maintenance of the Tooling.
13.3.2 BOEING FURNISHED TOOLING
In the event Boeing furnishes Tooling to Seller, Seller shall comply
with the Terms and Conditions applicable to the Blanket Tooling
Purchase Control Order. No repair, replacement or rework of such
Tooling shall be performed without Boeing's prior written consent.
Boeing shall notify Seller of any action required for discrepant
Tooling.
13.4 PRICING OF BOEING'S SUPPORTING REQUIREMENTS
Any Products required to assist Boeing's supporting requirements,
including but not limited to requirements for color and appearance
samples, Boeing-owned simulators, test requirements, factory
support, flight test spares will be provided for not more than the
applicable price as set forth in Attachment 1.
13.5 PRICING OF REQUIREMENTS FOR MODIFICATION OR RETROFIT
Any Products required by Boeing to support a modification or
retrofit program shall be provided for not more than the applicable
price as set forth in Attachment 1.
13.6 SIMILAR PRICING
New Products ordered by Boeing that are similar to or within Product
families of Products currently being manufactured by Seller shall be
priced using the same methodology or basis as that used to price the
existing Product(s).
14.0 STATUS REPORTS/REVIEWS
When requested by Boeing, Seller shall update and submit, as a
minimum, monthly status reports on data requested by Boeing using a
method mutually agreed upon by Boeing and Seller.
9
<PAGE>
When requested by Boeing, Seller shall provide to Boeing a
manufacturing milestone chart identifying the major purchasing,
planning and manufacturing operations for the applicable Product(s).
Upon request by Boeing, program review(s) may be held between the
parties. The location of such review shall be mutually agreed to by
the parties. The purpose of the review is to improve communication
and understanding between the parties to ensure program success.
15.0 MARKET ACCESS/INTERNATIONAL COOPERATION/BUSINESS STRATEGIES FOREIGN
PROCUREMENT REPORT
Seller agrees to work with Boeing to develop a contracting strategy
which supports Boeing's Market Access and International Business
Strategy. Boeing and Seller agree to work together to identify
suppliers and countries where Seller may subcontract in support of
Boeing's Market Access and International Business Strategy. Prior to
releasing any request for proposal to a subcontract or to support
Boeing's offset or business strategy, Seller shall coordinate with
Boeing.
Seller shall document on Attachment 2 all offers to contract and
executed contracts with such subcontractors including the dollars
contracted. Seller shall provide to Boeing with an updated copy of
Attachment 2 for the six-month periods ending June 30 and December
31 of each year. The reports shall be submitted on the 1st of August
and the 1st of February respectively.
16.0 BOEING FURNISHED MATERIAL Not Applicable
17.0 ASSIGNMENT AND THIRD PARTY PRICING
17.1 ASSIGNMENT
Boeing and Seller agree that Boeing may, in its discretion, assign,
in part or in whole, its purchasing obligations under the Agreement
or any Order, as applicable, at the prices set forth in Attachment 1
thereof. Boeing reserves the right to rescind its assignment at
anytime.
Boeing's assignment of purchasing obligation includes scheduling,
issuance of Order(s), receival and inspection of Products,
acceptance or rejection of Products, payment for accepted Products,
and ensuring conformance to the quality assurance system
requirements.
Boeing shall retain all other rights and obligations pursuant to the
applicable terms and conditions. In addition, Boeing reserves the
right, where necessary, to coordinate with and mediate between
Seller and any assignee regarding such assignment.
In the event Boeing assigns its purchasing obligations pursuant to
17.0, Boeing shall remain liable if the assignee fails to make
payments under the terms of this Agreement.
17.2 THIRD PARTY PRICING
SELLER agrees to sell products defined in Attachment 1, "PRICING and
LEADTIME", to a third party or parties which may be designated by
the BUYER within the duration of this contract at the same pricing
afforded to Boeing when said requirements are in support of Boeing
purchase orders, i.e., for work the third party is performing under
Boeing purchase orders. The terms and conditions governing the sale
between Seller and the third party shall be agreed to between the
Seller and the third party.
10
<PAGE>
18.0 INVENTORY AT CONTRACT COMPLETION Not Applicable
19.0 OWNERSHIP OF INTELLECTUAL PROPERTY Not Applicable
19.1 TECHNICAL WORK PRODUCT Not Applicable
19.2 INVENTIONS AND PATENTS Not Applicable
19.3 WORKS OF AUTHORSHIP AND COPYRIGHTS Not Applicable
19.4 PRE-EXISTING INVENTIONS AND WORKS OF AUTHORSHIP Not Applicable
20.0 ADMINISTRATIVE AGREEMENTS Not Applicable
21.0 GUARANTEED WEIGHT REQUIREMENTS Not Applicable
22.0 SUPPLIER DATA REQUIREMENTS Not Applicable
23.0 DEFERRED PAYMENT Not Applicable
24.0 SOFTWARE PROPRIETARY INFORMATION RIGHTS Not Applicable
25.0 CONFIGURATION CONTROL OF SCD PRODUCTS Not Applicable
26.0 INFRINGEMENT Not Applicable
EXECUTED in duplicate as of the date and year first set forth above by the
duly authorized representatives of the parties.
THE BOEING COMPANY TRI-STAR INT'L INC.
By and Through its Division 2201 Rosecrans Ave.
Boeing Commercial Airplane Group El Segundo, California 90245
Name: /s/ John Pregent Name: /s/ [illegible]
---------------------------- ----------------------------
Title: Contracts Administrator Title: President
--------------------------- ---------------------------
Date: 7-14-98 Date: 7-15-98
---------------------------- ----------------------------
11
<PAGE>
ATTACHMENT 1 TO
SPECIAL BUSINESS PROVISIONS
WORK STATEMENT AND PRICING
The price for products to be delivered through June 30, 2003 shall be as
follows:
<TABLE>
<CAPTION>
Part Number/Family Lead Time Description Price
- ----------------------- --------- ----------- -------
<S> <C> <C> <C>
001-9007-001 8 Weeks Contact $0.8200
118-2020-074 8 Weeks Contact $0.1638
31A2016-035 10 Weeks Contact $0.7200
316-1616-634 14 Weeks Contact $0.3800
316-1620-634 14 Weeks Contact $0.3840
316-2020-192 8 Weeks Contact $0.2250
316-2222-634 8 Weeks Contact $0.0895
318-1616-253 (590290-7) 12 Weeks Contact $0.5950
318-2016-035 12 Weeks Contact $0.5007
318-2020-252 14 Weeks Contact $0.4320
5000-070-0116 Contact buy sub part M39029-9-516
5000-070-0216 Contact buy sub part M39029-9-517
5100-108-0216 Contact buy sub part M39029-10-522
5000-179-16-1 Contact buy sub part 318-1616-253
BACC47CN1A 8 Weeks Contact $0.1950
BACC47CN1S 8 Weeks Contact $0.0960
BACC47CN3 8 Weeks Contact $0.2765
BACC47CP1S 8 Weeks Contact $0.1152
BACC47CP2T 8 Weeks Contact $0.2592
BACC47CP3T 8 Weeks Contact $0.3802
BACC47DE1A 12 Weeks Contact $0.1571
BACC47DE3A 14 Weeks Contact $0.5850
BACC47DE4A 8 Weeks Contact $0.1536
BACC47DE5A 10 Weeks Contact $0.1537
BACC47DE6A 10 Weeks Contact $0.1399
BACC47DE7A 8 Weeks Contact $0.1382
BACC47DE8A 8 Weeks Contact $0.1476
BACC47DJ1 8 Weeks Contact $0.2280
BACC47DJ2 10 Weeks Contact $0.3024
BACC47DP1 10 Weeks Contact $0.3024
BACC47DP2 14 Weeks Contact $0.5760
BACC47DP3 12 Weeks Contact $2.1600
BACC47DP4 14 Weeks Contact $2.4000
BACC47DP5 14 Weeks Contact $2.5900
BACC47DR1 10 Weeks Contact $0.3888
BACC47DR2 14 Weeks Contact $1.8000
</TABLE>
1
<PAGE>
ATTACHMENT 1 TO
SPECIAL BUSINESS PROVISIONS
WORK STATEMENT AND PRICING
The price for products to be delivered through June 30, 2003 shall be as
follows:
<TABLE>
<CAPTION>
Part Number/Family Lead Time Description Price
- ----------------------- --------- ----------- -------
<S> <C> <C> <C>
BACC47DR3 12 Weeks Contact $2.1600
BACC47DR4 14 Weeks Contact $3.3600
BACC47DR5 14 Weeks Contact $3.8400
BACC47EF1 8 Weeks Contact $0.0778
BACC47EF2 8 Weeks Contact $0.1210
BACC47EF4 14 Weeks Contact $0.7200
BACC47EG1 8 Weeks Contact $0.2112
BACC47EG2 8 Weeks Contact $0.1900
BACC47EG4 12 Weeks Contact $1.1250
BACC47ER1 8 Weeks Contact $0.2851
M39029-1-100 8 Weeks Contact $0.1296
M39029-1-101 8 Weeks Contact $0.0864
M39029-1-102 8 Weeks Contact $0.1296
M39029-1-103 14 Weeks Contact $0.2610
M39029-10-139 12 Weeks Contact $8.0000
M39029-10-141 12 Weeks Contact $5.0000
M39029-10-520 12 Weeks Contact $8.0000
M39029-10-521 12 Weeks Contact $5.4000
M39029-10-522 12 Weeks Contact $6.0000
M39029-11-145 8 Weeks Contact $0.0821
M39029-22-191 8 Weeks Contact $0.1620
M39029-22-192 8 Weeks Contact $0.1710
M39029-29-212 8 Weeks Contact $0.3800
M39029-29-214 12 Weeks Contact $3.0400
M39029-30-217 14 Weeks Contact $0.2400
M39029-30-219 14 Weeks Contact $0.4000
M39029-30-220 14 Weeks Contact $1.2900
M39029-32-248 10 Weeks Contact $0.2400
M39029-4-110 8 Weeks Contact $0.0672
M39029-4-111 14 Weeks Contact $0.0768
M39029-4-113 12 Weeks Contact $0.1920
M39029-5-115 8 Weeks Contact $0.0900
M39029-5-116 14 Weeks Contact $0.1056
M39029-5-118 12 Weeks Contact $0.2400
M39029-56-348 8 Weeks Contact $0.0864
M39029-56-351 8 Weeks Contact $0.1248
</TABLE>
2
<PAGE>
ATTACHMENT 1 TO
SPECIAL BUSINESS PROVISIONS
WORK STATEMENT AND PRICING
The price for products to be delivered through June 30, 2003 shall be as
follows:
<TABLE>
<CAPTION>
Part Number/Family Lead Time Description Price
- ----------------------- --------- ----------- -------
<S> <C> <C> <C>
M39029-56-352 12 Weeks Contact $0.4100
M39029-57-354 8 Weeks Contact $0.0864
M39029-57-355 14 Weeks Contact $0.3615
M39029-57-356 14 Weeks Contact $0.2400
M39029-57-357 8 Weeks Contact $0.1152
M39029-57-358 8 Weeks Contact $0.2430
M39029-58-360 8 Weeks Contact $0.0540
M39029-58-362 14 Weeks Contact $0.0960
M39029-58-363 8 Weeks Contact $0.0672
M39029-58-364 8 Weeks Contact $0.1260
M39029-63-368 8 Weeks Contact $0.0864
M39029-64-369 8 Weeks Contact $0.0691
M39029-85-455 12 Weeks Contact $5.8500
M39029-85-456 12 Weeks Contact $4.8000
M39029-9-515 12 Weeks Contact $8.0000
M39029-9-516 12 Weeks Contact $5.7500
M39029-9-517 12 Weeks Contact $7.0500
M39029-92-531 Contact buy sub part 316-2222-634
M39029-92-535 14 Weeks Contact $0.8200
S280W552-107 10 Weeks Contact $1.5000
S280W552-109 10 Weeks Contact $0.9000
S280W552-205 14 Weeks Contact $7.5700
S280W555-916 8 Weeks Contact $0.1890
S280W555-918 12 Weeks Contact $0.6030
S280W555-920 8 Weeks Contact $0.0963
</TABLE>
3
<PAGE>
ATTACHMENT 2 TO
SPECIAL BUSINESS PROVISIONS
FOREIGN PROCUREMENT REPORT FORM
(Seller to Submit)
(Reference Section 15.0)
<TABLE>
<CAPTION>
COMMODITY/ BID CONTRACTED
SUPPLIER NAME COUNTRY NOMENCLATURE DOLLARS DOLLARS
- ------------- ------- ------------ ------- ----------
<S> <C> <C> <C> <C>
</TABLE>
21
<PAGE>
ATTACHMENT 3 TO
SPECIAL BUSINESS PROVISIONS
RATES AND FACTORS
The following Rates and Factors shall be used on all price change negotiations
during the period of performance of these SBP
VARIABLE DATA REQUIRED
DEPENDING UPON ORGANIZATION
<TABLE>
<S> <C>
Direct Labor Rate $
Manufacturing Burden %
G&A (Gen. Admin. Expense) %
Profit %
---
Total Rate
</TABLE>
22
<PAGE>
ATTACHMENT 4 TO
SPECIAL BUSINESS PROVISIONS
BOEING AOG COVERAGE
- - NORMAL HOURS BOEING'S MATERIEL REPRESENTATIVE (MATERIEL DIVISION)
Approximately 5:30 a.m. - 6:00 p.m.
- Performs all functions of procurement process.
- Manages formal communication with Seller.
- - SECOND SHIFT - AOG PROCUREMENT SUPPORT (MATERIEL DIVISION)
3:00 p.m. - 11:00 p.m.
- May place order and assist with commitment and shipping information,
working with several suppliers on a priority basis.
- Provides a communication link between Seller and Boeing.
- - 24 HOUR AOG SERVICE - AOG CUSTOMER REPRESENTATIVE (CUSTOMER SERVICE
DIVISION) 544-9000
- Support commitment information particularly with urgent orders.
- Customer Service Representative needs (if available):
- Part Number
- Boeing Purchase Order
- Airline Customer & customer purchase order number
- Boeing S.I.S. #
If Seller is unable to contact any of the above, please provide AOG/Critical
shipping information notification via FAX using Boeing AOG/Critical shipping
notification form (Attachment 5).
23
<PAGE>
ATTACHMENT 5 TO
SPECIAL BUSINESS PROVISIONS
BOEING
AOG/CRITICAL
SHIPPING NOTIFICATION
- --------------------------------------------------------------------------------
To: FAX: (206) 544-9261 or 544-9262 Phone: (206) 544-9296
---------------------------- ----------------------------
Buyer Name: Phone:
---------------------------- ----------------------------
From: Today's Date:
---------------------------- ---------------------
- --------------------------------------------------------------------------------
Part Number: Customer PO:
---------------------------- ----------------------
Customer: Ship Date:
---------------------------- ------------------------
Qty Shipped: *SIS Number:
---------------------------- ----------------------
Boeing PO: Pack Sheet
---------------------------- or Invoice:
-----------------------
*Airway Bill:
--------------------------- *Flight #:
------------------------
Carrier:
----------------------------
Freight
Forwarder:
----------------------------
* If Applicable
Shipped To: (Check One) Boeing
--------
Direct Ship
to Customer
--------
Direct Ship
to Supplier
--------
Remarks:
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
IF UNABLE TO CONTACT BUYER,
PLEASE USE THIS FORM TO FAX SHIPPING INFORMATION.
24
<PAGE>
ATTACHMENT 6 TO
SPECIAL BUSINESS PROVISIONS
SUPPLIER DATA REQUIREMENTS LIST ("SDRL")
CUSTOMER SUPPORT
(Reference Section 22.0)
25
<PAGE>
ATTACHMENT 7 TO
SPECIAL BUSINESS PROVISIONS
SUPPLIER DATA REQUIREMENTS LIST ("SDRL")
ENGINEERING
(Reference Section 22.0)
26
<PAGE>
ATTACHMENT 8 TO
SPECIAL BUSINESS PROVISIONS
PRECIOUS METALS ABNORMAL ESCALATION CHARGES
Abnormal escalation adjustment clauses for precious metals used in the
manufacture of Seller's products shall be in effect for this contract. The
purpose of such clauses is to protect Supplier and Buyer from extreme price
fluctuations in the precious metals used to plate electrical contacts. As
such, the following clauses shall be in effect during the period of this
contract for determining price adjustments, which shall occur quarterly, for
such extreme fluctuations.
RHODIUM
The following concept will be used for calculating abnormal escalation
adjustments for the rhodium plated electrical contacts. The amount of rhodium
in each contact is as follows:
<TABLE>
<CAPTION>
Part Number Rhodium Content (grams)
---------------------------------------------
<S> <C>
BACC47CN3 .00314000
BACC47CN3B .00314000
BACC47CP2T .00246688
BACC47CP2TB .00246688
BACC47CP3T .00373080
</TABLE>
The base price of rhodium shall be $20.81 per gram with a ceiling price of
$35/gram and a floor price of $6.62. Adjustments will be made when the price
of rhodium extends beyond the ceiling or floor and will be adjusted from the
base price. The following formula shall be used for price adjustments:
(Monthly weighted average rhodium price - base rhodium price) x rhodium
content (grams) x quantity of electrical contacts delivered in the
referenced quarter.
A resulting positive number indicates that Boeing owes Tri-Star, while a
resulting negative number indicates that Tri-Star owes Boeing.
As soon as practical after each quarter delivery date (March 31, June 30,
September 30, December 31), Supplier will send to Buyer an assertion for the
rhodium adjustment for that quarter. Documentation provided to Buyer shall
include:
- Part number
- Quantity of parts
- Price adjustments for that part number
- All invoices for rhodium purchased in the delivery month
- Rhodium cost used in the adjustment formula
As soon as the data can be verified, Buyer will issue a non-receivable
purchase order for the cost adjustment.
1
<PAGE>
ATTACHMENT 8 TO
SPECIAL BUSINESS PROVISIONS
EXAMPLES:
RHODIUM PRICE INCREASE:
Current month weighted average price: $35.00/gr.
Base price: $21.81/gr.
Part deliveries. BACC47CN3 = 18,000
Rhodium content: .003140 gr.
Adjustment: ($35.00 - $21.81) x .003140 x 18,000 = $745.50 Boeing owes Tri-Star
RHODIUM PRICE NO CHARGE
Current month weighted average price: $33.50/gr.
Base price: $21.81/gr.
Or
Current month weighted average price: $7.25/gr.
Base price: $21.81/gr.
Adjustment: Current prices in the above two scenarios are neither above
$35.00/gr. nor below $6.62/gr. therefore, no price adjustment.
RHODIUM PRICE DECREASE
Current month weighted average price: $4.25/gr.
Base price: $21.81/gr.
Part deliveries: BACC47CN3 = 18,000
Rhodium content: .003140 gr.
Adjustment: ($4.25 - $21.81) x .003140 x 18,000 = -$992.49 Tri-Star owes Boeing
GOLD
The following concept will be used for calculating abnormal escalation
adjustments for the gold plated electrical contacts. The amount of gold in
each contact is as follows:
<TABLE>
<CAPTION>
Part Number Gold Content (grams)
-----------------------------------
<S> <C>
001-9007-001 .00026890
118-2020-074 .00007080
31A-2016-035 .00015590
316-1616-634 .00015650
316-1620-634 .00014210
318-1616-253 .00014450
318-2016-035 .00018180
318-2020-252 .00016660
BACC47CN1A .00014350
BACC47CN1S .00007170
BACC47CN3 .00010510
BACC47CP1S .00008260
BACC47CP2T .00008260
BACC47CP3T .00012490
BACC47DE1A .00010700
BACC47DE3A .00006430
BACC47DE4A .00006040
BACC47DE5A .00006310
</TABLE>
2
<PAGE>
ATTACHMENT 8 TO
SPECIAL BUSINESS PROVISIONS
<TABLE>
<S> <C>
BACC47DE6A .00006310
BACC47DE7A .00006160
BACC47DE8A .00005590
BACC47DJI .00013470
BACC47DJ2 .00014600
BACC47DP1 .00021210
BACC47DP2 .00034770
BACC47DP3 .00073650
BACC47DP4 .00110960
BACC47DP5 .00213300
BACC47DR1 .00031380
BACC47DR2 .00048230
BACC47DR3 .00097510
BACC47DR4 .00140010
BACC47DR5 .00254910
BACC47EF1 .00005920
BACC47EF2 .00007560
BACC47EF4 .00002701
BACC47EG1 .00008140
BACC47EG2 .00014630
BACC47EG4 .00041900
BACC47ER1 .00007820
M39029-1-100 .00006400
M39029-1-101 .00007240
M39029-1-102 .00012320
M39029-1-103 .00020230
M39029-11-145 .00004370
M39029-22-191 .00004700
M39029-22-192 .00006500
M39029-29-212 .00008500
M39029-30-217 .00012440
M39029-32-248 .00010880
M39029-4-110 .00004560
M39029-4-111 .00007800
M39029-4-113 .00012140
M39029-5-115 .00004770
M39029-5-116 .00009970
M39029-5-118 .00015070
M39029-56-348 .00004770
M39029-56-351 .00006880
M39029-56-352 .00010660
M39029-57-354 .00003050
M39029-57-355 .00006410
M39029-57-356 .00003270
M39029-57-357 .00004660
M39029-57-358 .00007820
M39029-58-360 .00002300
M39029-58-362 .00002470
M39029-58-363 .00007140
M39029-58-364 .00005910
M39029-63-368 .00004720
M39029-64-369 .00003380
S280W552-205 .00195370
S280W555-916 .00013490
3
<PAGE>
ATTACHMENT 8 TO
SPECIAL BUSINESS PROVISIONS
S280W555-918 .00008090
S280W555-920 .00007940
</TABLE>
The base price of gold shall be $320 per troy ounce with a ceiling price of
$425/troy oz. and a floor price of $215. Adjustments will be made when the
price of gold extends beyond the ceiling or floor and will be adjusted from
the base price. The following forumula shall be used for price adjustments:
(Monthly weighted average gold price - base gold price) x gold content
(troy oz.) x quantity of electrical contacts delivered in the referenced
quarter.
A resulting positive number indicates that Boeing owes Tri-Star, while a
resulting negative number indicates that Tri-Star owes Boeing.
As soon as practical after each quarter delivery date (March 31, June 30,
September 30, December 31), Supplier will send to Buyer an assertion for the
gold adjustment for that quarter. Documentation provided to Buyer shall
include:
- Part number
- Quantity of parts
- Price adjustments for that part number
- All invoices for gold purchased in the delivery month
- Gold cost used in the adjustment formula
As soon as the data can be verified, Buyer will issue a non-receivable
purchase order for the cost adjustment.
EXAMPLES:
GOLD PRICE INCREASE
Current month weighted average price: $550.00/oz.
Base price: $320/oz.
Part deliveries: BACC47CNIS - 18,000
Gold content: .0000717 oz.
Adjustment: ($550.00 - $320.00) x .0000717 x 18,000 = $296.84 Boeing owes
Tri-Star.
GOLD PRICE NO CHARGE
Current month weighted average price: $395/oz.
Base price: $320/oz..
Or
Current month weighted average price: $225/oz.
Base price: $320/oz.
Adjustment: Current prices in the above two scenarios are neither above
$425/oz. nor below $215/oz. therefore, no price adjustment.
GOLD PRICE DECREASE
Current month weighted average price: $175.00/oz.
Base price: $320/oz.
Part deliveries: BACC47CNIS = 18,000
Gold content: .0000717 oz.
Adjustment: ($175.00 - $320.00) x .0000717 x 18,000 = $187.14 Tri-Star owes
Boeing
4
<PAGE>
EXHIBIT 12.1
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
EARNINGS TO FIXED CHARGES RATIO
(DOLLARS IN THOUSANDS)
HISTORICAL:
<TABLE>
<CAPTION>
(PREDECESSOR)
--------------------------------------------------------------------------------- (SUCCESSOR)
EIGHT -------------
NINE MONTHS MONTHS ONE MONTH
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED
----------------------------------------------------- SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
1993 1994 1995 1996 1997 1997 1998 1998
--------- --------- --------- --------- --------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income (loss)
before income
taxes, accounting
change and
extraordinary
item............. $ (16) $ (1,816) $ (2,368) $ (105) $ 8,598 $ 5,755 $ 6,081 $ (986)
Minority interest
in income of
subsidiaries with
fixed charges.... 13 8 85 193 112 81 48 6
Fixed charges...... 3,392 3,701 4,331 4,785 3,842 3,114 2,839 1,831
--------- --------- --------- --------- --------- ------------- ----------- -------------
$ 3,389 $ 1,893 $ 2,048 $ 4,873 $ 12,552 $ 8,950 $ 8,968 $ 851
--------- --------- --------- --------- --------- ------------- ----------- -------------
--------- --------- --------- --------- --------- ------------- ----------- -------------
Fixed charges:
Interest expense,
including
amortization of
debt discounts
and issuance
costs (none
capitalized)..... $ 2,940 $ 3,244 $ 3,821 $ 4,248 $ 3,154 $ 2,598 $ 2,350 $ 1,765
Interest component
of rentals (1)... 452 457 510 537 688 516 489 66
--------- --------- --------- --------- --------- ------------- ----------- -------------
$ 3,392 $ 3,701 $ 4,331 $ 4,785 $ 3,842 $ 3,114 $ 2,839 $ 1,831
--------- --------- --------- --------- --------- ------------- ----------- -------------
--------- --------- --------- --------- --------- ------------- ----------- -------------
Earnings to fixed
charges ratio:
Ratio............ -- -- -- 1.0x 3.3x 2.9x 3.2x --
Deficiency....... $ 3 $ 1,808 $ 2,283 $ -- $ -- $ -- $ -- $ 980
</TABLE>
PRO FORMA:
<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1998
------------- -------------- --------------
<S> <C> <C> <C> <C>
Earnings:
Income (loss) before income taxes,
accounting change and extraordinary
item............................... $ (13,174) $ 167 $ (1,321)
Minority interest in income of
subsidiaries with fixed charges.... 112 54 85
Fixed charges....................... 21,797 16,208 21,695
------------- -------------- --------------
$ 8,735 $ 16,429 $ 20,459
------------- -------------- --------------
------------- -------------- --------------
Fixed charges:
Interest expense, including
amortization of debt discounts and
issuance costs (none
capitalized)....................... $ 21,037 $ 15,622 $ 20,865
Interest component of rentals (1)... 760 586 830
------------- -------------- --------------
$ 21,797 $ 16,208 $ 21,695
------------- -------------- --------------
------------- -------------- --------------
Earnings to fixed charges ratio:
Ratio............................. -- 1.0x --
Deficiency........................ $ 13,062 $ -- $ 1,236
</TABLE>
- ------------------------------
(1) Reflects one-third of rental expense under operating leases considered to
represent interest cost.
<PAGE>
EXHIBIT 12.2
DECRANE HOLDINGS CO. AND SUBSIDIARY
EARNINGS TO FIXED CHARGES RATIO
(DOLLARS IN THOUSANDS)
HISTORICAL:
<TABLE>
<CAPTION>
INCEPTION
TO INCEPTION TO
AUGUST 27, SEPTEMBER 30,
1998(1) 1998
----------- -------------
<S> <C> <C>
Earnings:
Loss before income taxes, accounting change
and extraordinary item.............................................................. $ -- $ (990)
Minority interest in income of subsidiaries with fixed charges........................ -- 6
Fixed charges......................................................................... -- 2,562
----------- ------
$ -- $ 1,578
----------- ------
----------- ------
Fixed charges:
Interest expense, including amortization of debt discounts
and issuance costs (none capitalized)............................................... $ -- $ 1,769
Interest component of rentals(2)...................................................... -- 66
Preferred stock dividends............................................................. -- 727
----------- ------
$ -- $ 2,562
----------- ------
----------- ------
Earnings to fixed charges ratio:
Ratio............................................................................... $ -- $ --
Deficiency.......................................................................... $ -- $ 984
</TABLE>
PRO FORMA:
<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1998
------------ ------------- --------------
<S> <C> <C> <C>
Earnings:
Income (loss) before income taxes, accounting change
and extraordinary item............................................ $ (13,325) $ 54 $ (1,472)
Minority interest in income of subsidiaries
with fixed charges................................................ 112 54 85
Fixed charges....................................................... 29,781 22,196 29,679
------------ ------------- -------
$ 16,568 $ 22,304 $ 28,292
------------ ------------- -------
------------ ------------- -------
Fixed charges:
Interest expense, including amortization of debt discounts
and issuance costs (none capitalized)............................. $ 21,088 $ 15,660 $ 20,916
Interest component of rentals(2).................................... 760 586 830
Preferred stock dividends........................................... 7,933 5,950 7,933
------------ ------------- -------
$ 29,781 $ 22,196 $ 29,679
------------ ------------- -------
------------ ------------- -------
Earnings to fixed charges ratio:
Ratio............................................................. -- 1.0x --
Deficiency........................................................ $ 13,213 $ -- $ 1,387
</TABLE>
- ------------------------
(1) DeCrane Holdings Co. is a newly incorporated entity formed in July 1998.
(2) Reflects one-third of rental expense under operating leases considered to
represent interest cost.
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE COMPANY
Aerospace Display Systems, Inc., a Delaware corporation
Audio International, Inc., an Arkansas corporation
Audio International Sales, Inc., a U.S. Virgin Islands corporation
Avtech Corporation, a Washington corporation
Cory Components, Inc., a California corporation
Dettmers Industries, Inc., a Delaware corporation
Elsinore Aerospace Services, Inc., a California corporation
Elsinore Engineering, Inc., a Delaware corporation
Hollingsead International, Inc., a California corporation
Hollingsead International, Ltd., a U.K. corporation
Tri-Star Electronics Europe S.A., a Swiss corporation
Tri-Star Electronics International, Inc., a California corporation
Tri-Star Technologies, Inc., a California general partnership
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 24, 1998
relating to the consolidated financial statements of DeCrane Aircraft Holdings,
Inc., our report dated December 21, 1998 relating to the financial statements of
DeCrane Holdings Co., and our report dated June 12, 1998 relating to the
financial statements of Avtech Corporation, which appear in such Prospectus. We
also consent to the application of our report dated February 24, 1998 to the
Financial Statement Schedule for the three years ended December 31, 1997 listed
under Item 16(b) of this Registration Statement when such schedule is read in
conjunction with the financial statements referred to in our report. The audits
referred to in our report dated February 24, 1998 also included this schedule.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
January 6, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our (dual dated) report dated February 21,
1997 and December 17, 1997, relating to the consolidated financial statements of
Audio International, Inc. and subsidiary ("Audio"), which appear in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
/s/ Thomas & Thomas
Thomas & Thomas
Little Rock, Arkansas
January 6, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,267
<SECURITIES> 0
<RECEIVABLES> 29,545
<ALLOWANCES> 928
<INVENTORY> 37,343
<CURRENT-ASSETS> 74,699
<PP&E> 28,579
<DEPRECIATION> 364
<TOTAL-ASSETS> 333,300
<CURRENT-LIABILITIES> 28,016
<BONDS> 184,893
0
0
<COMMON> 0
<OTHER-SE> 98,362
<TOTAL-LIABILITY-AND-EQUITY> 333,300
<SALES> 106,089
<TOTAL-REVENUES> 106,089
<CGS> 71,181
<TOTAL-COSTS> 95,851
<OTHER-EXPENSES> 1,028
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,115
<INCOME-PRETAX> 5,095
<INCOME-TAX> 2,386
<INCOME-CONTINUING> 2,709
<DISCONTINUED> 0
<EXTRAORDINARY> (296)
<CHANGES> 0
<NET-INCOME> 2,413
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
