<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1999
REGISTRATION NO. 333-70365
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
DECRANE AIRCRAFT HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
(AND CERTAIN SUBSIDIARIES IDENTIFIED IN FOOTNOTE (1) BELOW)
<TABLE>
<S> <C> <C>
DELAWARE 3728 34-1645569
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code No.) Identification
Incorporation or Organization) No.)
</TABLE>
2361 ROSECRANS AVENUE, SUITE 180
EL SEGUNDO, CALIFORNIA 90245
(310) 725-9123
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
R. JACK DECRANE
Chief Executive Officer
DECRANE AIRCRAFT HOLDINGS, INC.
2361 Rosecrans Avenue, Suite 180
El Segundo, California 90245
(310) 725-9123
(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: FROM TIME TO
TIME AFTER THE EFFECTIVE DATE.
--------------------------
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 NOTE OFFERING PRICE(2) FEE(2)
<S> <C> <C> <C> <C>
12% Senior Subordinated Notes due 2008............ $100,000,000 100% $100,000,000 $27,800
Senior Subordinated Guarantees(3).................
</TABLE>
(1) The following direct and indirect subsidiaries of DeCrane Aircraft Holdings,
Inc. are Co-Registrants (the "guarantors"), incorporated in the state and
with the Employer Identification Number indicated: Aerospace Display
Systems, Inc. (a Pennsylvania corporation, EIN 23-2859640), Audio
International, Inc. (an Arkansas corporation, EIN 71-0640962), Avtech
Corporation (a Washington corporation, EIN 91-0761549), Cory Components,
Inc. (a California corporation, EIN 95-3938746), Dettmers Industries, Inc.
(a Delaware corporation, EIN 95-4693717), Elsinore Aerospace Services, Inc.
(a California corporation, EIN 95-2585262), Elsinore Engineering, Inc. (a
Delaware corporation, EIN 77-0443200), Hollingsead International, Inc. (a
California corporation, EIN 95-2500766), Tri-Star Electronics International,
Inc. (a California corporation, EIN 34-1687242), PATS, Inc. (a Maryland
corporation, EIN 52-1067232), Flight Refueling Inc. (a Maryland corporation,
EIN 52-1112836), Patrick Aircraft Tank Systems Inc. (a Maryland corporation,
EIN 52-1185155), PATS Aircraft and Engineering Corporation (a Maryland
corporation, EIN 52-1096518) and PATS Support, Inc. (a Maryland corporation,
EIN 52-2010611).
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457; fee previously paid.
(3) The 12% Series B Senior Subordinated Notes due 2008 are fully and
unconditionally guaranteed on a joint and several basis by the guarantors as
their unsecured, senior subordinated obligation. No separate consideration
will be paid in respect of the guarantees.
--------------------------
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>
EXPLANATORY NOTE
This registration statement covers the registration of an aggregate
principal amount of $100,000,000 of new 12% Series A Senior Subordinated Notes
due 2008 of DeCrane Aircraft Holdings, Inc. that may be exchanged for equal
principal amounts of our old outstanding 12% Series A Senior Subordinated Notes
due 2008. This registration statement also covers the registration of the new
notes for resale by Donaldson, Lufkin & Jenrette Securities Corporation in
market-making transactions. The complete prospectus relating to the exchange
offer follows immediately after this explanatory note. Following the prospectus
are certain pages of this prospectus relating solely to such market-making
transactions, including alternate front and back cover pages, a section entitled
"Risk Factors--Trading Market for the New Notes" to be used in lieu of the
section entitled "Risk Factors--No Prior Public Market," an alternate "Use of
Proceeds" section and an alternate "Plan of Distribution" section. Also, the
market-making prospectus will not include the following sections in the exchange
offer prospectus: "Summary--The Exchange Offer," "The Exchange Offer" and
"Federal Income Tax Consequences." All other sections of the exchange offer
prospectus will be included in the market-making prospectus.
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION, DATED APRIL 22, 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 Aircraft Holdings, Inc.
OFFER TO EXCHANGE
12% SERIES A SENIOR SUBORDINATED NOTES DUE 2008 FOR
12% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
We are offering to exchange an aggregate amount of up to $100,000,000 of our
new 12% Series B Senior Subordinated Notes due 2008, which have been registered
under the Securities Act of 1933, for our existing 12% Series A Senior
Subordinated Notes due 2008. The new notes are being registered and offered in
this exchange by us pursuant to registration rights granted in connection with
the issuance in October, 1998 of the old notes, which were paired in units with
warrants for the common stock of DeCrane Holdings Co. The units were originally
sold together, but the warrants may trade separately from the notes on and after
the effective date of the registration statement of which this prospectus is a
part.
The terms of the new notes are identical in all material respects to the
terms of the old notes, except that the new notes have been registered under the
Securities Act, and certain transfer restrictions and registration rights
relating to the old notes do not apply to the new notes.
To exchange your old notes for new notes, you must complete and send the
letter of transmittal that accompanies this prospectus to the exchange agent BY
5:00 P.M. NEW YORK TIME ON , 1999. If your old notes are held in
book-entry form at The Depository Trust Company, you must instruct DTC through
your signed letter of transmittal that you wish to exchange your old notes for
new notes. When the exchange offer closes, your DTC account will be changed to
reflect your exchange of old notes for new notes. We will publicly announce any
extension or termination of this exchange offer through a release to the Dow
Jones News Service and as otherwise required by applicable law or regulations.
We will not receive any cash proceeds from the issuance of the new notes. We
are not using a dealer-manager in connection with this exchange offer.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN RISK
FACTORS THAT YOU SHOULD CONSIDER BEFORE TENDERING YOUR OLD NOTES IN THE EXCHANGE
OFFER.
This prospectus and the letter of transmittal are first being sent to all
registered holders of the old notes as of April , 1999.
------------------------
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>
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 IS A HOLDING COMPANY WHICH
CONDUCTS ITS BUSINESS PRIMARILY THROUGH ITS SUBSIDIARIES, AS ILLUSTRATED BELOW.
DECRANE AIRCRAFT'S PARENT COMPANY, DECRANE HOLDINGS CO., IS ALSO A HOLDING
COMPANY AND DOES NOT HAVE ANY MATERIAL OPERATIONS OR ASSETS OTHER THAN ITS
OWNERSHIP OF THE CAPITAL STOCK OF DECRANE AIRCRAFT. EXCEPT 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,
OUR ACQUISITIONS OF AVTECH CORPORATION, DETTMERS INDUSTRIES, INC. AND PATS, INC.
AND OUR PROPOSED ACQUISITION OF PPI HOLDINGS, INC.
[CHART: ORGANIZATION DIAGRAM OF
DECRANE HOLDINGS, DECRANE AIRCRAFT AND
SUBSIDIARIES, SHOWING GUARANTORS]
THE EXCHANGE OFFER
We are offering to exchange up to $100,000,000 in principal amount of the
new notes for a like amount of old notes. We are making this offering in order
to satisfy our obligations under the registration rights agreement relating to
the old notes. The terms of the new notes and the old notes are substantially
the same in all material respects, except that the new notes will not be subject
to liquidated damages penalties for failure to timely register the notes under
the Securities Act, and will be more freely transferable by the holders thereof
by reason of their registration hereunder.
<TABLE>
<S> <C>
Expiration Date.............. 5:00 p.m., New York time, on , 1999, unless this exchange
offer is extended by us. We will publicly announce any extension
or termination of this exchange offer through a release to the
Dow Jones News Service and as otherwise required by applicable
law or regulations. See "The Exchange Offer--Terms of the
Exchange Offer; Period for Tendering Old Notes."
Certain Conditions to this
Exchange Offer............... Our obligation to complete this exchange offer is subject to
several conditions. We reserve the right to delay the acceptance
of old notes for exchange, terminate this exchange offer, extend
its expiration date and retain the old notes tendered, or amend
the terms of this exchange offer in any respect. See "The
Exchange Offer--Terms of the Exchange Offer; Period for Tendering
Old Notes" and "--Certain Conditions to the Exchange Offer."
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Withdrawal Rights............ If you tender old notes, you may withdraw them at any time on or
before 5:00 p.m., New York time on the expiration date, by
delivering a written notice of such withdrawal to the exchange
agent in the manner described under "The Exchange
Offer--Withdrawal Rights."
Procedures for Tendering Old
Notes........................ In order to tender old notes and accept this exchange offer, you
must:
- complete and sign a letter of transmittal, and comply with the
instructions which it contains,
- forward it and any other required documents using a method of
delivery permitted by the letter of transmittal to the exchange
agent appointed by us, whose address appears in the letter of
transmittal, by 5:00 p.m. New York time on the expiration date,
and
- either deliver your old notes in the same package, or comply
with the guaranteed postponed delivery method noted below.
Please note that, if your old notes are held through a broker,
dealer, commercial bank, trust company or other nominee, you must
contact that person promptly if you wish to tender your notes.
See "The Exchange Offer--Procedures for Tendering Old Notes."
Questions regarding how to tender and requests for information
should be directed to the exchange agent as instructed in "The
Exchange Offer--Exchange Agent." Some brokers, dealers,
commercial banks, trust companies and other nominees may also
tender by book-entry transfer.
Guaranteed Delivery
Procedures................... If you wish to tender your old notes, and they are not readily
available, or you cannot deliver them before the expiration date
for this exchange offer, you must tender them according to the
guaranteed postponed delivery procedures described in "The
Exchange Offer--Guaranteed Delivery Procedures."
Restrictions on Resales of
New Notes.................... We believe that the new notes issued under this exchange offer in
exchange for old notes may be offered for resale, resold or
otherwise transferred by a holder other than a broker or dealer
without further compliance with the registration and prospectus
delivery requirements of the Securities Act, if:
- the new notes are acquired in the ordinary course of the
holder's business;
- the holder is able to make the representations to us about the
foregoing and related matters which are described in "The
Exchange Offer-- Resale of New Notes" and in the letter of
transmittal;
- the holder is not participating, and has not entered into an
arrangement or understanding to participate, in a "distribution"
of the new notes (as understood under the Securities Act);
- the holder is not our affiliate (as "affiliate" is defined in
Rule 405 under the Securities Act), or a broker or dealer who
purchased the old notes for resale; and
- the holder is not a broker or dealer who acquired the new notes
for its own account.
However, the foregoing view relies on statements by the staff of
the Division of Corporation Finance of the Securities and
Exchange Commission in interpretive letters which discuss other
transactions. We have not sought our own interpretive letter, so
there is no definitive legal determination of the foregoing
issue.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Acceptance of Old Notes and
Offer, Delivery of New
Notes........................ If you tender old notes to us before 5:00 p.m., New York time, on
the day this exchange offer expires, you have not withdrawn them,
and you comply with all of the requirements described in this
prospectus, we will promptly deliver new notes to you after the
expiration date. See "The Exchange Offer--Acceptance of Old Notes
for Exchange; Delivery of New Notes."
Exchange Agent............... The exchange agent for this exchange offer is State Street Bank
and Trust. Its telephone and facsimile numbers are listed in "The
Exchange Offer-- Exchange Agent" and in the letter of
transmittal.
Use of Proceeds.............. We will not receive any cash proceeds from the issuance of the
new notes. See "Use of Proceeds."
</TABLE>
4
<PAGE>
OUR COMPANY
We manufacture electronic components and other parts and systems, 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 $244.4
million, Adjusted EBITDA of $55.9 million and a loss before extraordinary item
of $1.1 million for the twelve months ended December 31, 1998 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,
- wire harness assemblies,
- structural supports for connectors and harnesses,
- auxiliary fuel tank systems, and auxiliary power systems for ground power,
- dichroic liquid crystal displays,
- 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 aircraft
electronic and other systems, certifications on behalf of the Federal Aviation
Administration, the assembly of installation kits for various aircraft systems,
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.
By successfully combining and growing complementary businesses, we have
achieved strong revenue growth. From 1994 to 1998, our revenues increased from
$47.1 million to $150.5 million on a historical basis. That increase resulted in
a compound annual growth rate of 33.7%. During the same period, DeCrane
Aircraft's EBITDA increased from $5.2 million to $26.9 million on a historical
basis, representing a combined annual growth rate of 50.8%, and our historical
income before extraordinary items increased from a $1.8 million loss to $3.1
million in income. Since 1990, we have completed twelve acquisitions, most
recently Avtech Corporation and Dettmers Industries, Inc. in June 1998, and
PATS, Inc. in January 1999.
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 January
1999, we acquired all of the stock of PATS, Inc., a manufacturer of auxiliary
fuel tank systems and other products. See "Recent Developments--PATS." In March
1999, we signed an agreement to acquire all of the stock of PPI Holdings, Inc.,
a manufacturer of interior furniture components primarily for middle- and
high-end corporate aircraft. See "Recent Developments--PPI."
------------------------
Our principal executive offices are located at 2361 Rosecrans Avenue, Suite
180, El Segundo, California 90245. Our telephone number is (310) 725-9123.
Further information is also available as noted under "Where You Can Get More
Information" at the end of the "Business" section.
5
<PAGE>
THE NOTES
<TABLE>
<S> <C>
Maturity Date................ September 30, 2008.
Interest Payment Dates....... Each March 30 and September 30, beginning March 30, 1999.
Optional Redemption.......... We may redeem:
- all or some of the notes, on or after September 30, 2003,
- up to 35% of the notes, on or before September 30, 2001, with
the net cash proceeds of any public equity offerings, and
- 100% of the notes, before September 30, 2003, if the change of
control events which are described herein occur,
at the redemption prices specified on pages 64 and 65.
Change of Control............ You can require that we repurchase your notes, if the change of
control events which are described herein occur, at 101% of the
principal amount plus accrued interest. See "Risk
Factors--Repurchase upon Change of Control" and "Description of
Notes--Repurchase of the Option of Holders Upon Change of
Control."
Ranking...................... The notes rank junior to all of our senior indebtedness and
secured debt, including the debt owed under our bank credit
facility. The notes rank equally with any of our future
unsecured, senior subordinated debt. The notes will effectively
rank junior to all liabilities of our subsidiaries that are not
guarantors. See "Description of Notes--Note Guarantees." As of
December 31, 1998, on a pro forma basis, DeCrane Aircraft and its
subsidiary guarantors would have had approximately $175.2 million
of senior indebtedness outstanding, and the non-guarantor
subsidiaries would have had approximately $2.2 million of
liabilities outstanding, including trade payables.
Guarantors................... The notes are fully and unconditionally guaranteed jointly and
severally by all of our existing wholly-owned domestic
subsidiaries. The notes are senior subordinated obligations of
the guarantors, and rank junior to their senior and unsecured
debt and equally with their future unsecured, senior debt.
Covenants.................... The indenture which governs the notes includes covenants that,
among other things, limit our ability, and that of our
subsidiaries defined as "Restricted Subsidiaries," to:
- incur debt,
- issue preferred stock,
- repurchase capital stock or subordinated debt,
- enter into transactions with affiliates,
- enter into sale and leaseback transactions,
- create liens or allow them to exist,
- pay dividends or other distributions,
- make investments,
- sell assets, and
- enter into mergers or consolidations.
See "Description of Notes--Covenants."
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
The Warrants; the Units...... The old notes were originally sold as "units," paired with
warrants for the common stock of DeCrane Aircraft's parent
company, DeCrane Holdings. The warrants may trade separately from
the notes on and after the effective date of the registration
statement of which this prospectus is a part. The warrants are
subject to a separate "shelf" registration statement filed
concurrently.
</TABLE>
7
<PAGE>
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
The table below presents summary unaudited pro forma consolidated financial
data for DeCrane Aircraft. 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," "Unaudited Pro Forma Consolidated Financial Data," "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the DeCrane Aircraft consolidated
financial statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
DECEMBER 31,
1998(1)
-------------
(DOLLARS IN
THOUSANDS)
<S> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA:
Revenues................................................................................................. $ 244,359
Gross profit (2)......................................................................................... 78,952
Operating income......................................................................................... 31,219
Provision for income taxes............................................................................... 3,128
Loss before extraordinary item........................................................................... (1,066)
OTHER PRO FORMA FINANCIAL DATA:
Cash flows from operating acitivities.................................................................... $ 5,486
Cash flows from investing activities..................................................................... (174,548)
Cash flows from financing activities..................................................................... 170,415
EBITDA (3)............................................................................................... 52,663
EBITDA margin (4)........................................................................................ 21.6%
Adjusted EBITDA (5)...................................................................................... $ 55,856
Adjusted EBITDA margin (4)............................................................................... 22.9%
Depreciation and amortization (6)........................................................................ $ 16,996
Capital expenditures..................................................................................... 6,693
Cash interest expense.................................................................................... 27,120
Adjusted EBITDA to cash interest expense................................................................. 2.1x
Ratio of earnings to fixed charges (7)................................................................... 1.1x
OTHER OPERATING DATA:
Bookings (8)............................................................................................. $ 254,220
Backlog at end of period (9)............................................................................. 130,931
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1998 (1)
-------------
(DOLLARS IN
THOUSANDS)
<S> <C>
PRO FORMA BALANCE SHEET DATA:
Cash and cash equivalents................................................................................ $ 7,894
Working capital.......................................................................................... 63,371
Total assets............................................................................................. 448,921
Total debt (10).......................................................................................... 275,515
Stockholder's equity..................................................................................... 110,027
</TABLE>
See accompanying notes to Summary Pro Forma Consolidated Financial Data.
8
<PAGE>
NOTES TO SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
(1) Reflects the following as if each had occurred as of January 1, 1998: (a)
the Avtech, Dettmers, PATS and proposed PPI acquisitions; (b) the DLJ
acquisition; and (c) the initial offering.
(2) Net of $4.4 million of non-cash acquisition related charges 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 our operating performance, as an
alternative to cash flow from operating activities or as a measure of
liquidity. The funds depicted by EBITDA are not available for our
discretionary use due to funding requirements for working capital, capital
expenditures, debt service, income taxes and other commitments and
contingencies. We believe 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) EBITDA margin is computed by dividing EBITDA by revenues. Adjusted EBITDA
margin is computed by dividing Adjusted EBITDA by revenues.
(5) Adjusted EBITDA equals EBITDA plus the following nonrecurring charges:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
DECEMBER 31,
1998
-------------
(DOLLARS IN
THOUSANDS)
<S> <C>
EBITDA (See Note 3 above)................................................................ $ 52,663
Adjustment for nonrecurring charges:
Workforce reductions................................................................... 2,430
Engineering costs...................................................................... 350
Reduction of corporate expenses........................................................ 310
Non-cash stock option compensation expense............................................. 73
Expiration of employment contract for a former shareholder of a previously acquired
company.............................................................................. 30
-------------
Total adjustments.................................................................... 3,193
-------------
Adjusted EBITDA.......................................................................... $ 55,856
-------------
-------------
</TABLE>
(6) 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.
(7) For purposes of calculating the ratio of earnings to fixed charges, earnings
represent net income before income taxes, minority interest in the income of
majority-owned subsidiaries, extraordinary items and fixed charges. Fixed
charges consist of: (a) interest, whether expensed or capitalized; (b)
amortization of debt expense and discount relating to any indebtedness,
whether expensed or capitalized; and (c) one-third of rental expense under
operating leases which is considered to be a reasonable approximation of the
interest portion of such expense.
(8) Bookings represent the total invoice value of purchase orders received
during the period.
(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 of the Company's receipt of orders
and the speed with which those orders are filled.
(10) Total debt is defined as long-term debt, including current portion, and
short-term borrowings.
9
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The table below presents summary historical consolidated financial data for
DeCrane Aircraft. The summary historical financial data for the years ended
December 31, 1996 and 1997, the eight months ended August 31, 1998 and the four
months ended December 31, 1998 were derived from audited financial statements of
DeCrane Aircraft. 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 -----------
MONTHS FOUR MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED
------------------------------------------ AUGUST 31, DECEMBER
1994 1995 1996(1) 1997(2) 1998(3) 31, 1998(3)
--------- --------- --------- --------- ----------- -----------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $ 47,092 $ 55,839 $ 65,099 $ 108,903 $ 90,077 $ 60,356
Gross profit(4)............. 10,685 12,376 15,707 28,656 29,976 17,617
Operating income............ 1,760 1,835 4,251 11,995 9,278 4,195
Interest expense............ 3,244 3,821 4,248 3,154 2,350 6,852
Provision for income taxes
(benefit)(5).............. 613 1,078 712 3,344 2,892 (2,668)
Income (loss) before
extraordinary item........ (2,429) (3,446) (817) 5,254 3,189 (324)
Extraordinary loss from debt
refinancing(6)............ (264) -- -- (2,078) -- (2,229)
Net income (loss)........... (2,693) (3,446) (817) 3,176 3,189 (2,553)
OTHER FINANCIAL DATA:
Cash flows from:
Operating activities...... $ (2,322) $ 1,457 $ 2,958 $ 4,641 $ 3,014 $ 1,008
Investing activities...... (993) (1,462) (24,016) (27,809) (87,378) (1,813)
Financing activities...... 3,028 41 21,051 22,957 89,871 (1,597)
EBITDA(7)................... 5,196 5,471 7,602 16,915 13,636 13,247
EBITDA margin(8)............ 11.0% 9.8% 11.7% 15.5% 15.1% 21.9%
Depreciation and
amortization(9)........... $ 3,436 $ 3,636 $ 3,351 $ 4,920 $ 4,358 $ 4,604
Capital expenditures(10).... 1,016 1,203 5,821 3,842 1,745 1,813
Ratio of earnings to fixed
charges(11)............... -- -- 1.0x 3.3x 3.0x --
OTHER OPERATING DATA:
Bookings(12)................ $ 47,896 $ 50,785 $ 81,914 $ 112,082 $ 94,439 $ 54,021
Backlog at end of
period(13)................ 24,493 19,761 44,433 49,005 84,184 75,388
<CAPTION>
AS OF
DECEMBER
31,
BALANCE SHEET DATA: 1998(14)
-----------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents............................................................ $ 3,518
Working capital...................................................................... 46,033
Total assets......................................................................... 330,927
Total debt(15)....................................................................... 186,765
Stockholders' equity................................................................. 97,921
</TABLE>
See accompanying notes to Summary Historical Consolidated Financial Data.
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NOTES TO SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
(1) Includes the effect of: (a) the acquisition of the remaining 25% minority
interest in Cory Components beginning February 20, 1996, the date on which
the transaction occurred; and (b) the results of Aerospace Display Systems
beginning September 18, 1996, and Elsinore Aerospace Services, Inc. and
Elsinore Engineering, Inc. beginning December 5, 1996, 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) 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 periods subsequent to their
acquisitions. The results of operations for the four months ended December
31, 1998 also reflect the DLJ acquisition.
(4) Net of $4.4 million of non-cash charges for the four months ended December
31, 1998 to reflect cost of sales based on the fair value of inventory
acquired in connection with the DLJ acquisition.
(5) 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.
(6) Represents: (a) 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 (b) the write-offs, 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 and the refinancing of
the bridge notes during the four months ended December 31, 1998.
(7) EBITDA equals operating income plus depreciation, amortization and non-cash
acquisition related charges described in Note 4 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 our operating performance, as an
alternative to cash flow from operating activities or as a measure of
liquidity. The funds depicted by EBITDA are not available for our
discretionary use due to funding requirements for working capital, capital
expenditures, debt service, income taxes and other commitments and
contingencies. We believe 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.
(8) EBITDA margin is computed by dividing EBITDA by revenues.
(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.
(11) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent net income before income taxes, minority interest in the
income of majority-owned subsidiaries, extraordinary items and fixed
charges. Fixed charges consist of: (a) interest, whether expensed or
capitalized; (b) amortization of debt expense and discount relating to any
indebtedness, whether expensed or capitalized; and (c) one-third of rental
expense under operating leases which is considered to be a reasonable
approximation of the interest portion of such expense. There was a
deficiency of earnings to fixed charges for the years ended December 31,
1994 and 1995 and the four months ended December 31, 1998 of $1.8 million,
$2.3 million and $2.9 million, respectively.
(12) Bookings represent the total invoice value of purchase orders received
during the period.
(13) 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.
(14) Reflects the DLJ acquisition.
(15) Total debt is defined as long-term debt, including current portion, and
short-term borrowings.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING INFORMATION AS PART OF YOUR
EVALUATION OF OUR COMPANY AND ITS BUSINESS BEFORE TENDERING YOUR OLD NOTES IN
EXCHANGE FOR THE NEW NOTES.
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 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 that affect many businesses, such as:
- fuel prices and general economic conditions that 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;
- the ability to attract and retain qualified personnel;
- 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--OUR SUBSTANTIAL LEVELS OF DEBT COULD ADVERSELY AFFECT OUR
FINANCIAL HEALTH AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES.
We incurred significant debt as part of the DLJ acquisition transaction. As
of December 31, 1998, on a pro forma basis, we would have had total consolidated
indebtedness of approximately $275.5 million, and would have available $25.9
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 DeCrane Aircraft's 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. Interest payments for 1998 would have been $27.1 million on
a pro forma basis. The principal payments on long term debt scheduled to
occur during 1999 will be $2.0 million, assuming that the PPI acquisition
is completed.
- 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.
- It may expose us to increased interest expenses, when interest rates
fluctuate, because some of our borrowing may be, and in recent years most
of it has been, at variable "floating" rates.
- Restrictions in our debt agreements may cause us not to respond to changes
in our markets or exploit business opportunities. The indenture for the
notes and our bank credit facility each impose various contractual
restrictions on our operations and businesses. Our bank credit facility
contains additional restrictions, and requires that we satisfy several
tests of financial condition. Our ability to do so can
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<PAGE>
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.
SUBORDINATION--YOUR RIGHTS UNDER THE NOTES ARE SUBORDINATED TO OUR EXISTING
DEBT.
The notes are general unsecured obligations of DeCrane Aircraft and of those
of its subsidiaries which have provided note guarantees. The notes rank lower in
right of payment than most of the debt of those companies, including the amounts
owed under the bank credit facility. The senior creditors have rights which
might reduce the payments made to you as a holder of the notes. Among other
things:
- As of December 31, 1998, on a pro forma basis, DeCrane Aircraft and the
guarantor subsidiaries would have had outstanding about $175.2 million of
senior debt. We would be required to pay all of this senior debt in full,
before paying the holders of the notes, if DeCrane Aircraft or one of the
guarantor subsidiaries suffers a bankruptcy filing, insolvency,
liquidation or similar event; or if our senior debt is accelerated.
- We are blocked from paying holders of the notes whenever there is a
payment default on senior debt, and principal and premium payments may
also be blocked for up to 179 days while there is a non-payment default on
senior debt. See "Description of Notes--Subordination" for the terms of
this subordination.
- The bank credit facility is secured by our key assets, excluding assets of
our foreign subsidiaries. If we default under our senior debt agreements,
the lenders could choose to declare all outstanding amounts immediately
due and payable, and seek foreclosure of the assets we granted to them as
collateral. We cannot assure you that, if our bank credit facility were
accelerated, our assets would be sufficient to repay all of our debt, or
the notes, in full.
- Holders of debt and other liabilities of our subsidiaries that are not
guarantors will also have claims that are effectively senior to the notes.
As of December 31, 1998, on a pro forma basis, our non-guarantor
subsidiaries would have had $2.2 million of outstanding liabilities,
including trade payables.
ADDITIONAL BORROWINGS--DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND OUR
SUBSIDIARIES MAY STILL BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT. THIS COULD
INTENSIFY THE RISKS DESCRIBED ABOVE.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. The terms of the indenture do not fully prohibit us
or our subsidiaries from doing so. If new debt is added to our and our
subsidiaries' current debt levels, the related risks that we and they now face
could intensify.
ABILITY TO SERVICE DEBT--WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH TO SERVICE
OUR DEBT. OUR ABILITY TO GENERATE CASH DEPENDS ON CASH FLOWS FROM OUR
SUBSIDIARIES, AND MANY FACTORS BEYOND OUR CONTROL.
Our ability to satisfy our debt obligations, including these notes, and to
fund planned capital expenditures will depend on our ability to generate cash in
the future. This, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control.
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 for the
next three years. 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 expenses, in order to make all required debt service 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.
On a pro forma basis, we would have had a $1.1 million loss before
extraordinary item for the twelve months ended December 31, 1998. 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. Additionally, 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
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<PAGE>
indenture may allow our subsidiaries to enter into future loan agreements which
affect their ability to pay dividends to DeCrane Aircraft. See "Description of
Notes--Principal Covenants." State law may also limit the amount of the
dividends that our subsidiaries are permitted to pay to DeCrane Aircraft.
GROWTH BY ACQUISITION--WE MAY NOT ALWAYS BE ABLE TO COMPLETE THE ACQUISITIONS WE
PLAN TO MAKE. ONCE THEY ARE COMPLETED, WE MAY NOT ALWAYS REALIZE THE BENEFITS
WHICH THEY ARE EXPECTED TO PRODUCE.
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. We may not always be able to
retain the key employees of acquired companies.
AIRCRAFT INDUSTRY RISKS--OUR AIRCRAFT INDUSTRY MARKETS ARE CYCLICAL AND AFFECTED
BY MANY FACTORS BEYOND OUR CONTROL, INCLUDING MILITARY SPENDING TRENDS AND
REGIONAL ECONOMIC INSTABILITY IN ASIA.
A downturn in any of our principal markets could adversely affect our
business.
- The principal markets for manufacturers of commercial aircraft are the
commercial and regional airline industries, which are cyclical and have
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, and the Boeing Company has also recently announced production
line cutbacks for 1999 and 2000.
- The principal markets for corporate aircraft manufacturers 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.
- 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.
- The Asian markets are important for manufacturers of commercial aircraft
and components for those aircraft. Boeing has a large backlog of aircraft
sales to customers in Asia, and some deliveries have been deferred or
cancelled. Boeing has characterized the economic situation in Asia as a
risk to its deliveries over the next few years. It has previously
announced scheduled production slowdowns in its 747 and 777 aircraft
lines, among others, during 1999. Boeing continues to reassess its
production rates based on Asian demand and expects to make downward
revisions based on its customer requirements. That situation could, if it
continues or worsens, result in additional significant cancellations or
deferrals of deliveries for new aircraft.
CONCENTRATION OF KEY CUSTOMERS--WE RECEIVE A SIGNIFICANT SHARE OF OUR REVENUES
FROM A SMALL GROUP OF KEY CUSTOMERS, AND ARE VULNERABLE TO CHANGES IN THEIR
ECONOMIC CONDITION AND PURCHASING PLANS.
A significant decline in business from any one of our key customers could
have a material adverse effect on our business. Our two largest customers for
the fiscal year ended December 31, 1998 were Boeing, including McDonnell
Douglas, and Matsushita Avionics Systems. Boeing accounted for approximately
29.6% of our consolidated revenues for that year, and Matsushita for
approximately 5.0%, on a pro forma basis but excluding the effects of the
planned acquisition of PPI.
In addition, a significant part of our revenues from components are sold to
Boeing indirectly, through sales to suppliers of Boeing. Most of our 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.
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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 and 777 programs
in 1999 and 2000, as described in "--Aircraft Industry Risks" above. Boeing
might suffer further production schedule disruptions. Boeing recently announced
internal studies indicating that about one-fourth of its product lines are not
likely to be profitable as currently conducted. Boeing did not disclose which
lines fail to return break-even or positive returns; however, it has previously
acknowledged that some of its commercial airplane programs were not meeting
expectations. Boeing plans to announce specific growth and profit information
for its commercial aircraft product lines later in 1999.
We generally sell components and services to Matsushita pursuant to purchase
orders, rather than under long-term contracts. However, we do have a supply
agreement for connectors through September 1999. On a pro forma basis, again
excluding PPI, during the twelve months ended December 31, 1998 as compared to
the same period in 1997, our revenues from Boeing increased $25.5 million while
our revenues from Matsushita declined by $1.8 million.
If we had completed our planned acquisition of PPI at the beginning of 1998,
as is assumed by our pro forma financial statements, it would have resulted in
48.4% of our consolidated revenues concentrated among four principal customers
for 1998 on a pro forma basis. Boeing would have been 25.1%, Cessna 11.4%,
Raytheon 7.6%, and Matsushita 4.3% of those revenues.
PRODUCTS INSURANCE--WE COULD INCUR PRODUCTS LIABILITY LOSSES IN EXCESS OF OUR
INSURANCE COVERAGE.
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--MANY OF OUR OPERATIONS ARE CLOSELY REGULATED BY THE FAA. IF WE FAIL
TO COMPLY WITH ITS MANY STANDARDS, OR THOSE STANDARDS CHANGE, WE COULD LOSE
INSTALLATION OR CERTIFICATION CAPABILITIES WHICH ARE IMPORTANT TO OUR BUSINESS.
The Federal Aviation Administration prescribes standards and licensing
requirements for aircraft components, licenses private repair stations and
issues Designated Alteration 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 the systems integration
services that we perform 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 Alteration 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 as
further described in "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.
GOLD AND COPPER PRICES--A SIGNIFICANT INCREASE IN THE PRICE OF GOLD OR COPPER
COULD REDUCE OUR GROSS PROFIT.
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.
ENVIRONMENTAL RISKS AND REGULATION--SOME OF OUR OPERATIONS AND FACILITIES
GENERATE WASTE OR HAVE DONE SO IN THE PAST, WHICH MAY RESULT IN UNKNOWN FUTURE
LIABILITIES FOR ENVIRONMENTAL REMEDIATION.
Certain federal and state laws, particularly the federal Comprehensive
Environmental Response, Compensation and Liability Act, 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 that statute or equivalent listings under state laws.
We have received requests for information or allegations of potential
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responsibility from the Environmental Protection Agency regarding our use of
some sites. Given the retroactive nature of federal environmental liability, it
is possible that we will receive additional notices of potential liability
relating to current or former activities. 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. We may incur costs in the
future to address existing or future contamination.
YEAR 2000--SOME OF OUR ADMINISTRATIVE AND MANUFACTURING SYSTEMS INCLUDE
COMPUTER-CONTROLLED AND DATE-CONTROLLED MACHINERY WHICH MAY NOT OPERATE
CORRECTLY DUE TO THE DATE CHANGES OCCURRING ON OR AROUND JANUARY 1, 2000.
Many existing computer programs use only two digits to identify a year in
the date field. These programs, if not corrected, could fail or create erroneous
results when dealing with dates later than December 31, 1999. This "Year 2000"
issue is believed to affect virtually all companies and organizations, including
DeCrane Aircraft. 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. Other parties with
whom we have commercial relationships, including raw materials suppliers and
service providers, such as banking and financial services, data processing
services, telecommunications services and utilities, are highly reliant on
computer-based technology.
The costs we have incurred to remediate and test our systems, and evaluate
and address the risks of our key customers and vendors, have been immaterial to
date and we presently expect to incur less than $1.0 million of costs in the
aggregate. All of our Year 2000 compliance costs have been or are expected to be
funded from our operating cash flow. We believe the number of products
manufactured by us whose functioning is dependent upon computer-controlled
systems is not significant. We are not aware of any material customer- or
vendor-related Year 2000 issues. Our review of third-party compliance risks from
our key vendors and customers is not yet complete. However, even assuming that
our non-responding vendors and customers suffer interruptions to their
operations due to Year 2000 systems failures, our management does not anticipate
encountering any significant resulting failures in our systems, products or
supply chain that would disrupt our operations to a material degree.
Our Year 2000 compliance efforts are directed primarily towards ensuring
that we will be able to continue to perform three critical functions:
- make and sell our products,
- order and receive raw material and supplies, and
- pay our employees and vendors.
It is difficult, if not impossible, to assess with any degree of accuracy the
impact on any of these three areas of the failure of one or more aspects of our
risk analysis and compliance efforts.
The novelty and complexity of the issues presented and solutions proposed,
and our dependence on the technical skills of employees and independent
contractors and on the representations and preparedness of third parties are
among the factors that could cause our efforts to be less than fully effective.
Moreover, Year 2000 issues present a number of risks that are beyond our
reasonable control, such as the failure of utility companies to deliver
electricity, the failure of telecommunications companies to provide voice and
data services, the failure of financial institutions to process transactions and
transfer funds, the failure of vendors to deliver materials or perform services
required by us and the collateral effects on us of the effects of Year 2000
issues on the economy in general or on our customers in particular.
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.
Although we believe that our compliance efforts are designed to appropriately
identify and address those Year 2000 issues that are subject to our reasonable
control, we cannot assure you that our efforts will be fully effective, or that
Year 2000 risks will not have a material adverse effect on our business,
financial condition or results of operations. We have not developed a
contingency plan which assumes significant and protracted failures of major
vendors, customers or systems as a result of Year 2000-related risks.
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REPURCHASE UPON CHANGE OF CONTROL--WE MAY NOT HAVE THE ABILITY TO RAISE THE
FUNDS NECESSARY TO FUND A CHANGE OF CONTROL OFFER IF IT IS REQUIRED BY THE
INDENTURE.
If we experience a change of control of the types described in "Description
of Notes--Repurchase at the Option of Holders," you will have the right to
require us to repurchase all or any part of your notes at an offer price in cash
equal to 101% of their aggregate principal amount, plus accrued interest to the
date of repurchase. We cannot assure you that we will have sufficient resources
to satisfy our repurchase obligation to every note holder following a change of
control.
Our bank credit facility prohibits us from purchasing the notes, and makes
certain change of control events a default. The terms of any other future senior
debt may contain similar restrictions. If a change of control occurs while any
senior debt prohibits us from purchasing the notes, we could seek the consent of
the senior lenders to the purchase, or attempt to refinance the debt which
prohibits it. However, we can not assure you that those attempts would be
successful. If they are not, we would still be prohibited from repurchasing the
notes. Our failure to do so would result in a default under the indenture, which
could also result in a default in the senior debt, and therefore block any
payments to you under the "blocking" covenants described in "--Subordination."
CONTROL BY PRINCIPAL SHAREHOLDERS--WE ARE CONTROLLED BY PRINCIPAL SHAREHOLDERS
WHO ARE AFFILIATED WITH OUR LENDERS AND MAY HAVE ECONOMIC INTERESTS WHICH DIFFER
OR CONFLICT WITH YOURS.
DeCrane Aircraft is wholly owned by DeCrane Holdings, and all of the
outstanding shares of common stock of DeCrane Holdings are held by DLJ Merchant
Banking Partners II, L.P. and affiliated funds and entities. Those DLJ
affiliates 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 DLJ affiliates control DeCrane Holdings and
DeCrane Aircraft, and have the power to elect all of their directors, 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.
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, which was the initial purchaser of the old notes, are also DLJ
affiliates.
The interests of those principal shareholders could conflict with your
interests as a holder of the notes. 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 investment in the notes.
FRAUDULENT TRANSFERS--FEDERAL AND STATE "FRAUDULENT TRANSFER" STATUTES ALLOW
COURTS TO ORDER NOTEHOLDERS TO RETURN PAYMENTS ALREADY MADE, OR VOID GUARANTEES,
IF THE ISSUER'S OR GUARANTOR'S FINANCIAL CONDITION MEETS SPECIFIC TESTS.
Your rights to repayment of the notes, and to retain amounts already paid
under the notes, could be affected by the application of federal or state
"fraudulent transfer" laws. These statutes permit certain obligations to be
undone or rescinded if certain tests having to do with the obligation, the
person's intent and the person's financial condition are satisfied. Our
repayment obligations to you under the notes could be impaired by those laws if
a court determined that, when entering into or exchanging the notes, we either:
- had the actual intent to hinder, delay or defraud current or future
creditors, or
- received less than fair consideration or reasonably equivalent value for
incurring the debt represented by the notes, AND we were:
- insolvent or were rendered insolvent by reason of the issuance of the
notes, or
- were engaged, or about to engage, in a business or transaction for
which our assets were unreasonably small, or
- intended to incur, or believed or should have believed we would incur,
debts beyond our ability to pay as such debts mature.
17
<PAGE>
Based on such a finding, a court could void all or a portion of our obligations
to you, subordinate your right to repayment to our other existing and future
senior debt, in which case those other creditors would be paid in full before
any payment could be made on the notes, and take other action detrimental to
your rights, including invalidating the notes. We cannot assure you that, if
that occurred, you would ever recover any repayment on your notes.
The definition of insolvency used in the foregoing tests varies among
jurisdictions, depending upon the court and the law that is being applied. It is
not certain what standard a given court would apply in determining whether we
were insolvent on a particular date, or regarding other grounds that might lead
it to take the actions noted above.
NO PRIOR PUBLIC MARKET--YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL
DEVELOP FOR THE NOTES.
Prior to the registration of the new notes, there was no public market for
the notes. In addition, the liquidity of the trading market in the notes, and
the market price quoted for the notes, may be adversely affected by changes in
the overall market for high yield securities and by changes in our financial
performance or prospects or in the prospects for companies in our industry
generally. As a result, you cannot be sure that an active trading market will
develop for these notes.
18
<PAGE>
RECENT DEVELOPMENTS
THE DLJ ACQUISITION
In August 1998, DeCrane Holdings, one of three holding companies organized
by DLJ Merchant Banking Partners II, L.P. and several affiliates, completed a
successful tender offer for all shares of our common stock for $23.00 per share,
resulting in a net price of approximately $182.0 million. All outstanding
options to purchase shares were purchased for the same price, net of their
exercise proceeds. At the completion of the tender offer, the two other holding
companies merged with DeCrane Aircraft. All of our old outstanding shares and
share options 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 initial offering of the old notes in October 1998
to the initial purchaser Donaldson, Lufkin & Jenrette Securities Corporation.
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 for $34.0 million. In connection with the
latter, DeCrane Holdings also issued to DLJ affiliates warrants to acquire an
additional 5.0% of its common stock on a fully diluted basis.
The following table sets forth the cash sources and uses of funds for the
DLJ acquisition, including the initial offering of the old notes 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
DLJ 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 all of this
amount and used the cash to reduce our indebtedness.
19
<PAGE>
PATS
In January 1999, we acquired all of the stock of PATS, Inc. for a price of
approximately $41.5 million, including the assumption of debt, and subject to
adjustments for changes to its net working capital, and reserves for certain
environmental and other indemnities made by the selling 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, as described under "Business--Products and
Services--Auxiliary Fuel Systems." PATS is also a supplier of auxiliary power
units which supply ground power to aircraft.
PPI
In March 1999, we agreed to acquire all of the stock of PPI Holdings, Inc.
for a price of approximately $79.7 million in cash, which is to be adjusted
upwards or downwards based on certain post-closing contingencies relating to
financial matters. That purchase price includes $19.5 million which is to be
paid over approximately two years after the closing, but is contingent upon the
acquired business achieving specific financial performance criteria. PPI is a
manufacturer of interior furniture components primarily for middle- and high-end
corporate aircraft. We expect the transaction to close during the second quarter
of 1999.
20
<PAGE>
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 old notes. We will not receive any cash proceeds from the
issuance of the new notes, or the exchanges made by tendering holders of notes.
The old notes surrendered in the exchange will be canceled, so our issuance of
the new notes will not increase our outstanding debt. The terms of the new notes
and the old notes are substantially the same in all material respects, except
that the new notes will not be subject to liquidated damages penalties for
failure to timely register the notes under the Securities Act, and will be more
freely transferable by the holders thereof by reason of their registration
thereunder.
21
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated cash and cash equivalents
and total capitalization of DeCrane Aircraft as of December 31, 1998 on a
historical and pro forma basis. This table should be read in conjunction with
DeCrane Aircraft's consolidated financial statements and related notes, the
"Unaudited Pro Forma Consolidated Financial Statements" and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in the prospectus.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1998
-------------------------
ACTUAL PRO FORMA(1)
---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.................................................................... $ 3,518 $ 7,894
---------- -------------
---------- -------------
Total debt:
Bank credit facility
Term facility............................................................................ $ 79,888 $ 149,888
Revolving credit facility................................................................ 5,800 24,100
Senior Subordinated Notes due 2008......................................................... 100,000 100,000
Other debt................................................................................. 1,077 1,527
---------- -------------
Total debt................................................................................... 186,765 275,515
Stockholder's equity......................................................................... 97,921 110,027
---------- -------------
Total capitalization......................................................................... $ 284,686 $ 385,542
---------- -------------
---------- -------------
</TABLE>
- ------------------------
(1) Pro forma reflects the additional borrowings required to fund the PATS and
proposed PPI acquisitions.
22
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(1) As of December 31, 1998, reflects DeCrane Aircraft's financial position
subsequent to the DLJ acquisition and the initial offering. For the twelve
months ended December 31, 1998, reflects DeCrane Aircraft's historical
results of operations for the eight months ended August 31, 1998
(Predecessor) and the four months ended December 31, 1998 (Successor).
(2) Reflects DeCrane Aircraft's purchase of all of the outstanding stock of
PATS in January 1999 and the proposed purchase of all of the outstanding
stock of PPI. Sources and uses of funds for the acquisitions, had they
occurred on December 31, 1998, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
PPI
HOLDINGS,
PATS, INC. INC. TOTAL
----------- ------------- ----------
<S> <C> <C> <C>
SOURCES:
Senior credit facility borrowings:
Term B facility.......................................... $ 20,000 $ -- $ 20,000
Term C facility.......................................... -- 50,000 50,000
Acquisition facility..................................... 16,500 -- 16,500
Working capital facility................................. 1,000 800 1,800
DeCrane Holdings equity investment......................... -- 12,500 12,500
Customer prepayment........................................ 5,000 -- 5,000
----------- ------------- ----------
Total Sources.......................................... $ 42,500 $ 63,300 $ 105,800
----------- ------------- ----------
----------- ------------- ----------
USES:
Purchase of common stock................................... $ 31,212 $ 53,250 $ 84,462
Debt repaid upon acquisition............................... 9,277 7,550 16,827
Estimated acquisition fees and expenses.................... 1,136 1,000 2,136
Estimated financing fees and expenses...................... 875 1,500 2,375
----------- ------------- ----------
Total Uses............................................. $ 42,500 $ 63,300 $ 105,800
----------- ------------- ----------
----------- ------------- ----------
</TABLE>
(3) Reflects the financial position of PATS and PPI as of December 31, 1998.
(4) Reflects the excess purchase price of the acquisitions over the fair value
of net assets acquired. For purposes of the Pro Forma Consolidated
Financial Data, we allocated the excess purchase price to goodwill which is
being amortized on a straight-line basis over 30 years. Such allocation is
preliminary and may change upon the completion of the final valuations of
the net assets acquired.
(5) Reflects $2.1 million of credit facility amendment fees and expenses
capitalized as deferred financing costs net of a $0.2 million write off of
PPI deferred financing costs related to debt to be repaid upon acquisition.
(6) Reflects the $16.8 million repayment of PATS and PPI debt upon acquisition
offset by $0.5 million of Term C facility borrowings classified as a
current obligation.
(7) Reflects a customer prepayment for product to be delivered by PATS through
2001 used by DeCrane Aircraft to finance the acquisition. The prepayment
will be offset semiannually against future amounts receivable and has a
7.5% effective interest rate.
(8) Reflects the income tax benefit of the write off of PPI deferred financing
costs.
(9) Reflects the long-term portion of senior credit facility borrowings for the
acquisitions. The terms of the senior credit facility are described in the
DeCrane Aircraft historical consolidated financial statements and related
notes included elsewhere in this prospectus.
(10) Reflects the $12.5 million DeCrane Holdings equity investment net of $0.3
million of issuance costs, the elimination of the acquired companies
stockholders'equity upon acquisition and the $0.1 million write off, net of
income tax benefit, of PPI deferred financing costs.
(11) Reflects the results of operations for the companies acquired for the
periods not included in the historical columns. The results of operations
for the acquired companies are for the periods from January 1, 1998 to: (a)
June 25, 1998 for Avtech; (b) June 29, 1998 for Dettmers; and (c) December
31, 1998 for PATS and PPI.
26
<PAGE>
(12) Reflects the elimination of intercompany sales.
(13) Reflects the net change in cost of goods sales attributable to the
following (dollars in thousands):
<TABLE>
<S> <C>
Decrease in depreciation expense (a)..................................... $ (658)
Elimination of intercompany sales........................................ (133)
Work force reductions attributable to merging the companies acquired..... (60)
---------
Net increase (decrease) in cost of sales................................. $ (851)
---------
---------
</TABLE>
- ------------------------
(a) 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.
(14) Reflects the net decrease in selling, general and administrative expenses
attributable to the following (dollars in thousands):
<TABLE>
<S> <C>
Decrease in compensation expense (a).................................... $ (1,775)
Decrease in investor relations expenses (b)............................. (221)
Other, net (c).......................................................... 268
---------
Net decrease in selling, general and administrative expenses............ $ (1,728)
---------
---------
</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.
(15) Reflects a reduction for nonrecurring charges incurred: (a) by DeCrane
Aircraft on behalf of its stockholders related to the DLJ acquisition; and
(b) by Avtech and PATS on behalf of their stockholders related to their
respective acquisitions by DeCrane Aircraft.
(16) Reflects a reduction in expense attributable to employment contract
termination expenses and nonrecurring bonuses awarded prior to, and in
anticipation of, the acquisitions of Avtech and PATS by DeCrane Aircraft.
(17) Reflects a reduction in expense attributable to the termination of the
Employee Stock Ownership Plans in conjunction with the acquisitions of
Avtech and PATS.
(18) Reflects a net increase in amortization expense pertaining to the
amortization of goodwill and other intangible assets related to the DLJ,
PATS and PPI acquisitions on a straight-line basis as follows (dollars in
thousands):
<TABLE>
<CAPTION>
AMORTIZATION
AMOUNT YEARS EXPENSE
---------- --------- ------------
<S> <C> <C> <C>
Elimination of Predecessor amortization
DeCrane Aircraft........................................................... $ (1,347)
PPI........................................................................ (328)
DLJ acquisition amortization:
Goodwill................................................................... $ 166,674 30 3,704
FAA certifications......................................................... 30,391 15 1,351
Engineering drawings....................................................... 9,138 15 406
Assembled workforce........................................................ 6,588 7 627
Tradenames, trademarks and patents......................................... 3,908 5 to 12 269
Goodwill amortization attributable to 1999 acquisitions (a)
PATS....................................................................... 27,376 30 913
PPI........................................................................ 44,130 30 1,471
------------
Net increase in amortization............................................. $ 7,066
------------
------------
</TABLE>
- ------------------------
(a) Amortization expense may change upon completion of the final valuations
of the net assets acquired.
27
<PAGE>
(19) 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>
INTEREST
RATE OR TERM AMOUNT EXPENSE
---------------------- --------- ---------
<S> <C> <C> <C>
Elimination of historical net interest expense (a):
Pertaining to debt refinanced (b):
Interest expense.................................................. $ (3,575)
Deferred financing cost amortization, commitment fees and
expenses........................................................ (236)
Interest income (c)................................................. 207
Successor net interest expense...................................... (6,794)
Pro forma interest expense (d):
Interest expense:
Revolving credit facility:
Working capital facility........................................ LIBOR (e) +2.75% $ 8,912 692
Acquisition facility............................................ LIBOR (e) +2.75% 16,500 1,282
Term facility:
Term A.......................................................... LIBOR (e) +2.75% 35,000 2,720
Term B.......................................................... LIBOR (e) +3.00% 65,000 5,213
Term C.......................................................... LIBOR (e) +3.25% 50,000 4,135
Bridge notes...................................................... Prime + (f) 100,000 10,625
Customer prepayment interest...................................... 7.50% 5,000 375
Deferred financing cost amortization:
Revolving credit facility......................................... 6 years (g) 1,277 213
Term facility:
Term A.......................................................... 6 years (h) 894 200
Term B.......................................................... 7 years (h) 2,025 315
Term C.......................................................... 7 years (h) 1,200 176
Bridge notes...................................................... 7.5 years (g) 3,180 424
Commitment fees and expenses........................................ 219
---------
Net increase in interest expense.................................. $ 16,191
---------
---------
</TABLE>
- --------------------------
(a) Excludes interest expense pertaining capital lease obligations and other
debt obligations not refinanced.
(b) Includes DeCrane Aircraft Predecessor debt refinanced in conjunction
with the DLJ acquisition, Dettmers debt not acquired and PATS and PPI
debt refinanced in conjunction with their acquisitions by DeCrane
Aircraft. See the notes to the DeCrane Aircraft, PATS and PPI
consolidated financial statements included elsewhere in this prospectus
for a description of the debt refinanced.
(c) Interest income earned from invested surplus cash balances prior to
acquisition.
(d) Pro forma for the DLJ, PATS and PPI acquisitions as if they had occurred
on January 1, 1998.
(e) Calculations based on LIBOR at 5.02%.
(f) Calculations based on Prime at 8.5%, the rate in effect during the
period the bridge notes were issued and outstanding, plus 2.125%.
(g) Deferred financing costs are amortized on a straight-line basis over the
term of the agreement.
(h) Deferred financing costs are amortized using the effective interest
method.
(20) Reflects adjustment for nonrecurring charges associated with a terminated
debt offering in June 1998. Such offering was terminated upon initiation of
the DLJ acquisition.
(21) Represents an increase in the provision for income taxes as a result of a
change in pro forma taxable income, a provision for income taxes on the
income of PPI which was taxed as an S Corporation prior to its acquisition,
and elimination of the $2.6 million one time benefit caused by reversal of
DeCrane Aircraft's deferred tax valuation allowance. The effective tax rate
differs from the U.S. federal statutory rate due to goodwill amortization
related to acquisitions not deductible for income tax purposes.
28
<PAGE>
(22) 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>
INTEREST
RATE OR TERM AMOUNT EXPENSE
--------------------- --------- ---------
<S> <C> <C> <C>
Elimination of bridge notes interest expense:
Interest expense.................................................... Prime + (a) $ 100,000 $ (10,625)
Deferred financing cost amortization................................ 7.5 years (b) 3,180 (424)
Senior subordinated notes due 2008:
Interest expense.................................................... 12.00% 100,000 12,000
Deferred financing cost amortization (c)............................ 10 years (d) 5,810 581
Revolving credit facility:
Interest expense.................................................... LIBOR (e) + 2.75% 4,610 358
Commitment fees and expenses........................................ (23)
---------
Net increase in interest expense.................................... $ 1,867
---------
---------
</TABLE>
- --------------------------
(a) Calculations based on Prime at 8.50%, the rate in effect during the
period the bridge notes were issued and outstanding, plus 2.125%.
(b) Deferred financing costs are amortized on a straight-line basis over the
term of the agreement.
(c) Includes $1.2 million for the value ascribed to the warrants issued by
DeCrane Holdings in conjunction with the sale of the units in the initial
offering.
(d) Deferred financing costs are amortized using the effective interest
method.
(e) Calculations based on LIBOR at 5.02%.
(23) Represents a decrease in the provision for income taxes as a result of a
decrease in pro forma taxable income.
(24) In conjunction with the DLJ acquisition, deferred financing costs of
$347,000, 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, were written
off as an extraordinary charge as a result of the termination of the bridge
notes. In conjunction with the proposed PPI acquisition, deferred financing
costs of $.1 million, net of income tax benefit, will be written off as an
extraordinary charge as a result of the repayment of PPI debt upon
acquisition. These amounts have not been reflected in the unaudited pro
forma consolidated statement of operations.
(25) Supplemental financial data, pro forma for the Acquisition and Offering
adjustments, is as follows (dollars in thousands):
<TABLE>
<S> <C>
Cash flows from operating activities.................................. $ 5,486
Cash flows from investing activities.................................. (174,548)
Cash flows from financing activities.................................. 170,415
EBITDA (a)............................................................ 52,663
Depreciation and amortization (b)..................................... 16,996
Capital expenditures.................................................. 6,693
Cash interest expense................................................. 27,120
Ratio of earnings to fixed charges (c)................................ 1.1x
</TABLE>
- ------------------------
(a) EBITDA equals operating income plus depreciation, amortization and
non-cash acquisition related charges to reflect cost of sales based on
the fair value of inventory acquired in connection with the DLJ
acquisition. 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 our operating performance, as an alternative to cash flow
from operating activities or as a measure of liquidity. The funds
depicted by EBITDA are not available for our discretionary use due to
funding requirements for working capital, capital expenditures, debt
service, income taxes and other commitments and contingencies. We believe
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
29
<PAGE>
EBITDA numbers set forth above may not be comparable to EBITDA reported
by other companies.
(b) 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.
(c) For purposes of calculating the earnings to fixed charges ratio,
earnings represent net income before income taxes, minority interest in
the income of majority-owned subsidiaries, extraordinary items and fixed
charges. Fixed charges consist of: (a) interest, whether expensed or
capitalized; (b) amortization of debt expense and discount relating to
any indebtedness, whether expensed or capitalized; and (c) one-third of
rental expense under operating leases which is considered to be a
reasonable approximation of the interest portion of such expense.
30
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents historical consolidated financial data of
DeCrane Aircraft as of and for each of the four years in the period ended
December 31, 1997, the eight months ended August 31, 1998 and the four months
ended December 31, 1998 derived from the audited financial statements. 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) (SUCCESSOR)
----------------------------------------------------------- -------------
EIGHT MONTHS FOUR MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED
-------------------------------------------- AUGUST 31, DECEMBER 31,
1994 1995 1996(1) 1997(2) 1998(3) 1998(4)
--------- --------- ----------- --------- ------------- -------------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C>
Revenues......................................... $ 47,092 $ 55,839 $ 65,099 $ 108,903 $ 90,077 $ 60,356
Cost of sales(5)................................. 36,407 43,463 49,392 80,247 60,101 42,739
--------- --------- ----------- --------- ------------- -------------
Gross profit..................................... 10,685 12,376 15,707 28,656 29,976 17,617
Selling, general and administrative expenses..... 7,716 9,426 10,747 15,756 15,719 10,274
Nonrecurring charges(6).......................... -- -- -- -- 3,632 --
Amortization of intangible assets................ 1,209 1,115 709 905 1,347 3,148
--------- --------- ----------- --------- ------------- -------------
Operating income................................. 1,760 1,835 4,251 11,995 9,278 4,195
Interest expense................................. 3,244 3,821 4,248 3,154 2,350 6,852
Terminated debt offering expenses................ -- -- -- -- 600 --
Other expenses, net.............................. 332 382 108 243 247 335
--------- --------- ----------- --------- ------------- -------------
Income (loss) before provision for income taxes
and
extraordinary item............................. (1,816) (2,368) (105) 8,598 6,081 (2,992)
Provision for income taxes (benefit)(7).......... 613 1,078 712 3,344 2,892 (2,668)
--------- --------- ----------- --------- ------------- -------------
Income (loss) before extraordinary item.......... (2,429) (3,446) (817) 5,254 3,189 (324)
Extraordinary loss from debt refinancing(8)...... (264) -- -- (2,078) -- (2,229)
--------- --------- ----------- --------- ------------- -------------
Net income (loss)................................ $ (2,693) $ (3,446) $ (817) $ 3,176 $ 3,189 $ (2,553)
--------- --------- ----------- --------- ------------- -------------
--------- --------- ----------- --------- ------------- -------------
OTHER FINANCIAL DATA:
Cash flows from operating activities............. $ (2,322) $ 1,457 $ 2,958 $ 4,641 $ 3,014 $ 1,008
Cash flows from investing activities............. (993) (1,462) (24,016) (27,809) (87,378) (1,813)
Cash flows from financing activities............. 3,028 41 21,051 22,957 89,871 (1,597)
EBITDA(9)........................................ 5,196 5,471 7,602 16,915 13,636 13,247
EBITDA margin(10)................................ 11.0% 9.8% 11.7% 15.5% 15.1% 21.9%
Depreciation and amortization(11)................ $ 3,436 $ 3,636 $ 3,351 $ 4,920 $ 4,358 $ 4,604
Capital expenditures(12)......................... 1,016 1,203 5,821 3,842 1,745 1,813
Ratio of earnings to fixed charges(13)........... -- -- 1.0x 3.3x 3.0x --
OTHER OPERATING DATA:
Bookings(14)..................................... $ 47,896 $ 50,785 $ 81,914 $ 112,082 $ 94,439 $ 54,021
Backlog at end of period(15)..................... 24,493 19,761 44,433 49,005 84,184 75,388
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------------
(PREDECESSOR) (SUCCESSOR)
------------------------------------------------ -----------
1994 1995 1996(1) 1997(2) 1998(16)
--------- ----------- --------- ------------- -----------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents............................... $ 236 $ 305 $ 320 $ 206 $ 3,518
Working capital......................................... 11,459 12,583 10,486 24,772 46,033
Total assets............................................ 37,685 36,329 69,266 99,137 330,927
Total debt(17).......................................... 23,874 24,672 42,250 38,838 186,765
Mandatorily redeemable preferred stock and common stock
warrants.............................................. 2,329 1,633 6,879 -- --
Stockholders' equity (deficit).......................... 766 (1,697) 1,236 39,527 97,921
</TABLE>
See accompanying notes to Selected Consolidated Financial Data
31
<PAGE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) Includes the effect of: (a) the acquisition of the remaining 25% minority
interest in Cory Components beginning February 20, 1996, the date on which
the transaction occurred; and (b) the results of Aerospace Display Systems
beginning September 18, 1996, and Elsinore Aerospace Services, Inc. and
Elsinore Engineering, Inc. beginning December 5, 1996, 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) 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.
(4) Reflects the results of operations subsequent to the DLJ acquisition
(Successor).
(5) Includes $4.4 million of non-cash charges for the four months ended December
31, 1998 to reflect cost of sales based on the fair value of inventory
acquired in connection with the DLJ acquisition.
(6) Represents non-capitalizable transaction costs associated with the DLJ
acquisition.
(7) 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. For the four months ended December 31, 1998,
includes a $2.6 million benefit from the reduction of the deferred tax
valuation allowance.
(8) Represents: (a) the write-offs 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; (b) the write-offs, 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 (c) the write-offs, 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 and
the refinancing of the bridge notes during the four months ended December
31, 1998.
(9) 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 our operating performance, as an
alternative to cash flow from operating activities or as a measure of
liquidity. The funds depicted by EBITDA are not available for our
discretionary use due to funding requirements for working capital, capital
expenditures, debt service, income taxes and other commitments and
contingencies. We believe 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.
(10) EBITDA margin is computed by dividing EBITDA by revenues.
(11) 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.
(12) Includes $4.4 million for the year ended December 31, 1996 related to the
acquisition of a manufacturing facility.
(13) 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: (a)
interest, whether expensed or capitalized; (b) amortization of debt expense
and discount or premium relating to any indebtedness, whether expensed or
capitalized; and (c) one-third of rental expenses under operating leases
which is considered 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 four months ended
December 31, 1998 of $1.8 million, $2.3 million and $2.9 million,
respectively.
(14) Bookings represent the total invoice value of purchase orders received
during the period.
(15) 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.
(16) Reflects the financial position of Avtech and Dettmers and the DLJ
acquisition.
(17) Total debt is defined as long-term debt, including current portion, and
short-term borrowings.
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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 AIRCRAFT AND THE RELATED NOTES INCLUDED
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Our results of operations have been affected by our history of acquisitions.
Since our formation in 1989, we have completed twelve acquisitions of businesses
or assets. The most recent acquisition, PATS, was acquired in January 1999. We
also anticipate completing the acquisition of PPI in the second quarter of 1999.
As a result, our historical financial statements do not reflect the results of
all of our current businesses. Additionally, our capital structure was
significantly altered by the tender offer for our stock successfully conducted
by an affiliate of DLJ Merchant Banking Partners II, L.P. in August 1998.
THE DLJ ACQUISITION AND FINANCING
In August 1998, DeCrane Holdings and its two subsidiaries, an acquisition
subsidiary and a financing subsidiary, completed a successful $186.3 million
cash tender offer for all of the shares of DeCrane Aircraft. DeCrane Holdings
was organized by DLJ Merchant Banking II, L.P. and several of its affiliates.
The funds for the tender offer, and the refinancing of DeCrane Aircraft's
existing debt, were obtained from the sale of equity by DeCrane Holdings and the
issuance of debt by its finance subsidiary. DeCrane Holdings received an initial
capital contribution of approximately $99.0 million from the sale of its
preferred and common stock and warrants to DLJ Merchant Banking. DeCrane
Holdings used these funds to capitalize its finance subsidiary. The finance
subsidiary then entered into a $130.0 million syndicated bank credit facility
with a group of lenders led by DLJ Capital Funding, Inc. and issued $100.0
million of senior subordinated increasing rate bridge notes to DLJ Bridge
Finance Inc. The finance subsidiary capitalized the acquisition subsidiary with
the funds necessary to complete the tender offer.
Upon completion of the tender offer, the acquisition and finance
subsidiaries were merged into DeCrane Aircraft and DeCrane Aircraft's existing
debt was repaid. As a result of the mergers, DeCrane Aircraft became a
wholly-owned subsidiary of DeCrane Holdings and the bank credit facility and
bridge notes became obligations of DeCrane Aircraft. In October 1998, DeCrane
Aircraft refinanced the bridge notes with the proceeds from the sale of the old
notes issued under the indenture described in this prospectus.
The gross purchase price for DeCrane Aircraft's shares and options was
$186.3 million. Assets acquired and liabilities assumed have been recorded at
their estimated fair values based on an independent appraisal. The purchase
price was allocated to the assets acquired based on the estimated fair values of
$4.4 million for inventory, $2.6 million for fixed assets, and $50.0 million for
certain identifiable intangible assets. The excess of the purchase price over
the fair value of the net assets acquired totalling $70.0 million was allocated
to goodwill. The increase in inventory value was expensed as the inventory was
sold during the four months ended December 31, 1998. The intangible assets,
other than goodwill, are being amortized on a straight-line basis over periods
between five and fifteen years. Goodwill is being amortized on a straight-line
basis over a period of thirty years.
The term loan facility under our bank credit facility consists of a $35.0
million amortizing Term A loan maturing in six years and a $65.0 million
amortizing Term B loan maturing in seven years. The Term B loan was increased
from $45.0 to $65.0 million at the time of the PATS acquisition. Scheduled
aggregate amortization is $1.1 million 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
borrowed upon completion of the DLJ acquisition. Both revolving credit
facilities will terminate after six years.
Borrowings under our bank credit facility generally bear interest based on a
margin over, at DeCrane Aircraft's option, either the base rate or the
Euro-Dollar rate. The applicable margin for the revolving credit facilities and
Term A loan is 1.50% for base rate borrowings and 2.75% for Euro-Dollar
borrowings for the first six months after the January 1999 PATS acquisition
amendment was adopted; the Term B loan has a margin of 1.75% for base rate
borrowings and 3.00% for Euro-Dollar borrowings.
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After the first six months, the applicable margin 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;
- 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
- secured by a pledge by DeCrane Holdings of the stock of DeCrane Aircraft.
The bank credit facility contains customary covenants and events of default.
Both the old and new notes 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, preferred stock,
and warrants. The proceeds of those sales were contributed to the paid-in
capital of DeCrane Aircraft. The DeCrane Holdings preferred stock 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 stock 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 acquire or make equity investments in other companies.
INDUSTRY OUTLOOK AND TRENDS
We sell to the commercial, regional, corporate and military aircraft
markets. Within these markets, our customers include original manufacturers of
aircraft and related electronic equipment, aircraft repair and modification
centers, and airlines. We believe there are favorable trends in the markets we
serve that will result in continuing strong demand for our products and
services.
The 1998 CURRENT MARKET OUTLOOK released by the Boeing Company in early 1998
projected that:
- worldwide revenue passenger kilometers will increase at a compounded
annual growth rate of 5.0% over the next ten years;
- 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; and
- 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 older aircraft are removed from commercial airline
service.
We believe these projected increases over the prolonged time frame indicated
above will result in strong demand for our products and services in the
commercial, regional and corporate aircraft markets that we serve. However, the
shorter-term outlook includes Boeing's recent announcements concerning
production line cutbacks, which will result in a projected decline in commercial
aircraft deliveries after 1999.
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RESULTS OF OPERATIONS
The following table sets forth the items in our consolidated statements of
operations as percentages of its revenues for the periods indicated. The
percentages for the years ended December 31, 1996 and 1997 reflect the
historical results of operations prior to the DLJ acquisition. The percentages
for the year ended December 31, 1998 reflect the combined historical results of
operations for the eight months ended August 31, 1998 prior to the DLJ
acquisition and the four months ended December 31, 1998 subsequent to the DLJ
acquisition.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Revenues............................................................................. 100.0% 100.0% 100.0%
Cost of sales........................................................................ 75.9 73.7 68.4
--------- --------- ---------
Gross profit......................................................................... 24.1 26.3 31.6
Selling, general and administrative expenses......................................... 16.5 14.5 19.7
Amortization of intangible assets.................................................... 1.1 0.8 3.0
--------- --------- ---------
Operating income..................................................................... 6.5 11.0 8.9
Interest expense..................................................................... 6.5 2.9 6.1
Other expense, net................................................................... 0.2 0.2 0.8
--------- --------- ---------
Income (loss) before provision for income taxes,
and extraordinary item............................................................. (0.2) 7.9 2.0
Provision for income taxes........................................................... (1.1) (3.1) (0.1)
--------- --------- ---------
Income (loss) before extraordinary item.............................................. (1.3) 4.8 1.9
Extraordinary loss from debt refinancing............................................. -- (1.9) (1.5)
--------- --------- ---------
Net income (loss).................................................................... (1.3)% 2.9% 0.4%
--------- --------- ---------
--------- --------- ---------
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES. Revenues increased $41.6 million, or 38.2%, to $150.5 million for
the year ended December 31, 1998 from $108.9 million for the year ended December
31, 1997. Revenues increased primarily due to the inclusion of: (a) $20.2
million of revenues from Audio International, which was acquired on November 14,
1997; (b) $25.2 million of revenues from Avtech, which was acquired on June 26,
1998; and (c) $3.3 million of revenues from Dettmers, which was acquired on June
30, 1998. These revenue increases were somewhat offset by continued softness in
the electrical contact markets, where we experienced a sales decline of
approximately $8.6 million for the year ended December 31, 1998 compared with
the same period last year.
GROSS PROFIT. Gross profit increased $18.9 million, or 65.9%, to $47.6
million for the year ended December 31, 1998 from $28.7 million for the year
ended December 31, 1997. Gross profit as a percent of revenues increased to
31.6% for the year ended December 31, 1998 from 26.3% for the year ended
December 31, 1997. Factors contributing to the gross profit increase were: (a)
$12.4 million from an overall increase in sales volume, primarily a result of
the November 1997 Audio International and June 1998 Avtech and Dettmers
acquisitions; (b) $10.3 million due to the higher overall gross margins of the
acquired companies; and (c) $1.8 million due to overall margin improvements at
existing companies. The increase was ofset by: (a) a $1.2 million decrease due
to a decline in electrical contact revenues; and (b) a $4.4 million charge for
the portion of the DLJ acquisition purchase price allocated to inventory and
expensed as the inventory was sold during the four months ended December 31,
1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $13.8 million, or 87.3%, to $29.6 million for
the year ended December 31, 1998 from $15.8 million for the year ended December
31, 1997. SG&A expenses as a percent of revenues increased to 19.7% for the year
ended December 31, 1998 from 14.5% for the year ended December 31, 1997. SG&A
expenses increased primarily as a result of: (a) the inclusion of $9.2 million
of expenses pertaining to Audio International, Avtech and Dettmers which were
acquired during 1997 and 1998; (b) $3.6 of non-capitalizable costs associated
with the DLJ acquisition; and (c) a $1.9 million increase in research and
development costs related to new product introductions at Audio International
and Dettmers.
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OPERATING INCOME. Operating income increased $1.5 million to $13.5 million
for the year ended December 31, 1998 from $12.0 million for the year ended
December 31, 1997. Operating income as a percent of revenues decreased to 8.9%
for the year ended December 31, 1998 from 11.0% for the year ended December 31,
1997. An overall $13.1 million increase in operating income, including $12.0
million from the acquisitions of Audio International, Avtech and Dettmers, was
offset by: (a) the $4.4 million charge for the portion of the DLJ purchase price
allocated to inventory; (b) $3.6 million of higher amortization expense
associated with acquisitions, including the DLJ acquisition; and (c) the $3.6
million charge for non-capitalizable costs associated with the DLJ acquisition.
INTEREST EXPENSE. Interest expense increased $6.0 million, or 187.5%, to
$9.2 million for the year ended December 31, 1998 from $3.2 million for the year
ended December 31, 1997. This increase resulted primarily from the higher debt
levels associated with the DLJ acquisition.
PROVISION FOR INCOME TAXES. During the year ended December 31, 1998, we
decreased our provision for income taxes by $3.2 million to $0.2 million from
$3.4 million for the year ended December 31, 1997, as a result of lower income
before taxes and the reduction of our deferred tax asset valuation allowance by
$2.6 million. This decrease was significantly offset by an increase in
non-deductible expenses, particularly the amortization of intangible assets,
during the same period. We have approximately $17.4 million and $0.6 million in
loss carry forwards available at December 31, 1998 for federal and state income
tax purposes.
EXTRAORDINARY LOSS FROM DEBT REFINANCING. During the year ended December
31, 1998, we incurred a $2.2 million extraordinary charge, net of an estimated
$1.5 million income tax benefit, as a result of the refinancing of the bridge
notes with a units offering consisting of notes and warrants. During the year
ended December 31, 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 (LOSS). Net income decreased $2.6 million to $0.6 million for
the year ended December 31, 1998 compared to $3.2 million for the same period in
1997 primarily due to the higher amortization, interest and other expenses
associated with the DLJ acquisition.
BOOKINGS AND BACKLOG. Bookings increased $36.4 million, or 32.5%, to $148.5
million for the year ended December 31, 1998 compared to $112.1 million for the
same period in 1997. The increase in bookings for 1998 includes: (a) $21.0
million attributable to Audio International; (b) $15.4 million attributable to
Avtech; and (c) $2.9 million attributable to Dettmers. As of December 31, 1998,
we had a sales order backlog of $75.4 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: (a) the
inclusion of $10.7 million of revenues from Aerospace Display Systems; (b)
growth in our private labeling programs of $6.4 million; (c) growth in contact
sales of $6.3 million driven by new aircraft production rate increases; (d) an
increase in sales of harness assemblies for in-flight entertainment systems of
$5.1 million; (e) 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; (f) an increase of sales to Interactive Flight
Technologies, Inc. of $3.3 million relating to a major systems integration
program for Swiss Air Transport Co. Ltd.; (g) the inclusion of $3.0 million of
revenue from Elsinore; (h) new systems integration programs for navigational
systems of $1.5 million; (i) the inclusion of $1.3 million of revenue from Audio
International; (j) a new systems integration program for United Parcel Service,
Inc. of $0.9 million; and (k) 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 gross
profit was attributable to: (a) a $10.6 million increase as a result of
increased sales volume, $3.8 million of which was attributable to the Aerospace
Display Systems,
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<PAGE>
Elsinore and Audio International acquisitions; and (b) a $2.3 million increase
attributable to a favorable shift in revenues to higher margin products, cost
reductions and sustained price increases.
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: (a) $2.3 million of incremental
expenses resulting from the acquisition of Aerospace Display Systems, the AMP
facility and Elsinore, all of which occurred in late 1996; (b) $0.8 million for
additional staff to pursue higher sales to aircraft manufacturers and to develop
capabilities for in-flight entertainment, navigation and satellite communication
and safety systems integration services; and (c) $0.6 million of incremental
expenses resulting from the acquisition of Audio International, which occurred
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.
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. Cash increased $3.3 million during 1998.
For the year ended December 31, 1998, we generated cash from operating
activities of $4.0 million. 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 $6.6 million for the year ended December 31, 1998 from higher overall
sales. Unbilled receivables comprised $3.5 million of this increase. Inventories
decreased $2.2 million for the year ended December 31, 1998, due to improved
inventory management at several subsidiaries as well as the sale of certain
contact product lines and the disposal of certain obsolete inventory items.
Accounts payable decreased $2.9 million for the year ended December 31, 1998 as
a result of payment of various assumed transaction expenses in the acquisitions
of 1998 and an agreement with a new gold supplier for significantly lower prices
in exchange for shorter payment terms. Accrued expenses, however, increased $5.9
million for the year ended December 31, 1998, primarily as a result of a $2.8
million increase in accrued interest.
Net cash used in investing activities was $89.2 million during the year
ended December 31, 1998. Of this amount, $83.6 million was used for the Avtech
acquisition and $2.2 million for the Dettmers acquisition, 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 $3.6 million on capital expenditures during the year ended
December 31, 1998, which was lower than the $4.5 million originally anticipated
because the actual cash outlays for our information systems upgrade program were
delayed until 1999. 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.
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Net cash provided by financing activities was $88.3 million for the year
ended December 31, 1998. In connection with the DLJ acquisition, we entered into
a new bank credit facility that initially provided for term loan borrowings in
the aggregate principal amount of $80.0 million, now increased to $99.9 million,
and revolving loan borrowings up to an aggregate principal amount of $50.0
million, including $25.0 million for working capital purposes which expires in
2004. In 1998, prior to the DLJ acquisition, we also completed a common stock
offering and used the $34.8 million net proceeds to reduce the amount
outstanding under our credit facility, and borrowed $85.8 million under our
then-existing senior credit facility to finance the Avtech and Dettmers
acquisitions.
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 short- and long-term
operating expenses, working capital, capital expenditures and debt service
obligations for the next three years. 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 PRONOUNCEMENT
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. 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. Other parties with whom we have
commercial relationships, including raw materials suppliers and service
providers, such as banking and financial services, data processing services,
telecommunications services and utilities, are highly reliant on computer-based
technology.
The costs we have incurred to remediate and test our systems, and evaluate
and address the risks of our key customers and vendors, have been immaterial to
date and we presently expect to incur less than $1.0 million of costs in the
aggregate. All of our Year 2000 compliance costs have been or are expected to be
funded from our operating cash flow. We believe the number of products
manufactured by us whose functioning is dependent upon computer-controlled
systems is not significant. We are not aware of any material customer- or
vendor-related Year 2000 issues. Our review of third-party compliance risks from
our key vendors and customers is not yet complete. However, even assuming that
our non-responding vendors and customers suffer interruptions to their
operations due to Year 2000 systems
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failures, our management does not anticipate encountering any significant
resulting failures in our systems, products or supply chain that would disrupt
our operations to a material degree.
Our Year 2000 compliance efforts are directed primarily towards ensuring
that we will be able to continue to perform three critical functions:
- make and sell our products,
- order and receive raw material and supplies, and
- pay our employees and vendors.
It is difficult, if not impossible, to assess with any degree of accuracy the
impact on any of these three areas of the failure of one or more aspects of our
risk analysis and compliance efforts.
The novelty and complexity of the issues presented and solutions proposed,
and our dependence on the technical skills of employees and independent
contractors and on the representations and preparedness of third parties are
among the factors that could cause our efforts to be less than fully effective.
Moreover, Year 2000 issues present a number of risks that are beyond our
reasonable control, such as the failure of utility companies to deliver
electricity, the failure of telecommunications companies to provide voice and
data services, the failure of financial institutions to process transactions and
transfer funds, the failure of vendors to deliver materials or perform services
required by us and the collateral effects on us of the effects of Year 2000
issues on the economy in general or on our customers in particular.
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.
Although we believe that our compliance efforts are designed to appropriately
identify and address those Year 2000 issues that are subject to our reasonable
control, we cannot assure you that our efforts will be fully effective, or that
Year 2000 issues will not have a material adverse effect on our business,
financial condition or results of operations. We have not developed a
contingency plan which assumes significant and protracted failures of major
vendors, customers or systems as a result of Year 2000-related risks.
COMMON EUROPEAN CURRENCY
The Treaty on European Economic and Monetary Union 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 started on January 1, 1999. According to the
European Council Resolution of July 7, 1997, the transition will be made in
three steps, beginning with a transition 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 Euros will coexist. From January 1,
2002 to June 30, 2002, local currencies will be exchanged for Euros. On July 1,
2002, local currencies are scheduled to disappear. We could incur substantial
transitional costs as we redesign our software systems to reflect the adoption
of the new currency. In addition, we do not know whether the adoption of the
Euro will affect the enforceability of, or the denomination of payment
obligations under, our commercial agreements in currencies to be replaced by the
Euro.
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<PAGE>
BUSINESS
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 $244.4 million, Adjusted EBITDA of $55.9 million and a loss before
extraordinary item of $1.1 million for the twelve months ended December 31, 1998
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";
- auxiliary fuel tank systems and auxiliary power systems;
- dichroic liquid crystal display devices (commonly called "LCDs"), 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 various aircraft systems
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 1994 to 1998, our revenues increased from
$47.1 million to $150.5 million on a historical basis. That increase resulted in
a compound annual growth rate of 33.7%. During the same period, our EBITDA
increased from $5.2 million to $26.9 million on a historical basis, representing
a combined annual growth rate of 50.8%, and our historical income before
extraordinary items increased from a $1.8 million loss to $3.1 million in
income. We have achieved 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;
- 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 twelve acquisitions, most recently PATS, Inc. in
January 1999; one more is expected to close during the second quarter of 1999,
as described in "Recent Developments--PPI."
INDUSTRY OVERVIEW AND TRENDS
We sell to the commercial, regional, corporate and military aircraft
markets. Within these markets, our customers include original manufacturers of
aircraft and related electronic equipment, aircraft repair and modification
centers and airlines.
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The Boeing Company and Airbus Industrie are the primary manufacturers of
commercial aircraft designed to carry 100 or more passengers. The leading
manufacturers of regional and corporate aircraft, include Bombardier, Dassault
and Gulfstream and will soon include the Boeing Business Jet and the Airbus A319
corporate jet. The major systems installed on new aircraft, such as flight deck
avionics systems, are produced by a limited number of manufacturers, including
AlliedSignal, Rockwell Collins, General Electric, Honeywell, Raytheon and
Sextant Avionique. The integration of new systems into existing aircraft, called
the "retrofit" market, and the manufacture and sale of replacement products for
existing aircraft, called the "aftermarket," are served by a highly fragmented
group of companies, including many of the foregoing manufacturers and a number
of smaller, specialized companies like our operating subsidiaries. We market our
commercial aircraft products directly to the aircraft manufacturers as well as
to the manufacturers of major aircraft sub-systems. In some cases, we sell our
products to competing manufacturers--so some of our competitors ultimately [may]
also sell some of our products. The aviation industry has been consolidating at
an increasing pace in recent years, and we expect that consolidation will
continue for the foreseeable future.
We believe that there are many barriers to entry which limit access to the
aircraft industry, including:
- the reluctance of aircraft manufacturers to include new companies as
additional approved vendors on their engineering drawings, a favored
status often 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 electronic systems manufacturers; and
- the initial capital investment and tooling requirements necessary for the
manufacture of some aircraft components and systems.
We believe the following trends are affecting the industry:
INCREASED DEMAND FOR NEW COMMERCIAL AIRCRAFT. The 1998 CURRENT MARKET
OUTLOOK released by Boeing in early 1998 projected 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 estimated 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. Boeing has, however, recently announced production cutbacks
in several of its lines for 1999 and 2000. Boeing continues to re-evaluate its
production schedules in response to instability in its Asian markets and to
assess the profitability of its various product lines. These events are
described in greater detail in "Risk Factors--Instability of Asian Market" and
"Risk Factors--Dependence on Key Customers."
INCREASED DEMAND FOR NEW REGIONAL AIRCRAFT. We believe that the total
commercial regional aircraft fleet will grow over the next ten years. Boeing's
1998 CURRENT MARKET OUTLOOK projected that worldwide revenue passenger
kilometers will increase at a compound annual growth rate of 5.0% over that
period. We believe that this increase will drive demand for regional aircraft
production as well, due to:
- 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.
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INCREASED DEMAND FOR NEW CORPORATE AIRCRAFT. We believe that the following
factors will drive increased demand for new corporate aircraft:
- 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;
- 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,
manufacturers 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 manufacturers.
NEW SAFETY REQUIREMENTS. New technologies and FAA mandates are driving a
proliferation of new safety systems for airplanes. The world's airlines and
aircraft and electronic systems manufacturers have cooperated with regulatory
agencies in the development of industry standards, regulations and system
requirements for future air navigation systems. 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 (commonly called "GPS")
may become federally required. Other new technologies which have already been
mandated include traffic collision avoidance systems, 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 electronic system manufacturers 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.
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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
twelve 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 liquid crystal displays
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
1999 PATS Auxiliary fuel & power systems
</TABLE>
One more acquisition is expected to close during the second quarter of 1999.
See "Recent Developments--PPI."
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
manufacturers;
- the largest supplier of dichroic liquid crystal display devices for use by
commercial aircraft manufacturers;
- 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
manufacturers of aircraft and related electronic 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 original aircraft market. Such systems
typically are installed on a retrofit basis by purchasers and operators of
existing aircraft rather than by aircraft manufacturers.
COMPLEMENTARY AND STRATEGICALLY INTEGRATED BUSINESS LINES. Since DeCrane
Aircraft was formed in 1989, we have completed twelve 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.
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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 manufacturer. Through these and
other similar 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;
- the primary supplier of cockpit audio control systems to Boeing; and
- the primary supplier of auxiliary fuel systems to the Boeing Business Jet
program.
We are also a preferred supplier of wire harness assemblies to Matsushita for
its in-flight entertainment systems.
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 a quality award from Boeing, and
nine of our facilities are currently certified according to the International
Standards Organisation specifications ISO-9001 or ISO-9002.
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 February 1, 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 nine 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 equipment manufacturer 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
video tape players. 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
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<PAGE>
systems. We work closely with manufacturers 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 SYSTEMS INTEGRATION SERVICES. Our systems integration services
began in the in-flight passenger telecommunications market. Beginning in 1995,
we expanded 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
capabilities in each of the four elements of systems integration: design,
certification, kitting and system installation.
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 estimated 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 finance and complete 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 and Airbus, the two largest commercial
aircraft OEMs. Our seven principal classes of products and services are:
<TABLE>
<CAPTION>
SHARE OF 1998 SALES ON A PRO FORMA BASIS
------------------------------------------------
EXCLUDING PPI INCLUDING PPI
CLASS ACQUISITION ACQUISITION
--------------------- ----------------------- -----------------------
<C> <S> <C> <C>
- cockpit audio, 22% 19%
communications,
lighting and power
and control devices
- electrical contacts 17% 14%
- auxiliary fuel 16% 14%
systems and auxiliary
power units
- connectors and 15% 13%
harness assemblies
- entertainment and 12% 26%
cabin management
products
- integration of cabin 9% 7%
and flight deck
systems
- liquid crystal 7% 6%
display devices
</TABLE>
No other product or service accounted for more than 5% of our pro forma
revenues in 1998.
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<PAGE>
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 a variety of other commercial
aircraft safety system components, including warning tone generators,
temperature and de-icing monitoring systems, steep approach monitors and low
voltage power supplies for traffic collision avoidance systems.
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
contacts directly to aircraft and related electronics manufacturers 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 manufacturers.
AUXILIARY FUEL SYSTEMS AND AUXILIARY POWER UNITS. Through our newest
subsidiary, PATS, we manufacture and install auxiliary fuel tanks for commercial
and corporate aircraft. Our unique design and tank construction have made us a
leader in the auxiliary fuel tank market. We have a contract with Boeing's
Business Jet program to supply 120 aircraft with multiple auxiliary fuel tanks.
In connection with our acquisition of PATS, Boeing agreed to make certain
modifications to the contract and to pre-pay $5.0 million against future
deliveries of the systems. We believe that the auxiliary fuel tanks will permit
the Boeing Business Jet 737-700 to compete with long-range aircraft such as the
Gulfstream G-V and Bombardier's Global Express. We also manufacture auxiliary
power units which provide ground power to aircraft.
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 manufacturers 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 manufacturers of aircraft electronic systems. 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.
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 manufacturers and major modification centers.
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
related electronics manufacturers, 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.
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<PAGE>
DICHROIC LIQUID CRYSTAL DISPLAY DEVICES. We believe we are a leading
manufacturer of dichroic liquid crystal displays (also known as "LCDs") and
modules used in commercial and military aircraft and the largest supplier to the
commercial aircraft industry. Modules are liquid crystal displays packaged with
a backlight source and some on-board electronic components. 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 liquid crystal display 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 liquid crystal display devices. We believe that we are the
only clock manufacturer which has designed a line of clocks capable of serving
all types of aircraft.
INDUSTRY REGULATION
The aviation industry is highly regulated in the U.S. by the Federal
Aviation Administration, 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 Alteration Station 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 letter of correction, a civil penalty action, and
emergency or non-emergency suspension or revocation of a certificate or
approval.
In July of 1997, the FAA notified us that our FAA-approved repair station
which holds Designated Alteration Station 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 projects under that authorization, 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. If the FAA were
to suspend or revoke our certificates or approvals on a nonemergency basis, 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 did so on an emergency basis, we
would be obliged to stop immediately the manufacturing of products and
delivering of services that require such certificate or approval. If the FAA
were to determine that noncompliance with its standards creates a safety hazard,
it also could 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 possess
an FAA type certificate, generally held by the aircraft manufacturer, 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 for the
modification. Historically, we have obtained several hundred of these
Supplemental Type Certificates, most of which we obtained on behalf of our
customers as part of our systems integration services. Some of these
certificates we obtain are or will eventually be transferred to our customers.
As of February 1, 1999, we own and/or manage slightly over 200 Supplemental Type
Certificates. Many are multi-aircraft certificates which apply to all of the
aircraft of a single type. We foresee the need to obtain additional Supplemental
Type Certificates so that we can expand the services we provide and the
customers we serve.
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<PAGE>
Supplemental Type Certificates can be issued for proposed aircraft
modifications directly by the FAA, or on behalf of the FAA by one of the 31
holders of currently active Designated Alteration Station authorizations as of
February 1, 1999. The FAA designates what types of Supplemental Type
Certificates can be issued by each Designated Alteration Station. Our subsidiary
Hollingsead, as one of the 31, can directly issue many of the Supplemental Type
Certificates we and our customers require for our systems integration
operations. In many cases, this has increased the speed with which we can obtain
such certificates and help bring our customers' systems to market.
After obtaining a Supplemental Type Certificate, a manufacturer must apply
for a Parts Manufacturer Approval from the FAA, or a supplement to an existing
Parts Manufacturer Approval, which permits the holder to manufacture and sell
installation kits according to the approved design and data package. We have
eight Parts Manufacturer Approvals and multiple supplements to each of those
approvals. In general, each initial Parts Manufacturer Approval is an approval
of a manufacturing or modification facility's production quality control system.
Each Parts Manufacturer Approval supplement authorizes the manufacture of a
particular part in accordance with the requirements of the corresponding
Supplemental Type Certificate. We routinely apply for and receive such Parts
Manufacturer Approval supplements. In order to perform the actual installations
of a modification, we are also required to have FAA approval. This authority is
contained either in our Parts Manufacturer Approvals and related 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 February 1, 1999,
we had nine 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. We employ or contract for
several of such designated representatives 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 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 and Qualified Vendor's List, a customer may be assured that a product or
service has met all of the requirements set forth in the military specification.
Parts listed with a Qualified Parts List allow others to reliably design parts
to interface with such parts as a result of the military specification standards
used. We believe that we hold more Qualified Parts Lists 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
We estimate that in 1998, we sold our products and services to about 1,300
customers. Our primary customers include manufacturers of aircraft and related
electronics, airlines, aircraft component manufacturers and distributors, and
aircraft repair and modification companies. Boeing accounted for approximately
29.6% and Matsushita for approximately 5.0% of our 1998 consolidated pro forma
revenues BEFORE taking into account the pending PPI acquisition. See
"Business--Customers" for the expected changes
48
<PAGE>
to those numbers resulting from the acquisition. 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 designs tooling and other intellectual property
rights 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
their 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, 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
49
<PAGE>
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.
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>
- cockpit audio, - Becker Avionics, Inc.
communications, lighting and power - Crane ELDEC Corp.
and control devices - Diehl GmbH & Co.
- Gables Engineering Inc.
- Page Aerospace, Inc.
- electrical contacts - Amphenol Corporation
- Deutsch Engineered Connecting Devices, a division of
Deutsch Co.
- ITT Cannon, a division of ITT Industries, Inc.
- auxiliary fuel systems and auxiliary power units - Marshall Engineering
- connectors - AMP, Inc.
- ITT Cannon
- Radiall S.A.
- entertainment and cabin management products - Aerospace Lighting Corporation
- Baker Electronics
- DPI Labs
- Grimes Aerospace Company
- Nellcor Puritan Bennett Inc.
- Pacific Systems Corporation
- integration of cabin and flight deck avionics - Electronic Cable Specialists
systems - Engineering departments of airlines
- Numerous independent airframe maintenance and
modification companies
- dichroic LCD devices - Cristalloid, Inc.
</TABLE>
50
<PAGE>
BACKLOG
As of December 31, 1998, we had an aggregate sales order backlog of $130.9
million compared to $125.5 million as of December 31, 1997, all on a pro forma
basis. Orders are generally filled within twelve months; however, our 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 December 31, 1998, we had 1,451 employees, of whom 206 were in
engineering, 68 were in sales, 1,040 were in manufacturing operations and 137
were in finance and administration. The foregoing numbers include 44 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.
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>
Georgetown, DE....................................... Manufacturing facility 85,000 2041
El Segundo, CA....................................... Manufacturing and engineering facility 81,300 2005
Columbia, MD......................................... Manufacturing facility and offices 65,923 2007
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 2002
Lugano, Switzerland.................................. Manufacturing facility 21,000 2001
Irvine, CA........................................... Manufacturing facility 16,400 1999
Seattle, WA.......................................... Storage facility 10,000 2001
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>
At the conclusion of the pending PPI transaction, we also expect to have the
following leased facilities:
<TABLE>
<S> <C> <C> <C>
Wichita, KS............................... Manufacturing facility 107,000 2007
Hutchinson, KS............................ Manufacturing facility 5,300 1999
</TABLE>
We also 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. Additionally, 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, similar state laws, impose
strict liability upon persons responsible for releases or
51
<PAGE>
potential releases of hazardous substances. That liability generally is
retroactive, and may be separately asserted federal environmental 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 that
statute or equivalent listings under state laws. We have received 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 federal environmental 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 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 as described in "Risk Factors--Environmental Risks and
Regulations."
LEGAL PROCEEDINGS
One of our manufacturing facilities has received several notices of
violation related to its wastewater discharge permit, most recently in June
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.
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 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 Transportation Safety Board 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 investigation.
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 described in "Recent Developments--The DLJ Acquisition" with the DLJ
affiliate without engaging in an auction or "active market check" and,
therefore, agreed to terms that were unfair and inadequate from the 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
52
<PAGE>
understanding required that we make several additional disclosures by filing an
amendment to our Schedule 14D-9, which we did, and provided 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. Discovery has not been completed. We intend to
vigorously defend against the claim. Mr. Rankin's employment with DeCrane
Aircraft was 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.
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.
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. Our fiscal year ends on December 31. 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 companies 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. You may also 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.
53
<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
Richard J. Kaplan......................... 56 Senior Vice President, Chief Financial Officer, Secretary and
Treasurer
Thompson Dean............................. 40 Chairman of the Board of Directors
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. He has served on the board of directors since
its inception.
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., a manufacturer
of contacts and connectors for aerospace applications, from 1984 to 1994.
RICHARD J. KAPLAN has been the Senior Vice President, Chief Financial
Officer, Secretary and Treasurer for DeCrane Aircraft since April 1999. From
April 1998 to March 1999, he served as Executive Vice President and Chief
Operating Officer of Developers Diversified Realty Corporation. From 1977 to
1998, he was a partner with Price Waterhouse LLP, having joined the firm in
1964.
THOMPSON DEAN has been the Managing Partner of DLJ Merchant Banking, Inc.
since November 1996. Previously, Mr. Dean was a Managing Director of DLJ
Merchant Banking, 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. He became a
director in 1998.
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. He became a director in 1998.
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 20 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. He became a director in 1998.
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. He became a director in
1998.
54
<PAGE>
SUSAN C. SCHNABEL has been a Managing Director of DLJ Merchant Banking, 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. She became a director in 1998.
TIMOTHY J. WHITE has been a Vice President of DLJ Merchant Banking, 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. He became a director in
1998.
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, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------------------- ------------------------------------------------
OTHER SECURITIES
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.......... 1998 $ 281,761 $1,044,000 $ 30,151 50,000 --
Chief Executive Officer 1997 244,744 220,000 -- 50,000 $ 29,411
and Director(4) 1996 206,600 146,000 7,813 34,028 --
Charles H. Becker........ 1998 $ 206,948 $ 160,000 $ 14,678 -- --
President and Chief 1997 174,492 102,000 6,168 15,000 $ 18,000
Operating Officer(5) 1996 148,750 65,000 9,103 19,850 30,586
R.G. MacDonald(6)........ 1998 $ 212,744 $ 107,000 $ 20,260 -- --
1997 184,859 102,000 10,536 4,000 --
1996 177,437 82,000 13,200 -- --
John R. Hinson(7) ....... 1998 $ 136,155 $ 126,000 $ 3,872 -- --
1997 108,400 33,500 2,112 -- --
1996 88,273 28,500 2,083 -- --
Robert A. Rankin(8)...... 1998 $ 131,115 $ -- $ 9,856 -- --
1997 149,309 103,000 7,158 15,000 --
1996 139,375 65,000 12,838 19,850 --
</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.
(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. 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.
(6) Mr. MacDonald served as President through December 1996 and Vice Chairman of
the Board of Directors through August 1998.
(7) Mr. Hinson served as Chief Financial Officer, Secretary and Treasurer until
March 1998.
(8) Mr. Rankin served as Chief Financial Officer, Secretary and Treasurer until
August 1998.
55
<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,
1998, pursuant to the share incentive plan then in place. (See "Employment
Agreements and Compensation Arrangements--Former Share Incentive Plan.").
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL
RATES OF
NUMBER OF STOCK
SECURITIES PRICE
UNDERLYING % OF EXERCISE OR APPRECIATION
OPTIONS/ OPTIONS/SAR BASE PRICE EXPIRATION ----------
NAME SAR GRANTED GRANTED PER SHARE DATE 5%
- ------------------------------------------------- ------------ --------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
R. Jack DeCrane.................................. 50,000 100% $ 16.875 2007 $ (1)
Charles H. Becker................................ -- --
R.G. MacDonald................................... -- --
John R. Hinson................................... -- --
Robert A. Rankin................................. -- --
<CAPTION>
NAME 10%
- ------------------------------------------------- ------------
<S> <C>
R. Jack DeCrane.................................. $ (1)
Charles H. Becker................................
R.G. MacDonald...................................
John R. Hinson...................................
Robert A. Rankin.................................
</TABLE>
- ------------------------
(1) DeCrane Aircraft cancelled all options for common stock, and all holders
thereof were paid $23.00 per share, shortly after the grant of these
options.
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,
1998.
<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.......................... -- $3,347,850 $ 0/0 $ 0/0
Charles H. Becker........................ -- $ 811,419 0/0 0/0
R.G. MacDonald........................... -- $1,299,422 0/0 0/0
John R. Hinson........................... -- $ 107,092 0/0 0/0
Robert A. Rankin......................... -- $ 811,419 0/0 0/0
</TABLE>
- ------------------------
(1) Based on the common stock share price of $23.00 per share as of August 28,
1998, the measuring date.
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 X maximum number of shares holder could
price of 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 DeCrane Aircraft 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;
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- 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; and
- 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.
INCENTIVE PLANS
Our board of directors has approved a stock option incentive plan providing
for the issuance of options for the common stock of DeCrane Holdings as
incentive compensation to designated executive personnel and other key employees
of DeCrane Aircraft and its subsidiaries, to persons and in amounts determined
by the compensation committee of the Board from time to time, and has reserved
an aggregate amount of the common stock of DeCrane Holdings equal to 10% of all
such stock outstanding, on a fully diluted basis, for stock issued under those
options. Under the plan, the Board's compensation committee will make a single
award during 1999 to each designated participant, which will progressively vest
as the participant's operating unit achieves EBITDA targets set for that unit
during the four year period following the award. No awards have been made under
the plan.
Our board of directors has approved a stock purchase plan providing for the
purchase of shares of common stock of DeCrane Holdings as incentive compensation
to designated executive personnel and other key employees of DeCrane Aircraft
and its subsidiaries, with a portion of the purchase price to be loaned to the
participants by DeCrane Aircraft, available to persons and in amounts determined
by the compensation committee of the Board from time to time. No awards have
been made under the plan.
Our board of directors has approved a cash incentive bonus plan providing
for the allocation of a bonus pool each year for incentive compensation to
designated executive personnel and other key employees of DeCrane Aircraft and
its subsidiaries, as the exclusive sources of elective merit raises during the
next four years. The bonus pool for participants will be adjusted upwards or
downwards each year based on EBITDA and cash flow generated by the relevant
participant's 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.
ARRANGEMENTS PRIOR TO DLJ ACQUISITION
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 in August 1998 were terminated when
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the DLJ acquisition transactions were completed, and the holders received cash
payments in exchange for those options.
In 1996 we introduced an 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 provided 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 was payable solely based on performance of the relevant
operating unit and the remainder was 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.
DIRECTORS' COMPENSATION
The directors of DeCrane Aircraft generally do not receive annual fees or
fees for attending meetings of DeCrane Aircraft 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.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the 100 outstanding shares of common stock of DeCrane Aircraft are
owned by DeCrane Holdings. DeCrane Aircraft has no other class of stock
outstanding. The following table sets forth the beneficial ownership of DeCrane
Holdings' voting securities as of April 1, 1999 by its principal owners and
other persons who we are required to mention, such as executive officers and
directors.
<TABLE>
<CAPTION>
COMMON STOCK 14% SENIOR REDEEMABLE
----------------------------- EXCHANGEABLE PREFERRED STOCK
NUMBER OF DUE 2008
SHARES, ----------------------------
PARTIALLY NUMBER OF
NAME OF BENEFICIAL OWNER (1) DILUTED(2) PERCENTAGE(2) SHARES PERCENTAGE
- --------------------------------------------------------------- ---------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C>
DLJMB Merchant Banking Partners II, L.P., and affiliates(3).... 2,976,087 99% 340,000 99%
Thompson Dean(4)............................................... -- -- --
DLJMB Inc.
277 Park Avenue
New York, New York 10172
Susan C. Schnabel(4)........................................... -- -- -- --
DLJMB Inc.
277 Park Avenue New York, New York 10172
Timothy J. White(4)............................................ -- -- -- --
DLJMB Inc.
277 Park Avenue
New York, New York 10172
Global Technology Partners, LLC(5)............................. -- -- -- --
1300 I Street N.W.
Washington, D.C.
Dr. Robert J. Hermann(5)....................................... 5,938 -- 714 --
c/o Global Technology Partners, LLC
1300 I Street, N.W.
Washington, D.C.
Dr. Paul G. Kaminski(5)........................................ 5,938 -- 714 --
c/o Global Technology Partners, LLC
1300 I Street, N.W.
Washington, D.C.
John F. Fort, III.............................................. -- -- -- --
R. Jack DeCrane................................................ -- -- -- --
Charles H. Becker.............................................. -- -- -- --
Richard J. Kaplan.............................................. -- -- -- --
All directors and named executive officers as a group
(9 persons).................................................. 11,876 -- 1,428 --
</TABLE>
- ------------------------
(1) Each person who has the power to vote and direct the disposition of shares
is deemed to be a beneficial owner of those shares.
(2) The common stock columns show number of shares owned and total percentage of
ownership in the manner required by SEC rules. The entry for each holder of
warrants assumes that the particular holder, and no-one else, fully
exercises all rights under those warrants to purchase shares of common
stock.
(3) Reflects 2,826,087 shares, and warrants for the issuance of an additional
150,000 shares, held directly by DLJ Merchant Banking Partners II, L.P. and
the following related investors: 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,
Inc.; DLJ EAB Partners, L.P.; DLJ First ESC L.P. and DLJ ESC II L.P. See
"Certain Relationships and Related Transactions" and "Plan of Distribution."
The address of DLJ Offshore Partners II, C.V. is John B. Gorsiraweg 14,
Willemstad, Curacao, Netherlands Antilles. The address of UK Investment Plan
1997 Partners, Inc. is 2121 Avenue of the Stars, Fox Plaza,
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Suite 3000, Los Angeles, California 90067. The address of each of the other
persons is 277 Park Avenue, New York, New York 10172.
(4) Messrs. Dean and White and Ms. Schnabel are officers of DLJ Merchant
Banking, Inc., an affiliate of Merchant Banking Partners II, L.P. as well as
Donaldson, Lufkin & Jennette Securities Corporation. The share data shown
for these individuals excludes shares shown as held by the DLJ affiliates
separately listed in this table; Messrs. Dean and White and Ms. Schnabel
disclaim beneficial ownership of those shares.
(5) Messrs. Hermann and Kaminski are members of Global Technology Partners, LLC.
Six members of Global Technology Partners, including Messrs. Hermann and
Kaminski, acquired 20,098 shares of DeCrane Holdings common stock, and 2,417
shares of DeCrane Holdings 14% Senior Redeemable Exchangeable Preferred
Stock due 2008, in a transaction negotiated with DeCrane Holdings. The share
data shown for Global Technology Partners and Messrs. Hermann and Kaminski
excludes shares shown as held by the individual members; Messrs. Hermann and
Kaminski disclaim beneficial ownership in any of the shares held by the
other members.
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 305,000 reserved for issuance for outstanding warrants.
DeCrane Holdings is authorized to issue up to 2,500,000 shares of DeCrane
Holdings 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 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" at the end of "Business."
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RELATED PARTY TRANSACTIONS
The merger agreement entered into in connection with the DLJ acquisition
entitled a holding company controlled by DLJ Merchant Banking Partners II, L.P.
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. DLJ Merchant Banking or
its designate selected all of the members of the Board of Directors of DeCrane
Holdings.
DLJ Capital Funding, Inc., another DLJ affiliate of DLJ Merchant Banking,
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., also an affiliate of DLJ Merchant Banking,
received customary fees in connection with its commitment to purchase and its
purchase of the bridge notes. Donaldson, Lufkin & Jenrette Securities
Corporation, which is also an affiliate of DLJ Merchant Banking, 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; DLJ Securities Corporation 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 DLJ Securities Corporation 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 DLJ
Securities Corporation against certain liabilities, including certain
liabilities under the federal securities laws. In addition, DeCrane Aircraft is
obligated to pay DLJ Securities Corporation 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 DLJ
Securities Corporation or one of its affiliates pursuant to which DLJ Securities
Corporation 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 DLJ Securities Corporation against
certain liabilities, including liabilities under the federal securities laws.
In connection with the DLJ acquisition, an Investors' Agreement dated as of
August 28, 1998 was entered into among DeCrane Holdings, DLJ Merchant Banking
and its affiliates which hold DeCrane Holdings stock. 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.
- Transfers of the shares of DeCrane Holdings common stock and preferred
stock by the parties to the agreement.
- Parties to the agreement may participate in some specific kinds of sales
of shares of DeCrane Holdings' common stock by the DLJ affiliates.
- The DLJ affiliates may require the other parties to the agreement to sell
shares of DeCrane Holdings' common stock in certain circumstances should
the DLJ affiliates choose to sell any such shares owned by them.
- The DLJ affiliates may request six demand registrations with respect to
the warrants for DeCrane Holdings common stock held by DLJ Merchant
Banking, the common stock and preferred stock held by the funds, which are
immediately exercisable subject to customary deferral and cutback
provisions.
- The parties to the agreement are entitled to unlimited piggyback
registration rights, subject to customary cutback provisions, and
excluding registrations of shares issuable in connection with any employee
benefit plan or an acquisition.
- DeCrane Holdings will indemnify the shareholders against certain
liabilities and expenses, including liabilities under the Securities Act.
- The DLJ affiliates have the right to appoint all of the members of the
Boards of Directors of DeCrane Holdings and DeCrane Aircraft, and at least
one of such directors on each board will be an independent director.
Messrs. Hermann, Kaminski and Fort are independent directors.
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Each warrant for DeCrane Holdings common stock held by the DLJ affiliates
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. Those DLJ 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 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
foregoing DLJ affiliates 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 foregoing DLJ affiliates. In addition, in December
1998 six members of Global Technology Partners, 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 Global Technology Partners against certain claims and liabilities,
including liabilities under the Securities Act.
In connection with our proposed acquisition of PPI, DLJ Merchant Banking has
advised us that it plans to invest an additional $12.5 million of capital in
DeCrane Holdings that DeCrane Holdings will, in turn, invest in DeCrane
Aircraft. The additional investment is included as part of the acquisition
financing in the unaudited pro forma financial data in this prospectus.
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DESCRIPTION OF BANK CREDIT FACILITY
The bank credit facility is provided by a syndicate of lenders led by DLJSC,
as arranger, and DLJ Capital Funding, as syndication agent. The bank credit
facility initially included an $80.0 million term loan facility and a $50.0
million revolving credit facility which provides for loans and under which up to
$10.0 million in letters of credit may be issued. The term loan facility is
comprised of a Term A facility in the original amount of $35.0 million which
matures on August 28, 2004 and a Term B facility in the original amount of $45.0
million which matures on August 28, 2005. The revolving credit facility is
comprised of an acquisition facility of $25.0 million and a working capital
facility of $25.0 million. A portion of the working capital facility was used to
finance the conversion of shares into cash in connection with the DLJ
acquisition and the remainder can be used for general corporate and working
capital purposes, each of which matures on August 28, 2004. The working capital
facility is subject to a potential, but uncommitted, increase of up to $20.0
million at the our request at any time prior to such maturity date. Such
increase will be available only if one or more financial institutions agrees, at
the time of our request, to provide it.
The Term B facility was increased to $65.0 million in January 1999 by a
first amendment to the facility, in connection with our acquisition of PATS. In
connection with its acquisition of PPI Holdings, Inc. described under "Recent
Developments--PPI" and the potential for future acquisition transactions, we
have sought an increase in the term loan amounts available for acquisitions
under the bank credit facility. We have agreed in principle to a new Term C term
loan to be added to the senior credit agreement, in an amount of up to $70
million over current term loan availability. We expect to complete negotiations
with the bank credit facility lenders, and sign an amended and restated credit
agreement, in April 1999 on substantially the terms set forth in the draft
amended and restated credit agreement filed as an exhibit to the registration
statement of which this prospectus is a part.
Loans under the bank credit facility generally bear interest based on a
margin over, at our option, the base rate or the Euro-Dollar rate. For the first
six months after the January 1999 amendment, the margin for the Term A loan and
revolving credit facility is 1.50% for base rate borrowings and 2.75% for
Euro-Dollar borrowings, and the margin for the Term B loan is 1.75% for base
rate borrowings and 3.00% for Euro-Dollar borrowings. We anticipate that the
margin for Term C loan will be 2.00% for base rate borrowings and 3.25% for
Euro-Dollar borrowings. Thereafter, the margin will vary based upon DeCrane
Aircraft's ratio of total debt to EBITDA as defined in the bank credit
agreement: ranging from 0.0% to 1.50% over the alternate base rate and from
1.00% to 2.75% over the reserve adjusted Euro-Dollar rate, for the revolving
credit facility and Term A facility, and from 0% to 1.25% over the base rate and
from 1.25% to 3.00% over the reserve adjusted Euro-Dollar rate, for the Term B
facility. The applicable margins and commitment fees are determined based on the
ratio of consolidated total debt to consolidated EBITDA of DeCrane Aircraft and
its subsidiaries (as defined in the bank credit agreement), called the "Leverage
Ratio." We will pay commitment fees at a rate equal to 0.5% per annum on the
unused portion of the working capital facility and at a rate equal to 0.5% or
0.75% per annum, depending upon utilization, on the unused portion of the
acquisition facility. Those fees are payable quarterly in arrears and upon the
maturity or termination of the revolving credit facility.
We pay a letter of credit fee on the undrawn amounts of letters of credit
issued and outstanding under the bank credit facility, at a rate per annum equal
to the then-applicable margin for Euro-Dollar loans under the Term A facility,
which is shared by all lenders participating in such letter of credit, and an
additional amount to be mutually agreed upon to the issuer of each letter of
credit.
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The term loans are subject to the following amortization schedule, which was
amended as to the Term B loans by the January 1999 amendment:
<TABLE>
<CAPTION>
TERM A LOAN TERM B LOAN
YEAR AMORTIZATION AMORTIZATION
- ------------------------------------------------------------------------ ------------- -------------
<S> <C> <C>
1....................................................................... 0.0% 0.9%
2....................................................................... 5.0% 1.0%
3....................................................................... 10.0% 1.0%
4....................................................................... 20.0% 1.0%
5....................................................................... 25.0% 1.0%
6....................................................................... 40.0% 1.0%
7....................................................................... -- 94.1%
----- -----
100.0% 100.0%
----- -----
----- -----
</TABLE>
The bank credit facility will be subject to mandatory prepayment:
- with 50% of the net cash proceeds received from the issuance of equity
securities to the extent that the foregoing leverage ratio exceeds 3.5 to
1, subject to certain exceptions,
- with 100% of the net cash proceeds received from the issuance of debt,
subject to certain exceptions,
- with 100% of the net cash proceeds received from permitted asset sales,
subject to certain exceptions and
- with 50% of excess cash flow (as defined in the bank credit facility) for
each fiscal year to the extent that the Leverage Ratio exceeds 3.5 to 1.
We are required to apply all mandatory prepayment amounts first to the
prepayment of the term loan facility, and thereafter to the prepayment of
the revolving credit facility.
DeCrane Holdings, and each of DeCrane Aircraft's wholly-owned direct and
indirect domestic subsidiaries other than Audio International Sales, Inc., a
U.S. Virgin Islands corporation, are guarantors of the bank credit facility. Our
obligations under the bank credit facility are also secured by:
- all existing and after-acquired personal property of DeCrane Aircraft and
the foregoing subsidiary guarantors, including a pledge of all of the
stock of all existing or future subsidiaries of DeCrane Aircraft, or in
the case of foreign subsidiaries, 65% of their voting stock.
- first-priority perfected liens on all material existing and after-acquired
real property interests of DeCrane Aircraft and the foregoing subsidiary
guarantors, subject to customary permitted liens (as defined in the bank
credit facility),
- a pledge by DeCrane Holdings of the stock of DeCrane Aircraft, and
- a negative pledge on all assets of DeCrane Aircraft and its subsidiaries,
subject to some exceptions.
The bank credit facility contains customary covenants and restrictions on
our ability to engage in some activities, including, but not limited to:
- limitations on other indebtedness, liens, investments and guarantees.
- restrictions on dividends and redemptions and payments on subordinated
debt.
- restrictions on mergers and acquisitions, sales of assets and leases.
- a minimum level of EBITDA, a minimum coverage ratio of interest expense.
- a minimum coverage ratio of fixed charges.
- a maximum leverage ratio.
- a maximum level of capital expenditures.
Borrowings under the bank credit facility are subject to significant
conditions, including compliance with several tests of our financial condition
and the absence of any material adverse change. These restrictions may limit our
access to borrowings, as discussed in "Risk Factors--Substantial Leverage."
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DESCRIPTION OF NOTES
GENERAL
The notes have been issued pursuant to an indenture between DeCrane Aircraft
and State Street Bank and Trust Company, as Trustee. The terms of the notes
include those stated in the indenture, and those which are incorporated into the
indenture by reference to the Trust Indenture Act of 1939. The notes are subject
to all of those terms, and holders of notes are referred to the indenture and
the Trust Indenture Act for a statement thereof.
The terms of the new notes and the old notes are substantially the same in
all material respects, except that the new notes will not be subject to
liquidated damages penalties for failure to timely register the notes under the
Securities Act, and will be more freely transferable by the holders thereof by
reason of their registration thereunder.
This section is a summary of the indenture's principal terms, not a complete
statement. You should read the entire indenture, and the registration rights
agreement described below, for a complete understanding of the rights and
obligations of the holders of notes. Copies of the indenture and registration
rights agreement are available as set forth under "--Additional Information."
Also, the terms of the indenture use many specially defined terms. In this
summary, we have used the key defined terms, which are shown here as capitalized
words. You should refer to the definitions listed in "--Key Definitions" below
for their complete scope and meaning.
The notes are:
- general unsecured obligations of DeCrane Aircraft;
- subordinated in right of payment to all existing and future Senior
Indebtedness of DeCrane Aircraft, including the bank credit facility;
- ranking at the same level of payment priority (sometimes called "PARI
PASSU") with any future senior subordinated Indebtedness of DeCrane
Aircraft and senior in right of payment to all future subordinated
Indebtedness of DeCrane Aircraft;
- effectively subordinated to all liabilities of DeCrane Aircraft's
subsidiaries that are not Guarantors, including trade payables;
- fully and unconditionally guaranteed on a senior subordinated basis by
DeCrane Aircraft's existing wholly-owned domestic subsidiaries, as their
general unsecured obligations, subordinated in right of payment to all
existing and future Senior Indebtedness of the Guarantors, including
indebtedness under our bank credit facility, and ranking senior in right
of payment to any future subordinated indebtedness of the Guarantors.
On a pro forma basis, as of December 31, 1998, DeCrane Aircraft and the
Guarantors would have had outstanding approximately $175.2 million of Senior
Indebtedness and DeCrane Aircraft's non-Guarantor subsidiaries would have had
approximately $2.2 million of outstanding liabilities, including trade payables
but excluding guarantees under the bank credit facility. The indenture will
permit DeCrane Aircraft and its Subsidiaries to incur additional Indebtedness,
including Senior Indebtedness, in the future. The risk of such indebtedness to
you as an investor is described in "Risk Factors--Subordination."
As of the date of the indenture, all of DeCrane Aircraft's Subsidiaries were
designated as Restricted Subsidiaries. However, under certain circumstances,
DeCrane Aircraft will be permitted to designate current or future Subsidiaries
as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to
the restrictive covenants set forth in the indenture.
PRINCIPAL, MATURITY AND INTEREST
The notes will initially be limited in aggregate principal amount to $100.0
million and will mature on September 30, 2008. Interest on the notes will accrue
at the rate of 12% per annum and will be payable semi-annually in arrears on
March 30 and September 30, commencing on March 30, 1999, to holders of record on
the immediately preceding March 15 and September 15. Interest on the notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of, premium, if any, and interest on the notes will be payable at
the office or agency of DeCrane Aircraft maintained for such purpose in New York
City or, at the option of DeCrane Aircraft, payment of interest may be made by
check mailed to the holders of the notes at their respective addresses
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set forth in the register of holders of notes. However, all payments of
principal, premium and interest with respect to notes represented by one or more
permanent global notes will be paid by wire transfer of immediately available
funds to the account of the Depository Trust Company or any successor thereto.
Until otherwise designated by DeCrane Aircraft, DeCrane Aircraft's office or
agency in New York will be the office of the Trustee maintained for such
purpose. The notes will be issued in denominations of $1,000 and integral
multiples thereof.
SUBORDINATION
The payment of Subordinated Note Obligations is subordinated in right of
payment, as set forth in the indenture, to the prior payment in full in cash or
cash equivalents of all Senior Indebtedness, whether outstanding on the date of
the indenture or thereafter incurred.
Upon any distribution to creditors of DeCrane Aircraft in a liquidation or
dissolution of DeCrane Aircraft or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to DeCrane Aircraft or their
property, an assignment for the benefit of creditors or any marshalling of
DeCrane Aircraft's assets and liabilities, the holders of Senior Indebtedness
will be entitled to receive payment in full in cash or cash equivalents of all
Obligations due in respect of such Senior Indebtedness, including interest after
the commencement of any such proceeding at the rate specified in the applicable
Senior Indebtedness, before the holders of notes will be entitled to receive any
payment with respect to the Subordinated Note Obligations. In that instance,
until all Obligations with respect to Senior Indebtedness are paid in full in
cash or cash equivalents, any distribution to which the holders of notes would
be entitled shall be made to the holders of Senior Indebtedness except Permitted
Junior Securities and payments made from the trust described under "--Legal
Defeasance and Covenant Defeasance."
DeCrane Aircraft also may not make any payment upon or in respect of the
Subordinated Note Obligations, except in Permitted Junior Securities or from the
trust described under "--Legal Defeasance and Covenant Defeasance", if a default
in the payment of the principal of, premium, if any, or interest on or
commitment fees relating to, Designated Senior Indebtedness occurs and is
continuing beyond any applicable period of grace, or if any other default occurs
and is continuing with respect to Designated Senior Indebtedness that permits
holders of the Designated Senior Indebtedness as to which such default relates
to accelerate its maturity and the Trustee receives a notice of such default
from the holders of any Designated Senior Indebtedness. This right of a senior
creditor is typically called "blockage." Payments on the notes may and shall be
resumed, in the case of a payment default, upon the date on which such default
is cured or waived, and otherwise, upon the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable blockage notice is received, unless the maturity of any Designated
Senior Indebtedness has been accelerated. No new period of payment blockage may
be commenced unless and until 360 days have elapsed since the effectiveness of
the immediately prior blockage notice. No nonpayment default that existed or was
continuing on the date of delivery of any blockage notice to the Trustee shall
be, or be made, the basis for a subsequent blockage notice unless such default
shall have been waived or cured for a period of not less than 90 days.
"Designated Senior Indebtedness" means any Indebtedness outstanding under
the bank credit facility, and any other Senior Indebtedness permitted under the
indenture the principal amount of which is $25.0 million or more and that has
been designated by DeCrane Aircraft in writing to the Trustee as "Designated
Senior Indebtedness."
"Permitted Junior Securities" means Equity Interests in DeCrane Aircraft or
debt securities of DeCrane Aircraft that are subordinated to all Senior
Indebtedness, and any debt securities issued in exchange for Senior
Indebtedness, to substantially the same extent as, or to a greater extent than,
the notes are subordinated to Senior Indebtedness.
"Senior Indebtedness" means, with respect to any person,
- all Obligations of such person outstanding under the bank credit facility
and all Hedging Obligations payable to a lender or an Affiliate thereof or
to a person that was a lender or an Affiliate thereof at the time the
contract was entered into under the bank credit facility or any of its
Affiliates, including interest accruing subsequent to the filing of, or
which would have accrued but for the filing of, a petition for bankruptcy,
whether or not such interest is an allowable claim in such bankruptcy
proceeding,
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- any other Indebtedness, unless the instrument under which such
Indebtedness is incurred expressly provides that it is subordinated in
right of payment to any other Senior Indebtedness of such person and
- all Obligations with respect to the foregoing.
However, Senior Indebtedness does not include any liability for federal, state,
local or other taxes, any Indebtedness of such person, excluding that arising
under the bank credit facility, to any of its Subsidiaries or other Affiliates,
any trade payables or any Indebtedness that is incurred in violation of the
indenture.
"Subordinated Note Obligations" means all Obligations with respect to the
notes, including principal, premium if any and interest payable pursuant to the
terms of the notes, including upon the acceleration or redemption thereof,
together with and including any amounts received or receivable upon the exercise
of rights of rescission, claims for damages or other rights of action or
otherwise.
The indenture further requires that DeCrane Aircraft promptly notify holders
of Senior Indebtedness if payment of the notes is accelerated because of an
Event of Default. As a result of the subordination provisions described above,
in the event of a liquidation or insolvency, holders of notes may recover less
ratably than creditors of DeCrane Aircraft who are holders of Senior
Indebtedness.
NOTE GUARANTEES
DeCrane Aircraft's payment obligations under the notes are fully and
unconditionally guaranteed on a joint and several basis by the Guarantors. The
guarantee of each Guarantor is subordinated to the prior payment in full in cash
or cash equivalents of all Senior Indebtedness of such Guarantor, including such
Guarantor's guarantee of the bank credit facility, to the same extent that the
notes are subordinated to Senior Indebtedness of DeCrane Aircraft. The
obligations of each Guarantor under its guarantee are limited so as not to
constitute a fraudulent conveyance under applicable law.
The indenture provides that no Guarantor may consolidate or merge with or
into another corporation, person or entity whether or not affiliated with such
Guarantor unless:
- subject to the provisions of the following paragraph, the person formed by
or surviving any such consolidation or merger assumes all the obligations
of such Guarantor pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee, under the notes, the
indenture and the registration rights agreement;
- immediately after giving effect to such transaction, no Default or Event
of Default exists; and
- Unless the consolidation or merger is with DeCrane Aircraft, DeCrane
Aircraft or another Guarantor would, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred
at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the covenant described in
"--Incurrence of Indebtedness and Issuance of Preferred Stock."
The indenture provides that, in the event of a sale or other disposition of
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, that Guarantor will be released and relieved of any obligations under
its guarantee, so long as the Net Proceeds of such sale or other disposition are
applied in accordance with the applicable provisions of the indenture, as
described in "--Repurchase at the Option of Holders."
OPTIONAL REDEMPTION
Except as provided below, the notes are not redeemable at DeCrane Aircraft's
option before September 30, 2003. Thereafter, the notes will be subject to
redemption at any time at the option of DeCrane Aircraft, in whole or in part,
on not less than 30 nor more than 60 days' notice, in cash at the redemption
prices set forth below, plus accrued and unpaid interest thereon to the
applicable redemption date, if redeemed during the twelve months beginning on
September 30 of the years indicated below:
<TABLE>
<CAPTION>
PERCENTAGE
OF PRINCIPAL
YEAR AMOUNT
- ------------------------------------------------------------------------------------ ------------------
<S> <C>
2003................................................................................ 106.000%
2004................................................................................ 104.000%
2005................................................................................ 102.000%
2006 and thereafter................................................................. 100.000%
</TABLE>
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Notwithstanding the foregoing, on or prior to September 30, 2001, DeCrane
Aircraft may redeem up to 35% of the aggregate principal amount of notes ever
issued under the indenture in cash at a redemption price of 112% of the
principal amount thereof, plus accrued and unpaid interest thereon to the
redemption date, with the net cash proceeds of one or more Public Equity
Offerings. However, the foregoing redemption is only permitted if at least 65%
of the aggregate principal amount of notes ever issued under the indenture
remains outstanding immediately after the occurrence of the redemption, and the
redemption occurs within 90 days of the date of the closing of any such Public
Equity Offering.
In addition, at any time prior to September 30, 2003, DeCrane Aircraft may,
at its option upon the occurrence of a Change of Control, redeem the notes, in
whole but not in part, upon not less than 30 nor more than 60 days' prior
notice, and no more than 60 days after the occurrence of such Change of Control,
in cash at a redemption price equal to
(1) the present value of the sum of all the remaining interest,
excluding any accrued and unpaid interest, premium and principal payments
that would become due on the notes as if the notes were to remain
outstanding and be redeemed on September 30, 2003, computed using a discount
rate equal to the Treasury Rate plus 50 basis points, plus
(2) accrued and unpaid interest to the date of redemption.
"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 most nearly equal to the period from the redemption date to September
30, 2003, as stated 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, any
publicly available source of similar market data. However, 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.
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, selection of
notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
notes are listed, or, if the notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate. However,
notes of $1,000 or less shall be redeemed in part. Notices of redemption shall
be mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each holder of notes to be redeemed at its registered
address. Notices of redemption may not be conditional. If any note is to be
redeemed in part only, the notice of redemption that relates to such note shall
state the portion of the principal amount thereof to be redeemed. A new note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancellation of the original note. Notes called
for redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on notes or portions of them called
for redemption.
MANDATORY REDEMPTION
DeCrane Aircraft is not required to make mandatory redemption of, or sinking
fund payments with respect to, the notes.
REPURCHASE AT THE OPTION OF HOLDERS UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, as specifically defined in the
indenture and summarized below, each holder of notes will have the right to
require DeCrane Aircraft to repurchase all or any part, equal to $1,000 or an
integral multiple thereof, of such holder's notes which the holder offers in the
manner described below at an offer price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon to the date
of repurchase. Within 60 days following any Change of Control, DeCrane Aircraft
will cause the mailing of a notice to each holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
notes on the payment date specified in such notice, which date shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed, pursuant to the procedures required by the indenture and described in
such notice. DeCrane Aircraft will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of the notes as a result of a Change of Control. To the extent that
the
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provisions of any securities laws or regulations conflict with the provisions of
the Indenture relating to the foregoing offer and repurchase, DeCrane Aircraft
will comply with the applicable securities laws and regulations and shall not be
deemed to have breached their obligations described in the Indenture by virtue
thereof.
On the foregoing payment date, DeCrane Aircraft will, to the extent lawful,
accept for payment all notes or portions thereof properly tendered pursuant to
its offer to repurchase, deposit with the paying agent an amount equal to the
foregoing payment in respect of all notes or portions thereof so tendered, and
deliver or cause to be delivered to the Trustee the notes so accepted together
with an officers' certificate stating the aggregate principal amount of notes or
portions thereof being purchased by DeCrane Aircraft. The paying agent will
promptly mail to each holder of notes so tendered the foregoing payment for such
notes, and the Trustee will promptly authenticate and mail, or cause to be
transferred by book-entry, to each holder a new Note equal in principal amount
to any unpurchased portion of the notes surrendered, if any. However, each such
new Note must be in a principal amount of $1,000 or an integral multiple
thereof. The indenture provides that, prior to complying with the provisions of
this covenant, but in any event within 90 days following a Change of Control,
DeCrane Aircraft will either repay all outstanding Senior Indebtedness or obtain
the requisite consents, if any, under all agreements governing outstanding
Senior Indebtedness to permit the repurchase of notes required by this covenant.
DeCrane Aircraft will publicly announce the results of its offer to repurchase
on or as soon as practicable after the foregoing payment date.
The change of control provisions described above will be applicable whether
or not any other provisions of the indenture are applicable. Except as described
above, the indenture does not contain provisions that permit the holders of the
notes to require that DeCrane Aircraft repurchase or redeem the notes in the
event of a takeover, recapitalization or similar transaction.
The bank credit facility prohibits DeCrane Aircraft from purchasing any
notes and also provides that certain change of control events, which may include
events not otherwise constituting a "change of control" as defined in the
indenture, with respect to DeCrane Aircraft would constitute a default
thereunder. Any future credit agreements or other agreements relating to Senior
Indebtedness to which DeCrane Aircraft becomes a party may contain similar
restrictions and provisions. In the event such a change of control occurs at a
time when DeCrane Aircraft is prohibited from purchasing notes, DeCrane Aircraft
could seek the consent of its lenders to the purchase of notes or could attempt
to refinance the borrowings that contain such prohibition. If DeCrane Aircraft
does not obtain such a consent or repay such borrowings, DeCrane Aircraft will
remain prohibited from purchasing notes. In such case, DeCrane Aircraft's
failure to purchase tendered notes would constitute an Event of Default under
the indenture, which would, in turn, constitute a default under the bank credit
facility. In such circumstances, the subordination provisions in the Indenture
would likely restrict payments to the holders of notes.
DeCrane Aircraft will not be required to make an offer to repurchase upon a
change of control in the manner described above if a third party makes the offer
to repurchase in the manner, at the times and otherwise in compliance with the
requirements set forth in the indenture applicable to an offer to repurchase
made by DeCrane Aircraft and purchases all notes validly tendered and not
withdrawn under such offer.
"Change of Control" means the occurrence of any of the following:
(1) the sale, lease, transfer, conveyance or other disposition, other
than by way of merger or consolidation, in one or a series of related
transactions, of all or substantially all of the assets of DeCrane Aircraft
and its Subsidiaries, taken as a whole, to any "person" or "group" (as such
terms are used in Section 13(d) of the Exchange Act), other than the
Principals and their Related Parties;
(2) the adoption of a plan for the liquidation or dissolution of DeCrane
Aircraft;
(3) the consummation of any transaction, including, any merger or
consolidation the result of which is that any "person" or "group" (as such
terms are used in Section 13(d) of the Exchange Act), other than the
Principals and their Related Parties, becomes the "beneficial owner" (as
such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act),
directly or indirectly through one or more intermediaries, of 50% or more of
the voting power of the outstanding voting stock of DeCrane Aircraft; or
(4) the first day on which a majority of the members of the board of
directors of DeCrane Aircraft are not Continuing Members.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of DeCrane Aircraft and its Subsidiaries taken as a
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whole. Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of notes to require
DeCrane Aircraft to repurchase such notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of the assets of
DeCrane Aircraft and its Subsidiaries taken as a whole to another Person or
group may be uncertain.
"Continuing Members" means, as of any date of determination, any member of
the board of directors of DeCrane Aircraft who was a member of such board of
directors immediately after consummation of the Acquisition, or was nominated
for election or elected to such board of directors with the approval of, or
whose election to the board of directors was ratified by, at least a majority of
the Continuing Members who were members of such board of directors at the time
of such nomination or election or any successor Continuing Directors appointed
by such Continuing Directors or their successors.
ASSET SALES
The indenture provides that DeCrane Aircraft will not, and will not permit
any of its Restricted Subsidiaries to, consummate an Asset Sale unless
(1) DeCrane Aircraft or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the
fair market value, evidenced by a resolution of the board of directors set
forth in an officers' certificate delivered to the Trustee, of the assets or
Equity Interests issued or sold or otherwise disposed of, and
(2) at least 75% of the consideration therefor received by DeCrane
Aircraft or such Restricted Subsidiary is in the form of cash or Cash
Equivalents or property or assets that are used or useful in a Permitted
Business, or the Capital Stock of any person engaged in a Permitted Business
if, as a result of the acquisition by DeCrane Aircraft or any Restricted
Subsidiary thereof, such Person becomes a Restricted Subsidiary The
foregoing 75% requirement will not apply to any Asset Sale in which the cash
or Cash Equivalents portion of the consideration received therefrom,
determined in accordance with the foregoing proviso, is equal to or greater
than what the after-tax proceeds would have been had such Asset Sale
complied with that 75% rule. The following types of assets will be deemed
cash in applying that 75% test:
(a) any liabilities as shown on DeCrane Aircraft's most recent
balance sheet or such Restricted Subsidiary's of DeCrane Aircraft or any
Restricted Subsidiary as shown on their most recent balance sheet, other
than contingent liabilities and liabilities that are by their terms
subordinated to the notes or any guarantee thereof, that are assumed by
the transferee of any such assets pursuant to a customary novation
agreement that releases DeCrane Aircraft or such Restricted Subsidiary
from further liability,
(b) any securities, notes or other obligations received by DeCrane
Aircraft or any such Restricted Subsidiary from such transferee that are
contemporaneously converted by DeCrane Aircraft or such Restricted
Subsidiary into cash or Cash Equivalents, to the extent of the cash or
Cash Equivalents received, and
(c) any Designated Noncash Consideration received by DeCrane Aircraft
or any of its Restricted Subsidiaries in such Asset Sale having an
aggregate fair market value, taken together with all other Designated
Noncash Consideration received pursuant to this clause (c) that is at
that time outstanding, not to exceed 15% of Total Assets at the time of
the receipt of such Designated Noncash Consideration, with the fair
market value of each item of Designated Noncash Consideration being
measured at the time received and without giving effect to subsequent
changes in value.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
DeCrane Aircraft or any such Restricted Subsidiary shall apply such Net
Proceeds, at its option, or to the extent DeCrane Aircraft is required to apply
such Net Proceeds pursuant to the terms of the bank credit facility, to
(1) repay or purchase Senior Indebtedness or Pari Passu Indebtedness of
DeCrane Aircraft or any Indebtedness of any Restricted Subsidiary, PROVIDED
that, if DeCrane Aircraft shall so repay or purchase Pari Passu Indebtedness
of DeCrane Aircraft, it will equally and ratably reduce Indebtedness under
the notes if the notes are then redeemable, or, if the notes may not then be
redeemed, DeCrane Aircraft shall make an offer in accordance with the
procedures set forth below for an Asset Sale Offer to all holders of notes
to purchase at a purchase price equal to 100% of the principal amount of the
notes,
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plus accrued and unpaid interest thereon to the date of purchase, the notes
that would otherwise be redeemed, or
(2) an investment in property, the making of a capital expenditure or
the acquisition of assets that are used or useful in a Permitted Business,
or Capital Stock of any Person primarily engaged in a Permitted Business if
(a) as a result of the acquisition by DeCrane Aircraft or any
Restricted Subsidiary thereof, such Person becomes a Restricted
Subsidiary or
(b) the Investment in such Capital Stock is permitted by clause (f)
of the definition of Permitted Investments. Pending the final application
of any such Net Proceeds, DeCrane Aircraft may temporarily reduce
Indebtedness or otherwise invest such Net Proceeds in any manner that is
not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as provided
in the first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $10.0 million,
DeCrane Aircraft will be required to make an offer to all holders of notes (an
"Asset Sale Offer") to purchase the maximum principal amount of notes that may
be purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the principal amount thereof, plus accrued and unpaid interest
thereon to the date of purchase, in accordance with the procedures set forth in
the indenture. To the extent that any Excess Proceeds remain after consummation
of an Asset Sale Offer, DeCrane Aircraft may use such Excess Proceeds for any
purpose not otherwise prohibited by the Indenture. If the aggregate principal
amount of notes surrendered by holders thereof in connection with an Asset Sale
Offer exceeds the amount of Excess Proceeds, the Trustee shall select the notes
to be purchased as set forth under "--Selection and Notice." Upon completion of
such offer to purchase, the amount of Excess Proceeds shall be reset at zero.
DeCrane Aircraft will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
the indenture relating to such Asset Sale Offer, DeCrane Aircraft will comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations described in the indenture by virtue thereof.
PRINCIPAL COVENANTS
RESTRICTED PAYMENTS
The indenture provides that DeCrane Aircraft will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any other payment or
distribution on account of DeCrane Aircraft's or any of its Restricted
Subsidiaries' Equity Interests, other than dividends or distributions
payable in Equity Interests other than Disqualified Stock of DeCrane
Aircraft or dividends or distributions payable to DeCrane Aircraft or any
Wholly Owned Restricted Subsidiary of DeCrane Aircraft;
(b) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of DeCrane Aircraft, any of its Restricted Subsidiaries or any
other Affiliate of DeCrane Aircraft, other than any such Equity Interests
owned by DeCrane Aircraft or any Restricted Subsidiary of DeCrane Aircraft;
(c) make any principal payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value, any Indebtedness
of DeCrane Aircraft that is subordinated in right of payment to the notes,
except in accordance with the mandatory redemption or repayment provisions
set forth in the original documentation governing such Indebtedness, but not
pursuant to any mandatory offer to repurchase upon the occurrence of any
event; or
(d) make any Restricted Investment;
(all such payments and other actions set forth in clauses (a) through (d) above
are collectively referred to as "Restricted Payments"); unless, at the time of
and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
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(2) DeCrane Aircraft would, immediately after giving pro forma effect
thereto as if such Restricted Payment had been made at the beginning of the
applicable four-quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described under "--Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by DeCrane Aircraft and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clause (a) to the extent that the declaration of any dividend referred to
therein reduces amounts available for Restricted Payments pursuant to this
clause (3), clauses (b) through (i), and clauses (k), (l), (o), (p) and (r) of
the next succeeding paragraph), is less than the sum, without duplication, of
(A) 50% of the Consolidated Net Income of DeCrane Aircraft for the
period, taken as one accounting period, commencing October 1, 1998 to the
end of DeCrane Aircraft's most recently ended fiscal quarter for which
internal financial statements are available at the time of such Restricted
Payment or, if such Consolidated Net Income for such period is a deficit,
less 100% of such deficit, plus
(B) 100% of the Qualified Proceeds received by DeCrane Aircraft on or
after the date of the Indenture from contributions to DeCrane Aircraft's
capital or from the issue or sale on or after the date of the Indenture of
Equity Interests of DeCrane Aircraft or of Disqualified Stock or convertible
debt securities of DeCrane Aircraft to the extent that they have been
converted into such Equity Interests, other than Equity Interests,
Disqualified Stock or convertible debt securities sold to a Subsidiary of
DeCrane Aircraft and other than Disqualified Stock or convertible debt
securities that have been converted into Disqualified Stock, plus
(C) the amount equal to the net reduction in Investments in Persons
after the date of the Indenture who are not Restricted Subsidiaries other
than Permitted Investments resulting from
(x) Qualified Proceeds received as a dividend, repayment of a loan or
advance or other transfer of assets, valued at the fair market value
thereof, to DeCrane Aircraft or any Restricted Subsidiary from such
Persons,
(y) Qualified Proceeds received upon the sale or liquidation of such
Investment and
(z) the redesignation of Unrestricted Subsidiaries, available for
Restricted Payments pursuant to clause (j) or (n) below arising from the
redesignation of such Restricted Subsidiary, whose assets are used or
useful in, or which is engaged in, one or more Permitted Business as
Restricted Subsidiaries valued, proportionate to DeCrane Aircraft's
equity interest in such Subsidiary, at the fair market value of the net
assets of such Subsidiary at the time of such redesignation.
The foregoing provisions will not prohibit:
(a) the payment of any dividend within 60 days after the date of declaration
thereof, if at said date of declaration such payment would have complied with
the provisions of the Indenture;
(b) the redemption, repurchase, retirement, defeasance or other acquisition
of any subordinated Indebtedness or Equity Interests of DeCrane Aircraft (the
"Retired Capital Stock") in exchange for or out of the net cash proceeds of the
substantially concurrent sale, other than to a Subsidiary of DeCrane Aircraft,
of other Equity Interests of DeCrane Aircraft other than any Disqualified Stock
(the "Refunding Capital Stock"), PROVIDED that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (3)(B) of the
preceding paragraph;
(c) the defeasance, redemption, repurchase, retirement or other acquisition
of subordinated Indebtedness of DeCrane Aircraft with the net cash proceeds from
an incurrence of, or in exchange for, Permitted Refinancing Indebtedness;
(d) the repurchase, redemption or other acquisition or retirement for value
of any Equity Interests of DeCrane Aircraft or DeCrane Holdings held by any
member of DeCrane Holdings' or DeCrane Aircraft's or any of its Restricted
Subsidiaries' management pursuant to any management equity subscription
agreement or stock option agreement and any dividend to DeCrane Holdings to fund
any such repurchase, redemption, acquisition or retirement, PROVIDED that
(1) the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed
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(x) $4.0 million in any calendar year with unused amounts in any
calendar year being carried over to succeeding calendar years subject to
a maximum, without giving effect to the following clause (y) of $7.0
million in any calendar year, plus
(y) the aggregate cash proceeds received by DeCrane Aircraft during
such calendar year from any reissuance of Equity Interests by DeCrane
Aircraft or DeCrane Holdings to members of management of DeCrane Aircraft
and its Restricted Subsidiaries and
(2) no Default or Event of Default shall have occurred and be continuing
immediately after such transaction;
(e) payments and transactions in connection with the Acquisition, the
Acquisition Financing, the Offering, the bank credit facility including
commitment, syndication and arrangement fees payable thereunder, and the
application of the proceeds thereof including the purchase of shares of Common
Stock of DeCrane Aircraft and any payment therefor by way of dissenting rights
or otherwise, and the payment of fees and expenses with respect thereto;
(f) the payment of dividends or the making of loans or advances by DeCrane
Aircraft to DeCrane Holdings not to exceed $3.0 million in any fiscal year for
costs and expenses incurred by DeCrane Holdings in its capacity as a holding
company or for services rendered by DeCrane Holdings on behalf of DeCrane
Aircraft;
(g) payments or distributions to DeCrane Holdings pursuant to any Tax
Sharing Agreement;
(h) the payment of dividends by a Restricted Subsidiary on any class of
common stock of such Restricted Subsidiary if (1) such dividend is paid pro rata
to all holders of such class of common stock and (2) at least 51% of such class
of common stock is held by DeCrane Aircraft or one or more of its Restricted
Subsidiaries;
(i) the repurchase of any class of common stock of a Restricted Subsidiary
if (1) such repurchase is made pro rata with respect to such class of common
stock and (2) at least 51% of such class of common stock is held by DeCrane
Aircraft or one or more of its Restricted Subsidiaries;
(j) any other Restricted Investment made in a Permitted Business which,
together with all other Restricted Investments made pursuant to this clause (j)
since the date of the Indenture, does not exceed $25.0 million, in each case,
after giving effect to all subsequent reductions in the amount of any Restricted
Investment made pursuant to this clause (j), either as a result of
(1) the repayment or disposition thereof for cash or
(2) the redesignation of an Unrestricted Subsidiary as a Restricted
Subsidiary (valued proportionate to DeCrane Aircraft's equity interest in
such Subsidiary at the time of such redesignation at the fair market value
of the net assets of such Subsidiary at the time of such redesignation),
in the case of clause (1) and (2), not to exceed the amount of such Restricted
Investment previously made pursuant to this clause (j); PROVIDED that no Default
or Event of Default shall have occurred and be continuing immediately after
making such Restricted Investment;
(k) the declaration and payment of dividends to holders of any class or
series of Disqualified Stock of DeCrane Aircraft or any Restricted Subsidiary
issued on or after the date of the indenture in accordance with the covenant
described under "--Incurrence of Indebtedness and Issuance of Preferred Stock";
PROVIDED that no Default or Event of Default shall have occurred and be
continuing immediately after making such Restricted Payment;
(l) repurchases of Equity Interests deemed to occur upon exercise of stock
options if such Equity Interests represent a portion of the exercise price of
such options;
(m) the payment of dividends or distributions on DeCrane Aircraft's common
stock, following the first public offering of DeCrane Aircraft's common stock or
DeCrane Holdings' common stock after the date of the Indenture, of up to 6.0%
per annum of
(1) the net proceeds received by DeCrane Aircraft from such public
offering of its common stock or
(2) the net proceeds received by DeCrane Aircraft from such public
offering of DeCrane Holdings' common stock as common equity or preferred
equity other than Disqualified Stock,
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other than, in each case, with respect to public offerings with respect to
DeCrane Aircraft's common stock or DeCrane Holdings' common stock registered on
Form S-8; PROVIDED that no Default or Event of Default shall have occurred and
be continuing immediately after any such payment of dividends or distributions;
(n) any other Restricted Payment which, together with all other Restricted
Payments made pursuant to this clause (n) since the date of the Indenture, does
not exceed $10.0 million, in each case, after giving effect to all subsequent
reductions in the amount of any Restricted Investment made pursuant to this
clause (n) either as a result of
(1) the repayment or disposition thereof for cash or
(2) the redesignation of an Unrestricted Subsidiary as a Restricted
Subsidiary valued proportionate to DeCrane Aircraft's equity interest in
such Subsidiary at the time of such redesignation at the fair market value
of the net assets of such Subsidiary at the time of such redesignation,
in the case of clause (1) and (2), not to exceed the amount of such Restricted
Investment previously made pursuant to this clause (n); PROVIDED that no Default
or Event of Default shall have occurred and be continuing immediately after
making such Restricted Payment;
(o) the pledge by DeCrane Aircraft of the Capital Stock of an Unrestricted
Subsidiary of DeCrane Aircraft to secure Non-Recourse Debt of such Unrestricted
Subsidiary;
(p) the purchase, redemption or other acquisition or retirement for value of
any Equity Interests of any Restricted Subsidiary issued after the date of the
indenture, PROVIDED that the aggregate price paid for any such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed the sum of (1)
the amount of cash and Cash Equivalents received by such Restricted Subsidiary
from the issue or sale thereof and (2) any accrued dividends thereon the payment
of which would be permitted pursuant to clause (k) above;
(q) any Investment in an Unrestricted Subsidiary that is funded by Qualified
Proceeds received by DeCrane Aircraft on or after the date of the Indenture from
contributions to DeCrane Aircraft's capital or from the issue and sale on or
after the date of the Indenture of Equity Interests of DeCrane Aircraft or of
Disqualified Stock or convertible debt securities to the extent they have been
converted into such Equity, other than Equity Interests, Disqualified Stock or
convertible debt securities sold to a Subsidiary of DeCrane Aircraft and other
than Disqualified Stock or convertible debt securities that have been converted
into Disqualified Stock, in an amount measured at the time such Investment is
made and without giving effect to subsequent changes in value that does not
exceed the amount of such Qualified Proceeds; and
(r) distributions or payments of Receivables Fees.
The board of directors of DeCrane Aircraft may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Default. For purposes of making such designation, all outstanding Investments
by DeCrane Aircraft and its Restricted Subsidiaries, except to the extent repaid
in cash, in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Restricted Investments in
an amount equal to the greater of (1) the net book value of such Investments at
the time of such designation and (2) the fair market value of such Investments
at the time of such designation. Such designation will only be permitted if such
Restricted Investment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments other than cash shall be the fair
market value on the date of the Restricted Payment of the assets or securities
proposed to be transferred or issued by DeCrane Aircraft or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The amount
of all Qualified Proceeds other than cash shall be the fair market value on the
date of receipt thereof by DeCrane Aircraft of such Qualified Proceeds. The fair
market value of any non-cash Restricted Payment shall be determined by the board
of directors of DeCrane Aircraft whose resolution with respect thereto shall be
delivered to the Trustee. Not later than the date of making any Restricted
Payment, DeCrane Aircraft shall deliver to the Trustee an officers' certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by the covenant "Restricted Payments" were
computed.
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INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The indenture provides that
- DeCrane Aircraft will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently
or otherwise, with respect to any Indebtedness, including Acquired
Indebtedness,
- DeCrane Aircraft will not, and will not permit any of its Restricted
Subsidiaries to, issue any shares of Disqualified Stock and
- DeCrane Aircraft will not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock;
PROVIDED that DeCrane Aircraft or any Restricted Subsidiary may incur
Indebtedness, including Acquired Indebtedness, or issue shares of Disqualified
Stock if the Fixed Charge Coverage Ratio for DeCrane Aircraft's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional Indebtedness
is incurred or such Disqualified Stock is issued would have been at least 2.0 to
1, determined on a consolidated pro forma basis including a pro forma
application of the net proceeds therefrom, as if the additional Indebtedness had
been incurred, or the Disqualified Stock had been issued, as the case may be, at
the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Indebtedness"):
(1) the incurrence by DeCrane Aircraft and its Restricted Subsidiaries of
Indebtedness under the bank credit facility; PROVIDED that the aggregate
principal amount of all Indebtedness, with letters of credit being deemed to
have a principal amount equal to the maximum potential liability of DeCrane
Aircraft and such Restricted Subsidiaries thereunder, then classified as having
been incurred in reliance upon this clause (1) that remains outstanding under
the bank credit facility after giving effect to such incurrence does not exceed
an amount equal to $150.0 million;
(2) the incurrence by DeCrane Aircraft and its Restricted Subsidiaries of
Existing Indebtedness;
(3) the incurrence by DeCrane Aircraft of Indebtedness represented by the
notes and the Indenture and by the Guarantors of Indebtedness represented by
their note guarantees;
(4) the incurrence by DeCrane Aircraft and its Restricted Subsidiaries of
Indebtedness denominated in Swiss francs or their successor European common
currency in an aggregate principal amount, or accreted value, as applicable, not
to exceed $4.0 million outstanding after giving effect to such incurrence;
(5) the incurrence by DeCrane Aircraft or any of its Restricted Subsidiaries
of Indebtedness represented by Capital Expenditure Indebtedness, Capital Lease
Obligations or purchase money obligations, in each case, incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the business
of DeCrane Aircraft or such Restricted Subsidiary, in an aggregate principal
amount or accreted value, as applicable not to exceed $15.0 million outstanding
after giving effect to such incurrence;
(6) Indebtedness arising from agreements of DeCrane Aircraft or any
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in connection
with the disposition of any business, assets or a Subsidiary, other than
guarantees of Indebtedness incurred by any Person acquiring all or any portion
of such business, assets or Restricted Subsidiary for the purpose of financing
such acquisition; PROVIDED that
(A) such Indebtedness is not reflected on the balance sheet of DeCrane
Aircraft or any Restricted Subsidiary, other than in the footnotes in the
case of a contingent obligation; and
(B) the maximum assumable liability in respect of such Indebtedness
shall at no time exceed the gross proceeds including non-cash proceeds
actually received by DeCrane Aircraft and/or such Restricted Subsidiary in
connection with such disposition, the fair market value of such non-cash
proceeds being measured at the time received and without giving effect to
any subsequent changes in value;
(7) the incurrence by DeCrane Aircraft or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness other than
intercompany Indebtedness that was permitted by the Indenture to be incurred;
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(8) the incurrence by DeCrane Aircraft or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among DeCrane Aircraft and/or any of its
Restricted Subsidiaries; PROVIDED that
(i) if DeCrane Aircraft is the obligor on such Indebtedness, such
Indebtedness is expressly subordinated to the prior payment in full in cash
of all Obligations with respect to the notes and
(ii) (A) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than DeCrane
Aircraft or a Restricted Subsidiary thereof and (B) any sale or other
transfer of any such Indebtedness to a Person that is not either DeCrane
Aircraft or a Restricted Subsidiary thereof shall be deemed, in each case,
to constitute an incurrence of such Indebtedness by DeCrane Aircraft or such
Restricted Subsidiary, as the case may be, that was not permitted by this
clause (8);
(9) the incurrence by DeCrane Aircraft or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred for the purpose of fixing or hedging
(A) interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of this Indenture to be outstanding and
(B) exchange rate risk with respect to agreements or Indebtedness of
such Person payable denominated in a currency other than U.S. dollars,
PROVIDED that such agreements do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations in foreign
currency exchange rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder;
(10) the guarantee by DeCrane Aircraft or any of its Restricted Subsidiaries
of Indebtedness of DeCrane Aircraft or a Restricted Subsidiary of DeCrane
Aircraft that was permitted to be incurred by another provision of this
covenant;
(11) the incurrence by DeCrane Aircraft or any of its Restricted Subsidiaries
of Acquired Indebtedness in an aggregate principal amount or accreted value, as
applicable not to exceed $10.0 million outstanding after giving effect to such
incurrence;
(12) obligations in respect of performance and surety bonds and completion
guarantees provided by DeCrane Aircraft or any Restricted Subsidiary in the
ordinary course of business; and
(13) the incurrence by DeCrane Aircraft or any of its Restricted Subsidiaries
of additional Indebtedness in an aggregate principal amount or accreted value,
as applicable outstanding after giving effect to such incurrence, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (13), not to exceed $20.0 million.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories of
Permitted Indebtedness described in clauses (1) through (13) above or is
entitled to be incurred pursuant to the first paragraph of this covenant,
DeCrane Aircraft shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this covenant and such item of
Indebtedness will be treated as having been incurred pursuant to only one of
such clauses or pursuant to the first paragraph hereof. In addition, DeCrane
Aircraft may, at any time, change the classification of an item of Indebtedness
or any portion thereof to any other clause or to the first paragraph hereof,
PROVIDED that DeCrane Aircraft would be permitted to incur such item of
Indebtedness or such portion thereof pursuant to such other clause or the first
paragraph hereof, as the case may be, at such time of reclassification. Accrual
of interest, accretion or amortization of original issue discount will not be
deemed to be an incurrence of Indebtedness for purposes of this covenant.
All Indebtedness under the bank credit facility outstanding on the date of
the indenture shall be deemed to have been incurred on such date in reliance on
the first paragraph of the covenant described under "--Incurrence of
Indebtedness and Issuance of Preferred Stock." As a result, DeCrane Aircraft
will be permitted to incur significant additional secured indebtedness under
clause (1) of the definition above of "Permitted Indebtedness."
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LIENS
The indenture provides that DeCrane Aircraft will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien, other than a Permitted Lien, that secures
obligations under any Pari Passu Indebtedness or subordinated Indebtedness of
DeCrane Aircraft on any asset or property now owned or hereafter acquired by
DeCrane Aircraft or any of its Restricted Subsidiaries, or any income or profits
therefrom or assign or convey any right to receive income therefrom, unless the
notes are equally and ratably secured with the obligations so secured until such
time as such obligations are no longer secured by a Lien; PROVIDED that, in any
case involving a Lien securing subordinated Indebtedness of DeCrane Aircraft,
such Lien is subordinated to the Lien securing the notes to the same extent that
such subordinated Indebtedness is subordinated to the notes.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The indenture provides that DeCrane Aircraft will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to
(a) (1) pay dividends or make any other distributions to DeCrane
Aircraft or any of its Restricted Subsidiaries (A) on its Capital Stock or
(B) with respect to any other interest or participation in, or measured by,
its profits, or (2) pay any Indebtedness owed to DeCrane Aircraft or any of
its Restricted Subsidiaries,
(b) make loans or advances to DeCrane Aircraft or any of its Restricted
Subsidiaries or
(c) transfer any of its properties or assets to DeCrane Aircraft or any
of its Restricted Subsidiaries.
However, the foregoing restrictions will not apply to encumbrances or
restrictions existing under or by reason of
(a) Existing Indebtedness as in effect on the date of the indenture,
(b) the bank credit facility as in effect as of the date of the
indenture, and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof,
(c) the indenture and the notes,
(d) applicable law and any applicable rule, regulation or order,
(e) any agreement or instrument of a Person acquired by DeCrane Aircraft
or any of its Restricted Subsidiaries as in effect at the time of such
acquisition, except to the extent created in contemplation of such
acquisition, which encumbrance or restriction is not applicable to any
person, or the properties or assets of any person, other than the person, or
the property or assets of the person, so acquired, PROVIDED that, in the
case of Indebtedness, such Indebtedness was permitted by the terms of the
Indenture to be incurred,
(f) customary non-assignment provisions in leases and contracts entered
into in the ordinary course of business and consistent with past practices,
(g) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in
clause (e) above on the property so acquired,
(h) contracts for the sale of assets, including, without limitation,
customary restrictions with respect to a Subsidiary pursuant to an agreement
that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Subsidiary,
(i) Permitted Refinancing Indebtedness, PROVIDED that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are, in the good faith judgment of DeCrane Aircraft's board of
directors, not materially less favorable, taken as a whole, to the holders
of the notes than those contained in the agreements governing the
Indebtedness being refinanced,
(j) secured Indebtedness otherwise permitted to be incurred pursuant to
the covenants described under "--Incurrence of Indebtedness and Issuance of
Preferred Stock" and "--Liens" that limit the right of the debtor to dispose
of the assets securing such Indebtedness,
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(k) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business,
(l) other Indebtedness or Disqualified Stock of Restricted Subsidiaries
permitted to be incurred subsequent to the Issuance Date pursuant to the
provisions of the covenant described under "--Incurrence of Indebtedness and
Issuance of Preferred Stock",
(m) customary provisions in joint venture agreements and other similar
agreements entered into in the ordinary course of business, and
(n) restrictions created in connection with any Receivables Facility
that, in the good faith determination of the board of directors of DeCrane
Aircraft, are necessary or advisable to effect such Receivables Facility.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The indenture provides that DeCrane Aircraft may not consolidate or merge
with or into, whether or not DeCrane Aircraft is the surviving corporation, or
sell, assign, transfer, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
person unless
(a) DeCrane Aircraft is the surviving corporation, or the other person
formed by or surviving any such consolidation or merger or to which such
sale, assignment, transfer, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia,
(b) the person other than DeCrane Aircraft formed by or surviving any
such consolidation or merger or the person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all
the obligations of DeCrane Aircraft under the registration rights agreement,
the notes and the indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee,
(c) immediately after such transaction no Default or Event of Default
exists, and
(d) DeCrane Aircraft or the other person formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer,
conveyance or other disposition shall have been made
(1) will, at the time of such transaction and after giving pro forma
effect thereto as if such transaction had occurred at the beginning of
the applicable four-quarter period, be permitted to incur at least $1.00
of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described under
"--Incurrence of Indebtedness and Issuance of Preferred Stock" or
(2) would together with its Restricted Subsidiaries have a higher
Fixed Charge Coverage Ratio immediately after such transaction, after
giving pro forma effect thereto as if such transaction had occurred at
the beginning of the applicable four-quarter period, than the Fixed
Charge Coverage Ratio of DeCrane Aircraft and its Restricted Subsidiaries
immediately prior to such transaction.
The foregoing clause (d) will not prohibit a merger between DeCrane Aircraft
and a Wholly Owned Subsidiary of DeCrane Holdings created for the purpose of
holding the Capital Stock of DeCrane Aircraft, a merger between DeCrane
Aircraft and a Wholly Owned Restricted Subsidiary or a merger between
DeCrane Aircraft and an Affiliate incorporated solely for the purpose of
reincorporating DeCrane Aircraft in another state of the United States so
long as, in each case, the amount of Indebtedness of DeCrane Aircraft and
its Restricted Subsidiaries is not increased thereby.
The indenture provides that DeCrane Aircraft will not lease all or substantially
all of its assets to any person.
TRANSACTIONS WITH AFFILIATES
The indenture provides that DeCrane Aircraft will not, and will not permit
any of its Restricted Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into or make or amend any transaction,
contract,
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agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate of DeCrane Aircraft each of which the indenture refers to as
an "Affiliate Transaction", unless
(a) such Affiliate Transaction is on terms that are no less favorable to
DeCrane Aircraft or such Restricted Subsidiary than those that would have
been obtained in a comparable transaction by DeCrane Aircraft or such
Restricted Subsidiary with an unrelated Person and
(b) DeCrane Aircraft delivers to the Trustee, with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $7.5 million, either
(1) a resolution of the board of directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with
clause (a) above and that such Affiliate Transaction has been approved by
a majority of the disinterested members of the board of directors or
(2) an opinion as to the fairness to the holders of such Affiliate
Transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm of national standing.
Notwithstanding the foregoing, the following items shall not be deemed to be
Affiliate Transactions:
(a) customary directors' fees, indemnification or similar arrangements
or any employment agreement or other compensation plan or arrangement
entered into by DeCrane Aircraft or any of its Restricted Subsidiaries in
the ordinary course of business, including ordinary course loans to
employees not to exceed (1) $5.0 million outstanding in the aggregate at any
time and (2) $2.0 million to any one employee, and consistent with the past
practice of DeCrane Aircraft or such Restricted Subsidiary;
(b) transactions between or among DeCrane Aircraft and/or its Restricted
Subsidiaries;
(c) payments of customary fees by DeCrane Aircraft or any of its
Restricted Subsidiaries to DLJ Merchant Banking and its Affiliates made for
any financial advisory, financing, underwriting or placement services or in
respect of other investment banking activities, including, without
limitation, in connection with acquisitions or divestitures which are
approved by a majority of the board of directors in good faith;
(d) any agreement as in effect on the date of the indenture or any
amendment thereto which such amendment is not disadvantageous to the holders
of the notes in any material respect, or any transaction contemplated
thereby;
(e) payments and transactions in connection with the Acquisition, the
bank credit facility and the bridge notes and the Offering and the
application of the proceeds thereof, and the payment of the fees and
expenses with respect thereto;
(f) Restricted Payments that are permitted by the provisions of the
indenture described under "--Restricted Payments" and any Permitted
Investments;
(g) payments and transactions in connection with the Global Technology
Investment, and the payment of fees and expenses with respect thereto; and
(h) sales of accounts receivable, or participations therein, in
connection with any Receivables Facility.
SALE AND LEASEBACK TRANSACTIONS
The indenture provides that DeCrane Aircraft will not, and will not permit
any of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; PROVIDED that DeCrane Aircraft or any Restricted Subsidiary may
enter into a sale and leaseback transaction if
(a) DeCrane Aircraft or such Restricted Subsidiary, as the case may be,
could have incurred Indebtedness in an amount equal to the Attributable
Indebtedness relating to such sale and leaseback transaction pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described under "--Incurrence of Indebtedness and Issuance of
Preferred Stock," and incurred a Lien to secure such Indebtedness pursuant
to the covenant described under "--Liens,"
(b) the gross cash proceeds of such sale and leaseback transaction are
at least equal to the fair market value, as determined in good faith by the
board of directors and set forth in an officers'
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certificate delivered to the Trustee, of the property that is the subject of
such sale and leaseback transaction and
(c) the transfer of assets in such sale and leaseback transaction is
permitted by, and DeCrane Aircraft applies the proceeds of such transaction
in compliance with, the covenant described under "--Repurchase at the Option
of Holders--Asset Sales."
NO SENIOR SUBORDINATED INDEBTEDNESS
The indenture provides that DeCrane Aircraft will not incur any Indebtedness
that is subordinate or junior in right of payment to any Senior Indebtedness and
senior in right of payment to the notes and no Guarantor will incur any
Indebtedness that is subordinate or junior in right of payment to any Senior
Indebtedness and senior in right of payment to the Note Guarantees.
ADDITIONAL NOTE GUARANTEES
The indenture provides that, if any Wholly-Owned Restricted Subsidiary of
DeCrane Aircraft that is a Domestic Subsidiary guarantees any Indebtedness under
the bank credit facility, then such Restricted Subsidiary shall become a
Guarantor and execute a supplemental indenture and deliver an opinion of
counsel, in accordance with the terms of the indenture.
ACCOUNTS RECEIVABLE FACILITY
The indenture provides that no Accounts Receivable Subsidiary will incur any
Indebtedness if immediately after giving effect to such incurrence the aggregate
outstanding Indebtedness of all Accounts Receivable Subsidiaries, excluding any
Indebtedness owed to DeCrane Aircraft or any Restricted Subsidiary, would exceed
$60.0 million.
REPORTS
The indenture provides that, whether or not required by the rules and
regulations of the SEC, so long as any notes are outstanding, DeCrane Aircraft
will furnish to the holders of notes
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
DeCrane Aircraft were required to file such forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report thereon by
DeCrane Aircraft's certified independent accountants and
(2) all current reports that would be required to be filed with the SEC
on Form 8-K if DeCrane Aircraft were required to file such reports, in each
case, within the time periods specified in the SEC's rules and regulations.
In addition, following the consummation of the exchange offer contemplated by
the Registration Rights Agreement, whether or not required by the rules and
regulations of the SEC, DeCrane Aircraft will file a copy of all such
information and reports with the SEC for public availability within the time
periods specified in the SEC's rules and regulations and make such information
available to securities analysts and prospective investors upon request. In
addition, DeCrane Aircraft and the Guarantors have agreed that, for so long as
any notes remain outstanding, they will furnish to the holders and to securities
analysts and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The indenture provides that each of the following constitutes an Event of
Default:
(a) default for 30 days in the payment when due of interest on the
notes, whether or not prohibited by the subordination provisions of the
indenture;
(b) default in payment when due of the principal of or premium, if any,
on the notes, whether or not prohibited by the subordination provisions of
the indenture;
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(c) failure by DeCrane Aircraft or any of its Restricted Subsidiaries
for 30 days after receipt of notice from the Trustee or holders of at least
25% in principal amount of the notes then outstanding to comply with the
provisions described under "Repurchase at the Option of Holders--Change of
Control," "--Asset Sales," "Principal Covenants--Restricted Payments,"
"--Incurrence of Indebtedness and Issuance of Preferred Stock" or "Merger,
Consolidation or Sale of Assets";
(d) failure by DeCrane Aircraft for 60 days after notice from the
Trustee or the holders of at least 25% in principal amount of the notes then
outstanding to comply with any of its other agreements in the Indenture or
the notes;
(e) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by DeCrane Aircraft or any of its Restricted
Subsidiaries, or the payment of which is guaranteed by DeCrane Aircraft or
any of its Restricted Subsidiaries, whether such Indebtedness or guarantee
now exists, or is created after the date of the indenture, which default
(i) is caused by a failure to pay Indebtedness at its stated final
maturity after giving effect to any applicable grace period provided in
such Indebtedness (a "Payment Default") or
(ii) results in the acceleration of such Indebtedness prior to its
stated final maturity and,
in each case, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there has
been a Payment Default or the maturity of which has been so accelerated,
aggregates $10.0 million or more;
(f) failure by DeCrane Aircraft or any of its Restricted Subsidiaries to
pay final judgments aggregating in excess of $10.0 million, net of any
amounts with respect to which a reputable and creditworthy insurance company
has acknowledged liability in writing, which judgments are not paid,
discharged or stayed for a period of 60 days;
(g) except as permitted by the indenture, any note guarantee shall be
held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Guarantor, or any
person acting of behalf of any Guarantor, shall deny or disaffirm its
obligations under its note guarantee; and
(h) certain events of bankruptcy or insolvency with respect to DeCrane
Aircraft or any of its Restricted Subsidiaries that is a Significant
Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the then outstanding notes may declare
all the notes to be due and payable immediately; PROVIDED that, so long as any
Indebtedness permitted to be incurred pursuant to the bank credit facility shall
be outstanding, such acceleration shall not be effective until the earlier of
(a) an acceleration of any such Indebtedness under the bank credit facility or
(b) five business days after receipt by DeCrane Aircraft and the administrative
agent under the bank credit facility of written notice of such acceleration.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to DeCrane Aircraft or
any Significant Subsidiary, all outstanding notes will become due and payable
without further action or notice. holders of the notes may not enforce the
indenture or the notes except as provided in the indenture. In the event of a
declaration of acceleration of the notes because an Event of Default has
occurred and is continuing as a result of the acceleration of any Indebtedness
described in clause (e) of the preceding paragraph, the declaration of
acceleration of the notes shall be automatically annulled if the holders of any
Indebtedness described in clause (e) have rescinded the declaration of
acceleration in respect of such Indebtedness within 30 days of the date of such
declaration, and if the annulment of the acceleration of the notes would not
conflict with any judgment or decree of a court of competent jurisdiction, and
all existing Events of Default, except non-payment of principal or interest on
the notes that became due solely because of the acceleration of the notes, have
been cured or waived.
Subject to certain limitations, holders of a majority in principal amount of
the then outstanding notes may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from holders of the notes notice of any
continuing Default or Event of Default, except a Default or Event of Default
relating to the payment of principal or interest, if it determines that
withholding notice is in their interest.
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The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the notes.
DeCrane Aircraft is required to deliver to the Trustee annually a statement
regarding compliance with the indenture, and DeCrane Aircraft is required upon
becoming aware of any Default or Event of Default to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF MEMBER, DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No member, director, officer, employee, incorporator or stockholder of
DeCrane Aircraft, as such, shall have any liability for any obligations of
DeCrane Aircraft under the notes or the indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each holder of
notes by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the notes. Such waiver may
not be effective to waive liabilities under the federal securities laws, and it
is the view of the SEC that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
DeCrane Aircraft may, at its option and at any time, elect to have all of
its and the Guarantors' obligations discharged with respect to the outstanding
notes, the note guarantees and the indenture ("Legal Defeasance") except for
(a) the rights of holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest on such notes
when such payments are due from the trust referred to below,
(b) DeCrane Aircraft's obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed, lost
or stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust,
(c) the rights, powers, trusts, duties and immunities of the Trustee,
and DeCrane Aircraft's obligations in connection therewith and
(d) the Legal Defeasance provisions of the indenture.
In addition, DeCrane Aircraft may, at its option and at any time, elect to have
their obligations released with respect to certain covenants that are described
in the indenture ("Covenant Defeasance") and thereafter any omission to comply
with such obligations shall not constitute a Default or Event of Default with
respect to the notes. In the event Covenant Defeasance occurs, some of the
events described under "--Events of Default and Remedies" other than non-payment
and bankruptcy will no longer constitute an Event of Default with respect to the
notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(a) DeCrane Aircraft must irrevocably deposit with the Trustee, in
trust, for the benefit of the holders of the notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium, if
any, and interest on the outstanding notes on the stated maturity or on the
applicable redemption date, as the case may be, and DeCrane Aircraft must
specify whether the notes are being defeased to maturity or to a particular
redemption date,
(b) in the case of Legal Defeasance, DeCrane Aircraft shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (i) DeCrane Aircraft
has received from, or there has been published by, the Internal Revenue
Service a ruling or (ii) since the date of the indenture, there has been a
change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion of counsel shall confirm that,
subject to customary assumptions and exclusions, the holders of the
outstanding notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not occurred,
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(c) in the case of Covenant Defeasance, DeCrane Aircraft shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the holders of the outstanding notes will not
recognize income, gain or loss for federal income tax purposes as a result
of such Covenant Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred,
(d) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit, other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit, or,
insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 123rd day after the date
of deposit,
(e) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under, any material
agreement or instrument other than the indenture to which DeCrane Aircraft
or any of its Subsidiaries is a party or by which DeCrane Aircraft or any of
its Subsidiaries is bound,
(f) DeCrane Aircraft must have delivered to the Trustee an opinion of
counsel to the effect that, subject to customary assumptions and exclusions,
after the 123rd day following the deposit, the trust funds will not be
subject to the effect of Section 547 of the United States Bankruptcy Code or
any analogous New York State law provision or any other applicable federal
or New York bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally,
(g) DeCrane Aircraft must deliver to the Trustee an officers'
certificate stating that the deposit was not made by DeCrane Aircraft with
the intent of preferring the holders of notes over the other creditors of
DeCrane Aircraft with the intent of defeating, hindering, delaying or
defrauding creditors of DeCrane Aircraft or others, and
(h) DeCrane Aircraft must deliver to the Trustee an officers'
certificate and an opinion of counsel, subject to customary assumptions and
exclusions, each stating that all conditions precedent provided for relating
to the Legal Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the indenture.
The Registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and DeCrane Aircraft may
require a holder to pay any taxes and fees required by law or permitted by the
indenture. DeCrane Aircraft are not required to transfer or exchange any note
selected for redemption. Also, DeCrane Aircraft is not required to transfer or
exchange any note for a period of 15 days before a selection of notes to be
redeemed. The registered holder of a note will be treated as the owner of it for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the indenture, the
note guarantees and the notes may be amended or supplemented with the consent of
the holders of at least a majority in principal amount of the notes then
outstanding, and any existing default or compliance with any provision of the
indenture, the note guarantees or the notes may be waived with the consent of
the holders of a majority in principal amount of the then outstanding notes.
Without the consent of each holder affected, an amendment or waiver may
not,with respect to any notes held by a non-consenting holder:
(a) reduce the principal amount of notes whose holders must consent to
an amendment, supplement or waiver,
(b) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes, other than
the provisions described under the caption "--Repurchase at the Option of
Holders,"
(c) reduce the rate of or extend the time for payment of interest on any
note,
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(d) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the notes (except a rescission of
acceleration of the notes by the holders of at least a majority in aggregate
principal amount of the notes and a waiver of the payment default that
resulted from such acceleration),
(e) make any note payable in money other than that stated in the notes,
(f) make any change in the provisions of the indenture relating to
waivers of past Defaults,
(g) waive a redemption payment with respect to any note, other than the
provisions described under the caption "--Repurchase at the Option of
Holders,"
(h) release any Guarantor from its obligations under its note guarantee
or the Indenture, except in accordance with the terms of the indenture or
(i) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, any amendment to or waiver of the covenant
described under the caption "--Repurchase at the Option of Holders--Change of
Control," and any amendment to Article 10 of the indenture, which relates to
subordination, will require the consent of the holders of at least two-thirds in
aggregate principal amount of the notes then outstanding if such amendment would
materially adversely affect the rights of holders of notes.
Notwithstanding the foregoing, without the consent of any holder of notes,
DeCrane Aircraft, the Guarantors and the Trustee may amend or supplement the
indenture, the note guarantees or the notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated notes in addition to or in place of
certificated notes, to provide for the assumption of DeCrane Aircraft's
obligations to holders of notes in the case of a merger or consolidation or sale
of all or substantially all of DeCrane Aircraft's assets, to make any change
that would provide any additional rights or benefits to the holders of notes or
that does not materially adversely affect the legal rights under the indenture
of any such holder, or to comply with requirements of the SEC in order to effect
or maintain the qualification of the indenture under the Trust Indenture Act or
to provide for guarantees of the notes.
CONCERNING THE TRUSTEE
The indenture contains certain limitations on the rights of the Trustee,
State Street Bank & Trust Co., should it become a creditor of any Company, to
obtain payment of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise. The Trustee will
be permitted to engage in other transactions. However, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the SEC for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur and not be cured, the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
holder of notes, unless such holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
We are conducting this exchange offer, and filing the registration statement
of which this Prospectus is part, in order to comply with our obligations under
the registration rights agreement which we entered into with the initial
purchaser at the time of the DLJ acquisition. If we are not permitted to
complete this exchange offer, because it is not permitted by applicable law or
SEC policy, or any holder of the old notes, or certain new notes bearing
transfer restrictions, notifies us of certain restrictions on its participation
in the exchange offer within 20 business days of the completion of this exchange
offer, we will file with the SEC a shelf registration statement to cover resales
of the notes by holders who satisfy certain conditions relating to the provision
of information.
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The registration rights agreement requires that we file the registration
statement of which this Prospectus is part, within 120 days after October 5,
1998; use our reasonable best efforts to have it declared effective by the SEC
within 180 days after October 5, 1998; unless not permitted by applicable law or
SEC policy, commence the exchange offer described herein and use our reasonable
best efforts to issue the new notes, within 30 business days after the effective
date of the foregoing registration statement; and, if obligated to file a shelf
registration statement because certain parties cannot register their notes in
connection with the exchange offer, file it within 120 days after such
obligation arises, and use our reasonable best efforts to cause it to be
declared effective within 180 days after that date.
If (a) we fail to file any of the registration statements required by the
registration rights agreement when required, (b) any of those registration
statements is not declared effective by the SEC by the deadlines specified
above, (c) we fail to complete this exchange offer within 40 business days of
the deadline for filing the related registration statement, or (d) any required
registration statement declared effective but thereafter ceases to be effective
or usable as contemplated by the registration rights agreement, we are in
default of the registration rights agreement. We are required under the terms of
the old notes and the registration rights agreement to pay "liquidated damages"
to each holder of notes, with respect to the first 90-day period immediately
following the occurrence of the first default of that type in an amount equal to
$0.05 per week per $1,000 principal amount of notes held by such holder. The
amount of the liquidated damages will increase by an additional $0.05 per week
per $1,000 principal amount of notes with respect to each subsequent 90-day
period until all defaults of that type have been cured, up to a maximum amount
of liquidated damages for all defaults of that type of $0.25 per week per $1,000
principal amount of notes. All accrued liquidated damages will be paid by us on
each Damages Payment Date to the Global Note holder by wire transfer of
immediately available funds or by federal funds check and to holders of
Certificated Securities by wire transfer to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
specified. Following the cure of all defaults of that type, the accrual of
liquidated damages will cease.
Holders of notes will be required to make certain representations to DeCrane
Aircraft and the Guarantors, which are described in the registration rights
agreement, in order to participate in the exchange offer and will be required to
deliver certain information to be used in connection with the shelf registration
statement and to provide comments on the shelf registration statement within the
time periods set forth in the registration rights agreement in order to have
their notes included in the shelf registration statement and benefit from the
provisions regarding liquidated damages set forth above with respect to the
shelf registration statement.
KEY DEFINITIONS
Set forth below are key defined terms used in the indenture. Please refer to
the indenture for a full description of all such terms, and any other
capitalized terms used herein for which no definition is provided.
"ACCOUNTS RECEIVABLE SUBSIDIARY" means an Unrestricted Subsidiary of DeCrane
Aircraft to which DeCrane Aircraft or any of its Restricted Subsidiaries sells
any of its accounts receivable pursuant to a Receivables Facility.
"ACQUIRED INDEBTEDNESS" means, with respect to any specified person, (a)
Indebtedness of any other person existing at the time such other person is
merged with or into or became a Subsidiary of such specified person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other person merging with or into or becoming a
Subsidiary of such specified person, and (b) Indebtedness secured by a Lien
encumbering an asset acquired by such specified person at the time such asset is
acquired by such specified person.
"ACQUISITION" means the acquisition by an indirect subsidiary of DeCrane
Holdings of at least majority of the outstanding stock of DeCrane Aircraft, the
merger of such subsidiary into DeCrane Aircraft, the repayment of certain
indebtedness of DeCrane Aircraft, the payment of certain related fees and
expenses and the Finance Merger.
"ACQUISITION FINANCING" means the issuance and sale by DeCrane Aircraft of
the notes, the execution and delivery by DeCrane Aircraft and certain of its
subsidiaries of the bank credit facility and the borrowing thereunder and the
issuance and sale by DeCrane Aircraft of bridge notes to finance the Acquisition
and the
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issuance and sale by DeCrane Holdings of common stock and preferred stock for
consideration, the proceeds of each of which were used to fund the purchase
price for the Acquisition.
"AFFILIATE" of any specified person means any other person which, directly
or indirectly, controls, is controlled by or is under direct or indirect common
control with, such specified person. For purposes of this definition, "control,"
when used with respect to any person, means the power to direct the management
and policies of such person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"ASSET SALE" means (1) the sale, lease, conveyance, disposition or other
transfer (a "disposition") of any properties, assets or rights (including,
without limitation, by way of a sale and leaseback) (provided that the sale,
lease, conveyance or other disposition of all or substantially all of the assets
of DeCrane Aircraft and its Subsidiaries taken as a whole will be governed by
the provisions of the indenture described under the caption "-- Change of
Control" and the provisions described under the caption "--Merger, Consolidation
or Sale of Assets" and not by the provisions of the indenture's asset sale
covenant), and (2) the issuance, sale or transfer by DeCrane Aircraft or any of
its Restricted Subsidiaries of Equity Interests of any of DeCrane Aircraft's
Restricted Subsidiaries, in either case, whether in a single transaction or a
series of related transactions that either have a fair market value in excess of
$5.0 million or are for net proceeds in excess of $5.0 million. However, the
following items shall not be deemed to be Asset Sales:
- dispositions in the ordinary course of business;
- a disposition of assets by DeCrane Aircraft to a Restricted Subsidiary or
by a Restricted Subsidiary to DeCrane Aircraft or to another Restricted
Subsidiary;
- a disposition of Equity Interests by a Restricted Subsidiary to DeCrane
Aircraft or to another Restricted Subsidiary;
- the sale and leaseback of any assets within 90 days of the acquisition
thereof;
- foreclosures on assets;
- any exchange of like property pursuant to Section 1031 of the Internal
Revenue Code of 1986, for use in a Permitted Business;
- any sale of Equity Interests in, or Indebtedness or other securities of,
an Unrestricted Subsidiary;
- a Permitted Investment or a Restricted Payment that is permitted by the
covenant described under the caption "--Restricted Payments"; and
- sales of accounts receivable, or participations therein, in connection
with any Receivables Facility.
"ATTRIBUTABLE INDEBTEDNESS" in respect of a sale and leaseback transaction
means, at the time of determination, the present value, discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP, of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction, including any
period for which such lease has been extended or may, at the option of the
lessor, be extended.
"BANK CREDIT FACILITY" means that certain Credit Agreement dated as of
August 28, 1998 among DeCrane Aircraft, various financial institutions party
thereto, DLJ Capital Funding, Inc., as syndication agent, and The First National
Bank of Chicago, as administrative agent, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and, in each case, as amended, modified, renewed,
refunded, replaced or refinanced from time to time, including any agreement (1)
extending or shortening the maturity of any Indebtedness incurred thereunder or
contemplated thereby, (2) adding or deleting borrowers or guarantors thereunder,
(3) increasing the amount of Indebtedness incurred thereunder or available to be
borrowed thereunder, PROVIDED that on the date such Indebtedness is incurred it
would not be prohibited by clause (1) of "--Incurrence of Indebtedness and
Issuance of Preferred Stock" or (4) otherwise altering the terms and conditions
thereof. Indebtedness under the bank credit facility outstanding on the date of
the indenture shall be deemed to have been incurred on such date in reliance on
the first paragraph of the covenant described under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
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"CAPITAL EXPENDITURE INDEBTEDNESS" means Indebtedness incurred by any person
to finance the purchase or construction or any property or assets acquired or
constructed by such person which have a useful life or more than one year so
long as
- the purchase or construction price for such property or assets is included
in "addition to property, plant or equipment" in accordance with GAAP,
- the acquisition or construction of such property or assets is not part of
any acquisition of a person or line of business and
- such Indebtedness is incurred within 90 days of the acquisition or
completion of construction of such property or assets.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means (1) in the case of a corporation, corporate stock, (2)
in the case of an association or business entity, any and all shares, interests,
participations, rights or other equivalents, however designated, of corporate
stock, (3) in the case of a partnership or limited liability company,
partnership or membership interests whether general or limited and (4) any other
interest or participation that confers on a person the right to receive a share
of the profits and losses of, or distributions of assets of, the issuing person.
"CASH EQUIVALENTS" means (1) Government Securities, (2) any certificate of
deposit maturing not more than 365 days after the date of acquisition issued by,
or demand deposit or time deposit of, an Eligible Institution or any lender
under the bank credit facility, (3) commercial paper maturing not more than 365
days after the date of acquisition of an issuer, other than an Affiliate of
DeCrane Aircraft, with a rating, at the time as of which any investment therein
is made, of "A-3" or higher according to S&P or "P-2" or higher according to
Moody's or carrying an equivalent rating by a nationally recognized rating
agency if both of the two named rating agencies cease publishing ratings of
investments, (4) any bankers acceptances of money market deposit accounts issued
by an Eligible Institution, (5) any fund investing exclusively in investments of
the types described in clauses (1) through (4) above and (6) in the case of any
Subsidiary 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 (1) through (5) above (including
without limitation any deposit with any bank that is a lender to any such
Subsidiary).
"CONSOLIDATED CASH FLOW" means, with respect to any person for any period,
the Consolidated Net Income of such Person and its Restricted Subsidiaries for
such period plus, to the extent deducted in computing Consolidated Net Income,
- an amount equal to any extraordinary or non-recurring loss plus any net
loss realized in connection with an Asset Sale,
- provision for taxes based on income or profits of such person and its
Restricted Subsidiaries for such period,
- Fixed Charges of such person for such period,
- depreciation, amortization, including amortization of goodwill and other
intangibles, and all other non-cash charges, excluding any such non-cash
charge to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense
that was paid in a prior period, including charges related to non-cash
minority interests, of such Person and its Restricted Subsidiaries for
such period,
- net periodic post-retirement benefits,
- other income or expense net as set forth on the face of such person's
statement of operations,
- expenses and charges related to the Acquisition, the bank credit facility
and the application of the proceeds thereof which are paid, taken or
otherwise accounted for within 180 days of the consummation of the
Acquisition, and
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- any non-capitalized transaction costs incurred in connection with actual
or proposed financings, acquisition or divestitures, including, but not
limited to, financing and refinancing fees and costs incurred in
connection with the Acquisition, in each case, on a consolidated basis and
determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, the Fixed Charges of, and the depreciation and amortization and
other non-cash charges of, a Restricted Subsidiary of a person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent and
in the same proportion that Net Income of such Restricted Subsidiary was
included in calculating the Consolidated Net Income of such person.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any person for any
period, the sum of, without duplication,
- the interest expense of such person and its Restricted Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP,
including amortization of original issue discount, non-cash interest
payments, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments, if
any, pursuant to Hedging Obligations; PROVIDED that in no event shall any
amortization of deferred financing costs be included in Consolidated
Interest Expense; and
- the consolidated capitalized interest of such person and its Restricted
Subsidiaries for such period, whether paid or accrued;
PROVIDED, however, that Receivables Fees shall be deemed not to constitute
Consolidated Interest Expense. Notwithstanding the foregoing, the Consolidated
Interest Expense with respect to any Restricted Subsidiary that is not a Wholly
Owned Restricted Subsidiary shall be included only to the extent and in the same
proportion that the net income of such Restricted Subsidiary was included in
calculating Consolidated Net Income.
"CONSOLIDATED NET INCOME" means, with respect to any person for any period,
the aggregate of the Net Income of such person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
PROVIDED that
- the Net Income or loss of any person that is not a Restricted Subsidiary
or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions
paid in cash to the referent person or a Restricted Subsidiary thereof,
- the Net Income or loss of any Restricted Subsidiary other than a
Subsidiary organized or having its principal place of business outside the
United States shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Restricted
Subsidiary of that Net Income or loss is not at the date of determination
permitted without any prior governmental approval that has not been
obtained or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted Subsidiary,
- the Net Income or loss of any person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded,
- the cumulative effect of a change in accounting principles shall be
excluded and
- expenses and charges related to the Acquisition, the bank credit facility
and the application of the proceeds thereof which are paid, taken or
otherwise accounted for within 180 days of the consummation of the
Acquisition shall be excluded.
"DECRANE HOLDINGS" means DeCrane Holdings Co., a Delaware corporation, the
corporate parent of DeCrane Aircraft, or its successors.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
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"DESIGNATED NONCASH CONSIDERATION" means the fair market value of non-cash
consideration received by DeCrane Aircraft or one of its Restricted Subsidiaries
in connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an officers' certificate, setting forth the basis of
such valuation, executed by the principal executive officer and the principal
financial officer of DeCrane Aircraft, less the amount of cash or Cash
Equivalents received in connection with a sale of such Designated Noncash
Consideration.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms or by the
terms of any security into which it is convertible, or for which it is
exchangeable; or upon the happening of any event other than any event solely
within the control of the issuer thereof, matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, is exchangeable for
Indebtedness, except to the extent exchangeable at the option of such Person
subject to the terms of any debt instrument to which such Person is a party, or
redeemable at the option of the holder thereof, in whole or in part, on or prior
to the date on which the notes mature. However, that any Capital Stock that
would constitute Disqualified Stock solely because the holders thereof have the
right to require DeCrane Aircraft to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock, if the terms of such Capital Stock provide that DeCrane
Aircraft may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant
described under the caption "--Principal Covenants--Restricted Payments."
Further, if such Capital Stock is issued to any plan for the benefit of
employees of DeCrane Aircraft or its Subsidiaries or by any such plan to such
employees, such Capital Stock shall not constitute Disqualified Stock solely
because it may be required to be repurchased by DeCrane Aircraft in order to
satisfy applicable statutory or regulatory obligations.
"DOMESTIC SUBSIDIARY" means a Subsidiary that is organized under the laws of
the United States or any State, district or territory thereof other than Audio
International Sales, Inc., a U.S. Virgin Islands corporation.
"ELIGIBLE INSTITUTION" means a commercial banking institution that has
combined capital and surplus not less than $100.0 million or its equivalent in
foreign currency, whose short-term debt is rated "A-3" or higher according to
Standard & Poor's Ratings Group ("S&P") or "P-2" or higher according to Moody's
Investor Services, Inc. ("Moody's") or carrying an equivalent rating by a
nationally recognized rating agency if both of the two named rating agencies
cease publishing ratings of investments.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock.
"EXISTING INDEBTEDNESS" means Indebtedness of DeCrane Aircraft and its
Restricted Subsidiaries other than in existence on the date of the Indenture,
excluding Indebtedness under the Bank Credit Facility, until such amounts are
repaid.
"FINANCE MERGER" means the merger of DeCrane Finance Co. with and into
DeCrane Aircraft.
"FIXED CHARGES" means, with respect to any person for any period, the sum,
without duplication, of (a) the Consolidated Interest Expense of such person for
such period and (b) all dividend payments on any series of preferred stock of
such person other than dividends payable solely in Equity Interests that are not
Disqualified Stock, in each case, on a consolidated basis and in accordance with
GAAP.
"FIXED CHARGE COVERAGE RATIO" means, with respect to any person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such person for such period, in each case exclusive of
amounts attributable to discontinued operations, as determined in accordance
with GAAP, or operations and businesses disposed of prior to the Calculation
Date. In the event that the referent Person or any of its Subsidiaries incurs,
assumes, guarantees or redeems any Indebtedness other than revolving credit
borrowings or issues or redeems preferred stock subsequent to the commencement
of the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock and the use of the proceeds therefrom, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
acquisitions that have been made by DeCrane Aircraft or any of its Subsidiaries,
including all mergers or consolidations and any related financing transactions,
during the four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date shall be deemed to have occurred on the
first day of the
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four-quarter reference period and Consolidated Cash Flow for such reference
period shall be calculated to include the Consolidated Cash Flow of the acquired
entities on a pro forma basis after giving effect to cost savings resulting from
employee terminations, facilities consolidations and closings, standardization
of employee benefits and compensation practices, consolidation of property,
casualty and other insurance coverage and policies, standardization of sales and
distribution methods, reductions in taxes other than income taxes and other cost
savings reasonably expected to be realized from such acquisition, as determined
in good faith by the principal financial officer of DeCrane Aircraft, regardless
of whether such cost savings could then be reflected in PRO FORMA financial
statements under GAAP, Regulation S-X promulgated by the SEC or any other
regulation or policy of the SEC, and without giving effect to clause (c) of the
proviso set forth in the definition of Consolidated Net Income.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"GLOBAL TECHNOLOGY PARTNERS" means Global Technology Partners, LLC and its
Affiliates.
"GLOBAL TECHNOLOGY INVESTMENT" means the sale by DeCrane Holdings to Global
Technology Partners of its common stock, the purchase price of which will be
partially financed by Global Technology Loans, and the granting by DeCrane
Holdings to Global Technology Partners of options to purchase shares of its
common stock.
"GLOBAL TECHNOLOGY LOANS" means one or more loans by DeCrane Aircraft or
DeCrane Holdings to Global Technology Partners to finance Global Technology
Partners' purchase of common stock of DeCrane Holdings; PROVIDED, HOWEVER, that
the aggregate principal amount of all such Global Technology Loans outstanding
at any time shall not exceed $2.0 million.
"GUARANTEE" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including letters of credit or reimbursement agreements
in respect thereof, of all or any part of any Indebtedness.
"GUARANTORS" means each of the Domestic Subsidiaries of DeCrane Aircraft
that is a Wholly Owned Restricted Subsidiary on the date of the indenture, and
any other Subsidiary that executes a note Guarantee in accordance with the
provisions of the indenture.
"HEDGING OBLIGATIONS" means, with respect to any person, the obligations of
such person under (a) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (b) other agreements or
arrangements designed to protect such person against fluctuations in interest
rates and (c) agreements or arrangements designed to protect such person against
fluctuations in exchange rates.
"INDEBTEDNESS" means, with respect to any person, any indebtedness of such
Person in respect of borrowed money or evidenced by bonds, notes, debentures or
similar instruments or letters of credit (or reimbursement agreements in respect
thereof) or banker's acceptances or representing Capital Lease Obligations or
the balance deferred and unpaid of the purchase price of any property or
representing any Hedging Obligations, except any such balance that constitutes
an accrued expense or trade payable, if and to the extent any of the foregoing
Indebtedness, than letters of credit and Hedging Obligations would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP,
as well as all Indebtedness of others secured by a Lien on any asset of such
person whether or not such Indebtedness is assumed by such person and, to the
extent not otherwise included, the guarantee by such Person of any Indebtedness
of any other person, PROVIDED that Indebtedness shall not include the pledge by
DeCrane Aircraft of the Capital Stock of an Unrestricted Subsidiary of DeCrane
Aircraft to secure Non-Recourse Debt of such Unrestricted Subsidiary. The amount
of any Indebtedness outstanding as of any date shall be
- the accreted value thereof, together with any interest thereon that is
more than 30 days past due, in the case of any Indebtedness that does not
require current payments of interest, and
- the principal amount thereof, in the case of any other Indebtedness;
PROVIDED that the principal amount of any Indebtedness that is denominated in
any currency other than United States dollars shall be the amount thereof, as
determined pursuant to the foregoing provision, converted into United States
dollars at the Spot Rate in effect on the date that such Indebtedness was
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incurred, or, if such indebtedness was incurred prior to the date of the
Indenture, the Spot Rate in effect on the date of the indenture.
"INVESTMENTS" means, with respect to any person, all investments by such
person in other persons including Affiliates in the forms of direct or indirect
loans, including guarantees by the referent person of, and Liens on any assets
of the referent person securing, Indebtedness or other obligations of other
persons, advances or capital contributions, excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business, purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP. However, an investment by DeCrane Aircraft for consideration consisting of
common equity securities of DeCrane Aircraft shall not be deemed to be an
Investment. If DeCrane Aircraft or any Restricted Subsidiary of DeCrane Aircraft
sells or otherwise disposes of any Equity Interests of any direct or indirect
Restricted Subsidiary of DeCrane Aircraft such that, after giving effect to any
such sale or disposition, such person is no longer a Subsidiary of DeCrane
Aircraft, DeCrane Aircraft shall be deemed to have made an Investment on the
date of any such sale or disposition equal to the fair market value of the
Equity Interests of such Restricted Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant described
under "--Restricted Payments."
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code or equivalent statutes of any jurisdiction.
"MANAGEMENT LOANS" means one or more loans by DeCrane Aircraft or DeCrane
Holdings to officers and/or directors of DeCrane Aircraft and any of its
Restricted Subsidiaries to finance the purchase by such officers and directors
of common stock of DeCrane Holdings; PROVIDED, however, that the aggregate
principal amount of all such Management Loans outstanding at any time shall not
exceed $5.0 million.
"NET INCOME" means, with respect to any person, the net income or loss of
such person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (a) any gain (or
loss), together with any related provision for taxes on such gain or loss,
realized in connection with any Asset Sale, including dispositions pursuant to
sale and leaseback transactions, or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries and (b) any extraordinary or
nonrecurring gain or loss, together with any related provision for taxes on such
extraordinary or nonrecurring gain or loss.
"NET PROCEEDS" means the aggregate cash proceeds received by DeCrane
Aircraft or any of its Restricted Subsidiaries in respect of any Asset Sale,
including any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale, net of, without duplication:
- the direct costs relating to such Asset Sale, including legal, accounting
and investment banking fees, and sales commissions, recording fees, title
transfer fees and appraiser fees and cost of preparation of assets for
sale, and any relocation expenses incurred as a result thereof,
- taxes paid or payable as a result thereof after taking into account any
available tax credits or deductions and any tax sharing arrangements,
- amounts required to be applied to the repayment of Indebtedness, other
than revolving credit Indebtedness incurred pursuant to the bank credit
facility, secured by a Lien on the asset or assets that were the subject
of such Asset Sale and
- any reserve established in accordance with GAAP or any amount placed in
escrow, in either case for adjustment in respect of the sale price of such
asset or assets until such time as such reserve is reversed or such escrow
arrangement is terminated, in which case Net Proceeds shall include only
the amount of the reserve so reversed or the amount returned to DeCrane
Aircraft or its Restricted Subsidiaries from such escrow arrangement, as
the case may be.
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"NON-RECOURSE DEBT" means Indebtedness
- no default which, including any rights that the holders thereof may have
to take enforcement action against an Unrestricted Subsidiary, would
permit upon notice, lapse of time or both any holder of any other
Indebtedness of DeCrane Aircraft or any of its Restricted Subsidiaries to
declare a default on such other Indebtedness or cause the payment thereof
to be accelerated or payable prior to its stated maturity; and
- as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of DeCrane Aircraft or any of its
Restricted Subsidiaries, other than the stock of an Unrestricted
Subsidiary pledged by DeCrane Aircraft to secure debt of such Unrestricted
Subsidiary.
However, in no event shall Indebtedness of any Unrestricted Subsidiary fail to
be Non-Recourse Debt solely as a result of any default provisions contained in a
guarantee thereof by DeCrane Aircraft or any of its Restricted Subsidiaries if
DeCrane Aircraft or such Restricted Subsidiary was otherwise permitted to incur
such guarantee pursuant to the Indenture.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFERING" means the offering of the notes by DeCrane Aircraft.
"PARI PASSU INDEBTEDNESS" means Indebtedness of DeCrane Aircraft that ranks
pari passu in right of payment to the notes.
"PERMITTED BUSINESS" means the avionics manufacturing industry and any
business in which DeCrane Aircraft and its Restricted Subsidiaries are engaged
on the date of the indenture or any business reasonably related, incidental or
ancillary thereto.
"PERMITTED INVESTMENTS" means
- any Investment in DeCrane Aircraft or in a Restricted Subsidiary of
DeCrane Aircraft,
- any Investment in cash or Cash Equivalents,
- any Investment by DeCrane Aircraft or any Restricted Subsidiary of DeCrane
Aircraft in a Person, if as a result of such Investment (1) such Person
becomes a Restricted Subsidiary of DeCrane Aircraft or (2) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, DeCrane
Aircraft or a Wholly Owned Restricted Subsidiary of DeCrane Aircraft,
- any Investment made as a result of the receipt of non-cash consideration
from an Asset Sale that was made pursuant to and in compliance with the
covenant described under the caption "--Repurchase at the Option of
Holders--Asset Sales,"
- any Investment acquired solely in exchange for Equity Interests other than
Disqualified Stock of DeCrane Aircraft,
- any Investment in a Person engaged in a Permitted Business, other than an
Investment in an Unrestricted Subsidiary, having an aggregate fair market
value, taken together with all other Investments made pursuant to this
clause that are at that time outstanding, not to exceed 15% of Total
Assets at the time of such Investment, with the fair market value of each
Investment being measured at the time made and without giving effect to
subsequent changes in value,
- Investments relating to any special purpose Wholly Owned Subsidiary of
DeCrane Aircraft organized in connection with a Receivables Facility that,
in the good faith determination of the board of directors of DeCrane
Aircraft, are necessary or advisable to effect such Receivables Facility
and
- the Management Loans and Global Technology Loans.
"PERMITTED LIENS" means:
- Liens on property of a person existing at the time such person is merged
into or consolidated with DeCrane Aircraft or any Restricted Subsidiary,
PROVIDED that such Liens were not incurred in contemplation of such merger
or consolidation and do not secure any property or assets of DeCrane
Aircraft or any Restricted Subsidiary other than the property or assets
subject to the Liens prior to such merger or consolidation;
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- Liens existing on the date of the indenture;
- Liens securing Indebtedness consisting of Capitalized Lease Obligations,
purchase money Indebtedness, mortgage financings, industrial revenue bonds
or other monetary obligations, in each case incurred solely for the
purpose of financing all or any part of the purchase price or cost of
construction or installation of assets used in the business of DeCrane
Aircraft or its Restricted Subsidiaries, or repairs, additions or
improvements to such assets, PROVIDED that
- such Liens secure Indebtedness in an amount not in excess of the
original purchase price or the original cost of any such assets or
repair, additional or improvement thereto, plus an amount equal to the
reasonable fees and expenses in connection with the incurrence of such
Indebtedness,
- such Liens do not extend to any other assets of DeCrane Aircraft or its
Restricted Subsidiaries, and, in the case of repair, addition or
improvements to any such assets, such Lien extends only to the assets
and improvements thereto or thereon repaired, added to or improved,
- the Incurrence of such Indebtedness is permitted by "--Principal
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock"
and
- such Liens attach within 365 days of such purchase, construction,
installation, repair, addition or improvement;
- Liens to secure any refinancings, renewals, extensions, modification or
replacements (collectively, "refinancing") or successive refinancings, in
whole or in part, of any Indebtedness secured by Liens referred to in the
clauses above so long as such Lien does not extend to any other property
other than improvements thereto;
- Liens securing letters of credit entered into in the ordinary course of
business and consistent with past business practice;
- Liens on and pledges of the capital stock of any Unrestricted Subsidiary
securing Non-Recourse Debt of such Unrestricted Subsidiary;
- Liens securing Indebtedness and Obligations under the bank credit
facility; and
- other Liens securing indebtedness that is permitted by the terms of the
Indenture to be outstanding having an aggregate principal amount at any
one time outstanding not to exceed $50.0 million.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of DeCrane
Aircraft or any of its Restricted Subsidiaries issued within 60 days after
repayment of, in exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease or refund other Indebtedness of DeCrane
Aircraft or any of its Restricted Subsidiaries; PROVIDED that
- the principal amount accreted value, if applicable of such Permitted
Refinancing Indebtedness does not exceed the principal amount of accreted
value, if applicable, plus premium, if any, and accrued interest on the
Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded, plus the amount of reasonable expenses incurred in connection
therewith,
- such Permitted Refinancing Indebtedness has a final maturity date no
earlier than the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded, and
- if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes,
such Permitted Refinancing Indebtedness is subordinated in right of
payment to, the notes on terms at least as favorable, taken as a whole, to
the holders of notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"PRINCIPALS" means DLJ Merchant Banking Partners II, L.P. and its
Affiliates.
"PUBLIC EQUITY OFFERING" means any issuance of common stock by DeCrane
Aircraft, other than to DeCrane Holdings and other than Disqualified Stock, or
common stock or preferred stock by DeCrane Holdings, other than Disqualified
Stock, registered pursuant to the Securities Act, other than issuances
registered on Form S-8 and issuances registered on Form S-4, excluding issuances
of common stock pursuant
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to employee benefit plans of DeCrane Holdings or DeCrane Aircraft or otherwise
as compensation to employees of DeCrane Aircraft or DeCrane Holdings.
"QUALIFIED PROCEEDS" means any of the following or any combination of the
following:
- cash;
- Cash Equivalents;
- assets that are used or useful in a Permitted Business; and
- the Capital Stock of any person engaged in a Permitted Business if, in
connection with the receipt by DeCrane Aircraft or any Restricted
Subsidiary of DeCrane Aircraft of such Capital Stock,
- such Person becomes a Restricted Subsidiary of DeCrane Aircraft or any
Restricted Subsidiary of DeCrane Aircraft or
- such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, DeCrane Aircraft or any Restricted Subsidiary of
DeCrane Aircraft.
"RECEIVABLES FACILITY" means one or more receivables financing facilities,
as amended from time to time, pursuant to which DeCrane Aircraft or any of its
Restricted Subsidiaries sells its accounts receivable to an Accounts Receivable
Subsidiary.
"RECEIVABLES FEES" means distributions or payments made directly or by means
of discounts with respect to any participation interests issued or sold in
connection with, and other fees paid to a Person that is not a Restricted
Subsidiary in connection with, any Receivables Facility.
"RELATED PARTY" means, with respect to any Principal, any controlling
stockholder or partner of such Principal on the date of the indenture, or any
trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or persons beneficially holding directly or
through one or more Subsidiaries a 51% or more controlling interest of which
consist of the Principals and/or such other persons referred to in the
immediately preceding clauses.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of such person that
is not an Unrestricted Subsidiary.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"SPOT RATE" means, for any currency, the spot rate at which such currency is
offered for sale against United States dollars as determined by reference to the
New York foreign exchange selling rates, as published in The Wall Street Journal
on such date of determination for the immediately preceding business day or, if
such rate is not available, as determined in any publicly available source of
similar market data.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"SUBSIDIARY" means, with respect to any person,
- any corporation, association or other business entity of which more than
50% of the total voting power of shares of Capital Stock entitled without
regard to the occurrence of any contingency to vote in the election of
directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such person or one or more of the
other Subsidiaries of that person or a combination thereof and
- any partnership or limited liability company
- the sole general partner or the managing general partner or managing
member of which is such Person or a Subsidiary of such person or
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- the only general partners or managing members of which are such person
or of one or more Subsidiaries of such Person or any combination
thereof.
"TAX SHARING AGREEMENT" means any tax sharing agreement or arrangement
between DeCrane Aircraft and DeCrane Holdings, as the same may be amended from
time to time; PROVIDED that in no event shall the amount permitted to be paid
pursuant to all such agreements and/or arrangements exceed the amount DeCrane
Aircraft would be required to pay for income taxes were it to file a
consolidated tax return for itself and its consolidated Restricted Subsidiaries
as if it were a corporation that was a parent of a consolidated group.
"TOTAL ASSETS" means the total consolidated assets of DeCrane Aircraft and
its Restricted Subsidiaries, as shown on the most recent balance sheet,
excluding the footnotes of DeCrane Aircraft prepared in accordance with GAAP.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary that is designated by the
board of directors as an Unrestricted Subsidiary pursuant to a board resolution,
but only to the extent that such Subsidiary:
- has no Indebtedness other than Non-Recourse Debt;
- is not party to any agreement, contract, arrangement or understanding with
DeCrane Aircraft or any Restricted Subsidiary of DeCrane Aircraft unless
the terms of any such agreement, contract, arrangement or understanding
are no less favorable to DeCrane Aircraft or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of DeCrane Aircraft;
- a person with respect to which neither DeCrane Aircraft nor any of its
Restricted Subsidiaries has any direct or indirect obligation
- to subscribe for additional Equity Interests other than Investments
described in clause (g) of the definition of Permitted Investments or
- to maintain or preserve such Person's financial condition or to cause
such Person to achieve any specified levels, of operating results; and
- has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of DeCrane Aircraft or any of its Restricted
Subsidiaries. Any such designation by the board of directors shall be
evidenced to the Trustee by filing with the Trustee a certified copy of
the board resolution giving effect to such designation and an officers'
certificate certifying that such designation complied with the foregoing
conditions and was permitted by the covenant described under "--Principal
Covenants--Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of
DeCrane Aircraft as of such date and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described
under "--Principal Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock," DeCrane Aircraft shall be in default of such covenant.
The board of directors of DeCrane Aircraft may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED that such
designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of DeCrane Aircraft of any outstanding Indebtedness
of such Unrestricted Subsidiary and such designation shall only be
permitted if such Indebtedness is permitted under the covenant described
under "--Principal Covenants-- Incurrence of Indebtedness and Issuance
Preferred of Stock," and no Default or Event of Default would be in
existence following such designation.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof, by the number of years calculated
to the nearest one-twelfth that will elapse between such date and the making of
such payment, by (b) the then outstanding principal amount of such Indebtedness.
"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such person
all of the outstanding Capital Stock or other ownership interests of which other
than directors' qualifying shares shall at the time be owned by such person or
by one or more Wholly Owned Subsidiaries of such person.
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"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any person means a Restricted
Subsidiary of such person all the outstanding Capital Stock or other ownership
interests of which (other than directors' qualifying shares) shall at the time
be owned by such person or by one or more Wholly Owned Restricted Subsidiaries
of such person or by such person and one or more Wholly Owned Restricted
Subsidiaries of such person.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the indenture and
registration rights Agreement without charge by writing to us, or obtaining from
public sources a copy of the exhibits to the registration statement of which
this prospectus is a part. See "Where You Can Get More Information" at the end
of the "Business" section.
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THE INITIAL OFFERING
In August 1998, in connection with the DLJ acquisition, DeCrane Aircraft
assumed responsibility by merger for $100.0 million of Senior Subordinated
Increasing Rate Notes to DLJ Bridge Finance, Inc. We used the proceeds from
these bridge notes to fund the tender offer purchases made as part of the DLJ
acquisition, and certain related expenses. The bridge notes were refinanced by
our issuance in October of the old notes to the initial purchaser Donaldson,
Lufkin & Jenrette Securities Corporation. These transactions are described in
more detail in "Recent Developments--The DLJ Acquisition."
The old notes were not registered under the Securities Act, and accordingly
subject to various transfer restrictions. We concurrently entered into the
registration rights agreement, which requires us to take certain steps to issue
the new notes, offer them in exchange for the old notes under this exchange
offer, and register them, all as described in "Description of
Notes--Registration Rights Agreement." The terms of the old notes and the new
notes are identical in most respects, except as described in "Description of
Notes."
THE EXCHANGE OFFER
We are conducting this exchange offer, and filing the registration statement
of which this prospectus is part, in order to comply with our obligations under
the registration rights agreement which we entered into with the Initial
Purchaser at the time of the DLJ acquisition. If we are not permitted to
complete this exchange offer, because it is not permitted by applicable law or
SEC policy, or any holder of the old notes or certain new notes bearing transfer
restrictions notifies us of certain restrictions on its participation in the
exchange offer within 20 business days of the completion of this exchange offer,
we will file with the SEC a shelf registration statement to cover resales of the
notes by holders who satisfy certain conditions relating to the provision of
information.
This exchange offer is not extended to, and we will not accept tenders from,
holders of old notes in any jurisdiction in which this exchange offer or the
acceptance thereof would not be in compliance with the securities or blue sky
laws of such jurisdiction.
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
The terms and conditions for this exchange offer are set forth in this
prospectus and in the accompanying letter of transmittal. Subject to those terms
and conditions, we will accept for exchange old notes which are properly
tendered on or prior to the expiration date described below and not withdrawn as
permitted below. For each $1,000 principal amount at maturity of old notes
surrendered pursuant to this exchange offer, the holder will receive an exchange
note with the same principal amount at maturity. We will keep this exchange
offer open for not less than 20 business days, or longer if required by
applicable law, after the date that this prospectus is first sent to the holders
of the old notes. We are mailing it, on or about the date on the cover page, to
all registered holders of old notes at the addresses set forth in the register
maintained by the Trustee.
This exchange offer is subject to the conditions set forth under
"--Conditions to this Exchange Offer" below.
We expressly reserve the right, at any time or from time to time, to extend
the period of time during which this exchange offer is open, and thereby delay
acceptance of any old notes, by giving oral or written notice of such extension
to the exchange agent and notice of such extension to each holder as described
below. During any such extension, all old notes previously tendered will remain
subject to this exchange offer and we may accept them for exchange. We will
return any old notes not accepted for exchange for any reason, without expense
to the tendering holders, as promptly as is practicable after the expiration or
termination of this exchange offer.
We expressly reserve the right to amend or terminate this exchange offer,
and to cease accepting any tenders of old notes, if any of the conditions of
this exchange offer specified below under "Certain Conditions to this Exchange
Offer" occur. We will give oral or written notice of any extension, amendment,
non-acceptance or termination to the holders of the old notes as promptly as
practicable. If the exchange offer is extended, we will give that notice by
means of a press release or other public announcement no later than 9:00 a.m.,
New York time, on the next business day after the previously scheduled
expiration date. We have no obligation to publish, advertise or otherwise
communicate any such public announcement other than by issuing a release to the
Dow Jones News Service or as may otherwise be required by applicable law.
97
<PAGE>
Holders of old notes do not have any appraisal or dissenters' rights in
connection with this exchange offer. Old notes which are not tendered for
exchange or are tendered but not accepted in connection with this exchange offer
will remain outstanding and be entitled to the benefits of the indenture, but
will not be entitled to any further registration rights under the registration
rights agreement. We intend to conduct this exchange offer in accordance with
the applicable requirements of the Exchange Act and the rules and regulations of
the SEC.
PROCEDURES FOR TENDERING OLD NOTES
If you tender old notes as set forth below and we accept them, we will have
a binding agreement on the terms and conditions set forth in this prospectus and
in the letter of transmittal. Except as set forth below, in order to tender old
notes and accept this exchange offer, you must:
- complete and sign a letter of transmittal, and comply with the
instructions which it contains,
- forward it and any other required documents using a method of delivery
permitted by the letter of transmittal to the exchange agent appointed by
us, whose address appears below and in the letter of transmittal, by 5:00
p.m. New York time on the expiration date, and
- either deliver your old notes in the same package, or comply with the book
entry delivery method noted below, or comply with the guaranteed postponed
delivery method noted below.
Please note that, if your old notes are held through a broker, dealer,
commercial bank, trust company or other nominee, you must contact that person
promptly if you wish to tender your notes.
YOU MAY ELECT WHICH METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS YOU USE, BUT YOU DO SO AT YOUR OWN RISK. IF YOU
CHOOSE TO DELIVER DOCUMENTS BY MAIL, WE RECOMMEND THAT YOU USE REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. IN ANY CASE, YOU SHOULD ALLOW
SUFFICIENT TIME TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD
NOTES SHOULD BE SENT TO DECRANE AIRCRAFT.
SIGNATURE GUARANTEES. Signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, must be guaranteed, unless the old notes
surrendered for exchange pursuant thereto are tendered either
(i) by a registered holder of the old notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal or
(ii) for the account of an institution which itself is eligible to issue the
guarantees described below.
The only kind of signature guarantees which will be acceptable are those
made by a firm which is a member of a registered national securities exchange, a
member of the National Association of Securities Dealers, Inc., or a commercial
bank or trust company having an office or correspondent in the United States. If
old notes are registered in the name of a person other than the person signing
the letter of transmittal, the old notes surrendered for exchange must be
endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by us in our sole
discretion, duly executed by the registered holder with a signature guarantee of
the kind described above.
We will determine all questions as to the validity, form, eligibility, time
of receipt and acceptance of old notes tendered for exchange in our sole
discretion. We reserve the absolute right to reject any and all tenders of any
particular old notes not properly tendered, or to not accept any particular old
notes which acceptance, in our judgment or that of our counsel, might be
unlawful. We also reserve the absolute right to waive any defects or
irregularities or conditions of this exchange offer as to any particular old
notes, either before or after the expiration of this offer date, including the
ineligibility of any holder to tender old notes. Our interpretation of the terms
and conditions of this exchange offer as to any particular old notes shall be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with the tender of old notes for exchange must be cured within
such reasonable period of time as we determine. Neither DeCrane Aircraft, the
exchange agent nor any other person shall be under any duty to give notification
of any defect or irregularity with respect to any tender of old notes for
exchange, nor incur any liability for failure to give such notification.
If the letter of transmittal is signed by a person or persons other than the
registered holder or holders of old notes, those old notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders that appear on the old
notes.
98
<PAGE>
If the letter of transmittal or any old notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers or corporations or others acting in a fiduciary or representative
capacity, the person signed must indicate their capacity and, unless waived by
us, submit along with the documents proper evidence satisfactory to us of its
authority to so act.
By executing, or otherwise becoming bound by, the letter of transmittal,
each holder of the old notes, with a few specified exceptions, will represent
that
- it is not an affiliate of DeCrane Aircraft,
- any new notes to be received by it were acquired in the ordinary course of
its business, and
- it has no arrangement with any person to participate in the distribution
(within the meaning of the Securities Act) of the new notes.
If the tendering holder is a broker-dealer that will receive new notes for
its owns account in exchange for old notes that were acquired as a result of
market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such new notes. See "--Resale of the New Notes."
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to this exchange offer,
we will accept, promptly after the expiration date, all old notes properly
tendered and will issue the new notes promptly after acceptance of the old
notes. See "--Conditions to this Exchange Offer" below. For purposes of this
exchange offer, we shall be deemed to have accepted properly tendered old notes
for exchange when, as and if we have given oral or written notice thereof to the
exchange agent.
In all cases, issuance of new notes for old notes that are accepted for
exchange pursuant to this exchange offer will be made only after timely receipt
by the exchange agent of certificates for such old notes or a timely book-entry
confirmation of such old notes into the exchange agent's account at DTC pursuant
to the book-entry transfer procedures described below, a properly completed and
duly executed letter of transmittal and all other required documents. If any
tendered old notes are not accepted for any reason set forth in the terms and
conditions of this exchange offer or if certificates representing old notes are
submitted for a greater principal amount than the holder desires to exchange,
such unaccepted or non-exchanged old notes will be returned without expense to
the tendering holder thereof, or, in the case of old notes tendered by
book-entry transfer into the exchange agent's account at DTC pursuant to the
book-entry transfer procedures described below, such non-exchanged old notes
will be credited to an account maintained with DTC, as promptly as practicable
after the expiration or termination of this exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the old notes at DTC for purposes of this exchange offer promptly after the
date of this prospectus. Any financial institution that is a participant in
DTC's systems may make book-entry delivery of old notes by causing DTC to
transfer such old notes into the exchange agent's account in accordance with
DTC's Automated Tender Offer Program procedures for transfer. However, we will
only make exchanges for old notes tendered in this manner after:
- timely confirmation that the book-entry transfer of old notes has been
made into the exchange agent's account, and
- timely receipt by the exchange agent of all other documents required by
the letter of transmittal, and a confirmation message, transmitted by DTC,
confirming the book-entry transfer of the old notes, and stating that DTC
has received an express acknowledgment from the holder that it has
received and agrees to be bound by the terms of the letter of transmittal,
and that we may enforce such agreement against it.
Please note that, even if you deliver old notes by this book-entry transfer
method, you must still deliver the letter of transmittal, properly completed and
duly executed, with any required signature guarantees and any other required
documents, to the exchange agent at its address set forth under "--Exchange
Agent", on or before the expiration date for this exchange offer. Please note
also that delivery of documents to DTC in accordance with its procedures does
not constitute delivery to the exchange agent.
99
<PAGE>
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the old notes desires to tender them, and they are
not immediately available, or time will not permit the notes or other required
documents to reach the exchange agent before the expiration date for the
exchange offer, or the procedure for book-entry transfer cannot be completed on
a timely basis, the holder still may validly accomplish a tender of the notes
if:
- the tender is made through a firm which is a member of a registered
national securities exchange, a member of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an
office or correspondent in the United States,
- prior to that expiration date, the exchange agent receives from one of
those institutions a properly completed and duly executed letter of
transmittal or a facsimile thereof along with a Notice of Guaranteed
Delivery, substantially in the form we have provided, by telegram, telex,
facsimile transmission, mail or hand delivery, and
- the certificates for all physically tendered old notes, in proper form for
transfer, or a confirmation of book-entry transfer as described above, and
all other documents required by the Letter of Transmittal, are received by
the exchange agent within five New York Stock Exchange trading days after
the date of execution of the notice of guaranteed delivery.
The notice of guaranteed delivery must state the name and address of the
holder of old notes, state the amount of old notes tendered, state that tender
is being made thereby, and guarantee that within five NYSE trading days after
the date of execution of the Notice of Guaranteed Delivery, the certificates for
all physically tendered old notes, in proper form for transfer, or a
confirmation of book-entry transfer as described above, and all other documents
required by the letter of transmittal, will be deposited by the institution with
the exchange agent.
WITHDRAWAL RIGHTS
Tenders of old notes may be withdrawn at any time prior to the expiration
date for this exchange offer.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at one of the addresses set forth below under
"--Exchange Agent." Any notice of withdrawal must specify the name of the person
having tendered the old notes to be withdrawn, identify the old notes to be
withdrawn and their principal amount at maturity, and where certificates for old
notes have been transmitted specify the name in which such old notes are
registered, if different from that of the withdrawing holder. If certificates
for old notes have been delivered or otherwise identified to the exchange agent,
then, prior to the release of such certificates, the withdrawing holder must
also submit the serial numbers of the particular certificates to be withdrawn
and a signed notice of withdrawal with signatures guaranteed by an Eligible
Institution unless such holder is an Eligible Institution. If old notes have
been tendered pursuant to the procedure for book-entry transfer described above,
any note of withdrawal must specify the name and number of the account at DTC to
be credited with the withdrawn old notes and otherwise comply with the
procedures of such facility. Our determination of all questions as to the
validity, form, eligibility and time of receipt of such notices will be final
and binding on all parties. Any old notes so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of this exchange offer. We
will return any old notes tendered for exchange but which are not exchanged for
any reason, without cost to such holder or, in the case of old notes tendered by
book-entry transfer into the exchange agent's account at DTC pursuant to the
book-entry transfer procedures described above, we will cause such old notes to
be credited to an account maintained with DTC for the old notes, as soon as
practicable after withdrawal, rejection of tender or termination of this
exchange offer. Properly withdrawn old notes may be re-entered by following one
of the procedures described under "--Procedures for Tendering Old Notes" above
at any time on or prior to the expiration date for this exchange offer.
CONDITIONS TO THIS EXCHANGE OFFER
Notwithstanding any other provisions of this exchange offer, we are not
required to accept for exchange, or to issue new notes in exchange for, any old
notes and may terminate or amend this exchange offer, if at any time before the
acceptance of such old notes for exchange or this exchange of the new notes for
such old notes, such acceptance or issuance would violate applicable law or any
interpretation of the staff of the SEC.
100
<PAGE>
The foregoing condition is for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to such condition. Our failure at
any time to exercise the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, we will not accept for exchange any old notes tendered, nor
issue any new notes and no new notes will be issued in exchange for any such old
notes, if at such time any stop order shall be threatened or in effect with
respect to either the registration statement of which this prospectus
constitutes a part, or the qualification of the indenture under the Trust
Indenture Act.
EXCHANGE AGENT
We have appointed State Street Bank and Trust Co. as the exchange agent for
this exchange offer. All executed letters of transmittal should be directed to
the exchange agent at one of the addresses set forth below. Questions and
requests for assistance, requests for additional copies of this prospectus or of
the letter of transmittal and requests for notices of guaranteed delivery should
be directed to the exchange agent, addressed as follows:
Deliver To:
STATE STREET BANK AND TRUST COMPANY, EXCHANGE AGENT
REFERENCE: DECRANE AIRCRAFT
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL: BY OVERNIGHT COURIER:
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02110
ATTENTION: Corporate Trust Department ATTENTION: Corporate Trust
Department
Kellie Mullen Kellie Mullen
BY HAND in New York to 4:30 p.m. BY HAND in Boston to 4:30 p.m.:
(as drop agent): Two International Place
61 Broadway Fourth Floor
Boston, Massachusetts 12110
15th Floor ATTENTION: Corporate Trust
Department
Kellie Mullen
Corporate Trust Window
New York, NY 10006
</TABLE>
FOR INFORMATION CALL:
Kellie Mullen
617-664-5587
Delivery to any other address or transmission in any other manner will not
be a valid delivery.
FEES AND EXPENSES
Our solicitation for this exchange offer is being made primarily by mail.
However, we may made additional solicitation by telegraph, telephone, electronic
mail or in person by our officers and regular employees. No additional
compensation will be paid to any such officers and employees who engage in
soliciting tenders. We will not make any payment to brokers, dealers, or others
soliciting acceptances of this exchange offer. However, we will pay the exchange
agent reasonable and customary fees for its services and will reimburse it for
its reasonable out-of-pocket expenses in connection therewith.
Our cash expenses to be incurred in connection with this exchange offer will
be paid by us, and we estimate that they will total about $ .
ACCOUNTING TREATMENT
The new notes will be recorded at the same carrying value as the old notes,
which is face value, as reflected in our accounting records on the date of
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the exchange offer will be expensed over the term of
the new notes.
101
<PAGE>
TRANSFER TAXES
Holders who tender their old notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, EXCEPT that holders who:
- instruct us to register new notes in the name of a person other than the
registered tendering holder, or
- request that old notes not tendered or not accepted in this exchange offer
to be returned to a person other than the registered tendering holder
will be responsible for the payment of any applicable transfer tax thereon.
RESALE OF THE NEW NOTES
Under existing interpretations of the staff of the SEC contained in several
no-action letters to third parties, the new notes generally should be freely
transferable after this exchange offer by a holder other than a broker or dealer
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, if:
- the new notes are acquired in the ordinary course of the holder's
business;
- the holder is not participating, and has not entered into an arrangement
or understanding to participate, in a distribution of the new notes, as
"distribution" is understood under the Securities Act;
- the holder is not our affiliate, as "affiliate" is defined in Rule 405
under the Securities Act, or a broker or dealer who purchased the old
notes for resale; and
- the holder is not a broker or dealer who acquired the old notes for its
own account.
However, the foregoing view relies on statements by the staff of the
Division of Corporation Finance of the SEC, in interpretive letters which
discuss other transactions: EXXON CAPITAL HOLDINGS CORPORATION (May 13, 1988),
MORGAN STANLEY AND COMPANY INCORPORATED (June 5, 1991), WARNACO INCORPORATED
(October 11, 1991), EPIC PROPERTIES, INCORPORATED (October 21, 1991), K-III
COMMUNICATIONS CORPORATION (May 14, 1993) and BROWN & WOOD LLP (February 7,
1997). We have not sought our own interpretive letter, so there is no definitive
legal determination of the foregoing issue.
Each holder of old notes who signs, or otherwise becomes bound by, the
Letter of Transmittal, other than a few specified holders, will represent that
it qualifies for each of the criteria listed above. Any holders who do not meet
the foregoing criteria will not be able to tender their old notes in this
exchange offer, and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer of
the notes, unless such sale or transfer is made pursuant to an exemption from
such requirements. In any resales of new notes, any participating broker-dealer
who acquired the notes for its own account as a result of market-making or other
trading activities must deliver a prospectus meeting the requirements of the
Securities Act. The SEC has taken the position that participating broker-dealers
may fulfill their prospectus delivery requirements with respect to the new
notes, other than a resale of an unsold allotment from the original sale of the
old notes, with this prospectus, as it may be amended or supplemented. Under the
registration rights agreement, we are required to allow participating
broker-dealers and any other persons subject to similar prospectus delivery
requirements to use this prospectus as it may be amended or supplemented from
time to time, in connection with the resale of such exchange notes.
102
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
This section is a summary of federal income tax considerations relevant to
this exchange offer. It is not a complete analysis of all potential tax effects.
We have not considered other taxes, including foreign or state taxes, gift taxes
or gift taxes, 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.
Your exchange of old notes for new notes pursuant to this exchange offer
should have no federal income tax consequences to you as a holder of the notes.
When you exchange an old note for a new note under this exchange offer, you
should have the same adjusted basis and holding period in the new note as you
had in the old note immediately before the exchange occurred.
PLAN OF DISTRIBUTION
Each broker-dealer who acquired old notes for its own account, as a result
of market-making activities or other trading and who participates in this
exchange offer activities, which we call "participating broker-dealers" in this
prospectus, must acknowledge that it will deliver a prospectus in connection
with any resale of new notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a participating broker-dealer in
connection with resales of the new notes received in exchange for old notes, IF
it acquired the old notes as a result of market-making activities or other
trading activities. We have agreed that we will make this prospectus, as amended
or supplemented, available to any participating broker-dealer for use in any
such resale, and those broker-dealers will be authorized to deliver it for no
more than 90 days after the expiration date of the exchange offer.
We will not receive any proceeds from any sales of the new notes by
participating broker-dealers. New notes received by such brokers-dealers for
their own account in this exchange offer may be sold from time to time, in one
or more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the notes, or a combination of such methods of
resale, and may be sold at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from the participating broker-dealer that resells the new notes that were
received by it for its own account under this exchange offer.
Any broker or dealer that participates in a distribution of that kind may be
deemed to be an "underwriter" within the meaning of the Securities Act. Any
profit on resulting resales of new notes, and any omissions or concessions
received by any such persons, may be deemed to be underwriting compensation
under the Securities Act. The letter of transmittal states that by acknowledging
that it will deliver and by delivering a prospectus, a participating
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
We will promptly send additional copies of this prospectus, and any
amendment or supplement to this prospectus, to any participating broker-dealer
that requests such documents in the letter of transmittal. See "The Exchange
Offer."
LEGAL MATTERS
The validity of the new notes offered hereby will be passed upon for DeCrane
Aircraft by Spolin & Silverman LLP, Santa Monica, California.
103
<PAGE>
EXPERTS
The consolidated balance sheets as of December 31, 1997 and 1998 and the
consolidated statements of operations, of stockholders' equity and of cash flows
for the years ended December 31, 1996 and 1997, the eight months ended August
31, 1998 and the four months ended December 31, 1998 of DeCrane Aircraft
Holdings, Inc., 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, and
the consolidated balance sheets as of June 30, 1997 and 1998 and the
consolidated statements of operations, of stockholders' equity and of cash flows
for the years then ended of PATS, Inc. 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 balance sheets as of December 31, 1997 and 1998 and the
consolidated statements of income, stockholders' equity and cash flows for the
period from June 12, 1997 to December 31, 1997 and the year ended December 31,
1998 of PPI Holdings, Inc., and the consolidated statements of income,
stockholders' equity and cash flows for the year ended December 31, 1996 and for
the period from January 1, 1997 to June 11, 1997 of Precision Pattern Inc., the
predecessor to PPI Holdings, Inc., included in this prospectus have been so
included in reliance on the report of Baird, Kurtz & Dobson, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
104
<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, 1997 and 1998............................................. F-3
Consolidated Statements of Operations for the years ended December 31, 1996 and 1997, the eight months
ended August 31, 1998 and the four months ended December 31, 1998...................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996 and 1997, the eight
months ended August 31, 1998 and the four months ended December 31, 1998............................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1997, the eight months
ended August 31, 1998 and the four months ended December 31, 1998...................................... F-7
Notes to Consolidated Financial Statements............................................................... F-8
AVTECH CORPORATION
Report of Independent Accountants........................................................................ F-43
Balance Sheets as of September 30, 1996 and 1997 and June 25, 1998 (unaudited)........................... F-44
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-45
Statements of Stockholders' Equity for the years ended September 30, 1995, 1996 and 1997 and the nine
months ended June 25, 1998 (unaudited)................................................................. F-46
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-47
Notes to Financial Statements............................................................................ F-48
PATS, INC. AND SUBSIDIARIES
Report of Independent Accountants........................................................................ F-55
Consolidated Balance Sheets as of June 30, 1997 and 1998 and December 31, 1998 (unaudited)............... F-56
Consolidated Statements of Operations for the years ended June 30, 1997 and 1998 and the six months ended
December 31, 1997 and 1998 (unaudited)................................................................. F-57
Consolidated Statements of Stockholders' Equity for the years ended June 30, 1997 and 1998 and the six
months ended December 31, 1998 (unaudited)............................................................. F-58
Consolidated Statements of Cash Flows for the years ended June 30, 1997 and 1998 and the six months ended
December 31, 1997 and 1998 (unaudited)................................................................. F-59
Notes to Consolidated Financial Statements............................................................... F-60
PPI HOLDINGS, INC. AND SUBSIDIARY
Report of Independent Accountants........................................................................ F-66
Consolidated Balance Sheets as of December 31, 1997 and 1998............................................. F-67
Consolidated Statements of Income for the year ended December 31, 1996 and the period from January 1,
1997 to June 11, 1997 and the period from June 12, 1997 to December 31, 1997 and the year ended
December 31, 1998...................................................................................... F-68
Consolidated Statements of Stockholders' Equity for the year ended December 31, 1996 and the period from
January 1, 1997 to June 11, 1997 and the period from June 12, 1997 to December 31, 1997 and the year
ended December 31, 1998................................................................................ F-69
Consolidated Statements of Cash Flows for the year ended December 31, 1996 and the period from January 1,
1997 to June 11, 1997 and the period from June 12, 1997 to December 31, 1997 and the year ended
December 31, 1998...................................................................................... F-70
Note 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 and of cash flows
present fairly, in all material respects, the financial position of DeCrane
Aircraft Holdings, Inc. and its subsidiaries at December 31, 1997 and 1998 and
the results of their operations and their cash flows for the years ended
December 31, 1996 and 1997, the eight months ended August 31, 1998 and the four
months ended December 31, 1998, 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 19, 1999
F-2
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER
31, DECEMBER 31,
1997 1998
(PREDECESSOR) (SUCCESSOR)
----------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................................ $ 206 $ 3,518
Accounts receivable, net................................................. 18,152 30,441
Inventories.............................................................. 25,976 34,281
Deferred income taxes.................................................... -- 4,300
Prepaid expenses and other current assets................................ 782 3,897
----------- ------------
Total current assets................................................... 45,116 76,437
Property and equipment, net................................................ 14,054 28,160
Other assets, principally intangibles, net................................. 39,967 226,330
----------- ------------
Total assets......................................................... $ 99,137 $ 330,927
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings.................................................... $ 568 $ 283
Current portion of long-term obligations................................. 858 1,529
Accounts payable......................................................... 8,032 6,383
Accrued expenses......................................................... 6,911 18,466
Income taxes payable..................................................... 3,975 3,743
----------- ------------
Total current liabilities.............................................. 20,344 30,404
----------- ------------
Long-term liabilities
Long-term obligations.................................................... 37,412 184,953
Deferred income taxes.................................................... 1,758 16,990
Other long-term liabilities.............................................. 96 659
----------- ------------
Total long-term liabilities............................................ 39,266 202,602
----------- ------------
Commitments and contingencies (Note 15).................................... -- --
----------- ------------
Stockholders' equity
Cumulative convertible preferred stock, $.01 par value, 8,314,018 shares
authorized; none issued and outstanding as of December 31, 1997 and
1998................................................................... -- --
Undesignated preferred stock, $.01 par value, 10,000,000 shares
authorized; none issued and outstanding as of December 31, 1997 and
1998................................................................... -- --
Common stock, no par value, 4,253,550 shares authorized; none issued and
outstanding as of December 31, 1997 and 1998........................... -- --
Common stock, $.01 par value, 9,924,950 and 100 shares authorized as of
December 31, 1997 and 1998, respectively; 5,318,563 and 100 shares
issued and outstanding as of December 31, 1997 and 1998,
respectively........................................................... 53 --
Additional paid-in capital............................................... 51,057 100,200
Accumulated deficit...................................................... (11,444) (2,553)
Accumulated other comprehensive income (loss)............................ (139) 274
----------- ------------
Total stockholders' equity............................................. 39,527 97,921
----------- ------------
Total liabilities and stockholders' equity........................... $ 99,137 $ 330,927
----------- ------------
----------- ------------
</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>
EIGHT
YEAR ENDED DECEMBER MONTHS FOUR MONTHS
31, ENDED ENDED
-------------------- AUGUST 31, DECEMBER
1998 31, 1998
1996 1997 (PREDECESSOR) (SUCCESSOR)
(PREDECESSOR)
<S> <C> <C> <C> <C>
--------- --------- ----------- -----------
Revenues........................................ $ 65,099 $ 108,903 $ 90,077 $ 60,356
Cost of sales................................... 49,392 80,247 60,101 42,739
--------- --------- ----------- -----------
Gross profit.............................. 15,707 28,656 29,976 17,617
--------- --------- ----------- -----------
Operating expenses
Selling, general and administrative
expenses.................................... 10,747 15,756 15,719 10,274
Nonrecurring charges.......................... -- -- 3,632 --
Amortization of intangible assets............. 709 905 1,347 3,148
--------- --------- ----------- -----------
Total operating expenses.................... 11,456 16,661 20,698 13,422
--------- --------- ----------- -----------
Income from operations.......................... 4,251 11,995 9,278 4,195
Other expenses
Interest expense.............................. 4,248 3,154 2,350 6,852
Terminated debt offering expenses............. -- -- 600 --
Other expenses................................ 108 243 247 335
--------- --------- ----------- -----------
Income (loss) before provision for income taxes
and extraordinary item........................ (105) 8,598 6,081 (2,992)
Provision (benefit) for income taxes............ 712 3,344 2,892 (2,668)
--------- --------- ----------- -----------
Income (loss) before extraordinary item......... (817) 5,254 3,189 (324)
Extraordinary loss from debt refinancing, net of
income tax benefit............................ -- 2,078 -- 2,229
--------- --------- ----------- -----------
Net income (loss)............................... $ (817) $ 3,176 $ 3,189 $ (2,553)
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</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
(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,
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
(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................ -- -- -- -- -- -- 3,189 -- 3,189
Translation adjustment.... -- -- -- -- -- -- -- 94 94
-------
3,283
Exercise of stock options... -- -- -- 575,692 6 8,206 -- -- 8,212
Sale of common stock........ -- -- -- 2,206,177 22 34,793 -- -- 34,815
----------- ------- ------ --------- ------ ---------- -------- ----------- -------
Balance, August 31, 1998.... $ -- -- $-- 8,100,432 $81 $ 94,056 $ (8,255) $ (45) $85,837
----------- ------- ------ --------- ------ ---------- -------- ----------- -------
----------- ------- ------ --------- ------ ---------- -------- ----------- -------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
SUCCESSOR:
- ------------------------------
Sale of common stock........ $ -- -- $-- 100 $-- $ 99,000 $ -- $-- $99,000
-------
Comprehensive loss
Net loss.................. -- -- -- -- -- -- (2,553) -- (2,553)
Translation adjustment.... -- -- -- -- -- -- -- 274 274
-------
(2,279)
Value of warrants issued in
connection with debt
offering.................. -- -- -- -- -- 1,200 -- -- 1,200
----------- ------- ------ --------- ------ ---------- -------- ----------- -------
Balance, December 31,
1998...................... $ -- -- $-- 100 $-- $100,200 $ (2,553) $ 274 $97,921
----------- ------- ------ --------- ------ ---------- -------- ----------- -------
----------- ------- ------ --------- ------ ---------- -------- ----------- -------
</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>
YEAR ENDED DECEMBER
31, EIGHT MONTHS
-------------------- ENDED
AUGUST 31, 1998
1996 1997 (PREDECESSOR)
(PREDECESSOR)
<S> <C> <C> <C>
--------- --------- ---------------
Cash flows from operating activities
Net income (loss)................................................................. $ (817) $ 3,176 $ 3,189
Adjustments to reconcile net income (loss) to net cash provided by (used for)
operating activities
Depreciation and amortization................................................. 4,343 5,372 4,454
Extraordinary loss from debt refinancing...................................... -- 2,078 --
Deferred income taxes......................................................... 88 (1,281) (2,339)
Other, net.................................................................... 188 654 (360)
Changes in assets and liabilities
Accounts receivable....................................................... (3,069) (3,159) (3,621)
Inventories............................................................... (2,665) (4,956) (2,017)
Prepaid expenses and other assets......................................... (3) (136) (58)
Accounts payable.......................................................... 1,891 (361) (1,127)
Accrued expenses.......................................................... 2,477 (1,041) 3,519
Income taxes payable...................................................... 525 4,295 1,374
--------- --------- -------
Net cash provided by operating activities............................. 2,958 4,641 3,014
--------- --------- -------
Cash flows from investing activities
Cash paid for acquisitions, net of cash acquired.................................. (18,200) (23,597) (85,808)
Capital expenditures.............................................................. (5,821) (3,842) (1,745)
Other, net........................................................................ 5 (370) 175
--------- --------- -------
Net cash used for investing activities................................ (24,016) (27,809) (87,378)
--------- --------- -------
Cash flows from financing activities
Acquisition of Predecessor
Proceeds from senior credit facility and bridge notes........................... -- -- --
Proceeds from sale of common stock.............................................. -- -- --
Proceeds from stock options exercised........................................... -- -- --
Purchase of shares outstanding.................................................. -- -- --
Repayment of existing senior credit facility.................................... -- -- --
Transaction fees and expenses................................................... -- -- --
Common stock offerings and application of the net proceeds
Net proceeds from sale of common stock.......................................... -- 28,933 34,815
Borrowings under credit facility................................................ -- 12,312 --
Repayment of debt............................................................... -- (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) --
Net borrowings under revolving line of credit agreements.......................... 1,191 2,906 5,453
Principal payments on capitalized lease and other long-term obligations........... (2,001) (1,675) (1,317)
Other, net........................................................................ (1,343) 139 (73)
--------- --------- -------
Net cash provided by (used for) financing activities.................. 21,051 22,957 89,871
--------- --------- -------
Effect of foreign currency translation on cash...................................... 22 97 26
--------- --------- -------
Net increase (decrease) in cash and cash equivalents................................ 15 (114) 5,533
Cash and cash equivalents at beginning of period.................................... 305 320 206
--------- --------- -------
Cash and cash equivalents at end of period.......................................... $ 320 $ 206 $ 5,739
--------- --------- -------
--------- --------- -------
<CAPTION>
FOUR MONTHS
ENDED
DECEMBER 31,
1998
(SUCCESSOR)
<S> <C>
--------------
Cash flows from operating activities
Net income (loss)................................................................. $ (2,553)
Adjustments to reconcile net income (loss) to net cash provided by (used for)
operating activities
Depreciation and amortization................................................. 4,983
Extraordinary loss from debt refinancing...................................... 2,229
Deferred income taxes......................................................... (5,072)
Other, net.................................................................... (97)
Changes in assets and liabilities
Accounts receivable....................................................... (2,929)
Inventories............................................................... 4,313
Prepaid expenses and other assets......................................... (562)
Accounts payable.......................................................... (1,754)
Accrued expenses.......................................................... 2,342
Income taxes payable...................................................... 108
--------------
Net cash provided by operating activities............................. 1,008
--------------
Cash flows from investing activities
Cash paid for acquisitions, net of cash acquired.................................. --
Capital expenditures.............................................................. (1,813)
Other, net........................................................................ --
--------------
Net cash used for investing activities................................ (1,813)
--------------
Cash flows from financing activities
Acquisition of Predecessor
Proceeds from senior credit facility and bridge notes........................... 191,722
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................................................... (15,726)
Common stock offerings and application of the net proceeds
Net proceeds from sale of common stock.......................................... --
Borrowings under credit facility................................................ --
Repayment of debt............................................................... --
Financing of acquisitions
Revolving line of credit borrowings............................................. --
Proceeds from issuance of cumulative convertible preferred stock and mandatorily
redeemable common stock warrants, net.......................................... --
Senior term loan borrowings..................................................... --
Convertible subordinated note borrowings from related parties................... --
Promissory note principal payments.............................................. --
Net borrowings under revolving line of credit agreements.......................... (1,103)
Principal payments on capitalized lease and other long-term obligations........... (458)
Other, net........................................................................ (36)
--------------
Net cash provided by (used for) financing activities.................. (1,597)
--------------
Effect of foreign currency translation on cash...................................... 181
--------------
Net increase (decrease) in cash and cash equivalents................................ (2,221)
Cash and cash equivalents at beginning of period.................................... 5,739
--------------
Cash and cash equivalents at end of period.......................................... $ 3,518
--------------
--------------
</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
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 wholly-owned and 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 current year presentation.
As a result of the DLJ Acquisition (Note 2) in August 1998, the Company has
presented its financial position, results of operations, changes in
stockholders' equity and cash flows on a predecessor/successor basis.
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.
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 the Company's allocated fair value for
assets acquired through purchase acquisitions and at cost for all new additions,
and are depreciated using the straight-line method over their estimated useful
lives. Useful lives for machinery and equipment range 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 thirty years. Other
intangibles are amortized on a straight-line basis over their estimated useful
lives, ranging from five to fifteen years. Deferred financing costs are
amortized using either a straight-line or effective interest method, over the
term of the related debt.
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
F-8
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
ACCRUED WARRANTIES
Two of the Company's subsidiaries sell a majority of their products to
customers 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) 12 to 60 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 and such costs have been within
management's expectations. Classification between short and long-term warranty
obligations is estimated based on historical trends.
DERIVATIVES
Market value gains and losses on forward foreign exchange contracts are
recognized currently in the consolidated statements of operations.
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. If necessary, valuation allowances are established to reduce
deferred tax assets to the amount expected to be realized.
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, 1997 and 1998 either because of the short
maturity of the instrument, or based on their effective interest rates compared
to current market rates for similar long-term obligations. The estimated fair
value of the Company's long-term obligations is based on either quoted market
prices or current rates for similar issues for debt of the same remaining
maturities. 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 AND TRANSACTIONS
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 accumulated comprehensive income or
loss within stockholders' equity.
Realized foreign currency exchange gains (losses) included in other expenses
(income) in the consolidated statements of operations were $71,000, $(72,000),
$(411,000) and $(262,000) for the years ended December 31, 1996 and 1997, the
eight months ended August 31, 1998 and the four months ended December 31, 1998,
respectively.
F-9
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Such costs were
$1,195,000 and $832,000 for the eight months ended August 31, 1998 and the four
months ended December 31, 1998, respectively. Research and development costs
were not significant for the years ended December 31, 1996 and 1997.
STOCK OPTION PLAN
As permitted under Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation," 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 14 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. 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. Unbilled accounts receivable
were $654,000 and $4,156,000 at December 31, 1997 and 1998, respectively.
Unbilled accounts receivable are expected to be billed and collected during the
succeeding twelve-month period.
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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income." 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 period ended December 31, 1998 and has reclassified
earlier periods to reflect application of the statement.
In June 1997, the FASB also 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 an entity's operating segments
must be reported on the basis that is used internally for evaluating segment
performance and making resource allocation determinations. The Company adopted
SFAS 131 for the period ended December 31, 1998 and has restated disclosure
information in earlier periods to reflect application of the statement (Note
17).
In June 1998, the FASB 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
F-10
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 the Company's consolidated financial position or
results of operations.
NOTE 2 - THE DLJ ACQUISITION
In July 1998, a newly incorporated entity, DeCrane Holdings Co., and two
other holding companies were organized by DLJ Merchant Banking Partners II, L.P.
and affiliated funds and entities to carry out a tender offer for all the shares
of the Company's common stock, including options to purchase shares which became
immediately vested, for $23.00 per share. 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 which were tendered were cancelled,
non-tendering shareholders were paid out, and as a result the Company became a
wholly-owned subsidiary of DeCrane Holdings. This transaction, referred to
herein as the DLJ Acquisition, 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 $0.6 million pre-tax charge for
the eight months ended August 31, 1998 for the estimated costs incurred. The
gross purchase price for the Company's shares and options was $186.3 million.
Assets acquired and liabilities assumed have been recorded at their estimated
fair values based on an independent appraisal and, accordingly, historical
values were increased as follows: (a) $4.4 million to inventory; (b) $2.6
million to fixed assets; and (c) $50.0 million to certain identifiable
intangible assets. The excess of the purchase price over the fair value of the
net assets acquired totalling $70.0 million was allocated to goodwill. The
increase in inventory value was expensed as the inventory was sold during the
four months ended December 31, 1998. The intangible assets, other than goodwill,
are being amortized on a straight-line basis over periods between five and
fifteen years. Goodwill is being 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 credit facility (Note 10). In order to fund
the purchase of the shares in the tender offer, repay the credit facility and
pay expenses incurred in connection therewith, the Company: (a) 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 10); (b) entered
into a new syndicated senior secured loan facility; and (c) received a $99.0
million equity contribution from DeCrane Holdings. In conjunction with the debt
repayment and refinancing of the Bridge Notes, the Company incurred a $2.2
million extraordinary charge, net of income tax benefit of $1.5 million for the
four months ended December 31, 1998.
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 of 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 10).
The equity contribution from DeCrane Holdings represents DeCrane Holdings'
net proceeds from the sale of 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, along with warrants to purchase 150,000 common shares,
to the DLJ 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, preferred stock dividends are paid
in cash. Since the Company is DeCrane Holdings' only operating subsidiary and
source of cash, the
F-11
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - THE DLJ ACQUISITION (CONTINUED)
Company may be required to fund DeCrane 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 DLJ Acquisition.
NOTE 3 - ACQUISITIONS
AVTECH
On June 26, 1998, the Company purchased substantially all of the common
stock of Avtech Corporation. 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
$1,250,000 of acquisition related costs. The acquisition was financed with
borrowings under the Company's credit facility. The acquisition was accounted
for as a purchase and the $57,911,000 difference between the 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 results of operations for the eight months ended August 31,
1998 and the four months ended December 31, 1998 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 is a manufacturer of
seats for high-end corporate jet aircraft.
The total purchase price was $2,314,000 in cash at closing, including
$205,000 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 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 results of operations for the eight months ended August 31,
1998 and the four months ended December 31, 1998 include the operating results
of Dettmers subsequent to June 29, 1998.
AUDIO INTERNATIONAL
On November 14, 1997, the Company purchased all of the outstanding stock of
Audio International, Inc. 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. During 1998, Audio International attained the
required
F-12
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - ACQUISITIONS (CONTINUED)
performance criteria and the Company increased the purchase price by $3,000,000,
resulting in a corresponding increase to goodwill. 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.
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 for a total purchase price of $5,748,000, including $334,000 of
acquisition related costs and expenses. 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.
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 of Allard Industries, Inc. 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-13
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
referred to as 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.
PATS
In January 1999, the Company acquired all of the outstanding stock of PATS,
Inc. for a purchase price of $41.5 million (including the assumption of debt)
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
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 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.
NOTE 4 - PRO FORMA RESULTS OF OPERATIONS FOR THE DLJ AND OTHER ACQUISITIONS
Unaudited pro forma consolidated results of operations are presented in the
table below for the years ended December 31, 1997 and 1998 and are pro forma for
the DLJ and other acquisitions, excluding the 1999 PATS acquisition, as if they
were consummated at the beginning of each year.
<TABLE>
<CAPTION>
PRO FORMA FOR THE
YEAR ENDED DECEMBER
31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Revenues............................................................................... $ 160,054 $ 173,297
Loss before extraordinary item......................................................... (10,000) (3,548)
</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 $2,229,000
extraordinary loss, respectively incurred in connection with the Company's debt
refinancings (Notes 2 and 14).
NOTE 5 - ACCOUNTS RECEIVABLE AND SIGNIFICANT CUSTOMERS
ACCOUNTS RECEIVABLE
Accounts receivable is net of an allowance for doubtful accounts of $487,000
and $581,000 at December 31, 1997 and 1998, 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.
F-14
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - ACCOUNTS RECEIVABLE AND SIGNIFICANT CUSTOMERS (CONTINUED)
SIGNIFICANT CUSTOMERS
Two customers each accounted for more than 10% of the Company's consolidated
revenues, as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER FOUR MONTHS
31, EIGHT MONTHS ENDED
-------------------- ENDED AUGUST DECEMBER 31,
31, 1998 1998
1996 1997 (PREDECESSOR) (SUCCESSOR)
(PREDECESSOR)
<S> <C> <C> <C> <C>
--------- --------- ------------- -------------
Customer A.......................................... 15.8% 19.0% 17.3% 20.1%
Customer B.......................................... 7.2% 11.2% 7.6% 5.6%
</TABLE>
Complete loss of Customer A 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.
NOTE 6 - INVENTORIES
Inventories are comprised of the following as of December 31, 1997 and 1998
(amounts in thousands):
<TABLE>
<CAPTION>
1997 1998
(PREDECESSOR) (SUCCESSOR)
----------- -----------
<S> <C> <C>
Raw material........................................................ $ 14,224 $ 19,221
Work-in process..................................................... 4,655 7,231
Finished goods...................................................... 7,097 7,829
----------- -----------
Total inventories................................................. $ 25,976 $ 34,281
----------- -----------
----------- -----------
</TABLE>
Included above are costs relating to long-term contracts recognized on the
percentage of completion method of $125,000 and $897,000 at December 31, 1997
and 1998, respectively.
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment includes the following as of December 31, 1997 and
1998 (amounts in thousands):
<TABLE>
<CAPTION>
1997 1998
(PREDECESSOR) (SUCCESSOR)
----------- -----------
<S> <C> <C>
Machinery and equipment............................................. $ 18,151 $ 12,576
Tooling............................................................. 3,133 2,162
Computer equipment, furniture and fixtures.......................... 3,660 3,230
Land, buildings and leasehold improvements.......................... 3,580 11,967
----------- -----------
Total cost........................................................ 28,524 29,935
Accumulated depreciation and amortization......................... (14,470) (1,775)
----------- -----------
Net property and equipment...................................... $ 14,054 $ 28,160
----------- -----------
----------- -----------
</TABLE>
F-15
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - PROPERTY AND EQUIPMENT (CONTINUED)
Property and equipment under capital leases included above consists of the
following as of December 31, 1997 and 1998 (amounts in thousands):
<TABLE>
<CAPTION>
1997 1998
(PREDECESSOR) (SUCCESSOR)
------------- -------------
<S> <C> <C>
Machinery and equipment............................................. $ 1,160 $ 693
Computer equipment, furniture and fixtures.......................... 455 243
------ -----
Total cost........................................................ 1,615 936
Accumulated depreciation and amortization......................... (523) (204)
------ -----
Net property and equipment...................................... $ 1,092 $ 732
------ -----
------ -----
</TABLE>
Depreciation of machinery and equipment under capital leases is included in
cost of sales in the consolidated financial statements.
NOTE 8 - OTHER ASSETS
Other assets includes the following as of December 31, 1997 and 1998 and is
net of accumulated amortization for the respective periods as parenthetically
noted (amounts in thousands):
<TABLE>
<CAPTION>
1997 1998
(PREDECESSOR) (SUCCESSOR)
----------- -----------
<S> <C> <C>
Goodwill (net of $1,682 and $1,839)................................. $ 38,592 $ 167,836
Deferred financing costs (net of $64 and $343)...................... 399 8,787
Other intangibles (net of $194 and $1,317).......................... 596 48,708
Other non-amortizable assets........................................ 380 999
----------- -----------
Other assets, net................................................. $ 39,967 $ 226,330
----------- -----------
----------- -----------
</TABLE>
NOTE 9 - ACCRUED EXPENSES
Accrued expenses are comprised of the following as of December 31, 1997 and
1998 (amounts in thousands):
<TABLE>
<CAPTION>
1997 1998
(PREDECESSOR) (SUCCESSOR)
------------- -----------
<S> <C> <C>
Salaries, wages, compensated absences and payroll related taxes..... $ 3,410 $ 6,147
Additional acquisition consideration................................ -- 3,000
Accrued interest.................................................... 152 2,946
Other accrued expenses.............................................. 3,349 6,373
------ -----------
Total accrued expenses............................................ $ 6,911 $ 18,466
------ -----------
------ -----------
</TABLE>
NOTE 10 - BORROWINGS
SHORT-TERM BORROWINGS--The Company's Swiss subsidiary has a short-term
revolving line of credit with a Swiss bank under which Swiss franc denominated
borrowings of $568,000 and $283,000 were outstanding at December 31, 1997 and
1998, respectively. Interest on the line accrues at the bank's prime rate (5.25%
F-16
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - BORROWINGS (CONTINUED)
and 4.875% at December 31, 1997 and 1998, respectively) plus 0.25%. The line of
credit is guaranteed by the Company.
LONG-TERM BORROWINGS--Long-term obligations outstanding include the
following as of December 31, 1997 and 1998 (amounts in thousands):
<TABLE>
<CAPTION>
1997 1998
(PREDECESSOR) (SUCCESSOR)
----------- -----------
<S> <C> <C>
Credit facilities
Revolving lines of credit......................................... $ 36,000 $ 5,800
Term debt......................................................... -- 79,888
12% Senior Subordinated Notes due 2008, with interest payable semi-
annually commencing on March 30, 1999............................. -- 100,000
Capital lease obligations and equipment term financing, with
interest at
4.34 % to 18.08%, secured by equipment.......................... 547 367
Other............................................................... 1,723 427
----------- -----------
Total long-term obligations................................... 38,270 186,482
Less current portion.......................................... (858) (1,529)
----------- -----------
Long-term obligations, less current portion................. $ 37,412 $ 184,953
----------- -----------
----------- -----------
</TABLE>
PREDECESSOR CREDIT FACILITY
Prior to August 31, 1998, the Company had a credit facility with a group of
banks for a $105 million senior revolving line of credit. Borrowings under the
credit facility were secured by the Company's assets.
The Company, at its option, could elect to pay interest on the credit
facility borrowings based on either the prime rate or interbank offered rate
("IBOR") plus defined margins. The Company was required to pay a commitment fee,
up to a maximum 0.375%, on the unused portion of the credit facility. The
weighted-average interest rate on borrowings outstanding was 7.03% as of
December 31, 1997.
SUCCESSOR CREDIT FACILITY
In connection with the DLJ Acquisition, the Company was required to repay
all of its borrowings under the predecessor credit facility and entered into a
new credit facility. 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 1.50%-1.75% for prime rate borrowings and
2.75%-3.00% for Euro-Dollar borrowings. Borrowings under the new credit facility
are secured by substantially all of the assets of the Company. The Company is
subject to certain commitment fees under the facility as well as the maintenance
of certain financial ratios, cash flow results and other restrictive covenants.
In January 1999, term loan borrowings were increased to $99.9 million to
fund the acquisition of PATS, Inc. (Note 3).
F-17
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - BORROWINGS (CONTINUED)
12% SENIOR SUBORDINATED NOTES
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 shares of common stock of DeCrane
Holdings ("Holdings Common Stock"). The Notes will mature on September 30, 2008.
Interest on the Notes is 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 are subordinated in right of payment to all
existing and future senior indebtedness of the Company, including indebtedness
pursuant to the credit facility. Prior to the Notes maturing, the Company may
redeem all or some of the Notes at a redemption price which may include a
premium. In the event of a change in control, the holders may require the
Company to repurchase the Notes for a redemption price which may also include a
premium. 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. The Warrants, valued at $1,200,000, will be
exercisable at the time they are registered and, unless earlier exercised, will
expire on September 30, 2008.
AGGREGATE MATURITIES
The aggregate maturities of long-term obligations are as follows as of
December 31, 1998 (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1999................................................................................................ 1,529
2000................................................................................................ 2,722
2001................................................................................................ 4,866
2002................................................................................................ 7,905
2003................................................................................................ 10,522
Thereafter.......................................................................................... 158,938
----------
Total long-term obligations..................................................................... $ 186,482
----------
----------
</TABLE>
NOTE 11 - INCOME TAXES
Income (loss) before income taxes and extraordinary item was taxed under the
following jurisdictions (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER EIGHT MONTHS FOUR MONTHS
31, ENDED ENDED
-------------------- AUGUST 31, DECEMBER 31,
1998 1998
1996 1997 (PREDECESSOR) (SUCCESSOR)
(PREDECESSOR)
<S> <C> <C> <C> <C>
--------- --------- ------------- ---------------
Domestic........................................ $ (855) $ 7,509 $ 5,637 $ (3,345)
Foreign......................................... 750 1,089 444 353
--------- --------- ------ -------
Total......................................... $ (105) $ 8,598 $ 6,081 $ (2,992)
--------- --------- ------ -------
--------- --------- ------ -------
</TABLE>
F-18
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - INCOME TAXES (CONTINUED)
The provisions for income taxes (benefit) are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER EIGHT MONTHS FOUR MONTHS
31, ENDED ENDED
-------------------- AUGUST 31, DECEMBER 31,
1998 1998
1996 1997 (PREDECESSOR) (SUCCESSOR)
(PREDECESSOR)
<S> <C> <C> <C> <C>
--------- --------- ------------- ---------------
Current
U.S. federal.................................. $ 269 $ 3,231 $ 3,835 $ 1,560
State and local............................... 194 968 1,275 699
Foreign....................................... 161 426 121 145
--------- --------- ------------- -------
Total current............................... 624 4,625 5,231 2,404
--------- --------- ------------- -------
Deferred
U.S. federal.................................. 70 (1,021) (1,932) (4,150)
State and local............................... 21 (279) (435) (816)
Foreign....................................... (3) 19 28 (106)
--------- --------- ------------- -------
Total deferred.............................. 88 (1,281) (2,339) (5,072)
--------- --------- ------------- -------
Total provision............................. $ 712 $ 3,344 $ 2,892 $ (2,668)
--------- --------- ------------- -------
--------- --------- ------------- -------
</TABLE>
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, EIGHT MONTHS FOUR MONTHS
-------------------- ENDED AUGUST ENDED DECEMBER
31, 1998 31, 1998
1996 1997 (PREDECESSOR) (SUCCESSOR)
(PREDECESSOR)
<S> <C> <C> <C> <C>
--------- --------- ------------- ---------------
Income tax (benefit) at U.S. statutory rates.... $ (36) $ 2,923 $ 2,068 $ (1,017)
Increase (decrease) resulting from
Book benefit not provided for net operating
loss carryforwards.......................... 172 -- -- --
Amortization of assets and other expenses not
deductible for income tax purposes.......... 137 441 594 782
Decrease in deferred tax asset valuation
allowance................................... -- (488) -- (2,575)
State income taxes, net of federal benefit.... 157 482 550 (25)
Tax on earnings of subsidiary not consolidated
for tax purposes............................ 92 -- -- --
Lower tax rates on earnings of foreign
subsidiaries................................ (65) (116) (50) (36)
Other, net.................................... 255 102 (270) 203
--------- --------- ------ -------
Income tax (benefit) at effective rates..... $ 712 $ 3,344 $ 2,892 $ (2,668)
--------- --------- ------ -------
--------- --------- ------ -------
</TABLE>
F-19
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - INCOME TAXES (CONTINUED)
Deferred tax liabilities (assets) are comprised of the following as of
December 31, 1997 and 1998 (amounts in thousands):
<TABLE>
<CAPTION>
1997 1998
(PREDECESSOR) (SUCCESSOR)
----------- -----------
<S> <C> <C>
Gross deferred tax liabilities
Intangible assets.................................................. $ 308 $ 18,320
Tax effect on earnings of subsidiary not consolidated for tax
purposes......................................................... 2,688 --
Property and equipment............................................. 688 4,531
Other.............................................................. 409 416
----------- -----------
Gross deferred tax liabilities................................... 4,093 23,267
----------- -----------
Gross deferred tax (assets)
Inventory.......................................................... (2,811) (2,396)
Loss carryforwards................................................. (865) (6,183)
Accrued expenses................................................... (697) (1,657)
Other.............................................................. (537) (341)
----------- -----------
Gross deferred tax (assets)...................................... (4,910) (10,577)
----------- -----------
Deferred tax assets valuation allowance.............................. 2,575 --
----------- -----------
Net deferred tax liability......................................... $ 1,758 $ 12,690
----------- -----------
----------- -----------
</TABLE>
The balance sheet classification of the net deferred tax liabilities as of
December 31, 1997 and 1998 are as follows (amounts in thousands):
<TABLE>
<CAPTION>
1997 1998
(PREDECESSOR) (SUCCESSOR)
------------- -----------
Noncurrent deferred tax liability.................................... $ 1,758 $ 16,990
<S> <C> <C>
Current deferred tax asset........................................... -- (4,300)
------ -----------
Net deferred tax liability......................................... $ 1,758 $ 12,690
------ -----------
------ -----------
</TABLE>
Prior to 1997, the Company incurred losses and accordingly provided a
valuation allowance for its domestic deferred net tax assets. The deferred tax
asset valuation allowance was reduced in 1997 by $488,000 to reflect the amount
of federal and state tax loss carryforwards utilized to reduce 1997 current
income taxes.
During the eight months ended August 31, 1998 and the four months ended
December 31, 1998, the Company incurred net operating losses for tax purposes of
approximated $1,528,000 and $486,000, respectively. The losses were caused by an
$8,880,000 tax deduction for stock options exercised, $3,632,000 of nonrecurring
charges and a $3,724,000 pre-tax extraordinary charge. The net operating loss
tax benefits for both periods were carried back to 1997 for federal income tax
purposes and carried forward for state income tax purposes. The 1998 net
operating losses resulted in $2,545,000 of taxes being refundable as of December
31, 1998 and are included in prepaid expenses and other current assets. Even
though the Company incurred tax losses during 1998, management believes that it
is more likely than not that the Company will generate taxable income sufficient
to realize the tax benefit associated with the future deductible deferred tax
assets and loss carryforwards prior to their expiration. As a result, the
Company reduced the valuation allowance by $2,575,000 during the four months
ended December 31, 1998.
F-20
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - INCOME TAXES (CONTINUED)
The Company has approximately $17,400,000 and $600,000 of total loss
carryforwards, which include net operating losses acquired in the Avtech
aquisition, available for federal and state income tax purposes, respectively.
In conjunction with the Avtech acquisition, the Company acquired federal loss
carryforwards of $13,700,000 that are subject to separate return limitation
rules, as defined in the Internal Revenue Code, and expire in 2018. The
remaining federal and state carryforwards expire in varying amounts through 2010
and 2018, respectively. The amount of federal loss carryforwards that may be
utilized in the future are subject to limitations because of the occurrence of
changes in control, as defined in the Internal Revenue Code.
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.
NOTE 12 - 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 gain (loss) of ($316,000), ($487,000),
$323,000 and $146,000 for the years ended December 31, 1996 and 1997, the eight
months ended August 31, 1998 and the four months ended December 31, 1998,
respectively.
At December 31, 1998, the Company had no open forward exchange contracts.
The Company believes exposure to derivative credit losses is minimal in the
event of nonperformance by the senior lender because any amounts due, but not
paid, to the Company by the senior lender could be offset against the Company's
principal and interest payments to the lender.
NOTE 13 - SUCCESSOR CAPITAL STRUCTURE
In connection with the DLJ Acquisition, all of the Company's old outstanding
shares which were tendered were cancelled and non-tendering shareholders were
paid out. The Company was authorized to issue 100 new common shares ($.01 par
value) all of which are issued and outstanding at December 31, 1998.
NOTE 14 - PREDECESSOR CAPITAL STRUCTURE AND TRANSACTIONS
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.
F-21
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - PREDECESSOR CAPITAL STRUCTURE AND TRANSACTIONS (CONTINUED)
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.
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. 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 into
1,941,804 shares of common stock; (ii) the 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
In April 1998, the Company sold 2,206,177 shares of common stock for $17.00
per share. Net proceeds from the offering of $34,815,000 were used to partially
repay borrowings outstanding under the Company's senior credit facility.
DEBT REPAID WITH IPO PROCEEDS
In April 1997, the Company used the net proceeds from the IPO, together with
approximately $12,775,000 of proceeds from borrowings under a 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
F-22
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - PREDECESSOR CAPITAL STRUCTURE AND TRANSACTIONS (CONTINUED)
$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.
MANDATORILY REDEEMABLE COMMON STOCK WARRANTS
The table below summarizes Redeemable Warrant transactions during the years
ended December 31, 1996, and 1997 (amounts in thousands, except share data).
<TABLE>
<CAPTION>
REDEEMABLE WARRANTS
----------------------
NUMBER OF
COMMON
AMOUNT SHARES
--------- -----------
<S> <C> <C>
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. The Redeemable
Warrants' value was subsequently adjusted 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.
CUMULATIVE CONVERTIBLE PREFERRED STOCK
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
F-23
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - PREDECESSOR CAPITAL STRUCTURE AND TRANSACTIONS (CONTINUED)
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 19).
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 19). 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.
COMMON STOCK
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. 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 basis and convert the warrants into 16,130 common shares.
No non-redeemable warrants were outstanding as of December 31, 1997.
During 1998 in connection with the DLJ Acquisition all stock options became
100% vested and were either exercised or cancelled as of August 31, 1998. The
following table summarizes the status of the
F-24
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - PREDECESSOR CAPITAL STRUCTURE AND TRANSACTIONS (CONTINUED)
Company's stock option plan at December 31, 1996, 1997, and 1998 and the
activity for the years ended December 31, 1996 and 1997, and the eight months
ended August 31, 1998:
<TABLE>
<CAPTION>
1996 1997 1998
---------------------- ---------------------- -----------------------
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........................................ 208,423 $ 0.529 355,001 $ 1.724 501,260 $ 6.089
Granted...................................... 147,031 3.413 163,662 15.574 75,000 16.85
Exercised.................................... -- -- -- -- (575,692) 7.496
Cancelled.................................... (453) 0.529 (17,403) 6.228 (568) 1.234
--------- --------- ----------
Options outstanding at end of year........... 355,001 1.724 501,260 6.089 -- --
--------- --------- ---------- -----------
--------- --------- ---------- -----------
Options exercisable at end of year........... 141,845 0.633 200,444 0.921 -- --
--------- --------- ---------- -----------
--------- --------- ---------- -----------
</TABLE>
The Company believes the per share exercise price of options granted through
February 1996 and subsequent to January 1997 (through August 31, 1998)
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, $240,000 and $332,000 for the
years ended December 31, 1996 and 1997 and the eight months ended August 31,
1998, respectively.
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, EIGHT MONTHS
------------------------ ENDED AUGUST
1996 1997 31, 1998
(PREDECESSOR) (PREDECESSOR)
------------------------ -------------
<S> <C> <C> <C>
Net income (loss)
As reported............................................................. $ (817) $ 3,176 $ 3,189
Pro forma............................................................... (822) 3,129 2,699
Weighted-average fair value of options granted
Compensatory stock options.............................................. 5.91 5.70 5.70
Non-compensatory stock options.......................................... 0.10 5.08 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%;
F-25
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - PREDECESSOR CAPITAL STRUCTURE AND TRANSACTIONS (CONTINUED)
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 15 - COMMITMENTS AND CONTINGENCIES
LITIGATION
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 two of its subsidiaries have confirmed that they are indemnified for
any liability in the action filed by American International Airways; and for the
further cost of defense of the action. A third subsidiary was named as a
defendant but has been dismissed from the case without prejudice.
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 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
F-26
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
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. Discovery has not
been completed. The Company intends to vigorously defend against such claim. The
plaintiff's employment with the Company was terminated.
The Canadian Transportation Safety Board has notified the Company that as
part of its investigation of the crash of Swissair Flight 111 on September 2,
1998, burned wire was found which was attached to the in-flight entertainment
system installed on certain Swissair aircraft by a subsidiary of the Company.
The Canadian Transportation Safety Board 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.
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
F-27
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
and operating lease commitments under non-cancelable leases are as follows as of
December 31, 1998 (amounts in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
Year ending December 31,
1999....................................................................................... $ 230 $ 3,181
2000....................................................................................... 99 2,758
2001....................................................................................... 41 2,246
2002....................................................................................... 17 2,195
2003....................................................................................... 9 1,941
2004 and thereafter........................................................................ -- 4,811
----- -----------
Total minimum payments required............................................................ 396 $ 17,132
-----------
-----------
Less amount representing future interest cost.............................................. (29)
-----
Recorded obligation under capital leases................................................. $ 367
-----
-----
</TABLE>
Total rental expense charged to operations for the years ended December 31,
1996 and 1997, the eight months ended August 31, 1998 and the four months ended
December 31, 1998 was $1,614,000, $2,065,000, $2,303,000 and $1,095,000
respectively.
F-28
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16 - CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS INFORMATION
The Company paid the following amounts in cash (amounts in thousands):
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED DECEMBER 31, EIGHT MONTHS ENDED
---------------------------- ENDED AUGUST DECEMBER
1996 1997 31, 1998 31, 1998
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR)
---------------------------- ------------- -----------
Interest.................................... $ 2,983 $ 2,842 $ 2,227 $ 3,706
<S> <C> <C> <C> <C>
Income taxes................................ 132 300 4,825 1,328
</TABLE>
INFORMATION ON NONCASH INVESTING AND FINANCING ACTIVITIES
Certain noncash investing and financing transactions occurred as follows
(amounts in thousands):
<TABLE>
<CAPTION>
EIGHT
YEAR ENDED DECEMBER MONTHS FOUR MONTHS
31, ENDED ENDED
-------------------- AUGUST 31, DECEMBER
1996 1997 1998 31, 1998
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR)
-------------------- ----------- -----------
Refinancing of Bridge Notes with proceeds from
Units offering................................... $ -- $ -- $ -- $ 100,000
<S> <C> <C> <C> <C>
Additional acquisition consideration.............. -- -- -- 3,000
Debt incurred for the acquisition of machinery and
equipment........................................ 414 182 116 48
Financing provided by sellers in connection with
acquisitions..................................... 3,492 -- -- --
Detail of acquisitions:
Fair value of assets acquired, net of cash
acquired...................................... $ 20,887 $ 26,178 $ 90,377 --
Liabilities assumed............................. (2,687) (2,581) (4,569) --
--------- --------- ----------- -----------
Cash paid for acquisition, net of cash
acquired.................................. $ 18,200 $ 23,597 $ 85,808 --
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
F-29
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17 - 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 the following (amounts in thousands):
<TABLE>
<CAPTION>
EIGHT
YEAR ENDED DECEMBER MONTHS FOUR MONTHS
31, ENDED ENDED
-------------------- AUGUST 31, DECEMBER
1996 1997 1998 31, 1998
--------- --------- ----------- -----------
(PREDECESSOR) (SUCCESSOR)
(PREDECESSOR)
<S> <C> <C> <C> <C>
Revenues
Gross revenues
United States................................ $ 64,383 $ 109,490 $ 89,619 $ 60,785
Western Europe............................... 10,882 12,240 7,940 4,510
--------- --------- ----------- -----------
Total gross revenues....................... 75,265 121,730 97,559 65,295
--------- --------- ----------- -----------
Less interarea transfers
United States................................ (1,496) (2,448) (1,744) (1,350)
Western Europe............................... (8,670) (10,379) (5,738) (3,589)
--------- --------- ----------- -----------
Total interarea transfers.................. (10,166) (12,827) (7,482) (4,939)
--------- --------- ----------- -----------
Net revenues
United States................................ 62,887 107,042 87,875 59,435
Western Europe............................... 2,212 1,861 2,202 921
--------- --------- ----------- -----------
Total net revenues......................... $ 65,099 $ 108,903 $ 90,077 $ 60,356
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Consolidated long-lived assets
United States.................................. $ 10,573 $ 13,230 $ 24,693 $ 26,455
Western Europe................................. 1,614 824 543 1,705
--------- --------- ----------- -----------
Total consolidated long-lived assets......... $ 12,187 $ 14,054 $ 25,236 $ 28,160
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
The Company allocates its revenues on the basis of the location in which the
sale originated. Revenues in Western Europe are primarily from Switzerland.
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. Long-lived assets
consists of the Company's property and equipment. Corporate long-lived assets
are included with United States assets.
EXPORT REVENUES
Consolidated revenues include export revenues of $6,484,000, $12,430,000,
$11,804,000 and $9,983,000 for the years ended December 31, 1996 and 1997, the
eight months ended August 31, 1998 and the four months ended December 31, 1998,
respectively. Export revenues are primarily derived from sales to customers
located in Western Europe, the Far East and Canada.
NOTE 18 - 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
F-30
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18 - EMPLOYEE BENEFIT PLANS (CONTINUED)
Company and the employees, are determined as a percentage of each covered
employees' salary. Company contributions and costs associated with the plan were
$151,000, $157,000, $102,000 and $51,000 for the years ended December 31, 1996
and 1997, the eight months ended August 31, 1998 and the four months ended
December 31, 1998, 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, $128,000 and $95,000 during the year ended
December 31, 1997, the eight months ended August 31, 1998 and the four months
ended December 31, 1998, respectively. No matching contributions were made to
the plan during the year ended December 31, 1996. The costs associated with
administering the plan were not significant for any period presented.
F-31
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19 - 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>
YEAR ENDED FOUR MONTHS
DECEMBER 31, EIGHT MONTHS ENDED
-------------------- ENDED AUGUST DECEMBER
1996 1997 31, 1998 31, 1998
--------- --------- ------------- -----------
(PREDECESSOR) (SUCCESSOR)
(PREDECESSOR)
<S> <C> <C> <C> <C>
DLJ
Transaction financing fees........................ $ -- $ -- $ -- $ 12,000
Credit facility outstanding borrowings............ -- -- -- 4,800
Credit facility interest expense.................. -- -- -- 282
Bridge notes interest expense..................... -- -- -- 1,041
Global Technology Partners, LLC
Promissory note receivable........................ -- -- -- 352
Senior Subordinated Lenders
Interest and advisory fees
Earned during the period........................ 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:
DLJ -- The Company and its affiliates incurred fees payable to DLJ related
entities of approximately $12.0 million in connection with the DLJ Acquisition.
The Bridge Notes issued to finance the DLJ acquisition were also purchased by a
DLJ entity. In addition, DLJ is involved in making a market for the Notes and
may hold such Notes from time to time. The Company's credit facility is also
provided by a syndicate of lenders led by DLJ related entities.
Global Technology Partners, LLC ("GTP") -- Two members of the Company's
Board of Directors are also members of GTP. In December 1998, GTP purchased
approximately $704,000 of shares of common
F-32
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19 - RELATED PARTY TRANSACTIONS (CONTINUED)
and preferred stock of DeCrane Holdings. The Company loaned half of the purchase
price for such shares to GTP at an interest rate equal to the interest rate on
the longest maturity senior bank debt of the Company in effect from time to
time, plus 1.0%. The loans are repayable out of the proceeds from the sale of
such stock, are secured by such stock, and are included in other long-term
assets. Upon collection of the notes, funds will be advanced to Holdings.
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 and 14). 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 14).
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 and 14). 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 14).
NOTE 20 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
In conjunction with the Notes, Bridge Notes and credit facility described in
Note 2, 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 guarantee the Notes and
credit facility. The guarantor subsidiaries are wholly-owned subsidiaries of the
Company and the guarantees are 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-33
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
(CONTINUED)
BALANCE SHEETS (AMOUNTS IN THOUSANDS)
<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
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-34
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
(CONTINUED)
BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 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........ $ 2,458 $ 762 $ 298 $ -- $ 3,518
Accounts receivable, net......... -- 28,917 1,524 -- 30,441
Inventories...................... -- 32,624 1,657 -- 34,281
Other current assets............. 7,066 894 237 -- 8,197
-------- ------------ ------------- --------------- ------------
Total current assets........... 9,524 63,197 3,716 -- 76,437
Property and equipment, net........ 272 26,170 1,718 -- 28,160
Other assets, principally
intangibles, net.................. 12,105 200,383 13,842 -- 226,330
Investments in subsidiaries........ 239,101 4,373 -- (243,474)(1) --
Intercompany receivables........... 45,710 693 3,567 (49,970)(2) --
-------- ------------ ------------- --------------- ------------
$306,712 $294,816 $22,843 $(293,444) $330,927
-------- ------------ ------------- --------------- ------------
-------- ------------ ------------- --------------- ------------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Short-term obligations........... $ 892 $ 628 $ 292 $ -- $ 1,812
Other current liabilities........ 10,767 16,651 1,174 -- 28,592
-------- ------------ ------------- --------------- ------------
Total current liabilities...... 11,659 17,279 1,466 -- 30,404
-------- ------------ ------------- --------------- ------------
Long-term liabilities
Long-term obligations............ 184,822 131 -- -- 184,953
Intercompany payables............ (3,694) 53,388 276 (49,970)(2) --
Other long-term liabilities...... 16,278 658 713 -- 17,649
-------- ------------ ------------- --------------- ------------
Total long-term liabilities.... 197,406 54,177 989 (49,970) 202,602
-------- ------------ ------------- --------------- ------------
Stockholders' equity
Capital.......................... 100,200 214,823 15,440 (230,263)(1) 100,200
Retained earnings (deficit)...... (2,553) 8,537 4,674 (13,211)(1) (2,553)
Accumulated comprehensive income
(loss)......................... -- -- 274 -- 274
-------- ------------ ------------- --------------- ------------
Total stockholders' equity..... 97,647 223,360 20,388 (243,474) 97,921
-------- ------------ ------------- --------------- ------------
$306,712 $294,816 $22,843 $(293,444) $330,927
-------- ------------ ------------- --------------- ------------
-------- ------------ ------------- --------------- ------------
</TABLE>
F-35
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
(CONTINUED)
STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS)
<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>
<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>
F-36
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20 - 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>
FOUR MONTHS ENDED DECEMBER 31, 1998 (SUCCESSOR)
------------------------------------------------------------------------------------
DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED
HOLDINGS, INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
---------------- ------------ ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues........................... $-- $58,904 $ 5,041 $(3,589) $60,356
Cost of sales...................... -- 42,691 3,637 (3,589) 42,739
------- ------------ ------------- ------- -------------
Gross profit....................... -- 16,213 1,404 -- 17,617
Selling, general and administrative
expenses.......................... 1,741 8,124 409 -- 10,274
Nonrecurring charges............... -- -- -- -- --
Amortization of intangible
assets............................ 102 2,868 178 -- 3,148
Interest expense (income).......... 6,754 92 6 -- 6,852
Intercompany charges............... (3,088) 3,025 63 -- --
Equity in earnings of
subsidiaries...................... (7,753) (506) -- 8,259(4) --
Other expenses (income)............ -- 132 203 -- 335
Provision for income taxes
(benefit)......................... 2,568 (5,275) 39 -- (2,668)
Extraordinary charge, net of tax... 2,229 -- -- -- 2,229
------- ------------ ------------- ------- -------------
Net income (loss).................. $(2,553) $ 7,753 $ 506 $(8,259) $(2,553)
------- ------------ ------------- ------- -------------
------- ------------ ------------- ------- -------------
</TABLE>
F-37
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20 - 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-38
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20 - 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-39
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20 - 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..................... (2,222) 3,420 557 -- 1,755
Equity in earnings of
subsidiaries............... (6,824) (489) -- 7,313(4) --
Changes in working capital... 5,492 (7,393) (29) -- (1,930)
------------- ----------- ----- ----------- -----------
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-40
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
FOUR MONTHS ENDED DECEMBER 31, 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....................... $ (2,553) $ 7,753 $ 506 $ (8,259) $ (2,553)
Adjustments to net income
Non-cash adjustments to net
income....................... (2,647) 4,964 (274) -- 2,043
Equity in earnings of
subsidiaries................. (7,753) (506) -- 8,259(4) --
Changes in working capital..... 12,408 (10,272) (618) -- 1,518
------------- ----------- ----- ----------- -----------
Net cash provided by (used
for) operating
activities................. (545) 1,939 (386) -- 1,008
------------- ----------- ----- ----------- -----------
Cash flows from investing
activities
Acquisition of companies, net of
cash acquired.................. -- -- -- -- --
Capital expenditures and other... -- (1,746) (67) -- (1,813)
------------- ----------- ----- ----------- -----------
Net cash used for investing
activities................. -- (1,746) (67) -- (1,813)
------------- ----------- ----- ----------- -----------
Cash flows from financing
activities
Acquisition of Predecessor,
net............................ -- -- -- -- --
Net proceeds from sale of
equity......................... -- -- -- -- --
Net debt repaid with equity
offering proceeds.............. -- -- -- -- --
Debt financing for
acquisitions................... -- -- -- -- --
Principal payments on long-term
debt and leases................ (1) (447) (10) -- (458)
Line of credit borrowings
(repayments)................... (1,367) -- 264 -- (1,103)
Other, net....................... -- (36) -- -- (36)
------------- ----------- ----- ----------- -----------
Net cash provided by (used
for) financing
activities................. (1,368) (483) 254 -- (1,597)
------------- ----------- ----- ----------- -----------
Effect of foreign currency
translation on cash.............. -- -- 181 -- 181
------------- ----------- ----- ----------- -----------
Net increase (decrease) in cash and
equivalents...................... (1,913) (290) (18) -- (2,221)
Cash and equivalents at beginning
of period........................ 4,371 1,052 316 -- 5,739
------------- ----------- ----- ----------- -----------
Cash and equivalents at end of
period........................... $ 2,458 $ 762 $ 298 $ -- $ 3,518
------------- ----------- ----- ----------- -----------
------------- ----------- ----- ----------- -----------
</TABLE>
F-41
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21 - SUBSEQUENT EVENT (UNAUDITED)
In March 1999, the Company signed a definitive agreement to purchase all of
the outstanding stock of PPI Holdings, Inc. PPI is a manufacturer of interior
furniture components primarily for middle- and high-end corporate aircraft. The
Company expects to complete the acquisition during the second quarter of 1999.
The purchase price is $60.2 million, less debt acquired, in cash at closing
and is subject to adjustment for changes in working capital. Additional
contingent consideration totaling $19.5 million is payable over two years based
on future attainment of defined performance criteria. The acquisition, 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.
NOTE 22 - CONDENSED QUARTERLY DATA FOR 1997 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1998
-------------------------------------------- -------------------------------------------------------------
(SUCCESSOR)
(PREDECESSOR)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(TWO MONTHS (ONE MONTH
ENDED ENDED
AUGUST 31, SEPTEMBER 30,
1998) 1998)
1ST 2ND 3RD 4TH 1ST 2ND 3RD 3RD 4TH
--------- --------- --------- ----------- --------- --------- ----------- ------------- -----------
Revenues........... $ 26,118 $ 28,130 $ 26,639 $ 28,016 $ 29,128 $ 29,854 $ 31,095 $ 16,012 $ 44,344
Gross profit....... 6,011 7,214 6,998 8,433 8,987 9,720 11,269 4,932 12,685
Income (loss)
before
extraordinary
item.............. 629 1,454 1,481 1,690 1,688 1,672 (171) (480) 156
Extraordinary loss
from debt
refinancing....... -- (2,078) -- -- -- -- -- (296) (1,933)
Net income
(loss)............ 629 (624) 1,481 1,690 1,688 1,672 (171) (776) (1,777)
</TABLE>
F-42
<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-43
<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-44
<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-45
<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-46
<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-47
<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-48
<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-49
<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-50
<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-51
<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-52
<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-53
<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-54
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
PATS, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
statements of operations, of stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of PATS, Inc. and
subsidiaries at June 30, 1997 and 1998 and the results of its operations and its
cash flows for the years then ended, 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
January 25, 1999
F-55
<PAGE>
PATS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1998
--------- --------- DECEMBER 31,
------------
1998
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.................................................. $ 401 $ 216 $ 2,504
Trade accounts receivable, net of allowance for doubtful accounts of $362,
$451 and $456, respectively.............................................. 2,192 1,347 3,273
Inventories................................................................ 6,586 6,582 7,146
Cost and estimated earnings in excess of billings.......................... -- 773 4,770
Prepaid expenses and other current assets.................................. 75 59 58
Deferred income taxes...................................................... 107 132 132
--------- --------- ------------
Total current assets................................................... 9,361 9,109 17,883
--------- --------- ------------
Property and equipment....................................................... 2,734 6,130 6,823
Less accumulated depreciation.............................................. (1,334) (1,745) (1,968)
--------- --------- ------------
1,400 4,385 4,855
--------- --------- ------------
Deferred income taxes, net................................................... 600 878 878
Notes receivable--stockholders............................................... 556 560 521
Other assets................................................................. 24 24 --
--------- --------- ------------
Total assets........................................................... $ 11,941 $ 14,956 $ 24,137
--------- --------- ------------
--------- --------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Borrowings from bank....................................................... $ 800 $ 1,000 $ 4,900
Notes and lease payable--current........................................... 205 386 1,326
Trade accounts payable..................................................... 1,106 2,468 2,559
Customer advances.......................................................... 3,668 1,792 2,943
Accrued expenses and other liabilities..................................... 1,329 1,880 2,690
Income taxes payable....................................................... 484 458 1,246
--------- --------- ------------
Total current liabilities.............................................. 7,592 7,984 15,664
--------- --------- ------------
Notes and lease payable--non-current......................................... 591 3,678 3,501
--------- --------- ------------
Commitments and contingencies (Note 11)...................................... -- -- --
--------- --------- ------------
Stockholders' equity
Common stock, $1 par value, 100,000 shares authorized, 18,000, 17,490 and
18,000 shares issued and outstanding at June 30, 1997 and 1998 and
December 31, 1998, respectively.......................................... 18 17 18
Additional paid-in capital................................................. 429 -- 207
Retained earnings.......................................................... 3,311 3,277 4,747
--------- --------- ------------
3,758 3,294 4,972
--------- --------- ------------
$ 11,941 $ 14,956 $ 24,137
--------- --------- ------------
--------- --------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-56
<PAGE>
PATS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, ---------------------------
-------------------- DECEMBER 31, DECEMBER 31,
1997 1998 1997 1998
--------- --------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales.......................................................... $ 21,726 $ 23,464 $ 9,496 $ 19,380
Cost of sales.................................................. 15,573 16,992 6,905 14,234
--------- --------- ------ ------------
Gross profit................................................. 6,153 6,472 2,591 5,146
Operating expenses
Selling, general, and administrative......................... 4,106 5,976 2,645 2,535
--------- --------- ------ ------------
Income from operations......................................... 2,047 496 (54) 2,611
--------- --------- ------ ------------
Other expenses
Interest expense, net........................................ (70) (166) (50) (180)
--------- --------- ------ ------------
Income before provision for income taxes....................... 1,977 330 (104) 2,431
Provision (benefit) for income taxes........................... 782 11 (41) 961
--------- --------- ------ ------------
Net income (loss).............................................. $ 1,195 $ 319 $ (63) $ 1,470
--------- --------- ------ ------------
--------- --------- ------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-57
<PAGE>
PATS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
NUMBER OF COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS TOTAL
----------- ------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1996..................................... 14,616 $ 15 $ 55 $ 2,116 $ 2,186
Net income................................................ -- -- -- 1,195 1,195
Share issuance............................................ 3,000 3 514 -- 517
Share purchases........................................... (400) (1) (399) -- (400)
Shares issued under employee stock benefit plan........... 784 1 259 -- 260
----------- --- ----- ----------- ---------
Balance, June 30, 1997.................................... 18,000 18 429 3,311 3,758
Net income................................................ -- -- -- 319 319
Share purchases........................................... (510) (1) (429) (353) (783)
----------- --- ----- ----------- ---------
Balance, June 30, 1998.................................... 17,490 17 -- 3,277 3,294
Net income (unaudited).................................... -- -- -- 1,470 1,470
Shares issued under employee stock benefit plan
(unaudited)............................................... 510 1 207 -- 208
----------- --- ----- ----------- ---------
Balance, December 31, 1998 (unaudited).................... 18,000 $ 18 $ 207 $ 4,747 $ 4,972
----------- --- ----- ----------- ---------
----------- --- ----- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-58
<PAGE>
PATS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, --------------------------
-------------------- DECEMBER 31, DECEMBER 31,
1997 1998 1997 1998
--------- --------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss)............................................ $ 1,195 $ 319 $ (63) $ 1,470
Adjustments to reconcile net income to net cash provided by
(used in) operating activities
Depreciation............................................... 306 411 155 223
Deferred tax (benefit) expense............................. 298 (303) -- --
Changes in operating assets and liabilities
Trade accounts receivable.................................. 604 845 (4,836) (1,926)
Inventories................................................ (1,042) 4 1,432 (564)
Cost and estimated earnings in excess of billings.......... -- (773) -- (3,997)
Prepaid expenses and other current assets.................. (18) 16 (44) 1
Other assets............................................... -- -- -- 24
Trade accounts payable..................................... 250 1,362 (848) 90
Customer advances.......................................... (3,684) (1,876) 2,938 1,151
Accrued expenses and other liabilities..................... 895 551 (915) 811
Income taxes payable....................................... 484 (26) (41) 788
--------- --------- ------------ ------------
Net cash provided by (used in) operating activities............ (712) 530 (2,222) (1,929)
--------- --------- ------------ ------------
Cash flows from investing activities
Decrease in investment securities available for sale......... 312 -- -- --
Purchases of property and equipment.......................... (248) (3,396) (2,482) (693)
--------- --------- ------------ ------------
Net cash provided by (used in) investing activities............ 64 (3,396) (2,482) (693)
--------- --------- ------------ ------------
Cash flows from financing activities
Advance to stockholders...................................... (342) (4) -- 39
Increase in line of credit borrowings........................ 800 200 1,700 3,900
Increase (decrease) in notes and lease payable............... (233) 3,268 3,113 763
Stock purchases.............................................. (400) (783) -- --
Proceeds from issuance of common stock....................... 777 -- -- 208
--------- --------- ------------ ------------
Net cash provided by financing activities...................... 602 2,681 4,813 4,910
--------- --------- ------------ ------------
Net decrease in cash........................................... (46) (185) 109 2,288
Cash at beginning of period.................................... 447 401 401 216
--------- --------- ------------ ------------
Cash at end of period........................................ $ 401 $ 216 $ 510 $ 2,504
--------- --------- ------------ ------------
--------- --------- ------------ ------------
Supplemental cash flow disclosures
Interest paid.............................................. $ 70 $ 195 $ 60 $ 189
Income taxes paid.......................................... $ 2 $ 376 $ -- $ 168
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-59
<PAGE>
PATS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
PATS, Inc. (the "Company"), and its wholly-owned subsidiaries, design,
manufacture and service a variety of components for auxiliary power, cooling
systems and fuel systems for the corporate aircraft market. The Company
primarily operates in the U.S. market and approximately 45% of the Company's
sales for fiscal 1998 are to Boeing of Washington. The Company's customers are
principally concentrated in the corporate aircraft industry.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions and balances are
eliminated in consolidation.
REVENUE RECOGNITION
Revenue is recognized when products are shipped, except for products
manufactured under long-term contracts. Further, revenue associated with
manufactured products requiring customer acceptance is recognized only upon
receipt of such acceptance from the customer.
Revenue under long-term contracts is recognized under the percentage of
completion method. This method recognizes costs and estimated earnings as work
is performed. The basis used is the percentage of incurred costs to estimated
total costs after giving effect to management's most recent estimates. When
contract estimates indicate a loss, provision is made for the entire estimated
loss. Long-term contracts in progress are stated at cost plus estimated earnings
but not in excess of net realizable value.
INVENTORIES
Inventories are valued at the lower of cost or market, cost being determined
using the first-in, first-out (FIFO). Provision has been made for any obsolete
and/or slow-moving inventory.
PROPERTY, PLANT AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Major renewals and betterments are capitalized and ordinary repairs and
maintenance are charged against operations in the year incurred. Depreciation is
computed using the straight-line method for financial reporting purposes and
accelerated methods for income tax purposes. Estimated useful lives are 40 years
for buildings and 3 to 7 years for machinery, equipment and vehicles. Leasehold
improvements are depreciated over the lease term or the estimated useful life of
the improvement, whichever is shorter.
INCOME TAXES
The Company follows the practice of providing for income taxes using the
asset and liability method specified under Statement of Accounting Standards No.
109 (SFAS 109), "Accounting for Income Taxes." SFAS 109 requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in the Company's financial statements and
tax returns. In estimating future tax consequences under SFAS 109, all expected
future events other than enactments of changes in the tax laws or rates are
generally considered.
F-60
<PAGE>
PATS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash, receivables,
accounts payable and debt do not significantly differ from fair values as of
June 30, 1997 and 1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
UNAUDITED INTERIM RESULTS
The financial information as of December 31, 1998 and for the six months
ended December 31, 1997 and 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 3 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Buildings...................................................................................... $ -- $ 2,972
Machinery and equipment........................................................................ 2,282 2,666
Leasehold improvements......................................................................... 452 492
--------- ---------
2,734 6,130
Less accumulated depreciation and amortization................................................. 1,334 1,745
--------- ---------
$ 1,400 $ 4,385
--------- ---------
--------- ---------
</TABLE>
Depreciation expense for the years ended June 30, 1997 and 1998 was $306,000
and $411,000, respectively.
NOTE 4 - INVENTORIES
Inventories consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Raw materials.................................................................................. $ 3,609 $ 4,055
Work-in-process................................................................................ 2,977 2,527
--------- ---------
$ 6,586 $ 6,582
--------- ---------
--------- ---------
</TABLE>
F-61
<PAGE>
PATS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - INVENTORIES (CONTINUED)
Inventories were pledged to the extent of amounts received as customer
advances.
NOTE 5 - LONG-TERM CONTRACT
During 1998, the Company entered into a long-term contract with Boeing of
Washington to produce fuel tanks. The Company's policy is to account for such
contracts using the percentage of completion method. Unbilled amounts related to
costs and estimated earnings in excess of billings are expected to be billed and
collected within one year (amounts in thousands).
<TABLE>
<CAPTION>
COSTS AND
ESTIMATED
EARNINGS IN
EXCESS OF BILLINGS
------------------
<S> <C>
Costs and estimated earnings.................................................................. $ 11,513
Less--progress billings....................................................................... 10,740
-------
$ 773
-------
-------
</TABLE>
NOTE 6 - DEBT AND LINES OF CREDIT
Long-term debt consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Variable rate borrowings under the revolving credit facility................................... $ 800 $ 1,000
Industrial revenue bonds variable rate borrowings at 3.75%..................................... -- 2,000
Fixed rates notes
11.00% note due through 1999................................................................. 79 44
10.00% note due through 2015................................................................. 385 379
8.51% note due through 1999.................................................................. 192 93
8.50% note due through 2001.................................................................. -- 237
8.35% note due through 2000.................................................................. 140 94
7.93% note due through 2002.................................................................. -- 344
6.00% note due through 2012.................................................................. -- 285
Other obligations (Grant Funds)................................................................ -- 588
--------- ---------
1,596 5,064
Less current portion........................................................................... 1,005 1,386
--------- ---------
$ 591 $ 3,678
--------- ---------
--------- ---------
</TABLE>
Other obligations include a $450,000 grant from the State of Delaware which
will be forgiven based on the satisfaction of certain employment and operational
requirements. At June 30, 1998, the Company has not met those objectives and,
accordingly, has reflected this amount as an obligation.
Aggregate principal payments applicable to long-term debt for the next five
fiscal years are as follows: 1999-$1,386,000; 2000-$341,000; 2001-$331,000;
2002-$307,000; 2003-$307,000; and 2004 and after-- $2,392,000.
F-62
<PAGE>
PATS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - DEBT AND LINES OF CREDIT (CONTINUED)
CREDIT ARRANGEMENTS
As of June 30, 1998, the Company had a $3,000,000 borrowing facility with a
bank that carried an interest rate of prime rate plus 25 basis points. On
October 5, 1998, the Company increased its credit facility by $2,000,000. The
facility requires an annual commitment fee of .25%. Certain of the Company's
equipment and inventories are pledged as collateral for the outstanding debt of
the Company.
NOTE 7 - OPERATING LEASES AND RELATED PARTY TRANSACTIONS
The Company is a counterparty to a non-cancelable lease of office space and
manufacturing facilities in Columbia, Maryland from a partnership in which two
stockholders of the Company have a financial interest. The lease extends through
June 2007, with an annual base rent amount of $405,000 and a CPI based
escalator. The Company is responsible for maintenance, insurance, and real
estate tax expense.
The Company has a land lease for its facility in Georgetown, Delaware. This
non-cancelable lease expires through December 31, 2041, with annual rental
approximating $6,000. The lessor is not a related party.
The total minimum rental commitment at June 30, 1998, under these leases is
$3,903,000 which is due as follows (amounts in thousands):
<TABLE>
<CAPTION>
SUSSEX
COLUMBIA, COUNTY,
MARYLAND DELAWARE
----------- -----------
<S> <C> <C>
Year ending June 30,
1999..................................................................................... $ 405 $ 6
2000..................................................................................... 405 6
2001..................................................................................... 405 6
2002..................................................................................... 405 6
2003..................................................................................... 405 6
2004 through 2007........................................................................ 1,620 24
After 2007............................................................................... -- 204
----------- -----
$ 3,645 $ 258
----------- -----
----------- -----
</TABLE>
NOTE 8 - COMMON STOCK AND EMPLOYEE STOCK PLAN
During 1997 and 1998, the Company's Board of Directors authorized the
purchase of 400 and 510 shares of the Company stock at $1,000 and $1,535 per
share, respectively. The purchases were acquired from certain existing and
former stockholders at prices believed to be fair value.
The Company has an Employee Stock Benefit Plan for employees to which
discretionary contributions are made from time to time. During 1997, the Board
of Directors authorized the issuance of 784 shares to this plan at a value of
$332 per share determined by an independent appraiser.
F-63
<PAGE>
PATS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - INCOME TAXES
The provision for income taxes is as follows (amounts in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Current income taxes
Federal...................................................................................... $ 398 $ 258
State........................................................................................ 86 56
--------- ---------
484 314
Deferred income taxes (benefit)................................................................ 298 (303)
--------- ---------
$ 782 $ 11
--------- ---------
--------- ---------
</TABLE>
The effective rate was 39.6% and 3.2% in 1997 and 1998, respectively. A
reconciliation of this rate to the U.S. Federal income tax rate is as follows
(dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------------------
<S> <C> <C> <C> <C>
1997 1998
% OF PRETAX % OF PRETAX
------------------------ ------------------------
<CAPTION>
AMOUNT INCOME AMOUNT INCOME
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Computed expected tax expense............................................... $ 692 35.0% $ 116 35.0%
State income taxes, net of Federal income tax benefit....................... 90 4.6 15 4.6
Reduction of valuation allowance............................................ -- 0.0 (120) (36.4)
----- --- ----- -----
$ 782 39.6% $ 11 3.2%
----- --- ----- -----
----- --- ----- -----
</TABLE>
The significant components of deferred income taxes are temporary
differences arising from the following (amounts in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred income tax assets (liabilities)
Accrued vacation............................................................................. $ 107 $ 132
Depreciation................................................................................. (198) 101
Research and development costs............................................................... 798 777
Research and development credits............................................................. 900 780
--------- ---------
Total.................................................................................... 1,607 1,790
Valuation allowance............................................................................ (900) (780)
--------- ---------
Deferred income tax assets............................................................... $ 707 $ 1,010
--------- ---------
--------- ---------
</TABLE>
The reduction in the valuation allowance relates to the utilization of a
portion of research and development credits.
NOTE 10 - EMPLOYEE BENEFIT PLANS
The Company has a savings and retirement plan which qualifies under Section
401(k) of the Internal Revenue Code in which all full-time employees are
eligible to participate. In accordance with the terms of
F-64
<PAGE>
PATS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - EMPLOYEE BENEFIT PLANS (CONTINUED)
the plan, employees may elect to contribute up to 15% of their annual
compensation to the plan, subject to certain limitations. The Board of Directors
may elect to declare a discretionary matching contribution to the Plan of 50% of
all contributions made up to 6% of each employee's salary. No matching
contributions were made by the Company for 1997 or 1998.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Lawsuits and claims are filed from time to time in the ordinary course of
business. For all outstanding claims, management, in consultation with legal
counsel, is of the opinion that the outcome of such matters will not have a
material effect on the financial position of the Company.
NOTE 12 - SUBSEQUENT EVENT
In January 1999, 100% of Company's shares were acquired by DeCrane Aircraft
Holdings, Inc. for a purchase price of $41.5 million (including the assumption
of debt), subject to adjustments for changes to its net working capital, and
reserves for certain environmental and other indemnities made by the Company's
shareholders.
F-65
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors of
PPI Holdings, Inc.
Wichita, Kansas
We have audited the accompanying consolidated balance sheets of PPI
Holdings, Inc. and Subsidiary as of December 31, 1997 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
period from June 12, 1997 to December 31, 1997 and the year ended December 31,
1998. We have also audited the statements of income, stockholders' equity, and
cash flows of Precision Pattern, Inc. (the predecessor to PPI Holdings, Inc.)
for the year ended December 31, 1996 and the period from January 1, 1997 to June
11, 1997. 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 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. 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 provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of PPI Holdings,
Inc. and Subsidiary as of December 31, 1997 and 1998, the results of its
operations and its cash flows for the period from June 12, 1997 to December 31,
1997 and the year ended December 31, 1998, and the results of operations and
cash flows of Precision Pattern Inc. for the year ended December 31, 1996 and
the period from January 1, 1997 to June 11, 1997 in conformity with generally
accepted accounting principles.
BAIRD, KURTZ & DOBSON
Wichita, Kansas
January 28, 1999
F-66
<PAGE>
PPI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
(SUCCESSOR)
ASSETS
Current assets
Cash............................................................................................ $ 193 $ 1,872
Accounts receivable, less allowance for doubtful accounts of $54 and $340 for 1997 and 1998,
respectively.................................................................................. 4,847 6,230
Inventories..................................................................................... 3,203 4,719
Deposits........................................................................................ 284 235
Prepaid expenses and other...................................................................... 28 12
--------- ---------
Total current assets.......................................................................... 8,555 13,068
--------- ---------
Property and equipment, net....................................................................... 1,065 1,184
Goodwill net of accumulated amortization of $69 and $393 for 1997 and 1998, respectively.......... 6,332 6,008
Other intangible assets, net of accumulated amortization of $28 and $77 for 1997 and 1998,
respectively.................................................................................... 219 170
--------- ---------
Total assets................................................................................ $ 16,171 $ 20,430
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................................................................................ $ 1,032 $ 1,157
Revolving credit agreement...................................................................... 626 --
Current maturities of long-term debt............................................................ 1,050 1,500
Accrued warranties.............................................................................. 300 300
Accrued profit sharing.......................................................................... 348 587
Accrued employee compensation................................................................... 360 271
Other accrued liabilities....................................................................... 381 445
--------- ---------
Total current liabilities..................................................................... 4,097 4,260
--------- ---------
Long-term debt.................................................................................... 8,850 6,050
--------- ---------
Stockholders' equity
Common stock, $1 stated value; authorized 10,000,000 shares; issued and outstanding 1,000,000
shares........................................................................................ 1,000 1,000
Retained earnings............................................................................... 2,224 9,120
--------- ---------
Total stockholders' equity.................................................................... 3,224 10,120
--------- ---------
Total liabilities and stockholders' equity.................................................. $ 16,171 $ 20,430
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-67
<PAGE>
PPI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER JANUARY 1, JUNE 12, DECEMBER
31, 1996 1997 TO JUNE 1997 TO 31, 1998
----------- 11, 1997 DECEMBER -----------
------------- 31, 1997
(PREDECESSOR) ----------- (SUCCESSOR)
(PREDECESSOR)
(SUCCESSOR)
<S> <C> <C> <C> <C>
Net sales...................................... $ 17,665 $ 10,400 $ 15,102 $ 37,714
Cost of goods sold
Direct material.............................. 4,942 2,837 3,541 7,353
Direct labor................................. 4,125 2,403 3,283 7,534
Manufacturing expenses....................... 4,645 2,059 3,407 7,742
Outside processing........................... 546 376 912 1,747
----------- ------------- ----------- -----------
14,258 7,675 11,143 24,376
----------- ------------- ----------- -----------
Gross profit................................... 3,407 2,725 3,959 13,338
----------- ------------- ----------- -----------
Operating expenses
General and administrative................... 1,446 667 821 2,102
Engineering.................................. 322 140 226 489
Bad debt provision........................... 75 -- -- --
----------- ------------- ----------- -----------
Income from operations......................... 1,564 1,918 2,912 10,747
----------- ------------- ----------- -----------
Other income (expense)
Interest income.............................. 94 50 10 --
Interest expense............................. -- -- (732) (1,051)
Other revenue................................ 8 -- 39 14
Gain on sale of asset........................ 42 -- 1 --
Other income (expense)....................... (13) 8 (6) (19)
----------- ------------- ----------- -----------
131 58 (688) (1,056)
----------- ------------- ----------- -----------
Net income..................................... $ 1,695 $ 1,976 $ 2,224 $ 9,691
----------- ------------- ----------- -----------
----------- ------------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-68
<PAGE>
PPI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
PREDECESSOR:
Balance, December 31, 1995.................................................. $ 40 $ 1 $ 7,311 $ 7,352
Net income.................................................................. -- -- 1,695 1,695
Dividend on common stock
$220 per share............................................................ -- -- (880) (880)
----------- ----- ----------- ---------
Balance, December 31, 1996.................................................. 40 1 8,126 8,167
Net Income.................................................................. -- -- 1,976 1,976
Dividend on common stock
$862.50 per share......................................................... -- -- (3,450) (3,450)
----------- ----- ----------- ---------
Balance, June 11, 1997...................................................... $ 40 $ 1 $ 6,652 $ 6,693
----------- ----- ----------- ---------
----------- ----- ----------- ---------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
SUCCESSOR:
Balance, June 12, 1997...................................................... $ 1,000 -- $ -- $ 1,000
Net income.................................................................. -- -- 2,224 2,224
----------- ----- ----------- ---------
Balance, December 31, 1997.................................................. 1,000 -- 2,224 3,224
Net income.................................................................. -- -- 9,691 9,691
Dividends on common stock $2.80 per share................................... -- -- (2,795) (2,795)
----------- ----- ----------- ---------
Balance, December 31, 1998.................................................. $ 1,000 -- $ 9,120 $ 10,120
----------- ----- ----------- ---------
----------- ----- ----------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-69
<PAGE>
PPI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 31, JANUARY 1, JUNE 12, 1997 DECEMBER 31,
1996 1997 TO TO 1998
--------------- JUNE 11, 1997 DECEMBER 31, ---------------
------------- 1997
(PREDECESSOR) --------------- (SUCCESSOR)
(PREDECESSOR)
(SUCCESSOR)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income........................ $ 1,695 $ 1,976 $ 2,224 $ 9,691
Items not requiring (providing)
cash:
Depreciation and amortization... 181 79 304 633
Gain on sale of property and
equipment..................... (42) -- (1) --
Changes in:
Accounts receivable............. (1,672) 1,048 (2,108) (1,383)
Inventories..................... (318) (43) (133) (1,515)
Prepaid expenses and other...... 35 51 (359) 65
Accounts payable and accrued
expenses...................... 94 (158) 1,020 338
------- ------------- ------- -------
Net cash provided by (used in)
operating activities........ (27) 2,953 947 7,829
------- ------------- ------- -------
Cash flows from investing activities
Purchase of property and
equipment....................... (151) (251) (96) (379)
Proceeds from sale of property and
equipment....................... 298 -- 17 --
Payments for organizational
costs........................... -- -- (247) --
Purchase of subsidiary............ -- -- (8,954) --
------- ------------- ------- -------
Net cash provided by (used in)
investing activities........ 147 (251) (9,280) (379)
------- ------------- ------- -------
Cash flows from financing activities
Net borrowings under revolving
credit agreement................ -- -- 626 (626)
Proceeds from issuance of
long-term debt.................. -- -- 7,500 3,000
Principal payments on long-term
debt............................ -- -- (600) (5,350)
Dividends paid.................... (880) (3,450) -- (2,795)
------- ------------- ------- -------
Net cash provided by (used in)
financing activities........ (880) (3,450) 7,526 (5,771)
------- ------------- ------- -------
Increase (decrease) in cash......... (760) (748) (807) 1,679
Cash, beginning of period........... 2,727 1,967 1,000 193
------- ------------- ------- -------
Cash, end of period................. $ 1,967 $ 1,219 $ 193 $ 1,872
------- ------------- ------- -------
------- ------------- ------- -------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-70
<PAGE>
PPI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
PPI Holdings, Inc. was incorporated under Kansas law on February 14, 1997,
and serves as the holding company for Precision Pattern, Inc. The Company began
operation on June 12, 1997, with the purchase of Precision Pattern, Inc. (Note
2)
The Company's revenues are predominately earned from sales of aircraft
interior components to aircraft manufacturers in Kansas. The Company extends
unsecured credit to customers, with credit extended to one customer exceeding
59% and 71% of accounts receivable at December 31, 1997 and 1998 respectively.
Over 97% of year end receivables are concentrated among three customers at
December 31, 1997 and 1998.
PRINCIPALS OF CONSOLIDATION
As a result of the business combination (Note 2) on June 11, 1997, the
Company has presented its financial position, results of operations, changes in
stockholders' equity and cash flows on a predecessor/ successor basis.
PPI Holdings, Inc. is a holding company, which has no material operations or
assets separate from its investment in Precision Pattern, Inc. The consolidated
financial statements as of December 31, 1997 and 1998 and for the period from
June 12, 1997 to December 31, 1997 and for the year ended December 31, 1998
include the accounts of PPI Holdings, Inc. and its subsidiary. The consolidated
financial statements of the predecessor include the accounts of Precision
Pattern, Inc. for the year ended December 31, 1996 and for the period from
January 1, 1997 to June 11, 1997. All significant intercompany accounts and
transactions have been eliminated.
USE OF ESTIMATES
The preparation 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
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.
INVENTORY PRICING
Inventories are stated at lower of average cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. The assets are depreciated over
their estimated useful
lives using straight-line and accelerated methods.
INTANGIBLE ASSETS
The Company is amortizing deferred charges consisting of loan costs, lease
costs and a noncompete agreement utilizing the straight-line method over five to
ten years. Goodwill is being amortized over twenty years also using the
straight-line method.
WARRANTY OBLIGATIONS
The Company generally provides its customers with a one to two year warranty
from the date of purchase. Estimated warranty costs are accrued at the time of
sale.
INCOME TAXES
The Company elected to have its income taxed as an S corporation under
provisions of the Internal Revenue Code; therefore, taxable income or loss is
reported to the individual stockholders for inclusion in their tax returns, and
no provision for Federal and state income tax is included in these statements.
F-71
<PAGE>
PPI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
BUY/SELL AGREEMENT
On April 21, 1997, the Company and its shareholders entered into a buy/sell
agreement which restricts any sale or other transfer of shares of the Company.
The purpose of the agreement is to insure that all the shares of stock shall be
offered for sale to the Company and the other shareholders before disposition of
such shares to any other person or entity.
NOTE 2 - BUSINESS COMBINATION
On June 11, 1997, PPI Holdings, Inc. acquired 100% of the outstanding stock
of Precision Pattern, Inc. which consisted of 4,000 shares for $13,172,706 in
cash. This transaction was accounted for using the purchase method by recording
the assets and liabilities of the acquiree at their estimated market values at
the acquisition date. PPI Holdings, Inc. is owned by several members of the
Company's management. As part of the purchase transaction, Precision Pattern,
Inc. borrowed funds from a bank to fund the acquisition.
NOTE 3 - INVENTORIES
Inventories at December 31, 1997 and 1998, were as follows (amounts in
thousands):
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Raw material............................................................ $ 2,268 $ 3,205
Work in process......................................................... 1,535 2,114
------------ ------------
3,803 5,319
Less reserve for obsolesce.............................................. 600 600
------------ ------------
$ 3,203 $ 4,719
------------ ------------
------------ ------------
</TABLE>
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1998, were as follows
(amounts in thousands):
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Leasehold improvements........................................................... $ 1,065 $ 563
Machinery and equipment.......................................................... 1,535 612
Furniture and fixtures........................................................... 827 343
Vehicles......................................................................... 138 16
--------- ---------
3,565 1,534
Less accumulated depreciation.................................................... 2,500 350
--------- ---------
$ 1,065 $ 1,184
--------- ---------
--------- ---------
</TABLE>
NOTE 5 - PROFIT SHARING PLAN
The Company has a profit sharing plan covering substantially all employees.
The Company's contribution to the Plan is 6% of the compensation of all
participants under the Plan determined for the Company's taxable year for which
it makes the contribution. The Company must have current or accumulated net
profits exceeding 5% of the net sales in order to make the contributions.
Participant's interest is vested over a period of three to seven years of
service. The Company expensed contributions for the year ended December 31,
1996, the periods from January 1, 1997 to June 11, 1997, June 12, 1997 to
December 31, 1997 and the year ended December 31, 1998, in the amount of
$283,500, $141,352, $347,620 and $587,036 , respectively. Employees also have
the option to make elective deferrals to the Plan up to the limits set by the
Internal Revenue Service.
NOTE 6 - REVOLVING CREDIT AGREEMENT
At December 31, 1997 and 1998, the Company had $0 and $625,821 outstanding
borrowings under a $5,000,000 revolving credit agreement. The agreement is
secured by goods, equipment, accounts, inventory,
F-72
<PAGE>
PPI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - REVOLVING CREDIT AGREEMENT (CONTINUED)
instruments, documents, chattel paper, general intangibles and other personal
property of the Company. Interest is calculated at prime rate plus various
amounts up to 3/4% and is payable monthly. Payments on principal are made daily,
as cash is available, from a lock box maintained by the lender. Final maturity
is June 12, 2002.
NOTE 7 - LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Note payable, bank; due June 12, 2002, payable in increasing quarterly
installments including interest at prime rate plus various amounts up to 1%
secured by goods, equipment, accounts, inventory, instruments, documents,
chattel paper, general intangibles and other personal property of the Company
and its subsidiary............................................................. $ 6,900 $ 4,550
Note payable, bank; payable in quarterly installments of $100,000 with the
balance due June 12, 2002. The note bears interest at prime plus 1% and is
secured by goods, equipment, accounts, inventory, instruments, documents,
chattel paper, general intangibles and other personal property of the Company
and its subsidiary............................................................. -- 3,000
Note payable, other; due September 12, 2010, payable in quarterly installments of
$150,000 beginning on September 12, 2005. Interest is accrued on the unpaid
portion of the note at 15% and is payable in bi-annual installments. None of
the Company's assets are pledged as collateral on this note and it is
subordinate to the bank note. As part of the purchase and note agreement,
dividends are restricted to amounts necessary to cover income taxes of the
shareholders on income from the Company. This restriction ended when the note
was retired in 1998............................................................ 3,000 --
--------- ---------
9,900 7,550
Less current maturities.......................................................... 1,050 1,500
--------- ---------
$ 8,850 $ 6,050
--------- ---------
--------- ---------
</TABLE>
Aggregate annual maturities of long-term debt at December 31, 1998 are (amounts
in thousands):
<TABLE>
<S> <C>
1999..................................................................... $ 1,500
2000..................................................................... 1,550
2001..................................................................... 1,600
2002..................................................................... 2,900
---------
7,550
Less current maturities.................................................. 1,500
---------
Noncurrent portion....................................................... $ 6,050
---------
---------
</TABLE>
NOTE 8 - SIGNIFICANT ESTIMATES AND CONCENTRATION
Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerabilities due to certain concentrations.
Those matters include the following:
ALLOWANCE FOR DOUBTFUL ACCOUNTS
An allowance for doubtful accounts has been established based on
management's estimate of the uncollectible portion. However, actual losses may
be materially different than the estimated amount.
F-73
<PAGE>
PPI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - SIGNIFICANT ESTIMATES AND CONCENTRATION (CONTINUED)
RESERVE FOR OBSOLETE INVENTORY
The Company owns a significant amount of raw materials which were not used
in production during the year. A reserve for obsolete inventory has been
established for the estimated amount that is obsolete; however, actual losses
may be materially different than the estimated amount.
ACCRUED WARRANTIES
Each year, the Company does a significant amount of rework related to the
satisfaction of warranties. An amount has been included in accrued expenses for
estimated warranty expense related to current year sales; however, the actual
expenses to be incurred may be materially different than the estimated amounts
which have been accrued.
MAJOR CUSTOMERS
The Company sold approximately 49% and 35% in 1996, 56% and 35% from January
1, 1997 to June 11, 1997, 56% and 35% from June 12, 1997 to December 31, 1997
and 66% and 30% in 1998 of its primary product to two customers. There are a
limited number of buyers of the Company's products.
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company rents its business facility from a property rental company which
is owned, in part, by one of the shareholders of the Company. For the year ended
December 31, 1996, the periods from January 1, 1997 to June 11, 1997, June 12,
1997 to December 31, 1997 and the year ended December 31, 1998, the Company made
payments totaling $250,000, $139,088, $174,950, and $355,500, respectively, for
rent to the related rental company.
NOTE 10 - ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1997 1998
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
ADDITIONAL CASH PAYMENT INFORMATION
Interest paid........................................................... $ 669 $ 987
ADDITIONAL INVESTING AND FINANCING ACTIVITIES
Long-term debt incurred for purchase of subsidiary...................... $ 3,000 $ --
</TABLE>
NOTE 11 - YEAR 2000 ISSUE
Like all entities, the Company is exposed to risks associated with the Year
2000 Issue, which affects computer software and hardware; transactions with
customers, vendors and other entities; and equipment dependent on microchips.
The Company has begun but not yet completed the process of identifying and
remediating potential Year 2000 problems. It is not possible for any entity to
guarantee the results of its own remediation efforts or to accurately predict
the impact of the Year 2000 Issue on third parties with which the Company does
business. If remediation efforts of the Company or third parties with which it
does business are not successful, the Year 2000 problem could have negative
effects on the Company's financial condition and results of operations in the
near term.
NOTE 12 - SUBSEQUENT EVENT
In March 1999, the shareholders of the Company signed a definitive agreement
to sell all of the outstanding stock of the Company. The shareholders expect to
complete the sale during the second quarter of 1999.
F-74
<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
Summary Pro Forma Consolidated Financial Data............................. 8
Summary Historical Consolidated Financial Data............................ 10
Risk Factors.............................................................. 12
Recent Developments....................................................... 19
Use of Proceeds........................................................... 21
Capitalization............................................................ 22
Unaudited Pro Forma Consolidated Financial Data........................... 23
Selected Consolidated Financial Data...................................... 31
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 33
Business.................................................................. 40
Management................................................................ 54
Security Ownership of Certain Beneficial Owners and Management............ 59
Related Party Transactions................................................ 61
Description of Bank Credit Facility....................................... 63
Description of Notes...................................................... 65
The Initial Offering...................................................... 97
The Exchange Offer........................................................ 97
Federal Income Tax Consequences........................................... 103
Plan of Distribution...................................................... 103
Legal Matters............................................................. 103
Experts................................................................... 104
Index to Financial Statements............................................. F-1
</TABLE>
DeCrane Aircraft Holdings, Inc.
OFFER TO EXCHANGE
12% SERIES A SENIOR SUBORDINATED NOTES DUE 2008 FOR
12% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
---------------------
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 notes, and the concurrent registration of the warrants issued as part of the
units in the initial offering.
<TABLE>
<CAPTION>
ITEM AMOUNT
- ------------------------------------------------------------------------------------------------------------- ---------
<S> <C>
SEC Registration Fee......................................................................................... $ 27,800
Blue Sky Filing Fees and Expenses............................................................................
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 certificates of incorporation of DeCrane Aircraft and DeCrane Holdings
each 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:
- for any breach of such director's duty of loyalty to the company or its
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under the Delaware statutory provision making directors personally liable,
under a negligence standard, for unlawful dividends or unlawful stock
purchases or redemptions; or
- for any transaction from which the director derived an improper personal
benefit.
As a result of this provision, the ability of either company, 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
Aircraft and DeCrane Holdings each 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.
DeCrane Aircraft also maintains directors' and officers' liability
insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(1) Pursuant to a Securities Purchase Agreement dated February 9, 1996 among
DeCrane Aircraft, R.G. MacDonald, Charles Becker, Robert Rankin and John R.
Hinson, DeCrane Aircraft sold 75,000 shares of Series C preferred stock for a
purchase price of $1.50 per share. The sale of these securities was exempt from
registration pursuant to Section 4(2) of the Securities Act.
(2) Pursuant to a Securities Purchase Agreement dated as of February 20,
1996 between the Company and Nassau, DeCrane Aircraft issued for an aggregate
purchase price of $6.5 million: 2,000,000 shares of
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES (CONTINUED)
Series D Preferred Stock, and warrants to purchase 194,618 shares of common
stock. The issuance of these securities was exempt from registration pursuant to
Section 4(2) of the Securities Act.
(3) Pursuant to a Securities Purchase Agreement dated September 18, 1996
among DeCrane Aircraft, Nassau and Electra, DeCrane Aircraft sold $2.0 million
aggregate principal amount of 15% convertible notes and 49,079 warrants to
purchase common stock, for a purchase price of $3.0 million, and 750,000 shares
of Series E Preferred Stock and 49,079 warrants to purchase common stock, for a
purchase price of $3.0 million. The issuance of such securities was exempt from
registration under Section 4(2) of the Securities Act.
(4) Pursuant to an Amended and Restated Credit Agreement dated as of
September 18, 1996 among DeCrane Aircraft, ING (U.S.) Capital Corporation and
Provident Bank, DeCrane Aircraft issued to 70,892 warrants to purchase Common
Stock as additional consideration for amendments to our then-existing senior
credit facility. The issuance of these securities was exempt from registration
pursuant to Section 4(2) of the Securities Act.
(5) The recapitalization DeCrane Aircraft conducted as of April 16, 1997
provided for, among other things: the conversion of all 6,847,705 shares of
issued and outstanding cumulative convertible preferred stock into 1,941,804
shares of common stock; the cashless exercise and conversion of all 52,784
convertible preferred stock warrants and 9,355 common stock warrants into a
total of 16,585 shares of common stock; and the cashless exercise of 508,497
mandatorily redeemable common stock warrants into a total of 507,708 shares of
common stock. In December 1997, DeCrane Aircraft issued an additional 16,918
shares of common stock to Electra and 33,825 shares to Nassau to correct a
disputed calculation regarding the number of shares that should have been issued
as part of the foregoing recapitalization in the conversions described above.
The issuance and conversion of such securities was exempt from registration
pursuant to Section 3(a)(9) of the Securities Act.
(6) As part of the DLJ acquisition financing, DeCrane Finance Co. issued
$100.0 million of senior subordinated increasing rate notes to DLJ Bridge
Finance, Inc. on August 27, 1998, 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. See "Recent Developments--The DLJ
Acquisition" in the prospectus. The issuance of such securities was exempt from
registration under Section 4(2) of the Securities Act.
(7) DeCrane Aircraft issued $100.0 million in aggregate principal amount of
12% senior subordinated notes due 2008 to the initial purchaser, Donaldson,
Lufkin & Jenrette Securities Corporation, paired in units with warrants for an
aggregate of 155,000 shares of common stock of DeCrane Holdings Co., for an
aggregate purchase price of $100.0 million. See "The Initial Offering" in the
prospectus. The issuance of such securities was exempt from registration under
Section 4(2) of the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------------------
<C> <S>
3.2.1 Certificate of Incorporation of DeCrane Aircraft Holdings, Inc. (successor by merger to Delight Acquisition
Co. and DAHX, Inc.)*
3.2.2 Bylaws of DeCrane Aircraft Holdings, Inc. (successor by merger to Delight Acquisition Co. and DAHX, 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, Inc.*
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 of Hollingsead International, Inc.*
3.10.2 Bylaws of Hollingsead International Inc.*
3.11.1 Articles of Incorporation of Tri-Star Electronics International, Inc.*
3.11.2 Bylaws of Tri-Star Electronics International, Inc.*
3.12.1 Articles of Incorporation of PATS, Inc.*
3.12.2 Bylaws of PATS, Inc.*
3.12.3 Amendment to Articles of PATS, Inc.*
3.12.4 Amendment to Bylaws of PATS, Inc.*
3.13.1 Articles of Incorporation of Flight Refueling, Inc.*
3.13.2 Bylaws of Flight Refueling, Inc.*
3.14.1 Articles of Incorporation of Patrick Aircraft Tank Systems, Inc.*
3.14.2 Bylaws of Patrick Aircraft Tank Systems, Inc.*
3.15.1 Articles of Incorporation of PATS Aircraft and Engineering Corporation*
3.15.2 Bylaws of PATS Aircraft and Engineering Corporation*
3.16.1 Articles of Incorporation of PATS Support, Inc.*
3.16.2 Bylaws of PATS Support, Inc.*
4.1 Indenture dated October 5, 1998 between DeCrane Aircraft and State Street Bank & Trust Company*
4.1.1 Supplemental Indenture dated January 22, 1999 among PATS, Inc. and its subsidiaries, the other guarantors
under the Indenture, DeCrane Aircraft and State Street Bank & Trust Company*
4.1.2 Draft Supplemental Indenture to be dated April 23, 1999 among PPI Holdings, Inc., Precision Pattern, Inc.,
the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank & Trust Company*
4.2 A/B Exchange Registration Rights Agreement among DeCrane Aircraft Holdings, Inc., the subsidiary guarantors,
and DLJ Securities Corporation*
4.5 Form of DeCrane 12% Senior Subordinated Notes due 2008*
5.1 Opinion of Spolin & Silverman (re legality)
10.2 Amended and Restated Investors' Agreement dated as of October 2, 1998*
10.5 Tax Sharing Agreement dated March 15, 1993 between DeCrane Aircraft and several subsidiaries and Hollingsead
International*
</TABLE>
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------------------
<C> <S>
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 Form of Subscription Agreement for DeCrane Holdings Co. common and preferred stock by certain members of
Global Technology Partners LLC*
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.*
10.10.1 First Amendment to Credit Agreement dated January 22, 1999*
10.10.2 Draft Amended and Restated Credit Agreement to be dated April 23, 1999
10.11 Lease between Botzler-Emery Associates Guilford Ten Limited Partnership and PATS, Inc.*
10.12 Lease among Continental Development Corporation, Tri-Star Electronics International, Inc., and Cory
Components, Inc. for real property in El Segundo, CA*
10.13 Lease among Kilroy Realty, L.P., Kilroy Realty Corporation and Hollingsead International for real property
in Garden Grove, California*
10.14 Lease between Sussex County, MD and PATS, Inc.*
10.15 General Terms Agreement dated July 5, 1995 between the Boeing Company and Cory Components, Number
6-5752-0002*
10.15.1 Special Business Provisions dated November 30, 1995 between the Boeing Company and Cory Components, Number
6-5752-0004*
10.15.2 Purchase Agreement 9423JC4548 between Boeing Defense & Space- Irving Co. and Cory Components, January 1,
1995 through December 31, 1999*
10.16 Purchase Agreement dated as of October 1, 1998 between Matsushita Electronic Industrial Co., Ltd. and Cory
Components Inc.*
10.17 1998 General Terms Agreement between the Boeing Company and Tri-Star Electronics International, Inc. dated
July 1, 1998, number BCA-6-5632-0032*
10.17.1 Special business provisions between the Boeing Company and Tri-Star Electronics International, Inc. dated
July 1, 1998, number STD-6-5632-0097*
10.18 General Terms Agreement between Boeing Company and PATS, Inc. dated February 17, 1998*
10.18.1 Special business provisions between the Boeing Company and PATS, Inc. dated February 17, 1998*
10.18.2 Letter Agreement dated January 15, 1999 between The Boeing Company and DeCrane Aircraft Holdings, Inc.*
12.1 DeCrane Aircraft Holdings, Inc. Earnings to Fixed Charges Ratio*
21.1 List of Subsidiaries of Registrant*
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Baird, Kurtz & Dobson
23.3 Consent of Spolin & Silverman LLP (included in Exhibit 5.1)*
24.1 Power of Attorney*
25 Statement of Eligibility and Qualification of State Street Bank & Trust Company, as trustee, under the
Indenture listed as Exhibit 4.1, on Form T-1.
27 Financial Data Schedule*
99.1 Form of Letter of Transmittal to Exchange Agent*
99.2 Form of Notice of Guaranteed Delivery*
</TABLE>
- ------------------------
* Previously filed.
(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.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrants hereby undertake:
- To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
- To include any prospectus required by section 10(a)(3) of the
Securities Act;
- To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the SEC pursuant to Rule
424(b) under the Securities Act if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
- To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
- 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.
- That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial
bona fide offering thereof.
- To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
- That prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), such reoffering prospectus will contain
the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the
applicable form.
- Every prospectus that is filed pursuant to the immediately preceding
paragraph, or that purports to meet the requirements of Section 10(a)(3)
of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act, each such post-effective amendment 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.
- To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement
when it became effective.
- Insofar as indemnification for liabilities arising under the Securities
Act, may be permitted to directors, officers and controlling persons of
each registrant pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the SEC, such
indemnification is
II-5
<PAGE>
ITEM 17. UNDERTAKINGS (CONTINUED)
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 securities being registered (other than the payment by
a registrant of expenses incurred or paid by a director, officer or
controlling person of a registrant in the successful defense of any
action, suit or proceeding), that 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.
II-6
<PAGE>
SIGNATURES
This registration statement, pursuant to the requirements of the Securities
Act of 1933 has been signed on its behalf by the undersigned, thereunto duly
authorized, in the State of California, on this 22nd day of April 1999.
<TABLE>
<S> <C> <C>
DECRANE AIRCRAFT HOLDINGS, INC.
By: /s/ R. JACK DECRANE
------------------------------------------
R. Jack DeCrane
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed 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
Thompson Dean Directors
R. JACK DECRANE
- ------------------------------ Chief Executive Officer April 22, 1999
R. Jack DeCrane and Director
*
- ------------------------------ Director
John F. Fort, III
*
- ------------------------------ Director
Dr. Robert J. Hermann
*
- ------------------------------ Director
Dr. Paul Kaminski
*
- ------------------------------ Director
Susan Schnabel
*
- ------------------------------ Director
Timothy J. White
Senior Vice President,
/s/ RICHARD J. KAPLAN Chief Financial Officer,
- ------------------------------ Secretary and Treasurer April 22, 1999
Richard J. Kaplan (principal accounting
officer)
</TABLE>
<TABLE>
<S> <C> <C> <C>
/s/ R. JACK DECRANE
--------------------------------------
R. Jack DeCrane April 22, 1999
*By: ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<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>
PREDECESSOR
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts............ $ 259 $ 68 $ 71(A) $ 19 $ 379
Reserve for excess, slow moving and
potentially obsolete material............ $ 1,154 $ 1,055 -- $ 116 $ 2,093
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts............ $ 379 $ 111 $ 174(B) $ 177 $ 487
Reserve for excess, slow moving and
potentially obsolete material............ $ 2,093 $ 1,374 $ 59(B) $ 162 $ 3,364
EIGHT MONTHS ENDED AUGUST 31, 1998
Allowance for doubtful accounts............ $ 487 $ 384 $ 32(B) $ 376 $ 527
Reserve for excess, slow moving and
potentially obsolete material............ $ 3,364 $ 760 $ 2,056(B) $ 311 $ 5,869
SUCCESSOR
FOUR MONTHS ENDED DECEMBER 31, 1998
Allowance for doubtful accounts............ $ 527(B) $ 243 -- $ 189 $ 581
Reserve for excess, slow moving and
potentially obsolete material............ $ 5,869(B) $ 285 -- $ 452 $ 5,702
</TABLE>
- --------------------------
<TABLE>
<S> <C> <C>
(A) Comprised of the following:
Effect of foreign currency translation $ (4)
Recovery of amounts previously written off 20
Attributable to companies acquired 55
---------
$ 71
---------
---------
(B) Attributable to companies acquired. Reflects
historical amounts used to determine the fair
values of net assets acquired.
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- --------- ----------------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
3.2.1 Certificate of Incorporation of DeCrane Aircraft Holdings, Inc. (successor by merger to Delight
Acquisition Co. and DAHX, Inc.)*
3.2.2 Bylaws of DeCrane Aircraft Holdings, Inc. (successor by merger to Delight Acquisition Co. and DAHX,
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, Inc.*
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 of Hollingsead International, Inc.*
3.10.2 Bylaws of Hollingsead International Inc.*
3.11.1 Articles of Incorporation of Tri-Star Electronics International, Inc.*
3.11.2 Bylaws of Tri-Star Electronics International, Inc.*
3.12.1 Articles of Incorporation of PATS, Inc.*
3.12.2 Bylaws of PATS, Inc.*
3.12.3 Amendment to Articles of PATS, Inc.*
3.12.4 Amendment to Bylaws of PATS, Inc.*
3.13.1 Articles of Incorporation of Flight Refueling, Inc.*
3.13.2 Bylaws of Flight Refueling, Inc.*
3.14.1 Articles of Incorporation of Patrick Aircraft Tank Systems, Inc.*
3.14.2 Bylaws of Patrick Aircraft Tank Systems, Inc.*
3.15.1 Articles of Incorporation of PATS Aircraft and Engineering Corporation*
3.15.2 Bylaws of PATS Aircraft and Engineering Corporation*
3.16.1 Articles of Incorporation of PATS Support, Inc.*
3.16.2 Bylaws of PATS Support, Inc.*
4.1 Indenture dated October 5, 1998 between DeCrane Aircraft and State Street Bank & Trust Company*
4.1.1 Supplemental Indenture dated January 22, 1999 among PATS, Inc. and its subsidiaries, the other
guarantors under the Indenture, and State Street Bank & Trust Company*
4.1.2 Draft Supplemental Indenture to be dated April 23, 1999 among PPI Holdings, Inc., Precision Pattern,
Inc., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank & Trust
Company*
4.2 A/B Exchange Registration Rights Agreement among DeCrane Aircraft Holdings, Inc., the subsidiary
guarantors, and DLJ Securities Corporation*
4.5 Form of DeCrane 12% Senior Subordinated Notes due 2008*
5.1 Opinion of Spolin & Silverman (re legality)
10.2 Amended and Restated Investors' Agreement dated as of October 2, 1998*
10.5 Tax Sharing Agreement dated March 15, 1993 between DeCrane Aircraft and several subsidiaries and
Hollingsead International*
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 Form of Subscription Agreement for DeCrane Holdings Co. common and preferred stock by certain members
of Global Technology Partners LLC*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- --------- ----------------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
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.*
10.10.1 First Amendment to Credit Agreement dated January 22, 1999*
10.10.2 Draft Amended and Restated Credit Agreement to be dated April 23, 1999
10.11 Lease between Botzler-Emery Associates Guilford Ten Limited Partnership and PATS, Inc.*
10.12 Lease among Continental Development Corporation, Tri-Star Electronics International, Inc., and Cory
Components, Inc. for real property in El Segundo, CA*
10.13 Lease among Kilroy Realty, L.P., Kilroy Realty Corporation and Hollingsead International for real
property in Garden Grove, California*
10.14 Lease between Sussex County, MD and PATS, Inc.*
10.15 General Terms Agreement dated July 5, 1995 between the Boeing Company and Cory Components, Number
6-5752-0002*
10.15.1 Special Business Provisions dated November 30, 1995 between the Boeing Company and Cory Components,
Number 6-5752-0004*
10.15.2 Purchase Agreement 9423JC4548 between Boeing Defense & Space- Irving Co. and Cory Components, January
1, 1995 through December 31, 1999*
10.16 Purchase Agreement dated as of October 1, 1998 between Matsushita Electronic Industrial Co., Ltd. and
Cory Components Inc.*
10.17 1998 General Terms Agreement between the Boeing Company and Tri-Star Electronics International, Inc.
dated July 1, 1998, number BCA-6-5632-0032*
10.17.1 Special business provisions between the Boeing Company and Tri-Star Electronics International, Inc.
dated July 1, 1998, number STD-6-5632-0097*
10.18 General Terms Agreement between Boeing Company and PATS, Inc. dated February 17, 1998*
10.18.1 Special business provisions between the Boeing Company and PATS, Inc. dated February 17, 1998*
10.18.2 Letter Agreement dated January 15, 1999 between The Boeing Company and DeCrane Aircraft Holdings,
Inc.*
12.1 DeCrane Aircraft Holdings, Inc. Earnings to Fixed Charges Ratio*
21.1 List of Subsidiaries of Registrant*
23.1 Consent of PricewaterhouseCoopers LLP*
23.2 Consent of Baird, Kurtz & Dobson
23.3 Consent of Spolin & Silverman LLP (included in Exhibit 5.1)*
25 Statement of Eligibility and Qualification of State Street Bank & Trust Company, as trustee, under
the Indenture listed as Exhibit 4.1, on Form T-1.*
27 Financial Data Schedule*
99.1 Form of Letter of Transmittal to Exchange Agent*
99.2 Form of Notice of Guaranteed Delivery*
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
[ALTERNATE COVER FOR MARKET-MAKING PROSPECTUS]
PROSPECTUS SUBJECT TO COMPLETION, DATED APRIL , 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 AIRCRAFT HOLDINGS, INC.
-----------
12% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
We issued the notes in exchange for our old 12% Series A Senior Subordinated
Notes due 2008. The notes are identical to the old notes, except that certain
transfer restrictions and registration rights relating to the old notes do not
apply to the new notes.
Interest on the notes is payable on March 30 and September 30 of each year,
beginning March 30, 1999. We have the right to redeem any new notes at any time
beginning September 30, 2003 at the redemption prices set forth on page [ ],
plus accrued interest. In addition, before September 30, 2001, we may redeem up
to 35% of the notes at a redemption price of 112% of their principal amount,
plus interest, using proceeds from certain sales of our stock; PROVIDED that at
least 65% of the principal amount of notes ever issued under the indenture
remains outstanding immediately after such redemption. We will also have the
right to redeem, and you will have the right to require us to purchase, the
notes upon the occurrence of certain change of control events, at the prices set
forth on page [ ].
The notes rank junior to our senior indebtedness and secured debt, including
the debt owed under our bank credit facility. The notes rank equally with any
future unsecured, senior subordinated debt. The notes are unconditionally
guaranteed on a senior subordinated basis by all of our existing wholly-owned
domestic subsidiaries, and rank junior to such grantors' senior and unsecured
debt and equally with their future unsecured, senior debt. The notes will
effectively rank junior to all liabilities of our subsidiaries that are not
guarantors. As of December 31, 1998, on a pro forma basis, DeCrane Aircraft and
its guarantor subsidiaries would have outstanding approximately $ million of
senior indebtedness, and the non-guarantor subsidiaries would have had
approximately $ million of outstanding liabilities, including trade payables.
INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE
[ ].
This prospectus is to be used by Donaldson, Lufkin & Jenrette Securities
Corporation in connection with offers and sales in market-making transactions at
negotiated prices related to prevailing market prices. We do not intend to list
the notes on any securities exchange. DLJ Securities Corporation has advised us
that it intends to make a market in the notes; however, it is not obligated to
do so and may stop at any time. We will not receive the proceeds of the sale of
the notes but will bear the expenses of registration.
------------------------
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.
DONALDSON, LUFKIN & JENRETTE
The date of this Prospectus is , 1999
<PAGE>
[ALTERNATE RISK FACTOR FOR MARKET-MAKING PROSPECTUS]
TRADING MARKET FOR THE NOTES--WE CANNOT ASSURE YOU THAT A MARKET FOR THE NOTES
WILL DEVELOP.
There is no existing trading market for the notes. We cannot assure you that
any market for the notes will develop, or about your ability to sell the notes
or the price at which you may be able to sell them. If such a market were to
develop, the notes could trade at prices that may be higher or lower than their
initial offering price. That trading price could depend on many factors,
including prevailing interest rates, our operating results and the market for
similar securities. We have also been advised by DLJ Securities Corporation
that, subject to applicable laws and regulations, DLJ Securities Corporation
currently intends to make a market in the new notes following completion of the
exchange offer. However, DLJ Securities Corporation is not obligated to do so
and it may discontinue or interrupt any such market-making at any time without
notice.
DLJ Securities Corporation may be deemed to be our "affiliate" (as defined
in the Securities Act) and, as such, may be required to deliver a prospectus in
connection with its market-making activities in the notes. Pursuant to the
registration rights agreement we signed with DLJ Securities Corporation in
connection with the initial offering of the old notes, we have agreed to use our
best efforts to file and maintain a registration statement that would allow DLJ
Securities Corporation to engage in market-making transactions in the notes for
up to 90 days from the date on which we consummate the offer to exchange the
notes for the old notes. We have agreed to bear substantially all the costs and
expenses related to that registration.
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
USE OF PROCEEDS
This Prospectus is delivered in connection with the sale of the notes by DLJ
Securities Corporation in market-making transactions. We will not receive any of
the proceeds from such transactions.
<PAGE>
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
PLAN OF DISTRIBUTION
This prospectus is to be used by DLJ Securities Corporation in connection
with offers and sales of the new notes in market-making transactions effected
from time to time. DLJ Securities Corporation may act as a principal or agent
for one party when acting as principal or as agent for both parties, and may
receive compensation in the form of discounts and commissions, including from
both parties when it acts as agent for both. Those sales will be made at
prevailing market prices at the time of sale, at prices related thereto or at
negotiated prices.
DLJ Merchant Banking Partners II, L.P. and certain of its affiliates
beneficially own approximately 94% of the common stock of DeCrane Holdings.
Thompson Dean, Susan C. Schnabel and Timothy J. White, each of whom is a
principal of DLJ Merchant Banking, are members of the Board of Directors of
DeCrane Holdings and the issuer of the notes, DeCrane Aircraft. DLJ Capital
Funding, Inc. acted as syndication agent in connection with our bank credit
facility, for which it received certain customary fees and expenses. DLJ Bridge
Finance Inc. purchased the bridge notes which were refinanced by the initial
offering of old notes, for which it received customary fees and expenses. DLJ
Securities Corporation acted as dealer/manager in connection with the tender
offer in the DLJ acquisition, as arranger in connection with the bank credit
facility, and as the initial purchaser of the old notes, and is the financial
advisor to DeCrane Holdings and DeCrane Aircraft. See "Recent Developments--The
DLJ Acquisition." DLJ Merchant Banking, DLJ Capital Funding, Inc. and DLJ Bridge
Finance, Inc. are affiliates of DLJ Securities Corporation.
DLJ Securities Corporation has informed us that it does not intend to
confirm sales of the new notes to any accounts over which it exercises
discretionary authority without the prior specific written approval of such
transactions by the customer.
We have also been advised by DLJ Securities Corporation that, subject to
applicable laws and regulations, DLJ Securities Corporation currently intends to
make a market in the new notes following completion of the exchange offer.
However, DLJ Securities Corporation is not obligated to do so and it may
discontinue or interrupt any such market-making at any time without notice. Any
such market-making activity also will be subject to the limits imposed by the
Securities Act and the Securities Exchange Act of 1934. We cannot assure you
that any market for the notes will develop, or about your ability to sell their
new notes or the price at which you may be able to sell them. See "Risk
Factors--Trading market for the notes."
DLJ Securities Corporation has, from time to time, provided investment
banking and other financial advisory services to us, for which it has received
customary compensation, and will provide such services and financial advisory
services to us in the future. DLJ Securities Corporation was the initial
purchaser in the initial offering of the old notes and received an underwriting
discount of approximately $3.3 million in connection therewith. See "Certain
Relationships and Related Transactions."
We have entered into a registration rights agreement with DLJ Securities
Corporation regarding its use of this prospectus. Pursuant to such agreement, we
have agreed to bear all registration expenses incurred under that agreement, and
to indemnify DLJ Securities Corporation against certain liabilities, including
liabilities under the Securities Act.
<PAGE>
SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "SUPPLEMENTAL INDENTURE"), [to be] dated as
of April 23, 1999 among Precision Pattern, Inc., PPI Holdings, Inc. (each a
"GUARANTOR") and a subsidiary of DeCrane Aircraft Holdings, Inc. (or its
permitted successor), a Delaware corporation (the "ISSUER"), the other
Guarantors (as defined in the Indenture referred to herein) and State Street
Bank and Trust Company, as trustee under the Indenture referred to below (the
"TRUSTEE").
W I T N E S S E T H
WHEREAS, the Issuer has heretofore executed and delivered to the Trustee an
indenture (the "INDENTURE"), dated as of October 5, 1998 providing for the
issuance of an aggregate principal amount of up to $100.0 million of 12% Senior
Subordinated Notes due 2008 (the "NOTES");
WHEREAS, the Indenture provides that under certain circumstances each
Guarantor shall execute and deliver to the Trustee a supplemental indenture,
pursuant to which each Guarantor shall unconditionally guarantee all of the
Issuer's Obligations under the Notes and the Indenture on the terms and
conditions set forth herein (the "NOTE GUARANTEE"); and
WHEREAS, pursuant to Section 9.06 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, each
Guarantor and the Trustee mutually covenant and agree for the equal and ratable
benefit of the Holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. Each Guarantor hereby agrees as follows:
(a) Along with all Guarantors named in the Indenture, to jointly and
severally Guarantee to each Holder of a Note authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns, irrespective of the
validity and enforceability of the Indenture, the Notes or the obligations of
Issuer hereunder or thereunder, that:
(i) the principal of and interest on the Notes will be promptly
paid in full when due, whether at maturity, by acceleration, redemption or
otherwise, and interest on the overdue principal of and interest on the
Notes, if any, is lawful, and all other obligations of the Issuer to the
Holders or the Trustee hereunder or thereunder will be promptly paid in
full or performed, all in accordance with the terms hereof and thereof; and
(ii) in case of any extension of time of payment or renewal of
any Notes or any of such other obligations, that same will be promptly
paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at stated maturity, by acceleration or
otherwise. Failing payment when due of any amount so guaranteed or any
performance so
<PAGE>
guaranteed for whatever reason, the Guarantors shall be jointly and
severally obligated to pay the same immediately.
(b) The obligations hereunder shall be unconditional, irrespective of the
validity, regularity or enforceability of the Notes or the Indenture, the
absence of any action to enforce the same, any waiver or consent by any Holder
of the Notes with respect to any provisions hereof or thereof, the recovery of
any judgment against Issuer, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a guarantor.
(c) The following is hereby waived: diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or bankruptcy
of the Issuer, any right to require a proceeding first against the Issuer,
protest, notice and all demands whatsoever.
(d) This Note Guarantee shall not be discharged except by complete
performance of the obligations contained in the Notes and the Indenture.
(e) If any Holder or the Trustee is required by any court or otherwise to
return to the Issuer, the Guarantors, or any Custodian, trustee, liquidator or
other similar official acting in relation to either the Issuer or the
Guarantors, any amount paid by either to the Trustee or such Holder, this Note
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect.
(f) Each Guarantor shall not be entitled to any right of subrogation in
relation to the Holders in respect of any obligations guaranteed hereby until
payment in full of all obligations guaranteed hereby.
(g) As between the Guarantors, on the one hand, and the Holders and the
Trustee, on the other hand, (x) the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article 6 of the Indenture for the
purposes of this Note Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any declaration of acceleration of
such obligations as provided in Article 6 of the Indenture, such obligations
(whether or not due and payable) shall forthwith become due and payable by the
Guarantors for the purpose of this Note Guarantee.
(h) The Guarantors shall have the right to seek contribution from any
non-paying Guarantor so long as the exercise of such right does not impair the
rights of the Holders under the Guarantee.
(i) Pursuant to Section 11.03 of the Indenture, after giving effect to any
maximum amount and any other contingent and fixed liabilities that are relevant
under any applicable Bankruptcy or fraudulent conveyance laws, and after giving
effect to any collections from, rights to receive contribution from or payments
made by or on behalf of any other Guarantor in respect of the obligations of
such other Guarantor under Article 11 of the Indenture shall result in the
obligations of such Guarantor under its Note Guarantee not constituting a
fraudulent transfer or conveyance.
3. EXECUTION AND DELIVERY. Each Guarantor agrees that the Note
Guarantees shall remain in full force and effect notwithstanding any failure to
endorse on each Note a notation of such Note Guarantee.
2
<PAGE>
4. GUARANTOR MAY CONSOLIDATE ETC. ON CERTAIN TERMS.
(a) No Guarantor may consolidate with or merge with or into (whether or
not such Guarantor is the surviving Person), another corporation, Person or
entity whether or not affiliated with such Guarantor unless:
(i) subject to Section 5(a) hereof, the Person formed by or
surviving any such consolidation or merger (if other than such Guarantor)
assumes all the obligations of such Guarantor pursuant to a supplemental
indenture in form and substance reasonably satisfactory to the Trustee,
under the Notes, the Indenture and the Registration Rights Agreement;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default exists; and
(iii) Issuer would, at the time of such transaction and after giving
pro forma effect thereto and if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charger
Coverage Ratio test set forth in Section 4.09 of the Indenture by virtue of
Issuer's pro forma Cash Flow Coverage Ratio, immediately after giving
effect to such transaction, to incur at least $1.00 of additional
Indebtedness pursuant to the Cash Flow Coverage Ratio test set forth in
Section 4.07 of the Indenture;
PROVIDED THAT, the requirements of clause (iii) of this Section 4(a) will not
apply in the case of a consolidation with or merger with or into the Issuer or
another Guarantor.
(b) In case of any such consolidation, merger, sale or conveyance and upon
the assumption by the successor Person, by supplemental indenture executed and
delivered to the Trustee in the form of Exhibit E to the Indenture or otherwise
satisfactory in form to the Trustee, of the Note Guarantee and the due and
punctual performance of all of the covenants and conditions of the Indenture to
be performed by each Guarantor, such successor Person shall succeed to and be
substituted for each Guarantor with the same effect as if it had been named
herein as a Guarantor. All the Note Guarantees so issued shall in all respects
have the same legal rank and benefit under the Indenture as the Note Guarantees
theretofore and thereafter issued in accordance with the terms of the Indenture
as though all of such Note Guarantees had been issued at the date of the
execution hereof.
(c) Except as set forth in Articles 4 and 5 of the Indenture, and
notwithstanding clauses (a) and (b) above, nothing contained in the Indenture or
in any of the Notes shall prevent any consolidation or merger of a Guarantor
with or into the Issuer or another Guarantor, or shall prevent any sale or
conveyance of the property of a Guarantor as an entirety or substantially as an
entirety to the Issuer or another Guarantor.
5. RELEASES.
(a) In the event of a sale or other disposition of all of the assets of
any Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the capital stock of any Guarantor, such Guarantor (in the
event of a sale or other disposition, by way of such a merger, consolidation or
otherwise, of all of the capital stock of such Guarantor) or the corporation
acquiring the property (in the event of a sale or other disposition of all of
the assets of such Guarantor) will be released and relieved of any obligations
under its Note Guarantee;
3
<PAGE>
PROVIDED that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture, including without
limitation Section 4.10 of the Indenture. Upon delivery by the Issuer to the
Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that
such sale or other disposition was made by the Issuer in accordance with the
applicable provisions of the Indenture, including, without limitation, Section
4.10 of the Indenture, the Trustee shall execute any documents reasonably
required in order to evidence the release of any Guarantor from its obligations
under its Note Guarantee.
(b) Any Guarantor not released from its obligations under its Note
Guarantee shall remain liable for the full amount of principal of and interest
on the Notes and for the other obligations of any Guarantor under the Indenture
as provided in Article 11 of the Indenture.
6. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, incorporator, stockholder or agent of each Guarantor, as
such, shall have any liability for any obligations of the Issuer or any
Guarantor under the Notes, any Note Guarantees, the Indenture or this
Supplemental Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of the Notes by accepting a
Note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK
SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
8. COUNTERPARTS. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
9. EFFECT OF HEADINGS. The Section headings herein are for convenience
only and shall not affect the construction hereof.
10. THE TRUSTEE. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made solely by each Guarantor and the Issuer.
4
<PAGE>
SIGNATURES
Dated as of April ___, 1999
DECRANE AIRCRAFT HOLDINGS, INC.
BY:
----------------------------
Name:
Title:
AEROSPACE DISPLAY SYSTEMS, INC.
BY:
----------------------------
Name:
Title:
AUDIO INTERNATIONAL, INC.
BY:
----------------------------
Name:
Title:
AVTECH CORPORATION
BY:
----------------------------
Name:
Title:
CORY COMPONENTS, INC.
BY:
----------------------------
Name:
Title:
DETTMERS INDUSTRIES, INC.
BY:
----------------------------
Name:
Title:
5
<PAGE>
ELSINORE AEROSPACE
SERVICES, INC.
BY:
----------------------------
Name:
Title:
ELSINORE ENGINEERING, INC.
BY:
----------------------------
Name:
Title:
HOLLINGSEAD INTERNATIONAL, INC.
BY:
----------------------------
Name:
Title:
TRI-STAR ELECTRONICS
INTERNATIONAL, INC.
BY:
----------------------------
Name:
Title:
PATS, INC.
BY:
----------------------------
Name:
Title:
PATRICK AIRCRAFT TANK SYSTEMS,
INC.
BY:
----------------------------
Name:
Title:
PATS SUPPORT, INC.
BY:
----------------------------
Name:
Title:
6
<PAGE>
PATS AIRCRAFT AND ENGINEERING
CORPORATION
BY:
----------------------------
Name:
Title:
FLIGHT REFUELING, INC.
BY:
----------------------------
Name:
Title:
PRECISION PATTERN, INC.
BY:
----------------------------
Name:
Title:
PPI HOLDINGS, INC.
BY:
----------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY
BY:
----------------------------
Name:
Title:
7
<PAGE>
U.S. $220,000,000
AMENDED AND RESTATED
CREDIT AGREEMENT
[TO BE] DATED AS OF APRIL 23, 1999
AMONG
DECRANE AIRCRAFT HOLDINGS, INC.,
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,
SOLE LEAD ARRANGER AND BOOK RUNNER:
DLJ CAPITAL FUNDING, INC.
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC.
CREDIT AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Section 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.1 Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations
Under Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 35
1.3 Other Definitional Provisions and Rules of Construction. . . . . . . . 35
Section 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS . . . . . . . . . . . . . . 36
2.1 Commitments; Making of Loans; Notes. . . . . . . . . . . . . . . . . . 36
2.2 Interest on the Loans. . . . . . . . . . . . . . . . . . . . . . . . . 46
2.3 Fees.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
2.4 Repayments, Prepayments and Reductions in Loan Commitments;
General Provisions Regarding Payments. . . . . . . . . . . . . . 56
2.5 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
2.6 Special Provisions Governing Eurodollar Rate Loans.. . . . . . . . . . 69
2.7 Increased Costs; Taxes; Capital Adequacy.. . . . . . . . . . . . . . . 71
2.8 Obligation of Lenders and Issuing Lenders to Mitigate;
Replacement of Lender. . . . . . . . . . . . . . . . . . . . . . 76
Section 3. LETTERS OF CREDIT. . . . . . . . . . . . . . . . . . . . . . . . . . . 77
3.1 Issuance of Letters of Credit and Lenders' Purchase of
Participations Therein.. . . . . . . . . . . . . . . . . . . . . 77
3.2 Letter of Credit Fees. . . . . . . . . . . . . . . . . . . . . . . . . 80
3.3 Drawings and Reimbursement of Amounts Paid Under Letters of
Credit.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
3.4 Obligations Absolute.. . . . . . . . . . . . . . . . . . . . . . . . . 83
3.5 Indemnification; Nature of Issuing Lenders' Duties.. . . . . . . . . . 84
3.6 Increased Costs and Taxes Relating to Letters of Credit. . . . . . . . 85
Section 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT. . . . . . . . . . . . . . . 86
4.1 Conditions to Initial Loans. . . . . . . . . . . . . . . . . . . . . . 86
4.2 Conditions to Loans Made on Merger Date. . . . . . . . . . . . . . . . 91
4.3 Conditions to Acquisition Loans. . . . . . . . . . . . . . . . . . . . 93
4.4 Conditions to Loans Made on Each Funding Date. . . . . . . . . . . . . 93
4.5 Conditions to Letters of Credit. . . . . . . . . . . . . . . . . . . . 94
i
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4.6 Conditions to the Additional Tranche B Term Loans. . . . . . . . . . . 94
4.7 Conditions to the Tranche C Term Loans.. . . . . . . . . . . . . . . . 94
Section 5. COMPANY'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . 94
5.1 Organization, Powers, Qualification, Good Standing, Business and
Subsidiaries.. . . . . . . . . . . . . . . . . . . . . . . . . . 95
5.2 Authorization of Borrowing, etc. . . . . . . . . . . . . . . . . . . . 95
5.3 Financial Condition. . . . . . . . . . . . . . . . . . . . . . . . . . 96
5.4 No Material Adverse Change; No Restricted Junior Payments. . . . . . . 97
5.5 Title to Properties; Liens; Real Property. . . . . . . . . . . . . . . 97
5.6 Litigation; Adverse Facts. . . . . . . . . . . . . . . . . . . . . . . 97
5.7 Payment of Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . . 98
5.8 Governmental Regulation. . . . . . . . . . . . . . . . . . . . . . . . 98
5.9 Securities Activities. . . . . . . . . . . . . . . . . . . . . . . . . 98
5.10 Employee Benefit Plans.. . . . . . . . . . . . . . . . . . . . . . . . 98
5.11 Environmental Protection.. . . . . . . . . . . . . . . . . . . . . . . 99
5.12 Employee Matters.. . . . . . . . . . . . . . . . . . . . . . . . . . . 99
5.13 Solvency.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
5.14 Matters Relating to Collateral.. . . . . . . . . . . . . . . . . . . .100
5.15 Disclosure.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100
5.16 Year 2000 Compliance.. . . . . . . . . . . . . . . . . . . . . . . . .101
5.17 Amendment Representations. . . . . . . . . . . . . . . . . . . . . . .101
Section 6. COMPANY'S AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . .101
6.1 Financial Statements and Other Reports.. . . . . . . . . . . . . . . .101
6.2 Legal Existence, etc.. . . . . . . . . . . . . . . . . . . . . . . . .105
6.3 Payment of Taxes and Claims; Tax Consolidation.. . . . . . . . . . . .105
6.4 Maintenance of Properties; Insurance; Application of Net
Insurance/Condemnation Proceeds. . . . . . . . . . . . . . . . .105
6.5 Inspection Rights. . . . . . . . . . . . . . . . . . . . . . . . . . .106
6.6 Compliance with Laws, etc. . . . . . . . . . . . . . . . . . . . . . .106
6.7 Execution of Subsidiary Guaranty and Personal Property
Collateral Documents by Certain Subsidiaries and Future
Subsidiaries; IP Collateral.. . . . . . . . . . . . . . . . . .107
6.8 Future Leased Property and Future Acquisitions of Real
Property: Future Acquisition of Other Property. . . . . . . . .108
6.9 Merger.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109
6.10 Second Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . .110
ii
<PAGE>
6.11 Year 2000 Compliance.. . . . . . . . . . . . . . . . . . . . . . . . .110
6.12 PTO and CO Cover Sheets, Etc.. . . . . . . . . . . . . . . . . . . . .110
6.13 Mortgages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .110
Section 7. COMPANY'S NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . .111
7.1 Indebtedness.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .111
7.2 Liens and Related Matters. . . . . . . . . . . . . . . . . . . . . . .112
7.3 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114
7.4 Contingent Obligations.. . . . . . . . . . . . . . . . . . . . . . . .116
7.5 Restricted Junior Payments.. . . . . . . . . . . . . . . . . . . . . .116
7.6 Financial Covenants. . . . . . . . . . . . . . . . . . . . . . . . . .118
7.7 Restriction on Fundamental Changes; Asset Sales and
Acquisitions.. . . . . . . . . . . . . . . . . . . . . . . . . .120
7.8 Consolidated Capital Expenditures. . . . . . . . . . . . . . . . . . .122
7.9 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .123
7.10 Sales and Lease-Backs. . . . . . . . . . . . . . . . . . . . . . . . .123
7.11 Sale or Discount of Receivables. . . . . . . . . . . . . . . . . . . .124
7.12 Transactions with Stockholders and Affiliates. . . . . . . . . . . . .124
7.13 Issuance of Subsidiary Equity. . . . . . . . . . . . . . . . . . . . .124
7.14 Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . . .125
7.15 Amendments or Waivers of Merger Agreement; Amendments of
Documents Relating to Subordinated Indebtedness. . . . . . . . .125
Section 8. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . .125
8.1 Failure to Make Payments When Due. . . . . . . . . . . . . . . . . . .125
8.2 Default in Other Agreements. . . . . . . . . . . . . . . . . . . . . .126
8.3 Breach of Certain Covenants. . . . . . . . . . . . . . . . . . . . . .126
8.4 Breach of Warranty.. . . . . . . . . . . . . . . . . . . . . . . . . .126
8.5 Other Defaults Under Loan Documents. . . . . . . . . . . . . . . . . .126
8.6 Involuntary Bankruptcy; Appointment of Receiver, etc.. . . . . . . . .126
8.7 Voluntary Bankruptcy; Appointment of Receiver, etc.. . . . . . . . . .127
8.8 Judgments and Attachments. . . . . . . . . . . . . . . . . . . . . . .127
8.9 Dissolution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127
8.10 Employee Benefit Plans.. . . . . . . . . . . . . . . . . . . . . . . .127
8.11 Change in Control. . . . . . . . . . . . . . . . . . . . . . . . . . .128
8.12 Invalidity of Guaranties; Failure of Security; Repudiation of
Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . .128
iii
<PAGE>
8.13 Mergers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .128
Section 9. THE AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .130
9.1 Appointment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .130
9.2 Powers and Duties; General Immunity. . . . . . . . . . . . . . . . . .131
9.3 Successor Agents and Swing Line Lender.. . . . . . . . . . . . . . . .134
9.4 Collateral Documents and Guaranties. . . . . . . . . . . . . . . . . .135
Section 10. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .136
10.1 Assignments and Participations in Loans and Letters of
Credit.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .136
10.2 Expenses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .138
10.3 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .139
10.4 Set-Off; Security Interest in Deposit Accounts.. . . . . . . . . . . .140
10.5 Ratable Sharing. . . . . . . . . . . . . . . . . . . . . . . . . . . .140
10.6 Amendments and Waivers.. . . . . . . . . . . . . . . . . . . . . . . .141
10.7 Independence of Covenants. . . . . . . . . . . . . . . . . . . . . . .142
10.8 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .142
10.9 Survival of Representations, Warranties and Agreements.. . . . . . . .143
10.10 Failure or Indulgence Not Waiver; Remedies Cumulative. . . . . . . . .143
10.11 Marshalling; Payments Set Aside. . . . . . . . . . . . . . . . . . . .143
10.12 Severability.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .143
10.13 Obligations Several; Independent Nature of Lenders' Rights.. . . . . .143
10.14 Headings.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .144
10.15 Applicable Law.. . . . . . . . . . . . . . . . . . . . . . . . . . . .144
10.16 Successors and Assigns.. . . . . . . . . . . . . . . . . . . . . . . .144
10.17 Consent to Jurisdiction and Service of Process.. . . . . . . . . . . .144
10.18 Waiver of Jury Trial.. . . . . . . . . . . . . . . . . . . . . . . . .145
10.19 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . .146
10.20 Counterparts; Effectiveness. . . . . . . . . . . . . . . . . . . . . .146
Signature pages S-1
</TABLE>
iv
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT is [to be] dated as of April
23, 1999, and entered into by and among DECRANE AIRCRAFT HOLDINGS, INC., a
Delaware corporation ("DAH"), THE LENDERS LISTED ON SCHEDULE I ATTACHED HERETO
(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 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 was
practical, Acquisition Co. and DAH consummated the Merger and as soon thereafter
as was practical Finance Co. and DAH consummated the Second Merger, all with the
effect that DLJMB and management of DAH and its Subsidiaries indirectly own all
of the outstanding capital stock of DAH;
WHEREAS, pursuant to the Credit Agreement dated as of August 28, 1998,
among Company, the financial institutions listed on the signature pages thereof,
Syndication Agent and Administrative Agent (the "ORIGINAL CREDIT AGREEMENT"),
Lenders 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. guaranteed the Obligations under the
Original Credit Agreement and under the other Loan Documents and Parent 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
secured 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 guaranteed the Obligations hereunder and under
the other Loan Documents and secured 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, 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;
1
<PAGE>
WHEREAS, DAH, the lenders that executed the signature pages thereof
(which lenders constituted the Requisite Lenders and all Tranche B Term Loan
Lenders having an Additional Tranche B Term Loan Commitment), the Subsidiaries
of DAH listed on the signature pages thereof (for the limited purposes set forth
therein), Syndication Agent and Administrative Agent have entered into that
certain First Amendment to Credit Agreement, dated as of January 22, 1999 (the
"FIRST AMENDMENT"), whereby (i) the aggregate amount of the Tranche B Term Loans
were increased from $45,000,000 to $65,000,000, (ii) the interest rate margins
applicable to the Loans were increased and (iii) certain other amendments were
made as set forth therein;
WHEREAS, DAH, the lenders that executed the signature pages thereof
(which lenders constituted the Requisite Lenders and all Tranche C Term Loan
Lenders having a Tranche C Term Loan Commitment), the Subsidiaries of DAH listed
on the signature pages thereof (for the limited purposes set forth therein),
Parent (for the limited purposes set forth therein), Syndication Agent and
Administrative Agent have entered into that certain Amendment Agreement to
Credit Agreement dated as of April 23, 1999 (the "AMENDMENT AGREEMENT"),
pursuant to which the Original Credit Agreement, as amended by the First
Amendment, has been amended and restated in its entirety as set forth herein;
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).
2
<PAGE>
"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.
"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.
"ADDITIONAL TRANCHE B TERM LOAN COMMITMENT" means the commitment of a
Lender to make an Additional Tranche B Term Loan to Company on the First
Amendment Closing Date pursuant to subsection 2.1A(ii), and "ADDITIONAL TRANCHE
B TERM LOAN COMMITMENTS" means such commitments of all Lenders in the aggregate.
"ADDITIONAL TRANCHE B TERM LOANS" means only those Tranche B Term Loans
made by Tranche B Term Loan Lenders to Company on the First Amendment Closing
Date pursuant to subsection 2.1A(ii).
"ADDITIONAL TRANCHE B TERM NOTES" means the promissory notes of Company
issued pursuant to subsection 2.1D on the First Amendment Closing Date,
substantially in the form of EXHIBIT V 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.
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"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 Amended and Restated Credit Agreement dated as of
April 23, 1999, as it may be amended, supplemented or otherwise modified from
time to time.
"AMENDED AND RESTATED CREDIT AGREEMENT CLOSING DATE" means the date on or
before May 6, 1999 on which the Tranche C Term Loans are made.
"AMENDMENT AGREEMENT" has the meaning assigned to that term in the
Recitals.
"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 DLJ Capital Funding, Inc., as sole lead arranger and as
book runner 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 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.
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"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.
"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
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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 agreement
governing any Subordinated Indebtedness issued by Company or the PIK Preferred
Stock or PIK Notes issued by Parent.
"CLOSING DATE" means August 28, 1998.
"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.
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"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 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.
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"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
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 costs under Interest Rate
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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 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,
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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 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.
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"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 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
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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.
"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
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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 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 AMENDMENT" has the meaning assigned to that term in the Recitals.
"FIRST AMENDMENT CLOSING DATE" means January 22, 1999.
"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
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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 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
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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 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.
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"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 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
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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.
"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 Schedule I attached to 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, Tranche C 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.
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"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 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
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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 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).
"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
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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, Tranche C 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).
"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.
"ORIGINAL TRANCHE B TERM LOAN COMMITMENT" means the commitment of a
Lender to make a Tranche B Term Loan to Company on the Closing Date pursuant to
subsection 2.1A(ii), and
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"ORIGINAL TRANCHE B TERM LOAN COMMITMENTS" means such commitments of all Lenders
in the aggregate.
"ORIGINAL TRANCHE B TERM LOANS" means only those Tranche B Term Loans
made by Tranche B Term Loan Lenders to Company on the Closing Date pursuant to
subsection 2.1A(ii).
"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.
"PATS ACQUISITION" means the acquisition by Company of 100% of the
capital stock of PATS, Inc. for an equity purchase price of approximately
$41,500,000 pursuant to that certain Stock Purchase and Sale Agreement dated as
of December 15, 1998, by and among PATS, Inc., the principal shareholders of
PATS, Inc. and Company.
"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,
for acquisitions made after the Amended and Restated Credit Agreement Closing
Date, (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 made
after the Amended and Restated Credit Agreement Closing Date, 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.
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"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;
(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;
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(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.
"POTENTIAL EVENT OF DEFAULT" means a condition or event that, after
notice or lapse of time or both, would constitute an Event of Default.
"PPI ACQUISITION" means the acquisition by Company of 100% of the capital
stock of PPI Holdings, Inc. for an equity purchase price of approximately
$50,800,000 pursuant to that certain Stock Purchase and Sale Agreement dated as
of March 26, 1999, by and among PPI Holdings, Inc.; the persons named as
shareholders on the signature pages thereof, owners of the capital stock of PPI
Holdings, Inc.; and Company.
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"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 Commitments or the Tranche B
Term Loan of any Lender, the percentage obtained by DIVIDING (1) the Tranche B
Term Loan Exposure of that Lender BY (2) 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, (v) with respect to all payments, computations and other matters
relating to the Tranche C Term Loan Commitment or the Tranche C Term Loan of any
Lender, the percentage obtained by DIVIDING (x) the Tranche C Term Loan Exposure
of that Lender BY (y) the aggregate Tranche C Term Loan Exposure of all Lenders,
and (vi) 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 Tranche C
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 Tranche C 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 as of
the Closing Date 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 to the Original Credit Agreement.
"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.
"REFUNDED SWING LINE LOANS" has the meaning assigned to that term in
subsection 2.1A(iv).
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"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 Tranche C Term Loan Exposure of all Lenders PLUS (iv) the
aggregate Working Capital Loan Exposure of all Lenders PLUS (v) 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.
"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.
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"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.
"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
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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 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.
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"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 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, the Tranche B
Term Loans and the Tranche C 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.
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"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 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, including both the
Original Tranche B Term Loans and the Additional 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, (ii) the Additional Tranche
B Term Notes and (iii) 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.
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"TRANCHE C TERM LOAN COMMITMENT" means the commitment of a Lender to make
a Tranche C Term Loan to Company pursuant to subsection 2.1A(vi), and "TRANCHE C
TERM LOAN COMMITMENTS" means such commitments of all Lenders in the aggregate.
"TRANCHE C TERM LOAN EXPOSURE" means, with respect to any Tranche C Term
Loan Lender as of any date of determination, the sum, without duplication, of
(i) that Lender's unused Tranche C Term Loan Commitment and (ii) the outstanding
principal amount of the Tranche C Term Loans of that Lender.
"TRANCHE C TERM LOAN LENDER" means any Lender who holds a Tranche C Term
Loan Commitment or who has made a Tranche C Term Loan hereunder, and any
assignee of such Lender pursuant to subsection 10.1B.
"TRANCHE C TERM LOANS" means the Tranche C Term Loans made by Tranche C
Term Loan Lenders to Company pursuant to subsection 2.1A(vi).
"TRANCHE C TERM NOTES" means (i) the promissory notes of Company issued
pursuant to subsection 2.1D(vi) on the Amended and Restated Credit Agreement
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 C Term Loan Commitments or Tranche C Term Loans of any Tranche C Term
Loan Lenders, in each case substantially in the form of EXHIBIT XXXI 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.
"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.
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"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, 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
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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.
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), each Acquisition Lender hereby severally agrees to make the
Acquisition Loans described in subsection 2.1A(v) and each Tranche C Term Loan
Lender hereby severally agrees to make the Tranche C Term Loans described in
subsection 2.1A(vi).
(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
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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
having an Original Tranche B Term Loan Commitment severally agrees to
lend to Company on the Closing Date an amount not exceeding its pro rata
share of the aggregate amount of the Original Tranche B Term Loan
Commitments, which pro rata share is set forth opposite its name on
SCHEDULE 2.1 attached hereto, and each Tranche B Term Loan Lender having
an Additional Tranche B Term Loan Commitment severally agrees to lend to
Company on the First Amendment Closing Date an amount not exceeding its
pro rata share of the aggregate amount of the Additional Tranche B Term
Loan Commitments, which pro rata share is set forth opposite its name on
SCHEDULE 2.1 attached hereto, in each case to be used for the purposes
identified in subsection 2.5A. The amounts of each Tranche B Term Loan
Lender's Original Tranche B Term Loan Commitment and each Tranche B Term
Loan Lender's Additional Tranche B Term Loan Commitment are set forth
opposite such Tranche B Term Loan Lender's name on SCHEDULE 2.1 annexed
hereto. The aggregate amount of the Original Tranche B Term Loan
Commitments is $45,000,000, the aggregate amount of the Additional
Tranche B Term Loan Commitments is $20,000,000 and the aggregate amount
of the Tranche B Term Loan Commitments is $65,000,000; 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 Original Tranche B Term Loan Commitment shall expire immediately
and without further action on the earlier of (i) October 31, 1998, if the
Original Tranche B Term Loans are not made on or before that date and
(ii) at the close of business on the Closing Date. Company may make only
one borrowing under the Original Tranche B Term Loan Commitments and may
make only one borrowing under the Additional 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
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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 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
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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 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
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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 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.
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(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 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.
(vi) TRANCHE C TERM LOANS. Each Tranche C Term Loan Lender
having a Tranche C Term Loan Commitment severally agrees to lend to
Company on the Amended and Restated Credit Agreement Closing Date an
amount not exceeding its Pro Rata Share of the aggregate amount of the
Tranche C Term Loan Commitments, to be used for the purposes identified
in subsection 2.5A. The amount of each Tranche C Term Loan Lender's
Tranche C Term Loan Commitment is set forth opposite such Tranche C Term
Loan Lender's name on SCHEDULE 2.1 annexed hereto, and the aggregate
amount of the Tranche C Term Loan Commitments is $70,000,000; PROVIDED
that the Tranche C Term Loan Commitments of Tranche C Term Loan Lenders
shall be adjusted to give effect to any assignments of the Tranche C Term
Loan Commitments pursuant to subsection 10.1B. Each Tranche C Term Loan
Lender's Tranche C Term Loan Commitment shall expire immediately and
without further action on the earlier of (i) May 6, 1999, if the Tranche
C Term Loans are not made on or before that date and (ii) at the close of
business on the Amended and Restated Credit Agreement Closing Date.
Company may make only one borrowing under the Tranche C Term Loan
Commitments. Amounts borrowed under this subsection 2.1A(vi) and
subsequently repaid or prepaid may not be reborrowed.
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
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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 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 Tranche C 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
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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 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
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<PAGE>
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
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, (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 and (vi) to each Tranche C Term Loan Lender (or to Administrative
Agent for that Lender) that has so requested at least one Business Day prior to
the Amended and Restated Credit Agreement Closing Date a Tranche C Term Note
substantially in the form of EXHIBIT XXXI annexed hereto to evidence that
Lender's Tranche C Term Loan, in the principal amount of that Lender's Tranche C
Term Loan and with other appropriate insertions. Company shall execute and
deliver on the First Amendment Closing Date to each Tranche B Term Loan Lender
with an Additional Tranche B Term Loan Commitment (or to Administrative Agent
for that Lender) that has so requested at least one Business Day prior to the
First Amendment Closing Date an Additional Tranche B Term Note substantially in
the form of EXHIBIT V annexed hereto to evidence that Lender's Additional
Tranche B Term Loan, in the principal amount of that Lender's Additional Tranche
B Term Loan 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
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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
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
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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.
(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 2.75% 1.50%
5:00:1.00
Greater than or equal to 2.50% 1.25%
4.50:1.00 but less than
Greater than or equal to 2.25% 1.00%
4.00:1.00 but less than
4.50:1.00
Greater than or equal to 1.75% 0.50%
3.50:1.00 but less than
4.00:1.00
Greater than or equal to 1.50% 0.25%
3.00:1.00 but less than
3.50:1.00
Less than 3.00:1.00 1.00% 0.00%
</TABLE>
PROVIDED that until the First Amendment 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 that from the First Amendment
Closing Date until the delivery of the first Margin Determination Certificate
pursuant to
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<PAGE>
subsection 6.1(iv) after the six-month anniversary of the First Amendment
Closing Date, the applicable margin for Tranche A Term Loans, Working Capital
Loans and Acquisition Loans that are Eurodollar Rate Loans shall be 2.75% per
annum and for Tranche A Term Loans, Working Capital Loans, Swing Line Loans and
Acquisition Loans that are Base Rate Loans shall be 1.50% 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.
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 (A) from the Closing Date
until the First Amendment Closing Date, at the sum of the Base
Rate PLUS 1.25% per annum and (B) from the First Amendment Closing
Date until maturity, at the sum of the Base Rate PLUS 1.75% per
annum; or
(2) if a Eurodollar Rate Loan, then (A) from the Closing
Date until the First Amendment Closing Date, at the sum of the
Adjusted Eurodollar Rate for the Interest Period applicable to
such Loan PLUS 2.50% per annum and (B) from the First Amendment
Closing Date until maturity, at the sum of the Adjusted Eurodollar
Rate for the Interest Period applicable to such Loan PLUS 3.00%
per annum;
(c) Subject to the provisions of subsection 2.2E, the Tranche C
Term Loans shall bear interest through maturity as follows:
(1) if a Base Rate Loan, then at the sum of the Base
Rate PLUS 2.00% 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 3.25% 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
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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 to each Lender, 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;
(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 Tranche C Term Loans shall extend beyond April 23, 2006,
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, the Tranche B Term Loans or the Tranche C 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, the Tranche B
Term Loans or the Tranche C Term Loans, as the case may be, unless the
sum of (a) the aggregate principal amount of Tranche A Term Loans,
Tranche B Term Loans or Tranche C Term Loans, as the case may be, that
are Base Rate Loans PLUS (b) the aggregate principal amount of Tranche A
Term Loans, Tranche B Term Loans or Tranche C 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, Tranche B Term Loans or Tranche C 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, four Interest Periods
with respect to the Tranche C Term Loans, six Interest Periods with
respect to the Working Capital Loans and four Interest Periods with
respect to the Acquisition Loans; and
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<PAGE>
(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, the
Merger Date or the Amended and Restated Credit Agreement Closing 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 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
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<PAGE>
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.
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
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<PAGE>
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
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
47
<PAGE>
Acquisition Loan 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
< 50% X 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
but less than 4.00:1.00 0.550% 0.300%
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.
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.
48
<PAGE>
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 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).
49
<PAGE>
2.4 REPAYMENTS, PREPAYMENTS AND REDUCTIONS IN LOAN COMMITMENTS; GENERAL
PROVISIONS REGARDING PAYMENTS.
A. SCHEDULED PAYMENTS OF TRANCHE A TERM LOANS, TRANCHE B TERM LOANS
AND TRANCHE C 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> <C>
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>
; 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
50
<PAGE>
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:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Scheduled Repayment Date Scheduled Repayment
of Tranche B Term Loans
-------------------------------------------------------------------
<S> <C>
December 31, 1998 $112,500
March 31, 1999 $162,500
June 30, 1999 $162,500
September 30, 1999 $162,500
December 31, 1999 $162,500
March 31, 2000 $162,500
June 30, 2000 $162,500
September 30, 2000 $162,500
December 31, 2000 $162,500
March 31, 2001 $162,500
June 30, 2001 $162,500
September 30, 2001 $162,500
December 31, 2001 $162,500
March 31, 2002 $162,500
June 30, 2002 $162,500
September 30, 2002 $162,500
December 31, 2002 $162,500
March 31, 2003 $162,500
June 30, 2003 $162,500
September 30, 2003 $162,500
December 31, 2003 $162,500
March 31, 2004 $162,500
June 30, 2004 $162,500
September 30, 2004 $162,500
December 31, 2004 $15,287,500
March 31, 2005 $15,287,500
June 30, 2005 $15,287,500
September 30, 2005 $15,287,500
---------------
Total $65,000,000
</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
51
<PAGE>
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 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.
(iii) SCHEDULED PAYMENTS OF TRANCHE C TERM LOANS. Company shall
make principal payments on the Tranche C 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:
52
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Scheduled Repayment Date Scheduled Repayment
of Tranche C Term Loans
-------------------------------------------------------------------
<S> <C>
June 30, 1999 $175,000
September 30, 1999 $175,000
December 31, 1999 $175,000
March 31, 2000 $175,000
June 30, 2000 $175,000
September 30, 2000 $175,000
December 31, 2000 $175,000
March 31, 2001 $175,000
June 30, 2001 $175,000
September 30, 2001 $175,000
December 31, 2001 $175,000
March 31, 2002 $175,000
June 30, 2002 $175,000
September 30, 2002 $175,000
December 31, 2002 $175,000
March 31, 2003 $175,000
June 30, 2003 $175,000
September 30, 2003 $175,000
December 31, 2003 $175,000
March 31, 2004 $175,000
June 30, 2004 $175,000
September 30, 2004 $175,000
December 31, 2004 $175,000
March 31, 2005 $175,000
June 30, 2005 $16,450,000
September 30, 2005 $16,450,000
December 31, 2005 $16,450,000
April 23, 2006 $16,450,000
-------------------------
Total $70,000,000
</TABLE>
; PROVIDED that the scheduled installments of principal of the Tranche C 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 C Term
Loans in accordance with subsection 2.4B(iv); and PROVIDED, FURTHER that the
Tranche C Term Loans and all other amounts owed hereunder with respect to the
Tranche C Term Loans shall be paid in full no later than April 23, 2006, and the
final installment payable by Company in respect of the Tranche C Term Loans on
such date shall be in an
53
<PAGE>
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 C 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 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):
54
<PAGE>
(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 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
55
<PAGE>
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);
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
56
<PAGE>
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 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, the Tranche B
Term Loans and the Tranche C 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, the Tranche B Term Loans and the Tranche
C Term Loans set forth in subsection 2.4A(i), 2.4A(ii) and
2.4A(iii) 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.
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(c) APPLICATION OF MANDATORY PREPAYMENTS OF TERM LOANS
TO TRANCHE A TERM LOANS, TRANCHE B TERM LOANS AND TRANCHE C 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, the
Tranche B Term Loans and the Tranche C 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, the Tranche B Term Loans
and the Tranche C Term Loans set forth in subsection 2.4A(i),
2.4A(ii) and 2.4A(iii) in forward order of maturity.
Notwithstanding the foregoing, in the case of any mandatory
prepayment of the Tranche B Term Loans and the Tranche C Term
Loans, Company may elect to offer the Tranche B Term Loan Lenders
and/or the Tranche C Term Loan Lenders the option to waive the
right to receive the amount of such mandatory prepayment of the
Tranche B Term Loans or the Tranche C Term Loans, as applicable.
If any Tranche B Term Loan Lender or Lenders or any Tranche C Term
Loan Lender or Lenders, as applicable, 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 or the Tranche C Term Loans, as applicable,
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.
(d) APPLICATION OF PREPAYMENTS TO BASE RATE LOANS AND
EURODOLLAR RATE LOANS. Considering Tranche A Term Loans,
Tranche B Term Loans, Tranche C 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.
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(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.
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
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(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;
(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 (other than the
Additional Tranche B Term Loans and the Tranche C 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 Original 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. The proceeds of the Additional Tranche B Term
Loans shall be applied by Company to finance directly or indirectly the costs of
the PATS Acquisition. The proceeds of the Tranche C Term Loans shall be applied
by Company to finance directly or indirectly the costs of the PPI Acquisition.
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
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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.
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
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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
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.
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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 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 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
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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 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
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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
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
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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 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
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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 (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
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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.
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
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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;
(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
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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 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
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fronting fee or letter of credit fee to be payable in arrears on and to
(but 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 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
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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.
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
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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 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;
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(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 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
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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 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
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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 made on the
Closing Date were, in addition to the conditions precedent specified in
subsection 4.4, subject to prior or concurrent satisfaction of the following
conditions:
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.
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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.
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.
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(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.
(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 recordings that
may be necessary or, in the opinion of Agents, desirable in order to create in
favor of
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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 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).
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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 made on the Merger
Date were, 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:
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
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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;
(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
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(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
(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.
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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.
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.
4.6 CONDITIONS TO THE ADDITIONAL TRANCHE B TERM LOANS.
The conditions to the obligations of the Tranche B Term Loan
Lenders to make Additional Tranche B Term Loans are set forth in the First
Amendment.
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4.7 CONDITIONS TO THE TRANCHE C TERM LOANS.
The conditions to the obligations of the Tranche C Term Loan
Lenders to make Tranche C Term Loans are set forth in the Amendment Agreement.
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 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.
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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 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
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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 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
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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.
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.
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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 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
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Agent pursuant to any of the Collateral Documents or (ii) the exercise by
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.
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
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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 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
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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 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
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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 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
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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 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
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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 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;
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(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.
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.
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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 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
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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 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.
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).
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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.
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;
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(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 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 (or
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:
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(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 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.
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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 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.
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(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);
(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(vii);
(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.
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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;
(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
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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 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 with the Fiscal Quarter ending December 31, 1998, occurring
during any period set forth below to be less than the correlative ratio
indicated:
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<TABLE>
<CAPTION>
MINIMUM FIXED
CHARGE COVERAGE
PERIOD RATIO
----------------------------------------- ----------------------
<S> <C>
4th Fiscal Quarter, 1998 through 4th 1.10 x
Fiscal Quarter, 2001
1st Fiscal Quarter, 2002 and 1.20 x
thereafter
</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:
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<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 46,951,200
3rd Fiscal Quarter, 1999 47,951,200
4th Fiscal Quarter, 1999 48,951,200
1st Fiscal Quarter, 2000 49,951,200
2nd Fiscal Quarter, 2000 50,951,200
3rd Fiscal Quarter, 2000 51,951,200
4th Fiscal Quarter, 2000 through 3rd
Fiscal Quarter 2001 52,951,200
4th Fiscal Quarter, 2001 through 3rd
Fiscal Quarter 2002 56,951,200
4th Fiscal Quarter, 2002 through 3rd
Fiscal Quarter 2003 60,951,200
4th Fiscal Quarter, 2003 and thereafter 64,951,200
</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 (except for the 4th Fiscal Quarter,
1998 and the 1st Fiscal Quarter, 1999) 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 day following the Amended and Restated Credit Agreement 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 Amended and Restated Credit Agreement 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, (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
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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:
(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
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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 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;
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(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 in the
aggregate for all such Asset Sales made after the Closing Date; 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 in the aggregate for all such
Consolidated Capital Expenditures made after the Closing Date; 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 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.
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(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 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
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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.
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.
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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
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
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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, 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
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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 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
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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 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
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Administrative Agent or Lenders from exercising any of 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 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
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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 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
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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, 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
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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.
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
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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 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
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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 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
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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 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 maintain a copy of each
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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 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
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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
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
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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 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
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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 2.1A(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;
(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,
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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 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.
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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.
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
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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
(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
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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 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,
130
<PAGE>
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 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]
131
<PAGE>
EXHIBITS
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
XXII. FORM OF SOLVENCY CERTIFICATE
<PAGE>
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
XXXI. FORM OF TRANCHE C TERM NOTE
SCHEDULES
I LIST OF LENDERS PARTY TO AMENDED AND RESTATED CREDIT AGREEMENT
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
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of
Amendment No. 2 of this Registration Statement on Form S-1 of our report dated
February 19, 1999 relating to the consolidated financial statements of DeCrane
Aircraft Holdings, Inc., our report dated June 12, 1998 relating to the
financial statements of Avtech Corporation, and our report dated January 25,
1999 relating to the consolidated financial statements of PATS, Inc., which
appear in such Prospectus. We also consent to the application of our report
dated February 19, 1999 to the Financial Statement Schedule for the years ended
December 31, 1996 and 1997, the eight months ended August 31, 1998 and the four
months ended December 31, 1998 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 19, 1999 also included this schedule. We also consent to the reference
to us under the heading "Experts" in such Prospectus.
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
April 22, 1999
<PAGE>
EXHIBIT 23.2
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 January 28, 1999,
relating to the consolidated financial statements of PPI Holdings, Inc. and
subsidiary, and the financial statements of Precision Pattern, Inc. (the
predecessor to PPI Holdings, Inc.) which appear in such Prospectus. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
BAIRD, KURTZ & DOBSON
Wichita, Kansas
April 21, 1999
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
--------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2)
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
(DECRANE AIRCRAFT HOLDINGS, INC.)
(Exact name of obligor as specified in its charter)
DELAWARE 34-1645569
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
(2361 ROSECRANS AVENUE, SUITE 180
EL SEGUNDO, CA 90254)
(Address of principal executive offices) (Zip Code)
(12% SENIOR SUBORDINATED NOTES DUE 2008)
(Title of indenture securities)
<PAGE>
GENERAL
ITEM 1. GENERAL INFORMATION
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System,
Washington, D.C., Federal Deposit Insurance Corporation,
Washington, D.C.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF
ELIGIBILITY.
1. A copy of the articles of association of the trustee as now in
effect.
2. A copy of the certificate of authority of the trustee to commence
business. If not contained in the articles of association.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the
trustee to commence business was necessary or issued is on
file with the Securities and Exchange Commission as Exhibit
2 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc.
(File No. 22-17940) and is incorporated herein by reference
thereto.
3. A copy of the authorization of the trustee to exercise corporate
trust powers. If such authorization is not contained in the documents
specified in paragraph (1) or (2), above.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe,
Inc. (File No. 22-17940) and is incorporated herein by
reference thereto.
4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.
A copy of the by-laws of the trustee, as now in effect, is
on file with the Securities and Exchange Commission as
Exhibit 4 to the Statement of Eligibility and Qualification
of Trustee (Form T-1) filed with the Registration Statement
of Eastern Edison Company (File No. 33-37823) and is
incorporated herein by reference thereto.
1
<PAGE>
5. A copy of each Indenture referred to in Item 4, if the obligor is in
default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the Act
is annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining authority.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or
examining authority is annexed hereto as Exhibit 7 and made a
part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the Trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2 of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the (April 21, 1999).
STATE STREET BANK AND TRUST COMPANY
By: /s/ Steven Cimalore
NAME: Steven Cimalore
TITLE: Vice President
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by {DECRANE
AIRCRAFT HOLDINGS, INC.} of its {12% SENIOR SUBORDINATED NOTES DUE 2008}, we
hereby consent that reports of examination by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Steven Cimalore
NAME: Steven Cimalore
TITLE: Vice President
Dated: April 21, 1999
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business March 31, 1998,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(n).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin . . . . . . . . . . . . . . . 1,144,309
Interest-bearing balances. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,914,704
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,062,052
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary. . . . . . . . . . . . . . . . . . . . . . . 8,073,970
Loans and lease financing receivables:
Loans and leases, net of unearned income . . . . . . . . . . 6,433,627
Allowance for loan and lease losses. . . . . . . . . . . . . 88,820
Allocated transfer risk reserve. . . . . . . . . . . . . . . 0
Loans and leases, net of unearned income and allowances. . . . . . . . . . . . . 6,344,807
Assets held in trading accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,117,547
Premises and fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 453,576
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Investments in unconsolidated subsidiaries. . . . . . . . . . . . . . . . . . . . . . 44,985
Customers' liability to this bank on acceptances outstanding. . . . . . . . . . . . . 66,149
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263,249
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,066,572
-----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,552,020
-----------
-----------
LIABILITIES
Deposit:
In domestic offices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,266,492
Noninterest-bearing . . . . . . . . . . . . . . . . . . 6,824,432
Interest-bearing. . . . . . . . . . . . . . . . . . . . 2,442,060
In foreign offices and Edge subsidiary . . . . . . . . . . . . . . . . . . . . . 14,385,048
Noninterest-bearing . . . . . . . . . . . . . . . . . . 75,909
Interest-bearing. . . . . . . . . . . . . . . . . . . . 14,309,139
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary. . . . . . . . . . . . . . . . . . . . . . . 9,949,994
Demand notes issued to the U.S. Treasury and Trading Liabilities. . . . . . . . . . . 171,783
Trading liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,078,189
Other borrowed money. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406,583
Subordinated notes and debentures . . . . . . . . . . . . . . . . . . . . . . . . . . 0
Bank's liability on acceptances executed and outstanding . . . . . . . . . . . . . . 66,149
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 878,947
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,203,185
-----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus . . . . . . . . . . . . . . . . . . . . 0
Common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,931
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,003
Undivided profits and capital reserves/Net unrealized holding gains (losses). . . . . 1,857,021
Net unrealized holding gains (losses) on available-for-sale securities. . . . . . . . 18,136
Cumulative foreign currency translation adjustments . . . . . . . . . . . . . . . . . (6,256)
Total equity capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,348,835
-----------
Total liabilities and equity capital. . . . . . . . . . . . . . . . . . . . . . . . . 38,552,020
-----------
</TABLE>
4
<PAGE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
